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T-889-89
Mattel Canada Inc. (Plaintiff) v.
GTS Acquisitions Ltd. and Nintendo of America Inc. (Defendants)
INDEXED AS: MATTEL CANADA INC. V. GTS ACQUISITIONS LTD. (T.D.)
Trial Division, Joyal J.—Toronto, August 8; Ottawa, August 31, 1989.
Trade marks — Infringement — Application for interlocu tory injunction to prohibit unauthorized sales of "Nintendo" video games imported from U.S.A. — Plaintiff exclusive dis tributor and registered user in Canada for Nintendo trade mark — Lack of deception of public, in that genuine "Ninten- do" wares being sold, not conclusive — Where registered trade mark owner or user involved or issue of unfair competition raised, other considerations i.e. effort and expenditures to create market for product, appropriate — Trade Marks Act, s. 7(e), prohibiting anything contrary to honest industrial usage, and s. 49(3), equating use by registered user with use by registered owner for purposes of Act — Legislation designed to create fairness in marketplace not to be used to legitimize unlawful conduct.
This was an application for an interlocutory injunction to prohibit the defendant, GTS Acquisitions Ltd. ("GTS"), from selling video games and related equipment under a number of associated trade marks, the main one being "Nintendo", for which the plaintiff is the registered user and the exclusive distributor in Canada. The distributorship agreement provides for minimum annual guaranteed orders and sales. The plaintiff has conducted a massive advertising campaign, and provides extensive after-sales service, which has resulted in a tremendous growth in sales. Sixty per cent of the plaintiffs revenue is derived from the sale of these games. The defendant has been importing video games from the U.S.A. bearing the Nintendo trademark for distribution in Canada. The plaintiff alleged that the infringing sales jeopardize its ability to meet its minimum sales commitment, depreciates goodwill and causes confusion. The action alleged trade mark infringement. The defendant argued that an infringement action requires sales of wares in association with a confusing trade mark, and that the test is one of deception involving spurious goods. It further argued that there was no infringement when the mark was used in associa tion with the genuine goods supplied by the actual owner of the mark.
Held, the application should be allowed.
Lack of deception of the public by the sale of any trade mark owner's own goods is not conclusive of the issue. The Supreme
Court of Canada decision, Consumers Distributing Company Ltd. v. Seiko Time Canada Ltd. et al., not only opened the door to other considerations if a registered trade mark owner or registered user is involved, but opened wider that same door to other tests whenever some kind of unfair competition is raised. The plaintiff exerted strong efforts and expended large sums of money to create a market in Canada for Nintendo products.
Prima facie, subsection 49(3) (which equates the permitted use of a trade mark by a registered user with the use thereof by a registered owner for all purposes of the Act) afforded the plaintiff some protection.
The Trade Marks Act regularizes the whole field of trade mark ownership and incorporates therein the whole field of unfair competition. Paragraph 7(e) (which prohibits anything contrary to honest industrial usage) must mean that some kinds of games should not be played in the marketplace. It would be contrary to the intent and purpose of any legislative scheme designed to create fairness in the marketplace for any person to use that same legislation to legitimize his own unlawful conduct.
As the defendant was selling a product under the plaintiff's trade mark for which neither leave nor licence had been obtained, the threshold test propounded in the American Cyanamid case was satisfied. As to irreparable harm and balance of convenience, the continuing unauthorized sales of Nintendo products in Canada is injurious to the plaintiff's business and goodwill. The ensuing losses will become increas ingly difficult to quantify as more of these infringing products appear on 'the Canadian market. The defendant has not incurred any risk, nor has it invested any capital. It does not have to keep or finance inventory. The Nintendo products do not constitute the bulk of its sales, and should it wish to continue selling Nintendo products it has an alternate source of supply.
STATUTES AND REGULATIONS JUDICIALLY CONSIDERED
Trade Marks Act, R.S.C. 1970, c. T-10, ss. 7(e), 49(3),(4).
