FEDERAL COURT DENIES INTERLOCUTORY INJUNCTION TO BOSTON PIZZA INTERNATIONAL DUE TO INSUFFICIENT EVIDENCE OF IRREPERABLE HARM

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1 FEDERAL COURT DENIES INTERLOCUTORY INJUNCTION TO BOSTON PIZZA INTERNATIONAL DUE TO INSUFFICIENT EVIDENCE OF IRREPERABLE HARM Stella Syrianos LEGER ROBIC RICHARD, Lawyers ROBIC, Patent & Trademark Agents 55 St-Jacques, Montreal (Quebec) Canada H2Y 3X2 Tel. (514) Fax (514) marion@robic.com - Web Site: The Federal Court of Canada recently denied injunctive relief sought by Boston Pizza International Inc. against Boston Market Corporation for its use of the trade-name BOSTON MARKET in Canada (Boston Pizza International Inc. et al. vs. Boston Market Corporation et als. (2002) T , April 1 st, 2003, Blanchard, J.) The plaintiffs, Boston Pizza International (BPI) and Boston Pizza Royalties Limited Partnership (hereafter : "Applicants"), filed a motion for an interlocutory injunction against the defendants, Boston Market Corporation, McDonald's Restaurants of Canada Limited, Boston Market Canada Company and Global Restaurant Operations of Ireland Limited (hereafter : "Respondents") for the purpose of restraining the Respondents from: (i) (ii) using the trade name "Boston Market" in Canada in association with the operation or marketing of restaurants or sale of prepared foods, advertising or carrying on business in association with the trade name "Boston Market"; using the trade name "Boston Market" in Canada in a manner likely to depreciate the value of the goodwill of the Applicants' trademark BOSTON PIZZA, or directing public attention to the Respondents' business through the use of the name "Boston Market" in a manner likely to cause confusion with the business of the Applicants and its franchisees. The motion for this interlocutory injunction arose in the context of the Applicants' action for infringement of the trademark BOSTON PIZZA, depreciation of goodwill, and passing off in violation of the Trade-Marks Act. The Facts The Applicant BPI is the licensee of the trademark BOSTON PIZZA registered in the name of Boston Pizza Royalties Limited Partnership. BPI and its predecessors have used the trademark BOSTON PIZZA in Canada, since November 6, 1965 in association with the operation of a franchise restaurant and take-out business. BPI owns two restaurants in Canada and has licenced the trade name to franchisees who operate 162 restaurants in Canada.

2 2 Patrons of BPI are treated to an array of foods including pizza, pasta, lunch dishes, appetizers and beverages and have the option of dine-in or delivery service. It has the largest market share in the "casual dining" chains in Canada and intends to develop new restaurants in the next five years, among these 30 in Ontario. While their restaurants are mainly located in western Canada, BPI has also expanded in Ontario where since 1998, the number of BOSTON PIZZA restaurants has increased from 4 to 21. BPI stated that it uses its trademarks extensively in advertising and marketing on menus, stationery, pamphlets and in relation to its charitable foundation. It exercises tight control over its franchisees to ensure that the decor, nature, and quality of food are consistent in order to ensure that the value of the trademark is maintained. Advertising is financed through a co-op fund contributed to by BPI franchisees. The Respondents The respondents state that Boston Chicken, Inc. operated restaurants in the United States in association with the trademark BOSTON CHICKEN, with 500 restaurants established by In 1995, Boston Chicken, Inc. expanded its range of meals under the trademark BOSTON MARKET. In 1998, Boston Chicken filed for bankruptcy protection in the United States and sought to reorganize. In 2000, McDonald's Corporation, through a subsidiary, acquired certain tangible assets of Boston Chicken. Its name was changed to BM Corp. and it has operated Boston Market restaurants in the United States since May Situation in Canada Boston Market Canada, carries on business in Canada in association with the BOSTON MARKET brand, under licence from the respondent Global Restaurant Operations of Ireland Limited. Boston Market Corporation is a wholly-owned subsidiary of McDonald's Corporation. All four of the Respondents are affiliated companies. The Respondents opened two BOSTON MARKET restaurants in Ontario, on September 9th, 2002 and December 2002 respectively. A third BOSTON MARKET restaurant is slated to open in June 2003, also in Ontario. The confusion issue: the Applicants Position The Applicants tendered evidence in the form of a consumer survey, conducted by an expert in marketing research, probing the opinions of 623 Canadian adults. According to the results of the survey, 18% of the population that visits restaurants or purchases take-out foods was likely to perceive that restaurants operated in Canada under the name BOSTON MARKET and BOSTON PIZZA restaurants are operated by the same company. This estimate increased to

