Kirkbi AG v. Ritvik Holdings Inc.

Kirkbi AG v. Ritvik Holdings Inc.
Collection
Supreme Court Judgments
Date
2005-11-17
Neutral citation
2005 SCC 65
Report
[2005] 3 SCR 302
Case number
29956
Judges
McLachlin, Beverley; Major, John C.; Bastarache, Michel; Binnie, William Ian Corneil; LeBel, Louis; Deschamps, Marie; Fish, Morris J.; Abella, Rosalie Silberman; Charron, Louise
On appeal from
Federal Court of Appeal
Subjects
Constitutional law
Intellectual property
Torts
Notes
SCC Case Information: 29956
Decision Content
SUPREME COURT OF CANADA
Citation: Kirkbi AG v. Ritvik Holdings Inc., [2005] 3 S.C.R. 302, 2005 SCC 65
Date: 20051117
Docket: 29956
Between:
Kirkbi AG and Lego Canada Inc.
Appellants
and
Ritvik Holdings Inc./Gestions Ritvik Inc. (now operating
as Mega Bloks Inc.)
Respondent
‑ and ‑
Attorney General of Canada and Attorney General of Quebec
Interveners
Coram: McLachlin C.J. and Major, Bastarache, Binnie, LeBel, Deschamps, Fish, Abella and Charron JJ.
Reasons for Judgment:
(paras. 1 to 70)
LeBel J. (McLachlin C.J. and Major, Bastarache, Binnie, Deschamps, Fish, Abella and Charron JJ. concurring)
______________________________
Kirkbi AG v. Ritvik Holdings Inc., [2005] 3 S.C.R. 302, 2005 SCC 65
Kirkbi AG and Lego Canada Inc. Appellants
v.
Ritvik Holdings Inc./Gestions Ritvik Inc. (now operating
as Mega Bloks Inc.) Respondent
and
Attorney General of Canada and Attorney General of Quebec Interveners
Indexed as: Kirkbi AG v. Ritvik Holdings Inc.
Neutral citation: 2005 SCC 65.
File No.: 29956.
2005: March 16; 2005: November 17.
Present: McLachlin C.J. and Major, Bastarache, Binnie, LeBel, Deschamps, Fish, Abella and Charron JJ.
on appeal from the federal court of appeal
Constitutional law — Distribution of legislative powers — Trade and commerce — Trade‑marks — Whether provision creating statutory action of passing off in federal trade‑mark legislation ultra vires Parliament — Whether federal trade‑marks legislation valid exercise of Parliament’s general trade and commerce power — Constitution Act, 1867, s. 91(2) — Trade‑marks Act, R.S.C. 1985, c. T‑13, s. 7 (b).
Trade‑marks — Unfair competition — Passing‑off action — Unregistered trade‑marks — Doctrine of functionality — Toy manufacturer asserting unregistered trade‑mark in LEGO blocks consisting of distinctive orthogonal pattern of raised studs distributed on top of each block — Whether unregistered functional mark can form basis of action claiming passing off under s. 7 (b) of Trade‑marks Act — Whether doctrine of functionality applicable only to registered trade‑marks — Trade‑marks Act, R.S.C. 1985, c. T‑13, s. 7 (b).
Torts — Passing off — Conditions to establish liability.
K held the patents for LEGO construction sets. When the patents expired in Canada, R, a Canadian toy manufacturer, began manufacturing and selling bricks interchangeable with LEGO. K tried to assert a trade‑mark in the “LEGO indicia”: the upper surface of the block with eight studs distributed in a regular geometric pattern. When the Registrar of Trade‑marks refused registration, K claimed the LEGO indicia as an unregistered mark and sought a declaration that it had been infringed by R pursuant to s. 7 (b) of the Trade-marks Act and the common law doctrine of passing off. It requested a permanent injunction to prevent R from marketing infringing products and sought damages. The trial judge found that purely functional features, such as the LEGO indicia, could not become the basis of a trade‑mark, whether registered and unregistered. The majority of the Court of Appeal upheld the decision. In this Court, R challenged the constitutionality of s. 7 (b), arguing that the provision is ultra vires the legislative competence of Parliament under s. 91(2) of the Constitution Act, 1867 .
Held: The appeal should be dismissed.
