The Ontario courts have made some unsettling comments suggesting
that the Canadian trademarks law is “unsettled” on the issue of parallel
imports or grey marketing. Ironically, like the leading Canadian case on
parallel imports discussed below, this also appears to be a case about
chocolate bars. The comments were made in the context of an attempt by the
parallel importers to defend against the enforcement of March 2006 settlement
agreements on the basis that the settlement agreements were in restraint of
trade and, therefore, void.
In Mars Canada Inc. v
Bemco Cash & Carry Inc. 2016 ONSC 7201 (CanLII), Justice
F. L. Meyers of the Ontario Superior Court stated that:
[8] …. The law is unsettled as to whether a
Canadian trade-mark holder can prevent third parties from selling products
bearing the Canadian company’s trade-marks which are legitimate goods sourced
from a foreign parent or affiliate of the Canadian trademark holder. …
The motions judge
goes on to state:
[10]
The parties argued at some length about the current state of the law concerning
grey marketing in Canada and whether, in particular, a Canadian trade-mark
holder is entitled to enforce its trade-marks to prevent sales in Canada by
third parties of genuine product purchased from the trade-mark holder’s foreign
parent company. I have not found it necessary to resolve that issue as part of
the resolution of the motion before the court.
The Ontario Court
of Appeal recently repeated this comment in an appeal of the foregoing decision
in Mars Canada Inc. v. Bemco Cash & Carry Inc., 2018 ONCA 239:
[4]
…The law is unsettled as to whether a Canadian trademark
holder can prevent this activity.
With respect, there is nothing that is “unsettled”
about this question. Nor was anything unsettled even back in March 2006 (when
the settlement agreements were entered into) about whether Canadian trademark
law can be used to “thwart” parallel imports, which are by definition
legitimate products put on the market by a trademark owner in another country. The
answer was and is clearly “no” – except perhaps in very rare factual situations
where the imported product may be of a materially different character or
quality than the Canadian product and consumers get to buy a very different
product from that which they expected. Usually, these grey market cases involve
identical products – even from the very same ultimate source – that were acquired
outside of the “official” or “authorized” channels of trade. While such
parallel trade might displease the Canadian trademark owners or exclusive licensee
or distributor who wishes to lessen competition and raise prices in the Canadian market, trademark law does not give them any such power.
The well-known 2007 Supreme Court of Canada decision
in Euro-Excellence Inc. v. Kraft Canada Inc., [2007] 3 SCR 20, involved
the parallel importation of Toblerone and Côte d’Or chocolate bars concerning which Kraft
sought unsuccessfully to “thwart” parallel importation by using copyright law
instead of trademarks law. Kraft was the trademark owner in that case and if it
could have used trademark law, it surely would have done so. It was represented
by a very sophisticated IP litigation firm.
I made the prevailing arguments in that case in the
SCC on behalf of the intervener Retail Council of Canada. Kraft tried to use
copyright law because it knew that trademarks law wouldn’t work and was a
non-starter. In fact, Kraft’s very experienced counsel told INTA, the major
American based International Trademark Association, in a June 23, 2006 letter
to encourage it to intervene in the SCC, that:
In
light of the limitations imposed by legal authorities on enforcement of
trade-mark rights in cases of parallel importation, Section 27(2) is very
important to intellectual property right holders.
Indeed, as the trial Judge, whose decision was
eventually overturned, noted that, even though it was not contested that Kraft
owned the trademark, it did not try to invoke trademark law in its attempt to
thwart the parallel importation of its chocolate bars. Instead, it developed an
interesting strategy, alleging that the importation infringed its copyright in
the artwork on the chocolate bars wrappers:
[4] Kraft has developed an interesting strategy
in an effort to thwart
Euro Excellence's
distribution
of
these chocolate bars in Canada. To better appreciate the strategy, I should
first say what it has not done. If it put distribution restrictions on Euro
Excellence's supplier, it has not invoked them. Nor does it rely on trade-mark protection, although it
alleges, and it is not contested,
that it is the owner in Canada of the trade-marks "Côte d'Or"
and "Toblerone". What it has done is take Canadian
licensing rights in the artworks on the chocolate bar wrappers which have been
copyrighted in Canada. It does not seek to enjoin Euro Excellence from
distributing Toblerone and Côte d'Or chocolate bars. Rather, it seeks to enjoin
it from distributing the copyrighted artwork on the wrappers. The idea is
that the cost of re-wrapping or covering over the copyrighted artwork would act
as a major disincentive...(emphasis added)
(highlight
and emphasis added)
Even a trademark “owner” cannot use trademarks law to
stop parallel importation. There are no developments since the Kraft case of
which I am aware that would suggest otherwise. I would be very interested in hearing from any
expert counsel or academic who believes otherwise. Notwithstanding some obiter dicta in the Smith & Nephew, any attempt to change ownership of Canadian
trademarks in favour of a Canadian subsidiary so as to enhance the chance of a
more positive outcome in a grey marketing case is fraught with risks that
include the potential loss of distinctiveness of the trademark and income tax
issues.
The law was also clear before the Kraft decision. See also:
· Consumers
Distributing Co. v. Seiko, [1984] 1 S.C.R. 583
· Coca-Cola
Ltd. et al. v. Pardhan et al. (1999) 85 C.P.R. (3d)
489 Affirming 77 C.P.R. (3d) 501 (FCA)
· Smith & Nephew Inc. v.
Glen Oak Inc. et al.; Beiersdorf Ag, Necessary Party (1996) 68 C.P.R. (3d) 153.
It is worth noting that this Bemco
litigation – which has a very long and voluminous record – arises from a settlement
agreement entered into in March, 2006 – at the very time when
leave to appeal to the Supreme Court of Canada was being sought in the Kraft
case. Perhaps Bemco
settled in 2006 based upon perceived uncertainty about whether copyright law
could be used to “thwart” parallel importation of chocolate bars. I don’t know
and can only speculate.
However, the law on trademarks and
grey marketing/parallel imports seemed very clear at the time, as shown above,
which is why Kraft had chosen to frame its litigation as a copyright case. I
make no comment on the underlying issues concerning the Bemco settlement
agreements or the ensuing litigation in which it was apparently been argued
that the settlement agreements were in a “restraint of trade”.
Speaking generally, and not about
this case in any way, there are potential issues regarding settlement agreements
involving intellectual property that can raise serious antitrust and pubic
interest issues. This has become quite obvious in “pay for delay” cases
involving generic drugs, such as FTC v. Actavis that went to the US
Supreme Court.
I reiterate that I make no comment
on whether or not the 2006 agreements made commercial or legal sense at the
time. However, they were apparently negotiated by sophisticated parties with
experienced counsel. Courts are normally very reluctant to set aside such
agreements, and that seems to be the conclusion reached here after much
obviously expensive and complex litigation concerning which I make no comment,
except for the following.
For whatever reasons, the Ontario Superior Court and
now the Ontario Court of Appeal have recently stated that the law concerning
trademarks and parallel imports is “unsettled”.
This is of some concern if other parties and counsel begin to believe that
perfectly legal commercial activity involving grey marketing may now be illegal
or even arguably so under Canadian trademarks law. The fact that the Ontario
courts in this very protracted Bemco litigation seem
to believe and feel the need to state that the law regarding trademarks and
parallel imports is “unsettled” is in itself unsettling.
HPK
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