Federal Court of Appeal does not disturb lower court’s finding of 'use' for hotel services

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In a highly anticipated decision, the Federal Court of Appeal recently held that a trademark owner could demonstrate “use” of a trademark in Canada in association with “hotel services” in the absence of a brick-and-mortar hotel. While the Federal Court of Appeal’s decision in Miller Thomson LLP v Hilton Worldwide Holding Inc (“Hilton Worldwide”)1 is not the first to analyze the Internet’s impact on “use” of a trademark, this case provides important guidance to brand and trademark owners offering services to consumers in Canada without a physical brick-and-mortar location.

I. BACKGROUND

To maintain one’s trademark rights, use of a trademark is essential. As the Supreme Court of Canada has noted, “in trademarks the watchword is 'use it or lose it'".2 Considerations of use are relevant through the life of a trademark, and pending amendments to the Trademarks Act will not permit a trademark owner to enforce its registration within the first three years of registration without proof of use of the mark in Canada.3

Decisions analyzing “use” over the Internet are particularly important to foreign trademark owners seeking trademark protection in Canada. Prior to the Federal Court of Appeal’s decision in Hilton Worldwide, cases before the Opposition Board and Federal Courts analyzing use of services in the absence of a brick-and-mortar location in Canada provided conflicting guidance to trademark owners. While the Opposition Board and Federal Courts have recognized that retail store services can be approximated by an interactive website that mimics the experience of attending at a brick-and-mortar store and speaking to a knowledgeable salesperson,4 and the offering of credit5 and shipping to consumers located in Canada,6 cases regarding travel-related services have been less successful. The Opposition Board has repeatedly found that trademark registrations for hotel services cannot be maintained in the absence of a hotel in Canada,7 and the Federal Court has held that the making of reservations for airport transportation services8 and concerts and events9 that can only be enjoyed outside Canada cannot support the registration of a service mark in Canada. Many trademark owners without physical locations in Canada have been left to wonder what is required to show use and maintain a Canadian trademark registration. Hilton Worldwide provides much needed clarity on this issue.

II. HISTORY OF THE PROCEEDINGS

Since 1931, the WALDORF ASTORIA hotel in New York City has hosted world famous heads of state, politicians, and celebrities. There are WALDORF ASTORIA-branded hotels and resorts in more than fifteen countries. There is, however, no WALDORF ASTORIA hotel in Canada. Nonetheless, the predecessor to the Respondent, Hilton Worldwide Holding Inc. (“Hilton”), sought registration of the trademark WALDORF ASTORIA in Canada, and the mark proceeded to registration in 1988 in association with “hotel services”.

In 2014, Miller Thomson commenced proceedings under section 45 of the Trademarks Act, requiring Hilton to show use of the WALDORF ASTORIA trademark during the preceding three-year period. Under section 45, any person may request that the Registrar issue a notice to the trademark owner, requiring it to show use of the mark in Canada at any time during the previous three years (the “Relevant Period”). Section 45 proceedings are summary in nature. They are intended to clear “deadwood” from the trademarks register, rather than resolve disputes between competing commercial interests, and the threshold for establishing use is low. Nonetheless, the trademark owner must provide evidence to allow the Registrar to conclude that the trademark was used in Canada in association with each of the registered goods and services during the Relevant Period. In the absence of evidence of either use or exceptional circumstances to excuse non-use, a registration may be expunged, or amended to reflect only those goods and services in use.

A. Opposition Board

In response to the section 45 notice, Hilton filed an affidavit of its in-house counsel. Hilton’s evidence focused on the provision of reservation services to people in Canada through third-party booking systems, a toll-free number in Canada, and directly through Hilton’s website. Hilton’s evidence showed that, during the Relevant Period, approximately 41,000 Canadian customers stayed at WALDORF-ASTORIA hotels outside Canada, generating room revenues of approximately $50 million, and over 1,300 reservations were made and paid for by Canadian customers, generating rewards points through Hilton’s loyalty program. The WALDORF ASTORIA mark was displayed on websites and in email communications to Canadians in connection with these activities.

Relying on previous decisions of the Board10 that narrowly interpreted the scope of hotel services, the Board held that the absence of a brick-and-mortar hotel in Canada was fatal and ordered the WALDORF ASTORIA registration expunged.

