Trademarks: Trolls at the Gate

In a few short years, anyone with a couple hundred dollars will be able to register a trademark, whether it’s being used commercially or not. Trademark trafficking, and trolls, won’t be far behind.
ALTHOUGH STEPHEN HARPER’S contribution to Canadian trademark law will most definitively live on, the advent of trademark trolls may be his most enduring legacy.

Under Harper, the Conservative government introduced sweeping changes to the legislation and regulations governing trademarks. The most significant of these came when Bill C-31, which received Royal Assent in June 2014, removed previous use of a trademark, in Canada or elsewhere, as a requirement for registration. “The real fear about abolition of use as a requirement of registration is that it will create opportunities for trademark trafficking,” says Donna White of Osler, Hoskin & Harcourt LLP in Ottawa. “It also shifts the costs of policing registration from government to business, which will now have to spend significant sums to keep confusingly similar brands off the market.”

To be sure, the government’s intentions were good: the change brought Canadian law into conformity with the Madrid Protocol, the Singapore Treaty on the Law of Trademarks and the Nice Agreement, thereby aligning Canada with other jurisdictions, including the European Union, where trademark rights are based on registration alone. “The amendments simplify the trademark application process by eliminating red tape for businesses and aligning Canada with its major trading partners,” an Industry Canada spokesman said in an email.

But from a practical perspective, the upshot of the use amendment is that anyone will be able to register a trademark, whether or not they have a legitimate commercial application in mind for the mark, and they will be able to do so without the necessity of showing prior use.

This, lawyers say, will significantly increase the cost of trademark protection for Canadian business, especially small and medium-sized enterprises. “Doing away with use means that as long as someone is prepared to pay the application fee of several hundred dollars, they can register a trademark,” says Sheldon Burshtein of Blake, Cassels & Graydon LLP in Toronto.

The new system does allow legitimate users to oppose an application for a mark. They can also, three years after registration, attack a trademark on the basis of non-use. But because the amendments allow registration with no details of use, it will be far more difficult and expensive to assess the viability of opposing a new application or seeking to expunge one.

“That decision is immediately easier if the application details include a date of first use or information on use in other countries,” says Daniel Bereskin of Bereskin & Parr LLP in Toronto. “The lack of information on use or not will most certainly result in higher costs for investigations, searches and opinions on risk assessment regarding oppositions or other challenges.”

Or as Martin Kratz of Bennett Jones LLP in Calgary puts it, “Eliminating use is not a good thing for the business community, but it will create a lot of business for trademark lawyers.”

There is already a striking precedent for the kind of transformation this country is about to undergo. In the 1980s, several Latin American countries initiated registration systems. Almost immediately, speculators moved to register luxury brand names, like Ralph Lauren and Polo, forcing brand owners to either commence lengthy and costly proceedings to expunge the trademarks, or to negotiate the purchase of the mark from the speculators.

“One of the great advantages of the use requirement is that it works against registering a trademark merely to blackmail an established franchise,” Burshtein says. “So while it will be easier to get a registration, there will be way more registrations, and business will have to navigate them in choosing company and brand names.”

So much so that Panagiota Dafniotis, Senior Counsel, IP at RBC in Montréal, believes that it may become necessary for her to revise the bank’s internal policies to limit the need for trademark clearance. “The certainty that you will get from searches will be far less, and the value of spending money on doing them is becoming debatable. So the question for us is whether we’re prepared to accept more risk or choose instead to be less active on the trademark front,” she says.

“It’s hard to find value in the elimination of use.”

The Lobbying Commences

As it turns out, the changes to the use requirement are not imminent. Recently, the Canadian Intellectual Property Office (CIPO), which has been struggling with resources for a while now, announced that it would not implement many of the changes, including the use requirement, until at least 2018. “Implementation awaits finalization of treaty adherence, the introduction of regulations and changes to CIPO’s infrastructure,” says Gary Daniel in Blakes’ Toronto office.

Examiners must also acclimatize to the changes. “The trademark office has a lot of work to do in terms of training examiners, and dealing with the amendments will be a big challenge,” White says.

Although the delay does nothing to undermine the changes’ ultimate impact, it will affect trademark owners in the interim. For example, according to Daniel, the opportunity to obtain a 15-year registration term before the changes take effect may result in an increased number of trademark applications during the delay period.

But even as stakeholders await the coming into force of the amendments to the use requirement, the changes remain controversial. Most of the country’s intellectual property Bar opposed the elimination of the use requirement, which with other changes to IP law were buried deep in 2014 omnibus budget legislation, which also included amendments to 60 unrelated statutes. “The changes undermine the foundation of our trademark law and abandon more than 140 years of trademark jurisprudence,” Bereskin says.

