Federal Court Decisions

Date: 20050107

Docket: T-2235-99

Citation: 2005 FC 10

Ottawa, Ontario, January 7, 2005

PRESENT:      The Honourable Mr. Justice Beaudry                                   

BETWEEN:

                                           TOMMY HILFIGER LICENSING INC.,

TOMMY HILFIGER CANADA INC.

                                                                                                                                             Plaintiffs

                                                                           and

                                             PRODUITS DE QUALITÉ I.M.D. INC.

AND HAROLD ROSEN

                                                                                                                                         Defendants

                                    REASONS FOR JUDGMENT AND JUDGMENT

[1]                Quality Goods I.M.D. Inc. (Quality Goods), also called Produits de Qualité I.M.D. Inc., is a company that manufactures and sells souvenir products. In 1996, it created the "Explore Canada" logo and has been since then displaying it on its T-shirts, hats, mugs, key chains and on a variety of other items that are usually found in tourist stores. In August 1999, Tommy Hilfiger Licensing Inc. (THLI) and Tommy Hilfiger Canada Inc. (THC) indicated to two of the most important customers of Quality Goods that they would be the subject of legal proceedings unless they stopped selling the "Explore Canada" products. Both of these customers stopped ordering these products and one even returned such products. THLI and THC are now alleging that Quality Goods and Harold Rosen, as the company's President, Director and Officer, have infringed four Hilfiger trade-marks consisting of rectangles with red, white and blue colours in it and with the words "Tommy Hilfiger" in two of those trade-marks, and have also infringed the trade-mark "Tommy Hilfiger". THLI and THC are also alleging passing-off and depreciation of the value of the goodwill attached to their trade-marks. They are seeking an injunction, an accounting of profits, damages, exemplary damages, pre-judgment and post-judgment interest, an order for delivery of any offending wares in the defendants' possession, and their costs. If the plaintiffs are successful, there is a consent that those matters will be dealt with after further submissions by counsel or settled between the parties.

[2]                The defendants deny any infringement. Moreover, they argue that the registered trade-marks are invalid. The defendants seek the dismissal of the action with costs, as well as the expungement of the registered trade-marks. By counterclaim, the defendant Rosen also seeks damages in the amount of $1,000,000 for reductions in sales and profit margins in the fiscal years 2000 and 2001 and in the value of his shares in Quality Goods, pre-judgment and post-judgment interest. If the defendants are successful, there is a consent that the question of cost, pre-judgment and post-judgment interest will be dealt with after further submissions by counsel or settled between the parties.

ISSUES

[3]                The issues are as follows:

1.         Are the registered Hilfiger trade-marks invalid?

2.         Did the defendants infringe the plaintiffs' rights under section 19 of the Trade-marks Act, R.S.C. 1985, c. T-13 (Act)?

3.         Did the defendants infringe the plaintiffs' rights under section 20 of the Act?

4.         Was the defendants' use of his marks likely to have the effect of depreciating the value of the goodwill attaching to plaintiffs' trade-marks contrary to section 22 of the Act?

5.         Was there passing-off of the defendants' wares as those of the plaintiffs in contravention of paragraph 7(b) of the Act?

6.         Should the defendant Rosen be personally held liable/responsible for the wrongdoing, if any, of the defendant Quality Goods?

7.         Is the defendant Rosen entitled to damages in the amount of one million dollars for the reduction in sales and profit margins and in the value of his shares?

BACKGROUND

[4]                I will rely substantially on the Agreed Statement of Facts submitted by the parties to describe the general background and more specific issues.

The plaintiffs, their wares and sales

[5]                The plaintiff THLI is a company incorporated and based in the State of Delaware. It owns the trade-marks relating to the Tommy Hilfiger brand in Canada and elsewhere and licenses these trade-marks to others in return for royalty payments.

[6]                The plaintiff THC is a company incorporated and based in Canada. THC manufactures, sells, distributes and advertises articles of clothing and accessories in association with trade-marks under licence from THLI.

[7]                THLI owns the following trade-marks, that it registered in Canada:

1.         trade-mark TMA 375,827 (TMA '827) registered November 16, 1990 in association with clothing for men, namely pants, jackets, shorts, suits, sweaters, sweatpants, sweatshorts, bathing suits, robes, coats, jackets, raincoats, undershirts;

2.         trade-mark TMA 432,095 (TMA '095) registered August 26, 1994 in association with clothing for men and women, namely shirts, pants, jackets, sweaters, shorts, belts, vests, sport jackets, coats, raincoats, parkas; luggage; overnight bags; make-up kits and shaving kits;

3.         trade-mark TMA 482,283 (TMA '283) registered September 9, 1997 in association with cosmetics; perfumery; toiletries; suntan lotions; bronzing sticks; soap products and hair care products;

4.         trade-mark TMA 482,082 (TMA '082) registered September 5, 1997 in association with cosmetics; perfumery; toiletries; suntan lotions; bronzing sticks; soap products and hair care products.

5.          trade-mark TMA 446,291 (TMA '291) registered August 18, 1995 in association with blazers, coats, jackets, jeans, overcoats, pants, parkas, shirts, shorts, sportcoats, sportjackets, sweaters, turtlenecks, vests, bathing suits, caps, socks, suits, sweatpants, sweatshirts, ties, undershirts, underwear.

[8]                For ease of reference, the first four trade-marks will be referred to as the "Hilfiger flag trade-marks". These Hilfiger flag trade-marks look like this:

Trade-mark:    TOMMY HILFIGER & DESIGN

Registration No.:    TMA375827

[10]            In 1996 and throughout the years, THC has sold or distributed promotional items marked with the Hilfiger trade-marks such as pins, candles, calculators, carrying bags, coffee thermoses, key chains, bags, mouse pads, coffee mugs, pens, t-shirts, soccer balls, basketballs, water bottle and umbrellas.

[11]            THC's sales of Tommy Hilfiger clothing in Canada are as follows: $8 million (1992), $8 million (1993), $10 million (1994), $16 million (1995), $25 million (1996), $50 million (1997), $90 million (1998), $125 million (1999), $125 million (2000), $125 million (2001). THC sells in chain stores, specialty stores and large department stores such as The Bay and Eaton's. THC is selective with respect to its retail customers. It considers the image of the retailer, the location of the stores and the retailer's brand selection in determining whether the retailer will be permitted to sell Hilfiger products. The plaintiffs target the middle to the higher end market.

[12]            The Tommy Hilfiger brand and THLI licensed products have been advertised in Canada using different means: advertisements placed in foreign magazines and other publications circulated in Canada including Vanity Fair, GQ, Men's Journal, Details, Rolling Stone, Men's Health, The New York Times and the New York Times Magazine; advertisements placed in Canadian magazines including Macleans, Toronto Life Fashion, Toronto Life and Elle Québec; co-operative advertisements placed in Canadian magazines with Canadian retailers including The Bay and Eaton's department stores; billboards; in-store posters, signs and videos; sponsorship of tours or performances of musical groups including Pete Townsend, The Who and the Rolling Stones; sponsorships of events including the Toronto Film Festival and the Montreal Grand Prix; and contests.

The defendants, their wares and sales

[13]            The defendant Quality Goods is a company incorporated and based in Quebec. Quality Goods designs, manufactures, arranges for the manufacturing, sells, distributes and advertises souvenir products, including clothing, in association with the term "Explore Canada".

[14]            The defendant Harold Rosen is the President, a Director and Officer and the sole shareholder of the defendant Quality Goods.

[15]            In the summer of 1996, Quality Goods created the "Explore Canada" logo and subsequently created regional variations of the Explore Canada logo in which the name of a city or province was substituted for the word "Explore" in the Explore Canada logo. For ease of reference, the Explore Canada logo and its regional variations will be called "Explore Canada logo". The Explore Canada logo is depicted as follows:

[21]            In August 1999, THLI and THC indicated to two of the most important customers of Quality Goods, HDS who operates United Cigar Stores, and the Niagara Park Commission, that they would be subjected to legal proceedings unless they stopped selling the Explore Canada products. Both of these customers stopped ordering these products after the summer of 1999 and HDS even returned such products.

