Why the Definition of Bad Faith Is Set to Expand in Opposition and Invalidity Proceedings in Canada

The Canadian Trademarks Act (R.S.C., 1985, c. T-13) (Act) was amended in 2019 to expressly incorporate the concept of “bad faith” into Section 38(2)(a.1) as a ground of opposition to a trademark application and into Section 18(1)(e) as a ground for invalidating a trademark registration. “Bad faith” was defined in these provisions. This created some uncertainty about the metes and bounds of these new provisions. Canadian courts and the Trademarks Opposition Board (Board) have started to outline the boundaries of bad faith on a case-by-case basis.

Clarification of Bad Faith

The Federal Court decision in Beijing Judian Restaurant Co. Ltd. v. Wei Meng (2022 FC 743) [Beijing Judian Restaurant] in 2022 eventually clarified the interpretation of “bad faith.” This was the first decision to invalidate a trademark based on the grounds of bad faith.

In this case, Beijing Judian Restaurant Co. Ltd. (Beijing Judian) had owned and operated two restaurants in British Columbia since 2018 and a number of well-known restaurants in China since 2005, using a family of JU DIAN character trademarks, including the JU DIAN & Design Mark trademark, depicted below:

In 2017, Wei Meng (Meng) applied for a registration for an identical trademark in Canada, for use in association with “restaurant services; take-out restaurant services” and “beer.” The registration was granted in 2019.

Beijing Judian applied to have Meng’s JU DIAN & Design Mark registration expunged on the basis that the application was filed in bad faith pursuant to Section 18(1)(e) as well as other grounds of invalidity. Beijing Judian asserted that Meng only registered the mark with the intention of trying to sell the registration to Beijing Judian or otherwise interfere with, or profit from, its business and reputation. Meng did not defend the proceeding and failed to attend the hearing.

The Federal Court held that the onus was squarely on the party alleging bad faith and noted that bad faith was a highly fact-specific ground that necessitates the use of circumstantial evidence and inference to establish the intentions of the registrant. As this was the first court decision interpreting the new bad-faith provisions, the Federal Court looked to similar provisions in EU and UK trademark law.

The Federal Court also looked to the intention of the Canadian Parliament in introducing these new provisions, noting that the purpose of Section 18(1)(e), along with its corresponding opposition ground, was described as aiming to “hinder the registration of a trademark for the sole purpose of extracting value from preventing others from using it.”

Overall, the Federal Court held that the mark was registered in bad faith, with the following factors informing its decision:

• The owner of the mark knew of the applicant’s restaurants, and had a pattern of filing trademarks for well-known restaurants;
• The owner of the mark did not demonstrate a legitimate commercial intention to use the mark, and instead sought to benefit from the registration of the mark through sale or license; and
• The owner of the mark used a direct reproduction of the applicant’s unique mark.

As noted above, this case involved an identical reproduction of a unique design mark. Even so, the court stated that this by itself is insufficient to invalidate the JU DIAN & Design Mark. However, other evidence in this case, including text messages, demonstrated Meng’s awareness of the reputation in the Beijing Judian’s JU DIAN trademarks to the proposed purchaser. Further, one week after the JU DIAN & Design Mark was registered, Meng approached Beijing Judian to purchase the mark for CAD $1.5 million, a cost well above any cost associated with obtaining the mark. The Federal Court found that, when taken together, it had sufficient evidence to conclude that the mark was filed in bad faith.

This case set a high bar in which a party could successfully establish bad faith by a trademark applicant. Following this case, Canadian practitioners were left questioning whether similar facts and evidence would be required to successfully establish the elements of bad faith.

Subsequent Interpretations of Bad Faith

Following the decision in Beijing Judian Restaurant, multiple cases have applied this interpretation of bad faith. Two notable subsequent cases are Spirit Bear Coffee Company Inc. v. Kitasoo First Nation (2023 FC 1185) [Spirit Bear] and Travel Leaders Group, LLC v. 2042923 Ontario Inc. (2023 FC 319) [Travel Leaders Group].

Spirit Bear

The first of these cases, Spirit Bear, expanded on the definition of bad faith. In 2014, Spirit Bear Coffee Company applied to register the trademark SPIRIT BEAR COFFEE COMPANY, which was successfully opposed under Section 30(i) of the former Act, which required the applicant to include a statement in the application that it is “satisfied” that it is entitled to use the trademark in Canada. This former provision could be used to address situations such as claiming that the applicant must have been aware of another’s prior rights in a confusingly similar mark.

