A & W Food Services of Canada Inc. v. McDonald's Restaurants of Canada Ltd., 2005 FC 406

Date: 20050323

Docket: T-2023-01

Citation: 2005 FC 406

Ottawa, Ontario this 23^rd day of March, 2005

Present:     THE HONOURABLE MR. JUSTICE O'REILLY             

BETWEEN:

                                       A & W FOOD SERVICES OF CANADA INC.

                                                                                                                                               Plaintiff

                                                                           and

                            McDONALD'S RESTAURANTS OF CANADA LIMITED

                                                                                                                                           Defendant

                                    REASONS FOR JUDGMENT AND JUDGMENT

I. Introduction

[1]          Since 1987, A & W has sold a grilled chicken sandwich called a "Chicken Grill". It registered a trade-mark for that name and product in 1988. Since 2001, McDonald's has sold a grilled chicken sandwich which it calls "Chicken McGrill". A & W alleges that McDonald's has infringed its trade-mark, used a confusingly similar mark and preyed upon its goodwill in the marketplace. In turn, McDonald's claims that A & W's trade-mark is invalid because it lacks the essential element of distinctiveness.

[2]          I have found that neither party has made out its claim and, therefore, I must dismiss A & W's action and McDonald's counterclaim.

II. Issues

1.       Does McDonald's use of the trade-mark "Chicken McGrill" infringe A & W's right to exclusive use of its trade-mark for "Chicken Grill" under s. 19 of the Trade-marks Act, R.S.C. 1985, c. T-13?

2.       Does McDonald's use of the trade-mark "Chicken McGrill" cause confusion with A & W's trade-mark for "Chicken Grill" contrary to s. 20(1) of the Trade-marks Act?

3.       Has McDonald's use of "Chicken McGrill" depreciated the goodwill associated with A & W's trade-mark for "Chicken Grill" contrary to s. 22(1) of the Trade-marks Act?

4.       Is A & W's trade-mark for "Chicken Grill" invalid because it lacks distinctiveness, as required by s. 18(1)(b) of the Trade-marks Act?

III. Factual Background

[3]          A & W was founded in California in 1919 by Mssrs. Allen and Wright. It started as a drive-by root beer stand. It expanded into Canada in 1956 with an outlet in Winnipeg. The Canadian version of A & W was more of a restaurant than its American counterpart, offering a broader range of fare, including hamburgers and hotdogs. Typically, these restaurants were "drive-ins", serving customers in their cars. Unilever Ltd. purchased A & W's Canadian restaurants in 1972, severing the connection entirely with the U.S. company. In 1995, Unilever sold the company to its management. Almost all of A & W's restaurants are now run by franchisees.

[4]          McDonald's arrived in Canada in 1967 with a restaurant in Richmond, B.C. Over time, A & W responded to competition from McDonald's and others by concentrating its operations in Western Canada, opening restaurants in shopping malls, gradually winding up its drive-in establishments and marketing its root-beer in grocery stores. Currently, A & W is the second largest restaurant chain in Canada based on number of restaurants (645) and third largest in sales ($500 million per year). McDonald's leads both categories (1,200 restaurants and $2.4 billion per year).

[5]          A & W registered the trade-mark for "Chicken Grill" in 1988, although it had test-marketed the product a year earlier. A & W officially launched the "Chicken Grill" in September 1989 with an extensive promotional campaign. The "Chicken Grill" presently generates about $8-10 million per year in revenue - about 2% of A & W's overall sales. It sells for around $3.89.

[6]          McDonald's started selling the "Chicken McGrill" in Canada in 2001, but its U.S. parent had originally launched it in 1998. In Canada, McDonald's usually uses the same marks as the U.S. restaurants so that it can enjoy the benefits of U.S. advertising for the same products. The "Chicken McGrill" generates about $30 million per year - a little more than 1% of McDonald's overall sales in Canada. It sells for around $3.49.

IV. Analysis

1. Does McDonald's use of the trade-mark "Chicken McGrill" infringe A & W's right to exclusive use of its trade-mark for "Chicken Grill" under s. 19 of the Trade-marks Act, R.S.C. 1985, c. T-13?

[7]          Trade-mark owners have the right to use their marks exclusively, throughout Canada, for the products or services to which those marks relate, unless shown to be invalid (Trade-marks Act, s. 19; relevant provisions are set out in an Annex). In this case, A & W clearly has the exclusive right to use its registered trade-mark "Chicken Grill" for a grilled chicken sandwich, unless McDonald's can prove that A & W's mark lacks the essential element of distinctiveness (which will be discussed below as a separate issue). A & W argues that McDonald's use of "Chicken McGrill" for a grilled chicken sandwich infringes its trade-mark because McDonald's mark is essentially the same; indeed, it wholly encompasses A & W's mark. For its part, McDonald's says that A & W only has the exclusive right to use "Chicken Grill"; it has no right to stop McDonald's from using "Chicken McGrill" because that is obviously not the same trade-mark.

[8]          The first issue, then, is whether A & W can only prevent others from using "Chicken Grill" or whether its rights extend to close variations on that mark, such as "Chicken McGrill". A & W concedes that there is little Canadian case law on this issue, and that some decisions are clearly contrary to its position. Still, it encouraged me to find inspiration in some recent English cases.

(i) Canadian cases

[9]          As I read the Canadian case law, a person who uses another person's trade-mark for the same goods or services has infringed that mark according to s. 19 of the Trade-marks Act. The prevailing view is that s. 19 only covers use of an identical mark, not variations on it.

[10]      In 1987, Chief Justice Arthur Thurlow held that a person could not prove a breach of s. 19 by showing that another person was using a similar trade-mark; the mark must be identical: Mr. Submarine v. Amandista Investments Ltd, [1987] F.C.J. No. 1123 (F.C.A.) (QL). Otherwise, the plaintiff must make its claim based on confusion or some other form of prohibited conduct, such as depreciation of goodwill. He stated:

If, indeed, a right of action for infringement arises under s. 19 on the taking of the registered mark, without reference to any likelihood of confusion or of such depreciation, it seems to me that it is only the taking of the mark as registered on which such an action could be maintained and that any right of action for infringement that the registered owner may have in the taking of a part of the registered mark or in the use of a similar trade mark must arise, if at all, under s. 20 or possibly under s. 22. (At p. 8.) [Emphasis added.]

