Havana House Cigar & Tobacco Merchants Ltd. v. Skyway Cigar Store, docket T-2144-96

Date: 19980519

Docket: T-2144-96

BETWEEN:

HAVANA HOUSE CIGAR & TOBACCO

MERCHANTS LTD., EMPRESA CUBANA DEL TABACO

trading as CUBATABACO and HABANOS S.A.

Plaintiffs

- and -

SKYWAY CIGAR STORE

Defendant

                                                        REASONS FOR ORDER

TEITELBAUM J.:

INTRODUCTION

[1]         On September 27, 1996, the plaintiffs commenced legal proceedings against the defendant by filing a statement of claim requesting a declaration that the defendant had infringed the plaintiffs' trade-marks under sections 19, 20 and 22 of the Trade-marks Act, R.S.C. 1985, c. T-13, and had breached the plaintiffs' rights under subsections 7(b), (c) and (d) of the Trade-marks Act.

[2]         The defendant filed a statement of defence and counterclaim on November 14, 1996 requesting an order to strike the registration of four trade-marks by the plaintiff Havana House Cigar & Tobacco Merchants Ltd. (hereinafter Havana House) on the grounds that: 1) Havana House was not entitled to secure registration of the trade-marks pursuant to section 16 of the Trade-marks Act; and 2) pursuant to section 18 of the Trade-marks Act, the registration is invalid since the trade-mark was not distinctive of the plaintiff company at the time the proceedings to expunge were instituted.

FACTS

[3]         The plaintiff, Empresa Cubana del Tabaco trading as Cubatabaco (hereinafter Cubatabaco), is a state-owned Cuban corporation that obtains all of the cigars manufactured by the government-owned cigar factories in Cuba. The plaintiff, Habanos S.A., is a state-owned Cuban corporation that, as the exclusive licensee and marketing company for Cubatabaco, obtains cigars from Cubatabaco and exports them to approximately 80 countries.

[4]         The plaintiff, Havana House, is an Ontario corporation. Havana House carries on business in Canada dealing in the importation, distribution and sale of tobacco and tobacco products. Havana House purports to own and use four of the trade-marks in issue in association with cigar products. Havana House has been selling these cigars in Canada to other retailers and wholesalers since March 28, 1988. On June 23, 1994, Havana House executed an exclusive distributor agreement with Cubatabaco to distribute in Canada the cigars in issue in this matter as well as other Cuban brands.

[5]         The defendant, Skyway Cigar Store (hereinafter Skyway), is an Ontario business proprietorship and importer and retailer of tobacco and tobacco products.

[6]         House of Horvath Inc. (hereinafter Horvath) is a wholesale supplier of cigar and tobacco products including products bearing the trade-marks of the plaintiffs. Horvath receives cigar products through Havana House.

[7]         Havana House has registered the following four trade-marks based on a stated date of first use of March 28, 1988:

1) HOYO DE MONTERREY DE JOSÉ GENER HABANA, Registration No. TMA 432,667, registered on September 2, 1994 in association with cigars.

2) MONTE CRISTO HABANA & Design, Registration No. TMA 462,960, registered on August 30, 1996 in association with cigars, cigarillos and cut tobacco.

3) MONTECRISTO, Registration No. TMA 432,218, registered on August 26, 1994 in association with cigars, cigarillos, cigarettes and cut tobacco.

4) ROMEO Y JULIETA, Registration No. TMA 424,609, registered on March 4, 1994 in association with cigars and cigarettes.

[8]         Cubatabaco owns the following two trade-marks:

1) H. UPMANN HABANA & Design, Registration No. TMA 187,820, registered on January 12, 1973 in association with cigars, cigarettes and cut tobacco. Stated date of first use in Canada to be at least as early as 1962.

2) H. UPMANN HABANA & Design, unregistered trade-mark used in association with manufactured tobacco for smoking, chewing and snuffing purposes, cigarettes and leaf tobacco. Allegedly used in Canada since at least as early as 1962.

[9]         Habanos S.A. is the exclusive export licensee of Cubatabaco with respect to the use of the trade-mark for the wares set out in paragraph eight.

[10]       The cigars in issue have been sold in Canada since at least as early as the 1960s. From about 1970 to the mid-1990s, Clarendon Imports Inc. (hereinafter Clarendon), a subsidiary of Rothmans, Benson & Hedges Inc., and other wholesalers were engaged in importing and distributing the cigars in issue throughout Canada. Clarendon discontinued this practice when Cubatabaco proposed to continue that trade through a joint venture company in which Cubatabaco would own an interest of 51% or more.

[11]       Since November or December 1995, Havana House has placed a rubber stamp with the words "exclusive distributor" on the bottom of the cigar boxes it receives. Prior to that date, there was no notice on the boxes that stated that Havana House was either the owner of the marks or the exclusive distributor of the cigars. The evidence does not indicate that Havana House asserts any trade-mark rights in the cigars through advertisements, price lists or other information.

[12]       On or about December 1995, the defendant ordered a full line of cigar products, including the products in issue, from Horvath for resale. Horvath was unable to supply the needs of the defendant, so the defendant sought out other wholesale dealers including Lanzarotta Cash & Carry, Price Club Warehouse and K.B.A. Cash & Carry.

[13]       On or about July 1996, a sales representative of Havana House visited the defendant and arranged to supply tobacco products to the defendant. The defendant filled out a purchase order sheet and gave it to the representative. The defendant claims that delivery was promised for the following day.

[14]       Havana House refused or was unable to deliver the tobacco products ordered. The defendant states that he called Havana House ten times over the following two weeks but did not receive a response from any responsible individuals.

[15]       As a result, the defendant bought four boxes of cigars from a sales representative of Tiendas Intur (hereinafter Tiendas Intur). When the defendant subsequently became aware that Tiendas did not have a local address or telephone number, the defendant did not buy any further products from Tiendas.

[16]       Then, the defendant called Horvath to obtain cigar products for resale, but Horvath's representative informed the defendant that it had been directed by Havana House not to supply any of Havana House's cigar products to the defendant. The defendant called Havana House and was told that it would not supply any cigar products to the defendant because the defendant was buying them from other sources.

