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Property in a Business Name

Nike, Microsoft, Tim Horton's, Coca Cola.  What does each of these business or product names have in common?  Each of them is synonymous with product recognition, and is a classic example of the establishment of a successful business in the free market system.  Yet, in the highly competitive world of business, what protective measures are there in place to stop an upcoming entrepreneur from riding the coat tails of these successful businesses, and taking any one of these business or product names and using them in the development of a new competing business? 

In Canada, there is federal legislation called the Trademarks Act, which protects those businesses that have formally registered their trade name or trademark under the Act.  As a result, any use of these names by any business other than those authorized under the registered trade name or trademark is a violation of the Trademarks Act, and is subject to sanction under that Act.  Such sanctions include a Court Order preventing the use of the trademark or trade name by the unauthorized business or person, and compensatory damages for the misuse. 

However, what about the small business owner?  Registering a trade name or trademark is a complicated, and time-consuming process that is often beyond the means of any small business owner.  What protective measures are there for the owner of a business where their business or trade name has not been registered as a trademark, and a competing business opens up under a trade name or business name that is very similar.

In this regards, the Courts have long recognized the availability of a common law action called "Passing Off". Passing Off is an action that prevents the taking of a trade name used by a business to identify its goods or services, and of the reputation attached to the trade name.

An action for Passing Off has three elements that must be proven:

1. The existence of a reputation attached to a business's good or services and its trade name such that the public identifies the trade name with the goods or services; 
2.  A misrepresentation by a competing business (intentional or not) leading to or likely leading to the public believing that the goods or services are those of the competing business; and 
3. The business has or will likely suffer damages as a result. 

Where an established, profitable business with a history of using a particular trade name can show that a newly formed competing business is advertising or using a trade name that is very similar, then it will have a claim for Passing Off.  The test that the Courts apply is "whether an ordinary customer using ordinary care would be likely to be confused" by the advertising or use of the business name.  In the end, the court will look at whether the offending business is attempting to pass its goods off as those of the established business, and thus obtain an unfair advantage in the business arena.  The remedies that the courts will impose on the offending business include an Order preventing them from using the trade name, and compensatory damages for the lost profits or sales suffered as a result of the passing off. 

Should your business run into such a scenario, it is advisable to immediately seek the advice of a lawyer to ensure quick action, and to lessen the economic impact from any lost profits or sales.   

By Glyn Walters
August 20, 2003