Section 7 (b) of the Trade‑marks Act , which creates a civil cause of action essentially codifying the common law tort of passing off, is intra vires Parliament. First, although the creation of civil causes of action is generally a matter of property or civil rights in the province, the intrusion of s. 7 (b) into provincial jurisdiction is minimal. Section 7 (b) is remedial and is limited in its application by the provisions of the Act. It does not expand the federal jurisdiction in relation to trade‑marks and trade‑names, but merely rounds out an otherwise incomplete trade‑mark scheme. Second, the Trade‑marks Act is a valid exercise of Parliament’s general trade and commerce power under s. 91(2) of the Constitution Act, 1867 . The Trade‑marks Act establishes a regulatory scheme for both registered and unregistered trade‑marks and is clearly concerned with trade as a whole, across and between industries in different provinces. Since there is no question that trade‑marks apply across and between industries in different provinces, divided provincial and federal jurisdiction could lead to uneven protection. The lack of a civil remedy integrated into the scheme of the Act and applicable to registered and unregistered marks could also lead to duplicative, conflicting, inefficient enforcement procedures. Third, s. 7(b) is sufficiently integrated into the Trade‑marks Act . As the encroachment into provincial power is minimal, a “functional relationship”, such as is present here, is sufficient to sustain the constitutionality of the provision. The passing‑off action plays a clear role in the federal scheme. In its pith and substance, s. 7 (b) is directly connected to the enforcement of trade‑marks and trade‑names in Canada, and the civil remedy it creates protects the goodwill associated with trade‑marks and is directed to avoiding consumer confusion. Without this provision there would be a gap in the legislative protection of trade‑marks. [20-36]
K’s passing‑off claim under s. 7 (b) of the Trade‑marks Act must be dismissed. Its claim, which is based on the existence of a trade‑mark, is barred by the application of the doctrine of functionality. This doctrine establishes that 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. The doctrine reflects the purpose of a trade‑mark, which is the protection of the distinctiveness of the product, and applies equally to registered and unregistered marks. Registration does not change the nature of a mark; it merely grants more effective rights against third parties. Marks, registered or not, share common legal attributes and grant exclusive rights to the use of a distinctive designation or guise. Here, K claimed an unregistered trade‑mark consisting solely of the technical or functional characteristics of the LEGO bricks, formerly protected by K’s patents. A purely functional design cannot be the basis of a trade‑mark and trade‑mark law should not be used to perpetuate monopoly rights enjoyed under now‑expired patents. [40-61]
In any event, under the modern law of passing off, three elements must be established in order to succeed in a passing‑off action based on statute law or common law: the existence of goodwill, deception of the public due to a misrepresentation and actual or potential damage to the plaintiff. In this case, K’s claim was bound to fail because it would not have met the first condition of the action. The alleged distinctiveness of the product consisted precisely of the process and techniques which were now common to the trade. [62-69]
Cases Cited
Applied: General Motors of Canada Ltd. v. City National Leasing, [1989] 1 S.C.R. 641; Kitkatla Band v. British Columbia (Minister of Small Business, Tourism and Culture), [2002] 2 S.C.R. 146, 2002 SCC 31; referred to: Citizens Insurance Co. of Canada v. Parsons (1881), 7 App. Cas. 96; Attorney General of Canada v. Canadian National Transportation, Ltd., [1983] 2 S.C.R. 206; MacDonald v. Vapor Canada Ltd., [1977] 2 S.C.R. 134; Attorney-General for Ontario v. Attorney-General for Canada, [1937] A.C. 405; Good Humor Corp. of America v. Good Humor Food Products Ltd., [1937] Ex. C.R. 61; Royal Doulton Tableware Ltd. v. Cassidy’s Ltd., [1986] 1 F.C. 357; Asbjorn Horgard A/S v. Gibbs/Nortac Industries Ltd. (1986), 8 C.I.P.R. 232, rev’d in part [1987] 3 F.C. 544; Harvard College v. Canada (Commissioner of Patents), [2002] 4 S.C.R. 45, 2002 SCC 76; Monsanto Canada Inc. v. Schmeiser, [2004] 1 S.C.R. 902, 2004 SCC 34; Free World Trust v. Électro Santé Inc., [2000] 2 S.C.R. 1024, 2000 SCC 66; Whirlpool Corp. v. Camco Inc., [2000] 2 S.C.R. 1067, 2000 SCC 67; Parke, Davis & Co. v. Empire Laboratories Ltd., [1964] S.C.R. 351; Remington Rand Corp. v. Philips Electronics N.V. (1995), 64 C.P.R. (3d) 467; Pizza Pizza Ltd. v. Canada (Registrar of Trade Marks), [1989] 3 F.C. 379; Thomas & Betts, Ltd. v. Panduit Corp., [2000] 3 F.C. 3; Imperial Tobacco Co. of Canada v. Registrar of Trade Marks, [1939] Ex. C.R. 141; Elgin Handles Ltd. v. Welland Vale Manufacturing Co. (1964), 43 C.P.R. 20; TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U.S. 23 (2001); Wal‑Mart Stores, Inc. v. Samara Bros., Inc., 529 U.S. 205 (2000); Koninklijke Philips Electronics NV v. Remington Consumer Products Ltd., C-299/99, [2002] E.C.R. I‑5475; Cancellation Division of the Office for Harmonization in the Internal Market (Trade‑marks and Designs), 63 C 107029/1 “LEGO brick” (3D), July 30, 2004; INTERLEGO AG’s Trade Mark Applications, [1998] R.P.C. 69; Paris, October 18, 2000, D. 2001.Jur.850; Ciba‑Geigy Canada Ltd. v. Apotex Inc., [1992] 3 S.C.R. 120; Singer Manufacturing Co. v. Loog (1882), 8 App. Cas. 15, aff’g (1880), 18 Ch. D. 395; Erven Warnink B.V. v. J. Townend & Sons (Hull) Ltd., [1979] A.C. 731; Reckitt & Colman Products Ltd. v. Borden Inc., [1990] 1 All E.R. 873; Oxford Pendaflex Canada Ltd. v. Korr Marketing Ltd., [1982] 1 S.C.R. 494; Consumers Distributing Co. v. Seiko Time Canada Ltd., [1984] 1 S.C.R. 583.
