Grey Marketing Revisited

As stated in a recent decision of the Federal Court, when is a TOYOTA bumper no longer a TOYOTA brand product? According to the plaintiffs when damaged during shipment by a grey marketer. The Defendant disagrees. Toyota Jidosha Kabushiki Kaisha (Toyota Motor Corporation) v. Marrand Auto Inc. 2025 FC 1105

The Facts

Toyota received notice from the Canada Border Services Agency that a shipment of suspected counterfeit Toyota automotive parts had been detained, and that the Defendant was the owner and consignee of the shipment. After inspecting the detained goods that bore TOYOTA trademarks, the plaintiffs did not claim they were counterfeit. The defendant also contends that the goods were put into commerce with the consent of the trademark owner and lawfully acquired.

Toyota asserts the detained goods were “unauthorized” because they did not come with the warranty otherwise provided if acquired through an authorized dealer, and that the goods were not shipped or handled in an approved way. 

Toyota sued in the Federal Court asserting trademark infringement, breach of the Competition Act and passing off. The claims other than for passing off were struck out as not showing a cause of action but leave was granted to Toyota to file an amended statement of claim limited to passing off. The defendant appealed the order.

The Appeal

The primary issue on the appeal was whether the Associate Judge erred in stating that it was at least arguable that ‘use’ of a trademark is not required to establish infringement of section 7(b), a statutory codification of the common law action for passing off.

It is well established in Canada the sale in Canada of grey market goods is not passing off nor a violation of the Trademarks Act. In addition, many recent decisions of the Federal Court have said use is an essential requirement for a claim of passing under paragraph 7(b). The Associate Judge erred in his conclusion on this point.  

The Judge reached the same conclusion as the Associate judge concerning the warranty. In leading decision of the Supreme Court of Canada, Consumers Distributing Co v Seiko,, grey market watches were distributed by the “diverter” Consumers Distributing with warranty cards that purported to bring the goods within the scope of Hattori’s global warranty By the time passing off was considered at trial, it was on an evidentiary record where the public was aware that the watches were not supported by an international guarantee, and that Consumers Distributing was not an authorized dealer. The action was dismissed. 

Considering these differences and the novelty of Toyota’s claim, the judge was not persuaded that the Associate Judge erred by refusing to conclude this claim was doomed to fail. Arguments about the applicability of the Supreme Court’s conclusions and determinations in Seiko regarding the merits of the claim would be better considered at trial.

Given the nature of the order in issue and the appellate standard of review the Judge dismissed the appeal and allowed Toyota’s action to procceed.

Comment

Unlike many other countries the sale in Canada of grey market goods is not passing off or a violation of the Trademarks Act. Various attempts have been made to avoid this result by asserting claims for passing off concerning breach of express or implied warranties relating to the product in issue, mostly without success.

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

John McKeown

Goldman Sloan Nash & Haber LLP

480 University Avenue, Suite 1700 

Toronto, Ontario MSG 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 Law360 Canada published by LexisNexis Canada Inc.