Read Part 1: Confidential Information.

Franchise systems typically derive much of their value from information – the systems, processes, data, know-how and relationships that distinguish them in the marketplace. This blog series explores how Canadian law protects those intangible business interests, where the limits of that protection lie, and what franchisors can do – proactively and reactively – to safeguard them.

When Sotos LLP assists franchisors in designing or refining their franchise systems, we offer a tailored audit of their intellectual property to ensure it’s properly protected. This proactive service helps identify potential vulnerabilities and establish safeguards, supporting the long-term value and success of our clients’ systems.

Why Confidential Information Matters When Employees Leave

People are central to the success of any franchise system. Employees and executives operate the network, recruit and support franchisees, safeguard financial performance, identify growth opportunities, and contribute to long-term strategic planning. In doing so, they are routinely entrusted with some of the system’s most valuable intangible assets.

Inevitably, personnel move on. When they do, they may join a competing system or establish a competing business of their own. For franchisors, the issue is not employee mobility pe se, but whether former personnel are using confidential information obtained during their employment to gain an unfair competitive advantage.

While contractual tools such as confidentiality and restrictive covenants play an important role in protecting franchisors’ legitimate proprietary interests in these circumstances, they are not the whole story. Canadian law imposes obligations on departing employees even in the absence of, or beyond the scope of, written agreements.

This second post in the series examines how those legal principles operate in the context of departing employees and what they mean for franchisors seeking to protect confidential information and other intangible business interests.

Fiduciary and Non-Fiduciary Employees: What Is the Difference?

Prior to discussing the restrictions on departing employees, it is important to understand the distinction between fiduciary and non-fiduciary employees as this distinction can affect the nature and scope of the protection available to franchisors.

Broadly speaking, fiduciary employees are individuals who are entrusted with a high degree of authority, control, power, or influence to make decisions on behalf of the employer in a way that may materially affect the business and leave the employer particularly vulnerable following the employee’s departure. While these employees often have official titles that include director, officer, or senior executive/management roles, courts have consistently held that the nature of the relationship rather than the employee’s title governs the analysis.

There are three principal criteria for determining whether a fiduciary relationship exists:

1. whether the employee has discretionary power;
2. whether the employee can unilaterally exercise that power to affect the employer’s interests; and
3. whether the employer is vulnerable to or at the mercy of the employee’s exercise of that power.

In contrast, non-fiduciary employees, sometimes referred to as “ordinary” or “mere” employees, generally do not have the authority or power to direct or significantly influence the employer’s decision making or interests.

Restrictions on Non-Fiduciaries

When it comes to the restrictions on non-fiduciary employees, the law seeks to balance protecting the legitimate business interests of the employer with preserving the employee’s ability to obtain other employment.

Generally speaking, upon leaving their employment, non-fiduciaries are free to compete with their former employer, work for competitors, and subject to applicable contractual restrictions and other legal limitations, solicit former clients, so long as they do not breach post-employment contractual clauses or misuse confidential information/disclose trade secrets.

With respect to confidential information obtained during their tenure, non-fiduciary employees also have an ongoing obligation not to use, disclose, or take such information. This obligation survives termination of the employment relationship. However, confidential information does not include the general skills and knowledge acquired by the employee while working for the former employer.

This distinction can be particularly important for franchisors. An employee may leave with valuable experience in franchise recruitment, franchisee relations, operations, or marketing. That general experience and skill is not necessarily proprietary to the franchisor. The analysis may be different, however, where the employee takes or uses confidential information such as franchisee data, prospective franchisee lists, system performance information, expansion plans, pricing information, proprietary processes, or other information that is not generally known or readily available.

Another constraint on departing non-fiduciary employees is what is known as the “springboard” doctrine. In a nutshell, employees cannot use confidential information as a “springboard” or head start in the marketplace to gain an unfair competitive advantage. Where an employer believes that a former employee is leveraging confidential information to accelerate a competing business, the employer may seek injunctive relief.

The SCC’s decision in RBC Dominion Securities Inc v Merrill Lynch Canada Inc., reinforces these principles. The case ultimately confirmed that ordinary (non-fiduciary) employees do not owe a general post-employment duty of loyalty; however, they must not misuse their former employer’s confidential information.

In this case, nearly all of the investment advisors at RBC left and joined Merrill Lynch in a move coordinated by the branch manager. None of the employees were bound by a restrictive covenant, nor were they considered to be fiduciaries. RBC sued its former employees and Merrill Lynch, alleging breach of fiduciary duty, breach of implied contractual terms to not compete, and misuse of confidential information.

The SCC ultimately affirmed that there is a clear distinction between fiduciary employees and non-fiduciary employees. For non-fiduciary employees, the implied duty of good faith gives rise to liability for competition during employment and for the improper use of confidential information. The SCC cautioned against expanding this duty to impose an obligation on non-fiduciary employees to actively protect the employer’s interests after the employment relationship has ended and deemed that such extension would constitute a “significant reformulation and extension of how courts have interpreted and applied a non-fiduciary employee’s implied duty of good faith”.

The takeaway for franchisors is clear: While non-fiduciary employees may generally leave and join a competing business, they cannot take the system’s confidential information with them or use it to gain an unfair advantage post-employment.

Restrictions on Fiduciaries

Fiduciary employees, on the other hand, are subject to more stringent obligations.

One of the primary constraints on departed fiduciary employees is that they cannot appropriate maturing business opportunities that the employer was actively pursuing prior to the employee’s departure (i.e., fiduciary employees cannot resign and then seize an opportunity that properly belonged to the employer). The scope and duration of this obligation depend on the circumstances, including whether the opportunity remained sufficiently connected to the fiduciary’s former role at the time of the alleged appropriation.

