Fundamental Change to Trade-mark Law Opposed by Business and Trade-mark Professionals

Bill C-31, the Economic Action Plan 2014 Act No. 1, which will legislate into law the federal government’s recent budget, includes amendments to a number of statutes.  Of particular interest are the amendments to the Trade-marks Act (“TMA”).  The changes would reverse what has been the fundamental basis of Canadian trade-mark law for over 150 years.

While the Bill will enable Canada to implement several international trade-mark treaties and make other welcomed changes to the law, the proposed elimination of the requirement to “use” a trade-mark before obtaining a registration for the mark is a major departure from the foundation of Canadian trade-mark law.  This is significant because the law of trade-marks is based on use.

It is understood that the goal of Bill C-31 is to improve the position of Canadian businesses, including by reducing their costs.  However, the proposed amendments to the TMA to delete the requirement for an applicant to have made “use” of a trade-mark before obtaining registration in Canada will negatively impact Canada’s trade-mark system.  This will result in significant adverse consequences to Canadian businesses by increasing costs, causing delays, adding uncertainties and creating risks.

The proposed change will also increase litigation, which will stress the already overburdened resources of the Trade-marks Opposition Board and the federal court system. The elimination of “use” as a precondition for registration is not required by any of the treaties Canada intends to join pursuant to the amendments.

Use as a Cornerstone of Trade-mark Law

For over 150 years, the Canadian trade-mark system has required that a person “use” a trade-mark.  The requirement has been repeatedly confirmed by the Supreme Court of Canada (see, for example, Justice Rothstein’s comments in the Masterpiece decision). A trade-mark is typically “used” with goods by displaying the mark on the goods or their packaging or labelling when the goods are sold.  A trade-mark is typically “used” with services when the mark is displayed in advertising the services, such as on letterhead and signage.

Currently, in order to acquire rights in a trade-mark in Canada, a person must use the mark.  Unregistered rights at common law are obtained through the acquisition of a reputation in the trade-mark as the identifier of the source of goods or services with which the mark is used in the marketplace.

To obtain a registration of a trade-mark, use is also a requirement.  A Canadian trade-mark application may be based on one or more bases, all of which require use of the trade-mark, in Canada or elsewhere, before a registration is issued.

Elimination of Use of Mark as Requirement for Registration

The changes proposed in the Bill will permit an application to be filed, and a registration to be obtained, without any “use” of the mark by the registrant having occurred in Canada or elsewhere.  The proposed changes will also remove the requirement that an application for a trade-mark identify whether the applicant has “used” the trade-mark and, if so, where, when and in association with which particular goods and services.

The proposed deletion of the requirement of “use” of a trade-mark by the applicant prior to registration is a fundamental departure from the Canadian trade-mark system that many in the international community consider to be the best in the world.

The government has stated that deletion of the “use” requirement is necessary for Canada to comply with two of the treaties, the Madrid Protocol and the Singapore Treaty.  However, that is not the case.  Specifically, the treaties do not preclude requiring “use” of a trade-mark as a prerequisite to registration.

A discussion paper written for the Canadian Intellectual Property Office (CIPO) by the Department of Justice expressly acknowledges that deletion of the “use” requirement is not necessary for accession to the treaties.  In fact, when the United States implemented those treaties, it did so without eliminating its equivalent “use” requirement.

It is true that many countries in the world have a system like the one that is being introduced.  While, at first blush, one might think that the new system would make life easier for Canadian businesses, it will have the exact opposite effect for a number of reasons.

Increased Clearance Costs, Delays, Risks and Uncertainty

In the proposed system, businesses will suffer the consequences of a reduction of available trade-marks.  Since there will be no requirement to “use” a trade-mark before registration, trade-marks which have never been “used” anywhere may be registered, including by trade-mark trolls who make no investment in the economy, and removed from availability to Canadian businesses.

Applications and registrations will cover long lists of goods and services for which there will be no “use” of, or even any intention to “use”, the trade-marks so a person who “uses” the trade-mark ALPHA with clothing might register the trade-mark for furniture, food and landscaping services, and prevent two other unrelated businesses from using the same mark.

This will likely to be a significant increase in cost for Canadian business and uncertainty in clearing trade-marks for use and registration.  There will be more applications and more registered marks and, without investigation, there will be no way of determining from the application or registration information whether such marks have ever been used in Canada or elsewhere.  When faced with these challenges, costs, delays, risks and uncertainties, businesses may choose alternate marks from a smaller available pool.

