In a strongly-worded and highly anticipated decision, the Supreme Court of Canada (SCC) unanimously allowed Masterpiece Inc.’s appeal in Masterpiece Inc. v. Alavida Lifestyles Inc. and ordered the expungement of Alavida Lifestyle Inc.’s registration for the trade-mark MASTERPIECE LIVING from the Canadian trade-marks Register based on the prior use by Masterpiece of unregistered trade-marks and trade names containing the element MASTERPIECE.

The key issues before the Court were: (1) is the geographic area where the trade-mark is used relevant when considering the likelihood of confusion between an applied for or registered trade-mark and a previously-used unregistered trade-mark?; (2) what are the relevant considerations for assessing resemblance between a proposed-use trade-mark and an existing unregistered trade-mark?; (3) what effect does the nature and cost of goods and services have on the “nature of the trade” portion of the confusion analysis?; and (4) when should courts take into account expert and survey evidence in trade-mark confusion cases?  

These questions arose within the context of a trade-mark expungement proceeding initiated by Masterpiece, a company in the retirement residence industry based in Alberta. Before the Federal Court, Masterpiece argued that Alavida, a company who entered the retirement residence industry in Canada (Ontario) after Masterpiece, was not entitled to register the trade-mark MASTERPIECE LIVING as it was, as of the date the registration application was filed, confusing with the Masterpiece Inc. trade name and several MASTERPIECE trade-marks previously used by Masterpiece in Alberta.

1. Relevance of Geographic Area

In the appeal of the Federal Court’s decision, which dismissed Masterpiece’s application to expunge Alavida’s registration, the Federal Court of Appeal (FCA) concluded that Masterpiece’s plans to expand into Eastern Canada in the future were not relevant: as of the material date, Masterpiece was only active in Alberta. Accordingly, the FCA held that the parties were not in direct competition. On appeal to the SCC, Masterpiece argued that the FCA’s conclusion suggested that geographic location was a relevant consideration when assessing the issue of confusion and that the FCA’s decision effectively elevated the test for confusion in expungement proceedings to that considered in a passing off action, where the geographic area of reputation is an important consideration.

The SCC took the opportunity to dispel any doubt on this issue and concluded, based on its analysis of relevant sections of the Trade-marks Act, particularly Sections 6, 16 and 19, that geographical separation in the use of otherwise confusing trade-marks or trade names does not play a role in the test for confusion set out in Subsection 6(5), which is based on the hypothetical assumption that both trade-marks and trade names are used “in the same area”, whether this is actually the case or not. In the SCC’s view, [t]he application of the hypothetical test reflects the legislative intent to provide a national scope of protection for registered trade-marks in Canada”.  

2. Assessing the Degree of Resemblance

In setting out the proper approach for assessing the resemblance between a proposed use trade-mark and existing unregistered trade-marks, the SCC outlined a non-exhaustive list of considerations relevant to the analysis in this case. Applying this approach to the facts at hand, the SCC held that the Federal Court’s consideration of Alavida’s actual use of its trade-mark in the analysis of the degree of resemblance between the parties’ trade-marks was problematic since it only took into account a single form of use occurring after the relevant date. In this regard, the SCC found that this approach did not reflect the entire scope of exclusive rights that were granted to Alavida under its registration.

The SCC stated that when engaging in a confusion analysis, it is important to keep in mind that the exclusive rights granted under the Trade-marks Act refer to a registered trade-mark and that where a court is called upon to decide if there is a likelihood of confusion between that registered trade-mark and any registered or previously used unregistered trade-marks, the analysis should address the proposed trade-mark for which the registration was ultimately obtained (in this case MASTERPIECE LIVING). Moreover, while actual use is not irrelevant, actual use should not be considered to the exclusion of potential uses within the registration. In this regard, the SCC noted that the trade-mark MASTERPIECE LIVING could be presented in many ways under the registration and it was therefore incorrect in law to limit consideration of Alavida’s post-application use of its trade-mark to find a reduced likelihood of confusion. The SCC ultimately concluded that as both parties’ trade-marks contained the dominant element MASTERPIECE, they bore striking similarities and a strong resemblance as a whole to one another.

3. Effect of Cost of the Goods and Services on “Nature of the Trade” Analysis

In considering this issue, the SCC disagreed with the weight attributed by the Federal Court to the cost associated with a retirement residence and the corresponding finding that consumers, taking more care as a result of higher cost, would be less likely to be led astray by confusing trade-marks than if they were in the market for less expensive goods or services. By emphasizing the importance and cost of expensive goods and services, the SCC held that the Federal Court erred in law by changing the likelihood of confusion test from one of first impression of a trade-mark to a test of consumers being “unlikely to make choices based on first impression”.

While the SCC agreed that there may be a lesser likelihood of trade-mark confusion where consumers are in the market for expensive wares or services, the nature of the wares, services or business factor should be analyzed as a matter of first impression rather than from the perspective of a consumer that has conducted further research or inquiries after the consumer encountered a trade-mark in the marketplace. In this regard, the SCC stated that where a strong resemblance suggests a likelihood of confusion and the other factors in the confusion analysis do not point strongly against a likelihood of confusion, then the cost of goods and services is unlikely to lead to a different conclusion.

4. Expert and Survey Evidence in Trade-mark Confusion Cases

In a case involving extensive expert and survey evidence, the SCC noted that the tendering of expert evidence in a trade-mark case is no different than tendering expert evidence in any other context, where the focus is primarily on the relevance and necessity of the expert evidence. In this regard, the SCC noted that in cases where the “casual consumer” is not expected to be particularly skilled or knowledgeable, and there is a resemblance between the trade-marks, expert evidence that simply assesses that resemblance will generally not be necessary. Similarly, while survey evidence has the potential to provide empirical evidence of consumer reactions in the marketplace, and may therefore meet the test of necessary, the SCC cautioned against its use since such evidence may not be relevant. Therefore, the SCC instructed trial judges to carefully question the necessity and relevance of expert and survey evidence before admitting it.  

In this case, having concluded that the expert evidence was of little or no use to the issue of confusion, the SCC held that a casual consumer observing the Alavida trade-mark having no more than an imperfect recollection of Masterpiece’s trade-mark would likely be confused into thinking that the source of the services associated with the Alavida trade-mark was one and the same as the source of the services associated with the Masterpiece trade-mark. The SCC also concluded that none of the other circumstances assisted in reducing this likelihood of confusion to the point that confusion was not likely to occur.  

Because Masterpiece’s use of its trade-marks and trade names preceded Alavida’s proposed use of its trade-mark, Alavida was not entitled to register the trade-mark MASTERPIECE LIVING under Section 16(3) of the Trade-marks Act. The SCC therefore allowed Masterpiece’s appeal, set aside the decisions of the Federal Court and FCA and ordered the expungement of Alavida’s registration for the trade-mark MASTERPIECE LIVING from the Canadian Trade-marks Register.

The decision of the SCC can be found at this link:

http://scc.lexum.org/en/2011/2011scc27/ 2011scc27.html