The Commissioner’s discretion – defending unused trade marks in New Zealand revocation proceedings

First published in The ITMA Review, Issue 406, December 2013/ January 2014 pg 29, title ‘A Matter of Discretion’. Authors Ian Drew and Nick Holmes

Since New Zealand introduced the Trade Marks Act 2002 (NZ) (“the Act”), numerous non-use revocation decisions have referred to a residual discretion available to the Registrar to maintain an un-used mark on the Register where “exceptional circumstances” exist.  However, it is questionable whether such a discretion does or should exist, taking into account the underlying public policy considerations and genesis of the Act.

The source of the residual discretion

Section 66 (1) of the Act governs applications for revocation in New Zealand.  The relevant part of this section is replicated below:

“66 Grounds for revoking registration of trade mark

(1) The registration of a trade mark may be revoked on any of the following  grounds:

(a) that at no time during a continuous period of 3 years or more was the   trade mark put to genuine use in the course of trade in New Zealand, by   the owner for the time being, in relation to goods or services in respect of   which it is registered”

The word “may“, highlighted above has been construed by the New Zealand Commissioner of Trade Marks in numerous cases as affording a residual discretion to maintain a trade mark registration where the mark has not been used in the relevant period where “exceptional circumstances” apply.

Before considering the rationale for concluding a residual discretion exists, it is important to note that the Act has specific provision of maintaining a mark which has not been used where there are “special circumstances” preventing the use of the mark.  Section 66(2) of the New Zealand Trade Marks Act 2002 reads as follows:

(2) However, despite subsection (1), a trade mark may not be revoked for its non-use if its non-use is due to special circumstances that are outside the control of the owner of the trade mark.

The special circumstances criteria were set out in Manhaas Industries (2000) Limited v Fresha Export Limited [2012] NZHC 1815, summarised as follows:

1. The circumstances must be “peculiar or abnormal” and have arisen through external forces as “distinct from the voluntary acts of” the registered owner;
2. It is not necessary to show that these special circumstances made use of the trade mark impossible, but rather “made it impracticable in the business sense” to use the trade mark;
3. There must be a causal link between the special circumstances and the non-use of the trade mark; and
4. The enquiry is very fact specific.

Obviously, the special circumstances provision will have limited application in light of the requirement for the circumstances prohibiting use to be external to the registered owner of the mark, and that there needs to be a causal link between those external forces and the non-use of the mark.

Accordingly, in most non-use revocation cases where the owner of a trade mark is unable to demonstrate use in the relevant period, it will be relying on the perceived residual discretion.

Defining the word “may”

The ordinary definition of the word “may” suggests a degree of uncertainty about a particular matter.  When used in legislation, it could have two possible interpretations.  Firstly, it could afford discretion in relation to whether or not to exercise a power or, secondly, require that a decision maker be satisfied of something before exercising a power, in effect creating a threshold test for deciding the matter.

Both the New Zealand Court of Appeal (Richardson P, Gault and Thomas JJ), in Tyler v Attorney-General [2000] 1 NZLR 211 (“Tyler Decision”), and the Australian High Court, in Finance Facilities Pty Ltd v Federal Commissioner of Taxation (1971) 127 CLR 106, have confirmed that the word “may” can take on the second definition and place a decision maker under a duty to exercise a power where satisfied of a particular matter.¹

In Australia, section 33 of the Acts Interpretation Act 1901 (Cth) changes this position by defining “may” and confirms that when used in legislation, it confers a discretionary power.

However, the equivalent New Zealand legislation, the Interpretations Act 1999 (NZ), does not include such a definition.  Sub-section 5(1) of that Act, however, confirms that the meaning of a New Zealand enactment “must be ascertained from its text and in light of its purpose“.

Accordingly, in interpreting the word “may” in sub-section 66(1) of the Trade Marks Act 2002, one should consider the intended purpose of the provision.

The Trade Marks Act 2002 (NZ) was based on the Trade Marks Act 1998 (SG), now Trade Marks Act 2007 (SG).  The Singapore Act was based, in turn, on the Trade Marks Act 1994 (UK).  As such, considerable assistance in the interpretation of the word “may” comes from the Singaporean Court of Appeal in Wing Joo Loong Ginseng Hong (Singapore) Co Pte Ltd v Qinghai Xinyuan Foreign Trade Co Ltd and Another and Another Appeal – [2009] SGCA 9 (2 March 2009) (“Wing Joo Case”).

The Wing Joo Case was considered and relied upon by the New Zealand Assistant Commissioner of Trade Marks, B.F. Jones in DB Breweries Limited v Society of Beer Advocates, Inc. [2011] NZIPOTM (13 July 2011) when considering an application for revocation on the basis that the challenged mark was generic.  Accordingly, the Wing Joo Case should have some weight in the New Zealand context.

