Kirkbi AG v. Ritvik Holdings Inc., 2003 FCA 297

Date: 20030714

Docket: A-395-02

Citation: 2003 FCA 297

CORAM:        ROTHSTEIN J.A.

SEXTON J.A.                                                   

PELLETIER J.A.                                 

BETWEEN:

                                               KIRKBI AG and LEGO CANADA INC.

                                                                                                                                     Appellants/Plaintiffs

                                                                                 and

                                   RITVIK HOLDINGS INC./GESTIONS RITVIK INC.

                                               (now operating as MEGA BLOKS INC.)

                                                                                                                               Respondent/Defendant

                                              Heard at Toronto, Ontario, on March 5, 2003.

                                     Judgment delivered at Ottawa, Ontario, on July 14, 2003.

REASONS FOR JUDGMENT BY:                                                                                   SEXTON J.A.

CONCURRED IN BY:                                                                                                   ROTHSTEIN J.A.

DISSENTING REASONS BY:                                                                                       PELLETIER J.A.

Date: 20030714

Docket: A-395-02

Neutral citation: 2003 FCA 297

CORAM:        ROTHSTEIN J.A.

SEXTON J.A.

PELLETIER J.A.

BETWEEN:

                                               KIRKBI AG and LEGO CANADA INC.

                                                                                                                                     Appellants/Plaintiffs

                                                                                 and

                                   RITVIK HOLDINGS INC./GESTIONS RITVIK INC.

                                               (now operating as MEGA BLOKS INC.)

                                                                                                                                                   Respondent

                                                        REASONS FOR JUDGMENT

Sexton J.A.

[1]                 This is an appeal from the decision of Gibson J., which dismissed the Appellants' trade-mark infringement ("passing off") action, pursuant to paragraph 7(b) of the Trade-marks Act, R.S.C. 1985, c. T-13, as amended ("the Act") because the "LEGO Indicia trade-mark" in issue was not a valid trade-mark due to the doctrine of functionality. This decision is reported at (2002), 20 C.P.R. (4^th) 224; [2002] F.C.J. No. 793.                                    

[2]                 The issue in this case, therefore, is whether a trade-mark which is primarily functional in nature can sustain an action for passing-off under paragraph 7(b) of the Act.

Facts

[3]                 The Appellant, KIRKBI AG, is a Swiss corporation with its head office in Switzerland. It is a holding company whose business is the management of assets, including trade-marks. It was a plaintiff in the trial action.

[4]                 The Appellant, LEGO Canada Inc., was incorporated under the laws of Ontario in May 1988, and has its head office in Richmond Hill, Ontario. It, too, was a plaintiff in the main action.

[5]                 Both Appellants are members of the LEGO Group of Companies, a world-wide group of which KIRKBI AG and LEGO Canada Inc. are but two. The LEGO Group also includes INTERLEGO A.G., INTER LEGO A/S, and LEGO Systems Inc. KIRKBI AG is owned by Mr. Kjeld Kirk Kristiansen and his sister, and LEGO Canada Inc. is owned by INTERLEGO A.G., which is wholly owned by Mr. Kjeld Kirk Kristiansen.

[6]                 The Respondent, Ritvik Holdings Inc., is a company incorporated under the laws of Canada with its head office in St. Laurent, Quebec. Ritvik Toys Inc., once on the style of cause of this action and since deleted and discontinued, made and sold the MICRO line of MEGA BLOKS toys in Canada until its dissolution in 1998. Since Ritvik Toys Inc.'s dissolution, Ritvik Holdings Inc. has made and sold the MICRO line of MEGA BLOKS toys in Canada. All of the assets and liabilities, including the liability in this action, of Ritvik Toys Inc. have been assumed by Ritvik Holdings Inc. ("Ritvik").

[7]                 The first generation of LEGO bricks were derived from construction toys with cylindrical knobs, designed, manufactured and sold by Mr. Henry Page under the brand name KIDDICRAFT. Mr. Page patented his self-locking bricks in the United Kingdom, Canada, and France.    A historical examination of this patent protection is necessary, as it demonstrates the extent to which the Appellants, LEGO, have successfully extended their patent monopoly through the years. LEGO retained a monopoly on the interlocking functions or system for construction bricks for approximately 50 years - from the 1940s until 1988, when the last patent expired. While an improvement patent legally only protected the patentee for the improvement and not for the original invention, as a practical matter, it may be difficult to separate the two. The Page UK Patent No. 529,580 was issued on November 25, 1940. This patent related "to toy building blocks and like constructional elements and has for its object to improve the interlocking between the assembled blocks and the stability of the built up structure". The Page UK Patent No. 587,206 was issued on April 17, 1947, and was in force for 16 years. This patent related "to toy building blocks and consist[ed] in an improvement in or modification of the invention claimed in the Specification of my prior Patent No. 529,580".    The Page Canadian Patent No. 443,019 was issued on July 22, 1947, and described at one point the patent claims as follows:

Toy building block comprising a hollow parallel-sided thin walled body with the cavity open at the face of the block, symmetrically disposed spaced apart projections on the face opposite the open face with said projections in pairs in one direction and at least two projections in each row, with the overall dimension of the bosses in either direction closely approximately the dimension of the cavity in that direction.

The Page UK Patent No. 633,055 was issued on December 12, 1949 and claimed "to provide an improved form of building block" with windows and doors. The Page UK Patent No. 673,857 was issued on June 11, 1952, and modified the invention by providing for a supporting sheet or base to make the lowest row of bricks rigid. These Page patents were acquired by LEGO. In fact, LEGO toys were sold in Canada during the term of the Page Canadian Patent No. 443,019. The Christiansen Canadian Patent No. 629,732 for LEGO was issued on October 24, 1961, and the Christiansen Canadian Patent No. 880,418 was issued on September 7, 1971.    This 1971 patent was for "box-shaped building elements, each of which is provided on the upper surface with coupling studs serving to couple the element to a corresponding element by engagement between the side walls of the latter element". The studs were "spaced equally" and were of the "same dimensions". According to subsection 45(1) of the Patent Act, R.S.C. 1985, c. P-4, the term for patents based on applications filed on or before October 1, 1989 was limited to "seventeen years from the date on which the patent was issued". Therefore, the last LEGO patent issued in 1971 expired in 1988.

[8]                 As it will appear later, when this patent expired, LEGO began attempting to acquire another form of protection through the law relating to trade-marks. This is referred to as the "Lego Indicia trade-mark".

[9]                 In 1991, Ritvik began making and selling its MICRO line of MEGA BLOKS construction toys. The toys comprise oversized bricks intended specifically for infants, each brick having cylindrical projections or knobs on one side which connect into the opposite side of another brick without clutch power. It is this MICRO line that is the subject matter of this action. This line of building blocks now represents about one-half of Ritvik's world sales, and in 2001 Ritvik was the largest toy maker in Canada.

[10]            It should be noted that LEGO brand construction toys and MEGA BLOKS brand construction toys are sold through the same channels of trade. Large retailers usually display all the construction toys together, and both brands in issue are usually found in the same section of a store.

[11]            The "LEGO Indicia trade-mark" is usually described as the upper surface of the LEGO toy building block, having eight (8) protuberances or studs on the surface. All or some of the knobs or studs of one LEGO piece may be connected to all or some part of the underside of another LEGO piece. The "clutch power" between connecting pieces is developed by the friction between the knobs on the one piece and the tubes and/or walls of the underside of the other piece.

[12]            The studs of the upper surface of the LEGO brick have remained an unmodified prominent feature of all LEGO bricks since 1949. Since at least 1958, "LEGO" has been inscribed on the top surface of each stud. The studs and their pattern are widely featured in promotional materials used by LEGO Canada in Canada, including television advertisements, point-of-sale materials and packaging.

[13]            The Appellants assert that this shaping of the knob configuration of LEGO products constitutes a "distinguishing guise" and thus a trade-mark under the Act. The trade-mark is not registered.

Decision Below

[14]            The Trial Judge held that KIRKBI AG has a proprietary interest in the LEGO Indicia. He also held that KIRKBI AG and LEGO Canada Inc. each have a sufficient "ownership" interest, in Canada, in the LEGO Indicia to qualify as plaintiffs in this action, and that if the LEGO Indicia is a trade-mark, then paragraph 7(b) of the Act is a valid legislative provision conferring on this Court jurisdiction to entertain this action.

[15]            The Trial Judge further concluded that the LEGO Indicia is primarily functional and, therefore, not a valid trade-mark under the Act. He came to this conclusion in the following manner. The LEGO Indicia is a functional element of LEGO bricks, contributing to the "clutch power" that could be said to be the essence of the LEGO building block system. All the features of the LEGO Indica Mark are dictated by function, and the shape of the top surface of the LEGO basic brick is purely utilitarian.

[16]            Explaining Remington Rand Corp. v. Philips Electronics N.V. (1995), 64 C.P.R. (3d) 467 (F.C.A.); leave to appeal refused (1996), 67 C.P.R. (3d) VI (S.C.C.), the Trial Judge went on to state that the essence of a trade-mark is to distinguish the wares of an owner from those sold by others. Every form of trade-mark, including a distinguishing guise upon which the alleged LEGO Indicia trade-mark is based, is characterized by its distinctiveness. The Trial Judge agreed that a distinguishing guise may possess a functional element or component, but to the extent that such functionality relates primarily or essentially to the wares themselves it will invalidate the trade-mark. The following statement from Remington Rand was approved: "A mark which goes beyond distinguishing the ware of its owner to the functional structure of the wares themselves is transgressing the legitimate bounds of a trade-mark."

[17]            The Trial Judge rejected the arguments of the LEGO Appellants that functionality in the scheme of the Act goes only to the issues of registrability and expungement under section 13, and that the changes from the Unfair Competition Act, 1932 S.C. 1932, c. 38 (the predecessor to the current Act) demonstrate that it was Parliament's intention to eliminate functionality as a bar to a mark constituting a "distinguishable guise". At para. 58-59, he stated:

Put another way, counsel for the plaintiffs urged that I should reject the reasoning of the Federal Court of Appeal in Remington Rand, notwithstanding the long line of case authorities on which it is based and notwithstanding the fact that Remington Rand was decided while the current Trade-marks Act was extant.

I decline the urgings of counsel for the plaintiffs.

[18]            The Trial Judge then noted at para. 59 that paragraph 7(b) of the Act does not expressly mention "trade-mark" or "distinguishing guise" - the definition terms set out in section 2 - and thus is disconnected from the overall trade-mark scheme of the Act. As a result, he thought he could examine the common law sense of the term "distinguishing guise" and not the statutory definition. He stated in para. 122 of his judgment, "we are not here dealing with a trade-mark as defined in the Act".

[19]            The Trial Judge concluded that the LEGO Indicia is functional in all respects save for the inscription of the mark LEGO on each stud. That functionality relates primarily or essentially to the wares themselves. Therefore, he stated that "the LEGO Indicia cannot be a distinguishing guise in the common law sense of that term, as opposed to the sense provided by s. 2 of the Act."

[20]            Therefore, based on functionality, the Trial Judge concluded that to the extent that Ritvik has adopted and used the LEGO Indicia, it has not contravened paragraph 7(b) of the Act and the action must be dismissed.

[21]            Anticipating an appeal, the Trial Judge went on to address the rest of the issues in the case, despite dismissing the action on the basis of functionality. Therefore, the rest of his judgment is technically obiter dicta, and primarily deals with the application of the facts to the test for passing-off. Because, in my view, this case turns on the issue of the applicability and validity of the doctrine of functionality, it is unnecessary to comment on those parts of the reasons of the learned Trial Judge which deal with other issues.

Issue

[22]            This appeal raises two questions:

1. Did the Trial Judge, in concluding that the LEGO Indicia were primarily functional, make a palpable and overriding error?

2. Can a mark which is primarily functional be a trade-mark within the meaning of the    Trade-marks Act?

Relevant Statutory Provisions

[23]            The relevant provisions of the Trade-marks Act are as follows:

Standard of Review

[24]            In my opinion, whether the LEGO Indicia are primarily functional is a plain finding of fact, and thus, according to 2002 SCC 33">Housen v. Nikolaisen 2002 SCC 33 [now reported 211 D.L.R. (4^th) 577] the standard of review of palpable and overriding error must apply. An appellate Court will only intervene where it is satisfied that the Trial Judge made a palpable and overriding error, which affected the assessment of the facts. A finding is a palpable and overriding error, or clearly wrong, only if there is no evidence to support the inference or if the inference is contrary to the overwhelming weight of evidence.

[25]            In 2002 SCC 33">Housen, the Court said at paragraph 23 that:

it is not the role of appellate courts to second-guess the weight to be assigned to the various items of evidence. ... The appellate court is not free to interfere with a factual conclusion that it disagrees with where such disagreement stems from a difference of opinion over the weight to be assigned to the underlying facts.

[26]            Further comments from the decision in 2002 SCC 33">Housen are helpful in describing the strict standard of review that should be applied to the Trial Judge's decision about the LEGO Indicia being primarily functional. In 2002 SCC 33">Housen at paragraph 25, the Court stated:

Although the trial judge will always be in a distinctly privileged position when it comes to assessing the credibility of witnesses, this is not the only area where the trial judge has an advantage over appellate judges. Advantages enjoyed by the trial judge with respect to the drawing of factual inferences include the trial judge's relative expertise with respect to the weighing and assessing of evidence, and the trial judge's inimitable familiarity with the often vast quantities of evidence. This extensive exposure to the entire factual nexus of a case will be of invaluable assistance when it comes to drawing factual conclusions. In addition, concerns with respect to cost, number and length of appeals apply equally to inferences of fact and findings of fact, and support a deferential approach towards both. As such, we respectfully disagree with our colleagues's view that the principal rationale for showing deference to findings of fact is the opportunity to observe witnesses first-hand. It is our view that the trial judge enjoys numerous advantages over appellate judges which bear on all conclusions of fact, and, even in the absence of these advantages, there are other compelling policy reasons supporting a deferential approach to inferences of fact. We conclude, therefore, by emphasizing that there is one, and only one, standard of review applicable to all factual conclusions made by the trial judge - that of palpable and overriding error.

Thus, a highly deferential approach must be applied to the factual findings and inferences made by the Trial Judge in his decision on this matter - it is he who had the advantages described above.

[27]            A recent judgment by Rothstein J.A. in Canwell Enviro-Industries Ltd. et al. v. Baker Petrolite Corp. et al. (2002), 17 C.P.R. (4^th) 478 (F.C.A.) succinctly describes the ratio in 2002 SCC 33">Housen. He states at paragraph 47-49:

The recent decision of the Supreme Court of Canada in 2002 SCC 33">Housen v. Nikolaisen, 2002 SCC 33 [now reported 211 D.L.R. (4^th) 577], provides a thorough analysis of the standard of review to be applied by appellate courts to decisions of trial judges. I summarize my understanding of the principles relevant to this case as follows.

The standard of review on a question of law is correctness. At para. 9, Iacobucci and Major JJ., for the majority, state:

Thus, while the primary role of trial courts is to resolve individual disputes based on the facts before them and settled law, the primary role of appellate courts is to delineate and refine legal rules and ensure their universal application. In order to fulfill the above functions, appellate courts require a broad scope of review with respect to matters of law.

The appellate court may only intervene in conclusions of fact, including inferences of fact, in cases of palpable and overriding error.

[28]            Although the finding of the Trial Judge that the LEGO Indicia are primarily functional is a question of fact and therefore reviewable on the basis of whether there is a palpable and overriding error, the question of whether a trade-mark is valid when it is primarily functional is a question of law and, therefore, the standard of review on that issue should be that of correctness. As stated in 2002 SCC 33">Housen, the appellate court is free to replace the legal opinion of the Trial Judge with its own. Thus, the Trial Judge's application of the functionality doctrine must be assessed on a correctness standard.

Appellants' Arguments

[29]            The Appellants asserted that the LEGO Indicia is a "distinguishing guise" and thus a "trade-mark" as defined in section 2 of the Act. According to the Appellants, a "distinguishing guise" may have utilitarian features, as the language of section 2 of the Act does not expressly or impliedly limit the definitions of "trade-mark" or "distinguishing guise" by reason of functionality.

[30]            Specifically, the Appellants argued that the Act demonstrates that the innate character or quality of a mark or a guise does not limit the basic definitions of "trade-mark" or "distinguishing guise". Rather, character and quality are only raised in the sections for registration or enforcement, particularly section 13 of the Act.

[31]            Further, the Appellants submitted that a comparison of the present definitions in the Act with those in the Unfair Competition Act, 1932 supports this interpretation of the importance of functionality. The Appellants argued that in the Unfair Competition Act, 1932, the definition of "distinguishing guise" was explicitly limited by function by reason of the words "independently of any element of utility or convenience it may have". In the current Act, a "distinguishing guise" is not expressly required to be independent of any element of utility or convenience. Thus, the Appellants argued that the limitation of functionality has been eliminated from the definitions of "distinguishing guise" and "trade-marks" in the current Act, and is confined to the provisions of section 13 of the current Act.

[32]            According to the Appellants, Parliament removed the language about functionality (utility or convenience) from the definition of a "distinguishing guise", and adopted a different strategy by enacting the special registration procedure under section 13. Section 13 does not bar registration based on the mere existence of functionality in a guise - even after registration, the public may use any utilitarian feature embodied in a distinguishing guise. Thus, a "distinguishing guise" may have utilitarian features.

[33]            The Appellants attempted to distinguish the case followed by the Trial Judge, Remington Rand, supra. The Appellants argued that Remington Rand is not an authority for the proposition that functionality is relevant to the definition of "distinguishing guise" in the current Act. I have summarized the Appellants' points below:

(1) Remington Rand is concerned with registered trade-marks and the effect of exclusive use on competition, and the LEGO Indicia is not a registered trade-mark. The policy concerns don't arise to the same extent.

(2) The Court in Remington Rand erred in holding that there was no statutory basis for the invalidity of a trade-mark registration, on the basis of functionality. The Appellants LEGO assert that section 13 can provide that statutory basis.

(3) The Court in Remington relied on Imperial Tobacco Co. v. Registrar of Trade-Marks, [1939] 2 D.L.R. 65 (Ex. Ct.) as the leading case for this alleged non-statutory public policy regarding functionality, but Imperial Oil was decided under the Unfair Competition Act, 1932 and not the current Trade-marks Act. At this time, section 13 had not been enacted, so there was not a test at registration to preserve competition. Therefore, the reasoning in Imperial Oil was based on the definitions in, and policy behind, the Unfair Competition Act.

