A “time is of the essence” (TOE) clause is a common contractual provision used in a wide range of commercial agreements. At its core, a TOE clause indicates that compliance with specified timelines is a material term of an agreement and that failure to meet those timelines, however minor or inconsequential, can constitute a breach entitling the non-breaching party to terminate the contract. In transactions with clearly defined deadlines (such as a fixed closing date), a TOE clause demonstrates that performance within a stipulated timeframe is an essential term of the agreement.

Notwithstanding their widespread use, TOE clauses have frequently been the subject of commercial disputes, highlighting the persistent challenges associated with their interpretation and application. Most recently, the Supreme Court of Canada (SCC) granted leave to appeal the decision of the Court of Appeal of Newfoundland and Labrador in Nova Fish Farms Inc. v Cold Ocean Salmon Inc., highlighting the continued significance of TOE clauses in Canadian contract law.

The Dispute: Nova Fish Farms Inc. v Cold Ocean Salmon Inc.

In this dispute, Cold Ocean Salmon Inc. (the Seller) agreed to sell several trout farms to Nova Fish Farms Inc. (the Buyer) under an agreement of purchase and sale signed in February 2020 (the Agreement). The trout farms were on property leased from the provincial government and were licensed and regulated by both federal and provincial governments. As a result, the sale of the trout farms was conditional on government approval. The Agreement required each party to take the necessary steps to obtain government approval “as promptly as practicable” and that the parties use “commercially reasonable efforts” to obtain approval before closing. The Agreement contained a TOE clause.

Due to the COVID-19 pandemic, neither of the parties took any meaningful steps to obtain the necessary government approvals over the next 16 months. In June 2021, the Buyer submitted transfer applications to the government and received approval in October 2021. The Buyer then notified the Seller of the government approval and that the Buyer wished to proceed with closing. The Seller ultimately informed the Buyer that it did not intend to close, which led to the Buyer suing for specific performance.

The Lower Court’s Decision

The trial judge found that the Buyer had breached the Agreement by failing to take the necessary steps to obtain government approval “as promptly as practicable”. Although there were no set timelines in the Agreement to obtain the government approvals, the trial judge held that the 16-month period was not in the contemplation of the parties and that the TOE clause entitled the Seller to terminate the Agreement.

The Court of Appeal’s Decision

The Court of Appeal disagreed with the trial judge, holding that the TOE clause did not extend to obligations governed by indefinite time provisions (i.e., “as promptly as practicable”). Rather, the Court of Appeal observed that the cases cited by the parties where TOE clauses were enforced “involved precisely stipulated time limits”, such as a fixed or outside closing date.

The Court of Appeal placed particular emphasis on the need for certainty in commercial agreements. It explained that contracting parties utilize TOE clauses to provide clear consequences of a breach relating to timelines, most notably, that a failure to meet such timelines entitles the non-breaching party to terminate the contract. Extending a TOE clause to obligations without defined timelines, the Court of Appeal cautioned, would undermine this objective by introducing ambiguity as to both compliance and the point at which termination rights arise.

Key Takeaways for Drafting and Strategy

The Nova Fish Farms Inc. v Cold Ocean Salmon Inc. case underscores the nuanced application of TOE clauses in Canadian commercial contracts. While TOE clauses are designed to ensure timely performance of contractual obligations, their enforceability may be tied to the presence of clearly defined deadlines. Subject to further guidance from the SCC, the Court of Appeal’s decision suggests that where contractual obligations are expressed in indefinite terms, such as “as promptly as practicable,” a TOE clause may not automatically grant a party the right to terminate.

This case serves as a cautionary reminder to contracting parties of the importance of establishing clear and precise deadlines within their agreements, particularly where the timing of performance is intended to be of fundamental importance. Parties should also carefully assess whether the inclusion of a TOE clause is appropriate in the circumstances. Such clauses should not be adopted as a matter of course, and instead should be evaluated and tailored on a case-by-case basis to ensure alignment with the parties’ intentions.

For businesses navigating complex commercial agreements, the use and interpretation of “time is of the essence” clauses can have significant legal and financial consequences. Sotos LLP has extensive experience advising clients on contract drafting, risk management, and high-stakes commercial disputes. If you have questions about how these developments may impact your agreements or require strategic guidance, our team would be pleased to assist.

About the Author
Sam Fata is an associate in the corporate and commercial group at Sotos LLP. His practice focuses on corporate finance, mergers and acquisitions, securities, and commercial law. He advises clients across a wide range of industries, including technology, manufacturing, mining, agribusiness, entertainment, artificial intelligence, and consumer goods. Sam takes a client-focused approach, working closely with businesses to understand their objectives and deliver practical, tailored legal solutions. He can be reached at 416.530.0447 or sfata@sotos.ca.

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Investors increasingly buy shares in companies that trade on the exchanges of multiple countries. Capital markets are global — Canadians wish to invest in foreign companies and foreign companies wish to raise capital from Canadians.

When disclosure is incomplete or misleading, the legal response in Canada — unlike the U.S. — can be global too. A shareholder who bought on a U.S. exchange can still sue in a Canadian class action, and an asset manager may need to evaluate recovery options in more than one jurisdiction.

Shareholder rights in the U.S. are more geographically constrained. Specifically, investors can only seek recovery in U.S. federal court for losses related to shares purchased on a U.S. exchange.

In Morrison v. National Australia Bank Ltd., 561 U.S. 247 (2010), the U.S. Supreme Court adopted a bright-line, transaction-based limit on the reach of U.S. federal securities law, limiting its reach to, “the use of a manipulative or deceptive device or contrivance only in connection with the purchase or sale of a security listed on an American stock exchange, and the purchase or sale of any other security in the United States.”

The practical effect is that U.S. cases are tethered to U.S.-exchange purchases and domestic transactions.

That rule narrows who gets access to U.S. courts, even when the alleged misstatements are the same, the disclosure was global and the harm was widespread. It also means that many investors holding cross-listed stocks — who purchased shares on both U.S. and non-U.S. exchanges — are unable to seek full recovery in U.S. courts alone.

