Good Faith in Canadian Trademark Applications

Under the Canadian trademark reforms that took effect on June 17, 2019, a new ground of opposition and invalidation in respect of a trademark registration has appeared: “that the application was filed in bad faith” (Trademarks Act, RSC 1985, c. T-13 (as amended), ss. 38(2)(a.1) & 18(1)(e) (“Act” from now on)). The objection applies to (i) invalidation proceedings on registrations made, and (ii) oppositions on applications advertised, as from that date (Act, ss. 68.2, 72 & 73). The underlying principle is that nobody should benefit from their wrong (Bank of Montreal v Ng (1989) 62 DLR (4^th) 1, 9-10, 12) – here the attempt to use the trademark system “in an improper manner or for an improper purpose” (Re CKL Holdings NV’s TM App’n, Case No O/036/18 (Dec. 18, 2017) at [21]). Such applications may mislead the Registrar of Trademarks as to their applicant’s genuineness and harm honest commerce through spurious assertions of right. Registry examiners nevertheless cannot object to an application on this ground: the cost of challenge is put on affected traders.

Bad faith is no newcomer to Canadian trademark law. It was once a discretionary reason to refuse registration and then cropped up again from 1954 in decisions to reject applications that misstated an applicant’s entitlement to use a mark (Act, s. 30(i), repealed). Since then the EU and UK have barred applications filed in bad faith (Trade Marks Act 1994 (UK), s. 3(6); see Sky plc v Skykick UK Ltd, [2020] EUECJ C-371/18 at [81] to same effect), and bad faith is also a ground for domain name registries to oust cybersquatters. These measures no doubt inspired the enactment of the current Canadian bar, especially as existing grounds did not adequately prevent the “cluttering and misuse” of the new registration-without-use system, mainly by trademark “squatters” (See ISED, Intellectual Property Strategy (2018)). For example, no doubt anticipating the new system’s introduction, one applicant who operated on a global scale behind a slew of companies had filed over 400 Canadian applications on famous marks and common words and names, most covering every conceivable product or service. These filings were largely abandoned as the new bad faith bar took effect in 2019.

Bad faith conduct, like fraud and negligence, is not a closed category. A common dictionary definition is “dishonest or unacceptable behaviour.” Canadian law, particularly the civil law of Quebec, reflects both these aspects. Acts in bad faith are those which:

• are subjectively dishonest, or
• breach objective standards of commercial honesty, reasonableness, or fairness (e.g., Bhasin v. Hrynew, 2014 SCC 71 at [83] on good faith under Quebec law).

Whether someone thinks they are doing nothing wrong is irrelevant under either alternative: the law does not adopt the standards of sharp dealers and sociopaths.

The concept of dishonest conduct (alternative (i) above) may be further clarified by asking first, what an applicant subjectively knew or believed in fact, including what they were wilfully or recklessly blind to (Caja Paraguaya de Jubilaciones y Pensiones del Personal de Itaipu Binacional v Garcia 2020 ONCA 412 at [34]-[7]); second, would their conduct then be considered dishonest by ordinary decent people? (R v Théroux [1993] 2 SCR 5 at [22].) By contrast, a decision on unacceptable conduct (alternative (ii) above) asks merely whether the conduct falls short of acceptable commercial behaviour observed by reasonable and experienced people in that field. Passing-off and breaches of a legal or moral duty are obvious examples. Expert evidence and judicial notice may provide others.

When unacceptable conduct is in issue, a question may arise about the state of an applicant’s knowledge. Should it be judged subjectively – i.e., according to what they actually knew or believed – or objectively, according to what they ought, acting reasonably, to have known or believed? EU tribunals now tend toward the subjective route, thinking that the “usual meaning in everyday language” of bad faith presupposes “a dishonest state of mind or intention” (most recently in Sky plc v Skykick UK Ltd [2020] EUECJ C-371/18 at [74]). UK courts had earlier disagreed (Harrison v Teton Valley Trading Co [2004] EWCA Civ 1028 at [20] & [27]) but until now have accommodated the EU view. Walton Int’l Ltd v Verweij Fashion BV [2018] EWHC 1608 at [186] provides a recent restatement:

ii) Bad faith includes not only dishonesty, but also some dealings which fall short of the standards of acceptable commercial behaviour observed by reasonable and experienced people in the particular area being examined. …

v) The tribunal must first ascertain what the defendant knew about the matters in question and then decide whether, in the light of that knowledge, the defendant’s conduct was dishonest (or otherwise fell short of the standards of acceptable commercial behaviour) judged by the ordinary standards of honest people. …

vi) Consideration must be given to the applicant’s intention. This is a subjective factor which must be determined by reference to the objective circumstances of the particular case.

