In Canada, passing off is both a common law tort and a statutory cause of action under the Canadian Trade-marks Act referring to the deceptive representation or marketing of goods or services by competitors in a manner that confuses consumers. The law of passing off protects the goodwill of businesses by preventing competitors from passing off their goods as those of another.

The protection afforded by the law of passing off protects only the association between a product and its producer and not to the product itself - primarily, it protects a producer's investment in making a product or service distinguishable in the marketplace through the use of distinctive features such as marks, letters, advertising material or slogans, colours, and sounds.

Basis of passing off claims

Common law tort of passing off

As a common law action, the tort of passing off was developed by courts to protect a plaintiff from harm to their business caused by unfair competition through deceptive marketing or representation.Consumers Distributing Co v Seiko Time Canada Ltd, 1 SCR 583. It also protects the public at large by enabling consumers to make informed choices about goods available on the market.Scandecor Developments AB v Scandecor Marketing AB, UKHL 21.

Statutory action under the Trade-marks Act

Section 7(b) and 7(c) of the Trade-marks Act provides a statutory cause of action parallel to the common law tort of passing off. It can be asserted by a plaintiff whether or not a mark in question has been registered. In particular, the Act states:

7. No person shall ...

(b) direct public attention to his wares, services or business in such a way as to cause or be likely to cause confusion in Canada, at the time he commenced so to direct attention to them, between his wares, services or business and the wares, services or business of another;

(c) pass off other wares or services as and for those ordered or requested;Trade-marks Act, s 7.

Elements of passing off

Despite their different origins, both the common law and statutory action for passing off share the same general legal analysis.Crowne, Emir and Nassabi, Sepideh, Parsing Off the Elements of Passing Off in Canada (April 2012). Advocates' Quarterly, Vol. 39, No. 4, April, 2012. Available at SSRN: http://ssrn.com/abstract=2061025 The Supreme Court of Canada held in Ciba-Geigy Canada Ltd v Apotex IncCiba-Geigy Canada Ltd v Apotex Inc, 3 SCR 120. that there are three necessary elements in a passing off action:

The existence of goodwill, Deception of the public due to a misrepresentation, and Actual or potential harm to the plaintiff

Existence of goodwill

The first element requires a plaintiff establish that its wares, services or business enjoy a reputation or goodwill in the minds of consumers, that consumers directly associate the plaintiff's wares with a distinctive selling, marketing or identifying feature and that purchasers rely on the feature to distinguish the plaintiff's wares from competitor's wares.Reckitt & Colman Products Limited v Borden Inc, 1 All ER 873.

At common law, the nature or form of a distinctive feature is virtually unrestricted: name, slogan, logo, smell, personality, shape,Ray Plastics Ltd et al v Dustbane Products Ltd (1994), 57 CPR (3d) 474 (Ont CA). packaging, visual imagery, none of which necessarily have to be a trademark. At this stage of the analysis courts instead focus on the existence and strength of the reputation and the potential for cognitive associations between reputation, feature and wares.

Passing off did not develop to protect monopolies in respect of products but of guises, get-ups, names and symbols which identify the distinctiveness of the source.Kirkbi AG v Ritvik Holdings Inc, 2005 SCC 65.

Deception due to misrepresentation

The second element, a misrepresentation that leads to confusion, need not arise from willful misrepresentation or deceit.Ciba-Geigy. It may also arise from careless or negligent misrepresentation.Ciba-Geigy at 133; Kirkbi at para 68. The analysis at this stage involves assessing visual and auditory resemblances between the two distinctive features,Cadbury Schweppes v Pub Squash Co, 1 All ER 213 (PC). geographical overlap of reputations,Orkin Extermination Co Inc v Pestco Co of Canada Ltd (1985), 5 CPR (3d) 433 (Ont CA). and the degree to which the plaintiff and defendant directly compete in a market or trade.Ray Plastics Ltd et al v Dustbane Products Ltd.

In Ciba-Geigy, the Supreme Court recognized that the evaluation of the likelihood of confusion ought to be in relation to ordinary purchasers, including all purchasers along the supply chain affected by the passing off, but that purchasers nearer to the source may be less likely to be confused.Ciba-Geigy.

Actual or potential harm

The third element requires a plaintiff show either actual loss or a real prospect of loss in order to obtain proper redress from a passing off claim. A plaintiff in a passing off action does not have to prove any customer was actually misled or any actual damages sustained; an attempt to mislead the public and potential damage to reputation or goodwill may suffice.Ray Plastics Ltd. The reputation and goodwill enjoyed by a brand or business are considered valuable commercial assets and if damaged may cause commercial and financial harm.

Differences between common law and statutory passing off

The statutory action under section 7 of the Trade-marks Act has been described by Chief Justice Bora Laskin of the Supreme Court of Canada as "a statutory statement of the common law action of passing off".MacDonald et al v Vapor Canada Ltd, 2 SCR 134. However, although the statutory action shares the same elements as the common law action, there are important differences in the scope of protection, applicability, jurisdiction, and remedies available to plaintiffs depending on the choice of action.

