Judgments

[1993] 1 F.C. 145

T-1027-91

Steinberg Inc. (Applicant)

v.

J. L. Duval Ltée (Respondent)

Indexed as: Steinberg Inc. v. J. L. Duval Ltée (T.D.)

Trial Division, Denault J.—Montréal, May 8; Ottawa, November 13, 1992.

Trade marks — Expungement — Application to expunge “Marché Extra” and design from register — Mark registered for use in association with wholesale distribution and sale of food products — Respondent permitting over thirty retailers to use mark without being registered as users — Requirements of Trade-marks Act, s. 50 (registered user provision) — Failure to register users not necessarily leading to loss of distinctiveness — Owner’s control over use of mark and public deception considered.

This was an application to expunge “Marché Extra” and design from the register for failing to accurately express the existing rights of the registered owner of the mark. “Marché Extra” had been registered for use in association with the wholesale distribution and sale of food products. The applicant alleged that the mark was no longer distinctive of the services provided by the respondent because the respondent had permitted over thirty licensees to use the mark without their being registered as users. The retailers carried on business under their own business names, but had signs outside their stores displaying “Marché Extra” and the caption “affilié à J. L. Duval”. Pursuant to an agreement entered into with each retailer, the respondent would install and maintain the signs, publish a weekly circular of advertised specials available at affiliated stores, and provide consulting services and weekly information bulletins to member stores. In return, the retailers agreed to purchase eighty percent of their merchandise from the respondent, offer products at the advertised retail price, and follow the respondent’s general policy guidelines. The issue was whether the failure to register the retailers as registered users necessarily lead to loss of distinctiveness.

Held, the application should be dismissed.

A trade mark will not automatically be held to be invalid merely because its owner has permitted its restricted use in association with wares or services not included in the registration. Trade-marks Act, section 50 permits the registration of the registered user of a mark “for all or any of the wares or services for which it is registered”. The applicant failed to prove either that the respondent’s registration did not properly define its existing rights in the mark or that the mark no longer distinguished the respondent’s services. Since the retailers did not use the mark in association with any of the services described in the registration, the respondent was not required to register their use. The view that the registered user provision must be observed was based on the function of a trade mark being to denote that the goods or services come from one source. Concurrent use by two or more persons of the same trade mark would thus inevitably lead to public deception. It can, however, be argued that the use of a mark by a licensee does not denote that the licensee is the source of the goods and the mark will remain connected with the owner. Assuming there is no public deception, failure to register a user can have no adverse effect on the mark’s validity. It was accordingly necessary to examine the respondent’s control over the use of its mark and to determine whether the public has been deceived. The written agreements between respondent and the retailers established that the respondent exercised sufficient control over the use of its mark. Since the respondent neither operates retail outlets nor grants licences to use its trade mark in association with wholesale services, the public was unlikely to be deceived by the use being made of respondent’s mark.

STATUTES AND REGULATIONS JUDICIALLY CONSIDERED

Trade-marks Act, R.S.C., 1985, c. T-13, ss. 2, 18(1)(b), 30(a), 50, 57.

CASES JUDICIALLY CONSIDERED

REFERRED TO:

Building Products Ltd. v. BP Canada Ltd. (1961), 36 C.P.R. 121; 21 Fox Pat. C. 130 (Ex. Ct.); Schmid Laboratories v. Atlantic Packaging Ltd. (1989), 24 C.P.R. (3d) 258; 26 F.T.R. 203 (F.C.T.D.); Yorkshire Copper Works Ld.’s application (Trade Mark) (1953), 71 R.P.C. 150 (H.L.).

AUTHORS CITED

Bereskin, D. “The Source Theory of Trade Mark Law and its Effect on Trade Mark Licensing” (1987), 3 Can. Intell. Prop. Rev. 322.

Fox, H. G. The Canadian Law of Trade Marks and Unfair Competition, 3rd ed., Toronto: Carswell Co. Ltd., 1972.

APPLICATION to expunge trade mark from register on the ground that it did not accurately express the owner’s existing rights. Application dismissed.

COUNSEL:

Adele J. Finlayson for applicant.

Georges T. Robic for respondent.

SOLICITORS:

Shapiro, Cohen, Andrews, Finlayson, Ottawa, for applicant.

Leger, Robic, Richard, Montréal, for respondent.

The following are the reasons for order rendered in English by

Denault J.: This is an application by way of originating notice of motion for an order expunging trade mark registration no. 332,181 “Marché Extra” and design from the register of trade marks, pursuant to paragraph 18(1)(b) of the Trade-marks Act, R.S.C., 1985, c. T-13 (hereinafter referred to as “the Act”).