Fiduciary employees are also subject to greater restrictions on competition and solicitation, even in the absence of a written agreement. The scope and duration of any such obligations are fact-dependent. Courts may consider factors such as the nature of the fiduciary relationship, the employee’s responsibilities, the circumstances of the departure, and the time reasonably required for the employer to protect its legitimate interests.

For franchisors, this can be particularly important where a senior employee has had significant influence over franchisee relationships, system operations, strategic planning, or business opportunities. The departure of such an individual may raise issues that go beyond the misuse of confidential information.

Proactive Protective Measures for Franchisors

Practically speaking, franchisors should take steps to understand the roles within their organizations, identify the information that requires protection, and ensure that appropriate contractual and operational safeguards are in place.

1. Identifying fiduciary roles: Franchisors should first determine which employees are likely to be characterized as fiduciaries. This analysis should focus on the employee’s responsibilities and level of influence, rather than just their job title. Individuals who exercise significant discretion over franchisee relationships, oversee system operations, control important business opportunities, or play a meaningful role in strategic decision making are more likely to fall within this category.
2. Implementing contractual protections: While the law imposes certain obligations, carefully drafted confidentiality clauses, non-solicitation provisions, and where appropriate and legally enforceable, non-competition clauses, can help to provide greater protection to franchisors in the event of an employee departure.

These agreements should be tailored to the employee’s role and the interests the franchisor is seeking to protect. Overly broad restrictions may be difficult to enforce, while properly targeted provisions can help clarify the parties’ expectations from the outset.

3. Clarifying intellectual property ownership: Franchisors should ensure that there is a clear understanding surrounding the ownership of intellectual property created by employees. As a general rule, works developed in the course of employment typically belong to the employer, particularly where the employee was engaged to create the work. This principle is codified in Section 13(3) of the Copyright Act, RSC, 1985, c C-42.
4. Considering the risk to employers: The risks do not end with departing employees. A new employer or competitor that knowingly receives or benefits from the misuse of confidential information may also be exposed to liability or other legal consequences.

Accordingly, where a departing employee joins a competitor, franchisors should consider not only what the employee may have taken or disclosed, but also whether confidential information may have been communicated to or used by the new employer.

How We Can Help

Protecting a franchise system’s confidential information and other intangible business interests requires more than identifying which employees may be fiduciaries. Franchisors should consider how information and intellectual property are created, accessed, protected, and transferred throughout the organization, as well as the contractual and legal protections that may apply when key personnel leave.

At Sotos LLP, we assist franchisors in developing and implementing comprehensive strategies to protect these interests. If you have questions about protecting your confidential information or would like assistance assessing your current protective framework, Sotos LLP regularly advises franchisors on these issues and would be pleased to assist.

About the Authors

Daniel Hamson is a partner in the Litigation Department at Sotos LLP. His practice focuses on franchise, commercial and corporate disputes, including matters involving confidential information and intellectual property. He assists clients with dispute resolution through litigation, arbitration, mediation and negotiation, including urgent injunction proceedings. Daniel can be reached directly at 416.572.7303 or dhamson@sotos.ca.

Daniel has been recognized for his litigation work and industry expertise. He is listed as “Ones to Watch” in Best Lawyers in Canada and has been named a “Lawyer to Watch” in the Canadian Legal LEXPERT Directory, as well as in the LEXPERT Canada’s Leading Litigation Lawyers. He is also recognized as “Recommended” in Lexology Index: Canada (formerly Who’s Who Legal).

Bailee Kleinhandler is an associate in the Corporate and Commercial Group at Sotos LLP. Her practice includes corporate and franchise law. She provides general corporate and business law advice and assists clients with negotiating, drafting and reviewing agreements. Bailee can be reached directly at 416.572.7311or bkleinhandler@sotos.ca.

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When it comes to protecting intellectual property in franchising, trademarks tend to dominate the conversation, largely because the franchise system’s name and logo are often the key drivers of brand recognition and success. However, one of the assets in franchised businesses that is often overlooked are copyrighted materials.

What does copyright protect?

In Canada, copyright arises automatically, without formal registration, upon the creation of an original work in a tangible form. Copyright protects the expression, but not the underlying idea. Under Section 3(1) of the Copyright Act, R.S.C., 1985, c. C-42 (the “Act”), copyright grants the owner the exclusive rights to produce, reproduce, publish, perform, communicate, or adapt an original work.[1] This includes the right to authorize others, for example franchisees, to use the work or  material under certain conditions.

Works that are protected by copyright include:

• Literary works (e.g. computer programs, compilation of literary works);
• Dramatic works (e.g. choreographic work, mime, scenic arrangement, cinematographic work, compilation of dramatic works);
• Musical works (e.g. music or musical composition with or without words, compilation of musical works); and
• Artistic works (e.g. paintings, drawings, maps, charts, plans, photographs, sculptures, works of artistic craftsmanship, architectural works, compilation of artistic works).[2]

While copyright arises automatically, there are benefits to registering copyright with the Canadian Intellectual Property Office (“CIPO”). Once the application is submitted and the application fee is paid, a registration certificate and registration number will be issued to the applicant within seven business days.[3] The certificate is deemed presumptive evidence that the registered owner owns the copyright.  It can be beneficial in litigation proceedings and in warranting ownership of the copyright to prospective licensees of a work.

How does copyright apply in the context of franchising?

