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Intellectual Property, Charity and Not-For-Profit

Charities must be vigilant to protect their brand

The recent action in which the Canada Revenue Agency sought to deregister a charity over mixing of personal and corporate funds is a clear example to all charities to act quickly to protect their brand, says Toronto lawyer Taras Kulish.

As the Toronto Star reports, Michael O’Sullivan, executive director of the Humane Society of Canada for the Protection of Animals and the Environment —  which operates as the Humane Society of Canada — is continuing to fight the CRA to keep his organization’s tax-free status.

Despite the similarity in name, the Humane Society of Canada does not act for the 52 humane societies and other animal welfare charities across Canada which are in fact members of the Canadian Federation of Humane Societies (CFHS).

Kulish, who practises both charity/not-for-profit and intellectual property law at Steinberg Title Hope & Israel LLP, says an interesting aspect of this case is the similariity between the names of the two charities — a situation in that is commonly known in the IP world as “passing off.”

He notes former prime minister Stephen Harper’s wife Lareen accepted an award from the Humane Society of Canada. Kulish wonders whether she thought it was a national charity connected with local humane societies.

Kulish tells AdvocateDaily.com the similarity is probably an infringement on the CFHS name and marque and should have been addressed long ago by the national humane society.

“I tell my clients they have to act quickly to stop infringement of this nature,” he says. “The law is there to stop confusion in the marketplace.”

Ultimately, he says, the CRA case involving O’Sullivan could muddy the waters for all humane societies and that kind of attention can be damaging to legitimate brands.

Another high-profile example — also involving an animal charity — is the World Wildlife Fund, which won an action in the U.K. Court of Appeal against the World Wrestling Federation in 2002 claiming it was in breach of a 1994 agreement not to use the WWF designation to avoid confusion. In that case, the WWF charity took Vince McMahon’s World Wrestling Federation to task and won a knock-down victory. Kulish says as an aside that this case “proved that it does not bode well to pick a fight against a charity that protects animals."

The CRA doesn’t enforce trademark law, but is mandated to ensure money donated as a charitable contribution — and thus eligible for a tax deduction — is properly directed to the designated causes. 

“A charity cannot spent on funds on frivolous items not connected to the purposes of the charity," Kulish says. "The directors of a charity must be good stewards of the funds with which they are entrusted.”

The CRA first audited O’Sullivan in 2007 for the 2006 tax year and the case has been ongoing since then. It became public when the CRA moved to deregister the organization in 2010.

The Federal Court of Appeal noted the CRA found the organization’s books were deficient and that more than $250,000 in expenses were at question.

At the heart of the issue was $70,000 in expenses reimbursed by the charity for “personal  meal  expenses,  the  cost of  comic  books purchased  through  Paypal, liquor  purchases from  the  LCBO, grocery  purchases,  tickets  to entertainment events  in  the  UK and the USA and expenses of Mr. O’Sullivan and his family  at Disneyland,” the decision reads.

The charity argued almost six per cent of total expenses for 2006 “were mischaracterized as expenses” and it was through “inadvertence” more than intent. The Federal Court of Appeal disagreed, and now O’Sullivan is taking his case to the Supreme Court of Canada to appeal, the Star reports.

No matter how the issues between the CRA and the Humane Society of Canada are resolved, the litigation and ensuing media attention could be damaging to the CFHS brand.

“All animal lovers should be rightly concerned with this case,” Kulish says. “Charities need to protect their names because goodwill is so important in their relationships with their donors. There’s an issue of trust there. You have to act when you become aware of situations like this otherwise it can come back to hurt you.”

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