Mark Kohras is a JD candidate at Osgoode Hall Law School.

A recent case just out of the Federal Court of Appeal has posed an interesting question regarding the use of trademarks in procurement orders by the government. The case, Enterasys Networks of Canada Ltd. v. Canada, revolves around numerous complaints made by Enterasys Networks, one of which involves the use of brand names in procurement orders. In an interesting twist, the FCA has overturned the Canadian International Trade Tribunal decision, which had previously banned the practice.

The case stems from Article 1007(3) of the North American Free Trade Agreement, which obligates member parties to “ensure that the technical specifications prescribed by its entities do not require or refer to a particular trademark or name, patent, design or type, specific origin or producer or supplier unless there is no sufficiently precise or intelligible way of otherwise describing the procurement requirements…” The case at hand involved a procurement of switches required to establish or expand various government computer networks. In its tender documentation, the government identified the switches sought by brand name.

Given the purpose of this section of NAFTA, which is to prevent “unnecessary obstacles to trade”, the majority of the Tribunal concluded that Article 1007(3) requires the government to specify generic descriptions where possible, as including specific brand names would result in a smaller pool of potential suppliers. For example, a tender for 27″ Toshiba televisions would result in a much smaller pool of suppliers (just Toshiba and their distributers) than 27″ televisions in general. There is a narrow exception provided in Article 1007(3) which allows for the use of brand names where “there is no sufficiently precise or intelligible way of otherwise describing the procurement requirements”. However, this would seem to only apply in rare situations, for example; where a product has no generic name and is known only by its brand name. Usually in this type of situation, the brand name product is the only one of its type on the market, which would render any accommodation for generic substitutes moot.

There are some cases where it might be beneficial to require a specific brand of merchandise, even if there are substitutes on the market. The network switches in the current case are a prime example. Computer hardware, and specially network hardware, can sometimes have small issues that can lead to incompatibilities with hardware from another brand, even if both brands conform to all required network specifications and applicable industry standards. While this is not a common occurrence, it has been known to happen. Therefore, it is understandable why the government would wish to insure interoperability with existing network infrastructure, particularly when making large purchase orders. Unfortunately, the only way to guarantee compatibility with existing network hardware without extensive compatibility studies is to use the same brand of products already present on the network.

It appears that the Federal Court of Appeal agrees with this conclusion. Echoing the opinion of a dissenting member of the tribunal, Justice Sharlow stated that she does not “accept the proposition… that NAFTA Article 1007(3) necessarily requires the federal government to take unacceptable operational risks.” This ruling opens the door for the government to specify a particular brand of products when conducting a procurement, for reasons other than simple effective descriptions.

This does not mean that the NAFTA Article 1007(3) has been rendered ineffective. It was held that the government was incorrect in requiring a brand name in one particular procurement, where the network switches were to be placed in a new network instead of integrated into an existing network. Because a new network has no compatibility issues requiring a specific brand, there was no reason specify a brand in the procurement. This shows that the government must still be able to justify requiring a particular brand of products for practical reasons, with reasons more substantial than simple brand preference.

Although it appears that this is a situation that may not have been contemplated when NAFTA was drafted, the new exceptions to the generic specification rule will hopefully only be used in the narrowest of circumstances. One of the goals of the procurement rules is to ensure that the government is given the best value for its money. However, incompatible products are of no value to the government, regardless of the cost. Hopefully, a narrow interpretation of this exception will allow for practical realities regarding procurements without resulting in barriers to trade.

Posted in Technology, Trademarks, US-Canada Relations