Philip Morris Products S.A. v. Malboro Canada Limited

Philip Morris Products S.A. v. Malboro Canada Limited
Court (s) Database
Federal Court Decisions
Date
2010-11-08
Neutral citation
2010 FC 1099
File numbers
T-1784-06
Notes
Digest
Decision Content
Federal Court
Cour fédérale
Date: 20101108
Docket: T-1784-06
Citation: 2010 FC 1099
Ottawa, Ontario, November 8, 2010
PRESENT: The Honourable Mr. Justice de Montigny
BETWEEN:
PHILIP MORRIS PRODUCTS S.A.
and ROTHMANS, BENSON & HEDGES INC.
Plaintiffs
(Defendants by Counterclaim)
and
MARLBORO CANADA LIMITED and
IMPERIAL TOBACCO CANADA LIMITED
Defendants
(Plaintiffs by Counterclaim)
PUBLIC REASONS FOR JUDGMENT AND JUDGMENT
I. Introduction......................................................................................................................... para. 1
II. Background facts............................................................................................................... para. 8
........... A. The parties.............................................................................................................. para. 8
........... B. Relevant Facts Prior to the Parties’ Dispute........................................................ para. 11
(1) The Plaintiffs and their Activities…………………………………………… para. 12
....................... (2) The Defendants’ Activities..................................................................... para. 40
....................... (3) Relevant Facts Relating to the Canadian
............................. Cigarette Market..................................................................................... para. 51
........... C. The Launch of the Rooftop Brand in Canada....................................................... para. 58
III. The Witnesses................................................................................................................. para. 66
........... A. Plaintiffs’ Corporate and Historical Witnesses..................................................... para. 67
........... B. Defendants’ Corporate Witnesses and Sales Representatives............................... para. 86
........... C. The Parties’ Experts........................................................................................... para. 123
........... D. The Retailers (Defendants’ Witnesses)............................................................... para. 155
........... E. The Consumers (Plaintiffs’ Witnesses)................................................................ para. 161
IV. Issues…….................................................................................................................... para. 165
V. Analysis: the Trade-marks issues................................................................................... para. 167
........... A. Are the Defendants estopped from challenging the use of the ROOFTOP Design Trade-marks, or have they otherwise acquiesced to such use? para. 170
........... B. Are the ROOFTOP Design Trade-mark registrations a full defence to the Defendants’ allegations of infringement? If so, are the ROOFTOP Design Trade-mark Registrations valid?............................................................. para. 183
........... C. Have sections 19 and 22 of the Trade-Marks Act been contravened? para. 222
........... D. Has section 20 of the Trade-Marks Act been contravened?............... para. 240
........... E. Is the MARLBORO Registration Valid?............................................. para. 294
VI. Analysis: the Copyright Issue....................................................................................... para. 309
........... A. Do the Defendants’ 1996, 2001, and 2007 ITL Canadian Marlboro packages infringe PMPSA’s copyright in the MARLBORO Red Roof Label, contrary to sections 2, 3, and 27 of the Copyright Act, and/or do these packages breach the parties’ Agreement memorialized in 1952?............................................. para. 309
VII. Conclusion….…………………………………………........................................... ..para. 373
JUDGMENT
Rooftop Red, Gold, and Silver Product Packages...................................................... ANNEX “A”
ROOFTOP Design Trade-mark registrations............................................................... ANNEX “B”
Chronology of Package Changes................................................................................. ANNEX “C”
I. Introduction
[1] This case concerns the world’s top-selling cigarette product, which is sold in Canada by the Plaintiffs in association with certain design and word marks also associated with the product elsewhere in the world. Internationally, this product is called “Marlboro”. In Canada, the Plaintiffs do not use the word mark MARLBORO in association with their product because that word mark is registered in the name of a competitor, one of the Defendants. Rather, in Canada, the Plaintiffs call their product “Rooftop”, in reference to the design elements used on the package. However, the word mark ROOFTOP does not appear on the individual cigarette packages. This appears to be the first time that a cigarette product has been sold in Canada (and, quite possibly, in the world) without any brand name appearing on the package.[1]
[2] The dispute originated with the 2006 launch of this “no-name” product, which the Plaintiffs refer to as “Rooftop”. The Defendants responded to the Rooftop launch with a demand letter to the Plaintiffs, alleging that the new brand infringes its trade-mark registration for MARLBORO. The present action was then commenced, by which the Plaintiffs sought a declaration that the sale of Rooftop cigarettes in Canada does not contravene any rights of the Defendants in its MARLBORO registration. The Defendants responded with a counterclaim alleging precisely that infringement.
