[1] The defendant, Urus Industrial Corporation ("Urus"), an Ontario Corporation doing business under the name Koolatron ("Koolatron"), seeks to strike Pride International Inc. ("Pride") as a plaintiff in a trade-mark infringement and passing-off action in which LifeGear, Inc. ("LifeGear"), a U.S. corporation, a manufacturer of exercise equipment, and the registered owner of Canadian trade-marks LIFEGEAR and SATURNE for use in association with exercise equipment and accessories is the other plaintiff.
[2] The plaintiffs, in their action, seek the usual remedies namely:
(1) a declaration of infringement of LifeGear's exclusive rights under sections 19 and 20 of the Trade-marks Act (the "Act");
(2) a declaration of depreciation of the value of the goodwill associated with each registered trade-mark contrary to section 22 of the Act;
(3) a declaration of breach of paragraphs 7(b) and 7(c) of the Act (passing-off);
(4) permanent and interlocutory injunctions;
(5) the destruction or delivery up of goods;
(6) general and punitive damages or accounting of profits.
[3] Urus brings its motion to strike on the basis of section 221 of the Federal Court Rules, 1998, (the "Rules") and, in particular, on the basis of paragraph 221(1)(a), the claim discloses no reasonable cause of action, 221(1)(c), the claim is scandalous, frivolous and vexatious or 221(1)(f) namely, the claim is otherwise an abuse of the process of the Court.
[4] The test for no reasonable cause of action is, assuming the facts pleaded in the statement of claim as proven, is it plain and obvious Pride, in the plaintiffs' statement of claim, shows no reasonable cause of action against the defendant (see, [1992] S.C.R. 959">Hunt v. Carey Canada Inc., [1992] S.C.R. 959 at 980. No evidence is heard on such a motion (see, subsection 221(2) of the Rules).
[5] The test under Rule 221(1)(c) is also well-known. To make out a case under this paragraph, the moving party must show the pleading is so clearly futile that it has not the slightest chance of success (see, Creaghan Estate v. Canada, [1972] F.C. 732 (F.C.A.)). Evidence is permissible under this and subsequent paragraph of Rule 221(1). In this case, affidavit evidence was filed by both the plaintiff Pride and the defendant Urus and cross-examination of Pride's deponent took place.
[6] Pride, in the statement of claim, is variously described as
(1) the distributor of LifeGear's products in Canada generally responsible for after sales service and support in connection with products manufactured by LifeGear and sold in Canada (paragraph 3 of the statement of claim);
(2) The exclusive distributor in Canada for LifeGear's exercise equipment and accessories with Pride assisting LifeGear in identifying buyers and retail customers in Canada (paragraph 14 of the statement of claim);
(3) The licensee of LifeGear to use the LIFEGEAR and SATURNE trade-marks in association with the distribution and service of LifeGear products in Canada (paragraph 15 of the statement of claim);
(4) A facilitator and thereby a revenue sharer because in February 1998, Pride introduced Urus to LifeGear as an additional potential distributor in Canada of LifeGear's Saturne Elliptical Trainers with Urus agreeing to distribute LifeGear's genuine Saturne Elliptical Trainers in Canada whereby Pride and LifeGear would share in the sales revenues (paragraph 16 of the statement of claim).
[7] What spawned this lawsuit is a falling out between LifeGear and Urus (Koolatron) after a distribution agreement entered into in May/June 1998 between LifeGear and Koolatron fell apart. Pursuant to that distribution agreement, Koolatron became the exclusive Canadian distributor for the Koolatron LifeGear Saturne Elliptical Trainers endorsed by sports personalities. The five-year distribution agreement was terminated by LifeGear allegedly on the basis Koolatron had not imported the minimum number of wares manufactured by LifeGear as required under the agreement.
[8] The statement of claim alleges that in and about January of 2001, Pride discovered that Koolatron was selling counterfeit Saturne Elliptical Trainers in Canada not manufactured by LifeGear but that Koolatron continues to use the SATURNE and LIFEGEAR trade-marks in association with its counterfeit products.
[9] Urus argues the statement of claim discloses no cause of action or is vexatious or frivolous based on the following facts:
(1) LifeGear is the registered owner of the trade-marks in Canada;
(2) there is no privity of contract between Pride and Koolatron;
(3) Pride is a mere sales agent and distributor;
(4) the substance of the lawsuit relates to the SATURNE product and Pride had nothing to do with it;
(5) the only product Koolatron sold in Canada manufactured by LifeGear was the SATURNE product.
[10] In substance, Urus says Pride has no trade-mark rights upon which it could ground a cause of action against Urus. Urus says that, on cross-examination, Stephen Milo, Pride's deponent, admitted as much.
ANALYSIS
(1) Rule 221(1)(a) -- no reasonable cause of action
[11] Urus has the onus of establishing Pride has no reasonable cause of action against Urus. Pride claims trade-mark rights as a licensee in Canada of LifeGear for both the SATURNE and LIFEGEAR trade-marks (a fact which must be taken as true).
