August 15, 2018
By Cynthia Rowden and Tamara Céline Winegust
The countdown is on — October 17, 2018 is the date for legalization of recreational cannabis. Despite the fast-approaching deadline, there are still questions and few clear answers on many issues relating to cannabis brand selection and use. Many cannabis companies have filed trademark applications for words and symbols that may now be contrary to the Cannabis Act’s branding rules. Moreover, restrictions in the Cannabis Regulations on the type and number of brands that may appear on cannabis product labels could prevent many marks from ever being used. At the same time, there could be serious punishments and penalties for non-compliance.
Initial Government consultations raised the possibility of a “plain packaging” regime. While the Act and Regulations are not that strict, they nevertheless place significant constraints on both brand selection and use. The result is that trademark use for cannabis products will look significantly different from regular brand use, even compared to other regulated industries.
Certain policy considerations specifically stated in the Act direct restrictions on branding, including protection of young persons and public awareness of health risks. Such considerations are reflected in limitations on brand selection for cannabis products and accessories and in mandatory health warnings and symbols that reduce the number, size and room for branding elements on labels. The desire to alleviate pressure on the criminal justice system for some cannabis activities (such as possession and sales) is shown by a range of non-criminal or simplified administrative sanctions.
To fully appreciate cannabis branding guidelines, consideration is required, not only of the Cannabis Act (“Act”) and Cannabis Regulations (“Regulations”), but also of the Trademarks Act. Even then, there will likely be uncertainty and ambiguity for some time.
With that in mind, here are some points to consider:
The Act and Regulations define terms like “cannabis”, “brand element” and “container”. “Brand elements” include a brand name, trade name, trademark, logo, design, distinguishing guise, and slogans. Definitions of “promote”, “label” and “immediate container” all affect what kind and how many brand elements can appear on, or to promote cannabis accessories, services and other things, and where. Branding limitations apply to cannabis, cannabis accessories (which include deemed cannabis accessories — things commonly used to consume cannabis, if sold with cannabis), and cannabis products (that include both cannabis, and cannabis accessories that contain cannabis). Different terms are used in the Act and Regulations — for example, the Act refers to cannabis and cannabis accessories, while the Regulations sets out detailed branding rules for “cannabis products”, which includes cannabis and certain types of cannabis accessories. Importantly, only the types of cannabis listed in Schedule 4 may be sold immediately after legalization. “Edibles” are not currently listed, and are intended to be added to Schedule 4 sometime next year.
Packaging, labels or promotion of cannabis, and cannabis accessories and services may not display brand elements if:
In addition to words and designs, containers and shapes of goods can also be a trademark. However, the Act prohibits the sale of cannabis or a cannabis accessory with an appearance, shape or sensory attribute or function (such as a smell or sound) that could reasonably appeal to young persons.
It remains to be seen how “appealing to young persons” or “evoking a way of life will be interpreted — particularly given both the likely target market and the probable effect of many cannabis products. Likely words or images of childhood toys and games or favourite children’s foods will be problematic — however, there would seem to be much room for ambiguity here.
There are many reasons to register a trademark. A registration provides exclusive rights to use the mark across Canada for the registered goods and services. Having identifiable intellectual property assets can also be important, particularly for start-up industries, like cannabis, where there are likely to be many industry shake-ups in the next few years and IP rights can impact valuation. Once filed, a claim to rights appears on the searchable Register, possibly deterring encroachment from others, and potentially affecting examination of other applications. Also, registration provides proof of ownership.
The Cannabis Act definition of “brand elements” includes words, designs, distinguishing guises, and slogans, all of which can be registered as trademarks, but to do so, they must also satisfy Trademarks Act registrability requirements. Complicating this is that Canadian trademark law is in flux, with significant amendments to the Trademarks Act passed, but not yet implemented. One of the most important will be the elimination of “use” as a registration requirement. These changes will affect how applications are filed, assessed, and registered. Implementation is expected to be in early 2019 — after the cannabis legalization date.
Under the Trademarks Act, marks that are names, surnames, descriptive or misdescriptive, generic, confusing with registered marks, or otherwise prohibited under the Trademarks Act or other legislation are generally not registrable. Other types of marks, such as shapes of goods or containers, are registrable only with proof of distinctiveness as of the filing date, and under the new Trademarks Act, other non-traditional marks — like scent, texture, and taste — could be registered, but will also need to be proved distinctive.