The Canadian approach

Ontario, where most Canadian securities class actions are filed, has specifically rejected the U.S. exchange-based rule for jurisdiction in securities class actions.

Instead, Ontario courts focus on whether there is a “real and substantial connection” to the province. That could include being listed on a Canadian exchange, having significant operations in Canada, etc.

Applying this flexible standard, Ontario courts have certified classes that reach far beyond Canadian borders.

If a real and substantial connection exists, the court may certify a class that reaches beyond Canadian residents and beyond Canadian exchanges. The practical result for investors who have purchased shares on both a Canadian exchange and a foreign exchange — U.S. or otherwise — is that they can seek full recovery in a single proceeding in Canada.

Ontario’s long-arm jurisdiction

In Longair v. Akumin Inc., 2024 ONSC 3675, the court dismissed outright arguments that a proposed class action should be limited to shares purchased on a Canadian exchange, or that respect for foreign courts requires Ontario to step back in favour of a “place of trading” norm.

The relevant shares were traded on the Toronto Stock Exchange and NASDAQ. The core points include:

• Ontario securities law does not contain a “place of trading” limitation.
• Ontario courts can exercise “long-arm” jurisdiction where the defendant has a real and substantial connection to Ontario.
• There is no norm requiring these claims to be heard only where the securities traded.

Akumin Inc. is part of a broader trend — Ontario courts are prepared to certify classes that include foreign-exchange purchasers when Ontario has a close connection to the issuer and the dispute. The courts manage overlap issues through case management rather than by adopting the bright-line exchange-based approach relied on by the U.S. Supreme Court in National Australia Bank.

Claims listed exclusively on foreign exchanges

Akumin Inc. confirmed that with a cross-listed issuer, foreign claimants could bring their claims related to shares purchased on a non-Canadian exchange in an Ontario court. However, this is not the limit of the kinds of claims Ontario courts will hear.

A company listed exclusively on a foreign exchange may be sued for alleged misrepresentations in its disclosure in an Ontario securities class action even if it is not listed on any Canadian exchange.

Abdula v. Canadian Solar, 2015 ONSC 53 confirmed that an issuer listed on a foreign exchange can still face an Ontario securities class action if it has a sufficiently close connection to Ontario. Canadian Solar, incorporated under the Canadian federal corporate statute, was listed on the NASDAQ and less than 4% of its shares were beneficially owned by Ontario residents.

Listing on a foreign exchange does not bar a Canadian class action if the company’s operations establish a meaningful connection to Canada.

The location of the underwriter

In Kamrani-Ghadjar v. Anaergia, 2025 ONSC 2167, the court confirmed that for IPO misrepresentation claims, it is irrelevant whether the selling underwriter was domestic or foreign. Anaergia included both secondary market claims (claims related to freely trading shares) and IPO claims (claims relating to newly issued shares).

Some of the underwriters for the IPO claims were Canadian and others were non-Canadian. The defendants argued that non-Canadian underwriters should be excluded. The court disagreed, holding that it did not, “see why a global class should exclude purchasers who bought from non-Canadian underwriters ”

For investment advisors, this raises important investor protection considerations with direct client service implications. Clients with concentrated positions in companies that are defendants in a class action may receive notices from more than one jurisdiction, and may need to consider which proceedings to participate in.

This is also a governance issue for portfolio managers and institutional investors. A fund may need a litigation participation policy and process for: (i) mapping trading history by exchange, (ii) tracking parallel Canadian and U.S. proceedings and (iii) deciding whether to remain in one class, participate in both where possible or opt-out strategically depending on the claims, available damages and the proposed releases.

Three takeaways:

1. Canadian jurisdiction is connection-driven, not exchange-driven. Akumin Inc. reinforces that Canadian courts have specifically rejected National Australia Bank’s exchange-based logic.
2. Foreign-exchange purchasers may still be liable in a Canadian lawsuit. Canadian Solar remains a strong example of Ontario courts’ willingness to hear claims where the issuer has a “real and substantial connection” to Ontario.
3. Foreign underwriters may be liable in a Canadian lawsuit. As underscored in Anaergia, other capital market participants like underwriters, even those situated abroad, may also find themselves before Canadian courts defending securities misrepresentation claims.

Part 2 of this series will look at the next set of practical differences between Canadian and U.S. securities class actions: thresholds to proceed, liability for misleading forecasts and projections and how damages calculations can diverge across the border.

This article originally appeared in Investment Executive. 

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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

For many franchise systems, confidential information constitutes the core of the business. Operation manuals, pricing strategies, supplier terms, customer data, marketing plans, technical data, and proprietary systems and know-how are often what make a brand scalable, defensible, and valuable.

Yet confidential information is also uniquely vulnerable. Unlike physical assets, it can be copied instantly, transmitted invisibly, and misused long after a relationship ends. Canadian law does protect confidential information, but that protection is not always automatic. It can depend on how the information was created and controlled.

Protecting confidential information is important not only because of its value to the franchisor’s business, but also because the consequences of a breach may extend beyond the immediate actor. In some circumstances, a franchisee’s improper disclosure of customer or system information may expose the franchisor itself to legal and/or reputational risk.

This first post in the series provides a foundational overview: what counts as confidential information, how does the law protect it, and what should franchisors be thinking about now to reduce risk later.

What Is Confidential Information?

At a high level, confidential information is information that courts have described as having a “quality of confidence about it”. To determine whether information possesses this quality, consider the following non-exhaustive list of factors:

• The extent to which the information is known outside the franchisor’s business;
• The extent to which it is known by corporate employees and/or franchisees and others involved in the franchisor’s business;
• The extent of measures taken by the franchisor to guard the secrecy of the information;
• The value of the information to the franchisor and its competitors;
• The amount of money or effort expended by the franchisor in developing the information; and
• The ease or difficulty with which the information could be properly acquired or duplicated by others (e. by their independent endeavours).

Against that backdrop, and speaking generally, the more resources and skill expended to create the information, the greater the market value of the information, and the more comprehensive a franchisor’s efforts to safeguard the information, the more likely that information will be considered to be confidential, and thus capable of protection.