[22]            Quality Goods received a cease and desist letter dated October13, 1998 from THLI's solicitors demanding that it discontinue the sale of the Explore Canada products on grounds that the Explore Canada logo was in breach of THLI's trade-marks. In a letter dated November 13, 1998, Quality Goods denied infringing THLI's rights and demanded that THLI not interfere with its customers' sales of such products.

[23]            The plaintiffs' Statement of Claim was filed on December 21, 1999.

ANALYSIS

Issue 1: Validity of the Hilfiger trade-marks registrations

[24]            I cannot conclude that the Tommy Hilfiger trade-marks are invalid for the following reasons.

Background

[25]            THI is a company incorporated on April 15, 1982, its principal office and place of business being in New York, New York. THI carried on the business of owning the trade-marks and other intellectual property rights relating to the Tommy Hilfiger brand, of licensing such rights to others in return for royalty payments and designing articles of clothing to be sold under the Tommy Hilfiger brand.

[26]            THUSA is an American company incorporated in 1989 under the laws of the State of New York under the name Tommy Hilfiger Sportswear, Inc. The name was changed in 1992 to its current name.

[27]            THC is a Canadian company incorporated on December 19, 1989, under the laws of Canada. THC has its principal office and place of business in Montreal, Quebec.

[28]            On January 1st, 1990, THI granted a geographical licence to THC.

[29]            THLI is a company incorporated on July 23, 1992, under the laws of the State of Delaware, United States of America. THLI has its principal office and place of business in Wilmington, Delaware.

[30]            On August 3, 1992, THI assigned its rights to THLI. This agreement was reiterated on September 28, 1993. On June 19, 1994, THI merged into THUSA.

[31]            On May 24, 1995, THLI amended its licence with THC. The amendment enlarged the definition of trade-mark and permitted the use of each Hilfiger Flag Trade-marks in Canada in association with articles of clothing and accessories under the strict control of THLI as to the character and quality of such use (Canadian Retail Licence).

[32]            In January 2001, THC was reorganized. The operation of THC's retail stores was transferred to a new corporation, THC Retail. A new corporation, THC Sales, assumed the position of a sales agent for THC in Canada outside of Québec. Both THC Retail and THC Sales are subsidiaries of THC and have its principal office and place of business in Toronto, Ontario.

[33]            TH Corp. is a holding company. It directly or indirectly owns or controls all of the above listed companies.

Onus of Proof

[34]            A registered trade-mark is presumed to be valid. Therefore, the onus of proof is on the person seeking expungement to establish the invalidity of the registration (Richard, Hugues G., Canadian Trade-marks Act Annotated, loose-leaf, binder 2, Thomson Carswell Edition, Toronto, page 18-3; also see J.C. Penney Co. v. Gaberdine Clothing Co. (2001), 16 C.P.R. (4th) 151 at 170 (F.C.T.D.)).

[35]            Section 19 of the Trade-marks Act (Act) provides that:

[36]            Pursuant to this section, the registration of a trade-mark gives the owner of the trade-mark the exclusive right to the use throughout Canada. However, it clearly appears that the invalidity of a trade-mark registration would be a complete defence in an action for infringement of sections 19, 20 and 22 (PRV Co. Ltd. v. Decosol (Canada) Ltd. (1972), 10 C.P.R. (2d) 203 (F.C.T.D)).

[37]            Section 18 of the Act provides that a registration may be invalid on the basis of:

1.         unregistrability;

2.         non-distinctiveness;

3.         abandonment; or

4.         subject to section 17, non entitlement to secure registration.

[38]            Section 18 of the Act reads as follows:

[39]            Of the four potential grounds of invalidity, the arguments of the defendants are, for the vast majority, confined to paragraph 18(1)(b) of the Act, which deals with distinctiveness. However, Fox clearly indicates in Canadian Law of Trade-marks and Unfair Competition (3rd ed.) Toronto, Carswell Co. Ltd, 1972 at page 309, that the Court does have the power to consider potential grounds of invalidity even if not expressly raised by one of the parties.

[40]            In matters concerning rectification of the register, the Court acts in the interest of the purity of the register and in the public interest. In so acting, the Court has inherent jurisdiction and a duty to expunge in a proper case exproprio motu even though the point on which expungement is ordered has not been raised in the pleadings. But even though the Court might so act, although no person appeared as a person interested to ask for expungement, it ought to do so only in a case where it clearly appears that the mark is wrongly on the register. The public interest is of paramount importance, and the equities in favour of or against the applicant for rectification are of little relevance, for the matter is one between the public and the owner of the mark.

[41]            Having said that, I am of the view that this is not the case where the marks clearly appear to be wrongly on the register. Therefore, I will limit my analysis to the issue of distinctiveness and will only analyse briefly the other grounds of invalidity.

Unregistrability: section 18(1)(a)

[42]            The registration of a trade-mark is invalid if the trade-mark was not registrable at the date of registration. In order to determine if a trade-mark was registrable, we need to refer to sections 12 to 15 of the Act which deal with registrable trade-mark (see Annex I).

[43]            In summary, it can be said that according to sections 12, 13, 14, and 15, a trade-mark which falls into the following five categories is not registrable:

(1)        a word that is merely the name or a surname of an individual who is living or has died within the preceding thirty years, with the exception at subsection 12(2) and sections 13, 14 and 15;

(2)        a descriptive or deceptively misdescriptive trade-mark, with the exception at subsection 12(2) and sections 13, 14 and 15;

(3)         the name of wares or services, with the exception at sections 14 and 15;

(4)         a trade-mark confusing with a registered trade-mark; with the exception at

sections 14 and 15; and

(5)         a prohibited mark.

[44]            In the present case, after having considered all of the evidence, I do not believe that the Tommy Hilfiger's trade-marks enter in any of those five categories. Therefore, I conclude that the Hilfiger trade-marks were registrable at the date of registration.

Abandonment: section 18(1)c)

[45]            The abandonment of a trade-mark is a question of fact that must be decided case by case based on the particular circumstances. The non-use of a trade-mark is not sufficient to create abandonment. The absence of use must also be accompanied by an intention to abandon the trade-mark. Such an intention can be inferred from a long period of non-use (Richard, Hugues G., supra at page 18-3).

[46]            In the present case, I do not believe that it is necessary to spend a lot of time on this particular ground of invalidity. It is fairly obvious that the Tommy Hilfiger's trade-marks have not been abandoned since they are used to distinguish Tommy Hilfiger's product. Tommy Hilfger's wares are still advertised and sold everywhere in Canada. Therefore, I conclude that a claim of invalidity based on this ground could not stand.

Non-entitlement: last part of section 18

[47]            If the person or company that registered a trade-mark was not entitled to secure the registration, the registration of the trade-mark will be invalid. In the present case, at paragraph 103 of the defendants' Statement of Fact and Law, the defendants submit that the transfer between THI and THLI in 1992 and its restatement in 1993 refer only to marks for which there are registrations or applications. Consequently, they wonder how THLI became "entitled to register the mark "TOMMY HILFIGER" based on use in Canada from a prior date to the existence of the company".

[48]            After reviewing the Assignment Agreement between THI and THLI and after having taken into consideration the intention of the parties I must say that I disagree with the defendants. I am of the view that the purpose of the assignment was to transfer all of THI's intellectual property rights to THLI. The defendants recognized the effect of the transfer in the Agreed Statement of Facts (paragraph 6). Consequently, if THLI acquired every interests of Tommy Hilfiger's intellectual property rights, I conclude that THLI acquired the right to register the Tommy Hilfiger's trade-marks. I believe that THLI, as the owner of all Tommy Hilfiger's trade- marks, acquired the right to register new trade-marks.

[49]            Following this assignment THI merged with THUSA. THUSA's functions, which had previously been established through a Service Agreement (Exhibit P-15) with THLI, are to provide services to THLI and to facilitate the licencing of the TH Intellectual Property. The nature of the services provided by THUSA to THLI have not changed since the merger. Therefore, it demonstrates that THI really transferred all of its rights to THLI including the capacity of registering trade-marks since it is not exercising any of its past functions.

[50]            In summary, all of the trade-marks registered by THLI cannot be expunged pursuant to the last part of section 18 of the Act because THLI acquired the right to register Tommy Hilfiger's trade-marks through the transfer that occurred in 1992.

