Big Changes in Trademark Law

The year 2015 will see a dramatic alteration in Canada’s trademark landscape, with perhaps the most significant changes to the trademark regime since 1868. The federal government has adopted amendments to the Trade-marks Act through an omnibus Budget Implementation Bill (Bill C-31, Economic Action Plan 2014 Act, No. 1). The legislation will take effect following a public consultation on application fees, which suggests its implementation will not be until next year.

“I would expect we’re looking at less certainty, less predictability, and that usually points to more litigation and more oppositions,” says Judith Robinson, IP litigation partner at Norton Rose Fulbright Canada LLP in Montréal. “This is going to lead to greater costs for business concerns that hold trademarks.”

The key amendment will eliminate use as a prerequisite to registration of a trademark. Currently, trademark applications can be filed on the basis of “proposed use,” but registration can’t be obtained until a “declaration of use” is filed stating the date when use began in Canada or elsewhere.

Under C-31, “we will move to a system where registration can be obtained without use,” says Robinson. “The modifications shift the burden largely to the business owners to police these issues.”

“Our system of priority to trademark rights is still [going to be] based on first use,” says Chris Wilson, IP litigation partner of Bull, Housser & Tupper LLP in Vancouver, “but we’re just taking that information out of the register. So it gets easier to register the trademark, but far more expensive to [determine if there is a basis] for oppositions, infringement actions and expungement actions. It makes work for lawyers.”

The amendments could crowd the register with “deadwood” trademarks and have the undesired effect of encouraging “squatters” to apply for registration.

“The concern is you’ll have somebody file and obtain registrations on well-known marks where the legitimate trademark owner is going to be approached to purchase the mark for a fee,” says Steven Garland, IP litigation partner at Smart & Biggar/Fetherstonhaugh in Ottawa. “The squatters would presumably set their price point sufficiently low that it’s more attractive to buy [the trademark] off of them than to take them to court.”

Registrants, besides no longer having to provide a date of first use in Canada, also won’t have to include details of use or registration abroad. This, too, will make it harder (and costlier) for other trademark owners to determine the potential impact of new applications and assess whether or not to oppose them.

Canada currently has oppositions to 2 to 3 per cent of all trademark applications. But the head of the Trademarks Opposition Board (TMOB) estimates that the C-31 changes will probably increase oppositions to 7 or 8 per cent.

Currently, an opposition proceeding takes about four years (including 2½ years of pleadings, evidence, cross-examination and writing briefs). “If they have two to four times as many oppositions, what on earth is going to happen to that time line?” asks Donald Cameron, IP litigation partner at Bereskin & Parr LLP in Toronto. He also foresees more appeals of Opposition Board rulings to the Federal Court.

Other significant changes contained in C-31 include:

> The term of trademark registration is shortened from 15 years (renewable) to 10 years (renewable).

> The definition of “trademark” is broadened beyond words and pictures. It will include a personal name, a color, a three-dimensional shape, a hologram, a moving image, a mode of packaging, a sound, a scent, a taste, and a texture. Evidence of acquired distinctiveness was previously not required to register some of these non-traditional trademarks (e.g. textures, tastes and scents) but now will be.

Acquired distinctiveness is established through affidavit and survey evidence, which can be expensive. However, if distinctiveness is not established throughout Canada, a registration may apply only in the parts of Canada where it is established.

Despite the broadening of the definition, Wilson says he does not expect to see a flood of applications to register non-traditional marks. “They’re just not really that common.”

Disputes over non-traditional trademarks will involve significant uncertainty. For example, how will the TMOB or a court determine whether one texture is confusing with another? Is a product’s taste designed to make it more appealing – and therefore ineligible for protection as a trademark? “The courts have recognized we don’t want people to get functional protection for what otherwise is supposed to be a brand,” says Cameron.

> Goods and services descriptions in trademark applications will have to conform with the international Nice classification system. This will primarily affect medium-size businesses whose goods or services span more than one class of goods.

Depending on the regulations that are eventually adopted, those businesses could see an increase in the cost of registration, says Wilson. “For very large businesses, they’re already involved in the Nice classification system for their multinational registrations and they’ll probably see a cost saving as a result of the streamlining of their work.”

Canada currently has no requirement to classify goods and services according to any system. However, the Canadian Trademarks Office requires descriptions “in ordinary commercial terms” — more specific descriptions than most countries.

It is expected that Nice classification will eventually be required for all existing applications and registrations. In addition, the strict Canadian description requirements are likely to remain, at least initially, after the changes are implemented.

Organizations such as the Canadian Chamber of Commerce and the Canadian Bar Association have criticized both the content and the lack of consultation preceding C-31, and some IP practitioners anticipate a challenge to the law’s constitutionality.

“It may be infringing on the constitutional powers of the provinces,” says Andrew Shaughnessy, IP litigation partner at Torys LLP in Toronto. “When you have a system that’s no longer based on use under the Trade-marks Act, which is what you need in order to nourish the federal power [to regulate trade and commerce], arguably you’re in the domain of property and civil rights, and that’s the domain of the provinces and not the feds.”

