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January 30, 2017

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Law Times • January 30, 2017 Page 9 www.lawtimesnews.com Lawyer hopes to restart debate on grey marketing BY MICHAEL MCKIERNAN For Law Times T he lawyer for a choco- late importer hopes to re-ignite the debate over the legal status of grey marketing despite the compa- ny's recent failure to get out of an agreement in which it promised to stop the practice. Over the last couple of de- cades, some brand owners have turned to trademark enforce- ment proceedings to halt grey marketing, which involves pur- chasing genuine branded prod- ucts abroad and then reselling them in competition with local distributors of the same items. In Mars Canada Inc. v. Bemco Cash & Carry Inc., On- tario Superior Court Justice Fred- erick Myers ruled that while there was "nothing inherently wrong" with grey marketing, Bemco and its former owner Aizic Ebert still had to comply with their previ- ous agreements to cease selling foreign-sourced products bearing any of Mars Canada's trademarks. Toronto lawyer Patrick Summers, who acted for Bemco, says the de- cision has been appealed. "The judge acknowledged the uncertainty in the law, but de- cided this was not the case to rule on it," says Summers, a partner at Birenbaum Steinberg Landau Savin & Colraine LLP. "But at the very least, it should cause some discussion in the bar about the legal status of grey marketing." Ebert began selling U.S.- bought Mars products in To- ronto almost two decades ago, undercutting retail prices of- fered by Mars Canada's own dis- tributors. When the Canadian subsidiary found out about his business, it sued Bemco and Eb- ert in the Federal Court. According to Myers' Nov. 18 judgment, Bemco obtained representation from intellectual property lawyers and decided to settle the litigation by agree- ing to stop grey marketing Mars products. Mars brought its most recent action against Bemco and Eb- ert in 2010, alleging breach of the settlement after discovering both were back in the grey mar- keting business. Myers' judg- ment says Ebert's wholesaling company had resumed import- ing Mars products from the U.S. and was selling them to a new retailer with a complicated legal relationship to Bemco. "On the uncontested facts, despite Mr. Ebert's attempted le- gal characterization of the facts, Bemco is doing and being paid to do the things it said it would not do. It is therefore in breach of its settlement agreement," Myers wrote. As long ago as 1996, the Fed- eral Court of Appeal ruled in Smith & Nephew Inc. v. Glen Oak Inc. that Canadian licens- ees of trademarks owned by for- eign parent companies cannot rely on their licensed trademark rights to prevent grey market- ing. However, the court stopped short of saying what happens when the Canadian subsidiary or affiliate actually owns the trademark in this country. In the Bemco case, Mars Canada owns the trademarks for various confectionery products, including Bounty, Milky Way, Snickers and Twix after they were assigned to them by their U.S. parent company. Bemco claimed the relationship between the two companies remained too close to allow the Canadian sub- sidiary to enforce the trademark rights. As a result, the grey mar- keter argued the earlier settle- ment agreements should be de- clared void for restraint of trade. However, Myers ruled Bemco missed its chance to argue for the extension of the Smith & Neph- ew decision to Canadian trade- mark owners when it bowed to Mars Canada's demands that it cease the sale of products bear- ing its trademarks. "By raising the issue of restraint of trade in this case, they seek to unwind the very settlement to which they agreed and cause the grey marketing issue that they agreed to settle to be litigated. The fact that the agreement is a settle- ment agreement weighs heavily against it being seen to be prima facie void or at all contrary to public policy," Myers wrote. As part of its case, Bemco of- fered expert evidence about the tendency for grey marketing prohibitions to promote monop- olistic pricing, but Myers side- stepped that issue in his ruling. "Even if there is an interesting economic debate about whether grey marketing is pro-competi- tive and limits on grey market- ing may be anti-competitive, that issue just does not arise on the facts of this case in light of the settlement agreements, the existence of presumptively valid trade-marks, and the unlawful- ness of the defendants' sales in any event," Myers wrote, noting that Bemco's sale of items with- out French language information or metric weights violates federal packaging and labelling laws. Summers says Bemco's ap- peal will again focus on the mer- its of grey marketing and the use of trademark enforcement to halt it. "If we can get some sort of finding that what the defendants did here was not in breach of the plaintiff 's trademark rights, then it's more difficult for Mars Canada to say that they had a valid reason for the agreements," he says. Devin Doyle, a lawyer with Ottawa intellectual property litigation boutique Aitken Klee LLP, says he would like to see an appeal court weigh in on the use of trademarks by Canadian subsidiaries in grey marketing cases. "It's definitely an important issue, because a lot of compa- nies are affected on both sides of these cases. Right now, we're in a kind of limbo phase where we are not sure what is legal, so FOCUS Devin Doyle says he would like to see an appeal court weigh in on the use of trade- marks by Canadian subsidiaries in grey marketing cases. See Clarification, page 12 Innovative businesses choose Smart & Biggar — the recognized leader in intellectual property • • • O t t a w a / To r o n t o / M o n t r e a l / V a n c o u v e r / C a l g a r y s m a r t - b i g g a r . c a U N PA R A L L E L E D I P • Canadian Trademark Contentious Firm of the Year (Managing Intellectual Property's 2016 North America Awards) Highest ranking (Band 1) in Canadian intellectual property law (Chambers Global – The World's Leading Lawyers for Business, 2016 Edition) Canadian Specialty IP Firm of the Year Award (Managing Intellectual Property's 2016 North America Awards) Canada's Intellectual Property Litigation Firm of the Year for two consecutive years (Benchmark Canada 2016 Awards) Untitled-6 1 2016-09-20 2:55 PM

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