[11]      In that case, the plaintiff Mr. Submarine could not complain under s. 19 about the defendant's use of "Mr. Subs'n Pizza".

[12]      Similarly, Justice Yvon Pinard has held that "section 19 of the Act is limited to cases in which a person uses a registered mark identical to the registered trade-mark for the same wares or services as the registered mark": Standard Knitting Ltd. v. Toyota Jidosha Kabushiki Kaisha, [2000] F.C.J. No. 1329 (T.D.) (QL), at p. 287.

[13]      I do not see in the Canadian cases any room for A & W's argument that McDonald's use of "Chicken McGrill" infringes the trade-mark for "Chicken Grill". It seems clear that s. 19 of the Act deals only with identical marks.

(ii) English cases

[14]      A & W argued that English judges have found infringement of a trade-mark in situations where a person has used a mark that encompasses another person's trade-mark.

[15]      Again, though, I find no clear support for A & W's argument under English law. Like s. 19 of the Canadian statute, the English Trade-marks Act 1994, c. 26 prohibits a person from using a mark that is identical to a registered mark for the same goods or services (s. 10(1)). In a few English cases, courts found that the word "identical" could include situations where "a defendant in the course of trade uses as his sign a word which constitutes the registered trade mark of another in combination with other words": Asprey & Garrard Ltd v. WRA (Guns) Ltd., [2001] E.W.J. No. 4357 (C.A.), summarizing (at p. 7) the approach in the three prior cases of British Sugar PLC v. James Robertson & Sons Ltd., [1996] R.P.C. 281 (Chancery Division); Aktiebolaget Volvo v. Heritage (Leicester) Ltd., [2000] F.S.R. 253 (Chancery Division); and Decon Laboratories Ltd. v. Fred Baker Scientific Ltd., [2001] R.P.C. 17 (Chancery Division). A & W urges me to apply the same approach here and to find that, because "Chicken McGrill" incorporates "Chicken Grill", s. 19 has been violated.

[16]      However, in the Asprey case above, the English Court of Appeal noted that there was some doubt about the proposition that A & W asserts here. It held that the trial judge had been wrong to issue summary judgment on the issue of trade-mark infringement where the plaintiff Asprey contested the defendant's use of the name "William R. Asprey Esq". The Court noted that the issue would soon be addressed by the European Court of Justice in a case involving the First Council Directive 89/104 relating to trade-marks, s. 5(1), which is the same as s. 10(1) of the English statute. The law was not sufficiently clear to permit the trial judge to issue summary judgment on the point. In due course, in 2003, the European Court of Justice held that the "criterion of identity of the sign and the trade mark must be interpreted strictly" and, accordingly, that "the two elements compared should be the same in all respects": LTJ Diffusion SA v. Sadas Vertbaudet SA,(Case C-291/00 dated March 20, 2003), at para. 50. The Court stated:

. . . Article 5(1)(a) of the directive must be interpreted as meaning that a sign is identical with the trade mark where it reproduces, without any modification or addition, all the elements constituting the trade mark or where, viewed as a whole, it contains differences so insignificant that they may go unnoticed by an average consumer. (At para. 54.)

[17]      I do not see support for A & W's argument in U.K. or European law, unless one were to conclude that the difference between "Chicken Grill" and "Chicken McGrill" is so insignificant that it would go unnoticed by the average consumer. As will be seen below, the parties led considerable expert evidence on the significance of the "Mc" prefix. However, none of that evidence went so far as to suggest that the prefix was so insignificant that it would go unnoticed by the average consumer.

(iii) Conclusion on infringement

[18]      A & W argues that if McDonald's use of "Chicken McGrill" does not amount to trade-mark infringement, then McDonald's would be given a license to put the "Mc" prefix in front of any company's trade-mark and adopt it as its own. By that reasoning, McDonald's could sell a "McWhopper" or "McPepsi". This strikes me as a strong argument in principle, but not one that finds favour in any case law that was cited to me.

[19]      According to current Canadian law, McDonald's use of "Chicken McGrill" does not infringe A & W's trade-mark for "Chicken Grill". The main issue, therefore, is whether there is confusion.

2. Does McDonald's use of the trade-mark "Chicken McGrill" cause confusion with A & W's trade-mark for "Chicken Grill" contrary to s. 20(1) of the Trade-marks Act?

(a) Forward and Reverse Confusion

[20]      A & W pitched its case as being one of so-called "reverse confusion". In the usual trade-mark confusion case, the plaintiff alleges that the defendant's trade-mark causes customers to believe that the defendant's goods originate with the plaintiff. This is called "forward" or "direct" confusion. A reverse confusion case arises where the plaintiff alleges that the defendant's trade-mark causes customers to believe that the plaintiff's goods originate with the defendant.

[21]      If A & W were alleging forward confusion, it would claim that McDonald's trade-mark causes McDonald's customers to believe that a "Chicken McGrill" comes from A & W or, at least, has some connection with A & W. But this is not what A & W is suggesting here. Rather, it claims that McDonald's trade-mark causes A & W customers to believe that a "Chicken Grill" comes from McDonald's or, at least, has some connection with McDonald's. The parties agree that this is a novel kind of claim in Canadian law.

[22]      A & W concedes that there are no Canadian cases dealing with reverse confusion. Still, it argues that reverse confusion is recognized implicitly in s. 6 of the Trade-marks Act.

(i) What are the legal elements of "reverse confusion"?

[23]      The concept of reverse confusion appears to be well-accepted in the United States. A leading U.S. author describes reverse confusion as follows:

The rule of reverse confusion is highly fact-specific and depends for its application on the presence of a critical mass of key facts. The paradigm case is that of a knowing junior user with much greater economic power who saturates the market with advertising of a confusingly similar mark, overwhelming the marketplace power and value of the senior user's mark. When the facts vary from that model, the reverse confusion rule is not applicable. (J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition, 4^th ed., Danvers, MA; Thomson West, 2004, ch. 23:10, at p. 23-46.

[24]      It appears, however, that U.S. courts are less doctrinaire about the requirements of reverse confusion than McCarthy. The parties agree that the leading authority on reverse confusion is A & H Sportswear Co., Inc. v. Victoria's Secret Stores, Inc, 167 F. Supp. 2d 770 (E.D.P. 2001). There, the plaintiff was a manufacturer of swimsuits sold under the trade-mark "Miraclesuit", registered in 1992. The defendant sold a line of lingerie and swimwear under the mark "The Miracle Bra", which it registered in 1994. The plaintiff argued that the defendant was using a confusing mark, in the sense that consumers were led to believe that the plaintiff was selling goods that originated with the defendant - in other words, reverse confusion. The District Court found that the plaintiff had proved its case.