[3] This case is unique since it raises an issue that has never been previously addressed. In essence, the Plaintiffs are asserting that they do not infringe the Defendants’ trade-mark. Rather, they claim to be merely using a packaging design whose elements were created for and are owned by the Plaintiffs, and which are the subject of trade-mark registrations in Canada. Furthermore, they argue that there is no source confusion, nor has there been any confusion as to what product the Rooftop packages contain. According to their argument, preventing the Plaintiffs from identifying and selling their Rooftop products in Canada would be tantamount to abuse and overextension of whatever trade-mark rights the Defendants may have in the word mark MARLBORO.
[4] The Defendants, on the other hand, submit that the Plaintiffs deliberately invite consumers to associate their products with the internationally-known Marlboro brand by using the same package dressing and by declining to label them with any particular brand name. In doing so, the Plaintiffs would be implicitly and, if I may say, subliminally usurping the Defendants’ rights in the word mark MARLBORO, thereby infringing sections 19, 20 and 22 of the Trade-marks Act, R.S.C. 1985, T-13 (the “Act”).
[5] Further, the Plaintiffs amended their Statement of Claim on January 8, 2008 to allege that the 1996, 2001, and 2007 versions of the Defendants’ own Marlboro package are substantial copies and colourable imitations of their copyrighted “Marlboro Red Roof label”, which consists of a combination of individual graphic elements. As such, the Plaintiffs allege that the Defendants are thereby contravening sections 2, 3 and 27 of the Copyright Act, R.S. 1985, c. C-42 as well as an agreement reached between the parties in 1952.
[6] A week before the trial was set to begin, the Defendants made a motion to amend their Statement of Defence and Counterclaim, with a view to challenge the validity of six of Philip Morris Products S.A.’s (PMPSA) ROOFTOP Design Trade-mark registrations (see Annex B at the end of these reasons). That motion was granted, with leave given to the Plaintiffs to amend their pleadings in response.
[7] In reply and defence to those amendments, the Plaintiffs alleged that the Defendants’ registration TMDA55,988 for MARLBORO is invalid as it does not distinguish the wares manufactured and sold by the Defendant Marlboro Canada Limited nor is it adapted to distinguish them, contrary to sections 2 and 18 of the Trade-marks Act. They amended their Statement of Claim accordingly.
II. Background facts
A. The parties
[8] Both of the Plaintiffs, PMPSA and Rothmans Benson & Hedges Inc. (“RBH”) are wholly-owned subsidiaries of Philip Morris International Inc. (“PMI”). PMPSA is incorporated in Switzerland and is the owner of the ROOFTOP Design Trade-marks and the copyrighted Marlboro Red Roof Label design. RBH is a federally-incorporated Canadian company, with a principal place of business in Toronto, Ontario, and is the exclusive licensee of the ROOFTOP Design Trade-marks. RBH manufactures and distributes tobacco products in Canada, and is the second-largest Canadian tobacco company.
[9] The Defendant, Imperial Tobacco Limited (“ITL”) is the largest tobacco company in Canada. ITL is federally-incorporated in Canada, with is principal place of business in Montreal, Quebec. ITL is wholly owned by British-American Tobacco Plc (“BAT”), and is the licensee of trade-mark registration TMDA55,988 for the word MARLBORO. The co-Defendant Marlboro Canada Ltd. (“MCL”) is a federally incorporated entity with its principal place of business located in Montreal, Quebec. MCL is a wholly owned subsidiary of ITL and is currently recorded as the registered owner of the MARLBORO trade-mark.
[10] The respective parent companies PMI and BAT are the two largest publicly-owned tobacco companies in the world. They compete for market share in over 160 countries, including Canada through their Canadian subsidiaries, RBH and ITL.
B. Relevant Facts Prior to the Parties’ Dispute
[11] The following summary is drawn in large part from the agreed statement of facts filed by the parties.