CASES JUDICIALLY CONSIDERED
APPLIED:
Consumers Distributing Company Ltd. v. Seiko Time Canada Ltd. et al., [1984] 1 S.C.R. 583; 10 D.L.R. (4th) 161; (1984), 54 N.R. 161; 29 C.C.L.T. 296; 3 C.I.P.R. 223; 1 C.P.R. (3d) 1; Erven Warnink BY v J Townend Et Sons (Hull) Ltd, [1979] 2 All ER 927 (H.L.); American Cyanamid Co. v. Ethicon Ltd., [1975] A.C. 396 (H.L.); CBM Kabushiki Kaisha v. Lin Trading Co. (1987), 10 C.I.P.R. 260; 14 C.P.R. (3d) 32; (1987), 9 F.T.R. 177 (F.C.T.D.); McCabe v. Yamamoto & Co. (America) Inc., [1989] 3 F.C. 290; 23 C.P.R. (3d) 498; 23 C.I.P.R. 64; (1989), 25 F.T.R. 186 (T.D.); Remington Rand Ltd. v. Transworld Metal Co. Ltd. et al., [1960] Ex.C.R. 463; Dunlop Rubber Company Ld. v. A. A. Booth & Co. Ld.
(1926), 43 R.P.C. 139 (Ch.D.); Joseph E. Seagram & Sons Ltd, v. Andres Wines Ltd. (1987), 16 C.I.P.R. 131; 16 C.P.R. (3d) 481; (1987), 11 F.T.R. 139 (F.C.T.D.); Philips Export B.V. et al v. Windmere Consumer Prod ucts Inc. (1985), 4 C.P.R. (3d) 83 (F.C.T.D.); Bollinger (J.) v. Costa Brava Wine Company Ltd., [1959] 3 All E.R. 800 (Ch.D.).
CONSIDERED:
Imperial Tobacco Co. of India v. Bonnan, [1924] A.C. 755 (P.C.); Revlon Inc. and Others v. Cripps & Lee Ltd. and Others, [1980] 6 F.S.R. 85 (C.A.); Champagne Heidsieck et Cie Monopole Société Anonyme v. Buxton (1929), 47 R.P.C. 28 (Ch.D.).
COUNSEL:
K. W. Chalmers and Helen C. Walsh for plaintiff.
John S. McKeown and Lesley M. Cameron for defendants.
SOLICITORS:
Day Wilson Campbell, Toronto, for plaintiff.
Cassels Brock & Blackwell, Toronto, for defendants.
The following are the reasons for order ren dered in English by
JOYAL J.: The plaintiff applies for an interlocu tory injunction pending trial of the issue to prohib it the defendant GTS Acquisitions Ltd. from selling certain video games and related equipment under a number of associated trademarks for which the plaintiff is the registered user in Canada. The plaintiff contends that use of these marks by the defendant constitutes an obvious infringement and that from all the circumstances of the case, it is proper for the Court to intervene at this stage of the action.
The main trademark is "Nintendo". It is used in association with video games, video game pro grams and cartridges and video machines. The mark is owned by Nintendo of America Inc. and was registered in Canada in 1983 under No. 282,255. Other associated marks were registered in 1988 and 1989.
Nintendo of America Inc. (Nintendo U.S.A.) is the wholly-owned subsidiary of Nintendo Co. Ltd. (Nintendo, Japan), the manufacturer of these video games and related articles. Nintendo U.S.A. is the exclusive distributor of Nintendo products in North America and in 1986, appointed the plain tiff as its exclusive distributor in Canada. The appointment was for an initial period of three years but has since been extended to July 30, 1992. The agreement between the parties provides for minimum annual guaranteed orders and for the year April 1, 1989 to March 31, 1990, it calls for minimum sales of some $50 million U.S. of Nin- tendo products.
Since 1986, the plaintiff has conducted a mas sive marketing and advertising campaign to pro mote the sale of these products in Canada. By the end of 1989, some $20 million will have been spent on that item of the plaintiff's budget. The results have been good. The plaintiff's sales have grown from $5 million to $68 million in the course of these years.
The games for Canadian distribution which are manufactured and packaged in Japan in bilingual form have imprinted on the packages and on the instruction manuals and promotion material the logo and trademark "Mattel". The games are sold throughout Canada to mass merchandisers, na tional toy specialty retailers, electronic specialists and two sub-distributors, namely Beamscope Canada and Bellevue Home Entertainment. The sale of these games represents some 60% of the plaintiff's revenues.