(4) In Remington Rand, there was no discussion of the differences in the definitions in the Unfair Competition Act, 1932 and the current Trade-marks Act.

(5) The Court in Remington Rand followed Parke Davis & Co. Ltd. v. Empire Laboratories Ltd. (1964), 43 C.P.R. 1 (S.C.C.), a case that, the Appellants claim, was decided under the Unfair Competition Act, 1932. The Court in Parke, Davis held that functionality invalidated the registrations - that the trade-marks were not valid trade-marks "within the contemplation of the statute", the Unfair Competition Act. The Appellants, therefore, argue that Parke, Davis supports the argument that functionality may have vitiated a trade-mark under the Unfair Competition Act, but no longer prevents it from being considered a "trade-mark" under the Trade-marks Act.

[34]            Therefore, the Appellants submitted that if functionality is not a limitation, then the LEGO Indicia is, indeed, a trade-mark and paragraph 7(b) of the Act applies. But, if functionality is a limitation, then the Appellants submitted that the LEGO Indicia is not invalidated as a trade-mark as a result of the reasoning of this Court in Samann v. Canada's Royal Gold Pine Tree Mfg. Co. (1986), 9 C.P.R. (3d) 223 (F.C.A.).

Analysis

[35]            The following important findings of fact made by the Trial Judge at paragraphs 61 and 163 regarding functionality should be noted:

In sum then, I conclude on the basis of the totality of the evidence before me that the LEGO Indicia is functional in all respects save for the inscription of the mark LEGO on each stud. That functionality, in the words of Mr. Justice MacGuigan in Remington Rand that are quoted above, "... relates primarily or essentially to the wares themselves ...". By reason of that conclusion, and that conclusion alone, the LEGO Indicia cannot be a distinguishing guise in the common law sense of that term, as opposed to the sense provided by section 2 of the Act. Therefore, to the extent that Ritvik has adopted and used the LEGO Indicia, it has not contravened paragraph 7(b) of the Trade-marks Act.

...

The LEGO Indicia is not a valid trade-mark, primarily because it is purely functional except in respect of the inscription "LEGO" on the top surface of each stud.

[36]            The finding of the Trial Judge that the LEGO Indicia are purely functional is a finding of fact, and is not contested by the Appellants. In any event, there is no palpable and overriding error in this finding.

[37]            Before embarking on the analysis as to the validity of the functionality doctrine, I must comment on the way in which the Trial Judge interpreted the definitions of "distinguishing guise" and "trade-mark" in paragraph 7(b) of the Act, as it relates to the rest of the trade-marks scheme. He stated at paragraph 59 that:

I have previously noted that the terms "distinguishing guise" and "trade-mark" are defined in section 2 of the Act for the purposes of that Act. Thus, wherever they are used in that Act , they must be given the defined meanings. But neither the term "distinguishing guise" nor the term "trade-mark" appears in paragraph 7(b) of the Act when it would not have been beyond the wit of qualified legislative drafters and of Parliamentarians, to incorporate one or both such terms in the paragraph in order to ensure that, as part of an over-all or comprehensive scheme relating to trade-marks, paragraph 7(b) only extended to the direction of public attention to wares, services or businesses, when such direction was accomplished through the medium of a distinguishing guise, as defined in section 2 of the Act.

As a result, at paragraph 61 he adopted the common law definition of "distinguishing guise", rather than the statutory definition under the Act: "the LEGO Indicia cannot be a distinguishing guise in the common law sense of that term, as opposed to the sense provided by section 2 of the Act".

[38]            In my opinion, this separation of paragraph 7(b) from the rest of the trade-marks statutory scheme is incorrect statutory interpretation. In Asbjorn Horgard A/S v. Gibbs/Nortac Industries Ltd., [1987] 3 F.C. 544 (F.C.A.), this Court determined that paragraph 7(b) was intra vires Parliament because it fitted into the overall trade-marks scheme, an area over which Parliament had jurisdiction to legislate. The Court stated at paragraph 28:

In paragraph 7(b) Parliament has chosen to protect the goodwill associated with trade marks. In this way, as Chief Justice Laskin put it, it "rounds out" the statutory scheme of protection of all trade marks. ... It has, in sum, a rational functional connection to the kind of trade marks scheme Parliament envisaged, in which even unregistered marks would be protected from harmful misrepresentation.

Therefore, I cannot endorse the separation of paragraph 7(b) from the definition of "trade-mark" and "distinguishing guise" in section 2 of the Act. Paragraph 7(b) is the equivalent statutory expression of the common law tort of passing off, with one exception: in order to use paragraph 7(b) a person must prove that they have a valid and enforceable trade-mark, whether registered or unregistered. The thing that distinguishes the common law action of passing-off from a passing- off action under paragraph 7(b) of the Act is that in the common law action a litigant need not rely on a trade-mark to make use of the action. To bring a passing-off action under the Act, one must have a valid trade-mark within the meaning of the Act. The definitions in section 2 of the Act are integral to any trade-mark passing-off action under paragraph 7(b), such as the Appellants' action.

[39]            However, as will be seen, this error of law with respect to the interpretation of paragraph 7(b) does not affect the result of the case, and thus cannot be a ground upon which this appeal can succeed. The Appellants' action is grounded in paragraph 7(b) and hence, to succeed, the Appellants must establish that they have a trade-mark within the meaning of the Act. If the doctrine of functionality prevents a mark from being a trade-mark under the Act, then the Appellants cannot prevail.

[40]            Turning now to the functionality analysis, it is my conclusion that to be a valid trade-mark within the Act, the trade-mark cannot be primarily functional. A Court must determine whether or not a trade-mark is primarily functional and, therefore, invalid.   

[41]            The purpose or policy behind applying this doctrine of functionality is to ensure that no one indirectly achieves the status of patent holder through the guise of a trade-mark. If the mark has a primarily functional use and is granted trade-mark protection, which can be perpetual, then it is providing something which a patent for the same product could not provide because patent protection cannot be perpetual. The protection of function and design is what a patent does. It would be abusive and unfair to the public and to competitors to allow a person to gain the benefits of a patent and a monopoly when merely holding a trade-mark, especially when the person otherwise could not obtain a patent or when the person merely holds a patent that has expired. A person could achieve this patent-like monopoly because a trade-mark gives to its holder the right of exclusive use in association with the wares in order to highlight the source of those wares. It should be explained what I mean by "exclusive use" - the holder of a trade-mark can exclusively use the mark to distinguish its goods. This "exclusive use", however, does not mean that the holder of the trade-mark can use the mark to stop others from using the mark for all other purposes besides highlighting the source of the wares. Other persons can still use the mark, for instance, in advertising to compare their wares to those of the holder of the mark.

[42]            In Canadian Shredded Wheat Co., Ltd. v. Kellogg Co. of Canada, Ltd., [1938] 1 All. E.R. 618 (P.C.); [1938] 2 D.L.R. 145, the Privy Council espoused this policy of preventing an extension of a patent monopoly in the passing-off context regarding registering the descriptive name "shredded wheat" as a trade-mark. Lord Russel of Killoween stated at page 626:   

There can be little doubt that, had the plaintiff company, when the patent expired, attempted to register the words "shredded wheat" as a trade mark for the sale of biscuits and crackers, the application would have met with short shrift. It would be attempting, by registering the name of the patented product, to prolong the patent monopoly, and this may not be done.    [my emphasis]

This exact quote was repeated with approval by Hall J. of the Supreme Court of Canada in [1964] S.C.R. 351">Parke, Davis & Co. v. Empire Laboratories Ltd., [1964] S.C.R. 351 at page 356.   

[43]        In Whirlpool Corp. v. Camco Inc., [2000] 2 S.C.R. 1067, the Supreme Court of Canada recognized the process of prolonging a patent monopoly as the concept of "evergreening". This case involved the patented development by Whirlpool of an ingenious dual action agitator for clothes washing machines. Mr. Justice Binnie stated at pages 1086-7, on behalf of the Court:

It is common ground that the bargain between the patentee and the public is in the interest of both sides only if the patent owner acquires real protection in exchange for disclosure, and the public does not for its part surrender a more extended monopoly than the statutory 17 years from the date of the patent grant (now 20 years from the date of the filing of the patent application). A patentee who can "evergreen" a single invention through successive patents by the expedient of obvious or uninventive additions prolongs its monopoly beyond what the public has agreed to pay.    [my emphasis]

Although Justice Binnie was speaking about an "obvious or uninventive addition" to prolong a patent monopoly, I would suggest that the same policy principles apply to prevent "evergreening" a patent by means of a trade-mark, as suggested in the Shredded Wheat, supra case.         

[44]            The existence of this policy has been recognized in other cases. For instance, Consumers Distributing Company Limited v. Seiko Time Canada Ltd., [1984] 1 R.C.S. 583 (S.C.C.) involved a claim by Seiko Time Canada Ltd., the authorized distributor of Seiko watches in Canada, that Consumers Distributing Co., an unauthorized distributor, had committed the tort of passing-off, contrary to paragraph 7(c) of the Trade-marks Act. Paragraph 7(c) of the Trade-marks Act states:

The argument under paragraph 7(c) was that, by marketing the bare watch without the instruction booklet, the warranty, and the after sale service, Consumers Distributing Limited was creating confusion in the market place and damage to Seiko Time Canada Ltd.'s goodwill.    "Seiko" was a registered trade-mark owned by the Japanese manufacturer, K. Hattori & Company Limited, who was not a party to the proceeding. Seiko Time Canada Ltd. was an authorized distributor, for which the Japanese manufacturer indemnified repairs. Seiko Time Canada Ltd.'s parent company was Seiko Time Corporation, which performed the same role in the Seiko distribution system in the United States. Seiko Time Corporation is, in turn, a wholly-owned subsidiary of Hattori.    Consumers Distributing purchased genuine Seiko watches from an authorized distributor outside of Canada, and then imported and resold the watches without approval from Seiko Time Canada Ltd. The Supreme Court of Canada refused the injunction demanded by Seiko Time Canada Ltd. on the basis that Consumers Distributing had committed no wrong against it. Estey J. stated, on behalf of an unanimous court, at pages 599-600:

It is difficult, at first blush, to bring the conduct of the appellant within the concept of passing off. The appellant is selling precisely the same watch, coming from the same source, as the respondent. The watch is protected by a guarantee not in the respondent's name but in the name of the maker, Hattori. The quality of the product must have some bearing on the respondent's success and consequent development of business and goodwill in the trade. The watches sold in each branch of the trade, of course, were only and always those of Hattori. The Respondent [Seiko] purports to bring itself within the classic definition of the [passing off] doctrine by associating with the watch features which are unique to the selling technique employed by the respondent. The respondent is able to do this, so the argument goes, because of its contractual relationship with the supplier of Seiko watches, Hattori, which in turn supplies the respondent with the power of limiting the manufacturer's warranty to watches sold by dealers authorized by the respondent. Axiomatically, the appellant and persons (such as Woolco and K-mart) who, according to the evidence, carry on a like business, are unable to merchandise the watches in this manner [in the complete package with the warranty], as they are not authorized dealers. The problem facing the respondent [Seiko] is that the logical extension of this proposal grants to a vendor, in the position of the respondent, a monopoly on the sale in Canada of a product to the same extent as it would enjoy if the product were subject to a patent of invention issued to the respondent under the Patent Act of Canada.    [my emphasis]

[45]            This Court has recognized these public policy concerns in Thomas & Betts, Ltd. v. Panduit Corp. et al. (2000), 4 C.P.R. (4^th) 498 (F.C.A.), where Décary J.A. stated at paragraphs 23-24:    

On the other hand, it would be unfair to the public if a patentee could, after the expiry of its patent, use the Trade-marks Act to give itself a monopoly over the shape of its invention when that shape is so closely related to the invention as to be for all practical purposes an element essential to making full use of the invention.

It is precisely to solve this dilemma that the Trade-marks Act comes into play and this is precisely why this Court, in interpreting that Act, has ensured that it not be used to perpetuate a patent monopoly that would otherwise have expired. The solution retained by this Court is the doctrine of functionality. [my emphasis]

In my opinion, the Appellants have contravened this policy which underlies the doctrine of functionality, and the Trial Judge was correct in finding that the LEGO Indicia was invalid for this purpose.

[46]            An historical analysis of the relevant case law supports the above propositions regarding the application of the functionality doctrine to trade-marks and the policy behind this doctrine. First, in Imperial Tobacco Co. v. Registrar of Trade Marks, [1939] 2 D.L.R. 65 (Ex. Ct.), the Exchequer Court of Canada dealt with the definition of a distinguishing guise and the registrability of a mark under the Unfair Competition Act, 1932. In Imperial Tobacco, the principle features of the design mark submitted for registration were "a transparent outer wrapper with a coloured band extending around the package". The Registrar refused registration of the mark on the ground that the coloured band served the function of indicating where the tear strip was located and facilitated the opening of the outer wrapper. The Court stated at page 67 with respect to the patents in question that: "One cannot read the specifications of those two patents without concluding that they describe precisely the principal features of the trade mark for which the appellant now seeks registration". The Court concluded, that the functionality of the wrapper invalidated it as a trade-mark, and stated at page 67:

One may safely say that the band was primarily designed and adopted for the purpose of opening the outer wrapper, and it is unlikely that if the outer wrapper were not moisture proof and the band did not function as a tearing strip, they, in combination, would ever be suggested as a trade mark. It seems to me that the trade mark applied for was intended to replace the patents referred to, if they should be found to be invalid, as they were. In my opinion any combination of elements which are primarily designed to perform a function, here, a transparent wrapper which is moisture proof and a band to open the wrapper, is not fit subject-matter for a trade mark, and if permitted would lead to grave abuses.    [my emphasis]

Likewise, the Trial Judge in our case found that the LEGO Indicia are primarily functional and not a fit subject-matter for a trade-mark. In fact, the expired LEGO patents, as set out in the facts section of these reasons, describe the principal features of the alleged trade-mark in issue. The patents sound remarkably like the LEGO Indicia which the Appellants attempt to argue is a trade-mark. The Trial Judge stated at paragraph 67:

In essence, this issue of "evergreening" is nothing more than a sub-set of adoption of a functional element. There is no question but that the LEGO Indicia is claimed or disclosed in an expired patent, the expired Page Canadian Patent. Given my conclusion that the LEGO Indicia is functional in all respects save for the inscription of the mark LEGO on each stud, I need not go further.

Thus, in my opinion, were the Appellants to acquire a trade-mark for the LEGO Indicia, they would acquire a patent-like monopoly even though their patent has expired.

[47]            In [1964] S.C.R. 351">Parke, Davis & Co. v. Empire Laboratories Ltd. (1963), 41 C.P.R. 121 (Ex. Ct.); affirmed by [1964] S.C.R. 351">[1964] S.C.R. 351 (S.C.C.), the plaintiff had registered trade-marks for coloured gelatin bands which it used to seal the halves of gelatin capsules containing a pharmaceutical preparation. The defendant used similar bands, and the plaintiff brought an action for infringement and a claim for passing-off. The case involved the issue of whether or not the registration of the trade-mark was valid. At the time, paragraph 18(1)(a) of the Trade Marks Act, 1952-53 (Can.), c. 49 stated that registrations are invalid if the marks were not registrable at the date of registration, which in Parke, Davis was under the Unfair Competition Act, 1932 (the Act in force at the time of registration). At the trial level, Noël J. concluded that the defendant's argument - that the plaintiff's trade-marks perform functions and are, therefore, incapable of constituting valid trade-marks - should prevail. Noël J. stated at pages 140-141:

A trader can, however, obtain a valid trade mark on a distinctive form of the functional part or parts such as in the Haig case providing that by so doing he does not hold a monopoly of all the forms of the functional part or parts.

....

However, this extensive coverage of the various colours and shades together with the utilitarian use of the coloured bands around the middle of the capsules ... brings me to the conclusion that the plaintiff by using its trade marks as it does ... undoubtedly monopolizes ... all the forms of the functional parts of the colour banded sealed capsules and because of this I cannot but find that the plaintiff's trade marks are invalid.

[48]            The Supreme Court of Canada upheld Noël J.'s decision and stated at pages 354-355 that:

The validity of the trade marks may, in my view, be disposed of on the ground that the coloured bands have a functional use or characteristic and cannot, therefore, be the subject of a trade mark.

The law appears to be well settled that if what is sought to be registered as a trade mark has a functional use or characteristic, it cannot be the subject of a trade mark. With respect, I agree with Maclean J. when, in Imperial Tobacco Company of Canada, Limited v. The Registrar of Trade Marks, he said:

In my opinion any combination of elements which are primarily designed to perform a function, here, a transparent wrapper which is moisture proof and a band to open the wrapper, is not fit subject matter for a trade mark, and if permitted would lead to grave abuses.

Noel J. found as a fact that the gelatin band performed a function. There was ample evidence to support that finding.    [my emphasis]

Not only did the Supreme Court agree that Noël J. had sufficient evidence on which to base his opinion regarding functionality, but it also found that there was further evidence of functionality because the appellant at one time held a United States patent on sealed capsules with similar bands from 1932 until it expired in 1949. After the patent expired, the appellant registered its trade-marks in Canada. The Court had this to say about what the appellant did at page 355:

In this way it sought to perpetuate its monopoly of the patent by applying for registration of the trade marks which, if regularly renewed, may be perpetuated.

