BOSTON PIZZA INTERNATIONAL INC. v. BOSTON PIZZA ROYALTIES LIMITED PARTNERSHIP, 2003 FCT 382

Date: 20030401 Docket: T-1319-02 Citation: 2003 FCT 382 Ottawa, Ontario, this 1 st day of April, 2003 PRESENT: THE HONOURABLE MR.

JUSTICE BLANCHARD BETWEEN: BOSTON PIZZA INTERNATIONAL INC. and BOSTON PIZZA ROYALTIES LIMITED PARTNERSHIP Plaintiffs - and - BOSTON MARKET CORPORATION, MCDONALD'S RESTAURANTS OF CANADA LIMITED, BOSTON MARKET CANADA COMPANY and GLOBAL RESTAURANT OPERATIONS OF IRELAND LIMITED Defendants REASONS FOR ORDER AND ORDER Introduction [ 1 ] The plaintiffs, Boston Pizza International (BPI) and Boston Pizza Royalties Limited Partnership (the "applicants"), seek 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 (the "respondents"). [ 2 ] The applicants seek to restrain the respondents from: 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, 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. [ 3 ] The motion arises in the context of the applicants' action for infringement of trademark, depreciation of goodwill, and passing off in violation of the Trade-Marks Act , R.S.C. 1985, c.

T-13 , as amended. [ 4 ] The applicants undertake to abide by any order concerning damages caused by the granting of an interlocutory injunction in the event that it is determined, at trial, that the interlocutory injunction should not have been granted.

Similarly, the respondent, McDonald's Restaurants of Canada Limited, undertakes to pay any shortfall between the amount ordered and the amount recovered by the applicants in the event that the interlocutory injunction does not issue and the applicants later succeed at trial. [ 5 ] Pursuant to my order dated 28 January, 2003, the affidavits of Andrew Diveky (sworn October 30, 2002) and S. Tyler Barrs (sworn October 16, 2002) have been struck from the applicants' motion record and were not considered for the purpose of the within motion.

Facts Boston Pizza [ 6 ] The applicant, BPI, is the licensee of the registered trademark "Boston Pizza". BPI and its predecessors have used the trademark since November 6, 1965 in 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. [ 7 ] BPI fare includes pizza, pasta, lunch dishes, appetizers and beverages, and features dine-in and delivery service.

It has the largest market share in the "casual dining" chains in Canada and states that it intends to develop 70-80 new restaurants in the next five years, among these 30 in Ontario. BPI states 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. BPI states that the goodwill attached to its name is valued at $109 million. Its gross revenues for 2001 were $275 million and are estimated at $300 million for 2002. Boston Market [ 8 ] The respondent, 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 Corp. is a wholly-owned subsidiary of McDonald's Corporation.

All four respondents are affiliated companies. [ 9 ] The respondents state that Boston Chicken, Inc. was in the business of operating restaurants in the United States in association with the trademark Boston Chicken, with 500 restaurants established by 1994. In 1995, Boston Chicken decided to expand its range of meals by using 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 2000. Restaurants in Canada [ 10 ] The respondents opened a Boston Market restaurant on the Erin Mills Parkway in Mississauga on September 9, 2002. They state that a second Boston Market restaurant opened in December 2002, at the BayMac Centre. A third Boston Market restaurant is planned to open in June 2003, in Mississauga. [ 11 ] The respondents contend that Boston Market restaurants in Canada have a different focus than Boston Pizza restaurants.

Boston Market aims to cater to the "home meal replacement" or "take-out market". The respondents say that, given the four recognized categories of "quick service", "fast casual", "casual dining" and "fine dining", Boston Market restaurants in Canada fall into the second: "fast casual", whereas the Boston Pizza restaurants fall into the third: "casual dining".

On cross-examination, BPI CEO Michael Cordoba acknowledged this categorization and agreed that Boston Pizza is a "casual dining" restaurant, whereas Boston Market is not, and that Boston Market is without "full table service". [ 12 ] While Boston Pizza restaurants are located mainly in western Canada, BPI has recently expanded into Ontario. Since 1998, the number of Boston Pizza restaurants in Ontario has increased from 4 to 21. Expert Evidence [ 13 ] BPI retained Dr.

Corbin, an expert in marketing research, to determine the likelihood of confusion in Canada between a restaurant named "Boston Market" and a restaurant named "Boston Pizza". The survey designed by Dr. Corbin was carried out in June 2002, and probed the opinions of 623 Canadian adults. She concluded that 18% of the population that visits restaurants or purchases take- out foods is likely to perceive that restaurants operated in Canada under the name Boston Market and Boston Pizza Restaurants are operated by the same company.

