Unlike many other jurisdictions, in Canada, use of a trade-mark by a subsidiary or another closely related company does not necessarily enure to the benefit of the parent company by virtue of the relationship between the two companies.
This consideration is important where a trade-mark is either the subject of a pending application for registration or registered in the name of a parent company, but used in Canada only by a subsidiary or another closely related entity.
The issue of who owns the rights in and to a trade-mark in Canada may arise in a variety of situations including the following:
- Opposition proceedings: A trade-mark application that is filed on the basis of use in Canada may be opposed on the ground that the applicant has not used the mark since the date indicated in the application.
- Assertion of rights: When a parent company attempts to rely on the use of a trade-mark or the reputation acquired by its subsidiary or another closely related company in Canada in order to assert its trade-mark rights, which entity has actually used the trade-mark in this country becomes important.
- Cancellation proceedings: A trade-mark may be cancelled from the register if it has not been used in Canada by the registered owner in association with the registered wares/services for three (3) or more years.
In order for use of a mark by a subsidiary or another closely related company to enure to the benefit of the parent company, there must be evidence that the parent company trade-mark owner maintains control over the character or quality of the wares and/or services provided in association with the trade-mark. The fact that the company under which use is claimed is a wholly-owned subsidiary of, or is otherwise closely related to the trade-mark owner, is not enough on its own to prevent expungement or to benefit a party claiming use. Likewise, the fact that a parent company can control its subsidiary is not sufficient to prove that it actually does so.
For a trade-mark owner to prevent the cancellation of a trade-mark registration or assert its rights thereto, a license agreement, either oral or written, must exist between the trade-mark owner and the user of the mark in Canada. Common corporate ownership is not in itself sufficient. However, even where there is evidence of a license agreement establishing that a subsidiary has the right to use a trade-mark in Canada, Federal Tribunals, like the Trade-mark Opposition Board in Sobeys Capital Inc v Edrnred, a société anonyme, 2012 TMOB 86, have consistently found that “organizational structure, in itself,...does not support a deduction that the owner of [the] trade-mark controls the character or quality of the wares and services used in respect of such a license”.
Rather, there must be factual evidence that the trade-mark owner directly or indirectly controls the character or quality of the wares/services used in respect of the trade-mark. In Canada, the nature of the evidence sufficient to establish that the parent company trade-mark owner has the requisite control is inconsistent and is highly dependant on the specific facts of any case.
Therefore, it is advisable to have a simple written license agreement in place between the parent company trade-mark owner and its subsidiary or another closely related company that demonstrates the nature and extent of the control that the parent company has to ensure the character or quality of the wares/services provided. Such an agreement should provide: (a) that the wares/services offered by the licensee conform to the standards, specifications, or instructions approved of by the parent company, and (b) a right to regular inspections of the licensee’s actual premises and/or of samples of the product sold, to ensure compliance with such standards, specifications or instructions, which the owner would actually exercise.
A properly drafted license agreement can be relied on in an expungement or opposition proceeding thereby reducing the costs and risks associated with attempting to later prove that the parent company trade-mark owner has the requisite control over the use of its trade-mark in Canada, and can assist to effectively maintain the focus of any such proceedings on the key issues.
Protecting trade-marks can involve complex legal analysis. As such, businesses with complicated corporate structures, which include use of a trade-mark by a subsidiary or another closely related company, should seek the advice of experienced Canadian counsel, who can draft license agreements to appropriately reflect those corporate structures and that protect trade-mark portfolios.