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Can Settlement Agreements Prohibit Grey Goods in Canada? Ontario Court Says Yes

Reading Time 3 minute read

"Grey marketing" of goods, also known as "parallel importation", occurs when goods meant to be sold in one country or jurisdiction are sold in another.  While not counterfeit, grey market goods are of concern to brand owners as these "grey goods" tend to be sold at a lower price and may be missing many of the benefits of genuine goods meant for that jurisdiction.  As a result, trademark owners have sought ways to restrict parallel importation in Canada and elsewhere.

In a recent decision, an Ontario court has affirmed that trademark owners in Canada, particularly international brand owners, can contractually restrict third parties from parallel importation.  In Mars Canada Inc v Bemco Cash & Carry Inc, 2018 ONCA 239, the Ontario Court of Appeal upheld  a lower court decision that a settlement agreement preventing the import of grey market Mars products was not an improper restraint on trade.

The appellant, Aizic Ebert, owned and controled the corporate appellants, Bemco Cash & Carry Inc. ("Bemco") and GPAE Trading Corp. (GPAE). Mars Canada discovered that the corporate appellants purchased genuine Mars products from the United States, imported them to Canada, and subsequently sold them at a price lower than the price offered by Mars Canada for the same products.

The parties ultimately reached a settlement, where Bemco agreed it would not import or sell American products to and in Canada. As part of the settlement agreement, Bemco also identified the source of its grey market products, GPAE, which agreed to cease its activities and neither import nor sell Mars products in Canada without the respondent's consent or obtaining a declaratory judgment in the Superior Court authorizing it do to so. Mars Canada discovered, however, that Mars products bearing its trademarks were being sold yet again in Canada through a company in concert with Bemco and GPAE.

At the lower court, the judge found in favour of Mars Canada, ruling that Bemco and GPAE had breached their settlement agreements by continuing to engage in grey marketing and continuing to import and sell grey market Mars products, respectively.

On appeal, the appellants argued that the settlement agreements were unreasonable and should have been found as void in restraint of trade. Chief Justice Strathy held that not only did the settlement agreement prevent confusion between Mars Canada's trademarked products, but they were reasonable in the interests of the parties and the public, were made for the purpose of settling litigation, and should be encouraged and enforced as a result of public policy. 

Furthermore, the Ontario Court of Appeal agreed with the lower court that Mars Canada was entitled to enforce its trademarks and sustained actual damages given that its sales were cannibalized by the grey market goods, and that the imported Mars products did not comply with Canadian labelling and packaging laws. In view of the foregoing reasons, the Court of Appeal rejected the appellants' arguments and held that the settlement agreements were not void in restraint of trade.

In Canada, grey market goods may pose problems from international brand owners. International brand owners should therefore consider the issue of grey market goods when entering into settlement agreements with third parties. This may be another arrow in Canadian trademark owners quiver when dealing with issues of parallel importation. In view of the Court of Appeal's decision, trademark owners should employ contractual restrictions on grey marketing as a further means of maintaining control over the use of their trademarks in Canada.


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