How Does the Law Protect Confidential Information

Unlike statutory protections for intellectual property such as trademarks or patents, confidential information is primarily safeguarded through the common law in Canada. There is no comprehensive legislative framework for the protection of confidential information. Instead, remedies for misuse are developed through established common law principles.

When a franchisor’s confidential information is misappropriated, the law offers several avenues for redress, often including requests for urgent injunctive relief to prevent further damage. Common legal claims for the protection of confidential information include:

• Breach of Confidence. A franchisor may bring a claim for breach of confidence when it can demonstrate that the information in question is confidential in nature, was disclosed in circumstances where an obligation of confidentiality existed, and has been improperly used or disclosed. In the franchise context, this commonly arises where a franchisee or former employee seeks to use proprietary information—such as trade secrets, operations manuals, supplier lists, or customer lists—to benefit a new or competing venture.
• Breach of Contract. A franchisor may also pursue a breach of contract claim if the defendant has violated a specific confidentiality provision agreed upon in a contract. For example, franchise agreements often include clauses that impose an explicit duty of confidentiality on franchisees. A breach occurs when the defendant improperly discloses, uses, or misappropriates confidential information contrary to the terms of its contractual obligations. Given the nature of franchise relationships, this often arises when a franchisee uses confidential system information to create or help others create a competing business.
• Breach of Fiduciary Duty. In certain business relationships, a fiduciary obligation may exist, such as between a senior executive and a franchisor. A breach of fiduciary duty claim arises when a fiduciary misuses confidential information entrusted to them in a manner that undermines the interests of the beneficiary. For example, if a senior executive leaves a franchise system to join or start a competitor, and in doing so improperly utilizes or discloses confidential information gained during their tenure, this constitutes a breach of their fiduciary duty. The franchisor may seek damages or injunctive relief to prevent further misuse of the confidential information.
• Unjust Enrichment. Where a party has improperly benefited from the misuse of confidential information, a claim for unjust enrichment may be available. This claim seeks to prevent the party from retaining the illicit benefits derived from the misappropriation. In the context of a franchise system, unjust enrichment claims may be brought if a former franchisee uses proprietary business methods, marketing strategies, or customer information to establish a competing business and gain a financial advantage at the franchisor’s expense. The court may order the return of any unjust profits or impose equitable remedies to remedy the wrongful benefit.
• Copyright Infringement. There is often an overlap between confidential information and information protected by copyright. Copyright protection arises automatically when an original work is created and fixed in a tangible form. Where a confidential work is also subject to copyright, the unauthorized reproduction, use, or distribution of that work may give rise to statutory claims for copyright infringement, in addition to any common law remedies available for misuse of confidential information. For example, a third party that copies or adapts a franchisor’s operations manual for use in a competing franchise system may be liable for copyright infringement.
• Potential Criminal Liability. The Criminal Code also provides for criminal sanctions in cases of the improper disclosure of trade secrets under sections 391(1) and (2). While criminal charges are infrequently pursued in the context of confidential information breaches, they remain an option where the conduct crosses the threshold of dishonesty or fraud.

How Can Franchisors Protect Their Confidential Information?

While later posts in this series will address specific risk areas, several high-level principles apply universally.

• Identify What Matters. Not all information warrants the same level of protection. Franchisors should clearly identify what information is confidential, who needs access and who does not, and whether sufficient systems are in place to protect information from inadvertent or improper disclosure.
• Use Clear, Enforceable Agreements. Contracts remain a primary, preventative line of defence to breaches. These may include confidentiality and non-disclosure agreements, employment and contractor agreements, and franchise agreements with robust information-protection provisions.
• Limit and Control Access. Access should be need-to-know, supported by passwords and access controls. Clear policies governing use and disclosure should also be in place.
• Act Consistently With Confidentiality. How a franchisor behaves matters. Marking documents as confidential, training staff, and responding promptly to breaches all signal that the information is confidential in nature and deserving of protection.
• Prepare for Exit Events. Departures, whether by franchisees, executives, or employees are high-risk moments. Advanced planning is essential.

How We Can Help

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 Author

Daniel Hamson, Sotos LLP

Daniel is a partner in the Litigation Department at Sotos LLP. His practice focuses on complex commercial, corporate, and franchise disputes.

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).

Daniel can be reached directly at 416.572.7303 or dhamson@sotos.ca.

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Canada is an attractive but highly regulated market for foreign vehicle original equipment manufacturers (“OEMs”). Canada has a safe and stable economy and adheres to the rule of law, making it an attractive destination for OEMs looking to introduce their products into new foreign markets. While the Canadian marketplace often appears similar to the United States at first glance, dealer regulation, franchise protections, different legal systems, tariffs, environmental law requirements, data privacy laws, consumer protection laws, and countless other regimes create a very distinct legal and commercial environment. Careful dealer network structuring at the outset is critical to avoiding regulatory friction, dealer disputes, and costly restructuring later.

This article outlines certain principal considerations non-Canadian OEMs should review when expanding into the Canadian marketplace and designing a Canadian dealer network.

1. Choosing the Right Market Entry Structure

Many OEMs enter Canada by establishing a wholly-owned Canadian subsidiary entity, which contracts directly with dealers and manages national distribution, marketing, and compliance. This structure offers simplicity regarding certain tax, employment, regulatory, and other matters, while also providing liability containment.

Alternative models, such as appointing an independent importer and distributor, may offer speed to market, but may also result in reduced brand control and imaging and increased difficulty transitioning to a direct manufacturer-dealer relationship later. Once dealers are entrenched under a third-party distributor, re-alignment can be highly contentious and expensive.

Regardless of the model an OEM ultimately adopts, early cross-border tax planning is essential. Canada’s corporate tax, sales taxes, transfer pricing, and withholding tax regimes, among other considerations, can materially affect OEM and dealer economics, pricing, and overall profitability if not considered and addressed upfront. Misalignment between legal structure and tax planning can result in compliance exposure and costly retroactive restructuring.