Statutes and Regulations Cited
Constitution Act, 1867, ss. 91(2) , (22) , (23) , 92(13) .
Lanham Trade‑Mark Act, 15 U.S.C.A. § 1052(e)(5).
Trade-marks Act, R.S.C. 1985, c. T‑13, ss. 2 “distinguishing guise”, “trade-mark”, 6, 7, 13(2), 19, 20.
Unfair Competition Act, 1932, S.C. 1932, c. 38, s. 2(d).
Authors Cited
Bently, Lionel, and Brad Sherman. Intellectual Property Law, 2nd ed. Oxford: Oxford University Press, 2004.
Cornish, William Rodolph. Intellectual Property: Omnipresent, Distracting, Irrelevant? Oxford: Oxford University Press, 2004.
Cornish, William Rodolph, and David Llewelyn. Intellectual Property: Patents, Copyright, Trade Marks and Allied Rights, 5th ed. London: Sweet & Maxwell, 2003.
Gill, A. Kelly, and R. Scott Jolliffe. Fox on Canadian Law of Trade-marks and Unfair Competition, 4th ed. Toronto: Carswell, 2002 (loose-leaf).
Jolliffe, R. Scott. “The Common Law Doctrine of Passing Off”, in Gordon F. Henderson, ed., Trade-Marks Law of Canada. Scarborough, Ont.: Carswell, 1993, 197.
Vaver, David. Intellectual Property Law: Copyright, Patents, Trade‑marks. Concord, Ont.: Irwin Law, 1997.
Vivant, Michel. “La fantastique explosion de la propriété intellectuelle: Une rationalité sous le big bang?”, dans Mélanges Victor Nabhan. Cowansville, Qué.: Yvon Blais, 2004, 393.
International Documents
European Communities. First Council Directive 89/104/EEC of 21 December 1988 to Approximate Laws Relating to Trade Marks, [1989] O.J. L. 40/1, art. 3(1)(e).
APPEAL from a judgment of the Federal Court of Appeal (Rothstein, Sexton and Pelletier JJ.A.), [2004] 2 F.C.R. 241, 228 D.L.R. (4th) 297, 26 C.P.R. (4th) 1, 308 N.R. 1, [2003] F.C.J. No. 1112 (QL), 2003 FCA 297, upholding a decision of Gibson J. (2002), 220 F.T.R. 161, 20 C.P.R. (4th) 224, [2002] F.C.J. No. 793 (QL), 2002 FCT 585. Appeal dismissed.
Robert H. C. MacFarlane, Michael E. Charles, Peter W. Hogg, Q.C., Christine Pallotta and Catherine Beagan Flood, for the appellants.
Ronald E. Dimock, Bruce Ryder, Bruce W. Stratton and Henry Lue, for the respondent.
Peter Southey, for the intervener the Attorney General of Canada.
Alain Gingras, for the intervener the Attorney General of Quebec.
The judgment of the Court was delivered by
LeBel J. —
I. Introduction
1 For many years, Kirkbi AG (“Kirkbi”) has been a well-known and successful manufacturer of construction sets for children, and at times, for their parents too. The construction sets consist of standardized small plastic bricks, held together by a pattern of interlocking studs and tubes. Patent protection of this locking system has now expired in Canada and in several other countries. Kirkbi now attempts to protect its market share and goodwill against the inroads of competitors by invoking other forms of intellectual property rights. In particular, it is engaged in a long-running dispute with the respondent Mega Bloks Inc., formerly Ritvik Holdings Inc./Gestions Ritvik Inc. (“Ritvik”), a Canadian toy manufacturer. After the expiry of the last LEGO patents in Canada, the respondent began manufacturing and selling similar bricks, using the same locking method.