[17]       Since August 1996, the defendant has bought tobacco products, including those bearing the trade-marks in issue, from outlets in Cuba. On cross-examination, Abel Gonzalez Ortego, the marketing director for Havana House, admitted that one is allowed to purchase cigars in Cuba from authorized dealers (those that bear the sign Habanos S.A.) and take them out of the country. There is a 100% duty on all cigars taken out of Cuba which are over $1 million U.S in value.

[18]       On or about August 19, 1996, Havana House advised the defendant to cease the importation of tobacco products bearing the trade-marks in issue. The defendant has continued to import tobacco products from Cuba despite the protest of Havana House.

RELEVANT STATUTORY PROVISIONS

[19]       The Federal Court Rules pertaining to summary judgment are rules 432.1 to 432.7. Of particular significance to this application is rule 432.3 which reads as follows:

[20]       "Use" in association with wares is defined in section 2 and subsection 4(1) of the Trade-marks Act as follows:

[21]       Subsection 16(1) of the Trade-marks Act provides that "use" gives rise to a right to register a trade-mark by the first person to use that trade-mark in Canada:

[22]       Subsection 18(1) of the Trade-Marks Act provides the following circumstances when a trade-mark can be found to be invalid:

[23]       The last phrase in subsection 18(1) requires reference to subsection 17(1) of the Trade-marks Act which reads:

[24]       The plaintiffs submit that the defendant is guilty of violating subsections 7(b), (c) and (d) of the Trade-marks Act:

[25]       The plaintiffs also submit that the defendant is guilty of infringement under sections 19, 20 and 22 of the Trade-Marks Act:

SUBMISSIONS

1. The Plaintiffs' Submissions

[26]       The plaintiffs submit that there is evidence that Havana House is known to knowledgeable consumers as the exclusive distributor of genuine Cuban cigars. The plaintiffs note that Havana House has advertised in magazines directly related to the cigar industry and that cigar boxes received by Havana House are stamped with the "exclusive distributor" stamp.

[27]       The plaintiffs submit that the defendants are selling counterfeit and unauthorized cigars bearing the trade-marks in issue. The plaintiffs contend that these cigars are unauthorized because they did not come through the plaintiffs' channel of distribution and therefore do not meet their quality control requirements. Moreover, the plaintiffs submit that the defendant does not know of any connection between the Cuban cigar stores where he bought the cigars and any of the plaintiffs, nor does he know of the Cuban cigars stores' quality control standards. The plaintiffs cite the following paragraph at page 358 from Fox's text entitled Canadian Law of Trade-marks and Unfair Competition, 3rd. ed. (Toronto: Carswell, 1972) in support of their contention that they have been injured due to the defendant's alleged lack of quality control:

[A] trade mark owner is entitled to have his goods reach the public as having been selected or marketed by him. It is not necessary that he should be the maker of the goods: it is sufficient that they pass through his hands on the way to the market, and if any of such goods are diverted and reach a purchaser through hands other than those of the trade mark owner they are spurious goods.

[28]       The plaintiffs submit further that the defendant knew of the plaintiffs' trade-mark rights in Canada as early as 1995 but continued to purchase unauthorized cigars bearing the trade-marks in issue. The plaintiffs note that Havana House sent a cease and desist letter by registered mail on August 15, 1996.

[29]       The plaintiffs submit that the use of these trade-marks by the defendant will likely lead to the mistaken inference by the public that the wares originate with the plaintiffs, that there is some business connection between the defendant and one or all of the plaintiffs, or that one or all of the plaintiffs have approved or licensed the use of one or more of the trade-marks.

[30]       The plaintiffs further submit that the defendant is profiting from its unauthorized use of the said trade-marks and designs, and the plaintiffs have suffered loss and damage through lost sales and goodwill.

[31]       The plaintiffs also submit that they have suffered irreparable harm to their goodwill and reputation due to the defendant's importation and sale of counterfeit wares.

[32]       Thus, the plaintiffs submit that the defendant has violated subsections 7(b), 7(c), 7(d), 19, 20 and 22 of the Trade-marks Act.

[33]       In response to the defendant's argument that the plaintiffs have lost their trade-mark rights, the plaintiffs again cite Fox, supra, at page 187 where the author states that a trade-mark is not rendered non-distinctive due to scattered infringements by other traders.

[34]       On the passing off claim, the plaintiffs submit that they have satisfied the requirements for a passing off action set out in [1984] 1 S.C.R. 583">Consumer's Distributing Co. Ltd. v. Seiko Time Canada Ltd., [1984] 1 S.C.R. 583. Moreover, the plaintiffs cite several cases for the proposition that lack of control over quality as a result of the defendant's activities can result in a loss of goodwill.

2. The Defendant's Submissions

[35]       The defendant submits that Havana House has no right to its registered trade-marks on three grounds. First, the defendant argues that the products are not distinctive of Havana House because, although Havana House asserts that it used the said trade-marks since March 28, 1988, the marks were used by other persons prior to that date.

[36]       Second, the defendant contends that since Havana House is merely a distributor, it is not entitled to register the trade-marks. The defendant cites several cases in support of its claim that Havana House cannot register the trade-marks because, as a distributor, it has not used the trade-marks in Canada.

[37]       Finally, the defendant submits that the cigars are not distinctive of Havana House because they are not distinctive of a single source. The defendant cites several cases dealing with licensing and assignment including [1976] 1 S.C.R. 527">Breck's Sporting Goods Co. v. Magder, [1976] 1 S.C.R. 527 & Heintzman v. 751056 Ontario Ltd. (1990), 38 F.T.R. 210 for the proposition that Havana House has not conveyed the message to the public that the trade-marks in question are now distributor's marks. The defendant also cites All Canada Vac Ltd. v. Lindsay Manufacturing Inc. (1990), 28 C.P.R. (3d) 385 (F.C.T.D.), aff'd. (1990), 33 C.P.R. (3d) 285 (F.C.A.) in support of its contention that Havana House has lost its trade-mark rights because it allegedly allowed widespread use of the marks by rival traders.