Non distinctiveness : paragraph 18(1)(b)

A.        Introduction

[51]            The registration of a trade-mark is invalid if the trade-mark is not distinctive. The definition of "distinctive" in section 2 of the Act reads as follows:

[52]            The function and the purpose of a trade-mark is to indicate the source of the goods. A trade-mark by definition must be and remain distinctive of a single source. In Labatt Brewing Co. v. Molson Breweries, a Partnership (1992), 42 C.P.R. (3d) 481 (F.C.T.D.), Dubé J. stated that distinctiveness requires that:

1.         a mark and a product be associated;

2.         the owner uses this association between the mark and its product and is manufacturing and selling this product; and

3.         this association enables the owner to distinguish its product from that of others (Philip Morris Incorporated v. Imperial Tobacco Ltd. et al (1985), 7 C.P.R. (3d) 254 (F.C.T.D.)).

[53]            There are two types of distinctiveness : inherent distinctiveness and acquired distinctiveness. A mark is distinctive when nothing about it refers the customers to a multitude of sources. Consequently, when a mark is a unique or invented name, such that it could only refer to one thing, it is possible to conclude that it is inherently distinctive. When a trade-mark does not have inherent distinctiveness, it may still acquire distinctiveness through continual use in the marketplace. However, to establish that distinctiveness has been acquired, it must be shown that the mark has become known to consumers as originating from one particular source.

[54]            In order to successfully establish that a trade-mark is invalid under this section, the trade-mark must be non-distinctive at the date of the commencement of the proceeding when the question of validity of the registration is alleged (Parke, Davis & Co., Ltd. v. Empire Laboratories Ltd. (1963), 41 C.P.R. 121 at 134 (F.C.T.D.), affirmed by the Supreme Court of Canada [1964] S.C.R. 351).

[55]            Fox states in Canadian Law of Trade-marks and Unfair Competition (3^rd ed.) Toronto, Carswell Co. Ltd, 1972 at page 24:

[...] No registration is invalid under s.18 merely because the trade mark was not distinctive at the time of registration. It may have acquired distinctiveness at the time proceedings bringing the validity of the registration into question are commenced, in which case it cannot be expunged on the ground of invalidity based upon non-distinctiveness because not only does s. 18(1)(b) provide otherwise but s. 56(1) [now s. 57(1)] allows consideration of validity only at the date of the application to strike out or amend.

[56]            As I understand this paragraph, it confirms the test of "distinctiveness" as of the date of commencement of the action for expungement. Consequently, it can be held that a mark, which was not distinctive at registration may have become distinctive in the meantime through the nature of its use by its owner.

[57]            Therefore, even if the defendants could demonstrate that the Hilfiger trade-marks were not distinctive at the date of its registration, they would still be required to demonstrate that the trade-marks were still not distinctive at the time the action was brought or that they have lost their distinctiveness.

[58]            Distinctiveness is a question of fact with the test being whether a clear message has been given to the public that the wares with which the trade-mark is associated and used are the wares of the trade-mark owner and not those of another party (White Consolidated Industries, Inc. v. Beam of Canada Inc. (1991), 39 C.P.R. (3d) 94 at 109-111 (F.C.T.D.)).

[59]            The determination of whether a trade-mark is distinctive is a question that can only be settled by considering the whole of the circumstances of the case (Fox, supra, at page 27):

In considering distinctiveness it is not proper to dissect a mark and to examine its component parts. It is the combination of the elements that constitutes a trade mark and gives distinctiveness to it and it is the effect of the trade-mark as a whole - the totality - rather than any particular element in it that must be considered. [...]

B.        Parties Submissions

i)          Plaintiffs

[60]            The plaintiffs allege that the defendants have the onus to establish that the trade-marks were invalid:

a)         at the date of registration if the defendant is claiming that the trade-marks were not registrable; or

b)         at the date of the commencement of the counterclaim if the defendant is claiming that the trade-marks are not distinctive.

[61]            They submit that the distinctiveness of a trade-mark depends on all the surrounding circumstances. They refer to the decision of the Federal Court of Appeal in John Labatt Ltd. et al v. Molson Breweries, a Partnership (2000), 5 C.P.R. (4th) 180 at 203 (F.C.A.) to establish that the exclusive use of a trade-mark may be compelling evidence of its distinctiveness but that exclusive use is not required to prove distinctiveness.

[62]            They conclude that the defendants have not adduced any evidence to demonstrate as a fact that the Tommy Hilfiger trade-marks are not distinctive or have lost their distinctiveness.

ii)        Defendants

[63]            The defendants argue that the Hilfiger trade-marks have lost their distinctiveness and consequently, that they should be expunged. They contend that a trade-mark may lose distinctiveness as a result of genericism, multiple users, change of product origin and as a result of functional or ornamental use (Heintzman v. 751056 Ontario Ltd. (1990), 34 C.P.R. (3d) 1 (F.C.T.D.) and Santana Jeans Ltd. v. Manager Clothing Inc. (1993), 52 C.P.R. (3d) 472) (F.C.T.D.)).

[64]            I believe that the relevant facts regarding the loss of distinctiveness can be summarized as follows. A first licence was granted to THC by THI in 1990 (the geographical licence). Then, in 1992, THI transferred its right to THLI. Following this transfer, THLI became the owner of all intellectual property rights and licences previously detained by THI. In 1994 THI merged with THUSA. In 1995 THLI amended its licence with THC (the Canadian Retail Licence). After a reorganization of THC in January 2001, the Canadian Retail Licence was transferred to a new division of the THC: THC Retail.

[65]            Before getting into the analysis of the distinctiveness, it is important to understand that there is a clear distinction between a transfer and a licence. This distinction can easily be acknowledged from the wording used in sections 48 and 50 of the Act. Accordingly, a licence does not confer any property right in the property that is subject to the licence; it is merely a right to use someone else's property for a certain period of time or/and upon certain conditions. On the other hand a transfer consist of the assignment of all or part of the previous owner's rights and interest to the new owner.

a)         Transfer

[66]            In the case at hand, two transfers occurred. The first one happened in 1992 between THI and THLI and the second one in 2001 between THC and THC Retail. The 1992 transfer was reiterated in 1993 in respect of the Canadian Tommy Hilfiger's trade-marks and their goodwill.

- Transfer between THC and THC Retail (2001)

[67]            The defendants argue that because of the reorganization of THC in January 2001, where portions of its business were transferred to THC Retail and THC Sales, none of the trade-marks at issue were, at the time of the commencement of the proceeding, distinctive of the plaintiffs' wares. In other words, the defendants argue that because the transfer was "untrammeled", it caused the marks to lose distinctiveness. The defendants allege that because of the transfer, it was impossible to know who the owner of the trade-marks was. Section 48 of the Act reads as follows:

[68]            I admit that it is possible that as a result of a transfer that the right to use a trade-mark may subsist in two or more person, therefore, creating some confusion as of what is the source of the product. Such confusion may have the effect of interfering with the trade-mark distinctiveness.

[69]            In the case at bar, I disagree with the defendants for the following reason. The transfer was not made between companies that had absolutely no link. Those companies are all subsidiaries of TH Corp. This transfer occurred following the reorganization of THC. The company to which the licence was transferred is still a Tommy Hilfiger company. Therefore, I cannot conclude that it could or had created confusion regarding the source of the wares.

[70]            I am of the view that the transfer between THC and THC Retail has not caused the marks to lose distinctiveness. In order for a mark to lose its distinctiveness, the transfer must create a confusion in the customer's mind regarding the source of the product. In the present case, the source of the wares is Tommy Hilfiger and because the transfer was made to a subsidiary of Tommy Hilfiger, I do not believe that a customer would have been confused about the origin of the wares. In addition, the defendants did not present any evidence to establish that a confusion in regard of the source of the product occurred.

- Transfer between THI and THLI (1992)

[71]            The defendants also contend that because the 1992 assignment to THLI did not transfer the goodwill that the transfer was not valid (paragraph 106 of the defendants' Statement of Fact and Law).

