When you purchase the assets of a business, including materials subject to copyright and trade-mark rights, do you acquire an implied right to use those protected assets? In the recent decision of 1429539 Ontario Limited v. Café Mirage Inc., 2011 FC 1290, the Federal Court Trial Division answered this question in the negative. The Court held that it was an infringement of copyright for the new owner of a restaurant to use the same menus as the old owner but merely remove the name of the old restaurant. Similarly, the Court found that trade-mark rights do not automatically transfer with assets and have to be specifically provided for in purchase agreements. The decision has some significant implications for asset purchase agreements, suggesting that intellectual property rights need to be given special attention if they are meant to transfer to the purchaser.

The facts of the case were that the franchisor of a restaurant chain suffering from financial difficulties was forced to transfer two restaurants to a creditor, who in turn sold the restaurants to a third party. The third party was given an option to join the franchise, but instead elected to open as an independent. However, the new owners did a substandard job rebranding the restaurants and only removed the most obvious signs of the old owner, and retained the majority of the old restaurant’s design. Consequently, the franchisor sued the new owners for copyright and trade-mark infringement.

The defendant argued that when they purchased all of the assets of the restaurants they acquired an implied license to use those assets which were protected by trade-mark or copyright rights. The Court had no difficulty in finding that intellectual property rights do not automatically transfer with the goods which they protect. As such, the Court found that as soon as the defendants elected not to join the plaintiff’s franchise system they lost their right to use the plaintiff’s trade-marks and copyrighted materials.

Another of the Court’s key findings was that copyright can subsist in a menu. The new owners essentially used the same menu as the old restaurant (i.e. the same graphic design, menu items and descriptions), but merely removed any references to the old restaurants’ name. As a matter of fact, the judge held: “I have no hesitation in concluding that the new Café Mirage menus were inspired by, and copied to a substantial degree, the new Symposium Café menus.” The judge also found that there was enough skill and judgment exercised by the plaintiff in creating the menus to qualify it as an “original” work.

It is worth noting, however, that copyright can never protect a menu item or recipe itself, only the description and presentation of those items. Recipes are considered to be abstract ideas, not creative works, and are therefore not protected by copyright. So in theory, the defendants in this case would not have been liable if they had simply kept the food items the same but changed the design and wording of the menu.