The estimate increases to 30% when the population of respondents is restricted to those people who said they had previously heard of or seen a Boston Pizza restaurant. [ 14 ] The respondents' expert, Dr. Pearce, states that consumer choice concerning which food service provider to patronize is more complicated than can be demonstrated by a test of name recognition or association, because consumers look to factors other than name in making their choices. Dr.

Pearce states that a brand is more than a word mark and may signify "characteristics such as socio-economic status of users [...], levels of taste, values of the producer or the user and so on". Dr. Pearce's opinion is that there is little or no likelihood of consumer confusion between the brand names Boston Market and Boston Pizza since the brand meanings differ. In his opinion, Boston Market and Boston Pizza are not aimed at the same market except at a general level, in relation to food services. [ 15 ] Dr.

Pearce visited and photographed a Boston Market restaurant in Mississauga and the Boston Pizza restaurant in Oakville. He observed that the Boston Market restaurant had a drive-through, a cafeteria-style self-serve area, and a small seating area. By contrast, the Boston Pizza restaurant he attended had a dining and a bar area, a more extensive menu, table service, and alcoholic beverages. Dr. Pearce concluded that the only similarity between the two food service providers that might confuse consumers would be the use of the word "Boston" in the restaurant name. Dr.

Pearce further stated his opinion that, if the injunction is granted, Boston Market Corporation would be seriously harmed since it is relying on the brand equity of the "Boston Market" name which is known to Canadian consumers as a consequence of cross border advertising. [ 16 ] Dr. Dawar, an expert in marketing whose evidence is supportive of the applicants, states that BPI will suffer irreparable harm as a result of the introduction of the Boston Market brand to the Canadian market. He states that the confusion established by Dr.

Corbin's survey may lead consumers who enjoy Boston Pizza to become disenchanted when eating in the Boston Market restaurant because their expectations are not met. Conversely, consumers who eat at a Boston Market restaurant and are dissatisfied may not return to either a Boston Market or Boston Pizza restaurant. In his opinion this will result in lost business, dilution of brand equity and loss of market share. In addition, Dr.

Dawar notes that the area developers and franchisees are a key source of revenue for BPI and the entry of a competitor with a similar name and wares detracts from the Boston Pizza brand, one of the principal benefits granted under a Boston Pizza franchise. He deposes:

Any reduction in the perceived strength of the brand diminishes the benefits of the franchise agreement to the franchisee, making it lesslikely that the area developer or franchisee will take on the costs and risks of expansion. Dr. Dawar concludes that the source of the harm generated by Boston Market's entry into the market is identifiable and its naturedefinite, but, in his opinion, the extent of the harm is not measurable or quantifiable. Issues [17] A. Have the applicants raised a serious issue to be determined? B. Will the applicants suffer irreparable harm if the injunction is not granted? C.

Does the "balance of convenience" favour the applicants? Analysis [18] In R.J.R. McDonald Inc. v. Canada (Attorney General) (1994), (SCC), 111 D.L.R. (4th) 385, the SupremeCourt set out the test for determining whether an applicant is entitled to an interlocutory injunction. The applicants must raise a seriousissue to be determined, show that they would suffer irreparable harm if the injunction were not granted; and show that the balance ofconvenience favours the applicants. A. Have the applicants raised a serious issue to be determined? [19] The Supreme Court has held, in R.J.R.

MacDonald, supra, that the threshold for serious issue is a low one, stating, at 403: Once satisfied that the application is neither vexatious nor frivolous, the motions judge should proceed to consider the second and thirdtests, even if of the opinion that the plaintiff is unlikely to succeed at trial. [20] BPI submits that its claims raise a serious issue. The respondents conceded in oral argument that a serious issue has beenraised. [21] The applicants have furnished evidence of at least some confusion in the form of the Corbin survey. For the purposes of thisapplication, I am satisfied that Dr.

Corbin's conclusion of consumer confusion is a sufficient evidentiary basis to satisfy the low thresholdof "serious issue". I also find compelling Dr. Pearce's evidence that a brand name constitutes but one element of the overall brandmeaning, which also includes the dominant impressions, knowledge, and expectations that customers have of a brand. I agree with theparties that, for the purpose of this interlocutory injunction, the applicants have met the first hurdle of showing that the application isneither vexatious nor frivolous. I therefore proceed to consider the second and third branches of the R.J.R.

MacDonald test. B. Will the applicants suffer irreparable harm if the injunction is not granted? [22] The applicants suggest that the application is brought quia timet "except with respect to the Sheridan Mall" Boston Marketrestaurant that opened on September 9, 2002. The respondents submit that the injunction sought is not quia timet, because there are twoBoston Market restaurants operating in Canada: the Mississauga location that opened September 9, 2002, and a second Mississaugalocation that opened in December 2002. [23] In Sports Authority, Inc. v.

