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DECEIVING DOMAIN NAMES NOT ALLOWED

January 2013

The Ontario Supreme Court recently released a decision for Dentec Safety Specialists Inc. v. Degil Safety Products (1989) Inc., [2012] O.J. 3840, which is the latest Canadian authority to deal with a company’s ability to use a misleading domain name to direct competitors’ customers to their own website.  In this case the plaintiff, Dentec Safety Specialists Inc. (“Dentec”), filed an action against Degil Safety Products (1989) Inc. (“Degil”) for interfering with Dentec’s business. Dentec alleged that Degil intercepted potential customers and sales, deprived Dentec of the opportunity to generate internet business, and dishonestly traded upon the goodwill and business reputation of Dentec.  Both businesses were competitors in the industrial safety products business.

Dentec alleged that Degil had registered the internet web address “dentecsafety.ca,” knowing that Dentec had already registered the internet web address “dentecsafety.com.”  Degil admitted that it had registered the domain name and, for a 5 ½ month period, operated it by redirecting all web traffic to its own website.

There were two issues for the court to decide in this case: (1) whether Dentec established all the necessary components of the tort of passing-off; and (2) if so, the amount of compensation and punitive damages payable by Degil.

The tort of passing-off holds an individual or corporation liable when they sell their goods or services to a consumer after having led them to believe that their products are actually those of another.  The tort of passing-off has three essential components: “the existence of goodwill, deception of the public due to a misrepresentation, and actual or potential damages to the plaintiff.”  Ultimately, the tort aims to protect the consumer, regardless of whether the defendant’s actions were intentional, malicious or even negligent.

The court reviewed a number of important principles from a variety of authorities, which summarize the law around establishing the tort of passing-off with respect to domain names:

  1. Likelihood of confusion. The appropriate standard to measure whether or not the conduct may cause confusion in the mind of the public is to determine if the “ordinary average customer” shopping for the products sold would be confused.
  2. Factors to consider: When determining the potential confusion among customers, the court should consider all relevant circumstances of the case.  These may include the degree of similarity of the secondary level domain names of the parties (the part of the domain name that comes before the .com); the relatedness and or similarity of the products sold by the parties; the strength of the plaintiff’s business name in the market;  the value of the goods being sold and attention of the consumer when purchasing the goods; the defendant’s intent in using the domain name; actual confusion among members of the public; and whether the parties sell their goods through similar channels and markets.
  3. Degree of similarity to competitor’s name: The greater the degree of similarity between the names, whether visually or sounded out, the more likely there is to be customer confusion.  The greatest likelihood of customer confusion exists, of course, when the defendants register a secondary level domain name that is exactly the same as a competitor’s business name.  The exact use of a business name weighs heavily in favor of customer confusion.
  4. Similarity of products sold: The similarity of the goods or services being sold by the plaintiff and defendant is also a key factor.  The more related the products being offered, the more likely the average consumer will be confused.
  5. Initial interest confusion: Passing-off seeks to avoid “initial interest confusion,” which can easily occur with shoppers on the Web.  Initial interest confusion occurs when there is temporary confusion that is dispelled before the purchase is made.  Therefore, if a customer is looking for goods from the plaintiff’s company and is redirected to the defendant’s company’s website, which sells similar goods, then they are likely to be confused.
  6. The intention of the defendant: Intention is not a requirement for liability for passing-off.  However, proof of a defendant’s intention to confuse and or mislead the public will provide strong evidence of customer confusion.

Goodwill

To establish that Dentec had goodwill, Dentec was required to show that the business benefited from the “good name, reputation, and connection” enjoyed by it.  In the tort of passing-off, the plaintiff needs to establish “a goodwill or reputation attached to the goods or services” that it supplies “in the mind of the purchasing public.”  Dentec provided sufficient evidence that it had considerable goodwill and business reputation with respect to the products it supplied; thus, Dentec met the first element of the tort of passing-off.

It is interesting that in the Dentec case, the evidence of goodwill seemed to be easily met, while proof of goodwill is a major hurdle in the traditional test.  This appears to be due to Degil’s intentional use of the plaintiff’s trade name as a secondary domain name.

Misrepresentation & Confusion

The second element was easy to show in this case as the defendants registered the domain name of their direct competitor and redirected business to their website.  Degil, the defendant, was essentially suggesting that Dentec’s business was somehow related to Degil.

It is important to remember, when establishing confusion, that the defendant must only have caused confusion in the mind of the “ordinary average customer.”  In this case, considering that Degil used Dentec’s business name, that the parties sold the same products in the same market, that Degil’s intent was to redirect the customers to their website and finally, that the value of the goods did not demand a heightened degree of attention on the part of the ordinary customer, it was likely that the “ordinary average customer” was confused.

Damages

The third component of the tort of passing-off test is that Dentec must show actual or potential damage as a result of the defendant’s actions.  It was clear in this case that Degil’s conduct caused harm to Dentec during the 5½ month period when it operated the website.

It was interesting that the court required no evidence of actual damages suffered.  It was enough to show that there had probably been significant internet traffic that had been redirected through dentecsafety.ca without showing that any purchases were actually made.  This is further proof that courts will try to punish offenders even when the evidence is not perfect.

The court awarded Dentec $10,000 for successfully proving that Degil had committed the tort of passing-off; however, the court was not prepared to award the punitive damages.

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