Importance of Good Fences
A recent decision of the Federal Court illustrates the importance of clearly understanding the nature of a business venture and the ownership and use of related intellectual property. In most cases, independent advice from a knowledgeable lawyer will be required so the necessary agreements and licences can be put in place. As said by Robert Frost “Good fences make good neighbours” and good neighbours respect each other’s property. In this case, if the parties to the dispute took this step, they could have avoided the expense and uncertainty of litigation.
In June 2015, B launched his own commercial realty brokerage business using a corporation in Montréal in association with the trademark and trade name, CORE REALTY CONSULTANTS. Trademark registrations were obtained for the word mark and a design mark. In October 2015, B approached his good friend S to discuss a business arrangement. The arrangement involved S opening a commercial realty brokerage in Toronto using the CORE branding and the website controlled by B. S involved his close friend A.
The three individuals did not agree on who would own the intellectual property relating to the business alliance. However, they did agree that they would use the business name CORE CONSULTANTS REALTY and the registered design mark in Toronto as well as B’s existing website.
It was common ground that using the business name and mark was subject to B’s approval and that he held a veto. Nothing was formalized in writing because they did not want to become mired in the legal implications of their arrangement. B wanted to see how the business went. B consented to incorporating Core Consultants Realty Inc. to operate the business in Toronto. The three individuals operated under this relationship for two and half years largely in Montréal and Toronto. They did not split profits or expenses. In the summer of 2018, the personal and business relationships between S and A fractured irrevocably. On August 20, 2018, A purchased S’s stake in Core Consultants Realty Inc. under a shotgun clause in their unanimous shareholder's agreement. A became its sole officer, director and shareholder.
When B learned that S had left the business, he severed the business arrangement with A. B asserted sole ownership of the design mark and business name and stated that the agreement between B and S regarding the two marks was one of licence. B demanded that A cease all use of the trademarks and any confusingly similar marks and change the name of his corporation. A refused to comply and alleged that B was estopped.
B brought an action in the Federal Court for infringement of the registered trademarks. A defended on the basis that he jointly owned the plaintiff’s registered trademarks and that B was estopped from disputing his right to continue to use the marks. The action proceeded to a summary trial.
The Judge found there was no evidence of any agreement that the marks used by the defendants would be jointly owned by the parties. At all material times, B was the sole owner of the marks and their use was subject to B’s approval.
To successfully rely on the estoppel, A had to establish that B had, by words or conduct, made a promise or assurance intended to affect their legal relationship and to be acted on. A also had to show that, in reliance on the representation, he acted on it or changed his position. Unfortunately for A, there was no evidence that B made a clear promise that A would co-own the marks in issue.
There was no written licence in place, but a licence may be inferred or implied from the business relationship between the parties. Under section 50 of the Trademarks Act, if there is a licence and control of the quality of the services, the use by the licensee is deemed to be used by the owner.
A had B’s authority and consent to use the marks in connection with the commercial realty brokerage in Toronto. B monitored the use of the marks through B’s contact with S during the business alliance. This included control and oversight of the website, email and social media accounts, any changes to the marks and the nature of the advertising and services in respect of which the marks were used. Based on this, the Judge implied a license that complied with the requirements of section 50.
Since the license had been terminated, the Judge found that the A’s continuing use of the marks infringed B’s registered trademarks. A permanent injunction was granted to preclude any further use of the marks by A.
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These comments are of a general nature and not intended to provide legal advice as individual situations will differ and should be discussed with a lawyer.
A version of this article originally appeared on The Lawyer’s Daily website published by LexisNexis Canada Inc.