2. Dealer Network Architecture and Coverage Strategy

Canada’s geography, population distribution, and climate materially affect the planning and breadth of any proposed dealer network. While Canada is geographically vast, its population is highly concentrated in a small number of urban corridors, namely southern Ontario, Québec’s St. Lawrence corridor, and pockets of British Columbia and Alberta. This leaves a number of regions with low population density and long travel distances between service points. This uneven distribution complicates dealer placement, service coverage, and vehicle and parts logistics.  Moreover, with the country’s latest emphasis on increased immigration, the country’s population has grown significantly over the last five years.

In the seven provinces in Canada that have (or will soon have) franchise disclosure and relationship laws, including Ontario, British Columbia, and Alberta, OEMs should be aware that automotive dealerships generally constitute “franchises” under such laws (regardless of how the contract attempts to define each party and their relationship). As a result, a franchise relationship will often exist between the OEM and each dealer, even if one is not intended, imposing additional franchise disclosure and relationship obligations on the OEM.  Failing to recognize and comply with these obligations will have significant monetary and reputational impacts on OEMs, and may serve to severely impact an OEM’s entry into the Canadian marketplace.

Moreover, certain OEMs have been moving away from the traditional franchisee dealer model to an agency or direct-to-consumer (D2C) model, where dealers are no longer directly responsible for owning and selling each vehicle, but instead fill certain other primary functions, such as vehicle delivery, test drive and customer touchpoints, service, and used vehicles sales. The reasons for this transition include OEMs making an effort to establish stronger ties with purchasers and reducing floor plan requirements for its dealers, all the while capturing a greater share of the profits to be made from selling new vehicles.

For this and other reasons, and together with the increasing prevalence of direct to consumer and/or hybrid agency models for vehicle sales, certain key considerations for any dealer network include:

• Whether to adopt a traditional franchise dealer model, an agency (D2C) model, or a hybrid between the two models, and whether to apply the chosen model(s) to all of the OEM’s vehicle lines or only to a select line(s).
• How to ensure adequate national and regional coverage, including rural and remote markets, if such markets are to be included in a proposed network.
• Whether dealers may operate single-brand or multi-brand rooftops, including whether existing dealers of other OEMs would be considered to further adopt a new entry OEM.

Manufacturers should expect scrutiny from dealers around network density, point allocation and closures, the opening of additional locations—particularly in growing urban markets, and facility requirements. Dealers currently operating dealerships of other OEMs may also face restrictions in their ability to take on new OEM banners.

3. Dealer Agreement Design and Termination Risk

Dealer agreements in Canada must balance brand control with enforceability and commercial realities. As dealer relationships may last for years, or even decades, such agreements need to be thorough, well-drafted, and as forward looking as possible. Moreover, dealer agreements must provide dealers with a reasonable opportunity to recoup their investment in the dealership. As discussed above, dealer agreements typically constitute “franchise agreements” under applicable franchise disclosure and relationship laws.

Critical drafting considerations include, but are not limited to:

• Term length, renewal rights (if any), and clearly defined performance criteria;
• Facility, branding, staffing, training, and equipment standards;
• Floorplan requirements;
• Sales performance and operational criteria;
• Export restrictions (to avoid grey-marketing);
• Ownership, assignment, and change of control provisions;
• Termination rights and notice periods; and
• Many other legal and business considerations.

4. Provincial and Federal Legal and Regulatory Considerations

Canada’s federal system has a material and often underestimated impact on foreign OEMs and other businesses expanding into the Canadian marketplace. Legislative authority is divided between the federal government and Canada’s ten provinces and three territories, resulting in multiple overlapping regimes across varying laws, regulations, and industries. While matters such as competition law, customs, and certain safety standards are in the federal domain, provinces regulate (among other things) dealer licensing, consumer protection, franchise and disclosure laws, employment standards, and aspects of sales tax and environmental compliance.

With respect specifically to dealer regulations and licensing (such as Ontario’s OMVIC framework), such matters are provincial in nature. As a result, OEMs may need to juggle and maintain compliance with multiple provincial frameworks at any given time. OEMs should also be mindful of laws and regulations, whether at the federal or provincial level, of:

• Advertising and marketing laws, including signage.
• Franchise disclosure laws.
• Competition laws.
• Consumer protection laws.
• Language laws, including in the province of Quebec.
• Environmental laws and mandated emission standards.

Successful expansion into or further into Canada therefore requires a coordinated national strategy that is deliberately adapted to provincial realities, rather than a one-size-fits-all approach.

5. Data, Digital Retail, and Customer Ownership

Data is becoming an ever-important tool and asset for businesses of all types, including OEMs. The nature of the products and services sold by OEMs and their dealers allows manufacturers to be especially-well positioned to capitalize on the ability to collect and employ significant data, including data about its customers.

That being said, OEMs should be acutely aware of the large number of rules and regulations governing data collection, use, disclosure, storage, and destruction in Canada. At the federal level, the Personal Information Protection and Electronic Documents Act (PIPEDA) governs the collection, use, disclosure, storage, and destruction of personal information in commercial activities, while several provinces have enacted enhanced private-sector privacy regimes that impose even stricter requirements.

For OEMs, these laws directly affect digital retail platforms, dealer CRM systems, marketing programs, connected-vehicle and telematics data, and cross-border data transfers. PIPEDA and other legislation places significant emphasis on meaningful consent, purpose limitation, and accountability across the entire data lifecycle. As a result, OEMs expanding into Canada must carefully align their data architecture, dealer agreements, and customer engagement strategies to ensure compliance across multiple jurisdictions’ laws, rules, and regulations – even when all interaction is between the customer and the dealer.

6. Dispute Resolution

To mitigate litigation risk with dealers, OEMs should carefully consider the provisions of their dealer agreements, with mechanisms existing to manage disagreements or issues before and after they escalate into formal conflicts and litigation. This can be achieved through provisions such as:

• Dealer advisory councils created and maintained by the OEM;
• Escalation and remediation frameworks; and
• Tiered dispute resolution clauses (such as mediation and arbitration).

