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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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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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.

The post Clearing Out the “Deadwood”: CIPO’s Pilot Project Puts Section 45 on the Fast Track appeared first on Sotos LLP.

Social media is fundamentally about sharing content, making the risk of copyright infringement ever-present in a climate of legal uncertainty.  Consider this scenario:  A customer posts a photo from her cell phone on Facebook of herself eating a burrito at a Mexican restaurant that was taken by her friend.  Who is the copyright owner of the photograph?

The Law in Canada

The question of who owns the rights in a photograph has an answer in Canada’s Copyright Act as amended by the Copyright Modernization Act in 2012. Prior to 2012, photographers were not the automatic copyright owners of their photographs; if a photographer took photos for a customer, copyright instead belonged to the individual who commissioned the photographs, as opposed to the individual who took them.  Since 2012, photographers have the same rights as other creators under the law, regardless of the nature of their work. Generally speaking, if you take a photo, you are the copyright owner.  In the case of the burrito photograph, it was the burrito-eater’s friend who snapped the photo.  While there are exceptions under the law, in this instance, the copyright owner is, in all likelihood, the burrito-eater’s friend.

Social Media and Copyright

Is it an infringement of copyright to post someone else’s photo on social media? Under Section 27 of the Copyright Act, “[i]t is an infringement of copyright for any person to do, without the consent of the owner of the copyright, anything that by this Act only the owner of the copyright has the right to do.”  So, if you post a photo on Facebook without permission of the copyright owner, generally speaking, it is an infringement of copyright.  There are, however, exceptions to this foundational rule:

1. Fair Dealing: This exception permits the use of copyrighted photographs in certain circumstances, including research, private study, criticism or review and news reporting.
2. User-Generated Content: Another exception applies to non-commercial user-generated content created using existing work which was published or otherwise made available to the public.
3. Personal Purposes: It is generally not an infringement of copyright for an individual to use for private or non-commercial purposes a photograph that was commissioned by the individual for personal purposes and made for valuable consideration.
4. Determining the applicability of these exceptions (as well as others) in practice raises a host of questions beyond the scope of this article. We will walk through copyright infringement exceptions in our next blog post in this series.

Now let’s take the example of the burrito-eater and her friend. The burrito-eater posted the photo on Facebook, but is not the copyright owner.  However, her friend encouraged her to post it, but asked to be tagged in the photo. In this scenario, it could be said that the burrito-eater’s friend gave her permission to use the photo on Facebook on condition that she be associated with the photo.  When the photo is publicly posted to Instagram by the burrito-eater, it is wildly popular and is shared on Instagram by hundreds of people within a few hours.  In fact, it becomes so popular that the Mexican restaurant owner sees a promotional opportunity and copies the photo and posts it to the restaurant’s Instagram account.  Does the Mexican restaurant owner have the right to do this?

Social Media Terms and Conditions

Navigating copyright laws is complicated by social media platform terms and conditions.  In a recent Quebec case, Chung c. Brandy Melville Canada Ltd., a photographer took photos for a company but limited the right of the company to use the photos.  The company was only permitted to use the photos on Instagram and Facebook as long as the photographer’s name was associated with the photos – any other use required a licence in writing.  The company later went on to use one of the photos in promotional postcards. The court found that the photographer was the author of the photo used commercially by the company and he had not authorized such use.

However, in the case, the question arose as to the impact of using Instagram to share photos. The company argued that Instagram’s rules and regulations stipulate that posting photos on the platform results in the loss of all intellectual property rights.  However, the matter was not proven as the rules and regulations were not produced into the court record. Nevertheless, the company’s argument raises an important question: how do social media platform terms and conditions affect copyright owners’ rights when photos are posted and shared publicly? How about when the photos are posted and shared by someone other than the copyright owner? The short answer is: it depends on the terms and conditions.

