The potential demise of Canada’s use requirement

Much has been written about the potential impact of eliminating the use requirement as a condition for registering trademark rights in Canada.

This article examines some of the possible effects on the Canadian trademark landscape and how trademark practitioners in the European Union handle such issues, given that use is not a requirement for registering a Community trademark. Eliminating the use requirement is one of a slew of proposed changes in the most comprehensive set of amendments to Canadian trademark law for some time. The key driver for these changes is to enable Canada to implement several international trademark treaties and thus better align its law with that of the rest of the world, barring the United States and a small number of other countries where use remains a requirement.

The change should also assist legitimate businesses proposing to enter the Canadian market by allowing them to obtain defensive registrations prior to having to commence use in Canada or elsewhere

Picture: Lissandra Melo/shutterstock

Potential impact

Eliminating the use requirement would be a significant step, given that Canadian trademark law is fundamentally based on use. Currently, to obtain a Canadian trademark registration, the applicant must either have used the mark in Canada or elsewhere before filing or commence use before registration is granted. Use of the mark is therefore an essential condition for the creation of enforceable trademark rights in Canada, unlike in other jurisdictions such as the European Union, where rights arise from registration alone.

It is clear that dispensing with the use requirement will affect both the clearance and prosecution of a mark, as well as its enforcement and maintenance. Critics of the proposed change query the wisdom of altering a trademark system that has functioned adequately for so many years, fearing that to do so will give rise to:

• a reduced ability to assess the potential risk posed by a third-party application or registration, leading to increased trademark clearance and prosecution fees;
• an increase in blocking registrations, by either trademark trolls or legitimate parties filing overly broad specifications; and
• increased litigation fees, due to a higher rate of oppositions and cancellations for non-use.

While the use-based system has been around for well over a century, the overall commercial landscape that it underpins has evolved markedly, with even small local businesses able to transact on a global level with ease. Should not the local trademark system also evolve?

Transitioning to a system which is more in line with those of other mature IP law jurisdictions of commercial significance should benefit not only Canadian operations with a global business, but also international businesses that operate in Canada. Simplifying the process of obtaining registration by removing an obstacle to registration should also prove advantageous for local businesses, a number of which are small to medium-sized enterprises (SME).

Impact on risk assessment

Under the current system, prior to registration an applicant must not only identify that it has used a mark, but also state where and in association with what goods and services it has done so. Marks filed on the basis of proposed use are equally clearly delineated.

This gathered use information may readily be gleaned from the register and is useful when evaluating the potential risk posed by third-party marks to the use and registration of a proposed mark or the risk of an infringement challenge. However, for longstanding registered marks, the usefulness of this information is diminished, as the information gathered at the time of registration or application is no indicator of whether the mark at issue is in current use and thus vulnerable to cancellation – further investigations thus become necessary. It would seem, therefore, that under the new system, additional or higher investigation fees and costs will typically arise only when preparing an availability or infringement opinion in Canada involving relatively new marks. In any event, these potentially higher fees may be less of an issue in today’s market, where an online presence is commonplace for most new businesses such that initial information on use – not just locally but globally – can often be gleaned from a brief online search.

Blocking registrations

It is conceivable that removing the requirement for use could give rise to blocking registrations by parties which have no intention of actually using those particular marks, but which hope that a particular registration will provide some sort of financial benefit, usually from a party wishing to use the mark in the course of trade. Legitimate users of a mark may also be inclined to file defensive registrations covering a far broader range of goods and services than those in relation to which they actually propose to use the mark.

While the incidence of pure troll applications may spike immediately following the change, this should normalise in due course to the level in the majority of other jurisdictions around the world where use is not a requirement. Unlike for domain names, where the associated registration costs make squatting relatively affordable, the costs associated with filing and prosecuting a trademark application may well discourage some purely speculative applications. Should the proposed introduction of the Nice Classification system result in individual class filing fees, these may pose a further disincentive to trolls.

Given the speed at which new brands can acquire global notoriety in today’s markets, the change should also assist legitimate businesses proposing to enter the Canadian market by allowing them to obtain defensive registrations prior to having to commence use in Canada or elsewhere. In addition, the current use system in Canada is not immune to trolls, as it is possible for such entities to file applications on the basis of proposed use, enjoying the priority that such applications provide for a few years post-allowance and achieving a similar blocking effect against subsequent applications by those who legitimately intend to use the mark.

Higher overall legal fees

It is anticipated that elimination of the use requirement will result in a higher rate of opposition, cancellation for non-use and expungement actions in Canada, in part because of the increase in volume and breadth of applications filed. This is a reasonably foreseeable effect, given that such a change effectively shifts the policing of marks away from the pre-application stage to the post-allowance and post-registration stages of an application or registration.

Is it all bad?

There is no doubt that the change will result in a shift in how trademarks are prosecuted and enforced in Canada; but once this has occurred, will the Canadian trademark landscape be worse off or simply different? Do the anticipated deleterious effects negate the advantages of the change?

Use is not a requirement in numerous other jurisdictions globally, including the European Union. For clients with international trademark portfolios which are familiar with prosecuting marks in various jurisdictions around the world, elimination of the use requirement in Canada is largely viewed as a positive change – not least because it both dispenses with a hurdle to registration and reduces the additional administrational burden of executing the declaration of use required when registering in Canada. The benefits of harmonising Canadian trademark law with that of other major global jurisdictions are clear, given today’s global marketplace.