In parallel, most OEMs selling vehicles in Canada participate in the National Automobile Dealer Arbitration Program (often referred to as NADAP), an industry-funded mediation and arbitration program that provides binding dispute resolution for disputes between OEMs and their dealers. Although NADAP is not mandatory for OEMs, most OEMs operating in Canada have adopted it as it provides a more efficient and confidential process than dealing with disputes through the courts, and by having disputes mediated and arbitrated by individuals with specific automotive knowledge and experience.  Foreign OEMs should carefully assess whether their vehicles, distribution model, and market entry plans necessitate participation in NADAP and ensure that their agreements and internal escalation processes are aligned accordingly.

Finally, since Canadian provincial franchise legislation expressly permits franchisees to associate amongst themselves, it should be noted that dealer associations are quite common in Canada and may, depending on the situation, either simplify or complicate the dispute resolution process.

Conclusion

Canada is a stable, sophisticated, and attractive market with significant automotive history and expertise for OEMs, but it is not a “plug-and-play” extension of other jurisdictions. Manufacturers that invest early in thoughtful dealer network structuring, compliance, and balanced dealer economics are far better positioned for sustainable growth and brand stability.

Being informed of all of the various issues impacting OEMs and making sound business decisions will be essential for an OEM to successfully expand into Canada.  This includes carefully considering the operational, contractual, and legal elements of a proposed expansion into Canada.  If you have any questions about expanding into Canada, Sotos LLP can help. Sotos LLP has extensive automotive experience in advising new and established OEMs in all facets of their business.

Please contact Jason Brisebois at 416.572.7323 or jbrisebois@sotos.ca , John Yiokaris at 416.977.3998 or jyiokaris@sotos.ca, or Peter Viitre at 416.977.7754 or pviitre@sotos.ca,  to discuss your automotive industry related inquiries.

About the Authors

Jason Brisebois, Sotos LLP

Jason Brisebois is a partner at Sotos LLP. His practice focuses on corporate, commercial, and franchise law, with a particular emphasis on the automotive sector.

Jason was awarded the Lexology 2024 Client Choice Award, is listed as “Ones to Watch” in Best Lawyers in Canada, and is recognised as “Recommended” in Lexology Index: Canada. He has also been named a “Legal Eagle” by Franchise Times Magazine.

John Yiokaris, Sotos LLP

John Yiokaris is a partner at Sotos LLP and serves as co-managing partner of the firm. He has extensive experience acting as lead counsel for major automotive manufacturers and dealers. John is also head of the firm’s Trademark practice and advises on intellectual property matters, including the registration and licensing of trademarks.

John was awarded the Lexology 2019 Client Choice Award, is ranked by Chambers Canada, and has been consistently listed in Best Lawyers in Canada. He is also recognised in the Best Lawyers Global Business Edition, listed in the Canadian Legal LEXPERT Directory, and recognised in Lexology Index: Canada. John was inducted into the Franchise Times “Hall of Fame” in 2022.

Peter Viitre, Sotos LLP

Peter Viitre is a partner at Sotos LLP and head of the Corporate and Commercial practice. He regularly advises domestic and international clients, including in the automotive sector, on market entry, dealer and franchise network structuring, regulatory compliance, and risk management across Canada.

Peter is ranked in Band 1 by Chambers Canada, has been consistently listed in Best Lawyers in Canada, and has been named “Lawyer of the Year” by Best Lawyers in Canada in 2015 and 2018. He is also recognised in the Best Lawyers Global Business Edition, listed as “Most Frequently Recommended” in the Canadian Legal LEXPERT Directory, and recognised as “Recommended” in Lexology Index: Canada. Peter has further been recognised as “Most Highly Regarded” and as a “Global Elite Thought Leader” by Lexology Index, and was inducted into the Franchise Times “Hall of Fame” in 2022.

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This article is different. It assumes that you are going to use generative AI to do legal research and have chosen which tool to use. It proposes five ways to refine your prompts to get better answers, regardless of what tools you are using or what types of questions you are researching.

Tip 1: Set the Temperature

“Temperature” is a term of art in AI research. You can think of it as a measure of how eager to please the AI will be. It is best understood with an example. Suppose you ask an AI tool “Find me a case that says X” but there is no case that says X and in fact the law is the opposite.

• If the temperature was zero, it may say “You are wrong. There is no case that says X.” It doesn’t care about pleasing you and does little more than find identical text.
• If the temperature was higher, it may say “There is no case that says X, but here is a case that says Y which is similar to X.” Y may or may not actually be similar to X.
• If the temperature was even higher, it may say “Here is a case that says X”, omitting to tell you that the case does not exist or actually says the opposite.

Some AI tools let you explicitly set the temperature, e.g. there’s a slider. But even if your tool does not have a slider, try adding “set temperature to zero”, “set temperature low”, or “set temperature high” to your prompts. Many tools are sophisticated enough to understand and adjust accordingly.

It should be obvious why you might want low temperature: fewer hallucinations. Most of the time with legal research, low temperature is the right choice. Note that I did not say “no” hallucinations. Even at low temperature, AI can misinterpret a case or miss that it has been overturned.

You may want to try setting the temperature higher when the case law is against you and you need to find a creative argument, or if you’re working in an area with little case law where the only arguments will come by analogy. Just be aware that when you set temperature high, you have to be extra careful in double-checking that the interpretation is accurate.

Tip 2: Ask for Keywords or Prompts

As you develop expertise in an area of law, you develop an intuitive sense of the terms of art you care about. For example, where a law student may ask, “When can a bankrupt debtor sell future income they may not get”, a bankruptcy expert might instead ask, “Does the anti-deprivation rule apply to property to be vested only on satisfaction of a condition precedent”. There is a case squarely on point. You are more likely to find it with the second prompt.

So get the AI tool to build the second prompt for you. If all you know is the first prompt, type that in and instead of asking for an answer, ask the AI tool for what terms of art or what legal doctrines might be relevant. When the AI tool tells you about the anti-deprivation rule and conditions precedent, you can now turn that into the second prompt and use that one to get your answer.