B. Federal Court

Hilton appealed the Board’s decision and filed fresh evidence consisting of two affidavits: one from a representative of Hilton providing detailed information on the operation of Hilton’s hotel reservation and loyalty rewards program in Canada; and another from an experienced trademark searcher providing evidence of past iterations of the Goods and Services Manual maintained by the Canadian Intellectual Property Office, and that “hotel reservation services” were not identified as an acceptable service when the trademark application for WALDORF ASTORIA was filed. The Federal Court found that this evidence would have made a material difference to the Board and reviewed the Board’s decision de novo.

In considering this new evidence, Justice Pentney also reviewed the evolving jurisprudence regarding the “use” of trademarks in the era of the Internet. He found it essential that some aspect of the registered service be offered directly to Canadians or performed in Canada and that Canadians derive a tangible, meaningful benefit from such service.11 He also emphasized that determining “use” involves a case-by-case assessment, and that the scope of “services” may include primary, incidental and ancillary services. In Justice Pentney’s view, the Board committed a number of errors: it failed to consider the only evidence that had been submitted with respect to the ordinary commercial understanding of the term “hotel services”; it failed to follow binding authority establishing that the scope of services includes primary, incidental and ancillary services; it erred in considering the current version of the Goods and Services Manual to interpret the meaning of a service described in a registration dating from 1988; and it failed to consider the actual words used to describe the service in the registration itself. Accordingly, Justice Pentney reversed the Board’s decision and maintained the registration.

C. Federal Court of Appeal

Miller Thomson appealed the Federal Court’s decision, and the Federal Court of Appeal applied the appellate standard of review. In doing so, the Court of Appeal could not identify any errors in the lower court’s analysis. The new evidence filed before the Federal Court was material and relevant to "the key issue in this case", namely whether Hilton demonstrated use of the WALDORF ASTORIA mark in association with "hotel services".12 As the Court of Appeal noted, questions of “use” for the purpose of section 45 are subject to review on the correctness standard.13 The Federal Court was entitled to review the Registrar’s decision regarding “use” on the basis of correctness, and the Court of Appeal was also entitled to apply the correctness standard to the Federal Court’s findings on that issue.

Turning to whether Hilton had established use of the WALDORF ASTORIA mark in Canada, the Court of Appeal held that the Federal Court had correctly applied the test for “use” of a trademark and applied a three-part test to determine whether the trademark had been used in Canada during the Relevant Period.

1. Determine the scope of services identified in the registration based on the ordinary commercial meaning of the services from the perspectives of both the consumer and the trademark owner

The question of whether a trademark has been used begins with the determination of the ordinary commercial meaning of the services in question.14 According to the Court, the Registrar erred by equating the ability to make a hotel reservation or other bookings with the operation of a hotel; while a brick-and-mortar hotel located and operated in Canada is required to show the operation of a hotel, the correct question for “hotel services” considers the scope of that term in ordinary commercial usage understood from the perspectives of both the consumer and the trademark owner.15

Hilton’s evidence included an affidavit from its in-house counsel regarding the ordinary commercial meaning of “hotel services” from the perspective of the trademark owner. According to Hilton, the term "hotel services" was customarily understood in the hotel industry to include "reservation services, booking and payment services, and access to hotel rooms”. Importantly, hotels "could not operate unless customers were able to reserve, book and pay for rooms in advance of their stay", such that reservation, booking and payment services were integral to the provision of hotel services.16

The Registrar erred by ignoring this uncontroverted evidence and substituting instead what she called “a common sense understanding of the term”. As the Court of Appeal found, an application for registration of a trademark must include a statement in "ordinary commercial terms". This ordinary commercial meaning of "hotel services" was central to the question of whether Hilton had established use of the WALDORF ASTORIA mark in Canada. The Registrar’s failure to acknowledge the only direct evidence before her from Hilton as to the ordinary commercial meaning of the term "hotel services" was a material omission that warranted the Court's intervention.17

In so holding, the Court of Appeal confirmed that hotel services include ancillary services such as reservation and payment services, in addition to access to hotel rooms.