The applicant contends that the registration of the trade-mark “Marché Extra” and design does not accurately express or define the existing rights of the respondent, J. L. Duval Ltée., as the registered owner of the mark. According to the applicant, the trade mark in question was not distinctive of the services provided by the respondent at the time proceedings bringing the validity of the registration into question were commenced, since the respondent had allowed over thirty licensees to use its mark without taking the necessary steps to have them officially recorded as “registered users”, in accordance with section 50 of the Act.

The respondent claims that its design mark “Marché Extra” has always properly identified and distinguished the services for which the mark was originally registered: the respondent’s wholesale distribution and sale of food products.[1] The respondent argues that the permitted use of its trade mark by various retailers cannot strip the mark of its distinctiveness, as such use merely serves to identify a network of affiliated retailers who use the mark as a means of communicating to the public that they sell products which emanate from the respondent’s initial wholesale distribution. As such, the retailers benefit from the respondent’s extensive advertising and reputation for quality and the public is informed as to the “wholesale” source of its purchases. According to the respondent, the use of its mark by authorized retailers under the supervision and control of the respondent does not affect the validity of the trade mark “Marché Extra” which continues to distinguish the respondent’s services from those provided by other “wholesalers”.

According to paragraph 18(1)(b) of the Act, the registration of a trade mark is invalid if the trade mark is not distinctive at the time proceedings bringing the validity of the registration into question are commenced (hereinafter referred to as “the material date”). It is authoritatively settled that, in expungement proceedings, the onus of proving that the registration is invalid is on the party alleging the invalidity.[2]

Issues:

In the present case, the Court must determine whether the respondent’s mark was being used, on the material date, in association with the services for which it was registered and whether the various retailers’ permitted use of the respondent’s mark led to its having lost its distinctiveness. Consequently, the Court will examine the notion of “distinctiveness” and the requirements of section 50 of the Act and more precisely, will determine whether, in the case at bar, the respondent’s failure to register the retailers as “registered users” of the respondent’s mark necessarily leads to a conclusion of loss of distinctiveness.

Evidence:

At the hearing of this matter, the parties consented that the applicant was a “person interested” within the meaning of section 57 of the Act and that the trade mark register does not contain a single registered user recorded against the registration of the respondent’s mark.

The applicant’s documentary evidence establishes that the applicant has applied for registration of and is currently using the trade mark “Xtra Food and Drug Mart” in association with food and drug sales in the Ottawa region. Both parties submitted evidence of the existence of some thirty retailers in the eastern region of Quebec, who, although carrying on business under their own respective business name, have a sign outside their store displaying the respondent’s trade mark “Marché Extra”, with a caption reading “affilié à J. L. Duval”. The respondent’s documentary evidence consisted solely of the affidavit of its president Henri Duval. This affidavit contains a number of interesting points with respect to the degree of control exercised by the respondent over the retailers authorized to use the respondent’s mark. I will refer to this affidavit in greater detail below.

Analysis:

The main thrust of the applicant’s case is directed to the notion of distinctiveness which is defined in section 2 of the Act as follows:

2....

“distinctive”, in relation to a trade-mark, means a trade-mark that actually distinguishes the wares or services in association with which it is used by its owner from the wares or services of others or is adapted so to distinguish them.

In The Canadian Law of Trade Marks and Unfair Competition,[3] Harold G. Fox comments on the issue of distinctiveness in the following terms [at page 25]:

The essence of a protectable trade mark and the foundation of trade mark law, therefore, is and always has been distinctiveness. “Distinctiveness means some quality in the trade mark which earmarks the goods so marked as distinct from those of other producers of such goods”.[4] [Emphasis added.]

Consequently, “distinctiveness” as it applies to a particular trade mark cannot be determined in abstracto. Rather, the “distinctive” quality of a trade mark must be appreciated in light of the specific facts of each case. In my opinion, the Court should always begin its analysis with an examination of the specific wording used in the challenged registration. It should determine whether the owner of the mark and/or any other person was using the trade mark in question in association with the wares of services outlined in the registration, at the material time. Only when it has completed this analysis will the Court be in a position to determine whether the trade mark actually distinguishes the wares or services of its owner from those of other producers or suppliers or such goods or such services.

Paragraph 30(a) of the Act requires that an applicant for registration of a trade mark must file an application containing “a statement in ordinary commercial terms of the specific wares or services in association with which the mark has been or is proposed to be used”. In this regard, it should be noted that the respondent registered its trade mark for use in association with “the wholesale distribution and sale of food products”[5] and that no other services are mentioned in the registration of its mark.

The evidence contained in the affidavit of Mr. Henri Duval establishes that the respondent has continuously used its trade mark “Marché Extra” in association with the wholesale distribution and sale of food products since October 21, 1985. The respondent has not used its mark in association with any other services. This evidence is uncontradicted. In addition, the applicant did not present any evidence of use of the respondent’s mark by any other wholesalers of food products. Consequently, this Court finds that the applicant has not proven that the respondent’s registration of its mark does not properly define or reflect its existing rights in its registered trade mark. Further, it is this Court’s opinion that the applicant has failed to meet its burden of proving that the respondent’s mark, on the material date, no longer distinguished the services of the respondent from those of other “wholesalers”.

