A Retrospective Look and Resulting Best Practices on the Last Twenty Years of Canadian Trade-mark Licensing webinar

1. A Retrospective Look and
Resulting Best Practices on the
Last Twenty Years of Canadian
Trade-mark Licensing

2. Gowlings at a Glance
• One of Canada’s largest
law firms
• Over 750 professionals
across 10 offices
worldwide
• Recognized expertise in
Business Law, Advocacy
and Intellectual Property
Law
2

3. Gowlings at a Glance
www.gowlings.com
3

4. Trade-mark Licensing Pre-1993
• Pre-1993 – No real ability to license and viewed as
antithetical to source theory of trade-marks
• 1954-1993 – Registered user regime. Procedure,
limitations and resulting problems
4

5. Trade-mark Licensing Post-1993
• Post-1993 – Section 50 implemented quality
controlled licensing and abolished registered user
agreements
• Intention to have legislation reflect modern
business realities
• Changed the idea from source theory to one based
on quality control
• Created presumption of proper licensing if public
notice was given as to the owner and that the use
was under license
5

6. Main Themes and Ideas Post-1993
• Court and the TMOB are working through different
scenarios
• Cases look at what needs to be controlled, how that
control is exercised and who is entitled to exercise
that control
• Not a lot of case law during this period (most in the
context of expungement, (Section 45) proceedings
6

7. Main Themes and Ideas Post-1993
• A couple of interesting decisions:
• Cassels, Brock & Blackwell LLP v Tucumcari Aero
Inc, 2010 FC 267 – provides guidance on
sublicensing
• BCF SENCRL v Spirits International BV, 2012 FCA
131 – provides guidance on the issue of corporate
control
7

8. Proper Quality Control
• Important to consider:
• What needs to be controlled
• What is required in order to exercise that control and
who is entitled to exercise control
• What is the degree of control that is required to meet
Section 50 requirements
8

9. What needs to be controlled?
• The Act does not provide key definitions
• Character and quality – look to standard
definition of those terms
• Act is not concerned with inherent quality
control
• The Act does not state that a product has to be good
or excellent but that it needs to be of a consistent
quality so the consumer is not deceived
• Same quality as set by the licensor
9

10. Invalidating the mark
• Wilkinson Sword (Can) Ltd v Juda, (1966) 51
CPR 55 (Ex Ct)
• Involved grey market goods, transferred the mark
• Consuming public not notified and the mark was
invalidated
• Heintzman v 751056 Ontario Ltd, (1990) 38 FTR
210 (FCTD)
• Manufacturing facility changed to imported goods
and did not tell the public of the change from the
original source
• Significant change in quality can invalidate a mark
10

11. Exercising control
• Revisions to Section 50, did not provide any
new guidance in terms of how to exercise
quality control
• Start with language in Section 50: a right to
control
• License required - can be written or oral (with
sufficient proof that license exists)
11

12. Clause Example
• Licensee acknowledges and agrees that its use
of the Licensed Marks shall at all times be
under the control of Licensor. Without limiting
the generality of the foregoing, Licensee
agrees that it shall adhere at all times to the
standards governing the character and quality
of the Licensed Wares that may be set by
Licensor and communicated toy Licensee from
time to time.
12

13. Outlining Standards
• Legislation doesn’t offer guidance in terms of
what needs to be contained in standards
• Think about what ought to be contained in
standards:
• Can be brief or complex and detailed
• Character:
• Manufacturing specifications (technical/functional)
• Parts and materials specifications
13

14. Outlining Standards
• Quality issues:
• Performance and reliability
• What is the level of excellence, how durable is it?
• Varies from case to case
• Required degree of complexity
14

15. Quantifiable and Measurable Guidelines
• Hard to enforce standards if you can’t properly
measure
• “Products need to be good quality”, how do
you measure?
• Need to follow through as the owner
• Case law has not answered this yet
• Don’t file and forget
15

16. Character and Quality
• Section reads “character or quality” not
“character and quality”
• While standards and follow up can be left to
parties to complete at a later date it might be
dangerous to do so
• Licensor should set standards to show they are
following through on it’s obligations
16

17. Testing and Inspection
• Setting standards is the first step
• Need to provide proof that you have monitored
and tested for compliance with standards
• Provision of specimens
• Inspection of premises or performance of
services
17

18. Specimens
• Licensee shall supply to Licensor, at
Licensor’s request, specimens of Licensed
Wares manufactured or sold by Licensor to
enable Licensor to determine whether Licensee
is in compliance with the terms and conditions
of this Agreement
• How often?
• Who will bear the cost?
• When will you inspect? During manufacturing or
when product is in the market?
• Who is entitled to conduct tests?
18

19. Inspections
• Depends on the type of product
• Parent or subsidiary relationships might
require little in the way of formal inspection
• Food products or consumer facing products
might need to be inspected regularly
• Look at the situation and consider the goods
and services to draft properly
19

20. Good Business Practice
• Quality
• Testing for the right things:
• Material product characteristics
• Spirits BV: taste testing of licensee’s vodka
• Could have also tested for colour/impurities/proof
• Good quality control inspects the right things
20

21. Licensee Does Not Comply
• Litigation:
• Worst case – your mark is being challenged in an
action where they say your mark in invalid for
improper licensing
• Different quality or mixed quality goods – improper
licensing that allowed that to occur
• What was actually done to allow that?
21

22. Disputes under the license
• Contractual dispute
• Adequacy of the license would need to be
addressed
• Cases failing on the inability of the licensor to
prove they followed through on the quality
control
• Need good documentation and record keeping
22

23. Termination Provision
• Not always included when drafting
• Agreements don’t always outline what happens
when licensee does not comply with quality
control requirements
• Consider a series of remedies before
termination
• Irrevocable license may be close to an
assignment of the mark
23

24. Q&A
24

25. Thank You
montréal  ottawa  toronto  hamilton  waterloo region  calgary vancouver  beijing  moscow  london
Visit www.gowlings.com
Email: kelly.gill@gowlings.com
stuart.ash@gowlings.com