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Trademarks - Goodwill. Dragona Carpet Supplies Mississauga Inc. v. Dragona Carpet Supplies Ltd.
In Dragona Carpet Supplies Mississauga Inc. v. Dragona Carpet Supplies Ltd. (Fed CA, 2023) the Federal Court of Appeal considered (and dismissed) an appeal from a denied claim that sought: "a declaration that the respondents had passed off its trademark, contrary to both the common law and subsection 7(b) of the Trademarks Act, R.S.C., 1985, c. T-13 (Act), an injunction and damages".
In these quotes the court considers a claim for trademark 'goodwill':The goodwill analysis
[20] The appellant contends that Dragona Mississauga’s post-2012 goodwill did not accrue to Dragona Scarborough. It argues that the judge erred in law in failing to identify the relevant market segment in which there was goodwill, as required by Ciba-Geigy Canada Ltd. v. Apotex Inc., 1992 CanLII 33 (SCC), [1992] 3 S.C.R. 120, 95 D.L.R. (4th) 385 [Ciba-Geigy]. The failure to apply the correct test for goodwill is an error of law (Sadhu Singh Hamdard Trust v. Navsun Holdings Ltd., 2016 FCA 69, 483 N.R. 33), but I do not believe that such an error was made.
[21] The judge was mindful of Ciba-Geigy and its requirement that passing off analyses must consider all persons affected by the product and their attitudes at the time of their connection with the product. This may result in a finding that one category of consumers is confused while another category is not (for example, doctors versus patients in the context of prescription drugs). However, the judge noted that in assessing goodwill, “one ought not to unduly restrict the customers to one group”, even if the business may have greater goodwill amongst one class of customers. Rather, the court must “determine whether the goodwill is among all customers or a subset of them” (Federal Court decision at para. 100). The court concluded that Dragona Scarborough and Dragona Mississauga both sell to contractors, retailers, and the public, with most sales made to contractors.
[22] I note that to the extent the Federal Court’s reasons can be read as holding that a goodwill analysis need never separate out categories of customers, I do not agree. Different classes of consumers can have very different perspectives on the same product or service (again, for example, doctors versus patients, as illustrated in Ciba-Geigy). A separate analysis for a certain type of consumer will be necessary where the evidence shows that one group may clearly be confused while another may not be. That, however, was not the case here.
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The finding of an oral licence
[27] The appellant argues that the Federal Court committed a palpable and overriding error in holding that Dragona Mississauga’s post-2012 goodwill accrued to Dragona Scarborough, since Dragona Scarborough did not exercise adequate control over the character or quality of the goods or services of Dragona Mississauga, as required under subsection 50(1) of the Act. More particularly, the appellant contends that the Federal Court erred in holding that an acknowledgement of ownership must be seen as an acknowledgement of right to control the mark. The appellant argues that its acknowledgement of ownership is insufficient to show control, rather subsection 50(1) requires evidence of control of the goods and services associated with the mark.
[28] Having found that there was no agreed division of the market east and west of Yonge Street, and that Dragona Scarborough had goodwill throughout the GTA, the court concluded that any goodwill in the DRAGONA trademark accrued by the appellant belonged to Dragona Scarborough by virtue of subsection 50(1) of the Act. Consistent with the judge’s prior findings of fact as to the understanding between Nizar and Talal, any use of the DRAGONA trademark by Dragona Mississauga, whether before or after the share purchase agreement in 2012, was based on an oral licence of use from Dragona Scarborough.
[29] The Federal Court judge did not err in his appreciation of the evidence nor in his understanding and application of the law.
[30] The judge conducted an extensive review of the business relationship between Dragona Scarborough and Dragona Mississauga from 1992 to 2021. He noted that Dragona Mississauga was opened to expand the business of the already well-established Dragona Scarborough. Nizar had “significant dealings” with Talal and both the Dragona businesses, and there was considerable cross-over between the businesses with respect to products, suppliers, rebates, and even inventory and customers (though the inventory sharing arrangement ended in 2012) (Federal Court decision at paras. 131-135). Specifically, the volume rebates allowed Dragona Scarborough to influence the goods sold by Dragona Mississauga (Federal Court decision at para. 139).
[31] The judge found that this licence continued following the share purchase in 2012. He noted that the share purchase agreement related to the sale of shares only (not any licence agreement), and that the agreement was between Nizar and Talal as individuals, and therefore could not have addressed the use of the DRAGONA trademark, as this would have required Dragona Scarborough and Dragona Mississauga to be parties to the agreement (Federal Court decision at paras. 143-144). The judge also pointed out that even post-2012 the appellant continued to carry largely the same goods as Dragona Scarborough, likely due to the rebates (Federal Court decision at paras. 139-140).
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