On September 23, 2024, the Competition Tribunal ruled in favour of the Competition Bureau and found that Cineplex Inc. (“Cineplex”), the largest cinema chain in Canada, engaged in “drip pricing” by adding an online booking fee ranging from $1.00-$1.50 for tickets purchased online or through the Cineplex app. The fees were collected from June 2022 to December 31, 2023 (when the Competition Bureau initiated its investigation). The Competition Tribunal found that the online booking fee was misleading and contained drip pricing because the existence and the amount of the fee was not initially disclosed when consumers were making their purchases. Instead, it only became visible after the tickets were selected and the purchaser clicked to ‘proceed’ to the next screen.

Cineplex has been ordered to pay a record penalty of $38.5 million, equivalent to the amount it collected from consumers through the aforementioned $1.50 fee. Cineplex says it will appeal the decision to the Federal Court of Appeal.

What is drip pricing?

Drip pricing involves offering what appears to be low prices to attract consumers; but followed by the addition of further mandatory fees so that the original prices are unattainable. The mandatory fees can be for just about anything; including “processing fees”, “booking fees”, “cleaning fees”, “administrative fees”, to name a few. The issue occurs when such fees are not disclosed to the consumer accurately and clearly, including by being excluded from the advertised price and then are incrementally revealed during the purchasing process – i.e. “dripping” into the final price.

This practice is against the Competition Act (the “Act”), unless the additional fixed charges or fees are imposed by the government on purchasers, such as sales tax. Amendments to the Act came into force on June 24, 2022, which explicitly recognize drip pricing as a harmful business practice.

The Takeaway

This ruling marks the first case in which the Competition Tribunal has applied the recently-enacted drip pricing provisions, namely subsection 74.01(1.1) of the Act. It sends a strong message to Canadian businesses that it intends to enforce this new provision and the penalties for contravening it can be sever. To avoid potential drip pricing complaints and penalties, businesses should display their full prices upfront, including all incremental or additional fees.

If you have questions about your current advertising and marketing practices, in relation to drip pricing or any of the other recent additions to the Act, we’re happy to assist.

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What is Greenwashing?

Greenwashing is when a company promotes its products or services as being environmentally conscious for marketing purposes, while in practice they are not actually taking any notable sustainability efforts.[2] It is essentially a situation where an organization spends more time and money on marketing itself as environmentally friendly than on actually minimizing its environmental impact.  It is a deceitful marketing gimmick which misleads consumers who prefer to buy goods and services from environmentally conscious brands. This issue of greenwashing is quickly becoming a priority for enforcement agencies, notably Canada’s Competition Bureau. (“Bureau”)

Greenwashing is problematic not only because it is ethically wrong and illegal but because it has created a situation where many consumers do not actually believe companies when they make claims about their sustainability practices.  This has created a world where companies big and small are afraid to tell society what they are doing to combat environmental issues for the fear people will say their actions are not enough, or people just will not believe them.

Why does Greenwashing occur?

Greenwashing can occur for a variety of reasons. One of these reasons stems from the fact that many CEOs and Corporate Boards are not as engaged with sustainability strategies as they should be.  While 90 percent of corporate executives think sustainability is important, only 60 percent of companies have a sustainability strategy.[3]  Fewer still have anyone in a leadership role responsible for this activity.  Often, companies adopt the sustainability bandwagon but do not support their marketing with leadership and budgets.

How is Greenwashing Challenged?

Aside from Consumer and Competitor activities, greenwashing has become an increased priority for enforcement agencies in Canada, notably the Bureau.  One of the very few areas where the Bureau has been effective has been in its pursuit of misleading advertising claims by investigating and prosecuting deceptive marketing practices, to ensure consumers receive truthful information allowing them to make informed buying decisions.[4]  The Competition Act prohibits businesses from making a materially false/misleading representation to the public in order to promote the supply or use of a product/service or a business interest.  In assessing whether a representation is deemed to be “material,” the Bureau looks to see if the representation could influence consumer behaviour, such as influencing them to buy or use the advertised products or services.[5]

The Bureau has sent a clear message to the business community that it has a significant role to play in Canada’s transition to a greener economy and in achieving growth goals, and that greenwashing is a high enforcement priority.  As a result, while the Bureau may not have the resources to deal with every potentially offside advertisement, businesses can expect to see increased scrutiny and higher risks in potentially misleading claims.