2 Kirkbi is now relying on an unregistered trade-mark, the “LEGO indicia”, which consists of the well-known geometrical pattern of raised studs on the top of the bricks as the basis for a claim of passing off under s. 7 (b) of the Trade-marks Act, R.S.C. 1985, c. T‑13 . Kirkbi seeks to prevent Ritvik from marketing its competing products without a proper disclaimer that its building blocks are not LEGO bricks and are not supplied by Kirkbi. Absent such a warning to consumers, the appellant argues, confusion arises and there are grounds for a passing-off action under s. 7 (b). In this Court, for the first time in these proceedings, Ritvik challenged the constitutionality of s. 7 (b) and argued that it is ultra vires the legislative competence of the Parliament of Canada.
3 Although I hold that s. 7 (b) is a valid exercise of the federal power over trade and commerce, I agree that the action should be dismissed and that the majority judgment of the Federal Court of Appeal should be upheld. A purely functional design may not be the basis of a trade-mark, registered or unregistered. The tort of passing off is not made out. The law of passing off and of trade-marks may not be used to perpetuate monopoly rights enjoyed under now-expired patents. The market for these products is now open, free and competitive.
II. Background
4 The LEGO toy business was founded in 1932. In 1949, Kirkbi produced its first toy building blocks. Those blocks were derived from a British product, the Kiddicraft blocks, which used a system of interlocking blocks. Kirkbi bought the patents covering the Kiddicraft system a few years later. Kirkbi then introduced significant improvements to the blocks. It added tubes underneath the blocks which coupled with the studs on top. This clever locking system increased the friction between the bricks and enhanced their “clutch power”, although children could still easily disassemble them. The current LEGO block was thus designed and marketed some 50 years ago. The same pattern of studs on the top of the block with tubes underneath remains in use. The only change was the addition of the mark “LEGO” on the top of each stud in tiny script. Kirkbi managed to keep patent protection of its technology in place for many years. But, in Canada, as elsewhere, patent protection came to an end. In Canada, the last patent expired in 1988. By that time, the quality and originality of its products had earned LEGO bricks a well-deserved reputation amongst parents and children. LEGO toys acquired generations of devoted clients and users in Canada as in many other countries.
5 After the expiry of Kirkbi’s patents, clouds gathered on the horizon. New competitors appeared and attempted to market similar if not identical products. The most aggressive was the respondent, a Montreal toy manufacturer now known as Ritvik. Ritvik had begun manufacturing toys in the 1960s. Later, in the 1980s, it developed and marketed a line of large-size building blocks. Finally, after the expiry of the last LEGO patents in Canada, it decided to use the traditional LEGO technology. It brought to market a line of small blocks, identical in size to LEGO blocks, which used the same geometrical pattern of stubs on top coupled with tubes underneath. They were sold under the name “MICRO MEGA BLOKS”. Ritvik sold its new line in Canada and exported them to several other countries. Over the last 10 years, it has become a significant global competitor to Kirkbi.
6 Facing new competition and now deprived of patent protection, Kirkbi attempted to protect its market position, employing a highly creative and aggressive use of the law of intellectual property and unfair competition, in several different legal systems throughout the world. This ongoing effort led to a substantial amount of litigation in several countries. For example, at times, Kirkbi tried to register its pattern of studs as a trade-mark or a design. Those attempts generally failed. In Canada, after the Registrar of Trade-marks rejected an application to register the pattern as a trade-mark, the appellant resorted to a more subtle and creative use of the resources of the law of intellectual property. This attempt led directly to the present litigation.
7 Kirkbi asserted unregistered trade-mark rights in respect of its use of the “LEGO indicia”. This mark consists of its distinctive orthogonal pattern of raised studs distributed on the top of each toy-building brick. These LEGO indicia are thus the upper surface of the block, with eight studs distributed in a regular geometric pattern (see Sexton J.A., [2004] 2 F.C.R. 241, 2003 FCA 297, at para. 11). It alleged that the marketing by Ritvik of its MICRO and MINI lines of small bricks using the same pattern caused confusion with its unregistered trade-mark. It claimed relief under s. 7 (b) of the Trade-marks Act and under the common law doctrine of passing off. In a statement of claim filed in the Federal Court, Trial Division, it claimed ownership of this unregistered mark and sought a declaration that it had been infringed. It requested a permanent injunction to prevent the marketing of the MICRO and MINI lines of MEGA BLOKS and damages.
