Thought leadership from our experts

Captain Morgan forces Admiral Nelson’s to jump ship proving trade dress protection is alive and well in Canada

Ekaterina Tsimberis, part of Smart & Biggar's trial team, successfully represented Diageo Canada in protecting and enforcing its CAPTAIN MORGAN trade dress before the Federal Court.

One has only to browse through any large department store, pharmacy or even liquor store and it would not take long to find copycats or knock-offs, products that copy or imitate another well-known product on the market that consumers associate with a given source. If the product bears the same or a confusingly similar logo or word mark, brand owners often realize that they are entitled to and do not hesitate to take action as it is recognized as being a more straightforward trademark infringement matter. However, where the product bears other marks that are different altogether or where the product is not identical, it can be a more challenging case of passing off to be proven making it somewhat less common for brand owners to take action. Several years ago, the Court in Mr. Submarine Ltd. v. Emma Foods Ltd. accurately characterized the situation:

"Of course, few would be stupid enough to make exact copies of another's mark or symbol. It has been well said that the most successful form of copying is to employ enough points of similarity to confuse the public with enough points of differences to confuse the courts".

This is the context in which Diageo Canada ("Diageo"), the Canadian subsidiary of Diageo plc, was faced when it first discovered that the ADMIRAL NELSON's rum product was available in a liquor store in the Canadian province of New Brunswick, in close proximity with its well-known, and market leading, CAPTAIN MORGAN rum product.

Upon discovery of this, Diageo promptly sent a cease and desist letter to Heaven Hill, the 7th largest alcohol supplier and the largest independent family-owned and operated distilled spirits producer in the U.S., followed by the filing of a lawsuit before the Federal Court in March 2014.

On June 12, 2017, the Federal Court issued its 99-page decision in Diageo Canada Inc. v Heaven Hill Distilleries Inc. et al, 2017 FC 571. The Court found Heaven Hill and its Canadian broker Diamond Estates liable for passing off their ADMIRAL NELSON'S rum products as those of Diageo and for infringing and depreciating the goodwill attaching to Diageo's CAPTAIN MORGAN character and label trademarks.

As a result, the Court permanently enjoined the Defendants Heaven Hill and Diamond Estates from using the ADMIRAL NELSON'S character and trade dress in Canada and awarded costs to Diageo. The Defendants were also ordered to destroy all ADMIRAL NELSON'S bottles, materials, packages, labels and advertising material in Canada. The Court also ordered the Defendants to pay, at Diageo's election, damages or profits to Diageo.

Passing off

In order to have the ADMIRAL NELSON'S rum bottles permanently removed from the Canadian market, it was key for Diageo to seek and obtain declarations from the Court that the ADMIRAL NELSON'S bottles amounted to Heaven Hill passing off its rum as a rum of Diageo and be granted corresponding injunctive relief against these bottles or any other bottles that would be likely to cause confusion:

1. The Law of Passing Off

In order to succeed under this cause of action, Diageo had to prove three necessary components:

  1. the existence of goodwill associated with the CAPTAIN MORGAN rum products;
  2. deception of the public due to a misrepresentation; and
  3. actual or potential damage (see: Kirkbi AG)

The doctrine of passing off provides protection for "guises, get-ups, names and symbols which identify the distinctiveness of a source" and as the Court observed in Distrimedic Inc. v. Dispill Inc.:

"Passing off occurs when a company's business reputation or goodwill will or will likely be injured by a misrepresentation through which a competitor creates an illusion of sameness or similarity to its wares or services, causing confusion in the consumer's mind to the effect that one's goods or services are someone else's or sponsored by or associated with that other person. It is effectively a "piggybacking" by misrepresentation."

