New Zealand: Invalidation Case Shows "Bad Faith" Is Alive And Well In New Zealand

A recent IPONZ invalidation decision provides a good summary of how "bad faith" is assessed in New Zealand trade mark proceedings, in Lance Canute & Carolyn Canute trading in partnership as Canzac Construction Products v S3 Concrete Technologies, Inc. [2023] NZIPOTM 32 (27 July 2023).

S3 Concrete Technologies, Inc. (S3 Concrete) successfully applied to invalidate New Zealand registration No. 1176142 MEGASLAB, owned by Lance and Carolyn Canute trading as Canzac Construction Products (Canzac). The case hinged upon whether or not Canzac acted "in bad faith" in registering the trade mark MEGASLAB.

How has bad faith been assessed in New Zealand?

Assistant Commissioner O'Donnell provided a succinct summary of recent New Zealand bad faith decisions and accompanying comments made by Assistant Commissioners in each case, including:

• Manhaas Ltd v Miaow Food Products SDN BHD [2023] NZIPOTM 14: " The unauthorised registration by an actual, past, or proposed distributor of the manufacturer's mark has been found on many occasions to fall short of the standards of persons adopting proper commercial standards, and constitute bad faith";
• Baker v Oriental Recreational Products (Shanghai) Co Ltd [2016] NZIPOTM 15: In this case, Baker, the owner of the subject trade mark registration, had applied to register the trade mark at the same time as pursuing a distribution agreement with the applicant for invalidity. Baker's counterstatement in the invalidity action demonstrated that he thought that "applying for registration of [the trade mark] in New Zealand was a common and prudent business decision to protect his investment in marketing [the trade marked] products here. It is therefore possible that Mr Baker did not understand that the intellectual property in the trade mark belonged to the company whose goods he was planning to distribute and with whom he was planning to enter into an agency agreement. It is possible that he did not understand that it was not open to him to assert ownership of ORPC's trade mark in these circumstances";
• Sweet Talk Limited v Jane Hilliard d [2023] NZIPOTM 3in this case bad faith was not "The allegation of bad faith centred on the applicant's knowledge of the opponent's use of the mark SWEET TALK in Australia and conversations the parties had about the mark prior to the filing date. It was alleged the opponent had gained a reputation for use of the mark in the New Zealand market and the applicant applied for the mark despite possessing this knowledge. Assistant Commissioner Aldred concluded that the opponent did not have a reputation for the mark in New Zealand. The opponent's pleading which appeared to rely solely on the applicant's knowledge of this unfounded reputation was, as a consequence, not sufficient to show the mark was applied for in bad faith ";

Is it bad faith to apply to register a trade mark if the Applicant knows that the mark is being used overseas?

No.

Assistant Commissioner O'Donnell quoted the High Court in Valley Girl Co. Ltd v Hanama Collection Pty Ltd (2005) 66 IPR 214 to conclude that merely applying for a trade mark in New Zealand with knowledge of its use overseas does not equate to an act of bad faith. In the Valley Girl case the High Court observed:

Had Canzac acted in bad faith in registering MEGASLAB?

Yes. Canzac proposed a distribution relationship with S3 Concrete, which did not come to fruition, and, from S3 Concrete's perspective; it did not appear a real possibility. Nonetheless, Canzac forged ahead and applied to register MEGASLAB.

The key factor which supported a finding that Canzac had acted in bad faith in registering the MEGASLAB mark is that Canzac acknowledged that its "applying and receiving the trade marks I thought... may simply give us a bit of leverage moving forward. If we were able to come to some sort of arrangement to work together we would be quite happy to hand the marks over to you". S3 Concrete provided this in evidence from which Assistant Commissioner O'Donnell could infer bad faith.

The Assistant Commissioner acknowledges that Canzac's admissions indicate that it was not aware that its actions are dishonest. However, this does not alleviate the fact that such actions fell well short of reasonable standards of commercial behaviour. Consequently, Canzac had acted in bad faith and S3 Concrete's invalidity action was successful.

Help for brand owners in dealings with potential distributors in New Zealand

This case demonstrates some of the risks associated with applying to register a third-party brand in New Zealand. Not only is such conduct likely to damage the relationship between the respective parties, any trademark registration which is obtained ultimately may be deemed invalid.

Nonetheless, the Sweet Talk case mentioned above does show that there are limits to findings of "bad faith". In simple terms it is always going to be more cost-effective for a brand owner to get in first to register its trade mark in New Zealand, if New Zealand is seen as a potential market for the brand owner's goods or services.

Footnote

1. Valley Girl Co. Ltd v Hanama Collection Pty Ltd (2005) 66 IPR 214 at 57

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