In the case of the burrito-eater, the photo was posted on Facebook with the permission of the copyright owner.  When you post a photo on Facebook, you grant Facebook (via its current Statement of Rights and Responsibilities) a non-exclusive, transferable, sub-licensable, royalty-free, worldwide license to use any intellectual property content that you post.   Basically, you grant Facebook the right to use your photos in advertisements or for other commercial purposes, to generate a profit from your photos, and to allow others (including other companies) to use your photos (all while not paying you a dime).  That being said, if you are the copyright owner of a photograph that you have posted on Facebook, you do not give up or dispose of all of your intellectual property rights when the photo is posted.

In the case of the Mexican restaurant owner, assuming he did not obtain permission from the copyright owner or a licence from Facebook, posting the photo on Instagram was an infringement of copyright and a violation of Instagram’s current Terms of Use.  Under Instagram’s Term of Use, you must comply with copyright laws and warrant that you own the photos posted by you on Instagram. Now let’s assume that the burrito-eater’s friend contacted the Mexican restaurant owner about the infringement and they end up entering into a licence agreement so that the Mexican restaurant can now use the photo for promotional purposes. However, let’s not forget about the burrito-eater who is the subject of the photo.  In this case, she is not comfortable with all of the attention the photo has generated.  So, what rights does our burrito-eater have?  The use of the photo in association with the promotion of the Mexican restaurant may involve certain rights held by the burrito-eater, including privacy and publicity rights.  We will save discussion of these rights for a later blog post.

Exercise Caution

In this age of social media, the rules around copyright and photography can be blurry. However, ignorance is not an excuse when it comes to copyright law.  An innocent copyright infringement is still an infringement and while, in most cases, the worst case scenario involves a demand to remove the copyrighted content, you may face more severe repercussions, especially if a photo is being used for commercial purposes. When in doubt, do some digging: review the terms of the social media platform you are planning on using, obtain permission in writing, consult a lawyer, and exercise caution.

John Yiokaris, Sotos LLP

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.

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Trademarks are some of the most valuable intellectual property that businesses may own. Do you have a unique trademark or design mark associated with your products or services that you’ve been considering registering? Now is the time!

Effective January 1, 2024, the Canadian Intellectual Property Office (CIPO) will increase most of their fees by 25%. Annual fee adjustments on certain CIPO fees will also come into effect.  

Prior to the implementation of the regulatory changes allowing for this significant 25% increase, CIPO’s fees were already scheduled to increase on January 1, 2024, to reflect the economic changes over the last 12 months.

For 2024, a one-time 25% fee increase will also be applied to most CIPO fees (including trademark application fees) along with the annual CPI adjustment. The new fee amounts will be effective January 1, 2024, and are listed on CIPO’s fee pages. For more details on the increases to trademark fees in particular, you can visit https://ised-isde.canada.ca/site/canadian-intellectual-property-office/en/trademarks/fees-trademarks.

For all fees subject to an adjustment:

• If payment is received before January 1, 2024, you will need to pay the prescribed fee for the current year (i.e. the 2023 fees).
• If payment is received on or after January 1, 2024, you will need to pay the adjusted higher prescribed fee for next year (i.e. the 2024 fees).

For example, if you file an application for the registration of a trademark but a filing date cannot be granted because the prescribed application fee was not paid, the amount you need to pay will depend on the date on which the Registrar receives the payment of the entire prescribed fee. If the payment is received after January 1, 2024,  you will need to pay the (higher) adjusted prescribed fee for the new year. Similarly, the amount required for any additional Nice classes also depends on the date on which the payment is received, even if the prescribed fee for the first class of goods or services to which the application relates was paid prior to the annual adjustment. If the payment is received after January 1, 2024, you will need to pay the adjusted prescribed fee for the new year.