[25]      It is very clear, however, that the Court approached the issue of reverse confusion in exactly the same way as it would have considered a claim of forward confusion. It did not apply any special criteria or insist on proof of the factual scenario described by McCarthy.

[26]      The Court began by comparing the two kinds of confusion:

The traditional pattern of direct confusion occurs when customers mistakenly think that the junior user's goods are from the same source as, or are connected with, the senior user's goods. Conversely, with reverse confusion, customers purchase the senior user's goods under the mistaken impression that they are getting the junior user's goods. This is likely to occur when a person familiar with the well-known junior user first comes into contact with the lesser-known senior user and, because of the similarity of the marks, mistakenly thinks that the senior user is the same as, or is affiliated with, the junior user. Rather than try to profit from the senior user's mark, the junior user attempts to saturate the market and overwhelm the senior user. The result of such action is that the senior user loses the value of the trade-mark, its product identity, corporate identity, control over its goodwill and reputation, and ability to move into new markets. (Footnotes omitted.) (At pp. 776-7.)

[27]      The Court was describing the kind of scenario where reverse confusion was likely to occur, not establishing a legal requirement for proof of particular facts. This is clear from the following passage from the judgment:

Reverse confusion is not completely different from the more typical direct confusion claim. With both types of trademark claims, the presence, or absence, of likelihood of confusion remains the key. . . It is only incidental whether the confusion reflects a belief that defendant's products or services are those of the plaintiff (likelihood of direct confusion) or a belief that plaintiff's products or services are those of the defendant (likelihood of reverse confusion). (Footnotes omitted.) (At p. 777.)

[28]      The Court then went on to consider the factors that must be taken into account in any confusion case. Those factors are referred to as the "Lapp factors" from the case of Interpace Corp. v. Lapp, Inc., 721 F.2d 460 (3^rd Cir. 1983). They are the following:

1.          The degree of similarity between the owner's mark and the allegedly infringing mark;

2.          The strength of the owner's mark;

3.          The price of the goods and other factors indicative of the care and attention expected of consumers when making a purchase;

4.          The length of time the defendant has used the mark without evidence of actual confusion arising;

5.          The intent of the defendant in adopting the mark;

6.          The evidence of actual confusion;

7.          Whether the goods, competing or not competing, are marketed through the same channels of trade and advertised through the same media;

8.          The extent to which the targets of the parties sales efforts are the same;

9.          The relationship of the goods in the minds of consumers; and

10. Other facts suggesting that the consuming public would expect the prior owner to manufacture both products or to manufacture a product in the defendant's market, or would expect that the prior owner is likely to expand into the defendant's market.

[29]      The Court then proceeded to consider each factor, noting that "[a]s with the test for direct confusion, we must weigh all ten factors; no single one being dispositive." (at p. 777).

[30]      Accordingly, the test for reverse confusion in the U.S. is the same as the test for forward or direct confusion. While reverse confusion cases may typically arise on particular facts, the courts apply the same criteria as they would in any other confusion case.

(ii) Is the concept of confusion in the Canadian Trade-marks Act broad enough to cover reverse confusion?

[31]      According to the Trade-marks Act, a person who sells goods under a confusing mark infringes the trade-mark of the registered owner (s. 20). A mark is confusing if the use of both marks in the same area would lead consumers to believe that the goods of the two parties actually have the same source (s. 6(2)). To decide whether a mark is confusing, the Court must consider all the surrounding circumstances, including the following factors:

(a)      the inherent distinctiveness of the trade-marks and the extent to which they have become known;

(b)      the length of time the trade-marks have been in use;

(c)      the nature of the wares;

(d)      the nature of the trade;

(e)      the degree of resemblance between the trade-marks in appearance or sound or in the ideas suggested by them (s. 6(5)).

[32]      I see nothing in the Act that would confine plaintiffs to the forward or direct confusion situation. The Act is broad enough to cover both forward and reverse confusion. Both are actionable under the Act, and the same criteria apply.

[33]      Accordingly, there is no need to rely on U.S. legislation, doctrine, jurisprudence or criteria to decide a claim of reverse confusion in Canada.

(b) Evidence relating to confusion

(i) Evidence of actual confusion

[34]      A & W presented evidence attempting to show that its customers were actually confused between its "Chicken Grill" sandwich and McDonald's "Chicken McGrill".

[35]      Mr. Rex Oquendo is a customer of both A & W and McDonald's. He stops four times a week at the A & W on Highway 1 in Brandon, Manitoba when he is making deliveries, but sometimes he takes his children to McDonald's. When he first saw "Chicken Grill" on the A & W menu, he thought it was the same thing as McDonald's "Chicken McGrill". He noted that the only difference in the name was the absence of the "Mc" prefix. Because of the similarity of the names, he wondered whether A & W had some kind of agreement with McDonald's that would permit it to sell a product with a similar name. He agreed that the two products are different and come in different packages. He prefers A & W's sandwich.

[36]      Some of A & W's franchisees testified that they had heard customers order a "Chicken McGrill" in their restaurants. Often, though, customers simply ask for a chicken sandwich or a grilled chicken sandwich, not relying on a particular product name.

[37]      This is very weak evidence of actual confusion. Mr. Oquendo, a single customer, simply wondered whether A & W might have made an arrangement with McDonald's about the name "Chicken Grill". He did not infer that A & W's sandwich was actually produced by McDonald's. The A & W franchisees who testified could only say that a few customers misspoke when making an order in a transaction that typically takes no more than a minute or two. A & W had asked all of its 200 franchisees in English Canada whether they were aware of any customers who mixed up the names "Chicken Grill" and "Chicken McGrill". Only a handful could say they were.

