Canada: Protecting Trade-Marks: Eight Myths That Can Cost You A Lot

Last Updated: May 20 2011
Article by Jean-Philippe Mikus, Diane Bertrand and Sébastien Roy

A number of misconceptions surrounding trade-mark protection have made their way through business circles. These myths persist in spite of the dangers they pose to business owners, at times creating situations that can compromise their financial future and that of promising products or services. A corporation deprived of the right to use its star trade-mark will have to invest considerable amounts to rebuild its reputation.

We will review eight of the most tenacious of these myths and explain the risks to which they expose your corporation.

Myth #1: "I created a corporation; its name belongs to me"

This is not necessarily true. When a corporation is created, it is given a name for identification purposes, but it is important to understand the limits of the rights thus granted.

First, if a specific name is not requested, the corporation will be given a name composed of a series of numbers, followed by terms like "Canada" or "Québec" (to identify the legislation by which it is governed) and a tag such as "Inc." or "Ltd." to clarify that it is a business corporation. A corporation could therefore be called "9999-9999 Québec Inc.", a name that holds very little commercial appeal and which obviously accords no protection for the name that is actually used.

If the corporation's founders prefer to choose a more appealing name, for example, "Ibis Décor Inc.", cursory searches will be undertaken to verify in certain databases whether the desired name already exists. If this search does not turn up any apparent conflict with another name, the name can be reserved with the appropriate government authority for a period of time. Once the founders are ready to formally proceed with the creation of their corporation, they can use this name in order that it may become the new corporation's legal name.

Unfortunately, this process is a source of much confusion for business owners. Because a name has been subject to some searches and was not refused by the government agency that issued the certificate of incorporation, business people are left with the false impression that its use is reserved exclusively for them.

The true picture, however, is far less rosy. At best, obtaining a name when creating a corporation can be a basis for preventing other corporations from bearing a name that is identical or too similar. This is very limited protection, as it does not prevent another corporation from using the same name as a trade-mark to identify its products and services, which is the most critical aspect from a business standpoint.

At the time of the corporation's creation, the governmental authority only makes a limited review of the availability of the chosen name. A provincial authority, for example, will often not check to see whether any corporations in neighbouring provinces (or even federal corporations) bear names likely to create confusion with the chosen name. Sometimes, government authorities will accept names for corporations that, technically, are not identical to one already registered (containing an extra word, for example, or using different words to describe the same thing, such as "Ibis Interior Design Inc."). From a commercial perspective however, such a name could definitely be confused with the previously registered name.

Technically, a corporation's legal name belongs to it, but the protection afforded by the creation of a corporation under a given name is fairly limited. It is, in fact, when this name is registered as a trade-mark, or, at the very least, used in commerce, that rights begin to arise.

There can sometimes be a significant time lag between a corporation's constitution date and the date on which it actually begins to sell its products and use its name for business purposes. Often, several months may go by. Let's take, for example, the fictitious corporation "Decibel Communications Inc.", created in 2005, which only became active in the marketplace in 2007. Since it did not register its trade-mark, the corporation would only begin to acquire rights to the name "Decibel" in 2007. Had the corporation registered its trade-mark the year it was constituted, namely 2005, it would have acquired rights to this name as of that year.

Filing an application to register a trade-mark with the Canadian Intellectual Property Office concurrently with the constitution process should thus be given serious consideration.

Myth #2: "I registered my trade-mark in the Enterprise Register; now it is protected"

Unfortunately, this is not true. Never overestimate the protection flowing from the registration of a business name.

Business registers, such as Québec's Enterprise Register, serve primarily to give the public easy access to the identity of people operating businesses. Every province, including Québec, has a similar register. These registers are useful, for example, when consumers or business partners want to know the address to which they should be sending notices or legal proceedings, or who are the directors of a provincial, federal, or foreign corporation doing business in their province. In fact, the very name of the Québec act requiring this registration gives a fairly clear idea of its aims: the Act Respecting the Legal Publicity of Enterprises.

Laws like this one require those who do business in a given province to declare not only the formal name of their corporation, but also the "assumed name" that they use. For example, 9999-9999 Québec Inc. might use the trade name "Chez Maurice Restaurant" to identify itself; the expression "Chez Maurice Restaurant" therefore appears in the Enterprise Register as the assumed name of "9999-9999 Québec Inc."