(1) The Plaintiffs and their Activities
[12] PMPSA’s predecessors in title and former affiliated companies (“Philip Morris”) originally commenced their tobacco business as a United Kingdom (“UK”) company. They began operations in 1846, and in 1883, began selling Marlboro-branded, unfiltered cigarettes in the U.K. Operations began later in the United States (U.S.) and Canada, with Marlboro-branded cigarettes being sold in
both countries by 1906. The packaging used in both countries (the “Original Marlboro Packaging”) looked as follows:
[13] In 1902, the U.K. company elected to transfer its United States activities to an American company that would eventually become “Philip Morris U.S.”. Shortly thereafter, the U.K. Company assigned to Philip Morris U.S. its rights to the Canadian market.
[14] In 1924, a Canadian tobacco company, the Tuckett Tobacco Company of Hamilton, Ontario (“Tuckett”), began selling Marlboro-branded cigarettes in Canada in the Original Marlboro Packaging. Tuckett also registered MARLBORO in the Canadian Intellectual Property Office in 1932, under Registration number TMDA55,988, in relation to “tobacco in all its forms and particularly to be used in connection with the sale of cigarettes, cigarette papers, cigarette tubes, tobacco, snuff, and cigars”. While the exact circumstances preceding these events cannot be ascertained today, the available evidence from this time period was reviewed in earlier Federal Court proceedings between the parties. In this context, Justice Rouleau inferred that Tuckett had acquired the right to the MARLBORO trade-mark from Philip Morris.
[15] The MARLBORO trade-mark registration came to be owned by ITL’s predecessors after they gained control over Tuckett in or around 1930.
[16] Between 1924 and 1969, Tuckett Tobacco, now controlled by ITL, continued to sell cigarettes in Canada in the original Marlboro packaging. Those cigarettes were marketed to females primarily as a sophisticate’s cigarette with slogans such as “Mild as May” and “Ivory Tips Caress the Lips”. One of the versions had a red filter tip to accommodate and disguise lipstick marks.
[17] Similarly, Philip Morris continued to sell cigarettes in the U.S. in the original Marlboro packaging between 1924 and 1954. The image projected through the advertising was similar to that of Tuckett Tobacco’s product – an urban sophisticate’s cigarette – and one of its versions also had a red filter tip to accommodate and disguise lipstick marks.
[18] The original Marlboro packaging design used by Tuckett Tobacco until 1969, and by Philip Morris until 1954, did not differ in any material respect. Both of these products experienced declining sales with increasingly limited distribution.
[19] Certain of Tuckett’s Canadian advertisements for cigarettes led to a dispute between the parties, which were described in correspondence at the time. In the early 1950s, Philip Morris had alleged that one of Tuckett’s Canadian advertisements contravened an understanding between the
parties that had been reached on August 27, 1951. The understanding was described by the president of ITL, Mr. Edward C. Wood, in a letter dated July 22, 1952, as follows:
On August 27th we came to a definite understanding that we had no rights to the use of advertising copy created by you [Philip Morris] or to imitate it nor did we [ITL] have any rights to slogans that you [Philip Morris] might create now or in the future or any new designs or changes in old designs of the label. (…) The whole idea was to come to some understanding and to give you definite assurance that Tuckett had no right to follow changes that you might make in label and packaging designs or to crib on the various advertising campaigns or copy that you were then running or might institute in the future.
Agreed Statement of Facts (“ASF”), para. 18, schedule 5.
As set out in Mr. Wood’s letter, the 1952 Agreement was accepted and acknowledged by the parties, and was confirmation of the Defendants’ understanding and agreement that they would have no rights to any designs of the labels or packaging that the Plaintiffs created in the future, nor would they copy future advertising campaigns run by the Plaintiffs.
[20] In the early 1950’s, Philip Morris’ research showed a trend towards increasing consumption of filter cigarettes. Filters had been theretofore perceived as feminine. Philip Morris wanted to introduce a filter cigarette specifically positioned to attract male smokers. It was decided to adapt the relatively low-selling Marlboro brand for this purpose, and Philip Morris therefore decided to undertake a total redesign of its Marlboro cigarettes, packaging, and image. The company developed a full-flavored American blend for the tobacco, and added filters to the cigarettes. They hired Francesco Gianninoto, a graphic artist, to create a new package design that would have a strong, masculine appearance. Market research at the time showed that angular shapes were perceived as more masculine than round shapes and that red was psychologically the most effective color for this purpose.
