A Retrospective Look and

Resulting Best Practices on the

Last Twenty Years of Canadian

Trade-mark Licensing

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

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Gowlings at a Glance

www.gowlings.com

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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

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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

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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

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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

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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

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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

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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

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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)

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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.

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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

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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

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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

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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

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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

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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?

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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

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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

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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?

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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

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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

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Q&A 24

Thank You

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Visit www.gowlings.com

Email: kelly.gill@gowlings.com

stuart.ash@gowlings.com