Canada: "The Donald" Trumps Condo Buyers By Avoiding Trade-mark Licensor Liability

United States presidential candidate Donald Trump avoided liability for alleged misrepresentations of the attributes of purchased hotel condominium units by a developer that is licensed by one of Mr. Trump's corporate affiliates to use Mr. Trump's name and trade-marks for the 70-storey mixed-use TRUMP TOWER complex in downtown Toronto.

BACKGROUND

In Singh v. Trump (Singh), the developer distributed a document to prospective purchasers of the units that set out the hypothetical revenue stream from the occupancy of the hotel units and the anticipated expenses to predict a return on investment. The buyers were given the document before they signed purchase agreements.

Purchasers alleged that the document contained numerous misrepresentations upon which they relied in making their decisions to buy the units. The buyers were told that customers flock to TRUMP hotels so that high average rental and high occupancy rates would be ensured, and said that they took comfort from the TRUMP name.

Two dozen actions were filed by different purchasers against a number of defendants, including Mr. Trump, two of his affiliated companies (Affiliates) and the developer. The purchasers sued on the basis of:

  • conventional common law and equitable negligent misrepresentations,
  • misrepresentations under the Securities Act, and
  • an illegal contract in light of an alleged violation of a ruling of the Ontario Securities Commission (OSC) in relation to the sales of the units.

The decision was rendered on a summary judgment motion brought by the plaintiffs in two test cases. At one level, the actions were conventional real estate actions in which a vendor allegedly misrepresents the attributes of a property and a purchaser seeks rescission of the agreement and damages. However, the decision also considered the impact of the OSC ruling and the liability of Mr. Trump as the licensor of his brand.

For various reasons, the Ontario Superior Court of Justice (Court) concluded that all claims failed and issued summary judgment for the defendants. Only the licensor liability issue is discussed below.

LICENSOR CONTROL UNDER TRADE-MARK LAW

In Canada, a trade-mark is a guarantee of origin and is only inferentially an assurance of quality so the distinctiveness of a trade-mark is the essential requirement to acquire, maintain and enforce rights in a mark.

"Distinctiveness" means that a trade-mark identifies the goods or services offered in association with the mark as emanating from a single source. The Supreme Court of Canada recently said that a trade-mark "allows consumers to know, when they are considering a purchase, who stands behind those goods or services."

The distinctiveness of a trade-mark may be impaired where a person other than the trade-mark owner, such as a licensee, uses the mark. This is because the public may not be able to identify the source of the goods or services offered in association with the mark.

The Trade-marks Act (TMA) addresses this issue by a statutory fiction that deems the use of a trade-mark by a licensee to be use by the trade-mark owner, provided that under a licence, the owner directly or indirectly controls the character and quality of the goods and services with which the mark is used by the licensee.

"Character" means an attribute, property, feature, trait or characteristic of the goods or services. "Quality" means the degree, class or grade of the goods or services, namely their relative merit. The owner must exercise, rather than merely have the right to exercise, control. If the owner does not exercise such control, rights in the trade-mark may be lost.

The TMA does not prescribe how control must be exercised. In the case of services, the trade-mark owner typically defines a standard of performance of the services and monitors their performance by the licensee.

While the TMA does not provide for the liability of a trade-mark licensor for product, regulatory or other third-party liability, the greater the control exercised by the trade-mark owner or the expectation by the public of such control, the greater is the risk that the owner may be held liable for the acts or omissions of a licensee.

In the U.S., where a trade-mark is more an assurance of quality, a trade-mark owner not only has the right to control the quality of the licensee's goods or services but also has an affirmative duty to do so. The owner must assure the public that, in the hands of a licensee, the mark continues to reflect that which it purports to represent. For example, a licensor has been held liable for false advertising by its licensee where the licensee uses the licensed trade-mark to mislead the public.

Canadian courts have not imposed an affirmative obligation on a trade-mark owner in favour of a third party. However, there may be an implicit duty, to the extent that a trade-mark owner intends to maintain the distinctiveness of, and its rights in, its trade-mark.

Licensors in Canada have been held liable for defective goods or services, or damages suffered by a third party in the course of the performance of, or in relation to, services, offered by a licensee on the basis that a party thought that it was contracting with the trade-mark owner or that the trade-mark owner exerted control over the licensee's goods or services.

DECISION ON LICENSOR LIABILITY

In Singh, one of the Affiliates entered licence agreements with the developer for the use of the TRUMP name and trade-marks owned by Mr. Trump. The role of the other Affiliate was to operate the hotel and distribute the income from the hotel's operation to the owners of units, but not to sell units.

For the purpose of the summary judgment motion, the purchasers withdrew the motions against the Affiliates for reasons that are not discussed in the decision.

The purchasers alleged that, by the Affiliate licensing the TRUMP brand to the developer, Mr. Trump misrepresented that the developer had the experience to build the hotel properly and sell the units professionally. The buyers argued that it was foreseeable to Mr. Trump that, if he did not vet and supervise the developer properly, harm might be caused to purchasers so that he had an obligation to ensure that the developer had the experience and integrity to develop the hotel properly. The buyers contended that the licensing of the TRUMP name was an implied representation that he had done this.

The Court said that the action against Mr. Trump was "devoid of any merit". Mr. Trump did not make any express representation regarding the developer. Nor could any such representation be implied merely because Mr. Trump is an "icon," his name is a "brand," or his association with the project caused "buzz".

The Court took the view that Mr. Trump's liability must be determined by reference to his own contractual or tort duties to the purchasers, and said that he had none. The Court said that just having one's name associated with a project does not establish the degree of proximity required to give rise to a duty of care to purchasers of units.

The Affiliate, not Mr. Trump, granted the licence. Even if the Affiliate licensor could be liable for the actions of its licensee, that is not a basis for imposing liability on Mr. Trump personally.

The Court went on to say that, in any event, granting the licence was not a representation that the developer had the experience to sell the units in a competent, professional manner. The allegation in the action was not that the developer did not meet the standard of care of a developer or professional seller of units, but that it made misrepresentations and breached a ruling of the OSC.

Most importantly, the Court said that there is no support in law for the proposition that, if the licensee of a brand is egregiously negligent, the licensor is responsible.

COMMENT

If, in granting the licence of the TRUMP marks to the developer, the Affiliate acted as an agent for Mr. Trump, Mr. Trump was the licensor. If, on the other hand, Mr. Trump licensed his marks to the Affiliate with the right to sublicense, the developer was a sub-licensee and Mr. Trump was a head licensor.

The Court's comment that there is no support in law for the proposition that a licensor is not liable for egregious negligence by a licensee of its brand was made without consideration of the requirement for control by a trade-mark owner of the activity by a licensee in association with a licensed mark or reference to any of the Canadian decisions addressing trade-mark licensor liability.

The Singh decision, if not reversed, suggests that, to limit liability for acts or omissions of a trade-mark licensee in Canada, a celebrity or other trade-mark owner should interpose an intermediate entity to enter a licence agreement with a licensee.

However, for the reasons noted above and because of the unique facts of this case, this decision may not, in the end, enable trade-mark owners to trump claims by those who suffer damages as a result of the acts or omissions of trade-mark licensees.

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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