Jul 11, 2014

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

Boston Pizza International Inc. v. Boston Chicken Inc., 2001 FCT 1024 (CanLII)

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 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.

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.

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.