Association with cannabis still damaging to reputation, goodwill

May M. Cheng

Canada legalized the recreational sale of marijuana in October of 2018, but since then few cannabis companies have developed a positive brand image for themselves at the retail level. Even legalized cannabis appears to continue to suffer from negative connotations, as reflected in efforts by established brands in other areas to want to distance themselves from anything cannabis related.

As Canada’s cannabis companies launch retail outposts, there appears to be a trend towards trying to adopt names or logos that are already well established, much to the consternation of those well-known brand owners. In 2020, the Herbs “R” Us Wellness Society, a cannabis boutique and dispensary operating in Vancouver, came up with a stylized version of its brand that was unmistakably similar to the TOYS R US logo, as depicted here.

Needless to say, Toys “R” Us (Canada) Ltd. was not amused and took action in the Federal Court, resulting in a strong decision from Justice Nicholas McHaffie on an application for an injunction and damages (Toys “R” Us (Canada) Ltd. v. Herbs “R” Us Wellness Society 2020 FC 682). For unknown reasons, Herbs “R” Us Wellness Society failed to respond to the application and was promptly ordered to stop using the HERBS R US logo and pay damages and costs of $30,000.

While the court did not accept the plaintiff’s contention that consumers would be given the mistaken impression that Toys “R” Us (Canada) Ltd. had expanded its retail operations in other areas, considering this idea as “unlikely in the extreme,” the court did find depreciation of goodwill, based on the strong resemblance between the logos.

In fact, Justice McHaffie attributed a high level of distinctiveness to the creative use of the alphabet made by the mark TOYS R US, as well as the insertion of the star in the middle, which was mirrored by the HERBS R US logo, but with a cannabis leaf. Despite the acknowledgement that the goods differed and that Toys R Us (Canada) Ltd. had not lost any sales, the court accepted that the creation of a link or “mental association” between the brands would reduce the distinctiveness of the TOYS R US mark.

Justice McHaffie also accepted that the association of the plaintiff’s children-centric brand with a cannabis dispensary, operating without a licence and using adult-themed content said to include nudity and swear words, would be “utterly inconsistent” with the reputation of the TOYS R US brand. In the result, the court did not award a remedy for passing-off or trademark infringement but did award damages for damage to goodwill and reputation.

Interestingly, this was not the first time that a cannabis company had decided to adopt a mark similar to another well known brand, and it would not be the last. Previously, Justice Michael Manson of the Federal Court heard the case of Trans-High Corporation v. Conscious Consumption Inc. et al. operating collectively as High Times 2016 FC 949, wherein a “head shop” in Toronto had adopted the trade name HIGH TIMES, which corresponded to well-known trademark registrations for HIGHTIMES and HIGH TIMES, that had been used in Canada since 1986 for magazines and smoking accessories, and were popular in the counter-culture community in Toronto lobbying to have marijuana legalized. 

The head shop operated by Conscious Consumption Inc. had only adopted the trade name since 2012 or 2013, including on social media posts, and was therefore clearly the second comer. In this earlier case, Justice Manson found in favour of the trademark owner on passing-off and depreciation of goodwill and awarded an injunction as well as damages and costs of $35,000.

Almost a year to the day from the decision in the HERBS R US case, Justice McHaffie rendered another decision on June 10, 2021, in Subway IP LLC v. Budway, Cannabis & Wellness Store, et al. 2021 FC 583, enjoining the use of “BUDWAY,” as depicted here, in association with a cannabis store.

In this case, the court attributed a high degree of distinctiveness to the SUBWAY mark and indicated that the distinctiveness of the BUDWAY mark was primarily derived from the design elements taken from the SUBWAY registered trademark. Justice McHaffie noted that the goods were more closely related than in the HERBS R US case he had addressed in the prior year.

In this instance, the court found the marks confusingly similar and was satisfied that there was evidence of passing-off through use of the BUDWAY mark. Although Subway IP LLC did not assert that it had suffered any lost sales or direct financial harm, damages of $15,000 were awarded by Justice McHaffie for harm to trademark rights and depreciation of goodwill, as well as $25,000 in costs, for a total award of $40,000. The court also dismissed a claim for punitive damages, based on a lack of malicious or high-handed conduct. 

The Federal Court will be called upon again soon to address another case asserting passing-off and infringement in the sale of cannabis, this time involving Mars Canada Inc. v. John Doe et al. c.o.b. as King Tuts Cannabis, Shrooms Online, Flash Buds, Sure Buds et al., (Court File T-722-21, claim issued May 3, 2021), which has filed a claim seeking to stop use of SKITTLES, TWIX, M&M’S, STARBURST, SNICKERS and MARS marks in association with strains of cannabis at retail. Fortunately, there is already a body of recent decisions in place that will likely support a finding of damage to goodwill and loss of distinctiveness, even in the absence of lost sales or likelihood of confusion.

All these cases highlight an ongoing trend that points to a need for cannabis companies to forge their own path and develop their own brands, rather than attempt to trade on the goodwill and reputation of established brands in other fields. Perhaps by investing in better and more novel marketing campaigns, cannabis companies could also serve to rehabilitate the image of cannabis as a counter-culture drug.

May M. Cheng is a certified specialist in intellectual property (IP) law and a partner in the IP group at Osler. She has 25 years of experience. 
 
Photo credit / NatBasil ISTOCKPHOTO.COM

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