Although registration is not required, registering copyright can be useful in the franchising context. One of the basic premises of the franchise model is that, in return for ongoing payments, the franchisee receives the right to use some of the franchisor’s intellectual property, subject to certain conditions. This includes everything from training manuals, advertising and promotional materials, website content, proprietary software, computer software, menus, newsletters to employees or customers, and operations manuals.[4] Obtaining a copyright registration for these materials helps to ensure that there is no unauthorized use of the materials including by terminated franchisees.  It also allows the franchisor to enforce its rights more effectively and to ensure that it has the exclusive right to commercially benefit from the use of the materials.

Canadian franchise law does not specifically regulate copyright. However, the disclosure requirements under the provincial franchise legislation can be interpreted as requiring franchisors to describe all intellectual property licensed to the franchisee.[5] Franchisors should ensure that their franchise disclosure document clearly articulates who owns the copyright. For example, if a third party contractor has been hired to create the materials (such as the training materials, software, or brochures), the contractor, as the author, owns the copyright and not the franchisor. To avoid any future disputes, the franchisor should ensure that it obtains a fully executed assignment of the ownership of the materials or an exclusive licence to use the materials.[6]

What is the importance and benefit of copyright protection for franchisors?

There are compelling reasons for franchisors to register a copyright in their materials. Copyright registration serves as strong evidence of ownership and ultimately provides a creation date, which is invaluable in the event of a future dispute. It also strengthens enforcement efforts, making it easier for franchisors to stop the unauthorized use of the materials and to pursue infringement claims more effectively. This helps to prevent any misuse of the brand’s materials and intellectual property which could damage the brand’s reputation or result in a financial loss. Additionally, it is important to include clear copyright provisions in franchise agreements by defining ownership and the permitted uses allowed by the franchisee. This can help to lower the risk of disputes or litigation arising from the improper or unauthorised use of materials.

Beyond the legal and financial advantages, effective copyright registration and protection supports the foundation of a successful franchise – brand consistency. Franchisors require that all of their locations are uniform in appearance and presentation so that customers receive the same experience, regardless of where they interact with the brand. One of the primary ways to achieve this uniformity and consistency is by franchisors allowing franchisees to use their intellectual property, and specifically the franchisor’s copyrighted material. The distribution of proprietary characters, music, logos, marketing materials, training materials, digital content, uniforms, menus, and even store layouts contributes to maintaining that uniformity. Protecting these assets not only maintains specific quality and standards but also fosters customer trust and loyalty, which helps to reinforce brand reputation and contributes directly to the franchise system’s growth.

Copyright protection can provide franchisors with a competitive advantage and provide an additional revenue stream through licensing the proprietary materials in certain circumstances. A well-protected copyright portfolio can enhance the marketability of the franchise system itself, making it more attractive to prospective franchisees, investors, and partners, all of whom value a well-protected and unique brand. Safeguarding copyright is not just about compliance, but is essential for protecting reputation, deterring infringement, and securing long-term success.

Conclusion

For Canadian franchisors, effective copyright management is essential to protecting some of the core elements of its franchise system. These are assets of their business that require protection, and copyright should therefore be part of the discussion when establishing their franchise system and drafting their franchise agreement and disclosure documents.

At Sotos LLP, our intellectual property team provides full-service, practical support across all aspects of IP protection. We can assist not only with registering your copyright, but also with developing and implementing copyright and trade mark strategies, conducting IP audits, preparing and negotiating licensing and data-sharing arrangements, and enforcing your rights through opposition, infringement, counterfeit, and other litigation proceedings, so that your brand and proprietary materials are properly protected as your franchise system grows.

About the authors

Anna Thompson-Amadei is an associate at Sotos LLP whose practice includes advising clients on trademark and other intellectual property protection, aligning practical brand protection strategies with the growth and day to day needs of their business.

Bailee Kleinhandler is an associate at Sotos LLP in the corporate and commercial group and is building a diverse practice in corporate and franchise law.

[1] Copyright Act, RSC, 1985, c C-43 at s 3(1).

[2] Ibid at s 2 and 5(1).

[3] Government of Canada, Canadian Intellectual Property Office, How your application for registration of a copyright is processed (August 7, 2022). https://ised-isde.canada.ca/site/canadian-intellectual-property-office/en/copyright/how-your-application-registration-copyright-processed.

[4] Valerie Brennan, “Copyright Protetion for the Franchised Business” (2024) 43:4 Franchise L.J. at 32.

[5] Arthur Wishart Act (Franchise Disclosure), 2000, SO 2000, c 3 at s 5(4).

[6] Copyright Act, RSC, 1985, c C-43 at s 13(4).

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In a prior blog, we discussed the initial steps that the Competition Bureau (the “Bureau”) was taking to challenge anti-competitive practices in the grocery industry, including in regards to property controls in commercial leases. On June 4, 2025, the Bureau released an update to their enforcement guidelines, in an attempt to clarify how businesses can comply with the Competition Act (the “Act”) and how the Bureau will approach anti-competitive controls in commercial leases.

This blog briefly summarizes certain of the main updates to the enforcement guidelines.

Justified Property Controls

In their updated enforcement guidelines, the Bureau has identified certain situations where property controls may be justified. These are limited to situations where the property control in question increases competition and consumer choice, including situations where “no retailer would otherwise make the necessary investments to become a key tenant in a new shopping plaza. Without the exclusivity clause there may be no retailers of a particular type in the shopping plaza, and so the clause increased competition”.

