©2017. Published in Landslide, Vol. 9, No. 6, July/August 2017, by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.
Feature
When to Apply and When to File an Action—The Pros and Cons of Commencing Trademark Litigation in Canada’s Federal Court via a Notice of Application
Lorraine M. Fleck
In 2011, Canada’s Federal Court of Appeal ruled in BBM Canada v. Research in Motion Ltd.1 that trademark litigation could be commenced via the Federal Court’s summary application process. Previously, trademark litigation was only commenced via the standard and considerably lengthier procedure for actions. The BBM appeal provided trademark owners with an option to enforce their rights in a potentially more expeditious and cost-effective manner. However, there are circumstances when launching an application may not be advantageous and the action route may be preferred. For example, recent grants of interim injunctions2 by the Federal Court in trademark disputes—reversing a long-standing trend where the court did not grant such relief—may make proceeding via an application less desirable in certain circumstances. This article examines the various factors to be considered in deciding whether to commence trademark litigation in Canada via an application or the more traditional route of an action.
How an Application Differs from an Action
Canadian trademark litigation typically is commenced via an “action”—a lawsuit that commences with a statement of claim followed by a statement of defense, includes discovery, and concludes with a trial with live witnesses in court. Actions typically take at least two years to reach trial, and trials usually average one to six weeks.
The Federal Court also has a simpler, more expeditious and therefore potentially cheaper proceeding called an “application.” An application is commenced by the applicant (the equivalent of the plaintiff in an action) filing a notice of application. The respondent (the equivalent of the defendant in an action) must serve and file its response to the notice of application3 within 10 days after the notice of application is served.4 All evidence in an application proceeding is in written form, with cross-examination on affidavits filed and no discovery. The applicant’s evidence must be served and filed within 30 days of the notice of application’s issuance; the respondent’s evidence must be served and filed within 30 days of the applicant’s affidavits being served. The hearing is based solely on the written record, usually takes place within a year of the application being commenced, and usually is completed in one to two days. Given the truncated procedure and compressed timeline, the total legal fees for an application up to the hearing and decision stage are often less than the fees for only the discovery phase in an action, providing significant cost savings.
The BBM Case
BBM filed a notice of application in Federal Court claiming that Research in Motion’s (RIM’s)5 use of the BBM trademark for instant messaging services infringed BBM’s rights in its various BBM formative marks registered for data collection and distribution services. BBM sought damages, declaratory and injunctive relief for infringement,6 depreciation of goodwill,7 and passing off.8
RIM moved to have the application dismissed on the basis that it should have been brought as an action, not an application. The Federal Court judge hearing the motion ordered the application to proceed as an action under the Federal Court Rules (Rules) and determined that the notice of application would serve as a statement of claim.9 The judge reviewed the Rules and Trade-marks Act (Act) provisions and concluded that a trademark infringement proceeding must be initiated as an action for the following reasons:
- The Act does not specifically state that proceedings alleging infringement can be brought as applications; and
- The Rules require a proceeding to be brought as an action unless there is a specific statutory provision that a proceeding can be otherwise commenced.
BBM appealed the motion judge’s decision to the Federal Court of Appeal. The appellate court reviewed the Rules and Act, starting with Rule 61. Rule 61 states that there are three ways for a proceeding to be commenced in the Federal Court: via an action, an application, or an appeal. The court then examined the additional relevant rules referenced in Rule 61, namely Rules 169 and 300, and determined that matters that cannot properly be initiated as applications or appeals must be initiated as actions.
The Federal Court of Appeal then reviewed whether BBM’s dispute was one that the Rules permitted to be brought as an application. Rule 300 permits a matter to be brought via an application in various circumstances, including “proceedings required or permitted by or under an Act of Parliament to be brought by application, motion, originating notice of motion, originating summons or petition or to be determined in a summary way.” Rule 300’s wording led the appellate court to determine whether the Act “required or permitted” infringement, passing off, and/or depreciation of goodwill proceedings to be brought via an application. The court then examined the relevant section of the Act, section 53.2, which provides:
If a court is satisfied, on application of any interested person, that any act has been done contrary to this Act, the court may make any order that it considers appropriate in the circumstances, including an order providing for relief by way of injunction and the recovery of damages or profits, for punitive damages and for the destruction or other disposition of any offending goods, packaging, labels and advertising material and of any equipment used to produce the goods, packaging, labels or advertising material.
Despite the use of the word “application” in section 53.2, the Federal Court of Appeal found that the word meant a formal request for relief, not a legal proceeding commenced by a notice of application. The court concluded that section 53.2 was silent on how proceedings under that provision of the Act were to be initiated, and therefore examined the statutory context to determine Parliament’s intent.
