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Section 45 proceedings and a Change in the Ownership of the Mark

A decision of the Federal Court considers the impact of the special circumstances exception in section 45 proceedings in cases where there has been a change in the ownership of the mark. Centric Brands Holding LLC v. Stikeman Elliott LLP 2024 FC 204


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 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 Facts

The mark in issue was AVIREX registered for use in association with wearing apparel and wearing apparel accessories and other items (the “Mark”). Before October 29, 2018, the Mark was owned by KVZ International Ltd. ( “KVZ”),  a company unrelated to Centric. KVZ assigned the Mark to Centric on October 29, 2018, as part of a much larger transaction under a Purchase and Sale Agreement. The Assignment was made of record on June 28, 2019.

At the request of Stikeman Elliott LLP the Registrar issued a notice to the then-owner, KVZ, under section 45 on October 12, 2018, i.e., 17 days before the Assignment. The Notice required the owner to furnish evidence of use of the Mark between October 12, 2015, and October 12, 2018, (the “Relevant Period”), with respect to each of the Registered Goods.


The Decision of the Registrar

Centric filed an affidavit from a Centric employee but it was not clear whether the affidavit also referred to KVZ ‘s activities.  The Hearing Officer said that, given KVZ was the registered owner of the Mark during the Relevant Period, evidence of use should demonstrate that either KVZ or a licensee used the Mark during that period. Based on the evidence the Hearing Officer concluded that Centric had not shown use of the Mark in association with the Registered Goods during the Relevant Period. Centric acquired the mark after the section 45 notice had been issued, its actions regarding the mark following its acquisition did not address the circumstances that existed during the relevant period.


Centric was required to demonstrate special circumstances to excuse KVZ’s non-use. The Registrar concluded that, save for bare assertions, there was no evidence to demonstrate special circumstances to excuse non-use.


The Appeal

Centric did not challenge the Hearing Officer’s finding of non-use of the Mark in association with the Registered Goods during the Relevant Period. Its appeal related to the finding that Centric had not demonstrated special circumstances to excuse the absence of use of the Mark. In support of its appeal, it relied on new evidence consisting of two affidavits.

In broad strokes, the first affidavit described the transaction under which Centric acquired the Mark, and the second affidavit described the history of the AVIREX brand, efforts by KVZ to use the Mark in Canada, issues encountered by KVZ in those efforts, and actual use of the Mark by Centric after the acquisition.


The Judge found that the new evidence was material and conducted his review of the decision on the correctness standard, making his own determination based on the whole of the evidence.


Special circumstances that excuse non-use must be unusual, uncommon, or exceptional. The jurisprudence has also identified three criteria to be considered in assessing whether special circumstances exist that excuse non-use: (a) the length of time during which the trademark has not been in use; (b) whether the registered owner’s reasons for not using its mark were due to circumstances beyond its control; and (c) whether there exists a serious intention to shortly resume using the mark.


Centric argued it should not be required to account for the non-use of the Mark by KVZ during the Relevant Period.  They argued that the Court should consider only the relatively short period between either the Agreement in June 2018 or the acquisition in October 2018 and its first sale in September 2019.


The Judge accepted that, when a new owner requires a mark during the relevant period, the special circumstances analysis may focus on whether the absence of use is excused during the portion 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 Centric to adduce evidence to demonstrate special circumstances that excuse the absence of use by KVZ 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 Mark expunged.


Comment

Centric was the purchaser of a registration that was not supported by use. There was a risk that section 45 proceedings could be initiated. The fact they were initiated at perhaps the worst possible time to the detriment of a possibly innocent purchaser is unfortunate. But the Mark was not in use in the Relevant Period and for this reason should be expunged.


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


Goldman Sloan Nash & Haber LLP 480 University Avenue, Suite 1600 Toronto, Ontario M5G 1V2 Direct Line: (416) 597-3371 Fax: (416) 597-3370 Email: mckeown@gsnh.com


These comments are of a general nature and not intended to provide legal advice as individual situations will differ and should be discussed with a lawyer.



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