Pizza Problems: Federal Court Expunges Trademark Registration for Lack of Control Over Licensed Use

The recent Canadian Federal Court decision in Milano Pizza Ltd. v. 6034799 Canada Inc., 2022 FC 425 reinforces the importance of brand owners maintaining control of their trademarks. 

Background

Pursuant to s. 50(1) of the Trademarks Act, use of a trademark by a licensee is deemed to be use by the owner, so long as the owner has – under the licence – direct or indirect control over the character or quality of the goods or services provided in association with the licensed mark.

In Milano, the plaintiff granted licences permitting the use of the names “Milano Pizza,” “Milano Pizzeria” and the registered Milano design mark to independent pizza shops based in Ottawa in exchange for the licensees operating in a given territory and buying particular branded supplies. These licence agreements were not always in writing, but were agreed to verbally.

The defendants operated a licensed “Milano” pizzeria until the plaintiff terminated the licence. However, the defendants continued to use signs, menus and social media advertising that displayed the Milano design mark, or a substantially similar variation thereof, in association with their pizza shop. The plaintiff brought an action against the defendants claiming trademark infringement for their continued unauthorized use of the Milano design mark. The defendants counterclaimed, seeking expungement of the Milano design mark registration.

Court’s Findings

The Court ultimately dismissed the plaintiff’s action and found the Milano design mark registration to be invalid as the plaintiff failed to demonstrate sufficient controlled licensing of mark. The Court noted, for example, that:

• the plaintiff generally had a “hands off” approach to the licensees;
• while the plaintiff controlled the quality of some branded ingredients it required the licensees to purchase, licensees were ultimately free to use their own recipes;
• the plaintiff did not meaningfully monitor the pizzas and other food products on the licensees’ menus – such as through periodic sampling;
• the written agreements, where they existed, did not provide for any right of inspection of the licensees;
• licensees had control over pricing and the plaintiff did not audit their sales; and
• licensees controlled the hiring and training of staff, including delivery drivers.

Although the plaintiff ultimately launched a centralized online ordering used by all licensees, the Court found that this action was not sufficient to cure the lack of control exercised in earlier years. Further, the existence of an unrelated pizza shop in Masson, Que., operating under the name Pizzeria Milano further undermined the distinctiveness of the Milano design mark. 

Bottom Line

The Milano decision serves as a good reminder to all brand owners to maintain control over licensed use.  In particular, the decision highlights several actions brand owners should consider taking when licensing out trademarks, including:

• maintaining written trademark licence agreements instead of relying on verbal arrangements;
• clearly setting out how the licensed mark is to be displayed or used by the licensee, including in various forms of advertising and marketing;
• clearly setting out the expected quality of the goods and/or services associated with the licensed mark;
• having rights of inspection and audit;
• regularly exercising rights of inspection and audit;
• taking corrective action when a licensee’s product or service fails to meet quality standards;
• requiring licensees to give public notice of ownership of the licensed marks on websites, signage and other materials; and
• undertaking enforcement activities against unauthorized uses of the mark.

Work with your trusted IP advisor to ensure your business is engaging in best licensing practices to protect its brands.