COURT FILE NO.: CV-13-493463

DATE: 20140807

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: MGDC Management Group Inc., MM Cafe Franchise Inc., MM Cafe USA, Inc., and MM Cafe Oakville Inc., Applicants

– AND –

The Estate of Marilyn Monroe, LLC, Authentic Brands Group LLC, and James Salter, Respondents

BEFORE: Justice E.M. Morgan

COUNSEL:
Howard F. Manis and Lauren Sigal, for the Applicants (Responding parties)

Robert C. Taylor and Jeffrey P. Hoffman, for the Respondents (Moving parties)

HEARD: July 31, 2014

ENDORSEMENT

[1] The Applicants and the Respondents are parties to a License Agreement dated October 31, 2011, in which the Respondents licensed the trademarked name Marilyn Monroe to the Applicants for use in their restaurants.

[2] The Applicants seek rescission of the License Agreement and damages. They claim that the License Agreement was in reality a franchise agreement under the Arthur Wishart Act (Franchise Disclosure), 2000, S.O. 2000, c. 3 (the “Act”), and that they were entitled to the kind of full disclosure that franchisees receive under the Act. The Respondents’ position is that the License Agreement is not a franchise agreement, and so the rights and remedies granted by the Act do not apply. They bring this motion to dismiss the Application.

[3] Section 10 of the Act provides that any dispute to which the Act applies must be litigated in Ontario under Ontario law. The License Agreement contains a forum selection clause and choice of law clause which provide that any dispute between the parties is to be resolved in the courts of New York and that New York law governs the agreement.

[4] When the License Agreement was negotiated by the parties they were each represented by a lawyer and were of equal business sophistication and bargaining power. In article 20(a) of the License Agreement, they each acknowledged that franchise disclosure laws such as the Act do not apply to the agreement. The principal of the Applicants acknowledged in cross-examination that she was aware of this fact when she signed the License Agreement and understood that the Applicants were not entitled to receive any disclosure from the Respondents such as might be required under that type of franchise legislation.

[5] As indicated, the License Agreement granted to the Applicants certain intellectual property rights owned by the Respondents. Specifically, it granted a non-transferrable, non-assignable, non-divisible right and license to use the trademark “Marilyn Monroe”. It is the only license of its general nature and type to be granted by the Respondents with respect to these properties anywhere in the world. The License Agreement provided that the Applicants were licensed to, and responsible for, creating and operating Marilyn Monroe-themed restaurants. The Respondents had never granted any other licenses for a restaurant or café to use the Marilyn Monroe trademark.

[6] The Act specifically states that that it does not apply to the grant by a trademark owner of a single license. Section 2(3)5 provides:

2(3) This Act does not apply to the following continuing commercial relationships or arrangements: …

5. An arrangement arising from an agreement between a licensor and a single licensee to license a specific trade-mark, service mark, trade name, logo or advertising or other commercial symbol where such license is the only one of its general nature and type to be granted by the licensor with respect to that trade-mark, service mark, trade name, logo or advertising or other commercial symbol.

[7] The License Agreement is formally between one of the Respondents – The Estate of Marilyn Monroe, as Licensor – and two of the Applicants – MGDC Management Group Inc. and MM Café Franchise Inc., as Licensee. Although the Licensee consists of two corporations, they are defined in the License Agreement as a single Licensee and they contracted for the trademark license “individually and collectively”. They have a common head office address, common boards of directors, and common shareholders. They are one licensee.

[8] The Applicants submit that the Act requires that the relationship of the parties be analyzed in terms of substance rather than form. As counsel for the Applicants put it in oral argument, if it looks like a duck and acts like a duck, it is a duck. The Applicants therefore say that the label “License Agreement” is not definitive of the nature of the relationship between the parties.

[9] I agree with counsel for the Applicants that substance trumps form in this analysis. However, it appears beyond dispute that what the License Agreement entails is an arrangement that arises from an agreement by a trademark owner and a single licensee to license a specific trademark. In substance, there is nothing more to it than that.

[10] While the License Agreement does provide the Respondents with a number of different rights to approve and to veto designs and business methods that the Applicants might employ in their use of the trademark, those rights do not change the essential character of the License Agreement as a trademark licensing arrangement. The Respondents as trademark owners have negotiated various rights with respect to the Applicants’ business operations in order to protect the integrity of their trademark, but for no other purpose beyond that.

[11] The record contains no evidence that the Respondents have used their contractual rights under the License Agreement to establish or dictate to the Applicants how to design or run their business. The Respondents do not operate, or even assist the Applicants in operating, a restaurant; they did not create the Applicants’ restaurant and do not supply goods and services to the Applicants’ restaurant. Their sole contribution to the Applicants’ business is to license the “Marilyn Monroe” name.

[12] In other words, the License Agreement fits, in its substance and not just its form, precisely within the terms of s. 2(3)5 of the Act.

[13] The parties also address at some length in their respective materials the hallmarks of a franchise agreement, and whether the relationship between them is effectively that of franchisee-franchisor. Given that I have concluded that the relationship established by the License Agreement is no more than a trademark licensing arrangement, I need not go into all of that evidence.

[14] Suffice it to say that while a trademark license may be one element in a typical franchise agreement, there are many other elements that are the hallmarks of a franchise arrangement that are missing here. These include significant control or significant assistance by the franchisor of the franchisee’s method of operating its business: Di Stefano v Energy Automated Systems Inc., [2010] OJ No 385 (SCJ).

[15] Under the License Agreement, the Applicants were themselves responsible for developing and operating their restaurant business, including creating the décor and colour scheme, ensuring quality and uniformity of the products and services, crating the food and beverage products, advertising and promoting the business, selecting and training their own franchisees, and carrying out all review or audits of the restaurants. The Respondents, as indicated, had the right under the License Agreement to protect their trademark, but otherwise had none of the hallmarks of a franchisor.

[16] The Act does not apply to this arrangement, as it is not a franchise arrangement but rather is a single trademark licensing arrangement. Accordingly, the parties are not subject to the obligations imposed on franchisors and the remedies granted to franchisees under the Act.

[17] Further, the forum selection and choice of law clauses in the License Agreement are enforceable. Since the Act does not apply, New York State is the jurisdiction in which the dispute is to be adjudicated and New York law is the law to be applied. Indeed, there is already litigation between the parties taking place in the New York courts which raises the same issues as those raised by the Applicants in the within Application.

[18] The Respondents’ motion is granted, and the Application is dismissed.

[19] The Respondents are the successful party and deserve their costs. Respondents’ Costs Outline seeks costs on a partial indemnity scale in the all-inclusive amount of $67,229.29. The Applicants have submitted a Costs Outline that, had they been successful, would seek partial indemnity costs of $43,582.73, all inclusive. Counsel for the Applicants characterizes the matter has both “very important” and “complex”, explaining in his submission that it “…involves the interplay between the Ontario legislation and the contractual provisions with respect to jurisdiction and venue of disputes arising thereunder.”

[20] Costs are discretionary under section 131 of the Courts of Justice Act. Rule 57.01(1)(0.b) of the Rules of Civil Procedure provides that one of the criteria to be taken into account in exercising this discretion to award costs is the expectations of the unsuccessful party. Given their own characterization of the matter, it could not have been beyond the Applicants’ expectations that the Respondents would invest the legal time it takes to defend against an important and complex claim involving the interplay of statutory and contractual interpretation. I would exercise my discretion to award costs to the Respondents in an amount that is mid-way between the Applicants’ figure and their own.

[21] The Applicants shall pay the Respondents costs in the amount of $55,500, inclusive of all disbursements and tax.

Morgan J.

Date: August 7, 2014