Section 22 of the Canadian Trademarks Act prohibits the use of a registered trademark “in a manner that is likely to have the effect of depreciating the value of the goodwill attaching thereto”.

The Federal Court recently released its long-awaited decision in Energizer Brands, LLC and Energizer Canada Inc. v The Gillette Company et al (2023 FC 804). Although Section 22 was enacted almost 70 years ago, this decision is one of a few cases that has engaged in a detailed review of the application of the Section 22 depreciation of goodwill provisions in the context of comparative advertisements.

Background Facts

In this action, Energizer sought damages against The Gillette Company and several of its affiliates (collectively “Duracell”) for a comparative advertising campaign. As part of the campaign, Duracell sold batteries in packaging displaying stickers that included claims relating to the performance of Duracell’s batteries as compared to those of Energizer. Three different statements were used on the stickers; one that made direct reference to Energizer’s registered trademarks ENERGIZER and ENERGIZER MAX, a second that used the phrase “the bunny brand” (an indirect reference to the Energizer Bunny, Energizer’s iconic “spokes-character” that was the subject of several trademark registrations) and a third that only referenced “the next leading competitive brand”. Energizer asserted that each version of the stickers violated Section 22 of the Trademarks Act.

Energizer also asserted that Duracell’s comparative advertising campaign incorporated deceptive and false or misleading statements in violation of provisions of the Trademarks Act and the Competition Act.

Analysis

The Court dismissed Energizer’s deceptive and false or misleading advertising claims, and the depreciation of goodwill claims relating to the use of phrases “the bunny brand” and “the next leading competitive brand” in the comparative advertising. However, Energizer was successful in its depreciation of goodwill claim relating to the use of stickers attached to Duracell batteries that stated that the Duracell batteries were longer lasting than comparable ENERGIZER or ENERGIZER MAX batteries.

As was set out by the Supreme Court of Canada in Veuve Clicquot Ponsardin v Boutiques Cliquot Ltée, 2006 SCC 23, a claimant must meet a four-part test to succeed in a claim for depreciation of goodwill under Section 22. The claimant must prove (i) the defendant has used the claimant’s registered trademark with goods or services (regardless whether they are competitive with those of the claimant); (ii) the claimant’s registered trademark is sufficiently well known to have a significant degree of goodwill attached to it (although there is no requirement that the trademark be well known or famous); (iii) the defendant’s use of the trademark was likely to have an effect on that goodwill (in other words, there was a linkage); and (iv) the likely effect is to depreciate or cause damage to the value of the goodwill.

The Court found that the stickers that displayed ENERGIZER and ENERGIZER MAX used Energizer’s trademarks and that substantial goodwill attached to the trademarks, finding that “the trademark ENERGIZER is a well known, if not famous trademark”. With respect to the final two elements of the test, although the Court noted that the evidence did not contain any “primary data” about how customers actually reacted to the stickers, the Court held that the stickers were examples of the trademarks “being bandied about resulting in lost control for the trademark owner and lesser distinctiveness” in circumstances where “jurisprudence does not permit their use by third parties absent consent, such as on third-party packaging”. As a result, following the previous decision in Clairol International Corp. et al v Thomas Supply and Equipment Co., the Court concluded that Energizer had shown a likely depreciation of goodwill in its registered trademarks ENERGIZER and ENERGIZER MAX in a manner contemplated by Section 22.

In terms of remedies, the Court declined to give Energizer the option of electing an accounting of profits from Duracell because Energizer had failed to demonstrate causation between the presence of the impugned stickers on the Duracell packaging and the profits earned by Duracell on the sale of such batteries. However, even though the Court was of the view that Energizer had “not occasioned any demonstrable loss in the form of market share” as a result of the stickers, it nevertheless awarded CDN$179,000 in damages, which represented an equitable amount taking into account the need to deter the “bandying about” of Energizer’s registered trademarks. The Court also granted a permanent injunction.

In rejecting the depreciation of goodwill claim for use of the phrase “the bunny brand”, the Court noted that there was no evidence of any other competitor in the battery field using a rabbit or bunny design as a trademark. Accordingly, the Court found that use of the phrase “the bunny brand” was a shorthand reference to the Energizer Bunny. However, the Court was also of the view that these conclusions did not “answer fully the issue of linkage” under the third element of the test. The Court found that the average hurried consumer was unlikely to pause long enough at the in-store battery rack to read the sticker to note the reference to “the bunny brand”, which was in much smaller print than the trademark DURACELL and the other more prominent features on the label. The Court also noted that to make the linkage would require that the consumer to take extra mental steps when confronted with the indirect phrase “the bunny brand” (in contrast to the direct reference to the trademarks ENERGIZER and ENERGIZER MAX). As a result, the Court found that Duracell was “not bandying about an Energizer trademark” and absent any evidence of consumer reaction to the sticker, it was unable to find that Duracell had depreciated the goodwill in any of the registered trademarks for the Energizer Bunny.

The Court was also not persuaded that there was any likelihood of depreciation of goodwill in Energizer’s registered trademarks by reason of Duracell’s use of the phrase “the next leading competitive brand” on the stickers. The Court was of the view that there was no evidence that the average hurried consumer was going to notice much on the “busy label”, if anything, beyond the other more prominent features. The Court was also of the view that evidence did not prove that the phrase “next leading competitive brand” comprises a distinctive aspect of, or may be mistaken for, an Energizer registered trademark and was not “sufficiently similar to any of the Energizer Trademarks so as to evoke one of them to a hurried consumer”.

Key Takeaways

The decision of the Federal Court provides guidance with respect to the risks of displaying a competitor’s trademarks in comparative advertising claims when such claims are displayed on the packaging of a product.

The author would like to acknowledge the support and assistance of Sinead Dunne, summer student in Stikeman Elliott’s Ottawa office.

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