Federal Court of Appeal confirms that delegation of control is permissible

Canada

Under Canadian law, trademark owners must control, either directly or indirectly, the character or quality of the goods or services offered in association with a licensed trademark. In Spirits International BV v BCF SENCRL, the Federal Court of Appeal has provided Canadian trademark owners with some insight into the quality of evidence of control required for use of a trademark by a licensee to accrue to the owner’s benefit when control is exercised indirectly. This decision represents another instalment in the Court of Appeal’s recent jurisprudence on licensing (see Shapiro Cohen v Empressa Cubana Del Tabaco, in which the court affirmed how owners can demonstrate control over the character or quality of goods and services sold under licence).

Spirits International BV owns the Canadian registration for the trademark MOSKOVSKAYA RUSSIAN VODKA (and design) for use with vodka. The registration was challenged under Section 45 of the Trademarks Act for non-use.  The Federal Court affirmed the registrar’s decision to expunge the registration for failure to provide evidence of use during the material period. Central to the Federal Court's decision was whether use of the mark by a related company accrued to the benefit of Spirits International by virtue of Section 50(1) of the act, which provides as follows: 

if an entity is licensed by or with the authority of the owner of a trademark to use the trademark in a country and the owner has, under the licence, direct or indirect control of the character or quality of the wares or services, then the use, advertisement or display of the trademark in that country as or in a trademark, trade name or otherwise by that entity has, and is deemed always to have had, the same effect as such a use, advertisement or display of the trademark in that country by the owner.”

Before the registrar, Spirits International filed evidence alleging that a group of related corporations which included Spirits International had used the mark during the relevant period. The Federal Court took the position that a bare assertion of use in Canada by a group of companies, even if the group includes the owner, is not sufficient to demonstrate use by the owner. The Federal Court stated:

the mere fact that there is some common control between a registered trademark owner and other corporate entities is not sufficient to establish that the use of the trademark was controlled such that a licensing agreement can be inferred from the facts. Clear evidence of control has to be adduced.”

The Federal Court of Appeal did not disagree with this statement. However, the Court of Appeal was of the view that the evidence filed before the Federal Court, when considered as a supplement to the evidence filed before the Registrar, was sufficient to establish the requisite control.

The supplementary evidence included the following:

  • The related corporation was licensed by Spirits International to use the mark in association with the goods sold in Canada during the relevant period;
  • Spirits International, pursuant to a licence, set the standards of character and quality of the goods sold under licence (by delegating to other corporations within the related group of companies the task of periodic testing for compliance with these standards); and
  • The mark was affixed to goods which had been tested under, and met, the standards of character and quality set by the licence and which were sold in Canada during the relevant period.

The evidence before the registrar included invoices demonstrating sales by the related corporation in Canada during the relevant period. The Court of Appeal relied on these factual allegations, together with the inferences which could be drawn there from, to conclude that the mark had been used during the relevant period.

This decision affirms the position taken by the Federal Court that a trademark owner can delegate the function of control to a related company (see, eg, Tommy Hilfiger Licensing Inc v Produits de Qualite IMD Inc, in which the court held that the fact that an owner delegates control over the quality of the goods is not fatal to the licence and the registration). Similarl,y in the present case, Spirits International’s delegation to a related company of the task of monitoring compliance to the standards set under the licence was not fatal to the licence, having regard to the totality of the evidence before the court.

Although this position is perhaps not surprising given that Section 50(1) specifically contemplates indirect control, trademark owners can nevertheless take some comfort in the Court of Appeal's decision to rely on the evidence available in this case to infer the existence of control and, as a result, a valid licence.

Robert A MacDonald and Nicole Vigneault, Gowlings, Ottawa

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