Canada: The Federal Court Of Appeal Clarifies The Approach To Be Taken Concerning Trade-Mark Licences In Section 45 Proceedings

A recent decision of the Federal Court of Appeal reverses the decision of the Federal Court and may ease the burden on a trade-mark owner in showing that use of a trade-mark under a licence of a trade-mark in Canada satisfies the requirements of the Trade-marks Act.

The Facts

Spirits International BV ("Spirits") owned a Canadian trade-mark registration for the trade-mark MOSKOVSKAYA RUSSIAN VODKA & DESIGN. An interested party caused a notice to be issued under section 45 of the Act. As a result, Spirits was required to show whether the trade-mark was in use in Canada at any time during the three-year period immediately preceding the date of the notice.

Spirits submitted an affidavit in which the deponent stated that "My Company", which was defined as including the S.P.I. Group and its affiliate companies as well as Spirits, had direct or indirect control over the character and quality of the vodka sold in association with the MOSKOVSKAYA trade-mark in Canada.

A hearing took place before a Hearing Officer of The Registrar of Trade-marks. The Hearing Officer observed that in order to satisfy the requirements of the Act relating to licensing, a registrant or a licensee needed to clearly state that the control required by the Act existed or, alternatively, to provide a description of the control or a copy of the license agreement containing provisions pertaining to control. It is clear that the existence of a common directing mind or control through a corporate structure by itself does not allow the Registrar to infer that a registered owner has control over the character or quality of the wares used in association with a licensed trade-mark.

The Hearing Officer found that no description of the control allegedly exercised had been provided. A copy of the license agreement had not been furnished nor were any details provided concerning the individuals involved in "My company". As a result, there was insufficient evidence of control to allow the Hearing Officer to conclude that sales of the vodka in association with the trade-mark accrued to the benefit of Spirits. The Hearing Officer therefore expunged the registration.

The Appeal to the Federal Court

Spirits appealed this decision and filed additional evidence to clarify the existence of control over the trade-marked vodka during the relevant period. In substance, the new evidence suggested that an additional company had been licensed by Spirits to use the trade-mark and that Spirits set the standards of the character and quality of the vodka labelled with the trade-mark. Under the license, Spirits delegated to other affiliated companies the obligation to conduct periodic testing for compliance with the standards of character and quality that had been set.

The standard of review on such an appeal is similar to that in an opposition. If the additional evidence would have materially affected the Hearing Officer's finding, the Court is required to determine anew whether the evidence satisfied the requirements of section 45. Absent such evidence, the Hearing Officer's decision is to be reviewed on a reasonable standard.

The Court was not convinced that the additional evidence addressed the issues of control. For example, it was not clear what the additional affiliate did under the license nor did the evidence establish that Spirits exercised control over the production, labelling or selling of the vodka through its licensing. In addition, there was no clear statement concerning when the license began or ended, and as a result, it was not possible to temporally link the license and the other evidence of use advanced. Because of these shortcomings, it was found that this evidence was vague and ambiguous and did not materially affect the Hearing Officer's decision.

The Judge observed that while it is not necessary to produce a formal license agreement to prove the existence of a license, the other requirements that one would find in a licence must be dealt with. The mere fact that there is some common control between a registered trade-mark owner and other corporate entities is not sufficient to establish that the use of the trade-mark was controlled such that a licensing can be inferred. Clear evidence of control has to be adduced.

The Judge said that judicial review of a decision according to the reasonableness standard is concerned with the existence of transparency, intelligibility and justification in decision-making. Decisions should not be disturbed by a reviewing court unless the reasoning process used was flawed such that the resulting decision falls outside the range of possible, acceptable outcomes, defensible on the facts and in law.

On applying this approach, it could not be said that the Hearing Officer's conclusion was unreasonable and the appeal was dismissed.

The Appeal to the Federal Court of Appeal (FCA)

On appeal, the FCA must determine whether the judge correctly chose and applied the standard of review set out above. This includes the judge's conclusion on the question of whether the additional evidence would have materially affected the Registrar's findings of fact or exercise of discretion.

The FCA did not agree that the additional evidence filed was vague and ambiguous and did not materially affect the Hearing Officer's decision. They said the additional evidence supplemented the evidence previously filed but did not replace it. The FCA looked at the facts the Spirits had shown, together with the inferences that could be reasonably be drawn from them, and concluded this was sufficient to show the requisite use of the subject mark during the relevant period. As a result, the appeal was allowed and the registration restored to the register.

More specifically, the FCA said that the additional evidence showed with sufficient clarity that the affiliate was licensed during the relevant period to use the subject mark, and that the specific sales upon which Spirits relied to establish the requisite use were made during the relevant period. It would add nothing to state the beginning or ending date of the licence. Further, the statements made concerning control were more than bare assertions that the control required by section 50 of the Trade-Marks Act existed. They were assertions of fact describing how Spirits had exercised the required degree of control.

Conclusion

There have been a number of cases which have expunged trade-mark registrations for failure to show that the registered owner exercised control of licensed use of a trade-mark. This decision will assist trade-mark owners since it requires a broader view of the facts and the inferences that can reasonably be drawn from them.

Leaving aside the niceties of the approach of the FCA, trade-mark owners should ensure that they use any trade-mark themselves, or that there is a written license in place between them and the party who uses the trade-mark and that they exercise control of such use. Trade-mark owners should be prepared to prove that they exercised such control.

Even though a related company controls another company by virtue of its share holdings, as in a parent and wholly owned subsidiary relationship, such control is not sufficient to comply with the requirements of the Act. The law in Canada and the US differ on this point.

The use of an appropriate trade-mark notice can provide some help. For the purposes of the Act, to the extent that public notice is given of the fact that the use of a trade-mark is a licensed use and of the identity of the owner, it will be presumed, unless the contrary is proven, that the use is licensed by the owner of the trade-mark and the character or quality of the wares or services is under the control of the owner. However, this presumption may be rebutted if evidence to the contrary is presented.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.