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.

Share Post:

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.

Stay Connected

More Posts

False Light

Shedding Light on the False Light Tort

In 2019, Ontario recognized “publicity which places an individual in a false light” – the “false light tort” – as a part of the common law. Despite its relatively straightforward definition, the false light tort remains puzzling due to its ambiguous parameters, unique elements, and potential utility.

Read More »
Canadian Taxation for Athletes

Extra Points: The Game of Canadian Taxation for Athletes

How does Canadian tax law impact professional athletes? To understand this, we need to think about multiple scenarios, and consider the athlete’s residency, their affiliations with Canadian or foreign-based teams, and the ever-changing political landscape surrounding the taxation of sports franchises in Canada.

Read More »
Airline Baggage and Cargo Liability

When Bags Fly: Airline Baggage and Cargo Liability

When your cargo or luggage gets damaged or lost during international air transport, you might think that the airline will compensate you for your losses. However, the legal landscape surrounding airline liability for international cargo and baggage is complex. It’s governed by international conventions like the Warsaw Convention and the Montreal Convention, which establish specific rules and liability limits for airlines.

Read More »
Business Judgment Rule

The Business Judgment Rule: A Director’s Guide to Risky Business

The business judgment rule has its roots firmly planted in the need to facilitate an environment of innovation and growth in business. Recognizing that running a business often involves taking risks, this rule has been developed to shield directors and officers who are willing to take calculated chances to propel a corporation forward.

Read More »
Civil Fraud

Civil Fraud: The Wolf in Sheep’s Clothing

Civil fraud, also known as deceit, is a serious economic tort or civil wrong that involves a deliberate deception through false representation. It requires four elements: a false representation by the defendant, their knowledge (or recklessness) of the falsehood, the plaintiff’s action influenced by this representation, and a loss suffered by the plaintiff as a result.

Read More »
Nevada's Court System

Silver State Justice: A Closer Look at Nevada’s Court System

The judicial system in Nevada plays a critical role in upholding the rule of law and ensuring the fair administration of justice. The courts covered include Municipal Courts, Justice Courts, Small Claims Court, District Courts, Family Courts, and Appellate Courts, comprising the Supreme Court and the Court of Appeals.

Read More »
Insider Trading

Insider Intel: Navigating the Gray Areas of Insider Trading

An “insider” is broadly defined, including the corporation, directors, officers, major shareholders, employees, and professionals like lawyers or accountants. Liability extends to those receiving confidential information from insiders (tippees). Insiders cannot tip others for trading advantages. If an insider tips an unrelated person, they are liable for damages and accountable to the corporation for benefits received.

Read More »
Will Large Language Models Like ChatGPT Replace Legal Professionals

Will Large Language Models Like ChatGPT Replace Legal Professionals?

In recent months, the rise of advanced artificial intelligence and natural language processing technologies, such as Large Language Models (LLMs) like ChatGPT, has sparked a debate about their potential impact on various industries, including the legal profession. The million-dollar question inevitably arises: Will LLMs replace lawyers (and perhaps judges also), or at the very least, lead to a massive paradigm shift in law practice?

Read More »
Apologies and Retractions

Sorry, Not Sorry: Apologies & Retractions in Defamation Law

In defamation cases, an apology may play a crucial role in the assessment of damages. However, it is important to note that courts lack the jurisdiction to order defendants to apologize. The existence of an apology, the sincerity of the defendant, and the extent of the publicity given to the apology are factors that courts consider when determining damages.

Read More »
Lowest Intermediate Balance Rule

Tracing Commingled Funds: Unraveling the LIBR Mystery

The Lowest Intermediate Balance Rule (“LIBR“) is an essential concept in the legal world, particularly in cases involving the tracing of funds. It is an evidential rule that assumes that when a person commingles their own funds with funds belonging to someone else, they are assumed to have spent their own funds first.

Read More »
Suing a City

Suing a City: Abuse of Power Lawsuits

Yes, believe it or not, you can sue a city. Municipal corporations, which include cities, are no longer immune to liability as they were in the past. They can be held accountable for various wrongdoings, such as tortious acts, breaches of contract, and neglecting statutory duties.

Read More »
Rylands v. Fletcher

Taming the Tort: The Lasting Impact of Rylands v. Fletcher

Rylands v. Fletcher is a landmark case in English tort law that established the principle of strict liability for certain harmful activities. The rule states that a person who uses their land for non-natural purposes and accumulates a potentially dangerous substance on their property may be held strictly liable if that substance escapes and causes damage to another’s property.

Read More »
Notice Requirements Defamation

The Fine Print: Notice Requirements in Ontario Defamation Law

In Ontario, special notice requirements apply to defamation cases involving libel in a newspaper printed and published in the province or a broadcast from a station within Ontario. Plaintiffs must provide written notice to the defendant within six weeks after becoming aware of the alleged libel.

Read More »
Conversion

The Battle for Chattel: Understanding the Tort of Conversion

The tort of conversion primarily deals with the unlawful interference of another person’s movable personal property, known as chattels. In contrast to trespass to goods, conversion demands more than just a simple invasion of the plaintiff’s possessory rights; it necessitates an interference that denies the plaintiff’s title.

