Recent ruling a 'cautionary tale' for start-ups, says IP lawyer

Court vacated injunction in battle between restauranteurs over use of term 'Bombay Frankie'

Recent ruling a 'cautionary tale' for start-ups, says IP lawyer

A recent Ontario Divisional Court ruling vacating an injunction for copyright infringement should serve as a lesson for start-up businesses in the vulnerability of their brands, says John Simpson, a lawyer and registered trademark agent at Shift Law.

“It’s a cautionary tale to start-up businesses in Canada, who will invest a lot in developing a brand – a trademark – before they launch,” he says.

“What this decision effectively says is that there’s no protection for that brand. In the meantime, someone else can launch a restaurant overnight, and all that effort and blood, sweat, and tears that go into developing a new brand that hasn’t been launched, are effectively for naught.”

The trademark dispute in 2788610 Ontario Inc. v. Bhagwani, 2022 ONSC 6098, was about the right to use the term “Bombay Frankie.” A Frankie is a type of wrap, like a burrito, popularized in India. The appellants in the case appealed an order of the Superior Court prohibiting them from using “Bombay Frankie” as the name of any restaurant or franchising business, from using the term on social media and from using the website www.bombay-frankie.com.

They opened two restaurants under the name “Bombay Frankie” in 2021, filed a trademark application and registered the domain name that year. The appellants also operated other Indian food restaurants, including Amaya Indian Street Food Co. and Leela Indian Food Bar. Simpson represented the appellants on appeal but not in the original injunction motion.

The respondents filed their trademark application in 2020 and were building a franchise system of restaurants under the name “Bombay Frankies.” They brought an action for trademark infringement and passing off under ss. 7(b), 7(c), 19, and 20 of the Trademarks Act. They then brought the motion for an interlocutory injunction prohibiting the appellants from using the term.

Though the trademark had not yet been granted, the respondents argued they had priority because they had applied for it first. The judge applied the test for granting an injunction from RJR-MacDonald Inc. v. Canada (Attorney General).

First, the judge found that there was a serious issue to be tried. The court based this finding on the opposing views on who had prior use of the trademark and the question of whether a claim crystallizes on the date of application or registration. The judge then found the respondent would suffer irreparable harm if the injunction was not granted because the appellants would gain an advantage from name recognition, goodwill, and “first-mover advantage,” said the decision.

The final prong in the RJR-MacDonald test examines whom the balance of convenience favours, which the judge found to be the respondent.

The appeal in the Divisional Court went before Justices Robert Smith, Elizabeth Stewart, and Sandra Nishikawa, who released their decision on Nov. 2.

Justice Nishikawa wrote the reasons and noted that a decision to grant an interlocutory injunction is discretionary and entitled to deference “unless the motion judge erred in principle or was clearly wrong.” She added that “where an erroneous finding of fact can be attributed to the application of an incorrect legal standard, a failure to consider a required element of a legal test, or a similar error in principle, the error is one of law that must be reviewed on the standard of correctness.”

On the first stage of the RJR-MacDonald test, the panel found the motion judge had made an error in principle by finding that there was a serious issue to be tried because the judge reasoned that the respondent had a right to the trademark “merely by virtue of its application” or had assumed it would eventually be registered. Either would be an error of law, said Justice Nishikawa. According to ss. 19 or 20 of the Trademarks Act, a party must have a registered trademark to have a cause of action. “A mere application to register a trademark is insufficient to support a cause of action for trademark infringement under the Act.”

It is also an error to presume that a trademark application will be registered because the registrar could refuse for lack of distinctiveness, or another party could oppose – which would have likely been the case with Bombay Frankies, said Justice Nishikawa.

She found the respondent’s claim for passing off also fell short of the serious-issue-to-be-tried threshold. To have a cause of action for passing off, the party must show the existence of goodwill, which the Supreme Court of Canada has defined as “the positive association that attracts customers towards its owner’s wares or services rather than those of its competitors.” The respondents’ evidence indicated that they had retained franchise lawyers and a marketing firm and were in discussions with landlords and suppliers. Still, Justice Nishikawa said these “start-up activities” do not establish goodwill.

While finding that the respondent failed to meet the first step in the RJR-MacDonald test was sufficient to reverse the order, Justice Nishikawa also found the motion judge had made a palpable and overriding error in finding the respondent would suffer irreparable harm. The respondents had said the appellants’ use of the term created confusion among landlords who were hesitant to lease space to them, which would, in turn, affect their goodwill and leave it open to be appropriated by the defendants. But this result would not amount to irreparable harm that financial damages could not compensate, said Justice Nishikawa.

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