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Comparative Advertising and Section 22 of the Trademarks Act

A recent decision of the Quebec Court of Appeal illustrates the rather unexpected ways that the Trademarks Act can apply to comparative advertising. Constellation Brands US Operations Inc. c. Société de vin internationale ltée, 2021 QCCA 1664.


The Facts

Constellation Brands US Operations Inc (“Constellation”) is a division of Constellation Brands, a company based in the United States that produces, sells, and markets alcoholic beverages around the world. Its wines are available for purchase in Quebec, including in Société des alcohols du Québec (“SAQ”) retail stores and in grocery stores. Constellation holds approximately 60% of the market share for wine in Quebec’s grocery sector.


Two of Constellation’s wines – a chardonnay and a pinot noir – are sold under the tradename “MEIOMI.” These wines are sold in Quebec exclusively through the SAQ. The trademark registration for this mark is limited to goods consisting of wine.


Société de vin internationale ltée (“ SVI”) is a Quebec-based producer, importer and supplier of wines that are sold in grocery stores. It competes with Constellation in the Quebec grocery sector.


In May 2015, SVI launched a new line of products called “Apollo Découvertes” (“Apollo”). This line includes three wines: a Zinfandel (“Apollo Rouge”), a chardonnay (“Apollo Bleu”) and a pinot noir (“Apollo Jaune”). The wines were sold only in Quebec and exclusively in grocery stores (including Costco).


SVI created leaflets to advertise these products. These leaflets contained information such as the brand names of the wines, their countries of origin, the types of grapes used and their alcohol contents. They used images of products sold at SAQ stores for comparative purposes. The leaflets that advertised Apollo Bleu and Apollo Jaune compared these wines to Constellation’s MEIOMI wines. The leaflets contained images of wine bottles produced by Constellation as well as statements claiming that two of SVI’s new wines were comparable to wines sold by Constellation in stores operated by SAQ.


The Action

Constellation alleged that SVI had infringed the copyright in the product labels of its wines and violated section 22 of the Trademarks Act. Section 22 provides that no 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.


The Trial judge dismissed the action and Constellation appealed to the Court of Appeal.


The Appeal

The Court of Appeal observed that section 22 forbids the use of another’s trademark in a manner that would depreciate the value of the goodwill attached to it. The Supreme Court has established there are four elements to a claim under the section namely:


(1) the registered trademark has been used by the defendant in connection with goods or services – whether or not such goods 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.


The Court said that the MEIOMI trademark owned by Constellation appeared only in SVI’s advertising material. It did not appear on Apollo’s products or packaging. Such a use of the trademark, “for the purpose of comparing the goods with the goods of the plaintiff”, is not per se a violation of “the exclusive right conferred by section 22. A trademark can be used in comparative advertising, without being considered an infringement of the mark.” The court referred to Brand Management in Canadian Law written by the writer in support of its conclusion concerning the absence of trademark use.


In addition, the evidence did not establish that SVI’s leaflets were used in a manner likely to affect MEIOMI’s goodwill, and even less so a negative impact. Not only did the leaflets compare brands of wine, but they featured multiple brands, not just the MEIOMI brand. Moreover, the limited evidence of the MEIOMI brand’s “reputation” was insufficient to show that there was likely depreciation of any alleged “goodwill”. In fact, the sales of MEIOMI wines continued to rise even after SVI distributed the leaflets at issue in 2015.


Based on this conclusion the court dismissed the appeal.


Comment

What I said about section 22 in Brand Management in Canadian Law is as follows (without footnotes):


It has been held that the verb “use” in section 22 is to be interpreted by reference to the definition of the noun “use” in sections 2 and 4. The effect of this is to confine the application, and therefore the prohibition of section 22, to use which any person may make, in association with goods or services within the meaning of section 4 of another’s registered trademark in such a manner as to depreciate the value of the goodwill attaching thereto.


In the leading case of Clairol International Corp. v. Thomas Supply & Equipment Co., where the mark in issue was registered for use in association with wares only, it was found that the presence of the plaintiff’s trademarks on the defendant’s packages was “use” within the meaning of section 22, but that their presence on the defendant’s brochures was not within it.


This interpretation leads to an unexpected situation. If the mark in issue is registered for use in association with wares only, the result of the Clairol case applies and the plaintiff can restrain the defendant’s use of its mark which comes within the definition set out in the Act for wares. Under this definition, a trademark is deemed to be used in association with wares if, at the time of the transfer of the property in or possession of such wares, in the normal course of trade, it is marked on the wares themselves or on the packages in which they are distributed, or it is in any other manner so associated with the wares that notice of the association is then given to the person to whom the property or possession is transferred. However, if the mark in issue is registered for use in association with services the broader definition of “use” for services applies and the plaintiff can restrain the defendant’s use of its mark in advertising.


Much has been written about the section by commentators, but the approach of the Clairol case continues to be applied although the section has not been widely interpreted and applied by the courts.”


If you have questions, please contact me at mckeown@gsnh.com.


John McKeown

Goldman Sloan Nash & Haber LLP

480 University Avenue, Suite 1600

Toronto, Ontario M5G 1V2

Direct Line: (416) 597-3371

Fax: (416) 597-3370


These comments are of a general nature and not intended to provide legal advice as individual situations will differ and should be discussed with a lawyer.


A version of this article originally appeared in the Lawyer’s Daily published by LexisNexis Canada Inc.


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