(ii) Survey evidence

[38]      Dr. Ruth Corbin, an expert in social science research, testified in support of A & W's claim that consumers would likely confuse the source of its "Chicken Grill" sandwich with the purveyor of the "Chicken McGrill". She conducted a study with four separate groups of respondents to measure the extent to which consumers associate "Chicken Grill" with particular sources and to attempt to explain the reasons why they might do so. Her results are summarized in the following table:

                                         Table 3 - Perceived source of four different sandwiches

[39]      Dr. Corbin emphasized the following data from her survey:

·      When asked who would sell the "Chicken Grill", 13% of consumers said "McDonald's". (The figure is slightly higher (15%) if the data from Quebec, where the parties sometimes use different names for their products, are excluded). McDonald's was named more than any other restaurant. Only 3% said "A & W". A majority of respondents said they did not know (53%).

·      When asked who would sell a sandwich called the "Chicken Skillet" (a fictional product), 2% of consumers said "McDonald's". None said "A & W". The most common answer was "KFC" (9%). A large majority said they did not know (78%).

·      When asked who would sell a sandwich called the "Bacon Grill"(another fictional product), 5% of consumers said "McDonald's". Only 2% said "A & W". The most common answer was "Wendy's" (11%). Again, a large majority said they did not know (70%).

·      When asked who would sell the "Chicken McGrill", 73% of consumers said "McDonald's". None said "A & W". About a quarter of respondents said they did not know (23%).

[40]      Dr. Corbin drew a number of inferences from these results: McDonald's is more likely than any other restaurant to be misperceived as the source of the "Chicken Grill". This misattribution is probably due to the similarity between the two names and consumers' familiarity with McDonald's "Chicken McGrill". Many respondents (73%) correctly identified McDonald's as the source of that sandwich. This explains why some of them (13%) think of McDonald's when they hear the name "Chicken Grill", even though the actual source is A & W.

[41]      According to Dr. Corbin, these results cannot be explained by consumer guessing. For example, her respondents did not identify McDonald's as a likely source of all chicken sandwiches. Few (2%) thought McDonald's would sell a sandwich called "Chicken Skillet". Nor did they readily associate McDonald's with all sandwiches containing something that had been grilled; only 5% thought McDonald's would sell a "Bacon Grill". Accordingly, the extent to which consumers think McDonald's sells the A & W sandwich cannot be explained simply by a reaction to the two words in the name "Chicken Grill". There must be some other reason for it. Given the degree of consumer familiarity with the McDonald's product, the most likely explanation, according to Dr. Corbin, is confusion between the "Chicken Grill" and the "Chicken McGrill".

[42]      McDonald's disputed Dr. Corbin's reasoning. It asked Dr. Chuck Chakrapani, an expert in marketing research and statistics, to review Dr. Corbin's study. Dr. Chakrapani's written analysis and testimony discloses four main criticisms. First, Dr. Chakrapani questioned Dr. Corbin's choice of population for her survey. To measure confusion, he believes, one must evaluate the impressions of those who are familiar with the plaintiff's trade-mark. Yet, Dr. Corbin put her questions to patrons of fast-food restaurants generally, not A & W customers specifically. In fact, only 40% of her respondents had been to an A & W during the previous six months.

[43]      Second, Dr. Chakrapani challenged Dr. Corbin's analysis of the data from her two control groups. Dr. Corbin had compared the percentage of respondents who thought a "Chicken Grill" came from McDonald's (13%), with the percentages who would expect to find a "Chicken Skillet" (2%) or a "Bacon Grill" (5%) there. Dr. Corbin concluded that, because the latter groups are considerably smaller than the first, it must be the combination of "Chicken" with "Grill" that inspires in consumers a connection with McDonald's, not the individual words. But Dr. Chakrapani believes that Dr. Corbin's approach ignores the potential impact of the other words in the names of her invented sandwiches. For example, consumers might see the word "skillet" and think of a restaurant that sells fried foods instead of McDonald's. In fact, in Dr. Corbin's survey, the most popular answer in the "Chicken Skillet" group was "KFC", well-known for selling fried chicken. Similarly, in the second control group, consumers might have focussed on the word "bacon" rather than "grill". The most popular answers in the "Bacon Grill" group were "Burger King" and "Wendy's". Perhaps consumers associate those restaurants with bacon products. One simply does not know.

[44]      Third, Dr. Chakrapani suggested that the degree of misattribution Dr. Corbin identified is statistically insignificant. Again, 13% of respondents believed the "Chicken Grill" came from McDonald's. But 10% of them believed it came from KFC and 9% of them named Burger King. Dr. Chakrapani contended that these differences are too slight to justify any inferences about the frequency with which consumers associate McDonald's with the "Chicken Grill".

[45]      Fourth, Dr. Chakrapani noted that Dr. Corbin's research indicates that few consumers make any connection between "Chicken Grill" and A & W. Only 3% of respondents correctly identified A & W as the source of the "Chicken Grill". Most of them named another restaurant or simply had no answer. On the other hand, no one believed that A & W was the source of the "Chicken McGrill". These data, he said, simply do not support an inference that consumers are likely to be confused about the source of the two products. In fact, the data support McDonald's argument that consumers likely believe that "Chicken Grill" is a generic name for a sandwich, not a trade-mark.

[46]      McDonald's called another expert to comment on Dr. Corbin's survey. Dr. Ivan Ross identified three problems with Dr. Corbin's analysis. First, he felt Dr. Corbin's survey questions were inappropriate. He thought that her questions invited guessing since consumers were asked "who would sell" a given sandwich, not "who sells" it. In addition, respondents were told that "Chicken Grill" was a brand name, not asked whether they recognized it. In Dr. Ross's view, these problems explain the answers to the question "Who would sell a Chicken Grill sandwich?". Consumers named a total of ten different restaurants (i.e. they guessed) and more than half of them said "I don't know" (i.e. they did not believe "Chicken Grill" was a brand name at all).

[47]      Second, Dr. Ross questioned the value of Dr. Corbin's control groups - those who were asked about a "Chicken Skillet" or a "Bacon Grill" sandwich. He suggested that these were poor controls because they were not sufficiently close to the name of the product that was the focus of the study (i.e. "Chicken Grill"). Echoing Dr. Chakrapani's opinion, he said that using a two-word name in the control groups did not allow one to determine the significance of each individual word. He would have used a single control group using a name close to "Chicken Grill". Further, he did not think that "Chicken Skillet" and "Bacon Grill" sounded like sandwiches at all. This, he believed, explained why so many people simply could not name any restaurant that would sell those products (78% and 70% respectively in the two control groups).

