Trademark bad faith considered by the Federal Court

January 6, 2022
By Tamara Céline Winegust and R. Scott MacKendrick

In Norsteel Building Systems Ltd. v. Toti Holdings Inc., 2021 FC 927, Justice Zinn declined to invalidate a trademark registration on a “bad faith” basis, a new invalidity ground.

The issue was whether the Registrant’s failure to make "obvious inquiries" about a competitor it knew existed at the time it filed its Canadian trademark application amounted to “bad faith” within the context of this new provision. Such conduct, which the Court admitted could amount to “willful blindness”, was found not to be in “bad faith”. In so holding, Justice Zinn appears to have set a high bar for what will be a “bad faith” trademark application for the purposes of invalidation under the new invalidity ground – section 18(1)(e) of the Trademarks Act – which section provides that a registration is invalid if “the application for registration was filed in bad faith”. This high bar appears to be higher than the bar set under earlier “bad faith” jurisprudence under section 30(i) of the Act.

Norsteel involved a dispute between two construction companies over the trademark and trade name NORSTEEL. The Applicant in the proceeding, Norsteel Building Systems Ltd (“Systems”), was incorporated in 1992, and operated primarily in British Columbia. The Respondent/Registrant, Toti Holdings Inc. was the successor-in-title to Norsteel Building Limited (“NBL”), which was incorporated in 2001, and operated primarily in Ontario. Both companies offer similar goods and services, including building materials and engineering services in association with the trademark and trade name NORSTEEL. In March 2017, Toti obtained a trademark registration for NORSTEEL in Canada. Systems was not aware of this until October 2017, after Systems attempted to register NORSTEEL and NORSTEEL BUILDING SYSTEMS, and received an Examiner objection to its application on the basis of confusion with Toti’s prior registration.

Systems then brought an application in the Federal Court to invalidate Toti’s NORSTEEL registration. In addition to advancing claims of prior use in Canada of the identical NORSTEEL mark and name and that the mark lacked distinctiveness, Systems argued that Toti was aware of Systems’ use of the identical NORSTEEL mark prior to filing the application and, thus, could not have been satisfied it was entitled to use the trademark in Canada in association with the goods/services in the Application.

The bad faith claim advanced by Systems relied heavily on the jurisprudence under section 30(i). That section required that applicants include a statement in their application that they were “satisfied” they were “entitled to use the mark in Canada” in association with the goods/services in that application. Over the years, the jurisprudence around section 30(i) opposition grounds developed to include a theory of “bad faith” applications predicated on the “satisfied … to use” requirement, but allegations of such bad faith were rarely successful. In June 2019, section 30(i) was removed with the coming into force of major amendments to the Act; however, “bad faith” was expressly added as a ground for opposition and invalidity.

In dismissing the “bad faith” invalidity claim in Norsteel, Justice Zinn recognized that the section 30(i) jurisprudence did suggest that knowledge of the contesting party’s trademark was material – and that the evidence showed Toti was aware of Systems’ use of NORSTEEL when it filed its trademark application. However, Toti’s application in the face of that knowledge, in and of itself, did not amount to “bad faith” for the purposes of invalidating its resulting trademark registration, even if it could be said to constitute “willful blindness”:

[73] When the application was made by Toti Holdings, there was a requirement that it provide a statement it “is satisfied that he is entitled to use the trade-mark in Canada in association with the goods or services described in the application.” … where an applicant has knowledge that another entity in the same line of business is using the very word it wishes to register as a trademark, one would expect the applicant to conduct its due diligence … 

[74] Here, there is no evidence offered by Toti Holdings of what, if any, steps it took regarding Systems before it asserted that it was “entitled to use the trade-mark in Canada in association with its goods and services.”

[75] It is fair to say that Toti Holdings was, at best, willfully blind as to whether it had the right to make the application in the face of its competitor Systems; however, I cannot say that a failure to make the obvious inquiries amounts to bad faith. [emphasis added]

A decision of Justice Walker issued a month after Norsteel similarly suggests a high bar for “bad faith” under section 18(1)(a). In Yiwu Thousand Shores E-Commerce Co. Ltd. v. Lin 2021 FC 1040 the Court discarded the section 18(1)(e) invalidity claim due to a lack of evidence in the record that “the [Registrant] purposely filed his trademark registration in 2017 to usurp the … [the moving party’s] trademark … or that [the Registrant] intended to harm [the moving party’s] business.”

Decisions under section 18(1)(e) of the Trademarks Act – and under the “bad faith” ground pertinent to oppositions, section 38(2)(a.1) – will be worth careful review in 2022, as the jurisprudence begins to flesh out what is, and what is not, considered to be “bad faith”.

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