Canada: Franchisors: What Are You Doing To Protect Your Brand?

If you are the owner of a franchise system and have recently seen the entry of an aggressive competitor into your market, there are lessons for you in the Québec Superior Court decision Bertico inc. v. Dunkin' Brands Canada Ltd. released on June 21, 2012. Therein, the story of the growth of Tim Hortons in Québec is told through the eyes of its competitor, Dunkin' Brands Canada Ltd., who lost its dominant share of the Québec fast food donuts and coffee market to Tim Hortons beginning in the mid-1990s. In 1998, there were 210 Dunkin Donuts stores in Québec. Today, there are only 13 stores. According to the franchisor, this "stunning fall from grace" is attributable to underperforming, even poor, franchisees. According to 21 Québec Dunkin Donuts franchisees, and subsequently, the Court, the decline was the result of a repeated and continuous failure by the franchisor over a decade to protect and enhance the Dunkin' brand in Québec and was a "case study of how industry leaders can become followers in free market economies."

Summary of the Facts & Legal Findings of the Court

The plaintiffs were 21 Dunkin' Donuts franchisees in Québec operating 32 stores. According to the Court, these franchisees were "amongst the best and most successful in the Québec réseau." Their owners were amongst the most active committee members. Many of them operated several stores and had all been operating for more than 10 years — some as long as 30 years. They had received awards of appreciation for their success. In short, the suggestion made by the franchisor at trial that these franchisees were "poor operators" was, according to the Court, "a defence utterly devoid of substance."

Dunkin Donuts stores had been operating in Québec since 1961 utilizing the Dunkin Donuts System developed by Dunkin Donuts Incorporated and its subsidiary, Dunkin Donuts Canada Ltd. Prior to Tim Hortons' arrival, Dunkin Donuts was the leader in the market, both by total sales and number of stores. At trial, Dunkin Donuts admitted that during its first 30 years in Québec, it had virtually no competition. According to the plaintiffs, during these years of unstructured competition, the franchisor made no substantive changes to its system. In the opinion of their expert, its officers had little appreciation of the Québec market and no coherent plan. Then, according to the plaintiffs, when Tim Hortons arrived in the mid-1990s, the franchisor made the fatal error of underestimating the competition and relied on a system that worked when there was no competition: "It was business as usual in circumstances where 'usual' wasn't nearly good enough."

According to the reasons issued by the Court, shortly after Tim Hortons came into the market, the franchisees alerted the franchisor to the impact Tim Hortons was having on their revenues. According to the franchisees, the franchisor did little, if anything, in response. Again, in 2000, they demanded that the franchisor implement a "recovery plan," which included a plan to address the high level of management turnover, reduction of services offered, deterioration of image, lack of technical support and a requirement that the franchisor reinvest in its banner to maintain its position in the Québec market.

In response, the franchisor proposed the "remodel incentive programme," which was a voluntary programme intended to encourage franchisees to commit to renovations of their stores before the time prescribed in their franchise agreements and which contemplated payments being made by the franchisor towards the overall cost to renovate over the first year following such renovations. The franchisor also committed to contribute 50% of the franchise fees generated by actual incremental sales to the advertisement fund for three years and a financial payment for any remodelled store where Tim Hortons developed a new store nearby within 24 months.

The catch was that at least 75 franchisees had to sign on, and the franchisees who agreed to the programme were required to release the franchisor from any suit or action against it for whatever reason from the "dawn of creation to the day it was signed." According to the Court, this was one of the explanations for poor take up amongst the franchisees: "it was a powerful disincentive to commit to the programme." The Court went so far as to describe the request for a release as "abusive" in the market conditions at the time. The apparent other reason for the programme's failure was that it required a huge investment on the part of the franchisees which, according to experts they had retained at the time, would not bear fruit. Not surprisingly, the programme did not get off the ground. The franchisor's expert attempted to spin this as an example of franchisees' "thwarting" the franchisor's efforts to remain competitive with Tim Hortons by stating that "only a few plaintiff franchisees took the franchisor's advice and incentives to remodel their stores." However, even he had to acknowledge that remodelling alone would not guarantee success. Indeed, those franchisees that had signed on and completed the renovations did not see the promised increases in revenues. The Court went on to note that, concurrently with the implementation of the remodel incentive programme, the franchisor announced that it would invest $40 million to revive the brand in Québec, $20 million of which would come from the franchisees, through contributions to the Advertising fund, and the other $20 million of which was to come out of the pocket of the franchisor. According to the Court, there was no credible evidence that the franchisor ever injected the promised funds.

In 2003, with significant losses mounting, the plaintiffs sought to terminate their leases and Franchise Agreements. The franchisees also claimed an award for damages from their franchisor for a breach of its contractual obligations under their Franchise Agreements. The essence of their case was that the Franchise Agreement, a contract of adhesion, obliged the franchisor to protect and enhance the brand. With little analysis as to the contractual language or indeed, consideration of what is meant by "brand protection" as distinct from operational support, the Court concluded that the allegations had been "substantiated convincingly" from the evidence at trial.

In the Franchise Agreements, the franchisor promised to protect and enhance both its reputation, and the "demand for the products of the Dunkin Donuts System" – in sum, the brand. The Court found that, despite the fact that the franchisor had assigned to itself the principal obligation of protecting and enhancing its brand, it failed over a period of a decade to protect its brand. The Court concluded that brand protection is an ongoing, continuing and "successive" obligation and that franchisees cannot succeed where the franchisor has failed to in this fundamental obligation. According to the Court, the franchisor has a duty to minimize losses and reposition itself in a changing marketplace. Although the Court made mention of the civil duty of good faith and of loyalty owed by franchisors to franchisees, no analysis was undertaken as to what that meant in these circumstances apart from a duty to work "in concert with" the franchisees in such market conditions.

The remaining 20 pages of the decision focus on the calculation of damages. In sum, the Court awarded the plaintiffs a global amount of $16,407,143 on account of lost profits flowing from lost sales in a growing market caused by a franchisor that had failed to protect its brand and the loss of investments made to participate in such a market.

What to Take From the Québec Superior Court's Decision

This case will undoubtedly be unsettling to franchisors. Despite a clear acknowledgement that a franchisor does not guarantee the success of its franchisees, the decision makes a strong case for the relationship between brand success and franchisee success. And, the Court emphatically lays responsibility for brand protection at the feet of franchisors. Unfortunately, there is next to no guidance in the decision as to what, practically speaking, it means to protect the brand. Clearly, a franchisor cannot be content to rest on its past success. It must innovate and rejuvenate. However, beyond that, the decision is quite unhelpful. Similarly, the Court utterly fails to give any insight on how the duty of good faith and loyalty factors into the franchisor's duty to protect the brand from aggressive competitors. In the end, the Court states the obvious: "successful brand is crucial to the maintenance of healthy franchises ... when the brand falls out of bed, collapses, so too do those who rely upon it." This is most unfortunate because one can readily anticipate that brand development, enhancement and protection will be a fertile ground for future litigation between franchisors and franchisees.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.