TWO GIRLS faced with partial cancellation

In House of Kwong Sang Hong International Ltd v Borden Ladner Gervais (Case 2004 FC 554), the Federal Court of Canada has upheld, in part, a decision to cancel the plaintiff's registration of the mark TWO GIRLS and design. The court held that although all the elements of the mark featured on most of the related products' packaging, their arrangement had been altered leading to material differences between the mark as used and the mark as registered.

The case arose following an appeal by House of Kwong Sang Hong International Ltd (HKSH) - a company based in Hong Kong - against the cancellation of its TWO GIRLS and design mark by the trademark registrar. The mark, which incorporated the words 'Two Girls' and a series of Chinese characters, was registered for use in association with products such as perfumes and cosmetics, including, among other things, lipsticks, powders and skin moisturizers. The registrar's decision was based on evidence (i) showing use by a subsidiary rather than HKSH itself, and (ii) that the mark had not been used as registered.

In Canada, additional evidence may be filed on appeal to the Federal Court from a decision of the registrar of trademarks. In this case, significant additional evidence was filed to allow the court to consider the matter anew. At the appeal proceedings, HKSH argued that there was "a close corporate connection" with the subsidiary since it was wholly-owned by HKSH, and shared the same premises and some directors. It further argued that there was an oral licence between the two companies pursuant to which HKSH maintained strict quality control over the products sold under the mark.

The court concluded that a valid oral licence existed and held that evidence of Canadian sales reports and invoices, cross referenced to product codes, established that HKSH "initiated the first link in the chain of transaction leading to sales in Canada". The court was satisfied that HKSH exercised sufficient control over the licensed use to meet the requirements in Section 50 of the Trademarks Act, which specifies that a mark owner must maintain "direct or indirect control of the character or quality of the wares or services" associated with the mark. Accordingly, the court upheld HKSH's claim on this issue.

The court next considered whether the mark had been used as registered. It evaluated packaging and labelling for various products. It compared the mark as used to the mark as registered and decided whether the differences were such that an unaware purchaser would likely infer that the marks identified goods of the same origin. Where the Chinese characters appeared without the words 'Two Girls' or where neither the words 'Two Girls' nor the Chinese characters appeared, the court held that significant differences existed. On one product, the Chinese characters appeared separately from the words 'Two Girls'. The court concluded that although (i) all the elements of the mark were present, and (ii) the variation from the mark as registered was less substantial than in other cases, the mark was "no longer clearly distinguishable". According to the court, by dividing the mark into two distinct elements separated by text, HKSH had lost dominant features of the mark and diluted its identity. The mark was maintained on the register only for "skin moisturizers" for which there was evidence that the mark was used exactly as registered.

Gordon Zimmerman, Borden Ladner Gervais LLP, Toronto