In addition to the games themselves and as part of its marketing policies, the plaintiff extends a 90-day warranty against all defects, provides access for customers to its qualified repair staff and also provides telephone hot lines to render assistance to customers in the operation of the video games.
Until the end of 1988, the plaintiff enjoyed the protection of its exclusive distributorship agree ment with Nintendo U.S.A. The latter was of course busy selling the same games in the U.S. but
it restricted its sales network to the U.S. and prohibited its distributors and dealers from export ing or selling video games for export from the U.S.
Several breaches, however, appeared early in 1989 when the plaintiff discovered that a "grey" market was developing in Canada with respect to these games through the purchase and importation in Canada of U.S. games, all bearing the Nintendo trademark. The plaintiff immediately took action against several of these Canadian importers or sellers, the defendant being one of them.
The defendant is a company with three owners but no other employees. It was incorporated in January, 1989 and shortly thereafter began to import U.S. video games into Canada for distribu tion here. According to the evidence, its U.S. sources of supply appear to be mainly Colonel Video, in Texas and Able Enterprises in Missouri. The defendant also purchases U.S. Video games from Phil's Video in Winnipeg.
In support of its application for an interlocutory injunction, the plaintiff submits that unless that kind of relief is granted to it, there will be no end to the proliferation of U.S. video games on the Canadian market. These games are hot items at the moment, the result of course of the plaintiffs massive advertising campaign and of its after-ser vice programs. As registered user of the various trademarks associated with its products, these infringing sales not only risk putting it in default of its minimum order undertaking with Nintendo U.S.A., but severely depreciates the goodwill it has created with respect to the marks. Already, plain tiff says, there is confusion in the marketplace. Customers for the product find that the packaging and the instructional material is in the English language only. Furthermore, as the warranty associated with the Canadian video games do not apply to the U.S. product, the plaintiffs hot lines are kept busy explaining to the public that it "cannot be held responsible for the U.S. video games", a position which undermines the plain tiff's credibility with respect to its warranties, its
after-service programs and its merchandising policies.
The plaintiff urges the Court to conclude that the situation meets the test laid down by the House of Lords in the celebrated case of American Cyanamid Co. v. Ethicon Ltd., [1975] A.C. 396 (H.L.), namely:
1. There is a serious issue to be tried, the plaintiff enjoying exclusive right to the use in Canada of the Nintendo trademarks;
2. the continuing sales of the U.S. video games by the defen dant as well as by so many others is causing irreparable harm which cannot be compensated in damages;
3. as the defendant can always buy the Canadian product, an injunction at this stage would not drive it out of business and therefore, the balance of convenience favours the plaintiff.
The case for the defendant is basically that its sales in Canada of the Nintendo products covered by the trademarks do not constitute infringement under the terms of the Trade Marks Act [R.S.C. 1970, c. T-10]. The plaintiffs case, it says, rests on its contractual rights with Nintendo U.S.A. of which the importations into Canada might consti tute a breach but such breach does not arise under the statute nor is it enforceable against the defendant.
The defendant submits that an action for infringement under the Trade Marks Act rests upon the sale, distribution, or advertisement of wares in association with a confusing trademark. The test is one of deception involving spurious goods. On the facts of the case, there can be no infringement if the mark is used in association with the genuine goods supplied by the actual owner of the mark.
With respect to the loss of goodwill, the defen dant contends that the goodwill attaches to the manufacturer, Nintendo, and not to the plaintiff. As a consequence, and in accordance with the Privy Council decision in Imperial Tobacco Co. of
India v. Bonnan, [1924] A.C. 755, the defendant should be perfectly free under the Act to sell the manufacturer's goods in Canada in competition with the plaintiff, even though under contract, the plaintiff is the manufacturer's sole distributor in Canada.
