In a summary trial, Dairy Queen Canada, Inc. (“DQ”) sought relief including damages for passing off, an injunction restraining M.Y. Sundae Inc. and two individual defendants (“Sundae”) from further operation of its franchise and use of the Dairy Queen name and marks, and a declaration that the Franchise Agreement (“FA”) was terminated. Sundae brought a Counterclaim for breach of contract and unfair dealing.
Sundae operated a DQ Grill & Chill, purchased from a prior franchise operator. Sundae agreed to abide by all covenants and obligations of the prior existing FA.
After multiple instances of non-compliance with the FA, DQ notified Sundae in July 2013 that the FA was terminated. After further discussion, the parties signed a Mutual Cancellation and Release (“MCR”) in August 2013, suspending termination of the FA until February 2014, to give Sundae an opportunity to sell the business. Sundae did not cease operation until April 2014.
Sundae argued that DQ coerced it through economic duress into signing an invalid, unenforceable and unconscionable MCR, while DQ claimed the MCR was a complete answer to the Counterclaim, as it contained terms releasing the Plaintiff from all claims, damages and actions against them, and a statement that it was “freely and voluntarily executed” and that the parties “had an opportunity to review the same [terms] with consent”.
The Court agreed with DQ and noted that the MCR was more generous on its face than the FA, allowing the franchisee more time to recoup its investment through sale of the business. The Court found the MCR validly executed and binding, thus barring Sundae from advancing its Counterclaim.
On the issue of passing off, Sundae acknowledged the existence of goodwill in DQ’s trademarks and admitted to continuing operations until April 2014. The Court was satisfied all elements of the tort were met, since Sundae presented itself as a Dairy Queen franchise after the FA was terminated. The Court noted that the damage element of the tort can be supported by the unauthorized use of goodwill alone, and can also be inferred from a loss of control over goodwill. The Court held that Sundae’s conduct interfered with DQ’s goodwill and awarded damages, however the assessment was based on a reduced time frame from that sought by DQ.
The Supreme Court of Canada has ruled on the degree of utility required of patented inventions. The decision does away with the controversial “promise doctrine” that had evolved in Canadian jurisprudence, and brings Canadian patent law back in line with other jurisdictions on the issue of utility.
Canada’s Patent Act, along with the patent law of most other countries, requires that a patentable invention be useful for some purpose. This utility requirement has historically set a very low bar; any invention having a “mere scintilla” of usefulness will pass. The “promise doctrine” modified the utility requirement in certain circumstances. Under the doctrine, any statement in a patent that could be construed as a promise of a particular result was deemed to set a standard for the utility of the invention, which had to be met. In other words, if the patent promised a particular result, the invention had to deliver. Furthermore, the inventor had to know that the invention would deliver (or be able to predict that it would deliver) when the patent application was filed. If, on the filing date of the patent application the inventor did not know that the invention would so deliver, and could not soundly predict that it would deliver, the patent was deemed invalid.
The “promise doctrine” was unique to Canadian law and proved to be problematic for many patentees, particularly in the pharmaceutical industry, whose patent applications (which are typically filed worldwide) were not drafted with the peculiarities of Canadian law in mind. The validity of many patents was challenged under the doctrine, and some patents for otherwise useful inventions were struck down. The “promise doctrine” even resulted in a $500 million NAFTA arbitration claim against the Canadian government by pharmaceutical giant Eli Lilly, some of whose patents had been invalidated under the doctrine (thankfully for the Canadian taxpayer, Eli Lilly was not successful).
In AstraZeneca Canada Inc. v. Apotex Inc., (https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/16713/index.do), Apotex alleged that AstraZeneca’s patent covering the drug NEXIUM was invalid, for the purpose of obtaining regulatory approval to market a generic version of the drug. Lower courts held that (i) AstraZeneca’s patent promised that the claimed compounds would provide a particular result, and that as of the filing date of the application, AstraZeneca had neither demonstrated nor soundly predicted that the compounds would so perform. In the words of the trial judge, the “yardstick” against which the utility of AstraZeneca’s patent was to be measured was the promises deemed to be made in its patent. Since AstraZeneca did not know whether such promises would be fulfilled at the time it filed its application, and could not soundly predict that they would be fulfilled, its patent was found to be invalid.
On appeal, the Supreme Court reversed the lower courts, finding that the “promise doctrine” is not good law. The Court found no support in the Patent Act for the idea that particular results allegedly promised in a patent set a unique standard of utility that must be met by the patented invention (especially since, in the absence of any such promise, a “mere scintilla” of utility is sufficient). The Court made it clear that promises found in patent are not the yardstick against which utility is to be measured. Rather, the utility requirement is met if the subject matter of the invention is capable of any practical purpose related to the nature of the subject matter.
The Supreme Court’s decision marks the end of a legal doctrine that generated considerable uncertainty in Canada’s patent system. The utility requirement of Canadian patent law is once again more or less in line with that of other jurisdictions. The decision is a major victory for patentees, particularly in the field of pharmaceuticals, where the majority of patent validity challenges under the “promise doctrine” were directed.
Summary prepared by Jaimie M. Bordman.
Diageo, a subsidiary of Diageo plc, one of the world’s largest producers of spirits, brought an action against Heaven Hill, alleging infringement of Diageo’s trademarks associated with its CAPTAIN MORGAN rum products, and passing off of Heaven Hill’s ADMIRAL NELSON’S rum products as those of Diageo. Heaven Hill, a company located in Bardstown, Kentucky, counterclaimed against Diageo, seeking declaratory and other relief including damages.
