SCC Clarifies Trade-Mark Confusion Analysis

On May 26, 2011, the Supreme Court of Canada released its decision in Masterpiece Inc. v. Alavida Lifestyles Inc., 2011 SCC 27 — a case identified in Lexpert's January edition as one of the 10 most important business cases of 2010.

The parties operate in the high-end retirement residence industry. Masterpiece Inc. was incorporated in 2001 and had been operating only in Alberta but had plans to expand across the country.

It had used the trade name “Masterpiece” and an evolving series of unregistered trade-marks which included that trade name, either alone or together with references to “Living,” including “Masterpiece The Art of Living” and “Masterpiece The Art of Retirement Living.”

Alavida was incorporated in August, 2005, and on December 1, 2005 applied to register the trade-mark “Masterpiece Living,” with actual use commencing in January, 2006. Later in 2006, the former lawyer for Masterpiece Inc. applied for registration of the trade-marks “Masterpiece” and “Masterpiece Living.” These applications were rejected by the Registrar of Trade-marks in view of Alavida's earlier application for “Masterpiece Living.” Due to a soon-fatal cancer diagnosis, the former lawyer failed to advise Masterpiece Inc. that it could oppose Alavida's application. After learning that it could nevertheless seek expungement, Masterpiece Inc. brought application to the Federal Court to do so. As is usual in expungement cases, the matter proceeded by application on Affidavit evidence rather than by a trial.

In support of its application, Masterpiece Inc. filed an Affidavit from the principal of the company outlining the history of its use of the trade name and trade-marks.

In response, Alavida's former counsel filed an Affidavit from its principal, and another from an expert witness who expressed the view that Alavida's “Masterpiece Living” trade-mark was not confusing with any of the Masterpiece Inc. trade-marks or its trade name.

Masterpiece Inc. then responded with an expert of its own, who critiqued the analysis of the Alavida expert, and opined that there was likely confusion. She supported her analysis with some survey evidence which illustrated some of the points she was making. Alavida then filed an affidavit from a further expert who critiqued the survey component of her Affidavit.

The Federal Court Trial Division concluded there was no likelihood of confusion. The Court held that the analysis of likely confusion should be restricted to the circumstances existing at the date of Alavida's application for registration. It further held that any likelihood of confusion was overcome by the manner in which Alavida had typically used its trade-mark after registration, that is, in association with its corporate name, in a distinctive font and with a small "TM" indicator.

Finally, the Court observed that the likelihood of confusion was lessened by the fact that the services in question were expensive and consumers would be expected to take considerable care before deciding to purchase.

The Federal Court of Appeal upheld that decision, and additionally relied specifically on the fact that at the date of Alavida's application, Masterpiece Inc. “did not sell its product in the same market” as Alavida.

Leave was sought and granted by the Supreme Court of Canada on April 1, 2010. The International Trademark Association (“INTA”) intervened on the issue of the relevance of geographical separation in the confusion analysis. The appeal was argued on December 8, 2010.

In a unanimous decision penned by Justice Marshall Rothstein, the Supreme Court of Canada clarified that the assessment of likely confusion, for purposes of registrability under the Trade-marks Act, is premised upon a national market. As such, any current geographical limitations in the availability of the competing goods and services must be ignored.

He held that the lower courts had also erred in basing their conclusions upon the manner in which Alavida had actually used its trade-mark, as likely confusion must be assessed based upon any manner in which the registrant is entitled to use it.

Finally, the judgment rejects the suggestion that the likelihood of confusion is inherently less where expensive goods are concerned. The likelihood of confusion must be assessed on the basis of first impression, at the point when the consumer first encounters the trade-mark, and not based upon any additional research he may undertake thereafter in view of the significance of the purchase price.

Justice Rothstein also took the opportunity to provide commentary upon the use of expert evidence in trade-mark confusion cases. He suggested that Alavida's initial expert made erroneous assumptions of law which may have diverted the Trial Division from the correct test, and critiqued the design of the survey component of Masterpiece Inc.'s responding expert. Citing a 2008 English decision, Justice Rothstein suggested that parties may wish to make use of case management applications for advance determinations on the admissibility of expert evidence.

Masterpiece Inc. was represented throughout by the Calgary office of Macleod Dixon LLP, with a team consisting of Clarke Hunter, QC, and Jud Virtue from the litigation department and Tony Morris and Brandon Potter from the intellectual property department. Kelly Gill of the Toronto office of Gowling Lafleur Henderson LLP was added to the counsel team for oral argument in the Supreme Court of Canada, and appeared with Hunter and Potter.

Alavida Lifestyles Inc. changed counsel subsequent to the filing of its first expert Affidavit, and from that point forward was represented by a team from MBM Intellectual Property Law LLP consisting of Scott Miller, Sharon Griffiths and Heather Gallant.

INTA was represented in the Supreme Court of Canada by Dan Bereskin, QC, and Mark Robbins of Bereskin & Parr LLP.