The Blurred Lines of Business: Tackling the Tort of Passing Off

Denis Grigoras

Denis is a lawyer who draws on his background in complex legal disputes and transactions to problem-solve for his clients.

The tort of passing off in Canadian law is founded upon the notion that no individual should be allowed to represent their products or services as those of another. The Supreme Court of Canada has set forth three key elements that a plaintiff must establish to succeed in a passing off action: goodwill, misrepresentation, and damage.

Passing Off

I.  Introduction

(a) The Essence of Passing Off

The tort of passing off in Canadian law is founded upon the notion that no individual should be allowed to represent their products or services as those of another. The Supreme Court of Canada has set forth three key elements that a plaintiff must establish to succeed in a passing off action: goodwill, misrepresentation, and damage.

However, the tort’s scope is broader than what may initially be apparent. Goodwill can attach to more than just the “get-up” or packaging of goods; it can also relate to services, which do not have a get-up in the traditional sense. Additionally, the misrepresentation may concern not just the source of goods or services, but also a distinct quality that consumers associate with the goods or services that has value for the plaintiff.

The core concept of the tort of passing off is the protection against a specific type of economic loss – damage to the plaintiff’s business – caused by misleading the public into believing that the defendant’s goods or services are connected with the plaintiff’s. The defendant takes advantage of the plaintiff’s reputation by utilizing a name, term, appearance, or other identifier that the public associates with the plaintiff’s goods or services. The harm caused to the plaintiff may not always be a measurable loss in sales, but rather the loss of control over the identifier, which weakens its power to attract buyers to the plaintiff’s goods or services.

(b) Expansion of Passing Off

The law of passing off has evolved to encompass various situations beyond the classic scenario of a competitor using a confusingly similar identifier to market their products or services. For instance, some cases involve retailers selling accurately identified goods from the plaintiff but misrepresenting their quality. In recent years, passing off has also extended to protect certain generic identifiers, particularly in the context of alcoholic beverages with specific names, to maintain the integrity of these names for the benefit of all marketers of such drinks.

The law of passing off does not, however, prevent freeloading off a well-known name while ensuring no deception or confusion arises among the public. For example, a hotel naming itself after a well-known Disney theme park was permissible, as the public would not be misled into thinking it was a Disney operation.

Originally, passing off emerged as an adaptation of the tort of deceit, but it has since diverged significantly from civil fraud. Its scope now covers only misrepresentation and not other forms of unfair or deceptive trading practices. Consequently, the task of setting standards of integrity for trading practices has primarily been assigned to federal and provincial legislatures.

II.  Relationship to Other Obligations

(a) Trademarks

Passing off shares close ties with trademark law, as it provides common law protection to unregistered trademarks. However, the scope of passing off is much broader, as it encompasses various forms of misrepresentation beyond the misleading use of a trademark. Conversely, trademark law focuses predominantly on the use of that specific type of identifier. Moreover, unlike passing off, trademark law does not provide a right of action to multiple suppliers or “sources” sharing a common interest in the reputation of a category of goods or services.

Registered trademarks offer more extensive protection than the law of passing off, granting the owner exclusive rights to use the mark throughout Canada and oppose the registration of any confusingly similar marks. In contrast, passing off does not grant monopoly rights and is limited to the plaintiff’s actual goodwill in terms of geography and damage to goodwill.

(b) Section 7 of the Trademarks Act

The Trademarks Act’s Section 7 contains several wrongs related to unfair competition, including paragraph 7(b), which overlaps almost entirely with the tort of passing off. The courts’ broad powers to enforce the Act’s provisions suggest that this wrong can be enforced as though it were a statutory passing off tort. Paragraph 7(b) of the Trademarks Act states that a person must not “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.”

The constitutional validity of paragraph 7(b) was once in question, as it was argued to be legislation on civil rights within the province rather than part of the regulation of trademarks. However, in Kirkbi AG v. Ritvik Holdings Inc., the Supreme Court of Canada ruled that paragraph 7(b) is valid federal legislation because it provides protection for unregistered trademarks, thereby complementing the trademark legislation. The court further clarified that federal legislation now occupies this field at the expense of provincial legislative authority.

The Kirkbi decision also implies that the statutory wrong under paragraph 7(b) is not entirely congruent with the common law tort of passing off. The former is “limited by the provisions of the Trademarks Act,” which suggests that it refers only to passing off by using a trademark. In contrast, the latter extends to the use of other identifiers besides trademarks, such as a generic name for a distinctive product in the reputation of which a group of suppliers has goodwill.

(c) Depreciating the Value of the Goodwill Attaching to a Trademark

When an act of passing off involves actually using someone else’s registered trademark, the tort may overlap with a provision in the Trademarks Act that creates a wrong of using such a trademark “in a manner that is likely to have the effect of depreciating the value of the goodwill attaching thereto.” This section has mainly been invoked in cases where there was no attempt to mislead the public, but the plaintiff’s trademark was used by a competitor in comparative advertising or by someone for the purpose of parody.

(d) Other Torts

As previously noted, civil fraud is the ancestor of passing off, even though the two have significantly diverged over time. Injurious falsehood is another tort that intersects with passing off. While both torts aim to protect a business’s reputation, injurious falsehood targets false statements about the plaintiff’s wares, services, or other aspects of the business, as opposed to false impressions that result in the defendant’s wares or services being mistaken for the plaintiff’s. Additionally, malice is a necessary component of injurious falsehood, whereas passing off can be committed without intending to cause harm or even being aware of the misrepresentation.

(e) Expansion and Limitations of Passing Off

Over time, the law of passing off has expanded to cover various types of loss of control over identifiers beyond the classic scenario of a competitor using the identifier or another one similar enough to cause confusion when marketing their own goods or services. Some cases have involved retailers selling goods that were accurately identified as the plaintiff’s but misrepresented as being a higher class of the plaintiff’s product than they actually were. In such instances, the risk lies in the loss of the identifier’s market reputation, rather than in the loss of its distinctiveness.

In recent decades, passing off has also extended to protect certain generic identifiers, with most cases involving alcoholic beverages with special names. Courts have held that passing off should safeguard the integrity of these names in the interest of all those who market such drinks. Consequently, courts have prevented the sale of liquor with a different composition or method of manufacture under names like “champagne,” “advocaat,” or “whisky.”

However, traditional passing off law does not prevent freeloading off a well-known name by exploiting its familiarity while carefully avoiding any deception or confusion on the part of the public. For example, a hotel in West Edmonton Mall was allowed to call itself the Fantasyland Hotel, despite Disney’s objections, because Disney had never used the name for hotels and the court found that the public would not be confused into believing it was a Disney operation.

(f) Final Remarks

In summary, the tort of passing off aims to protect businesses from economic harm caused by competitors who create the impression that their goods or services are connected with the plaintiff’s when they are not. The three essential elements of a passing off action are the existence of goodwill, deception of the public due to a misrepresentation, and actual or potential damage to the plaintiff.

Passing off has evolved to encompass various types of loss of control over identifiers and has a close relationship with trademark law, as well as other obligations such as those in Section 7 of the Trademarks Act, the wrong of depreciating the value of the goodwill attaching to a trademark, and other torts like civil fraud and injurious falsehood.

The law of passing off has adapted over time to address new situations and protect the integrity of businesses’ identifiers, ensuring that competitors cannot unjustly benefit from the reputation and goodwill associated with another business’s goods or services. Although passing off has limitations, it remains a vital legal tool for businesses to defend their interests in a competitive marketplace.

Think your brand's reputation is at risk or facing 'passing off' allegations? Whether you're seeking to take action or defend your position, we're here to help.

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