[48]      Third, Dr. Ross did not believe that Dr. Corbin's conclusions were supported by her own figures. He said that Dr. Corbin's analysis shows that 73% of consumers believe that a "Chicken McGrill" comes from McDonald's and that no one believes that A & W sells that sandwich. He acknowledged that 13% of consumers mistakenly believe that McDonald's sells the "Chicken Grill" but almost as many believe that KFC (10%) and Burger King (9%) sell it. In short, the figures show that there is little likelihood that consumers believe that the "Chicken Grill" comes from McDonald's or that the "Chicken McGrill" comes from A & W. In other words, there is simply no evidence of confusion, whether forward or reverse.

[49]      What can the Court make of this evidence? Having examined the expert reports and testimony thoroughly, I cannot conclude that the survey evidence shows confusion. As I understand it, Dr. Corbin's analysis depends upon a tacit, underlying premise - that the consumers who were asked about the "Chicken Grill" sandwich already knew about, or had some awareness of, the "Chicken McGrill" sandwich and some of them confused the two. Her study did indeed show that nearly three-quarters of fast-food customers correctly identified McDonald's as the source of the "Chicken McGrill". But to my mind, this does not necessarily mean that three-quarters of these people were aware or had previously heard of the "Chicken McGrill". All that we know is that when people hear the name "Chicken McGrill", most of them will think of McDonald's. However, Dr. Corbin relied on this finding to conclude that those consumers who thought that the "Chicken Grill" came from McDonald's must have been thinking of the "Chicken McGrill" and confusing the two. But we simply have no idea whether those people actually had any prior knowledge of "Chicken McGrill".

[50]      Dr. Corbin says that consumer confusion is the only reasonable explanation of her data, given that McDonald's was named more than any other restaurant as the source of the "Chicken Grill", and considering the results from her control groups. Here I must agree with Dr. Chakrapani and Dr. Ross. The results from the control groups do not persuade me that consumers made a special connection between "Chicken Grill" and McDonald's. "Chicken Skillet" and "Bacon Grill" strike me as unlikely names for sandwiches. Further, it seems to me that the addition of the words "skillet" and "bacon" generates, rather than eliminates, statistical "noise". In short, the design of the control groups does not remove the possibility that those who named McDonald's as the source of the "Chicken Grill" did so for reasons completely unrelated to the existence of the "Chicken McGrill", such as McDonald's dominant presence in the fast-food market.

[51]      Further, I am struck by the fact that almost as many people thought that the "Chicken Grill" came from KFC or Burger King as from McDonald's. This is apparent from the raw figures in Dr. Corbin's study. There were 286 people who were asked which restaurant would sell the "Chicken Grill" sandwich. That number can be broken down as follows:

·      152 said "I don't know"

·      36 mentioned McDonald's

·      27 mentioned KFC

·      23 mentioned Burger King

·      17 mentioned Wendy's

·      12 mentioned A & W

·      7 mentioned Harvey's

·      8 mentioned Subway

·      6 mentioned Dairy Queen

·      5 mentioned St. Hubert

·      3 mentioned Swiss Chalet

·      1 mentioned Arby's

[52]      Dr. Corbin maintains that the number of people mentioning McDonald's is statistically significant. Drs. Chakrapani and Ross disagree. To my mind, the raw numbers do not reveal much of an association between "Chicken Grill" and McDonald's. Nor do the figures lend support to the possibility that consumers are confused because of their prior awareness of the "Chicken McGrill". Obviously, 250 out of the 286 respondents who were asked about the "Chicken Grill" did not think of McDonald's at all. Those who did gave a variety of reasons for doing so, all of which were also given by those who named other restaurants.

[53]      Dr. Chakrapani prepared his own survey on the issue of confusion. He asked A & W customers about the "Chicken McGrill" sandwich. A vast majority of them (71%) had heard of it. When asked the open-ended question "what can you tell me about a Chicken McGrill sandwich?", many customers mentioned McDonald's spontaneously (18%). When specifically asked to name the source of the "Chicken McGrill", most (70%) correctly identified McDonald's. Less than 1% mentioned A & W. Based on these results, Dr. Chakrapani concluded that there is no reasonable likelihood that consumers would be confused about the source of the two sandwiches. In particular, he found that A & W customers do not think the "Chicken McGrill" comes from A & W. Accordingly, there is no evidence of so-called "forward confusion".

[54]      As for "reverse confusion", A & W argued that a second survey conducted by Dr. Chakrapani supported its submission that customers believe the "Chicken Grill" comes from McDonald's. His study was intended to determine whether consumers associate "Chicken Grill" with A & W, or whether they regard "Chicken Grill" as a generic term. He found that few customers (only 2%) associate the phrase "Chicken Grill" with any particular restaurant. They were more inclined to think of methods of food preparation (65%), or nutrition (18%). Only 0.3% mentioned A & W. Even when specifically asked whether they thought of any particular restaurant associated with "Chicken Grill", most (69%) still did not mention any company. The remainder who did think of a restaurant, named McDonald's (13%), KFC (6%), Wendy's (5%), Burger King (4%), Harvey's (3%) and A & W (0.6%). Dr. Chakrapani described these numbers as random in that they do not show any noteworthy association between "Chicken Grill" and a particular source.

[55]      For its part, A & W took some comfort from these results. While they clearly show a very low level of brand awareness for the "Chicken Grill", they also indicate that some customers (13%) think that the "Chicken Grill" comes from McDonald's. This, A & W argues, is good evidence of "reverse confusion".

[56]      I do not think Dr. Chakrapani's results support A & W's cause. He found that the vast majority of respondents do not associate the name "Chicken Grill" with any restaurant. Only when pressed did 13% mention McDonald's, a proportion equivalent to McDonald's share of the market. This suggests that respondents may simply have been guessing. By contrast, in Dr. Chakrapani's other survey, 18% of respondents spontaneously associated the words "Chicken McGrill" with McDonald's, while less than 1% mentioned any other restaurant. Accordingly, the association of "Chicken McGrill" with McDonald's is strong while the association of "Chicken Grill" with any particular source is insignificant; its connection with A & W is almost non-existent.

[57]      Overall, I must conclude that the statistical evidence simply does not prove confusion.