But simply registering an assumed name does not confer any rights to it. For example, the fact that an assumed name was declared to the Québec authorities in 2004 does not necessarily mean that the corporation has enjoyed exclusive rights to it since 2004. What's more, even if the corporation has been using this name since that time, the protection will not necessary extend to the whole province.

The recently reformed Act Respecting the Legal Publicity of Enterprises states that only the names by which a business "is identified, [...] in carrying on an activity" may be registered with the Enterprise Register. This seems to stem from the governmental authorities' desire to no longer accept registration of several types of trade-mark, like product brands, for example. It is therefore possible that, in certain cases, the Enterprise Registrar will refuse to register a given trade-mark.

Even when registration with the Enterprise Register is still possible, the utility of such registration can be highly limited. Take, for example, a company operating a clothing store under the trade-mark ENFANTISSIMO, whose first shop opened in Sherbrooke in 2006. Let's assume that, in 2010, it has shops only in the Sherbrooke region and that no steps have been taken with the Canadian Intellectual Property Office. The 2004 registration of the assumed name ENFANTISSIMO with the Enterprise Registrar does not give the corporation any priority over this name. If a competitor formally applied for registration of the same trade-mark in 2005, this competitor would normally be given priority. The Sherbrooke corporation's rights to the assumed name or trade-mark would only flow from its use in 2006 in the Sherbrooke region; not from its registration in 2004.

What's more, the geographical area within which trade-mark rights are acquired is generally limited to the region in which a corporation carries out business activities. Consequently, if, in 2010, ENFANTISSIMO's business is still limited to the Sherbrooke region, the corporation's rights could also be limited to Sherbrooke and surrounding areas. If a competitor opens a shop with the same name in Québec City, this competitor could successfully defend itself by demonstrating that the name ENFANTISSIMO was not known in the Québec City region before it began operating there. Such a situation could even prevent the Sherbrooke corporation from expanding to the Québec City region.

Once again, filing an application to register a trade-mark with the Canadian Intellectual Property Office early in your corporation's life can help avoid a great deal of future inconvenience. In the situation we just discussed, it is the Québec City competitor that would risk losing its shirt if an application had been filed in a timely manner.

Myth #3: "I don't need to register my trade-mark; I've heard that simply using my trade-mark provides the same protection"

False. While simply using a trade-mark does create certain rights, these rights are tied to the use that is truly made of the trade-mark and the reputation thus acquired.

This is as true on a national scale as on a provincial one. If a corporation sells its product in Québec alone, its rights could be limited to certain areas of Québec. If, several years later, that corporation is looking for new markets and wants to sell its product in Ontario and New Brunswick under the same trade-mark, there is no guarantee that it will be able to do so: a competitor could have already started using a very similar trade-mark in Ontario, effectively blocking the Québec corporation's expansion. Simply being the first in Canada to have used a trade-mark will likely have little impact on situations like this one, which arise far more often than one might think.

But we must not lose sight of other, even more critical issues. Before issuing a certificate of registration, the Canadian Intellectual Property Office does not verify whether others have acquired rights to the trade-mark through use. A competitor could therefore obtain a certificate of registration for another corporation's trade-mark, or one very similar to it, for similar products and services, without even the first user ever knowing it.

For example, a Québec corporation that has been operating a retail chain selling consumer electronics under the trade-mark ELECTROCHOC since 1980 but has not registered this trade-mark with the Canadian Intellectual Property Office will not be alerted if an Albertan corporation applies to register the ELECTROSHOCK trade-mark with the Canadian Intellectual Property Office for establishments offering similar services. If no expungement proceeding is made within five years of the registration of the ELECTROSHOCK trade-mark, the Québec corporation might no longer be able to have the registration cancelled on grounds of prior use. Benign as this might seem, the Albertan corporation could actually attempt to bring proceedings against the Québec corporation, requiring it to cease operations under the ELECTROCHOC trade-mark, even if the Québec corporation's use of the name dates further back. Needless to say, the consequences could be devastating!

In such a case, the Trade-marks Act allows the trade-mark's first user to request the Court's permission to continue using its trade-mark. If the Court agrees to exercise its discretion in this area, it will usually impose geographical restrictions on the corporation, such as limiting its operations to Québec, or, even worse, to those cities where it really has establishments.

Myth #4: "I have no intention of taking legal action against other corporations, so there's no point in legally protecting my trade-mark."