Read More »

The Principal Residence Exemption

The term “principal residence” refers to a taxpayer’s primary dwelling or housing unit for a specific tax year. The taxpayer, their spouse, common-law partner, former spouse, or child must ordinarily inhabit the residence. A personal trust can also claim a principal residence if it is regularly occupied by a specified beneficiary or their immediate family.

Read More »
Intimidation

From Threats to Torts: The Law on Intimidation

The tort of intimidation, a relatively less explored area of common law, has been recognized and established through a series of judicial decisions. The House of Lords in Rookes v. Barnard (“Rookes“) formally acknowledged the existence of this tort, which has since been accepted as part of the common law in Canada.

Read More »
Spousal Support

Understanding Spousal Support: Key Elements

In family law, spousal support is central to helping spouses who have become financially disadvantaged due to the breakdown of a marriage or common-law relationship. This post examines the legal principles and case law surrounding spousal support, discussing child support priority, general principles, and various factors that influence support amounts and duration.

Read More »
Shareholder Loans

Navigating the Tax Maze: How Shareholder Loans Impact Your Taxes

According to Section 15(2) of the Income Tax Act, a shareholder (or a person or partnership connected to the shareholder) may be deemed to have received a taxable benefit equal to the amount of a loan or debt made by a corporation. This taxable benefit is included in the shareholder’s income for the tax year in which the loan or debt arose.

Read More »
Are Internet Communications Broadcasts

Digital Dilemmas: Are Internet Communications Considered Broadcasts in Canadian Defamation Law?

Over time, Canadian provincial legislation regulating defamation has been updated to incorporate modern communication methods. However, since most of this legislation does not explicitly address the Internet, judges are often required to draw parallels between Internet communications and traditional media forms, such as newspapers and broadcasts, that are covered by the legislation.

Read More »
I Was Sued

I Was Sued – Now What? (A Step-by-Step Guide)

Litigation is a complex process that requires careful attention to detail and a thorough understanding of the rules and procedures that govern the legal system. In this blog post, we explore the various stages of a lawsuit in Ontario, from the initial pleadings to the final trial.

Read More »
Class Action Certification

All for One, and One for All: A Blueprint for Success in Class Action Certification in Canada

In the Canadian legal landscape, class actions represent a powerful mechanism for individuals who have suffered similar harm or losses to collectively seek legal redress against a common defendant. These lawsuits serve multiple purposes, such as providing access to justice for people who might not have the means to pursue individual litigation, encouraging behavioural modification in large corporations or organizations, and promoting judicial efficiency by consolidating numerous related cases into a single legal action.

Read More »
Creating a Shareholders' Agreement

Share the Love, Not the Drama: A Guide to Creating an Effective Shareholders’ Agreement

An essential contract for small non-offering corporations, shareholders’ agreements define the rights, privileges, liabilities, and responsibilities of each shareholder. These agreements, also known as “unanimous shareholders’ agreements,” offer a framework to govern various aspects of a corporation’s functioning, such as delineating shareholder roles, placing limitations on certain actions, and regulating share transfers.

Read More »
Insurance Policies for Business Owners

Smart Insurance Choices: 8 Must-Have Policies for Ontario Business Owners

Running a successful business in Ontario requires dedication, hard work, and a thorough understanding of the various types of insurance available to protect your company’s assets and interests. In this overview, we will explore the ins and outs of the eight different insurance options available to Ontario-based businesses, helping you make informed decisions about the coverage your business needs to thrive.

Read More »
Discontinue an Action

When Can You Discontinue an Action in Ontario?

When a plaintiff wants to discontinue an action against a defendant before the close of pleadings in Ontario, they have the right to do so by serving a Notice of Discontinuance on all parties served with a statement of claim and filing the notice with proof of service in the registrar’s office.

Read More »
The Proper Law of Contract

The Proper Law of a Contract: Two-Stage Inquiry Explained

The “proper law” of a contract generally governs most issues pertaining to its validity, interpretation, performance, and breach in the context of the Anglo-Canadian conflict of laws. The “proper law” rule is based on the principle that parties to a contract are free to choose the governing law.

Read More »
PIPEDA Demystified

PIPEDA Demystified: A Simple Overview of Data Privacy for Businesses and Individuals

In Canada, the Personal Information Protection and Electronic Documents Act (the “PIPEDA”) is a federal law regulating the collection, use, and disclosure of personal information by private organizations during commercial activities. The PIPEDA is key legislation that aims to safeguard the privacy of individuals by setting out clear rules for the management of personal information by private organizations.

Read More »
Promissory Estoppel

Promissory Estoppel: The Exception to Consideration in Contract Law

Promissory estoppel is a legal doctrine that may be used to prevent a party from reneging on a promise or representation they have made. It is a principle of equity that can be invoked to prevent a party from relying on their strict legal rights where it would be unfair or unjust to do so. Although originally developed by the common law, it has been modified over time by equitable principles.