Vineberg et. al, 61 C.P.R. (3rd) 155, Rothstein J. commented on the level of proof required for a quiatimet interlocutory injunction, at 157: Mere assertions of loss of distinctiveness, harm to goodwill or lost sales, per se, are insufficient to prove irreparable harm. In a quia timetapplication such as the one at bar, there is no evidence of actual harm because the alleged infringing or passing-off party is not yet in themarket-place. Therefore, logical inferences must be drawn. However, loss of distinctiveness, harm to goodwill or loss of sales cannot beinferred simply from evidence of confusion.

To demonstrate irreparable harm, an applicant must lead clear evidence showing how suchharm will occur and why it will be irreparable. In the absence of such evidence, there is nothing on which an inference of irreparableharm can reasonably and logically be based. [Emphasis added] [24] As noted in Sports Authority, supra, logical inferences may be drawn from the applicants' evidence.

The level of proofrequired to show irreparable harm in a quia timet interlocutory injunction is, as noted by the applicants, not strictly governed by theprinciples set out in Centre Ice, supra. [25] I am of the view that the quia timet principles do not apply. As noted in Sports Authority, supra, a quia timet injunction maybe requested when the infringing party is not yet in the marketplace. However, Boston Market is in the marketplace, as noted above.

Inaddition, the applicants have placed reliance on factual evidence concerning events that occurred at the first Boston Market Mississaugalocation, namely evidence from Bob Hissink concerning the questions and conduct of several Boston Market customers. It would beinconsistent to apply the quia timet principles while considering the above factual evidence. In my opinion, the normal interlocutoryinjunction principles are to be considered in this case. [26] An applicant for an interlocutory injunction must show that he will suffer irreparable harm unless the injunction is granted.

[ 27 ] Concerning the nature of irreparable harm, in R.J.R. MacDonald, supra , the Court stated at 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 [...]. (Emphasis added) [ 28 ] In Centre Ice Ltd. v. National Hockey League , (1994), 53 C.P.R. (3d) 34, [1994] F.C.J. No. 68 (QL) , the Federal Court of Appeal articulated the principles relevant to a determination concerning irreparable harm.

The harm must be "clear and not speculative". Heald J.A. stated, at para. 7: ...In Syntex, this Court held that the finding by the Trial Judge that the applicant would be likely to suffer irreparable harm was insufficient to warrant the granting of an interlocutory injunction. The use of the tentative expression "is likely" was not correct in view of the Court's earlier jurisprudence supra.

It was necessary for the evidence to support a finding that the applicant would suffer irreparable harm. (Emphasis added) [ 29 ] In Centre Ice, supra , the Court stated that a finding of confusion between competing products does not necessarily lead to a loss of goodwill. There must be specific evidence that links the confusion to a loss.

The Court stated, at para. 9: ...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. (Emphasis added) [ 30 ] The applicants submit that if Boston Market is allowed to continue to use the "Boston Market" name and open restaurants in the Toronto area, consumer confusion will ensue. This will result, according to the applicants, in lost sales and dilution of brand equity.

Because of the confusion, some customers will patronize Boston Market restaurants, believing them to be owned by Boston Pizza. The applicants state that it will be impossible to determine how many customers will do so, and this constitutes harm that is unquantifiable.

Consequently, BPI's planned expansion in Ontario will be disrupted. [ 31 ] The applicants submit that they have met the legal requirement to show "clear and non- speculative evidence of irreparable harm". [ 32 ] The respondents argue that the applicants have not provided 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 state that, if the applicants have tendered some evidence of confusion, there is no specific evidence that such confusion has led even one customer to stop patronizing Boston Pizza restaurants. The respondents note that in Centre Ice, supra , confusion does not necessarily lead to a loss of goodwill. There must be specific evidence that a loss is suffered as a consequence of the confusion. [ 33 ] The respondents further submit that even if the applicants were able to establish with clear and non-speculative evidence that the confusion would lead to a loss, this loss is quantifiable.

The respondents submit that it is possible for the application to make: [R]easonable estimates of their lost sales, loss of market share, and losses to the expansion of its franchise system based on its own evidence of annual revenues, and the expectation the 70-80 Boston Pizza restaurants will open over the next five years. [ 34 ] While there is some evidence of confusion [The Corbin Study], the nature of harm caused to the applicants as a result of this confusion is not clear. Dr. Dawar's evidence concerning loss of sales is couched in somewhat hypothetical terms. He states that the confusion revealed by Dr.