Past Examples of Bureau Greenwashing Enforcement

Keurig Canada:

In 2019, Ecojustice, Canada’s largest environmental law charity, applied to the Bureau triggering an inquiry regarding claims made by Keurig Canada (“Keurig”) that its coffee pods are recyclable.  Keurig had just modified their single use coffee pods to be made from a recyclable plastic, a modification that presumably would have involved significant cost increases regarding their technological and manufacturing processes.  To market this positive performance change, Keurig promotes via its website, social media, and on its packaging that their single-use coffee pods were recyclable, when consumers followed the instructions to move the metallic lid and empty the pod.[6]

The Bureau investigated these claims and determined Keurig’s assertions regarding the recyclability of its single-use coffee pods were false or misleading in municipalities that did not accept them for recycling.  The Bureau found that, outside the provinces of British Columbia and Quebec, K-Cup pods are currently not widely accepted in municipal recycling programs.[7] In other words, the Bureau found that these claims were false or misleading because they claimed to have more environmental truth benefits than they had.  The Bureau also concluded that Keurig’s claims about the steps involved to prepare the pods for recycling are false or misleading in certain municipalities. Keurig’s claims gave the impression that consumers can prepare the pods for recycling by simply peeling the lid off and emptying out the coffee grounds, but some local recycling programs require additional steps to recycle the pods.  Keurig voluntarily settled this claim for $3 million. [8] Additionally, at least one class action has been commenced against Keurig, with respect to its K-Cup or Keurig Coffee machines since Keurig began making these false misrepresentations on April 15, 2016.[9]

Royal Bank of Canada:

In October 2022, the Bureau decided to investigate charges of misleading advertising against the Royal Bank of Canada (“RBC”).  The claim accuses RBC of touting its commitments to climate action while continuing to finance fossil fuel development.  It is an inquiry by the Bureau “seeking to determine the facts relating to allegations that RBC has contravened the Competition Act by making false or misleading environmental representations.[10]” The inquiry and investigation by the Bureau are still underway.

Other Sustainability Legislation:

The Consumer Packing and Labelling Act contains prohibitions against making false or misleading representations.[11] The Trademark Act carries a prohibition against making materially false and misleading statements about the character, quality, quantity, composition, origin, production or performance of goods and services.[12] The Canadian Advertising Standards Code states that Advertisements must not contain inaccurate, deceptive, or otherwise misleading claims, statements, illustrations or representations.  All representations must be supported by competent and reliable evidence.[13]

Key Takeaways:

Companies, including franchisors and franchisees should not refrain from enhancing their products and services that are consistent with sustainability.  In doing so, however, they must exercise caution in the scope and scale of their marketing activities.  Businesses making environmental claims should avoid bold, broad statements, and instead ensure they make claims which are specific and accurate. The following best practices should be followed, as highlighted by the Bureau.[14]

• Make sure your claims are truthful and are not misleading;
• Make sure they are specific claims that are substantiated and verifiable;
• Make sure they are not claims that either result in a misrepresentation, or an extreme exaggeration of the environmental benefits of your product; and
• Do not imply your product is endorsed by a third-party environmental organization if it is not.

At Sotos LLP, we advise franchisors and franchisees on all aspects of their business including their sustainability strategies. We would be happy to provide tailored advice on the applicable regulations and codes in place in the jurisdictions you are operating in and how they apply to your products or services.