(iii) Linguistic evidence

[58]      Dr. Julie Sedivy, a linguistics expert, testified that consumers would likely confuse the names "Chicken Grill" and "Chicken McGrill". In her view, the sound, appearance and meaning of the two phrases are so similar that they would be conflated in consumers' memories. She believes the "Mc" prefix is likely to be mumbled or dropped entirely in conversation. Further, "Mc" does not change the meaning of the phrase "Chicken Grill".

[59]      Dr. Sedivy characterized "Chicken Grill" as a "noun-noun" phrase. Noun-noun phrases are more complex and difficult to comprehend than adjective-noun compounds. In the latter, the relationship between the two components is predictable: the adjective, usually on the left, modifies the noun, usually on the right. In her written report, Dr. Sedivy gave the following examples: "a clever student is a student who has the property of being clever; a blond boy is a boy who has the property of being blond; grilled chicken is chicken that has the property of being grilled, etc."

[60]      By contrast, the relationship between the words in a noun-noun phrase is less clear. We can often glean the meaning of noun-noun phrases from their context and, over time, come to a common understanding of what they signify. Still, these phrases are not entirely without intrinsic or predictable meaning. In fact, they often operate similarly to adjective-noun phrases: the word on the left usually tells you something about the thing on the right. So, a "house boat" is a boat that can be used as a house, and a "boat house" is a house that provides shelter to a boat. For novel combinations of nouns, however, we often have to think about what they might mean and then store that meaning in our memory as a compendium of the two words. Dr. Sedivy maintains that consumers faced with two similar noun-noun phrases, namely "Chicken Grill" and "Chicken McGrill", would likely store them in their memory together and, when trying to retrieve them, get them mixed up.

[61]      According to Dr. Sedivy's analysis, the noun-noun phrase "Chicken Grill" could refer to a restaurant, a cooking implement, a culinary event or a menu item. It is not clear. A & W's use of the phrase as a name for a sandwich does not follow the usual pattern of noun-noun phrases in which the left word tells the reader something about the right word. A "Chicken Grill" in an A & W restaurant is not a kind of "grill" at all. It is a grilled chicken sandwich. As such, the name "Chicken Grill" does not describe the product, it merely suggests some of its qualities.

[62]      Dr. Sedivy discounted the effect that the "Mc" prefix might have in helping consumers distinguish between the "Chicken Grill" and the "Chicken McGrill". She characterized "Mc" as an "inflectional morpheme" - a unit of speech that does not change the meaning of the root word to which it is attached or change its grammatical category. She compared it to adding an "s" to a word to make it plural or an "ed" to change its tense. It would not affect the meaning of the phrase in which it appears (i.e. Chicken McGrill), especially when it appears in the middle. Further, it would not cause consumers to store that phrase, or retrieve it from memory, distinctly from a similar phrase that lacks the "Mc" prefix (i.e. "Chicken Grill").

[63]      In addition, Dr. Sedivy believes that consumers would not pronounce the "Mc" prefix clearly. In fact, they may well drop it altogether in conversational speech.

[64]      Accordingly, Dr. Sedivy was not surprised by the results of Dr. Corbin's survey in which consumers were found to associate "Chicken Grill" more often with McDonald's than with other restaurants. She agreed with Dr. Corbin that this misattribution could be explained by the existence of the "Chicken McGrill".

[65]      McDonald's asked Dr. Peter Reich, also a linguistics expert, to respond to Dr. Sedivy's analysis. He disagreed with several of Dr. Sedivy's conclusions. He believed that the phrase "Chicken Grill" follows a fairly standard pattern in the naming of food items. It is common for dishes to be identified by a noun-noun phrase, with one of the nouns being the main ingredient and the other being the method of preparation. In these kinds of phrases, it is not unusual for the left noun to be the ingredient and the right noun the method of preparation. Dr. Reich gave the following examples: fish fry, lobster bake, pork roast, chicken stew, and steak barbecue. Based on his research in dictionaries and on the internet, Dr. Reich concluded that the word "grill" is frequently used in these kinds of phrases to describe a food dish. He found wide use of "seafood grill", "fish grill" and "steak grill", as well as "chicken grill". When he searched the internet for "chicken grill", he found the names of restaurants, recipes and menu items, including sandwiches.

[66]      Dr. Reich concluded from his analysis that "Chicken Grill" has "a common and ordinary meaning in the English language being a meal which includes chicken that has been cooked on a grill". If the name "Chicken Grill" is used in or by a restaurant selling sandwiches, consumers would understand that it refers to a sandwich made with grilled chicken. In Dr. Reich's view, "Chicken Grill" can have no other relevant meaning in that context. Accordingly, "Chicken Grill" is more than merely suggestive of the product it names; it describes it quite clearly.

[67]      Dr. Reich also testified that the "Mc" prefix has a clear, well-known and specific meaning: it means "from McDonald's". As such, he disagrees with Dr. Sedivy that "Mc" adds virtually nothing when inserted in the phrase "Chicken Grill". Further, given its distinct meaning, the prefix "Mc" is unlikely to be dropped by consumers in ordinary speech. Finally, in Dr. Reich's view, the "Mc" prefix clearly distinguishes the "Chicken McGrill" from the "Chicken Grill" making it unlikely that consumers would confuse them. He discounted the significance of the small number of customers who had ordered a "Chicken McGrill" in an A & W restaurant. In his view, these could be characterized as mere slips of the tongue.

[68]      Overall, considering the evidence of both experts, I find that the "Mc" prefix is meaningful and, in the circumstances of this case, significantly reduces the likelihood of confusion about the source of each party's product. I am persuaded that Dr. Reich's opinion better describes how an average consumer would react to the names of the parties' sandwiches.

(iv) Marketing evidence

[69]      Dr. Alexandra Campbell, a marketing expert, testified in support of McDonald's position that there is little likelihood that consumers would confuse the source of the parties' grilled chicken sandwiches. Her view was that A & W had simply not promoted its sandwich to the extent that consumers would have an awareness of it or its source.

[70]      Dr. Campbell analyzed A & W's marketing and communications activities for the "Chicken Grill" sandwich. She noted that A & W's main marketing efforts took place from 1989 to 1991 and declined thereafter. Correspondingly, sales of the "Chicken Grill" declined from a high of 8% of total sales in 1989 to 1.5% over successive years. Sales increased only during periods when A & W boosted its promotional efforts or offered discount coupons. Sales declined when marketing activity dropped off, particularly during the years 1992-1996.

