The Treacherous Gap Between Goods and Services in Trade-marks Law

Although it may seem arbitrary to a layperson, the gap in legal treatment between trade-marks for goods and trade-marks for services is treacherous for trade-mark owners. This gap can result in the loss of valuable rights, or the inability to enforce important trade-mark registrations. The recent NetJets case discussed below highlights how even a valuable mark can be deemed “abandoned” because it falls between the cracks of use for goods and use for services. While NetJets is a U.S. case, a very similar result could arise under Canadian law.

Use for Goods  – A Strict Standard

To understand how this danger arises, one must appreciate the very different legal treatment of use of a trade-mark depending solely on whether it is registered in association with goods or with services.

Trade-marks listed in association with goods (“wares” under the traditional Canadian Trade-Marks Act (“TMA”) until Bill C-8 comes into force) have a highly technical use requirement. Valid trade-mark use will not occur unless:

at the time of the transfer of the property in or possession of the wares, in the normal course of trade, [the trade-mark] is marked on the wares themselves or on the packages in which they are distributed or it is in any other manner so associated with the wares that notice of the association is then given to the person to whom the property or possession is transferred. (s. 4(1) TMA)

In other words, without a marking on the goods, their packaging, or other materials that are visible at the point of sale, that owner will not have “used” the trade-mark, regardless of how vigorously the owner promotes the trade-mark in marketing or promoting the good prior to the actual sale. Furthermore, the registration’s listed description of goods should match the actual goods sold, or rights can be lost because the registration no longer reflects the marketplace reality (see, e.g., Consorzio Del Prosciutto Di Parma v. Maple Leaf Foods Inc., 2010 TMOB 52).

This highly technical standard creates a real danger for owners of slogan marks and “component” marks such as Intel’s PENTIUM® trade-mark that are not synonymous with the good itself, but rather refer to a component of the good that sparks interest in ordinary consumers. It doesn’t matter if millions of dollars are spent in marketing a slogan or component mark if that mark doesn’t appear “at the time of transfer … in the normal course of trade”. Without making the mark visible at the time of transfer, the mark is not “used” in the meaning of the TMA.

Use for Services – A Lax Standard

By contrast, when a trade-mark owner performs a service, valid use will occur if the trade-mark:

is used or displayed in the performance or advertising of those services. (s. 4(2) TMA)

This is a very liberal standard: all that it requires is that the trade-mark owner is offering and is prepared to perform the services in Canada (see, e.g., MJB Marketing Inc v. Provide Gifts, Inc, 2013 TMOB 46). These services can be performed from abroad, such as when a law firm in the UK provides legal advice on UK law to a Canadian resident (Norman M. Cameron Law Corporation v. CMS Cameron McKenna LLP, 2009 CanLII 82159 (CA TMOB)). As I have blogged before, the Federal Court has interpreted this standard to mean that:

a trade-mark which appears on a computer screen website in Canada, regardless where the information may have originated from or be stored, constitutes for Trade-Marks Act purposes, use and advertising in Canada. (Homeaway.com, Inc. v. Martin Hrdlicka, 2012 FC 1467)

A similarly liberal case is TSA Stores, Inc. v. The Registrar of Trade-marks, 2011 FC 273, in which a “store locator” service allowing Canadians to find a nearby store in the United States was deemed to be use of a trade-mark for services because it was an “ancillary” service “of benefit to Canadians”.

Thus, a U.S. or UK homepage that isn’t targeting Canadians, but who (theoretically) could provide a service to Canadians, including a highly ancillary service, qualifies for s. 4 use, while an owner who pours funds into marketing and advertising a good to Canadians may not qualify for s. 4 use because of a lack of use at the point of sale.

How the Difference Can Harm Trade-mark Owners

The dangers of the gap between goods and services was telling in the recent NetJets v. Intellijet Group case, an infringement case in which a federal district court in Ohio cancelled an 18-year-old incontestible registration for the mark INTELLIJET in association with “computer software for managing aircraft leasing and sales”. It did so even though the registered trademark owner had spent $20M to upgrade its INTELLIJET software, employed 220 people to support the software, extensively promoted the INTELLIJET mark in newsletters and brochures, and posted the INTELLIJET mark on the portions of the portal accessible to existing clients. As the court found, the INTELLIJET software was “an integral part of NetJets’ operation” in which Netjets had “invested a considerable amount of money”. Nonetheless, such investment did not aid the registered owner.

The reason for the cancellation was that the INTELLIJET mark was registered for the good “computer software for managing aircraft leasing and sales”, with the severe distinction between goods and services also existing under the defined term “use in commerce” under §1127 of the Lanham Act. The software itself was not “sold”, but only formed part of an online-based service performed for the owner’s clients.

