Toys “R” Us v Herbs “R” Us: Children’s Toy Retailer Succeeds in Depreciation of Goodwill Claim Against Cannabis Dispenser

What do Toys “R” Us, an internationally renowned children’s products retailer, and Herbs “R” Us, a small company operating a cannabis boutique and dispensary in Vancouver, BC, have in common? According to a recent Federal Court decision, not enough to establish trademark infringement.  

Toys “R” Us recently brought an action against Herbs “R” Us alleging trademark infringement, passing off, and depreciation of goodwill. Despite clear similarities between their respective trade names and design marks, the Federal Court concluded that consumers are unlikely to confuse the two companies, thus rejecting Toys “R” Us’ claims for trademark infringement and passing off. Nonetheless, the Court has ruled that Herbs “R” Us’ logo and corresponding trademark is likely to depreciate the goodwill attached to Toys “R” Us’ registered trademarks pursuant to section 22 of the Trademarks Act.

Section 20: Trademark Infringement

Upon registration of a trademark, its owner receives the exclusive right to use the trademark with respect to the goods and services listed in accordance with its registration, per section 19 of the Trademarks Act. Anyone else who sells, distributes, or advertises goods or services in association with a confusing trademark is deemed to have infringed the registered owner’s rights according to section 20(1)(a) of the Act. A trademark is said to be confusing if “the use of both trademarks in the same area would be likely to lead to the inference that the goods or services associated with those trademarks are manufactured, sold, leased, hired or performed by the same person, whether or not the goods or services are of the same general class.”

Considering all factors listed under section 6(5) of the Act, the Court concluded in Toys “R” Us that despite similarities between both trademarks, consumers were unlikely to mistake either company for the other because the goods and services associated with their trademarks are entirely distinguishable. It struck Justice McHaffie as “unlikely in the extreme that a Canadian consumer, even a casual one somewhat in a hurry with an imperfect recollection of the Toys “R” Us mark, would see the Herbs “R” Us trademark and conclude that a well-known toy retailer had started branching out into storefront “dispensary” services or cannabis sales, either by itself or through a licensee.” Thus the Court found no basis for concluding that Herbs “R” Us’ trademark infringed those belonging to Toys “R” Us.  

Section 7(b): Passing Off

Section 7(b) of the Act prohibits individuals and businesses from directing public attention to their goods, services, or business in a manner likely to cause confusion between their goods, services, or business and those of another. This is commonly referred to as “passing off”, which can be thought of as one business pretending to be another in order to increase their sales or trade on the genuine party’s goodwill or reputation. The test for establishing passing off is such that a claimant must prove on a balance of probabilities that 1) goodwill exists, 2) the public has been deceived due to a misrepresentation, and 3) that actual or potential damage has manifested as a result.

The Court in Toys “R” Us concluded that because the only misrepresentation that Toys “R” Us relied on was the likelihood of confusion previously addressed and denied when assessing their claim for trademark infringement, the second requirement for establishing a claim for passing off could not succeed.

Section 22: Depreciation of Goodwill

Section 22 (1) of the Act states, “no person shall use a trademark registered by another person in a manner that is likely to have the effect of depreciating the value of the goodwill attaching thereto.” Unlike section 20, this provision is not predicated on a possibility of confusion; depreciation of goodwill may arise even if consumers can distinguish between two trademarks.

To make a claim under section 22, a claimant must prove on a balance of probabilities that 1) their registered trademark was used by the defendant in connection with wares or services, 2) their registered trademark is sufficiently well known to have significant goodwill attached to it, 3) their mark was used in a manner likely to have an effect on that goodwill, and 4) the likely effect would be to depreciate the value of said goodwill.

For the purpose of this test, the defendant need only “use” the claimant’s trademark in a manner that evokes a mental association for consumers. Notably for  section 22 of the Trademarks Act to be properly invoked the defendant must be using the trademark as the term “use” is defined by ss. 2 and 4 of the Act. Therefore, the defendant is said to have “used” the claimant’s trademark even if consumers are able to distinguish between the defendant’s mark and that which it resembles. Thus, a registered trademark owner can claim depreciation of goodwill even if they are unable to establish trademark infringement.

Concluding that the Herbs “R” Us trademark could dilute the distinctiveness of the Toys “R” Us trademark and damage the goodwill attached to it by connoting associations with cannabis and Herb’s “R” Us (an unlicensed dispensary that leverages adult-oriented marketing tactics), the Court sided with Toys “R” Us on this point of contention.

Conclusion

Imitation is frequently heralded as a sincere form of flattery. However, this decision serves as a stern reminder that parodying a competitor’s brand may have consequences. Despite restraining oneself to the extent that you do not infringe your competitor’s trademark, establishing an identity reminiscent of somebody else can consequentially negate the distinctiveness of the latter’s brand. For new businesses entering the market, it is important remain conscientious when developing a branding strategy and not produce imagery that may depreciate the value of a competitor’s trademark. 

Written by Lamont Abramczyk, a second year JD Candidate at Osgoode Hall Law School. Lamont is Deputy Director of the Osgoode Art Law Society and an IP Osgoode Innovation Clinic Fellow.

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