Cautionary Tales from the Canadian Trademark Landscape

Over the course of a rich career in intellectual property law, Marks & Clerk partner Catherine Lovrics has encountered several cases that have come to influence the trajectory of Canadian IP law.

In this feature, she recounts the Bombay Frankies and Milano Pizza cases – recent decisions which have  significant potential implications for Canada’s IP scene. What lessons can be learned from these cautionary tales?

To begin with, can you give us a brief overview of the Bombay Frankie trademark dispute and its background?

The term “frankie” refers to a common street food in India which has been in use since the 1930s, and denotes a wrap that can be filled with many things.

The plaintiff, 2788610 Ontario Inc., applied to register a trademark on October 2020 for BOMBAY FRANKIES designating, inter alia “restaurant services” and “delivery of food by restaurants”. After filing the trademark application, the plaintiff invested time and money in developing a franchise system for a network of restaurants called Bombay Frankies, including franchising, trademark, leasing, menu and marketing efforts.

Prior to 2021, the defendants operated several restaurants in the Greater Toronto Area (GTA) in Canada and used the term “Bombay Frankie” in menus to identify a product or food. In 2021, the defendants began using the name “Bombay Frankie” as the name of a restaurant, having incorporated and opened two restaurants under that name, and applied to register a trademark for the name.

The plaintiff sought to enforce trademark rights on the basis of its still pending first-filed trademark application, arguing that a trademark will be registrable when it is intended to be used, but not yet in use. The plaintiff further argued that the defendant’s use of Bombay Frankie on menu items does not constitute use sufficient to permit the defendant to take issue with the plaintiff’s trademark application on the basis of prior use. The plaintiff argued that given its status as the person entitled to register the trademark and “first filer”, it should be entitled to enforce its rights against alleged infringers of its mark when it becomes the person entitled to exclusive use of the trademark.

The defendants maintained that the plaintiff had no more than a trademark application that had not been examined, approved, advertised for opposition or allowed by the Canadian Trademarks Office. The defendants therefore maintained that the plaintiff had no “priority” in the trademark. They further maintained that the plaintiff had not used the trademark in the public forum, and thus had no goodwill or reputation with respect to the name, and that there could not be said to be any confusion to the general public regarding the name.

The term “frankie” refers to a common street food in India which has been in use since the 1930s, and denotes a wrap that can be filled with many things.

The plaintiff sought an order for an interlocutory injunction on the basis that there was a significant issue to be tried in relation to the trademark “priority” dispute and that it would suffer irreparable harm to the distinctiveness of its applied-for trademark and its ability to generate goodwill in that trademark if the defendants were permitted to continue using “Bombay Frankies” as a “first mover”.

How has the case developed, and what interest does it hold for IP holders and counsel?

In handing down its decision[1], the court applied the tripartite test for interlocutory injunctions outlined in RJR MacDonald Inc. v Canada (Atty. Gen.) [1994] S. C. J. No. 17, [1994], and accepted the plaintiff’s position. The Ontario Superior Court of Justice restrained the defendants from using “Bombay Frankie” as the name of any of their restaurants, franchising businesses, or social media accounts and ordered them to cease using “www.bombay-frankie.com” until the trademark claims have been heard or until further order of the court. The determination of the court has not been appealed by the defendants, and we await the determination of the case on its merits.

As discussed below, the decision is noteworthy both with respect to trademark enforcement and clearance. The ultimate disposition on the merits is relevant with respect to whether a holder of a prior trademark application (a “first filer”) may enforce it against a “first mover” despite there not being use of the trademark in Canada by the first filer.

The court’s decision to grant the interlocutory injunction despite no use of the trademark by the first filer has significant potential implications for anyone adopting a new mark in Canada, as a prospective trademark user may be deemed to have notice of a trademark applicant’s proposed use of a trademark.

