One of the most important characteristics of a franchise system is its trademarks. Trademarks can often be the most easily identified part of a franchise in the public’s eye, but a lot of confusion exists about how trademarks in Canada actually work.
Brand names, logos, and other designs are usually—but not always—trademarks. On the other hand, trademarks are always used to distinguish one brand from its competitors.
Think about the international recognition of a brand such as McDonald’s. The name “McDonald’s” and the famous “Golden Arches” logo are inseparable from the brand’s identity, and both have been registered trademarks of McDonald’s Restaurants of Canada for decades. Imagine if another party tried to use the same name or the distinguishing yellow “M” on its premises. Well, the owner of those trademarks, McDonald’s Corporation, would likely take immediate and swift action to stop them from doing so.
Franchisors licensing their trademarks to franchisees as part of a franchise system must protect the unauthorized use of the trademarks by third parties. Franchisors also need to ensure that their franchisees are not using their trademarks in contravention of applicable law.
Franchisees acquiring the rights to become part of a franchise system also need to understand trademark law so they can evaluate the brand they are buying into. In this research, franchisees should consider the franchisor’s ability to protect their trademarks and the distinctiveness of the trademarks from competing brands.
So, what are trademarks?
Trademarks are very broadly defined. They involve words, designs, tastes, textures, moving images, modes of packaging, holograms, sounds, scents, three-dimensional shapes, colours, and other signs, or some combination of these.
Their purpose is to act as an indication of the source or origin of goods and services. They serve to distinguish one merchant’s offerings from those of its competitors and convey to the public that a good or service has a quality, characteristic, or other reputation that is attributable to the source associated with the trademark.
Trademark rights can be registered or unregistered. The use and adoption of a trademark creates ownership of a trademark at common law (i.e., unregistered trademark rights). Unregistered trademark rights exist as soon as use of the trademark commences in Canada. Additionally, registered protection can be obtained under the Trademarks Act.
What are the benefits of trademark registration?
Registration of a trademark is not mandatory, since trademark rights can arise automatically at common law through use. Although, registration does provide additional rights and benefits beyond those conveyed at common law, including:
- Providing its owner with the right to use the trademark across Canada in association with the covered goods/services. In contrast, unregistered trademark rights exist only in the geographic area where the trademark has acquired a reputation.
- Serving as presumptive evidence of trademark ownership rights.
- Only owners of registered trademarks can bring an action for trademark infringement or for depreciation of goodwill under the Trademarks Act.
- Trademark registration can be useful when dealing with other Canadian regulatory requirements, such as French language labelling requirements in Quebec.
Trademark rights have the potential to last indefinitely provided that, (a) in the case of registered trademarks, the owner continues to pay all necessary renewal fees (registered trademark rights can be renewed, indefinitely, in 10-year intervals) and there is continued use of the trademark in Canada, and (b) in the case of unregistered trademarks, goodwill continues to exist.
Additionally, filing an application to register a trademark in Canada provides a trademark owner with additional benefits for obtaining protection globally as trademark rights are—generally speaking—country-specific.
Can trademark rights be lost?
If you stop using a trademark, your trademark rights may be lost. Trademark rights may also be lost where a trademark is no longer capable of designating the trademark owner as the source of the goods/services (i.e., where a trademark is no longer distinctive of the trademark owner). This is usually due to the concurrent use of a similar trademark by other third parties or instances where the trademark has become generic.
Loss of distinctiveness often arises due to the improper licensing of a trademark by its owner. Under the Trademarks Act, to be properly licensed, the trademark owner must maintain control, under licence, over the character or quality of the licensed goods or services.
Summary
Since trademarks are a valuable asset in any franchise system, careful attention should be given to both common law and registered trademarks. For further guidance on protecting your trademarks as part of a franchise system, please contact the author.
Jennifer Shayko
Partner
Aird & Berlis
jshayko@airdberlis.com