As everyone who has interacted with the Canadian trademark process knows, applications that do not need to respond to any examiner reports or which are not opposed by any third parties currently take approximately 36 to 48 months to become registered. CIPO is funded entirely by fee revenues from its services. By increasing their fees, CIPO intends to address the critical capacity and technological investments needed to provide improved services. Whether this translates into faster overall processing times remains to be seen.

If you would like to get ahead of these fee hikes and start your trademarking process today, Sotos LLP is happy to help. 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 jiokaris@sotos.ca 416-930-3609 to discuss your intellectual property and trademark needs.

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Overview 

Mainly due to the increase in work-from-home and remote communications, electronic signatures (“e-signatures”) have been adopted by both provincial and federal legislation to be legally binding in Canada. Save for a few exceptions outlined below, you can feel free to sign a document electronically without compromising its legal validity.

This article outlines the regulation of e-signatures provincially, federally, and in reaction to the COVID-19 pandemic.

Provincial Legislation

Almost all provinces have enacted legislation that follows the Uniform Electronic Commerce Act, which acts as a legal framework to create a uniform system across the country in relation to the digitization of commerce.

Ontario’s legislation, the Electronic Commerce Act (“ECA”) directs that by default, e-signatures are legally binding. The ECA explicitly and clearly sets out the validity of e-signatures. Specifically, it states: “a legal requirement that a document be signed is satisfied by an electronic signature.”[1]. In further detail, it also directs that if a contract does not mention anything about requiring an original or “wet” signature (pen-on-paper signature), using an e-signature is perfectly acceptable. However, if you do not want to accept the other party’s e-signature, you have the right to include language in the contract that only wet signatures will be binding.

What qualifies as an e-signature under the ECA?

The guidelines around what qualifies as an e-signature under the ECA are broad and encompassing. The ECA is encouraging of the use of e-signatures and accepts them in many forms. As long as they fit within the Act’s definition: “electronic information that a person creates in order to sign a document…that is in, attached to or associated with the document”, they will be considered an e-signature for the purposes of the ECA.

What are the exceptions?

The ECA sets out several exceptions to the default rule that e-signatures are legally binding. Firstly, as stated above, a party may choose not to accept an e-signature by stating so in the contract. The ECA states that there is nothing in the Act that requires a person to consent to or abide by the use of electronic information and documents[2]. It also includes the provision that electronic information is acceptable unless the parties agree otherwise[3].

Further, the ECA also lists explicit documents to which the Act does not apply. These documents may still accept e-signatures as binding, but they are governed by their relevant statutes:

1. Wills and codicils.
2. Trusts created by wills or codicils.
3. Powers of attorney, to the extent that they are in respect of an individual’s financial affairs or personal care.
4. Negotiable instruments.
5. Documents that are prescribed or belong to a prescribed class.
6. Documents of title, except for contracts for carriage of goods.

Federal Legislation 

The Personal Information Protection and Electronic Documents Act (“PIPEDA”) sets the standards for electronic documents and signatures at the federal level.  In section 26(2)(b), the Governor in Council is given the right to remove PIPEDA’s legal authority wherever provincial legislation exists that covers substantially the same issues.  For this reason, the ECA and other provincial legislation govern the majority of the law around using e-signatures.

When does PIPEDA apply?

In relation to e-signatures, PIPEDA is brief and specific. As listed below, several sections of the Act explicitly state the types of documents it applies to. At part 2 of the Act, it sets out a narrow range of documents that PIPEDA as a whole applies to. These documents and are limited to the federal law and provisions under the Federal Real Property and Federal Immovables Act, the Canada Labour Code, and the Federal Real Property Regulations[4].

Additionally, it is explained that an e-signature satisfies the federal requirement for a signature under all federal statutes, so long as those statutes allow for the application of PIPEDA[5]. For example, the language and regulations on secure electronic signatures as set out in PIPEDA are also adopted in the Canadian Business Corporations Act to regulate the use of electronic signatures in federally incorporated businesses.

What constitutes an e-signature under PIPEDA?