EU and UK jurisprudence on bad faith has much of interest to Canada but statements such as this — particularly item (vi) requiring subjective intention to be determined objectively — are unnecessarily obscure. When one considers whether conduct is “acceptable”, an objective view of knowledge seems to fit better with general Canadian perspectives on good and bad faith (e.g., Bhasin v Hrynew 2014 SCC 71 at [83]; TV Guide Inc v Publications La Semaine Inc (1984) 9 CPR (3d) 368 (unfair competition)) and the pragmatic consideration that the less legal rights depend on a person’s state of mind, the better: recall that even innocent passing-off is actionable. Passing-off is also one example of the Paris Convention’s direction that traders not act “contrary to honest practices in industrial or commercial matters” (art. 10bis(2); see also N. Dawson, “Bad faith in European trade mark law” [2011] IPQ 229, 248 (bad faith is an “inbuilt unfair competition rule”)). The Convention standard focuses on the honesty of the practice rather than the practitioner. It requires traders to act fairly — not merely honestly — having regard to the legitimate interests of prior users and right-holders (cf Maier v Asos Plc [2015] EWCA Civ 220 at [147]). It is thus wrong to say, as some UK decisions do, that bad faith “impugns the character of an individual or the collective character of a business” (Maslyukov v Diageo Distilling Ltd [2010] EWHC 443 at [36]). A failure to exercise due diligence is unacceptable in most fields of business. In the trademark context it would usually include failing to take competent legal advice or make realistic searches before an application for registration is filed (Hotel Cipriani SRL v Cipriani (Grosvenor Street) Ltd [2008] EWHC 3032 at [152]ff, aff’d [2010] EWCA Civ 110). Such failings do not necessarily impugn anyone’s character, only their conduct.

Guidelines         

The following guidelines, drawing where useful on Canadian, EU, and UK practice, would seem applicable to deciding issues of bad faith (cf Walton Int’l Ltd v Verweij Fashion BV [2018] EWHC 1608 at [186]):

• Bad faith is an independent ground of opposition or invalidation which should be clearly pleaded and particularized. It may succeed even if another ground would not. Thus an application may be rejected for bad faith even if no confusion exists between the applicant’s and opponent’s trademarks.
• Bad faith is not presumed but must be proved on a balance of probabilities on evidence that is sufficiently clear, convincing and cogent (F.H. v McDougall 2008 SCC 53 at [40] & [45]-[6]). Circumstantial evidence and inferences from proved facts may suffice.
• The whole picture surrounding the filing of the application should be considered, including the kind of mark applied for. For example, bad faith may be found more easily where the mark comprises a product shape already used by others, where the registration will likely be used to harass legitimate competitors (Chocoladefabriken Lindt & Sprungli v Franz Hauswirth GmBh [2009] EUECJ C-529/07 at [50]; Act, 18.1).
• While bad faith is assessed as at the date of filing, later evidence may also be relevant. For example, a plea of bad faith that fails in opposition may succeed in invalidation proceedings: post-registration evidence may clarify the registrant’s real motives in seeking registration.
• Neither the complainant’s motives nor the applicant’s overall commercial morality are relevant: the inquiry cannot “veer into a form of ad hoc judicial moralism” (Bhasin v Hrynew 2014 SCC 71 at [70]).
• The conduct of entities associated with the applicant may be relevant, especially where it is really an agent or nominee. Other applications for registration or expungement in Canada or abroad by any associated entity may be considered.
• Bad faith may affect only part of an application. For example, an application covering both computers and beer, where the intention is to market computers now but beer maybe some vague time in the future, may be made in bad faith for beer but in good faith for computers. The application is then valid for computers and the claim for beer can be excised (Sky Plc v Skykick UK Ltd [2020] EWHC 990 (Ch); Roots Corp v YM Inc (Sales), 2019 FC 16 at [67]-[71]).
• A decision on bad faith involves a question of mixed fact and law and so deserves deference on appeal if no extricable error of law is present (cf Pentastar Transport Ltd v FCA US LLC2020 FC 367 at [61]ff).