On appeal from the Board to the Federal Court, the Spirit Bear Coffee Company asserted that Section 30(i) of the Act should only be applied in exceptional circumstances, and that the real issue was whether the Spirit Bear Coffee Company acted in bad faith when making the application. The Federal Court disagreed. In considering the meaning of “bad faith,” Justice Lafrenière, citing the decision in Beijing Judian Restaurant, noted that bad faith is not limited to dishonest conduct, but also extends to acting outside the generally accepted standards of commercial behavior as demonstrated by reasonably experienced individuals in the field.

Travel Leaders Group

The second case, Travel Leaders Group, demonstrates the difficulties in using the bad-faith provision to invalidate the registration of a mark under Section 18(1)(e). In this case, the applicant successfully demonstrated that the owner of the mark acted in bad faith five years after registration but could not establish that the owner acted in bad faith during the period of registration and advertisement.

In 2004, 2042923 Ontario Inc. (Ontario Inc.) decided to offer travel agency services in association with the name TRAVEL LEADERS and obtained a business license and the domain name travelleaders.ca. Travel Leaders Group, LLC (TLG) applied to register the trademark TRAVEL LEADERS in 2008. Ontario Inc. opposed the application. TLG did not contest the opposition but offered to purchase the TRAVEL LEADERS trademark for CAD $4,000 plus a license back to Ontario Inc. The offer was rejected and the TLG application was abandoned in 2010.

In 2010, Ontario Inc. applied to register the same mark, and the application was registered without opposition in 2011. Later that year, TLG offered to purchase the registration for CAD $25,000, plus the right to operate as a TLG member agency in Canada, or to purchase the business for fair market value. Ontario Inc. countered, asking for CAD $850 million. In 2015, Ontario Inc. advertised its registration for sale, for CAD $80 million, and specifically referenced TLG’s inability to operate in Canada without the mark. In 2017, TLG began these proceedings, seeking, among other things, the expungement of the Ontario Inc. registration, including on the basis that the trademark is invalid as the application was filed in bad faith.

The court considered the following facts:

• Ontario Inc. was operating a travel agency business, though one that was floundering financially;
• Ontario Inc. filed the application well aware of TLG’s prior use of the trademark in the United States in connection with its successful travel business and of TLG’s intention to expand into Canada using the mark; and
• In the years following registration, Ontario Inc.’s business declined to inactivity and financial devastation, while its conduct in relation to the trademark and TLG deteriorated to conduct that was and is intended to harm TLG’s business.

The court held that while Ontario Inc.’s later actions can reasonably be characterized as conduct in bad faith, its initial course of conduct on the date it applied to register the TRAVEL LEADERS trademark does not bear the hallmarks of bad faith.

As a result, the Federal Court could not invalidate the registration on bad faith, as the initial registration was in good faith, despite the subsequent bad faith behavior after a significant interval.

Context and Bad Faith

As bad faith continues to be asserted and litigated in Canada, we will undoubtedly come to a better definition of its boundaries. The Federal Court has demonstrated that context is important when considering bad-faith provisions, but the extent to which anyone can infer bad faith remains unclear.

The difficulty in fleshing out explicit criteria for identifying a bad-faith claim is evident. Justice Furlanetto in Beijing Judian Restaurant noted that “[a]ssessing the [bad faith] conduct of the applicant involves considering the applicant’s subjective intention at the time of filing as determined by reference to the objective circumstances of the particular case.” Further, while the plain meaning of Section 18(1)(e) directs a court to assess an applicant’s intention in seeking registration of a trademark on the date of filing, an applicant’s conduct after the date of application may be considered if it assists in establishing motivation on the date of application.

What we can glean from the above cases is that bad faith is not limited to dishonest conduct and may also include “dealings which fall short of the standards of acceptable commercial behavior as observed by reasonable experienced people in the area being examined.” Behaviors, which by themselves may not amount to bad faith, but nevertheless assist in establishing such a ground, include the following:

• Registration of an identical unique mark;
• The subjective awareness of the owner of the other party’s trademark and reputation in the trademark;
• Failure of the owner of the mark to demonstrate a legitimate commercial intention to use the mark; and
• Attempts by the owner to sell the trademark for a high price that is commercially nonsensical.

As determining conduct which amounts to bad faith is a fact-specific analysis, the list of behaviors that could potentially amount to bad faith will likely continue to grow as the new bad-faith provisions in the Act continue to be litigated through Canadian courts and the Board.

Although every effort has been made to verify the accuracy of this article, readers are urged to check independently on matters of specific concern or interest.

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