Expungement: A Poisoned Trademark – for Both Parties

In JAG Flocomponents N.A.  Inc. v. Archmetal Industries the Plaintiffs sought expungement of the Canadian trademark FUSION, as well as a declaration that the Defendants had breached section 7(a) of the Trade-marks Act.  The trademark was registered for  use in association with ball valves for industrial use and use was claimed since as least as early as September, 2002.

One of the Defendant companies had been a 30%  owner  of one of the Plaintiff companies and a Letter of Intent had been executed setting out the basic relationship whereby the Plaintiff s were to distribute valves manufactured by the Defendants in China.  The parties had also executed a Consignment Agreement which the Court found to be a critical document since clause 12 specified that the intellectual property arising by virtue of the Agreement was deemed to be equally owned by the parties. 

For marketing purposes, the Plainitffs adopted the trademark FUSION and proceeded to market wares manufactured by the Defendants, as well as wares sourced from a different manufacturer, using the trademark.  However, following the breakdown of the relationship, one of the Defendants registered the trademark.  The disputes arising between the parties were eventually settled under an Alberta Queen’s Bench action, which left only the intellectual property issues unresolved. The Plaintiffs had also applied to register the trademark, but the Defendants successfully opposed the application on the basis of alleged prior use. 

In light of the Consignment Agreement, the Federal Court concluded that neither the Plaintiffs nor the Defendants had a right to register the trademark.  Since neither party was prepared to acknowledge joint ownership, FUSION was essentially “poisoned” as a viable trademark. 

The Court also concluded that the Defendants could not claim first use on the basis that the Plaintiffs were distributors of a product the Defendants manufactured off-shore (similar to the conclusion reached in the 1989 case, Lin Trading Co. v. CBM Kabushiki Kaisha). Under the Consignment Agreement the Defendants retained ownership of the goods until ownership was transferred to a third party and therefore there could be no use of the trade-mark by the Defendants in Canada.

The Plaintiffs’ request that they be substituted as the registered owner of the trademark was also denied, in light of the equal ownership referenced in the Consignment Agreement, but also because the Court had no such jurisdiction.  The Court also found that the Defendants had mislead the Trademarks Office when they sought to register FUSION, having specificially omitted any reference to section 12 of the Consignment Agreement in the Affidavit filed with the Office.  Following General Motors of Canada v. Décarie Motors Inc.  the Court found there was a material misrepresentation which meant the registration could be invalidated, even in the absence of a fraudulent intent.

Finally, with regard to section 7(a) of the Trade-marks Act, which provides that no person shall “make a false or misleading statement tending to discredit the business wares or services of a competititor”, the Court found that the Defendants had mislead a client of the Plaintiffs by suggesting that the Plaintiffs’ manufacturing facility in China had been closed down.  However, the issue of damages was to be determined in a further hearing and the Court left open the possibility of further evidence from the Plaintiffs’ client.

Thus, neither party was entitled to the registration of the trademark and the issue of damages pursuant to section 7(a) was left open for a further hearing.

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