8 Ritvik mounted a strong defence. It denied that s. 7 (b) of the Trade-marks Act had been breached and that the tort of passing off had been made out. In counterclaim, it sought a declaration that it was entitled to continue selling its MICRO and MINI lines of bricks. At that stage, it did not raise the issue of the constitutionality of s. 7 (b) of the Trade-marks Act .
III. Judicial History
A. Federal Court, Trial Division (2002), 220 F.T.R. 161, 2002 FCT 585
9 Gibson J. dismissed Kirkbi’s claim. He accepted the key argument raised by Ritvik that purely functional features, such as the LEGO indicia, could not become the basis of a trade-mark and affirmed that this principle was still a part of Canadian trade-mark law. The rule of functionality applied both to registered and unregistered marks. Although he observed that this conclusion was dispositive of the claim, he went on to consider the issue of passing off. Gibson J. noted that the subject matter at issue had been claimed and disclosed in expired patents. In his view, Kirkbi was indirectly attempting to extend its patent protection, contrary to the principles of the patent system. The trial judge then reviewed the elements of the tort of passing off at common law. He recognized that, given the history of the marketing of its product, Kirkbi had acquired goodwill in the particular configuration of its bricks. He then found that it had to be shown that this goodwill was put in peril by confusion amounting to a deception of the public due to a misrepresentation. He was satisfied that Kirkbi had established a likelihood of confusion or even actual confusion, between the LEGO bricks and the Ritvik blocks, based on the LEGO indicia. But Gibson J. held that the claimant needed to prove that the confusion had arisen from an intentional misrepresentation by Ritvik, and he concluded that in this case Kirkbi had failed to do so. On that basis, he would have dismissed the claim of passing off, although he acknowledged that Ritvik’s entry into the market had caused damages to the appellant. Kirkbi appealed this judgment to the Federal Court of Appeal.
B. Federal Court of Appeal, [2004] 2 F.C.R. 241, 2003 FCA 297
10 Writing for the majority, Sexton J.A. dismissed the appeal. In his view, the doctrine of functionality applied to all trade-marks, registered or unregistered, and had remained a fundamental principle of the law of trade-marks. The distinguishing guise solely consisting of the so-called “LEGO indicia” was purely functional. For this reason, it was invalid and could not form the basis of an infringement action under s. 7 (b) of the Trade-marks Act . Kirkbi was attempting to extend the life and application of its expired patents through an improper use of trade-mark law. Given his conclusion on the issue of functionality and the validity of the mark, Sexton J.A. did not comment on the questions of confusion and the elements of the tort of passing off.
11 Pelletier J.A. disagreed and would have allowed the appeal and the action. In dissent, he held that, although the LEGO mark was primarily functional, it could be the basis of a passing-off claim under s. 7 (b). An unregistered trade-mark did not confer any exclusivity but its owner had the right to prevent competitors from causing confusion in the marketing of competing products. LEGO was entitled to protection against the confusing use of its unregistered mark. In addition, Pelletier J.A. stated that the doctrine of functionality was no longer part of the law of trade-marks in Canada in respect of unregistered marks, by reason of the changes brought about by the adoption of the present Trade-marks Act . He also found that the elements of passing off had been made out. In particular, even though no deliberate strategy to deceive had been established, confusion in the market between Kirkbi and Ritvik products had been proved.
IV. Analysis
A. The Issues
12 The scope of the issues at stake substantially changed after our Court granted leave to appeal. The respondent then raised the constitutionality of s. 7 (b) of the Trade-marks Act . Ritvik submitted that the provision exceeded the legislative authority of the Parliament of Canada. The Chief Justice stated the following question:
1. Is s. 7(b) of the Trade‑marks Act, R.S.C. 1985, c. T‑13 , as amended, either in whole or in part within the legislative competence of the Parliament of Canada under s. 91(2) of the Constitution Act, 1867 ?
13 I will address the constitutional question first. I will then turn to the issues raised by the infringement action under s. 7 (b). I will consider the application of the doctrine of functionality. Does it apply to unregistered trade-marks or to registered trade-marks only? May an unregistered functional mark form the basis of an action claiming passing off under s. 7 (b) of the Trade-marks Act ? Last, given the uncertainty in the courts below, I will review and discuss some aspects of the tort of passing off at common law.
B. The Constitutionality of Section 7 (b) of the Trade-marks Act
14 In this appeal, the constitutional validity of s. 7 (b) of the Trade-marks Act arises in the particular context of an unregistered trade-mark. The respondent challenges the constitutional validity of the impugned provision and submits that s. 7 (b) of the Trade‑marks Act is ultra vires the legislative competence of the Parliament of Canada because it is not linked or connected in any way to the trade-mark registration scheme in the Act.
