Summary. In a decision dated June 29, 2012, the Canadian Federal Court of Appeal overturned a Federal Court decision and found that Philip Morris and Rothmans, Benson & Hedges (collectively "Philip Morris") had infringed the registered Canadian trademark MARLBORO — owned by Marlboro Canada Limited and licensed to its related company, Imperial Tobacco Canada Limited (collectively "ITL") — by selling a no-name product in Canada in a package incorporating the well-known red and white package design elements of Philip Morris' international MARLBORO brand. The Court also affirmed the Trial Judge's decision that the package for ITL's own Canadian MARLBORO product did not infringe Philip Morris' copyright in its international red and white MARLBORO package.
Background. The case has a unique set of facts. Philip Morris' MARLBORO product, with its well-known red and white ("Red Roof") package design, is the top-selling cigarette in the world. Philip Morris owns rights to the MARLBORO trademark on a virtually world-wide basis but for Canada. Here, a predecessor to Philip Morris sold the mark to a predecessor of ITL in the 1930s, and ITL and its predecessors have since that time sold a MARLBORO cigarette product that is unique to Canada.
The Court of Appeal noted that since the 1950s Philip Morris has made various attempts to reacquire the Canadian rights to the MARLBORO mark or put an end to ITL's use of the same but has thus far been unsuccessful. For example, in the 1980s, Philip Morris sought to expunge ITL's MARLBORO registration alleging a lack of distinctiveness in view of the well-known nature of Philip Morris' international brand, but the Court of Appeal held against them and maintained the ITL registration.
As a result of Philip Morris not having the rights to the MARLBORO mark in Canada, it had for many years sold a product in Canada using the Red Roof design package but in association with other names such as MATADOR or MAVERICK. However, in 2006, Philip Morris launched a new product in Canada using a package with the Red Roof design elements but with no name (the "No-Name Package"). This was the first time that a cigarette product was offered for sale in a package with no brand name anywhere in the world. However, along with the Red Roof design elements, the package also displayed the phrase "World Famous Imported Blend." At around the same time, the cigarette market in Canada was going "dark," meaning that the physical products would not be visible to consumers at the retail level and would have to be requested by their brand name.
In 2006, Philip Morris commenced an action in the Federal Court seeking a declaration that its sale of the No-Name Package in Canada was not an infringement of the ITL MARLBORO mark. In so doing, Philip Morris alleged that certain Canadian trademark registrations that it owned in respect of certain elements of the Red Roof design insulated it from a finding of infringement. ITL responded by filing a counterclaim alleging infringement. Ultimately, Philip Morris also challenged the validity of the ITL mark.
Judgment of the Federal Court of Appeal. In respect of ITL's MARLBORO mark, the Court affirmed the Trial Judge's decision that the registration was valid, noting that the Court of Appeal had previously found it valid in the 1980s and that nothing material had changed in respect of the distinctiveness of ITL's MARLBORO mark in the interim.
In respect of the issue of infringement, the Court of Appeal considered the standard section 6(5) factors for confusion, focussing on the element of the "ideas suggested" by the Philip Morris No-Name Package and noting that, in a "dark" market where the products are not visible, consumers wishing to purchase the product in the No-Name Package will be prompted to ask for it using words that are "not necessarily displayed on the product." In this regard, the Trial Judge had found as a fact that there was a significant degree of confusion among consumers as to how to refer to the No-Name Package, with a large number of people associating it with the Philip Morris MARLBORO product. Moreover, and as found by the Court of Appeal, this association was "intentionally conveyed" by Philip Morris to consumers based on the package's Red Roof design elements. The Court of Appeal concluded that the result in a dark market is that consumers would use the same name to refer to two different products offered by two different manufacturers, and that this "must necessarily result in confusion…"
In concluding that Philip Morris had infringed the ITL registration, the Court of Appeal relied upon the recent decision of the Supreme Court of Canada in Masterpiece Inc v Alavida Lifestyles Inc, 2011 SCC 27, wherein the Court held that it was an error to discount the likelihood of confusion by considering what actions a consumer might take after encountering the mark in the marketplace. In the present case, the Court of Appeal concluded that the Trial Judge had erred in relying upon the fact that any initial confusion would be diminished based on the interaction between the consumer and the retailer when ordering the product in the dark market.
The Court also concluded that the Philip Morris trademark registrations for certain aspects of its Red Roof design package did not insulate it from a finding of infringement as it did not have a registration for the complete No-Name Package label.
In addition, the Court of Appeal affirmed the Trial Judge's decision that the ITL MARLBORO packages were not an infringement of the copyright in Philip Morris' international MARLBORO package design.
Ultimately, the Court of Appeal's judgment included the following remedies for ITL:
(i) a permanent injunction against Philip Morris from selling products in association with the No-Name Package in Canada;
(ii) an order for delivering up or destroying all infringing material;
(iii) damages or an accounting of profits as elected by ITL; and
(iv) costs and interest.
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