PIPEDA has a stricter acceptance of e-signatures than the ECA. In order to avoid fraudulent or forged e-signatures, PIPEDA sometimes requires a “secure electronic signature”. This is defined at section 31(1) as “an electronic signature that results from the application of a technology or process prescribed by regulations”. Through the use of algorithms and blockchain technology, these e-signatures authenticate the validity and origin of a signature.

Some of the factors that make up a secure electronic signature include:

• a “unique to the person” electronic signature;
• the technology used being under sole control of the person signing;
• the technology or process being identifiable to the person signing; and,
• it is evident whether or not the electronic document has been changed since the electronic signature was incorporated.

This type of signature is required in:

• Documents as evidence (Section 36);
• Seals if required under a provision in Schedules 2 or 3(Section 39);
• Statements made under oath (Section 44);
• Statements declaring truth (Section 45); and,
• Witnessed signatures (Section 46).

COVID-19 Impact 

When the pandemic began, the Canadian legislature enacted the Alternative Filing Methods for Business Act (“AFMBA”) to mitigate the projected issues that remote working would cause. The concerns that were targeted in this Act stem from the Emergency Management and Civil Protection Act. The AFMBA’s purpose included permitting electronic signatures in respect of certain documents under the discretion of the Minister, Director, or Registrar of the relevant business statute[6].

The AFMBA widened the scope for the legal validity of e-signatures, resulting in a more efficient and accessible way of carrying on business during, and eventually after the pandemic.

In addition to this development, the onset of COVID-19 pushed the Canada Revenue Agency to announce that e-signatures met the signature requirements under the Income Tax Act on March 28, 2020.

Signing on the Dotted Line

The ability to draft, sign and send a legally binding document without touching pen to paper has become a routine that not long ago would have been considered a luxury. As a result of the digitization of today’s commerce, e-signatures are providing a more efficient and accessible way of conducting business. Save for the exceptions listed in this article, you should feel just as confident to forget the pen and sign a legal document with your e-signature as you would by hand.

John Yiokaris, Sotos LLP

John is a partner with Sotos LLP in Toronto, Canada’s largest franchise law firm. He has been recognized by Chambers Canada, LEXPERT, Who’s Who Legal, and Best Lawyers Canada as a leading Canadian franchise law practitioner.

[1] Electronic Commerce Act at section 11(1).
[2] Ibid at section 3(1).
[3] Ibid at section 19(2).
[4] Personal Information Protection and Electronic Documents Act at sections 2 and 3.
[5] Ibid at section 43.
[6] Alternative Filing Methods for Business Act at section 3.

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In Beijing Judian Restaurant Co. Ltd. v. Wei Meng, 2022 FC 743,[1] the Federal Court struck a trademark from the register because it was registered in bad faith. By finding the trademark was registered contrary to s. 18(1)(e) of the Trademarks Act,[2] (“TMA”), the Court issued its first ever decision assessing bad faith trademark registrations.

This post will explain the important takeaways that trademark applicants, and registrants, must consider when seeking to register and maintain their trademark registrations.

Background

Beijing Judian Restaurant Co. Ltd. (“BJR”) operated a successful restaurant chain across China, where it used a series of marks, including the specific trademark at issue (“JU DIAN & Design Mark”). BJR expanded its business to Canada and applied to register a number of its trademarks, including the JU DIAN & Design Mark. Unbeknownst to BJR, an individual by the name of Wei Meng (“Meng”) had already registered the JU DIAN & Design Mark in Canada on the basis of proposed use.

Upon learning of BJR’s trademark application, Meng demanded payment of $1.5 million for the right to use the JU DIAN & Design Mark in Canada. BJR also learned of online advertisements posted by Meng in Canada to license the JU DIAN & Design Mark, which directly referenced BJR’s business success in China.

BJR sought to strike Meng’s registration of the JU DIAN & Design Mark, alleging that Meng only registered it with the intention of profiting from, or interfering with, BJR’s business and reputation.