[72]            To be valid a transfer does not have to include goodwill. Historically, at common law, a trade-mark was only transferable together with the goodwill of the business with respect to which it had been used, since a trade-mark could not stand alone (Richard, Hugues G., supra at 48-2 referring to Lacteosote Ltd.v. Alberman (1927), 44 R.P.C. 211, Clauson J. (H.C.J. - Ch. D.), at 222). Since the function of a trade-mark was to indicate the source or origin of the goods to which it was attached, the mere assignment of a trade-mark, unrelated with any business, was not permitted, and was deemed to impair its distinctiveness (Dubiner v. Cheerio Toys and Games Ltd., [1965] 1 Ex. C.R. 524 at 539). However, since the coming into force of the present Act, the assignments may now be valid even though the goodwill is not transferred (subsection 48(1) of the Act).

b)         Licencing

[73]            Section 50 of the Act provides that the owner of a trade-mark may allow another person to use his trade-mark and such use will not impair the distinctiveness of the trade-mark provided that the other person is a licensee in accordance with this section. Such licensed use is deemed to be used by the owner.

[74]            Section 50 reads as follows:

[75]            This section requires that two conditions be met in order for the use, the advertisement and the display of the trade-mark by the licensee be deemed made by the owner. Those two conditions are: (1) the existence of a licence and (2) the existence of a certain control over the character and the quality of the wares.

[76]            In the present case, there is one licence that is of high interest. This licence was granted to THC in 1990 by THI (the geographical licence) and was latter amended by THLI in 1995 (the Canadian Retail Licence). The defendants argue that the evidence concerning the geographical licence demonstrate that THI only licenced THC to use a trade-mark that was not registered; the "TOMMY HILFIGER" trade-marks. They submit that the use by THC of other Tommy Hilfiger trade-marks without proper consent caused the Tommy Hilfiger's trade-marks to have lost their distinctiveness because it misled the public in regard of the source (paragraph 106 of the defendants' Statement of Fact and Law).

[77]            In response, the plaintiffs allege that they have used the shorthand "TOMMY HILFIGER" when referring to the trade-marks in order to include all of the Tommy Hilfiger's trade-marks. The plaintiffs submit that their intention was not to limit the licensee from using the trade-marks.

[78]            On the first point, I must say that I favour the plaintiffs' submissions. I believe that the shorthand "TOMMY HILFIGER" to define all of the Tommy Hilfiger's trade-marks registered at that time makes sense. As of the date of the licencing, no trade-mark had been registered for the name "TOMMY HILFIGER". Therefore it is reasonable to believe that the plaintiffs would have used this shorthand in order to simplify the licensing. Because the name "TOMMY HILFIGER" was registered as a trade-mark in 1994, it is reasonable to infer that the definition of trade-mark in section 1.3 of the geographical licence had to be modified and enlarged in 1995 in order to prevent any misinterpretation of the geographical licence.

[79]            On the second issue, I do not believe that it would be possible for the public to be confused about the source or the origin of the wares. Obviously, THI, THLI and THC are all TH Corp. subsidiaries. The origin of the wares would not be a source of confusion through the eyes of an average customer. It does not matter which subsidiary company has the licence or has granted the licence; it is still a Tommy Hilfiger product, controlled, sold and advertised by a Tommy Hilfiger company.

[80]            The defendants argue at paragraph 106 of their Statement of Fact and Law that because THLI does not manufacture the goods that such flaw is fatal to its registration. Later on, in paragraph 114 to 118, they submit that the quality control done on behalf of the owner THLI by its parent company is insufficient to meet the quality control requirement of section 50 of the Act. Quality control is the most important element when it comes to licencing. This section is silent as to how quality control is to be carried out. Therefore, we need to look at the quality control process that was established in the present case.

[81]            THUSA signed a Service Agreement (Exhibit P-15, p. 2) with THLI in 1992 in which it had the following obligations:

[...]          

(v)           Coordinate design and execution of licensed products.

(vi)          Review samples of licensed products prior to and periodically during the manufacturing process to preserve and ensure product integrity and quality.

(vii)         Plan and coordinate construction of licensees' dedicated Tommy Hilfiger showrooms.

(viii)        Coordinate product launches.

(ix)           Plan and execute advertising and promotional plans and programs.     [...]

[82]            Since the merger of THI with THUSA in 1994, THUSA's functions have not changed.    THLI does control the character and quality of the wares. Even if quality control is executed by another Tommy Hilfiger subsidiary, it does not mean that a lack of quality control exists. To the contrary, in the present case, THLI has a Service Agreement to ensure that the control is present. Since this control was established according to certain guidelines, I have no problem concluding that THLI does control the quality of the product even though it does not manufacture the goods. The delegation of such an obligation is not fatal to the licence and the registration.

[83]            In Mister Transmission (International) Limited v. Registrar of Trade Marks, [1979] 1 F.C. 787 (T.D.), Thurlow J. mentioned that the use by a registered owner (now a licensee) has the same effect as use by the owner. He however held that it does not mean that the owner must be deemed to be engaged in the manufacture, sale, leasing or hiring of the wares or the performances of the services in association with which the trade-mark is used.

c)         Conclusion

[84]            In the present case, the defendants have not proven that the trade-marks were not distinctive at the beginning of the proceeding. The evidence shows that the plaintiffs' trade-marks are distinctive. Flag design is an integral part of all promotion of the Tommy Hilfiger Brand (Allan Abramowicz's examination, November 24, 2003, pages 116 to 118). As of mid-2001, the Hilfiger logo had gained sufficient notoriety in Canada in association with articles of clothing that the use of the logo or perceived variations of the logo in association with articles of clothing was capable of causing a statistically significant misapprehension among the clothing purchasing public that such articles of clothing were made or licensed by Tommy Hilfiger (Dr. Corbin's affidavit and her examination on November 25, 2003).

[85]            Therefore, I agree with the decision held by the United Stated District Court in Tommy Hilfiger Licensing, Inc. v. Goody's Family Clothing, Inc., 2003 U.S. Dist. LEXIS 8788 at page 21 (Book of Authorities, Vol.1, Tab. B-14.) that the Hilfiger marks are presumptively strong marks.

[86]            Having said that, I conclude that the arguments of invalidity under section 18 of the Act, must therefore be dismissed.

Issue 2: Infringement under section 19 of the Act

[87]            Section 19 of the Act reads:

[88]            Section 19 applies in an action where it is established that a person other than the registered owner or his licensee uses a trade-mark as registered for any of the wares or services covered by the registered trade-mark. In other words, a defendant's unauthorized use of the identical trade-mark registered by a plaintiff in association with any identical wares or services constitutes an infringement, provided that the defendant used his design as a trade-mark according to section 2.

[89]            I will deal with the "use as a trade-mark" issue (which is also an element to be proven in a section 20 infringement) and will then come to the question of whether the Explore Canada logo is identical with TMA '095. According to section 2, a trade-mark is a "mark that is used by a person for the purpose of distinguishing or so as to distinguish wares or services manufactured, sold, leased, hired or performed by him from those manufactured, sold, leased, hired or performed by others". In Tommy Hilfiger Licensing, Inc. v. International Clothiers Inc. 2004 FCA 252, the Federal Court of Appeal reiterated the principle that, in determining whether a mark has been used as a trade-mark, the user's intention or public recognition is sufficient to demonstrate that the mark has been used as a trade-mark. The Court went on to state, at paragraph 44, that a trial judge's finding of confusion under subsection 6(5) constitutes a finding that the defendant's design would be recognized by the public as an indication that the wares associated with the design were those of the applicant. In the case at bar, I come to the conclusion that there is confusion between the Explore Canada logo and the Hilfiger trade-marks, as explained in further details in the section of this judgment dealing with the section 20 infringement. I am therefore warranted in concluding, in light of International Clothiers, that the defendants did use the Explore Canada logo as a trade-mark.

[90]            I now turn to the question of whether the Explore Canada logo is identical to any of the Hilfiger trade-marks. The only trade-mark at stake here is TMA '095, a fact that the plaintiffs themselves recognize. According to the plaintiffs, the Explore Canada logo is identical to TMA '095 as the logo comprises TMA '095 i.e. same colour combination and spacial relationship of the blocks of colour. They say that Quality Goods has merely added to TMA '095 the words "Explore Canada" or generic words and a common maple leaf or other custom insignia. Since Quality Goods has used the Explore Canada logo for shirts and carrying bags, wares covered by TMA '095, the plaintiffs argue that Quality Goods has therefore infringed TMA '095.

