New Owner Jurisprudence in Section 45 Proceedings: A Fairer Approach

Background

In a previous article Section 45 Proceedings and a Change in the Ownership of the Mark we dealt a decision of the Federal Court that considered the impact of the special circumstances exception in section 45 proceedings where there has been a change in the ownership of the mark.

Subsection 45(1) allows the Registrar to require that the registered owner of a trademark furnish to the Registrar evidence of use of the mark within the three-year period immediately preceding the date of the notice (the “Relevant Period”) and, if there has been no such use, evidence of the date of last use and the reason for the absence of such use since that date.

Subsection 45(3) contains an exception relating to “special circumstances”. It provides that expungement under the section is not mandatory if the absence of use was due to special circumstances that excuse the absence of use.

The Decision of the Federal Court    Centric Brands Holding LLC v. Stikeman Elliott LLP 2024 FC 204

The Judge accepted that when a new owner acquires a mark during the Relevant Period, the special circumstances analysis may focus on whether the absence of use is excused during the part of the Relevant Period that follows the acquisition. However, this approach does not apply where the acquisition is after the end of the Relevant Period.

It was open to the trademark owner to adduce evidence to show special circumstances that excuse the absence of use by the previous owner during the Relevant Period. However, the evidence before the court was insufficient to support a conclusion the special circumstances existed.

The appeal was dismissed, and the registration expunged.

The Federal Court of Appeal   Centric Brands Holding LLC v. Stikeman Elliott LLP 2025 FCA 161

The trademark owner appealed, and the appeal went on to a hearing before the Court. The Court said the appeal was to be decided by considering two points of law:

A. Whether the New Owner Jurisprudence is valid as a means for establishing special circumstances to avoid expungement of a trademark; and

B. If so, whether the signing of an agreement to purchase a trademark is sufficient to invoke the New Owner Jurisprudence, even where the transaction contemplated in the agreement has not closed by the date of the notice pursuant to subsection 45(1).

The Court confirmed that there was no room for a dog-in-the-manger attitude by registered owners who may wish to hold on to a registration even if the trademark is no longer in use or not in use with respect to some of  the goods and services with respect to which the mark is registered. The watchword is “use it or lose it”.

The burden of proof on the owner of a trademark subject to section 45 proceedings is not a heavy one, and such proceedings are summary and administrative in nature. It is not intended that there should be any trial of a contested issue of fact, but an opportunity for the registered owner to show, if it can, that its mark is in use or if not, why not.

The usual penalty for non-use in section 45 proceedings is expungement and there is a threshold to meet before the exception for special circumstances applies. Special circumstances must be unusual, uncommon or exceptional.

The principle behind the New Owner Jurisprudence is that the recent acquisition of a trademark may give rise to special circumstances such that, in responding to a notice under subsection 45(1), the new owner does not have to account for a period of non-use pre-dating the acquisition. In such circumstances, the task of the new owner of a registered trademark is to establish special circumstances for non-use in the limited period from acquisition to the date of issuance of the notice.

Opinions may differ about whether the result reached by the Federal Court was unjust, but it is unduly harsh and technical to decide the question of special circumstances on the chance issue of the date the parties chose to close a transaction that had been arranged months before. While it may be true that a party can still back out of or change a transaction before the closing date, this fact seems unconnected to the key issue of whether the trademark in issue should be considered deadwood.

A strict reading of the New Owner Jurisprudence as applied in the Federal Court’s decision could invite mischief. Agreements of the kind in the present case may result from an understanding between the owner of one or more trademarks and a potential acquirer that the latter may be better able to put them to use than the former. Such agreements are typically published around the time of signing and well before closing. 

One message to the public of such an agreement is that the acquirer may have plans for the trademarks assigned and does not consider them to be deadwood. The delay between the date of the agreement and the closing date is sometimes large. Under the Federal Court’s narrow interpretation of the New Owner Jurisprudence, a third party could take advantage of the delay in closing by reviewing the list of acquired trademarks and requesting section 45 notices in respect of some of them before the closing to attempt to have their unused status cemented. Encouragement of that sort of effort would be inconsistent with the intent of section 45.

The Federal Court erred in law in refusing to apply the New Owner Jurisprudence because the acquisition of the Mark had not yet closed at the time of issuance of the Notice. The Court agreed to decide the issues left outstanding concerning the section 45 proceeding rather than remit the matter to the Federal Court.

There was no reason that the New Owner Jurisprudence should not apply to limit the Relevant Period for considering special circumstances to the 3½ months from the date of the Agreement to the date of the Notice. Another way of looking at this issue is that special circumstances before the date of the Agreement are established by the assignment of the Mark and the new owner’s limited access to documents and information concerning efforts to use the mark before the Agreement.

The Court was convinced that the recent acquisition of the mark, together with the short time until the end of the Relevant Period, were special circumstances excusing the absence of use. An acquisition is not found in most cases of absence of use. In addition, the shortness of the time from the date of the Agreement to the end of the Relevant Period (3½ months) is the reason for the absence of use by the new owner. The evidence of the new owner’s activities after the Transaction closed suggested that there would have been use of the mark if that period had not been so short.

There was no evidence before the Notice of clear and concrete steps to begin to use the mark, but this was not a reason not to find special circumstances. The acquisition itself of the mark as part of the transaction suggests that it was not deadwood; it suggests an intention to begin use of the mark. The new owner was not permitted to use the mark until the close of the transaction, which occurred after the end of the Relevant Period. This explains the absence of use by the new owner during this period. The evidence as of the date of the Notice suggests that the new owner had agreed to acquire the mark to put it into use. Evidence of the new owner’s development of plans to use the mark after the closing confirmed this view.

The Court allowed the appeal and set aside the expungement of the mark.

Comment

It does seem to be fairer to apply the New Owner Jurisprudence in the fashion that the Federal Court of Appeal has in this decision.  The flood gates have not been opened as the new owner is still required to establish the existence of special circumstances.

If you have questions, please contact me at mckeown@gsnh.com 

John McKeown

Goldman Sloan Nash & Haber LLP

480 University Avenue, Suite 1700 

Toronto, Ontario MSG 1V2

Direct Line: (416) 597-3371

Fax: (416) 597-3370

This article is of general nature and is not intended to provide specific legal advice as individual situations will differ. Specialist advice should be sought about your specific circumstances. 

A version of this article originally appeared in the Law360 Canada published by LexisNexis Canada Inc.