Tip 3: Ask for the Chain of Thought

Modern legal AI tools do not simply plug your prompt into their model and spit out whatever it says. They usually go through their own multi-step process of refining the question first. It is often a good idea to ask the tool to show you those steps by asking for its “chain of thought”.

The chain of thought will identify the terms of art that the tool came up with, which you can use to refine your next prompt. If the tool went totally off course, that is usually visible in the chain of thought, so you can try the prompt again but expressly tell it not to veer off in that direction. For example, if you were looking for what a reasonable expectation of privacy means under privacy legislation, but the chain of thought shows that the model started looking at criminal cases, you can prompt it again saying “Focus on cases under privacy statutes or tort law, and only refer to criminal law to the extent that it is endorsed in those cases”.

Tip 4: Refine with Follow-Up Questions

When you are looking for cases with an AI tool, you can expect to get cases that are not relevant or are easily distinguishable. Many people stop there, concluding either that the AI tool does not understand or that there is no case on point. But sometimes all it takes is identifying why that case is wrong and asking the AI tool to try again. Consider trying follow-up prompts like “Try again but limited to cases about [specific cause of action]” or “Try against but exclude cases in [specific area of law]” or “Try again but exclude interlocutory decisions”.

Tip 5: If You Find Something Good, Look for Something Better

Sometimes, the AI tool gives you a great case. The natural inclination is to stop there. But there might be an even better case out there. Consider prompts like “Is there an appellate decision that says the same thing”, “Is there a case from [your jurisdiction] that stands for the same proposition”, or “Is there a case with the same holding with [your client’s facts]”.

None of the tips in this article will work on every tool or on every question. But you would be amazed how often they do. And you lose nothing by giving them a try. Happy prompting!

About the Author

Adil Abdulla, Sotos LLP

Adil is a litigation lawyer at Sotos LLP, where his practice focuses on class actions, complex IP and competition disputes, and emerging issues at the intersection of law and technology. He regularly advises clients on the practical implications of legal developments. Adil can be reached by email at aabdulla@sotos.ca or by phone at 416.572.7325.

The post Crafting Perfect Prompts for AI Legal Research appeared first on Sotos LLP.

Background

In 2021, Mr. Zagros Management Inc., a restaurant franchisor, leased a premises from Yulee Developments Inc. In turn, Mr. Zagros sublet the premises to its franchisee, 11254316 Canada Inc. Under the lease, notices from the landlord to Mr. Zagros were required to be delivered to the premises.

Throughout the operation of the franchise, as a matter of course, the franchisee paid rent directly to the landlord. In March 2024, however, the franchisee failed to pay rent, which resulted in a demand issued by the landlord to the franchisee. Neither party informed Mr. Zagros of the situation.

The arrears remained uncured into April. In response, on April 3, the landlord delivered a notice of default to the premises addressed solely to the attention of the franchisee’s principal. The landlord also emailed a copy of the notice to the principal, but not to Mr. Zagros. The notice provided for a five-day window to pay the arrears.  Despite being informed the next day by the franchisee’s lawyer that his client had not forwarded the notice to Mr. Zagros, the landlord waited until the cure period expired on April 9 before taking steps to actually bring the notice to Mr. Zagros’ attention.

After Mr. Zagros learned of the arrears on April 9, its principal contacted the franchisee’s principal and, believing that the latter would rectify the arrears, left the matter with her. In the meantime, the franchisee’s principal began negotiating with the landlord. The negotiation included a proposal that the franchisee’s principal pay the arrears, albeit once the lease was terminated and a new lease was entered into directly with her. The parties did not disclose these negotiations to Mr. Zagros.

Shortly thereafter, with the arrears still outstanding, the landlord purported to terminate the lease by issuing a notice of termination addressed solely to the franchisee. The landlord and a newly incorporated company controlled by the franchisee’s principal then signed a new lease for the premises. The franchisee’s principal proceeded to open a restaurant competitive with her former franchise from that location.

The Application

Mr. Zagros commenced an application against the landlord, the franchisee, its principal and her newly incorporated company seeking, among other things, a declaration that the default and termination notices were not delivered in accordance with the lease and were therefore void. According to Mr. Zagros, the notices were non-compliant because, as a matter of contractual interpretation, the notice provision required that notices delivered thereunder, at a minimum, not be addressed to the wrong party.

The landlord defended the application on the principal basis that, irrespective of who the default and termination notices were addressed to or the practical consequences of this error, it complied with the strict wording of the notice provision by simply delivering the notices to the premises.

In two endorsements, the application judge accepted Mr. Zagros’ submission:

[T]he notice of termination is deficient. It was not addressed to Mr. Zagros but rather to 112. 112 was not the tenant. I am of the view that the notice of termination had a fatal defect as it was not addressed to Mr. Zagros Management Inc. and did not accord with the provisions of the lease…

…

In my January 2025 Endorsement, I held that the notice of termination was deficient. I did not explicitly address the notice of default dated April 3, 2024. However, that notice is also deficient as I find it was not properly served upon the Applicant.

The Appeal

The landlord unsuccessfully appealed from that judgment to the Ontario Court of Appeal. In its brief reasons, the Court agreed with and elaborated on the application judge’s analysis:

We see no error in the application judge’s findings that the Default Notice and the Termination Notice were deficient because they had not been properly served on Mr. Zagros. The application judge accepted Yulee’s submission that notices were to be delivered to the Leased Premises. However, they did not comply with the requirements of s. 17.11 of the Lease because they were improperly addressed. The Notice of Termination was addressed to 112, rather than to Mr. Zagros, and the Default Notice was addressed to the attention of Ms. Zamani, again as opposed to Mr. Zagros. Accordingly, as the court advised the parties at the oral hearing of the appeal, Yulee’s appeal was dismissed.

Key Takeaways for Landlords and Franchisor Sublandlords

This case provides a clear lesson: Notices under a lease are more than formalities. Properly addressed and delivered notices are essential to protect both landlords (and franchisors acting as sublandlords). Missteps in this process can leave a landlord or sublandlord unable to rely on the notice — a costly mistake that can be avoided with careful attention to the lease.

