Intellectual Property Law Issues in Franchising

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

CHAP TER 3

INTELLECTUAL

PROPERT Y L AW ISSUES

IN FR ANCHISING

A. INTRODUCTION

Intellectua l property law is both a system of principles as well as a

network of statutes governing the f‌low of idea s, expression, and com-

munication. Indeed, t rade-marks, copy right, indu strial designs, and

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

lectual property law.

Despite the myri ad 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 bot h 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 intellectu al property rights c an be extended to any protect-

able idea or form of expression, regardle ss 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 wit hin the context of a franchi se system and

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

or a franchisee.

B. REGISTR ATION, LICENSING, AND

CONTROL OF TR ADEMARKS

1) Common Law Trade-marks

A recognized di stinctive and properly protected trade-mark is a funda-

mental aspect of any fra nchise system. The goodwil l image and public

recognition of the franchi see’s goods and serv ices are inextr icably 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 serv ices manufactured, sold, leased, hired, or

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

or performed by others, including a cer tif‌ication mark, a distingui sh-

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 di stinguish the wares

or services as sociated with t he mark in such a way as to indicate to the

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

mark loses thi s characteristic, the trade-mark owner m ay be unable to

assert proprietary rights in t he 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-mark s and

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

punged due to lack of distinctiveness.3

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

through usage of the trade-mark, i ndependently of registrat ion. How-

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

knowledge of the trade-mark in a spec if‌ic geographical are a, a com-

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

1 R.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 Franchising 77

using the same or a confusingly similar m ark in a different geograph-

ical area.

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

to stop an infringer from using a confusingly sim ilar 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 passi ng-off;5

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

possible to do so, since rights assoc iated 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 t he

registered owner the exclusive right to use the mark th roughout Can-

ada, notwithst anding that any use may be conf‌ined to a speci f‌ic ter-

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

trade-mark infr ingement where the infringer carries on business with

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

tion in Canada.

A registered trade-mark h as distinct adva ntages 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 s ystem into all

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

mark means th at the franchise system has a better chance to gai n na-

tional recognition and w ill not be limited to a specif‌ic geographic area

where development has previously occurred.

C. TYPES OF TRADEMARK S

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

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

ordinary trade-marks.

4 See 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.).