When assessing whether a property control is justified or otherwise anti-competitive, the Bureau has clarified that they will consider three factors:

1. Timeframe – Competitor property control should only last as long as necessary to protect incentives for entry or investment.
2. Geographic area – Competitor property controls should cover the smallest geographic area necessary.
3. Products and services – Competitor property controls should not limit competitors more than necessary in the products or services that they cover.

With respect to all of these criteria, the broader the scope imposed as part of a property control, the less likely the property control is to be justified or defensible under Bureau scrutiny.

Effect of Property Controls

When assessing how a property control will impact competition, including with respect to the criterion above, the Bureau will consider whether the property controls gives one firm in the market too much power or whether it would make it easier for such firm to consolidate its power. The Bureau will consider the following questions:

• Are there other competitors already in the market?
• How effective are competitors?
• Are there other feasible options for commercial real estate available to competitors?
• Would competitors be less effective if they used other commercial real estate?
• Does a competitor need to establish several stores in an area to be effective?
• Are there other barriers to entry or expansion that already exist, that may compound the effects of the competitor property control?

Enforcement Under Abuse of Dominance

As part of the update, the enforcement guidelines include an overview of how the abuse of dominance provisions in the Act will apply to competitor property controls.
In assessing whether a firm is deemed “dominant” for the purposes of enforcement, the Bureau will consider the following factors:

• The ability to restrict competitors or competition;
• The presence of effective competitors, which may be heavily weighed based on market share;
• Barriers to entry in the market, including barriers to entry created by the competitor property control;
• The position of the firm in the broader industry; and
• Evidence of bargaining leverage, including the ability to seek the competitor property control.

In certain instances, the property control itself can create dominance, especially when there are not already strong competitors in the market and the restriction makes it even more difficult for others to enter.

It is expected that the Bureau’s first course of action in situations where a dominant firm implements a property control would be for the Bureau to seek an order prohibiting its use or enforcement. However, if the restriction is both an anti-competitive practice and demonstrably harms competition, the Bureau may take further steps that include seeking administrative monetary penalties.

Enforcement Under Anti-Competitive Collaboration Provisions

In their enforcement guidelines, the Bureau also spoke to how competitor property controls can be reviewed under Section 90.1 (anti-competitive collaborations) of the Act. Section 90.1 applies to agreements that either (a) involve at least two competitors, or (b) do not involve competitors if a significant purpose of any part of the agreement is to prevent or lessen competition in the market.

For a property control to raise concerns under Section 90.1, it must have the effect of substantially harming competition.

While the Bureau acknowledges that competitor property controls are usually not formed between competitors, Section 90.1 can still apply if (a) a significant purpose of any part of the agreement is to harm competition in a market, and (b) the agreement has the actual effect of harming competition.

It is also worth noting that the Bureau has made it clear that:

“When assessing an agreement that contains a competitor property controls, we focus on if the agreement has the effect of harming competition. If so, we expect that the agreement will raise issues under section 90.1. This is because if the agreement has the effect of harming competition it will likely also have a significant purpose to do so.”

The remedies that the Bureau may seek when a property control raises issues under Section 90.1 include:

• Prohibiting the terms of the competitor property control and their enforcement;
• Requiring other measures to restore competition where necessary; or
• Seeking administrative monetary penalties.

Conclusion and Key Considerations

With its updated enforcement guidelines, the Bureau appears to be taking a more flexible stance on competitor property controls, acknowledging the need for a case-by-case approach. At the same time, the Bureau’s recent update and continued investigation into Loblaw shows their continued commitment to eliminating property controls in Canada, with a special focus on the grocery industry.

Looking to the future, enforcement in this area will likely remain highly fact-specific. Whether a particular property control clause violates the Act will depend on the market context, the intent and effect of the restriction, and any underlying justification.

If you have any questions or concerns relating to property controls, Sotos LLP can assist. Please contact Jason Brisebois at 416.572.7323 or jbrisebois@sotos.ca or Bailee Kleinhandler at 416.572.7311 or bkleinhandler@sotos.ca to discuss your grocery sector needs.

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With the imposition of the new U.S. administration’s tariffs on imported materials and goods, more Canadians are choosing to support local products and producers. Businesses often attempt to make this choice easier for consumers by including wording such as “Made in Canada” or “Product of Canada” (collectively referred to as “Canadian Origin Claims”) on their labels. Although this can be a powerful marketing tool, there are strict regulations concerning their use and serious legal consequences for incorrectly or deceptively marketing a product using these claims.

Understanding Canadian Origin Claims

In Canada, there is no obligation to make “Made in Canada” or “Product of Canada” claims in regards to a product; rather these claims are voluntary. However, if a business chooses to make such a claim, it must be accurate and comply with all applicable regulations.

Canadian Origin Claims are primarily enforced by the Competition Bureau (the “Bureau”), through the Competition Act, R.S.C, 1985, c. C-34, which directly prohibits false or misleading representations (including Section 52 and Section 74.01). The Consumer Packaging and Labelling Act, R.S.C., 1985, c. C-38 (Section 7) and the Textile Labelling Act, R.S.C., 1985, c. T-10 (Section 5), also contain provisions which prohibit false or misleading representations regarding specific product types.

With respect to food-products, the Canadian Food Inspection Agency (the “CFIA”) is responsible for enforcing the rules under the Food and Drugs Act and the Safe Food for Canadians Act, S.C. 2012, c. 24.

What are the key difference between “Made in Canada” and “Product of Canada”?

The primary difference between these two claims is primarily the amount of Canadian content a product contains.

“Product of Canada”

“Product of Canada” claims require at least 98% of the total direct costs of production to have been incurred in Canada. This means that all, or virtually all of the direct costs were incurred in Canada.

