90 LEXPERT MAGAZINE
|
NOVEMBER/DECEMBER 2016
Washington state store and sold
them for inflated prices in Van-
couver. California-based Trader
Joe's, which operates throughout
the US, sells its branded products
only at its own stores and does not
franchise or license others to deal
in its products.
e store at which Hallatt
made his purchases was in Bell-
ingham, just over 30 kilometers
south of the border. Canadians
constituted some 40 per cent of its
business. About five years ago, some store
employees noticed that Hallatt was buying
large quantities several times weekly.
It turned out that Hallatt was reselling
the goods, some of which were perishable,
at Pirate Joe's, his Vancouver store. e
store's logo mimicked the Trader Joe's logo.
e Bellingham store banned Hallatt,
but he disguised himself and continued to
make purchases in Seattle, Portland and
California to the tune of some $350,000
worth of goods.
Hallatt claimed his activities were not
illegal. In 2013 a US District Court Judge
in Seattle ruled that US courts don't have
jurisdiction over infringement that occurs
solely in Canada.
On appeal, Trader Joe's alleged reputa-
tional harm, claiming that Hallatt's failure
to adhere to quality control measures could
affect its business in the US. Trader Joe's
also claimed that its trademarks were well-
known in Canada.
ese arguments found favour in the
Court of Appeals. e court concluded
that the alleged harm to Trader Joe's US
interests was plausible because "incidents
of food-borne illness regularly make inter-
national news," because Pirate Joe's cus-
tomers could mistakenly associate Trader
Joe's brand with high prices and inferior
customer service, and because the sale of
the branded goods at Hallatt's outlet in
Vancouver could mislead consumers, in-
cluding those who shopped regularly in
Bellingham,
WA.
Although US courts have upheld the
extraterritorial application of the Lanham
Act in other circumstances, Burshtein says
Trader Joe's was driven by its unique facts.
"It's an oddball case where the defendant
had some sort of [immigration] status in
the US, he used disguises, and he was brag-
ging about what he was doing and getting
away with," Burshtein says. "ese are all
things courts don't like."
But why didn't Trader Joe's sue in Can-
ada, avoiding the time and expense of the
jurisdictional complexities? Burshtein says
it's not clear that the plaintiff would have
succeeded in Canada.
"ere may have been a reasonable shot
at a passing-off claim because Hallatt made
the goods look like they were legitimately
from Trader Joe's, and there may have been
an infringement claim if the perishable
goods had been adulterated or contami-
nated," he says. "But in theory, it's quite
possible that Canadian and US courts
could come to opposite conclusions about
whether this is trademark infringement."
Daniel Drapeau of Drapeaulex Inc. in
Montreal says succeeding in a passing-off
action in Canada on these facts would be
"difficult, but not impossible." Trader Joe's
would need to demonstrate that it had
goodwill in association with its mark in
Canada, although it had not used the mark
here. Because it had no business in Canada,
proving damages could also be difficult.
"While the status of grey goods is un-
certain under Canadian law, following
the SCC decision in Euro-Excellence Inc.
v. Kra Canada Inc., you can still get in
trouble for selling them," Drapeau says.
FOR THE FIRST TIME, a US appellate
court has ruled that federal trademark law
can extend to Canada even in cases where
all of the infringing activity has occurred in
this country.
e August decision from the US Court
of Appeals for the Ninth Circuit arose on a
jurisdictional point.
"We hold that the extraterritorial reach
of the Lanham Act [governing federal
trademark law] is a merits question that
does not implicate federal courts' subject
matter jurisdiction," Judge Morgan Chris-
ten wrote for a unanimous panel in Trader
Joe's Co. v. Hallatt.
In other words, the ruling means only
that a US court could hear the case on the
merits, not that it would necessarily decide
in the plaintiff 's favour. But it doesn't look
good for the defendant.
"ere are a number of bad facts going
against the defendant," says Sheldon Bur-
shtein of Blake, Cassels & Graydon LLP in
Toronto. "ey include the fact that he had
ties to the US, that deception was involved,
and that the goods moved across the border
included perishables, about which people
always have health concerns."
e case arose aer Michael Hallatt,
a Canadian with immigration status in
the US, bought groceries at Trader Joe's
Federal trademark law can extend to Canada even when all infringing activity has occurred here BY JULIUS MELNITZER
US extends trademark jurisdiction
PHOTO:
SHUTTERSTOCK
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