Therefore, the Supreme Court of Canada, in Parke, Davis, makes an evidentiary link between a prior patent and a trade-mark claim. The Court stated at pages 355-356 that a prior patent for the thing claimed as a mark is "surely some evidence" of functionality:

In the present case the appellant's patent was not a Canadian but a United States patent, and the learned trial judge held that the fact of the appellant having obtained the Untied States patent was not relevant to the question regarding Canadian trade mark rights and he declined to give any weight to the fact that, the appellant had had the Untied States patent from 1932 to 1949. In the circumstances, it seems to me that the evidence was relevant. We are dealing here with what is essentially a question of fact, namely, have these coloured bands a functional use or characteristic? Evidence that the appellants so considered its bands when it applied for the United States patent in 1932 is surely some evidence that the bands have in fact a functional use. [my emphasis]

[49]            The United States jurisprudence in this area is perhaps of little significance. However, it is interesting to note that the United States Supreme Court in TrafFix Devices, Inc. v. Marketing Displays, Inc. (2001), 532 U.S. 23; 121 S. Ct. 1255 stated that a utility patent is "strong evidence" of functionality. In TrafFix, an inventor obtained two utility patents for a mechanism built upon two springs to keep outdoor signs upright despite adverse wind conditions. This litigation followed after the patents expired and TrafFix, a competitor, sold sign stands with a visible spring mechanism that looked like those of Marketing Displays, Inc. The Court found that Marketing Displays Inc.'s trade dress infringement claim was precluded because the patent claims and prior patent infringement litigation concerning this dual-spring sign stand design indicated that the design was functional. In fact, the Court even went so far as to suggest a reverse-onus situation: the person claiming trade dress infringement bears the onus of showing, when an expired patent is in existence, that the trade dress features are not functional. Justice Kennedy stated at page 29-30:

The principal question in this case is the effect of an expired patent on a claim of trade dress infringement. A prior patent, we conclude, has vital significance in resolving the trade dress claim. A utility patent is strong evidence that the features therein claimed are functional. If trade dress protection is sought for those features the strong evidence of functionality based on the previous patent adds great weight to the statutory presumption that features are deemed functional until proved otherwise by the party seeking trade dress protection. Where the expired patent claimed the features in question, one who seeks to establish trade dress protection must carry the heavy burden of showing that the feature is not functional, for instance by showing that it is merely an ornamental, incidental, or arbitrary aspect of the device.    [my emphasis]

[50]            In Elgin Handles Ltd. v. Welland Vale Manufacturing Co. Ltd. (1964), 43 C.P.R. 20 (Ex. Ct.), the applicant sought to expunge a trade-mark registration. The mark on the register consisted of "darker colouring of the grain of the wood of tool handles accomplished by fire hardening". At the time, the Exchequer Court of Canada had the jurisdiction to expunge a registered trade-mark if it did not fit within the definition of trade-mark found in s. 2(t) of the Trade Marks Act, 1952-1953 (Can.), c. 49. The Court broadly applied the decision of Parke, Davis, supra and took it as standing for the following proposition: "This decision establishes that that which has "a functional use or characteristic" cannot be a trade-mark." (page 23). The Court came to the conclusion that the fire hardening process is primarily designed to improve wooden handles as objects of commerce and therefore has a functional use or characteristic: "where a change in appearance of the goods in relation to which the alleged trade mark is to be used is the normal result of a process that has a functional use or characteristic, such a change in appearance cannot be a trade mark" (page 23-24).

[51]            In Samann, supra, this Court dealt with registered trade-marks consisting of a car air freshener in the shape of an evergreen tree with writing on it. The first trade-mark was registered under the Unfair Competition Act, 1932 and the second trade-mark was registered pursuant to the provisions of the Trade Marks Act, 1952-1953. Citing Imperial Tobacco, Parke, Davis, and Elgin Handles, supra, the Trial Judge in Samann found that the trade-marks were not valid trade-marks as defined under the Trade Marks Act, 1952-1953, nor as defined under the Unfair Competition Act, 1932 because the registered marks were primarily used in wares for a utility purpose, partly ornamental and partly functional. This Court allowed the appeal. The Court stated at pages 229-230:

While it is apparent, as noted, supra, that the three decisions principally relied on by the respondent were all cases where the mark or marks there in issue contained functional elements or components, it is equally clear that the marks in issue in this case, do not contain functional elements. This seems evident from the finding of the learned trial judge (A.B. vol. 9, p. 1101 [p. 319 C.P.R.]) that it was the wares of the appellant, in their pine tree shape with rectangular base "when used in combination with the packages ..." (emphasis added) (which he earlier described as sealed plastic envelopes with the characteristics I have summarized, supra), that had the numerous functions referred to by him. ...

For these reasons, it is my view, that the three decisions relied on by counsel for the respondent, supra, have no application to the situation in the case at bar. It follows, in my view, for the reasons expressed, supra that the respondent was not entitled to a declaration of invalidity on the basis of physical functionality.

The Appellants argued that Samann supports their position. I disagree. In my opinion, Samann can be distinguished from the case at hand because in Samann if the branches were cut off the evergreen tree mark, it would still function as an air freshener. In other words, the functional aspect was not the evergreen tree per se. What was functional was the air-freshener package. It could have been any shape. In contrast, in our case if the knobs were cut off the LEGO bricks, the brick would not function - it would not fasten together with another brick.

[52]            This Court's decision in Pizza Pizza Ltd. v. Canada (Registrar of Trade Marks) (1989), 26 C.P.R. (3d) 355 (F.C.A.) involved an appeal from the Registrar's refusal to register Pizza Pizza's telephone number as a trade-mark (the numerical combination "967-1111") which was used on all products and in all advertising. This Court concluded that despite the functional aspect of the phone number, the mark was registrable as a trade-mark. Pratte J.A. stated at pages 356-357:

Counsel for the respondent tried to support the decision of the Trial Division [7 C.P.R. (3d) 428, 6 C.I.P.R. 229] on only one ground, namely, that a telephone number is not registrable as a trade mark because, according to the jurisprudence, a mark that is primarily designed to perform a function cannot be the subject of a trade mark. This position, in my view, reveals a complete misunderstanding of that jurisprudence. In those cases, the marks that were held to be functional were, in effect, part of the wares in respect of which registration was sought so that the registration of those marks would have granted the applicants a monopoly on functional elements or characteristics of their wares; the applicants would, in effect, have obtained patents under the guise of trade marks. The situation here is entirely different. The trade mark applied for by the appellant is not functional in that sense; for that reason, its functional character does not make it "not registrable".              [my emphasis]

In my opinion, Pratte J.A. distinguished the case before him in Pizza Pizza from the line of jurisprudence discussed above in these reasons because the phone number was not an element or part of the wares. The wares were pizza.    The phone number was a mark which was intended to distinguish or call attention to the existence of the wares. In contrast, in the jurisprudence dealing with functionality discussed above, the marks were functional elements of the wares, just as is the LEGO Indicia. In other words, the marks were an integral part of the operating process of the wares. Without the knobs on the LEGO Indicia, the bricks do not connect. Without the wrapper in Imperial Tobacco, the package would not open easily. Without the gelatin band in Parke, Davis, the pills would not be sealed. In this case, the Court explained the functionality test. A mark must be primarily functional, not just functional in some aspect, to invalidate a trade-mark. If that functionality is merely peripheral to the wares, then that is not sufficient to invalidate a trade-mark.

[53]            Urie J.A. agreed with Pratte J.A. in Pizza Pizza, supra, finding at page 361 that Parke, Davis, supra and Elgin Handles, supra are "readily distinguishable":

All four judgments are readily distinguishable, in my view. First, it was not alleged in this case that the numerical combination was used for the purpose of ornamentation. Secondly, neither could it be said, as counsel pointed out, to be solely functional. ... As I see it, while undoubtedly there is a functional element in its use by the appellant, in that to place a telephone order for any of the appellant's products the numerical combination that is the telephone number allotted by the telephone company to the appellant must be utilized, that is not its sole function. Rather, it is totally unrelated to the wares themselves in the sense that, for example, a numbered part of some product would be so related which is purely a functional use. [my emphasis]

Thus, Pizza Pizza stands for the proposition that the fact that an item has some functional aspect is not sufficient to render a trade-mark invalid; the item must be primarily functional as related to the wares themselves to have this effect.

[54]            In Remington Rand, supra, the appellants wanted to market a Remington triple-head rotary electric shaver which had three cutting heads arranged in an equilateral triangular configuration, the same configuration as Philips' rotary shaver. The question was whether a pictorial description of a manufactured article, and some of its working parts, could be the subject of a trade-mark registration. This Court rejected the Trial Judge's conclusion in Remington Rand of validity and infringement, and expunged the trade-mark, despite the Trial Judge's finding that the shavers were virtually indistinguishable from each other because they had identical head assembly. MacGuigan J.A. discussed at page 474 the decision in Pizza Pizza, supra:

I believe that Pizza Pizza Limited v. Registrar of Trade Marks, [1989] 3 F.C. 379, which follows the same approach, gives a clearer indication of what functionality is permissible. ...

The most focussed reasons for judgment were the concurring ones of Pratte J.A., who held that the only kind of functionality that was alien to the registration of a trade mark was that which made a mark part of the wares.

Thus, MacGuigan J.A. also interpreted Pratte J.A.'s judgment in Pizza Pizza as further clarifying the test for functionality, such that peripheral functionality that allows a mark to stay separate from the functions and operations of the wares is not sufficient to invalidate a trade-mark. MacGuigan J.A. in Remington Rand then went on at page 475 to reject the respondent's allegation that Urie J.A.'s judgment in Pizza Pizza supports the idea that functionality has no relevance to what is otherwise a valid trade-mark:

I do not so read Urie J.A. ... In my opinion, both sets of reasons in Pizza Pizza rather endorsed the view that what is determinative is the kind of functionality in question. If functionality goes either to the trade mark itself (Imperial Tobacco, and Parke, Davis) or to the wares (Elgin Handles), then it is essentially or primarily inconsistent with registration. However, if it is merely secondary or peripheral, like a telephone number with no essential connection with the wares, then it does not act as a bar to registration.

At page 476, MacGuigan J.A. explained that if a mark is primarily functional as "part of the ware", the effect would be the creation of a patent of industrial design rather than a trade-mark: "the applicants would, in effect, have obtained patents under the guise of trade marks". MacGuigan J.A. concluded at page 476 that "the design mark, by depicting those functional elements, is primarily functional":

The trial judge may have been correct in stating that "a distinguishing guise necessarily possesses a functional element or component" ... but, to the extent that such functionality relates primarily or essentially to the wares themselves it will invalidate the trade mark.

The distinguishing guise in the case at bar is in my opinion invalid as extending to the functional aspects of the Philips shaver. A mark which goes beyond distinguishing the wares of its owner to the functional structure of the wares themselves is transgressing the legitimate bounds of a trade mark. (478)

[55]            In Thomas & Betts, supra, the appellants successfully appealed from the decision of a Motions Judge who had granted summary judgment. The facts of Thomas & Betts are very similar to the case at hand. Thomas & Betts developed a cable tie which was the subject of a patent which expired in 1984. In 1994, Panduit Corp. introduced a cable tie which was virtually identical to Thomas & Betts' cable tie, including the oval shape of the cable tie head. Thomas & Betts commenced an action that alleged infringement of its unregistered trade-mark consisting of a distinctive oval shape for the head of a cable tie. Décary J.A. concluded that the doctrine of functionality must be considered when examining an infringement action involving an unregistered trade-mark, and explained the rationale behind the idea that the doctrine of functionality can provide the solution to the trade-mark dilemma. Décary J.A. quoted MacGuigan J.A.'s comments in Remington Rand, supra at page 506-7:

In my opinion any combination of elements which are primarily designed to perform a function ... is not fit subject-matter for a trade mark, and if permitted would lead to grave abuses. ...

A mark which goes beyond distinguishing the wares of its owner to the functional structure of the wares themselves is transgressing the legitimate bounds of a trade-mark.

At page 507, Décary J.A. went on to explain the necessity of examining the doctrine of functionality when determining whether something fits into the definition of a distinguishing guise:

The issue in the action is whether the oval-shaped head was a distinguishing guise within the meaning of the Trade-marks Act. In addressing that issue, which is partly and perhaps essentially one of fact, the Motions Judge would have had to examine the very facts of the case in the light of trade-marks principles, including the doctrine of functionality. It may be that at the end of a trial a judge would reach the conclusion, with respect to the specific issue of functionality, that the description or depiction of the oval-shaped head as a preferred embodiment of the invention was evidence, perhaps conclusive evidence, of functionality, but any such conclusion would be premature in this case at the stage of a motion for summary judgment.

[56]            The LEGO Appellants argued in this case that the statutory changes of the definition of "distinguishing guise" from the Unfair Competition Act, 1932 to the current Trade-marks Act demonstrate that Parliament intended to eliminate the doctrine of functionality; otherwise, subsection 13(2) of the Trade-marks Act would be redundant. Paragraph 2(d) of the Unfair Competition Act, 1932 defined "distinguishing guise" as follows:

"Distinguishing guise" means a mode of shaping, moulding, wrapping or packing wares entering into trade or commerce which, by reason only of the sensory impression thereby given and independently of any element of utility or convenience it may have, is adapted to distinguish the wares so treated from other similar wares and is used by some person in association with his wares in such a way as to indicate to dealers in and /or users of similar wares that the wares so treated have been manufactured or sold by him; [my emphasis]

The definition of "distinguishing guise" in section 2 of the current Trade-marks Act is as follows:

"distinguishing guise" means

(a) a shaping of wares or their containers, or

(b) a mode of wrapping or packaging wares

the appearance of which 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;

The two definitions essentially say the same thing - that the shape or mode of wrapping the wares is used for the purpose of distinguishing the wares from others - but for the deletion from the current Act of the one phrase "independently of any element of utility or convenience it may have". That phrase, in and of itself, does not suggest that a mark is invalid by reason of it being primarily functional. It just suggests that in assessing distinctiveness, you do not consider functionality. That situation continues to pertain to the present statute in section 13 - that is - you look at the distinguishing guise to see if it distinguishes the goods themselves.

[57]            The doctrine that provides that a trade-mark is invalid if it is primarily functional clearly did not arise from the wording in the Unfair Competition Act, 1932. It arose as a necessary part of trade-mark law as interpreted by the courts over the last 60 years. Its purpose was to prevent the obvious abuse of permitting a person to effectively obtain perpetual patent protection by means of a trade-mark.

[58]            The Appellants relied on the express mentioning of functionality in subsection 13(2) of the Trade-marks Act (a provision that has no precedent in the Unfair Competition Act, 1932) to support their submission that functionality has been eliminated as a factor from the analysis of trade-mark validity and the definition of a trade-mark under section 2 of the Act:

According to the Appellants, the consideration of functionality has now been shifted to the registration and expungement analysis under section 13 and is only important at that stage. The Report of the Trade Mark Law Revision Committee to the Secretary of State of Canada (Edmond Cloutier, C.M.G., O.A., D.S., Ottawa: Queen's Printer and Controller of Stationary, 1953), drafted January 20, 1953, sheds some light on the reason for the enactment of subsection 13(2).

Attached to this Report is the Bill that we recommend for your consideration and, if it meets with your approval, for introduction in Parliament. The following remarks will serve to explain the reasons that prompted us to propose the changes that we advise should be made in the present law relating to trade marks, fair trading and unfair competition. (page 5)

According to this report, section 13 was enacted to make clear that a distinguishing guise can become registrable only after proof of distinctiveness by use. The functionality in issue related specifically to the fact that others can still use the utilitarian features of a distinguishing guise.

We have, however, concluded that a distinguishing guise should not, as it is under the Unfair Competition Act, 1932, be registrable in the same way as an ordinary trade mark, but ought to be registered only after proof has been made of its distinctiveness by use in Canada and, in addition, only if the Registrar is satisfied that the exclusive use following upon its registration will not be likely unreasonably to limit the development of any art or industry. We have also taken care to ensure that the registration of a distinguishing guise shall give no right to the registrant to prevent others from using any of its utilitarian features.    [my emphasis]

Clearly, section 13 was not intended to revoke the established legal concept of functionality which can invalidate a trade-mark.

[59]            Indeed, in my view, section 13(2) reinforces the concept that the doctrine of functionality invalidates a mark which is primarily functional. It makes clear that the public is not constrained from using any utilitarian features of a distinguishing guise. It follows that if a distinguishing guise is wholly or primarily functional, then the public is not constrained from using the distinguishing guise in its entirety. Thus a distinguishing guise which is primarily functional provides no rights to exclusive use and hence no trade-mark protection. In other words the fact that the distinguishing guise is primarily functional means that it cannot be a trade-mark. The appellants have simply misconstrued section 13(2).

[60]            The Appellants argued that, because functionality is not expressly mentioned in the definition of "distinguishing guise" in section 2 of the Trade-marks Act, it is not part of the definition. However, the mere fact that the existing definition of "distinguishing guise" expressly says nothing to suggest the importance of functionality is inconsequential. This silence is not a clear enough indication to warrant the removal of the well established doctrine of functionality with respect to trade-mark analysis.

[61]            The Appellants further argued, however, that the functionality doctrine only applies to registered trade-marks and not to unregistered trade-marks, such as the LEGO Indicia. However, I fail to see the logic in this argument, as the Trade-marks Act does not provide any different criteria for defining trade-marks, whether they be unregistered or registered. As outlined specifically in Asbjorn, supra, sections 1 to 11 of the Act - that do not refer to the process of registration - are concerned with both registered and unregistered trade marks. Paragraph 7(b) is part of this overall scheme of the Act, and thus deals with both registered and unregistered trade-marks. MacGuigan J.A. stated in Asbjorn at page 328:

The Canadian Act, as the statutory history set out by Laskin C.J.C. in the MacDonald case, supra, showed, has traditionally been concerned with the protection of unregistered as well as registered trade marks. In this it is like the Copyright Act [R.S.C. 1970, c. C-30], whose coverage is broader than registered copyright. In both Acts what registration does is to provide additional benefits over and above those available at common law.

In reviewing the scheme of the Act in Royal Doulton Tableware Limited v. Cassidy's Ltd., [1986] 1 F.C. 357, at page 374; (1984), 1 C.P.R. (3d) 214 (T.D.) at page 228, Strayer J. said that "the Trade Marks Act in sections 1 to 11 defines and prescribes a number of rules concerning trade marks and the adoption thereof, without reference to registration. Thereafter, the Act only deals with registered trade marks." He adds: "Parliament by sections 1 to 11 of the Trade Marks Act has prescribed a regime concerning what constitutes a trade mark and the adoption thereof, whether registered or not."    [my emphasis]

No reason has been suggested as to why the doctrine of functionality should apply to registered trade-marks in passing off actions under paragraph 7(b), but not to unregistered trade-marks in passing off actions under paragraph 7(b).

[62]            I have reviewed the draft reasons of my learned colleague Pelletier J.A. He says at paragraph 5 that the appellants argue that, "the owner of an unregistered trade mark is not entitled to exclusive use of that mark. Since exclusive use can only be obtained by registration, the appellants say that they cannot insist that the respondent cease using the Lego indicia; they can only insist that the respondent take steps to ensure that its use of the Lego indicia does not lead consumers to believe that the respondent's goods are the appellants ." [my emphasis].    Based on his subsequent paragraphs, Pelletier J.A. seems to agree with this argument, especially when he states at paragraph 27, "[s]ince one only acquires monopoly rights by registration, there is no need to apply the policy [of functionality] against monopolies to unregistered trade-marks". With respect, I must disagree.

