Trade-marks as Business Assets

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• Trade-marks as Business Assets
• by Carolyn Tate
• Corporate Solicitor, Intellectual Property
• Unilever Canada Inc.
• for Intellectual Property Law (Law298HS)
• University of Toronto Faculty of Law
• Thursday, April 7, 2005

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TOPICS

• Overview
• Attributes of trade-marks as business assets
• Attributes of trade-marks as instruments of
  consumer protection
• Trade-mark duality
• Ownership
• Acquiring ownership rights
• Loss of ownership rights
• Valuation
• Tax issues
• Assignment (Transfer, Sale)
• Trade-mark source theory
• Section 48
• Brecks and other cases
• Technical issues

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TOPICS

• Licensing
• Section 50
• Control/Inspection
• Practice issues
• Security Interests
• What are they?
• Personal property security statutes
• Federal statutes
• Cases, bibliography

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INTRODUCTION

• Some attributes of trade-marks as business assets
• Trade-marks are business assets/property.
• Clearly valuable, but as intangible property,
  they are difficult to value.
• Trade-mark rights are national in scope but since
  trade is regional and global, they can be
  difficult to protect. Grey goods and
  counterfeits cause problems.
• As business assets trade-marks attract issues
  connected to ownership, transfer, licensing,
  security, taxation and portfolio administration.
• Examples.

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INTRODUCTION

• Attributes of trade-marks as instruments of
  consumer protection
• Trade-marks have functioned as a form of consumer
  protection since their original use in the market
  towns of feudal England to demonstrate ownership
  of goods, indicate origin and confirm quality.
• These values were protected largely through the
  tort of passing off which is connected to yet
  more ancient marketplace offences. In the latter
  half of the 19th century, the use of trade-marks
  as commercial marketing devices was rationalized
  by allowing for their registration through a
  legislative program.
• Laskin, CJC, speaks in Brecks Sporting Goods of
  the requirement that there be no deception or
  confusion of the public in the message conveyed
  by the trade-marks.
• Examples

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INTRODUCTION

• Trade-mark duality
• Attributes of trade-marks as property and as
  instruments of consumer protection dont always
  sit well together and give rise to some of the
  inconsistencies found in trade-mark jurisprudence
  and policy.
• Trade-marks represent a state-granted monopoly in
  an economic system based on a policy of
  competition.
• Corporations want to take advantage of both
  characteristics of trade-marks -- to be able to
  deal with them freely as assets without undue
  legal interference -- buy, sell, license, use as
  security.
• They also like to take advantage of their role as
  instruments of consumer protection, in the case
  of counterfeiting, for example, where the
  assistance of the state is often solicited.
• Examples

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OWNERSHIP

• Acquiring trade-mark ownership rights
• Acquiring trade-mark rights is quite
  straightforward rights are acquired through
  actual use in Canada or a country of the Union
  or through making known in Canada.
• To acquire a registered trade-mark, the
  trade-mark has to be registerable.
• It is not registration that makes a party
  proprietor of a trade-mark he must be proprietor
  before he can register.
• Act defines what trade-mark use is in Section 4.
• Indispensable trade-mark maxim Use it or lose
  it.
• Examples.

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OWNERSHIP

• Loss of ownership rights
• Loss of ownership rights is a more complex
  business.
• Ownership rights can be lost through
  genericisation (Aladdin/Thermos) and through
  failure to educate the Canadian public about the
  source and quality of goods after assignment
  (Heinzman).
• Both fall under the more general ruberic of a
  loss of distinctiveness - that is, the quality
  which allows trade-marks to distinguish the goods
  of the owner from the goods of all others.
• Trade-mark distinctiveness, validity and
  therefore ownership rights can also be lost
  through faulty assignment or licensing.
• Trade-marks can also be weakened by loss of
  distinctiveness through failure to police the
  trade-mark register. Terms which once operated
  to distinguish goods are allowed to become common
  on the register confusing marks are allowed to
  co-exist in the marketplace, narrowing or
  eliminating the ambit of protection for the mark.
• Examples

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OWNERSHIP

• Valuation / taxation / due diligence / portfolio
  administration
• Considering trade-marks as business assets also
  begs of the question of how they are valued, what
  they are worth.
• Difficult to value various methods are used.
• How the development of trade-marks, their sale
  and trade-mark royalties are taxed also an issue
  in business contexts. See, for example Income
  Tax and Goods and Services Tax in Hughes on
  Trade-marks.
• Due diligence, effective warranties in context of
  acquisitions / divestitures are necessary to
  ensure that one is acquiring valid marks.
• Consistent portfolio administration preserves
  ownership rights. Failure to respond to office
  actions, renewals and the like can jeopardize
  trade-mark rights.
• Examples.