The Court agreed with BJR that Meng had registered the JU DIAN & Design Mark because of its international popularity associated with BJR’s brand. However, the Court confirmed in its decision that copying and registering a foreign trademark in Canada is legal. Canadian courts have consistently held that where there is no reputation for a third party’s mark in Canada, a party may register that exact third party’s mark legitimately.[3] In other words, registering someone else’s trademark in Canada can be legitimate, and will not necessarily result in a finding of bad faith.

In this case, the Court struck Meng’s trademark registration because it found that he only registered it to extort BJR. There was no evidence that Meng intended to use the JU DIAN & Design Mark for any legitimate commercial purpose. In fact, Meng had established a pattern of registering foreign trademarks in Canada without ever using them, having done so six times before. All of these unique facts led the Court to find that Meng had registered the JU DIAN & Design Mark in bad faith.

Takeaways

• Register your trademark. If nothing else, this case is a warning to international trademark holders: if you don’t register your mark in Canada, someone else might. It is legal for international trademarks to be identically copied and registered by an unrelated party in Canada, where there is no reputation of that international trademark in Canada. Once registered, the holder of the registration gets exclusive rights to use that trademark throughout Canada, and gains access to legal rights and remedies unavailable to unregistered trademark holders.

• Trademarks can be registered before they are used. In Canada, an applicant may file a trademark application even though the applicant has not started using that trademark. Where there are two trademark applications for the same or similar mark that have been filed, and which have not been used in commerce, the TMA gives priority to the trademark filed first. Accordingly, if a foreign brand has plans of using its trademarks in Canada, it is a good idea for that brand to register its trademark in Canada to prevent a third party from registering the mark first. It should be kept in mind that if a trademark has been registered in Canada for three years or more but never used, anyone can request that trademark to be expunged (i.e., struck from the Register of Trademarks) or amended as a result of such non-use, as per section 45 of the TMA.

• The burden to prove bad faith may be hard to meet. The burden of proving that a trademark was registered in bad faith lies with the party alleging bad faith. An applicant to strike the registration of a trademark under bad faith must prove on a balance of probabilities (meaning more likely than not), with “clear, convincing and cogent evidence” that the mark was registered in bad faith.[4] In other words, a party would have to prove that it is more likely that a trademark was registered to be used for extortion than for any other legitimate commercial purpose.

At Sotos LLP, we have acted for countless 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’ trademark rights and opposing trademark applications on our clients’ behalf.

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

[1] Beijing Judian Restaurant Co. Ltd. v. Meng, 2022 FC 743 (CanLII).
[2] Trademarks Act, RSC 1985, c T-13.
[3] USA PRO IP Limited v Courtaulds Textiles America, Inc., 2018 TMOB 90 (CanLII) at para 21; Santa Barbara Restaurant Group, Inc. v Jay Veto, 2014 TMOB 286 (CanLII) at para 32.
[4] Beijing Judian Restaurant Co. Ltd. v. Meng, 2022 FC 743 (CanLII) at para 39.

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Fundamental to these strategies is the selection of a name and identifying logo(s) that can be protected. Once selected, from an intellectual property perspective, a business’ name and logo(s) must be protected from those who may intentionally or unintentionally usurp the value of these critical assets for themselves.

In 2019, Canada overhauled its system for the registration of trademarks and as a result, the Canadian Trademarks Office has been flooded with applications. Combined with the impact of the pandemic affecting the ability of the office to process these applications and the influx of cannabis-related applications resulting from the legalization of cannabis, the time it’s taking to get trademark approval has more than tripled, with waits of three years or more to be expected.

The changes to Canada’s trademark regime provided a tremendous opportunity for people to register trademarks that they may have no intention of ever using for themselves. Prior to the recent changes, an applicant would not be able to have a trademark registered unless it was using its mark. Now, the only basis on which they will be denied their applications is if there is already a user of the trademark in Canada or if the trademark being applied for does not meet the qualifications for a trademark to be registered as specified by the legislation.

