How not to set up a startup

Law360 Canada (June 20, 2024, 1:10 PM EDT) --

John McKeown

Wanakome Inc. is a Canadian corporation, and Kemel Hadad was the controlling shareholder. Wanakome applied in Canda for the trademark WANAKOME. The application was eventually opposed by the defendants (Wanakome Inc. v. Martin, 2024 FC 688).

The defendants, Eric and Kara Martin, are the owners of the shares of Park Enterprises Worldwide Inc. Park’s commercial activities include the sale and distribution of various lines of clothing at a wholesale level, including clothing bearing the WANAKOME trademark.

For over two years, Hadad and his company, Double J Fashion Group 2013, were in a business relationship with Park, which involved the conception of the WANAKOME brand, the incorporation of Wanakome Inc. and the manufacture, production, distribution and sale of clothing bearing the WANAKOME trademark and, sometimes, the Wanakome logo. The logo was the subject matter of Canadian copyright registration owned by Park.

The defendants were looking for a business partner who could handle production and distribution of a new clothing brand while they would oversee marketing, design, communication, customer relations and sales. Hadad had the attributes and the parties worked jointly and collaborated on the production and sale of the WANAKOME line of clothing. Hadad/Double J handled the finances and was responsible for administration, manufacture and production of the clothing line; Park was responsible for sales, marketing, public relations and most aspects of design.

The Martins conceived the WANAKOME trademark based on a trip they had taken to New Zealand. Hadid incorporated Wanakome Inc. and caused it to file trademark applications in several countries, including Canada.

Hadid gave Eric Martin a draft shareholder agreement for Wanakome Inc., which identified Hadad, Eric Martin and Robert Carsley, a business associate of Hadad, as proposed shareholders. Over the autumn of 2019, Eric Martin contacted Hadad on several occasions to discuss the draft agreement and, in January 2020, sent Hadad a markup of the draft; however, a final agreement was never made or executed.

The relationship between Hadad and Park soured. The defendants asserted that the plaintiff had misappropriated the Wanakome brand and was“abusively” claiming sole ownership. They contended that when the trademark application was filed, they were reassured in writing they “would be taken care of in the Wanakome Inc. shareholder agreement” and that shares were to be issued to their benefit.

Action

Hadad caused Wanakome Inc. to bring an action against the Martins and Park seeking a declaration that Wanakome Inc. was the owner of the WANAKOME mark and that the copyright registration was invalid. It was also alleged the defendants had engaged in passing off.

On the first issue, the judge referred to the fact that the parties for a considerable period acted on the basis there was a joint venture between them. Wanakome Inc.’s intellectual property would remain the sole property of Wanakome Inc. and not that of its shareholders, who were to include Hadad and Martin, amongst others.

There was a live dispute between Hadad and the Martins as to their respective interests in Wanakome Inc. that extended beyond the jurisdiction of this court. In addition, it was not clear whether Hadad had the authority to terminate the relationship with the defendants and take sole control over the WANAKOME trademark. As a result, the judge refused to grant the requested declaration.

Based on this conclusion the plaintiff could not assert a claim to passing off. In an action under subsection 7(b), the plaintiff must meet an initial threshold requirement of establishing possession of a valid and enforceable trademark, either registered or unregistered, when the defendant first began directing public attention to its own goods and services.

Regarding the copyright, the plaintiff failed to show that there was another joint author of the design. It also failed to establish any assignment to it of the copyright express or implied.

Comment

The parties started with a good approach. It seems better to have a corporate vehicle own the intellectual property of a new business since this allows for more flexibility in working out the respective interests of the parties involved. Having one individual own all or much of the intellectual property seems overly blunt. Unfortunately, in this case, things broke down in negotiating the agreement between the parties.   

John McKeown, counsel at Goldman Sloan Nash & Haber LLP, is certified by the Law Society of Ontario as a specialist in intellectual property law (trademarks/copyright). He is the author of Canadian Intellectual Property Law and Strategy: Trademarks, Copyright and Industrial Designs. He can be reached at mckeown@gsnh.com.

The opinions expressed are those of the author and do not reflect the views of the author’s firm, its clients, Law360 Canada, LexisNexis Canada or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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