For the first time ever, Canada's Trademark Opposition Board (TMOB) has held that a 'depreciation of goodwill' claim can serve as a valid ground of opposition in trademark opposition proceedings. In doing so, the TMOB has arguably continued the recent trend in Canadian trademark jurisprudence of expanding the application of the depreciation of goodwill remedy (which is discussed in more detail in this Legal Update).

The depreciation remedy is codified in Section 22 of the Canada's Trademarks Act (the Act), which prohibits use of "a trademark registered by another person in a manner that is likely to have the effect of depreciating the value of the goodwill attaching thereto". Normally, such Section 22 'depreciation of goodwill' claims are brought as enforcement actions; however, the TMOB has recently recognized that a Section 22 violation may also serve as a ground of opposition on the basis that a trademark application is not registrable if the applicant's use of the trademark (at the date of filing) would be prima facie non-compliant with a federal statute.

In McDonald's Corporation and McDonald's Restaurants of Canada Limited v Hi-Star Franchise Systems, Inc., 2020 TMOB 111, Hi-Star Franchise Systems, Inc. (Hi-Star) applied to register the trademark McMORTGAGE in association with real estate and mortgage brokerage services - a consumer market that is distinct from the restaurant business. McDonald's Corporation and McDonald's Restaurants of Canada Limited (together, McDonald's) opposed the registration on multiple grounds, two of which were considered by the TMOB in its decision: first, that Hi-Star's mark was non-distinctive because, effectively, it was confusing with and did not distinguish from McDonald's trademarks; and, second, that Hi-Star's use of its mark depreciated the goodwill of McDonald's registered trademark rights in violation of the Act.

McDonald's was successful in the first ground of opposition. The TMOB held that McMORTGAGE did not adequately distinguish Hi-Star's financial services from McDonald's well known brand. In particular, the TMOB held that the trademarks were confusing, specifically because "consumers upon encountering McMORTGAGE may as a matter of first impression believe that this trademark is indicative of financial services provided to those who seek to own a MCDONALD'S franchise or the like or that the applied-for services are otherwise affiliated or connected with [McDonald's]".

In considering the second ground of opposition, the TMOB held that a Section 22 violation of the Act could be a valid ground of opposition. The TMOB reached this conclusion by analogizing to its previous finding that passing off (a violation of Section 7(b) of the Act) constituted a valid ground of opposition and acknowledging that it could not condone the registration of a mark that violated federal legislation. The TMOB then considered whether or not McDonald's had established a prima facie case that Hi-Star's use of McMORTGAGE did, in fact, depreciate the goodwill of McDonald's registered trademarks. The TMOB set out the four elements required for Section 22, as follows:

  • Use of the McDonald's registered trademarks: Hi-Star's trademark, comprised of "MC" followed by a description of the associated financial products, i.e. "Mortgages", was considered sufficiently similar to McDonald's registered trademarks. In particular, the construction of Hi-Star's trademark was considered "so closely akin to [the] trademarks of the Opponent's so as to be understood as one of its marks".
  • Sufficiently well known: McDonald's evidenced extensive use of its MC- prefixed trademarks, McDONALD'S, MCFLURRY, MCNUGGETS, MC CHICKEN and MCMUFFIN, which were considered sufficiently well known to have garnered significant goodwill across Canada.
  • Linkage: The TMOB found that there would be a mental linkage or connection between the two trademarks in the minds of consumers due to the marks' similar construction and the extensive goodwill associated with the McDonald's brand.
  • Damage: The TMOB found that damage could be inferred from a likelihood of a "whittling away" of McDonald's brand power. The TMOB also commented on the fact that there seemed to be no other apparent reason for Hi-Star to have adopted and used the McMORTGAGE trademark other than to trade off of McDonald's reputation.

As a result, the TMOB held that the trademark McMORTGAGE depreciated the goodwill of McDonald's registered trademarks and, in conjunction with its finding of non-distinctiveness, refused Hi-Star's trademark application. The TMOB noted the absence of Hi-Star's participation in the proceedings, and indicated that the outcome may have been different had Hi-Star filed evidence or made submissions. While the decision represents a novel expansion of Section 22 to trademark opposition proceedings, this growing appetite may be limited in circumstances where the applicant is willing to file strong evidence and make persuasive submissions.

*The authors would like to thank Carly Manning for her assistance in preparing this article.

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