[91]            I come to the conclusion that the Explore Canada logo is not identical to TMA '095. The latter does not show the words "Explore Canada" or the name of a city or a province on it and does not have a maple leaf symbol or another symbol in the middle of it. I would respond to the plaintiffs' argument that the basic principle of addition implies a change, even if it is a minor one, between the original product and the new one. The product that was added to cannot be said to be identical to the first product.

[92]            Consequently, I conclude that there is no infringement under section 19.    

Issue 3: Infringement under section 20 of the Act

[93]            Section 20 of the Act reads:

[94]            For section 20 to apply, the Explore Canada logo used by the defendants as a trade-mark without the permission of the plaintiffs must have been confusing with the registered mark. I will analyze now each element of the infringement.

[95]            First, I already concluded, in my analysis of infringement under section 19, that the defendants' used the Explore Canada logo as a trade-mark within the meaning of section 2, i.e. the logo was "used as a mark for the purpose of distinguishing or so as to distinguish their wares from those sold ... by others". Second, it is uncontested that the sale of products showing the Explore Canada logo occurred, which represents use for the purposes of section 4. Third, there is no question that all the Hilfiger trade-marks at stake in this case were registered. Fourth, it is also uncontested that the plaintiffs had not authorized the defendants to use the Hilfiger trade-marks.

[96]            I now turn to the last element that needs to be proven in order to conclude to a section 20 infringement: whether the use of the Explore Canada logo would cause confusion with the Hilfiger's trade-marks. According to subsection 20(1), infringement occurs when there is use made of a "confusing trade-mark". In Tommy Hilfiger Licensing, Inc. v. International Clothiers Inc., [2003] F.C. 1087 (T.D.) at paragraph 42, Mackay J. describes well the concept of confusion and what proof needs to be made of it:

The Act provides the meaning of "confusion", i.e. trade-marks are confusing if the use of both trade-marks in the same area would be likely to lead to the inference that the wares associated with the trade-marks are manufactured or sold by the same person whether or not the wares are of the same general class (see s-s. 6(2)). In determining that matter, the Court has regard to all the surrounding circumstances including those specified in clauses (a) to (e) of s-s. 6(5).

[97]            Subsection 6(5) provides:

[98]            Before turning to the analysis of the factors in subsection 6(5), I would like to reiterate what the test of confusion is. I will borrow the words of the Federal Court of Appeal in Polo Ralph Lauren Corp. v.United States Polo Assn. (2000), 9 C.P.R. (4^th) 51 at paragraph 18:

[...] the Court is to put itself in the position of an average person who is familiar with the earlier mark but has an imperfect recollection of it; [...] the question is whether the ordinary consumer will, on seeing the later mark, infer as a matter of first impression that the wares with which the second mark is used are in some way associated with the wares of the earlier.

It should also be said that it is not necessary to prove that confusion has actually occurred in the marketplace but merely that confusion is likely to occur.

[99]            As to the factors set out by subsection 6(5), my analysis and conclusions are as follows. Unless specifically indicated, the analysis of the five different factors of confusion applies to all of the Hilfiger trade-marks in this case.

Paragraph 6(5)(a): The inherent distinctiveness of the trade-marks or trade-names and the extent to which they have become known

[100]        The first factor has to do with the strength of the marks. The inherent distinctiveness of a trade-mark refers to its originality. In ITV Technologies, Inc. v. WIC Television Ltd. (2003), 29 C.P.R. (4^th) 182 (F.C.T.D.), at paragraph 119, Tremblay-Lamer J. stated:

The inherent distinctiveness of a mark refers to its originality. A mark that is composed of a unique or invented name, such that it can only refer to one thing, will possess more inherent distinctiveness than a word that is commonly used in the trade. (My Emphasis)

[101]        An original design is inherently distinctive and considered a strong mark, as stated in Cochrane-Dunlop Hardware Ltd. v. Capital Diversified Industries Ltd. (1976), 30 C.P.R. (2d) 176 (Ont. C.A.) at paragraph 18:

It is well established that a trade mark consisting of a striking inventive name or an original design is inherently distinctive and is considered a strong mark. As such, it is entitled to a wide scope of protection. This is especially so if it has become well known through usage. On the other hand, if a mark lacks these exceptional qualities in design or wording, it is inherently less distinctive and is considered a weaker mark. The ambit of protection afforded to a weak mark is much less than for a strong mark, and registration of other marks containing comparatively small differences may be permitted. (My Emphasis)

[102]        I am convinced that the Hilfiger flag design is inherently distinctive as it is not descriptive of the clothing line or other products it designates - rather, it consists in an arbitrary combination and spacial relationship of blocks of color. This fact makes the Hilfiger flag design, prima facie, a strong mark. The Explore Canada logo is inherently distinctive for the same reasons the Hilfiger flag design is, since both are very similar in shape and color.

[103]        As to the extent to which both trade-marks have become known, also called "acquired distinctiveness", this distinctiveness is acquired through use in the marketplace. It must be shown that the trade-mark has become known as originating from one particular source.

[104]        The Hilfiger trade-marks have acquired great distinctiveness through extensive publicity and promotion campaigns. By 1996, when the Explore Canada logo was created and used, the Hilfiger trade-marks were already well-known. The sales figures for the Hilfiger products in Canada in the 90s and the beginning of the next century are an indication of how well-known Hilfiger trade-marks were: 1992: $8 million; 1996: $25 million; 2001: $125 million. The Explore Canada logo has been used in Canada and has therefore become known but not to the same extent as the Hilfiger's trade-marks. One only needs to consider that no consumer advertising or major promotion was made for the Explore Canada products, which were only advertised in catalogues distributed to retail customers and in semi-annual gift trade shows. The sales figures of Explore Canada products - approximately $2 million from the creation of the Explore Canada logo to 2001 - can also be compared with those of Hilfiger products. I conclude that the distinctiveness factor favours the plaintiffs.

Paragraph 6(5)(b): The length of time the trade-marks or trade-names have been in use

[105]        The length of time a trade-mark has been in use is the next factor in determining confusion. As Tremblay-Lamer J. states in ITV Technologies, supra at paragraph 135:

The length of time that a mark has been used is a factor which will contribute to confusion on behalf of the consumer in determining the origin of wares or services. A trade-mark that is newly adopted or registered only recently may be presumed not to have received wide public acceptance (Triple G. Manufacturing Inc. v. Work Wear Corp. (1990), 35 F.T.R. 193). On the other hand, a mark that has been used for a long time is presumed to have made a certain impression amongst consumers which must be given some weight (Pink Panther Beauty Corp, supra).

(My Emphasis)

[106]        Since the early nineties, THC commenced selling wares bearing TMA '827, and in 1993, 1994 and 1995, wares bearing TMA '095 and TMA '291 (Mr. Green and Abramowitz testimony), the other two trade-marks TMA '283 and '082 in 1997. Quality Goods first began to offer for sale and sell its Explore Canada products in Canada in 1996. This factor clearly favours the plaintiffs for TMA '827, TMA '095, TMA '291 and this factor favours the defendants with respect to TMA '283, TMA '082 as the defendants started using their Explore Canada logo before those trade-marks.

Paragraph 6(5)(c): The nature of the wares, services or business

[107]        It is not necessary to find that the business of the plaintiffs and Quality Goods actually overlap to find a likelihood of confusion. Subsection 6(2) provides that confusion may result "whether or not the wares are of the same general class". The Federal Court of Appeal explained in Miss Universe, Inc. v. Bohna (1994), 58 C.P.R. (3d) 381 (F.C.A.) at paragraph 14:

For a likelihood of confusion to be found, it is not necessary that the parties operate in the same general field or industry, or that the services be of the same type or quality. Trade marks for wares and services of one quality intended for one class of purchasers may be confusing with trade marks for wares and services of a different type or quality, intended for a different class of purchasers.    

