For a variety of reasons, trade-mark registrations are often owned by one member of a corporate organization and used by another. In these circumstances, it is sometimes assumed that trade-mark rights can be shared among subsidiary and affiliated members without having any formal agreements in place.
This casual corporate use of trade-marks can threaten the validity and enforceability of the shared trade-marks. First, local affiliates may find it impossible to enforce the trade-marks they use. Second, as highlighted by a recent case decided in the Federal Court of Appeal, the validity of the organization's trade-marks may be put at risk.
The Spirits International case1
Spirits International B.V. ("Spirits B.V.") held a Canadian trade-mark registration for MOSKOVSKAYA RUSSIAN VODKA & Design. A third party made a request pursuant to section 45 of the Trade-marks Act to cancel the registration for non-use. Section 45 is a "use it or lose it" provision that requires a registration holder, upon receiving a request, to provide evidence showing that it has used the trade-mark in the three years prior to the request. If it is unable to show any such use, the trade-mark will be expunged.
The key difficulty for large corporations is to show that "use" of a trade-mark by the trade-mark user (e.g., a subsidiary) amounts to use of the trade-mark by the corporate affiliate (e.g., the parent company). Section 50 of the Trademarks Act dictates that use by an entity will only accrue to the benefit of the trade-mark owner where the trade-mark owner has "direct or indirect control of the character or quality of the wares” associated with the trade-mark.
In this case, Sprit B.V.’s response to the section 45 notice only ever referred to a corporate entity that included Spirit B.V. itself as well as a number of other entities. The hearing officer found that while Spirit B.V.'s response to the section 45 notice suggested that the trade-mark was being used in Canada, it was unclear whether that use was by Spirit B.V. itself, or subject to sufficient control by Spirit B.V. to amount to use by Spirit B.V.
On the basis of this ambiguity, the Registrar found that the evidence of use was insufficient to maintain Spirit B.V.'s trade-mark registration.
Spirits B.V. appealed and tendered additional evidence before the Federal Court. Spirits B.V. alleged that the mark was actually used in Canada by S.P.I. Spirits (Cyprus) which was owned, along with Spirits B.V. by S.P.I. Group SA. However, the Federal Court (2011 FC 805) found that the evidence did not sufficiently resolve the deficiencies in the evidence before the Registrar, and particularly did not provide evidence of control sufficient to give Spirits B.V. the benefit of use by the related companies.
Spirits B.V. appealed to the Federal Court of Appeal. In its decision (2012 FCA 131) the Federal Court of Appeal held that there was sufficient evidence that Spirits B.V. controlled the character and quality of the wares sold by S.P.I. Spirits (Cyprus) in Canada. Therefore, the Court allowed the appeal and Spirits B.V.'s trade-mark registration was maintained.
While Spirits B.V. ultimately maintained its registration without having a written license arrangement, it was forced to litigate the matter all the way to the Federal Court of Appeal.
To avoid the need for protracted litigation, companies having subsidiaries or affiliates should ensure that written licenses are in place for any trade-marks owned by the company and used by such entities. Further, those licenses should be reviewed to ensure that they contain control provisions that are sufficient to meet the test for control under section 50 of the Trade-marks Act (and such control should actually be exercised). Otherwise, as was nearly the case for Spirits B.V., trade-mark rights may be lost altogether.