[63]            Further, in rejecting the notion that the doctrine of functionality applies to unregistered trade-marks, Pelletier J.A. says at paragraph 74, "The jurisprudence dealing with registered trade-marks is not useful in considering the position of unregistered trade-marks since registration confers rights not available to the owners of unregistered trade-marks". Pelletier J.A. explains in his reasons that unregistered trade-marks cannot confer monopoly rights because only a registered trade-mark has the unqualified right to enjoin the use of the mark by another as an indication of origin. The owner of an unregistered trade-mark has only a qualified right to enjoin the use of his mark by another because a defendant can avoid liability by showing that he used additional material to distinguish his goods and to indicate the true source of the goods.

[64]            Again, I do not agree. In my view, the right to exclusive use of a trade-mark is not limited in this sense to registered trade marks. It applies to unregistered trade-marks as well.

[65]            Pelletier J.A. relies upon an English case, Singer Manufacturing Company v. Loog (1880), 18 Ch. D. 395 (C.A.); aff'd (1882-1883), 8 App. Cas. 15 (H.L.) ["Singer"], to attempt to illustrate the point that an unregistered trade-mark has merely a qualified exclusive use as compared with an registered trade-mark. With respect, in my opinion the Singer case does not provide support for this proposition.

[66]            The facts in Singer were largely uncontested, and much of the legal issues were already settled before the case reached the House of Lords. A brass plate or label with the word "Singer", similar in form, size and position to the brass plates or labels engraved with the plaintiff's trade-mark, had been attached to some of the machines manufactured by the defendant (also exactly similar in form, pattern and construction to some of the plaintiff's machines). It was not contested that some people might mistake that plate or label for the plaintiff Singer's trade-mark, and believe that those machines sold by Loog were really that of the plaintiff's. Therefore, as explained by Lord Selborne L.C. of the House of Lords at page 18 of the judgment, the plaintiffs Singer had already obtained "an injunction to the full extent necessary to protect their trade-mark" in the court below. This part of the injunction was not appealed and Loog undertook to follow it. Thus, it was not in issue before the House of Lords that the defendant Loog had infringed Singer's unregistered trade-mark, and that Singer could prevent Loog from using the trade-mark on the Sewing machines in association with the wares. However, what was in issue before the House of Lords was the idea that Singer could prevent the defendant Loog from using the word "Singer" in any way whatsoever. The Court of Appeal had held that the Trial Judge went "further" than the full injunction by also prohibiting "the defendant (in effect) from using the word "Singer" in any way whatever, with respect to any machines not manufactured by the plaintiffs' company" (page 18), and reversed this aspect of the trial judgment. The House of Lords affirmed this decision.

[67]            Lord Selborne L.C. for the House of Lords explained that Singer challenged Loog's use of the word "Singer" on four documents, consisting of an advertisement (broad sheet), a price list comparing the two parties' sewing systems, a title-page of directions for use, and an invoice. He agreed with the Court of Appeal that the defendant Loog was free to use the name "Singer" in this sense and concluded that "he infringes no right of the plaintiffs" (page 22). It is in this context of comparative advertising that Lord Selborne L.C. makes his conclusion.

[68]            With respect, I cannot agree with Pelletier J.A.'s use of this case to support the notion that an unregistered trade-mark only acquires a qualified exclusive use in comparison to a registered trade-mark. Lord Selborne L.C. only meant that Singer had no right to control the use of its name outside the context of distinguishing its wares, and that a rival can use the name in comparative advertising. At page 26-27, he stated:

The counsel for the appellants lastly argued, that the plaintiffs trading under Mr. Singer's name, and using his trade-mark, had acquired such a right of property in that name as to entitle them to restrain any rival in trade from introducing it into any of his price lists, circulars, or advertisements, even in such a way as might exclude the possibility of its being understood to represent, directly or indirectly, that the goods sold by him were manufactured by the plaintiffs, or that his trade or business was identical or connected with the trade or business of the plaintiffs. For that argument no authority was cited; and it cannot, in my opinion, be maintained on any principle. The reputation acquired by machines of a particular form or construction is one thing; the reputation of the plaintiffs, as manufacturers, is another. If the defendant has no right, under colour of the former, to invade the latter, neither have the plaintiffs any right, under colour of the latter, to claim (in effect) a monopoly of the former. If the defendant has (and it is not denied that he has) a right to make and sell, in competition with the plaintiffs, articles similar in form and construction to those made and sold by the plaintiffs, he must also have a right to say that he does so, and to employ for that purpose terminology common in his trade, provided always that he does this in a fair, distinct and unequivocal way. [my emphasis]

By this statement, Lord Selborne L.J. was simply saying that he could find no authority to support the principle that the plaintiffs can prevent someone from using the Singer name in any of that person's price lists, circulars and advertisements. Persons have the right to make and sell articles similar in form and construction to that of a trade-mark owner and have the right to inform the public about what they are doing. They have the right to use the common terminology of the trade, which would often involve the name of the other product in order to facilitate competitive comparison. This is perfectly appropriate.

[69]            Lord Blackburn L.C. agreed with Lord Selborne L.C. and dismissed Singer's appeal. Quoting Millington v. Fox, Lord Blackburn L.C. stated at page 31 the following:

In short, it does not appear to me that there was any fraudulent intention in the use of the [plaintiff's] marks. That circumstance, however, does not deprive the plaintiffs of their right to the exclusive use of these names, and, therefore, I stated that the case is so made out as to entitled the plaintiffs to have the injunction made perpetual.            [my emphasis]

Lord Blackwell L.C. went on at page 37 and stated:

But it was argued that the plaintiffs were entitled to an injunction to prevent the use of the plaintiff's name in any way in reference to articles such as they sell. It was not denied that every one was at liberty to make and sell machines in every respect identical with those made by the plaintiffs, and to say that the goods he made and sold were identical with those made by the plaintiffs in shape and construction, and to allege that the materials were better than those used by the plaintiffs, and more skilfully put together, and sold cheaper, and all this for the purpose of rivalling the plaintiffs. But it was said that the plaintiffs' family name must not be used at all for such an object. No authority was cited in support of such an extensive proposition, and I do not think it is founded on sound principles.    [my emphasis]

Lord Watson L.C. agreed, and concluded at page 38:

The legal consequence of these facts is that the appellant company have a right - an exclusive right, to use the name "Singer" as denoting sewing machines of their manufacture; and that no one has a right to use the word for the purpose of passing off his goods as theirs, or even when he is innocent of that purpose, to use it in any calculated to deceive or aid in deceiving the public. None of the numerous authorities cited at the bar by the appellants' counsel carry the exclusive right of a trader to a particular name, beyond that limit. There is no authority, and, in my opinion, no principle for giving the trader any higher right. ...

Lord Watson L.C. was speaking to the limit of circumscribing others from using a mark for any purpose, including advertising, when he spoke of limiting the exclusive use of a trade-mark. This context of Lord Watson L.C.'s comments can be seen in his conclusion at page 40: "Tested by these principles the acts of the respondent [Loog], with which we are concerned in this appeal, constitute no invasion of the appellants' exclusive right." [my emphasis] Again, since the House of Lords was only concerned with the use of the name Singer on the four advertising documents in question, the ratio of the case must be limited to that concept.

[70]            Thus, Singer merely stands for the proposition that the exclusive use of a trade-mark is limited in the sense that the trade-mark owner cannot prevent another party from using the mark in comparative advertising. However, registered trade-marks are limited in the same sense. In Eye Masters Ltd. v. Ross King Holdings Ltd. (T.D.), [1992] 3 F.C. 625 (F.C.T.D.), a case involving an application for an interlocutory injunction in an action for infringement of a registered trade-mark between two rival retail opticians, Reed J. stated at paragraph 6 that "it is clear that trade marks can be used in comparative advertising of goods without infringement of the mark".

[71]            In Future Shop Ltd. v. A. & B. Sound Ltd., [1994] B.C.J. No. 851 (B.C.S.C.), the court similarly dealt with an application for an interlocutory injunction to restrain advertisements. In this case, both parties were engaged in the retail sale of commercial electronic products and the defendant put out comparative advertisements in which it highlighted the differences between its prices and those of the plaintiff who held a registered trade-mark. MacKenzie J. saw nothing wrong with these advertisements, and stated at paragraph 10: "A comparative ad which by obvious and reasonable implication stresses the differences between the advertiser's product and that of the competition does not attach itself to the competitor's goodwill in the same manner. Rather, it seeks to distance itself from that goodwill by stressing the differences." MacKenzie J. concluded at paragraph 16 that: "I do not think that a reference to a trademark for the purpose of distinguishing the trademarked ware or service offends the exclusive right to use the trademark confirmed by s. 19." In fact, MacKenzie J. held the view that the public has an interest in comparative advertising to the extent that the comparative information in those ads help consumers to make better choices. Therefore, registered trade-marks are circumscribed in the same way as unregistered trade-marks, as described in the Singer case. Thus, Singer remains an authority for the proposition that the right to exclusive use can be obtained with an unregistered trade-mark.

[72]            Unregistered trade-marks were seen as a right of property giving the owner a monopoly and thus the right to restrain other persons from using the mark. A Treatise on the Law of Trade-marks by Frank Mantell Adams, written in 1874 (London: George Bell & Sons), confirms at page 1 that unregistered trade-mark rights encompassed "the exclusive right to sell merchandise of that description, with the representation that the goods emanated from him". Again, at page 11, Adams stated that "[t]he right which a manufacturer has to the use of a trade-mark is the exclusive right to use it for the purpose of indicating where, or by whom, or at what manufactory the article to which it is applied was made" [my emphasis].

[73]            The difficulty with unregistered trade-marks arose when the owner attempted to prove his entitlement by adducing evidence of his public use of the mark over time. A further difficulty arose in establishing the geographic area in which the unregistered mark would be protected. This was recognized in Re Courtaulds, The Times 14 February 1994, (Transcript: Marten Walsh Cherer), Chancery Division (Patents) at 4 (lexis); approved [1995] E.W.J. No. 4681 (Court of Appeal, Civil Division). As Aldous J. stated at page 4 (lexis) in Re Courtaulds:

Since the only right of the proprietor of a trade mark was to prevent its use by other persons the original remedy for the protection of his right was an injunction to restrain infringement. This continued to be the principal remedy, though by the middle of the nineteenth century damages for infringement were also recoverable, at any rate where the infringement was intentional and deceitful at common law. ...

A right of property of this character calls for an accommodation between the conflicting interests of the owner of the monopoly, of the general public as purchasers of goods to which the trade mark is affixed, and of other traders. ...[my emphasis]

The Court in Re Courtaulds explained at pages 4-5 (lexis) that the purpose of enacting a registration scheme was to provide a practical remedy for the defects in the common law regarding trade-marks; there was no intention of changing the main characteristics of trade-marks at common law:

The principal defects in the law of trade marks as it had developed by 1875 were: first, that in any action which he brought for infringement of his trade mark the proprietor had to prove his title to the mark afresh by adducing evidence of his public use for it; and, secondly, that there was no easy way in which a trader who wished to adopt a particular mark to distinguish his own products could find out whether its use would infringe proprietary rights in that mark already vested in some other trader by virtue of his public use of it. The evident purpose of the Act of 1875 was to provide a practical remedy for these defects without changing the main characteristics of trade marks at common law. ...

The Act of 1875 did not itself create any right of property in trade marks. As its title itself indicates and its provisions confirm, it simply provided for the registration of trade marks and spelled out the consequences of registration and non-registration upon the proprietary rights of the owner of the trade mark and the remedies available to him for the protection of those proprietary rights.

[74]            This same view concerning the rights of unregistered trade-mark owners prevailed in Canada. In The Canadian Law of Trade Marks, 3^rd Edition (1972), Dr. Fox, in speaking about unregistered trade-marks, said at page 1

In 1838 the case of Millington v. Fox established the principle that an injunction could be obtained to restrain infringement of a trade mark even though the infringement was due to ignorance and was without fraudulent intent. The natural corollary of such a finding was the acceptance of the view that a trade mark was property capable of ownership. Upon that right the protection of trade marks in equity was subsequently based. This was made clear by Lord Westbury L.C. in Edelsten v. Edelsten where following the rule established in Millington v. Fox he observed: "It is plain, therefore, that the plaintiff has all the essentials of a right of property in the trade mark claimed by him."

[75]            Dr. Fox also pointed out at pages 1-2 the defects in this common law system.

Actions to restrain the improper use of trade marks were found to be expensive, long delayed and unsatisfactory. The plaintiff generally found himself in a very disadvantageous position. The basis of his action was the reputed association between his trade mark and his goods. The defendant would generally deny the association, and it had to be proved by witnesses at a cost to the plaintiff that was at times enormous, and that he often had little hope of recovering - the defendant being often a person of no substance. Furthermore, even if the owner of the trade mark secured a favourable judgment, it carried with it no immunity from the obligation of again establishing his right to the mark against any subsequent person who chose to dispute it.

[76]            Thus, at common law, an unregistered trade-mark owner had a monopoly and the right to exclusive use of his mark. The passage of trade-mark legislation providing for registration did not eradicate the common law right attached to unregistered marks. It just facilitated proof for the owner. Also, Fox on Trade-marks (2002 edition) confirms this at page 3-10:

Registration under the statute, however advisable, is not essential in order that a person may protect his trade-mark. The successive trade-mark statutes have not altered the common law, nor taken away rights that existed before their enactment. If a statute is meant to alter common law rights it is expected to do so expressly, and consequently the courts will only give that effect to plain and unambiguous words.

[77]            The 1972 edition of Fox (supra) also makes clear at page 49 the fact that the purpose behind registration was to confirm the already existing rights in the trade-mark:

It will be seen, therefore, that the right to a trade mark is created by use, whether in Canada or a country of the Union, and not by registration, and this is equally true of proposed trade marks under the 1953 Act, for they must be used before they can be entered on the register. Registration merely serves to confirm the title which has already been established by use. This theory of confirmation of title by registration was succinctly put by Ritchie C.J. in Partlo v. Todd [(1988), 17 S.C.R. 196 at 200]: "It is not the registration that makes the party proprietor of a trade mark; he must be proprietor before he can register."

This statement was repeated in the 2002 edition of Fox at pages 5-4: "registration merely serves to confirm the title which has already been established by use".

[78]            Similarly, Hughes on Trade-marks at page 371 is to the same effect: this sense of registration as confirming an already present proprietary right in a trade-mark, that existed prior to registration:

It is not registration that makes a party proprietor of a trade-mark; he or she must be a proprietor before he or she can register.                 

[79]            Thus, I fail to see the logic in the Appellants' argument that the policy underlying the functionality doctrine (of avoiding monopolies and obtaining patent protection through the guise of a trade-mark) does not apply to unregistered trade-marks, such as the LEGO Indicia. This would result in some advantage being gained by a person seeking to extend his patent monopoly, by declining to register his trade-mark. The purpose of registration is to confer advantages, not disadvantages, on a registered trade-mark holder.

[80]            Hughes on Trade Marks (Markham: Butterworths, Issue 53, February, 2003) elaborates at section 17, page 371 on how it is not essential to register a trade-mark, and on what advantages a registered trade-mark has over an unregistered one:

It is not essential to register in order to acquire rights in a trade-mark so as to preclude others from using the same or a confusing trade-mark. A person who uses a mark, regardless of registration, has the right to prevent the subsequent use of a confusing trade-mark by another but only in the same trading area.

Registration does, however, confer certain benefits beyond those available at common law while recognizing those pre-existing common law rights. When a trade-mark is registered, there is a presumption of its validity whereby a party seeking its expungement bears the onus of demonstrating its invalidity. These rights include the right to use the mark throughout Canada and to preclude use of a confusing mark anywhere in Canada, by an action for infringement, the right to register the mark in foreign countries adhering to the Convention and prima facieproof of these rights and ownership thereof. Registration may also save a trade-mark owner from becoming disentitled later due to the adoption of a similar "official mark" by a "public authority" or governmental body.    There are mixed decisions as to whether registration may make it easier to obtain an interlocutory injunction. Registration can be of some benefit in enhancing the probability of obtaining an interlocutory injunction where a reasonable case as to confusion has been established. As a practical matter, a registration is often mandated before a licensee will enter into a contractual relationship with a trade-mark owner.    [my emphasis]

Therefore, the relevant advantages of registration in this context consist of an easier burden of proof when it comes to showing validity, and proving infringement. A registered trade-mark constitutes prima facie proof of trade-mark rights and trade-mark ownership. These advantages in no way suggest that a different policy of protection applies to registered trade-marks. In fact, as Hughes on Trade-marks suggests at pages 371-2 "the fundamental purpose of the statute or of the common law right of passing off is to protect acquired rights, whether such rights are acquired by usage or registration".    There is no authority for, nor logic in, the Appellants' assertion that the doctrine of functionality does not apply to unregistered trade-marks.

[81]            Thus it is possible to obtain monopoly rights through an unregistered trade-mark, just as it is with a registered trade-mark. The difficulties of proof in connection with unregistered trade-marks lead people to register, and it may well be that with respect to unregistered trade-marks a plaintiff will find it difficult to prove monopoly rights. That does not mean that it is not possible for such a person to do so. Because it is possible for an unregistered trade-mark owner to obtain monopoly rights, the rationale for applying the functionality doctrine to unregistered trade-marks is sound. The LEGO case is a good example.

[82]            Based on the above exclusive use analysis, if LEGO were granted a declaration that they are the owners of the LEGO Indicia as an unregistered trade-mark, then they would obtain a monopoly over that Indicia, which consists of a functional LEGO brick. The particular facts of this case warrant using this policy consideration because of the Trial Judge's finding of fact at para. 144:

I further conclude that, to a very real extent, the LEGO group is the author of its own misfortune in the Canadian market place in relation to the LEGO Indicia. Its marketing strategies and practices have been so good that it has left little room, if any, for a competitor such as Ritvik, adopting the purely utilitarian or functional features of the LEGO brick and particularly the LEGO Indicia, a "table stakes" feature in the words of Dr. Larry Light, to distinguish its MICRO MEGA BLOKS from LEGO's construction bricks, notwithstanding that Ritvik has consistently inscribed on its line of MICRO MEGA BLOKS the designation MEGA BLOKS.