The Federal Court of Appeal then reviewed other sections of the Act concerning legal proceedings, many of which (e.g., sections 55 and 57) permit proceedings to be brought as either actions or applications. Given that the purpose of the Act is to protect consumers and facilitate the effective branding of goods, the court found that this purpose in general and the legal proceedings section of the Act in particular are best met by an interpretation that promotes access to the courts as expeditious and proportionate as possible. The court concluded this meant that section 53.2 of the Act should be interpreted as permitting trademark litigation to be brought as either applications or actions, to allow access in an appropriate case to the more summary application process.10
Advantages of Bringing Trademark Dispute as an Application vs. an Action
The option to commence trademark litigation in Canada’s Federal Court as an application can provide several advantages to trademark owners, depending on the facts and litigation strategy.
Proceeding via an application can provide a faster and less costly decision than in an action, due to the elimination of discovery in an application proceeding. This assumes the respondent does not successfully move to have the application converted to an action. As of writing, the average time to a decision in trademark disputes brought via a notice of application was just under 18 months, as opposed to at least two years for an action.11 Two of those disputes were decided in six and eight months.12
The ability to bring litigation involving logos via an application is also an advantage. In Canada, copyright infringement proceedings can be brought as an action or an application.13 The ability to commence trademark litigation also via an action or an application means owners of logos who would also have grounds for copyright infringement claims do not have to forgo the advantages of the summary application proceeding available to copyright litigants in order to assert both their copyright and trademark rights.
The applicant’s willingness to forgo discovery can telegraph to the respondent that the applicant is very confident in its case. This may lead to an early settlement, further reducing the applicant’s legal fees and leading to perhaps an even earlier favorable result.
The ability to bring trademark disputes via an application may be an effective alternative to an interlocutory injunction.14 Over the past 20 years, interlocutory injunctions were very rarely granted by the Federal Court in trademark disputes, except in counterfeiting cases. In the last two years, however, the Federal Court has granted interlocutory injunctions in two separate trademark disputes.15 While this is a positive development for trademark owners, especially when it took four months from the commencement of proceedings to the grant of the injunction in both cases, such injunctive relief is not yet routine. Therefore, the ability to commence trademark litigation via the more expeditious application proceeding remains a viable option for trademark owners seeking speedy relief.
Disadvantages of Bringing Trademark Dispute as an Application vs. an Action
The disadvantages of commencing trademark litigation via an application include the following.
Any time and cost savings may be lost if the respondent to trademark proceedings launched as an application moves, successfully or otherwise, to have the application converted to an action. If the Federal Court orders an application converted to an action, the party initiating the proceedings may be ordered to pay some of the winning party’s legal fees incurred in bringing the motion.16
The lack of discovery in application proceedings can work against trademark owners in several ways. First, forgoing discovery can telegraph weakness in the applicant’s case, given that the lack of discovery may result in evidence that could harm the applicant’s case not coming to light. This may discourage early settlement and result in the respondent successfully moving for the application to be converted to an action. Second, the lack of oral and written discovery results in limited credibility determinations and can also limit the proof of harm and thus damages. In most cases where the applicant in trademark litigation has won, the court did not award licensing fees, punitive damages, or compensatory damages, and instead awarded nominal damages.17 Similarly, while the Federal Court has found trademark infringement in all reported applications where the applicant won, it has only found depreciation of goodwill in two of the five cases where that ground was pleaded.18 While the number of decisions in Canadian trademark litigation proceeding via an application is admittedly small, this trend demonstrates that where it is important for a party to conduct discovery and/or obtain admissions to build its case, or where credibility may be difficult to resolve in summary proceedings, initiating trademark litigation via an application may indeed limit both the available remedies and monetary recovery. Despite the availability of all remedies under the Act when proceeding via an application, applicants may not win on the grounds of depreciation of goodwill, nor be awarded compensatory damages, punitive damages, or lost licensing fees.
Concluding Remarks
The ability to initiate Canadian trademark litigation via an application is a positive development for trademark owners seeking to enforce their rights in Canada. The application process offers potentially significant cost and time savings. However, trademark owners must determine whether those advantages will unnecessarily limit their litigation strategy due to the lack of discovery and negatively impact the relief that may be awarded by the Federal Court, especially with respect to any claims for depreciation of goodwill and claims for punitive damages, licensing fees, and other forms of compensatory damages.
Endnotes
1. 2011 FCA 151.
2. Trademark proceedings in Canada can be commenced in a provincial/territorial court or the Federal Court. Differing from the United States, Canada’s Federal Court is a single court that hears cases across Canada. The Federal Court is the preferred court in Canada for intellectual property disputes for many reasons. First, its judges have subject matter expertise; some Federal Court judges are former intellectual property practitioners. Second, the Federal Court issues judgments that are nationally binding; provincial/territorial judgments are restricted to the province/territory in which the judgment was issued. Third, only the Federal Court can expunge a trademark registration, which can be a tactical consideration depending on the relief sought. The Federal Court cannot hear actions in which the plaintiff is not relying on trademark rights, such as breach of contract or common law torts where trademark rights are not involved.
