The Supreme Court of Canada released its decision in Masterpiece Inc. v. Alavida Lifestyles Inc. on May 26, 2011. In reversing the Federal Court Trial Division and the Federal Court of Appeal, the Court used this opportunity to clarify several points involved in conducting a confusion analysis when faced with two competing trade-marks. Generally speaking, prior rights holders will be comforted by the decision and practitioners will welcome the clarity provided by the Court on several important issues.

Masterpiece Inc. (Masterpiece) started using the mark MASTERPIECE THE ART OF LIVING in the western Canadian province of Alberta in 2001 in association with retirement residences. Masterpiece did not file an application to register this mark or any related marks at this time. In 2005, Alavida Lifestyles Inc. (Alavida) filed an application to register the mark MASTERPIECE LIVING based on proposed use in association with retirement residences. Masterpiece did not oppose the Alavida application and it issued to registration in March of 2007. Alavida commenced using its mark in the eastern Canadian province of Ontario in 2006.

Masterpiece filed applications in 2006 and 2007 to register various marks which included “MASTERPIECE”. Those applications were refused by the Registrar on the basis that Masterpiece’s marks were confusing with Alavida’s mark. Masterpiece then commenced proceedings to expunge Alavida’s registration for MASTERPIECE LIVING on the basis that Alavida was not the party entitled to registration of its mark in Canada due to the prior use by Masterpiece in Canada of its marks.

The Federal Court of Canada and the Federal Court of Appeal both rejected Masterpiece’s arguments and upheld Alavida’s registration. The Supreme Court unanimously reversed the lower courts, expunged Alavida’s registration and made several important findings and pronouncements in doing so. Perhaps most importantly, the Supreme Court reviewed and ruled on what the lower courts seemed to have said about the effect of prior use of a mark anywhere in Canada on an application for registration by a later user. The Court unequivocally held that prior use of a mark anywhere in Canada will provide the earlier user with exclusive national rights, such that a later user of a confusingly similar mark in another part of Canada will not be entitled to register that mark, since only the earlier user has that right. This arises out of the wording of Section 6 of the Trade-marks Act, which sets out a hypothetical assumption when analyzing marks for likelihood of confusion, that both marks are used in the same area even if that is not the case. The Court pointed out that this is consistent with Section 19 of the Act, wherein registration gives the owner the exclusive right to use the registered mark throughout Canada. In this case, Masterpiece had used its mark in Canada prior to Alavida’s application and use of its mark and therefore Alavida was not entitled to registration of its mark.

In reviewing and applying the correct test for assessing confusion, the Court confirmed the reasoning in its earlier decision in Veuve Clicquot. The test is a matter of first impression in the mind of a consumer somewhat in a hurry who sees the mark in issue at a time when he or she has no more than an imperfect recollection of the prior trade-mark, and whether that consumer would likely be confused. The Court also clarified how certain factors should be considered in a likelihood of confusion analysis. The analysis should generally start with an assessment of the degree of resemblance between the marks. Only once this has been done, should other factors such as the nature of the wares, services or business and distinctiveness be considered. When assessing the degree of resemblance, it is important to consider whether there is an element of the mark in issue that is striking or unique – in this case, the word MASTERPIECE was the only striking or unique element of both marks.

According to the Court, even if the goods or services in issue are important and/or expensive, the primary test is still one of first impression – subsequent research, inquiries or care that may be taken by the consumer may not, and in this case did not, override the initial confusion. In addition, the Court criticized the lower court judge for focussing on how Alavida used its mark after registration, rather than focussing on the registered mark itself.

The Court also took the opportunity to provide guidance on the use and admissibility of expert and survey evidence in trade-mark confusion disputes. The Court stated that wholesale admissibility of expert and survey evidence should be guarded against. The standard for admissibility of such evidence should be necessity, not mere helpfulness. Necessity means “likely to be outside the experience and knowledge of a judge or jury”. In many cases, matters of typical consumer perception (as opposed to specialized consumers of a complex technical product or service, for example) are something that a judge may adduce without the participation of expert witnesses. Speaking for the Court, Mr. Justice Rothstein suggested that trial judges and other court officials involved in case management should determine at an early stage whether such evidence should be admitted at all, thereby potentially saving the parties significant sums of money.

This decision brings some welcome clarity to trade-mark owners and practitioners on the issues of entitlement and assessment of confusion. It also brings some potential relief to litigants as a result of the comments of the Court on the efficacy of expert and survey evidence. The decision also emphasizes the importance to trade-mark owners of both applying to register their marks and of opposing applications by other parties who are attempting to register similar marks. Notwithstanding its ultimate success in this case, had Masterpiece done both of these things, it likely would have avoided significant expense and uncertainty.