Earlier this year, in a matter involving two takeaway restaurants, the Federal Court of Appeal had a rare opportunity to weigh in on the issue of control by a trademark owner in the context of trademark licenses.
In Milano Pizza Ltd v 6034799 Canada Inc (2023 FCA 85), the Federal Court of Appeal revisited the Federal Court’s earlier decision (2022 FC 425), wherein the Court dismissed the Plaintiff’s action and granted the Defendant's counterclaim for expungement of the Plaintiff’s trademark.
Background
At the Federal Court, the Plaintiff, operating as MILANO PIZZERIA, brought an action for trademark infringement, passing off, and depreciation of goodwill based on a registered MILANO PIZZERIA design trademark (the “Milano Design Mark”), depicted below. The Defendants, the alleged former licensees, brought a counterclaim for expungement of the Milano Design Mark by reason of non-distinctiveness, abandonment, and non-entitlement.
The Court found that the Milano Design Mark was not distinctive and therefore invalid. This decision did not turn on the inconsistent use of the Milano Design Mark, but rather on the Plaintiff’s business and alleged licences. Notably, the Court held that the Plaintiff was unable to demonstrate sufficient control over the goods and services provided by the alleged licensees, including the “finished pizza products and the speed at which or how food orders are filled” (para 99).
The lack of control exercised by the Plaintiff, considered alongside the lengthy coexistence of a third-party restaurant, undercut the distinctiveness of the Milano Design Mark, which ultimately led to the successful expungement of the Plaintiff’s trademark registration.
The appeal
The main issue raised on appeal was whether the Federal Court erred in applying the correct legal test when assessing control over licensees within the meaning of subsection 50(1) of the Trademarks Act. Specifically, Milano Pizza Ltd. argued that the Courts are not permitted to determine the meaning of a licensor’s control, and that the Court should believe a trademark owner’s claim that they assert control over the finished products or services.
The Federal Court of Appeal disagreed. The Court noted that the Federal Court held that control did not exist at all, and it was not imposing how or the manner in which a trademark owner needed to exercise control. The Court clarified that “it would make a mockery of section 50(1) if any type or degree of control was acceptable” (para 6).
The Court stressed the rationale underlying subsection 50(1) of the Trademarks Act, which ensures consistent quality across all products or services used in association with a licensor’s trademark. Accordingly, the Federal Court of Appeal confirmed that sufficient control over a licensee’s finished products and services is necessary to maintain the quality of those products and services.
Conclusion
Following the Court’s decision, in cases where there is a trademark license, the importance of sufficient control by the licensor cannot be undervalued. This decision highlights the significance of a licensor’s responsibility to exercise a sufficient degree of control over not only the trademark itself, but also the quality of the finished products or services offered by licensees.
If you have any questions on trademark protection or for more information on this topic, please contact a member of our Trademarks & Brand Protection team.
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