Applicability to subject matter

A statutory action under section 7 of the Trade-marks Act requires that the subject matter in question be a "trade-mark" as defined in section 2 of the Trade-marks Act.Dumont Vins & Spiritueuex Inc v Celliers du Monde Inc, 2 FC 634 (FCA). A "trade-mark" is defined in the Act as:

(a) a mark that is used by a person for the purpose of distinguishing or so as to distinguish wares or services manufactured, sold, leased, hired or performed by him from those manufactured, sold, leased, hired or performed by others, (b) a certification mark, (c) a distinguishing guise, or (d) a proposed trade-mark;Trade-marks Act, s 2.

While trademarks can be protected whether they are registered or unregistered, subject matter that does not fall within the definition of "trade-mark" in the Act cannot be protected by the statute. Thus, certain distinguishing features such as sounds, scents, and holograms that may not traditionally fall under the definition of "trade-mark" in Canadian law can still be protected through a common law passing off claim provided the elements of the tort are satisfied.Teresa Scassa, Canadian Trademark Law (Markham: LexisNexis, 2010), Chapter 7, Section 1.

Jurisdiction

A common law passing off claim, as a matter relating to property and civil rights, can only be brought in a provincial superior court. As such, a successful common law action is only enforceable within the province where the claim was heard.

An action under section 7 of the Trade-marks Act can be brought in either Federal Court or in a provincial superior court due to the concurrent jurisdiction granted in section 20(2) of the Federal Courts Act.Federal Courts Act, RSC 1985, c F-7. A judgment rendered by the Federal Court is enforceable throughout Canada.

Effect of trademark registration

Registration under the Trade-marks Act affirms, recognizes and extends registrants' positive rights to use the registered marks and provides registrants with an absolute defence to a passing off cause of action. It was held in Molson Canada v Oland Brewery Ltd that a plaintiff's only recourse against a registered mark is to attack the validity of the registration.Molson Canada v Oland Brewery Ltd (2002), 214 DLR (4th) 473.

Critics of the Ontario Court of Appeal's interpretation of the Act in Molson argue that giving priority to registration strays from a fundamental precept of trade-mark law that owners' rights derive from use, not registration.Marcel Naud, "Trade-Mark Registration As A Valid Defence To A Passing-Off Action" (2003) Leger Robic Richard, 173.13 at 5. http://www.robic.ca/admin/pdf/536/173.13.pdf

However, even under the Act it is not correct to say that registration makes a person the owner of a trademark. Registration procedures require that at the time of registration the applicant already own the rights to use the unregistered mark. The administrative hurdles for a trademark application serve as a screening mechanism for ensuring only eligible and owned marks are registered. A registered mark effectively creates a presumption that the mark is distinctive, valid and owned by the registered owner. Post-registration proceedings to have registration expunged are available under section 57 and 18 of the Act.

Justification for protection against passing off

The purpose of the tort and statutory protection against passing off is twofold: first, it protects the plaintiffs' proprietary rights in the goodwill of their business; and second, it protects the public interest in ensuring that consumers are not misled as to the source of goods or services. In this respect, passing off encroaches on both competition law and consumer protection law.

Professor David Vaver suggests generally that "[t]he basic theory of the tort is to prevent the disruption of economic relations by deliberate or innocent misrepresentations that deceive or confuse consumers in their marketplace decisions."David Vaver, Intellectual Property Law: Copyright, Patents, Trade-Marks, 2nd ed (Toronto: Irwin Law, 2011) at 431. Vaver also notes the centrality and complementarity of both purposes in the tort of passing off and trade-mark law:

The role of passing-off is therefore to rectify the likely harms one trader suffers from the acts of another that mistakenly deflect consumers from dealing with the former or his products or services. Although the tort grew up to protect the interests of traders rather than consumers, the less it works to prevent consumer confusion, the more it becomes merely a law protecting traders from unfair competition. That goal may be what other torts, such as conspiracy or unlawful interference with economic relations, and Competition Act provisions regulating false and misleading advertising practices aim at. Passing-off need not replicate their aspirations.Vaver at 432.

Protection against competition

In Ciba-Geigy the Supreme Court of Canada explained the purpose of the law. In exploring the function of passing off as an action against competition, the Court cited Salmond on Torts with endorsement:

[t]he courts have wavered between two conceptions of a passing off action — as a remedy for the invasion of a quasi-proprietary right in a trade name or trade mark, and as a remedy, analogous to the action on the case for deceit, for invasion of the personal right not to be injured by fraudulent competition. The true basis of the action is that the passing off injures the right of property in the plaintiff, that right of property being his right to the goodwill of his business.Ciba-Geigy at 134.

The Court went on to say:

The purpose of the passing‑off action is thus also to prevent unfair competition. One does not have to be a fanatical moralist to understand how appropriating another person's work, as that is certainly what is involved, is a breach of good faith.Ciba-Geigy at 135.