Franchising in Canada: protecting your trade mark

Your business already attracts loyal customers. But can you authorise other entrepreneurs to use its name wherever you plan to expand? Before offering your first franchise, check that your trade mark can support that expansion. In a franchise network, a shared identity is a shared asset: a challenge to it can affect several outlets at once.

1. Check what you actually own

Start by listing the signs that identify your business: its name, logo, slogan and distinctive product or service names. For each, record the stated owner, the date of first use, any registration applications and the relevant contracts.

Do not confuse these three separate processes:

• registering a business or a trading name;
• reserving a domain name;
• registering a trade mark.

The first two do not replace the third, nor do they prove, on their own, that your trade mark can be used without conflict.

An established business may have gaps in its chain of ownership: the founder may own the trade mark personally, a former company may still appear on the register, or the graphic designer’s contract may not clearly settle the rights to the logo. Have these issues reviewed before granting rights to franchisees.

Practical deliverable: a record for each trade mark showing its owner, status, the goods or services concerned and the supporting documents. If the prospective franchisor is not the owner, document its right to use the trade mark and to authorise franchisees to use it.

2. Check availability and plan protection

In Canada, trade mark protection is governed in particular by the federal Trademarks Act. The Canadian Intellectual Property Office administers trade mark registration. Registration is separate from any steps involved in setting up a franchise.

An unregistered trade mark may enjoy rights arising from its use, but their scope and the evidence needed to establish them depend on the circumstances. Subject to the Act, registration provides an exclusive right to use the trade mark in Canada for the specified goods and services. It does not mean that every use of the same word, in any context, becomes prohibited.

Before filing an application or announcing an expansion, commission an appropriate search. This should not be limited to identical trade marks: similar signs can create a likelihood of confusion. Unregistered commercial uses also deserve particular attention.

Next, check that the goods and services described match the business model you intend to franchise. Protection designed for the sale of a product will not necessarily cover all the services offered by future outlets.

Work with a trade mark agent or a suitably qualified lawyer to set priorities: the main name, the logo, useful variants and, if necessary, changes to a brand identity that carries too much risk. A pending application must never be presented as a completed registration.

3. Put an effective trade mark licence in place

The franchise agreement must grant rights consistent with those the franchisor actually holds. Specify the authorised trade marks, permitted uses, duration, restrictions and the conditions governing when use must cease.

Section 50 of the Trademarks Act makes control over licensed trade mark use particularly important. Where the owner controls, directly or indirectly, the character or quality of the goods or services, authorised use can have the same legal effect as use by the owner. A general clause without a workable mechanism is therefore a weak foundation.

Put practical arrangements in place for:

• access to approved artwork files;
• approval of local adaptations and advertising;
• management of domain names and social media accounts;
• reporting unauthorised use;
• keeping evidence of use and control.

If a separate company owns the trade mark, make sure the contracts allow the necessary control and the granting of rights to franchisees. The aim is not simply a consistent appearance: it is to preserve the legal value of the shared asset.

4. Give prospective franchisees an accurate picture

Federal trade mark protection does not replace provincial franchise obligations. In Ontario, the Arthur Wishart Act (Franchise Disclosure), 2000 requires, among other things, a disclosure document containing material facts and the proposed agreements. Subject to the statutory exceptions, the prospective franchisee must receive it at least 14 days before signing a franchise-related agreement or making a payment.

A serious challenge to the trade mark, a limitation on the rights granted or a foreseeable requirement to rebrand may constitute a material fact. Seek advice on what must be disclosed in the province concerned, and do not downplay risks in sales presentations.

Quebec has no franchise-specific legislation. The general rules of the Civil Code of Québec, particularly those concerning good faith and consent, still apply.

Key takeaway: before selling your first franchise, gather evidence of ownership, check the risks of confusion and ensure that licensing, control and disclosure to prospective franchisees are aligned. A locally recognised trade mark is not automatically ready to be shared.