Federal Court Of Appeal Of Canada Provides Clarity On Goodwill Analysis And Trademark Licensing

On November 22, 2023, the Federal Court of Appeal of Canada (FCA) issued its decision in Dragona Carpet Supplies Mississauga Inc. v Dragona Carpet Supplies Ltd., 2023 FCA 228, dismissing an appeal relating to a decision of the Federal Court (FC) which dismissed a claim for passing off and expunged trademark registrations for DRAGONA.

The FC held that use of the DRAGONA trademark by Dragona Carpet Supplies Mississauga Inc. (DCS Mississauga) had at all times been under an oral licence from Dragona Carpet Supplies Ltd. (DCS), and therefore any goodwill associated with the DRAGONA trademark in Mississauga was that of the trademark owner, DCS, as previously reported by the E-TIPS® Newsletter here. The FC dismissed the passing off claim since DCS Mississauga had no goodwill in the mark. DCS Mississauga appealed.

On the issue of goodwill, the FCA concluded that the FC did not err in law by failing to identify the class or segment of the customer base in which the goodwill resides. The FC concluded that both parties sell to contractors, retailers, and the public, with most sales made to contractors, but the FC did not restrict the customers to one group in its analysis. The FCA held that this was not an error, noting that “[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”, but that was not the case here.

With respect to the oral licence, the FCA noted that the FC’s reasons “swim dangerously close to committing” the error of taking DCS’ word that it asserted the required control over the goods and services, as required by the Trademarks Act.  However, the FCA ultimately concluded that no error was committed and that, while examples of actual control were few, there was sufficient evidence to establish control.

Lastly, the FCA noted that even if there were no licence in place and DCS Mississauga established its own goodwill, its claim for passing off would still fail because there was no misrepresentation. The FCA held that DCS was simply exercising its right to use the DRAGONA trademark in Mississauga, a location where it had existing goodwill, and that this constituted legal competition, not misrepresentation.

Summary By: Michelle Noonan