Remember:

1. Follow the lease to the letter. Default and termination notices must be addressed to the legal tenant. Even a technically minor misaddressing may invalidate the notice.
2. Monitor communications. Franchisors acting as head tenants must ensure that they receive all communications from the landlord. Notice provisions will often provide for the opportunity to amend the address for service. As a best practice, franchisors should consider adding the franchisor’s head office as an additional required address for service under the lease.
3. Establish a disciplined lease administration framework. Beyond staffing or systems, franchisors acting as head tenants or sublandlords should proactively structure their leasing arrangements to ensure visibility and control over defaults and enforcement steps. This may include evaluating whether a tripartite agreement or rent-flow arrangement are appropriate for the system. Thoughtful lease architecture at the outset can materially reduce the risk that critical notices are misdirected, delayed, or leveraged to the franchisor’s detriment.

Daniel Hamson and his team at Sotos LLP acted as counsel to Mr. Zagros on the application and appeal in Mr. Zagros Management Inc. v. Yulee Developments Inc.

Sotos LLP regularly advises franchisors on leasing strategy and structure, including with respect to head leases, subleases, and tripartite arrangements, to ensure franchisors maintain control over premises and minimize enforcement risks across their franchise systems.

About the Author

Daniel Hamson, Sotos LLP

Daniel is a partner in the Litigation Department at Sotos LLP. His practice focuses on complex commercial, corporate, and franchise disputes.

Daniel has been recognised 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 recognised as “Recommended” in Lexology Index: Canada (formerly Who’s Who Legal).

Daniel can be reached directly at 416.572.7303 or dhamson@sotos.ca

The post Wrong Addressee, Right Outcome: Why Your Lease Notice Might Not Count appeared first on Sotos LLP.

The Code aims to address these challenges. It is an industry-led, voluntary framework that promotes fair dealing, good-faith negotiations, and greater transparency in supplier-retailer relationships. It encourages clear agreements, consistent financial terms, and accessible dispute resolution processes, all without introducing government-directed price controls. A notable feature of the Canadian approach is its broad reach. The Code applies not only to major retailers but also to independent and medium-sized businesses, reflecting a broader intention to shift the overall culture of how grocery sector actors work together.

How Canada’s Code Differs from the UK Model

Canada is not the first jurisdiction to adopt a grocery-sector code. The United Kingdom’s Grocery Supply Code of Practice (the “GSCOP”) provides a particularly useful comparison because its evolution from a voluntary initiative to a statutory model highlights both the potential and the limitations of grocery codes in concentrated markets.

Scope

Canada’s Code remains voluntary and non-binding until the Dispute Resolution Management Process (the “DRMP”) becomes fully operational on January 1, 2026. It applies across the grocery value chain and is principles-based, focusing on predictability, fair dealing, and transparency. By contrast, the GSCOP applies only to the largest UK grocery retailers with more than one billion pounds in annual turnover. The UK regime became statutory in 2010 and is overseen by the Groceries Code Adjudicator (the “GCA”), which has broad investigatory responsibilities.

Enforcement

Enforcement represents the clearest difference between the two systems:

• Canada: There are no statutory penalties and no binding enforcement mechanism. Compliance relies on industry commitment, reputational accountability, and the cultural shift the Office of the Grocery Sector Code of Conduct (the “OGSCC” or “Office”) aims to promote. The Adjudicator’s mandate emphasizes education and early resolution of issues, with structured processes available only after informal avenues are exhausted.
• United Kingdom: Compliance is mandatory and backed by an independent regulator with investigative powers, arbitration authority, and the ability to levy fines of up to one percent of a retailer’s annual turnover. Despite these powers, enforcement has been criticized for being reactive and dependent on suppliers filing complaints.

Even under a statutory regime, the UK has struggled to protect smaller suppliers. Many initially hesitated to report retailer misconduct for fear of retaliation, including delisting or reduced order volumes. This underreporting limited the GCA’s visibility into systemic problems. While the GCA’s annual surveys indicate that retailer-supplier relations have improved since the early 2020s, recent developments underscore continuing vulnerabilities. In 2025, the GCA opened an inquiry into Amazon for alleged delayed payments after fewer than half of survey respondents believed Amazon complied consistently with the GSCOP. A statutory review of the GCA’s performance is also underway to assess the effectiveness of its enforcement efforts.

Contractual Requirements

The Canadian Code encourages written agreements but does not mandate specific contractual terms or prohibit certain practices outright. The intention is to reduce administrative burdens and avoid rigid requirements that could deter participation, particularly among smaller players. The UK takes a more prescriptive approach. Retailers must incorporate the GSCOP into their written agreements, and certain practices, such as retrospective changes, are strictly prohibited.

Regulatory Philosophy

The Canadian Code began as a proposal by Food, Health & Consumer Products of Canada (“FHCP”) and Empire Co. Ltd. (“Empire”). This led to the formation of a 10-member steering committee co-chaired by FHCP CEO Michael Graydon and Retail Council of Canada President and CEO Diane Brisebois to develop an implementation framework. A 25-member cross-industry working group, including representatives from the retail, manufacturing, and primary processing sectors, provided operational input.

The Office has emphasized guidance, education, and transparency rather than enforcement. Oversight is focused on building trust and cultural change. By contrast, the UK model relies on deterrence through detailed conduct rules and statutory penalties. The GCA’s authority is grounded in mandatory compliance, public investigations, and the ability to order corrective actions.

Developments Since Spring 2025

Since the OGSCC began operations in March 2025, the Office has been building the administrative and governance structures needed for implementation. The June to December 2025 period is designated as a transition phase focused on outreach, education, and preparing operational systems. On November 28, 2025, the Office announced that all foundational components of the DRMP had been completed and released the DRMP Manual, with the framework scheduled to come into effect on January 1, 2026. The Office also confirmed that it had begun its formal recruitment process.