Section 22 of the Trade Marks Act 2007 (SG), which governs revocation proceedings has a similar construction to section 66 of the New Zealand Act as illustrated below:

“22. Revocation of registration

(1) The registration of a trade mark may be revoked on any of the following grounds:

(a) that, within the period of 5 years following the date of completion of the registration procedure, it has not been put to genuine use …”

In the Wing Joo Case, the Court of Appeal held that there is no residual discretion arising from the word “may” in section 22 of the Singapore Act.  In arriving at this conclusion, reference is made to several cases decided in the United Kingdom which suggest the equivalent provision in the Trade Marks Act 1994 (UK) also does not afford such a discretion.  The Court considered the issue in detail and it is worth replicating its careful consideration of the matter in full:

… there has to date been no authoritative ruling on the question of whether there is a residual discretion not to revoke or invalidate the registration of a trade mark under either ss 46 and 47 of the English Trade Marks Act or Arts 12 and 3 of the European Trade Marks Directive where the requisite conditions are met. There have, however, been several decisions on these provisions in the lower courts which support a finding that there is no such residual discretion (see, inter alia , ZIPPO Trade Mark [1999] RPC 173 at 184 and Cabañas Habana (Device) Trade Mark [2000] RPC 26 at 34).

147 The most frequently cited case for the proposition that there is no residual discretion would be Premier Brands UK Ltd v Typhoon Europe Ltd [2000] EWHC 1557; [2000] FSR 767 (“ Premier Brands ”). In that case, Neuberger J held (at 811):

[I]t does seem to me somewhat odd if the legislature has specifically provided [via ss 46(1)(a) and 46(1)(b) of the English Trade Marks Act] for no revocation in the event of there being good reason for the non-use, but nonetheless has left the Court with a residual discretion, particularly without giving any indication as to what factors should be taken into account when exercising that discretion. Further, consideration of the combined effect of section 46(1)(c) and (d) [which correspond to ss 22(1)( c ) and 22(1)( d ) respectively of the current TMA] suggest[s] to me that it is more likely that the legislature intended that those two paragraphs were to represent mandatory, rather than discretionary, grounds for revocation. Section 46(5) [of the English Trade Marks Act] and Article 13 [of the European Trade Marks Directive] tend to point in favour of the conclusion I have reached [both s 46(5) of the English Trade Marks Act and Art 13 of the European Trade Marks Directive are in pari materia with s 22(6) of the current TMA]. The words “may” in section 46(1) and “liable” in Article 12 [both of which correspond to s 22(1) of the current TMA] are perfectly consistent with the concept of revocation being mandatory but only occurring in the event of an application being made.

Even though the Singapore Court of Appeal concludes that the word “may” does not afford a residual discretion to maintain a registration in spite of non-use, in Cadbury Ireland Limited v Societe des Produits Nestle S.A. [2007] NZIPOTM 4 (29 January 2007) New Zealand Assistant Commissioner J Walden concludes one exists under the equivalent New Zealand provision, and discussed the issue in the following terms:

“Should the Commissioner’s discretion not to revoke the “Vapor Action” trade marks be exercised in this case?

The introductory words of section 66(1) of the 2002 Act state:

The registration of a trade mark may be revoked on any of the following grounds: [emphasis added]

It appears that the likely interpretation of those words is that the adjudicator in revocation proceedings has a residual discretion to refuse revocation even if non use is established, but that residual discretion is to be exercised only in exceptional circumstances – Friskies Ltd v Heinz-Wattie Ltd [2003] 2 NZLR 663 at 667.”

There has been limited consideration of the applicability of the Friskies Decision in revocation proceedings in New Zealand beyond this decision.  However, Walden J in a recent decision, Carlton Hire Group Limited v The Ritz-Carlton Hotel Company LLC [2013] NZIPOTM 32, considered the existence of the discretion on the following terms:

I consider that the use of the word “may”, rather than “must”, indicates that there is a discretion not to revoke the registration of a mark even if the grounds set out in section 66(1) of the Act are made out.  However, the tenor of the Act (as it was with the 1953 Act) still appears to be weighted in favour of removing marks (in whole or in part) that have not been used for the non-use period, which means that the discretion is still to be exercised only in exceptional circumstances.

The Carlton Hire decision suggests that the conclusion that there is a discretion is arbitrary.  It highlights a belief that the policy objective of the non-use provisions in the Trade Marks Act 1953 (NZ) and 2002 Acts is identical and, therefore, following the Friskies Decision which issued under the Trade Marks Act 1953 (NZ), a residual discretion exists.

The revocation provision in the 1953 Act (section 35) is drafted differently and the onus resided with the revocation applicant to show that the mark had not been used.  Under the Trade Marks Act 2002, the onus resides with the owner of the mark to demonstrate that the mark has been used in the relevant period if the trade mark is challenged.