Other pending federal legislation with important ramifications for trademarks is Bill C-8, the Combating Counterfeit Products Act, which is in the parliamentary pipeline. C-8 will facilitate much stronger border enforcement against the entry of counterfeit goods into Canada.

“We haven’t had the tools to compete on the international stage against counterfeiters,” says Wilson. “C-8 creates new criminal offenses. It looks at commercial scale of the Canadian importation of counterfeit products. It looks at putting in place a proper border enforcement regime. And that’s pure trademark change.”

This year has seen significant developments in trademark case law, too. Consider the Federal Court of Canada ruling in Ottawa Athletic Club Inc. v. Athletic Club Group Inc. In this dispute between two competing Ottawa gyms, the older OAC challenged the validity of the Athletic Club’s trademark registration.

In addition to ordering the registration expunged, the judge also granted an injunction under s. 10 of the Trade-marks Act that prevented the Athletic Club from using its mark in the marketplace (something the loss of registration alone would not have accomplished). The injunction has been stayed pending a possible appeal to the Federal Court of Appeal.

“You don’t see many injunctions granted under s. 10,” says Garland. “It is intended to prohibit someone from using a ‘generic descriptor’ as a trademark. If the injunction is upheld, it would be incumbent on trademark owners to be more aware of the potential downside of adopting what might be a clearly descriptive or generic trademark.”

Another unusual ruling with trademark implications was Equustek Solutions Inc. v. Jack, issued in June, 2014. The British Columbia Supreme Court ordered Google, as a third party, to remove from its search engine all websites operated by the defendants in the action.

The defendants were distributors of the plaintiffs’ telecom products, but then started passing off those products as their own (covering over the plaintiffs’ name and logo). When the defendants were hit with an injunction, they stopped bricks-and-mortar commerce but continued to sell through a network of websites. When the defendants defied several court orders to desist, Google was ordered to help the court enforce its orders in what was essentially a case of trademark infringement.

“This is the first time an injunction like this has been granted in Canada,” says Wilson. The ruling creates a potential avenue for IP rights holders to address infringement by organizations which defy injunctions and hide behind an exclusively online presence. “It doesn’t change trademark law, but it adds an arrow to the quiver of a trademark lawyer. It gives trademark owners a tool on the Internet to help enforce their trademark rights.”

Another important trademark ruling emerged from Coors Brewing Company v. Anheuser-Busch, where the Federal Court rejected Coors’s application to expunge a trademark registration owned by Anheuser-Busch. Coors argued that the registration was invalid, as use of the disputed mark began in the US after the Canadian filing date.

The court upheld the registration on the basis that allegations of an improper claim to registration based on foreign registration and use were not grounds for expunging an issued registration (although they could support opposition to an application prior to registration).

In patent law, a notable judgment was issued in July, 2014 in AstraZeneca Canada Inc. v. Apotex Inc. Justice Donald Rennie of the Federal Court ruled that the sound prediction of the utility of a patent does not require the disclosure of a factual basis and a sound line of reasoning in the patent itself unless the patent is for a new use of an old invention.

Fourteen years ago, the Canadian judiciary had established that any patent where a result is predicted has to include the data and the theory. “No other country has the requirement,” says Cameron. “We’re an outlier in the rest of the world, and now even the court has recognized that they may have gone too far.”

The AstraZeneca Canada Inc. case involved the patent for the acid reflux drug sold by AstraZeneca under the brand-name Nexium. Justice Rennie held that the requirement for “proper disclosure” of data and theory in the patent applies only to the sound prediction of the utility of new uses, on the basis that utility is the only thing being offered in exchange for a patent monopoly in those cases.

“For me,” says Cameron, “this is the first inkling of the court putting the brakes on the pendulum that had swung way out in one direction, and trying to recalibrate itself back to a more internationally accepted position without the need for legislation. They may be effectively saying, ‘Maybe we went too far in this increased disclosure requirement for every case predicting an invention and should just limit it to cases where it’s a new use of an old thing.”

Meanwhile, two 2013 rulings helped clarify the role of punitive damages in redressing IP infringements in Canada. In October, the Federal Court of Appeal (FCA), in Bell Helicopter Textron Canada Limitée v. Eurocopter SAS, affirmed a trial decision that invalidated most of the claims of a patent for failure to meet the promised utility. The FCA also affirmed the concept of punitive damages for willful patent infringement under Canadian law.

“It’s probably only the second decision to that effect in Canadian law,” says Robinson. “The judgment can be read as imposing on sophisticated companies an obligation not only to carry out a search of IP before launching a product, but also to document the results.” The amount of damages, both compensatory and punitive, remains to be determined.

In its December ruling in the copyright infringement case, Cinar Corporation v. Robinson, the Supreme Court of Canada confirmed the award of punitive damages, but adjusted the amount. The court held that punitive damages must be awarded with restraint and also that there must be proportionality — “a rational connection,” says Robinson, “between the amount awarded and the purposes of prevention, deterrence and denunciation.”

The rulings have clarified a significant issue within the IP community, especially on the patent side of the rights, says Robinson. “It’s one that I think we’re going to be seeing more of over the next year or two.”

Sheldon Gordon is a Toronto-based business writer.