Thought leadership from our experts

What is a TM if it has never been used?

Two bills regarding trademark law in Canada were passed in 2014, with some provisions - primarily dealing with improved remedies to deal with counterfeit - being proclaimed in force in late 2014 and January 2015. It is too early to see if these amendments, passed as part of the Combating Counterfeit Products Act, will provide effective remedies against counterfeiting or additional options for infringement. However, these amendments meet trade agreement requirements, most specifically trade negotiations with the European Community and South Korea, and ensure that Canada's legal framework is on par with other international systems.

Much more significant changes were passed as part of Canada's Economic Action Plan 2014 Act, Part 1, a budget bill that slipped in the most significant changes, probably ever, to the Trademarks Act. In summary, those changes (1) permit registration without use anywhere (2) provide for implementation of the Madrid Protocol by regulations; and (3) introduce the Nice Classification system. Many other changes will also be made, including broadening the definition of "sign" to cover specified non-traditional marks, changing opposition provisions, permitting the TMO to destroy certain files after six years, and simplifying the recordal of assignments. Major amendments to the Trademarks Regulations are required before implementation, and the most recent timing estimate is now early 2017 for these changes to be fully in force.

There was no prior public consultation with the most important stakeholders, namely trademark owners and Canadian business groups, and once introduced, the Government ignored, or worse, belittled, comments from trademark practitioners and other groups. The most important change, namely eliminating use as a registration requirement, garnered immediate and serious concerns from Canadian trademark owners, various business groups, all IP associations and hundreds of trademark practitioners across Canada and in the United States. The main concern was that registration without use would quickly crowd the Register with marks that were not in use and had no reasonable prospect of future use, and covered a list of goods and services well beyond the business interests of the owner. It would be more difficult and expensive to search and clear marks with any degree of certainty, and trademark owners would find themselves embroiled in more oppositions and non-use cancellations. It would also take years for jurisprudence to confirm the impact of registration, without use, in trademark opposition, infringement and passing off claims. Also, the new system could open the door to trademark squatters or trolls.

During consultations, spokespersons from the Government stated that the changes were required to permit Canada to comply with Treaty requirements, including the Singapore Treaty, the Nice Agreement and the Madrid Protocol. They also commented that "use" would continue to be an important element of trademark "acquisition, maintenance and enforcement". It was admitted that the rate of oppositions could increase. No Government response was made to the concerns regarding costs and uncertainty for trademark owners.

For those who practise in other jurisdictions where registration without use has been permitted, such as the EU, many Asian countries and Australia, reactions to the changes include "what's the big deal?" The amendments, once in effect, may simplify registration, speed up registration steps by eliminating declarations of use before registration, and avoid opposition filing grounds that can occasionally be very technical. Implementing the Nice Agreement will offer more consistent identity of goods and services. At the same time, while many trademark owners will be pleased to find that their marks are easier and possibly quicker to register, so too will be their competitors marks, and the door will be open for companies with deep pockets to register many marks for long lists of goods and services, effectively tying up marks unless or until a third party challenges their rights. Trademark "cluttering" has been identified as an issue for European trademark owners, adding uncertainty and risk to adoption of new brands. Searching the Community Trademark register is more difficult and the results less certain when there is no examination for relative rights and it is not uncommon to have multiple owners of the same mark for identical or similar goods/services. When added to that is no use requirement for registration, the register becomes increasingly irrelevant for assessment of rights.

There are peculiarities of Canadian law that at the very least should have suggested a more open and inclusive consultation before enactment of the legislation. Many Canadian court decisions comment on "use" being fundamental to trademark rights, although the provisions in the Trademarks Act dealing with the impact of a registration in oppositions or enforcement remain unchanged. Should a registrant be permitted to oppose or challenge use by another party, including in interlocutory proceedings, based on a mark it has never used? Canada has a summary non-use cancellation regime, available after the third anniversary of registration, permitting any person to request the Registrar to require a registrant to show use of its mark. However, is it right, or fair, to allow registrants to effectively "sit" on a mark that is not in use and be insulated from any competing marks from the date of filing to no earlier than three years from registration? The amended Act will require an applicant to have either used, or propose to use its mark in Canada before filing, but what will a valid proposed use actually be? Further, the division of power between the Federal government and the provinces raises issues of constitutional validity of the amendments.

These questions eventually lead to the question that applies in all jurisdictions where registration, without use is permitted. What is a trademark? Most statutory definitions refer to a sign that helps consumers distinguish one trader's goods/services from those of another. This definition assumes marketplace activity, and balances the risk of consumer confusion with a brand owner's efforts in bringing a product to market. Permitting registration without use, and handing all the rights of registration to the owner of merely a piece of paper that the applicant "bought" by paying application and/or registration fees ignores the importance of marketplace activity, and clearly destroys the relevance of any Register of trademarks as an indicator of marketplace activity. Being first to the Register, and first to pay for rights in a mark never used puts registration owners on a collision course with businesses who have not yet filed, or cannot invest in registration fees, and ultimately adds expense, borne by all trademark owners, for clearance, investigations, examination costs and oppositions.

In the United States, where only Madrid Protocol applicants can register a mark without use, jurisprudence, and not legislation, has evolved to confirm that registrations that are not in use cannot be relied upon in litigation. Even with that limitation (which does not appear to apply in Europe, and has not been addressed in the Canadian amendments) a registrant acquires a considerable commercial advantage from being on the Register, and blocking others from adopting a confusing mark. The United States Trademarks Office is now considering amendments that more directly force registrants to show current use for all registered goods/services to maintain rights.

Trademark owners and legislators need to step back and ask what role use should play in granting rights and benefits, both legal and commercial, to trademark applicants. Particularly where the trend amongst international trademark offices is to limit examination, and leave it to applicants/registrants to sort things out, Registers cease to play a significant role in determining anything other than paper rights. If a registration no longer reflects marketplace reality, and becomes an exercise in government revenue generation, is it just to permit owners to have any significant rights from that registration?

Canada's courts will no doubt be dealing with these issues in the coming years, providing lots of work for trademark advisers and counsel. These costs could easily be rationalized if registration truly reflected marketplace activity and protected genuine "trademarks" that do distinguish one trader from another . However, do they make sense if registration is a mere paper right?