This shift in onus seems to distinguish the Friskies Decision as authority on whether a residual discretion exists.  The change in policy must be taken into account noting the requirement under sub-section 5(1) of the Interpretations Act 1999, the Court of Appeals comments in the Tyler Decision (per Richardson P) and, indeed, the comments of Young J in the Friskies Decision as follows:

The use of the word “may” typically indicates a discretion, but whether it did so depended upon the particular statutory context and the power to be exercised.

Where the onus is borne by the revocation applicant to demonstrate that a trade mark has not been used, logically the policy objective is to maintain registrations for marks unless there is abandonment of the trade mark which is obvious to the world at large.  In this situation the overriding policy consideration must be the public interest in diminishing consumer confusion.

By contrast, where the onus resides with the owner of a registration to demonstrate use (as in New Zealand), the policy focus seems to have shifted to removing disused marks from the register to reduce barriers to trade and increase competition.  The application of a residual discretion, not specifically provided for in the Act, seems inconsistent with this shift in policy.

As a final consideration, it also seems that the use of the word “may” was unavoidable in sub section 66(1), in light of the requirement that the revocation applicant is a “person aggrieved“.  If the word “must“, rather than “may“, had been used in sub-section 66(1), there would be a serious question as to whether the Commissioner has the power to maintain a registration in contested revocation proceedings where the revocation applicant was not a person aggrieved and where no evidence of use can be shown.  The word “may” seems necessary to ensure that the Act meets its purpose of including standing as a person aggrieved as a threshold requirement for making an application for revocation, rather than to create a residual discretion to maintain unused marks.

When will the residual discretion be exercised?

The leading New Zealand authority on the circumstances in which the discretion will be exercised is the Manhaas Decision in which Collins J presumes that a discretion exists.  The factors taken into consideration in assessing the discretion are as follows:

Discretion

[35] MIL asks the Court to exercise its discretion to continue to own the trade mark “Ocean Queen” even if it does not establish special circumstances.

[36] In my assessment the following three factors weigh heavily against MIL’s plea that the Court exercise its discretion in its favour:

Integrity of the Register

The “Ocean Queen” trade mark has been owned by MIL since 21 July 2005. There is no evidence that it has ever been used. The Registrar of Trade Marks is being unnecessarily clogged by MIL’s failure to use its trade mark.

Absence of any use of the trade mark

The absence of any evidence of use of the trade mark by MIL is a feature that counts heavily against MIL.

Competition

MIL’s continued ownership of the trade mark is blocking FI’s legitimate desire to use the trade mark to capitalise upon its reputation for “Ocean Queen” acquired through using that trade mark in the Pacific for the past 15 to 20 years.

The discretion was not exercised in this decision, but the decision provides some guidance as to the policy considerations which may influence the exercise of such a discretion.  Those factors are consistent with the policy shift discussed above focusing on public interest considerations of competition and the purity of the Register.

This approach is to be compared with the decision in Dick Smith (Wholesale) Pty Ltd v Smiths City (Southern) Limited [2006] NZIPOTM 2 (31 January 2006) (Assistant Commissioner Walden J).  This appears to be the only decision in which the residual discretion has been exercised in New Zealand.  The Assistant Commissioner considered the following summarised factors as relevant:

• The evidence pointed to a genuine intention to use the trade mark;
• Use of the mark commencing less than a month after the relevant period for assessing non-use;
• A balance of convenience test based on the prejudice of the parties, noting that:
  • the revocation applicant’s trade was not impeded by the registration;
  • no challenge had been filed by the owner to the revocation applicant’s mark;
  • the owner of the mark had not challenged the revocation applicant’s use;
  • the revocation applicant was not precluded from taking action if deception or confusion arose; and
  • the prejudice to the owner in revoking the mark.

The factors considered in this decision are likely to be unique to the particular fact scenario the parties faced.  That said, it is interesting that the factors are cast in terms of maintaining a trade mark registration based on a private interests in the mark and lack of direct competition between the parties.  The public interest considerations subsequently weighed by Collins J in the Manhaas Decision do not appear to feature in the decision and this creates considerable uncertainty as to when the residual discretion may be exercised.  However, it appears that the Commissioner considers exceptional circumstances to include both public and private interests in the trade mark.

Direction required

Although the New Zealand Commissioner of Trade Marks has regularly referred to a residual discretion to maintain a trade mark in spite of non-use, there is doubt as to whether such a discretion does or should exist.  If such a discretion does exist, it seems that it will only be exercised in exceptional circumstances. This creates uncertainty, especially as the discretion seems to include both public and private interests in the trade mark.  Judicial or Parliamentary direction is required here to place boundaries on the factors relevant to exercising the discretion.

End notes

1. Also see Ross Carter Statutory Interpretation in New Zealand’s Court of Appeal: When ‘may’ means ‘must’, section headings affect interpretation, and latent Acts have effect Statute Law Rev (2001) 22 (1): 20-37