2. Interpret the goods and services, recognizing that the meaning of terms in a registration can evolve over time

The Court of Appeal also found that the Registrar had erred by relying on the current Goods and Services Manual to interpret a description of services in a trademark registration dating from 1988. The meaning of terms used in trademark registrations can evolve over time, particularly where, as here, there have been rapid developments in online commerce that can undoubtedly have an impact on the ordinary commercial understanding of a term by both the trademark owner and the customer.18

In the Court of Appeal’s view, while applicants are not bound to follow the precise wording of the Goods and Services Manual, Hilton could not be faulted for using a pre-approved term that was found in the Goods and Services Manual at the time that the mark was registered in 1988. It was an error for the Registrar to interpret the scope of a registration from the pre-Internet era in light of the wording of the current version of the Goods and Services Manual.19

3. Construe the services liberally, recognizing that they may include primary, incidental and ancillary services

In confirming that services are to be liberally construed and that their meaning must be determined on a case-by-case basis, the Court of Appeal reviewed a long line of cases analyzing services. Starting with Venice Simplon-Orient-Express, Inc v Société Nationale des Chemins de fer Français SNCF, 20 the Court of Appeal noted that “travel services, namely railway and passenger service” can be offered in Canada, even though the rail services were offered only in Europe. In Venice Simplon-Orient-Express, the Court found that the services in question included "ancillary services or activities conducted with respect to the transport of passengers by train", and that "the performance in Canada by a travel agency of booking, reservation and ticketing services constituted the performance in Canada of such services by the registrant".21 Other decisions of the Board have found that the provision of “hotel services” can encompass hotel reservation services and loyalty program services.22

On this basis, the Court of Appeal reiterated the test as follows: so long as consumers, purchasers, or members of the public in Canada receive a material benefit from the activity at issue, it is a service.23 Therefore, the Court did not err in finding that “hotel services” included other, incidental services such as reservation or payment services.

III. THE FEDERAL COURT OF APPEAL’S DECISION

Turning to whether Justice Pentney erred in finding that Hilton had established that people in Canada receive a tangible, meaningful benefit from the services provided by Hilton in Canada (a question of fact), the Court of Appeal then asked whether the lower court had committed a palpable and overriding error (a highly deferential standard) in applying that test to the facts of this case.

In the Court of Appeal’s view, the Registrar erred in relying on its previous decision in Stikeman Elliott LLP v Millennium & Copthorne International Limited (M Hotel)24 without considering the evidentiary record before it. Hilton’s evidence established that there were several benefits that were available to people in Canada, over and above their eventual enjoyment of their stay in a brick-and-mortar WALDORF ASTORIA hotel:

  • People in Canada would see the WALDORF ASTORIA mark when they visited the Hilton website, and they could book reservations in several ways — either directly with the hotel over the Internet, through a third-party service provider, or via a Canadian toll-free number.
  • 41,000 people with addresses in Canada had stayed at WALDORF ASTORIA hotels during the Relevant Period, generating approximately $50 million in revenue.
  • Some 1,300 people from Canada had received a discounted room rate during the Relevant Period in exchange for paying up-front for their hotel reservation. These individuals also received email confirmations of their bookings displaying the WALDORF ASTORIA mark.
  • Individuals enrolled in Hilton’s loyalty program would receive points for each booking, which could then be redeemed for stays or other benefits at hotels located in Canada or elsewhere.

This detailed evidence demonstrated the extent and nature of the benefits received in Canada, distinguishing the present case from the evidence before the Board in M Hotel.

While the Court of Appeal pointed to errors in Justice Pentney’s analysis with respect to loyalty rewards points specifically,25 these errors were not determinative of the case: there were many other material benefits enjoyed by individuals in Canada at the time of booking, rather than when those individuals actually stayed at the WALDORF ASTORIA hotel.

In coming to this conclusion, the Court of Appeal distinguished today’s Internet age from older cases involving cross-border sales and bookings. “The requirements for ‘use’ under section 45 of the Act must adapt to accord with 21st century commercial practices”,26 the Court of Appeal noted, though at the same time warning that “the ability of individuals in Canada to passively view content on a foreign website” would not be enough: “[t]here must, at a minimum, be a sufficient degree of interactivity between trademark owner and Canadian consumer to amount to use of a mark in Canada in conjunction with services over the [I]nternet”.27 Accordingly, given the evidence before Justice Pentney, the Court of Appeal found that the lower court did not err in finding that Hilton had used the WALDORF ASTORIA mark during the Relevant Period in Canada.

