In the bulletin titled Practical Tips for Maximizing the Value of Your Portfolio of Intangible Assets, published on September 11, 2018, we noted: "In most cases, the first owner of the copyright is the person who wrote or created the protected work. This means that when a franchisor assigns the task of producing a work that could be copyright protected to a services provider (such as a designer or an advertising agency), the first owner of the copyright may very well be the person retained by the franchisor, unless there is an agreement providing that copyright is assigned to the franchisor."
An Ontario franchisor, Milano Pizza Ltd. (whose network now has 35 pizzerias in the Ottawa region and eastern Ontario) has had the misfortune to discover the practical impact of this legal principle.
By a judgment delivered on November 6 in Milano Pizza Ltd. et al. v. 6034799 Canada Inc., the Federal Court of Canada (Court) held that this franchisor is not the owner of the copyright in its franchise network's logo. As a result, it dismissed the head of claims in the action brought by the franchisor against a former franchisee that had continued to do business under the name Milano Pizzeria.
Briefly, the evidence before the Court was that the founder of Milano Pizza Ltd. had come up with the idea for the network's logo, which includes a pizza slice set into the "o" in Milano. He claimed that he had drawn an initial sketch and then gave it to a designer, who drew the final version.
Even if the franchisor's evidence was accepted (although it was disputed by the former franchisee, who had a completely different account of how the logo was designed), the Court observed that the franchisor had not clearly proven:
- what was specifically given to the designer by its founder or how closely the logo ultimately drawn by the designer compared to what had been given to designer (what was similar and what may have been different); or
- the extent to which the sketch drawn by the franchisor's founder resembled the final drawing done by the designer.
Given those findings, the Court concluded that the franchisor's evidence regarding how its logo was originated was vague, inconsistent, and, most importantly, incomplete.
The Court noted in its judgment that the copyright in a work (including a logo) does not extend to ideas or concepts; it covers their concrete expression. Consequently, the person who suggests the idea does not hold the copyright in the form in which it is produced.
The Court therefore concluded that the franchisor had not demonstrated that its founder, rather than the designer, was the person who exercised the skill and judgment that resulted in the production of the logo.
Because the franchisor was unable to provide any evidence to show that the designer had assigned the copyright on his work to the franchisor, the Court held that the franchisor was not the holder of the copyright in its logo and dismissed that head of claims in its action against its former franchisee.
Going even further, the Court also held that even if the franchisor had succeeded in proving that its founder was the true creator of its logo and thus the holder of the copyright in it, the franchisor was not the true owner of the copyright in it because there had also been no evidence presented to show that the founder had assigned his copyright to the franchisor company. On that point, the judge noted that section 13(4) of the Copyright Act provides that in order to be valid, any assignment of copyright must be "in writing signed by the owner of the right in respect of which the assignment or grant is made, or by the owner's duly authorized agent".
The judgment clearly points out the importance of any franchisor taking all necessary measures to ensure that:
- the franchisor is actually the owner of the copyright in all works that may be subject to or protected by the Copyright Act, which include (but are not limited to) all texts (print and electronic), software, drawings, advertising (print, electronic, radio and television), jingles, drawings (including logos), menus, and particular combinations of information (such as indexes), for example, by obtaining signed, written assignments from any person (including its officers and shareholders) who might hold any copyright in the works, in whole or in part; and
- all necessary precautions and legal formalities for protecting its copyright in the works have been followed.
Because this is a complex field, a serious franchisor should get assistance from a lawyer with experience in intellectual property and the protection of intangible assets.
To conclude, it should be noted that this judgment also deals with several other issues that are important to any franchisor, including the risk of a franchisor losing its rights in its trade-marks (even registered trade-marks) by allowing them to be used by persons who, even if they are related to the franchisor, are not subject to agreements under which the franchisor retains control, as required by section 50 of the Trade‑marks Act, of "the character or quality of the goods or services". In this judgment, the Court decide on that issue; instead, since it will call for factual evidence on both sides, it reserved it for another judgment that may be given later, when a trial has been held.