[108]        TMA '827 covers clothing for men, namely pants, jackets, shorts, suits, sweaters, sweatpants, sweatshorts, bathing suits, robes, coats, jackets, raincoats, undershirts. TMA '095 covers, amongst other things, clothing for men and women, namely shirts, pants, jackets, sweaters, shorts, belts, vests, sport jackets, coats, raincoats, parkas. TMA '291 covers blazers, coats, jackets, jeans, overcoats, pants, parkas, shirts, shorts, sportcoats, sportjackets, sweaters, turtlenecks, vests, bathing suits, caps, socks, suits, sweatpants, sweatshirts, ties, undershirts, underwear. Quality Goods has, in association with the Explore Canada logo, offered for sale and sold soft goods namely t-shirts, golf shirts, sweatshirts, caps, toques, scarves, headbands, outerwear (i.e. ski jackets), backpacks, waist bags, duffel bags and shopping bags, and hard goods namely mugs, pens, key chains, licence plates, playing cards, magnets, hockey pucks, lapel pins, coasters, ashtrays, beer steins, shooter and shot glasses. In summary, there is an obvious overlap of wares, i.e. t-shirts, golf shirts, sweatshirts and outerwear, between the Hilfiger trade-marks '827, '095 and '291 and the Explore Canada logo.

[109]        It should be noted though that despite the fact that THC distributes and sells promotional items including mugs, pens and key chains, the trade-marks registration does not cover these wares. As a result, despite the overlap in the sale of mugs, pens and key chains by both parties, this overlap cannot be taken into account in favour of the plaintiffs.

[110]        As for the wares associated with TMA '283 (cosmetics; perfumery; toiletries; suntan lotions; bronzing sticks; soap products and hair care products) and with TMA '082 (cosmetics; perfumery; toiletries; suntan lotions; bronzing sticks; soap products and hair care products), they are not similar to the wares sold in association with the Explore Canada logo.

[111]        In conclusion, there is a clear overlap in the nature of some of the Hilfiger products used in association with TMA '827, TMA '095 and TMA '291 with Explore Canada products which means that, for these three trade-marks, the factor related to the nature of the wares favours the plaintiffs.

Paragraph 6(5)(d): The nature of the trade

[112]        The trade in which the wares or services circulate is also a factor in the confusion analysis. The risk of confusion is greater where the wares or services, though dissimilar, are distributed in the same types of stores. The Hilfiger products are sold in upscale retailers comprised of chain stores, specialty stores, duty free shops and other large department stores selected for their image, location and brand selection. The Explore Canada products are sold in low end tourist shops, specialty stores such as United Cigar Stores, and duty free shops. The wares of both parties are sold across Canada and the nature of the trade overlaps with both of these wares sold in duty shops and specialty stores. This factor favours the plaintiffs.

Paragraph 6(5)(e): The degree of resemblance between the trade-marks or trade-names in appearance or sound or in the ideas suggested by them

[113]        In considering the resemblance between trade-marks for the purpose of determining whether the trade-marks are confusing, the Court must consider them in their entirety and not dissect them and put itself in the position of an average consumer who is familiar with the earliest mark but has an imperfect recollection of it. Nevertheless, it is possible to focus on particular features of a mark that may have a determinative influence on the public's perception of it.

[114]        With this factor, TMA '291, i.e. the name TOMMY HILFIGER, is clearly not at stake in this proceeding as this trade-mark consists only of a name, while the Explore Canada logo consists of a rectangle with colors and words in it. As for TMA '827 and TMA '082, they are somewhat similar to the Explore Canada logo as they consist of the same rectangle with the same association and spacing of colors, but the words "TOMMY HILFIGER" and "EXPLORE CANADA" (or other regional designation) create a clear visual distinction between the two Hilfiger trade-marks and the Explore Canada logo. The main Hilfiger trade-mark at stake with regards to the degree of visual resemblance with the Explore Canada logo is TMA '095, which consists of a rectangle containing colors but no words. The Explore Canada logo consists of exactly the same rectangle in terms of spacial arrangement and colors as TMA '095. The only additions in the defendants' design are a maple leaf or other insignia in the middle of the rectangle and the words "Explore Canada" or a regional designation in the upper and lower parts of the rectangle. I conclude that the Explore Canada logo bears a high degree of visual resemblance with TMA '095, especially in light of the "consumer's imperfect recollection" test. I do not see how the marks in issue in this case could bear ideas that would need to be compared. In relation to TMA '095, the factor pertaining to the degree of resemblance therefore favours the plaintiffs.

Surrounding circumstances

[115]        In addition to the five factors enumerated in subsection 6(5), the Act directs the Court to consider all the surrounding circumstances. In the case at bar, the plaintiffs argue three additional factors.

[116]        First, they state that Quality Goods' refusal to disclose the results of the legal advice it sought in 1996 with regards to the use of the Explore Canada logo warrants an inference that the advice was that the logo might infringe the Hilfiger trade-marks. The only Canadian caselaw cited by the plaintiffs on this issue, Milliken & Co. v. Interface Flooring Systems (Canada) Inc. (2000), 5 C.P.R. (4^th) 209 (F.C.A.), is irrelevant as it does not deal with solicitor-client privilege in the context of legal advice sought or given but rather with the plaintiffs' failure to call the designer to testify as to the date of creation of the design. I therefore draw no adverse inference from the fact that the defendants did not submit in evidence the results of the solicitor-client privileged legal advice they sought.

[117]        Second, the plaintiffs rely on a survey conducted by their expert witness, Dr. Ruth Corbin, in another infringement case involving Hilfiger. In 2001, approximately 300 persons in four malls across Canada were shown a pair of jeans with a logo and a second pair of jeans. The purpose of the survey was to measure the extent to which the clothing purchasing public perceived that two pairs of jeans, marked with Boxer America in different logo designs, are manufactured or licensed by Tommy Hilfiger.

[118]        I agree with the defendants' expert witness, Darrel Bricker, that even though the Boxer America survey follows the basic rules for conducting consumer surveys on general trade-mark issues, the survey offers no meaningful insight on the issues to be determined in the case at bar except for the evidence that as of mid-2001, the Hilfiger logo had gained sufficient notoriety in Canada in association with articles of clothing that the use of the logo or perceived variations of the logo in association with articles of clothing was capable of causing a statistically significant misapprehension among the clothing purchasing public that such articles of clothing were made or licensed by Tommy Hilfiger (Dr. Corbin's affidavit and her examination on November 25, 2003). The survey did not target tourists, which is the target population in this case, but rather the general clothing purchasers or jeans purchasers in areas that are not high traffic tourist areas. The survey did not use the defendants' products to make the comparison and used a type of ware, i.e. jeans, that is not even sold by Quality Goods. Quality Goods sells t-shirts, not jeans. For the above-mentioned reasons, the survey cannot be given any weight in the case at bar apart from the exception noted above.

[119]        Third, the plaintiffs offered Mr. David Livingstone as an expert. The defendants did not agree that this witness should be qualified as an expert. After a review of his curriculum vitae, I concluded that his testimony could be helpful in this case. However, on cross-examination, he had to admit that he did not know when the Hilfiger flag design was created. He had no scientific data to support his allegations. He did not know when sales of Hilfiger garments started in Canada and how much they were sold for. Talking about the hip-hop culture, he had no statistics, no data. The same is for the awareness of the public for the Hilfiger logo. He had made no research before signing his affidavit. Therefore, I disregard his entire testimony because I find that it is not convincing and probing evidence.

[120]        The plaintiffs did not present any evidence of actual confusion. Nicola Bavaro, a THC director in Montreal, did mention an incident where a client of a store called Galaxi Blue complained about the Explore Canada products but as Mr. Bavaro did not recall the name of the Galaxi Blue owner and as the store is now closed, no weight can be given to that isolated, unsubstantiated incident.

Conclusion as to the likelihood of confusion

[121]        I have taken into account all five factors indicated in subsection 6(5) but find that, in four cases, one factor clearly disqualifies a finding that there is a likelihood of confusion.

[122]        Because of the important visual difference between TMA '291 and the Explore Canada logo (TMA '291 is only a word, not a rectangle with colors), I cannot come to the conclusion that the Explore Canada logo infringes TMA '291. I also come to the same conclusion with respect to TMA '827 (rectangle with colors and the words "Tommy Hilfiger"), though this situation is not as clear cut as that with TMA '291. TMA '827 presents a rather important visual difference that would prevent a likelihood of confusion in a consumer's mind, i.e. the words "Tommy Hilfiger" which are obviously very different from the words found on the defendants' wares, i.e. "Explore Canada" or another regional designation.