As a result, Canadian businesses engaged in foodservice and hospitality, or thinking of entering the industry, should ensure they have undertaken, or should undertake, the following measures:

Review their existing registered trademarks. It’s critical that the goods and services encompassed by their original applications were comprehensive and reflect today’s actual use and any contemplated future use. Additional coverage using the “Nice” [named after the city in France] system of classification introduced in 2019 is essential to cover any missing existing uses and even possible prospective uses. The Nice classification was intended to bring the Canadian system in line with the vast majority of the world and allows registrations in Canada to have more global reach. In respect of existing uses that are not captured by the existing registered trademark and prospective uses, a search should be undertaken to determine if any business has been using or has applied for registration for the use of the trademark in respect of such use.

Conduct regular monitoring of the trademarks’ database to uncover any possible infringing applications (or registrations). These should be addressed immediately. The new laws permit a possible form of early intervention rather than the previous requirement to await the advertisement of an application in order to oppose it (which now takes place some 18 months or so after the initial trademark application has been filed). This applies to a business’ registered and unregistered trademarks. Apart from intervening through the Trademarks Office, early communications to cause the would-be infringer to cease and desist from its efforts need to be considered and likely undertaken without delay.

In addition, it’s critical to understand the significance and exposure of applying for a new trademark where use has not yet occurred. By applying to register a trademark which is not yet in use, a business gains the advantage that, once registered, the protection as a registered trademark dates back to the date of application. On the downside, by applying for the registration of a trademark that is not yet in use, a business will be providing notice to the world of its intended trademark and the uses to which it intends for it to be put. In some instances, an application to register may also provide competitors with an early indication of any new product or service that the applicant may be planning to offer.

Trolling for Trademarks
People who troll the trademarks database can find applications for trademarks and research for themselves whether they are in use or not. Aggressive trolls might then seek to use the very trademark that has been applied for before it is used. What are the rights of the person who has applied for the trademark in that situation?

In a recent court decision, our firm secured an injunction to prevent a third party from using a trademark which a would-be franchisor had applied to use and which it had incorporated into its franchise-system design in which it was deeply investing to launch. The injunction had been opposed on the basis that the opponent was already “first to use,” allegedly both prior to the application to register being made and subsequently (but of course prior to the application being granted). The opponent asserted that it had the right to use the trademark given that the application had not yet been granted even if its claim of prior use was not accepted.

If we ignore the factual findings of the court, which did not accept that the opponent had in fact used the proposed trademark prior to the date of application, the court agreed with the position of our client that the party applying where there had not been demonstrated use prior to the date of application, was entitled to protection for the trademark it had applied for even prior to the application being granted. As a result, and as the client was able to prove that it was suffering irreparable harm, the court enjoined the opponent’s use of the proposed trademark requiring the opponent to take down its signs, change its menus and remove references to the trademark from its online presence and all social-media accounts pending the trial of the action. Third-party delivery apps have respected the court order. The opponent is seeking the court’s permission to appeal this result. In the meantime, the message remains that its crucial that brand owners look to protect their existing brands and those which it may potentially look to develop. Legal advice should be sought to strategize the best means of protecting unregistered trademarks for which trademark applications will be filed particularly where those marks are not yet in use. For those currently using marks which have not been registered, they should seek to file trademark applications to protect their rights in those marks and obtain registration status.

Challenges & Opportunities
The new Canadian trademarks regime presents a host of opportunities and challenges. Given the importance of branding and marketing to any business looking to expand, particularly by way of franchising, it is crucial that such business conduct a health check on the security of its intellectual property assets. It should further ensure that it has an effective program in place for the ongoing protection of its registered and unregistered existing trademarks and prospective marks.

