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Extraordinary Circumstances Part II – What happens to a trademark when COVID-19 prevents a trademark owner from using the trademark in the normal course of business?

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April 20, 2020

Non-use of a trademark can be fatal to the validity and enforceability of a trademark. Thus, if a trademark owner cannot use its trademark, it may no longer be possible for the trademark owner to enforce its trademark rights against others, thus allowing competitors to engage in trademark infringement (or passing off) with impunity.

Such a scenario is of concern in the current COVID-19 pandemic, which is preventing many businesses from selling their goods or providing their services.

An earlier blog post discussed the impact of COVID-19 on various deadlines relating to pending trademark applications and trademark opposition proceedings.

This blog post will explore what trademark owners can do to preserve their trademark rights even when faced with a period of non-use due to the pandemic.

The Importance of Trademark Use

“Use it or lose it.”

The concept of “use” of a trademark is so fundamental to trademark rights that trademark lawyers often repeat the above mantra to their clients. The Supreme Court of Canada even adopted the phrase in a key decision.[1]

A trademark is valid and enforceable only if it is used in the normal course of business. A lot of ink has been spilled and cases litigated over the concept of trademark use. Here is a high-level summary.

Trademarks are used with goods (products) or services or both. Generally speaking:

  • Use of a trademark with goods occurs if the trademark appears on the goods themselves, or on their packaging, or is otherwise associated with the goods at the time of sale. For example, a company selling ballpoint pens can demonstrate use of a trademark for those pens by branding the mark on each individual pen, or on packages containing the pens, or at a point-of-sale display showcasing the pens.
  • Use of a trademark with services occurs if the trademark appears while the services are being performed (provided) or advertised. Note that advertisement of services in association with a trademark would only count as use of the mark if the services are available to be provided to a customer at the time of advertising. For example, a catering company can demonstrate use of a trademark for catering services by branding the mark on signage, uniforms, invoices, etc. while providing the services. The catering company could also display the mark while advertising its catering services, and that would count as use of the trademark as long as the company is able to provide its services if a customer were to ask it to do so. Thus, a catering company that is not yet operational could not count on pre-opening advertising to demonstrate use of its trademark.

The key is that a trademark must be used “in the normal course of trade” or during a “performance” of services. However, in the midst of a situation such as the current COVID-19 pandemic, it is clear that trade is far from being normal; many goods can no longer be sold and many services can no longer be performed.

Impact of Non-Use of a Trademark

So what happens when a trademark cannot be used?

Well, the good news is that the validity of a trademark will not be jeopardized by a relatively short period of non-use. However, failure to use a trademark for an extended period of time can undermine the validity of that mark. This can be mitigated by taking certain steps to demonstrate that the circumstances leading to non-use are beyond the control of the trademark owner, and that the trademark owner intends to re-commence using the mark as soon as it is able to do so.

Non-use of a trademark frequently arises in the context of proceedings under Section 45 of the Trademarks Act. This provision is meant to remove marks that are not being used from the trademark register, as a way of “clearing deadwood”. Section 45 proceedings apply to trademark registrations that are at least 3 years old, and provide a relatively straightforward way to strike unused marks from the register. This helps to ensure that marks will remain on the register only if they are being used in Canada.

In brief, Section 45 of the Trademarks Act operates as follows:

  • Any person can ask the Registrar of Trademarks to send a notice to the owner of a registered trademark requiring the trademark owner to furnish evidence that the trademark has been used in Canada with the goods/services listed in the trademark registration
  • Once the Registrar sends such a notice to the owner of the registered trademark, that owner must file evidence that the trademark has been used in Canada with the listed goods/services.
  • The evidence must demonstrate use of the trademark in Canada at any time during the 3 years preceding the date of the notice.
  • If no such use has taken place, the owner of the registered trademark must explain the reasons for the lack of use.

Special Circumstances Excusing Non-Use

If the owner of a registered trademark cannot prove that it has used its trademark during the specified time, the registration can nonetheless be maintained if the registered owner can prove that there were special circumstances excusing non-use of the trademark. The Federal Court of Appeal has stated that “special circumstances” are those which are not found in most cases of absence of use.[2] Such circumstances have been described as “unusual, uncommon or exceptional”.[3]

In considering whether non-use of a trademark has been due to special circumstances, a key factor is whether the obstacles are beyond the control of the trademark owner. The absence of use must be tied directly to the special circumstances, and not to some other factor.

