Tuesday April 9, 2019

Must Trade-mark “Use” Always be at a Profit?

Authored by: Marc J. Belliveau Posted in: Intellectual Property

There is an old maxim about brands and trade-marks: “Use it or Lose it”.

For centuries, the concept of “use” of a trade-mark, namely, to distinguish one’s products and services from those of others, has been the foundational underpinning of this type of intellectual property.

If one is not using a word or logo to actually “distinguish”, it is not a trade-mark, and conversely, if you had used a trade-mark and later stopped using it, it ceases to be a trade-mark.

In that context, our Canadian Trade-marks Act (the “Act”) contains a mechanism whereby third parties can request the Registrar of Trade-marks to clear out “dead wood” on the trade-mark register when it can be shown that a trade-mark has not been used for three years. The owner is given the opportunity to provide evidence of use to preserve the trade-mark’s registered status under the Act.

A recent decision by the Federal Court of Appeal considered such a request by a third party who alleged brand non-use because certain goods were not sold at a profit.

Swag

The decision deals with the well-known cosmetics trade-mark LUSH and whether that mark had been used sufficiently by its owner to keep it on the trade-mark register and avoid its expungement as dead wood.

The court succinctly described the relevant facts as follows: “The owner of the trade-mark, Cosmetic Warriors, is a cosmetics company that operates through licensees worldwide. These include the company referred to as Lush Canada, which operates LUSH stores in this country. T-shirts and tank tops bearing the LUSH trade-mark are sold by Lush Canada in limited quantities to LUSH store employees in both Canada and the United States to wear as part of their uniform, and sometimes to give as gifts to family and friends. Cosmetic Warriors also creates limited edition t-shirts bearing the LUSH mark to promote its public awareness and lobbying campaigns, which address social and environmental issues of importance to the cosmetics industry. The proceeds from these items go to direct action and charitable groups.”

The party seeking expungement argued that because these products were not being sold for profit, they were not being used “in the normal course of trade”, which is a basic use-related requirement under the Act.

The Registrar, at first instance, concluded that the LUSH branded t-shirts and tank tops were part of the company’s overall trade and not merely promotional items (often called “swag”), even though t-shirts were not part of the core cosmetics business and only sold at their production cost. On appeal, the Federal Court judge reversed the lower decision and held that “normal course of trade” must include actual monetary profit. On further appeal, the Federal Court of Appeal disagreed with the judge and held that profit is not a requirement to establish “use” of a brand.

To require that profit be made on each transaction to retain one’s trade-mark registration would mean selling old inventory at a discount does not count as use. It would also logically follow that a non-profit organization could not register its brand under the Act. Proving profitable use of a brand would necessarily involve complex evidence about unit costs, volumes and pricing strategies, which the court rejected.

Free Samples

The appeal court revisited some useful case law dealing with free marketing samples and whether such unprofitable transactions amounted to use “in the normal course of trade”. For example, in a 2002 decision, the transfer of trade-marked sample goods from the US, to be used for market testing in Canada, constituted “use” because the trade-mark owner had also: (i) responded to inquiries from Canadian buyers regarding product availability; (ii) explored marketing opportunities in four Canadian cities; (iii) market tested with samples and focus groups in Canada; and (iv) taken other steps to start selling and distributing its goods in Canada. Accordingly, such marketing activities went beyond merely sending free product samples to a potential customer in Canada.

The meaning of “use in the normal course of trade” is now much clearer for brand owners after the LUSH decision.

  1. Profit is not a pre-requisite of use of a brand under the Act.
  2. Products and services can be offered at a profit, at cost, or at a loss, so long as the transfer of such products or delivery of such services forms part of a general commercial dealing for the purpose of acquiring goodwill and reputation from the brand.
  3. Swag and free samples can constitute trade-mark use when the circumstances demonstrate an overall organizational activity aimed at developing brand goodwill and reputation.

For more information about using and registering trade-marks, please contact our Trade-mark Agent, Marc Belliveau.

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