[123]        Because of the obvious difference in the nature of the wares registered in association with TMA '283 and TMA '082 (cosmetics; perfumery; toiletries; suntan lotions; bronzing sticks; soap products and hair care products in both cases) compared to the wares sold by Quality Goods (shirts, caps, toques, scarves, headbands, outerwear, bags, mugs, pens, key chains, licence plates, playing cards, magnets, hockey pucks, etc.), I find that there is no likelihood of confusion between TMA '283 and TMA '082 and the Explore Canada logo on Quality Goods' products.

[124]        I now turn to the last Hilfiger trade-mark. I find that the Explore Canada logo does create a likelihood of confusion with Hilfiger's TMA '095 (rectangle with colors without the words "Tommy Hilfiger"). Looking at the first element in the confusion analysis, the Hilfiger trade-marks is a strong mark because of its originality in design and its acquired distinctiveness through years of extensive publicity and sales. TMA '095 was registered and used a few years (1994) before Quality Goods started using its Explore Canada logo (1996). Some of the wares sold by both parties in association with their respective mark are exactly the same (t-shirts, sweaters, etc.). There is an overlap of some of the stores through which products by both parties are sold (e.g. duty shops and specialty stores). Finally, the degree of visual resemblance is very high, as the only difference between TMA '095 and the Explore Canada logo is the addition, on the latter, of the words "Explore Canada" or a regional designation and of the maple leaf or another insignia in the middle of the rectangle. In light of these five factors, I conclude that the Explore Canada logo is likely to cause confusion with TMA '095 and therefore infringes section 20 of the Act. In other words, I am satisfied that a probable consumer in a tourist shop who saw in 1996, or even now, an Explore Canada t-shirt for example, would think, as a matter of first impression, that he or she is looking at a Tommy Hilfiger t-shirt that is being sold at a good price. In sum, the Explore Canada logo infringes section 20 of the Act as it is likely to cause confusion with TMA '095.

Issue 4: Depreciation of the value of the goodwill under section 22 of the Act

[125]        Section 22 of the Act reads:

[126]        In order to prove the depreciation of the value of its goodwill, a plaintiff needs to show that the defendant used, within the meaning of use under section 4, the plaintiff's registered trade-mark. Second, the plaintiff needs to show that such use is likely to have the effect of depreciating the value of the goodwill attached to its trade-mark. As stated in Clairol International Corp. v. Thomas Supply & Equipment Co., [1968] 2 Ex. C.R. 552 (Ex. Ct.) at paragraph 37 and in Compagnie Générale des Établissements Michelin-Michelin & Cie v. National Automobile, Aerospace, Transportation and General Workers Union of Canada (CAW-Canada), [1997] 2 F.C. 306 (T.D.) at paragraph 31, there is no requirement that the trade-mark be "used as a trade-mark" under subsection 2.

[127]        There is no doubt that Quality Goods used a mark similar to the plaintiffs' registered trade-marks, which evoked a connection in the mind of the public. The question then becomes whether such use is likely to have the effect of depreciating the value of the goodwill attached to the plaintiffs' trade-marks.

[128]        As stated in Clairol International Corp. at paragraph 41, goodwill is the reputation that has been built up by the owner of the trade-mark through years of honest work or substantial expenditure of money, with the consequent advantage that the wares or services provided by the owner are associated with the trade-mark. In Kirkbi AG v. Ritvik Holdings Inc. (2002), 20 C.P.R. (4^th) 224 at 258 (F.C.T.D.), goodwill is defined as "the benefit and advantage of the good name, reputation and connection of a business, the attractive force which brings in customers, and the one thing that distinguishes an old-established business from a new business at its first start".

[129]        Depreciating of the value of the goodwill occurs "whether it arises through reduction of the esteem in which the mark itself is held or through the direct persuasion and enticing of customers who could otherwise be expected to buy or continue to buy goods bearing the trade-mark" (Clairol International Corp., supra at paragraph 42). There is no requirement to show a likelihood of confusion in order to prove a likelihood of depreciation of the value of the goodwill. However, the potential for confusion may have the effect of depreciating the value of the goodwill of a registered trade-mark (ITV Technologies, supra at paragraph 195).

[130]        The plaintiffs argue that Quality Goods sought to cash in on THLI's established reputation with the result that the exclusivity of the association of the Hilfiger flag design with the Tommy Hilfiger brand and image was impaired. As a result, the plaintiffs say, the esteem in which the Hilfiger flag trade-marks was held by the customers familiar with those trade-marks was reduced.

[131]        I accept that consumers will probably make a connection in their mind between the Explore Canada products and Hilfiger. However, it is not sufficient to simply state that that mental connection will reduce the esteem in which consumers hold the Hilfiger trade-marks. The depreciation of the value of the goodwill attached to a trade-mark is a somewhat intangible concept that can be at times hard to prove. Some elements of proof must be presented to the Court to show that there is, indeed, at least a likelihood that a negative impression would be left in the mind of the consumer, and what that negative impression would be, or else, some elements of proof must be presented showing there is a likelihood of direct persuasion and enticing of customers who could otherwise be expected to buy or continue to buy goods bearing the trade-mark.

[132]        In the case at bar, I was presented with absolutely no evidence showing a likelihood of the depreciation of the goodwill attached to the Hilfiger trade-marks. I therefore conclude that the defendants' use of the Explore Canada logo has not depreciated the value of the goodwill attached to Hilfiger's registered trade-marks, and there is no infringement of section 22.                   

Issue 5: Passing-off under paragraph 7(b) of the Act

[133]        Paragraph 7(b) of the Act reads:

[134]        Paragraph 7(b) of the Act is a codification of the common law tort of passing-off. According to the Supreme Court of Canada in Ciba-Geigy Canada Ltd. v. Apotex Inc., [1992] 3 S.C.R.120 at paragraph 33, to succeed in an action for passing-off, the plaintiff must prove three components: existence of goodwill, deception of the public due to a misrepresentation and actual or potential damage to the plaintiff. In other words, the plaintiffs must establish that they had a measure of goodwill or reputation in the mind of the purchasing public, in relation to their wares associated with their Hilfiger trade-marks; that Quality Goods, in the sale of its wares marked with the Explore Canada logo, would be likely to cause confusion to the purchasing public in Canada; and that the plaintiffs thereby suffered or are likely to suffer damage.

[135]        I will turn to the first element: existence of goodwill. The evidence clearly supports a conclusion that the plaintiffs had indeed established significant goodwill or reputation for their Hilfiger trade-marks, by reason of their extensive advertising and substantial sales in Canada.

[136]        With respect to the second element, the likelihood that the defendants' wares would cause confusion with the plaintiffs' wares, I have already concluded in my analysis of section 20 and subsection 6(5) that there is indeed a likelihood of confusion between the Explore Canada products.

[137]        As for the third element, actual or potential damage for the plaintiffs, I find myself with the same absence of evidence as in my analysis of section 22 with regard to the negative impact the defendants' competition had on the plaintiffs' business. Not only was I not presented with evidence quantifying the damage to the plaintiffs' interests but I was not presented with evidence showing merely the nature of the damage. The only piece of evidence that remotely touches on that point is the complaint, by a client of the Galaxi Blue store, about the Explore Canada products. But as I said earlier in this decision, the witness testifying to that effect could not recall the name of the Galaxi Blue owner and the store is now closed. As a consequence, no weight can be given to that complaint. In any case, without other evidence, this type of isolated incident would be, even if credible, highly insufficient to meet the "potential or actual damage" threshold necessary to conclude to passing-off under paragraph 7(b).

[138]        In sum, the absence of evidence with regard to potential or actual damage to the plaintiffs means that I cannot conclude the defendants were involved in passing-off under paragraph 7(b) of the Act.