[21] The new package design (the “Marlboro Red Roof Label”) was used in a new flip-top packaging format also introduced by Philip Morris, containing 20 king-size cigarettes. It incorporated a striking Red Roof design in association with a Philip Morris Crest and the word MARLBORO in a uniquely modified serif font. Mr. Ross Randolph Millhiser, who from 1973 to 1978 served as President of Philip Morris and who was brand manager for the Philip Morris Marlboro in 1954, guided all aspects of the brand’s reformulation from research and package design to advertising and selling. Here is how he describes this new package in an affidavit sworn in 1987 in legal proceeding in the Supreme Court of South Africa:
The Red Roof device with the cigarette and cork filter tip running through the elongated “l” and “b” or “ascenders” as we termed those letters and into the apex of the white section of the device was designed to project a masculine image and was consistent with the advertising “cowboy” image which (as will appear below) was to be adopted. In addition, the triangle was essentially complemented by the graphically designed elongated “l” and “b” in the word MARLBORO. The design was rendered in this strong abstract form with the intent of being suggestively masculine and macho.
ASF, para. 19-24, 30 and sched. 7. The parties were in agreement that Mr. Millhiser’s affidavit could be read-in at trial for the truth of its contents as Mr. Millhiser passed away in 2003.
[22] Francesco Gianninoto, creator of the Marlboro Red Roof Label, passed away in 1988, but also swore an affidavit in 1987 in the same legal proceeding in the Supreme Court of South Africa. In that affidavit, Mr. Gianninoto confirms his independent creation of the Marlboro Red Roof Label and that all copyright was assigned to Philip Morris. The parties are in agreement that Mr. Gianninoto’s affidavit can be read-in at trial for the truth of its contents.
[23] The parties agree that PMPSA is the owner through assignment of copyright in Canada for the original artistic work created by Francesco Gianninoto and referred to as the Marlboro Red Roof Label:
[24] Philip Morris also undertook advertising campaigns to market its newly-configured and re-designed product. The ads featured rugged cowboys working in “Marlboro country” and used phrases including “Come to where the flavor is. Come to Marlboro Country”. The advertisements were widely run and became very well known.
[25] The product and package redesign and the advertising campaigns were highly successful, and are recognized today among the most successful ever. Philip Morris Marlboro cigarettes came to be sold around the world, in over 160 countries, with the notable exception of Canada. They became the top-selling cigarette in the world by 1972, and the top-selling cigarette in the United States by 1975. Today, the Philip Morris cigarettes have retained their top ranking in many countries, and remain the best-selling cigarettes in the world.
[26] Two other products were sold in Canada using the ROOFTOP Design Trade-marks. In 1958, the Plaintiffs’ predecessors began selling the Matador brand of cigarettes in Canada. The product was sold in a red and white package (“Matador Red”) using substantially all of the elements of the Philip Morris Marlboro products sold elsewhere in the world by PMPSA, except that the word “Matador” appeared on the package instead of the word “Marlboro”. A trade-mark was issued in relation to that package on August 15, 1958 (TMA111,226), as represented below:
[27] The cigarettes provided inside the Matador Red package were Virginia blend Canadian cigarettes. A “light” version of the Matador Red cigarette was later introduced in Canada in or about 1971, and was sold in a gold and white package (“Matador Gold”). The cigarettes inside the Matador Gold package were also Virginia blend cigarettes.
[28] The Matador Red and Matador Gold packages have continually been sold since their introduction, and are currently sold today, containing Virginia blend Canadian cigarettes. The packages have been amended from time to time to comply with changing health warning requirements. They still use the ROOFTOP Design Trade-marks as well as the separately-
registered word trade-marks also owned by the Plaintiffs, MATADOR and COME TO WHERE THE FLAVOR IS:
[29] The sale of this product appears to be limited to some regions of Canada, and its market share is currently less than 0.01%.
[30] Also sold by the Plaintiffs’ predecessors starting in approximately 1970 was the Maverick brand of cigarettes, which incorporated the ROOFTOP Design Trade-marks in its package design, as well as a separately-registered word trade-mark owned by the Plaintiffs, MAVERICK. This product was discontinued in approximately 1978. The cigarettes sold inside the Maverick package were Virginia blend Canadian cigarettes. The circulation and sales of this product were also very limited.