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ASSIGNMENT

• Trade-mark source theory
• Original idea was that trade-marks had to
  indicate a single source for goods because a
  single source ensured consistent quality - those
  pewter cups with that particular hallmark
  originated with that silversmith.
• Assignment of trade-marks without the business
  goodwill with which they were associated
  invalidated the marks because they no longer
  functioned to indicate the source of goodwill.
• Trade expanded and commercial practices changed,
  and so eventually did the Canadian trade-marks
  Act, which introduced in 1953 a provision which
  allowed for the assignment of trade-marks apart
  from goodwill without invalidating them.

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ASSIGNMENT

• Section 48 - Trade-mark Transferable
• (1) A trade-mark, whether registered or
  unregistered, is transferable, and deemed always
  to have been transferable, either in connection
  with or separately from the goodwill of the
  business and in respect of either all or some of
  the wares or services in association with which
  it has been used.
• (2) Where two or more persons interested. -
  Nothing in subsection (1) prevents a trade-mark
  from being held not be distinctive if as a result
  of a transfer thereof there subsisted rights in
  two or more persons to the use of confusing
  trade-marks and the rights were exercised by
  those persons.
• (3) Registration of transfer. - The Register
  shall register the transfer of any registered
  trade-mark on being furnished with evidence
  satisfactory to him of the transfer and the
  information that would be required by paragraph
  30(g) in an application by the transferee to
  register the trade-mark.

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ASSIGNMENT

• Brecks and Other Cases
• Notwithstanding this liberalisation of the
  assignment section, Canadian courts at all levels
  have indeed held that trade-marks were not
  distinctive (and therefore invalid) because two
  or more person held rights to confusing marks
  after transfer or variations on this theme.
• We are going to look at some of those cases.

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ASSIGNMENT

• Facts in Brecks (1)
• Plaintiff/Appellant Brecks Sporting Goods Co.
  Ltd., was the assignee of the Canadian mark MEPPS
  for use with fishing lures originating in France.
• Defendant Magder/Sportcom Co. Ltd., was a
  Canadian company selling MEPPS fishing lures
  obtained neither from Canadian trade-mark owner
  nor from the French manufacturer.
• Proceedings Brecks successfully sued
  Magder/Spotcom in the Federal Court, Trial
  Division for trade-mark infringement. Decision
  was overturned in Federal Count of Appeal and
  upheld in SCC per Laskin, CJC.

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ASSIGNMENT

• Facts in Brecks (2)
• On the facts, SCC found that Canadian consumers
  did not associate the lures with the Canadian
  trader but rather with the French manufacturer.
• Ratio Section 47 (now s. 48) does not permit
  assignment without regard to the associative
  character of the assigned trade-mark in
  identifying the goods as those of the assignee
  owner. Protection against public deception still
  resides in the definition of distinctiveness in
  s. 2(f) and in the application of s.18.
• Question does it make sense that provisions
  intended for consumer protection are used to
  resolve disputes between competitors??

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Outcome in other assignment / loss of
distinctiveness cases
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ASSIGNMENT

• Other Related Issues
• Trade-marks can be assigned with respect to some
  or all of the goods for which it is registered.
• Assignments can, but need not be, registered.
• All associated marks (that is confusing marks
  owned by a single entity) must be assigned
  together pursuant to section 15.
• What this means in practice is that assigning
  marks in acquisitions and divestitures can result
  in some interesting messes, which can result in
  invalidation of marks. Most can be sorted out,
  but diligent portfolio management is required.
• Some examples.

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LICENSING

• Trade-mark quality theory
• Licensing is important from a business point of
  view because it expands business opportunities
  and the value of marks.
• When Trade-marks Act was amended in 1953 to allow
  for assignment of trade-marks without associated
  business, Act was also amended to allow for
  licensed use of marks through a scheme of
  registered users.
• All licensees had to be registered the scheme
  was viewed as highly technical, cumbersome and
  expensive.
• In 1993, Act was amended to remove the registered
  user scheme and section 50 was enacted to allow
  for licensing without registration.
• Examples.

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LICENSING

• Section 50
• (1) For the purposes of this Act,if an entity is
  licensed by or with the authority of the owner of
  a trade-mark to use the trade-mark in a country
  and the owner has, under the licence, direct or
  indirect control of the character or quality of
  the wares or services, then the use,
  advertisement or display of the trade-mark in
  that country as or in a trade-mark, trade-name or
  otherwise by that entity has, and is deemed
  always to have had, the same effect as such a
  use, advertisement or display of the trade-mark
  in that country by the owner.