2. Distinguishing guise

Diageo set out for the Court the main elements of its CAPTAIN MORGAN trade dress that extended throughout its rum variety line-up and showed it had been consistently and prominently used, displayed and advertised throughout Canada for many years and that it qualified as a distinguishing guise and as a valid and enforceable trademark under the Trade-marks Act ("Act"). As a result, the Court found that Diageo's distinguishing guise was embodied in the bottles of all varieties of CAPTAIN MORGAN rum which all bear a fanciful depiction of Sir Henry Morgan located generally at the center of the label, the CAPTAIN MORGAN brand name above the CAPTAIN MORGAN character with the rum variety below it, a classic sailing ship in the background, the bottle caps, the collar labels bearing the CAPTAIN MORGAN brand, and the colour scheme and design of the main label.

3. Goodwill

The Court held that the evidence adduced by Diageo at trial showed that there was considerable goodwill associated with the CAPTAIN MORGAN brand and the current manifestation of its associated trade dress. The Court noted Diageo's extensive annual sales of approximately 12 million bottles of CAPTAIN MORGAN rum, with some 71.9% of the spiced rum market share in Canada, especially in relation to other rum producers and their rum products in Canada.

In addition, Diageo's witnesses had testified to the effect that the CAPTAIN MORGAN rum products and/or "The Captain" character himself were consistently a key element in Diageo's advertising, promotional and marketing efforts. Diageo showed that, during the last few years alone, its activities to promote its CAPTAIN MORGAN rums had regularly included:

  • In-store promotion within liquor stores across Canada;
  • Extensive promotion within bars and restaurants by displaying the CAPTAIN MORGAN character on posters, tent cards, banners and other promotional items;
  • Extensive national TV advertising;
  • Extensive print advertising such as with liquor boards across Canada or with Air Canada;
  • Digital/internet promotion and advertising through social media campaign;
  • Interactive engagement with "The Captain" at major events visited by hundreds of thousands of Canadians who have interacted with "The Captain";
  • Sponsorship of popular sports events such as Hockey Night in Canada or the CBC's broadcasting of the 2010 FIFA World Cup.

4. Misrepresentation

While misrepresentation creating confusion in the public may be willful, negligent, or careless, innocent misrepresentation is also actionable (see Consumers Distributing Co. v. Seiko). It is well established in Canada that survey evidence demonstrating consumer reactions in the marketplace can be accepted as evidence in order to assist a judge's task in assessing consumer confusion about products in the marketplace.

The Court held that the evidence adduced by Diageo showed on a balance of probabilities that a casual or ordinary purchaser of rum products would likely be confused as to the source of ADMIRAL NELSON'S rum product as currently packaged and sold in Canada. At trial, Diageo tendered the expert evidence of Dr. Ruth Corbin who designed and oversaw the implementation of a mall-intercept survey of 629 Canadian adults of legal drinking age, residing in four Canadian cities, who had recently purchased a bottle of rum (relevant population). The survey's mandate was, amongst other things, to measure the extent, if any, to which purchasers of rum mistakenly infer that a bottle of ADMIRAL NELSON'S Premium Spiced Rum originates from the same source as CAPTAIN MORGAN Rum.

413 participants were shown a bottle of ADMIRAL NELSON'S Premium Spiced Rum (the Test Group below), while 216 were shown a bottle of the SAILOR JERRY Spiced Rum (the Control Group below) and were asked the following questions:

TEST CONTROL

a. Any comments? (Q2)

b. Who puts out the bottle of rum you just saw, or can you not say? (Q3a)

c. What was it about the bottle of rum, in particular, that made you give that name? (Q3b)

d. Does the company that puts out the bottle of rum you just saw offer any other brand of rum, or not? (Q4a)

By comparing results obtained from the ADMIRAL NELSON'S Test Group (23%) and SAILOR JERRY Control Group (7%) (i.e., 16% confusion "net" of the control condition), Dr. Corbin concluded and testified at trial that:

i. there is statistically significant evidence of misapprehension of source, meaning that rum purchasers are likely to mistakenly infer that a bottle of ADMIRAL NELSON'S Premium Spiced Rum originates from the same source as CAPTAIN MORGAN Rum; and

ii. the most frequent reason given by ADMIRAL NELSON'S Test-Group participants for inferring same source as CAPTAIN MORGAN was the character displayed on the label.

