Québec’s Court of Appeal held that the use of third party trademarks in comparative advertising is permissible in appropriate circumstances and underscores the importance of seeking appropriate remedies in IP cases.
The facts
On November 5, 2021, the Québec Court of Appeal upheld a decision of the Québec Superior Court in which the trial judge rejected a claim for copyright and trademark infringement. In the case, Société de vin internationale ltée (SVI), a Québec producer of wines, distributed 2,500 promotional leaflets during wine samplings in an effort to promote its new “Apollo Découvertes” wines. The leaflets contained images of wine bottles manufactured by the plaintiff, Constellation Brands US Operations (Constellation) as well as its registered “MEIOMI” trademark, alongside images of SVI’s wines and statements comparing the wines. Constellation claimed that the leaflets infringed its copyright and trademark rights, that the use depreciated the goodwill associated with its MEIOMI trademark, and thus, that they were entitled to recover all of the profits from SVI’s Apollo Découvertes wine sales, which were alleged to amount to CA$833,680, in addition to punitive damages in the amount of CA$50,000, and legal costs.
The trial decision
At trial, Justice Bachand dismissed Constellation’s claim for recovery. Indeed, the trial judge noted that “the holder of a copyright or trademark is only entitled to recover profits made as a result of an infringement of its intellectual property rights” (emphasis added by the Court).[1] Constellation was seeking to recover all of SVI’s Apollo wine sales, including sales from a wine that wasn’t even included in the comparative advertising. Further, the alleged infringement consisted of only one minor aspect of SVI’s promotional campaign. The trial judge concluded that, in his view, “one cannot simply assume that the use of the leaflets led to an increase in SVI’s revenues”, and considering the lack of a causal relationship in the evidence, it could not be said that profits generated from the sale of SVI’s Apollo wines were “as a result of an infringement of [Constellation’s] intellectual property rights”. Therefore, Constellation’s claim for profits on the entire line was overly broad – Constellation had the burden of proving that the increase in SVI’s revenue was caused by the infringement of Constellation’s intellectual property rights, and it failed to do so.[2]
As SVI had conceded on the issue of copyright infringement, the only issues left for the trial judge were the alleged Trademarks Act violations. The trial judge did not, however, address whether there was trademark infringement or a depreciation of SVI’s goodwill, and instead dismissed the action for the reasons outlined above, thereby refusing Constellation’s claim for accounting of profits.
The appeal
On appeal to the Quebec Court of Appeal, Constellation argued that the trial judge committed a reversable error by refusing to rule on the allegations of trademark infringement, and by incorrectly applying the burden of proof. The Court of Appeal dismissed Constellation’s appeal and held that while it was improper for the trial judge to only address remedies sought, this was not a reversible error as it did not impact the conclusion reached.[3]
The Court of Appeal started its analysis by addressing whether there was a trademark violation. Constellation’s main argument was based on section 22 of the Trademarks Act which provides that “[n]o person shall use a trademark registered by another person in a manner that is likely to have the effect of depreciating the value of the goodwill attaching thereto”. In the case Veuve Clicquot Ponsardin,[4] the Supreme Court of Canada laid out the four elements necessary for a successful section 22 claim, namely,
(1) The registered trademark has been used by the defendant in connection with wares or services – whether or not such wares and services are competitive with those of the claimant;
(2) The registered trademark is sufficiently well known to have significant goodwill attached to it;
(3) The trademark was used in a manner likely to have an effect on the goodwill; and
(4) The likely effect of this use would be to depreciate the value of its goodwill
Applying that test to Constellation’s claim, the Court of Appeal concluded that SVI’s use of Constellation’s trademark in the leaflet was not improper, as it did not appear on the defendant’s products or packaging, and it was not used in a way that depreciated any goodwill associated with the mark. Indeed, the Court said that a trademark can be used in comparative advertising without that use constituting a trademark infringement. Here, there was insufficient evidence to establish that SVI’s use of the MEIOMI trademark had an effect, and even less so a negative effect, on MEIOMI’s goodwill. In fact, the evidence demonstrated that sales of MEIOMI wines continued to rise, even after the distribution of SVI’s leaflets. Even if SVI was comparing its wines to Constellation’s wines in an attempt to ride the “coat-tails” of Constellation’s “well-established goodwill”, the Court said that this does not establish that depreciation was likely to occur or actually occurred as a result. Therefore, the Court held that there were no Trademarks Act violations.
Considering SVI conceded the copyright infringement, the Court of Appeal examined whether Constellation was entitled to an accounting of profits in that regard. The Court answered this in the negative and reiterated the reasoning of the Superior Court – the leaflets played a negligible role in SVI’s marketing campaign, and there was no evidence of a causal link between the leaflets and SVI’s revenues.
Accordingly, the Court dismissed the appeal.
Takeaways
This decision is a useful reminder that the benefits conferred by the Trademarks Act and other intellectual property statutes are not without limits. It is clear that the Courts are prepared to allow comparative advertisements which make use of another’s trademarked material in appropriate circumstances. Nevertheless, caution should always be exercised before using a competitor’s intellectual property in any circumstances. A host of statutes and industry guidelines can come into play and legal advice should be obtained in order to avoid headaches down the road. Finally, litigants should carefully consider the remedies to be pursued in intellectual property cases, keeping in mind that where an accounting of profits is sought, only those amounts that are attributable to the infringing activities will be encompassed. According to the Court of Appeal, if there is no causal connection between the wrongful use of the plaintiff’s intellectual property and the defendant’s profits, an accounting of profits is simply not available.
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[1] Constellation Brands US Operations c Société de vin internationale itée, 2019 QCCS 3610 at para 13.
[2] Ibid at paras 14, 19.
[3] Constellation Brands US Operations c Société de vin internationale ltée, 2021 QCCA 1664 at para 23.
[4] Veuve Clicquot Ponsardin v Boutiques Cliquot Ltée, 2006 SCC 23.