They may also invite a constitutional challenge. “The issue is whether the proposed legislation can be justified as a legitimate use of the federal government’s trade and commerce power given that there is no trade or commerce involved in trademark registration in the absence of the use requirement,” Bereskin explains.

Particularly distressing to stakeholders was the lack of public consultation, in marked contrast to the extensive seven-year process that preceded the enactment of the Trade-marks Act in 1954 — legislation that remained substantially unchanged until Bill C-31 came along. The lack of consultation also stands in stark contrast to the tortuous consultative history that preceded the recent enactment of amendments to the Copyright Act. “The government just snuck the trademark provisions in, despite the fact that they represent the most important changes to trademark law in a century,” Bereskin says.

It’s not merely a case of lawyers feeling snubbed: “The lack of expert guidance means that the practical impact of the changes has not been adequately considered,” says Daniel Drapeau of Drapeaulex Inc., an IP law boutique in Montréal.

Osler’s White is concerned, moreover, that failure to consult is becoming the norm, noting that there has been a real change in the attitude of government and of Industry Canada regarding the way they consult. “That said, a lot of IP lawyers have not stopped banging the drums with a view to having the new Liberal government reconsider the legislation,” she adds.

The general consensus, however, is that wholesale legislative change is unlikely at this late stage in the game. According to White, CIPO’s trademarks branch has made it quite clear that it will not revisit the proposed requirements for registration. So the lobbying is focusing elsewhere, including an effort to include provisions in the regulations that will incentivize applicants to file on the basis of use, perhaps by making them less vulnerable to summary expungement or by reducing registration fees in such cases. Meanwhile, the renewal provisions are also in the lobbyists’ sights. “There’s some cautious optimism that CIPO may be open to imposing a use requirement on renewal,” White says.

Even if the issue around the requirement of use is resolved, however, Dafniotis is concerned that the problems at CIPO extend beyond policy direction: “For some time now, I’ve been noticing that certain things from the trademarks office weren’t making sense, like objections from examiners that seemed to have no foundation and clearances we weren’t expecting that absolutely stunned us.

“There have been circumstances where our only choice was to deal with third parties at significant cost,” she says. “The truth is that the trademarks office isn’t providing a ton of value.”

On the Bright Side

Fortunately, other important amendments — many aimed at harmonizing Canada with international norms — have received a better reception from stakeholders than the use requirement.

Daniel, for one, welcomes the changes that broaden the categories of registrable marks and shorten the term of registration and subsequent renewal from 15 years to 10 years. “Reducing the term to 10 years will get rid of deadwood, because after a time it becomes hard for people doing searches to track down old registrants,” he says.

The government also shored up Canada’s adherence to the Hague Agreement Concerning the International Registration of Industrial Designs. The amendments to the Industrial Design Act modernized the legislation’s language and amended provisions relating to the contents of registration applications, the requirements for a registrable design, the grace period for filing and the term of an exclusive right for a design.

As well, at press time, Canada was poised to adopt the Nice Classification. This international classification standard of goods and services relating to trademarks was established by the Nice Agreement and is administered by the World Intellectual Property Organization. According to the CIPO website, the adoption of the Nice Classification, which divides goods and services into 45 groups, will help businesses searching the Canadian trademarks register to find potentially confusing marks owned by competitors.

Still, there are some challenges. “The previous system described goods and services in ordinary commercial terms, so that a registrant could claim an entire universe of uses at no additional cost,” Daniel explains. “Under the Nice system, the cost varies with the number of classes claimed.”

For its part, CIPO is trying to design a fee system that will create an economic disincentive to squatters. One proposal under consideration contemplates that the fee for each class added will be higher than for the preceding class.

Confidentiality in trademark matters has also recently been strengthened, after changes were made to the Patent Act and Trade-marks Act creating a statutory privilege for communications with patent and trademark agents. Similar provisions exist in Australia, New Zealand, the United Kingdom, France and Sweden, as well as in the proposed regulations for the European Union’s Unified Patent Court. For her part, however, White isn’t convinced the privilege amendments will amount to much: “Giving privilege to agents allows them to upgrade their status, but it won’t make a big difference in a practical sense, especially for agents who are already working with law firms.”

Still, Daniel believes that the concept of extending privilege directly to agents is a welcome development. As he sees it, the legal fiction of lawyers having to sign off on opinions doesn’t serve anyone’s interest. “On the other hand, the trade-off — especially for independent non-lawyer agents — is that they will undoubtedly become subject to a greater degree of professional regulation, including conflict-of-interest obligations,” he says.