Marks that are registrable under the Trademarks Act might not comply with Cannabis Act brand element restrictions. For example, depictions of animals may not appear on cannabis/accessory packaging or promotions. With proof of distinctiveness, scents, sounds and taste could be registrable under the amended Trademarks Act, but may not be used on cannabis packaging if they appeal to young persons, making it difficult, if not impossible, to acquire the necessary distinctiveness. Similarly, the Trademarks Act also contemplates extending registration protection to texture, but the Cannabis Regulations prohibit embossing on labels.
Currently, there are hundreds of pending trademark applications covering cannabis goods/services, including many that would seem to offend the Cannabis Act’s branding restrictions. However, the Canadian Intellectual Property Office (CIPO) has informally announced that it does not intend to examine new marks covering cannabis goods or services for compliance with the Cannabis Act. This suggests the possibility that many applications will cover marks that may never be used, and also that such applications could be vulnerable to challenge during an opposition on the basis that the applicant could not be satisfied of its entitlement to use the mark, due to prohibitions on use found in other statutes. Some Opposition Board decisions have held that non-compliance with Federal statutes may be a valid opposition ground, creating a risk of refusal for an application.
Applicants filing now must consider both the current trademark regime and the changes that will be implemented once the amendments to the Trademarks Act come into force. There are significant differences not only in terms of registrable marks, but also with filing grounds and pre-registration use requirements. Unless there has already been “use” of the mark on the goods or services in Canada, applicants filing now (and before cannabis legalization on October 17, 2018), should file based on “proposed use”. After the legalization, and until the Trademarks Act amendments are in force, care should be taken to distinguish between goods/services in use, and those not yet sold. All applicants should select broad lists of goods/services, taking into consideration that having an “intent” to use the mark may impact registration rights — so taking a reasonable, and not over-reaching, approach is recommended.
Evaluating the risk of confusion between marks and names is relevant when conducting brand clearance and risk analysis, during examination before the Trademarks Office, in opposition proceedings, and in infringement, passing off and expungement actions. The Trademarks Act lists factors for assessing confusion such as the extent to which a mark is known, length of time of use, channels of trade, and comparison between goods and services, as well as the overall similarity between the marks in appearance, sound and connotation.
Cannabis Act brand restrictions will impact confusion analysis in many ways. Recreational cannabis marks are new, and will have minimal, if any reputation for the next few years. Rules restricting both appearance of branding on packaging and labels, as well as promotion, may limit the extent to which many cannabis brands will ever become known. Channels of trade for cannabis are likely to be highly regulated, with some provinces planning for government regulated retail outlets, but will differ from province to province, preventing generalizations on where and how cannabis sales will take place. The projected popularity of legalized recreational cannabis has already made many cannabis companies a target for merger or investment by unrelated companies. If cannabis becomes seen as an area of “natural expansion” for companies in certain sectors, that could also affect the likelihood of confusion. For now, there are hundreds of cannabis marks still in examination with CIPO, so it may be some time before there is more predictability on the confusion analysis.
Both the Trademarks Act and the Cannabis Act impact cannabis brand usage, which in turn affects registration and enforcement.
“Use” is the basis of trademark rights, and is now required for trademark registration and enforcement in Canada. For goods, “use” normally means display on goods or packages/labels. For services, display of the mark in advertising is required. While, as noted above, use as a registration requirement will be eliminated with the upcoming amendments to the Trademarks Act, the Government has announced its intent to introduce legislation requiring use of a trademark as a condition of enforcement for three years after registration, so use will remain key.
In addition to Cannabis Act limitations on brand choices, the Regulations strictly control how many and the manner in which branding elements may be displayed on “cannabis products” (defined to include cannabis and cannabis accessories sold with cannabis, such as a pipe with cannabis). Branding elements or images — including trademarks, distinguishing guises and logos — may only be displayed on a “label” applied to cannabis products. They may not appear on the interior or exterior surface of any container or covering that is not otherwise “a label”. Further, only one branding element, other than the brand name, may be displayed, and can only appear once on the principal label.
There are also strict rules on the size and colour of the brand elements and the background of the packaging. For example, fluorescent colours are not allowed, and brand elements must be both smaller than, and in contrasting colours to, the required cannabis symbol and health warnings. Features such as texture, embossing, “foldouts”, inserts, and windows are not permitted.
Such restrictions seem likely to impact the development of brand reputation, which in turn impacts both consumer decision-making and the scope of protection for cannabis marks. While not strictly a “plain packaging” regime, packages seem designed to be muted — with mandatory cannabis symbols and health warnings required to be more dominant than branding elements. This will also likely make it difficult for cannabis companies to develop trademark rights in many non-traditional marks such as colour and background patterns.