[71]      A & W re-launched the "Chicken Grill" in 1997 and promoted it by way of in-store advertising and coupon offers. Again, sales rose to 8% during the promotional period and declined to 2% thereafter. There has been no marketing activity for the "Chicken Grill" since 2001.

[72]      Dr. Campbell believes that A & W's marketing strategy for the "Chicken Grill" was insufficient to create any brand identity among consumers. Her view is that frequent communication with consumers is essential to achieving brand awareness for low-cost, frequently purchased products, such as sandwiches. Further, she suggested that A & W's reliance on discount coupons to promote the "Chicken Grill" may have been counterproductive. While "couponing" can increase sales in the short term, over time it can have the effect of reducing brand loyalty.

[73]      Dr. Campbell found support for her opinion in Dr. Chakrapani's surveys. No consumers recalled having purchased a "Chicken Grill". Few (only 2%) associated it with any particular restaurant and even less (0.3%) correctly identified A & W as its source. This lack of consumer awareness of the "Chicken Grill" product suggests that purchasers would not associate it with any one source and, therefore, they could not be confused as between two particular sources. By contrast, the use of the "Mc" prefix, in her view, created a strong brand identity and described an obvious source for the "Chicken McGrill".

(c) Applying the test for confusion

[74]      As mentioned, I must consider all of the surrounding circumstances, as well as the factors set out in s. 6(5) of the Trade-marks Act, in deciding whether McDonald's "Chicken McGrill" trade-mark is confusing.

(i)    The inherent distinctiveness of the trade-marks and the extent to which they have become known

[75]      The survey evidence outlined above suggests that A & W's "Chicken Grill" trade-mark is not well-known and is not associated particularly with A & W or any other restaurant. It is regarded by many consumers as a phrase that suggests the characteristics of the product to which it is attached, rather than a product name.

[76]      On the other hand, "Chicken McGrill" is strongly associated with McDonald's. While the name is also somewhat suggestive of the product's characteristics, consumers readily identify McDonald's as its source.

[77]      This factor runs counter to A & W's claim of confusion.

(ii) The length of time the trade-marks have been in use

[78]      A & W has used the "Chicken Grill" trade-mark since 1988. McDonald's has used the "Chicken McGrill" mark since 2001. As noted above, there is very little evidence that consumers have confused the two marks during their years of co-existence. Further, A & W has been unable to establish much, if any, public awareness of its trade-mark since 1988. McDonald's has shown that there is a strong public association between it and its "Chicken McGrill" trade-mark. This suggests little likelihood of forward confusion but leaves open the possibility of reverse confusion.

(iii) The nature of the wares

[79]      The parties sell virtually identical wares - grilled chicken sandwiches. These products are low-cost and sold in an environment that provides purchasers little opportunity for reflection on their choices. As Dr. Campbell pointed out, it is very difficult to establish brand awareness for these kinds of products without a great deal of advertising. A & W has not marketed its product aggressively since 1997. It has done no major media advertising of the "Chicken Grill" since its initial launch in 1989, when it spent $1 million on promotion. Correspondingly, brand awareness of the "Chicken Grill" is very low among consumers.

[80]      McDonald's has pushed its product with considerable vigour. It spent $1.2 million in advertising in 2002, just for the "Chicken McGrill". It spent nothing in 2003, but renewed its promotion of the "Chicken McGrill" in 2004, spending $600,000 in the first half of the year. McDonald's spending, as well as its unique product identifier, the "Mc" prefix, explains the strong public awareness of the source of the "Chicken McGrill". According to Dr. Campbell, McDonald's has done what is necessary to make an impression on consumers of low-priced wares such as sandwiches. Again, this factor suggests an absence of forward confusion but could still admit of an argument based on reverse confusion.

(iv) The nature of the trade

[81]      Both parties are in the same business, but target different segments of the population. A & W targets mainly adult consumers, while McDonald's focusses more on children. The parties are competitors in a $12 billion industry. They only sell their products on their own premises. In my view, the average consumer of fast-foods would know the difference between McDonald's and A & W, could distinguish them easily, and would be unlikely to assume a connection between them unless there was a strong indication otherwise. This would be particularly true for consumers of grilled chicken sandwiches who, the parties agree, are mainly adults.

[82]      In my view, this reality makes it very unlikely that a person who purchases a "Chicken Grill" would think that the product comes from McDonald's even though the name is somewhat similar to McDonald's "Chicken McGrill". Nor would a consumer be likely to think that a "Chicken McGrill" comes from A & W. The competitive nature of this industry militates against any potential for confusion, whether forward or reverse.

(v) The degree of resemblance between the trade-marks in appearance or sound or in the ideas suggested by them.

[83]      The product names in issue here are obviously similar. They also suggest similar qualities and characteristics. However, the "Mc" prefix minimizes the likelihood of any forward confusion. It provides a clear and well-recognized signal that the source of the product is McDonald's.

[84]      As for reverse confusion, there is nothing inherent in the words "chicken" and "grill" that points to McDonald's. I realize that there is some evidence before me to the contrary in the surveys conducted by Dr. Corbin and Dr. Chakrapani. However, for the reasons set out above, that evidence does not persuade me that the association between "Chicken Grill" and McDonald's arises from consumer confusion. It is equally consistent with guessing based on McDonald's significant market share.

(vi) Other circumstances

[85]      A & W argued that I should also consider McDonald's indifference to A & W's trade-mark as an aggravating factor. I note that "intent" is among the factors specifically mentioned in the U.S. test for confusion discussed above. It is not mentioned in the Canadian Trade-marks Act. Still, I agree with A & W that the defendant's attitude may form part of the surrounding circumstances that the Court can consider under s. 6(5) of the Act.

[86]      McDonald's was aware of A & W's trade-mark before it registered its own. Its lawyers had conducted a search of the trade-mark register. Nevertheless, McDonald's went ahead with its plan to use "Chicken McGrill" over A & W's objections. McDonald's did not view A & W as a major competitor, characterizing it as a "mom and pop" operation. It felt compelled to use the same name as was used in the United States by its parent corporation. I agree with A & W that McDonald's displayed a lack of sensitivity to A & W's place in the market and did not accord A & W's trade-mark the degree of respect A & W would have liked. However, this does not assist me in deciding the issue of confusion. McDonald's made a decision to use "Chicken McGrill" and the question before me is whether that use generated confusion in the marketplace.