(1) Trade and Commerce
15 The grant of legislative authority to the Parliament of Canada listed in s. 91 of the Constitution Act, 1867 does not specify that trade-marks are a component of the federal government’s power to legislate. Patents and copyrights are explicitly allocated to federal legislative power (s. 91(22) and (23) ). Pursuant to s. 91(2) , the federal government has exclusive jurisdiction in relation to trade and commerce. In Citizens Insurance Co. of Canada v. Parsons (1881), 7 App. Cas. 96, the Judicial Committee of the Privy Council distinguished two branches of federal power under s. 91(2) : (1) the power over international and interprovincial trade and commerce, and (2) the power over general trade and commerce affecting Canada as a whole (“general trade and commerce”). This interpretation of s. 91(2) , which limits the scope of the federal trade and commerce power to these two branches, is intended to ensure a proper constitutional balance between the otherwise overlapping federal power over trade and commerce (s. 91(2) ) and the provincial power over property and civil rights in the province (s. 92(13) ): see A. K. Gill and R. S. Jolliffe, Fox on Canadian Law of Trade-marks and Unfair Competition (4th ed. (loose-leaf)), at p. 2-4.
16 The “general trade and commerce” category requires an assessment of the relative importance of an activity to the national economy as well as an inquiry into whether an activity should be regulated by Parliament as opposed to the provinces. To determine whether a particular issue requires national rather than local regulation, this Court has set out five criteria to be considered. These criteria are integrated into an assessment of whether federal legislation can be supported on the basis of Parliament’s authority over general trade and commerce. They reflect principles which help distinguish the federal trade and commerce power from the provincial property and civil rights power. In two comprehensive decisions dealing with the second branch of s. 91(2) (Attorney General of Canada v. Canadian National Transportation, Ltd., [1983] 2 S.C.R. 206; General Motors of Canada Ltd. v. City National Leasing, [1989] 1 S.C.R. 641), Dickson C.J. adopted and extended the three indicia initially set out by Laskin C.J. in MacDonald v. Vapor Canada Ltd., [1977] 2 S.C.R. 134. These requirements “serve to ensure that federal legislation does not upset the balance of power between federal and provincial governments” (City National Leasing, at p. 662).
17 The jurisprudence of our Court now recognizes that the following factors are hallmarks of a valid exercise of Parliament’s general trade and commerce power: (i) the impugned legislation must be part of a regulatory scheme; (ii) the scheme must be monitored by the continuing oversight of a regulatory agency; (iii) the legislation must be concerned with trade as a whole rather than with a particular industry; (iv) the legislation should be of a nature that provinces jointly or severally would be constitutionally incapable of enacting; and (v) the failure to include one or more provinces or localities in a legislative scheme would jeopardize the successful operation of the scheme in other parts of the country (City National Leasing, at pp. 662-63). These factors are not exhaustive and, to be valid, it is not necessary for federal legislation to satisfy all five criteria:
In total, the five factors provide a preliminary check-list of characteristics, the presence of which in legislation is an indication of validity under the trade and commerce power. These indicia do not, however, represent an exhaustive list of traits that will tend to characterize general trade and commerce legislation. Nor is the presence or absence of any of these five criteria necessarily determinative. As noted in Canadian National Transportation, supra, at p. 268:
The above does not purport to be an exhaustive list, nor is the presence of any or all of these indicia necessarily decisive. The proper approach to the characterization is still the one suggested in Parsons, a careful case by case assessment. Nevertheless, the presence of such factors does at least make it far more probable that what is being addressed in a federal enactment is genuinely a national economic concern and not just a collection of local ones.
On any occasion where the general trade and commerce power is advanced as a ground of constitutional validity, a careful case by case analysis remains appropriate. The five factors articulated in Canadian National Transportation merely represent a principled way to begin the difficult task of distinguishing between matters relating to trade and commerce and those of a more local nature.
(City National Leasing, at pp. 662-63)
18 The federal government’s power to legislate with respect to trade-marks has never been the target of a direct constitutional challenge. The issue was raised in the Privy Council in a 1937 decision examining the constitutionality of federal trade-mark legislation. The Privy Council judgment relies, albeit implicitly, on the second branch of the trade and commerce powers under s. 91(2) to confirm Parliament’s jurisdiction to enact trade-mark legislation: Attorney-General for Ontario v. Attorney-General for Canada, [1937] A.C. 405. Lord Atkin for the Privy Council commented as follows (at p. 417):
No one has challenged the competence of the Dominion to pass such legislation. If challenged one obvious source of authority would appear to be the class of subjects enumerated in s. 91(2) , the Regulation of trade and commerce, referred to by the Chief Justice. There could hardly be a more appropriate form of the exercise of this power than the creation and regulation of a uniform law of trade marks.