“Made in Canada”

The “Made in Canada” claim has a lower threshold than the “Product of Canada” claim, meaning that only at least 51% of direct costs must have been spent in Canada. If you choose to use a “Made in Canada” claim, you must determine whether a qualifying statement is required to ensure clarity and precision. If it is required, the qualifying statement must be tailored to accurately reflect the specific details of the content that is imported. For example, “Made in Canada with imported parts” or “Made in Canada from domestic and imported ingredients”.

While businesses are encouraged by the Bureau to include clear and specific qualifying details, businesses should be cautious of using broad terms like “produced” or “manufactured” without necessary precision as these terms may be interpreted by consumers as equivalent to a “Made in Canada” claim.

Direct costs refer to the expenses that are directly incurred in producing or manufacturing goods. According to the Bureau’s guidance, these costs include:

1. expenditures on materials incurred by the producer/manufacturer in the production or manufacturing of the goods; and
2. expenditures on labour incurred by the producer/manufacturer that relate to the production or manufacturing of the goods and can reasonably be allocated to the production or manufacturing of the goods.

What factors will the Bureau consider?

When assessing whether a Canadian Origin Claim is accurate or misleading, the Bureau will look at several key factors, including the overall message the claim conveys to consumers, where the product underwent its final “substantial transformation”, and where the majority of direct production costs were incurred.

The term “substantial transformation” has been defined by the CFIA to refer to a significant change in the form, appearance, or nature of a product as a result of processing or manufacturing, such that it becomes a new product with a different identity that is commonly recognized as distinct by consumers.

Ultimately, the Bureau will consider the general impression that is being conveyed by a representation. As described in the Bureau’s enforcement guidelines, this means that the Bureau will consider “the general impression conveyed through a combination of words, visual elements, illustrations and overall layout that may alter the plain meaning of a representation”.

What about food products?

As discussed above, the CFIA is responsible for enforcing claims as they relate to food products sold in Canada. Similar to the guidelines under the Competition Act, a business is not obligated to make a Canadian Origin Claim. However, once they do, they must comply with the Food and Drugs Act (Section 5(1)) and the Safe Food for Canadians Act (Section 6(1)).

“Product of Canada” claims should be used for products where nearly all the contents are Canadian-sourced. While some minor non-Canadian materials can be included (such as spices, minerals, or flavouring), they must be minimal and should make up less than 2% of the total product. Packaging materials sourced from outside of Canada do not affect the eligibility of a “Product of Canada” claim, since the focus is primarily on the origin of the ingredients and manufacturing, not the packaging.

In contrast, food products may still use a “Made in Canada” claim even if most of the ingredients come from other countries, as long as the final “substantial transformation” happens in Canada and the label includes a qualifying statement clearly indicating that the product includes imported content.

What about symbols?

Often times, the packaging of products will contain a symbol of Canadiana, such as the Canadian flag or a maple leaf. The inclusion of these symbols and logos, whether intentional or not, can create the impression that the item was “Made in Canada” or a “Product of Canada” amongst consumers. Including such symbols may result in the Bureau holding the business to those standards.

In order to overcome this, it is important to include a clear qualifying statement, to describe the actual origin of the product. This statement should be placed in close proximity to the logo or symbol being used.

What are the penalties and consequences for non-compliance?

The penalties for a false or misleading Canadian Origin Claim will depend entirely on whether the conduct falls under the civil or criminal provisions of the Competition Act.

Under the civil penalties included in the Competition Act, violations can lead to:

1. For corporations, the penalty for a first time violation is up to the greater of:
   1. $10 million ($15 million for each subsequent violation); and
   2. three times the value of the benefit derives from the deceptive conduct, or if that amount cannot be reasonably determined, 3% of the corporation’s annual worldwide gross revenue.
2. For individuals, the penalty for first time violation is up to the greater of:
   1. $750,000 ($1 million for each subsequent violation); and
   2. three times the value of the benefit derived from the deceptive conduct, if that amount is reasonably determined.

Under the criminal penalties of the Competition Act, an individual found to have made false or misleading claims, on summary conviction, may face a maximum penalty of a fine up to $200,000, imprisonment for a term of one year, or both. On a conviction of indictment, an individual may be subject to a fine at the court’s discretion, imprisonment for a term of up to 14 years, or both.

Conclusion

Ultimately, Canadian Origin Claims can boost consumer trust and brand loyalty, especially during these uncertain times, but only if they are made responsibly. There is no obligation to label your product as “Made in Canada” or as a “Product of Canada”, but once a Canadian Origin Claim is made, it must meet the standards outlined above.

If you have any concerns or questions relating to Canadian Origin Claims, Sotos LLP can assist.

Please contact Jason Brisebois at 416.572.7323 or jbrisebois@sotos.ca, or Bailee Kleinhandler at 416.572.7311 or bkleinhandler@sotos.ca to discuss your Canadian Origin Claims.

1. Government of Canada, Competition Bureau, “Product of Canada and “Made in Canada” Claims (2025) at s 3.1 [Bureau Guideline].
2. Ibid.
3. Ibid at s 3.2.1.
4. Ibid.
5. Bureau Guidelines, supra note 1 at s 3.2.2.
6. Ibid at s 2.1.
7. Government of Canada, Competition Bureau, Origin claims on food labels (2023) [Food labels].
8. Bureau Guidelines, supra note 1 at s 3.1.1.
9. Ibid.
10. Food labels, supra note 7.
11. Ibid.
12. Food labels, supra note 7.
13. Bureau Guidelines, supra note 1 at s 4.
14. Ibid.
15. Ibid.