This is a misconception. We have already seen that registering a name with the Canadian Intellectual Property Office is an important step in ensuring your continued ability to use it, but there are other considerations that go beyond this important legal aspect.

A corporation's trade-mark is an asset, much like its equipment, trade secrets, patents, etc., and it plays an important role in how clients identify that corporation's products and services on the market. While corporate officers are often aware of the importance of their corporation's reputation, they all too often forget that this reputation is intimately connected to their trade-marks. A corporation's reputation, and consequently, its principal trade-marks, can be worth a lot. According to Interbrand (www.interbrand.com), for example, the MICROSOFT trade-mark alone was worth more than 60 billion dollars in 2010!

Investors and venture corporations are usually very aware of the importance of the trade-marks belonging to the corporations they finance or purchase, and an unregistered trade-mark can be a source of anxiety. If these investors discover that another business shares the same name in the same sector, whether by registration or use, this could prompt them to reduce their investment or purchase price, or to demand that the current owners assume the cost and risks associated with the corporation's unprotected trade-marks. Depending on the transaction, this can have a significant financial impact.

It is generally difficult to try and solve trade-mark problems in the course of a financing or an acquisition. Instigating proceedings, registering trade-marks, negotiating settlements or coexistence agreements or taking other such actions to protect vulnerable trade-marks can take weeks, months, or even years, depending on the circumstances. It is therefore better to begin the trade-mark protection process well before any important transactions appear on the horizon.

Myth #5: "I purchased a domain name; I can use it however I want on the Internet"

Wrong again. Unfortunately, the Internet is not a world unto itself, and the harsh reality of the law often catches up with owners of domain names.

In no way does purchasing or reserving a domain name guarantee that its use will be legal. Companies that provide domain name registration services do not check trade-mark registers or trade directories to determine whether potentially confusing trade-marks exist. You have probably noticed that your domain name provider never asks what you want to use your domain name for, yet this information is crucial to detect whether it may conflict with a trade-mark!

Someone in Canada or abroad could potentially file proceedings against your corporation if he or she believes that your use of this domain name infringes on his or her own trade-mark rights. In fact, using a domain name to provide services on the Internet (for example, hosting a game site, an on-line media or an on-line store, etc.) may constitute use as far as trade-marks go. A party who possesses prior rights can either initiate arbitration proceedings (at relatively low cost) to force you to abandon or transfer your domain name, or take more traditional legal action by requesting a Court order to cease using the domain name, to transfer it, and to claim a monetary award. In this way, a competitor can benefit from all the marketing you have done for this domain name.

Some entrepreneurs believe that not having an establishment in a given region protects them from trade-mark-related attacks. Such a defence, unfortunately, is not enough. A domain name can be used via a website to provide services in another country without requiring an establishment. Continued and direct contact with consumers from that country, the fact that the website uses that country's currency, and other similar factors may allow an adversary to establish sufficient grounds to take legal action in a foreign country.

Purchasing a domain name and building your marketing strategy around it without considering the impact of trade-marks can be a recipe for disaster. All of your website's commercial success could be lost to avoidable legal problems.

Myth #6: "I was the first to register my trade-mark, therefore my competitors cannot appropriate it"

False. While registering a trade-mark in Canada is an important step, too many corporations forget that it is not the only one, giving rise to delicate situations, especially where the corporation fails to keep abreast of changes to the products and services associated with a trade-mark over time.

In reality, the range of products and services associated with a trade-mark is constantly evolving. Trends and changing technology can make corporations feel the need to vary their product mix. Unfortunately, trade-mark registrations do not automatically keep pace with such change. A registration applies only to the products and services listed on the certificate issued by the Canadian Intellectual Property Office. The description of these products and services can be completely appropriate one year, but become obsolete the next.

This can even lead to partial or complete cancellation of the registration. For example, if a corporation had the trade-mark HOTBOX registered for magnetic tapes (cassettes) in 1988, it is likely that today this corporation sells only optical storage media (CDs) under this trade-mark. A competitor could have the registration cancelled by arguing that the trade-mark is no longer being used (as magnetic tapes and optical storage media are different products) and at the same time, attempt to obtain his or her own registration for similar goods.

Even without this type of difficulty, holding a registered trade-mark for, say, cheese, does not necessarily guarantee that this trade-mark will be available for crackers, drinks, or frozen dinners. If new applications for registration are not systematically filed to keep pace with changing products, competitors can force their way into these niches with similar trade-marks and block the trade-mark's first user, even if it holds a registration. Being first to register a trade-mark does not in and of itself allow one to prevent the use of that trade-mark for all conceivable products and services.