John Sotos, Sotos LLP

John Sotos is the founding partner of Sotos LLP and a dean of the franchising, licensing and distribution bar. John has been recognized by Chambers Canada, Canadian Legal LEXPERT Directory, Who’s Who Legal, and Best Lawyers in Canada as a leading Canadian franchise law practitioner. John can be reached directly at 416.977.9806 or jsotos@sotos.ca if you would like to discuss this or any other topic relating to the operation of your business.

Don Houston, Sotos LLP

Don is one of our articling students for the 2022-2023 term.

[1] “Green Industry Analysis 2020- Costs & Trends” Franchise Help 2020, Online: https://www.franchisehelp.com/industry-reports/green-industry-analysis-2020-cost-trends/
[2] Carlyann Edwards, “What is Greenwashing” Business News Daily, August 5^th 2022. Online: https://www.businessnewsdaily.com/10946-greenwashing.html
[3]      Talal Rafi, “Why Sustainability is Crucial for Corporate Strategy,” Race to Resilience. June 16^th, 2022. Online: https://climatechampions.unfccc.int/why-sustainability-is-crucial-for-corporate-strategy/#:~:text=90%25%20of%20executives%20believe%20sustainability,consumer%20demand%2C%20and%20regulatory%20requirements.
[4]     “Misleading Representations and Deceptive Marketing Practices” Government of Canada. Online: https://ised-isde.canada.ca/site/competition-bureau-canada/en/deceptive-marketing-practices/types-deceptive-marketing-practices/misleading-representations-and-deceptive-marketing-practices
[5] “False or Misleading Representations” Government of Canada. Online: https://ised-isde.canada.ca/site/competition-bureau-canada/en/deceptive-marketing-practices/types-deceptive-marketing-practices/false-or-misleading-representations
[6] Mia Rabson, “Keurig to pay $3 million fine for false, misleading claims on recycling of its K-CUPSs” Toronto Star. January 6^th, 2022. Online: https://www.thestar.com/politics/2022/01/06/keurig-to-pay-3-million-fine-for-false-misleading-claims-on-recycling-of-its-k-cups.html
[7] “Keurig to pay $3 million penalty to settle Competition Bureau’s concerns over coffee pod recycling claims” Government of Canada. January, 6^th 2022. Online: https://www.canada.ca/en/competition-bureau/news/2022/01/keurig-canada-to-pay-3-million-penalty-to-settle-competition-bureaus-concerns-over-coffee-pod-recycling-claims.html
[8] Ibid
[9] “Keurig K- Cups” Sotos Class Actions. Online: https://www.sotosclassactions.com/cases/keurig-k-cups/
[10] James Bradshaw, “Competition Bureau launches inquiry into RBC’s green advertising” The Globe and Mail. October 11^th, 2022. Online: https://www.theglobeandmail.com/business/article-rbc-green-advertising-competition-bureau/
[11] Consumer Packaging and Labelling Act, R.S.C., 1985, c. C-38
[12] Trademarks Act, R.S.C., 1985, C. T-13
[13] The Canadian Code of Advertising Standards, Ad Standards. 1963. Online: https://adstandards.ca/code/the-code-online/
[14] “Environmental Claims and Greenwashing” Government of Canada. Online: https://ised-isde.canada.ca/site/competition-bureau-canada/en/how-we-foster-competition/education-and-outreach/publications/environmental-claims-and-greenwashing

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Since the regulatory framework in Ontario places the OCS in the middle of the supply chain, the Program cannot fully circumvent the OCS or be structured as a direct pass-through from LP to Retailer.  However, the Program does allow Retailers and Licensed Producers to develop relationships and interact directly. The Program will also allow some Retailers to carry unique product offerings, as compared to their competitors, and will also allow LPs to provide branded products that feature the Retailer’s brand.  LPs will have to work with the OCS to ensure that any obligations they have to Retailers are met, determine the product quantity needed, and ensure that the proper inventory method is used.