The concerns set out in this article apply equally to foreign franchisors and other businesses which may be contemplating expanding into Canada. Such businesses should be applying to have their marks registered in Canada as soon as possible. Prior to the recent changes to Canada’s trademark regime, registration would not be granted unless the foreign applicant had started using the mark. But that is no longer the case. We’ve experienced instances where a foreign franchisor or other business which has finally decided to enter the Canadian market is surprised to discover that someone else has already registered their mark(s) in association with the same goods and services.

Potential franchisees will be reluctant to invest in any franchise system that does not have registered trademarks or which has not applied to register its marks with a strong likelihood that such applications will be approved by the Trademarks Office. Potential investors will require business to demonstrate that it has good title to those trademarks.

A business that believes that its registered or unregistered trademarks have been infringed have a variety of legal recourses available to them depending on the nature of the marks, whether they are registered or unregistered and the nature and degree of infringement. Apart from such legal remedies, experienced legal counsel may be able to recommend and seek interim relief to those affected by trolls and other unauthorized users of a business’ intellectual property. Given the changes to Canada’s trademark regime as outlined above, we have experienced a significant increase in the amount of work directed to the prevention of trolling and unauthorized uses of registered and unregistered trademarks.

Allan Dick, Sotos LLP

Sotos LLP assists many franchisors in the design of their systems. Many of the aforementioned leasing considerations are also applicable to single-unit or multiple-unit non-franchised restaurant operations. If you have any questions about your leases or land control issues, please contact the author at adjdick@sotos.ca or 416-805-8989.

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Another change that came into effect is the ratification and implementation of the Madrid Protocol (concerning the International Registration of Marks).  The Madrid Protocol is an international system that allows applicants to file a single application for the registration of a trademark with the World Intellectual Property Organization and designate multiple other member countries – resulting in an “international registration”.  This effectively means that applicants from around the world can apply for protection of a trademark in up to 125 countries in one single application.

Third Party Trademark Research and Protection Services

Given the changes to the Act discussed above, and the rapidly evolving trademark landscape, brand owners, both domestic and international, should consider engaging companies that offer trademark research and protection services.   These service providers generally offer a wide range of services that can be tailored for the individual needs and concerns of brand owners, including monitoring and notification services.

Third party trademark research and protection services generally include:

• Worldwide trademark monitoring (the service provider will provide reporting on word and design marks internationally);
• Worldwide ownership monitoring (the service provider will report on competitors’ activities, their use of trademarks, and monitor and report on the use of the client’s own trademarks worldwide);
• USPTO Pending Application monitoring (the service provider will compare the client’s pending application against newly filed applications on a weekly basis,  and notify the client of any potential conflicts before the client’s trademark is published for opposition);
• USPTO Official Gazette monitoring (the service provider will monitor the newly published USPTO trademark applications and identify the client of any potential conflicts);
• Domain Name monitoring (the service provider will monitoring and reporting on any relevant domain names as they become available); and
• Auction monitoring (the service provider will monitor the sale of the client’s branded goods on eBay, Alibaba and Taobao auction sites globally, in order to identify potential counterfeiters).

Trademarks are some of the most valuable intellectual property that businesses, especially franchisors, may own.  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 the writer at athompson-amadei@sotos.ca or John Yiokaris at  jyiokaris@sotos.ca to discuss your intellectual property and trademark issues.

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THE INVENTIONS & APPLICATIONS

DABUS is a system of interconnected neural networks that can design new products. The user inputs information about existing products and identifies the variables used to judge the quality of those products. DABUS then creates products with the same functionality and refines them to maximize those variables. In late 2018, DABUS created two inventions: (1) a food container with superior interconnectivity, grip, and heat transfer; and (2) a method to modulate pulses of light to make a beacon more easily identifiable.

The creator of DABUS, Dr. Stephen Thaler, executed assignments of the inventions from DABUS to himself, and then applied for patents on the inventions in South Africa, Australia, the European Union, the United Kingdom, and the United States of America.