This means that if LEGO was granted a declaration of ownership of an unregistered trade-mark and was successful in the passing-off action, then no competitor would be able to effectively distinguish its goods from that of LEGO's and LEGO would obtain, in effect, an exclusive use and monopoly over goods with this trade-mark, thus perpetuating their patent monopoly.

[83]            My learned colleague, Pelletier J.A. in paragraph 21 of his reasons says "While the prohibition has not been carried forward into the current Act, there remains a view that an action in infringement is, by definition, limited to registered trade-marks". I cannot agree. The case law in Canada is to the opposite effect. I believe that it confirms the ability of an unregistered trade-mark owner to obtain exclusive use with its trade-mark. Not only do unregistered trade-mark owners have the right to commence a passing-off action through the common law or through the Trade-marks Act, but they also has the right to prevent the registration of a mark or to invalidate a registration obtained for a mark. As stated in Trade-marks: I came, I saw, I registered by Colleen Spring Zimmerman (Department of Continuing Legal Education, Law Society of Upper Canada, 1999), "[u]nder our trade-mark law, rights are given to a party who uses a trade-mark whether or not that party applied to register it".

[84]            A prime example of this is Royal Doulton Tableware Limited, Paragon China Limited and Doulton Canada Inc. v. Cassidy's Ltd., [1986] 1 F.C. 357 (F.C.T.D.). Strayer J. (as he then was) allowed an unregistered trade-mark holder (Royal Doulton) to expunge Cassidy's registered trade-mark from the registry and granted the unregistered trade-mark holder a permanent injunction. Thus, an unregistered trade-mark prevailed over a registered trade-mark because of its prior exclusive use. Royal Doulton requested of the Court that it be granted a declaration that Paragon "is the owner of the trade mark 'Victoriana Rose' for use in association with china tableware". Although, Strayer J. stated at paragraph 23 that "it would be open to this Court to make such a declaration if it had before it all the necessary evidence", he decided he could not do so for lack of evidence as to who, between Paragon and Royal Doulton, was the actual owner. However, it must be stressed that Strayer J. deemed it possible to grant an unregistered trade-mark holder a declaration of ownership and, thus, exclusive use over a registered trade-mark. He stated at paragraph 24:

While then it would in my view be legally possible to issue a declaration as to ownership of an unregistered trade mark, I believe that in this case I should confine myself to the evidence before me relating to the use trade mark "Victoriana Rose". ... I declare that Paragon has been using this trade mark and that Cassidy's has not. ... While for all practical purposes it may be that this is tantamount to a declaration of ownership, it is at least theoretically possible that other barriers to Paragon's ownership - barriers that were not canvassed before me - could preclude ultimate recognition of that ownership. I believe that it is unnecessary for me to go further than this with a declaration but this should not be interpreted as a finding in any way that there is a barrier to full recognition of ownership by the plaintiff Paragon of an unregistered trade mark.

The comments of Strayer J. were approved of in Copperhead Brewing Co. v. John Labatt Ltd., [1995] F.C.J. No. 668 (F.C.T.D.).

[85]            In Aluminum Co. of Canada v. Tisco Home Building Products (Ontario) Ltd., [1977] F.C.J. No. 112 (F.C.T.D.), Walsh J. allowed an infringement action of an unregistered trade-mark, and granted an injunction as the remedy. In this case, the plaintiff, Tru-Seal Mfg. Inc., a wholly owned subsidiary of the plaintiff, Aluminium Co. of Canada, initiated an action for infringement of an unregistered trade-mark Tisco used by the plaintiffs in connection with the sale of aluminum windows, doors and sidings in Ontario and parts of Quebec. Walsh J. found at paragraph 29 that:

In the present case, Plaintiffs had an unregistered trade mark Tisco and a trade name in which this word appeared which had attained a special significance and connotation between 1968 and April 1974 in connection with their wares. Defendants undoubtedly appropriated this mark and name for their own commercial advantage [including their registered corporate name], and although Plaintiffs did not in fact use the name after it was so appropriated by Defendants in April 1974 they did not lose their right to do so and in fact applied for registration of Tisco as a trade-mark. Had they continued to use it the public would undoubtedly have been misled even more, and despite their ceasing to use it following April 1974 the public nevertheless would be misled into believing that the wares sold by Defendants under the name Tisco were the same as the wares formerly sold by Plaintiffs under this same name. The definition of trade mark in Section 2 of the Act makes no distinction between a registered and unregistered trade mark and in fact includes a proposed trade mark.

Walsh J. went on at paragraph 31 to conclude that the Plaintiffs were entitled to an injunction against the Defendants "enjoining them from using the trade name Tisco Home Building Products (Ontario) Ltd. in connection with the wholesale or retail sale of aluminum windows, doors and siding in the Provinces of Quebec and Ontario. Both Defendants will be enjoined from selling any such products using the trade mark "Tisco" or any trade name including this word". This is a very broad injunction granted to an owner of an unregistered trade-mark in an infringement action, against the trade name of another party.

[86]            Jerome A.C.J. took the same view at paragraph 5 in Floyd M. Baslow v. Fabri Trak Canada Limited, Avron Isadore Shore and Gauvreau, Beaudry Ltd., [1980] 2 F.C. 238 (F.C.T.D.):

Rights exist in trade-marks whether registered or unregistered and while the use of the word "infringement" when relief is sought in respect to an unregistered trade mark may tend to blur the lines between the two kinds of claims, I am not able to find any authority which prohibits a plaintiff from describing a grievance as an infringement of the plaintiff's rights in the trade mark or from incorporating that terminology in the prayer for relief.

Jerome A.C.J. refused to order that the statement of claim by purged of the term "infringement" or "infringing" in the prayer for relief simply because the trade-mark was unregistered.

[87]            In addition, other Canadian cases have allowed unregistered trade-marks to prevail over registered trade-marks. Actions were successfully taken by unregistered trade-mark owners to expunge registered trade-marks from the register. If the unregistered trade-mark owner did not have the exclusive right of its mark, the Court would hardly have consented to the radical remedy of expungement of another party's registered trade-mark. Uniwell Corp. v. Uniwell North America Inc., [1996] F.C.J. No. 336 (F.C.T.D.), Wilhelm Layher GmbH v. Anthes Industries Inc., [1986] F.C.J. No. 60 (F.C.T.D.).

[88]            The Thomas & Betts case involved an unregistered trade-mark, and Décary J.A. found that the doctrine of functionality must be considered before the outcome of the case for infringement and passing-off could be decided. The facts of Thomas & Betts are very similar to the case at hand: the alleged trade-mark in issue was unregistered; an expired patent was involved; and the current definition of "distinguishing guise" was under consideration, not the Unfair Competition Act, 1932. The Appellants argue that Thomas & Betts was wrongly decided. I completely disagree. The decision not only conforms with the prior case law, but it also explains the policy behind the doctrine of functionality. In my view, this case is determinative, for the purposes of the present case, on the issue that the doctrine of functionality applies to unregistered trade-marks.

[89]            Décary J.A. clearly held that the doctrine of functionality - "the solution to the dilemma" in issue in that case - applied to unregistered trade-marks. The only thing he left open to decide was whether the cable tie head in question was primarily functional. This is a factual matter and of course he had to leave this to be decided by the Trial Judge. Pelletier J.A. argues at paragraph 73 of his reasons that Décary J.A. "did not decide that functionality would be fatal to an action for passing off based upon an unregistered distinguishing guise". However, Décary J.A. could not conclude that an application of the doctrine of functionality would be fatal until it was factually decided by a trial judge that the distinguishing guise was, in fact, primarily functional. This, in my opinion, does not take anything away from the conclusion that the doctrine of functionality should be applied in this case. In fact, Décary J.A. mandated that the Trial Judge examine the issue of functionality, in order to determine whether the oval shaped head of the cable tie was, in fact, primarily functional. Décary J.A. stated at paragraph 26:

The issue in the action is whether the oval-shaped head was a distinguishing guise within the meaning of the Trade-marks Act. In addressing that issue, which is partly and perhaps essentially one of fact, the Motions Judge would have had to examine the very facts of the case in the light of the trade-marks principles, including the doctrine of functionality. It may be that at the end of the trial a judge would reach the conclusion, with respect to the specific issue of functionality, that the description or depiction of the oval-shaped head as a preferred embodiment of the invention was evidence, perhaps conclusive evidence, of functionality, but any such conclusion would be premature in this case at the stage of a motion for summary judgment.     [my emphasis]

Thus, this Court has previously mandated that the doctrine of functionality be applied to an unregistered trade-mark. Pelletier J.A. also states at paragraph 70 of his Reasons that Décary J.A. "then considered the various authorities discussed above but did not address the fact that the case before him concerned an unregistered trade-mark". This statement is tantamount to saying that Décary J.A. was remiss in failing to address the unregistered status of the trade-mark in issue before him in Thomas & Betts. I disagree. In my view, Décary J.A. was completely aware of the issue before him and the fact that an unregistered trade-mark was involved. I cannot believe that his careful language in his reasons can be construed as indicating that he was unmindful of the fact that he was addressing an unregistered trade-mark.

[90]            It appears to me that the Appellants are attempting to extend the monopoly they once held over these construction bricks and their knobs through the guise of a trade-mark. Other decisions from cases involving LEGO indicate that this attempt is not their first. In dismissing LEGO's trade dress claim against Tyco more than a decade ago, Judge Brown of the District Court of New Jersey made a similar finding of functionality and refused to stop Tyco from competing with the appellants in Tyco Indus. v. Lego Systems, Inc., 5 U.S.P.Q. 2d 1023 at 1039 (D.N.J. 1987), aff'd, 853 F.2d 921 (3d Cir.), cert. Denied, 488 U.S. 955 (1988):

Applying these principles to the evidence in this case, this Court concludes that the LEGO block is wholly functional. The stud and tube system referred to previously not only accommodates the interlocking function as LEGO claims, but it "contribute[s] to the effectiveness and performance of the block" ... The tubes and studs system was the obvious engineering choice. [Tyco Indus. v. Lego Systems, Inc., 5 U.S.P.Q. 2d 1023 at 1039 (D.N.J. 1987), aff'd, 853 F. 2d 921 (3d Cir.), cert. Denied, 488 US 955 (1988)]

Also, in Interlego AG v. Tyco Industries Inc., [1989] 1 A.C. 217 at 255-6 (P.C.), LEGO manufactured and sold the brick-shaped interlocking toys in Hong Kong, and made design drawings from these bricks. The defendants copied from LEGO's blocks the principal elements of the old design, and, thereby, copied indirectly the drawings from which LEGO's blocks were manufactured. LEGO brought an action, claiming an injunction to restrain the defendants from infringing their copyright in design drawings. Lord Oliver of Aylmerton of the Privy Council stated at pages 255-256 the following about LEGO's attempt to extend its intellectual property rights beyond their proper scope:

Turning now to Tyco's cross-appeal, their Lordships observe, at the outset, that the simple but ingenious invention by Mr. Page of interlocking toy bricks was more than adequately rewarded by patents which expired in 1954 and 1959. Unfortunately, Lego obtained further protection for what was basically the same invention by patents and designs which expired in 1975. In the result Lego secured an extended monopoly in the invention with the result that other manufacturers of toys can now effectively compete with Lego only by manufacturing interlocking bricks which interlock with the products of Lego and which must, therefore, conform with the basic shapes and dimensions of those products. Such competition has hitherto been resisted successfully by Lego on the grounds that competing bricks which are compatible with Lego bricks infringe the intellectual property rights of Lego. In these proceedings Lego base their monopoly on copyright asserted not for the bricks but for the uninspired and uninspiring engineering drawings of bricks. By attributing new periods of copyright protection to every minor alteration in the form of a brick which is recorded in such a drawing they seek to obtain, effectively, a perpetual monopoly. In re Coca-Cola Co., [1986] 1 W.L.R. 659, 697, the House of Lords drew attention to the undesirable practice of seeking to expand the boundaries of intellectual property rights beyond the purposes for which they were created in order to obtain an unintended and undeserving monopoly. These proceedings are a further illustration of that undesirable practice.

Likewise, Interlego AG's Trade Mark Applications, [1998] R.P.C. 69 at 110 involved Interlego AG's application under the Trade Marks Act, 1938 for the registration of four trade-marks, consisting of arrangements of raised knobs and tubes applied to building bricks in respect of toys and games. The Registrar refused the applications, and Mr. Justice Neuberger of the High Court of Justice, Chancery Division dismissed the appeal, finding that the bricks were functional and had enjoyed patent protection between 1959 and 1975, and that from 1975 LEGO had a virtual de facto monopoly up to the time they sought trade-mark registration. He stated at page 110:

In all the circumstances, it seems to me ... that Interlego are not so much seeking to protect a mark on an item of commerce, but are attempting to protect the item of commerce as such. In other words, they are not so much seeking a permanent monopoly in their mark, but more a permanent monopoly in their bricks. This is, at least in general, contrary to principle and objectionable in practice. A trade mark is, after all, the mark which enables the public to identify the source or origin of the article so marked. The function of the trade mark legislation is not to enable the manufacturer of the article to have a monopoly in the article itself. In the present case there is no special reason to conclude that the general approach should not apply. On the contrary, the functional aspect of the knobs and tubes, and the extent of the monopoly in the field of toy building bricks which Interlego might establish if their appeal succeeded, are strong factors supporting the Registrar's decision.

[91]            In Interlego A.G. v. Alex Folley (VIC) Pty Ltd., [1987] F.S.R. 283, the plaintiffs, LEGO, claimed to be the owners of the copyright in various drawings of their bricks. Previously, LEGO had obtained a patent (since expired) regarding the manner in which the bricks fitted together. Under the patent, LEGO obtained 20 years of protection. When the patent expired, in order to extend their monopoly rights, LEGO then registered designs under the Registered Design Act, 1949. In order to register a design LEGO had to allege, as it did, that its design was not solely functional. This registered design provided LEGO with a further 15 years of protection. After the further 15 years expired, LEGO wished to further extend its monopoly. To do so, it attempted to register copyright in its drawings, which would have provided a further 50 years of protection, thus producing a total of 85 years of protection. The U.K. Copyright Act at the time provided that if a design was registered under the Registered Design Act then there could be no infringement of copyright in the same work. LEGO's solution was to argue that its registered design, for which it had already obtained 15 years of protection, had been invalid all along and, therefore, it was entitled to copyright protection. Not surprisingly, the Trial Judge was not impressed with the argument. During the trial, he said:

I am bound to say that I find your case immensely unattractive. You are in this position. You started off with a comfortable monopoly under the patent, that went, and then you protected your interests by registering designs and then when the designs all start to expire, you say "Oh, well, we have a brilliant idea, they were all a lot of nonsense and now we can get another 50 years". I am bound to say that this is an approach which I do not find terribly attractive.

In his judgment, he stated at page 287:

The real point in this case is whether designs for the elements or, if not all of them, some of them, were or are capable of registration. Having regard to the fact that designs (some now expired) for some of the relevant articles were registered, it is understandable that the defendants should feel a little put out that the plaintiffs should now be claiming that in respect of these designs the plaintiffs were never entitled to secure protection by way of registration and are, accordingly, entitled to full copyright protection under the Copyright Act 1956, as amended in 1968.    [my emphasis]

[92]            The words of J. Philips in An Empire Built of Brick: A Brief Appraisal, [1987] 12 E.I.P.R. 363 at page 366 should be noted:

Now that Lego's original patents have expired and, in a number of jurisdictions, design or copyright protection is lacking or cannot be utilized, Lego will find it increasingly difficult, and in the end impossible, to prevent rival manufacturers making look-alike bricks with similar interlocking systems ... rights in the bricks themselves are all to ephermeral.

[93]            In general, therefore, the Appellants have demonstrated no case to support their position that the doctrine of functionality does not apply to unregistered trade-marks, nor that says that the doctrine of functionality was abolished by section 13 of the Trade-marks Act. Consequently, I must conclude that the doctrine of functionality applies in this case, and that the LEGO Indicia in question is invalid as a "trade-mark" because it is primarily functional. The fact that the Appellants' patents, seem remarkably like the LEGO Indicia provides support for the notion that the mark being claimed is functional, and, perhaps, is merely being claimed for the purpose of extending the patent monopoly once held by the Appellants. The Appellants held this monopoly for over 50 years, and, in my opinion, this action was just another attempt to extend patent protection through the guise of a trade-mark. Therefore, if facts are needed to justify applying the policy behind the doctrine of functionality, they are certainly present in this case.

[94]            Since the doctrine of functionality issue disposes of this case, it is unnecessary for me to comment on the rest of the trial decision.

[95]            This appeal should be dismissed with costs.

                                                                            "J. EDGAR SEXTON"                        

                                                                                                              J.A.

"I agree

    Marshall Rothstein J.A."

                 DISSENTING REASONS FOR JUDGMENT

PELLETIER J.A.

[96]            I have had the benefit of reading the careful reasons of my colleague Sexton J.A. with whom I must respectfully disagree. While I am sensitive to the use of trade-mark law to extend patent monopolies, this appeal raises an equally important problem. The appellants have brought an action for passing off, that is, they have alleged that the respondent is misleading the public by the respondent's use of the appellants' distinguishing guise. The trial judge found that there was confusion in the mind of the public and that the confusion arose from the use of the Lego indicia. The question raised by this appeal is whether concerns about extending monopoly rights through trade-mark law justify the denial of a remedy where a vendor uses another's distinguishing guise, which has functional elements, to pass off his goods as those of the other.

[97]            I am unable to agree that the appellants' distinguishing guise, which is primarily functional, cannot be a trade-mark capable of supporting a passing off action pursuant to subsection 7(b) of the Trade-Marks Act, R.S.C. 1985, c. T-13 (the "Act").

[98]            The presence of a trade-mark is central to an action under subsection 7(b) of the Act, because Parliament can only legislate in relation to passing off as part of its jurisdiction over trade-marks (see Asbjorn Horgard A/S v. Gibbs/ Nortac Industries Ltd. (1987), 14 C.P.R. (3^rd) 314 at pp. 327-28). Consequently, in a passing off action pursuant to ss. 7(b), the plaintiff must be able to demonstrate that the misrepresentation which is at the heart of passing off involves the use of its trade-mark.