Issue 6: Personal liability of defendant Rosen

a)         Plaintiffs' submissions

[139]        The plaintiffs argue that Mr. Rosen should be held personally liable for the infringement of the Tommy Hilfiger's trade-marks. They submit that:

1)         Mr. Rosen is the sole shareholder and co-director of Quality Goods;

2)         he was intimately involved in the creation of the Explore Canada Logo and made the ultimate decision to have Quality Goods use the logo;

3)         he was personally aware of the Tommy Hilfiger trade-marks.

b)         Legal Context

[140]        The Ontario Court of Appeal held in Normart Management Ltd. v. West Hill Redevelopment Co. (1998), 37 O.R. (3d) 97, page 102:

It is well established that the directing minds of corporations cannot be held civilly liable for the actions of the corporations they control and direct unless there is some conduct on the part of those directing minds that is either tortious in itself or exhibits a separate identity or interest from that of the corporations such as to make the acts or conduct complained of those of the directing minds: see Scotia McLeod Inc. v. Peoples Jewellers Ltd. (1995), 26 O.R. (3d) 481 at p. 491, 129 D.L.R. (4th) 711 (C.A.).

[141]        Therefore, the mere fact of exercising control in a company is not sufficient to establish personal liability. What kind of conduct can trigger personal liability? Le Dain J.A. offers his views in Mentmore Manufacturing Co., Ltd. v. National Merchandising Manufacturing Co. Inc. (1978), 89 D.L.R. (3d) 195, (1978), 22 N.R. 161 (F.C.A.):

What, however, is the kind of participation in the acts of the company that should give rise to personal liability? It is an elusive question. It would appear to be that degree and kind of personal involvement by which the director or officer makes the tortious act his own. It is obviously a question of fact to be decided on the circumstances of each case.[...]

[142]        In my opinion, there must be circumstances from which it is reasonable to conclude that the purpose of the director or officer of a company is to deliberately, willfully and knowingly pursue a course of conduct that will incite infringement or an indifference to the risk of infringement. The precise formulation of the appropriate test is obviously a difficult one. Room must be left for a broad appreciation of the circumstances of each case to determine, if there is personal liability (Mentmore, supra, at pages 172-174).

[143]        The evidence does not demonstrate such deliberate, willful, and knowing pursuit on the part of Mr. Rosen to infringe the plaintiffs' trade-marks.

[144]        There is no convincing evidence that Mr. Rosen was at any time acting outside his capacity as a director or officer of Quality Goods. I find therefore, that there is no personal liability on the part of the defendant Rosen.

Issue 7: Counterclaim by defendant Rosen

a)         Submissions of Mr. Rosen

[145]        The defendant Rosen claims damages in the amount of $1,000,000, pre- and post-judgment interest, and his costs in defending this action on a solicitor-client basis.

[146]        At the end of the fiscal year ending in September 1999, the retained earnings of the defendant Quality Goods were $3,662,709.

[147]        Immediately beforehand, in August 1999, the plaintiffs began their campaign to put an end to the "Explore Canada" logo and appropriate themselves the red, white and blue colour scheme. In August 1999, the plaintiffs or others acting on their behalf, communicated with two of the most important customers of Quality Goods, indicating that they would be the subject of legal proceedings and other harassment unless they stopped marketing the "Explore Canada" products. Both of these customers, Niagara Parks Commission and Hachett Distribution (HD) which owns the United Cigar Stores chain, stopped ordering "Explore Canada" products. In fact, HD returned such products.

[148]        Prior to the plaintiffs' campaign, sales of "Explore Canada" products represented approximately 8% of sales by Quality Goods. As a result of the intended expansion of and anticipated demand for the "Explore Canada" line, Quality Goods had increased a number of fixed costs, including inventory.

[149]        The plaintiffs, or those acting on behalf of the plaintiffs, abused their rights in making exorbitant claims with respect to the protection and infringement of their marks, knowing full well the difference in the shape and appearance of the trade-marks and the difference in trade, nature of wares, and places where the wares are sold.

[150]        Moreover, even with this knowledge, the plaintiffs chose to interfere with the contractual relationships of the defendant Quality Goods, persuading HD to return goods and both HD and the Niagara Parks Commission to stop ordering goods.

[151]        In so doing, the plaintiffs abused their rights and breached paragraph 7(a) of the Act, in a manner that tended to discredit the business of Quality Goods. Paragraph 7(a) reads:

[152]        As a result of the abuse of rights of the plaintiffs, defendant Quality Goods suffered reductions in sales and profit margins in the fiscal years 2000 and 2001 and the value of the shares held by the defendant Rosen in Quality Goods has been reduced by approximately $1,000,000.

[153]        No evidence was adduced to support such allegations. No financial statements or reports from an accountant were filed to substantiate a reduction in the value of the shares held by the defendant Rosen in Quality Goods. Therefore the counterclaim is dismissed.

CONCLUSIONS AND REMEDIES

[154]        I sum up my conclusions as follows:

1.         Are the registered Hilfiger trade-marks invalid? NO

2.         Did the defendants infringe the plaintiffs' rights under section 19 of the Act? NO

3.         Did the defendants infringe the plaintiffs' rights under section 20 of the Act? DEFENDANT PRODUITS DE QUALITÉ I.M.D. INC.: YES, FOR TMA 432,095

4.         Was the defendants' use of his marks likely to have the effect of depreciating the value of the goodwill attaching to plaintiffs' trade-marks contrary to section 22 of the Act? NO

5.         Was there passing-off of the defendants' wares as those of the plaintiffs in contravention of paragraph 7(b) of the Act? NO

6.         Should the defendant Rosen be personally held liable/responsible for the wrongdoing, if any, of the defendant Quality Goods? NO

7.        The parties agreed that the remaining questions such as permanent injunction under section 20 of the Act; damages; accounting of profits; exemplary damages; pre- and post-judgment interest; order directing the defendant to deliver up to the plaintiffs all wares; costs; are to be settled by the Court by supplementary order, on the basis of an agreement between the parties, or, failing agreement, on the respective submissions of counsel.

JUDGMENT

THIS COURT ORDERS that:

1.         The plaintiff's claim under section 20 of the Act for TMA 432,095 against defendant, Produits de Qualité I.M.D. Inc. is allowed with costs. The remaining questions such as permanent injunction under section 20 of the Act for damages, accounting of profits, exemplary damages, pre- and post-judgment interest, order directing the defendant to deliver up to the plaintiffs all wares, and costs are to be settled by the parties no later than February 7, 2005. Failing an agreement, the plaintiffs shall serve and file their written representations no later than February 18, 2005. The defendant, Produits de Qualité I.M.D. Inc. shall serve and file its submissions no later than March 4, 2005 and the plaintiffs shall reply, if they choose to do so, no later than March 11, 2005.

2.         The action against defendant Harold Rosen is dismissed with costs. Costs are to be settled between the parties no later than February 7, 2005. Failing an agreement, the defendant, Harold Rosen shall serve and file his written representations no later than February 18, 2005. The plaintiffs shall serve and file their submissions no later than March 4, 2005 and the defendant, Harold Rosen shall reply, if he chooses to do so, no later than March 11, 2005;

3.         The counterclaim of the defendant, Harold Rosen is dismissed. There is no order as to costs.

                  "Michel Beaudry"                     

Judge                           

ANNEX 1

Sections 12 to 15 provide as follows :

                                     FEDERAL COURT

    NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                   T-2235-99

STYLE OF CAUSE: TOMMY HILFIGER LICENSING INC.,

TOMMY HILFIGER CANADA INC.

and

PRODUITS DE QUALITÉ I.M.D.

INC. AND HAROLD ROSEN

PLACE OF HEARING:         Montreal, Quebec

DATE OF HEARING:           November 24, 25, 26, 27 28, 2003

May 17, 19 and 20, 2004

August 31, 2004

REASONS FOR ORDER AND ORDER: The Honourable Mr. Justice Beaudry

DATE:                                    January 7, 2005

APPEARANCES:

Glen Bloom                                                    FOR THE PLAINTIFFS

Ross Carrière

Arthur Sanft                                                 FOR THE DEFENDANT,

Quality Goods I.M.D. Inc.

Aaron Rodgers                                             FOR THE DEFENDANT,

Harold Rosen

SOLICITORS OF RECORD:    

Glen Bloom, Ross Carrière                             FOR THE PLAINTIFFS

OSLER, HOSKIN & HARCOURT

Ottawa, Ontario

Arthur Sanft                                                 FOR THE DEFENDANT,

Montreal, Quebec

Quality Goods I.M.D. Inc.

Aaron Rodgers                                             FOR THE DEFENDANT,

SPIEGEL SOHMER

Harold Rosen