The Need To Paper Informal Business Alliances

Small Business Canada

t is common for small businesses to form alliances with others in pursuit of mutual opportunities. While such alliances sometimes take the form of legal partnerships or joint ventures, they are often more casual than that. In all cases, it is important for the parties to draw up agreements setting out their intentions as to how the alliance will work and what is to happen if and when it ends. Too often, I meet clients who failed to do this and find themselves in messy litigation when their alliance breaks up.

A case I argued recently in the Federal Court of Canada will serve as a cautionary tale. My client operated a commercial realty brokerage in Montreal with ambitions to expand into Ontario. He proposed an idea to a colleague where the colleague would open a brokerage in Toronto using my client’s new branding and would help my client revise its website to advertise both brokerages. That would give both brokerages the appearance of a national presence and it would save the colleague the effort of having to develop his own brand and website from scratch. They decided that if things worked out they could enter a profit-sharing agreement.

Meanwhile, the colleague incorporated the Toronto brokerage with a friend of his who was previously unknown to my client. They used my client’s brand as the name of their corporation. The three men discussed some of the details of the arrangement but got distracted with more exciting things like making money before agreeing upon anything or consulting a lawyer.

Business Magazine

A couple of years later, the friend bought out the colleague’s shares in the Toronto brokerage. Not having any personal history the new owner of the Toronto brokerage, my client cut him off from the shared website and told him that the Toronto brokerage could no longer operate under the shared brand. Not surprisingly, the Toronto brokerage refused to change its name, saying that it owned the name jointly with my client or, at the very least, was entitled to continue using it in the Toronto market. My client sued, claiming that it was the exclusive owner of the brand, that the Toronto brokerage had only ever been allowed to use it under a revocable license from my client and that my client had terminated the license when the Toronto brokerage changed hands.

The case raised a number of complex legal issues, including who owns a trademark that different parties have been sharing, whether a party can be bound by a license that they deny the existence of and how such a license may be terminated. At the end of the day, the Court ruled in my client’s favour. But litigation is costly and stressful and the case could well have gone the other way given the technicalities of trademark law. All of this could have been avoided if the parties had consulted a lawyer at the outset or at least turned their minds to what would happen if their alliance broke up.

John Simpson is the Principal and founder of Shift Law. John is an experienced and highly regarded Toronto trademark lawyer, copyright lawyer, licensing lawyer and litigator in all areas of intellectual property, including confidential information and publicity rights. John is one of a select number of trademark and copyright lawyers who have been certified by the Law Society of Upper Canada as specialists in trademark and copyright law.

John has advised many different types of organizations regarding intellectual property law issues and has represented clients successfully in disputes before federal and provincial courts and before the Canadian Intellectual Property Office. He has published numerous articles and papers on intellectual property law issues, a chapter in Intellectual Property Litigation: Forms and Precedents, and he has lectured on intellectual property law at Osgoode Hall law school and elsewhere. He is a regular contributor to Lawyers Weekly, Canadian Lawyer Magazine and is frequently quoted in the Toronto Star, Law Times and other leading publications regarding intellectual property law issues.

John obtained his LL.B from the University of Western Ontario, Faculty of Law where he was one of the original graduates of the Information and Technology Law program in 2003. While at law school, John received numerous awards and prizes for legal writing and advocacy in the area of intellectual property.

Before attending law school, John worked in the Canadian book and magazine publishing industry and, prior to that, he studied philosophy and political theory in Halifax and in New York City. He lives in Toronto with his wife and two sons. When he is not working, John likes running, cycling, playing baseball, skiing and reading.

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