Changes in distribution models may affect trademark rights

Justine Whitehead and Hilary Furness - 

In Canada, and most countries around the world, trademarks which are not being used in association with the goods and services with which the marks were registered are vulnerable to expungement for non-use.  In Canada, challenges can be brought under section 45 of Trade-marks Act, which provides for summary expungement of a trademark if, upon request of the Registrar of Trade-marks, a trademark owner is unable to provide evidence of use of the trademark in Canada during the previous three years, in the normal course of trade and in association with the goods and/or services set out in the registration.  This expungement can only be avoided if the owner proves special circumstances that justify temporary non-use of the trademark.

Technological changes are revolutionizing the methods by which certain goods and services are sold to consumers. At one time, products such as books, music recordings and computer games could only be sold to consumers as tangible items.  Now, of course, these items are routinely made available through various electronic means, and in some cases, the business model has moved from distribution of goods to the offering of on-line services.  But what happens to trademark registrations when evolving technology has changed the manner or medium by which the identified goods and services are offered for sale to consumers?  

In February 2016, the Federal Court had to address precisely this issue in Specialty Software Inc. v Bewatec Kommunikationstechnik GMBH.  In 1992, Specialty Software Inc. (“Specialty”) registered the trade-mark MEDINET in association with goods, namely “computer software programs”.  At the time, the software was distributed in a tangible form on disks.  However, during the relevant period for the summary cancellation proceedings (November 2010 to November 2013), evidence was filed at Federal Court to confirm that the software was distributed through a software as a service (SaaS) model, in which Specialty managed its software products on its own servers and granted paying customers access to such software.  No download or installation of the software was required by its customers. 

The party initiating the summary cancellation proceedings, Bewatec Kommunikationstechnik GmbH, argued that such evidence of use was not sufficient to shield the registration from expungement due to non-use, because Specialty was no longer distributing goods, but rather offering services.  The Federal Court disagreed with this contention, noting that although Specialty used to sell its software on disks, which are obviously tangible and easily identified as wares, it was really always selling a license to use the software, which is an intangible good.  In short, the registrant did not actually sell the software itself; it sold an entitlement to obtain access to such software by way of license.  The discs merely represented the means by which transfer of the goods occurred, but the real goods were, and are, software licenses, which continue to be sold on an annual subscription basis.

Accordingly, the Federal Court declined to expunge the 1992 trademark registration on the grounds of non-use.  Such reasoning, if upheld, will provide some comfort to owners of copyrightable software, provided that such software was and continues to be distributed by way of license.  However, it is unclear whether such reasoning can be easily applied to other goods for which methods of distribution have changed due to technological evolution.  Moreover, Bewatec filed an appeal with the Federal Court of Appeal on March 21, 2016, so it remains to be seen whether this judgment will stand.  

In light of these uncertainties, the more direct approach taken by the United States Patent and Trademark Office (USPTO) must be appreciated.  The USPTO has initiated a Pilot Program to allow amendments to the statement of goods and services in a trademark registration to take into account technological evolution.  According to the USPTO, an amendment will be approved if it is necessary and is the result of technologically-induced changes to the means or medium by which the registrant’s goods and services are distributed.

The duration of the Pilot Program is conditional on the volume of requests and, once over, the USPTO will decide whether to permanently allow the amendments sought and whether to issue modified guidelines. The USPTO has vowed to publish all proposed amendments. Since the launch date, eighteen have been listed.

The USPTO has issued a number of application requirements, including that the petitioner must intend to replace the original identification of goods and services with those in their “evolved form”.  Furthermore, the USPTO has provided guidance in the form of a non-exhaustive list of “acceptable” and “unacceptable” amendments. Acceptable amendments include:

  • “Phonograph records featuring music” in International Class 9 to “Musical sound recordings” in International Class 9;
  • “Floppy discs for computers for word processing” in International Class 9 to “Providing on-line non-downloadable software for word processing” in International Class 42; and
  • “Printed books in the field of art history” in International Class 16 to “Downloadable electronic books in the field of art history” in International Class 9.

Unacceptable amendments include:

  • “Downloadable software for use as a spreadsheet in the field of accounting” in International Class 9 to “Providing on-line non-downloadable software for use as a spreadsheet in the field of business management” in International Class 42;
  • “Phonograph records featuring music” in International Class 9 to “Streaming of audio material in the nature of music” in International Class 38; and
  • “Video game tape cassettes and video game cartridges” in International Class 9 to “Video game discs and video game cartridges” in International Class 9.

Owners of United States trademark registrations should review the statement of goods and services associated with their marks, and consider whether they should file requests under the USPTO’s pilot project.  Until the Canadian Intellectual Property Office takes a similar proactive approach, however, owners of Canadian trademark registrations should review their registrations, and consider filing new applications to cover their current modes of offering their goods and services.

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