[31] On December 21, 1979, Philip Morris filed three applications for the registration of design trade-marks. They were all based on use in Canada since August 8, 1958. Two of them were eventually registered on December 21, 1979, under the Registration numbers TMA252,082 and TMA252,083, while the third one was registered on January 9, 1981 under the Registration number TMA254,670.
At the time, proof of usage was demonstrated with Matador packages.
[32] On June 26, 1981, Philip Morris commenced two proceedings against ITL. The goal of its first proceeding was the expungement of Canadian Trade-mark Registration No. TMDA55,988 for the word trade-mark MARLBORO held by ITL . Philip Morris alleged inter alia that the trade-mark was not distinctive at the time of its registration nor at the time of the proceedings. Through the second proceeding, Philip Morris attempted to have the Trade-mark Registrar strike out the same registration from the Registry, again for lack of use.
[33] On or about September 14, 1981, ITL commenced an action in this Court against PMI for infringement of Canadian Trade-mark Registration No. TMDA55, 988. They brought this action because PMI had been importing for sale and selling cigarettes in association with the word trade-mark MARLBORO in Canada.
[34] Contemporaneously, Philip Morris filed three applications for the registration of two Marlboro packages quite similar to the Rooftop Trade-mark design based upon projected use, and for a third one again using the rooftop and the colour gold as background, but without any name. The two first applications were eventually withdrawn as a result of the decision reached by this
Court and confirmed by the Court of Appeal. The third one was registered under Registration number TMA274,442 on December 3, 1982.
[35] By the time Justice Rouleau heard the expungement proceedings with respect to TDMA55,988, the Trade-marks Registrar had refused to strike the same registration from the register for non-use pursuant now to section 45 of the Trade-marks Act. As a result, Justice Rouleau rendered a decision in both the expungement proceeding and the appeal of the section 45 proceeding. Both the expungement proceeding and the appeal were dismissed, on the basis that ITL’s trade-mark was still distinguishable and had not been abandoned. In that respect, Justice Rouleau wrote:
After careful consideration of this issue, I have decided that the survey and the evidence on the circulation of U.S. publications in Canada do not establish, to my satisfaction, the fact that the Canadian trade mark “Marlboro” sought to be expunged, has lost its distinctiveness. Indeed, as noted earlier, the test to be applied is to see if the trade mark used by the respondent on the Canadian market enables it to distinguish its wares from that of others offered on the same market at the date of these proceedings.
(…) The wares produced and sold by the respondent are still distinguishable from that of other found on the Canadian market as well as the applicant/appellant’s brand. It has been demonstrated that American Marlboro cigarettes are widely known and recognized, through not generally available on the Canadian market. This demonstrates and supports the influence the spillover advertising has had on the minds of Canadians. They are well known in Canada and no doubt are purchased when our citizens are abroad. However, the survey and the advertising campaigns do not satisfy me that Canadian smokers are unable to distinguish an American brand of cigarette as opposed to a Canadian brand.
Philip Morris Inc. v. Imperial Tobacco Ltd. (1985), 7 C.P.R. (3d) 254, at pp. 272-273.
[36] On September 29, 1987, PMI’s appeal of the decision of Justice Rouleau was unanimously dismissed by the Federal Court of Appeal. On January 28, 1988, PMI’s motion for leave to appeal to the Supreme Court of Canada was also dismissed.
[37] On September 13, 1995, Philip Morris filed another application for the registration of a label design based on use in Canada since April 12, 1995. The specimens used to demonstrate the trade-mark as used was a package of Matador cigarettes. That design was eventually registered on November 1st, 1996 under Registration number TMA465,532:
[38] Finally, the Plaintiffs also own trade-mark registration TMA693,326 for the word ROOFTOP in association with cigarettes.
[39] Since the Maverick product was taken off the market, the Plaintiffs introduced no new products incorporating the ROOFTOP Design Trade-marks until 2006, when the Plaintiffs commenced sales of the no-name Rooftop cigarettes.