(d) Conclusion regarding confusion

[87]      Based on all of the evidence and circumstances, as well as the relevant criteria, I am not persuaded that McDonald's use of "Chicken McGrill" is confusing. There is certainly very little evidence of forward confusion. As for reverse confusion, I accept that the possibility exists in the circumstances of this case. However, the evidence before me simply does not establish A & W's claim.

3. Has McDonald's use of "Chicken McGrill" depreciated the goodwill associated with A & W's trade-mark for "Chicken Grill" contrary to s. 22(1) of the Trade-marks Act?

[88]      Justice Danièle Tremblay-Lamer has identified two conditions that must be satisfied before a plaintiff can succeed in a claim for loss of goodwill:

First, the public must make a connection between the marks of the two parties. Second, the use by [the defendant] must have the probable effect of creating a negative impression on the mind of the public such that it will impair the goodwill attached to [the plaintiff's] trade-marks. ITV Technologies, Inc. v. WIC Television Ltd., [2003] F.C.J. No. 1335 (F.C.)(QL); (2003), 29 C.P.R. (4^th) 182, at p. 231.

[89]      It follows from my analysis of the issue of confusion that there is little evidence here showing that consumers make a connection between the marks of the two parties. Further, A & W has not presented any evidence of damage to its reputation. It argued that harm is self-evident in the fact that McDonald's sales of the "Chicken McGrill" are more than five times its sales of the "Chicken Grill". But I cannot accept this alone as evidence of harm; McDonald's overall sales are about five times those of A & W.

[90]      However, A & W also argues that it has suffered a less tangible form of harm. It says that if McDonald's is allowed to continue to use "Chicken McGrill", A & W will lose control of its registered trade-mark. There would be nothing stopping other companies from using other close variations on "Chicken Grill".

[91]      Loss of control over, or dilution of the strength of, a trade-mark can be a form of depreciation of goodwill: Orkin Exterminating Co. v. Pestco Co. of Canada (1985), 5 C.P.R. (3d) 433 (Ont. C.A.); Meubles Domani's v. Guccio Gucci S.P.A., [1992] F.C.J. No. 536 (F.C.A.) (QL). However, I do not regard the circumstances of this case as giving rise to a claim based on loss of control of a registered trade-mark.

[92]      In Orkin above, for example, the defendant was using the plaintiff's registered mark in Ontario. The plaintiff did not carry on business in Ontario, but intended to expand there in the future. The Court held that the plaintiff's loss of opportunity to use its mark in a location where it had established goodwill, but had not yet begun to operate, amounted to a loss of goodwill.

[93]      The line of reasoning in Orkin does not apply here. First, McDonald's is not using A & W's mark. It is using its own trade-mark. Second, McDonald's has not precluded A & W from using its own mark in whatever channels of trade it might wish to navigate. Subject only to A & W's trade-mark being found to be invalid, A & W is free to use its mark as it sees fit.

[94]      Accordingly, I see no basis for A & W's claim of a loss of goodwill.

4. Is A & W's trade-mark for "Chicken Grill" invalid because it lacks distinctiveness, as required by s. 18(1)(b) of the Trade-marks Act?

[95]      The onus lies on McDonald's to show that A & W's trade-mark lacks the essential characteristic of distinctiveness. A registered mark is presumed to be valid until proved otherwise: General Motors of Canada v. Decarie Motors Inc., [2000] F.C.J. No. 1653 (F.C.A.) (QL) at para. 31.

[96]      McDonald's relies on the following portions of the evidence, described in greater detail above:

·      the testimony of Dr. Chakrapani suggesting that there is little product awareness for the "Chicken Grill" and, accordingly, that consumers may interpret that phrase as the generic name of a food item, not a brand name;

·      Dr. Reich's opinion that the name "Chicken Grill" follows a common pattern in the naming of prepared foods; and

·      Dr. Campbell's testimony indicating that A & W had failed to support its trade-mark sufficiently to make an impression on consumers.

[97]      For its part, A & W refers to:

·      Dr. Sedivy's opinion that "Chicken Grill" is a noun-noun compound that suggests the qualities of A & W's product, but does not merely describe it; and

·      its considerable efforts to enforce compliance with its registered trade-mark by successfully causing alleged infringers to stop using it.

[98]      The term "distinctive" is defined in s. 2 of the Trade-marks Act:

"distinctive"... means a trade-mark that actually distinguishes the wares or services in association with which it is used by its owner from the wares or services of others or is adapted so to distinguish them.

[99]      In my view, McDonald's has succeeded in showing that the "Chicken Grill" mark is not widely known or readily associated with A & W. However, this is not sufficient for purposes of s. 18(1)(b) of the Act. McDonald's has not shown that A & W's trade-mark is so devoid of distinctiveness that it fails to distinguish A & W's product from the wares of other restaurants. Accordingly, McDonald's counterclaim is dismissed.

V. Disposition

[100] A & W's actions for trade-mark infringement under ss. 19, 20 and 22 of the Trade-marks Act are dismissed with costs. McDonald's claim under s. 18(1)(b) of the Act is also dismissed with costs.

                                                                   JUDGMENT

THIS COURT'S JUDGMENT IS that:

1.       The plaintiff's action is dismissed with costs; and

2.       The defendant's counterclaim is dismissed with costs.

                                                                                                                             "James W. O'Reilly"          

                                                                                                                                                   Judge                    

                                                                         Annex

FEDERAL COURT

                            NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                                     T-2023-01

STYLE OF CAUSE:               A & W. FOOD SERVICES OF CANADA INC. v. MCDONALD'S RESTAURANTS OF CANADA LTD.

PLACE OF HEARING:               TORONTO, ON

DATE OF HEARING:                       September 13 to September 23, 2004

REASONS FOR JUDGMENT

AND JUDGMENT BY:                   THE HONOURABLE MR. JUSTICE O'REILLY

DATED:                                              March 23, 2005

APPEARANCES BY:

Mr. Ron Dimock

Mr. Michael Crinson                              FOR THE PLAINTIFF

Ronald Slaght

Ms. Nina Bombier

Mr. Jonathan Colombo                    FOR THE DEFENDANT

SOLICITORS OF RECORD:

DIMOCK STRATTON

Toronto, ON                                       FOR THE PLAINTIFF

LENCZNER SLAGHT ROYCE SMITH GRIFFIN

Toronto, ON                                        FOR THE DEFENDANT