Trademarks and the USMCA: Action or Inaction on Trade-Related Trademark Issues?

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1 Trademarks and the USMCA: Action or Inaction on Trade-Related Trademark Issues? October 11, 2018 By Cynthia Rowden and Scott MacKendrick After much drama and tension, negotiations to replace the North American Free Trade Agreement (NAFTA) have resulted in an updated agreement, called the United States-Mexico-Canada Agreement, or USMCA (which doesn t really trip off the tongue as easily as NAFTA). The Agreement confirms that it requires internal procedures to be completed, but once all Parties have provided notice of completion of such steps, formal entry into force will be effective on the first day of the third month following the last notification. In terms of timing, it is unlikely that the USMCA will could come into force before early 2019, and quite possibly not until mid Since 1994, when NAFTA was formally implemented, Canada s IP laws, and specifically its trademark laws, have changed significantly, spurred by international trade negotiations, including the Comprehensive Economic Trade Agreement (CETA) between Canada and Europe, the Trans-Pacific Partnership (TPP, not yet ratified), and a trade agreement with South Korea. Those have resulted in new anti-counterfeiting remedies adopted in 2015, and other major amendments passed and planned for implementation in early 2019 that will impact protectable marks, filing procedure, use requirements, opposition and cancellation provisions and the procedure for acquiring, challenging and cancelling Geographic Indications (GIs).

2 Recent announcements by the Canadian Government of a proposed national IP strategy may also impact trademarks, with recommendations to add bad-faith opposition and cancellation grounds, as well as use requirements for enforcement. As a result, the decades-old NAFTA trademark provisions no longer reflect existing trademark laws in Canada, including ones planned for implementation in early The USMCA also responds to several trademark trade irritants, namely issues raised by the United States Government and international brand owners, particularly relating to Canada s system for controlling and reducing counterfeit activity. The following focuses on several cross-border trademark issues and how they have been handled in the USMCA, as well as other USMCA terms that might require Canadian legislative attention, and highlights some interesting omissions from the original NAFTA trademark terms. As an initial observation, few substantive changes appear to be required for Canada s trademark laws to comply with the USMCA. Many USMCA terms are already addressed by both the 2015 Trademarks Act amendments adding an enhanced anti-counterfeiting regime and new criminal sanctions for infringement, as well as the major amendments already promised for early Nevertheless, a number of specific amendments to the Trademarks Act, Regulations or office procedures do seem to be in order. Specific trademark trade irritants The United States Government, as well as many brand owner groups, previously identified several trademark-related trade irritants, most specifically related to the perceived lack of effective anti-counterfeiting deterrents, as well as the procedures and remedies to control the import and export of counterfeit goods. As noted, Canada s Trademarks Act was amended, effective January 1, 2015, to introduce a new anti-counterfeiting regime permitting registered trademark and copyright owners to request assistance with surveillance and detention of counterfeit goods by filing a request for assistance (RFA) with the Canadian Border Services Agency (CBSA), creating a procedure to handle detained goods, and adding new criminal sanctions. While a welcome addition, many complained that the 2015 provisions did not go far enough. They didn t apply to all imported/exported goods and specifically excluded goods in transit. Many complained that the new RFA procedure seemed to result in detentions only for goods specifically covered by RFAs. Goods could remain in detention only if court proceedings were commenced, and there was no obvious expedited judicial proceeding. While damages, costs and destruction of goods could be ordered by courts, trademark owners did not have the benefit of specific statutory damages for trademark

3 infringement; these effectively acted as impediments to frustrate use of the anti-counterfeiting regime. Non-counterfeiting issues include the absence of specific protection for famous or well-known marks, and the difficulty in obtaining interim or interlocutory relief. A concern for many brand owners in the United States is the expanding list of protected geographic indications, which threaten to end long-standing trademark or generic name use in the food industry. On the other side of the United States borders, those who had experience in U.S. litigation complained about high costs and the absence of clear rules on recovery of costs by winning parties. The USMCA addresses a few of these complaints. Goods in transit: The USMCA provides that each Party shall provide that its authorities may initiate border measures against suspected counterfeits or pirated goods that are in transit, or admitted into or exiting from a free trade zone or bonded warehouse. The Trademarks Act now excludes goods in transit from prohibitions on import/export of infringing goods, and restricts such goods from RFA requests. Those exclusions must now be removed. The USMCA also confirms the existing practice of border officials exchanging information with their counterparts in other countries about suspected counterfeit shipments and, practically, Canadian customs authorities may rely on information-sharing with its trade partners about suspected counterfeits ultimately destined for the U.S. or Mexico, as opposed to seizure of goods in transit. Detention and Determination of Counterfeits: The USMCA deals with civil procedures before competent authorities (by footnote defined as appropriate judicial, administrative or law enforcement authorities). It requires each Party to have a procedure for application to detain or suspend release of suspected counterfeits or infringing goods. Canada s current legal landscape appears to meet those requirements. The Customs Act already permits CBSA officers to detain suspected counterfeits. The Canadian Trademarks Act has provisions (admittedly rarely used) permitting applications for interim custody orders of suspected imported counterfeit goods, to be followed by civil action for infringement, and since 2015, the Act has included an additional option, permitting rights holders to make a request for assistance from the CBSA to identify and detain suspected counterfeits of registered trademarks and copyright, with continued detention subject to the commencement of court proceedings, and at the expense of the rights holder. Both the civil action and RFA procedure would appear to meet the application requirement mentioned in the USMCA. Practically, no party is prevented from asking for CBSA assistance in detaining suspected counterfeits even if an RFA has not been filed, and the CBSA is not prevented from detaining suspected counterfeits if no RFA is on file. However, absent a side letter or other

