Online takedowns are an essential and effective tool for intellectual property rightsholders. Such tools are a common response to infringement on online marketplaces. A recent Canadian decision highlights the risks associated with filing tenuous and unjustified takedown complaints that result in harm to competitors. In Keezio Group, LLC v The Shrunks’ Family Toy Company Inc (2024 BCSC 64), the BC Supreme Court found an IP rightsholder liable for damages due to the filing of groundless trademark and copyright complaints with Amazon. This case is the first in Canada to clearly rule on this issue.
Background
The parties in this case, Keezio Group, LLC (Keezio) and The Shrunks’ Family Toy Company Inc (The Shrunks), are two business competitors who sell inflatable beds for children on Amazon.
In 2019, The Shrunks initiated trademark and copyright complaints on Amazon against Keezio, resulting in the temporary takedown of Keezio’s product listing pages. The trademark allegations centred on Keezio’s alleged use of The Shrunks’ registered mark, THE SHRUNKS, on a product listing page which contained a chart comparing features of Keezio’s product to the features of The Shrunks’ product. The copyright complaint concerned a claim that Keezio’s products copied the design of The Shrunks’ inflatable beds.
In response, Keezio filed a claim in the BC Supreme Court, alleging that The Shrunks had made baseless complaints to Amazon, causing Keezio to lose business.
The central issue before the Court was whether the complaints filed by The Shrunks were false or misleading, and whether they tended to discredit Keezio’s business or goods, contrary to the competition provisions in section 7 of the Trademarks Act.
Decision
In a summary trial, the Court found that The Shrunks did not hold the trademark and copyright rights alleged and held that The Shrunks were liable to Keezio.
With respect to the trademark complaint, the Court relied on Canada’s leading comparative advertising case, Clairol International Corp. et al v Thomas Supply and Equipment Co et al, (1968 CanLII 1280) to conclude that using a competitor’s trademark for comparison purposes does not, in itself, constitute trademark infringement or depreciation of the goodwill of that trademark. Therefore, The Shrunks’ complaint that Keezio infringed its trademark merely by making reference to it for comparison purposes was false.
The copyright complaint was dismissed based on subsection 64(2) of the Copyright Act, which provides that it is not unlawful for one party to copy another’s design in a useful article reproduced in a quantity of more than fifty, absent trade dress rights. Hence, Keezio's reproduction of The Shrunks' inflatable bed design did not constitute copyright infringement. The Shrunks would have needed registered design rights or trade dress rights to protect its bed design.
In determining whether section 7(a) of the Trademarks Act, prohibiting misleading claims that discredit a competitor, applied, the Court held that The Shrunks’ complaints misled Amazon into delisting Keezio’s product pages, which constituted evidence of discredit. The Court noted it was irrelevant for a finding under section 7(a) whether the statements were made maliciously or with knowledge of their falsity.
Concluding that the delisting of Keezio’s product pages caused a decrease in its sales, the Court awarded damages amounting to $24,450 USD, with costs in the amount of $9,500 CAD. The Court, however, dismissed Keezio’s other claims, including for a permanent injunction, punitive damages and personal liability against an owner.
Takeaways
This case arises from the effectiveness of online takedowns complaints as a tool to address infringing products and highlights the importance of having a solid legal basis for such complaints. Rightsholders should avoid false or misleading complaints that discredit a competitor, since such conduct can lead to liability. In cases of uncertainty, it may be more effective to engage with your competitor directly through a demand letter prior to complaining to online marketplaces.
Overall, this decision underscores the importance of a strategic approach to the enforcement of IP rights online, including in online marketplaces.
If you have any questions on trademark licensing or for more information on this topic, please contact a member of our Copyright & Digital Media team.
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