In connection with the introduction of the Program, the Alcohol and Gaming Commission of Ontario (the “AGCO”) has updated its standards regarding the provision of inducements from LPs to Retailers. A guidance document, Inducement Rules for Licensed Cannabis Retailers, was released to clarify the changes to the AGCO’s Registrar’s Standards for Cannabis Retail.[2] The changes detail the continued general rule against material inducements, but also highlight new exceptions to this rule. This article will review these new exceptions including with regard to the practice of “white labelling.”

Rule Against Material Inducements

The Registrar’s Standards for Cannabis Retail (the “Standards”) prohibit Retailers from entering into agreements with LPs and their representatives for items, benefits, payments, or services in exchange for the promotion or increased sale of a particular product by the Retailer or its employees.[3] In other words, LPs are prohibited from approaching Retailers and offering them any incentives to promote that LP’s product over other products sold by the Retailer. An example of this would be a Retailer entering into an agreement with an LP whereby the Retailer agrees to promote and increase sales of that LP’s product in exchange for exclusive product features. The provision of exclusive product features would be considered a material inducement by the AGCO and, as such, would be prohibited.

Other prohibited activities or inducements include: the sale of in-store or online advertising space; the provision of cannabis samples for sensory display purposes; the provision of fixtures or physical assets; the provision of items essential to the operation of the business; sales incentives; cash or rebates; travel or accommodation for education or training; and monetary compensation for education or training.[4]

The Exceptions to the Rule:

While the AGCO’s general rule prohibits the provision of material inducements by LPs to Retailers, a few important exceptions do exist, the most important of those being (1) the allowance of items, benefits, or services of nominal value, and (2) the allowance of “white-labelling”.

• Items, Benefits, or Services of Nominal Value:

Retailers may enter into agreements with LPs or their representatives for items, benefits, or services of nominal value. Nominal value items are defined as those of inconsequential value (unlike the prohibited financial and material inducements). The AGCO has not prescribed a specific monetary value above which an item would not be considered “nominal”.  Instead, the AGCO has advised that it will consider the following factors in determining whether the benefit or item would be considered nominal;

• Would a licensee be likely to change their behaviour toward an LP or the LP’s product after receiving the item, benefit, or service?
• Are the items, benefits, or services valued at an amount that would defray the Retailer’s operational costs?
• How many items, benefits, or services have been provided over what period of time? [5]

Retailers should consider these questions when entering into any type of agreement with an LP to ensure that they are not receiving inducements that might be considered material and would, therefore, be prohibited by the Regulations.

• Items, Benefits, and Services Related to Education or Training:

Retailers may accept items, benefits, or services from LPs that are related to education or training. This may include education or training sessions or materials, meals and refreshments during the education or training, and cannabis product samples directly related to education or training. [6]

• Ownership Interest and Franchise Agreements:

Retailers and LPs are permitted to enter into financing, leasing, and franchise agreements. A copy of any such agreement must be disclosed to and approved by the AGCO.  All agreements must comply with the Cannabis License Act, 2018 (CLA)[7] and the Standards. Note that the AGCO will not provide any commentary or explanation regarding its decision to accept or reject a proposed agreement.  As such, it is important that Retailers familiarize themselves with the Standards.

• Store Brand Cannabis Products (White Labelling)

Agreements between Retailers and LPs for store-branded cannabis products (also known as white labels, private labels, and in-house/house brands) are also permitted (“White Label Agreements”).  White Label Agreements allow Retailers to partner with LPs to develop products that include that Retailer’s specific brand. This involves Retailers entering into contractual agreements with LPs for the manufacture and sale of products that are specifically branded for that retail store.[8]  These types of agreements are subject to the same review process by the AGCO as mentioned above.  Retailers should be aware that any branded products will remain available for any other retailer to purchase on the OCS’ “flow-through catalogue,” provided they are part of the Program.

