Controlling Trade-Marks in LicensingFranchising The Boston Pizza by sjw10519

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									               Controlling Trade-Marks in Licensing/Franchising:
     The "Boston Pizza" and "Boston Chicken" Federal Court of Canada Case

Reference: Boston Pizza International Inc. v. Boston Chicken Inc. [2001] FCT 1024
(T.D.). Note: Various disputed aspects in this case between these parties are still before
the Federal Court of Canada, both at first instance and appeal levels.

By Ben V. Hanuka*

This case is significant to intellectual property and franchise/licensing practitioners as the
court’s findings were based on part on the nature and comprehensiveness of the
applicant’s franchise agreements and how effectively it actually maintained and enforced
its franchise system.

Background: This was an application by a franchisor Boston Pizza International Inc. for
a declaration of invalidity and expungement of Boston Chicken's trade-mark and design
“Boston Chicken”. The application was based on the main ground that Boston Chicken's
trade-mark was confusing with Boston Pizza's registered trade-mark which has been used
extensively in Canada.

      INITIAL EVIDENTIARY BURDEN (S. 50(1) OF THE ACT):
WHETHER BOSTON PIZZA EXERCISED SUFFICIENT CONTROL OVER ITS
    FRANCHISEES TO BENEFIT FROM THEIR USE OF THE MARK

This step of the analysis was primarily a factual one and focused on whether the applicant
Boston Pizza exercised control, through its franchise agreements, of the character or
quality of the wares and services associated with the use of its trade-mark by its
franchisees.

(Subsection 50(1) of the Trade-marks Act requires the owner licensor of a trade-mark to
exercise, through its licence, direct or indirect control of the character or quality of the
wares or services associated with the trade-mark. If the franchisor Boston Pizza meets
that requirement, then the use of the trade-mark by its licensed franchisees is deemed to
be "use" by Boston Pizza as owner of the trade-mark.)

Boston Pizza’s Franchise Agreements are Comprehensive and Control Every Aspect of
Franchisees’ Operations

Boston Pizza led affidavit evidence that it exercised close control over approximately 150
franchisees across Canada, particularly with respect to the decor and the nature and
quality of the food products and services. Its comprehensive franchise agreements
controlled virtually every aspect of the franchisees’ operations and were supplemented by
an operations manual, memoranda and inspections to ensure quality control.

The affidavit material also explained how Boston Pizza in fact exerted close and
continuous control over its franchisees' business and how the franchise agreement
                                            -2-

empowered it to ensure that the standards of quality were met, and if not met, the
remedies available, including termination.

Boston Chicken Argued There was Insufficient Direct Control By Boston Chicken of
its Franchisees’ Operations

In response, Boston Chicken argued that Boston Pizza, since 1993 failed to demonstrate
sufficient control, direct or indirect, over the character or quality of the wares or services
provided by its franchisees.

It also argued that the distinctiveness of the trade-mark ‘Boston Pizza’ was lost because
prior to 1993 Boston Pizza had not registered its franchisees as registered users (as was
then required by Trade-Marks Act).

Effective Control by Franchisor was Demonstrated, Court Finds

The court rejected Boston Chicken's argument, holding it was undeniable that Boston
Pizza, through its comprehensive franchise agreement, purported to control every aspect
of the franchisees’ operations, supplemented by its operations manual, memoranda and
inspections, which served to ensure that quality control was achieved.

The court also noted that the franchise agreements further provided that Boston Pizza as
franchisor was entitled to enter a franchisee’s premises so as to verify compliance and
that failure by a franchisee’s to comply constituted an event of default which allowed the
franchisor the right to terminate the franchise agreement. As such, the system in place
allowed Boston Pizza to exercise effective control with respect to the quality of the wares
and services provided by its franchisees.

With respect to the failure to file registered user agreements for some of the franchisees
in the pre-1993 period, the court accepted evidence that Boston Pizza required all its
franchisees from the outset to execute written franchise agreements, and that all
franchisees had in fact signed franchise agreements.

            WHETHER THERE WAS LIKELIHOOD OF CONFUSION
            BETWEEN ‘BOSTON PIZZA’ AND ‘BOSTON CHICKEN’

Boston Pizza Lacks Inherent Distinctiveness - But is Still Distinctive and Deserves
Protection because of Considerable Public Recognition through Franchising

The court found that the trade-mark "Boston Pizza" lacked inherent distinctiveness
because there was considerable evidence of third-party use of trade names/marks
containing the word “Boston”. In effect, a great number of other third party restaurants
operated under the banner of “Boston” to associate their services and wares with food
derived from the city of Boston. In addition, the word “pizza” being descriptive, also
added to the lack of inherent distinctiveness.
                                           -3-

Nonetheless, the court concluded that through long use by Boston Pizza's franchisees, the
mark had acquired distinctiveness in connection with a chain of franchise restaurants
serving food prepared in a "Boston style". Consequently, the mark was found to be
worthy of protection.

Boston Chicken Deserves Little Protection

The court noted that while the trade-mark ‘Boston Chicken’ had widespread public
recognition in the United States in association with Boston Chicken restaurants offering
home style food, available on a take-out basis, there was very little evidence with respect
to use of the trade-mark in Canada. As a result, the court found the trade-mark deserved
little protection. The court rejected the respondent’s argument that the marks have
become known to Canadian consumers by virtue of “spillover” advertising and publicity
generated by the respondent's success in the U.S.A.).

Still, Court Concludes No Likelihood of Confusion - Boston Chicken Wins

Despite the Boston Pizza’s success on the above points, it eventually lost the application
as the court concluded that based on the evidence before it there was no likelihood of
confusion between the two marks as at the date of the Boston Chicken registration.

This conclusion was based on the following reasons:

   -   The two marks related to different styles of food, namely, pizza and chicken, even
       though both marks were used in association with restaurant services. The
       difference in the nature of the wares to which the marks relate is sufficient to
       distinguish the marks, despite any similarity and resemblance. In so finding, the
       court rejected Boston Pizza’s argument that since it was operating under a number
       of names, (for example “Boston Pizza”, “Boston Pizza Quick Express” and “BP’s
       Lounge”) it was likely that the average member of the public would assume that
       “Boston Chicken” would be another name under the same banner.

   -   The use by third parties of the word "Boston" was a highly relevant factor in
       determining the likelihood of confusion between the trade-marks, and the court
       gave it significant weight. The court accepted Boston Chicken's evidence that
       there was significant third-party use of the word “Boston” within the restaurant
       industry. In addition, Boston Pizza did not adduce any evidence so as to
       demonstrate confusion or the likelihood of confusion between its marks and the
       marks of these many third party users of the word “Boston”. As a result,
       Canadian consumers have been “conditioned” to look to the other elements of a
       mark as a means of distinguishing the source of goods or services in the field. In
       other words, Canadian consumers would look not to the word “Boston”, but to the
       words “Pizza” and “Chicken” and would therefore distinguish the trade-marks on
       that basis, the court reasoned.
                                         -4-

As a result, the court concluded there was no confusion between Boston Pizza’s and
Boston Chicken’s respective trade-marks, and the application as dismissed.

                                        * * *
* Ben V. Hanuka practices franchise, licensing and distribution litigation with Goldman
Sloan Nash & Haber LLP in Toronto.

								
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