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LICENSING

• Section 50
• (2) Idem. - For the purposes of this Act, to the
  extent that public notice is given of the fact
  that the use of a trade-mark is a licensed use
  and of the identity of the owner, it shall be
  presumed, unless the contrary is proven, that the
  use is licensed by the owner of the trade-mark
  and the character or quality of the wares or
  services is under the control of the owner.

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LICENSING

• Section 50 (1) redux
• ... If an entity is licensed ... to use the
  trade-mark ... and the owner has ... direct or
  indirect control of the character or quality of
  the wares ..., then the use ... of the trade-mark
  ... by the licensed entity has, and is deemed
  always to have had, the same effect as such a use
  ... of the trade-mark ... by the owner.

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LICENSING

• Trade-mark quality theory
• Enactment of licensing provision changed the
  theory or policy or at least emphasis on the
  trade-mark scheme is based from one guaranteeing
  source to one guaranteeing quality.
• No recordal of license necessary.
• Licenses need not be in writing, but mere share
  ownership is not evidence that the parent has
  control over the use of the trade-mark in the
  hands of the subsidiary.
• So licenses are required between affiliated
  companies as well as with unrelated entities.

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LICENSING

• Trade-mark quality theory
• Main issue is to ensure that licenses include
  adequate provision for control of the character
  or quality of goods and services, including
  provision for inspection
• Not a lot of cases on section 50.
• Unitel Communications Inc. v. Bell Canada (1995),
  61 C.P.R. (3d) 12. Gibson, J. found that as to
  distinctiveness the respondent was remarkably lax
  in its management and policing of its trade-mark
  rights. Unauthorized use was of such an extent
  that by the time these proceedings were commenced
  as to render the trade-marks not distinctive of
  the respondent and those entitled to use the
  trade-marks under registered user arrangements

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LICENSING

• Trade-mark quality theory
• In the words of Gibson, J The evidence simply
  fails to show that those agreements and
  arrangements, if they could be construed to be
  licensing arrangements, provided the ... direct
  or indirect control of the character or quality
  of the ... services ... in the hands of the
  respondent that the new legislative scheme
  required
• Eli Lilley and Co. v. Novopharm Ltd. (2000), 10
  C.P.R. (4th) 10, aff. 73 C.P.R. (3d) 371 held
  that an oral license is sufficient for use of the
  appearance of capsules by the Canadian plaintiff
  to be deemed use by the U.S. plaintiff.
• Both cases include consideration of the factors
  which led to the enactment of the new licensing
  provisions.

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LICENSING

• Necessary provisions of trade-mark license
  agreements
• User should undertake to use the marks in strict
  accordance with instructions, standards of
  quality and trade-mark specifications.
• Owner should have the right to inspect premises
  and examine samples.
• All packaging, labelling and advertising material
  should be approved by the owner.
• User should not authorize a third party to use
  the mark or transfer the mark.
• User should acknowledge no right, title or
  interest in the mark.
• User should cooperate in protection of the mark.
• Territory and term clearly set out.
• Source Hughes on Trade-marks

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LICENSING

• Trade-mark licensing scenarios for purposes of
  tax treatment
• Canadian company licenses marks it owns to a
  Canadian company.
• Canadian company licenses marks it owns to a U.S.
  or other foreign company.
• Canadian company licenses marks owned by a U.S.
  or other foreign company.
• Canadian company licenses marks owned by a
  Canadian company.
• Tax implications different for each.

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SECURITY INTERESTS

• A security interest is a proprietary right in
  personal property, tangible or intangible, that
  secures payment or performance of a debt or
  related obligation.
• So a trade-mark is the proper subject matter of a
  security interest and provincial security
  legislation such as the Ontario Personal Property
  Security Act applies.
• Generally thought that the effect of federal
  statutes such as the Trade-marks Act have no
  effect on security for personal property, but the
  Trade-marks Office will put security documents on
  file if requested and they are noted on the
  public register.
• This public notice can be helpful when
  undertaking due diligence in acquisitions and
  divestitures.
• Examples.

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CASES, BIBLIOGRAPHY

• Case Citations
• S.C. Johnson Son, Inc. v. Reckitt Colman
  (Overseas) Ltd. (1995), 59 C.P.R. (F.C.T.D.)
• Bibliography
• Robic-Leger Canadian Trade-marks Act, annotated,
  ed. Hughes Richard, 2001
• Fox on Canadian Law of Trade-marks and Unfair
  Competition Act Fourth Edition by K. Gill and S.
  Joliffe, 2002. See Chapter 15, Commercial
  Transactions involving Trade Indicia.
• Hughes on Trade-marks, by R. Hughes and others,
  1984-2000
• Fox, Harold G. The Canadian Law of Trade Marks
  and Unfair Competition, Second Edition, 1956

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UNILEVER TRADE-MARKS