While these agreements are permitted, the AGCO does place certain constraints on their contents.  Retailers and LPs should be cognizant of these rules before entering into any such agreement and seeking AGCO approval.  In particular, White Label Agreements must not:

• Define the amount of product from the LP or its affiliates that must be offered for sale by the Retailer;
• Require a defined amount of display space at the retail space to be dedicated to products from the LP or its affiliates;
• Provide merchandising, marketing, or promotional activities to the LP or its affiliates; or
• Restrict the LP’s ability to have its products sold at other retail stores, or the Retailer’s ability to sell products produced by other LPs (or their affiliates). [9]

White Label Agreements and the Program are intended to benefit smaller LPs and Retailers, as they will enable the OCS to offer more products to Retailers, including products that have a short shelf life or are slower-moving.  It is important that Retailers and LPs monitor how the industry reacts to these changes. White Label Agreements also allow Retailers to further differentiate themselves from their competitors and to build brand loyalty and awareness.

Key Takeaways:

Given the rapid evolution of the cannabis industry, Retailers and LPs alike need to ensure they are familiar with and current on industry developments. The introduction of the OCS’s flow-through program and subsequent changes to the relevant regulations regarding material inducements are two such developments.  Both provide additional growth opportunities for LPs and Retailers but also present a minefield of potential pitfalls if the rules are not properly understood.  Becoming well-versed in the OCS’s Program and the AGCO’s rules regarding material inducements is crucial for Retailers and LPs who want to be able to avail themselves of these new opportunities without costly hiccups.

Anna Thompson-Amadei, Sotos LLP

Anna is an associate with Sotos LLP in Toronto, Canada’s largest franchise law firm. She is the head of the firm’s cannabis practice area. Please contact Anna at 416.572.7322 or athompson-amadei@sotos.ca if you would like to discuss this or any other topic relating to the operation of your business.

Don Houston, Sotos LLP

Don is one of our articling students for the 2022-2023 term.

[1] Brown, David. “Ontario’s New Flow-Through Model and Product Call Timeline, Comes with Pros and Cons, Says Producers and Retailers.” Stratcann September 1, 2021. https://stratcann.com/insight/ontarios-new-flow-through-model-and-product-call-timeline-comes-with-pros-and-cons-say-producers-and-retailers/
[2] Brown, David. “Ontario Chamber of Commerce Concerned with Province’s Plan to Ban In-House Cannabis Brands and Products” Stratcann March 4, 2022 https://stratcann.com/news/ontario-chamber-of-commerce-concerned-with-provinces-plan-to-ban-in-house-cannabis-brands-and-products/
[3] “Cannabis Retail Regulation Guide” Alcohol and Gaming Commission of Ontario https://www.agco.ca/book/export/html/19736
[4] “ Guidance Document- Inducements Rules for Licensed Cannabis Retailers” Alcohol and Gaming Commission of Ontario https://www.agco.ca/guidance-document-inducements-rules-licensed-cannabis-retailers
[5] Ibid
[6] Ibid
[7] Cannabis Licence Act, 2018, S.O 2018, C.12, SCHED 2.
[8] Maurer, Matt, “The “Return” of White-Labelling is a win-win-win for LPs, Retailers, and Consumers” Grow Opportunity. June 1, 2012.      https://growthopportunity,ca/legal-matters-2/?utm_source=rss&utm_medium=rss&utm_campagin=legal-matters-2
[9] Supra, note 4

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Automotive dealers are operating in a retail environment that is more competitive than ever before. With a crowd of new competitors, vehicles, and features emerging, dealers must find innovative and effective ways to reach potential consumers. They should be weary, however, of the restrictions that exist with respect to their ability to advertise their newest models and latest promotions. In particular, dealers should keep in mind that they are subject to extensive laws and regulations with respect to electronic advertising, in addition to commonplace advertising restrictions that exist in their dealership agreements.