The decision underscores the importance of clearance searches before putting a mark into use in Canada, and also of promptly filing Canadian trademark applications for marks of interest and well before use commences. Adopting a mark based only on familiarity with names and marks in use in the Canadian market will be risky, as a third party may own a trademark application for a similar mark prior to adopting and using a mark in Canada that ultimately could support an injunction. Likewise, the benefits of filing a trademark application at the ‘drawing board’ stage to preserve the “first filer” position is important to protect the investment before building a brand.

The decision also underscores the importance of trademark applicants monitoring the marketplace to enforce against subsequent users. The ability to obtain an interlocutory injunction based on a pending trademark application in such circumstances may become a powerful tool in trademark enforcement programs, and one that may be available before putting a mark into use and before building reputation and goodwill in the mark.

What does the outcome of the dispute imply for “hollow” trademark applications and the extent to which they are favoured in Ontario court?

The plaintiff submitted that a novel issue was raised by the amendments to the Trademark Act removing the requirement to show use of the trademark either prior to filing or to obtain registration. The serious issue to be tried related to whether trademark rights crystallise when the applicant gains a right to secure registration (the application date) or when registration is in fact secured (the registration date). It was the plaintiff’s submission that these claims crystallise on the application date. The defendants disputed this and maintained that the claims crystallise on the registration date.

The court’s decision to grant the interlocutory injunction despite no use of the trademark by the first filer has significant potential implications for anyone adopting a new mark in Canada.

As noted, this issue is pending the resolution of the claims on the merits. The court’s recognition that there is a serious issue to be tried regarding the priority issue may signal an appetite to broaden the rights of trademark applicants even where there has not been any use of the applied-for trademark. Indeed, the granting of the interlocutory injunction on the basis of the prior pending application suggests that trademark applicants have enforceable rights without registration and despite there being no use of the mark, provided there have been bona fide steps to enter the market. The case did not involve a “bad faith” filing – such as an application being filed without any genuine intention to use the mark or trademark “squatting”, or a case where there were no demonstrable preparations to use the mark. Such facts may have resulted in a different outcome.

Is the ruling likely to colour the advice you and others in the trademark community issue to future clients?

The decision encourages being a “first filer” in Canada, and before being a “first-mover”, to undertake trademark clearance and put weight on pending applications noted by a search, irrespective of whether the mark is in use. As discussed above, if it is found on the merits that trademark rights are enforceable on the basis of pending trademark applications prior to registration where use has not yet occurred, prompt and early trademark filing will be even more important in Canada, and risk analysis when undertaking trademark clearance may be coloured. Given the pace of Canadian examination, if clearance searches identify a pending application for a possibly confusing mark, there may be uncertainty for some time, which is likely to present additional challenges. The decision may also impact advice with respect to enforcement by owners of pending trademark applications, with a view to preserve a strong entry to the market and pre-emptively prevent confusion.

What significance does the case have regarding interlocutory injunctions and how they are used in Canada?

Interlocutory injunctions in trademark matters are sought to prevent irreparable damage to a plaintiff’s goodwill pending final determination of the parties’ rights at trial. Interlocutory injunctions in trademark and passing-off matters traditionally have been granted sparingly, as the requirement for “irreparable harm” was often considered difficult to establish. As discussed further below, the decision of the court may signal a loosening in the “irreparable harm” standard, at least in Ontario, and may result in more widespread issuance of interlocutory injunctions in trademark infringement matters.

What has “irreparable harm” previously been understood to mean, and how might this definition shift as a result of this decision?

Per the RJR MacDonald case, the standard of “irreparable harm” is the key element in the tripartite test the court undertakes when considering granting an interlocutory injunction. “Irreparable harm” is considered harm for which damages cannot provide adequate compensation. The standard of “irreparable harm” has historically been difficult to prove, since in most trademark contexts it can be argued that any harm to the moving party can be adequately compensated for financially, should it ultimately prevail, and courts would typically insist on clear evidence that irreparable harm has occurred or, in a quia timet action, will occur, and ignore speculative evidence of harm.

