Federal Court of Appeal upholds strict line on special circumstances

Under Section 45 of the Canadian Trademarks Act, a registration will be expunged where the trademark has not been in use for three years and there are no special circumstances justifying non-use. The Canadian courts have taken an increasingly hard line as to what will constitute special circumstances.

In the most recent case, Jose Cuervo SA de CV v Bacardi & Company Limited (2010 FCA 248, September 28 2010), the Federal Court of Appeal upheld a lower court decision to expunge the registration for the trademark CASTILLO on the basis of non-use of the trademark in Canada (for further details please see "Difficulties in justifying non-use highlighted in CASTILLO Case"). The end result is that the Federal Court of Appeal, in both this case and in Scott Paper Ltd v Smart & Biggar (2008 FCA 129), has made it clear that registrants will face a much higher onus to show special circumstances than was previously the case in Canada, and that a voluntary decision not to use a mark will be extremely difficult to justify.

Jose Cuervo SA de CV was the owner of a Canadian registration for the trademark CASTILLO for rum. It was required by the registrar of trademarks to show use of the trademark in Canada at some point within the three-year period immediately preceding October 17 2005, the date of the Section 45 notice. It was unable to show use during that period and, instead, relied on the 'special circumstances' exemption, noting that a potential dispute with respect to a secondary mark, COHIBA (used under license from a related company), resulted in the deferral of marketing plans in Canada. Specifically, 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 and the Federal Court found this to be a voluntary decision which could not constitute special circumstances. The Federal Court noted that there was always an option to simply drop COHIBA and just use the CASTILLO mark in Canada (additional evidence filed on the appeal showed that this is exactly what was done by Jose Cuervo in 2008, three years after the relevant period). The Federal Court of Appeal agreed and, in a brief decision, dismissed the appeal “for substantially the reasons given by the Federal Court”.

Trademark owners should take note that it will be a rare situation in which a voluntary decision not to use a trademark will constitute special circumstances such that a registration can be maintained. Trademark owners should also take note that, if they intended to rely upon the special circumstances exemption, they must be prepared to provide full details of exactly why the mark was not in use, so that the court will have a sufficient basis to conclude that there were special circumstances. It should also be kept in mind that what might excuse a short period of non-use may well be insufficient to justify a lengthy period of non-use. Whether or not a mark is expunged is a function of the explanation offered for the non-use (ie, the special circumstances) and the characteristics of the period of non-use (ie, how long it will last). The longer the period of non-use, the more it will be required from the registrant to justify the non-use.

Robert A MacDonald, Gowling Lafleur Henderson LLP, Ottawa

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