The Supreme Court of Canada on May 26, 2011, released its long-awaited decision in Masterpiece Inc v Alavida Lifestyles Inc (2011 SCC 27) concerning the test for confusion between trade-marks. One of the main issues before the Court in this appeal of a decision dismissing an appeal of an application to expunge a registered trade-mark was whether it is relevant to consider that two trade-marks were not used in the same geographic area when assessing the likelihood of confusion. In a unanimous decision, the Supreme Court has now clearly confirmed that the test for confusion requires consideration of a hypothetical marketplace where both marks are assumed to be in use in the same area; any separation in the geographic areas of marks that are otherwise confusingly similar is irrelevant.

In this case, both parties operated in the retirement industry, albeit in separate geographic regions. Masterpiece Inc. (“Masterpiece”), first used the trade-mark MASTERPIECE in 2001 in Alberta, with plans to expand into Eastern Canada in the future. Masterpiece also used the trade-marks Masterpiece the Art of Living” and “Masterpiece the Art of Retirement Living”, and by early 2006 had also started using the mark MASTERPIECE LIVING. In 2005, Alavida Lifestyles Inc. (“Alavida”), filed a trade-mark application based on its intention to use the trade-mark MASTERPIECE LIVING. Alavida began using its mark in 2006, mainly in Ottawa, and a registration issued in 2007. When Masterpiece attempted to file its own trade-mark applications for MASTERPIECE and MASTERPIECE LIVING in 2006, registration was denied by the Registrar of Trade-marks due to Alavida’s previously filed application. Accordingly, Masterpiece applied to the Federal Court to expunge Alavida’s registration on the ground that Alavida’s trade-mark was confusing with Masterpiece’s trade-mark at the time Alavida’s application to register was filed, and that Alavida was therefore not entitled to the registration pursuant to s 16(3) of the Trade-marks Act (the “Act”).

Section 16(3) of the Act provides that an applicant who files an application based on an intention to use a trade-mark in Canada is not entitled to register that trade-mark if it is confusing with a trade-mark that was previously in use in Canada, or for which an application had already been filed, by another person prior to the applicant’s filing date. Whether marks are confusing is determined by applying the test set out in s 6 of the Act. While the applications judge determined that Masterpiece had established some use of marks containing the term MASTERPIECE prior to Alavida’s filing date, that use was found to be clearly limited in time and scope. In determining whether Alavida’s mark was confusing with Masterpiece’s marks, the application judge also considered how Alavida was actually using its mark post-registration, and concluded that because the parties’ services were relatively expensive potential consumers would be less likely to be susceptible to confusion because they would be unlikely to make choices based on first impressions and would take considerable time to inform themselves about the source of the services. No likelihood of confusion was found, and the application to expunge was dismissed.

In dismissing Masterpiece’s appeal of the applications judge’s decision, the Federal Court of Appeal appeared to emphasize the fact that Masterpiece and Alavida did not operate in the same geographic region. The Court of Appeal ultimately found no error with the application judge’s reasoning, and dismissed Masterpiece’s appeal. However, the Supreme Court of Canada allowed Masterpiece’s appeal, and ordered the Registrar of Trade-marks to expunge Alavida’s registration.

The Federal Court of Appeal decision created some uncertainty surrounding the test for confusion; it was previously understood that for the purposes of assessing confusion under s 6 of the Act, the two marks in question are both assumed to be used in a hypothetical marketplace and the existence of confusion is to be determined on the basis of assumed use (Automaxi SA v UAP Inc, (1994) 59 CPR (3d) 82 (FCA)). However, the Federal Court of Appeal in Masterpiece v. Alavida suggested that it may be relevant to consider that two trade-marks were not used in the same geographic area when assessing the likelihood of confusion.

The Supreme Court of Canada has now clarified that the test for confusion is indeed based upon a hypothetical marketplace in which it is to be assumed that the trade-marks in issue are used in the same geographical area irrespective of whether that is actually the case. The Court also stated that in order for a person to avail itself of the exclusivity afforded to a registered trade-mark per s 19 of the Act, there cannot be a likelihood of confusion with another trade-mark anywhere in Canada.  

The Supreme Court also endorsed the view that because the other factors in the test for confusion are often unimportant if the marks are not identical or very similar, the confusion analysis should begin with assessing the degree of resemblance between the trade-marks. With respect to assessing the degree of resemblance between a proposed trade-mark and an existing unregistered trade-mark as a part of the test for confusion, the Court held that the proper approach is to address the entire scope of exclusive rights and potential uses that would be afforded to the proposed trade-mark and not to consider how the applicant ultimately actually used its mark. In comparing Masterpiece’s mark “Masterpiece the Art of Living” to Alavida’s mark MASTERPIECE LIVING, the court concluded that the distinctive aspect of each party’s mark was the word MASTERPIECE and that both party’s marks evoked the same idea, namely high quality retirement lifestyle.  

With respect to the impact that the cost of a product or service should have on the confusion analysis, the Court affirmed that consumers of expensive goods may be less likely to be confused when they encounter a trade-mark, but clarified that it was improper to consider that consumers of expensive wares and services would generally take considerable time after first encountering the mark to inform themselves about the source of those wares and services. The Court held that the proper approach was to assess confusion from the perspective of the first impression of the consumer considering an expensive purchase when he or she encounters one party’s trade-mark and has an imperfect recollection of the other party’s trade-mark. The Court stated that although later research by the consumer might clarify the situation, it does not mean that confusion did not exist initially.

The Court also stated that when conducting a confusion analysis, judges should consider each mark as a whole, having regard to the most dominant elements, and use their own common sense to determine if a casual consumer having an imperfect recollection of one mark would, as a matter of first impression, be likely to be confused upon encountering the other party’s mark. Experts should only be permitted to testify if the evidence is likely to be outside the knowledge and experience of the judge. The Court found that the expert evidence presented in this case did not assist with the confusion analysis.  

Given its clarifications, breadth of analysis and reiteration of trade-mark law principles, this Supreme Court judgment will undoubtedly become an oft-cited decision where the likelihood of confusion between trade-marks is an issue.