3 3 30% when the population of respondents was restricted to those people who said they had previously heard of or seen a BOSTON PIZZA restaurant. The Respondents Position The Respondents argue that BOSTON MARKET restaurants in Canada have a different focus than BOSTON PIZZA restaurants. They advance that there there are four recognized categories of restaurants: "quick service", "fast casual", "casual dining" and "fine dining" and that BOSTON MARKET restaurants in Canada fall into the second category "fast casual" because they aim to cater to the "home meal replacement" or "take-out market" whereas the BOSTON PIZZA restaurants fall into the third category of "casual dining". On cross-examination, the Applicants acknowledged this categorization and agreed with the Respondent s allegation that Boston Pizza is a "casual dining" restaurant as opposed to BOSTON MARKETS fast casual dining which is without "full table service". Through their expert, the Respondents argued that consumer choices of restaurants are based on more than a name because they look to other factors than a name. He also claimed that no confusion was possible because the parties did not target the same market as they fell into different catagories of eating establishments. The issues at bar The Court reviewed the three basic criteria applied to interlocutory injunction applications in order to assess if the Applicants were to be successful: (i) (ii) (iii) have they raised a serious issue to be determined? will they suffer irreparable harm if the injunction is not granted? does the "balance of convenience" favour the them? Serious issue The threshold for this first element is relatively low in that once satisfied that the application is neither vexatious nor frivolous, the motions judge should proceed to consider the second and third tests, even if of the opinion that the plaintiff is unlikely to succeed at trial. The Federal Court held that the Applicants had furnished evidence of at least some confusion in the form of the consumer survey and was satisfied that the conclusions regarding consumer confusion provided a sufficient evidentiary basis to satisfy the low threshold of "serious issue". Also worth noting was that the Respondents conceded in oral argument that a serious issue had been raised and the Court agreed with the parties that the Applicants had met the first hurdle of showing that their application was neither vexatious nor frivolous. Irreparable harm

4 4 As to the nature of the irreparable harm, the Court reiterated the principle set out by the Supreme Court of Canada in R.J.R. MacDonald, supra, R.J.R. McDonald Inc. v. Canada (Attorney General) (1994), 111 D.L.R. (4 th ) 385, 405: "Irreparable" refers to the nature of the harm suffered rather than its magnitude. It is harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other. Examples of the former include instances where one party will be put out of business by the court's decision [...]; where one party will suffer permanent market loss or irrevocable damages to its business reputation [...]; or where a permanent loss of natural resources will be the result when a challenged activity is not enjoined [...]. The Federal Court also looked to another case, Centre Ice Ltd. v. National Hockey League, (1994), 53 C.P.R. (3d) 34, where the Federal Court of Appeal articulated that the harm must be "clear and not speculative", stating that a finding of confusion between competing products does not necessarily lead to a loss of goodwill and there must be specific evidence that links the confusion to a loss :...While the record contains some evidence of confusion, there is no specific evidence that such confusion had led any customer to stop dealing or to even consider not dealing with the respondent on future occasions. The Applicants submitted that if BOSTON MARKET was allowed to continue to use the BOSTON MARKET name and open restaurants in the Toronto area, consumer confusion would ensue which would subsequently result in lost sales and dilution of brand equity. Because of the confusion, some customers would visit Boston Market restaurants, believing them to be owned by Boston Pizza. The applicants stated that it would be impossible to determine how many customers they would lose but that such loses constituted harm that is unquantifiable and which disrupted their expansion plans in Ontario. On the other hand, the Respondents contended that the Applicants failed to provide direct evidence that BOSTON PIZZA will suffer business losses, loss to long term market share, dilution of brand equity, loss of consumer loyalty and harm to its franchise system. The respondents stated that if the Applicants had tendered some evidence of confusion, there was no specific evidence that such confusion had led even one customer to stop frequenting BOSTON PIZZA restaurants. The Respondents further submitted that even if the Applicants had established clear and non-speculative evidence that the confusion would lead to a loss, this loss is quantifiable. The Federal Court agreed with the Respondents and held that while there was some evidence of confusion according to the survey evidence, the nature of harm caused to the Applicants as a result of this confusion was not clear. The Court found that the Applicants expert evidence on the issue of irreparable harm only provided numerous hypothesized scenarios that may, or may not, have materialized: His use of the term "may" throughout his analysis of loss of sales leads me to conclude that the observations upon which he bases his conclusions are speculative. This is not clear and non- speculative evidence that is required by Centre Ice Ltd., supra, to satisfy the test for irreparable harm. I therefore conclude that the evidence upon which the applicants rely to establish irreparable harm is speculative and consequently insufficient to establish irreparable harm.

