Cannabis trademark filings continue to rise in Canada, along with legal disputes

As the cannabis sector continues to grow, there has been an increase in trademark filings—175% growth from March 2018—with a rise in legal disputes accompanying the trend. Just one of the growing deluge of trademark-related disputes is the Supreme Court of British Columbia (BCSC)’s Canivate Growing Systems Ltd. v. Stuart Brazier (Canivate) decision released earlier this month.

What you need to know

• Start-ups shouldn’t assume they have not generated enough goodwill in unregistered trademarks to prevent others from using them. In Canivate, the BCSC held there was sufficient goodwill in the name CANIVATE to satisfy the serious issue branch of the injunction test. The court reached this decision even though the name had been mainly used by the company for about a year for the purpose of raising funds.
• The race to register is on. Trademark filing in association with cannabis-related goods and services is continuing at full speed, with over 5,400 applications having been filed in Canada to date.¹
• More disputes. The number of disputes in the cannabis industry relating to trademarks and branding, such as the dispute in Canivate, will likely increase over the next few years.
• The second round of legalization is on the horizon. Today, the Canadian federal government published the finalized regulations for edible cannabis, cannabis extracts and cannabis topicals in Part II of the Canada Gazette. These regulations will come into force on October 17.
• Consider filing as soon as possible. Protect your brand, but consider the requirements set out in both the Trademarks Act and Cannabis Act. Trademarks registrable under the trademark legislation may be incompatible with the brand element restrictions in the Cannabis Act.

Canivate decision

Background

Canivate Growing Systems Ltd. (Canivate), a Canadian cannabis greenhouse technology company, has been conducting business using the tradename and trademark CANIVATE since its incorporation in December 2017. The company applied to register CANIVATE as a trademark in Canada in March 2019.

Stuart Brazier, a company shareholder, had registered the domain name “canivate.com” in his own name. This domain name had been used by Canivate since January 2018 to operate both the company website and employee email addresses. Following a shareholders dispute, Mr. Brazier disabled the “canivate.com” domain name, preventing Canivate from operating the website and employees from sending and receiving emails. In response, Canivate commenced an action in an attempt to obtain ownership of the domain name. Canivate also sought an interim and interlocutory injunction requiring Mr. Brazier to cease interfering with the settings of Canivate’s domain name prior to the determination of its ownership.

The test for injunctive relief as set out in RJR-MacDonald Inc. v. Canada (Attorney General) (RJR-MacDonald) has a high threshold, requiring: a serious issue to be tried that is not frivolous/vexatious; the applicant to suffer irreparable harm; and the balance of convenience favouring granting the injunction.

Serious issue to be tried

To pass the first stage of the RJR-MacDonald test, Canivate was required to demonstrate that it had a strong prima facie case for a passing off action, namely that: it has goodwill in the name CANIVATE; there was a misrepresentation; and Canivate has or is likely to suffer damage. Notably, Justice MacNaughton held Canivate had a strong prima facie case for a passing off action—even though the trademark CANIVATE had mostly been used for about a year to help raise funds for the company. The judge went so far as to explicitly state that although Canivate is a start-up company, it does not mean it has not developed goodwill in its name.

Considerations

The Canivate decision represents one of the first formal disputes in the Canadian cannabis industry relating to intellectual property rights. We can expect the number of similar disputes to rise, particularly as Canada continues to see more cannabis-related trademark filings. The number of Canadian trademark applications filed in association with cannabis-related goods and services has skyrocketed over the past few years—since March 2018 alone, over 3,500 trademark applications have been filed in Canada with goods or services containing the word "cannabis" or "marijuana." In total, over 5,400 of such trademark applications have been filed in Canada as of June 2019. This is an increase of 175% since March 2018, revealing trademarks and branding remain a key asset for players in the cannabis space.

Canada’s trademark landscape continues to evolve in the wake of the changes to the Trademarks Act and Trademarks Regulations, which came into force on June 17. Most notably, applicants are no longer required to demonstrate “use” prior to filing for a trademark. This is an attractive change for companies looking to file trademarks prior to entering the Canadian market, or for international companies in other jurisdictions unable to gain trademark protection under their native laws.

To ensure the ability to enforce a trademark against others, it is wise to register the trademark with the Canadian Intellectual Property Office (CIPO) as opposed to relying on common law rights. However, it should be noted that CIPO is not examining trademark applications for compliance with the Cannabis Act and Cannabis Regulations. In particular, trademarks registrable under the Trademarks Act may be incompatible with the Cannabis Act brand element restrictions.² These include (but are not limited to) cannabis trademarks not appealing to young persons and not suggesting positive or negative emotions or ways of life that include glamour, recreation, excitement, vitality, risk or daring. It is important that companies comply with both sets of requirements when applying for a cannabis-related trademark.

Conclusion

Companies in this sector must be proactive in taking steps to protect their intellectual property and may want to protect their brands with the benefits of trademark registration. The Canivate decision demonstrates a trademark dispute in the cannabis industry will be adjudicated like other trademark cases. This consistency may bring, at least, some predictability to this highly regulated sector still in its growing stages.

Read more about the latest on cannabis from Torys.

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¹ This figure is based on a keyword search in the goods and services of Canadian trademark applications for “cannabis” or “marijuana” and was completed in June.

² See the Cannabis Act or the Government of Canada’s related Fact sheet.