Profit Not Required to Find Use of Trademark in Normal Course of Trade

David Alderson, LL.B, LL.M (Commercial and Corporate), Lawyer, Qualified Arbitrator and MediatorAppellate Advocacy, Brand Protection, Commercial, Distribution Agreements, Trademark Infringement0 Comments

The Federal Court of Appeal in Cosmetic Warriors Limited v. Riches, McKenzie & Herbert LLP, 2019 FCA 48, set aside the decision and allowed the appeal of the Federal Court judgment allowing an appeal from a decision of the Registrar of Trade-marks, made through her delegate, a hearing officer of the Trade-marks Opposition Board, that found that the trademark had been used in the “normal course of trade” within the meaning of subsection 4(1) of the Trademarks Act, RSC 1985, c T-13 ( the “Act”) and thus maintained the registration of a trade-mark in a proceeding challenging the registration for non-use under section 45 of the Act.

In issue was the trade-mark “LUSH,” as registered for use in association with “[c]lothing, namely, t-shirts.”

In its decision, the Federal Court of Appeal described that:

“The 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 Federal Court struck the trademark from the register having found that the hearing officer:  (i) had unreasonably failed to consider evidence submitted by Cosmetic Warriors indicating, among other things, that the t-shirts and tank tops were identified as “swag” by their supplier, and were sold by Lush Canada to employees at prices approximating their acquisition cost; and (ii) the hearing officer’s conclusion that the sales were in the “normal course of trade” to be unreasonable.

The judge based this view on the absence of evidence of profit, the limited extent of the sales and their promotional nature, and the fact that Cosmetic Warriors is not normally in the business of selling clothing.

“Unlike other forms of intellectual property, the gravamen of trade-mark entitlement is actual use. […] [I]n trade-marks the watchword is ‘use it or lose it’”

In its reasons, the Federal Court of Appeal referred to the Supreme Court’s famous statement “Unlike other forms of intellectual property, the gravamen of trade-mark entitlement is actual use. […] [I]n trade-marks the watchword is ‘use it or lose it’” and subsection 4(1) of the Act that defines “use” in relation to a trade-mark in association with goods, as follows:

“4 (1) A trade-mark is deemed to be used in association with goods if, at the time of the transfer of the property in or possession of the goods, in the normal course of trade, it is marked on the goods themselves or on the packages in which they are distributed or it is in any other manner so associated with the goods that notice of the association is then given to the person to whom the property or possession is transferred.”

The Federal Court of Appeal found that the hearing officer correctly determined that subsection 4(1) does not require that a transfer of trade-marked goods be for actual profit to constitute a transfer in the “normal course of trade.” stating:

“A conclusion  that actual profit is required would mean that such common business practices as selling last year’s trade-marked merchandise at a discount would never amount to use sufficient to maintain registration of a trade-mark. That could not have been the intention of Parliament. It would also be inconsistent with the principle that “[u]se of a trade-mark is not […] synonymous with commercial success of the [goods] associated with the trade-mark”: JC Penney Co. Inc. v. Gaberdine Clothing Co. Inc., 2001 FCT 1333 at para. 91, 213 F.T.R. 189. In addition, to require the trade-mark owner to establish that particular sales did or would necessarily generate profit – something that can be a complex evidentiary task – would, as Cosmetic Warriors submits, put at risk the summary nature of section 45 proceedings.”

The Federal Court of Appeal also referred to commentary on subsection 4(1) of the Act, about deploying too precise a definition of “use”, stating:

“Further, a strict profit requirement could render subsection 4(1) insufficiently flexible to respond to the many different commercial contexts in which it may need to be applied. One knowledgeable commentator has suggested that a precise and exhaustive definition of trade-mark use is not only impossible but also “not necessarily desirable as it may easily become too rigid and/or obsolete in a rapidly changing world where every day new ways of sales, marketing and commerce are developed and applied”: Bojan Pretnar, “Use and Non-Use in Trade Mark Law” in Jeremy Phillips & Ilana Simon, eds., Trade Mark Use (Oxford: Oxford University Press, 2005) 11 at 27.”

The reasons of the Federal Court of Appeal concluded that none of the authorities cited appeared to go so far as to interpret “normal course of trade” to require the actual making of a profit, as opposed to the pursuit of an ultimate profit-making purpose, through the transfer of the marked goods.

While finding that the hearing officer had erred in declining to draw an inference adverse to Cosmetic Warriors from the documentation showing purchases and sales of the t-shirts on the basis that Cosmetic Warriors was not required to file it, the Federal Court of Appeal declined to find that this error rendered unreasonable the hearing officer’s decision as a whole.

If you have issues with Brand Protection or Trademark Protection, please contact Gilbertson Davis LLP for an initial consultation.

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About the Author

David Alderson, LL.B, LL.M (Commercial and Corporate), Lawyer, Qualified Arbitrator and Mediator

David Alderson, LL.B, LL.M (Commercial and Corporate), Lawyer, Qualified Arbitrator and Mediator, has practiced over 40 years as a commercial and business litigator in diverse matters in the courts and in domestic and international arbitration proceedings in Ontario, England & Wales, Bermuda and Dubai. David is also admitted in New York. He is a qualified, experienced and independent arbitrator. The ADR Institute of Canada has accredited David as a Qualified Arbitrator. He accepts appointment as a sole arbitrator and as a panel member in a panel arbitration concerning business, commercial, commercial leasing, commercial rent renewal disputes, condo, contract, construction, distribution, employment, events cancellation, franchise, joint venture, marine, oppression remedy, partnership, procurement, real estate, reinsurance, sale of good, sale of business, technology and transportation disputes. David also offers practice management arbitration of procedural disputes in the courts. He is an experienced commercial mediator. Bio | Lawyer | Arbitrator | Mediator | Contact

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