Further, says the defendant, the plaintiff itself has engaged in the past in the same kind of practices as the defendant. The plaintiff, according to the evidence, already has a record of importa tions into Canada of U.S. video games. This apparently occurred when Nintendo Japan could not satisfy Canadian demand. As a consequence, the plaintiff cannot assert irreparable harm, one of the essential requirements under an interlocutory injunction application.
The defendant argues that, in any event, any damages which might flow to the plaintiff, if it should succeed at trial, are easily compensable in monetary terms. The defendant has already pro vided the plaintiff with its sales to date of the U.S. video games and would of course continue to keep accounts.
Finally, the defendant states that the plaintiff, as registered user of the trademarks, has failed to comply with the expressed provisions of subsection 49(4) of the Trade Marks Act and that its action on the case is untimely. As it turned out, that issue was not seriously debated before me. I should find, in any event, that the opening words of subsection 49(4) of the Act provides a full answer to that technical requirement.
The Court must now come to terms with the issue. It is noted in the case of Champagne Heid- sieck et Cie Monopole Société Anonyme v. Buxton (1929), 47 R.P.C. 28 (Ch.D.), at page 35, that the exclusive right to use a mark conferred on a proprietor is the right to use the mark as a trade mark, i.e., as indicating that the goods upon which it is placed are his goods and to exclude others from selling under the mark wares which are not his.
If the action before me were by the owner of the Nintendo marks and if the only evidence be that the defendant is selling a Nintendo product cov ered by the trademark, there would be no case for the owner. It would be somewhat ridiculous to assert infringement or passing off when the defendant is dealing with the owner's own wares. There cannot be, in such circumstances, any deception. The owner might have some cause of action against the defendant based on contract on grounds that the defendant is selling in a territory prohibited to him, but such action, in my view, could not be founded on deceit or deception.
In the Imperial Tobacco Co. case (supra) it is stated, at page 762 that "There is nothing to prevent a tradesman acquiring goods from a manufacturer and selling them in competition with him, even in a country into which hitherto the manufacturer or his agent has been the sole impor ter .... There is no untruth and no attempt to deceive."
Substantially the same approach was adopted by English courts in Revlon Inc. and Others v. Cripps & Lee Ltd. and Others, [1980] 6 F.S.R. 85 (C.A.) when in circumstances similar to the ones before me, the Court of Appeal found that there is no passing off when the actual trademark owner's goods are being sold. If the sale be by an unau thorized seller, that is a matter of contract, not of infringement.
In a more recent Supreme Court of Canada decision, Consumers Distributing Company Ltd. v. Seiko Time Canada Ltd. et al., [1984] 1 S.C.R. 583; 10 D.L.R. (4th) 161; (1984), 54 N.R. 161; 29 C.C.L.T. 296; 3 C.I.P.R. 223; 1 C.P.R. (3d) 1, Estey J., on behalf of the Court, provides us with a detailed analysis of the traditional doctrine that deception, i.e., selling one's goods as the goods of another, lies at the core of any action for injunc- tive relief. In the case before the Court, Consum ers Distributing had been found selling Seiko wat ches which had not been obtained from the owner's exclusive Canadian distributor but from offshore sources. After reviewing the facts, Estey
J. could not find that Consumers' action constitut ed passing-off. The Seiko watches it was selling were in fact the identical watch sold by the exclu sive Canadian distributor and all of them, of course, came from the same manufacturing source. Furthermore, any possibility of confusion in the minds of the public that the pattern of sale by the Canadian distributor, including point of sale ser vices, instruction booklet and properly endorsed warranties, had been overcome by an earlier injunction and damages and, as a consequence, there was no longer an issue before the Court on which "passing off" could be sustained.
Estey J., however, goes on to say at pages 597 S.C.R.; 172 D.L.R. et seq., that deceit or decep tion, in selling one's goods as the goods of another, no longer covers the field of injurious or tortious conduct. The true basis is unfair competition, a concept which must, of course, be interpreted in balance with the avowed public interest in main taining a free and competitive market. In essence, as was said in the Champagne case of Bollinger (J.) v. Costa Brava Wine Company Ltd., [1959] 3 All E.R. 800 (Ch.D.), at page 805:
... I think that it would be fair to say that the law in this respect [i.e. passing-off] has been concerned with unfair compe tition between traders rather than with the deception of the public which may be caused by the defendant's conduct, for the right of action known as a "passing-off action" is not an action brought by the member of the public who is deceived but by the trader whose trade is likely to suffer from the deception prac tised on the public but who is not himself deceived at all.