Note that poor market conditions on their own will usually not be enough to justify non-use of a trademark. Thus, trademark registrations have been struck for non-use in cases where the trademark owners have relied on circumstances such as the mere existence of an economic recession and high taxes/tariffs,[4] the absence of orders for a product[5] or general weak consumer demand without further explanation,[6] as well as a slowdown in the industry[7] or an unfavourable commercial landscape.[8]

On the other hand, non-use of a trademark has been excused when economic difficulties are considered with other factors, such as difficulties in convening key decision makers coupled with departure of key personnel,[9] a natural disaster such as an earthquake,[10] and difficulties in finalizing an agreement with potential partners while making concerted and ongoing attempts to do so.[11]

Serious Intention to Resume Use

Finally, and perhaps most critically in the context of Covid-19, the trademark owner must demonstrate a serious intention to resume use. Past cases have held that the trademark owner must show that active steps are being taken to re-start use of the mark,[12] as well as a timeframe within which such use will start.[13] Details should include a description of steps to effectively restart use of the trademark, as well as a proposed date of resumption.

Any resumption must take place as soon as practicable following the reason for non-use. For example, in a case where a business was destroyed by fire, that would have been a sufficient reason for non-use of the trademark with the business, but where the trademark owner did not re-start his business for another 8 years, that was considered to be too long a period of time and the trademark was expunged.[14]

Key Takeaways

In summary:

  • It is important for business owners to keep records of all the reasons which have caused a stoppage in their ability to use their trademarks, as well as records detailing their intentions to continue such use once market conditions stabilize.
  • This is particularly the case where a business may have had to shut down due to COVID-19 but is still being presented with alternate service delivery methods. For example, daycare operators have had to close completely due to COVID-19 and have had no other viable service offerings; in those cases, it should be relatively straightforward to justify non-use of a trademark. However, a sit-down restaurant might be able to offer take-out services even in the midst of COVID-19. If it is unable to do so, it should be prepared to explain why in the event that the validity of its trademark is ever challenged.
  • Irrespective, trademark owners who are unable to use their marks due to COVID-19 should also keep records of their intentions to resume use of their trademarks as soon as conditions permit. Such records could include items such as:
    • Social media posts indicating that the business looks forward to serving its customers when things get back to normal
    • Records of credits given to customers toward future purchases
    • Gift card sales for future redemption
    • Correspondence with suppliers outlining future plans
    • Anything else which demonstrates an intention to return to business as usual

We can all hope that business does, indeed, go back to usual before too long. In the meantime, stay safe and remember to take steps to protect your brand so that your business can come back even stronger than before.

 

[1] Mattel Inc. v. 3894207 Canada Inc., 2006 SCC 22, at para. 5

[2] Smart & Biggar v. Scott Paper Limited, 2008 FCA 129; see also Canada (Registrar of Trade Marks) v. Harris Knitting Mills Ltd. (1985), 4 C.P.R. (3d) 488 (Fed. C.A.)

[3] John Labatt Ltd. v. Cotton Club Bottling Co. (1976), 25 C.P.R. (2d) 115 (Fed. T.D.)

[4] Lander Co. Canada v. Alex E. Macrae & Co. (1993), 46 C.P.R. (3d) 417 (Fed. T.D.)

[5] Garrett v. Langguth Cosmetic GmbH (1991), 39 C.P.R. (3d) 572 (Opp. Bd.)

[6] Sim & McBurney v. Belvedere International Inc. (1993), 53 C.P.R. (3d) 522 (Fed. T.D.)

[7] Millward Brown Canada Inc. v. Image Stream Communications Inc. (1997), 78 C.P.R. (3d) 261 (Opp. Bd)

[8] Aird & Berlis LLP v. Virgin Enterprises Limited, 2010 TMOB 147.

[9] McFadden, Fincham, Marcus & Allen v. Canada (Registrar of Trade Marks) (1990), 34 C.P.R. (3d) 70 (Fed. T.D.)

[10] McCain Foods Ltd. v. Chef America Inc. (1996), 71 C.P.R. (3d) 103 (Opp. Bd.)

[11] One Group LLC v. Gouverneur Inc., 2016 FCA 109

[12] Scott Paper Co. v. Lander Co. Canada (1996), 67 C.P.R. (3d) 274 (Opp. Bd.)

[13] NTD Apparel Inc. v. Ryan (2003), 27 C.P.R. (4th) 73 (Fed. T.D.)

[14] Stikeman, Elliott v. Hippopotamus Restaurant Inc. (1988), 20 C.P.R. (3d) 263 (Opp. Bd.)