Intellectual Property Law Issues in Franchising

• Author: Frank Zaid
• Profession: Senior Partner Osler, Hoskin & Harcourt LLP
• Pages: 75-130

CHAPTER 3

INTELLECTUAL

PROPERTY LAW ISSUES

IN FRANCHISING

A. INTRODUCTION

Intellectual property law is both a system of principles as well as a

network of statutes governing the f‌low of ideas, expression, and com-

munication. Indeed, trade-marks, copyright, industrial designs, and

patents are all, to some extent, self-sustained statutory areas of intel-

lectual property law.

Despite the myriad of distinctions separating one area of intellec-

tual property law f rom another, however, certain thematic threads per-

vade intellectual property law as a whole. For example, all intellectual

property rights are both national and international. They are national

in the sense that Canadian intellectual property rights cannot be in-

fringed by acts done in another country. They are international in the

sense that intellectual property rights can be extended to any protect-

able idea or form of expression, regardless of where the creative pro-

cess took place. Moreover, anyone interested in protecting proprietary

rights in some form of intellectual propert y may have to (or at least may

want to) register those interests with the appropriate government body

in Canada (and perhaps internationally).

This chapter focuses on the key intellectual property rights and

interests that may arise within the context of a franchise system and

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fra nchise law76

that, therefore, may affect the busi ness operations of either a franchisor

or a franchisee.

B.REGISTRATION, LICENSING, AND

CONTROL OF TRADEMARKS

1)Common Law Trade-marks

A recognized distinctive and properly protected trade-mark is a funda-

mental aspect of any franchise system. The goodwill image and public

recognition of the franchisee’s goods and services are inextricably tied

with the franchisor’s trade-mark.

“Trade-mark” is def‌ined in section 2 of the Trade-marks Act1 as a

mark that is us ed by a person for the purpose of distingui shing or so as

to distinguish wares or services manufactured, sold, leased, hired, or

performed by that per son from those manufactured, sold, leased, hire d,

or performed by others, including a certif‌ication mark, a distinguish-

ing guise, and a proposed trade-mark.

An ess ential attribute of a trade-m ark is that it must b e distinctive.2

In other words, the object of a trade-mark is to distinguish the wares

or services associated with the mark in such a way as to indicate to the

purchaser the source of the goods or services purchased. If a trade-

mark loses this characteristic, the trade-mark owner may be unable to

assert proprietary rights in the trade-mark.

In order to protect the distinctiveness of their trade-marks, fran-

chisors should not permit any unauthorized use of the trade-marks by

any third person. The concurrent use of confusing trade-marks and

trade names by other persons may result in a trade-mark being ex-

punged due to lack of distinctiveness.3

It is possible at common law to acquire trade-mark rights simply

through usage of the trade-mark, independently of registration. How-

ever, since trade-mark rights only accr ue through actual use a nd public

knowledge of the trade-mark in a specif‌ic geographical area, a com-

mon law trade-mark owner has no right to restrain third parties from

1R.S.C. 1985, c. T-13 [Trade-marks Act].

2Ibid., s. 2: “‘distinctive,’ in rel ation to a trade-mark, means a t rade-mark that

actually di stinguishes the wa res or services in as sociation with which it is u sed

by its owner from t he wares or service s of others or is adapted so to dist inguish

them.”

3Chalet Bar B-Q (Canad a) Inc. v. Foodcorp Ltd. (1982), 66 C.P.R. (2d) 56 (F.C.A.).

Intellectual Property Law Issues in Franchising77

using the same or a confusingly similar mark in a different geograph-

ical area.

In addition, the only method for a common law trade-mark owner

to stop an infringer from using a confusingly similar mark is to com-

mence an action based on the common law tort of passing-off.4 How-

ever, in practice, it is diff‌icult to establish a claim for passing-off;5

therefore, a franchisor should register its trade-marks whenever it is

possible to do so, since rights associated with a registered trade-mark

can be enforced nationally as an infringement action instead of, or in

addition to, an action for passing-off.

2) Registration of Trade-marks

Under the Trade-marks Act, registration of a trade-mark grants to the

registered owner the exclusive right to use the mark throughout Can-

ada, notwithstanding that any use may be conf‌ined to a specif‌ic ter-

ritory. Accordingly, the registered owner of a trade-mark can sue for

trade-mark infringement where the infringer carries on business with

the same or a confusingly similar trade-mark in any geographical loca-

tion in Canada.

A registered trade-mark has distinct advantages for both the fran-

chisor and its franchisees. A fr anchisor can gain protection throughout

Canada even before it is able to expand the franchise system into all

market areas. From the franchisee’s point of view, a registered trade-

mark means that the franchise system has a better chance to gain na-

tional recognition and will not be limited to a specif‌ic geographic area

where development has previously occurred.

C. TYPES OF TRADEMARKS

Under the Trade-marks Act, there are essentially three main types of

trade-marks: (a) certif‌ication marks, (b) distinguishing guises, and (c)

ordinary trade-marks.

4See Section J(1)(d), “Passing-of f Action,” in this chapter.

5Ancona Printing Lt d., c.o.b. Kopy Kwik Printing v. Kwik-Kopy Corp. (1983), 73

C.P.R. (2d) 122 (Ont. H.C.J.).