Earlier this month the Canadian Federal Court handed retail toy store Toys “R” Us a victory in its trademark lawsuit alleging “depreciation of goodwill,” among other causes of action including trademark infringement and “passing off,” against B.C., Canada-based dispensary, Herbs “R” Us. For reference, the two logos can be seen here:

 

Toys “R” Us was successfully represented by Canadian firm Gowling WLG, which provided an overview of the case and the “depreciation of goodwill” cause of action that is similar to a “dilution” or “tarnishment” claim here in the United States. A “depreciation of goodwill” claim is intended to prevent the misuse of a trademark owner’s rights, even where the elements have not been met to show infringement based on likelihood of confusion or passing off. Such a claim requires that the trademark owner prove:

  • There has been trademark use of the brand owner’s registered trademark or a mark “sufficiently similar” to the registered trademark to evoke a mental association between the two marks;
  • The brand owner’s trademark is sufficiently well-known to have significant goodwill attached to it (though does not require that the mark be famous);
  • That the brand owner’s trademark was used in a manner likely to have an effect on that goodwill; and
  • That the likely effect of that use would be to depreciate or damage the value of the brand owner’s goodwill.

In the case at hand, the judge found that Toys “R” Us did not have valid claims for either trademark infringement under section 20 or passing off under subsection 7(b) of the Trademarks Act, because, notwithstanding the similarities between the two marks in appearance, the court was not persuaded that “a consumer – even a casual one somewhat in a hurry with an imperfect recollection of the TOYS R US marks – would infer that [the goods and services of Herbs R Us and those of Toys R Us] were manufactured, sold or performed by the same person.”

In contrast, the court found that there was a likelihood that the goodwill in the TOYS R US marks would be damaged or depreciated if Herbs R Us were not enjoined from using their mark. The judge stated that:

the creation of an association between the Toys “R” Us and a cannabis ‘dispensary,’ particularly one that appears to be operating without a license, and one that markets through social media with adult-themed content said to include nudity and swear words, is ‘utterly inconsistent’ with the reputation of the TOYS R US brand, and that this association is likely to tarnish the goodwill associated with the [TOYS R US] Mark.

The court also concluded that there was “no reason for Herbs ‘R’ Us to adopt and use the HERBS R US trademark other than to trade off the goodwill and reputation established by Toys ‘R’ Us, and that this points to a finding of depreciation.”

In the U.S., the Federal Trademark Dilution Act (“FTDA”) defines trademark dilution as “the lessening of the capacity of a famous mark to identify and distinguish goods or services, regardless of the presence or absence of (1) competition between the owner of the famous mark and other parties, or (2) likelihood of confusion, mistake, or deception.”

Dilution by “tarnishment” occurs when an infringing mark portrays the registered/infringed mark in a negative light. Often claims of this nature involve sex, drugs, illegal activity, and so forth. The argument to be made is that association by consumers of the two marks in these types of cases would damage the commercial value of the infringed mark because consumers would associate the negative qualities of the infringer’s mark with the infringed mark, damaging the reputation of the infringed mark.

We’ve seen claims for dilution and tarnishment pop up in virtually every cannabis-related trademark lawsuit here in the U.S., as the federally illegal status of cannabis makes these types of claims seem like low-hanging fruit. To the extent that cannabis is being legalized in more and more states, however, these claims are becoming less plausible.

As we’ve written before, even if you think you have a strong case for parody in choosing a mark that plays off of an existing brand, which is often why cannabis businesses choose these types of marks, your defense will be weak to nonexistent. Having already defended some of these cases, we can tell you it is just not worth the risk. Take this as another gentle reminder to stay away from using other companies’ branding, even if you think you are doing so as some sort of parody.

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