Read More »
Dirty Money in the Gambling Industry - Canadian Regulations

The Fight Against Dirty Money in the Gambling Industry: An Overview of Canadian Regulations

The gambling industry is a prime target for those seeking to launder illegal funds. This includes physical casinos, online casinos, bars with poker machines, and both physical and online sports betting services. The global gambling industry generated record-breaking revenues in 2021, reaching $261 billion (USD) in the US and €87.2 billion (EUR) in Europe, making it an attractive option for criminals seeking to launder money. Relative to population size, Canada’s gambling industry made a proportional $2.64 billion (CAD) in revenue in 2021.

Read More »
Affidavits in the Legal System

Making a Statement: The Role of Affidavits in the Legal System

An affidavit is a document used in legal proceedings that comprises a witness’s statement of facts or opinion. The witness attests to the document, and the affidavit is taken by an authorized individual. This individual, known as the commissioner, confirms the witness’s identity and delivers the oath or affirmation that the document’s contents are accurate. The witness, not the commissioner, is responsible for determining the statement’s truth.

Read More »
Voiding a Contract

Voiding a Contract: Understanding the Different Options

A contract is a legally binding agreement between two or more parties that outlines their respective rights and obligations. But what happens if one of the parties wants to get out of the contract? In some cases, a contract can be voided, which means that it is deemed to have never existed legally.

Read More »
The Power of Reliance

The Power of Reliance: Making Promises Stick

In the realm of law, promises play an essential role, particularly regarding the protection of reliance. This post will be about the protection of reasonable reliance on statements made by a party to a contract or a potential contract. In a contract, the preservation of one party’s reliance may be equally as significant as the protection of both parties’ reasonable expectations.

Read More »
Mortgage Default

What to Expect When You Default on a Mortgage

When a default occurs, the mortgagee, or lender, has the right to accelerate the mortgage payment or seek specific performance or damages. They can also sell the property to repay their debt. If the sale proceeds are less than the mortgage debt, the mortgagee can sue the borrower for the deficiency. If the sale results in a surplus, the mortgagee must pass it on to the next encumbrancer or the borrower.

Read More »
Letters of Credit

The Self-Contained World of Letters of Credit

Letters of credit (LC) and bank guarantees are financial tools used to secure payment obligations. However, they differ from regular guarantees in terms of the defences against payment demands. An LC is simply an agreement to pay under certain conditions, and the law governing LCs is determined by the national jurisdiction where the LC is issued.

Read More »
Rule 21

Rule 21: The Road to a Speedy Resolution of Legal Proceedings

Rule 21 of Ontario’s Rules of Civil Procedure is a mechanism for dealing with situations where a claim brought by a plaintiff is clearly of a kind for which no legal relief is available or where the defence submitted by the defendant is not valid. The rule allows for the determination of certain preliminary issues that may dispose of a legal proceeding without the need for a trial to avoid delays and ensure that issues are disposed of promptly and in accordance with the Rules.

Read More »
Director Liability - Voting for and Consenting to Resolutions

The OBCA’s Director Liabilities: The Risks of Consenting to and Voting for Certain Resolutions

In Ontario, under the Ontario Business Corporations Act, directors of a corporation have a legal responsibility to ensure that the corporation is financially stable before making certain transactions. This includes the payment of dividends, redemption or reacquisition of shares, reduction of stated capital, or provision of financial assistance to certain non-arm’s length persons.

Read More »
Cryptocurrency and Insolvency

The Conundrum of Cryptocurrency: How Canadian Law Classifies Digital Assets in Insolvency

The question of how cryptocurrencies are classified under Canadian bankruptcy law has again been brought to the forefront with the collapse of Bahamas-based cryptocurrency exchange FTX . . . While there is broad acceptance that cryptocurrencies are likely assets, there is no widespread agreement on how to classify them – are they financial assets, intangible assets, inventory, investment property or something else?

Read More »
Rent Obligations During Receivership

Navigating Rent Obligations in Receivership Proceedings

When it comes to court-appointed receiverships, there can be much confusion surrounding the issue of rent obligations. Essentially, the main tension arises from the fact that existing legal principles don’t always align with what a receiver would like to do in practice.

Read More »
Ontario's Consumer Protection Act

Consumer 101: An Introductory Overview of the Consumer Protection Act, 2002 in the Province of Ontario

The Consumer Protection Act, 2002 (“CPA”) is a piece of legislation in Ontario that was put in place to safeguard customers’ interests in their interactions with various commercial enterprises. If a consumer’s rights are infringed upon, it details the legal recourses available to them as well as the rights and responsibilities of both businesses and customers.

Read More »
Modern Proof in Mental Injury Cases

The Shift Towards Modern Proof in Mental Injury Cases

The Supreme Court’s decision in Saadati fundamentally altered the way in which tort law responds to mental injury by attempting to align it more closely with the way it sponds to physical injuries. In this particular case, the Court upheld a trial judge’s award for Mr. Saadati’s mental injury, despite the absence of a diagnosis of a recognized psychiatric illness.

Read More »