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As we noted in our previous blog Use it or lose it: The importance of confirming trademark use when acquiring trademarks in Canada, before acquiring a trademark in Canada, purchasers should confirm vendors recently used the target trademark, or they risk the newly acquired trademark being expunged. While the Federal Court of Appeal has now clarified that a recent acquisition can constitute "special circumstances" excusing non-use, purchasers would still be wise to confirm use prior to acquisition in order to avoid having to rely on the uncommon "special circumstances" exception.
Background
The trademark AVIREX (the Mark), historically associated with military-style leather jackets, was the subject of a section 45 notice (the Notice) issued on October 12, 2018. Section 45 is a summary procedure intended to remove "deadwood" from the trademarks register. Upon receiving a section 45 notice, a registered owner who fails to provide use of the mark in question will generally have their mark expunged unless there are special circumstances excusing the absence of use. Special circumstances must be unusual, uncommon or exceptional, and they must be the reason for the non-use.1
The Mark owner's affiliate had signed a purchase agreement to acquire the Mark months earlier (the Agreement), but the transaction did not close until October 29, 2018. The purchaser planned on using the trademark after the deal closed. The trademark Registrar expunged the registration for non-use during the three years immediately preceding the date of Notice, finding that no special circumstances existed to excuse the absence of use.2
On appeal, the Federal Court of Canada upheld the Registrar's decision, finding the Mark owner failed to demonstrate special circumstances excusing the non-use of the trademark. While the Federal Court of Canada acknowledged previous decisions that had determined special circumstances could be found where a change in ownership occurred, it refused to apply this principle because in this case, the change in ownership occurred when the transaction closed, not when the Agreement was signed, which was after Notice was issued. As a result, the non-use during the three-years immediately preceding the Notice could not be excused.3
The "new owner" caselaw
On further appeal, the Federal Court of Appeal confirmed the validity of the "new owner" caselaw, a string of decisions which stand for the principle that the recent acquisition of a trademark may give rise to special circumstances, such that the new owner does not need to excuse non-use prior to the acquisition (the New Owner Caselaw). Instead, the new owner only needs to establish special circumstances for non-use from the date of acquisition to the date of a section 45 notice.4
Reversal of the Federal Court of Canada's decision
The Federal Court of Appeal held it was unduly harsh and technical for the Federal Court of Canada to refuse to apply the New Owner Caselaw because the transaction, which included acquisition of the Mark, did not close until after the Notice was issued, even though the Agreement was signed prior to the Notice being issued. Agreements to acquire marks are typically signed long before closing. Under the Federal Court of Canada's interpretation of the New Owner Caselaw, third parties could take advantage of a delay in closing by issuing a section 45 notice for marks prior to closing, which is not the intent of section 45 proceedings. The very fact that there is an agreement to acquire a mark may indicate to the public the acquirer does not consider that mark to be deadwood.5
In this case, the recent assignment of the Mark, together with the Mark owner's limited access to documents concerning the Mark's prior use, was sufficient to establish special circumstances excusing non-use prior to the Agreement. The following 3.5 month period between the Agreement and the Notice was similarly excusable–the acquisition itself suggested the Mark was not deadwood, there was an intention to commence its use, and the Mark owner was not permitted to use the Mark until the transaction closed.6
Practical takeaways for trademark transactions and section 45 responses
Where a good-faith agreement to acquire a trademark is signed shortly before a section 45 notice is issued, special circumstances excusing any non-use may be found, even if the transaction closes after the notice. For purchasers, this decision provides some breathing room; however, due diligence on use remains essential. While special circumstances were found in this case, it is clear that a recent arms' length agreement will not always be sufficient to excuse non-use, particularly where access to documents around use are available prior to closing. As a result, purchasers would be wise to continue insisting on the inclusion of representations and warranties regarding use of the marks to be acquired.
Footnotes
1. Centric Brand Holdings LLC v Stikeman Elliot LLP, 2025 FCA 161 at paras 1, 3, 8–9, 27. ↩
2. Paras 4–5 ↩
3. Paras 10–15. ↩
4. Paras 30, 40. ↩
5. Paras 45, 50–51. ↩
6. Paras 60, 62–63. ↩
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