All advertisers (including automotive dealers) must adhere to the Canadian Code of Advertising Standards, while also ensuring that their advertising activities do not violate the terms of the Competition Act (Canada). Although the obligations and restrictions on advertisers are extensive and too numerous to explore in just one article, the cornerstone requirement placed on advertisers is to ensure that their advertising content is neither false nor misleading. Advertisers who knowingly or recklessly publish false or misleading content can be found to be criminally liable, and subject to substantial fines.

Canada’s Anti-Spam Legislation

Although dozens of considerations exist for advertisers of all sizes, automotive dealers in particular should consider whether their electronic advertising is fully in compliance with Canada’s anti-spam legislation (“CASL”) governing electronic advertising. Coming fully into force in 2017, CASL regulates how companies may electronically advertise to potential customers, including via e-mail and text message.

Prior to sending a “commercial electronic message” to a potential customer (that is, an electronic message (such as an e-mail) with a commercial purpose, including to advertise the dealer’s latest models or offering for sale goods and services), the advertiser must have the intended recipient’s consent, such consent having been explicitly or implicitly received by the advertiser.

Explicit consent has been received when the proposed recipient has expressly agreed, either verbally, in writing, or by checking a box online, to receive a commercial electronic message from the advertiser. Advertisers must be sure that their efforts to seek explicit consent from a recipient comply with CASL’s requirements, which include (but are not limited to):

• fully informing the recipient of the purpose of the message,
• the identity, address, and contact information of the sender, and
• a notification that the recipient may opt out of future messages at any time.

The sender may also have received implicit consent to solicit a potential customer, which means the recipient (i.e. the potential customer) has previously engaged in an activity that allows the sender to assume they have the recipient’s consent. Implicit consent exists when there is an “existing business relationship” between the sender and the recipient. For an existing business relationship to exist, the sender (automotive dealer) must prove that:

1. the recipient has purchased or leased a product or service from the sender within the last two years;
2. the recipient has previously accepted a business, investment, or gaming opportunity from the sender within the last two years;
3. the recipient and the sender have bartered over any of the items listed above within the last two years;
4. a contract (in writing) was previously entered into by the parties, and this contract is either still in effect, or has expired within the last two years; or
5. the recipient has made a business inquiry to the sender within the last six months.

Even when commercial electronic messages are sent with the consent of the recipient, the messages must provide the recipient with the opportunity to unsubscribe from receiving further messages from the sender. When the sender receives a request to unsubscribe, the sender must comply with this request and cease sending the recipient commercial electronic messages within 10 business days.

Advertisers that fail to abide by CASL may face significant monetary and criminal penalties, including fines totaling as much as $10,000,000. Officers and directors of non-compliant senders may also be held personally liable for their company’s non-compliance. It is worth noting that CASL requirements do not apply to commercial electronic messages directed at a general audience, such as messages posted on a Facebook or Instagram page or a street-facing advertising billboard, but would apply when the message is sent to specific e-mail addresses or social media accounts.

Commonplace Dealer Agreement Restrictions

In addition to applicable advertising laws and regulations, dealers should also be mindful of the obligations and restrictions on advertising that they have agreed to in their dealer agreement with their manufacturer. Although the specific requirements concerning advertising will vary from one manufacturer to another, virtually every manufacturer requires dealers conduct their advertising in a manner that will not mislead or confuse the public about the manufacturer’s products, or that will otherwise impact the goodwill and brand standards of the manufacturer.

Manufacturers will often have comprehensive policies in place to regulate a dealer’s advertising activities, including the dealer’s obligations to advertise in its local market area, the permitted forms and methods of advertising, use of the manufacturer’s trademarks, and permissible and impermissible types of content that may be used. Many manufacturers will require dealers to submit copies of their proposed local advertising to the manufacturer for its approval prior to publication to ensure that the message is consistent with the manufacturer’s vision and brand standards, and to ensure that it would not be considered lewd or in poor taste.

Is your Dealership’s Advertising Fully Compliant?

