BackgroundThe Plaintiff, Milano Pizza Ltd., owned a trademark registration for its MILANO PIZZERIA logo since 2002. It also alleged to have rights in the unregistered word marks MILANO PIZZERIA, MILANO PIZZA, MILANO’S PIZZA, and MILANO’s. The Plaintiff had been licensing the use of its marks to over 30 local pizza establishments in Ottawa to use its branding in association with pizza sales in an exclusive territory. The Defendant, 6034799 Canada Inc., (a.k.a. Milano Pizzeria) was a licensee of Milano Pizza until 2016. The Plaintiff and Defendant had entered into a licensing arrangement allowing the Defendant to use the Milano Pizza trademark and other associated branding and operation techniques. The licensing arrangement was relatively informal, involving personal and family-connections along with non-family owners/operators as well. The licenses varied, even with regards to referring to the trademark as Milano Pizza in some agreements and Milano Pizzeria in others. Ultimately, due to a breakdown of the licensing relationship, the Defendant was no longer authorized to use the registered design mark or any related mark of the Plaintiff. After the agreement was terminated, Milano Pizzeria still operated with the same signs, advertising, and menus but adopted a new storefront logo. The Plaintiff brought a claim against the Defendant alleging trademark infringement, passing off, and depreciation of goodwill. The Defendant denied the Plaintiff’s allegations and counterclaimed for an order declaring the Plaintiff’s registration of the trademark as invalid on the grounds of non-distinctiveness, abandonment, and non-entitlement.
Key AspectsSeveral aspects in this case stand out. These include the lack of sufficient control over its licensees and the lack of prompt enforcement on behalf of the Plaintiff over its trademark rights. A. Lack of Sufficient Control Trademark owners must, indirectly or directly, exercise sufficient control over the character and quality of goods and services that are sold by licensees of the trademark. Sufficient control may be demonstrated through clear terms in an agreement, requirements imposed by a trademark owner to source goods/services from a particular supplier and conducting checks for quality. This case exemplifies how important it is to document and implement a standardized licensing regime to establish sufficient control in the event of a validity challenge. A trademark licensor need not exercise control over every aspect of the licensee’s business in order to exercise sufficient control to support a trademark license. As the Court confirmed in Corey Bessner Consulting Inc. v Core Consultants Realty Inc, 2020 FC 224, a lack of control of the day-to-day operations is not fatal to a trademark licensing agreement. In that case (where Shift Law represented the successful plaintiff), the Court also found that a written license is not always required to maintain trademark control. The Court in Milano Pizza distinguished the facts in the Bessner case on the basis that the Plaintiff in that case had managed to maintain sufficient control through means other than a written agreement. B. Prompt Enforcement The Court also commented on two instances where the Plaintiff had failed to take prompt action to enforce its trademark rights. Firstly, when the verbal licensing agreement ended, it did not immediately require Milano Pizzeria to stop using its signage, advertising, or menus. There was evidence that Milano Pizzeria had continued to use such materials along with its new logo. Secondly, a third party had been using similar branding in Quebec for quite some time. This co-existence of another competitor operating under a similar name undermined the Plaintiff’s claim that Milano Pizza was distinctive of the Plaintiff. The Court specifically raised the lack of policing efforts by Milano Pizza which ultimately contributed to the decision in rendering the design to be diluted and non-distinctive.
DecisionThe Court found that the Plaintiff’s registered trademark was non-distinctive according to s.18(1)(b) of the Trademarks Act because the Plaintiff had not exercised sufficient control over the licensees’ use of the trademark. A third party operating under a similar trademark further supported the Court’s finding that it was non-distinctive. The Court dismissed the Plaintiff’s action and declared the registration of the Milano design mark to be invalid.
Key Takeaways:License agreements should always include:
- Documented steps taken to exercise control over the character and quality of goods/services sold by licensee in association with a licensed trademark
- Control requirements and standard principles to monitor licensing requirements
- Written licensing terms, formalized and signed by parties
- Monitor and enforce trademark rights promptly with regards to unauthorized licensee use or third-party infringement
- Even a single competitor in the field may be sufficient to invalidate a trademark