[38]       Concerning the allegations for passing off and infringement, the defendant submits that all cigars were purchased from legitimate suppliers in Cuba or Canada although the defendant does not specifically deny that the four boxes of cigars which it purchased from Tiendas are unauthorized. The defendant submits that it does not sell products that are not manufactured by other than the genuine manufacturer. Therefore, the defendant argues that it cannot be found liable for a passing off claim when it sells products bearing the manufacturer's trade-marks. The defendant submits that there can be no deception to the public if the products it sells are products that originate from the originators of the marks. In support, the defendant cites the recent decision in Smith & Nephew Inc. v. Glen Oak Inc., [1996] 3 F.C. 565 (F.C.A.), leave to appeal to S.C.C. dismissed, [1996] S.C.C.A. No. 433.

[39]       In addition, the defendant cites the statement in Consumer's Distributing, supra, at page 600 that the plaintiffs are attempting to:

control the sale of personal property, however legitimately acquired, where another person, in the position of the vendor, was also marketing the identical item of personal property. Such a principle is foreign to our law.

[40]       Finally, the defendant submits that Havana House has not suffered any loss of goodwill and the evidence is speculative as to damages.

DISCUSSION

[41]       In Granville Shipping Co. v. Pegasus Lines Ltd. S.A., [1996] 2 F.C. 853 (F.C.T.D.), Tremblay-Lamer J. summarized the following general principles to be applied on motions for summary judgment (at page 859):

1. the purpose of the provisions is to allow the Court to summarily dispense with cases which ought not proceed to trial because there is no genuine issue to be tried;

2. there is no determinative test, but Stone J.A. seems to have adopted the reasons of Henry J. in Pizza Pizza Ltd. v. Gillespie. It is not whether a party cannot possibly succeed at trial, it is whether the case is so doubtful that it does not deserve consideration by the trier of fact at a future trial;

3. each case should be interpreted in reference to its own contextual framework;

4. provincial practice rules (especially Rule 20 of the Ontario Rules) can aid in interpretation;

5. this Court may determine questions of fact and law on the motion for summary judgment if this can be done on the material before the Court (this is broader than Rule 20 of the Ontario Rules of Civil Procedure);

6. on the whole of the evidence, summary judgment cannot be granted if the necessary facts cannot be found or if it would be unjust to do so;

7. in the case of a serious issue with respect to credibility, the case should go to trial because the parties should be cross-examined before the trial judge. The mere existence of apparent conflict in the evidence does not preclude summary judgment; the court should take a "hard look" at the merits and decide if there are issues of credibility to be resolved. [cited cases omitted]

Person Interested

[42]       Section 57 of the Trade-marks Act provides that the Federal Court has exclusive jurisdiction to expunge the registration of a trade-mark on the application of a "person interested". I have no difficulty reaching the conclusion that the defendant is a person interested as that term is defined in section 57. I draw support for this conclusion from Fox, supra, at pages 304-5, where the author states that a person charged with infringement or with passing off his goods as those of another is a person interested.

[43]       The defendant must establish, on the balance of probabilities, that at the date of the application the entries as they appear on the trade-mark register do not accurately express or define the existing rights of Havana House. Given the presumption of the validity of the registration, the onus is on the defendant to show that the trade-marks should be expunged (see Uniwell Corp. v. Uniwell North America Inc. (1996), 66 C.P.R. (3d) 436 (F.C.T.D.) at page 438; Unitel Communications Inc. v. Bell Canada (1995), 61 C.P.R. (3d) 12 at page 27 (F.C.T.D.)).

Use Of The Registered Trade-marks By Havana House

[44]       One of the main issues of contention between the plaintiffs and defendant was whether Havana House had "used" the trade-marks in issue within the meaning of the Trade-marks Act. To consider this question, I will review the legislation and jurisprudence concerning use.

[45]       As stated above, "use" is defined in section 2 and subsection 4(1) of the Trade-marks Act wherein a trade-mark is deemed to be used in association with wares if, at the time of the transfer of the property in or possession of the wares, in the normal course of trade, it is marked on the wares themselves or on the packages in which they are distributed, or it is in any other manner so associated with the wares that notice of the association is then given to the person to whom the property or possession is transferred. Thus, in White Consolidated Industries Inc. v. Beam of Canada Inc. (1991), 39 C.P.R. (3d) 94 (F.C.T.D.) at pages 108-9, I wrote that:

[i]n order to establish use of a trade mark with respect to wares, the following conditions must exist at the date of transfer of the property in or possession of the wares:

1) the mark must be a trade mark as defined in s. 2 [of the Trade-marks Act], that is, used for the purpose of distinguishing wares;

2) the mark must be associated with the wares so that notice of the association is given; and

3) the transfer of the property or possession therein must occur in the normal course of trade.

[46]       Concerning the "normal course of trade", Heald J. noted in Manhattan Industries Inc. v. Princeton Mfg. Ltd. (1971), 4 C.P.R. (2d) 6 (F.C.T.D.) at pages 16-17 that with respect to the chain of sale from manufacturer to consumer:

if any part of the chain takes place in Canada, this is "use" in Canada within the meaning of s. 4.

[47]       Subsection 16(1) of the Trade-marks Act provides that the first person to use the trade-mark in Canada acquires the right to that trade-mark and is the person entitled to secure its registration (see also Uniwell, supra, at page 448).

[48]       As noted above, the main issue is whether Havana House has "used" the trade-marks in issue within the meaning of the Trade-marks Act. There is a long line of cases dealing with the question of whether a distributor can be deemed to have "used" a trade-mark. The starting point for this discussion is the decision in Manhattan Industries, supra. In that case, the applicant brought a motion to expunge the respondent's trade-mark on the ground that the applicant's successor-in-title was the prior user of the mark in Canada. The applicant was an American corporation which sold belts and suspenders bearing the trade-mark "HARNESS HOUSE" to Canadian retailers. In finding that the applicant's successor-in-title was the first user of the trade-mark in Canada, Heald J. stated at pages 16-17 of the decision:

[section 4] contemplates the normal course of trade as beginning with the manufacturer, ending with the consumer and with a wholesaler and retailer or one of them as an intermediary. When the applicant sold to the retailer and the retailer sold to the public, the public came to associate applicant's mark with the HARNESS HOUSE belt; s. 4 contemplates that the use between the retailer and the public enures to the benefit of the manufacturer and its use in Canada.

