Ghost in the Well: Court Expunges Registration of a Competitor’s Trademark

Canada’s Trademarks Act was amended in 2018 to include an additional basis upon which to invalidate a registered trademark: bad faith. While the concept of “bad faith” has percolated in Canadian trademark law for some time, the Federal Court’s recent decision in Advanced Purification Engineering Corporation (APEC Water Systems) v. iSpring Water Systems, LLC, 2022 FC 388 is one of the first to consider the scope of this now codified ground of invalidity.

This decision highlights the high bar to demonstrating that a registration was made in bad faith and reinforces how important it is for trademark owners to secure registered rights in the markets in which they operate.

Background

In 2017, iSpring Water Systems (iSpring) registered the trademark APEC WATER in Canada in association with various water treatment devices and systems claiming use since 2012. However, it is not clear that iSpring had ever in fact made or sold any products in Canada under the APEC WATER brand. 

Rather, APEC Water Systems (Apec), a competitor of iSpring, had been using APEC WATER in association with water filtration systems in Canada since 2005. While Apec registered APEC WATER in the U.S., it never registered the trademark in Canada – it only had common law rights. Indeed, Apec only learned of iSpring’s Canadian APEC WATER registration when it finally sought to register its own APEC WATER mark in Canada.

Apec thus brought an application in the Federal Court seeking to expunge iSpring’s APEC WATER from the Canadian Trademarks Register. 

Expungement of iSpring’s Registration

The Federal Court expunged the registration for abandonment, lack of entitlement and material misrepresentation, but refused to make a finding of bad faith. 

Despite its claim of prior use, iSpring could not demonstrate that it had in fact used the trademark in Canada in 2012 or at all. It produced invoices that had mathematical errors and low-quality photographs of purported packaging that did not indicate where the products were sold or shipped. No evidence was furnished of the website through which the APEC WATER-branded filtration systems were purportedly made available, nor was there evidence that iSpring ever sold APEC WATER-branded products in retail stores in Canada, or marketed the products on its website or social media accounts. 

The Court found that iSpring was not entitled to the registration, as Apec’s use of the trademark in Canada pre-dated iSpring’s alleged date of first use by seven years. As a corollary, the Court also found that iSpring’s later registered APEC WATER mark could not be distinguished from Apec’s earlier common law APEC WATER mark, and thus iSpring’s registered trademark lacked distinctiveness. 

Further, the Court found that iSpring had abandoned the mark, since there was no credible evidence of iSpring’s use of APEC WATER in Canada. The Court also agreed that iSpring made a material misstatement in the application underlying the registration by claiming use of APEC WATER in Canada starting in 2012 – a date of first use it could not prove.

Notwithstanding the lack of cogent evidence of use or the fact that the parties were competitors, the Court was not prepared to find that iSpring obtained the trademark registration in bad faith.  The Court held that expunging a registration for bad faith required evidence that iSpring was aware of Apec’s mark or that it intended to hurt Apec. The Court was not satisfied that the evidence showed that iSpring knew of Apec; iSpring may have simply been wilfully blind to the existence of its competitor’s mark.

Takeaways

This decision suggests that brand owners face a high bar for establishing that a trademark was registered in bad faith. Evidence that the registrant has no legitimate interest in the trademark, even coupled with proof of material misstatements in the underlying application, may not be enough.  Rather, proof that the registrant knew of and specifically targeted the brand owner may be required.

The Court’s findings highlight the difficulties in combating trademark squatting. Rights holders should be proactive in registering their active trademarks to ensure that they have full control of their marks. Further, they should carefully monitor trademark application advertisements so they may oppose improper trademark applications before they are registered.