[12] Pride points to the licensing provisions of section 50 of the Act and relies on a certain jurisprudence holding that a licensee has a cause of action under the Act. Some of the cases, such as Tonka Corp. et al. v. Toronto Sun Publishing Corp. et al. (1990), 41 F.T.R. 56, dealt with section 50 of the Act under the registered user regime which is now abolished. Pride also points to Prothonotary Giles' decision in Miraj S.A. et al. v. Gerovital, Inc. et al. (1998), 81 C.P.R. (3d) 179, and Apotex Inc. v. Wellcome Foundation Ltd. et al. (2000), 10 C.P.R. (4th) 65, a patent case, in which the standing of the licensee was challenged. Pride says this case stands for the proposition a license can be implied and that it recognized standing to the licensee on the basis of the identity of interest (LifeGear and Pride in this litigation).
[13] Counsel for Urus relied upon Prothonotary Lafrenière's decision in Natural Waters of Viti, Ltd. v. C.E.O. International Holdings Inc., [2000] F.C.J. No. 452, a case where the Prothonotary struck out a party as co-plaintiff, that party being an exclusive distributor, a circumstance different than in this case where there is a specific allegation in the statement of claim that Pride is a licensee.
[14] Urus has not satisfied me, based on the allegations in the statement of claim being taken as true, Pride has no trade-mark rights under the Act upon which it could ground a cause of action. Counsel for Urus has not directed the Court's attention to any jurisprudence interpreting section 50 of the Act holding that a licensee cannot base a cause of action on that section in contrast to what I was directed to by counsel for the plaintiffs in terms of case law.
(2) Rule 221(1)(c) -- frivolous and vexatious
[15] The difference between Rule 221(1)(a) -- no reasonable cause of action -- and Rule 221(1)(c) is that evidence can be adduced to underpin the ground a statement of claim is vexatious or frivolous. Here, counsel for Urus points to the cross-examination of Stephen Milo as, in a sense, destroying the fact Pride is a licensee of the trade-mark SATURNE, (a fact which, as noted, had to be taken as true under Rule 221(1)(a)) or as the basis for a passing-off action by Pride.
[16] In order to make out a case Pride's statement of claim is so clearly futile it has no chance of success, counsel for Urus is obligated to show the Court Mr. Milo's answers on cross-examination constitute clear and unequivocal admissions since it is not the function of this Court, on such a motion, to become a trier of fact.
[17] After examining the answers Mr. Milo gave in cross-examination, in the context of the statement of claim and his answers as a whole, I am not persuaded that Pride should be foreclosed as a party plaintiff in this proceeding.
[18] First, Mr. Milo's admission about Pride relying on no trade-mark rights must be taken in the context of the allegation in the statement of claim Pride is the licensee of the LIFEGEAR and SATURNE trade-marks, that the question put was both a factual and legal one and his answer was not unequivocal when other answers are considered since he spoke about the damage to the trade-marks and pointed to Koolatron's selling under the trade-marks "we represent" indicating perhaps, but not clearly, some foundation to Pride being a licensee by implication of the SATURNE trade-mark (transcript, page 11).
[19] Second, there is a factual dispute as to whether the products sold by Koolatron after the distribution agreement was terminated breached the LIFEGEAR trade-mark by referring to that mark in the video which accompanies the product. Counsel for Urus did not dispute Pride's interest in the LIFEGEAR trade-mark.
[20] Third, there is a basis in Mr. Milo's answers as a foundation for Pride's claim to a passing-off action under section 7(c) in terms of goodwill and reputation it may have as distinct from that of LifeGear as well as in lost sales of the genuine SATURNE product currently on the market because of Urus' activities (contrast Natural Waters of Viti Ltd., supra, and Gund Inc. et al. v. Ganz Bros. Toys Ltd. (1989), 23 C.P.R. (3d) 344. That foundation flows from answers by Mr. Milo concerning shared responsibility and shared efforts between LifeGear and Pride.
[21] Again, the evidence on this point may be weak but it is sufficient in my opinion to let the matter go forward. The germ is there.
(3) Abuse of process
[22] Counsel for Urus argued the inclusion of Pride in the claim was an abuse of process in that its inclusion was for the sole purpose of shielding LifeGear from having to post security for costs. He conceded, however, to show abuse of process in this context he had to demonstrate either no reasonable cause of action or a vexatious or frivolous proceeding. He has succeeded in demonstrating neither and, as a result, has not demonstrated that the statement of claim constitutes an abuse of process notwithstanding a specific lack of denial by Pride of the assertion of improper motive by Urus' deponent.
DISPOSITION
[23] For all of these reasons, the defendant's motion to strike the plaintiffs' statement of claim is dismissed with costs in any event of the cause.
"François Lemieux"
J U D G E
OTTAWA, ONTARIO
OCTOBER 26, 2001
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