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Dilution has long been below radar

|Written By Julius Melnitzer

Being a famous trademark in Canada hasn’t always been all that it can be.

Infringement and dilution, the two primary concepts protecting trademark, are both known to Canadian and U.S. trademark law.

“Our courts limited the application of s. 22 to circumstances in which the identical trademark was being used on wares or services that had some connection with the trademark owner’s wares or services, and only where confusion between the trademarks was likely,” says Scott Jolliffe.

In the U.S., however, there has been a clear distinction between the two. But not so in Canada, where dilution has long been below the radar - at least until the Supreme Court of Canada’s 2006 decision in Veuve Clicquot Ponsardin v. Boutiques Cliquot Ltée.

The main difference between infringement and dilution is that infringement applies to all marks and is aimed at preventing unfair competition and confusion among competitors. Dilution, which protects famous marks only, focuses on the selling power of a trademark and protects it from being whittled away. Dilution can occur in the absence of confusion, so long as there is some depreciation to the goodwill associated with the mark.

“Association,” therefore, may be enough to found a claim of dilution.

That’s the theory.

But in Canada, the courts have tended to take a narrow approach to remedial intellectual property legislation. So much so that Veuve Clicquot’s impact on the doctrine of dilution has gone largely unnoticed.

“We’ve always dealt with dilution through the confusion argument, and that hasn’t been a good fit,” says Nancy Miller of Toronto’s Fogler Rubinoff LLP.

Even in the U.S., the concept of dilution was a somewhat late arrival to federal law. Massachusetts was the first state to enact an anti-dilution law, doing so in 1947. Eight years later, however, only about half of the country’s state legislatures had followed.

Congress filled the gap by passing the Trademark Dilution Act in 1996. The legislation underwent substantial clarification when President Bush signed the Trademark Dilution Revision Act in October 2006.

The revisions stipulate certain non-exclusive considerations for determining whether a mark is famous. Still, U.S. courts have limited famous marks to those recognized by consumers.

Otherwise, the U.S. Supreme Court has taken a literalist approach to dilution by requiring proof of actual dilution. Consequently, “tarnishment” - association of the mark with something unsavoury - does not found a claim for dilution in the U.S., where freedom of speech is a hallowed principle.

But “blurring,” which has some resemblance to confusion, does found a claim. It occurs where junior uses of the mark in a manner not associated with the trademark holder are so widespread as to diminish the association with the holder.

Ford, for example, has a very strong mark, so much so that a consumer looking at bed linens with the Ford logo might well wonder whether they originate with the auto manufacturer. Consumers might not be confused, but because strong marks are frequently licensed well beyond the original product, there might be a mental connection that dilutes the trademark and entitles the trademark holder to an injunction and perhaps damages.

In Canada, s. 22 of the Trade-marks Act governs dilution. It provides that no person may use the registered trademark of another in a manner that is likely to depreciate the value of the goodwill attaching to that mark.

But the section’s usefulness to famous mark owners has been restricted since the Exchequer Court’s (forerunner to the Federal Court) 1968 decision in Clairol International Corp. v. Thomas Supply and Equipment Co.

“Our courts limited the application of s. 22 to circumstances in which the identical trademark was being used on wares or services that had some connection with the trademark owner’s wares or services, and only where confusion between the trademarks was likely,” explains Scott Jolliffe, managing partner of Gowling Lafleur Henderson LLP.

Veuve Clicquot, a case associated with perhaps the best known of French champagnes, dramatically changed that. The “VEUVE CLICQUOT” trademark, which belonged to Veuve Clicquot Ponsardin, also appeared on various promotional items, including fashion items the company did not offer for sale in Canada.

Boutiques Cliquot Ltée., which ran six women’s clothing shops in Quebec and Eastern Ontario, registered the trademark “Cliquot.” Ponsardin objected and asked the Registrar of Trade-marks to expunge the retailer’s marks. The champagne maker claimed that consumers would likely be confused to the point of thinking that the women’s clothing and the champagne originated with the same source.

The trial judge disagreed, finding there was little, if any, risk of such confusion. The Federal Court of Appeal upheld the decision and refused to expunge the clothier’s marks.

The Supreme Court of Canada also ruled in favour of the clothier. In doing so, the court dealt with s. 22, which had not been addressed in the lower courts.

The Supreme Court emphatically noted that s. 22 does not require proof of confusion. To establish dilution, the court stated, the trademark holder had only to show that the clothing chain “made use of marks sufficiently similar to VEUVE CLICQUOT to evoke in a relevant universe of consumers a mental association of the two marks that is likely to depreciate the value of the goodwill.”

The court did caution, however, that such an association did not by itself give rise to a likelihood of depreciation. As the court saw it, s. 22 had four elements:

•    Use of the registered trademark by the defendant whether or not the defendant was in a competitive business and whether or not the mark used by the defendant was identical to the registered mark, so long as a casual observer would recognize the defendant’s mark as the mark of the trademark holder;

•    The trademark did not have to be well known or famous but had to have significant goodwill attached to it;

•    Mere use of a famous mark by someone other than the owner did not necessarily have the effect of depreciating goodwill: rather, the defendant must have used the mark in a manner likely to impact on the goodwill;

•    The likely effect of the use must have been to depreciate the value of the goodwill.

In this case, Ponsardin had failed to show that a consumer would make the necessary mental association between itself and the clothing chain.

“There would be no negative perception to tarnish [VEUVE CLICQUOT’S] positive aura,” the court wrote.

As the result demonstrates, the future of the dilution remedy in Canada is still unclear. Significantly, the court noted that the depreciation or anti-dilution remedy “is sometimes referred to as a ‘super weapon’ which, in the interest of fair competition, needs to be kept in check.”

The court’s analysis of s. 22 brings dilution back as a viable remedy for trademark holders, especially famous marks.

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