Difficulties in justifying non-use highlighted in CASTILLO Case

Canada
In Jose Cuervo SA de CV v Bacardi & Company Limited (2009 FC 1166, November 17 2009), the Federal Court of Canada has considered whether a voluntary decision not to use a mark could constitute "special circumstances" under the Trademarks Act.

Under Section 45 of the act, a trademark registration may be expunged where:

  • the mark has not been used in Canada for a period of three years; and
  • there are no special circumstances justifying non-use.
In 2008, in Scott Paper Ltd v Smart & Biggar (2008 FCA 129), the Federal Court of Appeal considered the issue of special circumstances and stated the following two principles:
In Jose Cuervo, the Federal Court had the opportunity to apply these principles.
 
Jose Cuervo SA de CV is the owner of a Canadian registration for the trademark CASTILLO for rum. On October 17 2005 the registrar of trademarks, at the request of Bacardi & Company Ltd, issued a notice under Section 45 of the Act. In response, Jose Cuervo filed evidence of two sales, namely an invoice from 1994 and an invoice from 1999. To explain the non-use of the mark subsequent to 1999, Jose Cuervo pointed to a decision made in 2002 to use the secondary mark COHIBA, under licence from a related company, as part of a marketing strategy for CASTILLO rum. However, the decision to use COHIBA triggered a worldwide dispute with Cubatabaco. Jose Cuervo’s evidence was as follows:
 
"Until such time as this worldwide dispute is resolved, CUERVO has received instructions from Tequila Cuervo to defer new marketing plans and development, as well as use, for products branded with the COHIBA trademark in Canada because of threat of litigation by Cubatabaco. These instructions have resulted not only in a delay in selling COHIBA-branded products in Canada, but also CASTILLO-branded products since the CASTILLO label bears both trademarks."
 
The registrar of trademarks determined that the threat of impending litigation might be a reasonable excuse for a short period of non-use. However, a decision to wait out the litigation relating to a secondary mark for a period of six years amounted to a voluntary decision not to use the mark in Canada. The registrar concluded that special circumstances are those that are:
 
"peculiar or abnormal, and which are experienced by persons engaged in a particular trade as the result of the working of some external forces, as distinct from the voluntary acts of any individual trader."
 
The registrar ordered that the registration be expunged on the basis that there were no special circumstances to justify non-use.
 
Jose Cuervo appealed to the Federal Court and filed further evidence to show a sale of CASTILLO-branded rum in August 2008, without the COHIBA secondary mark. The Federal Court noted that this sale confirmed that Jose Cuervo had acted voluntarily:
 
"The additional evidence affirms the registrar’s decision that [Jose Cuervo]'s non-use of the trademark was a 'voluntary decision', since the additional evidence establishes that [Jose Cuervo] made the decision to remove the COHIBA mark form the label to be used in Canada, and to once again use the CASTILLO trademark by itself, and not in conjunction with the COHIBA mark."
 
The Federal Court concluded that:
 
"it is illogical to suspend the use of a valid Canadian trademark because of a threat of impending trademark litigation with respect to a secondary mark... It strikes the court as obvious for [Jose Cuervo] to continue using the CASTILLO mark by itself until the trademark dispute with Cubatabaco is resolved if [Jose Cuervo] wanted to use and protect the mark in Canada."
 
On that basis, the court upheld the registrar’s decision to expunge the registration as being reasonable.
 
The decision of the Federal Court of Appeal in Scott Paper 'recalibrated' the law on special circumstances in Canada. The decision of the Federal Court in Jose Cuervo makes it clear that any registrant that intends to rely on special circumstances to justify non-use in Canada must substantiate a claim of special circumstances with “reliable evidence of sufficient specificity and detail so that the registrant’s assertions may have an evidentiary foundation”. Taken together, these two cases suggest that:

  • the courts will take a much stricter approach to proof of special circumstances than has been the case in the past; and
  • owners of Canadian trademarks should understand that it will be very difficult to rely on voluntary decisions not to use a mark in Canada as constituting special circumstances justifying non-use.
Robert A MacDonald, Gowling Lafleur Henderson LLP, Ottawa

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