Diageo owned ten registered trademarks in Canada, each including a fanciful depiction of Sir Henry Morgan, a 17th century privateer. The competing bottles are shown below:
The Court found that Diageo had established significant good will associated with the CAPTAIN MORGAN brand, that Haven Hill deceived the public by directing public attention to its ADMIRAL NELSON’S rum products in Canada in such a way as to cause or be likely to cause confusion between its rum products and Diageo’s trademarks, and Diageo suffered damage or potentially could suffer damage. Accordingly, the Court concluded that Heaven Hill passed off its ADMIRAL NELSON’S rum products as those of Diageo’s CAPTAIN MORGAN rum products.
The Court also found that Heaven Hill’s use of its character or label trademarks in association with ADMIRAL NELSON’S rum products infringed Diageo’s exclusive right to use its registered trademarks and that the current depiction of the ADMIRAL NELSON’S character is a confusing trademark when compared with Diageo’s trademarks, individually or compositely over time.
The Court also concluded that while Heaven Hill had not actually used any of Diageo’s CAPTAIN MORGAN trademarks, use of its ADMIRAL NELSON’S composite trademarks in the market for rum products in three Canadian provinces is likely to have the effect of depreciating the value of the goodwill attaching to Diageo’s trademarks.
The Court denied any relief requested by Heaven Hill in its counterclaim, including a declaration that Diageo’s trademarks were invalid and that they be expunged, and an injunction restraining Diageo from making and inducing others to make false and misleading statements about the products and business of Heaven Hill. The Court also dismissed claims by Heaven Hill that Diageo’s action was an abuse of process, that its claim was estopped by acquiescence, laches and delay, and that it was statute barred.
The trademark applicant, Domaines Pinnacle Inc., was a producer of apple-based alcoholic and non-alcoholic beverages and foods. The trademark opponent was a subsidiary of Constellation Brands Inc, which produced and distributed wines. The applicant applied for DOMMAINES PINNACLE & Design (depicted below).
The opponent opposed the mark based on confusion with its word mark, PINNACLES. The Federal Court of Appeal, allowed the appeal, set aside the decision of the Federal Court (2015 FC 1083), and found that the decision of the Trade Mark Opposition Board (TMOB) was reasonable. The TMOB had decided that the applied for mark was sufficiently distinctive. The apple-based design distinguished the mark from the grape-based wines of the opponent and the overall mark communicated a distinctive idea of ice and winter. Furthermore, the opponent’s trademark rights would not permit it to use the same design as the applicant since that would infringe the applicant’s copyright. The court found that when a mark employs a common word as the central element, design and context must play a greater role in distinguishing the mark from the numerous other marks which employ the same common words.
The summary was prepared by Jon Marchand. The case is available HERE:
The British Columbia Court of Appeal has recently affirmed a lower court finding that bidding on Google Adwords consisting of the names or trademarks of others does not, by itself, constitute passing off. However, incorporating such names or marks into a domain name can result in liability, even if the website located at the domain is not confusing.
The appellant Vancouver Community College is a public post-secondary educational institution that has used its present name and the acronym VCC since 1974. The respondent Vancouver Career College is a privately operated educational institution that has operated under its name since 1997. In 2009 the respondent adopted the trademark VCCollege and the domain name VCCollege.ca. The respondent also bid on several Google Adwords, including VCC and the appellant’s name, “Vancouver Community College”. The appellant alleged the respondent’s trademark and domain name encompass its well-known acronym in its entirety, and that its activities constitute passing off, in violation of the Trade-marks Act.
At the trial of this action the appellant was unsuccessful, but the Court of Appeal rejected the trial court’s approach to the case for the most part. In particular, the Court rejected the idea, adopted by the trial court, that any consumer confusion resulting from the seeing the domain name VCCollege.ca would be resolved once the consumer viewed the respondent’s website located at the domain name, which did not resemble the appellant’s site. The Court found that the relevant time for assessing confusion is when the domain name is first viewed on a list of search results, and that consumers would likely VCCollege.ca for the domain of the appellants. The Court agreed, however, with the trial court’s finding that bidding on Google Adwords, by itself, did not constitute passing off.
In the context of a patent impeachment action, the Defendants, Shire LLC and Shire Pharma Canada ULC (“Shire”), brought a motion to strike portions of the Reply of the Plaintiff, Apotex Inc.
Shire first sought to strike an allegation that was found by the Court to be solely a statement of legal conclusions to be drawn from the facts already pleaded in the Statement of Claim. While Parties are not required to raise points of law in their pleadings, if they do, such pleadings do not bind either the Court or the Parties. Hence, the Court concluded that striking a legal conclusion is a waste of its time, and this portion of the motion was dismissed.
Shire next took issue with portions of the Reply purporting to raise Section 53 of the Patent Act as a new ground of invalidity. Allegations of fraud under s. 53 require full particulars, however, Apotex failed to plead sufficient material facts to disclose a reasonable cause of action. Instead, Apotex made only vague allegations about “assertions” as to the utility of the invention made by Shire to the Patent Office. The Court struck these portions of the Reply, noting that implicit allegations of fraud are not proper pleadings. Apotex was instructed that if it wished to raise a new ground of invalidity pursuant to s.53, it would have to move to amend its Statement of Claim, not add them to its Reply.
Although Shire was only partially successful on the motion, they were granted elevated costs, as the Court disapproved of the casual and thoughtless allegations of fraud made by Apotex under s.53. The Court issued a stern warning against “procedural gamesmanship” and stated that it will not hesitate to sanction such behavior through cost awards.