Franchising in Canada: checking trade mark rights

Buying a franchise includes acquiring the right to operate a business under an established or emerging brand. But a logo on a brochure does not prove that the party you are contracting with can authorise you to use it. Before joining a franchise network, check who owns the trade mark, the chain of authorisation and the limits of your licence: your signage, packaging and online presence depend on them.

1. Identify the trade mark and its actual owner

Ask the franchisor for a precise list of the trade marks you will use: the trading name, logo, product names or other distinctive signs essential to the business concept. For each one, ask for the owner's legal name, the Canadian registration number where one exists and, for any pending application, its application number.

The Canadian Trademarks Database, maintained by the Canadian Intellectual Property Office, is a useful starting point. Compare the information you find with the documents supplied by the franchisor. In particular, check:

• the identity of the owner on record;
• the status of the application or registration;
• the goods and services covered;
• any differences between the registered trade mark and the one actually used.

Filing an application is not the same as obtaining registration. Likewise, incorporating a company or buying a domain name is no substitute for trade mark protection.

The absence of registration does not automatically mean that no rights exist: use can create rights. It does, however, warrant a more detailed legal assessment. A foreign registration alone does not amount to Canadian registration.

2. Trace the chain of authorisation

The trade mark owner is not necessarily the company selling you the franchise. A related company, an overseas company or another rights holder may own the rights, while the franchisor operates as a licensee.

This arrangement is not necessarily a problem. The crucial question is whether the franchisor can actually grant you the promised rights for the stated term.

Ask your solicitor to review the documents establishing that authority. Where a third party owns the trade mark, clarify:

• whether the main licence permits sublicensing to franchisees;
• whether it covers Canada and the proposed business activities;
• whether its term is compatible with your agreement;
• what happens to your right to use the trade mark if that licence ends.

If the franchisor says its main licence is confidential, ask what documentary evidence can be provided to your legal adviser. A verbal explanation is not enough to assess such a significant dependency.

3. Distinguish trade mark law from franchise rules

In Canada, the Trademarks Act governs matters including registration and licensed use. Under section 50, subject to certain conditions, use by a licensee has the same effect as use by the owner where the owner directly or indirectly controls the character or quality of the goods or services.

Brand design standards and quality requirements can therefore serve a genuine legal purpose. You should still examine their practical implications: who approves local advertising, signage or changes to the website?

Provincial franchise rules provide another layer of protection. In Alberta, the Franchises Act and its regulation govern pre-contractual disclosure. Subject to applicable exceptions, the disclosure document must be provided at least 14 days before the signing of an agreement relating to the franchise or any payment, whichever happens first. It must include material facts and the relevant agreements, among other things.

Quebec has no franchise-specific legislation: the general rules of the Civil Code of Québec, particularly those relating to contracts and good faith, apply. Ask your legal adviser to establish which obligations apply in the province where you will operate, rather than assuming they are the same across Canada.

4. Assess the consequences of a trade mark problem

Before signing, ask how a challenge to the trade mark, a ban on its use or a rebranding would be handled. The agreement should make clear who manages the legal defence, who bears the costs and what obligations fall on you.

Also consider indirect costs: replacing signage, packaging stock that can no longer be used, updating the local website and informing customers. Do not assume that the franchisor would automatically cover these costs.

Finally, check the rules for local domain names and social media accounts: who holds them, who has administrator access and how they are transferred when the relationship ends. Permission to use the trade mark does not make you its owner.

Key takeaway: before making any commitment, establish three verifiable points: the identity of the rights holder, the franchisor's authority to grant you a licence and the contractual consequences of losing the right to use the trade mark.