Canada: Canadian Trademark Law Adapts To Online Software Licence Sales

Last Updated: March 30 2016
Article by Julia Johnson and David Tait

Most Read Contributor in Canada, September 2018

The online sale of a software licence constitutes a "use" in relation to a good for the purposes of Canadian trademarks. This was the recent holding of the Federal Court of Canada in Specialty Software v Bewatec, 2016 FC 223. This decision strengthens trademark protection for software in Canada and demonstrates that courts will adapt legal concepts to modern technology. Here, the traditional model of purchasing software on tangible media, such as a CD-ROM, is simply outdated. Software as a service (SaaS) offerings have greatly increased in recent years with the explosion of cloud computing, which essentially provides users with access to a software program over the Internet, usually though a subscription or licence fee. The Specialty Software decision is important because it confirms that the sale of a software licence – whether by diskette or via online subscription access – can constitute a transfer of property for the purposes of a "use" in association with goods under section 4(1) of the Trade-marks Act.

Software has traditionally been specified as a "good," rather than a "service," on trademark applications. In the Specialty Software case, Bewatec sought to expunge the trademark MEDINET for non-use. Initially, Bewatec succeeded in its application to the trademark Registrar because Specialty did not have evidence of use of the mark for a three-year period. Specialty appealed the decision to the Federal Court with fresh evidence.

Specialty's MEDINET trademark was registered for use in association with computer software programs as wares (now known as "goods" under the Trade-marks Act). But, like many modern software companies, Specialty had begun offering its software online by allowing customers to access it on the Internet rather than purchasing physical disks. Bewatec argued that since Specialty's customers were not physically acquiring or even downloading anything, its use of the mark was in relation to software as a service, not a ware/good. Specifically, Bewatec asserted that there was no "transfer of property" when software was accessed through Specialty's website as required under the Trade-marks Act.

Section 4(1) of the Trade-marks Act sets out what constitutes a "use" of a mark in association with goods:

4 (1) A trade-mark is deemed to be used in association with goods if, at the time of the transfer of the property in or possession of the goods, in the normal course of trade, it is marked on the goods themselves or on the packages in which they are distributed or it is in any other manner so associated with the goods that notice of the association is then given to the person to whom the property or possession is transferred.

Bewatec asserted that Specialty's clients were obtaining access to an online service, rather than acquiring the goods through a transfer of property as required in section 4(1).

Justice O'Reilly disagreed, finding that the real goods being sold were the software licences:

[13]           Even though Specialty used to sell its software on disks – which are obviously tangible and easily identified as wares – it was always really selling a license to use the software, which is an intangible good. Specialty did not actually sell the software itself; it sold an entitlement to obtain access to it by way of licenses. The disks merely represented the means by which the transfer of the goods occurred. The real goods were, and are, the licenses.

He considered as evidence of "use" the fact that purchasers of the software licence receive an invoice with the MEDINET mark on it and that the mark is visible on the user's login screen. Justice O'Reilly also noted that "use" is a "fairly low threshold that a registered owner must meet to demonstrate that its mark is not merely 'deadwood' on the register" (at para. 19).

Moreover, the Court relied on earlier Trademarks Opposition Board decisions where trademark use in association with software goods was found to exist based on the existence of the mark on software licensing agreements and installation screens.

Under the Federal Court's ruling, the sale of a licence to use software (including in the context of a "novel" software access delivery model) constitutes a use in association with goods. This concept could foreseeably apply beyond software. For example, music and video streaming services may also be treated as goods, which is significant given that they continue to displace CDs, DVDs and other tangibles, which have been traditionally considered goods for trademarks.

Finally, it remains to be seen whether the reasoning in this case will only be narrowly applied to trademark cases, or whether it might be relied on for the proposition that a software licence is in fact "property". Generally, a licence has been considered a mere grant of specific rights, rather than an interest in property.

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