(2) The Defendants’ Activities
[40] As previously mentioned, ITL sold Canadian Marlboro cigarettes in the Original Marlboro Packaging in Canada until 1969, when it was discontinued. In 1970, ITL re-launched Canadian Marlboro cigarettes as filtered, Canadian blend cigarettes. New packaging was designed for the product showing western Canadian scenery depicting prairies and a mountain range. The trade-
mark MARLBORO was used in an italicized sans serif font starting with a non-capitalized “m”. The package introduced in 1970 appeared as follows:
[41] An internal ITL memorandum from 1970 entitled “Project Ranch” discussed the launch of the 1970 Canadian Marlboro. ITL initiated Project Ranch in response to the planned launch of Maverick cigarettes in Canada by RBH’s predecessor, Benson & Hedges. It is clear from a few excerpts of that memo that Project Ranch was intended not only to maintain ITL’s share of the market, but also to temper the impact of the Maverick launch:
…it is now a certainty that Benson & Hedges will be launching Maverick in Canada using the U.S. Marlboro theme and packaging. Their entry could be strong and represent a serious threat unless ITPL counteract with Marlboro.
(…)
We have designed a strong plan; one which should help get Marlboro off the ground and sustain it at an extremely good level. The plan anticipates a direct attack by a competitor’s product, Benson and Hedges’ Maverick.
(…)
With the essential elements prepared by early November, judgemental decisions could be made against each and every move Maverick may make. The overall roll-out object being at all times to pre-empt Maverick.
ASF, para. 44, Sched. 13, pp. 6, 15 and 24.
[42] The authors of that memo made no secret of their intention to play off the US Marlboro advertising so that they could benefit from the reputation of the US. Marlboro. Here is what they wrote in that respect:
Our Canadian Prairies and the Rocky Mountains…conjure thoughts of many things, of freedom, of uninhibited nature, quiet and clean, of individuality, of independence. This theme is to be the mood, the tempo and the design for Project Ranch. The basic creative concept is not original, as it is similar to the current U.S. Marlboro theme. But this concept need not be restricted to any one brand or product line, as the outdoors, especially our Canadian West, is public domaine [sic]. In fact, in 1963 Gold Leaf actually used the Canadian West as its creative theme. With this objective identified and defined it was decided to reactivate the Marlboro trade mark in Canada for Project Ranch.
(…)
The cigarette will be named Marlboro to a) take advantage of any built-in positive attitudes towards the name, b) pre-empt, diminish or diffuse the effect of an anticipated competitive launch.
ASF, para. 44, Sched. 13, at pp. 2,7.
[43] That being said, the authors were conscious of the need to differentiate the Canadian Marlboro from its American counterpart. As a result, they emphasized this goal immediately after having mentioned their expectation that they could benefit from the foreign reputation and goodwill of the Marlboro brand:
Marlboro will be, and must be perceived as a Canadian cigarette, manufactured in Canada, tailored to Canada smoking tastes. Consumers must not think of it as a Canadian edition of an American brand. Marlboro will contain “Finest Canadian Leaf”, “Pure Virginia Tobacco”, and these elements will be used to emphasize the Canadian nature of our product.
ASF, para. 44, Sched. 13, p. 7
[44] The Defendants have agreed that to the best of their knowledge, all information contained in the Project Ranch memorandum above was accurate at the time it was written. Moreover, available documentation indicates that the execution of Project Ranch was consistent with ITL’s plans as set out in this memorandum. Samples of advertising show the use of western country ranch scenes involving cowboys and horses. The slogan prominently used by ITL on its advertising was “To make it in Canada, you’ve got to know the country”, reminiscent of the tagline used extensively by Philip Morris in its international advertising, COME TO MARLBORO COUNTRY.
[45] The 1970 ITL Marlboro packaging was used until 1981, at which time it was redesigned.
ITL abandoned the brown mountain scenery and introduced a beige package with red and black elements. The word mark MARLBORO was displayed in a black sans serif font:
[46] This package was used until 1988, when it was redesigned as follows, to accommodate the newly-required Health Canada warning:
[47] In 1996, the ITL Canadian Marlboro package was again redesigned. The product was offered in a single format at this time, as 20 King Size cigarettes in a flip-top box. As shown below,
the 1996 package employed a crest situated under the word MARLBORO, which was now itself displayed in brown ink using a serif style font.
[48] In 2001, the ITL Canadian Marlboro was once again redesigned. In the 2001 design, the placement of the crest relative to the word MARLBORO was changed so that the crest was now placed above the word MARLBORO instead of under it. Another serif-style font was employed for the word MARLBORO.
