Court decision brings trademark law back in sync

By Tony Poland, LegalMatters Staff • A unanimous decision from a three-judge panel of the Ontario Superior Court of Justice (Divisional Court) effectively brings trademark law in Ontario back in line with Federal Court trademark law, says Toronto intellectual property lawyer John Simpson, principal of IP boutique Shift Law Professional Corporation. 

Simpson, who represented the successful party, says the decision is also a cautionary tale for start-up businesses that invest heavily in their brands before launching.

The plaintiff in the underlying trademark lawsuit had developed a restaurant franchise business built on the name BOMBAY FRANKIES. In the course of developing its franchise system, the plaintiff had entered into agreements with landlords and franchisees and had filed an application to register BOMBAY FRANKIES as a trademark. 

Before opening any locations, however, the plaintiff discovered that the defendant had launched its own restaurants under the name BOMBAY FRANKIE. The plaintiff sued the defendant for trademark infringement and persuaded a judge to grant an injunction against the defendant requiring the defendant to cease using BOMBAY FRANKIE pending a trial. The term “frankie” refers to a type of street food, or wrap, in India.

Injunction order raised eyebrows

The injunction order raised eyebrows among intellectual property lawyers with many believing the fundamentals of trademark law were not correctly applied and potentially introducing legal uncertainties moving forward, says Simpson.

“This case was of tremendous interest to the trademark bar in Canada because the decision to grant an interlocutory injunction was really at odds with established trademark law in this country,” says Simpson, who handled the appeal of the injunction order but did not take part in the proceeding in which it was granted.

In its decision released at the beginning of November, the appeal court vacated the injunction order.

“One reason this case is significant is that if the interlocutory injunction had been allowed to stand, that would have effectively created a situation where there was one version of trademark law that existed in Ontario courts and another in the Federal Court, because the Federal Court never would have followed this precedent,” Simpson tells LegalMattersCanada.ca. “The effect of this appeal decision is that it brings Ontario court trademark law back in sync with Federal Court trademark case law.”

The plaintiff’s lawsuit includes claims of trademark infringement and passing off. Passing off is a cause of action available to owners of unregistered trademarks where the owner has acquired goodwill in association with the trademark and another company is exploiting that goodwill.

Had not established goodwill

Simpson argued that the motion judge erred in law in finding that the plaintiff had any legal rights in BOMBAY FRANKIES since it did not own a registered trademark nor had it established the kind of goodwill in the name that is required in a passing off claim. 

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“The other side raised a novel argument that a court can deem there to be registered trademark rights in a trademark before it’s actually registered since there was no evidence that it won’t be registered,” he says. “It was suggested that filing an application to register a trademark gave presumptive rights to stop other people from using the trademark in Canada.”

Simpson says the plaintiff’s claims for passing off were based on “prospective goodwill and not existing goodwill.”

“They were essentially saying, ‘We have a start-up business here. We haven’t launched yet but we have all sorts of aspirations and we have relationships with landlords and franchisees who all know this trademark and are all really excited about it. Therefore, we can stop you from using a similar trademark before we have launched,’” he says. “That may sound fair as it did with the motion judge. But it is very much at odds with established Canadian trademark law, which is that there are no rights in a registered trademark until it is registered and you cannot sue someone for passing off until you have acquired goodwill in the trademark by using it in commerce. There wasn’t even a possibility that the plaintiff could win on its arguments at trial at the end of the day.”

Court ultimately agreed

The appeal Court ultimately agreed, stating “start-up activities do not constitute goodwill as that concept has been recognized in the case law.”

“The confusion generated among landlords does not constitute confusion among customers or the public resulting in a loss of goodwill,” wrote Justice Sandra Nishikawa on behalf of the Court. “Moreover, the motion judge’s reference to ‘any goodwill developed by them’ speaks to prospective goodwill. The cause of action for passing off protects existing goodwill.”

In the end, Simpson says start-up companies should pay heed to the decision.

“This case is relevant to businesses that put a concentrated effort into building up a brand before they launch,” he says. “If an owner has hopes and dreams for an enterprise that has yet to be introduced to the public, are there protectable rights in the brand? This case says no,” he says.