Corbin's study: [P]otentially has several damaging effects for Boston Pizza. First, a direct loss of sales due to confusion will occur. Consumers visiting Boston Market restaurants may do so in the belief that the stores are operated by or closely affiliated to Boston Pizza restaurants, resulting in lost business for Boston Pizza. Furthermore, such consumers may enjoy the Boston Market experience, prefer it to Boston Pizza, and continue to patronize Boston Market and not Boston Pizza , resulting in a long term loss of business for Boston Pizza.

In addition, for consumers who know Boston Pizza, expectations of Boston Pizza created by advertising or by prior experience may not be met at a Boston Market restaurant and, as a result, they may not return to a Boston Pizza.[...] Finally, consumers who have never experienced a Boston Pizza but who are in Boston Pizza's target market and may be expected to patronize Boston Pizza in the future may not be satisfied with their first Boston Market experience and never return to either restaurant. [Emphasis added] [ 35 ] In his evidence, Dr. Dawar hypothesizes numerous scenarios that may, or may not, materialize.

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. [ 36 ] In addition, there is evidence that the two restaurants attract, at least in part, customers from two different markets.

As indicated in paragraph 11 of these reasons, BPI CEO Michael Cordoba admitted that Boston Pizza and Boston Market fall into two different categories of restaurant: casual dining and fast casual, respectively. In my view, this fact calls into question the hypotheses of "customer drift" referred to by Dr. Dawar, which presumes that the customer bases of Boston Pizza and Boston Market are interchangeable. One of the assumptions on which Dr. Dawar's opinion is based is that "Boston Market targets similar markets, serves

similar menu items, and provides similar take-out services, at similar locations as Boston Pizza". Since it is common ground that therestaurants cater to different markets it is questionable whether Dr. Dawar's assumption that the restaurants target similar markets holdstrue. As a result, I find that his conclusions concerning the harm caused by customer confusion are open to scrutiny.

On this ground, Ialso conclude that the applicants have not demonstrated irreparable harm to their business on the basis of loss of their customer base. [37] The applicants also argue that area developers and prospective franchisees will be dissuaded from purchasing or continuingtheir investment in a Boston Pizza franchise as a result of the presence of the Boston Market trade name in the market. [38] In Blockbuster Entertainment Corp. V.

Incorporated First video et al., (1993), 44 C.P.R. (3d) 339 (F.C.T.D.) Teitelbauj J.Found that confusion concerning the Blockbuster trade name and the continued operation of the defendant's stores would cause potentialfranchisees concern over whether to invest in a franchise. Given that the plaintiff relied on the selling of franchises to expand its businessoperation, the plaintiff had shown irreparable harm.

The Court stated, at 344, "[t]he fact that the evidence is such that at least oneprospective franchisee refuses to complete a contract takes this issue out of being merely speculation" (Emphasis added). [39] Unlike the case in Blockbuster, supra, there is no evidence before me that any potential franchisees or customers have backedout of contracts or refrained from patronizing Boston Pizza on the basis of that confusion.

In addition, the applicants' witnesses wereunable, on cross-examination, to state how many area developers or investors would be dissuaded from continuing their dealings with orinvesting in Boston Pizza. [40] BPI notes that it is easier for a potential franchisee to forego the $10,000 deposit than to invest in a restaurant that ultimatelydoes not prosper due to consumer confusion. Statements such as these are speculative and do not assist the Court. [41] Concerning the damage to BPI's franchise operations, Dr.

Dawar states that "franchisees will either attempt to pay less fortheir royalties, contribute less to the cooperative advertising fund, or seek to negotiate other aspects of the franchise agreement tocompensate for the weakened brand" and consequently revenue streams would be damaged. Given that trends in BPI revenues, franchisevalues, and advertising fund contributions are ascertainable, it is difficult to see that a potential loss could not be adequately quantifiedand compensated by damages.

In Centre Ice, supra, at para. 9, the Court held that even if loss of goodwill through the use of a confusingmark had been made out, "a case for irreparable harm would not have been made out because such loss could be fairly compensated forin damages". In the instant case I am in agreement with the respondents' submission that should the confusion cause harm, it would bepossible for the applicants to make reasonable estimates of loss of value to the franchise operation.

However, this issue need not bedetermined since I have found that the applicants have not demonstrated that the confusion generated by the presence of Boston Markethas led to any specific loss. [42] Finally, I note that the concern referred to by the Supreme Court in R.J.R. MacDonald, supra, relating to the inability of oneparty to recover damages from the other is not present in this case.