[99]            This is not disputed by the either of the parties. The primary issue upon which they disagree is whether the Lego indicia, which the appellants claim as a distinguishing guise, are capable of being a trade-mark, given their functional characteristics. For the purposes of my analysis, I would agree that the Lego indicia are functional, indeed primarily functional. However, I do not share the view that they cannot be trade-marks solely for that reason.

[100]        The appellants' primary argument that the Lego indicia are a trade-mark, notwithstanding the fact that they are functional, is intimately bound to another: the owner of an unregistered trade-mark is not entitled to exclusive use of that mark. Since exclusive use can only be obtained by registration, the appellants say that they cannot insist that the respondent cease using the Lego indicia; they can only insist that the respondent take steps to ensure that its use of the Lego indicia does not lead consumers to believe that the respondent's goods are the appellants'. Because a good deal of the force of the argument as to the inapplicability of the doctrine of functionality to unregistered trade-marks derives from this proposition, it deserves early examination.

[101]        Section 19 of the Act gives to the owner of a registered trade-mark the exclusive right to the use of that mark:

[102]        The nature of the right of exclusive use conferred by registration is set out in the following passage from Harold G. Fox, The Canadian Law of Trade Marks and Unfair Competition, 3^rd ed. (Toronto: Carswell, 1972), at pages 323-24:

The action for infringement is thus to be distinguished from the action for passing off. An infringement action is based upon the exclusive right to use a trade mark conferred upon the registered owner by statute and in order to succeed the plaintiff must show that the defendant is using that mark or a confusing trade mark. The statutory law relating to infringement differs from the law relating to passing off in two particulars: first, it is concerned only with one method of passing off, namely, by the use of a registered trade mark; secondly, the statutory protection is absolute in the sense that once a mark is shown clearly to offend, the user of it cannot escape by establishing that by something outside the actual mark itself he has distinguished his goods from those or the registered owner.

[103]        The fact that section 19 of the Act gives the owner of a registered trade-mark a right of exclusive use of that mark does not necessarily imply that the holder of an unregistered trade-mark had no remedies with respect to the use of his trade-mark by another. I do not disagree with Sexton J.A.'s position that even the owner of an unregistered trade-mark could enjoin another from using his mark, though I would qualify it. An action to enforce rights with respect to an unregistered trade-mark was essentially an action for passing off. As a result, a defendant could avoid liability by showing that while it used the plaintiffs' mark, it surrounded the mark with other material by which consumers would know that the owner of the mark was not the source of the goods. If that plea succeeded, the owner of the unregistered mark was without a remedy and could not prevent the other from using its mark, since it amounted to proof of absence of confusion. The change introduced by the Act was that the owner of the registered mark could enjoin the use of its mark by another, notwithstanding the use of additional material to indicate the true source of the goods. This unqualified right to enjoin the use of the mark by another as an indication of origin is what is meant by the monopoly conferred by registration. It stands in opposition to the qualified right of an owner of an unregistered mark to enjoin the use of its mark by another.

[104]        An English case which illustrates the point is Singer Manufacturing Company v. Loog (1881), 18 Ch. D. 395 (C.A.) aff'd (1882), 8 App. Cas. 15 (H.L.). Singer, the American sewing machine manufacturer, brought an action alleging passing off against Loog, a wholesale agent of sewing machines. In a circular, Loog described its stock as "The improved Wheeler-Wilson and Singer systems, manufactured by the Sewing Machine Manufacturing Company, late Frister & Rossman, Berlin" (all italics in the original). The circular contained other references to the Wheeler-Wilson and Singer systems. Loog also gave retailers who made inquiries a price list of the Sewing Machine Manufacturing Company (late Frister & Rossman Limited, 128 London Wall, London E.C.). That price list referred to "Wheeler-Wilson Improved System" and "Singer Improved System". Singer system machines themselves came with a document whose title page read "Instructions for use of Frister & Rossman's shuttle sewing machine on Singer's improved system". The instructions themselves did not refer to Singer but were entitled "Instructions for use of the family shuttle machine on the Singer system". Finally, the evidence was that a detective who purchased a "Singer system" machine on behalf of the plaintiff was provided with an invoice headed "Herman Loog, on account of the Sewing Machine Manufacturing Company, late Frister & Rossman, Limited". The particular invoice evidenced the sale of a machine described as "The Singer Treadle Machine".

[105]        Loog had also affixed to certain of its machines a brass plate "which contained the words in the centre 'F. & R. 128 London Wall, London' which were the prominent and conspicuous words, and round them in smaller letters were the words 'Frister & Rossman's Singer Machine' in letters of an uniform size, connected together by the words 'German' and 'manufacturer' in smaller letters" (H.L., at p. 35). At the commencement of the litigation, Loog had agreed to discontinue the reference to "Singer" on such plates and had consented to an injunction prohibiting it from such use in the future. Consequently, the only issue in the litigation was the use of Singer's name in its written material. In the Chancery Division, Vice-Chancellor Bacon granted Singer an injunction against the use of the brass plate as well as enjoining the use of the word Singer in any of the defendant's written material. Loog appealed to the Court of Appeal where he was successful, whereupon Singer pursued the matter to the House of Lords.

[106]        In the Court of Appeal, James L.J., succinctly stated his view of the law as it stood at that time:

... I have often endeavoured to express what I am going to express now (and probably I have said it in the same words, because it is very difficult to find other words in which to express it) - that is, no man is entitled to represent his goods as being the goods of another man; and no man is permitted to use any mark, sign, or symbol, device or other means, whereby, without making a direct false representation himself to a purchaser who purchases from him, he enables such a purchaser to tell a lie or to make a false representation to somebody else who is the ultimate customer. That being, as it appears to me, a comprehensive statement of what the law is upon the question of trade-mark or trade-designation, I am of opinion that there is no such thing as a monopoly or a property in the nature of a copyright, or in the nature of a patent, in the use of any name. Whatever name is used to designate goods, anybody may use that name to designate goods; always subject to this, that he must not, as I said, make directly, or through the medium of another person, a false representation that his goods are the goods of another person. That I take to be the law. (emphasis added)

(Singer Manufacturing Company, supra, (C.A.) at pp. 412-13)

[107]        James L.J. went on to examine Loog's printed material and found that customers would not be led to believe as a result of the use of the word "Singer" that they were purchasing a machine manufactured by that company. Cotton and Lush LL. J. agreed with him and so the appeal was allowed. Singer appealed to the House of Lords.

[108]        Lord Selborne L.C. carefully reviewed the evidence and concluded that, apart from the brass plate, customers were not misled by Loog's use of "Singer" in connection with its machines. He then dealt with the argument which is most relevant to the question under discussion here:

The counsel of the appellants lastly argued, that the plaintiffs trading under Mr. Singer's name, and using his trade-mark, had acquired such a right of property in that name as to entitle them to restrain any rival in trade from introducing it into any of his price lists, circulars, or advertisements, even in such a way as might exclude the possibility of its being understood to represent, directly or indirectly, that the goods sold by him were manufactured by the plaintiffs, or that his trade or business was identical or connected with the trade or business of the plaintiffs. For that argument no authority was cited; and it cannot, in my opinion, be maintained on any principle. The reputation acquired by machines of a particular form or construction is one thing; the reputation of the plaintiffs, as manufacturers, is another. If the defendant has no right, under the colour of the former, to invade the latter, neither have the plaintiffs any right, under colour of the latter, to claim (in effect) a monopoly of the former. If the defendant has (and it is not denied that he has) a right to make and sell, in competition with the plaintiffs, articles similar in form and construction to those made and sold by the plaintiffs, he must also have a right to say that he does so, and to employ for that purpose the terminology common in his trade, provided always that he does this in a fair distinct and unequivocal way.

(Singer Manufacturing Company, supra, (H.L.) at pp. 26-27)

[109]        Lord Blackburn also stated his view of the law relating to trade-marks at pages 29-30:

The original foundation of the whole law is this, that when one knowing that goods are not made by a particular trader sells them as and for the goods of that trader, he does that which injures that trader. ...

The modes in which goods may be passed off as and for the plaintiff's vary. The most usual is where a particular mark on the goods or on the packages in which they are sold has been used to denote that they are made by a particular firm to such an extent that it is understood in the market to bear that meaning. The law as to those trade-marks is now regulated by statutes, but before there was any legislation on the subject it was well settled that when any one adopted a mark so closely resembling the trade-mark of the plaintiff that it would be likely to be mistaken for it, and put it on his goods and sold them, knowing that though the persons to whom he sold them were well aware that they were not the plaintiff's make, yet that they were meant to be sold to others who would see only the trade-mark, and were likely to be deceived by its resemblance to that of the plaintiff, he might properly be found to have knowingly and fraudulently sold the goods as and for the plaintiff's goods: (citation omitted)

[110]        Later in his reasons, at pages 37-38, Lord Blackburn said this about a trader's use of another's name:

But it was argued that the plaintiffs were entitled to an injunction to prevent the use of the plaintiff's name in any way in reference to articles such as they sell. It was not denied that every one was at liberty to make and sell machines in every respect identical with those made by the plaintiffs, and to say that the goods he made and sold were identical with those made by the plaintiffs in shape and construction, and to allege that the materials were better than those used by the plaintiffs, and more skilfully put together, and sold cheaper, and all this for the purpose rivalling the plaintiffs. But it was said that the plaintiff's family name must not be used at all for such an object. No authority was cited in support of such an extensive proposition, and I do not think it is founded on sound principles.

[111]        At pages 38-39 of the report of the case in the House of Lords, Lord Watson set out his view of the applicable law:

The legal consequence of these facts is that the appellant company have a right - an exclusive right, to use the name "Singer" as denoting sewing machines of their manufacture; and that no one has a right to use the word for the purpose of passing off his goods as theirs, or, even when he is innocent of that purpose, to use it in any way calculated to deceive or aid in deceiving the pubic. None of the numerous authorities cited at the bar by the appellant's counsel carry the exclusive right of a trader to a particular name, beyond that limit. There is no authority, and, in my opinion, no principle for giving the trader any higher right. If he cannot allege and prove that the public are deceived, or that there is a reasonable probability of deception, he has no right to interfere with the use of the name by others.

[112]        The owner of an unregistered trade-mark had the right to the assistance of the Court when it could show that the use of its trade-mark, or one confusingly similar, by another deceived the public into believing they were buying the plaintiff's goods. The plaintiff's exclusive right was not to the use of the name but to the use of the name for the purpose showing that the goods originated with him. If, as Lord Watson put it, the plaintiff could not show deception, or the probability of deception, the courts would not restrain the use of the name by another. Consistently with that position, Loog was enjoined from using the Singer name on the brass plate, which the courts found was misleading. But the House of Lords declined to intervene with respect to the other uses of the name "Singer" which they found were not misleading or confusing.

[113]        Because Singer is a trade-mark case, one needs to read the comments with respect to make and selling a sewing machine identical to Singer's with caution when applying it to a case of distinguishing guise. Singer is authority with respect to the rights enjoyed by trade-mark owners at common law. It is not authority with respect to distinguishing guises.

[114]        Some confusion may be introduced into this discussion by the use of the term "infringement". Actions at common law to protect the rights of the owner of an unregistered trade-mark were often referred to infringement actions. For example:

The old action for infringement of a common law trade-mark was based only on the duty of the court to prevent fraud and deceit, and the loss of distinctiveness was, therefore, fatal to its success.

(In re Gramophone Company's Application, [1910] 2 Ch. 423 at pp. 436-37)

[115]        In Canada, the Trade-Mark and Designs Act, R.S.C. 1906, c. 71, prohibited the institution of infringement proceedings except in the case of registered trade-marks:

20. No person shall institute any proceeding to prevent the infringement of any trade mark, unless such trade mark is registered in pursuance of this Act.

[116]        While the prohibition has not been carried forward into the current Act, there remains a view that an action in infringement is, by definition, limited to registered trade-marks:

Infringement constitutes the unauthorized use of a registered trade-mark on goods of the kind in respect of which the mark was registered. Those rights are as conferred by registration of the

trade-mark, namely, the exclusive right to the use of the trade-mark throughout Canada in respect of the wares or services set forth in the registration, subject to adjudication.

(Hughes on Trade-Marks (Butterworths, Toronto), electronic version, Release 18, March 2003, Article 58)

[117]        This is significant only to the extent that an action for infringement is thought to be an action to enforce a right to exclusive use of a trade-mark as provided for in section 20 of the Act. There continue to be cases in which parties allege infringement of an unregistered trade-mark (see for example Thomas & Betts v. Panduit Corp., (1999), 4 C.P.R. (4^th) 498). But the fact of describing an action in relation to an unregistered trade-mark as an action for infringement does not change the substantive rights of the parties. Such cases are best seen as cases of passing off (For example, in Ciba-Geigy Canada Ltd. v. Apotex Inc., [1992] 3 S.C.R. 120, the Supreme Court treatedSinger, supra, as a case of passing off).

[118]        The relationship of the action of passing off to monopoly rights is summarized in Wadlow C., The Law of Passing-Off, 2^nd Ed. (London: Sweet & Maxwell, 1995) at page 181:         " The action for passing-off does not confer monopoly rights". Professor Wadlow cites Burberrys v. J.C. Cording & Co. Ltd. (1909), 26 RPC 693 and Payton & Co. v. Snelling, Lampard & Co., [1901] A.C. 308, for the proposition that "passing-off recognizes no 'exclusive right' to any name, mark or get-up" (Ibid, at p. 181).

[119]        This digression into the rights of the owners of unregistered trade-marks is the result of the appellants' claim that success in the action would not allow them to claim the exclusive right to use the Lego indicia. Their rights would be limited to ensuring that the Lego indicia were not used in such a way that the public were deceived as to the origin of the goods. This limited right on the part of the appellants does not amount to "evergreening" (the extension of a patent monopoly by successive registrations of minor improvements or, in this context, the extension of patent rights by the use of trade-mark law) as described in the reasons of my learned colleague Sexton J.A.    Far from having a right of exclusive use, such rights as the appellants have arise only upon proof that consumers are misled by the use of the Lego indicia, and may be limited to insisting that the possibility of confusion that the goods originate with the appellants is eliminated by the use of other material.

[120]        There was evidence before the trial judge of the use of the Lego indicia in a way which did not lead to confusion as to the source of the goods. The evidence of Mr. Fred Goyer was to the effect that Rokenbok, a Lego competitor, used the Lego indicia in its product but did so in a way which did not lead consumers to believe that they were purchasing Lego products. While the trial judge preferred the evidence of other witnesses on the issue of confusion, he quoted without adverse comment, Mr. Goyer's evidence with respect to Rokenbok's use of the Lego indicia (see para. 141 and 142 of the trial judge's decision). Consequently, I am persuaded that the holder of an unregistered trade-mark does not have an enforceable right to prevent non-confusing use of its trade-mark by others, even though it does enjoy protection from confusing use of its trade-mark or marks which are similar.

[121]        This conclusion is not inconsistent with other rights which owners of unregistered trade-marks might have. For example, one of the conditions of invalidity of registration of a trade-mark is that the registrant was not the person who is entitled to registration of the trade-mark (see section 18 of the Act). Similarly, a trade-mark is not registrable if, at the date of first use by the applicant, it was confusing with "a trade-mark that had been previously used in Canada or made known in Canada by any other person" (see section 16 of the Act). An unregistered trade-mark is nonetheless property in which one can have ownership rights. Those rights may extend to preventing or expunging registrations which would defeat the original owner's rights.

[122]        I now turn to the argument with respect to functionality, which can be summarized in the following way. Neither the statutory and nor the common law definition of a trade-mark preclude trade-marks which are primarily functional. The doctrine of functionality arises in the jurisprudence. The cases which proscribe functional trade-marks arise in the context of registered trade-marks, and proceed from a concern that trade-mark law not be used to acquire monopoly rights with respect to functional elements. Since one only acquires monopoly rights by registration, there is no need to apply the policy against monopolies to unregistered trade-marks. In my view, there is nothing in the jurisprudence which would compel a contrary conclusion.

[123]        The relevant provisions of the Act are the following:

[124]        Under the Act, a trade-mark is defined by the intention of the user. A trade-mark is a mark used "for the purpose of distinguishing or so as to distinguish wares or services" of one trader from "those manufactured, sold, leased, hired or performed by others" or which has that effect. The genesis of this definition is found in Report of the Trade Mark Law Revision Committee to the Secretary of State of Canada (Edmond Cloutier, C.M.G., O.A., D.S., Ottawa: Queen's Printer and Controller of Stationary, 1953) (the "Fox Report"). It begins by referring to the definition of trade-mark which appeared in the Unfair Competition Act 1932 , the precursor to the Act:

It was undoubtedly the intention of those who framed s. 2(m) of The Unfair Competition Act, 1932, to require that a symbol must be distinctive in order to constitute a trade mark and that requirement, up to a point, does not present any serious difficulty.

(Fox Report, supra, at p. 7)

[125]        The Committee then referred to the jurisprudence on the meaning of trade-mark under the Unfair Competition Act 1932 and summarized the state of the law as follows:

... it has been decided that in Canada, a symbol that is not adapted to distinguish in the sense of being both distinctive in fact and inherently adapted to distinguish must not only be refused registration but cannot even be regarded as a trade mark for any purpose.

(Fox Report, supra, at p. 8)

[126]        After reviewing the definition of trade-mark found in the draft legislation, the Committee commented in the following terms:

This definition eliminated the objectionable words "adapted to distinguish" but the definition made it essential that the mark should actually distinguish the wares or services from others in the same general class and this imposed a rigidity that, on reconsideration, was deemed inadvisable having regard to the wide variety of contexts in which it is necessary to employ the words "trade mark" throughout the Bill.

(Fox Report, supra, at p. 9)

[127]        These considerations led to a proposal for a different definition of trade-mark:

It was, therefore, decided that the definition of a trade mark should be freed of technical requirements as far as possible and based primarily upon the intent with which the mark is used.

The following definition is proposed in s. 2(t) of the present Bill:

"'trade mark' means

(i) 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,

(ii) a certification mark, or

(iii) a distinguishing guise;"

(Fox Report, supra, at p. 10)

[128]        The Committee's recommendation found favour with Parliament and it was enacted into law and remains the definition of trade-mark to this day. The Committee described the thrust of the definition as follows:

It will be particularly noted that any mark is a trade mark if it is used for the purpose of distinguishing or so as to distinguish wares or services. In general, the question is to be tested by the intent with which the mark is used but the words" or so as to distinguish" have been inserted to take care of those relatively rare cases in which some word or design feature, originally adopted for purposes of ornamentation or the like, is later found to be an element which serves as a badge of identification.

