Canada: Shaky Ground

Last Updated: December 2 2014
Article by John McKeown

A recent Canadian case shows the risks that can arise when a trademark registration is obtained in circumstances where it was inappropriate to do so.

The Facts

Product Source International LLC ("Product Source") sells NIC OUT cigarette filters. The filters remove tar and nicotine. Product Source commenced to use the mark in Canada in 2006 and obtained a Canadian trademark registration for it in 2008.

TLG Canada Corp ("TLG") also sells NIC-OUT brand cigarette filters that remove tar and nicotine in Canada. TLG claimed that its NIC-OUT brand filters were developed and owned by P. Service, a company based in Israel.

On December 14, 2011, TLG received a "cease and desist" letter from Product Source's legal counsel. TLG responded by asserting that the NIC-OUT product had been sold in Canada since 2005 by "another company".

On December 17, 2012, Product Source brought an action in the Federal Court. It was alleged, among other things, that TLG's sale of its NIC-OUT cigarette filters was an infringement of its trademark registration.

On February 6, 2013, TLG concluded a license with P. Service. P. Service granted TLG an exclusive license to use its NIC-OUT trademark for cigarette filters in Canada, and including the right to use, defend, assert and enforce its trademark rights in Canada.

On March 1, 2013, as a defence to the infringement action, TLG brought an application to strike Product Source's registration from the trademarks Register.

The Trademarks Act

The Trademarks Act provides that a registration of a trademark is invalid if, among other grounds and subject to the limitations of section 17, the applicant for registration was not the person entitled to secure the registration.

Paragraph 16(1)(a) of the Act deals with entitlement and prevents registration of a trademark which, as of the date of its first use, was confusing with a trademark that had been previously used in Canada.

Subsection 17(1) provides that a registration of a trademark shall not be held invalid on the ground of previous use of a confusing trademark by a person other than the applicant for registration, except at the instance of that other person or their successor in title. The burden lies on that other person or their successor to establish that they had not abandoned the confusing trademark at the date of advertisement of the applicant's application.

Subsection 17(2) provides that in proceedings commenced after the expiry of five years from the date of registration of a trade mark, no registration will be held invalid on the ground of the previous use referred to above, unless it is established that the person who adopted the registered trademark in Canada did so with knowledge of such previous use.

The Decision

The judge first considered the issue of entitlement and concluded that the registration was potentially invalid because it was not registrable on the date it was registered. This was because Product Source was not entitled to the mark as it was confusing with the NIC-OUT mark used in Canada previously by P Service. In addition, Product Source knew at the time of the proceedings that they were not entitled to the mark since they had purchased product from P. Service.

The judge had no difficulty in concluding that the respective marks of P. Service and Product Source were confusing. However, in order to successfully expunge the trademark TLG also had to establish that it was the successor in title to the rights of P. Service and that it had not abandoned the use of the NIC-OUT trademark as of the date of the advertisement of Product Source's registration. The judge found that the evidence established that TLG was the successor entitled to P. Service. TLG acquired any rights P. Service had in its NIC-OUT common law trademark through its license with P. Service. The license specifically included "the right to use, defend, assert and enforce the rights in the mark in Canada on behalf of or in the name of the Licensor, including the right of action and application to bring proceedings before the courts of Canada."

Finally, with respect to the limitation set out in s. 17(2) the judge said that P. Service knew that Product Source threatened to register the trademark in issue as early as 2007 and yet did nothing to oppose the registration or to register their own trademark NIC-OUT. While the judge said this was a concern it did not defeat the fact that Product Source registered its trademark when it was aware that the mark was not registrable. The "head in the sand" approached by P. Service did not cure the fact that Product Source knew the mark wasn't registrable but did it anyway.

As a result, the registration was expunged.

Comment

The case illustrates the importance of making sure that the trademark upon which the business is based be validly registered. On a common sense basis Product Source must have known that they were on shaky ground when they applied to register a trademark that they knew was in use by another trader. Initiating the action added to risks they had previously taken on.

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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John McKeown
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