Examples

Bad faith is typically found where applicants want to block an undertaking’s likely expansion or otherwise disrupt its business, trade off the reputation of a well-known mark, or create “rights” to milk for their nuisance value. Such cases are not unknown in Canadian trademark law. Take, for example, the applicant who sought to register a host of famous marks for alcohol — ABSOLUT, HEINEKEN, CANADIAN CLUB, COORS, DOM PÉRIGNON, etc — and claim them for non-alcoholic products. The affected companies all opposed registration and, unsurprisingly, all won (e.g., Cerverceria Modelo, SA de CV v Marcon 2008 CanLII 88189). Such applications may today be rejected for bad faith. It may not however be bad faith for a concurrent user to apply for registration even where it knows of other users. Which, if any, of them is ultimately entitled to registration may be better decided on grounds other than bad faith (cf Starfire Publishing Ltd v Ordo Templi Orientis [2009] RPC 437 at [122]-[6]).

An allegation of bad faith may appear in invalidation proceedings in respect of objections that might otherwise be made only in opposition — e.g., an applicant’s lack of genuine intent or title to use the mark (Act, ss. 30(1) & 38(2)(a)). “Title” here is used in its broad sense to encompass not only ownership or prior Canadian use of the mark but also cases where the mark is well known in Canada albeit used only abroad, or where its use violates a statute or regulation or could be stopped by injunction for passing-off or IP infringement (D. Vaver, Intellectual Property Law: Copyright, Patents, Trade-marks, 2^nd ed. (Irwin Law, 2011), 450-2). Nothing should interfere with the common practice of different traders adopting the same mark in different territories or for different goods or services if the public would not likely believe that the same trader vouched for both products. For example:

• A can register BLOBBY for refrigerators, knowing it is used for them by M in Mexico but unused and little known in Canada. A’s registration may later hinder M’s expansion into Canada under that mark (Santa Barbara Restaurant Group, Inc v Veto 2014 TMOB 286 at [31]-[3]).
• A cannot register BLOBBY if the mark is unused but sufficiently known in Canada – even if not technically “well known”(Act, s. 5) – so that potential refrigerator buyers in some part of Canada would likely believe that BLOBBY designates M or someone licensed by M (AJIT WEEKLY Trade Mark [2006] RPC 633 at [44]).
• Within Canada BLOBBY can similarly be used by A for refrigerators and later used and registered by Q for boots. Consumers would likely not be confused: they would think A’s expansion into boots “a leap too far” (Mattel, Inc v 3894207 Canada Inc [2006] 1 SCR 772 at [8]).

Additional facts could change this last scenario. Assume, for example, that Q uses WIGGLY for its boots but applies to register BLOBBY for boots after any of the following events happens:

• A tweets that it is planning to expand into boots.
• A applies to extend BLOBBY’s registration to boots but withdraws its application because it puts boot expansion on hold meanwhile.
• Q successfully opposes A’s application to extend BLOBBY to boots.
• Q unsuccessfully negotiates with A to buy into its business.
• A puts BLOBBY on the shirts of a soccer team it sponsors. Q now applies to register BLOBBY for boots using the same Bodoni font in which A’s mark is registered and used.

Except for the last example — based on a UK case, BEKO (Trade Mark: Opposition) [2010] UKIntelP o30710, which would be more arguable in Canada (cf Vibe Ventures LLC v 3681441 Canada Inc 2005 FC 1650 at [48]) — past tribunals have been critical of Q’s conduct as bad faith, or for similar reasons where the legislation did not explicitly make bad faith a ground of objection. The interesting question is: which, if any, of Q’s applications could today be successfully attacked for bad faith — without a tribunal veering into ad hoc judicial moralism?

Written by David Vaver, Professor of Intellectual Property Law, Osgoode Hall Law School, & IP Osgoode Advisory Board member

[A slightly fuller, more footnoted, version of this post will appear in a forthcoming issue of the Intellectual Property Journal. Thanks to Rachel Marcus for editorial assistance on this post.]