Relying on a Federal Circuit Court of Appeals decision holding that “an article does not qualify as a good in trade when that article is ‘simply the conduit through which [the applicant] renders services,’ i.e., is ‘the essence or gist of [the applicant’s] services’”, the NetJets court found that the INTELLIJET mark was not “an independent good in trade” because it had “no independent value apart from the services rendered”. It declared the registration void, holding:

To be sure, Plaintiffs have submitted a wealth of documentary evidence and deposition testimony with regard to the importance of the IntelliJet software to NetJets and the various ways that NetJets uses it to support virtually every aspect of NetJets’ business. It is evident from the record that NetJets has invested a great deal of money and manpower in the development of the IntelliJet software and has touted to customers and potential customers the ways in which IntelliJet enhances the NetJets experience. But the central theme in all of the uses of the IntelliJet software is that they are all associated with obtaining NetJets’ aviation services. NetJets is not marketing the software for the software’s sake: it is using the software as the necessary tool to provide a high level of service to its customers.

As a result, the Defendant in the NetJets case was entitled to summary judgment on both statutory and common law infringement claims against it, and on its request to cancel the INTELLIJET registration on the basis of abandonment. This must have been a distressing result for the Plaintiff, who invested significant amounts of money in its branding to back up its incontestible registration. Had the registration listed INTELLIJET as a service mark, the registration would almost certainly have survived and the infringement action may well have succeeded.

Practical Implications of the NetJets Case

The NetJets case raises three important practical implications for trade-mark counsel.

First, it makes it clear that trade-marks lawyers and agents must be VERY careful in drafting applications for software, as well as other categories of business in which it is not entirely clear as to whether a person is selling a good, a service, or both a good and service. Ensuring wherever possible that the application extends to both goods and services is essential. This requires a comprehensive discussion between the owner and its counsel as to what services might qualify for trade-mark protection, as well as a marketing plan that will ensure strong proof of use in the event it is needed for future litigation.

Second, the NetJets case also suggests that agents should take pains to describe goods and services in technologically neutral terms to accommodate changes over time. (In NetJets, for example, the registration at issue was applied for in 1995, a time when the power of the Internet as a service may not have been obvious to many.) Without a doubt, this is a challenging exercise when trade-marks examiners often seek a highly detailed specification of goods and services, but artful application drafting and knowledge of office practices can overcome such barriers.

Third, the NetJets case raises the question of whether it is wise for owners and agents to “revisit” software-based registrations as technologies transform beyond recognition over time. Extension applications are possible under s. 41(2) of the TMA, and may be wise for all transformative fields of commerce: had the registered owner in NetJets added to the list of goods and services over time, it could have filled in the gaps in its registered rights. While many agents and owners forget about a trade-mark registration the moment it is issued, it is a better practice to periodically revisit whether important registrations need refreshing to accommodate new business models or areas of activity.

Policy Implications of the NetJets Case

On the policy side, while some commentators have correctly depicted the NetJets decision as being consistent with established law, such analysis does not explicitly ask the question of why such a strict gap between goods and services still exists in the laws of the United States or Canada. There is no conceptual justification for this gap in the modern economy where goods can be very heavily advertised on traditional and social media, with slogan marks and “component” marks gaining significant public recognition without actually appearing on the goods or packaging themselves. In the words of Justice Binnie in the Supreme Court’s decision in Mattel, trade-marks serve

an important public interest in assuring consumers that they are buying from the source from whom they think they are buying and receiving the quality which they associate with that particular trade-mark.  Trade-marks thus operate as a kind of shortcut to get consumers to where they want to go, and in that way perform a key function in a market economy.  Trade-mark law rests on principles of fair dealing.  It is sometimes said to hold the balance between free competition and fair competition.

The artificial distinction between use for goods and use for services does nothing to promote this “shortcut” function for trade-marks. It is also worth noting that, with online commerce, goods easily cross borders, particularly in an economy where it is very easy to order goods from Amazon.com, Amazon.co.uk or any number of similar international vendors who will ship to Canada. The treatment of use for goods may result in no finding of use even though a mark may prove a key selling point in online commerce.

The Canadian government is currently revising certain sections of the TMA via Bill C-8, and is likely to do so again in order to fulfil Canada’s geographical indication commitments under the Canada-EU Trade Agreement. It should consider at least amending s. 4(1) to validate use of goods through advertising, and to fulfil the important public interest described in the Mattel case. Until such an event happens, though, trade-mark owners and their agents must be sensitive to the gap between goods and services, and take pains to ensure that they are completely protected against the kind of outcome faced by the unfortunate owners in the NetJets and Lens.com cases.

 

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