(Fox Report, supra, at p. 10)

[129]        The absence of any formal restrictions in the definition of trade-mark required, as a consequence, that the notion of distinctiveness be defined separately:

Having freed and broadened the definition of a trade mark in the manner discussed, it becomes necessary to ensure that the rights and privileges of registration attach only to "distinctive" trade marks. This has led to the necessity of defining the word "distinctive" as appears in s. 2(f) of the Bill:

(f) 'distinctive' in relation to a trade mark 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.

(Fox Report, supra, at p. 12)

[130]        This passage makes the point that distinctiveness is now a matter to be considered at registration. Section 12 of the Act dealing with registration touches upon distinctiveness implicitly by reference to confusion while section 18 of the Act makes lack of distinctiveness a ground of expungement of a trade-mark. While the issue in this case is functionality and not distinctiveness, the point remains that the definition of trade-mark is intended to be free of formal requirements so that whether something is a trade-mark depends only on whether it is used with the intention of distinguishing the goods of one trader from others, or whether it has the effect of doing so.

[131]        The definition of a trade-mark includes a distinguishing guise which, in turn, includes "a shaping of wares ... the appearance of which is used by a person for the purpose of distinguishing ..." the wares and services of that person from those of others. The distinguishing guise need not be independent of the wares but may consist of the appearance of the goods themselves. While the current definition of distinguishing guise makes no reference to functionality, the definition which appeared in the Unfair Competition Act 1932 did:

             "Distinguishing guise" means a mode of shaping, moulding, wrapping or packing wares entering into trade or commerce which, by reason only of their sensory impression thereby given and independently of any element of utility or convenience it may have, is adapted to distinguish the wares so treated from other similar wares and is used by some person in association with his wares in such a way as to indicate to dealers in and / or users of similar wares that the wares so treated have been manufactured or sold by him.

[132]        There is reference to functionality (utility) in this definition, a reference which is absent from the definition in the Act. The rationale for the change is addressed in the Fox Report. After concluding that distinguishing guises should continue to be eligible for registration, the Committee suggested changes in the manner of registration:

We have, however, concluded that a distinguishing guise should not, as it is under The Unfair Competition Act, 1932, be registrable in the same way as an ordinary trade mark, but ought to be registered only after proof has been made of its distinctiveness by use in Canada and, in addition, only if the Registrar is satisfied that the exclusive use following upon its registration will not be likely unreasonably to limit the development of any art or industry. We have also taken care to ensure that the registration of a distinguishing guise shall give no right to the registrant to prevent others from using any of its utilitarian features (s. 13(2)), and for its expungement by the Exchequer Court of Canada if the registration has become likely unreasonably to limit the development of any art or industry (s. 13(3)).

[133]        Like distinctiveness, functionality has been made an issue at registration. In my view, this change makes it difficult to conceive of functionality precluding a distinguishing guise attaining the status of a trade-mark, though the registration provisions found at section 13 of the Act may make it more difficult for it to become a registered trade-mark. But subsection 13(2) of the Act provides that even when a disguising guise containing utilitarian (functional) features is registered, the registration is not a bar to use by others of the utilitarian features. If functionality automatically disqualified a distinguishing guise as a trade-mark, it is difficult to see what subject matter would be left for subsection 13(2) of the Act.

[134]        Before turning to the jurisprudence, I wish to address the meaning of an expression which occurs frequently in the cases dealing with functionality, that of the "valid" trade-mark.    There is a distinction to be drawn between the existence of a trade-mark, the enforceability of that trade-mark and the registrability of that trade-mark. One finds the following in "On Trade-marks becoming Invalid" by David E. Clarke in Trade-marks Law of Canada, Gordon F. Henderson, Editor-in-Chief, (Carswell, Toronto, 1993) at pp. 296-97:

A "valid" trade-mark, as that term is understood in its broadest sense, is a trade-mark which has legal strength or force and is "valid" whether it is registered under the Act or whether it is unregistered and exists merely at common law. In other words, the registration of a trade-mark simply confirms and augments the owner's legal rights in the mark, but it does not create the trade-mark; a valid trade-mark must exist before there can be registration. Therefore, when one considers the meaning of the term "invalid" as it is used in the Act, one must bear in mind that the issue is whether the registration is "invalid".

[135]        One can see in this passage the distinction between the existence of a trade-mark and its registration. But the author considers that a trade-mark must be enforceable. Enforceability is a function of distinctiveness: a trade-mark is entitled to protection if its use by another will confuse the public as to the source of the wares with which it is associated. But if a trade-mark is defined by the intention of the person using it, one could have a trade-mark which is intended to distinguish the goods of a trader but which, in fact, does not do so. That would give rise to a trade-mark which was not enforceable. When the author says that a valid trade-mark must exist before registration, he is referring to a distinctive trade-mark, since only a distinctive trade-mark is eligible for registration. As a result, the references in the cases to a "valid" trade-mark must be read with caution. In most cases, the issue is the registration of the trade-mark, not its existence as a trade-mark.

[136]        This distinction is also found in the following passage which appears at pages 3-16 of Fox on The Canadian Law of Trade-Marks and Unfair Competition, supra:

In considering the definition of a trade-mark, a clear distinction must be made between a trade-mark and a protectable or a registrable trade-mark. At common law the courts were interested, not in defining what constituted a trade-mark simpliciter, but what constituted that type of trade-mark that would be entitled to the protection of the court. Under the statutes, the courts were interested in ascertaining whether a given word or device fell within the definition of a trade-mark provided by the relevant statute. All the statutes with which this work is concerned were dealing with registration and therefore the inquiry was directed to ascertaining what conformed to the statutory definition of trade-marks that were registrable and hence protectable. It is for this reason that so many of the decided cases contain broad statements to the effect that a mark cannot be a trade-mark unless it is distinctive. These statements were clearly erroneous, so far as they applied to trade-marks apart from registration or protectability.

[137]        With that background in mind, I now turn to a review of the authorities. The seminal case in the Canadian jurisprudence is Imperial Tobacco Co. v. Registrar of Trade-Marks, [1939] 2 D.L.R. 65 (Ex. C.R.). In that case, Imperial Tobacco was attempting to register as a trade-mark "a transparent outer wrapper with a coloured band extending around the package" in connection with packages of cigarettes. The coloured band was used to tear away the wrapper from the cigarette package. This arrangement of a wrapper and a tearing strip had been the subject of two patents which were found to be invalid. The registrar refused registration on the following grounds:

The Registrar refused registration of the mark on the grounds that the coloured band performed the function of indicating where the tear strip was located and thus facilitates the opening of the outer wrapper, and that a transparent outer wrapper with a coloured strip or band being in use by manufacturers other than the applicant the same would fail to identify the wares so wrapped, as those of the applicant.

(emphasis added)

(Imperial Tobacco, supra, at p. 66)

[138]        Maclean J., the judge hearing the appeal from the Registrar's decision, described the two patents which had been found to be invalid and went on to comment on the trade-mark application:

... It seems to me that the trade mark applied for was intended to replace the patents referred to, if they should be found to be invalid, as they were. In my opinion any combination of elements which are primarily designed to perform a function, here, a transparent wrapper which is moisture proof and a band to open the wrapper, is not fit subject-matter for a trade mark, and if permitted would lead to grave abuses.

(Imperial Tobacco, supra, at p. 67)

[139]        This comment must be understood in the light of the evidence before the learned judge which was that there were at the time "many makes of cigarettes using a cellophane wrapper with a coloured ribbon" (Imperial Tobacco, supra, at p. 68). The evidence was also to the effect that purchasers of cigarettes "invariably ask for a specific brand and never make any reference to the outer wrapping of the package" (Ibid, at p. 68). It has already been noted that the cellophane wrapper with the coloured strip did not distinguish the appellant's goods from those of others. The effect of registration would have been to enable Imperial Tobacco to bring infringement actions against all other tobacco manufacturers to prevent them from using cellophane wrappers with a coloured tear strip on their cigarettes, something which they were already lawfully doing. This is the abuse which Maclean J. had in mind. Consequently, his comments about a "fit subject for a trade-mark" must be read in the context of the registration of a purported mark which did not distinguish the goods of one trader from those of another and whose registration would allow one manufacturer to claim a monopoly with respect to a utilitarian feature in wide use at the time.

[140]        The issue next arose in Parke Davis & Co. v. [1964] S.C.R. 351">Empire Laboratories Ltd. (1963), 41 C.P.R. 121 (Ex. C.R.) aff'd [1964] S.C.R. 351">[1964] S.C.R. 351 ("Parke Davis"). Parke Davis had obtained registration of ten trade-marks each of which was described as follows, the only variation being in the colour of the band:

The mark of which registration is requested is a design mark, of which five accurate and complete representations are furnished herewith, its principal features requiring to be indexed being in the applicant's opinion, a white band applied approximately around the middle of a capsule and encircling the same.

(Parke Davis, supra, at p. 125)

[141]        Parke Davis instituted infringement and passing off proceedings against the defendant, who was selling a drug in a capsule with a green band around the centre. The evidence before the Exchequer Court was that Parke Davis did not consistently associate any particular coloured band with any particular product. All of its products had names under which they were marketed and which were registered as trade-marks in connection with a specific drug. Furthermore, the evidence was that the strip was a coloured band of gelatin which effectively sealed the capsule containing the drug being sold. Parke Davis had also registered a trade-mark "Kapseals" with respect to colour banded (and sealed) capsules. This use of a gelatin band to seal capsules of medicine was the subject of an expired patent.

[142]        Noël J. summarized the defendant's attack upon the plaintiff's trade-marks as follows:

The remainder of the defendant's contestation resides in an attack on the validity of the plaintiff's trade marks on four points which can be summarized as follows: the plaintiff's trade marks (1) are distinguishing guises incapable of constituting a trade mark and reside in colour alone; (2) perform functions and so cannot distinguish; (3) are really the subject-matter of an expired United States patent, and (4) that the registration of 10 different colours constitutes a monopoly.

(Parke Davis, supra, at p.132)

[143]        The learned judge disposed of the first objection on the ground that the trade-mark did not consist of colour only but of a coloured band or strip which may by use have come to be recognized as the plaintiff's mark. He then went on to consider the issue of functionality in light of the sealing function of the bands and concluded that the plaintiff`s registered trade-marks monopolized colour banded sealed capsules, which led him to conclude that the trade-marks were invalid. In coming to that conclusion, Noël J. referred to the decision in Imperial Tobacco, supra, and to the dicta in which it was suggested that the marks in question were not "fit subject matter for a trade mark", a point to which I shall return shortly.

[144]        The judge then went on to consider the passing off action. He found, on the evidence, that the plaintiff's trade-marks did not distinguish its goods from those of other traders.

I have reached the conclusion that the plaintiff has not successfully discharged the burden of establishing that these trade marks distinguish its wares nor indicate their common origin. I am also of the opinion that the plaintiff has not established that the manner in which its goods or wares were done up has become associated in the mind of the consumer or purchaser with its goods or wares and the evidence does not show that these marks have been relied upon by the pharmacists, physicians nor the public who consumes its goods as distinguishing them from all others.

(Parke Davis, supra, at p. 148)

[145]        This is followed by the paragraph on which the respondent relies:

I have found that all of the plaintiff's 10 registered trade marks as used by the plaintiff in its trade and as illustrated by the plaintiff's products produced as exhibits are not, properly speaking, trade marks within the contemplation of the statute and they were not such at the time of registration.

They were, therefore, registered without sufficient cause and should be expunged.

(emphasis added)

(Parke Davis, supra, at p. 148)

[146]        The reference to the plaintiff's marks not being trade-marks, properly speaking, within the contemplation of the Act must be understood in the context of an application to enforce a registered trade-mark where the validity of the registration is in question. The reference to "at the time of registration" directs one to Noël J.'s finding at page 133 that the registrability of the trade-marks was to be decided under the Unfair Competition Act 1932, as issues of the validity of registration are to be decided as of the date of registration. It will be recalled that the definition of trade-mark under the Unfair Competition Act 1932 required that the trade-mark be distinctive. Consequently, when Noël J. found that the plaintiff's trade-marks were not distinctive, they could not be trade-marks within the contemplation of the Unfair Competition Act 1932. This passage is not authority that a trade-mark with functional features cannot be a trade-mark.

[147]        Noël J.'s decision was appealed to the Supreme Court of Canada where it was affirmed at [1964] S.C.R. 351">[1964] S.C.R. 351. The Supreme Court disposed of the infringement action on the basis of functionality:

The validity of the trade marks may, in my view, be disposed of on the ground that the coloured bands have a functional use or characteristic and cannot, therefore, be the subject of a trade mark.

The law appears to be well settled that if what is sought to be registered as a trade mark has a functional use or characteristic, it cannot be the subject of a trade mark. With respect, I agree with Maclean, P., when, in Imperial Tobacco Co. of Canada, Ltd. v. Registrar of Trade Marks, [1939] 2 D.L.R. 65 at p. 67, [1939] Ex. C.R. 141 at p. 145, he said:

In my opinion any combination of elements which are primarily designed to perform a function, here, a transparent wrapper which is moisture proof and a band to open the wrapper, is not fit subject-matter for a trade mark, and if permitted would lead to grave abuses.

(Parke Davis, supra, at p. 354 (S.C.C.))

[148]        The Supreme Court then went on to consider the passing off claim and agreed with Noël J.'s conclusion that the public had not come to associate the trade-marks with Parke Davis as the source of the goods. That conclusion precluded success in the passing off action.

[149]        One must read Hall J.'s comments with respect to the validity of a functional trade-mark in light of the sentence which follows: " The law appears to be well settled that if what is sought to be registered as a trade mark has a functional use or characteristic, it cannot be the subject of a trade mark". If functionality is inherently incompatible with the notion of a trade-mark, then the reference to "sought to be registered" is superfluous. On the other hand, if it is to be given effect, it can only be by interpreting "cannot be the subject of a trade mark" as meaning "cannot be the subject of a trade mark registration".

[150]        The respondent's position in this appeal is that the Parke Davis case is binding authority that something which is primarily functional cannot be a trade-mark. It must be conceded that the language used by Hall J. lends itself to that conclusion. But those words were not written in a vacuum. The Supreme Court was dealing with an infringement action in which the validity of the registration was raised as a defence. It was not necessary to find that the trade-mark was invalid in order for the defendant to succeed. All that was necessary was to find that the registration was invalid and liable to be expunged. The concern which the Supreme Court expressed in later paragraphs about extending the monopoly afforded by a patent is fully addressed by the expungement of the registration of the plaintiff's trade-marks. The Supreme Court's reasons do not address the definition of a trade-mark except in the context of registration. One can agree that the public policy against monopolies would suggest that the functional elements of a trade-mark cannot be monopolized, without necessarily agreeing that the mark or guise is not a trade-mark at all.

[151]        The issue arose again in Elgin Handles Ltd. v. Welland Vale Manufacturing Co. Ltd. (1964), 43 C.P.R. 20 (Ex. C.R.), [1965] Ex. C.R. 3 ("Elgin Handles"), where the plaintiff had obtained registration of a trade-mark described as "the accentuation in darker colouring of the grain of the wood tool handles the surface of which has been fire hardened to accomplish such purpose" (at p. 22). Jackett P. allowed the application to expunge the registration on the basis of the decision of the Supreme Court of Canada in Parke Davis, supra, holding that fire hardening is a process "primarily designed to improve wooden handles as an object of commerce and has therefore a functional use or characteristic". He concluded that the change in the appearance of the wood due to fire hardening could not be a trade-mark.

[152]        Elgin Handles, supra, is interesting in that it was not alleged that the coloured grain of the handle was itself functional, as is the case with the Lego indicia. The basis of the decision was that the process by which the colouration was achieved was functional and consequently the result of that process could not be a trade-mark. (This is a significant expansion of the doctrine of functionality to characteristics which are not themselves functional but which result from a functional process). The authorities upon which the learned judge relied did not, in my view, go that far.    It is clear that the Exchequer Court did not wish to give Elgin Handles a monopoly on fire hardening by giving it the exclusive right to use the results of fire hardening as its trade-mark. It is also clear that the process itself could not be the subject of a trade-mark.    The only question which one might ask is whether the Court might have come to the same conclusion by other means.

[153]        The issue arose again in Samann v. Canada's Royal Gold Pinetree Mfg. Co. Ltd. (1986), 9 C.P.R. (3^rd) 223, at page 229 (F.C.A.), where one of the trade-marks in issue were described as follows:

A representation of an evergreen tree coloured green, and having across the middle portion of the representation of the tree a white rectangle with reading matter thereon, and having at the base of the tree trunk a white rectangle with reading matter thereon.

[154]        That trade-mark was used in association with absorbent material impregnated with air deodorizing substances. A second trade-mark consisted of a design showing a pine-tree with two areas for reading matter. At first instance, the judge found that the marks were not trade-marks as defined in the Act because they were primarily used "in connection with, or in association with, wares for a utility purpose, partly ornamental, and partly functional" when used in conjunction with the clear plastic wrapper in which they were sold. However, the Federal Court of Appeal found that the marks themselves contained no functional element. The functionality arose from the use of the wrapper, in respect of which no claim was made. Heald, J.A. was of the view that the case before him was distinguishable from Imperial Tobacco, supra, Parke Davis, supra, and Elgin Handles, supra, on the basis that in each of those cases, the marks in issue contained functional elements whereas that was not the case in the case before him. Heald J.A. also made the point that functionality is only relevant in relation to the marks themselves and not in relation to the wares with which they are sold. In the end, the registration of the marks was restored.

[155]        The question of functionality arose again in Pizza Pizza Ltd. v. Canada (1989), 26 C.P.R. (3^rd) 355 (F.C.A.), where the plaintiff Pizza Pizza attempted to register its telephone number as its trade-mark. Registration was refused by the Registrar, whose decision was confirmed by the Trial Division. The Registrar held that the telephone number was not registrable because it was not a trade-mark within the meaning of the Act.    Muldoon J. agreed with the Registrar and found that a monopoly interest in seven digits could not be registered. Underlying both decisions was the view that the telephone number serves the function of allowing customers to contact Pizza Pizza.

