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Business break-ups and trademark rights

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In the absence of a written agreement, who owns and who gets to use the trademarks of a joint venture after the parties to the joint venture break up? That was the central issue before the Federal Court in Corey Bessner Consulting Inc. dba Core Consultants Realty v. Core Consultants Realty et al., a case decided after a summary trial where three witnesses gave competing accounts of, in the words of Justice Walker, “the genesis, structure and ultimate demise of the alliance that is at the centre of this action”. John Simpson and Shan Arora of Shift Law acted for the successful plaintiff.

The Facts

The essential facts were as follows.

Shortly after launching a commercial realty brokerage in Montreal, the plaintiff pitched to a colleague, Mr. Samarah, a business arrangement where the parties would each operate independent commercial realty brokerages in Montreal and Toronto, respectively, under a common brand.  The two brokerages could thereby leverage a single “national” brand via cross-promotion to increase their respective local businesses. Mr. Samarah and his business partner, the individual defendant, agreed with the basic concept and contributed ideas about how the arrangement would be structured. Their ideas included that intellectual property would be jointly owned and suggestions of what the joint venture would be called.

Details of this “alliance” were discussed over many weeks but little was formally agreed upon – except that the two businesses would use the name CORE CONSULTANTS REALTY (a variation of CORE REALTY CONSULTANTS which the plaintiff had started using in Montreal some months earlier) and that both businesses would use a common website that the plaintiff operated and that the Toronto brokerage helped pay for and design. In the meantime, the owners of the Toronto brokerage incorporated the corporate defendant, Core Consultants Realty Inc., and began operating under this name in the Toronto market – months before the plaintiff switched to the new name in Montreal. The two brokerages then operated largely independently in their respective spheres under the CORE CONSULTANTS REALTY trademark for two years until the plaintiff told the defendants to stop using the trademark. This was after the individual defendant, Mr. Abramovitz, bought out the co-owner of the corporate defendant pursuant to shotgun clause in their shareholder agreement. The defendants refused to stop using the trademark, claiming an exclusive right to use it in Ontario.

The Parties’ Positions

The plaintiff brought an action, claiming that:

  1. it was the sole owner of CORE CONSULTANTS REALTY and a related logo since it had started using only a slight variation of the trademark (CORE REALTY CONSULTANTS) months before the alliance began and since there was no expressed agreement assigning ownership rights to the defendants;
  2. the defendants’ use of CORE CONSULTANTS REALTY for the subsequent two years in Toronto had been pursuant to an unwritten, revocable license from the plaintiff under Section 50 of the Trademarks Act, such that the defendants’ use of the trademark enured to the benefit of the plaintiff; and
  3. the defendants were infringing the plaintiff’s rights in the trademark from the moment when the plaintiff revoked the license.

 

The defendants defended the action and brought a counterclaim alleging that:

  1. the plaintiff had granted joint ownership in the trademark to the defendants or was, at least, estopped from disputing the defendants’ right to continue using it in Ontario, since the plaintiff had never responded to, and had acted as though it accepted, the defendants’ proposal for joint ownership of intellectual property;
  2. there was no revocable “license” of the trademark from the plaintiff because the plaintiff never exercised control over the defendants’ use of it, thus rendering the trademark non-distinctive;
  3. the defendants had acquired common law rights in the trademark, at least in Ontario; and
  4. the plaintiff’s registration of the CORE CONSULTANTS REALTY logo was invalid since it was not distinctive.

 

The Decision

Trademark ownership

Regarding the central issue of ownership, Justice Walker determined that the plaintiff was the sole owner of the trademarks and that the defendants never had an ownership interest. Interestingly, she based this largely on evidence that the plaintiff’s principal, Corey Bessner, had “conceived” of the CORE brand before discussing an alliance with the defendants – rather than on the plaintiff’s use of CORE in the months before the defendants’ first use of the mark at issue.

Justice Walker described as “not credible” the testimony of Mr. Abramovitz, that the CORE CONSULTANTS REALTY mark “was a mark that the three men came up with without reference to” to the trademarks that Mr. Bessner had conceived on his own, prior to the alliance.

Justice Walker also rejected the defendants’ arguments that the plaintiff had, by its conduct, assigned ownership rights in the trademarks or become estopped from asserting those rights.

Trademark license

Justice Walker agreed with the plaintiff that the defendants had, effectively, been using CORE CONSULTANTS REALTY under a license from the plaintiff over the two years of the alliance – even though the parties had operated independently with no payments or profit sharing and had never used the term “license” or any licensing terms. She also agreed that this license was revocable.

In making this determination, Justice Walker relied on case law submitted by the plaintiff to suggest that a trademark license can be inferred where a trademark owner permits another party to use the owner’s trademark with the other party’s services, pursuant to a joint venture or referral arrangement. She distinguished case law submitted by the defendants dealing with the requirements when licensing goods as opposed to services and cases decided under old trademark legislation. She noted that, in this case, the plaintiff did not have inspection rights over the defendants’ business but found that “such rights would not be necessary or common in this type of service business”. She found that “the lack of control by the Plaintiff of the Defendants’ day-to-day business operations is not fatal to the existence of a section 50 license” particularly since the defendants were using the plaintiff’s website and social media accounts.

Since the defendants’ use of the plaintiff’s trademark was licensed over the course of the alliance, all goodwill generated by the defendants in association with the trademark in the Toronto market over the two years of the alliance belonged to the plaintiff – even though the plaintiff, itself, never operated in Toronto.

Trademark Infringement and passing off

Having found that the plaintiff was the sole owner the trademarks and had licensed them to the defendant, Justice Walker found easily that the defendants had infringed the plaintiff’s trademark rights under the law of passing off from the time that the license was revoked.

The plaintiff had acquired the requisite goodwill in the trademark in the Toronto market to maintain an action for passing off because the defendants’ use of CORE CONSULTANTS REALTY over the two years of the alliance enured to the plaintiff’s benefit, not to the defendants’.

The likelihood of confusion was also easy to establish since the defendants were using the plaintiff’s trademark for precisely the same services. Moreover, the plaintiff provided some evidence of actual confusion.

The requirement to prove harm was also established. Specifically, the plaintiff led evidence that it intended to enter the Toronto market on its own but could not reasonably do so while the defendant was operating in that market under the same name.

Takeaways

While the findings in Corey Bessner Consulting Inc. dba Core Consultants Realty v. Core Consultants Realty et al turned on very specific facts, some key takeaways will be applicable in a variety of situations.  Here are five:

  1. Evidence of who “conceived” of a trademark, aside from who used it first, where and for how long, may be relevant to the issue of ownership.
  2. Ownership interests in a trademark cannot be assigned in the absence of clear intent.
  3. A trademark license may be found where a trademark owner permits another person to use a trademark for the purposes of an informal joint venture or referral arrangement, even in the absence of day-to-day control, payments or any mention of a license or licensing terms.
  4. This apparently low threshold to establish a license exists outside of the context of Section 45 of the Trademarks Act where, because of the summary nature of such proceedings, it is relatively easy for an owner of a registered trademark to maintain a registration by proving “use” of its trademark by a licensee.
  5. The requirement to prove harm in a passing off case can be established where the defendant’s actions interfere with the plaintiff’s ability to enter a market where it has yet to operate.

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