As noted earlier, the defendant McDonald's Restaurants of CanadaLtd. has undertaken to pay any shortfall between the amount ordered and the amount recovered by the plaintiff if the injunction is notissued and the plaintiff is eventually successful at trial. C. Does the "balance of convenience" favour the applicants? [43] Following R.J.R.

Macdonald, supra, I will consider the third stage of the Metropolitan Stores test even though the motion isdetermined by my finding on irreparable harm. [44] In the balance of convenience test, the Court must determine which of the two parties will suffer the greater harm from thegranting or refusal of an interlocutory injunction, pending a decision on the merits: R.J.R. Macdonald, supra. [45] I am of the view that the balance of convenience in this case favours the respondents. Since July 2002, Boston Market hasspent money on elaborate advertising and marketing campaigns using the name Boston Market.

These efforts included newspaperadvertisements, billboard signs, and letter mailouts to some 50,000 households. The restaurant has also attracted some mediacommentary. If the respondents were obliged to change the restaurant name, the benefits from these advertising efforts would be whollylost. The respondents' loss would be certain and tangible. When compared to the potential loss that may be suffered by the applicants, Iam of the view that the balance of convenience favours the respondents. [46] In addition, I find that the factor of delay in bringing the injunction application is relevant to the present case.

In TurboResources Ltd. v. Petro Canada Inc. (FCA), [1989] 2 F.C. 451, the Federal Court of Appeal upheld the refusal toaward an interlocutory injunction. Considering the "balance of convenience" between the parties, the Court referred to the factor ofdelay, stating, at 23: Counsel, in my view, quite properly points to the significant delay on the part of the appellant in seeking an interlocutory injunctionsome six months after first becoming aware of the respondent's plan to introduce its grade of motor oil to the Canadian market under themark that is now being challenged.

In the meantime, the product, introduced as planned, remains in circulation. Expense has doubtlessbeen incurred. [47] According to the evidence, the applicants have known about the plans for the development of Boston Market restaurants inOntario since October 2001, when the respondents issued a press release and drew the applicants' attention to it. The applicants did notput the respondents on notice nor attempt to restrain the respondents from opening the restaurants under the name "Boston Market" until

August 15, 2002, some nine months later. In the meantime, the respondents had invested in the construction of restaurants and thepreviously-noted advertising campaigns, using the name "Boston Market". [48] For their part, the applicants' attempt to minimize the delay period by arguing that: [T]he defendants launched the Boston Market concept in Canada knowing that they did not own a registered trade-mark which includedthe component "Boston" in Canada and knowing that BPI would take whatever steps were necessary to prevent the use of a confusingname in Canada.

While the respondents might anticipate that BPI would take steps to prevent the use of the name Boston Market, the issue of confusionawaits determination at trial. In my view, presumed anticipation of litigation to determine that issue, does not provide a basis for theapplicants to justify their delay in notifying the respondents. Conclusion [49] The grant of an interlocutory injunction is an extraordinary remedy that should be reserved to those cases where there is clearevidence of circumstances requiring its imposition.

Permitting an application means imposing a harsh remedy at an interlocutory stage,before there has been a full determination of the rights and obligations of the parties: Ciba-Geigy Ltd. v. Novopharm Ltd., (FC), [1998] 2 F.C. 527, [1997] F.C.J. No. 1836 (QL) at para. 17. I conclude that the applicants have not met the test set out inR.J.R. McDonald, supra, for an interlocutory injunction, consequently, I will dismiss the application.

In doing so, I expressly refrain frommaking any finding as to the ultimate merits of the applicants' action for infringement of trademark: I simply conclude that the applicantshave not made a case for an interlocutory injunction. [50] The respondents should have their costs. ORDER THIS COURT ORDERS that: 1. The application is dismissed with costs to the respondents. "Edmond P. Blanchard" Judge FEDERAL COURT OF CANADA TRIAL DIVISION NAMES OF COUNSEL AND SOLICITORS OF RECORD DOCKET: T-1319-02 STYLE OF CAUSE: Boston Pizza International Inc. et al. v. Boston Market Corporation et al. PLACE OF HEARING: Vancouver, B.C.

DATE OF HEARING: January 28, 2003 REASONS FOR ORDER AND ORDER: BLANCHARD J. DATED: April 1, 2003 APPEARANCES: Gregory N. Harney FOR PLAINTIFFS Glen A. Bloom/Darlene Corveau FOR DEFENDANTS SOLICITORS OF RECORD: Shields Harney FOR PLAINTIFFS 1285 West Pender St., 9th floor Vancouver, B.C., V6E 4B1 Osler, Hoskin & Harcourt FOR DEFENDANTS 1500-50 O'Connor Street

Ottawa, Ontario, K1P 6L2