4 understanding between the U.S. and Canadian Governments not public at this time, it is recommended that the Canadian Government publicly confirm that brand owners do not need to have previously filed an RFA for the CBSA s detention steps to be activated. The USMCA states that if a Party provides administrative (vs. judicial) procedures, it may also permit such authorities to impose administrative penalties and sanctions. However, as noted above, there is no obligation to have administrative procedures if judicial authorities have the discretion to act against counterfeit goods. Expeditious procedures: The USMCA requires border measures to be handled within a reasonable period of time" after the initiation of any application for relief. Other countries have responded with administrative tribunals who can quickly assess infringement, and set remedies in the event there is either no defence, or a finding of infringement. While specific summary procedures would be very welcome, Canada s position could be that in now complies, since the court system already provides for expedited trial, summary judgment and other more efficient trial procedures. Civil remedies: The USMCA requires that competent authorities have the authority to destroy infringing goods. The Trademarks Act already provides that a court may make any order it considers appropriate, including injunctive relief, recovery of damages and profits, punitive damages and destruction of goods, packages and labels. Since competent authorities include judicial authorities, Canada would already appear to be in compliance with the USMCA. Statutory damages and litigation costs: The USMCA states that in civil proceedings dealing with trademark counterfeiting, each Party shall establish a system providing for one or more of pre-established damages, or additional damages sufficient to deter infringements and also to fully compensate the rights holder. A footnote confirms that additional damages include exemplary or punitive damages. The Trademarks Act already expressly permits punitive damages for all trademark infringements, so the addition of specific statutory damages does not appear to be required. Nevertheless, they would be a very welcome addition to the Act and could ultimately reduce litigation costs. On the issue of full compensation, Canada s litigation system (unlike that of the United States) already provides for cost recovery, and in rare instances what amounts to cost recovery approaching full compensation. Federal and other court rules may need to be amended to specifically address cost recovery in trademark disputes relating to counterfeits. However, it appears that the U.S. may need to do more to comply with the USMCA requirement that judicial authorities may order that the prevailing party be fully compensated, including to recover attorney fees.

5 Interlocutory remedies: The USMCA also deals with provisional measures, which appear to be directed to interim and interlocutory relief. While the reluctance of Canada s courts, especially the Federal Court, to grant interlocutory relief is well known, the USMCA provisions do not appear to require specific action on Canada s part. Criminal sanctions: The USMCA contains detailed requirements for criminal procedures for counterfeiting. Since 2015, the Trademarks Act has included criminal sanctions for trademark infringement, in addition to the civil remedies already in place. The USMCA appears to signal an intent to encourage more criminal enforcement, by suggesting that the Article on civil sanctions applies to goods of a commercial nature sent in small consignments, and, in the Article on criminal procedures, that each Party shall treat wilful importation or exportation of counterfeit trademark goods or pirated counterfeit goods on a commercial scale as unlawful activities subject to criminal penalties. A broad definition of commercial scale may push more cases into criminal courts. In addition, under the heading of Criminal Procedures and Penalties, the USMCA states that competent authorities may act on their own initiative without need for a formal complaint. Both the CBSA and policing authorities, including the RCMP, now have that right suggesting no statutory change in enforcement provisions is required. What does appear to be needed is more attention by the CBSA to counterfeit goods that are not specifically the subject of an RFA, and more resources to effectively police counterfeits, either with or without specific requests from brand owners. Well-known marks: While NAFTA specifically referred to the Paris Convention provisions for protection of well-known marks, it stated that the parties could not require protection to extend beyond the sector of the public that normally deals with the relevant goods or services. The USMCA appears to stress the need for both administrative proceedings (trademark refusal and cancellation) and use restrictions that give more respect to well-known marks. However, it is questionable that additional statutory protection is necessary in Canada. The Trademarks Act already expands the boundaries of common law passing off by not requiring that goods and services be of the same general class, and both opposition and litigation decisions apply confusion and depreciation of goodwill to goods and services that are related to or associated with those covered by registered marks. In addition, the Trademarks Act directs attention in assessing confusion to both the length of use, and the extent to which any trademark, registered or unregistered, has become known, as well as all surrounding circumstances. These suggest that specific legislation to protect well-known marks may not be required.

