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Depreciation of goodwill in trademark law is a concept that allows the owner of a registered trade mark to prevent others from using that trade mark in a manner that has the effect of depreciating the value of goodwill attached to it. Contrary to confusion, the unauthorized use of the trade mark does not always have the effect of confusing consumers about the source of a product.

Depreciation or dilution of goodwill
Each owner of a trade mark would like to have total control over the trade mark in question and the assets attached to it. Indeed, a trade mark has what Vaver describes as a “drawing power” that is to say the ability to attract customers who might associate the trade mark to a certain product, which might have the reputation of being a good quality product. Trademark owners therefore need a way to protect their trade marks from a use that might tarnish the image or reduce the drawing power of the trade mark. In his book, Vaver takes the example of the trade mark Rolex used by a company that produces condom. Even tough there is no chance that a consumer might be confused at the point of associating the luxury watches brand and a condom, the company might nevertheless assume that this association is going to tarnish the image of the brand and diminish its value. A value depends indeed on the affective associations built around the mark by advertising.

Legal basis for depreciation
The legal basis can be found in Section 22 of the trade mark act that states that:

''(1) no person shall use a trade mark registered by another person in a manner that is likely to have the effet of depreciating the value of the goodwill attaching thereto.

(2) In any action in respect of a use af a trade mark contrary to subsection (1), the court may decline to order the recovery of damages or profits and may permit the defendant to continue to sell wares marked with the trade-mark that were in his possession or under his control at the time notice was given to him that the owner of the registered trade-mark complained of the use of the trade-mark.'' What is part of a goodwill? It is commonly acknowledged that goodwill is constituted by the reputation of a trade mark and its persuasive effect.

Application of Section 22 by canadian Courts
In the Clairol case, the court stated that goodwill can be depreciate through “reduction of the esteem in which the mark itself is held or through the direct persuasion and enticing in customers who could otherwise be expected to buy or continue to buy good bearing the trade mark”. The court added that the test of confusion is irrelevant here and that the “test is the likelihood of depreciating the value of the goodwill attached to the trade mark” and that this result could be obtained without actual deception/ confusion.

Section 22 thus steps where confusion fails to tread. Even if there is no actual risk that the consumer might be confused between the two products, the trade mark owner will still be able to prevent another person from using his/her trade mark if that use is likely to depreciate the value of the trade mark.

In another case, the Veuve Clicquot case, the trade mark of the famous French champagne was used by a small chain of women’s clothing store that was trading in eastern Quebec and Ottawa. According to the court, section 22 applies even where a defendant’s wares or services o not compete with the plaintiff’s and their mark are not identical. The marks were not identical “ Cliquot” and “Veuve clicquot” and the risk of confusing the champagne brand and a clothing store was low. However the court ruled that the only element needed was the ability of an average consumer to recognize the first distinctive character. Even if the trade mark is not that well known, the fact that a significant goodwill is attached to it might be enough for the court to find the use by another person unlawful. However in that particular case, the court claimed that the plaintiff ‘Veuve Clicquot” failed to prove that the linkage between Champagne and clothing was likely to cause depreciation.

In the “Perrier” case, the plaintiff, a French company was the bottler and distributor of spring water. It sought an injunction to restrain another company base in Ontario from advertising and distributing bottled water in association with the name “Pierre eh!” claiming that the value of the goodwill attached to the French trade mark would likely be depreciated. The plaintiff succeeded on section 22 to stop the use of “Pierre Eh!” on bottled water.

How to prove depreciation of goodwill?
The plaintiff has to prove the elements of section 22, particularly that the use would likely depreciate the value of the goodwill of the claimant’s mark. A precision has been made by Vaver, that the fact “that the use could well cause depreciation is not enough”. The use must actually have caused depreciation”. (See above Veuve Clicquot Case).

Limits to the use of Section 22
The use of Section 22 was restricted in the Clairol case to the use “in the technical trade-mark sense”. For example, unions are allowed to use the trade mark to caricature because caricature or criticism is not a trade mark infringement, nor event a use of the trade mark, if it occurs outside “the normal course of trade”. (see also The Michelin v CAW case. In that case, the court rejected the trade mark infringement argument because no one was planning on using the trade mark to sell a product).