Family feuds are particularly complex, in large measure because of the lengthy and fraught personal histories between the parties. Our fascination with such clashes is reflected in the highly anticipated “House of Dragons” that has the Targaryen clan in an epic battle for survival that is a prequel to the unrivalled series Game of Thrones.
While not nearly as dramatic, and hopefully devoid of bloodshed, the lengthy story of the family rivalry and struggle to monopolize the DRAGONA trademarks is set out at some length in the recent decision of Justice Russel Zinn of the Federal Court in Dragona Carpet Supplies Mississauga Inc. v. Dragona Carpet Supplies Inc. 2022 FC 1042, issued on July 14, 2022.
In addition to the dramatic backdrop of family businesses engaged in an epic battle for monopoly over the DRAGONA mark, complete with duplicitous registration and conflicting stories, the case stands out as a shining example of the use of summary trial as a quick and expeditious way to resolve disputes that would no doubt have risked financial ruin of the parties, both of which had successful flooring businesses sharing the name and mark.
Justice Zinn takes great pains to lay out the family feud in some detail, and ultimately accepts the affidavit evidence of some family members over others, including drawing an adverse inference for the failure to submit evidence from a potential corroborating source. It is a clear signal that litigants should not shy away from the use of summary trials even in the face of credibility issues and conflicting evidence. Justice Zinn examined the suitability of the case for summary trial and concluded that the case was appropriate to decide “regardless of the complexity or conflicting evidence”, citing as authority Louis Vuitton Malletier SA v. Singga Enterprises (Canada) Inc. 2011 FC 776 at para. 96.
As its core, the dispute arose between two businesses run by separate branches of an extended family, initially started with one business established by two brothers selling flooring under the DRAGONA trademark and trade name. As the business grew, one legal entity was owned by a brother named Talal and the other became owned by his two nephews, Abad and Jamal, following the death of his brother.
The success and expansion of the business led to expansion from Mississauga and Scarborough into Ottawa and North York. The opening of a North York location is what prompted litigation, as an unwritten agreement had allegedly drawn a dividing line on Yonge Street to create territorial limits to the competing businesses operated under the DRAGONA brand. Justice Zinn found insufficient evidence of a territorial agreement, holding that if there was agreement to restrict activities to either side of Yonge Street as a dividing line, there was evidence that both parties breached such agreement on numerous occasions by selling outside the boundaries and concluding that, “Any division of territory would be an artificial construct created between the parties.”
In the absence of any written licence, Justice Zinn accepted that there existed a verbal trademark licence between the parties, controlled by the nephews. The court also found that each party enjoyed goodwill in the regions where they did most of their business, namely in Mississauga and Scarborough, but that both parties enjoyed goodwill where they made sales, which overlapped with the so-called territorial divisions.
This finding was consistent with the parties carrying the same supplies and generally catering to the same types of customers in the flooring and carpet supply business.
One of the more significant issues to be determined by the court was whether the registration of the DRAGONA design trademarks in favour of the plaintiff Talal should be expunged because these were registered without the knowledge or consent of his nephews, who believed that they had been given the trademark rights and that Talal had agreed he would cease using the DRAGONA formative marks in future. Justice Zinn expunged the trademark registrations on the basis that Talal was not the first user of the DRAGONA marks, which accrued to the company now owned by the nephews.
With the registrations for DRAGONA design marks expunged, the court nevertheless considered claims of passing-off and trademark infringement asserted by Talal based on these unregistered and registered rights.
The passing-off claims were dismissed on the basis that, at the time the defendant nephews started to direct public attention to their business in a confusing manner, the plaintiff Talal had to have a valid and enforceable right in the trademarks. Justice Zinn determined that the relevant time for assessing the confusing directing of attention was in 2021, when the defendant nephews had erected new signs at FlooReno stores that gave rise to the claim. The court rejected that the relevant date would be the date at which the defendants first adopted the mark back in 1984.
In 2021, if the plaintiff Talal had any right to use the marks, it was under the oral licence that the court recognized existed between the parties, pursuant to which the defendant nephews owned the DRAGONA marks. Consequently, all goodwill then existing in the DRAGONA marks would have accrued to the defendant nephews by virtue of being the licensors of the DRAGONA marks. In the result, the court held that the plaintiff Talal could have no goodwill in the DRAGONA marks and therefore a passing-off action could not succeed.
Justice Zinn went further in concluding that, in any event, no misrepresentation was made by the defendant nephews to meet the essential second part of any passing-off test. The court noted that there are other instances where two separate businesses have used the same trademark concurrently where neither is able to exclude the other from using it even if confusion results, due to long-standing concurrent use, citing the decision in Banquet & Catering Supplies Rental Ltd. v. Bench & Table Rental World Inc., [1979] Q.J. No. 97, at paras. 73-74:
“The mere fact that confusion will result is not the vital factor in a passing-off action. Unless it can be shown that a proprietary right of the plaintiff has been improperly invaded, the plaintiff is without remedy.”
In conclusion, the court recognized that the competing rights of the defendant nephews to use the DRAGONA marks since 1984 would prevent assertion of the rights against them by Talal, due to long-standing concurrent use, leaving no remedy for any confusion in the market arising from this concurrent use that had been permitted for so many years.
In the result, the defendants were granted their costs on the claim and counterclaim, and the registrations held by the plaintiff in the DRAGONA design marks were expunged.
The case stands as a cautionary tale for allowing separate legal entities to use the same trademarks without formal licensing arrangements and clear ownership recognition, to say nothing of the family feud over the DRAGONA brand. Perhaps there is another Netflix story in this epic tale.
Originally Published by The Lawyer's Weekly, part of LexisNexis Canada.
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