US Court of Appeals Reverses Lower Court Decision; Re-Opens US Trademark Infringement Claims Against Canadian Operation

Gilbertson Davis LLPCivil Litigation, Cross-Border Litigation, Intellectual Property, Jurisdictional Challenges, Of Interest to US Counsel0 Comments

In Trader Joe’s Company v. Hallatt, the United States Court of Appeals for the Ninth Circuit recently overturned a lower court decision which had originally dismissed claims that Mr. Hallatt, a Canadian citizen but permanent resident of the United States, was violating the trademark rights of Trader Joe’s, a popular US grocery store chain, by reselling their products in Canada under the name “Pirate Joe’s” and by using an allegedly confusingly similar store design and motif.

Mr. Hallatt’s business involved purchasing Trader Joe’s products in Washington state, transporting them across the border to British Columbia, and re-selling the product to Canadians at a mark-up. Trader Joe’s, which does not carry on business in Canada, sued in Washington state, claiming Mr. Hallatt was infringing on their US trademark rights. They asserted that Hallatt’s actions were damaging their trademark rights under US law.

At the lower level, Trader Joe’s claims were dismissed, as the court held that the US trademark statute, the Lanham Act, did not apply to Mr. Hallatt’s operations in Canada. Since Trader Joe’s did not carry on business in Canada, and since Mr. Hallatt did not sell products in the United States, Trader Joe’s could not maintain a Lanham Act claim.

The Court of Appeals reversed this decision, finding that it was possible for Mr. Hallatt’s actions to attract liability, in that it may affect American foreign commerce, on the possible grounds that Mr. Hallatt may not exert sufficient quality control over the re-sold product, which may potentially cause injury to a Canadian, which may potentially cause reputational harm in the United States.

The Canadian Alternative

Though Trader Joe’s has so far succeeded in continuing its claims under US trademark law, it is likely that Trader Joe’s could have made a simpler argument by suing in Canada for passing off and/or infringement of goodwill, even though Trader Joe’s does not actually carry on business in Canada.

The case is comparable to the Ontario case of Orkin Exterminating Co. Inc. v. Pestco Co., where the Ontario Court of Appeal granted an injunction against the defendant from using the name “Orkin” in Canada, even though the plaintiff did not actually carry on any business in Canada. The plaintiff was able to establish that, even without doing business in Canada, it was a well-known brand in Canada and Canadians associated the name “Orkin” with the plaintiff.

In this case, assuming Trader Joe’s can establish that Canadians are aware of the company and do in fact travel to the US and shop at Trader Joe’s, there are significant similarities to the decision in Orkin to assist them in maintaining a passing off or depreciation of goodwill claim in Canadian courts.

Obstacles Remain

Regardless of whether Trader Joe’s advances its claims under Canadian or US law, it will still have to contend with other legal hurdles in proving its case. For instance, unlike most trademark infringement actions, the defendant is not actually selling a counterfeit or competing product, but reselling actual Trader Joe’s merchandise. Resellers and importers are not ordinarily subject to infringement claims when reselling genuine and lawfully purchased merchandise, and a plaintiff cannot ordinarily rely on intellectual property law to prevent purchasers of tangible products from reselling those products to others. In any event, in claiming damages, Trader Joe’s will have to contend with the fact that Trader Joe’s was already paid at full retail price for the product being re-sold. This does not necessarily prevent a plaintiff from stopping a defendant from unfairly utilizing its trademarks and goodwill, but will make any claim for loss of business difficult to establish.

If you are involved in an intellectual property dispute or cross-border litigation, contact us for a consultation.

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