A recent decision from the Ontario Superior Court of Justice highlights the risks associated with a comparative advertising campaign.

Summary

In Direct Energy Marketing Limited v. National Energy Corporation1, the Court held that National Energy Corporation (“National Energy”) was in breach of section 7(a) of the Trade-marks Act2 and its counterpart section 52 of the Competition Act3 by circulating a brochure that contained a number of false or misleading statements about the products and services offered by its competitor Direct Energy Marketing Limited (“Direct Energy”).

In particular, the Court found that:

  1. In calculating Direct Energy’s average rate increase, National Energy only took into account approximately 40-60% of Direct Energy’s Residential Water Heater Portfolio;
  2. The brochure incorrectly attributed a 12% increase for a particular Direct Energy model when in fact the rate increase was only 2%;
  3. By placing the words “non Energy Star” in the manner in which it did, the brochure mislead consumers into believing that none of Direct Energy’s water heaters were Energy Star efficient and that Direct Energy did not offer Energy Star water heaters when in fact about 40 of Direct Energy’s 50 product categories were eligible for Energy Star certification; and
  4. Reference to Direct Energy’s “promise to increase” rates was inaccurate and misleading.

The Court also held that the brochure, which used the Direct Energy trade-mark, was contrary to section 22 of the Trade-marks Act, which prohibits use of a registered trade-mark in a manner that is likely to have the effect of depreciating the value of the goodwill attaching thereto.

The Court held that on its face, the brochure was likely to leave consumers with a negative impression of Direct Energy and found that the brochure was more directed at misleading consumers with respect to Direct Energy than informing fairly and fully the consumer with the information he or she required to make an informed decision.

While National Energy argued that Direct Energy failed to provide evidence that any of the brochures had a damaging effect on Direct Energy’s goodwill, the Court held that given the number of brochures in circulation, it “defied logic” that not a single customer or consumer of Direct Energy would have been swayed by the publication. The Court held that Direct Energy had demonstrated a prima facie case of damages which would be quantified at a later reference.

In addition to the reference with respect to damages, the Court enjoined National Energy from any further distribution of the brochure. The Court declined to order that National Energy publish a formal retraction in communities affected by the brochure finding that too much time had passed and such a retraction would be of little benefit.

Link to decision

Direct Energy Marketing Limited v. National Energy Corp, 2012 ONSC 4232