The Federal Court Trial Division recently held that intellectual
property rights do not automatically transfer in an asset sale.
Moreover, the Court enforced a registered trademark in restaurant
trade dress and copyright rights in restaurant menus.
In 1429539 Ontario Limited v. Café Mirage
Inc., the plaintiff franchisor agreed to convey the assets
of two of its cafés to a creditor. The creditor agreed to
include a covenant in any subsequent purchase agreement which
provided that should the cafés be sold to a buyer who would
not operate them as a franchise, that the purchaser would remove
the plaintiff's signage. The creditor made such a sale to the
defendant, who then declined an offer to enter the franchise
system. Nevertheless, the defendant ran the cafés using
copies of the plaintiff's menus, trademarks and restaurant
trade dress. An infringement claim was therefore brought by the
The defendants argued they had acquired an implied license to
use the trademarks and copyrighted menus through the
plaintiff's consent. The Court held that the consent to the use
of the plaintiff's trademarks only applied within the franchise
system. Thus, this implied right dissolved when the defendants
refused to join. In addition, the Court held that the defendants
had an implied license to use the plaintiff's menus, since
copies were purchased as assets, but that the defendants had
breached the plaintiff's copyright by reproducing a substantial
part of them.
The defendants argued that copyright and trademark rights were
included in the asset purchase. The Court held that intellectual
property rights do not automatically transfer in an asset sale, and
as such, any intended transfer should have been dealt with
explicitly in the sale agreement. Without such rights having been
conveyed, the Court held that, by using their logos and trade
dress, the defendants had breached the plaintiff's trademark
rights, and ordered the signs be returned.
This case is a reminder that copyright and trademark rights can
be protected if properly enforced, and that special attention must
be given to intellectual property rights in an asset purchase if
they are intended to be transferred.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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