In Cobalt Brands LLC v. Gowling Lafleur Henderson LLP (2010 FC 260), Cobalt Brands LLC (“Cobalt”) appealed the Registrar of Trade-Marks’ (“Registrar”) expungement of its USQUABEACH trade-mark Reg. No. 219,908 from the Trade-Mark register (“register”) due to Cobalt’s failure to file evidence of use pursuant to subsection 45(3) of the Trade-marks Act (“the Act“). Cobalt had acquired the USQUAEBACH mark in order to produce, market, import, and export a blended Scotch Whiskey which had been absent from the market since 2001. The Federal Court of Canada (“Federal Court”) allowed the appeal, setting aside the decision of the Registrar and ordering it to reinstate Cobalt’s USQUAEBACH mark.

On appeal Cobalt submitted affidavit evidence, as prescribed under subsection 56(5) of the Act, confirming that, although the mark fell into disuse, special circumstances excuse the absence of use. Although no evidence was adduced before the Registrar, the Federal Court found subsection 56(5) permits the submission of evidence on appeal, as subsection 45(3) explicitly allows a trade-mark to be expunged for a “failure to furnish any evidence.”

Citing Scott Paper Ltd. v. Canada (Attorney General) [2008 FCA 129] (“Scott Paper”), the Federal Court explained “special circumstances” refers to uncommon circumstances and “must be of the circumstances to which the absence of use is due.” Elaborating on this definition, the Federal Court explained that their determination of what constitutes special circumstances is, in reality, an inquiry into the reasons for non-use. The Federal Court accepted that the non-use of the USQUAEBACH mark was due to a complex chain of changes in ownership which were, on two occasions, the result of the deaths of principal owners. As this non-use was directly related to the deaths of these owners, this constituted a special circumstance. Further, the Federal Court accepted the evidence that since acquiring the USQUAEBACH mark Cobalt had been involved in a number of complicated and lengthy processes including, but not limited to, “finding a Scottish distiller that could match the quality of the USQUAEBACH products sold by previous owners; ensuring that each label associated with the different varieties of USQUAEBACH blended Scotch Whiskey complies with the labelling [sic] regulations; negotiating distribution deals in each province…; ensuring that Cobalt complies with local liquor regulations in the various jurisdictions…; and finding a licensed importer in Canada.” The Federal Court accepted these were special circumstances as well, which would take a considerable amount of time to carry out.

Distinguishing the circumstances from Scott Paper, the Federal Court stated it is not Cobalt’s intention to resume business which excused the absence of use, but rather two factors. The first being the impediment of immediate resumption of business by the nature of the liquor industry and the related regulatory schemes imposed by the various provinces. The second, and more important factor, was the absence of use resulting from the two deaths of the previous owners of the mark between 2001 and 2007, which required Cobalt to restart the process of putting the ASQUAEBACH blended Scotch Whisky on the market.

The Federal Court explained that the purpose of section 45 of the Act is to expunge from the register “trade-marks which have not been used and for which there is no reasonable prospect that they will be used.” The Federal Court granted Cobalt’s appeal and set aside the Registrar’s expungment of the USQUAEBACH mark from the register.