Beware of trolls: Experts raise concerns about Canada’s new trademark law

  • February 01, 2015
  • Carolynne Burkholder-James

A new change to Canada's trademark registration requirements could lead to a rise in trademark trolls, experts warn.

Bill C-31, the Economic Action Plan Act, which passed as an omnibus bill in June 2014, eliminates the "use requirement" as a prerequisite to register trademarks. This means that entities will be able to register trademarks in Canada with merely an intent to use the marks, with the meaning of "intent" yet to be determined by the courts.

"Canadian businesses should know that registered trademark owners will be able to exercise exclusive rights over marks even if they are not using and have never used the mark in Canada or, indeed, elsewhere," explains Carys Craig, an associate professor at Osgoode Hall Law School.

Calling this the most substantial change to Canadian trademark law in more than 50 years, intellectual property experts warn that people will be able to register trademarks for the express purpose of suing entities that want to use the marks for legitimate business purposes. Essentially the trolls would hold the trademarks for ransom from their legitimate owners.

"Unless regulations are put in place to require some use requirements, the ability to obtain rights without use will be available – leaving Canada open to the same trolling concerns seen in other jurisdictions like China," warns Angela Furlanetto, partner at Dimock Stratton LLP and past-president of CBA’s Intellectual Property Section.

Cynthia Rowden, a Toronto-based intellectual property expert, agrees that trademark trolls are a "huge problem" in China and worries the same problem may come to Canada.

"I can tell you that virtually every time I have a client who wants to register a trademark in China, we have been blocked," she says. "It is a classic problem."

Every year, more than 1.8 million trademarks are filed in China with 1.5 million filed by Chinese entities, says Rowden, partner at Bereskin & Parr LLP and a member of the CBA Trademarks Committee. In Canada, about 42,000 trademarks are filed each year – less than half by Canadians.

"Virtually everyone who does business in Asia experiences it. The question is: should we make it easier for businesses with no connection to Canada and no intent to put the mark into use in the marketplace to acquire rights in Canada?"

Trademark trolls have not historically been a problem in Canada as trademark registration has required actual use, in Canada or elsewhere. This requirement dates back to Canada's Trade Mark and Designs Act of 1868. Under current Canadian law, trademarks can be filed based on the intention to use, but the law contains safeguards to ensure that the registration will only be completed when the mark is actually in use in Canada.

As part of the new legislation, which will likely come into effect in 2016, Canada will be signing onto the Madrid Protocol, which simplifies the process for companies applying for trademark protections in other countries.

The government cites the Madrid Protocol as the reason why Canada is eliminating the use requirement.

However, intellectual property expert Sheldon Burshtein points out that the United States has signed the Madrid Protocol while continuing to have a use-based trademark system. Burshtein says that the new legislation will mean that rights within the Canadian trademark system are based on registration and not on use.

"It's basically a race to the trademarks office," says Burshtein, Partner at Blake, Cassels & Graydon LLP in Toronto.

For example, if a small business does not register its trademark, someone else can effectively steal it and “hold the business for ransom.” Small businesses may then be forced to pay the trademark trolls rather than engage in an extended legal battle, says Burshtein.

But this just encourages the problem, says Rowden.

"Most businesses don't want to pay someone to get their rights because it establishes a precedent," she says. "A lot of people would like to have more scrutiny of the system."

Both Rowden and Furlanetto say that the change to the law may result in an increased cost to Canadian businesses.

"The fear is that there will be an increased cost to do business in Canada as trademark trolls will apply for registration of key marks, requiring businesses to engage in prolonged legal battles for rights, or to pay fees to either license marks or purchase marks," says Furlanetto. "There are also expected added legal costs to obtain opinions as to rights and strategy."

The government's prediction that the legislation could lead to a four-fold increase in oppositions to trademark applications is also a concern for Rowden.

"Oppositions are time-consuming, expensive, uncertain and stressful. If the opposition rate is going to increase, you've made the acquisition of rights more expensive because opposition is expensive," she says.

Osgoode Hall’s Craig, an expert on intellectual property, copyright and trademark law, says the public could also be affected.

"If a growing proportion of registered trademark owners are not in fact offering goods or services in Canada, it is not only the local businesses who will suffer, but also the Canadian public. The law will be put to work to protect the rights of traders who are offering nothing to Canadian consumers," she says.

However, Kelly Gill, Partner at Gowling Lafleur Henderson LLP, says that he's optimistic that Canadian courts will ensure that rights are protected.

"I believe the courts will craft appropriate approaches under the new legislation for dealing with people who attempt to register marks, not for legitimate use but for ransom," he says. "The approach will be different, but I think our collective history in Canada of protecting legitimate trademark owners will prevail."

The best way for Canadian businesses to protect their rights is to register their trademarks.

"Early application and registration is the key to defeating trolls,” says Gill, “because it takes away any opportunity for the troll to swoop in and try to take advantage of a company having used but not registered a brand.”

Carolynne Burkholder-James is an articling student at Heather Sadler Jenkins LLP in Prince George, B.C.

Read the CBA submission to government on Bill C-31.