The case did not involve a “bad faith” filing – such as an application being filed without any genuine intention to use the mark or trademark “squatting”

In this case, the court held that the plaintiff would suffer undue disadvantage given the circumstances and will suffer irreparable harm which is not compensable monetarily. In particular, the court noted that the plaintiff has applied for trademark registration and invested significant time and energy into preparing to enter the market. The court further noted that the defendant would have a significant advantage in terms of name recognition, goodwill and first mover advantage were the two Bombay Frankie restaurants, both opened after the plaintiff had applied for registration of the trademark “Bombay Frankies”, permitted to continue in business under the name Bombay Frankie.

Decisions to grant an interlocutory injunction hinge on the specific facts of each case and it can be difficult to identify broadly applicable instances where relief will be granted. Previous cases have required significant evidence, often from experts, showing clear and not speculative evidence that irreparable harm has or will occur. The court in this instance did not require evidence of prior use of the mark by the plaintiff as a precondition to grant interlocutory injunctive relief, nor did it require evidence that harm would actually occur, instead inferring that harm would occur in the circumstances on the basis of “first mover” advantage.

While not referencing this case specifically, the court’s decision appears to follow the reasoning of the Federal Court of Appeal in Jamieson Laboratories Ltd. v Reckitt Benckiser LLC, 2015 FCA 104. In the Jamieson case, the applicant was attempting to stop an alleged infringer from being first to market so as to make it impossible to quantify damages suffered. The Jamieson case was debated by trademark professionals as to whether it signalled a loosening of the analysis of “irreparable harm”. With the amendments to the Trademarks Act removing the requirement to show use before obtaining registration and the benefits that flow from it, it seems that at least at the provincial level, courts are willing recognise the risk of irreparable harm to trademark applicants who have not yet entered the market on the basis that harm to the potential future goodwill of the applied-for trademark cannot be quantified and is thus “irreparable”.

Finally, we will look at the Milano Pizza franchise dispute. What was at stake in this case?

At stake is the importance of proper trademark licensing in Canada, including written license agreements, and the licensor’s exercise of actual control. The validity and enforceability of a licensor’s trademark can be lost if a licensor does not exercise sufficient control over the character and quality of the licensed goods or services. Inconsistent and insufficient licensing arrangements with licensees ultimately could be the death of a trademark.

The TM at issue is the plaintiff Milano Pizza Ltd’s trademark registration for (the “Milano Design Mark”) registered on 22 November 2002 and claiming use in Canada since at least as early as March 1994 for the services “take out restaurant services, with delivery”.

The plaintiff is an Ottawa-based company that licenses independent pizzeria owner-operators to use the MILANO PIZZERIA trademark, including the “Milano Design Mark” and other related marks (the “Milano Marks”). The licensing arrangements involved a complex web of familial connections and subsequent non-familial owner/operators. The licenses were not always put in writing and essentially involved requirements for licensees to purchase branded products and inventory from approved suppliers within an agreed-upon territory. Eventually, after a breakdown of the commercial relationship between the plaintiff and the defendants, the plaintiff’s permission to use the Milano Design Mark and related marks was revoked.

At stake is the importance of proper trademark licensing in Canada, including written license agreements, and the licensor’s exercise of actual control.

The plaintiff claimed against the former licensee defendants for trademark infringement, passing off, and depreciation of goodwill based on Milano Design Mark. The defendants counterclaimed inter alia for expungement of the Milano Design Mark by reason of non-distinctiveness, abandonment, and non-entitlement.

In its decision[2], the court dismissed the plaintiff’s action and the defendants’ succeeded in their counterclaim challenging the validity of the Milano Design Mark for non-distinctiveness under the s18(1)(b) of the Trademarks Act on the basis that the plaintiff did not exercise sufficient control over the character and quality of the of the licensed goods and services to attract the benefit of s50(1) of the Trademarks Act. The court also found that, due to the use of a similar trademark by a third party, the Milano Design Mark was diluted and thus no longer distinctive of the plaintiff. The decision of the federal court has been appealed by the plaintiffs, though the cautionary lessons discussed below remain relevant notwithstanding the ultimate disposition of the matter.