See also Good Humor Corp. of America v. Good Humor Food Products Ltd., [1937] Ex. C.R. 61, at pp. 75-76. More recently in Royal Doulton Tableware Ltd. v. Cassidy’s Ltd., [1986] 1 F.C. 357, the Federal Court, Trial Division stated in obiter that “[t]he jurisdiction of Parliament with respect to trade marks has long since been recognized . . . . [I]t may well be that the jurisdiction of Parliament over trade marks, depending as it does on federal authority over ‘the regulation of trade and commerce’ (see Attorney-General for Ontario v. Attorney-General for Canada, supra) is intrinsically broader than is Parliament’s jurisdiction over ‘patents of invention and discovery’” (pp. 374-75).
19 The constitutionality of specific provisions of the Trade-marks Act has been challenged but the validity of the Act as a whole has never been conclusively determined. The courts have implicitly recognized the validity of this federal legislation in several decisions: see, e.g., Vapor Canada; City National Leasing; Asbjorn Horgard A/S v. Gibbs/Nortac Industries Ltd. (1986), 8 C.I.P.R. 232 (F.C.T.D.), rev’d in part [1987] 3 F.C. 544 (C.A.). The constitutionality of the Trade-marks Act as a whole is not challenged on this appeal. I will return to the issue of the constitutional foundation for federal trade-mark legislation and will consider the five criteria outlined by Dickson C.J. further below.
(2) Determining the Constitutionality of Section 7 (b): The Test to be Applied
20 In City National Leasing, Dickson C.J. set out the proper framework for analysis to determine the characterization of an impugned provision for constitutional purposes. He stressed that the mere fact that a provision codifies a civil cause of action does not necessarily make it ultra vires the federal government. Although the creation of civil causes of action is generally a matter of property or civil rights in the province, a finding that a provision standing alone, in its pith and substance, intrudes on provincial powers does not determine its ultimate constitutional validity. At the same time, a provision will not be valid merely because the main provisions of an Act are valid. It is necessary to consider both the impugned provision and the Act as a whole when undertaking constitutional analysis. The nature of the relationship between a provision and the statute determines the extent to which the provision is integrated into otherwise valid legislation. If the legislation is valid and the provision is sufficiently integrated within the scheme, it can be upheld by virtue of that relationship: a provision may take on a valid constitutional cast by the context and association in which it is fixed as complementary provision serving to reinforce other admittedly valid provisions (Vapor Canada, at pp. 158-59, per Laskin C.J.).
21 The three-part test for determining whether the impugned provision is within the constitutional powers of the enacting legislature was restated by this Court in Kitkatla Band v. British Columbia (Minister of Small Business, Tourism and Culture), [2002] 2 S.C.R. 146, 2002 SCC 31, at para. 58, here paraphrased to reflect the facts of this case:
1. Does the impugned provision intrude into a provincial head of power, and to what extent?
2. If the impugned provision intrudes into a provincial head of power, is it nevertheless part of a valid federal legislative scheme?
3. If the impugned provision is part of a valid federal scheme, is it sufficiently integrated with that scheme?
(3) Application to the Facts of This Case
22 For ease of reference, I reproduce here s. 7 of the Trade-marks Act :
7. No person shall
(a) make a false or misleading statement tending to discredit the business, wares or services of a competitor;
(b) direct public attention to his wares, services or business in such a way as to cause or be likely to cause confusion in Canada, at the time he commenced so to direct attention to them, between his wares, services or business and the wares, services or business of another;
(c) pass off other wares or services as and for those ordered or requested;
(d) make use, in association with wares or services, of any description that is false in a material respect and likely to mislead the public as to
(i) the character, quality, quantity or composition,
(ii) the geographical origin, or
(iii) the mode of the manufacture, production or performance
of the wares or services; or
(e) do any other act or adopt any other business practice contrary to honest industrial or commercial usage in Canada.
In this section I will apply the analytical framework set out above to determine the constitutional validity of s. 7 (b).
(a) Characterization of the Impugned Provision: Does Section 7(b) Encroach on Provincial Powers?
