The Supreme Court of Canada released today its decision in Masterpiece Inc. v. Alavida Lifestyles Inc., and in so doing has clarified important legal principles concerning the interrelationship in Canada between common law trade-mark rights and those rights which flow from registration. Prior to this decision, very little jurisprudence had dealt with the differences, overlaps and interrelationships between rights flowing from registration and those existing at common law through use.

The appellant, Masterpiece Inc., had brought an application before the Federal Court to invalidate a recent registration by the respondent, Alavida Lifestyles Inc., for the trade-mark Masterpiece Living for use in association with retirement residences. The respondent’s application had been based upon proposed use, with registration being granted after a declaration of actual use had been filed. The appellant alleged invalidity based upon its prior common law use of the confusing trade-mark and trade name Masterpiece, along with other various Masterpiece-related marks, in association with the same services. However, the appellant had used its mark in Calgary, Alberta, whereas the respondent was located in Ottawa, Ontario, some 3,000 kilometres away.

The trial court and the Court of Appeal had both refused to invalidate the registration on the basis that there was no likelihood of confusion because the respective trade-marks were not being used in the same geographic area, that the designs used in association with the marks sufficiently distinguished one from the other, and that the high price of the services would result in great care when making the purchase — thus avoiding confusion. In so doing, the Court of Appeal granted the respondent the exclusive national right to use that mark despite the existence of prior localized common law use. If a literal reading of the Court of Appeal decision were followed, Canada would arguably have become a first-to-file jurisdiction, instead of a first-to-use jurisdiction.

Before the Supreme Court, the appellant argued that the courts below had inappropriately applied principles of the common law test for passing off into their likelihood of confusion analysis as it concerns registered trade-marks. The Canadian Trade-marks Act (Act) has always accorded priority to trade-marks based upon first use, not first registration, all in the context of a registration system that grants national monopolies regardless of the geographic scope of the registrant’s operations. In contrast, common law passing off has required proof of a protectable reputation in the same geographic area as the impugned user. The Act altered the common law insofar as registered marks by requiring a confusion analysis under the hypothetical assumption that both marks are used in the same geographic area.

The Supreme Court agreed with the appellant, reversed the trial judge and the Court of Appeal, and invalidated the respondent’s registration. The Court first noted that “[t]he Canadian trade-marks regime is national in scope. The owner of a registered trade-mark, subject to a finding of invalidity, is entitled to the exclusive use of that mark in association with the wares or services to which it is connected throughout Canada.” The Court then noted that the test for confusion mandated by the Act is based upon the hypothetical assumption that both trade names and trade-marks are used “in the same area,” irrespective of whether this is actually the case. As a result, geographical separation in the use of otherwise confusingly similar trade names and trade-marks does not play a role in this hypothetical test. “This must be the case, because, pursuant to s. 19, subject to exceptions not relevant here, registration gives the owner the exclusive right to the use of the trade-mark throughout Canada.” In essence, and as argued by the appellant, in order for the owner of a registered trade-mark to have exclusive use of the trade-mark throughout Canada, there cannot be a likelihood of confusion with another previously used trade-mark or trade name.

In addition to confirming the underlying rationale of the Act that it is not the registration that makes a party proprietor of a trade-mark, but that he must be proprietor before registration, the decision is also noteworthy in that it also clarifies certain factors that can be considered in a likelihood of confusion analysis, how those are to be weighted and the scope of rights ultimately afforded a registration. The decision is also of significant importance with respect to the admission of expert evidence in trade-mark cases. The Court has clearly cautioned against the wholesale admissibility of expert and survey evidence: “Courts must fulfil their gatekeeper role to ensure that unnecessary, irrelevant and potentially distracting expert and survey evidence is not allowed to extend and complicate court proceedings.” The Court’s discussion and analysis of the role of experts in trade-mark proceedings will be welcome by many, not the least of which will be trade-mark stakeholders themselves, who often feel forced to spend large sums on expert and survey evidence when such is so often unnecessary and distracting to the proper analysis required to be undertaken by the courts.