Watch Out for that Demand Letter!

Different types of intellectual property rights often intersect, in sometimes unexpected ways.  In the latter part of 2016, the Federal Court in Canada issued decisions in two different cases involving the application of Section 7(a) of the Trade-marks Act to allegations relating to patent and industrial design rights in one case, and to patent rights in the other case.

Section 7(a) provides that no person shall make a false or misleading statement that tends to discredit the business, goods or services of a competitor.  At issue in both of the cases were communications to customers in the form of cease and desist communications containing allegations of intellectual property rights which were later found to have been unfounded, since the patent or industrial design rights which had been asserted were adjudged to be either invalid or not infringed. 

Both Justice Hughes in E. Mishan & Sons, Inc. v. Supertek Canada Inc., 2016 FC 986 (CanLII) and Justice Manson in Excalibre Oil Tools Ltd v. Advantage Products Inc., 2016 FC 1279 (CanLII) took care to emphasize the point that not every assertion of intellectual property that is subsequently found to be invalid will breach this provision.  The communication must in addition be threatening, rather than being merely informative.  Care must be taken not to cross this line, since the threat in question can be either an explicit threat or a veiled threat to take action.  Once that characterization has been satisfied, there is then a three-part test which must be met in order to make out a claim under Section 7(a).

First, there must be a false and misleading statement; secondly, the statement must tend to discredit the business, goods or services of a competitor. And finally, there must be damages which result from the statement.

In the Mishan decision, it was determined that there were no damages, since the decision not to sell the Plaintiff’s products did not have a causal link with the statements which had been made.

In contrast, this causal link was found to exist in the Excalibre case, although it was held that the damages were restricted to the precise products about which the statements had been made, and not to other products.