6 Geographic indications (GIs): The amended Trademarks Act expected to be implemented in early 2019 already contains significantly expanded GI provisions reflecting interest in GIs for foods and beverages by other trading partners, especially the European Union. However, the USMCA appears to require additional amendments to the Trademarks Act and/or Regulations. For example, the USMCA provides for greater transparency for application and cancellation status that may require Canada to set up provisions for more access to GI details (which might be achievable, at least in part, by administrative changes within the Canadian Trademarks Office). Reflecting the language in the upcoming Trademarks Act, while the USMCA requires a system of denial, opposition and cancellation to be available, it need not apply to wine and spirits. One of the grounds for objection or cancellation refers to names that are identical to a term customary in common language as the common name, and USMCA adds factors to determine such consumer understanding (which could be added to the Trademarks Act, included in regulations interpreting the GI provisions, or set out in an administrative Practice Notice). The USMCA confirms that GI rights commence no earlier than the filing date and specifically recognizes GI rights and possible limitations on cancellation of such rights granted under other agreements that predate the USMCA (implicitly recognizing rights under CETA or other trade agreements) which would appear to require a specific Trademarks Act amendment to ensure compliance. Other USMCA provisions Ratification or accession to trademark treaties: The USMCA requires each party to ratify or accede to (but not implement) specific intellectual property treaties by the date of entry into force of the USMCA, including two trademark treaties, the Madrid Protocol and the Singapore Treaty. Canada committed to accede to both in 2014 as part of initial CETA negotiations. Earlier this year, CIPO announced that it intends to deposit formal notice of intent to accede to these treaties early in Deposit of the notice triggers possible implementation within three months, or later if requested. Under this timeline, Canada should meet the USMCA timing obligations. Collective Marks: Canada does not currently provide for registration of collective marks, defined under U.S. law as marks of a cooperative, association, or other collective group or organization, fraternal organizations and unions, that are available for use by its members. While NAFTA stated that trademarks shall include collective marks, no change to the Trademarks Act was ever made. The USMCA states that each Party shall provide that trademarks include collective marks. While the updated (but not yet implemented) Trademarks Act defines signs, collective marks are not included suggesting that an amendment is in order.

7 Country names: The USMCA requires legal means to prevent commercial use of a country name in relation to goods (but not specifically services) in a manner that could mislead consumers as to the country of origin. Canadian competition laws can now be used to challenge deceptive country name use, so it appears that specific Canadian legislation is not required. Committee on Intellectual Property Rights: While not requiring any statutory changes, the USMCA establishes a new Committee on Intellectual Property Rights, with a mandate to meet within a year to consult on issues including strengthening border enforcement, enhancing procedural fairness in patent litigation, and expansion of GIs. Electronic Systems: Reflecting the increasing reliance on electronic systems, USMCA includes requirements for both electronic communications, filing and maintenance, as well as publicly available electronic information systems with a database of applications and registrations. Canada s electronic filing and recordal systems could use some updating, but it appears to be in the works and little needs to be done to comply with the USMCA. Interesting Omissions Use : NAFTA required that each Party require use of a trademark to maintain registration. In Canada s increasingly useless trademark world, use will no longer be required to obtain or renew a registration which should have triggered some concerns about NAFTA compliance when the 2014 Trademarks Act amendments were passed. However, the USMCA drops any reference to trademark use. Scandalous Marks : NAFTA also required each Party to refuse immoral, deceptive or scandalous marks, or marks that disparage or bring into disrepute persons, institutions, beliefs or national symbols. With free speech decisions in the United States declaring that such restrictions are unconstitutional, those provisions have been dropped from the new trade agreement. Plain Packaging Implications: Many organizations that challenged trademark limitations in plain packaging laws, for example, relating to tobacco, had relied on NAFTA provisions that stated that the nature of goods or services to which a trademark is to be applied shall in no case form an obstacle to the registration of the trademark. That restriction is gone presumably reflecting the interest of many Governments, including Canada s, to have more freedom to control, or limit, the use of brand elements on specific goods for health and safety reasons. Summary

8 It will take time to learn the full impact of many USMCA provisions, and especially which ones are viewed by Canadian, American and Mexican Governments as requiring specific legislative and/or amendments, or changes to administrative procedures. Also, each Government must separately ratify the Agreement, which could mean additional changes before finalizing the Agreement. Further, there is an issue of compliance with laws, versus the spirit of the Agreement, which in turn could be impacted by the respective parties ongoing trade agreements and relations. The Canadian Government had already signalled willingness, with the announcement of a new National IP Strategy, to implement changes to the Trademarks Act, in addition to the very significant changes already planned for early Presumably, amendments required by the USMCA could be included in new amending legislation. Trademark owners and advisors should be on the lookout for announcements about upcoming changes. Information on this website is for information only. It is not, and should not be taken as, legal advice. You should not rely on, or take or not take any action, based upon this information. Professional legal advice should be promptly obtained. Bereskin & Parr LLP professionals will be pleased to advise you.