New Federal Court ruling narrows the scope of “trademark use” in Canada for promotional and export sales
A recent decision on what constitutes trademark "use" in Canada is an important reminder for everyone with registered Canadian marks to correctly use those marks or face the consequences. In order not to "lose it", you need to know how to "use it"! While this may seem simple, it is not always the case given Canada's trademark "use" regime.
The Canadian trademark system requires, in order to obtain and maintain a registration for a trademark, that the mark must be "used" in commerce. A recent case Riches, McKenzie & Herbert LLP v. Cosmetic Warriors Limited, considered when there is such "use". The case dealt with a common scenario: a business which sold branded apparel to its employees at cost. The Federal Court of Canada found that these at-cost promotional sales did not constitute use in the normal course of trade, and further, that the same sales do not rise to the level of use merely because they occurred across borders .
The Canadian Trade-marks Act (the "Act") provides that a trademark 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, on the packaging or in any manner in which notice of the association is given to the person to whom the property or possession is transferred.
Use with goods can also occur by export. A trademark is deemed to be used on goods when it is marked on the goods or their packaging, and if those goods are subsequently exported from Canada. Importantly, there is no "ordinary course of trade" requirement for use of a trademark by export, in contrast to "domestic" use of a trademark.
In Riches, McKenzie & Herbert LLP v. Cosmetic Warriors Limited, Cosmetic Warriors Limited ("Cosmetic") owned a Canadian trademark registration for the trademark LUSH, which was registered for use in association with t-shirts. Riches, McKenzie & Herbert LLP, brought a cancellation proceeding for non-use. This required Cosmetic to show "use" of the mark in Canada or lose its registration.
In its evidence of use, Cosmetic established that employees of its Canadian licensee wore t-shirts with the mark as part of their uniform and also purchased shirts bearing the mark. Purchased shirts were also exported to the US. Based on this evidence, the Registrar was satisfied that Cosmetic had established use within the meaning of the Act.
On appeal, Riches contented that the t-shirts bearing the mark were not sold "in the normal course of trade" based on the fact that the t-shirts were promotional, sold at cost rather than for profit, and only in small quantities to employees. This required the Federal Court to consider whether: (i) the "normal course of trade" requirement requires profit, (ii) the goods sold here were merely promotional; and (iii) whether, if the goods were not sold in the "ordinary course of trade" domestically, export of the goods was sufficient to support use of the mark.
The Court began with the proposition that free distribution of promotional goods normally does not meet the Canadian use requirements, since transfer of goods "… merely for the acquisition of goodwill are insufficient to constitute a transfer or use in the normal course of trade." However, Cosmetic argued that the shirts were purchased by employees as gifts for family and friends, making these sales in the normal course of trade, and not mere promotional sales. The Federal Court found, however, that the "at cost" sale of the shirts to employees should not have been considered use in the normal course of trade, since the shirts were sold to employees at cost for promotional purposes to generate goodwill in a different business (e.g. cosmetics). Justice Manson ruled that in the absence of profit "it is difficult to see what purpose these sales could serve other than promotion of Lush Canada's primary business and charitable campaigns, except perhaps as a favour to employees and their families." Such uses were not, in his view, within the ordinary course of trade for a cosmetics company.
In view of the absence of profit, the promotional and small number of sales to employees, and the fact that Cosmetic was not normally in the business of selling clothing, Cosmetic's sales were merely promotional and not in the normal course of trade.
The Act also provides that there can be use in Canada where there is exporting of goods outside Canada. This was enacted to protect bona fide commercial activities but where the use requirements could not be met as such activities were exclusively outside Canada. According to the Federal Court, Canadian law requires a different (but not lower) standard in that use of the trademark on exported wares may be deemed to be use in Canada where the goods to which the trademark are affixed in Canada or be sent out of Canada to another country in a commercial transaction.
The "gravamen" is not to deem that any exportation of goods bearing a trademark is a "use" of that trademark, but rather to provide that where there is actual use, such use shall be deemed to have occurred "in Canada". Where a party's activities in Canada does not establish use of a trademark, those same activities do not rise to the level of use simply because an export has taken place. A party cannot be allowed to make an end run around the normal requirements of the Act by shipping a product across the border. Accordingly, the Federal Court found that the Cosmetic's t-shirt sales do not constitute use under the Act.
Despite the fact that the Canadian trademark regime will be undergoing significant amendments over the coming years, the "use" requirement will likely become even more important to the Canadian trademark system than it was before. This case serves as an important reminder for Canadian trademark owners to properly "use" their marks in order to not jeopardize important intellectual property rights. To that end, we have put together a "use" checklist to help you navigate Canada's "use" regime which can be counterintuitive, particularly for physical goods.
Trademark "Use" Checklist
- After registration, trademark owners are required to prove that they have used their registered Canadian trademarks in the last three years.
- "Use" has a technical meaning under the Canadian Trade-marks Act.
- "Use" on products can occur either domestically or via export. The requirements for use on goods – both domestically and via export – generally does not permit advertising to qualify as trademark use.
- Domestic use on goods must occur in context of transactions made in the "ordinary course of trade." This will often exclude distribution of free promotional products, depending on the context of the particular industry. In this case, the "ordinary course of trade" would likely exclude promotional at-cost sales of goods where the main business is not the sale of those goods.
- Use on products via export does not require sales in the ordinary course of trade. However, "use via export" still requires a "commercial transaction", and would likely not be allowed as an escape hatch for trademark owners whose domestic sales fail to qualify as use under the domestic regime.
- Use with services occurs when a trademark is used in advertising those services, or is displayed during the performance of the services (for example, logos on employee uniforms).