Anonymised, illustrative composite. The company owned its mark outright and the chain of title was clean. The registration covered eleven classes of goods and services against sales in three, and any person at all can pay a fee and put the owner to proof of the last three years.
At a glance
A private equity buyer agreed to acquire the shares of a Canadian outdoor-equipment brand for $11,200,000. The brand was the asset. Manufacturing was outsourced, distribution was through third parties, and the purchase price allocation put $3,400,000 against the trademark and associated goodwill. Part of the investment thesis was a licensing programme in adjacent categories the founders had never had the capital to enter.
Intellectual property diligence came back clean on every question it was asked. The registration was in the company's name. The chain of title from the founder's original application was complete. Renewals were current. No oppositions, no litigation, no co-existence agreements.
Nobody had compared what was registered against what had ever been sold. The registration covered goods and services in eleven classes: technical outerwear, footwear, packs and bags, sleeping systems, cookware, watches, eyewear, luggage, bicycles, retail store services and an online marketplace service. The business had sold in three. Four of the remaining eight had never generated a Canadian sale; the other four had a capsule run more than three years before the transaction and nothing since.
This is not a chain-of-title defect and no ownership review reveals it, because ownership is not the question. The question is whether the perimeter the buyer is paying for can be defended when somebody puts the owner to proof, and the answer sat entirely in the sales ledger rather than in the register.
Eleven classes registered. Three in use. Eight not in use in Canada in the three years before closing. $3,400,000 of the $11,200,000 price allocated to the mark. The licensing programme in two of the unused categories was modelled at $410,000 of annual royalty by year three — roughly $1,900,000 of enterprise value at the multiple the deal was struck on, all of it resting on classes the registration could not defend. The registration was eight years old, so the three-year window in which a proceeding cannot be started had long since passed.
Section 45 of the Trademarks Act, Registrar may request evidence of use, is a summary procedure any person can start. Subsection (1) provides that “After three years beginning on the day on which a trademark is registered, unless the Registrar sees good reason to the contrary, the Registrar shall, at the written request of any person who pays the prescribed fee…give notice to the registered owner of the trademark requiring the registered owner to furnish within three months an affidavit or a statutory declaration” showing whether the mark was in use in Canada in the relevant period.
Four units are worth separating, because the shorthand "use it or lose it" hides all of them:
The consequence is graduated, not binary. Subsection (3), Effect of non-use, applies where it appears that the mark, “either with respect to all of the goods or services specified in the registration or with respect to any of those goods or services”, was not used in the three-year period “and that the absence of use has not been due to special circumstances that excuse the absence of use”, in which case the registration “is liable to be expunged or amended accordingly”. The unit is the individual good or service, not the registration and not the class.
Two qualifications keep this honest. There is a defence — special circumstances excusing non-use — so a buyer who assumes non-use is automatically fatal will over-discount. And the three classes in genuine use are not at risk from s.45 at all. Classes are a filing construct in any event: s.30(3) requires that goods or services “are to be grouped according to the classes of the Nice Classification”, but s.45 operates on the goods and services themselves, which is why a registration can end up half-emptied within a class.
The buyer did not walk and did not retrade the headline price. It re-cut the allocation, splitting the $3,400,000 between the three proven classes and the rest, and moved the licensing thesis out of the base case. Two conditions went into the agreement: fresh applications covering the two categories in the licensing plan, and a capped, time-limited indemnity against a s.45 proceeding brought within twenty-four months of closing succeeding as to those categories.
The buyer also did the cheap thing first and instructed counsel to prepare the evidence file now — dated invoices, packaging, catalogue pages and shipping records for every category still claimed — on the reasoning that the three months in s.45(1) is a hard deadline and the affidavit is far easier to build before it starts running than after.
The realistic downside was not losing the brand. It was paying brand money for a perimeter that shrinks the first time a distributor is terminated. The distributor whose agreement expired eleven months after closing was the obvious requester: every commercial reason to narrow the registration before negotiating a replacement, no standing requirement, and only a prescribed fee to pay.
The tell is arithmetic and takes ten minutes: put the registered list of goods and services beside three years of sales by category and count the lines with no revenue against them. Every registration drafted expansively at filing will show some. The follow-up question is who currently has a commercial reason to want the registration narrower. Compare a trade mark registered to the founder personally, where the defect was ownership rather than scope.
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