Can you describe the implications that this carries for franchisors and trademark control?

This case is a cautionary tale reminding trademark owners in general – and franchisors specifically – of the need to ensure that they exercise sufficient control (directly or indirectly) over the character and quality of the goods and services licenced to franchisees, along with the importance of documenting and implementing a consistent licensing regime. Controlling how a mark is presented, and trademark notices that name the licensor, for example, may be inadequate.

The plaintiff failed to show that it exercised the required control over the character and quality of the finished pizzas to garner the protection of the Trademarks Act. The evidence showed that the various licensees could select and use their own ingredients (subject to inconsistently enforced supplier requirements), create their own menus and use their own recipes for the pizza dough. The plaintiff exercised no control over the price of the pizzas or the flavour of the finished products, the territories were not reviewed for optimisation of delivery times by the plaintiff, and the plaintiff did not conduct regular inspections to ensure compliance with quality standards. Essentially, the licensees were free to operate their businesses as they saw fit. There was evidence of a haphazard licensing program, inconsistent terms and a lack of written licensing agreements.

The decision is also a reminder to trademark owners that prompt enforcement of their trademark rights with respect to third parties is helpful to maintain the validity their trademarks. Evidence showed that the plaintiff had permitted coexistence of third-party MILANO marks/operations, such as PIZZERIA MILANO of Masson, QC, thus rendering the Milano Marks non-distinctive. Evidence that that the plaintiff did not implement a program for policing the Milano Design Mark, including in respect of the PIZZERIA MILANO QC, was specifically raised by the court and this along with the permitted coexistence ultimately proved fatal to the validity of the Milano Design Mark.

Finally, the decision is a cautionary tale regarding the difficulties of proving, with the passage of time, both the subsistence and terms of an oral licence arrangement. Reducing all license agreements to writing is best practice and highly recommended.

Looking back on the aforementioned cases, can you expand on the trends currently being witnessed in the trademark space and further developments that may soon emerge?

The Bombay Frankies case recognises the uncertain and evolving legal requirements for interlocutory injunctions and signals a possible broadening of the circumstances in which interlocutory injunctions may be granted. Trademark owners and contentious trademark users should be aware of the evolving case law in this regard.

It also follows a trend of uncertainty arising in Canadian trademark law resulting from the 2019 amendments to the Trademarks Act, notably the impact of the removal of the use requirement for registration.

The Milano Pizza is another cautionary tale recognising the court’s willingness to invalidate trademarks where the trademark owner has not sufficiently exercised control over the character and quality of licensed goods or services, and correspondingly that licensing should be undertaken judiciously and with clear and implemented control requirements.

My thanks to Robert McNaughton, Student-at-Law, for his assistance preparing this article.

 

Catherine Lovrics, Partner

Marks & Clerk Law Canada

33 Yonge Street, Suite 300 Toronto, Ontario M5E 1G4 Canada

Tel: +1 416-268-1236 | +1 416-849-8396

Fax: +1 416-595-1163

E: clovrics@marks-clerk.ca

 

Catherine (Cat) Lovrics is a partner at Marks & Clerk Canada and head of the firm’s Copyright and Digital Groups, as well as a senior member of the Trademarks Group, with a wealth of experience in helping national and multinational clients protect, exploit and enforce their IP in a wide range of industries. Her practice focuses on copyright, trademarks and personality and publicity rights in addition to marketing and advertising law, consumer protection and data and privacy law. She is also Chair of the Intellectual Property Institute of Canada’s Copyright Committee.

First established in the UK in 1887, Marks & Clerk is a global intellectual property that aids its international clients with legal, technical and commercial expertise. Its team of more than 300 worldwide practitioners aid businesses in enforcing and maximising the value of their intellectual property.

 

[1] 2788610 Ontario Inc. v. Bhagwani et al., 2022 ONSC 905

[2] Milano Pizza Ltd. v. 6034799 Canada Inc., 2022 FC 425

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