Lawyers, patent &
trademark agents

Depreciation of Goodwill: Another Cause of Action for Registered Marks

It is generally accepted that similar, even identical, trademarks may be adopted by multiple businesses provided that they are used to promote different goods and services that are not sold in the same or overlapping markets. The use of similar or identical marks in such circumstances is not generally confusing and therefore does not constitute either:

  • trademark infringement contrary to section 20 of the Trademarks Act; or
  • passing off of goods or services as those of another business contrary to section 7(b) of the Trademarks Act.

Section 22 of the Trademarks Act

However, there is another option available to registered trademarks. Section 22 of the Trademarks Act 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.

Even where there is no likelihood of confusion, there may be a likelihood of depreciation of the goodwill attaching to a registered trademark.

The test for depreciation requires:

  1. The defendant uses the registered mark in connection with goods or services whether or not those goods or services are competitive with those of the claimant. The use need not be of the registered mark exactly as it is registered. It need only be sufficiently similar to evoke a mental association of the two marks among consumers in the relevant marketplace. This must be established on a balance of probabilities. In other words, such linkage must be “likely” based on evidence rather than mere speculation.
  2. The registered mark is sufficiently well-known to have significant goodwill attached to it. This is not a requirement that the registered mark be famous, but there can be no depreciation of goodwill that does not exist.
  3. The defendant must use the registered mark in a manner likely to have an effect on its goodwill and that the likely effect is to depreciate the value of that goodwill. Such damage can arise through: (a) disparagement, (b) blurring of brand image; (c) a reduction of distinctiveness resulting from a mark being “bandied about” by different users; or (d) “whittling away” of the brand’s power to distinguish the owner’s products and services from those of others.

TOYS R US v. HERBS R US

In a recent decision of the Federal Court, it was found that use of HERBS R US as a trademark for a cannabis dispensary depreciated the goodwill attached to the registered trademarks for TOY R US. In that case, the dispensary adopted the following design mark:

Herbs R Us logo

The court found that this design mark was intended to provoke a “mental association” with the TOYS R US design mark below:

Based largely on evidence related to its sales volume and the volume of traffic to its web site, the court found that the TOYS R US trademark has significant goodwill in Canada.

While there was no consumer survey evidence, the court concluded that the use of the HERBS R US trademark did, in fact, provoke a mental association with the TOYS R US trademark among consumers. In part, the court relied on the history, sales volumes and extensive marketing associated with the TOYS R US trademark to infer such a connection. However, it also noted that there was an independent news article submitted as evidence which drew a connection between the marks.

With respect to damage, the court concluded that use of the HERBS R US trademark amounts to another trader “bandying about” the TOYS R US mark in a fashion that reduces its distinctiveness and a “whittling away” at the power of the TOYS R US trademark to distinguish its products from others.

In addition, the court found that the use of HERBS R US by a cannabis dispensary that appeared to be operating without a license and promoting itself with nudity and adult-themed content was “utterly inconsistent” with the TOY R US brand and is therefore likely to tarnish the goodwill associated with the TOYS R US trademark.

Finally, the court concluded that there was no reason to adopt the HERBS R US trademark other than to trade off the goodwill attached to the TOYS R US trademark and that this fact also points to a finding of depreciation.

Relief Granted

Based on the violation of section 22, the court granted Toys R Us an order requiring the defendant to deliver up or destroy all goods, packaging, labels and advertising material that bear the HERBS R US trademark in any form.

The court also recognized that recognized that TOYS R US had experienced some depreciation of the goodwill in its mark and awarded damages in the sum of $15,000 as a “non-trivial damages award” intended to have a deterrent effect as well as $15,000 in costs. The court denied a claim for punitive damages.

In the absence of a trademark registration, seeking relief for such damaging activity would be much more challenging.