Generally, it will be possible to display and promote brands related to cannabis, accessories or services on “a thing”, as long as it is not associated with young persons, or could reasonably be viewed as appealing to young persons, or associated with a way of life that “includes” glamour, recreation, excitement, vitality, risk, or daring. What will this mean in practice? Can a cannabis company or licensee sell t-shirts and caps marked with the cannabis brand, or put a cannabis brand on a skateboard? In short, probably not — these items are commonly associated with, and appealing to, young persons and a “way of life”. Pending more guidance from the Government or courts, cannabis companies should exercise caution when considering whether to display their brands on merchandise widely used for promotions in other industries.
Based on the many restrictions on display and promotion of brand elements, it is quite likely many registered cannabis marks will not be “used”. The Cannabis Act, like the Tobacco Act, contains “saving” provisions that prevent a trademark registration from being held invalid based on specific expungement grounds, namely non-distinctiveness and abandonment. This approach may be problematic.
First, it is hard to imagine how compliance with the Cannabis Act could render a cannabis mark non-distinctive. Normally, non-distinctiveness arises from factors such as widespread use that makes it impossible for a mark to identify, or distinguish, a single trader, or generic or descriptive connotations of a mark.
Second, under the amended Trademarks Act, marks may be registered without use. This could, in effect, lead to companies “stockpiling” trademarks that they register, but never use (or only use on a limited number of goods/services), claiming that under the Cannabis Act, they are only permitted to display two (a brand name and one other brand element) on the label. That position could effectively clog up the Register with marks having a special status — registered, but never used.
Third, a “for greater certainty” provision states that the absence of use as a result of compliance with the Cannabis Act constitutes special circumstances that excuse non-use under the Trademarks Act. This seems to be an attempt to address challenges under s.45 of the Trademarks Act, which provides for a frequently used summary non-use proceeding that applies to any registration more than three years old. However, the Cannabis Act does not mention that section of the Trademarks Act, and it will likely be up to judicial interpretation to provide a better understanding of the impact of this section in the Cannabis Act.
The Cannabis Act sets up three separate penalty regimes:
First, there are criminal sanctions for acts set out in Division 1 of the Act, which focuses on unauthorized possession, distribution, sale, importing, exporting, alteration, and cultivation. Discretion is also given to “peace officers”, such as the police, to issue tickets for non-compliance with these provisions — presumably following the stated purpose of the Act to reduce the burden on the criminal justice system.
Second, there are statutory offences for violations of the Cannabis Regulations and of the Cannabis Act for which no other punishment is provided — such as those dealing with brand choice and display, and regulatory non-compliance. Those offences permit convictions as summary offences, with penalties ranging from fines of up to $250,000 and/or 6 months imprisonment (plus higher amounts/terms for subsequent offences) or as indictable offences, with penalties of up to $5,000,000 and/or 3 years imprisonment. Corporate directors, officers, and agents may also be liable to conviction, even if not specifically prosecuted for such offences.
Third, there are fines that may be levied under the “Administrative Monetary Penalties” provisions, which apply to violations of the Act (except for criminal acts in Part 1 Division 1) and the Regulations. The Act contemplates the appointment of authorized individuals who may issue notices of violation, with penalties of up to $1,000,000. Various options are available once a notice of violation is issued, including payment, a compliance agreement or default. Violations are not defensible on grounds of due diligence or reasonable and honest belief.
Only time and experience will tell how these provisions will be applied — it could be that certain violations could be subject to both the statutory offences and an Administrative Monetary Penalties. However, if the Act’s purpose of removing many cannabis offences from the criminal justice system is followed, it seems possible that the option of Administrative Monetary Penalties will be favoured more often than not.
While the Government promised legalization of recreational cannabis several years ago, many details have only recently been finalized and others are still under discussion. For example, many provinces still have to finalize where sales may take place. Regulations were only published in June, with a short time from notice to implementation. Brand restrictions on “appealing to young persons” and/or evoking a way of life are ambiguous. Hundreds of unexamined Trademark applications on file with CIPO makes it difficult to anticipate how confusion could impact trademark approval, oppositions, and registration. The interaction between cannabis branding and other merchandise seems to require clearly differentiated trademarks for cannabis and promotional merchandise, even in the absence of specific prohibitions against displaying cannabis brands on other things. The risk of significant fines and lengthy imprisonment for non-compliance makes it critical to carefully assess brand choices and brand usage. These, and many other issues, will hopefully benefit from time and possible government guidelines. In the meantime, cannabis companies and retailers are racing to get products ready for the launch. Interesting times are ahead.
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