Estey J. also quotes Lord Diplock, in the case of Erven Warnink BV v J Townend Et Sons (Hull) Ltd, [1979] 2 All ER 927 (H.L.), at page 931:
Unfair trading as a wrong actionable at the suit of other traders who thereby suffer loss of business or goodwill may take a variety of forms ... but most protean is that which is generally and nowadays, perhaps misleadingly, described as `passing-oft'. The forms that unfair trading takes will alter with the ways in which trade is carried on and business reputation and goodwill- acquired. [My emphasis.]
Finally, in concluding in the Seiko case that Consumers had not committed an actionable wrong, Estey J., at pages 612-613 S.C.R.; 184 D.L.R., feels obliged to observe that nothing had been advanced by the respondent, the Canadian distributor, with reference to rights which might flow from being the owner or registered user of the trademark "Seiko". Neither condition existing, says Estey J., there was no need to confront an earlier decision of the Exchequer Court in Rem- ington Rand Ltd. v. Transworld Metal Co. Ltd. et al., [ 1960] Ex.C.R. 463.
In this latter case, Thurlow J. [as he then was] found in favour of an interlocutory injunction pending trial with respect to the importation and sale in Canada of certain electric shavers bearing the plaintiff's registered mark "Remington", "Rol- lectric" and "Princess". The shavers sold by the plaintiff under these marks were manufactured for it by its parent company in the U.S., Remington Rand Electric Shaver Corporation, a division of Sperry Rand Corporation. The defendant's shavers were manufactured by the U.S. parent and also by a German company bearing the name Remington Rand. The evidence disclosed that the defendant's shavers were, outwardly at least, identical with those sold by the plaintiff.
Thurlow J., at page 464, says this: "Notwith- standing the relationship between the plaintiff and its United States parent corporation, the evidence of use of the marks by the defendants in Canada, in my opinion, shows a strong prima facie case of infringement of the marks". In his finding, Thur- low J. relies on Dunlop Rubber Company Ld. v. A. A. Booth & Co. Ld. (1926), 43 R.P.C. 139 (Ch. D.) and quotes Tomlin J., at pages 144-145:
The "Dunlop" tyre business is conducted under a system whereby in different countries there are different Companies, so that the English Company owns in this country a number of Trade Marks and the French "Dunlop" Company in France holds Trade Marks in France which are identical with the English Trade Marks, and I gather that a similar condition of affairs obtains in Italy and possibly in other countries. It follows from that that a French "Dunlop" tyre having upon it the Trade Marks which are identical with the English Trade
Marks cannot be imported for sale into this country without infringing the English Trade Marks.
This review of case law indicates to me that the lack of any deception on the public by the sale of any trade mark owner's own goods is not conclu sive of the kind of issue before me. The Seiko case to which I have referred not only leaves the door open to other considerations if a registered trade mark owner or registered user is involved, but also opens wider that same door to other tests whenever some kind of unfair competition is raised. I need only repeat here the comments of Lord Diplock in the Warnink case (supra) that the forms of unfair competition depend largely on the various ways trade is carried on and business reputation and goodwill acquired.
The facts of the case before me and which I have already outlined can only lead to the conclu sion that the plaintiff has exerted strong efforts and expended large sums of money to create a market in Canada for Nintendo products. The plaintiff did this under the double protection of its exclusive distributorship with Nintendo U.S.A. and its exclusive registered user status under the Trade Marks Act. This protection appears to have been effective for some three years. It was only when, through the plaintiff's efforts, Nintendo became the hottest game in town that it started to face the "grey" market penetration.
According to subsection 49(3) of the Act, the permitted use of a trademark by a registered user has the same effect for all purposes of the Act as the use thereof by a registered owner. I should think that prima facie such a provision affords the plaintiff some protection.