[156]        On appeal to the Federal Court of Appeal, Urie J.A. found that the telephone number had become associated with Pizza Pizza's goods and services and had come to distinguish its products and services from those of others. On that basis, he found that it was a trade-mark. He went on to conclude that the fact that the number functioned as Pizza Pizza's telephone number did not deprive it of its registrability. Pratte J.A., concurring, expressed his conclusion succinctly in the following terms:

Counsel for the respondent tried to support the decision of the Trial Division [7 C.P.R. (3d) 428, 6 C.I.P.R. 229] on only one ground, namely, that a telephone number is not registrable as a trade mark because, according to the jurisprudence, a mark that is primarily designed to perform a function cannot be the subject of a trade mark. This position, in my view, reveals a complete misunderstanding of that jurisprudence. In those cases, the marks that were held to be functional were, in effect, part of the wares in respect of which registration was sought so that the registration of those marks would have granted the applicants a monopoly on functional elements or characteristics of their wares; the applicants would, in effect, have obtained patents under the guise of trade marks. The situation here is entirely different. The trade mark applied for by the appellant is not functional in that sense; for that reason, its functional character does not make it "not registrable".

(Pizza Pizza, supra, at pp. 356-57)

[157]        The significance of Pratte J.A.'s reasons is that they focussed on functionality in the context of registration. The issue in Pizza Pizza, supra, was the same as in the other cases reviewed to this point, but this is the only case where the issue is clearly identified as registration as opposed to the validity of the trade-mark itself.

[158]        This brings us to the case of Remington Rand Corp. v. Phillips Electronics N.V. (1995), 64 C.P.R. (3^rd) 467 ("Remington Rand"). Remington Rand wished to market a triple headed rotary electric shaver in Canada but was faced with four trade-mark registrations in favour of Phillips which depicted a triple headed rotary shaver and claimed a trade-mark in such a configuration. Remington Rand moved to expunge the registrations and succeeded with respect to two of the four. Upon appeal, Phillips defended one of the two remaining three headed configuration as a distinguishing guise, and claimed protection for the other as a design. Mr. Justice MacGuigan set out the issue as follows:

In the case of each trade mark under appeal the description is pictorial. The issue in each case is as to the effect of functionality on the registration. The main question, therefore, as phrased by the appellant, is whether a pictorial description of a manufactured article, and in particular of some of its working parts, can be the subject of a trade mark registration.

[159]        MacGuigan, J.A. then carefully reviewed the authorities and after commenting on the decision in Pizza Pizza, supra, he said the following with respect to the design mark registration at pages 475-76:

... In my opinion, both sets of reasons in Pizza Pizza rather endorsed the view that what is determinative is the kind of functionality in question. If functionality goes either to the trade mark itself ( Imperial Tobacco, and Parke, Davis ) or to the wares ( Elgin Handles ), then it is essentially or primarily inconsistent with registration. However, if it is merely secondary or peripheral, like a telephone number with no essential connection with the wares, then it does not act as a bar to registration.

The weighty reason for this conclusion was clearly specified by Pratte J.A. If a mark is primarily functional as "part of the ware," the effect would be to grant applicants for registration "a monopoly on functional elements or characteristics of their wares". This would be effectively to create a patent or industrial design rather than a trade mark: "the applicants would, in effect, have obtained patents under the guise of trade marks". In my view, that would be precisely the consequence of registration of the design trade mark in the case at bar.

(emphasis added)

[160]        It is clear from this that MacGuigan J.A. is addressing the issue of registration of a functional trade-mark, as opposed to whether functionality precludes a finding that something is a trade-mark. The learned judge of appeal then turned his attention to the question of the distinguishing guise, which he correctly described as distinct kind of trade mark. Noting that the case was one of first instance, he said that it could be decided on the basis of the principles established in Pizza Pizza, supra. He cited the statutory definition of a distinguishing guise and then commented on its relationship to trade-marks:

"distinguishing guise" means

(a) a shaping of wares or their containers, or

(b) a mode of wrapping or packaging wares

the appearance of which 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;

The essence of a distinguishing guise is thus identical with that of a design mark in that it serves to distinguish the wares of a registered owner from those sold by others.

(emphasis added)

(Remington Rand, supra, at p . 477)

[161]        MacGuigan J.A. was correct in saying that the essence of a distinguishing guise is essentially identical with that of trade-mark in that it served to distinguish the goods of the registered owner from those of others. He found that it was subject to the same considerations of functionality as a trade-mark and therefore:

... The trial judge may have been correct in stating that "a distinguishing guise necessarily possesses a functional element or component" (although I wonder about, say, a bottle shape which might not even be ornamental), but to the extent that such functionality relates primarily or essentially to the wares themselves it will invalidate the trade mark.

The distinguishing guise in the case at bar is in my opinion invalid as extending to the functional aspects of the Philip shaver. A mark which goes beyond distinguishing the wares of its owner to the functional structure of the wares themselves is transgressing the legitimate bounds of a trade mark.

(Remington Rand, supra, at p. 478)

[162]        Having said that distinguishing guises were a kind of trade-mark, to be dealt with according to the same principles as trade-marks, MacGuigan J.A. must be taken to subject them both to the same considerations, specifically, that functionality is an issue in relation to registration.

[163]        Remington Rand, supra, is the only case in which the effect of section 13 of the Act was raised. MacGuigan J.A. found that the Remington Rand could possibly have achieved the same result by recourse to section 13 of the Act, but that the failure to argue that provision was not fatal to Remington Rand's case. Given MacGuigan J.A.'s comments with respect to functionality and registration, it may well be that he might have used different language had section 13 been pleaded by Remington Rand.

[164]        The only case in which the effect of an unregistered trade-mark arose was the decision of this Court in Thomas & Betts v. Panduit Corp. (1999) 4 C.P.R.(4th) 498 ("Thomas & Betts"). Thomas & Betts, the appellant, had developed and patented a plastic cable tie which featured an oval shaped head. The patent expired in 1984 and for the next ten years the appellant was the only supplier of a cable tie with an oval shaped head. In 1994, the respondent introduced its own cable tie which had an oval head. The appellant then brought an action for infringement of its unregistered trade-mark as well as for passing off. After the close of pleadings, the respondent brought an application for summary judgment seeking dismissal of the claim on the two grounds; that the oval shaped head was functional and therefore "not to be accorded trade-mark protection in Canada" and that the oval shaped head was the preferred embodiment of an expired patent and therefore not subject to trade-mark rights. At the beginning of the argument of the motion, the respondent abandoned the argument based on functionality. The motions judge granted the motion for summary judgment based on the preferred embodiment argument.

[165]        Décary J.A., writing for the Court, rejected the motions judge's conclusion, on the basis that the judge erred in failing to take into account the Act. This is how Decary J.A. identified the issue:

[22] ... The patentee never had a monopoly over the oval-shaped head, and it would therefore be unfair to later prevent it, as a matter of law, from asserting a trade-mark right with respect to the oval-shaped head. This would be tantamount to retroactively extending or mischaracterizing the expired patent monopoly to include the oval-shaped head.

[23] On the other hand, it would be unfair to the public if a patentee could, after the expiry of its patent, use the Trade- marks Act to give itself a monopoly over the shape of its invention when that shape is so closely related to the invention as to be for all practical purposes an element essential to making full use of the invention.

[24] It is precisely to solve this dilemma that the Trade-marks Act comes into play and this is precisely why this Court, in interpreting that Act, has ensured that it not be used to perpetuate a patent monopoly that would otherwise have expired. The solution retained by this Court is the doctrine of functionality.

[166]        The learned judge then considered the various authorities discussed above but did not address the fact that the case before him concerned an unregistered trade-mark. Consequently, it is fair to say that he raised the doctrine of functionality in relation to an unregistered trade-mark, but it is not fair to say that he found it dispositive of the issue. He suggested that the motions judge may have been misled by the applicant's abandonment of the argument based on functionality, but nonetheless, the judge erred in disposing of the motion without reference to the principles of trade-mark law, including the doctrine of functionality.

[167]        In closing, Décary J.A. commented on some of the American jurisprudence which the motions judge had considered. After commenting favourably on the quality of the analysis in the American jurisprudence, he noted that the doctrine of functionality may have developed differently in the United States, and suggested that American authorities should be used with caution.

[168]        In the end, the summary judgment was set aside and the matter was sent on for trial. This Court made no finding on the effect of functionality with respect to an unregistered trade-mark. It cited jurisprudence dealing with registered trade-marks and commented that the doctrine of functionality was to be considered in deciding the matter on its merits. But it did not decide that functionality would be fatal to an action for passing off based upon an unregistered distinguishing guise. In fact, it refrained from deciding that very question. Consequently it can hardly be cited as authority for that proposition.

[169]        Thomas & Betts, supra, illustrates, in the same way as the Elgin Handles, supra, case did, the inconsistency of the application of the doctrine of functionality. Thomas & Betts, supra, claimed a distinguishing guise in the shape of the head of its cable tie. But, there is no explanation in the reports how the "ovalness" of the head was functional, as opposed to the head itself. In other words, did functionality reside in the operation of the head as opposed to its shape? If so, why would the shape of the head be subject to challenge on the ground of functionality when the shape was not functional at all? In Elgin Handles, supra, the doctrine of functionality was applied neither to the trade-mark (the colour in the handle) nor to the wares (the handle) but to the process by which the colour was produced. If, as suggested in Parke Davis, supra, a trade-mark cannot reside in colour alone, there was a solution to the problem other than the doctrine of functionality. While the policy of not creating patent-like monopolies through trade-mark law is sound, the doctrine of functionality is an unwieldy vehicle for the advancement of the policy.

[170]        In the end result, I find nothing in the authorities which would compel the conclusion that a distinguishing guise which is functional cannot be an unregistered trade-mark, capable of supporting an action in passing off under subsection 7(b) of the Act. This observation is consistent with the statutory definitions of trade-mark and distinguishing guise. The jurisprudence dealing with registered trade-marks is not useful in considering the position of unregistered trade-marks, since registration confers rights not available to the owners of unregistered trade-marks. Consequently, I cannot agree that the mere fact of functionality should deprive the owner of a distinguishing guise of recourse to a passing off action when the public is misled by the use of its distinguishing guise by another.

[171]        I do not agree that the effect of this holding is to give greater rights to owners of unregistered trade-marks than to those who have registered their trade-marks.    The owners of registered and unregistered distinguishing guises with functional features are both entitled to bring actions to enjoin the confusing use of their trade-mark. In the case of the registered owner, the use of additional material to dispel confusion will not suffice to deny the plaintiff injunctive relief. However, this right of injunctive relief is balanced by provisions ensuring that the use of utilitarian features qua utilitarian features is not enjoined. The owner of the unregistered mark is in the position in that the injunctive relief, as to all elements of the trade-mark, not simply the utilitarian features, can be avoided by the simple expedient of eliminating the confusion as to origin by the use of additional material. In my view, the registered owner of such a trade-mark is in a stronger position than the owner who has not registered.

[172]        As a result, I find that the doctrine of functionality does not deprive the appellants' Lego indicia of the status of trade-mark. I find that the appellants' Lego indicia is capable of supporting an action under subsection 7(b) of the Act. I now turn to a consideration of whether the elements of such an action have been shown so as to entitle the appellants to some relief.

[173]        The trial judge found at paragraph 79 of his reasons that the elements of an action under subsection 7(b) of the Act were essentially the elements of a common law action for passing off which were set out in Ciba-Geigy Canada Ltd. v. Apotex Inc., [1993] 3 S.C.R. 120, at para. 33:

[33] The three necessary components of a passing-off action are thus: the existence of goodwill, deception of the public due to a misrepresentation, and actual or potential damage to the plaintiff.

[174]        The trial judge proceeded to examine the evidence before him and concluded that the appellant had goodwill (see para. 81 of his reasons) and that the goodwill derived in some measure from the Lego indicia, though he was not able to say in what measure (at para. 118). The respondents attack the trial judge's finding on goodwill by arguing that the issue is distinctiveness. If the Lego indicia do not point to a single source for the goods, they are not distinctive and therefore cannot be the source of any goodwill:

... Since distinctiveness of a mark is, inter alia, related to source, when the trade mark is related to more than one source, it cannot be distinctive.

(Moore Dry Kiln Co. Of Canada Ltd. v. U.S. Natural Resources Inc. (1976) 30 C.P.R. (2^nd) 40 at p. 49 (F.C.A.)

[175]        There is a certain logic in the respondent's position but it fails to take into account that distinctiveness is a question of fact. The fact that there are two users of a mark may well suggest that neither one of them can establish that the mark has become associated with its goods. But if one of them can show such an association, then it does no good to say that it can't be so. And that is the case here. Notwithstanding the presence of other users of the Lego indicia in the marketplace, the trial judge found on the evidence before him that consumers associated the Lego indicia with the appellant (at para. 118).

[176]        The trial judge's conclusion on goodwill/distinctiveness is a finding of fact. An appellate court can only interfere with findings of fact if it is shown that the trial judge made "a palpable and overriding error" (see 2002 SCC 33">Housen v. 2002 SCC 33">Nikolaisen, 2002 SCC 33, [2002] S.C.J. No. 31, at para. 10). The trial judge's decision on this point was based upon his assessment of the expert evidence, including survey evidence, before him and his assessment of the probative value of the testimony of each of the experts who came to testify before him. Such a finding is rooted in the undeniable advantage enjoyed by a trial judge in having seen and heard the witnesses testify before him. There is no basis upon which this Court could interfere with the trial judge's conclusions on this point.

[177]        The next issue is misrepresentation. The trial judge found that consumers were confused by the respondent's use of the Lego indicia (at para. 137) but that such confusion was not the result of a deliberate strategy on the part of the respondent. As a result, he found that the appellants had failed to establish a misrepresentation on the part of the respondents. Given that misrepresentation is an essential element of an action in passing off, this finding would have been sufficient to dispose of the action had the doctrine of functionality not been an issue.

[178]        The question as to whether, for the purposes of a passing off action, misrepresentation must be deliberate or intentional is a question of law. The question of whether the conduct of a party amounts to misrepresentation is a question of mixed law and fact. Errors of law by a trial judge are entitled to no deference while errors involving questions of mixed fact and law may be entitled to deference depending upon the nature of the error (see 2002 SCC 33">Housen v. 2002 SCC 33">Nikolaisen, supra, at para. 36).

[179]        The law has been settled for some time that a misrepresentation sufficient to support an action for passing off need not be the result of an intentional scheme. In [1984] 1 S.C.R. 583">Consumers Distributing Co. v. Seiko Time Canada Ltd., [1984] 1 S.C.R. 583, Estey J. commented on the question of misrepresentation in a passing off action:

If anything further need be said to distinguish the commercial activity of the appellant from that condemned by the rule in passing off, attention should be drawn to the fact that the passing off rule is founded upon the tort of deceit, and while the original requirement of an intent to deceive died out in the mid-1800's, there remains the requirement, at the very least, that confusion in the minds of the public be a likely consequence by reason of the sale, or proffering for sale, by the defendant of a product not that of the plaintiff's making, under the guise or implication that it was the plaintiff's product or the equivalent. (emphasis added)

[180]        That passage was preceded by a long quotation from Prosser, The Law of Torts (4th ed.), at pages 957-58 where the following proposition appears:

The test laid down in such cases has been whether the resemblance is so great as to deceive the ordinary customer acting with the caution usually exercised in such transactions, so that he may mistake one for the other. The older rule was that there must be proof of a fraudulent intent, or conscious deception, before there could be any liability, and this is still occasionally repeated; but the whole trend of the later cases is to hold that it is enough, at least for purposes of injunctive relief, that the defendant's conduct results in a false representation, which is likely to cause confusion or deception, even though he has no such intention.

[181]        The current English position on the point, which confirms Estey J., is referred to in Reckitt & Colman Products Limited v. Borden Inc. and Ors, [1990] R.P.C. 341 at page 406 (H.L.). In a discussion of the elements of the tort of passing off, the following passage appears:

Secondly, he must demonstrate a misrepresentation by the defendant to the public (whether or not intentional) leading or likely to lead the public to believe that goods or services offered by him are the     goods or services of the plaintiff.

[182]        As Estey J. points out, the tort of passing off has evolved from one predicated on the protection of traders to one predicated on the protection of the public. In that context, the important question is whether the public is deceived, as opposed to whether it is deliberately deceived. Consequently, the learned trial judge erred in concluding that an essential element of an action under subsection 7(b) of the Act, misrepresentation, had not been proved simply because he could find no evidence of a deliberate intention to deceive. The element of misrepresentation was established upon proof that the public was confused by the respondent's use of the Lego indicia.

[183]        The final element is that of loss to the appellants. The trial judge found that "it is beyond doubt that the plaintiffs, and more broadly, the Lego group, have suffered damage by reason of the entry of Ritvik into the Canadian construction toy market with its MICRO MEGA BLOKS line of construction toys" (at para. 146).

[184]           Since all three elements of cause of action under subsection 7(b) have been satisfied, the appellants are entitled to judgment.

[185]           I would therefore allow the appeal with costs to the appellants in this Court and in the Trial Division.

                                                                     " J.D. DENIS PELLETIER"

                                                                                                              J.A.

                          FEDERAL COURT OF APPEAL

    NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET:                   A-395-02

STYLE OF CAUSE: KIRKBI AG and LEGO CANADA INC. v. RITVIK

HOLDINGS INC./GESTIONS RITVIK INC. (now

operating as MEGA BLOCKS INC.)

PLACE OF HEARING:                                   TORONTO, ONTARIO

DATE OF HEARING:                                     MARCH 5 & 6, 2003

REASONS FOR JUDGMENT:                     SEXTON J.A.

CONCURRED IN BY:                                    ROTHSTEIN J.A.

DISSENTING REASONS BY:                      PELLETIER J.A.

DATED:                      JULY 14, 2003

APPEARANCES:     

Mr. Robert H.C. MacFarlane                                          

Mr. Michael Charles                                            

Ms. Christine M. Pallota                                                   FOR THE APPELLANTS

Mr. Ronald E. Dimock                                                   

Mr. Dino P. Clarizio                                            

Mr. Henry Lue                                                     FOR THE RESPONDENT

SOLICITORS OF RECORD:

Bereskin & Parr                                                  

Toronto, Ontario                                                  FOR THE APPELLANTS

Dimock Stratton Clarizio LLP

Barristers & Solicitors

Toronto, Ontario                                                  FOR THE RESPONDENT