23 The first stage of the analysis requires a characterization of the impugned provision in isolation from the rest of the statute. We look to its purpose and its effect to determine whether the provision encroaches on provincial powers, and if so, to what extent: City National Leasing, at p. 674; Kitkatla, at para. 59. Section 7(b) creates a civil cause of action that essentially codifies the common law tort of passing off: Vapor Canada, at p. 147; Asbjorn Horgard A/S (F.C.T.D.), at p. 241. Standing alone it appears to encroach on provincial power, namely property and civil rights in the province (s. 92(13) ). As Dickson C.J. noted in City National Leasing: “This provincial power over civil rights is a significant power and one that is not lightly encroached upon” (pp. 672-73). As explained above, if s. 7(b) is sufficiently integrated into the scheme of the Trade-marks Act as a whole, then it will nonetheless be intra vires Parliament.
24 In City National Leasing, this Court found that the intrusion of s. 31.1 of the Combines Investigation Act, R.S.C. 1970, c. C-23, into provincial jurisdiction was minimal. In coming to this conclusion Dickson C.J. highlighted the following three factors: (i) the provision was remedial and was not in itself a substantive part of the Act; the provision did not create a general cause of action; (ii) its application was limited by the provisions of the Act; and (iii) Parliament was not constitutionally precluded from creating rights of civil action where such measures are shown to be warranted (p. 673).
25 These factors apply equally to s. 7 (b) of the Trade-marks Act . First, s. 7(b) is remedial; its purpose is to enforce the substantive aspects of the Trade-marks Act relating to unregistered trade-marks:
The tort of passing off is in many respects the equivalent cause of action for unregistered trade-marks as infringement [s. 20 of the Act] is to registered trade-marks. The overall legislative scheme of the Trade-marks Act is the protection, identification, and registration of trade-marks, whether registered or unregistered.
(Gill and Jolliffe, at p. 2-22)
26 Second, the passing-off action protects unregistered trade-marks and goodwill enjoyed by the trade-marks. Section 7(b) is therefore limited by the provisions of the Trade-marks Act : it does not expand the federal jurisdiction in relation to trade-marks and trade-names but merely rounds out an otherwise incomplete trade-mark scheme (Asbjorn Horgard A/S (F.C.T.D.), at p. 237). Unlike s. 7(e), which was found to be ultra vires Parliament because it did not have any connection with the enforcement of trade-marks or trade-names (Asbjorn Horgard A/S (F.C.T.D.), at p. 242) and was significantly broader in application, the creation of a statutory action for passing off in s. 7 (b) is limited in its application.
27 Finally, as regards federal statutory civil actions, Dickson C.J. reminds us in City National Leasing that “[i]t is also important to recognize that while the Court in Vapor Canada, supra, struck down one civil cause of action, the Court did not preclude other federally created private actions from being sustained under federal heads of power” (p. 693). Not only has this Court sustained federally created civil causes of action in a number of cases, but the test developed by this Court in City National Leasing and in Kitkatla (outlined above) makes clear that civil causes of action are intra vires Parliament if sufficiently integrated into valid federal legislation. In sum, although the impugned provision encroaches on an important provincial power, the intrusion is minimal. We must now determine whether the Trade-marks Act is valid and, if so, ascertain whether s. 7 (b) is sufficiently integrated into the federal scheme of regulation to be sustained as an exercise of Parliament’s general trade and commerce power.
(b) The Validity of the Federal Trade-marks Act
28 In the second stage of the analysis, the Court must determine whether the Trade-marks Act is a valid exercise of Parliament’s general trade and commerce power. The analysis is guided by the five indicia of validity set out above. In Asbjorn Horgard A/S, MacGuigan J.A. of the Federal Court of Appeal noted that:
All of the criteria of Chief Justice Dickson are verified in the Act: a national regulatory scheme, the oversight of the Registrar of Trade Marks, a concern with trade in general rather than with an aspect of a particular business, the incapability of the provinces to establish such a scheme, and the necessity for national coverage. [p. 559]
The parties do not dispute Parliament’s constitutional power to regulate registered trade-marks. Rather, it is Parliament’s right to create a civil remedy in relation to an unregistered trade-mark that is in issue. The respondent’s position is that the only regulatory scheme in the Trade-marks Act is the scheme governing registered trade-marks. In my view this is an incorrect characterization of the Act. The Trade-marks Act establishes a regulatory scheme for both registered and unregistered trade-marks.
29 The protection of unregistered trade-marks is integral to the legitimacy, legal standards and efficacy of registered trade-marks. The Trade-marks Act is clearly concerned with trade as a whole, as opposed to within a particular industry. There is no question that trade-marks apply across and between industries in different provinces. Divided provincial and federal jurisdiction could mean that the provincial law could be changed by each provincial legislature. This could result in unregistered trade-marks that were more strongly protected than registered trade-marks, undermining the efficacy and integrity of the federal Parliamen