(emphasis added)

[49]       The principle that the distributor is merely an intermediary through which another's wares reached the consumer was also cited in Saxon Industries, Inc. v. Aldo Ippolito & Co. Ltd. (1982), 66 C.P.R. (2d) 79 (F.C.T.D.). Reference should also be made to the decision in McCabe v. Yamamoto & Co. (America) Inc., [1989] 3 F.C. 290 (F.C.T.D.), where Joyal J. cited Manhattan Industries, supra, and Saxon Industries, supra, and came to the following conclusion (at page 296):

[w]hat these cases make clear to me is that the law will preclude a distributor from appropriating and registering the trade mark of another, usually a manufacturer, who is the owner of the mark in the country of origin.

[50]       Similar reasoning can be found in Royal Doulton Tableware Ltd. v. Cassidy's Ltd., [1986] 1 F.C. 357 (F.C.T.D.); All Canada Vac, supra; Sequa Chemicals Inc. v. United Color and Chemicals Ltd. (1993), 53 C.P.R. (3d) 216 (F.C.A.); Industrie Alimentari Molisane v. Distributions Rosalba J.D. (1995), 61 C.P.R. (3d) 149 (F.C.T.D.); and Uniwell, supra.

[51]       However, the plaintiffs correctly note that another line of reasoning running through these cases is that the Trade-marks Act should not be allowed to support unlawful use. In McCabe, supra, Joyal J. explained this argument in the following manner (at pages 298-99):

I interpret the whole scheme of the Trade Marks Act as continuing the policy and purpose of its predecessor statute, the Unfair Competition Act [R.S.C. 1952, c. 274], to bring some semblance of order in the market place and to codify or structure in statute form the rights, duties and privileges of intellectual property owners at common law. Its whole thrust is to promote and regulate the lawful use of the trade marks. On proper grounds, a person may be given a statutory (i.e. lawful) monopoly for the exclusive use of a trade mark in association with specified wares or services. In the event, can it be seriously argued that by specific intendment, or by implication, the statute would not also prohibit unlawful use? At first blush, the answer to that question would appear obvious.

I recognize, however, that what might be unlawful for some purposes, as in the breach of a licensing or distributorship agreement giving rise to ordinary civil remedies, would be beyond the ken of the Trade Marks Act unless it is in violation of an expressed or implied provision of it. If such a violation occurs, the unlawful use of a trade mark could not be raised by an opponent to defeat its owner's rights.

As a general proposition, it may be stated that when a statute's purpose is to provide protection to the owners of both registered and unregistered trade marks, that same statute should not obviously be set up to give legitimacy to unlawful use of these same trade marks. Again, as a general proposition, denying an opportunity to an unlawful user to do this does not frustrate the overall purpose of the Act. If public protection is one of its purposes, then a phrase like "previously used in Canada" might very well be interpreted to mean "previously

lawfully used in Canada".

The line of distributor cases to which I have referred already provide a window to the adoption of the general propositions I have stated. These are cases where persons, who would otherwise appear to be entitled to the registration of a mark because they can prove valid use, are refused the privilege when it is found that they are attempting to appropriate the property of another in a territory in which the property has yet to receive the full protection which the law provides to registered marks.

[52]       Joyal J. cited the decisions in Waxoyl AG v. Waxoyl Canada Ltd (1984), 3 C.P.R. (3d) 105 (F.C.T.D.), Argenti Inc v. Exode Importations Inc. (1986), 8 C.P.R. (3d) 174 (F.C.T.D) and Wilhelm Layher GmbH v. Anthes Industries Inc. (1986), 8 C.P.R. (3d) 187 (F.C.T.D.) in support of his argument. These cases concerned distributors who registered the trade-mark of their rightful owner.

[53]       Rouleau J. also considered this argument in Citrus Growers Assn. Ltd. v. William D. Branson Ltd., [1990] 1 F.C. 641 (F.C.T.D.) at page 646-47:

The jurisprudence under s. 57 is clear that an importer or agent has no right to register a trade-mark owned by the foreign principal, under his own name and for his own benefit (cited cases omitted). Anything the importer does with respect to the mark must be for the benefit of the foreign supplier and owner of the mark. The cases have reached this conclusion in a variety of ways: prior use by the foreign supplier in Canada (s. 16(1)(a)); no "use" by the importer/agent in Canada within the meaning of sections 4 and 16, since its use was on behalf of the principal; the mark is not distinctive of the wares of the respondent (s. 18 (1)(b)); and, generally, the respondent is not the person entitled to registration of the mark, on the grounds of the fiduciary obligation existing between an agent and his principal.

This last-noted ground has not stood alone as a basis to expunge, although it is a common thread running throughout the case law. In each of the cases noted above, the applicants relied specifically on sections 16 or 18 of the Act. This has not been done in the case at bar. However, I am prepared to accept that, on the wording of s. 57, breach of the fiduciary obligations of an importer/agent to his foreign principal is a legitimate basis of attack, and the applicant can succeed on this ground alone. I am also satisfied that the present applicant can fit within other sections of the Act, in accordance with the preceding jurisprudence.

[54]       Note that these decisions do not stand for the proposition that a distributor is entitled to a trade-mark if it has not breached its fiduciary obligations to the foreign principal. In order to be entitled to registration of that mark, the distributor still must have used the mark as "use" is defined in section 4 of the Trade-marks Act. As Joyal J. noted in Optagest Canada v. Services Optométriques (S.O.I.)(1991), 37 C.P.R. (3d) 28 (F.C.T.D.) at page 37:

[b]efore the legitimate aspect of use of a mark or the fiduciary obligations of a member to his colleagues can limit his conduct, use giving rise to a right must first be established.

[55]       Thus, breach of fiduciary obligations is merely another way for the foreign principal to attack the registration of the distributor's trade-mark (see Fennessy v. Verb Investments Inc. (1993), 50 C.P.R. (3d) 477 (F.C.T.D.)). The possibility that the foreign supplier may have acquiesced in the registration of the trade-mark by its distributor does not mean that the distributor is entitled to the trade-mark unless the distributor has used the mark and it has become distinctive of the distributor.

