Masterpiece Inc v Alavida Lifestyles Inc: Much Confusion About Trade-mark Registration

Trade-mark law exists to protect consumers from confusion. Unregistered trade-marks are protected at common law and exist as soon as the mark is used, while registered trade-marks are protected under the Canadian Trade-marks Act, RSC, 1985, c T-13 [Act] and give the brand owner a wider scope of exclusive rights than unregistered marks. Nevertheless, protection arises only when the mark is actually in “use,” and registered marks could still be expunged if the mark is not “used” in the normal course of trade. However, the mystery remains: how does one reconcile a dispute between a registered trade-mark in Ontario and an existing (albeit unregistered) trade-mark in Alberta?

This question was answered by the Supreme Court of Canada (“SCC”) in Masterpiece Inc v Alavida Lifestyles Inc, [2011] 2 SCR 387, on May 26, 2011. In addition to clarifying the proper approach to confusion analysis, the SCC also confirmed that the use of a trade-mark confers priority of title to a trade-mark rather than registration itself. Therefore, in the case at bar, even though the prior mark had not been registered and was only used locally in Alberta, it could still afford national rights. In doing so, the SCC made it easier for owners to enforce common law trade-mark rights in Canada.

Background

Masterpiece Inc. has been using its name and trade-mark “Masterpiece the Art of Living” in the retirement residence industry in Alberta since 2001; however, it never sought to register the mark with the Registrar of Trade-marks. On December 1, 2005 Alavida, an Ontario company, applied to register the mark “Masterpiece Living” based on proposed use with retirement residences, and began using the mark since 2006. Nobody opposed Alavida’s application, which was subsequently granted on March 23, 2007.

The problem occurred when Masterpiece Inc. applied to register “Masterpiece” and “Masterpiece Living” in January 2006, which was denied by the Registrar because the marks were confusing with Alavida’s trade-mark “Masterpiece Living”.

Typically, there are two remedies available: Masterpiece Inc. could either oppose Alavida’s application, or have Alavida’s mark expunged. However, since Masterpiece Inc. had missed the opportunity to oppose Alavida’s application, it sought to expunge Alavida’s registration on the basis that Alavida’s mark is confusingly similar with its own trade-marks used prior to Alavida’s application.

Issues on Appeal

There are four issues before the SCC:

1. Is the geographical location where a mark is used relevant when considering the likelihood of confusion between a registered trade-mark and a prior unregistered trade-mark?

2. What considerations are applicable in the assessment of the resemblance between a proposed use trade-mark and an existing unregistered trade-mark?

3. What effect does the nature and cost of the wares or services have on the confusion analysis under s. 6(5) of the Act?

4. When should courts take into account expert evidence in trade-mark confusion cases?

Is the Location Relevant When Considering the Confusion Analysis?

By way of background, s. 6(5) of the Act sets out the surrounding circumstances that must be considered in a confusion analysis, including: (a) the inherent distinctiveness of the trade-marks and extent to which they have become known; (b) the length of time the trade-marks have been in use; (c) the nature of the wares, services or business; (d) the nature of the trade; and (e) the degree of resemblance between the trade-marks in appearance or sound or in the ideas suggested by them.

The test for confusion created a bit of confusion when s. 6(2) provides that “the use of a trade-mark causes confusion…if the use of both trade-marks in the same area would be likely to lead to the inference that the wares or services associated with those trade-marks are manufactured, sold, leased, hired or performed by the same person.”

The SCC held that the test for confusion is based upon the hypothetical assumption that both marks at issue are used “in the same area,” regardless of whether this is actually the case. As a result, actual geographical separation does not play a role in this hypothetical test. Since s. 19 of the Act explicitly confers the owner the exclusive right throughout Canada, the trade-mark should have national rights even if it is only used locally.

Consideration of the Resemblance between the Marks

First, the Court confirmed the test for confusion as the following: whether, “as a matter of first impression, the ‘casual consumer somewhat in a hurry’ who sees the Alavida trade-mark, when that consumer has no more than an imperfect recollection of any one of the Masterpiece Inc. trade-marks or trade-name, would be likely to be confused; that is, that this consumer would be likely to think that Alavida was the same source of retirement residence services as Masterpiece Inc.”