Concurrently, and I refer again to Estey J.'s comments in the Seiko case, the Trade Marks Act not only regularizes the whole field of trademark ownership but also incorporates therein and in relation thereto the whole field, one might say the whole minefield, of unfair competition. Section 7 of the statute establishes that quite clearly. If it
specifically provides in paragraph 7(e) thereof that no person shall "do any other act or adopt any other business practice contrary to honest industri al or commercial usage in Canada", surely it is intended that some kind of games should not be played in the marketplace.
I need not make a definitive finding as to wheth er or not the case before me involves something short of honest commercial usage in Canada. If lawfulness be the test of honest practices, it might be quite unlawful for the U.S. sellers to export Nintendo U.S.A. products to Canada but their subsequent sale by the defendant to Canadian consumers might pass the test. In such event, the strong moral arm made evident in paragraph 7(e) of the Act could not be extended to Texas or Missouri dealers with the effect of ascribing to the innocent acts of their Canadian purchasers the obvious sins of their U.S suppliers.
In the case of CBM Kabushiki Kaisha v. Lin Trading Co. (1987), 10 C.I.P.R. 260; 14 C.P.R. (3d) 32; (1987), 9 F.T.R. 177 (F.C.T.D.), as well as in the more recent case of McCabe v. Yamamo- to & Co. (America) Inc., [1989] 3 F.C. 290; 23 C.P.R. (3d) 498; 23 C.I.P.R. 64; (1989), 25 F.T.R. 186 (T.D.); I ventured to suggest that underlying the whole concept of the Trade Marks Act is the fundamental principle that the statute should never afford aid or protection to anyone's unlawful activities. It would be contrary to the intent and purpose of any legislative scheme to create fairness in the marketplace for any person to avail himself of that same legislation to counte nance or legitimize his own unlawful conduct.
I cannot of course decide at the interlocutory stage of these proceedings whether or not this principle of legitimacy can be said to apply to the case before me. I can only conclude that some weight should be given to subsection 49(3) and section 7 of the statute. As in the Dunlop Rubber case (supra) and the Remington Rand case (supra) the defendant is selling a product under the plaintiff's trademark for which neither leave nor licence has been obtained. This, in my view,
more than satisfies the threshold test propounded in the American Cyanamid case and to which I have earlier referred.
Having disposed of that issue, I need not go to great lengths in dealing with the matter of irrepa rable harm or balance of convenience. As my findings of fact indicate, the continuing sales of the Nintendo products in Canada by way of unau thorized U.S. exportations is causing the plaintiff injury to its business and to its goodwill. Should more and more of these products find their way into the hands of Canadian dealers, the result would be a floodgate effect. The plaintiff's losses would become increasingly difficult to estimate and calculate. Nintendo products constitute a large percentage of the plaintiff's business. The commercial advantage which it now enjoys, an advantage which was evidently gained by its own heavy investments, would be continuously eroded or substantially diluted.
As far as the defendant is concerned, it only entered the market earlier this year. Its decision in that respect is essentially the result of the plain tiffs efforts in creating the market in the first place. The defendant therefore has incurred no risk nor does its venture into the field entail any investment of capital. It does not have to keep or finance inventory. It only orders from its U.S. product sources on the strength of its own custom er orders. The Nintendo products do not constitute the bulk of its sales or even a substantial propor tion of them. Furthermore, if it should wish to continue supplying its people with Nintendo prod ucts, it has, presumably, an alternate source of supply.
Mr. Justice Cullen of this Court found similar situations in the cases of Joseph E. Seagram & Sons Ltd. v. Andres Wines Ltd. (1987), 16 C.I.P.R. 131; 16 C.P.R. (3d) 481; (1987), 11 F.T.R. 139 (F.C.T.D.), and Philips Export B.V. et al v. Windmere Consumer Products Inc. (1985), 4 C.P.R. (3d) 83 (F.C.T.D.). He experienced no more trbuble than did Thurlow J. in the Reming- ton Rand case (supra) in finding for interlocutory relief. I should reach the same conclusion. The
case before me is a proper one where an interlocu tory injunction on terms, should be granted. An order will go accordingly.
Costs shall be in the cause.
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