[56]       Support for that final statement comes from my decision in White Consolidated Industries, supra. In that case, the plaintiff, a U.S. company, attempted to expunge the trade-mark registration of the defendant, a Canadian company, for the trade-mark BEAM in association with central vacuum systems. The plaintiff's predecessor sold to the defendant's predecessor central vacuum systems for resale in Canada since 1975. From 1975 to 1985, every power unit sold in Canada was marked with the trade-mark "BEAM" and originated from the United States. From 1985 to 1990, every canister for every power unit sold in Canada was marked "BEAM" and also originated from the United States. Since 1985, the defendant purchased motors for power units directly from the manufacturer and assembled some portions of the power units in Canada. After 1985, the serial plates on the systems sold in Canada bore the defendant's name rather than the plaintiff's name. In 1990, the defendant informed the plaintiff that it would no longer be requiring supplies from the plaintiff.

[57]       In 1982, the defendant's predecessor registered the mark "BEAM" in Canada and the defendant became the owner of the registration in 1987. The plaintiff knew of the defendant's registration but did not object. The defendant extensively advertised its wares in which the mark identified the defendant as the source of the wares. Since 1984, the installation and operating manuals identified the defendant as the source of the goods. In 1989, the defendant was openly asserting to the plaintiff its ownership of the mark "BEAM" for Canada.

[58]       After citing several of the decisions mentioned above, I concluded that the defendant was not entitled to the trade-mark registration because, as a distributor in 1976, it had not "used" the trade-mark in question. However, I went on to conclude that the defendant's trade-mark was distinctive of the defendant's wares in 1990 because the message to the public was that the defendant owned the trade-mark in Canada. I also held that the plaintiff was estopped from contesting the registration under the equitable remedies of laches and acquiescence. Finally, I held that there had been an assignment of the trade-mark from the plaintiff to the defendant.

[59]       Thus, it is possible for a distributor to acquire the rights to the trade-mark of a foreign company if the mark can be said to have become distinctive of the distributor.

[60]       Turning to the facts of this case, it is clear that Havana House acts as a distributor for the other plaintiffs and the Cuban state-owned tobacco manufacturers. The trade-marks registered by Havana House are marks bearing the brand names of the cigars (except for the mark registered as MONTE CRISTO HABANA which also contains a design). The cigars are manufactured and sold in Cuba bearing the marks in question. The cigars are also exported by Habanos S.A. to many countries including Canada. Following from the prior discussion, Havana House cannot be said to have "used" the relevant trade-marks in Canada and was not entitled to register them. It is clear that the trade-marks do not convey to the consumer that the distributor is the owner of the trade-marks, rather, they clearly indicate that the source of the marks is the manufacturer. Havana House has distributed these products in Canada for the benefit of the Cuban trade-mark owner. They have not shown that they have used the trade-marks within the meaning of section 4 of the Trade-marks Act. Therefore, Havana House was not entitled to register the trade-marks in issue.

Prior Use

[61]       As an alternative ground, the defendant submits that Havana House is not entitled to the trade-marks because other parties used the trade-marks in Canada before Havana House. This ground must fail because, under section 17 of the Trade-marks Act, the only party that may attack a registration on the ground of prior use is the actual previous user or predecessor in title. As a retailer, the defendant has not used the trade-marks within the meaning of section 4 of the Trade-marks Act and so it is not entitled to challenge the registration of the trade-marks on the basis of prior use.

Distinctiveness

[62]       The defendant's final alternative argument is that Havana House's trade-marks are not distinctive of Havana House. Distinctive, in relation to a trade-mark, is defined in section 2 of the Trade-marks Act as "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." As set out in Philip Morris Inc. v. Imperial Tobacco Ltd. (1985), 7 C.P.R. (3d) 254 (F.C.T.D.), aff'd (1987), 17 C.P.R. (3d) 237 (F.C.A.), aff'd (1987), 17 C.P.R. (3d) 287 (F.C.A.), three conditions must be met to prove distinctiveness (at page 270 (F.C.T.D.)):

1) that a mark and a product (or ware) be associated; (2) that the "owner" uses this association between the mark and his product and is manufacturing and selling his product; and, (3) that this association enables the owner of the mark to distinguish his product from that of others.

[63]       The question of distinctiveness is a question of fact with the test being whether a clear message has been given to the public that the wares with which the trademark is associated and used are the wares of the trade-mark owner and not those of another party (see White Consolidated, supra, at pages 109-111). In Heintzman, supra, the court had the following to say about distinctiveness at page 217:

The function and purpose of a trade mark is to indicate the source from which goods come. [Footnote: H.G. Fox, The Canadian Law of Trade Marks and Unfair Competition, 3rd ed. (1972), p. 21, 25. Royal Doulton Tableware Ltd. et al. v. Cassidy's Ltd. (1984), 1 C.P.R. (3d) 214 at 225 (F.C.T.D.)] If a mark is associated with a high quality product its presence will assure the purchaser that the goods are likely to be of that quality. The mark, at least, allows a purchaser to tell whether or not the goods have come from a source in which he or she has confidence.

A trade mark, by definition, must be and remain distinctive of a single source. It must distinguish the goods and services of its owner from the goods and services of all others.

[64]       According to paragraph 18(1)(b) of the Trade-marks Act, a trade-mark registration may be invalidated on the basis that it is no longer distinctive at the time expungement proceedings are launched. In the case at bar, invalidation proceedings were launched on November 14, 1996, when the defendant filed his statement of defence and so distinctiveness will be considered as of that date. The rationale for considering distinctiveness at the start of expungement proceedings was considered in Professional Publishing Associates Ltd. v. Toronto Parent Magazine Inc. (1986), 9 C.P.R. (3d) 207 (F.C.T.D.) at page 218 where the court wrote:

As I understand (subsection 18(1)(b)), it contemplates the testing of "distinctiveness" as of the date of commencement of the action for expungement, on the premise that a mark which was not distinctive at registration may have become distinctive in the meantime through the nature of its use by its owner, or conversely that a mark which was distinctive at registration may have lost its distinctiveness because the owner has improperly allowed others to use it or has acquiesced in its use by others.