While there was some debate between the parties' respective survey experts at trial regarding the exact percentages of people interviewed that were confused as to the source of the ADMIRAL NELSON'S bottle, the Court ultimately concluded that the percentage of people interviewed who were confused as to the source is not insignificant (i.e. between 11% and 28% having regard to 5% statistical margin of error), given that it exceeded rates of confusion that Canadian Courts had previously found to be sufficient to establish a likelihood of confusion (from 4.8% to 8.2%).

3. Damages

The Court found that evidence put forth by Diageo as to confusion in some consumers' minds as to the source of the ADMIRAL NELSON'S rum products being that of CAPTAIN MORGAN was sufficient to demonstrate that there was a likelihood that these confused consumers may mistakenly purchase ADMIRAL NELSON'S rum products and consequently not purchase CAPTAIN MORGAN rum products, thereby resulting in lost sales for Diageo.

The Court concluded that the requisite damages to found a claim in passing off could also be established, as suggested by Diageo and previously held by the Federal Court of Appeal, by showing "a loss of control over reputation, image or goodwill." The evidence put forth showed that Heaven Hill had an issue with the liquid inside some of its bottles of ADMIRAL NELSON'S rums changing colour after it relaunched the brand in 2013, and in view of the evidence as to confusion in some consumers' minds as to the source of the ADMIRAL NELSON'S rum products, the Court held that it could potentially cause damage to the CAPTAIN MORGAN reputation, image, or goodwill.

Four occasions combine to total after rounding

Trademark infringement

In addition to asserting passing off in its entire CAPTAIN MORGAN trade dress, Diageo also owned a series of trademark registrations for both its CAPTAIN MORGAN character and its CAPTAIN MORGAN label. The Court also found that Heaven Hill's use of its character and label trademarks in association with ADMIRAL NELSON'S rum products infringed Diageo's nine (9) registered character and label trademarks, some of which are shown.

Depreciation of the value of the goodwill

Because Diageo had registrations for its CAPTAIN MORGAN character and label trademarks, Diageo was able to assert the Canadian equivalent to "dilution"–-i.e. that Heaven Hill had depreciated the value of the goodwill attaching to Diageo's registered marks. Diageo successfully argued that all the required elements under section 22 of the Act had been established as:

  1. A true "linkage" or "mental association" is shown by the Corbin survey that showed that 21% of participants noted similarity between ADMIRAL NELSON'S Test product and CAPTAIN MORGAN rum (as compared to less than 1% that noted similarity between SAILOR JERRY Control and CAPTAIN MORGAN rum);
  2. CAPTAIN MORGAN trademarks have considerable goodwill;
  3. There is a likelihood of damage due to both an inevitable impairment of distinctiveness, and the ADMIRAL NELSON'S quality control issues (discoloration).

While Heaven Hill had not actually used any of Diageo's CAPTAIN MORGAN character and label trademarks, the Court held that, Heaven Hill's ADMIRAL NELSON'S composite trademark was directly competing with nine of Diageo's trademarks in the market for rum products in three Canadian provinces, and that these trademarks were sufficiently well known to have significant goodwill. As a result, Heaven Hill's use of its character and label trademarks in association with ADMIRAL NELSON'S rum products was likely to depreciate the value of the goodwill associated with Diageo's registered trademarks.

The decision serves as a reminder of the clear benefits of registering key character and label elements on product packaging as trademarks, as well as the important role that passing off plays in obtaining suitable relief for a brand owner faced with a knock-off product.

The duel between The Captain and the Admiral has not yet come to an end. Aside from the costs and the amount of damages or profits to be paid by Heaven Hill, the Defendants have until September 12, 2017 to file an appeal of the Court's decision with the Federal Court of Appeal.