Captain Morgan defends trademark as Admiral Nelson’s is ordered to weigh anchor

Where does a captain outrank an admiral? On Canadian liquor-store shelves.

A ruling in Canada's Federal Court has ordered Admiral Nelson's rum to weigh anchor – finding that it infringes on the Captain Morgan character trademark, and barring sales of products with the Admiral character, or any other bottles that could be confused with Captain Morgan rum.

The decision dated June 12 is the result of a trademark lawsuit filed in 2014 by Diageo Canada Inc., a division of London-based liquor giant Diageo PLC, against Bardstown, Ky.-based Heaven Hill Distilleries Inc. – a family-owned company also known for brands such as Elijah Craig bourbon. Heaven Hill has owned the Admiral Nelson's rum brand since 2011. Its Canadian distributor, Diamond Estates Wines & Spirits Ltd., was also named in the suit.

At issue was whether the two characters – both very loosely based on real sailors, sporting naval uniforms with capes, holding swords and sprouting impressive mustaches – could be confused by average shoppers who might not always stop and scrutinize labels.

Diageo told Heaven Hill that it was infringing on its trademark in 2014, and put out a press release saying that the Nelson brand was a "blatantly confusing historical character" that was "clearly intended to mimic" Captain Morgan.

The case focused on "trade dress," or the overall appearance of the product.

"There were really unmistakeable similarities in the appearance," said Mark Evans, a partner at law firm Smart & Biggar, which represented Diageo in the case.

Heaven Hill declined to comment.

Various illustrated images of Captain Morgan have been used on products in Canada since at least 1961, according to information provided to the court by Diageo. He is a "fanciful" depiction of 17th-century privateer Sir Henry Morgan. Admiral Nelson's rum has been sold in Canada, starting in Alberta, since 2003, and the character is based on British Vice-Admiral Horatio Lord Nelson. However, Diageo testified that it was not aware of the product in Canada until late 2013, when the brand began selling in New Brunswick.

Diageo argued in court that "Heaven Hill's depiction of Admiral Nelson on its label as a young pirate-like character with an eye patch is so dissimilar to the actual historical character – who is older with grey hair, different attire, wearing a hat, and having lost an arm – that this further reflects Heaven Hill's true intentions of trading upon Diageo's goodwill and confusing consumers."

In court filings, Heaven Hill accused Diageo of attempting to stifle competition. The company pointed out that Admiral Nelson does not have his leg up on a barrel the way Captain Morgan is known for, and that the labels' colours are different.

Captain Morgan is by far the bigger brand: Diageo has spent roughly $150-million on marketing Captain Morgan in the past 15 years, and about $17-million in a recent one-year span. It sold the equivalent of more than 12 million 750-millilitre bottles in Canada in 2015, amounting to roughly $320-million in sales representing about a 32-per-cent share of the rum market in Canada. About 7.5-million of those were the "original spiced rum." By contrast, Admiral Nelson's sales amounted to fewer than 11,000 bottles in Canada in 2014. The brand is currently sold in Alberta, New Brunswick and Nova Scotia.

Diageo had to prove three things to make its case: that it has established "goodwill" or a positive association that draws consumers to its brand, that Admiral Nelson's engaged in misrepresentation that could cause confusion between brands in a "casual consumer somewhat in a hurry" and that Diageo has sustained or could sustain damage because of it. Justice Keith Boswell found in favour of Diageo on all three of those points.

While the judge did not determine that Heaven Hill had "willfully set out to mimic" Captain Morgan, he did find that the brand could potentially "cause confusion" with Diageo's trademarks, and that this could impact Captain Morgan's sales or its ability to control its image and "goodwill."

The judge ruled that five of Admiral Nelson's rum products infringe on Diageo's trademarks. Heaven Hill and Diamond Estates will pay damages in an amount still to be determined.

In a statement, Diageo vice-president of corporate relations, Zsoka McDonald, said the company is pleased with the ruling. "Diageo is a global leader in beverage alcohol with a collection of established brands, and Captain Morgan is an iconic and beloved character. We are committed to defending our intellectual property throughout North America and around the world," the statement said.

Mr. Evans said the ruling reinforces protection for "trade dress" in Canada.

"There are cases in the past that have recognized trade-dress protection. But it is less common than more straightforward trademark infringement," Mr. Evans said. "Brand owners tend not to understand trade-dress protection – that if their product is being knocked off, there may be a good cause for action."