Federal Court rules on what constitutes use of a trademark

Federal Court rules on what constitutes use of a trademark

Riches, McKenzie & Herbert LLP v. Cosmetic Warriors Limited, 2018 FC 63 (Justice Manson)

Cosmetic Warriors Limited (“Cosmetic”) owes a trademark registration (TMA649810) for the word LUSH, for use in association with “Clothing, namely, t-shirts”.   On September 10, 2014, at the request of Riches, McKenzie & Herbert LLP, the Registrar of Trade-marks issued a Notice pursuant to section 45 of the Trade-marks Act, requesting that Cosmetic show that the trademark was in use in Canada in the three-year period before issuance of the Notice.

In Canada, Cosmetic licenses the LUSH trademark to Lush Handmade Cosmetics, Ltd. (“Lush Canada”).  Lush Canada operates 46 stores in Canada, but is not in the business of selling t-shirts.  Rather, it is a retailer of cosmetic products and related services such as hair dressing and beauty salon services.

According to the evidence filed by Cosmetic, employees of Lush Canada wear t-shirts bearing the trademark as part of their uniform.  The t-shirts are also available to employees for purchase, both for themselves and as gifts for family and friends.  The evidence showed sales of the t-shirts to Lush Canada employees in excess of $1200 CDN during the relevant period.  The t-shirts were also exported to the United States and sold to Cosmetic employees in the U.S.  Sales in the U.S. exceeded $2900 USD.  T-shirts bearing the trade-mark were also sold in support of environmentalist campaigns.

The Registrar found that the t-shirts were not merely uniforms and that the evidence suggested that employees had purchased t-shirts to give to third parties.  Even though the t-shirts were not sold for profit and were purchased from the supplier along with other “assorted swag” (as indicated on the invoice), the Registrar found that the Respondent had established use of the trademark within the Relevant Period within the meaning of section 4(1) of the Act.  With respect to the t-shirts exported and sold to Cosmetic’s U.S. employees, the Registrar found that such sales constituted use under section 4(3) of the Act.

On appeal to the Federal Court, Justice Manson, considered whether the “normal course of trade” requirement in the definition of use in section 4(1) required transfer of the marked goods for profit.  Justice Manson noted that it was clear in the law that promotional goods distributed free of charge per se do not meet the requirements of section 4(1) of the Act.  However, if such distribution is part of an overall course of action for a business, carried out for the purpose of deriving profits and developing goodwill for the goods, it may constitute use in the normal course of that business, particularly if the goods freely distributed are the goods in which the business normally deals.  However, in this case, Justice Manson noted that the t-shirts were sold at cost for promotional purposes to employees only, to generate goodwill in the owner’s cosmetics business.  Such sales cannot be said to be in the normal course of trade to satisfy use under section 4(1) of the Act.  Given the absence of profit, the promotional and de minimis nature of the sales to employees, and the fact that Cosmetic is not in the business of selling clothing, Justice Manson found the Registrar’s decision to be unreasonable.

Justice Manson also noted that the Registrar’s refusal to draw a negative inference from Cosmetic’s own evidence showing that the t-shirts were purchased from the manufacture along with other “assorted swag” was an error.  Such evidence ought to have been considered.

Finally, Justice Manson considered whether the requirements for use in sections 4(1) and 4(3) are the same. The latter provision was enacted to protect entities whose trading activities were bona fide commercial, but who could not meet the use requirements in section 4(1) as their activities were exclusively outside Canada.  In this case, Justice Manson found that since the Respondent’s activities in Canada do not establish use of a trademark, those same activities in the United States do not rise to the level of use simply because an export has taken place.  A party cannot be allowed to make an end run around the normal requirements of the Act by merely shipping a product across the border.

The appeal was allowed and the mark will be expunged from the Register.

The decision is available at the following link:

Summary prepared by Barry Hutsel.