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The Competition Bureau (the “Bureau”) has taken a significant step to challenge anti-competitive practices in the grocery industry. After an extensive investigation by the Bureau, Empire Company Limited (“Empire”) has agreed with the Bureau to remove a property control clause in a commercial lease that had previously prevented competitors from establishing competing grocery stores in Crowsnest Pass, Alberta only. This action by the Bureau represents one of the first applications of the newly-amended Competition Act (the “Act”) provisions.

What is a property control?

Property controls are negotiated restrictions in commercial lease agreements that limit how commercial real estate spaces may be used (including by other potential tenants), imposing restrictions on landlords as to who they may lease space to. Such provisions often decide what types of businesses may lease space from landlords, preventing certain businesses (namely competition), from establishing operations in violation of the provision.

While the largest commercial landlords in Canada generally enjoy significant bargaining power over potential tenants, the consolidated nature of the grocery industry in Canada, combined with the fact that grocery stores tend to be desirable and traffic-generating anchor tenants that drive potential customers to larger commercial developments, Canada’s large and mid-sized grocery chains have had significant success negotiating property control provisions to their benefit. In the grocery industry specifically, large grocery chains often use property controls to restrict landlords from allowing competing grocery businesses to open on lands owned by the landlord unrelated to the location. As a result, property controls have a direct impact on market competition, making it significantly more difficult to open competing stores in the same commercial plaza, or potentially nearby commercial plazas controlled by the same commercial landlord.

The impact of such provisions are acutely felt in smaller communities with limited commercial real estate, or in areas where commercial real estate is controlled by one or a small number of large commercial landlords.

How does the Competition Act address this issue?

The Act has been recently amended to prohibit companies from forming agreements that significantly restrict or reduce competition. Prior to the above amendments, the Bureau was restricted in its ability to investigate agreements between parties that were not considered competitors, such as supply and lease agreements. For example, agreements between landlords and grocery retailers fell outside the Bureau’s scope because the parties were not classified as “competitors” under the Act. However, the recent changes and specifically the amendments to Section 90.1 of the Act, have expanded the authority of the Competition Bureau. Now, the Competition Bureau can challenge agreements between parties that restrict or lessen competition, even if those agreements do not involve direct competitors.

What happened between the Competition Bureau and Empire?

In 2024, the Bureau began investigating the use of property controls by Empire, the parent company of Sobeys Inc., which operates grocery banners such as “Sobeys”, “IGA”, and “FreshCo”. The investigation was conducted to help “determine whether Sobeys and Loblaw are imposing anti-competitive restrictions on the use of real estate…that impact competition in the retail sale of food products”. During the investigation, the Bureau became aware of a property control restriction that was imposed by Empire on one of its “IGA” brand stores, located in Crowsnest Pass, Alberta, a town of approximately 6,000 people.

This property control provision was imposed by Empire in the region in 2017, and effectively eliminated the ability of other parties to establish competing stores to service Crowsnest Pass. The Bureau found that the provision “protected Empire’s grocery store from competition and ensured that it would continue to be the only grocery store in the area”. While conducting their investigation, the Bureau considered the question of whether the restrictions were anti-competitive in nature.

Following the investigation, Empire agreed to remove the property control. As Commissioner of Competition Matthew Boswell stated:

“Market forces – not property controls – should determine whether and where new grocery stores can open in communities across Canada. The removal of this property control in Crowsnest Pass will allow for more grocery competition to the benefit of its residents. We encourage all businesses that use property controls to review them and ensure that they comply with the law.”

The Bureau’s intervention in Crowsnest Pass raises broader questions about the future of property controls in Canada’s grocery industry.

What does this mean for the grocery industry generally?

Competition is key to affordability and choice for consumers, as it may drive the stores to offer lower prices and a wider selection of products to attract consumer dollars. However, property controls can severely limit this competition, and reduce incentives on retailers to compete for such consumer dollars. Even certain large retailers, such as Walmart, have noted that property controls restrict consumers options, making it more difficult for new players to enter the market. This issue is particularly important in smaller communities, where consumer choice is limited, and the ability to “shop around” may be limited or non existent.

The recent amendments to the Act therefore aim to provide the Bureau the power to challenge restrictive covenants in commercial lease agreements. However, the impact of these changes will likely have a greater impact in smaller towns than in major cities like Toronto. In large cities, consumers have access to numerous competing retailers within a short distance, making it easier to avoid the restrictions imposed by a single lease agreement. In contract, in smaller towns, a restrictive covenant can effectively eliminate all competition, leaving residents with no alternative grocery or retail options, as they are unable to drive to another nearby store.

In larger cities, the general thinking is that competition is easier to come by, as density translates to a larger number of consumers, which in turn drives a great number of commercial real estate for grocers to choose form, as well as an ability of consumers to more easily shop around. In smaller towns like Crowsnest Pass, however, there may only be demand for one or a small number of grocery retailers, which means that anti-competitive practices are significantly more easy to impose, but also for the Bureau to police.

While it remains to be seen whether the Bureau intends to continue to take action against property controls, those who will benefit the most from a sustained effort by the Bureau against these practices are likely to be independent grocers and smaller chains, especially those in smaller and rural communities. Assuming that the Bureau continues to challenge property controls, the end result may reduce the practice by large grocers to insist on property controls, potentially creating new opportunities for smaller chains and speciality stores to open in prime retail spaces, such as the same malls or plazas as larger grocery chains.

