Early this year, Canadian franchise Dunn’s Famous Deli made headlines for winning a trademark infringement suit against 5 locations (4 in Ottawa) that highlights the importance of proper IP agreements and vetting when it comes to business partnerships.
Dunn vs. Dunn’s
In a cautionary tale that emphasizes doing your due diligence when it comes to trademark licensing, 5 “franchise owners” of Dunn’s Famous deli found themselves on the hook for $500,000 in damages for trademark infringement.
Chances are, if you are a Canadian reading this, you have heard of the restaurant chain Dunn’s, who have become famous for their take on Montreal smoked meat sandwiches. Their product and brand are so well known that in 1987, “smoked meat” became a term in both official languages after a ruling from a judge in a dispute with the Quebec language agency aimed at Dunn’s english signage at the Montreal location.
In early 2021, the power of the Dunn’s brand was again the subject of a legal dispute and court ruling, this time because it came to light that some locations may be improperly taking advantage of the company’s trademarks and goodwill. The reasoning behind the court case and the subsequent ruling emphasizes the benefits of seeking out proper trademark protection and licensing partners.
The trademark “Dunn’s” dates to 1927 and the original deli was on Ste. Catherine Street in Montreal. Dunn’s Famous Holdings International Inc. is the owner of the trademark and is responsible for the franchise agreements for its locations.
In the case of restaurants like Dunn’s, licensing agreements mean that the trademark owner can exercise control over the product, design and process. In exchange for a fee, the franchisee gets support, advertising and the benefit of an established and known brand to entice customers. For customers visiting the franchise, they can expect the same products and quality from any Dunn’s location. Proper licensing agreements are typically a win-win for all parties involved.
In the 2021 case, the parent company of the “Dunn’s Famous” deli-restaurant group, Dunn’s Famous Holdings International Inc, has been awarded about $500,000 for trademark infringement by five operators for improper trademark use. The guilty parties were found to be using the Dunn’s name, logos, menus in ways that were protected by trademarks and conveyed a relationship with Dunn’s Famous Holdings International Inc. that did not, in fact, exist.
In an interesting twist, it turns out that these five locations did have an agreement with a Dunn, but not the one who owned the trademark rights. In the ruling, it was revealed that Stanley and Ina (Dunn) Devine — the daughter of founder Myer Dunn — entered into agreements with a number of individuals “purporting to provide licences” to third parties without the authority of Dunn’s Famous Holdings International Inc.
The restaurants using the trademark “Dunn’s” in an unauthorized way, were ordered to pay compensation to Dunn’s Famous Holdings International Inc. since they did not pay the parent company a franchise fee or submit royalties. The judgement said that the locations were guilty of “infringement, passing off and dilution of goodwill” of the Dunn’s trademark.
Of the judgement, Michael Chevalier (Dunn’s Famous Holdings International’s lawyer) said, “‘Dunn’s is extremely invested in the quality of its goods and services, and its trademark is extremely valuable.’ The problem with the improper licensing, explained Chevalier, is that the parent company could not guarantee the smoked meat and other food items met its standards — it suspected they did not — nor could it do regular inspections.”
What is trademark licensing? A license is the agreement whereby the trademark owner (Licensor) grants permission to a user (Licensee) to use that trademark on mutually agreed terms and conditions.
The first lesson you can learn from the Dunn’s trademark case is the following: if you want to use someone else’s trademark, ensure that you enter into a licensing agreement with the actual trademark owner.
The owner is usually easy to identify in case they have registered trademarks. However, there may be situations where multiple people/companies are using similar trademarks for similar goods and services. The owner is generally who used the trademark first or filed the trademark application first in absence of use of the trademark by others.
You should also make sure that certain trademark licensing conditions are fulfilled. If the trademark is properly licensed, use of the trademark by the licensee is considered use of the trademark by the trademark owner (licensor). However, if licensing conditions are not fulfilled, the licensor can lose its trademark because of non-distinctiveness since he/she allows unauthorized use and the licensee might face the consequences for unauthorized use.
The condition for proper trademark licensing is that the trademark owner has, under the license, direct or indirect control of the character or quality of the goods or services.
The Art of the Deal
Here are some recommendations proper for trademark licensing:
- Most importantly: Let the licensee provide a public notice that the use of the trademark is licensed use and the identity of the trademark owner. In this case it shall be presumed that the owner has control over the character or quality of the goods and services until proof of the contrary.
- Determine a written licensing agreement that the trademark owner has control of the goods and services and set standards of quality. These can include that the goods and services should be conform to standards, specifications or instructions approved by trademark owner (licensor), providing samples of the products sold and the right to conduct inspections.
- Actually enforce those contractual licensing obligations and the quality standards to ensure that they are complied with. Actually conduct those inspections.
- Be aware that also in case of use of a trademark by a subsidiary you need proper licensing. Exceptions are if the parent directs activities of subsidiary and if person in charge and in control of both is the same, but also in these cases it is safe to have a licensing agreement in place.
As the case with Dunn’s illustrates, it is important that proper licensing from the trademark owner is in place. If you have questions about trademark licensing and want to know if you are licensing your trademark properly, we’re here to help.
About Kim: A registered trademark agent in Canada, Kim is an IP Specialist with a unique combination of skills, education, and assets with a drive for success and a passion for Intellectual Property. Working with growing organizations for many years she’s honed her ability to be both creative and strategic with IP solutions and strategy implementation plans.
She specializes in IP analytics and Trademark Strategy and Prosecution. Before becoming an IP specialist at Stratford, she practiced law in Belgium for 5 years. Kim holds an LLB and LLM in law from Belgium and followed trademark studies at McGill University.