[65]       The defendant's submission on distinctiveness is based on the decision in Mr. P's Mastertune Ignition Services Ltd. v. Tune Master (1984), 82 C.P.R. (2d) 128 (F.C.T.D.). The defendant argues that Havana House has lost its right to its marks because there is allegedly widespread use of the marks by other traders. The court in Mastertune, supra, considered this argument at page 144:

The owner of a trade mark may lose his exclusive right in the mark if he permits the widespread use of it by rival traders either by concurrence or negative action. In that event the trade mark ceases to be distinctive of the owner's wares or services. But an owner does not lose his rights in his trade mark because someone infringes his rights.

[66]       The defendant's argument that there is widespread use of the marks outside of Canada is irrelevant since the issue is whether the marks are distinctive under Canadian law. There was no evidence of recognition in Canada of use of the marks in other countries. Thus, the question is whether the trade-marks are distinctive in Canada. The evidence indicates that Havana House is the exclusive distributor of Cuban cigars in Canada. These cigars are imported from Habanos S.A. and distributed to other distributors and retailers in Canada for sale. Any other Cuban cigars available for resale in Canada are those that have been bought from Cuban stores and are transported out of the country as the defendant has admittedly done. Given these facts, I do not understand the defendant's argument that Havana House has allowed widespread use of the trade-marks by rival traders. Havana House has supply agreements with other Canadian retailers and distributors and has prosecuted other persons whom it believes have infringed its rights. I do not think distinctiveness can be founded on this argument.

[67]       However, as I held above, use by Havana House of the trade-marks constitutes use by the foreign entity. The trade-marks are therefore distinctive of the manufacturer's cigars rather than Havana House (see Industrie Alimentari, supra, at page 155). Thus, the only possible ground upon which Havana House can maintain its registration is if it can prove that it has acquired distinctiveness in the trade-marks such that it was entitled to use them as of November 14, 1996. After carefully considering the submitted materials, I can find no evidence that the message to the public is that Havana House is the owner of the trade-mark. The only mark on the cigar boxes and in Havana House's advertising states that Havana House is an exclusive distributor of Cuban cigars. The plaintiff cited the cross-examination of John Broen, Vice-President, Corporate Affairs of Rothmans, Benson & Hedges Inc., who stated that Havana House is known as the source of Cuban cigars in Canada. However, my interpretation of Mr. Broen's statement is that Havana House is the distribution source of the Cuban cigars in issue, not that it is the manufacturing source, nor that the public associates the trade-marks with Havana House as a manufacturer or as the marks of a distributor. In the absence of other evidence, I cannot conclude that Havana House has acquired distinctiveness in the cigars.

[68]       Therefore, I must hold that there is no contestable issue and the defendant should receive summary judgment. The following trade-marks are invalid and shall be expunged from the trade-marks register:

1) HOYO DE MONTERREY DE JOSÉ GENER HABANA, Registration No. TMA 432,667.

2) MONTE CRISTO HABANA & Design, Registration No. TMA 462, 960.

3) MONTECRISTO, Registration No. TMA 432,218.

4) ROMEO Y JULIETA, Registration No. TMA 424, 609.

The Plaintiffs' Motion for Trade-mark Infringement and Passing Off

[69]       Given my finding, the plaintiffs' action for infringement of these four trade-marks under sections 19, 20 and 22 must be denied. However, I will still consider the passing off actions and the claims for infringement under sections 19, 20 and 22 concerning Cubatabaco's trade-mark entitled "H. UPMANN HABANA & Design".

[70]       The plaintiffs submit that the defendant has passed off its wares or services as those of the plaintiffs or infringed the plaintiffs' trade-mark by either selling cigars of a lower quality made from persons not associated with the plaintiffs (hereinafter counterfeit cigars) or selling cigars which were made by Cuban manufacturers but were not exported by Habanos S.A. using the quality control scheme developed by the plaintiffs (hereinafter unauthorized cigars). This view of the facts is disputed by the defendant. The following evidence concerns the main points of contention.

[71]       The affidavit of Mr. Ortego dated January 26, 1998 states that Roger Lanteigne, Havana House's Operations Manager, visited the defendant's store and purchased fifteen HOYO DE MONTERREY Double Coronas and twenty ROMEO Y JULIETA Coronos. The affidavit also mentions that Mr. Lanteigne was offered several other counterfeit and black market cigars including Montecristo and H. Upmann cigars. At the examination of Mr. Ortego on August 21, 1997, Mr. Ortego said that the signature on the credit card receipt was Mr. Lanteigne's but he later submitted on re-examination on March 6, 1998 that the signature was made by "Fiona". "Fiona" appears to have been Mr. Lanteigne's former fiancee. Thus, there is some question about who bought the cigars. Mr. Jiwa submits that at the time the cigars were purchased, Mr. Jiwa's wife asked Mr. Lanteigne if she could photograph him taking the boxes or allow someone to witness the box she received. Both requests were refused.

[72]       Mr. Ortego's affidavit states that he examined the cigars purchased at the defendant's establishment. At the examination for discovery on August 21, 1997, Mr. Ortego admitted that these cigars were made at the Cuban state-owned factories. Mr. Ortego found that the ROMEO Y JULIETA cigars were infested with serricone tabaquensis, an insect which eats cigar tobacco and wrappers. Mr. Ortego submits that this infestation results from poor quality control and would never have occurred if they had been distributed within the plaintiffs' quality control system. However, Mr. Ortego stated on cross-examination that some variation in quality does occur in their quality control system and that there have been rare cases of insect infestation. Moreover, Mr. Jiwa noted in his affidavit that in November 1997, the authorized cigar store at the Camaguey Airport in Cuba was closed because their cigar products were infested with bugs.

[73]       Mr. Ortego's affidavit also stated that the defendant purchased unauthorized or counterfeit cigars from a representative of Tiendas. Mr. Ortego contends that Tiendas is not authorized to sell cigars in Canada. In his affidavit of September 21, 1997, Karim Jiwa, manager for the defendant, confirmed that he did purchase four boxes of cigars from Tiendas but did not purchase any further cigars because the salesman's telephone number and address were not on the receipt.

