Federal Court Expunges Licensee’s Trademark Registrations for Bad Faith

The Federal Court recently expunged a sublicensee’s registration of the brand owner’s trademarks on the basis of bad faith and awarded punitive damages to the brand owner. Blossman Gas, Inc. v. Alliance Autopropane Inc., 2022 FC 1794 is one of the few successful trademark expungements on bad faith grounds, for which the courts have imposed a high bar.

The ALLIANCE AUTOGAS Trademark

Blossman Gas, Inc. (“Blossman”) had been selling propane under an ALLIANCE AUTOGAS trademark since 2009 in the United States and since 2012 in Canada through a licensed dealer.

The licensed dealer sublicensed use of the ALLIANCE AUTOGAS trademark in Quebec to Alliance Autopropane Inc. (“AAP”). The sublicence was clear that the ALLIANCE AUTOGAS trademark was owned by Blossman. While a sublicensee, AAP applied to register Blossman’s ALLIANCE AUTOGAS trademark in Canada, in addition to three other similar trademarks (the “AAP Marks”) without the consent of the licensed dealer or Blossman.

Blossman subsequently brought an application in the Federal Court of Canada to strike the AAP Marks from the register and stop AAP from using them on the basis of passing-off. Blossman alleged that the AAP Marks were invalid for a number of reasons, including by Blossman’s prior use of the mark in Canada and bad faith. 

Blossman’s Prior Use

The Court easily accepted that Blossman did not acquiesce to AAP’s registrations and that a licensee’s “use” of trademarks will not entitle it to a trademark registration. It is well-established in Canadian trademark law that distributors, agents and licensees are not entitled to register a licensor’s trademark on the basis of their licensed use, regardless of whether the licence agreement expressly prohibits such action. The Court further found that Blossman had used the ALLIANCE AUTOGAS trademark in Canada through its Canadian licensed dealer prior to any registration by APP – which in of itself could defeat the registrations. 

Bad Faith: A High Bar

As we previously reported, Canada amended its Trademarks Act in 2018 to allow a person to invalidate a registered trademark for bad faith. However, since that time, the provision has rarely been successfully invoked as the courts have imposed a high bar for establishing bad faith; the courts have required evidence of pre-existing awareness of the brand by the registrant and/or an intention to harm the true brand owner. For example, the Federal Court refused in APEC Water Systems v. iSpring Water Systems, LLC to make a finding of bad faith against a company who registered (but did not actually use) a competitor’s common law trademark as there was no clear evidence that the company was aware of the competitor or its brand, or intended to harm the competitor.  

The Court in Blossman noted that the concept is flexible and context-specific; it need not involve an assessment of morality or intentional fault, and may be economic in nature. 

Here, AAP had actual knowledge of Blossman’s trademark rights, and it knew that its own right to use the ALLIANCE AUTOGAS trademark was dependent on licensing agreements.  Nevertheless, AAP chose to register the AAP Marks without advising Blossman it was doing so. In these circumstances, the Court concluded that AAP could not have reasonably or in good faith sought to register the AAP Marks.

AAP argued that there was no bad faith as AAP’s principle had a subjective belief that AAP had the right to register the mark. The Court dismissed this argument and was clear that the assessment of bad faith is based on objective standards. A trademark applicant’s ignorance of the law or subjective assessment of its own conduct will not excuse misconduct.

Result

The Court invalidated the AAP Marks ab initio, preventing AAP from relying on its registration as a defence to passing off (which the Court subsequently found). In addition to damages of $20,000 for passing off, the Court also awarded $5,000 in punitive damages for the bad faith registration to deter licensees from seeking to register their licensor’s trademarks.

Takeaways

This case serves as a successful example of expungement for bad faith. However, it also raises two broader takeaways. First, licensees should exercise care to avoid taking actions that undermine their licensor and its licensed brands while under licence. Second, brand owners should seek to register their trademarks and should monitor the Canadian register for confusing marks to prevent and/or oppose bad faith applications pre-grant.