The applicant argues that Canadian courts have consistently determined that the registered user provisions of the Act are mandatory in nature. According to the applicant, the respondent was required to record its affiliated retailers as registered users of its mark. In my opinion, the specific wording of subsection 50(1) of the Act would appear to indicate otherwise:

50(1) A person other than the owner of a registered trade-mark may be registered as a registered user thereof for all or any of the wares or services for which it is registered.

Subsection 50(1) permits the registration of a registered user of a mark if the use to be made of the trade mark in question is for all or any of the wares or services for which it is registered. Since the retailers did not use the respondent’s mark in association with any of the services described in the registration, the respondent was not required to register their use of the “Marché Extra” trade mark.

In a very interesting article written by Daniel R. Bereskin and entitled The Source Theory on Trade Mark Law and its Effect on Trade Mark Licensing,[6] the author questions the merits of mandatory observance of the registered user provision of the Act. He explains the opinion held by Dr. Fox and others that compliance with the registered user provisions of the Act is mandatory as follows (at page 322):

A widely held belief in Canada is that it is not prudent to allow any licensee to use a trade mark without registration of the licensee as a registered user. A leading proponent of this view was Harold G. Fox, who emphasized that licensing of trade marks would cause their invalidity unless the registered user procedure of the Canadian Trade Marks Act is followed scrupulously. The basis of this view is that as the primary function of a trade mark is to denote that the goods or services come from one source and one source only, any concurrent use by two or more persons (such as licensor and licensee) of the same trade mark would inevitably lead to deception of the public. According to Dr. Fox, the registered user scheme is an exception to the rule that the purpose of a trade mark is to indicate origin and therefore the relevant provisions of the statute, including both substantive law and procedure, must be followed strictly.

The author goes on to propose a solution to this problem which he exposes as follows:

The argument of this essay is that although the source theory unquestionably is the foundation of trade mark law in Canada, the mere use of a trade mark by a licensee in a typical modern licensing situation does not in itself result in a second “source”. When the goods or services are being offered by a licensee who is acting under the authority and control of a trade mark owner, the use of the trade mark by the licensee does not denote that the licensee is the source of the goods or services, any more than does use of a mark by a person who is a mere distributor. Therefore the trade mark will remain connected with the trade mark owner as the single source, whether or not the identity of the owner is known. Assuming there is no deception of the public, failure to register the licensee as a registered user can have no adverse effect on the validity or enforceability of the licensed mark, either under the statute or at common law.

In light of these principles, which I fully endorse, the next step would appear to involve an examination of the degree of control exercised by the owner of a trade mark over the use of its mark by authorized users and a determination of whether the public is likely to be deceived by such unregistered use.

In the case at bar, the respondent’s evidence establishes that, prior to becoming affiliated with the respondent, potential members are required to sign an agreement governing the relationship between the respondent and its affiliated retailers. According to this contract, a sample of which is appended to Mr. Duval’s affidavit, the respondent is responsible for the installation and maintenance of the sign appearing outside each of its affiliated retail grocery stores. The sign to which the agreement refers, as discussed above, displays the respondent’s trade mark, as well as a caption which reads “affilié à J. L. Duval”. In this agreement, the respondent also agrees to publish a weekly circular of advertised specials available at all of its affiliated stores. A copy of such a circular appears in Mr. Duval’s affidavit. Again, the respondent’s mark appears with the caption confirming the retailers’ affiliation with the respondent. Finally, the respondent agrees to offer consulting services to its member stores and provide weekly information bulletins. The retailers, in turn, agree to purchase at least eighty percent of their merchandise from the respondent, offer their products at the respondent’s advertised retail price and follow the respondent’s general policy guidelines. These facts clearly establish that the respondent exercises sufficient control over the use of its mark by its member retailers.

Since the respondent does not operate any retail outlets of its own and does not grant any licences to use its trade mark in association with wholesale services, the public is not likely to be confused by the unregistered use of the respondent’s mark. The respondent has been quite diligent in its inclusion of the caption “affilié à J. L. Duval” and appears to be using its trade mark quite effectively to promote its wholesale distribution services. In my opinion, there can be no public deception in this case.

In my view, a trade mark should not automatically be held to be invalid merely because its owner has permitted its restricted use in association with wares or services not included in the trade mark owner’s registration of its mark. In such cases, a more detailed study of the owner’s control over the use of its mark and public perception is required. The determination of whether a trade mark actually distinguishes the wares or services of its owner from those provided by other suppliers of such goods or such services will depend on the individual facts of each case.

In the matter before this Court, I find that the applicant has failed to discharge its onus of proving that registration no. 332,181 is invalid. Consequently, this application is dismissed with costs.

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