Trademark Owners And Franchisors Beware: In Milano Pizza Ltd. v. 6034799 Canada Inc., Lack Of Licensor Control Leads To Invalidation Of Trademark

• Published date: 18 May 2022
• Subject Matter: Intellectual Property, Trademark
• Law Firm: Fasken
• Author: Mr Nicolas Charest, Michael Shortt and Brooke Naomi Levy

In its recent Milano Pizza Ltd. v. 6034799 Canada Inc. decision, the Federal Court ordered the expungement of a trademark registration because the plaintiff did not exercise sufficient control over the use of the trademark by its licensees. This decision provides a helpful reminder of the dangers of relying on verbal agreements instead of written trademark licenses, and the need for trademark owners to maintain control over their licensees.

Summary of the facts

Milano Pizza Ltd ("Milano Pizza"), had been granting trademark licenses to local pizzerias in the Ottawa area. The licensing agreements were often oral agreements, and rarely written down. The agreements mandated the purchase of branded products from designated suppliers as well as the grant of specific territories in exchange for licensees to be able to use the name "Milano Pizza" or "Milano Pizzeria".

6034799 Canada Inc., otherwise known as Milano Pizzeria - Baxter, was a licensee of Milano Pizza until their license was terminated by Milano Pizza in June 2016. Despite this termination, 6034799 Canada Inc. continued to operate under the original Milano Pizzeria signs, menus, and social media advertising, although they did adopt a new storefront logo. Milano Pizza brought an action against 6034799 Canada Inc. claiming trademark infringement of their exclusive right to the Milano Design Mark and requesting declaratory and injunctive relief. 6034799 Canada Inc. counterclaimed, asking for expungement of the Milano Design Registration.

Invalidity of Milano Design Mark

A summary judgment in 2018¹dismissed some of the earlier claims and counterclaims made by the parties, which meant that the sole issue remaining at trial was the validity of the Milano Design Mark (the "Mark"). 6034799 Canada Inc. challenged whether MILANO PIZZA legitimately licensed the Mark to any of the Milano Pizzeria owner-operators. If notm then the Milano Design Registration would be invalid.

To address this issue, the Court analyzed whether Milano Pizza adequately controlled the licensed Mark, pursuant to subsection 50(1) of the Trademarks Act. This subsection of the Act states that in order to maintain a trademark which is being used by third parties, a trademark owner must maintain sufficient control over the character or quality of the goods and services sold under the licensed trademark. If control is insufficient or absent, the licensor/trademark owner risks losing the trademark's distinctiveness. As a result of which the...