[49] Following the introduction of Rooftop cigarettes in 2006, ITL responded by commissioning an advertising campaign directed to retailers. The campaign involved the distribution of brochures referring to ITL Canadian Marlboro in the above package, under the tagline “Do you carry the REAL Marlboro?” The “Real Marlboro” campaign ran in Canada in late 2006, and was implemented as a direct response to Rooftop.
[50] After that publicity campaign, the ITL Canadian Marlboro package was again redesigned in 2007. The background colour was changed to silver, and the font for the word MARLBORO was changed to black and was compressed to give the word a more vertical appearance. The crest
centered above the “l” and the “b” of the word MARLBORO now included a superimposed red central element, a maple leaf. This remains the package used today:
(3) Relevant Facts Relating to the Canadian Cigarette Market
[51] The first thing to note about the Canadian market with respect to cigarettes is that approximately ninety-nine percent (99%) of the cigarettes sold in Canada are Virginia blend cigarettes, sometimes also referred to as Canadian blend cigarettes. The remaining one percent of the Canadian market comprises American and European blend cigarettes. In contrast to Canada, in the United States approximately ninety-nine percent (99%) of the cigarettes sold are American blend cigarettes. Similarly, in most of the remainder of the world, the vast majority of cigarettes sold are American and European blend cigarettes. A smoker would describe a Virginia blend cigarette as blander and milder in taste as compared to a more full-flavored American or European blend cigarette. An American blend cigarette is made of a mixture of several different kinds of tobacco, including the same Virginia tobacco used in the Canadian products, the dark-coloured Burley tobacco that gives the American cigarettes their robustness and flavor, and a small proportion of an oriental tobacco to add some aromatic spice.
[52] As already mentioned, the Matador and Maverick cigarettes were made from Canadian-style tobacco commonly known as Virginia blend. In contrast, the no-name, Rooftop cigarettes sold by RBH are made with essentially the same tobacco blend used in Philip Morris Marlboro cigarettes sold elsewhere in the world.
[53] The second relevant factor to consider is the fact that the sale of tobacco products has been increasingly regulated in Canada. Not only are cigarette packages now covered with a health warning that must occupy 50% of the display surface (see the Tobacco Act, S.C. 1997, c. 13, s. 15 and the Tobacco Products Information Regulations, SOR/2000-272, s. 5), but all provinces have now enacted legislation banning the display of tobacco products in retail shops. Starting with Nunavut in February 2004, all other provinces have followed suit, with the last one being Newfoundland in January 2010. As such, for all intents and purposes, the Canadian market is now what is called a “dark market”. Similarly, the promotion and advertisement of tobacco products is severely restricted, making it virtually impossible for tobacco manufacturers to communicate directly with consumers except in very limited circumstances.
[54] Finally, a word must be said about the market shares of the three manufacturers in Canada. In the mid-1990’s, it appears that the market share of ITL was approximately 69%, while RBH stood at 18% and JTI (the third major world-wide cigarette manufacturer) at 12.5%. [omitted]
[55] Over the last twenty-five years, the sale of cigarettes has declined steadily. While 66 billion cigarettes were sold in 1981, less than half of that number is now sold each year.
[56] Up until 2003, all cigarettes were basically sold at the same price. Around that period, however, a number of smaller regional manufacturers began selling and marketing products in Canada at discounted prices. To counter that phenomenon, the three major manufacturers started to segment their products into “premium”, “value”, and “budget” products, depending on their price points with a number of sub-classifications that varied over time and from one manufacturer to another. [omitted].
[57] [omitted]
C. The Launch of the Rooftop Brand in Canada
[58] The introduction of Rooftop in 2006 was the first time that the Plaintiff PMPSA’s American blend cigarettes had been offered in Canada, other than the Philip Morris US Marlboro cigarettes that could be purchased at duty free locations. It was also the first time that the ROOFTOP Design Trade-marks were used with such American blend cigarettes in Canada.
[59] This new product shared a number of characteristics with Philip Morris’ Marlboro brand cigarette packaging:
A. the “rooftop” geometric design;
B. the predominant colours of red, gold or silver (as the case may be) and white;
C. the Philip Morris crest with the initials PM;
D. the words “filter cigarettes” displayed in a white oval bubble in the coloured background above the “rooftop”; and
E. the red, gold or silver (as the case may be) line along the bottom.
It is also interesting to note that the word MARLBORO printed on the Philip Morris’ Marlboro cigarettes close to the filter has been replaced by the rooftop design on the cigarettes sold in the no-name ROOFTOP packages.