Trolls

Trade-mark trolls have not been a significant factor in Canada to date.  The current use requirement has impeded the ability of a troll to secure registrations in Canada without any investment in a real business.  Outside North America, trade-mark trolls often are able to register a mark used by others in another country, without the trolls being required to have used the mark before registration.  The Bill invites trade-mark trolls to Canada.

Increased CIPO and Court Litigation

A very significant cost, in money, delay, risk and uncertainty, to applicants, registrants and third parties will be the administrative and court litigation that will result.  The basic requirement of use prior to registration of a trade-mark will no longer act as a gate to registration.  Businesses will have to incur the responsibility and the costs of adversarial proceedings to prevent and cancel third party registrations for confusing trade-marks that are not in “use” or that have overreaching lists of goods and services.

The increased litigation will take several forms, including opposition, non-use, infringement and expungement proceedings:

Once an application is approved by CIPO, it is advertised so that third parties can make a decision as to whether they wish to oppose the application to prevent or limit registration of the trade-mark.  Oppositions have many of the hallmarks of traditional litigation and can take years to complete, both within CIPO and on appeals through the federal courts.

Given that trade-marks which have never been “used” will be the subject of applications covering long lists of goods and services, there will be many more oppositions by parties seeking to prevent or limit such registrations.  The European experience is instructive.  Currently in Canada only about 2-3% of all trade-mark applications are opposed.  In Europe, which has a system similar to the one being introduced by the Bill, over 15% of applications are opposed.

After the third anniversary of a registration, a person may seek to cancel or limit the registration for non-use of the trade-mark.  With registrations having been obtained without “use”, there will be many more non-use proceedings in CIPO by parties seeking to cancel or limit such registrations and appeals therefrom to the federal court system.

With an increase in the number of registrations, there is likely to be an increase in infringement and related litigation.  Good faith common law use in Canada may be alleged to infringe a registration for a trade-mark that has never been used anywhere.

Lawsuits by trolls are likely to be settled by legitimate businesses paying “go away” money.  Also, under other pending amendments to the TMA, a registrant may be permitted to avail itself of border measures to stop “counterfeiting” even where the registrant has never used the mark.

Applications to “expunge” registrations for reasons other than non-use are also likely to increase.

Constitutional Issues

The federal government has constitutional limitations that most other national governments do not.  Specifically, trade-mark law is governed both under the federal Trade and Commerce power and the provincial Property and Civil Rights power. There are those who are of the view that aspects of the amended TMA will not be constitutionally valid because a system that grants registrations in the absence of “use”, namely without the trade-mark being “used” in trade or commerce, cannot be supported on the basis of the federal Trade and Commerce power.

Some have even suggested that the Bill might encourage provincial legislatures to enact their own trade-mark legislation. This would result in a patchwork quilt of both federal and provincial trade-mark rights, which is the case in the United States with both federal and state trade-mark registrations.

 What is the Status of the Bill?

Many Canadian large and small businesses and trade associations, such as the Canadian Chamber of Commerce, have communicated to the government their strong objections to the change in the use system.  These voices have been joined by Canadian and international intellectual property organizations, and most of Canada’s leading trade-mark lawyers, despite the possibility that the new regime will create more legal work for lawyers.

The government is also being criticized for introducing this fundamental change by way of a budget bill, which has traditionally been the subject of less opportunity for analysis.  Businesses, trade associations and the trade-mark bar have asked the government to, at least, remove three sections and one transitional section from the Bill in order to have meaningful analysis and debate.

However, to date, the government has not shown a willingness to engage in meaningful debate on the proposed changes.  It is difficult to understand why or how a government that says it is committed to assisting Canadian businesses is taking such a bold step to create more cost, delay, risk and uncertainty for them.

Sheldon Burshtein and Antonio Turco are partners at the Toronto office of Blakes, Cassels & Graydon LLP.  Mr. Burshtein’s practice includes the clearance, prosecution, acquisition, enforcement and exploitation of patents, trade-marks, copyright, industrial designs and other forms of IP. Mr. Turco’s practice focuses on litigation related to intellectual property rights, including disputes related to patents, copyright, trade-marks, industrial designs and trade secrets. 

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