THE PATENTS GRANTED

Dr. Thaler won in South Africa and Australia. South Africa’s Companies and Intellectual Property Commission approved the applications at first instance. Australia’s Deputy Commissioner of Patents initially rejected the applications, but the Federal Court of Australia reversed that decision.

The Federal Court of Australia made three relevant points. First, there is a difference between a patentee and an inventor. A patentee is entitled to the benefit of a patent. They must be a legal person because only a legal person can sue for those benefits or control the patent. By contrast, there is no policy reason to require an inventor to be a legal person. For instance, unlike in copyright law, inventors have no moral rights to enforce.

Second, Australian patent legislation does not define “inventor” or contain provisions expressly limiting the term to natural persons. Its ordinary meaning is simply “the agent which invents”, which can apply equally to a thing as to a person.

Third, the use of AI has sped up innovation, especially in the pharmaceutical industry with tools like BANDIT and AlphaFold. In some cases, there is no human who could be called an inventor. If AI cannot be an inventor, then patents could not be granted on those products, reducing the incentives to invest in AI, and slowing down innovation in that sector.

THE PATENTS NOT GRANTED

Meanwhile, Dr. Thaler lost in the EU, UK, and US. The European Patent Office, UK Patents Court, UK Court of Appeal, US Patent and Trademark Office, and US District Court for the Eastern District of Virginia all rejected applications on the basis that an “inventor” is limited to a natural person, which excludes AI. Dr. Thaler has appealed the EU decision.

The US District Court made two relevant points. First, US patent legislation defines “inventor” as “an individual”. Other legal provisions also use this term to describe the inventor and several US cases have held that this language limits the term to a natural person.

Second, the court cited a report from the US Patent and Trademark Office, suggesting that even where an AI conceives of an idea, there is likely to be a human inventor or joint inventor. A human can be found to have invented the products of the AI by “designing the architecture of the AI system, choosing the specific data to provide to the AI system, developing the algorithm to permit the AI system to process that data, and other activities not expressly listed”. Therefore, there will almost always be a human inventor to apply for a patent. This should prevent any reduction in incentives to invest in AI and consequential slowing of innovation.

Similarly, the UK Court of Appeal was skeptical that there would ever be a situation where a human inventor could not be identified because the applicant should always be able to point to a “group of persons who could have contributed to the devising of the invention”.

IMPLICATIONS FOR CANADIAN PATENT LAW

Canada’s Patent Act does not define “inventor” or contain language suggesting that an inventor must be a natural person – more like Australia than the EU, the UK, or the US. This may mean that Canadian courts will be more likely to follow the Australian rule.

However, it may not matter what rule prevails in Canada. If the Australian rule prevails, then an AI can be an inventor, so AI-generated inventions can be patented. If the US/UK rule prevails, then an AI cannot be an inventor, but there will generally be a human who can claim to be the inventor and AI-generated inventions can be patented in that human’s name. This results in the issuing of patents in either case.

Nevertheless, the choice of rule may matter in the far future. The above analysis assumes that we are talking about narrow AI – that is, a system that needs human input to define its goals and the data that it will use. That human input is the basis for finding a human inventor, which is the reason that the two rules produce the same result. By contrast, if humanity ever develops general AI – that is, a system that can set its own goals, and collect data autonomously – then only the Australian rule would allow those inventions to be patented. Thus, the Australian rule would increase incentives to invest in AI inventors more than the US/UK rule. Of course, once AI begins to define its own goals, we may have bigger things to worry about…

This article was originally published by the Ontario Bar Association on October 3, 2021.

Adil Abdulla, Sotos LLP

Adil is an associate in our litigation department. Prior to joining Sotos, Adil summered and articled at a prominent Bay St. litigation boutique, working on various class actions for both plaintiffs and defendants. Before that, he worked on privacy class actions at a boutique in Ottawa.

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