This also applies to companies that operate internationally. Being first in the world to obtain registration of a trade-mark in a given country does not allow you to prevent registration of the same trade-mark elsewhere in the world. The trade-mark registration authority in China does not check Canada's register to determine if a similar mark already exists; each country administers its trade-mark register independently.

If your corporation's activities extend to countries other than Canada, but your trade-mark searches and registrations are limited to Canada alone, you could find yourself in quite a jam. Competitors can protect identical or similar trade-marks in other countries, thereby blocking your corporation's geographical expansion.

Myth #7: "Registering a trade-mark only takes a few days; I have nothing to lose by waiting."

Wrong again. Sadly, this is far removed from reality. Too often, business owners believe that trade-mark registrations can be obtained in the same amount of time that it takes to constitute a corporation.

While a corporation can be constituted in just a few days, trade-mark registration, even without incident, can easily take from 12 to 18 months! Worse yet, it is generally not until 12 months have gone by that a corporation will find out whether any problems arose during the registration process. If there are exceptional circumstances, for example, if a competitor passes off a corporation's trade-mark, the Canadian Intellectual Property Office will agree to accelerate the application process. Even with accelerated processing, however, expect no less than five or six months to obtain registration.

If you need to have your trade-mark registered, whether for litigation purposes or for a transaction, and this process is not already completed or well on its way, it is probably too late! Your corporation will not have the comfort of having a registered trade-mark. Producing the heaps of documentation required to prove prior use of the trade-mark in the context of court proceedings will require a significant investment. Your corporation's shareholders could also be deprived of a portion of their shares' sale price for a period of time in order to cover potential trade-mark claims.

One other important issue bears mentioning. The examiners at the Canadian Intellectual Property Office process applications for registration in chronological order, without regard for prior use. If a competitor filed an application for registration before you – even solely on the basis of intent to use the trade-mark, his or her application will be given priority. If, for example, a corporation in the business of manufacturing doors and windows has been using the DURO trade-mark for 20 years without applying for its registration, an American competitor's application for registration of the DURO trade-mark in Canada will be processed first if it was made first in Canada. The application for registration that the Canadian corporation files later (upon hearing of this American competitor's existence) will be blocked, obliging the Canadian corporation to invest significant financial resources in trade-mark opposition proceedings, not to mention the litigation costs associated to forcing the American competitor to cease its conduct.

Myth #8: "I know my competitors' trade-marks, and no one is using the one that I plan to launch: it is definitely available"

False. This approach can lead straight to disaster. In Canada, a trade-mark can be protected even if no associated product or service has been launched or announced.

A corporation can reserve trade-mark rights for itself before even beginning to make any use of the trade-mark. In Canada, the intention to use a trade-mark for products and services is enough to justify filing an application to register a trade-mark. This application creates prior rights to the trade-mark that can be used (once registration is issued) to attack competitors who began using the trade-mark after this date. Moreover, Canadian law allows foreigners to register their trade-marks even before use in Canada has begun.

In many foreign countries, particularly in Europe, even intent to use a name is not necessary to have it registered. A registration can only be contested if the trade-mark has not been used for five consecutive years following the registration date. In many places, it is common to see corporations or individuals that own trade-mark rights in goods and services that have nothing to do with their true commercial interests. It's enough to confound even the most seasoned business people!

By relying on products and services that already exist on the market (whether in Canada or abroad) to determine whether or not a proposed trade-mark is available, you run a high risk of receiving a demand letter or having legal action brought against you when you launch your own product or service, or even later. This can compromise considerable investments in branding and destabilise your corporation's marketing strategy.

It is far wiser to check at least the Trade-Marks Register to detect any potentially conflicting trade-mark applications or registrations. At the very least, a search for identical trade-marks on the Canadian market can be performed using the tool provided on the Canadian Intellectual Property Office's website at www.cipo.gc.ca. A full trade-mark availability search should be seriously considered if the product or service is significant or may become significant for the corporation.

Conclusion

The importance of integrating a legal dimension into your corporation's marketing and promotional activities and of being wary of the myths you hear in the business community cannot be overstated. Doing so can mean preserving your corporation's value over the long term, as well as avoiding any unpleasant surprises that might carry heavy financial consequences.

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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.

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