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Profit is not a prerequisite to demonstrate use of a trade-mark


March 22, 2019

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The Federal Court of Appeal recently released its decision in Cosmetic Warriors Limited v. Riches, McKenzie & Herbert LLP , in which it upheld Cosmetic Warriors’ registration of a trade-mark and confirmed that profit is not a prerequisite to a finding that a trade-mark is ‘in use’ as contemplated by the Trade-marks Act (the “Act”). The decision involved a matter in which the registration of a trade-mark – specifically, “LUSH”, No. TMA649810 – was challenged for non-use under s. 45 of the Act. Section 45 sets out a procedure for removing from the register trade-marks that have fallen into disuse.


Background


The LUSH trade-mark is owned by a cosmetics company, Cosmetic Warriors. Cosmetic Warriors operates through licensees worldwide, one of which is Lush Canada. The trade-mark in question is registered for use in association with articles of clothing – specifically t-shirts and tank tops. The shirts bearing the LUSH trade-mark are sold in limited quantities to LUSH store employees to wear as part of their uniform and, on occasion, to give as gifts to family and friends. Some shirts are also sold as limited edition items to promote various social and environmental initiatives of LUSH, with the proceeds flowing to charitable organizations.


The issue of ‘use’ arose as LUSH is not in the business of selling clothing, which begged the question of whether the display of the trade-mark on the shirts constituted actual ‘use’ in the normal course as contemplated by the Act. Absent use of a trade-mark, there is no entitlement to the trade-mark. In Mattel, Inc. v. 3894207 Canada Inc., the Supreme Court of Canada indicated that, unlike other forms of intellectual property, the very essence of trade-mark entitlement turns on actual use. In other words, you use it or you lose it.


Judicial History


The matter was first heard before a hearing officer of the Trade-marks Opposition Board (the “Board”), which maintained the registration of the trade-mark. The Board found the trade-mark was, indeed, used in the “normal course of trade” pursuant to s. 4(1) of the Act. Subsection 4(1) indicates a trade-mark will be deemed ‘used’ in association with goods if, at the time of transfer, the trade-mark is marked on the goods or on the packages in which those goods are delivered in the normal course of trade. Because of this finding, there was no need for the Board to also consider whether ‘use’ was established in relation to exported goods via s. 4(3).


The Federal Court allowed the appeal of the Board’s decision, holding the Board’s conclusion that sales were in the normal course of trade was unreasonable. The Federal Court based that decision on the absence of profit, the limited extent of sales and their promotional nature, and the fact that Cosmetic Warriors was not normally in the business of selling clothing. The Federal Court thereby struck the trade-mark from the register.


Cosmetic Warriors successfully appealed the Federal Court’s decision, arguing the judge had erred in his application of the test for trade-mark use under ss. 4(1) and (3) of the Act, and that he had been insufficiently deferential to the findings of the hearing officer.


Decision


The Federal Court of Appeal allowed the appeal, reinstated the decision of the Board, and maintained the trade-mark on the

register.


Subsection 4(1) Test – Profit is Not a Prerequisite


The hearing officer held that the “normal course of trade” requirement in s. 4(1) had been met, despite evidence that suggested the t-shirts were sold to employees at or near cost and despite the fact that Cosmetic Warriors was not in the business of selling clothing. The LUSH branded t-shirts were held to be objects of trade and were not merely promotional.


The Federal Court, in reviewing the decision of the Board, made several references to the lack of profit derived from the sales.


According to the appellate court, however, the Board had been correct in determining that s. 4(1) did not require a transfer of trade-marked goods to be for actual profit in order to be in the “normal course of trade”. Actual profit derived from a transfer of the trade-marked goods, while perhaps relevant, was not a prerequisite. Treating it as a prerequisite, according to the appellate court, would mean common business practices such as selling last year’s trade-marked merchandise at a discount would not amount to ‘use’ sufficient to maintain registration of a trade-mark. This was clearly not the result intended by Parliament. The pursuit of an ultimate profit-making purpose through the transfer of the marked goods is sufficient, and there may even be circumstances in which free distribution of goods could qualify as well.


Application of Subsection 4(1) – The Decision of the Hearing Officer was Not Unreasonable


The appellate court held that the hearing officer’s decision was not unreasonable, and thereby agreed with Cosmetic Warriors that the Federal Court judge had erred by finding otherwise.


The judge had also erred by undertaking his own reassessment and reappraisal of the evidence, and by concluding that Cosmetic Warriors’ clothing sales were only intended for promotional purposes.


The hearing officer referred to case law suggesting a single sale could suffice to establish the transfer of goods in the “normal course of trade”, as could a sale to an employee. On the evidence, the hearing officer held the t-shirts were not merely promotional and their sales appeared to form a pattern of genuine commercial transactions in the normal course of trade.


Showing deference to the decision of the hearing officer, the Federal Court of Appeal found the conclusions drawn had been rationally available to him and were therefore not unreasonable.

Authors: Jordan Scopa, Jaclyn Tilak and Anna Condon


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