Challenging trademarks for non-use: lessons from the Federal Court of Appeal

In the recent case of Re Spirits International BV (2012 FCA 131) the Federal Court of Appeal clarified the conditions under which a trademark owner can rely on related-party use of its trademark. This decision will be of interest to brand managers and related companies sharing IP assets.

Re Spirits International BV arose from an application to expunge a trademark pursuant to Section 45 of the Trademarks Act. Section 45 provides an expedited process to remove the "deadwood" of unused trademarks from the register. In a Section 45 application, the registrar requires a trademark owner to provide proof it has used the trademark in the past three years, at the request of any interested party. The owner may also show that another entity has used the mark, but that such use accrues to the owner's benefit (ie, through a licence). If the owner can provide sufficient proof of use, registration survives, but if the owner fails then the trademark is expunged.

A key question in Section 45 analysis of licensed use is whether the licensee's use can support use by the registrant. Section 50 of the Trademarks Act sets out two requirements that must be satisfied in order for licensed use to accrue to the benefit of the trademark owner:

• The use must be under licence.
• The owner must exercise direct or indirect control over the character and quality of the goods or services with which the trademark is used.

The court in Re Sprits International BV addressed the application of these requirements in the context of Section 45 proceedings. At stake before the Trademarks Opposition Board was Spirits International BV's MOSKOVSKAYA RUSSIAN VODKA trademark and design. Spirits BV asserted its use of the trademark by filing an affidavit sworn by Mr Fedornya, manager of its Swiss branch. In his affidavit, Fedornya swore that MY COMPANY exercised the required degree of control over the production of vodka sold in association with the trademark in Canada. However, the term "MY COMPANY" was defined in the affidavit as including several different companies owned by Spirits BV's parent company, SPI Group. According to the board, this introduced a fatal ambiguity in Spirits BV's evidence, since it was unclear whether Spirits BV exercised the required quality control over the trademarked products, or whether control was exercised by some other entity within the Spirits International group of companies. Since corporate structure alone cannot prove the existence of quality control, the board held that the Section 50 requirements had not been met. Thus, Spirits BV could not claim the benefit of related-party use and the trademark was ordered to be expunged.

On appeal to the Federal Court, Spirits BV filed a fresh affidavit and argued that this additional evidence justified overturning the board's ruling. The second affidavit was sworn by Mr Denisov, head of the legal department at Sprits International (Cyprus), another subsidiary of SPI Group. This second affidavit stated that Spirits Cyprus was licensed to use the trademark during the relevant period, and that Spirits BV had delegated the quality control function to other members of its corporate group, which conducted "periodic testing" of the vodka's quality. The Federal Court noted, however, that this second affidavit was still ambiguous in many ways and made the bare assertion that a licence existed during the relevant period, without providing start or end dates for that licence. As a result of these flaws, the Federal Court held that the new affidavit would not have affected the findings of the board and thus did not affect the board's original decision.

The Federal Court of Appeal took a very different approach. It began by noting that the evidentiary burden on the trademark owner in Section 45 proceedings "is not a heavy one", and that an "affidavit or statutory declaration will suffice if it provides a factual description of the use of the subject mark".

The Federal Court of Appeal then proceeded to draw its own conclusions based on the two affidavits. It first rejected the argument that the nature of Spirits Cyprus's licence was unclear and found that the statements in the Denisov affidavit were "more than bare suggestions", but were "assertions of fact describing how Spirits BV had exercised the required degree of control". According to the Federal Court of Appeal, any ambiguities could be cured by inferring from the facts stated in the affidavits and from the invoices for vodka sales in Canada provided by Spirits BV. Taken together, these documents inferred that Spirits Cyprus was a licensed selling agent for Spirits BV. Furthermore, the Federal Court of Appeal ruled that the Denisov affidavit's statement that Spirits Cyprus was licensed during the relevant period was sufficient, and that the absence of a specific start and end date was irrelevant: "it would add nothing to state the beginning or ending date of the license." Thus, the affidavits established the requisite level of use and the registration was maintained.

While Re Spirits International BV is ultimately a reassuring case for trademark owners facing Section 45 challenges, it highlights the need for related entities and subsidiaries to ensure that members of their corporate group have the appropriate licensing arrangements in place to comply with Section 50 licensing requirements at all times. Trademark owners should also ensure that, if faced with a Section 45 challenge, they provide clear and unambiguous evidence of use, licensing and quality control. Solid evidence before the board could have avoided costly appeals to the Federal Court.