So how do practitioners in the European Union handle the issues posed above, given the absence of a use requirement?

Community trademark system

The position in relation to national law use requirements varies to some degree from EU member state to EU member state. In addition, the individual national law position may vary from the Community trademark system. However trademark law and practice is progressively moving towards increased harmonisation across the EU. Under the Community trademark system, which provides protection throughout the European Union under a single registration, there is neither a requirement to actually use a trademark before achieving registration nor a requirement to declare or indeed have any intention to use. As a result, it is possible to obtain a registered trademark right that will be enforceable in every EU member state even if the owner does not plan to actually use the mark in some or all of these.

Risk assessment and incidence of third-party investigations

When attempting to clear a trademark for use and registration in the European Union, most practitioners adopt a commercially pragmatic approach in looking behind the initially apparent legal risks. Searches commonly reveal third-party registrations which, on their face, pose a significant risk. In order to evaluate the true risk posed by a particular third-party mark, one then needs to progress to basic online research and in some cases full investigations, so as to better assess the facts and extent of use at the relevant time.

A similar approach would usually be adopted by most Canadian trademark practitioners. The current use requirement provides only a snapshot of use at the time of registration or application, and then only insofar as the declarations of use are sufficiently precise. Where more comprehensive information is required on the use of a third-party mark, full investigations are typical – online research and the use information published on the register alone being insufficient to provide the level of assurance sought. As such, the work involved and the costs associated with conducting a thorough clearance search should not increase markedly because registrations will be possible without an indication of use.

Trolls and blocking registrations

Can it be said that the absence of a use requirement results in increased trademark troll activity under the Community trademark system? There is common consensus among EU trademark practitioners that this is not so and that trolls are far less common than one might at first expect. In reality, the recognition of a combination of unregistered rights under national law in one form or another – with passing off in the United Kingdom mirroring the Canadian concept and well-known trademarks and bad faith being grounds for refusal or invalidation of a trademark – all serve to discourage trolls. As it is expected that such concepts will continue to be recognised in Canada after the change, it is likely that the checks and balances imposed by these supplementary provisions and the resulting interplay between registered and unregistered rights will evolve in Canada in a similar way to that in the European Union. It would seem – at least from a UK perspective – that the impact of the change may well be less of a negative than is currently believed, and that it will result primarily in a shift in legal practice rather than a change in behaviour in the marketplace.

One benefit of a non-use system is that it permits placeholder registrations, which enable a forward-thinking business to acquire, at least in the short term, a monopoly in a chosen trademark prior to investing the often substantial resources of commencing actual use in the jurisdiction of registration. The ability to obtain priority under a registration which is not vulnerable to challenge on the basis of non-use for up to five years post-registration can be critical to ensuring a smooth product/service launch. Used properly, placeholder registrations can be an excellent means of protecting against both trademark trolls and, worse, third parties commencing actual use of the same trademark and thus potentially obtaining unregistered rights which could block a planned launch.

The ability to obtain placeholder registrations also benefits SMEs, whose brands are unlikely to enjoy the breadth of protection afforded to marks with a reputation. Considering the contribution made by SMEs to economic growth and employment, a trademark system which assists their future expansion is certainly worth developing. Following the proposed change, these same advantages should extend to Canadian SMEs. There is also the benefit of a reduced administrative burden for SMEs, which would no longer need to provide a declaration of use or to seek out from the business information on use of a proposed mark in respect of claimed goods or services.

Cluttering

Many in Europe are of the view that there has been an increase in cluttering of both the national trademark registers of individual member states and the Community trademark register. While the introduction of a use requirement could potentially reduce this problem, a number of other factors contribute to cluttering in the European Union, including the following:

• There is a basic fee of €900 for filing a Community trademark application in up to three classes. This encourages applicants to add on extra classes with a view to obtaining the best value for money, even where a single class or merely a couple would provide ample protection for both current and future needs. A fee for each individual class in Canada might help to discourage overly speculative applications.
• Prior to the recent IP TRANSLATOR case, Community trademark applicants could simply select the wording of a class heading and obtain automatic protection for all goods or services in the respective class. This practice often resulted in excessively broad protection, particularly where the breadth of goods or services falling within a class was exceptionally wide (eg, Class 9, which covers goods ranging from fire extinguishing apparatus to spectacles to computer software). Preserving Canada’s existing system of requiring detailed specifications, notwithstanding the introduction of the Nice Classification system, should minimise this issue,
• Under a system that has no pre-registration use requirement, revocation proceedings play a key role in clearing registers of clutter. In some EU member states, revocation proceedings can be brought only before the courts rather than the local registries, and the substantially increased relative costs and duration of such proceedings often discourage such actions. Ensuring that challenges to a trademark registration or application can be brought at local registry level rather than before the courts should ease the de-cluttering process.

Conclusion

While eliminating the use requirement in Canada will no doubt have far-reaching effects – some of which may well be negative – the shift to such a system will bring a number of benefits, although several of these may be more useful to larger global businesses. Either way, trademark law in Canada is advancing – long may it continue to do so.