Indirect control over goods quality established in sub-licensing context

Canada
In Tucumcari Aero Inc v Cassels Brock & Blackwell (2010 FC 267, March 9 2010), the Federal Court of Canada has held that the owner of the mark MOTO MIRROR had established that it had indirect control over the quality of the goods sold under the mark, as required by Section 50(1) of the Trademarks Act.
 
In 1993 the act was amended to remove the phrase "registered users" and replace it with the concept that, provided that a licensee exercises direct or indirect control over the character or quality of the goods or services in question, use of the trademark by the licensee would be considered to be use by the licensor (Section 50 of the act).

In Tucumcari, the trademark MOTO MIRROR (and design), registered in respect of truck and commercial vehicle mirrors, was the subject of a Section 45 cancellation proceeding. Tucumcari Aero Inc licensed the trademark to Echlin Inc and Moto Mirror Inc in the United States, Canada and elsewhere. Through a series of corporate transactions, the licence agreement was conveyed to CVS/Sprague, which then entered into a supply agreement with National Seating Company Inc. The supply agreement provided for National Seating to manufacture exterior mirrors for commercial vehicles on behalf of CVS/Sprague and to sell those products to its customers. Every mirror manufactured by National Seating on behalf of CVS/Sprague and sold into Canada during the relevant three-year period had a metal tag displaying the MOTO MIRROR mark attached to it.

At the initial hearing at the Trademarks Office, there was no clear evidence that Tucumcari had direct or indirect control over the character or quality of those mirrors such that the licensed use of the mark would enure to the benefit of Tucumcari. Tucumcari failed to produce evidence that specifically described the corporate and contractual relationships among Tucumcari, CVS/Sprague and its related company, National Seating. As a result, because there was insufficient evidence of indirect control by the trademark owner over the sub-licensee, the use by the sub-licensee could not be deemed to be use by the trademark owner.

On appeal to the Federal Court, copies of the licence and sub-licence agreements were filed as additional evidence. While the agreements showed that the trademark owner could control the quality of the goods of the licensee, there was no direct control by the owner over the goods manufactured by the sub-licensee. 

The Federal Court held that, in the context of sub-licensing, the indirect control contemplated by Section 50(1) of the act did not require an express condition in the sub-licensing agreement that the registrant would continue to determine whether the quality of the goods produced had been maintained. What was required was that the registrant be able to control product quality through the exercise of its contractual rights vis-à-vis the intermediary, which, in turn, was entitled to control product quality under contract with the sub-licensee. So long as there was a continuity of quality control that could be effectively maintained by the registrant under the chain of contracts, no special conditions or language was required. 

In addition, although there was no provision in the licensing agreement that expressly authorized sub-licensing, if an effective trademark licensing arrangement can be found by implication, then a registrant can consent to a sub-licensing arrangement on the same basis. If the goods produced by the sub-licensee were deficient, the registered owner could terminate the licensing agreement and thereby effectively bring an end to the sub-licensing arrangement. This was sufficient to establish indirect control by the registered owner as required by Section 50(1), and thus deem the use of the trademark to be use by the registrant.

John Macera, Macera & Jarzyna - Moffat & Co, Ottawa

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