Certain large grocery chains have expressed openness to removing these restrictive provisions but have conditioned their willingness on all similarly large grocery chains doing the same. Without a broad, industry-wide change, large grocery retailers that also own shopping centers and retail spaces could still control who operates on their properties. This means that those larger chains will strategically select tenants to maintain their dominance in the market, resulting in restrictive agreements continuing in a different form. Additionally, it remains unclear whether the Bureau intends to take an active role in enforcing these new provisions, leaving questions about how much will actually change in practice.

Final guidelines from the Bureau regarding property controls are expected to be published later this year. These guidelines will be informed by the recent public consultation process, where the Bureau encouraged market participants in the food retail and real estate sectors to share their experiences with this practice. While the Bureau has not yet provided specific guidance on how future investigations will be initiated, it is likely that such investigations will be triggered by complaints, market studies, or the Bureau’s general monitoring of the grocery sector.

Conclusion

The recent amendment to the Act are intended to promote greater competition in the grocery sector, especially in smaller communities. However, for real, industry-wide change, major grocery chains would need to willingly stop using property controls altogether, which is something that remains unlikely in the short term.

It is still too early to determine whether this signals a broader push by the Bureau to actively scrutinize and challenge property controls altogether. The recent ruling in Crowsnest Pass sets a precedent, but how these changes will be applied in larger markets with multiple stores remains uncertain. What works in a small town may not have the same impact in a city where competition is already present and where commercial real estate is controlled by the very corporations that dominate the grocery industry.

If major grocery chains continue to enforce property controls wherever possible, the impact of these amendments could be limited. The real test will be whether the industry as a whole moves toward loosening these restrictions, or whether these changes simply create small victories in select markets without disrupting the status quo.

If you have any questions or concerns relating to the enforcement of property controls, Sotos LLP can assist. Please contact John Sotos at 416.977.9806 or jsotos@sotos.ca or Jason Brisebois at 416.572.7323 or jbrisebois@sotos.ca or Bailee Kleinhandler at 416.572.7311 or bkleinhandler@sotos.ca to discuss your grocery sector needs.

1. Government of Canada, Competition Bureau, Competition Bureau advanced investigations into Sobeys and Loblaw’s use of property controls (2024).
2. Ibid.
3. Government of Canada, Competition Bureau, Competition Bureau takes action to protect competition in the grocery industry in an Alberta community (2025).
4. Rosa Saba, “Walmart Canada axing some property controls amid grocery competition scrutiny” Canadian Grocer (November 22, 2024).
5. Government of Canada, Competition Bureau, Call-out for information about property controls in the Canadian grocery industry (2024).

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The Canadian Trademarks Opposition Board announced the Pilot Project in December 2024. Beginning January 2025, the Canadian Intellectual Property Office (“CIPO”) will send notices to registered trademark owners asking them to prove that their trademarks are actively in “use” in Canada. If the registered trademark owner is not able to provide proper evidence, the trademark registration may be cancelled.

Background

Unlike other countries, Canada does not require trademark owners to provide evidence of use of their trademarks prior to a mark being registered or to file any evidence during the lifespan of the registration that the trademark owner continues to use the registered mark.

Under Section 45 of the Canadian Trademarks Act (the “Act”), the Registrar can ask a trademark owner to prove that it has been actually using its trademark in Canada over the past three years. If the trademark owner is not able to provide evidence that the trademark as been in use, and that there is no exceptional circumstances for the non-use, the trademark registration can either be changed to only cover the goods and services that are actually being used or the registration may be cancelled entirely.

Who will be examined?

Registered trademarks will randomly be picked from the following categories:

• registrations based on use;
• registrations that said they would be used in the future, and proof of use was given;
• registrations that are used or registered in another country;
• registrations that fall into more than one of these categories; or
• registrations that have been registered for more than three years.

What is the purpose of the Pilot Project?

The goal of the Pilot Project is to ensure that the Trademark Register includes only trademarks that are actively being used in Canada. It is essentially cleaning up old or unused trademarks – as CIPO has stated, clearing out the “deadwood” from the Trademark Register.

The Pilot Project has three main goals:

• make it easier and faster for businesses to register new trademarks;
• help to maintain fairness by getting rid of unused trademarks that block new ideas for brands; and
• keep the trademark system honest by ensuring the Trademark Register only shows active trademarks and what they are being used for.

How will the Pilot Project work?

The Pilot Project will happen in two steps.

Step 1: Starting in January 2025, CIPO will send out 100 notices. Then, in February and March 2025, CIPO will send out two more groups of 50 notices each. The notices will target trademarks that are over three years old, and will ask trademark owners to prove that they have been using their trademarks in Canada over the past three years.

Step 2: CIPO will ask the public for feedback on the project. CIPO is hoping to gather information on whether the process should be permanent and how it should work in the future.

How to respond to a notice?

To help trademark owners, CIPO has shared resources, such as a guide and sample affidavit, to help prepare evidence. However, CIPO warns that any evidence submitted will be made public, as required by Section 29(1)(f) of the Act. Trademark owners should therefore be careful not to include personal or sensitive business information that is not necessary and should redact the information before submitting. It is strongly recommended that you speak with legal counsel experienced in trademark matters to assist you in responding to any notice from CIPO.

Registered trademark owners can prove that their trademark was used in Canada in the last three years by submitting a detailed affidavit or statutory declaration, complete with exhibits and supporting evidence. This document should confirm that the trademark is being used in Canada and include examples to demonstrate how the trademark was used for all the goods and/or services listed in the registration.

If the trademark has not been in use, registered trademark owners can submit an affidavit or declaration explaining why the trademark has not been in use and if there were any special circumstances. The Registrar will consider:

• how long the trademark was not used;
• if the reason for not using the trademark was out of the owner’s control; and
• if the owner plans to start using the trademark again soon.