IV. RECOMMENDATIONS FOR TRADEMARK OWNERS

As the Court of Appeal highlighted, cases involving use will turn on the quality of evidence provided by the trademark owner and the following types of evidence could be of assistance:

  • Website metrics showing the number of times a website displaying the mark has been accessed by Canadians;
  • Evidence regarding the number of Canadians who have availed themselves of the online services in conjunction with the mark;
  • Sales figures regarding the value of the services provided to Canadian consumers over the Internet; and
  • Evidence showing that:
    • content offered by the website is stored on servers located in Canada;
    • consumers in Canada are targeted with advertising;
    • prices are listed in Canadian dollars; and
    • the trademark owner complies with Canadian regulatory requirements that may apply to the services at issue.

Ultimately, the question in each case will be whether the trademark owner has provided evidence establishing that people in Canada can derive a material benefit from services that are performed in Canada. Trademark owners should consider these categories of helpful evidence when designing websites to be accessed by Canadians, and monitor sales, loyalty membership and rewards points redemptions by the purchaser’s country of origin. Care should be also be taken when preparing new trademark applications to consider the benefits offered to customers located in Canada and to describe such benefits in ordinary commercial terms based on the current Goods and Services Manual, from the perspectives of both the consumer and the trademark owner.

References

1. 2020 FCA 134.

2. Mattel, Inc v 3894207 Canada Inc, 2006 SCC 22, [2006] 1 SCR 772 at para 5.

3. Budget Implementation Act, 2018, c 27, s 225, amending section 53.2 of the Trademarks Act, RSC 1985, c T-13.

4. TSA Stores Inc v Registrar of Trademarks, 2011 FC 273.

5. Saks & Co v Canada (Registrar of Trade-marks) (1989), 24 CPR (3d) 49.

6. Dollar General Corporation v 2900319 Canada Inc, 2018 FC 778.

7. See Maillis v Mirage Resorts Inc, 2012 TMOB 220; Stikeman Elliott LLP v Millennium & Copthorne International Limited, 2015 TMOB 231.

8. See Supershuttle International Inc v Fetherstonhaugh & Co, 2015 FC 1259.

9. Live! Holdings, LLC v Oyen Wiggs Green & Mutala LLP, 2019 FC 1042, aff’d on other grounds, 2020 FCA 120.

10. Stikeman Elliott LLP v Millennium & Copthorne International Limited, 2015 TMOB 231; Maillis v Mirage Resorts Inc, 2012 TMOB 220.

11. Hilton Worldwide Holding LLP v Miller Thomson, 2018 FC 895 at para 90.

12. Hilton Worldwide, 2020 FCA 134 at para 65.

13. Cosmetic Warriors Limited v Riches, McKenzie & Herbert LLP, 2019 FCA 48 at paras 16-17.

14. Hilton Worldwide, 2020 FCA 134 at para 85.

15. Hilton Worldwide, 2020 FCA 134at paras 88-90.

16. Hilton Worldwide, 2020 FCA 134at para 93.

17. Hilton Worldwide, 2020 FCA 134 at paras 97-98.

18. Hilton Worldwide, 2020 FCA 134 at para 103.

19. Hilton Worldwide, 2020 FCA 134 at para 104.

20. (1995), 64 CPR (3d) 87 (TMOB), affirmed (2000), 9 CPR (4th) 443 (FCTD).

21. Orient Express at para 10.

22. Borden Ladner Gervais LLP v Westcoast Hotels Inc (2006), 53 CPR (4th) 361 at 367.

23. Hilton Worldwide, 2020 FCA 134 at para 115.

24. Stikeman Elliott LLP v Millennium & Copthorne International Limited, 2015 TMOB 231.

25. The evidence did not establish whether loyalty points were earned at the time of booking a reservation at Hilton’s WALDORF ASTORIA hotel, or when the guest completed the hotel stay.

26. Hilton Worldwide, 2020 FCA 134 at para 142.

27. Hilton Worldwide, 2020 FCA 134 at para 147.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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