[74]       In addition, Mr. Ortego's affidavit stated that the defendant sent people to Cuba to purchase unauthorized cigars for resale in Canada. Mr. Ortego states that this was done even though the plaintiffs' lawyer had written a cease and desist letter to the defendant on August 15, 1996. Mr. Ortego submitted that these purchases in Cuba were made in stores that were not owned or run by any of the plaintiffs. Mr. Jiwa's affidavit directly contradicts this statement and contends that the cigars were bought from the plaintiffs' own outlets in Cuba. At the discovery of Mr. Jiwa on August 30, 1997, Mr. Jiwa reasoned that he knew that the cigars were bought from legitimate outlets because there were signs with the words "Habanos S.A." in the stores. However, Mr. Jiwa also stated that the signs may have said the word "Habanos" which is Spanish for "Havana cigars" rather than "Habanos S.A." which refers to the plaintiff company.

[75]       After carefully considering the evidence, I am not convinced that the necessary facts are available in order to find that there is no triable issue on any of the plaintiffs' grounds of trade-mark infringement. I have yet to see any evidence that the defendant sold a product bearing Cubatabaco's trade-mark entitled "H. UPMANN HABANA & Design".

[76]       Even if the plaintiffs had provided sufficient evidence to show that the defendant sold a product bearing the "H. UPMANN HABANA & Design" mark, one must question whether the defendant has infringed the trade-mark. There is no evidence that the four boxes of cigars purchased from Tiendas bore the H. UPMANN trade-mark. Moreover, the only evidence about Tiendas is Mr. Ortego's statement that Tiendas is not authorized to sell the cigars in issue.

[77]       That leaves the evidence concerning the other cigars sold at the defendant's establishment. The cigars purchased allegedly by Mr. Lanteigne did not bear the H. UPMANN trade-mark. Therefore, the only evidence about cigars bearing this mark must come from the defendant's store records. The cigars are manufactured in the Cuban factories, marked by the manufacturer and sold to outlets in Cuba. They are purchased by the defendant from these outlets for resale in Canada. The defendant has not placed a mark on these goods but has merely resold the goods without the intervention of Havana House. The plaintiffs' argument is that the allegedly poor quality control of the defendant has violated its rights under the Trade-marks Act. I do not see how they have brought sufficient evidence to allow me to reach that conclusion on summary judgment. The only evidence they have about quality control at the defendant's establishment is the cigars allegedly purchased by Mr. Lanteigne.

[78]       These cigars were not examined by an independent third party but were examined by Mr. Ortego. The cigars were in Mr. Ortego's or his lawyer's possession for an uncertain period of time until they were filed with the Court. Moreover, Mr. Ortego stated in discovery that even under the plaintiffs' quality control system, cigars can still suffer from insect infestations. I do not believe that this evidence proves that the defendant's quality control system is inappropriate.

[79]       In addition, the evidence is very unclear about the cigars purchased by the defendant in Cuba. The plaintiffs have provided little evidence which would help one determine whether the defendant bought the cigars from a Habanos S.A. outlet or on the black market. The defendant maintains that the cigars were bought from legitimate outlets and the plaintiffs have provided an insufficient basis upon which to dispute that statement. Mr. Ortego stated on discovery that one can legitimately purchase cigars at legitimate outlets in Cuba and bring them into Canada subject to duties.

[80]       Moreover, there has been no evidence that there has been a "depreciation of goodwill" as a result of the defendant's actions as that term is defined under section 22 of the Trade-marks Act. At best, there has been speculation that if a consumer received cigars of a lower quality, then the consumer would not buy any further cigars. There must be sufficient evidence upon which to find that the defendant has caused a depreciation of goodwill but I find little more than conjecture. Therefore, I hold that the plaintiffs have not shown that there is no triable issue that the defendant has violated sections 19, 20 or 22 of the Trade-marks Act.

[81]       Turning to the plaintiffs' action for passing off, I have reached the same conclusion that the plaintiffs have not shown that there is no triable issue. The plaintiffs cite several cases in support of their proposition that the lack of quality control results in a loss of goodwill. I find that the recent decision in Manos Foods International Inc. v. Coca-Cola Ltd. (1997), 74 C.P.R. (3d) 2 (Ont. Gen. Div.) bears the closest attention even though it concerns irreparable harm under a motion for interlocutory injunction rather than a summary judgment motion.

[82]       In Manos Foods, supra, the defendants refused to supply the plaintiff with Coca-Cola products when they learned that the plaintiff was shipping the goods to jurisdictions outside Canada for resale. The plaintiff sought a mandatory interlocutory injunction to end the boycott until trial. The defendants brought a cross-motion for a prohibitory interlocutory injunction restraining the plaintiff from infringing their trade-marks by unauthorized export and shipment of Canadian origin Coca-Cola products; from depreciating the goodwill in the marks; from exporting and selling Canadian-origin Coca-Cola products to any third party in Canada; and from doing so in any territory where the plaintiff was not licensed to sell the products. The court dismissed the motions and cross-motions but made the following observations about quality control in a passing off action (at pages 21-22):