Furthermore, the SCC held that the confusion analysis should start with s. 6(5)(e) – a consideration of the resemblance between the marks. If the marks do not resemble one another, then it is unlikely to find them as confused. The other factors set forth in s. 6(5) are significant only when the marks are found to be identical or very similar.

Moreover, in deciding a likelihood of confusion, one should consider whether the entire scope of potential uses that were granted under the registration would be confused with an existing mark, rather than simply considering the actual use that has been undertaken in the past. This analysis is different for trade-marks that are protected at common law, since unregistered marks may only rely on how the marks had actually been used in the business in the past.

People Think Twice before Buying Expensive Goods – Is this Relevant for Confusion Analysis?

In applying the confusion analysis, the trial judge incorrectly held that, because of the nature and cost of retirement residences, consumers will perform subsequent research to inform themselves of the brand, and consequently, they will become less susceptible to confusion about the source of the goods or services.

The SCC disagreed and stated that, even though consumers of expensive goods may exercise caution and wariness when purchasing, brand owners should not lose the benefit of trade-mark protection. Also, subsequent research is not relevant to the confusion analysis because the analysis should be based on the “first impression” the consumer had when first encountering the mark in the marketplace. Whatever the consumer does after first encountering the mark does not detract from the confusion that has already occurred. The Court further stated that “leading consumers astray in this way is one of the evils that trade-mark law seeks to remedy. Thus, it was an error to discount the likelihood of confusion by considering what actions the consumer might take after encountering a mark in the marketplace.”

Do we need Expert Evidence in Trade-mark Confusion Cases?

Tendering expert evidence in a trade-mark case is no different than proffering expert evidence in other contexts; to be accepted, four requirements must be met: (a) relevance; (b) necessity in assisting the trier of fact; (c) the absence of any exclusionary rule; and (d) a properly qualified expert.

Here, Alavida adduced expert testimony on how a consumer is likely to react when presented with the trade-marks, and Masterpiece Inc. produced a survey which was heavily critiqued by an expert for Alavida. However, the SCC disregarded the costly and convoluted expert evidence altogether.

The SCC wrote that, because this is a case of retirement residences, which is being marketed to the general public, the average consumer is not expected to be particularly skilled or knowledgeable. Thus, judges should use their own common sense to consider the marks at issue, and exclude influences of their “own idiosyncratic knowledge or temperament” to determine whether the casual consumer would be likely to be confused. Thus, the SCC strongly rejected the evidence that discussed morphology, semantics, rules of grammar, and conventions of expression.

While the Court cautiously recognized that reliable and valid surveys might add some value for confusion analysis, it could still be distracting rather than helpful. Because Masterpiece Inc. did not have a presence in the community, there was no average consumer with “imperfect recollection” of Masterpiece Inc.’s marks to test. Thus, such costly surveys were found to be invalid.

Lastly, the Court opined that case management judge should assess the admissibility and usefulness of proposed evidence at an early stage and, where appropriate, steer parties away from expending resources on evidence of little utility.

Outcome

Alavida was not entitled to registration of its trade-mark and its registration was expunged.

How to Avoid Litigation

For many small businesses that do not invest in the resources to apply for trade-mark registration, this case offers them an optimistic solution because unregistered trade-mark could also have enforceable rights across Canada even when the mark is only used locally. However, if Masterpiece had registered its mark in the first place, Alavida would not have been able to obtain trade-mark registration, and the expense and uncertainty of litigation could have been avoided. Litigation could also have been precluded if Alavida had performed its clearance searches properly prior to adopting the mark “Masterpiece Living” for its marketing campaign.

Another important point of this case is related to the admissibility of expert evidence. Recently, the use of expert evidence has proliferated uncontrollably and has become one of the major costs in civil litigation. The SCC is to be commended for suggesting that unnecessary and potentially distracting expert and survey evidence should not be allowed to complicate court proceedings. After all, litigation is costly and courts should fulfill their gatekeeper role to minimize delay and complexity and maximize access to justice for the parties.