The Swiss Shield: A Trademark Registration Is a Defence to Damages Even if Later Invalidated

Switzerland’s historic neutrality does not extend to the use of its iconic cross. Wenger, the Swiss company behind the legendary “Swiss Army Knife”, commenced a trademark claim against Travelway, a Canadian distributor of luggage. Both companies sold luggage adorned with a logo evoking the Swiss flag, though ironically, both companies’ products were actually manufactured in Asia. Wenger, having cultivated its premium brand in Canada over the years, sought to expunge Travelway’s registered trademarks and seek damages for using similar marks.

Wenger was successful in invalidating Travelway’s trademarks and sought damages for infringement, claiming that the invalidity of Travelway’s registrations was retroactive. In the Federal Court of Appeal’s recent decision in Group III International Ltd. v. Travelway Group International Ltd., 2020 FCA 210, it was held that a trademark registration was an absolute defence to damages or profits during the period of registration.

Upholding prior Ontario case law, the Court held that a registered trademark grants the owner the right to its exclusive use in Canada, and therefore the trademark owner cannot be liable for damages or profits for use that is within its exclusive use rights.

Background

In 2009, Travelway obtained two registered trademarks, shown below:

Wenger asserted that Travelway’s use of its marks amounted to an infringement of its marks and passing off. Wenger asserted three of its registered trademarks, shown below:

With the exception of the SWISS GEAR mark (the mark on the left above), Wenger did not register these trademarks until after Travelway registered its trademarks. However, Wenger had used its marks on its luggage in Canada since 2003, well before Travelway used its trademarks. Therefore, Wenger claimed both passing-off and infringement post-registration.

In 2017, Wenger successfully obtained a judgment that Travelway’s use of its marks was passing off and infringed Wenger’s trademarks. In 2019, the Federal Court ordered that Travelway’s trademark registrations be expunged for non-distinctiveness and non-entitlement.

Entitlement to Damages for Infringement and Passing Off

The sole question before the Federal Court of Appeal was whether Wenger was entitled to damages for Travelway’s use of its registered but infringing trademarks.

The Court drew a clear distinction between trademark claims with unregistered trademarks and registered trademarks. A rights holder’s relief for an unregistered trademark is under section 7(b) (passing off) of the Trademarks Act, whereas the relief for a registered trademark is under section 20 (infringement) of the Trademarks Act. These are two separate and distinct causes of action.

However, section 19 of the Trademarks Act provides a registered owner of a trademark with the exclusive right to its use. Anyone who uses their registered trademark within the scope of its registration is immune from liability for damages or profits prior to it being struck from the Register. However, they could be liable for damages or profits if the registration is invalid for reason of fraud, wilful misrepresentation or bad faith.

In the case of passing off, use of a registered trademark is a complete defence to passing off claims (i.e. unregistered trademark claims).

In an unusual quirk, the Court explicitly overruled its earlier 2017 judgment in this proceeding, holding that Travelway should not have been found liable for passing off when it was using its registered trademarks. However, to respect the finality of its earlier judgment, the Court agreed to give effect to its earlier ruling and granted Wenger an accounting of profits for the passing off.

Remarks

While trademarks are often thought of as swords for protecting goodwill against counterfeiters and knock-offs, the Federal Court of Appeal’s decision affirms their value as shields. Trademark owners can rest easy that their use of their own registered trademarks will not expose themselves to damages awards. Further, trademark claims against the use of a registered trademark can only come from other registered trademarks, which makes evaluating the legal risk of trademarks much more predictable.

Trademark owners would be wise to monitor the Trademark Office’s published list of newly-advertised trademarks. As it will be increasingly difficult to challenge and recover for an infringing trademark after it is registered, rights holders should consider a trademark opposition proceeding to challenge a trademark before it is registered.