[60] In countries other than Canada, these American blend cigarettes are sold using both the ROOFTOP Design Trade-marks and the word trade-mark MARLBORO. In Canada, the Plaintiffs could not use the word mark MARLBORO because the Defendants are the registered owners of that word mark. Instead of using another name, as was done with MAVERICK and MATADOR, the decision was made to sell the new product without using any name at all on the package. It appears to be the first time throughout the world that a cigarette package has been sold with no name on it.
[61] It is not entirely clear why the no-name identifier was used on the package. According to Mr. Tom Garguilo, Senior Director of Marlboro Equity and New Products, the decision was made very early on to design a package that would be authentic to the brand, using only the trade-marks owned by PMPSA and refraining from using any additional element alien to the Marlboro brand equity. It was thought that using any other name than Marlboro on the product would make it look inauthentic or fake. This is why, according to the Plaintiffs, the use of the word ROOFTOP on the package was quickly discarded, even if PMPSA had applied for the registration of this word mark in 2003.
[62] That being said, I think it is also fair to say that the absence of a name on a package with the ROOFTOP Design Trade-marks and some other elements found on the international Marlboro package like “COME TO WHERE THE FLAVOR IS” and the reference to “WORLD FAMOUS IMPORTED BLEND” would make it easier for the consumer to associate that package with the Marlboro cigarettes sold elsewhere in the world. Indeed, Ms. Karen Bodirsky, director of public affairs at RBH, made no secret of that objective in an interview that she gave in August of 2006, shortly after the launch of the Rooftop products:
By leaving the Marlboro name off the package, Rothmans has sidestepped Imperial’s defensive measure. “Our belief is that consumers will see the design, see the trade-mark ‘Come to where the flavor is’, both of which are used by Philip Morris in connection with the Marlboro brand, and we feel consumers are going to make the connection and recognize it as an American-style cigarette”, says Karen Bodirsky, director of public affaires for Rothmans. “We thought that using any other name, or any name at all, would detract from the design.”
Exh. TX-204, Copy of an article by Matt Semansky, entitled “Rothmans introduces no-name cigarette”, published in Marketing Daily, August 14, 2006.
[63] As already mentioned, other elements are also used with the ROOFTOP Design Trade-marks. The trade-mark COME TO WHERE THE FLAVOR IS appears on the Rooftop packages, as well as a reference to “WORLD FAMOUS IMPORTED BLEND”; these elements, interestingly, do not appear on US Marlboro packs or on any packaging of Marlboro cigarettes sold elsewhere in the world. In addition, on the Rooftop point of purchase materials that were permitted in Canada before the market went dark, the fact that Rooftop was an American blend was emphasized. These elements were also included in permitted advertising for Rooftop cigarettes. It is also worth mentioning that the product’s name, Rooftop, is printed on the product cases, even if it is not placed on the individual packages.
[64] The launch of this new product appears to have happened on a major scale. Retailers were sent promotional material and were invited, at least in Ontario, to a well-attended party where Ferrari promotional material was distributed (Marlboro being the sponsor of the Ferrari team). In addition, attendees participated in a draw for a trip to the Monaco Grand Prix. Trade letters were also mailed or hand-delivered to the retailers. One of them, sent on July 25th, 2006 (Exhibit TX-131), announced the introduction of the “cigarette brand famous for its ROOFTOP design that has adorned cigarette packages around the world since 1954.” This letter stated, “Unlike any other trademark, it has become recognized for its high quality and rich tobacco flavor. The pack with the ROOFTOP design doesn’t need a name because after all…It’s what’s inside the pack that counts – high quality American blend cigarettes made possible by the famous Richmond recipe!”. Another one (Exhibit TX-132), dated the same day and accompanying a presentation box containing a package of each of the individual Rooftop products, was even more explicit:
(…)
You will note that this new product is unique in that no brand name appears on the product packaging. Instead of a name, the product is identified by its distinctive ROOFTOP package design. The ROOFTOP package design is owned by Philip Morris Products S.A., with RBH being the exclusive licensee in Canada. You will recognize the ROOFTOP package design as that which is used internationally by Philip Morris Products S.A. and its affiliated companies.
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