Exhaustion Doesn't Apply: Repurposing Of Original Branded Parts Leads To Findings Of Infringement, Passing Off And Depreciation Of Goodwill

• Published date: 14 July 2021
• Subject Matter: Intellectual Property, Trademark
• Law Firm: Bereskin & Parr LLP
• Author: Mr R. Scott MacKendrick and Bruna Kalinoski

On June 17, 2021, in H-D U.S.A., LLC v. Varzari, 2021 FC 620, Justice McHaffie of the Federal Court held that the manufacturing and sale of an electric bicycle assembly incorporating original parts of a Harley-Davidson motorcycle did not amount to lawful resale of trademarked goods, and consequently was not protected by the principle of exhaustion of an intellectual property right.

1. Factual Background

Harley-Davidson Canada LP and H-D U.S.A., LLC ("Harley-Davidson") brought a successful application for an injunction before the Federal Court of Canada to enforce its registered trademarks against the respondent, Eli Varzari, an individual who was selling custom-built electric bicycles under the name "Harley Davidson Willie G Edition".

After receiving Harley-Davidson's written demands, Mr. Varzari remained unresponsive but did change the name under which his electric bicycles were being sold, replacing "Harley Davidson Willie G Edition" with "The 'H' Edition". The electric bicycles, nonetheless, continued to be made by incorporating Harley-Davidson motorcycle parts and to display Harley-Davidson's "Bar and Shield" and "Skull Design" logos on them.

Harley-Davidson owns over 40 registrations in Canada, but the primary registrations grounding the injunction request were: (a) two word trademarks, namely, the "HARLEY-DAVIDSON Mark" in association with motorcycles and a variety of motorcycle parts, tools, and accessories, and the "H-D Mark" covering motorcycles, a variety of motorcycle parts, and a variety of clothing items; and (b) three design trademarks featuring white and black colours of the "Bar and Shield" logo and the "Skull Design" logo, respectively for use in association with a wide variety of goods including "motorcycles and parts and accessories for motorcycles" and for use in association with "motorcycles and structural parts therefor, various motorcycle parts and accessories, and various clothing items and accessories".

Mr. Varzari's electric bicycles were sold for US$7,000 and advertised as featuring several structural components (e.g., handgrips, pedals, axle bolt covers, and air valve caps) that were "original parts from the factory" or "original parts from Harley Davidson", and built by East Van Chopcycles, a related business that appeared to be owned and operated by Mr. Varzari himself as a sole proprietor.

The electric bicycles also featured an orange frame on which a logo essentially identical to the Bar and Shield Mark was displayed. Other...