3. The respondent’s response to the notice of application is called a notice of appearance.
4. Federal Court Rules, SOR/98-106, r. 305.
5. RIM is now known as Blackberry Limited.
6. In Canada, “infringement” is typically restricted to registered marks.
7. “Depreciation of goodwill,” governed by Trade-marks Act, R.S.C. 1985, c T-13, s 22 and restricted to registered trademarks, combines both dilution and tarnishment. The test for depreciation of goodwill, as per the Supreme Court of Canada in Veuve Clicquot Ponsardin v. Boutiques Cliquot Ltée, 2006 SCC 23, para. 46, is as follows: (1) a claimant’s registered trademark was used by the defendant/respondent in connection with wares or services; (2) the claimant’s registered trademark is sufficiently well known to have significant goodwill attached to it; (3) the claimant’s mark was used in a manner likely to have an effect on that goodwill; and (4) the likely effect would be to depreciate the value of its goodwill.
8. “Passing off” refers to unauthorized activity involving unregistered trademarks where such activity is likely to cause confusion.
9. BBM Can. v. Research in Motion Ltd., 2010 FC 986.
10. BBM Can. v. Research in Motion Ltd., 2011 FCA 151, para. 28. While the Federal Court of Appeal allowed BBM to continue the proceeding as an application, BBM ultimately lost. BBM Can. v. Research in Motion Ltd., 2012 FC 666.
11. It took 22 months for the BBM case to reach the decision stage. The number of months in the other decisions, published as of writing, as are follows: Thoi Bao Inc. v. 1913075 Ontario Ltd. (Vo Media), 2016 FC 1339 (14 months); Trans-High Corp. v. Conscious Consumption Inc., 2016 FC 949 (12 months); Wenger S.A. v. Travel Way Grp. Int’l Inc., 2016 FC 347 (31 months); Black & Decker Corp. v. Piranha Abrasives Inc., 2015 FC 185 (eight months); Gary Gurmukh Sales Ltd. v. Quality Goods IMD Inc., 2014 FC 437 (32 months); Trans-High Corp. v. Hightimes Smokeshop & Gifts Inc., 2013 FC 1190 (six months).
12. See supra note 11.
13. Copyright Act, R.S.C. 1985, c C-42, para. 34(4)(a).
14. Canadian legal practice uses the term “interlocutory injunction,” as opposed to “temporary restraining order” or “TRO” in the United States.
15. In the first decision, Reckitt Benckiser LLC v. Jamieson Labs. Ltd., 2015 FC 215, the Federal Court granted the interlocutory injunction against Jamieson’s OMEGARED fish oil supplement because the evidence indicated that Jamieson knew of Reckitt’s prior Canadian registration for MEGARED for fish oil supplements (based on use and registration in the United States) and plans to enter the Canadian supplement market, but continued with the launch of its competing OMEGARED product. The facts were more conventional in the second decision, Sleep Country Can. Inc. v. Sears Can. Inc., 2017 FC 148. Sleep Country, owner of the 25-year-old slogan WHY BUY A MATTRESS ANYWHERE ELSE, sued Sears over its use of THERE IS NO REASON TO BUY A MATTRESS ANYWHERE ELSE. The Federal Court granted the injunction.
16. In Canada, a successful party can expect the court to award a portion of its legal costs, paid by the losing party. Typical cost awards in Federal Court range between 25 percent and 35 percent of actual expenses, with all reasonable disbursements (including expert fees) eligible for recovery. Because of the cost system, a defendant/respondent can usually require a nonresident plaintiff/applicant to pay money into court as “security for costs” before defending against the proceedings. The court holds the money in an interest-bearing account until it is ordered to be paid to the defendant/respondent.
17. In Gary Gurmukh, 2014 FC 437, the applicant was awarded approximately C$75,000 in compensatory damages, an injunction, and delivery up of the offending product, but punitive damages were not awarded. In Hightimes Smokeshop, 2013 FC 1190, the applicant was awarded nominal damages of C$25,000, an injunction, delivery up/destruction of the offending product, and transfer of the disputed domain name, but compensatory damages and licensing fees were not awarded. In Black & Decker, 2015 FC 185, again compensatory damages were not awarded, nor was the requested domain name transfer. The court did award C$10,000 in nominal damages, an injunction, and delivery up/destruction of any remaining infringing product after a 90-day sell-off period. The court declined to award licensing fees again in Conscious Consumption, 2016 FC 949, but did award nominal damages of C$25,000, an injunction, and delivery up/destruction of the offending goods. In Thoi Bao, 2016 FC 1339, the court declined to award punitive damages in respect of the unauthorized trademark use, but did award licensing fees of C$15,000, an injunction, and transfer of relevant domain names and social media accounts to the applicant.
18. In Gary Gurmukh, Hightimes Smokeshop, and Black & Decker, supra note 11, the court declined to find depreciation of goodwill. The court did find depreciation of goodwill in Conscious Consumption and Thoi Bao.