Mars Canada Inc v Bemco Cash & Carry Inc, 2016 ONSC 7201

This Ontario Superior Court (“ONSC”) decision reveals that grey marketing remains an unsettled aspect of the law.

The plaintiff, Mars Canada Inc. (“Mars”), successfully brought a motion for summary judgment to rectify a 2006 settlement agreement entered into with the defendant, Bemco Cash & Carry Inc. (“Bemco”). [1] Mars, an Ontario corporation and the holder of the registered trademarks for well-known brands such as MARS, M&Ms, TWIX and PEDIGREE, among others, had entered into a settlement agreement with Bemco after it was found to be grey marketing Mars’s brands. [3] Bemco, along with second defendant GPAE Trading Corp. (“GPAE”), both owned and/or controlled by the third defendant Mr. Aizic Ebert (“Ebert”), [4] breached the settlement agreement by continuing to import and sell the plaintiff’s goods. [2]

The ONSC found Mars entitled to summary judgment, finding Bemco in breach of its settlement agreement. [2] Additionally, GPAE and Ebert were also found to be in breach of their settlement agreement with the plaintiff. [2]

Legality of Grey Marketing

Grey marketing is the “[b]uying [of] genuine branded products abroad and selling them in competition with a local distributor of the foreign vendor (and/or its parent company or group of companies).” [7] As the goods have been legitimately bought in a foreign country, their resale in Canada, and thus grey marketing, has nothing inherently wrong with it. [7] In Smith & Nephew Inc v Glen Oak Inc (1996), 68 CPR (3d) 153 (FCA), the Federal Court of Appeal (“FCA”) held that a Canadian licensee of a foreign owner of Canadian trademarks could not rely on the licensed trademarks to prevent the sale of goods legitimately purchased from the foreign owner. [8] However, the FCA distinguished this situation from the situation where the Canadian plaintiff actually owns the Canadian trademarks themselves, but the FCA also did not make a decision concerning this scenario. [8]

Mars discovered that Bemco had been engaging in grey marketing a decade ago and sued in Federal Court (“FC”). [11] Mars initially mistakenly sued Bemco Confectionary & Sales Ltd., which had sold its assets to Ebert’s company Bemco. [11] Instead of defending their case arguing that the plaintiff could not prevent grey marketing, Bemco decided to settle and agreed to cease grey marketing goods bearing the plaintiff’s trademarks. [13] This settlement agreement led to Bemco disclosing that it’s source for foreign goods was GPAE. [24] Ebert once again bound his company and himself to the plaintiff’s demands. [25] GPAE admitted in the current case that it has since resumed importing the plaintiff’s branded chocolate bars from the US. [28] This breach was extended to Bemco as well since it is wholly involved in aiding GPAE’s importations. [32] Thus, Ebert and his two companies were in breach of their settlement agreements. [32]

Settlement Agreements Not Void Restraints on Trade

Contracts that limit the freedom to trade are prima facie void at common law. [33] However, the decision of Tank Lining Corp v Dunlop Industrial Ltd (1982), 40 OR (2d) 219 (ON CA) [Dunlop] provides a four-part test for where a contract limiting this freedom is still valid: [34]

Firstly, is the covenant under review in restraint of trade?… Secondly, is the restraint one which is against public policy and, therefore, void?… Thirdly, can the restraint be justified as reasonable in the interests of the parties? Fourthly, can it also be justified as reasonable with reference to the interests of the public? [Dunlop]

In assessing these grounds, the ONSC agreed that by settling, Bemco had agreed not to import goods bearing the trademarks in question. [40] Bringing up the idea of restraint of trade would be akin to unwinding their settlement and cause the grey marketing issue to go to litigation. [40]

Furthermore, the ONSC cited s. 19 of the Trade-marks Act, which provides the owner of a trademark with the exclusive right to use throughout Canada, [41] and subsection 79(5) of the Competition Act, which provides that the enforcements of rights under Acts relating the intellectual property is not ant-competitive. [41] The ONSC also found the defendants to be in violation of the Food and Drugs Act, the Consumer Packaging and Labeling Regulations, and the Weights and Measures Act, for not labelling according to regulations, for not providing French information, and for not providing metric values, respectively. [46]

Quantification of damages sought were referred to a Master in Toronto. [57]

Commentary

Grey marketing is aptly named as it is still an unclear area of the law in many aspects. An important one of these aspects, covered in this case, was the legitimate purchasing of goods in a foreign jurisdiction and then selling them in Canada. The law remains silent on whether a domestic holder of Canadian trademarks can enforce those trademarks over foreign purchased goods. In this decision, Bemco initially chose to settle instead of going to litigation, but the option was available to argue that Mars had no authority to assert its Canadian trademarks over foreign goods. Perhaps courts will eventually have to clarify where the law stands, if a defendant chooses the latter approach.