These defendants also argue that if trans-shipping is permitted they will lose their control over the timeliness of the sale of products to consumers. This may result in products being sold outside the optimum taste date and thus damage their reputation. In essence, that seems to be a specific example of how damage to goodwill might occur. These defendants cite no authority for their position. Several cases in the Federal Court have considered, often somewhat tangentially, the question of quality control and found it to be a factor in evaluating irreparable harm. These cases, however, dealt with quality control in terms of the original production of the product. Thus, Universal City Studios, Inc. v. Zellers Inc., [1983] F.C.J. No. 601 (QL) (F.C.T.D.), involved the importation of copycat E.T. figures from Taiwan that were apparently of inferior quality to the officially licensed products. Similarly, Fruit of the Loom, Inc. v. Chateau Lingerie Mfg. Co., [1982] F.C.J. No. 414 (QL) (F.C.T.D.), involved a concern that Fruit of the Loom could not exercise control over the manufacture of the clothing articles in question. 688863 Ontario Ltd. v. Landover Enterprises Inc. (1991), 35 C.P.R. (3d) 399 (F.C.T.D.), is the only case to raise quality control in relation to food items. There though, the issue was a small restaurant which used the same name as a larger chain. The chain successfully argued that the confusion regarding the name might cause confusion among customers and if the food in the small restaurant was inferior it would damage the reputation of the chain. In light of these decisions it appears open to the Court to find that a lack of ability to exercise quality control constitutes irreparable harm. On the other hand the present case must be distinguished on the ground that genuine Coca-Cola products are involved. Unlike the other cases, there is no issue as to the quality of the production or manufacture of the items. Lack of quality control in distribution does not amount to irreparable harm. In this Court's opinion, the answer ought to be no. The claim that the product might be exported and might be sold after the optimum taste period which might make certain customers unhappy and might therefore cause some damage to the reputation of these defendants is speculative. Applying the rule in Syntex Inc. v. Novopharm Ltd. (1991), 36 C.P.R. (3d) 129 (F.C.A.), the evidence of harm must be clear and not speculative, these defendants have failed to make out their case on this point.

[83]       Thus, it appears that it may be open to the court to rule that a defendant's lack of quality control may damage the plaintiffs' goodwill. However, in the case at bar there is no evidence that the defendant has engaged in poor quality control methods such that I could rule that there is no triable issue.

[84]       Before concluding, I must also refer to two decisions dealing with grey marketing. In Consumers Distributing, supra, the respondent, the authorized distributor of Seiko watches in Canada, brought an action to restrain the appellant from selling Seiko watches since it was not an authorized dealer. The appellant had been selling Seiko watches that it had lawfully obtained outside Canada from an authorized dealer selling outside the distribution network. The plaintiffs argued that grey marketing decisions are of no import because they deal with licensing and there is no licensing agreement or assignment in the case at bar. However, I believe that the court's discussion about the creation of a practical monopoly on a product, the right to control resale and the effect on free competition are relevant. At pages 599-600, the court wrote:

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 purports to bring itself within the classified definition of the 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, as they are not authorized dealers. The problem facing the respondent 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. A second cul-de-sac into which such a submission necessarily leads is that the common law, in its personal property sector, would thereby be recognizing a right to entail and control the sale of personal property, however legitimately acquired, where another person, in the position of the vendor, was also marketing the identical item of personal property. Such a principle is foreign to our law. This right to control resale would, it follows, flow not only to the respondent and all others upon whom the manufacturer wishes to bestow this protection, but to the manufacturer Hattori which, on terms presumably satisfactory to itself, released these watches into the distribution stream which eventually carried them to the appellant. Ironically, the manufacturer, with the profits from its sale of these watches in its pocket, could then, if this is the law, restrain the appellant from reselling these watches. A third consequence would be an inevitable collision between such a result, on one hand, and the common law doctrine with respect to restraint of trade and free competition, on the other hand.

[85]       I will also refer to the decision in Smith & Nephew, supra, where the Federal Court of Appeal cited Consumers Distributing, supra, in arriving at the conclusion that the respondent grey marketer had not violated the Trade-marks Act. In this case, the applicant was the Canadian licensee and importer of goods bearing the trade-mark NIVEA which was registered by Beiersdorf AG (BDF). The respondents were the importer/distributor and the retailer of goods bearing that trade-mark. The court noted at page 571:

Goods which originate in the stream of commerce with the owner of a trade mark are not counterfeit or infringing goods simply because they may have arrived in a particular geographical market where the trade mark owner does not wish them to be distributed.

[86]       Later, the court wrote at page 573:

Smith & Nephew as Canadian licensee and importer of goods bearing BDF's trade marks cannot complain of the sale in Canada of other goods which are also manufactured by or under license from BDF and bear the same trade marks. There can be no deception as to the origin of the goods, which are exactly what they purport to be, Nivea facial cream and soap whose quality and character is controlled by BDF.

[87]       Of course, as was mentioned previously, the plaintiffs submit that the goods are not "exactly what they purport to be" because their "quality and character" are controlled by the defendant once they leave their authorized distribution channel. However, there is insufficient evidence of this failure in quality or character to make this a non-triable issue.

[88]       Thus, I conclude that the evidence is insufficient to find that there is no triable issue. The plaintiffs motion for summary judgment is premature since I am not convinced that the defendant has infringed subsections 7(b), 7(c), or 7(d) of the Trade-marks Act.

CONCLUSION

[89]       Therefore, I conclude that the defendant's application for summary judgment is allowed with costs in favour of the defendant. The four trade-marks, HOYO DE MONTERREY DE JOSÉGENER HABANA, MONTE CRISTO HABANA & Design, MONTECRISTO and ROMEO Y JULIETA are invalid and expunged from the trade-marks register. In addition, I find that the plaintiffs' application for summary judgment on the grounds of infringement and passing off is denied because the evidence is insufficient to find that there is no triable issue.

"Max M. Teitelbaum"

                                                                                                                                                                        J.F.C.C.

OTTAWA, ONTARIO

May 19, 1998

FEDERAL COURT OF CANADA TRIAL DIVISION

NAMES OF COUNSEL AND SOLICITORS ON THE RECORD

COURT FILE NO.:                      T-2144-96

STYLE OF CAUSE:                   Havana House Cigar & Tobacco et al. v. Skyway Cigar Store

PLACE OF HEARING:              Toronto, Ontario

DATE OF HEARING:                 April 16 and 17, 1998

REASONS FOR ORDER BY THE HONOURABLE MR. JUSTICE TEITELBAUM     DATED:            May 19, 1998

APPEARANCES:

Kenneth D. McKay                                                                                     FOR THE PLAINTIFF

Alnaz I. Jiwa                                                                                          FOR THE DEFENDANT

SOLICITORS OF RECORD:

SIM, HUGHES, ASHTON & McKAY                                    FOR THE PLAINTIFF         Barristers & Solicitors

Toronto, Ontario

Alnaz I. Jiwa                                                                            FOR THE DEFENDANT     Barrister & Solicitor

North York, Ontario