What A Pickle: Unauthorized Deli Franchisees Ordered To Pay Trademark Damages, But Escape Copyright Liability

• Published date: 31 May 2021
• Subject Matter: Corporate/Commercial Law, Intellectual Property, Copyright, Trademark, Franchising
• Law Firm: Cassels
• Author: Mr Eric Mayzel and Sam Sokoloff

In Dunn's Famous International Holdings Inc. v. Devine,¹ the franchisor obtained default judgment for trademark infringement and related relief against unauthorized "franchisees" who had acquired their franchises from a party that had claimed, unsuccessfully, to own the franchise system. However, the franchisor's copyright claim failed because it could not prove that it owned the copyright in its webpages. Although the facts of the case are unique, its lessons may apply more broadly, including where a former franchisee fails to de-identify. It is also a helpful reminder to franchisors to pay close attention to copyright ownership, especially when entering Canada from other countries where different rules might apply.

Background

Dunn's is a multi-generational family business that operates in the space of retail food product development, marketing, licensing and wholesale distribution. The case arose out of a dispute between two ownership groups that both claimed to own the trademarks and tradenames in question (the DUNN's Trademarks) and to be the rightful franchisor of the Dunn's Famous brand.

The ownership issue was resolved on consent in favour of the plaintiff, Dunn's Famous International Holdings Inc. (Dunn's). However, that was not the end of the dispute. The other party (the Unauthorized Franchisor) had purported to grant several franchises, including master franchise rights, to several entities that had operated restaurants in association with the trademarks. The Unauthorized Franchisor acknowledged that its agreements with those entities were "invalid" because it had not owned the trademarks that it purported to license to them.

Dunn's action continued against the unauthorized franchisees and their directors (the Defaulting Defendants). Dunn's sought damages for trademark infringement, passing off, depreciation of goodwill, false and misleading advertising, and copyright infringement, as well as delivery up of certain domain names. The Defaulting Defendants and the directors did not defend the action, and Dunn's brought a motion for default judgment against them.

The Trademark Dispute

The Court accepted that Dunn's is the sole and exclusive owner of the DUNN's Trademarks. It found that the Defaulting Defendants had profited from the unauthorized use of the DUNN's Trademarks, deliberately engaging in actions that caused trademark infringement, passing off, depreciation of goodwill, and false and misleading advertising.

The Court calculated damages...