To ensure that your dealership is complaint with Canadian advertising laws and regulations (such as CASL), as well as its obligations under its respective dealer agreement, consider taking the following preliminary steps:

• Review the accuracy of all advertising materials prior to being published to ensure they are not likely to mislead or deceive customers.
• Review and update any existing e-mail contact mailing lists on an ongoing basis to ensure you retain explicit or implicit consent from the listed recipients.
• Ensure all commercial electronic messages provide the recipient the ability to unsubscribe from future correspondence.
• Retain all records of recipient consent to receiving commercial electronic messages, as well as all recipient requests to unsubscribe.
• Ensure that proper policies and procedures are established governing the transmission of commercial electronic messages, including through social media.
• Carefully review the contents of your dealer agreements to ensure that your ongoing local advertising is compliant with your contractual obligations.

Canadian advertising laws and regulations are complex and multifaceted. As necessary, seek appropriate legal counsel to assist you in ensuring that your advertising initiatives are, and remain, fully compliant with applicable laws and your dealership agreement.

John Yiokaris, Sotos LLP

John Yiokaris is a partner with Sotos LLP in Toronto, Canada’s largest franchise law firm. He has been recognized by Chambers Canada, LEXPERT, Who’s Who Legal, Lexology, and Best Lawyers in Canada as a leading Canadian franchise law practitioner.

John practices business law with a specific focus on the automotive industry, franchising, and disputes and he is trusted counsel to both automotive dealers and manufacturers. John can be reached directly at 416.977.3998 or jyiokaris@sotosllp.com.

Jason Brisebois, Sotos LLP

Jason Brisebois is an associate with Sotos LLP in Toronto, Canada’s largest franchise law firm. He is head of the firm’s personal services franchise practice area, and practices business law with a focus on franchising, distribution, and licensing. Jason can be reached directly at 416.572.7323 or jbrisebois@sotosllp.com.

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In Mars, the court upheld a settlement in which the parties agreed that Bemco (the grey marketer) would cease importing legitimate “MARS” chocolate bars into Canada through distribution channels that were not authorized by the brand owner and Canadian trademark holder (a licensee of the U.S. parent company that owns the well-known candy brand line). In other words, the court found that an agreement prohibiting the free flow of goods was not anti-competitive, despite that it strengthened the brand owner’s monopoly and prevented consumers from buying goods at lower prices. The court took issue with the fact that Bemco’s grey market products were improperly labelled for the Canadian market, and were therefore unfit for sale and consumption in Canada. The court also found the settlement to be in the public interest because it resolved the dispute between the parties and prevented confusion between the brand owner’s trademarked products and Bemco’s improperly labelled goods.

The practice of grey marketing (also known as parallel importing) is an unsettled area of law that involves competing public interests. From a policy standpoint, grey markets are often good for consumers: they create an alternative market with lower prices for goods that are legally produced by the trademark owner (i.e. they are not counterfeit). Trademark owners naturally oppose the practice of grey marketing because they invest significant resources into the protection of their brands in order to control the sale and distribution of their trademarked products, both at home and abroad.

In the past, Canadian courts have been reluctant to rely on trademark law to endorse a brand owner’s monopoly by prohibiting parallel imports, particularly when there is no confusion about the origin of the grey market goods. However, the decision in Mars presents a new deterrent to grey marketers and reaffirms the importance of compliance with local distribution, packaging, and marketing laws. It also brings Canada more closely in line with other jurisdictions, such as the U.S., which permit the assertion of trademark rights to curtail grey marketing practices. Finally, Mars is an important pronouncement on the limitations of anti-competitive claims by grey marketers who are often seen as “free-riders” reaping the benefits of well-established brands.

Sotos LLP works with distributors, licensors, and franchisors to help them secure and strengthen their brands in a variety of markets. We also assist individuals and corporations to secure, register, and defend their trademarks. If you are considering licensing your brand or distributing your products through third parties, start by retaining qualified and experienced legal counsel to assist you with your expansion.

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