A recent decision of a judge of the Ontario Superior Court deals with the rights of a trade mark owner concerning a supplier’s attempts to sell branded goods.
Cotton Ginny Inc. ("Cotton Ginny") issued a number of purchase orders to Pioko International Imports Inc. ("Pioko") for the production and purchase of COTTON GINNY branded goods. The goods bore labels and price tags which contained the COTTON GINNY trade mark. Pioko contracted with a third party manufacturer in China to have the goods manufactured.
Some of the goods were delivered under the purchase orders but the majority were not delivered or paid for when Cotton Ginny filed a proposal under the Bankruptcy and Insolvency Act. The Chinese manufacturer continued to have possession of the undelivered goods. Subsequently Cotton Ginny sold its trade marks and related intellectual property rights to another company.
Pioko wished to sell the goods that had been manufactured in China in Canada, however, the new owner of the assigned trade marks was not willing to consent to such sales. Pioko brought an action seeking a declaration that the importation of the goods into Canada did not infringe the assignee’s rights in the COTTON GINNY mark.
Pioko argued that Cotton Ginny had put the goods into the course of trade by issuing the purchase orders and that its assignee could not retract its permission. Alternatively, it was submitted that such a right or permission may be implied as a term of the agreement and that the assignment was subject to this licence.
The first argument relies on the exhaustion of trade mark rights. Under this doctrine, if a trade mark owner sells goods in association with its trade mark, it cannot assert the rights associated with the trade mark against purchasers for value without notice of any limitation. The Judge found that this doctrine did not apply to the contractual relationship set out in the purchase orders. In addition, the undelivered goods had not been put into the course of trade.
A Court will only imply a term into an agreement if it is clear that the implication was necessary to carry out the intentions of the parties. The Judge found that the parties did not agree that any right of resale available to Pioko included a permission to sell the branded goods even if they were otherwise infringing.
The case illustrates the importance of ensuring that all supply agreements include appropriate contractual provisions to control the activities of manufacturers of relevant branded products and components.