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In 2021, the Arkansas-based chain of eateries Slim Chickens took its first steps to enter the Canadian market. While trying to secure a trademark for the restaurant’s name, they found out that someone had beaten them to it. Even though the applicant hadn't opened a single restaurant under the Slim Chickens name, the U.S. company had to slow down its expansion plans.Mike Fender/The News Herald/Reuters

After the Arkansas-based chain of eateries Slim Chickens successfully expanded into Britain in 2018, it started to look for other international markets. In late 2021, prompted by interest among potential franchisees, the company took its first steps to enter the Canadian market.

High on the to-do list was securing a trademark for the restaurant’s name. There was just one problem: A few months earlier, someone had beaten them to it. And even though that applicant has not yet opened a single restaurant under the Slim Chickens name, the U.S. company has had to slow down its expansion plans.

“Until my legal counsel advises me we can go ahead and get some deals progressing, I’m just somewhat in limbo,” said Sam Rothschild, Slim Chickens’ chief operating officer.

Ottawa changed intellectual-property laws in 2018 and 2019 to make it possible for a business to apply for a trademark without demonstrating that it had ever used it. At the time, the legal community warned it could facilitate the practice of trademark squatting – registering a name with the intention of holding on to it so someone else can’t, possibly with plans to sell it later on. A few years later, some experts say those warnings have been proven prescient.

Myra Tawfik, a law professor at the University of Windsor, said the changes were made in part to alleviate the administrative burden on the Canadian Intellectual Property Office, the body that adjudicates trademarks, copyrights and patents.

Trademark registration can take years. CIPO’s service standard to respond to a trademark application from a Canadian applicant in commonly used categories is 18 months, but the office only hit that target for 5 per cent of applications last year.

However, Prof. Tawfik said reducing the initial red tape has shifted more work to applicants and the legal system.

“The effect of what we have done is to really put more of the burden on companies … to sort of manage the system, rather than having a decision at the outset about whether that trademark is registrable,” she said.

Companies that contend someone else has applied for a trademark inappropriately have a window during the examination process to register their opposition. They can also file a challenge with the Trademarks Opposition Board after the trademark is approved.

As part of the government’s reforms – and in response to the legal community’s concerns – Ottawa added a new criterion for challenges: that the application was made in “bad faith.”

The bad-faith argument has only been made in court a few times, and judges have generally characterized it as hard to prove.

But it has been used successfully at least once. In 2022, a judge ruled in favour of Beijing Judian Restaurant Co. Ltd., a Chinese restaurant chain that came to Canada in 2018. Prior to that, an individual in B.C. had registered a trademark for the name and logo of the restaurant chain, then tried to sell it to the company for $1.5-million, according to the ruling. When the restaurant’s owners refused to pay, they were met with threats in what the judge deemed an extortion scheme. Federal Court Justice Angela Furlanetto declared the trademark invalid and expunged it.

But other cases may not always be so clear-cut, Prof. Tawfik said, explaining that a company registering a trademark in Canada that has the same name as a company in another country doesn’t prove wrongdoing on its own.

In the case of Slim Chickens, it was beaten to the punch by Habit Brands Canada Corp., which had operated a restaurant in Edmonton called Habit Grill & Bar until it closed in the early days of the pandemic.

Habit said it started applying for trademarks in 2014, eventually filing applications for nine different variations on the name Habit.

The company said it started applying for dozens more during the pandemic because it intended to shift to a business model in which it would license brands to other restaurants for use on food-delivery apps. Many of the trademarks have the same or similar names as establishments in other countries.

“Subject to receipt of final trademark registrations, Habit intends to use the trademarks it has applied for in the operation of virtual kitchens, delivery-only virtual brands, and for other restaurant uses. Any suggestion otherwise is false,” the company said in an unsigned e-mail in response to questions from The Globe and Mail.

Corporate records show Habit’s sole director is Bill Hanson, the owner of more than a dozen Arby’s franchises and the chairman of the Arby’s Franchisee Association of Canada.

Chad Finkelstein, a lawyer at Dale & Lessmann LLP who is working with some of the restaurant chains that have taken issue with the trademark applications, said he does not think Habit’s trademark applications are a coincidence.

Mr. Finkelstein said he thought the old system was better. “Having a use requirement … was a measure of ensuring that people were actually going to use the trademark and not just squat on it,” he said.

With a report from Stephanie Chambers