5 5 The Federal Court also took into account the evidence that the two restaurants attracted, at least in part, customers from two different markets since BOSTON PIZZA and BOSTON MARKET fell into two different categories of restaurant, casual dining and fast casual, respectively. Subsequently, the Court questioned the Applicants assumption that the restaurants target similar markets and found that the Applicants expert s conclusions concerning the harm caused by customer confusion were open to scrutiny. On this basis, the Court further concluded that the Applicants had not demonstrated irreparable harm to their business on the basis of loss of their customer base. The Applicants also argued that area developers and prospective franchisees would have been dissuaded from purchasing or continuing their investment in a BOSTON PIZZA franchise as a result of the presence of the BOSTON MARKET trade name in the market. In response to this allegation, the Court found that there was no evidence before it that any potential franchisees or customers had backed out of contracts or refrained from patronizing BOSTON PIZZA on the basis of that confusion. Balance of convenience Despite the Court s finding on the issue of irreparable harm, it nevertheless considered this third element and held that the balance of convenience favoured the Respondents who had spent money on elaborate advertising and marketing campaigns using the name BOSTON MARKET in newspaper advertisements, billboard signs, and letter mailouts to 50,000 households. The Court opined that if the Respondents were obliged to change the restaurant name, the benefits from these advertising efforts would be wholly lost and their loss would be certain and tangible. Delay Finally, the Court stated that the factor of delay in bringing the injunction application was also relevant. The Applicants had known about the plans for the development of BOSTON MARKET restaurants in Ontario since October 2001, when the Respondents issued a press release and drew the Applicants' attention to it. The Applicants only made their objections known nine months later on August 15, 2002 and by then, the Respondents had invested in the construction of restaurants and advertising campaigns, using the name BOSTON MARKETS. The Court dismissed the Applicants attempt to minimize the delay period by concluding that presumed anticipation of litigation to determine the issue of confusion did not provide a basis for the Applicants to justify their delay in notifying the respondents. Conclusion

6 6 This case reiterates the long standing principle, applied vigorously by the Courts, that the grant of an interlocutory injunction is an extraordinary remedy that should be reserved to those cases where there is clear evidence of circumstances requiring its imposition. Plaintiffs seeking to refrain third parties from using trade-marks or trade-names should be made aware of the high threshold associated with proving irreparable harm. Moreover, they should not lose sight of the type of evidence required by the Courts on the issue of irreparable harm: clear and not speculative. As to the ultimate merits of the Applicants' action for infringement of their BOSTON PIZZA trademark, it will be interesting to observe what the impact will be, if any, of the Federal Court s decision of September 17 th, 2001, in Boston Pizza International Inc. vs. Boston Chicken Inc., (2001) 15 C.P.R. (4th) 345 (F.C.T.D) [commented by the author in the December 2001 edition of the WIPR], where Justice Nadon ruled that there was no confusion between the marks BOSTON PIZZA and BOSTON CHICKEN. LEGER ROBIC RICHARD / ROBIC, 2003.