Trademark owners must send their evidence demonstrating use within three months of getting the notice from CIPO. If the trademark owner fails to do so, CIPO may unilaterally cancel the trademark registration.

Why is this important?

With the Pilot Project sending out Section 45 notices more often, trademark owners need to be ready to prove that they are actually using their trademarks in Canada. This includes keeping copies of invoices, photographs of products, and marketing materials that show the trademark is being used with the goods and/or services that it is registered for. Trademark owners need to be proactive not only to protect their trademark but also to follow CIPO’s rules and requirements.

For more specific details on the Pilot Project, please see the Government of Canada’s practice note.

How can Sotos LLP help?

If you receive a Section 45 notice, want to review the status of your registrations, or have any other trademark related concerns, Sotos LLP can help. Specifically, we can assist in ensuring that your evidence is properly prepared and submitted to meet CIPO’s requirements.

At Sotos LLP, we have acted for hundreds of trademark owners in every aspect of protecting their intellectual property for more than 40 years. We have extensive knowledge of intellectual property issues, and regularly act in the procurement and licensing of trademarks, as well as in defending our clients’ trademarks rights and opposing trademark applications on behalf of our clients.

Please contact John Yiokaris at 416.977.3998 or jyiokaris@sotos.ca or Bailee Kleinhandler at 416.573.7311 or bkleinhandler@sotos.ca to discuss your intellectual property and trademark issues.

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For automotive dealers, the investment required to establish a new dealership can be significant, covering everything from tools and machinery to vehicle inventory and due diligence, along with other associated start-up costs. Meanwhile, manufacturers face ongoing challenges of staying competitive in a rapidly evolving automotive market. A key strategy for manufacturers to remain relevant is ensuring a sufficient number of dealerships exist to meet customer demands and expectations. However, this strategy can sometimes lead to conflicts known as “encroachment”.

Understanding Encroachment

Encroachment occurs when a new dealership is opened or an existing one is relocated closer to another dealership in the same network. Such moves often lead to disputes between existing dealers and manufacturers. To mitigate these conflicts, manufacturers typically include provisions in their dealership agreements that reserve the right to establish new locations or relocate existing ones. However, beyond the agreement’s terms, both dealers and manufacturers need to be mindful of other important factors, such as standards set by the National Automobile Dealer Arbitration Program (NADAP), if applicable, and the obligation to engage in good faith dealings.

The Role of NADAP

NADAP was established to provide a structured process for resolving disputes between manufacturers and dealers for those manufacturers and dealers that have opted into NADAP. Initially, parties are encouraged to use the manufacturer’s internal dispute resolution process. However, if that process is unavailable or fails to resolve the issue, mediation through NADAP is the next step.

For encroachment disputes, Rule 6 of NADAP is particularly important. This rule grants manufacturers the right to determine the size and structure of their dealer network, including the creation of new dealer points, relocation of existing dealerships, and appointment of new dealers. However, manufacturers are required to provide notice to existing dealerships before establishing a new dealership location or relocating an existing dealer point.

Generally, in metropolitan areas, an existing dealer selling identical vehicle brands as those of the proposed new dealer point or relocated dealership may challenge a new or relocated dealership within 8 km (20 km in non-metropolitan areas). If these distance requirements are not offended, an existing dealer cannot bring its NADAP challenge. While these distance requirements are a common basis for challenges, they are not definitive. According to Rule 6(e), even if the distance requirements are met, the dealer must also prove potential losses in sales and profits as a precondition for obtaining relief.

Good Faith Obligations

Separate and apart from any NADAP rules regarding new dealer points and relocation, pursuant to Canadian law, automotive manufacturers are required to exercise the powers granted to them by a dealership agreement honestly, fairly, and in good faith. Given the potential power imbalance between local dealerships and automobile manufacturers, courts work to ensure that neither party engages in conduct that undermines the core purpose of their business relationship.

How are courts dealing with claims of encroachment?

1. Consideration of dealer interests: Courts have clarified that even when a manufacturer retains broad powers under a dealership agreement, it must still consider the interests of existing dealers. Manufacturers are required to evaluate the potential adverse impact on individual dealers before making decisions that could affect them.
2. Case-by-case approach: Courts emphasize that every encroachment case is unique. As a result, an existing dealer must provide substantial expert evidence demonstrating that a new or relocated dealership would harm its financial interests.

Conclusion

When a dealer is granted an exclusive selling territory or a designated market area, it has a reasonable expectation that the manufacturer will not encroach on its territory. Manufacturers are under an obligation to treat their dealers fairly, and exercise the powers they have reserved for themselves under the dealership agreement in such a manner so as to not unfairly disadvantage their dealers. At the end of the day, a well planned dealership network not only meets the needs of the marketplace, but it provides its dealers with a favourable environment in which to obtain a reasonable return on their investment.

John Yiokaris, Partner

John Yiokaris is a partner with Sotos LLP in Toronto, Canada’s leading franchise law firm. He has been recognized by Chambers Canada, LEXPERT, Who’s Who Legal, Lexology, and Best Lawyers in Canada as a leading Canadian franchise law practitioner. John can be reached directly at 416.977.3998 or jyiokaris@sotos.ca.

Bailee Kleinhandler, Associate

Bailee is an associate in the corporate and commercial group of Sotos LLP. She is building a diverse practice in corporate and franchise law. Bailee can be reached by email at bkleinhandler@sotos.ca or by phone at 416.572.7311.

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