And in yet another move aimed at bringing Canada into international conformity, CIPO acquired the power to extend key deadlines, particularly in the case of force majeure events like floods, ice storms and power outages. The change remedied Canada’s historic inflexibility regarding the loss of rights for stakeholders’ failure to meet deadlines for reasons beyond their control.

Finally, amendments to the Trade-marks Act and the Customs Act that came into force on January 1, 2015 — and known collectively as the Request for Assistance Program ­— strengthened customs enforcement measures against counterfeit goods. New prohibitions that apply to persons importing products that violate trademark rights are now in force. Offenders are subject to fines of up to $1 million and imprisonment for up to five years.

Doppelganger Marks

Jurisprudence in the trademark arena has always revolved around disputes between similar brands, but in recent years the courts have confronted the peculiar implications of trademarks used for internet marketing campaigns. (See sidebar: "Origin Ownership.") Of particular interest are the decisions of the British Columbia Supreme Court in Vancouver Community College v. Vancouver Career College and the Federal Court of Appeal in Red Label Vacations v. 411 Travel Buys.

The dispute between Vancouver Community College (the plaintiff) and Vancouver Career College (the defendant) arose over the acronym “VCC.” Vancouver Career College had used it internally for some time, but only Vancouver Community College had marketed itself publicly using the term.

In 2009, however, Vancouver Career College began an extensive advertising campaign. The College purchased VCC as a keyword for the Google and Yahoo! search engines. At the same time, it bought the domain “VCCollege.ca” for its website. It also purchased a series of other domain names that included the term VCC. The website itself did not use the term, however, nor was there anything on the website that related to the plaintiff.

Numerous students and prospective students who used VCC as a search term testified that they were directed to Vancouver Career College, mistakenly believing that it was the same institution as Vancouver Community College.

The plaintiff claimed that the defendant had misrepresented its educational services as those of the plaintiff. But the court disagreed. While consumers may have been led to the defendant’s site by using the sponsored link, the court reasoned, no confusion could have arisen once they reached the site. “The court held that the relevant timeframe for assessing whether confusion had taken place was when the consumer had reached and viewed the defendant’s website, and not before,” writes Timothy Stevenson in Smart & Biggar/Fetherstonhaugh’s IP Update – Canada. “This finding is notable because it suggests that the appropriate time for assessing confusion is only once the consumer reaches the defendant’s website, not when the search results page is displayed.”

More specifically, the court stated: “A bid on a keyword may send a searcher to the bidder’s landing page, but the process of the search is controlled by the searcher and the search engine, not by the advertiser. Google and other providers of search engines generate revenue by offering an efficient bidding process. I cannot conclude that the defendant causes confusion by taking advantage of this service offered by Google.” The court was clear, then, that businesses buying services from Google AdWords and similar services may use keywords related to competitors to draw consumers to their own sites.

Several months later, however, the Federal Court of Appeal’s decision in Red Label cast doubt on this principle. Indeed, Red Label suggests that the use of trademarks in metatags (themselves a form of keywords) could indeed give rise to liability for trademark infringement.

At first instance, the Red Label trial judge ruled that the defendant’s use of the plaintiff’s trademarks in metatags did not induce consumers to visit the defendant’s website and did not give rise to confusion. In conformity with the reasoning in Vancouver Community College, he also implied that a metatag could never constitute a basis for trademark confusion.

On this issue the appeal court differed, noting that the extent to which a trademark may be used in metatags without infringing the mark is fact-specific. “In some situations, inserting a registered trademark (or a trademark that is confusing with a registered trademark) in a metatag may constitute advertising of services that would give rise to a claim for infringement,” the court stated.

As Kratz sees it, trademark law by its very nature is not prone to sweeping principles. “What’s very frustrating about trademark cases is that they’re always very factually specific,” he says. “Whether or not a mark is confusing depends on such things as the actions of the parties, the context in which the marks are used, how similar in appearance they are to each other, and the channels of trade engaged by the users of the marks.”

Still, some limited principles are beginning to emerge. “What is clear is that the appropriation of trademarks found in website content that faces the consumer is more likely to attract liability than the use of trademarks in the context of such things as Google AdWords and metatags,” Kratz says.

What the past year or so has proven, then, is that, while trademark law remains in the realm of the esoteric, new policies and legal principles have begun to take effect in a way that will have important ramifications for Canadian business. Chief among these remains the elimination of the proof-of-use requirement for trademark registration. Unless some last-ditch lobbying efforts bear fruit over the next few years, businesses may find themselves rushing to protect intellectual property that, it had been assumed, no other entity could exploit.

At that point, the possibility of trademark trolls and trafficking will become more than a risk. It will become a new reality.


J
ulius Melnitzer is a freelance legal-affairs writer in Toronto.