At the October 20, 2025 meeting of the Standing Committee on Agriculture and Agri-Food, OGSCC President and Adjudicator Karen Proud outlined the three components of the DRMP. The first is the formal process, where parties are visible to one another and disputes may culminate in a written decision and publication of compliance findings. The second is a strictly confidential portal enabling members to report concerns anonymously, after which the Office determines whether the issue raises potential Code violations. The third enables trade associations to bring systemic concerns forward for early intervention. Proud stated that she expects most of the Office’s work to take place within the confidential and systemic streams, where issues can be resolved before they escalate into formal disputes.

Empire and Lactalis Canada were the first retailer and first supplier to sign on during the informal recruitment period. Other major retailers, although publicly supportive, had indicated that they were waiting for the finalized DRMP before formally committing. Proud has confirmed that these retailers were actively involved in the crafting of the DRMP and stated that she expected them to sign on once it was complete. The OGSCC is also collecting early issue reports through its member portal to help identify patterns, and annual reports beginning in 2026 will provide visibility into how disputes arise, emerging challenges, and areas for improvement.

Lessons from the UK: What Canada Should Monitor

The UK experience demonstrates several risks Canada must be prepared to address. First, voluntary codes often fall short when compliance depends on industry goodwill. Suppliers, particularly smaller ones, may be hesitant to report issues if they fear retaliation, limiting the regulator’s ability to detect systemic problems. Second, even statutory enforcement power does not eliminate underreporting or power imbalances in a concentrated market. Third, when a large share of national grocery sales is controlled by a few retailers, a dispute-driven framework may mitigate only the most egregious practices without significantly changing underlying commercial dynamics.

Canada’s model diverges in one important respect. The Code imposes two-way obligations on both suppliers and retailers, unlike the GSCOP, which focuses exclusively on retailer conduct. This is perplexing given the stated purpose of the Code – namely, to moderate adverse impacts on suppliers resulting from the power imbalances. This may encourage a more cooperative culture, but it also means disputes may be more nuanced and may require the Adjudicator to navigate complex reciprocal obligations.

Implications for Canada

The Canadian grocery market shares many of the same structural vulnerabilities as in the UK, including high market concentration, supplier fear of retaliation, and limited enforcement tools. Without binding mechanisms or statutory penalties, smaller suppliers will likely remain reluctant to “bell the proverbial cat” by initiating the dispute-resolution system. Nonetheless, the OGSCC’s annual reviews and increased visibility into systemic concerns may help build an evidence base for future reform. If the voluntary approach fails to produce meaningful change, legislative intervention or a move toward a mandatory framework remains a possibility, as occurred in the UK.

On balance, the intercession of the Code maintains the status quo for another ten to twenty years. In the meantime, homegrown producers and suppliers to the retail grocery sector and their counsel will be circumspect in advancing direct claims. Perhaps there may be a role for producers’ and manufacturers’ associations to take the lead role in testing the use of the Code’s dispute resolution system.

About the authors:

John Sotos, Partner

John leads the firm’s grocery practice and is widely regarded as a dean of the franchising, licensing, and distribution bar. He has been recognized by Chambers Canada, Canadian Legal LEXPERT Directory, Who’s Who Legal, and Best Lawyers in Canada as a leading Canadian practitioner. John can be reached at 416.977.9806 or jsotos@sotos.ca if you would like to discuss this or any other topic relating to the operation of your business.

Misha Nili, Articling Student

Misha is one of our articling students for the 2025-2026 term, working primarily with the Corporate and Commercial department.

The post Canada’s Grocery Code: Key Features and How It Compares to the UK’s GSCOP appeared first on Sotos LLP.

Idan has been an integral member of the firm’s litigation practice, bringing significant experience across a broad range of civil litigation matters. His practice includes franchising and other commercial disputes, professional liability and personal injury defence, shareholder and contract disputes, injunctive proceedings, real estate litigation, and class actions. He is admitted to the Bar in the Province of Ontario and the State of Georgia, and has appeared before the Ontario Superior Court, the Divisional Court, the Supreme Court of British Columbia, and the Alberta Court of Queen’s Bench.

Idan is known for his strategic, client-focused approach to dispute resolution. He has been recognised in Best Lawyers in Canada for both Franchise Law and Personal Injury Litigation. Idan holds a Juris Doctor from Osgoode Hall Law School and an Honours Bachelor of Science in Molecular Genetics and Molecular Biology. Outside of his legal practice, he enjoys music, photography, and spending time with his family.

“We are thrilled to welcome Idan to the partnership. Idan has been an exceptional member of our litigation practice, known for his sharp strategic thinking, outstanding advocacy, and unwavering commitment to our clients. His talent, leadership, and dedication to the firm make this a well-deserved milestone, and we are excited to see the impact he will continue to make as a partner.” Adrienne Boudreau, Co-Managing Partner.

To learn more about Idan’s practice, please read his full bio here.

The post Sotos LLP Welcomes Idan Erez to the Partnership appeared first on Sotos LLP.

Adrienne is a Partner in the firm’s Litigation Department and is widely regarded as one of Canada’s leading litigators. She is recognised for her strategic insight, tenacity, and client-focused approach. Her practice focuses on all aspects of franchise litigation and dispute resolution, representing businesses across a broad range of sectors, including hospitality, retail cannabis, restaurants, and grocery.

Adrienne is known for delivering practical, commercially grounded solutions that protect clients’ interests and support long-term success. She brings extensive courtroom and arbitration experience, having successfully represented clients before all levels of the Ontario courts, the British Columbia Court of Appeal, and the Federal Court of Canada. In addition to her litigation practice, Adrienne works closely with the firm’s corporate team to support foreign franchise systems entering the Canadian market, providing tailored legal and strategic guidance.

Adrienne holds a Bachelor of Arts (Honours) from Queen’s University and a Bachelor of Laws (cum laude) from the University of Ottawa. She was admitted to the Bar of Ontario in 2009. Adrienne is recognised in leading legal directories, including Chambers Canada, Best Lawyers in Canada, and Canadian Legal LEXPERT, and remains actively involved in professional associations.

The post Sotos LLP Announces the Appointment of Adrienne Boudreau as Co-Managing Partner appeared first on Sotos LLP.

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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