Thursday, March 9, 2017

Interlocutory Injunctions Update Part I: Patent Cases

TearLab Corp v I-Med Pharma Inc 2016 FC 606 Manson J aff’d 2017 FCA 8 Scott JA: Boivin, de Montigny JJA
2,494,540 / TearLab System / i-Pen System

Unilin Beheer BV v Triforest Inc 2017 FC 76 Gascon J
            2,475,076 2,522,321 / glueless locking laminate flooring

In TearLab and Unilin v Triforest, interlocutory injunctions were refused in two patent cases. This is not very surprising, as this result is line with the restrictive approach adopted by the Federal Courts, as discussed in my article on "Interlocutory Injunctions and Irreparable Harm in the Federal Courts," (2010) 88 Can Bar Rev 517. TearLab was a particularly strong case for granting an interlocutory injunction, and, unusually, the decision was appealed, and affirmed; but otherwise these cases serve mainly to affirm the established restrictive approach to interlocutory injunctions in patent cases. However, there have also been some more or less recent cases that have granted interlocutory injunctions in copyright and trade-mark cases. This invites the question of whether all of these cases can be reconciled, particularly as Gascon J addressed the copyright cases at length in his Unilin decision. Today’s post will provide some background, and discuss the patent cases, and the next couple of posts will discuss the copyright and trade-mark cases.

In American Cyanamid [1975] UKHL 1, [1975] AC 396, Lord Diplock set out a three-part test for the grant of interlocutory injunctions, requiring the applicant to establish that: (1) there is a serious question to be tried on the merits; (2) the applicant would suffer irreparable harm if the application were refused; and (3) the balance of convenience favours granting the injunction. After widespread use in Canadian cases (see Metropolitan Stores, [1987] 1 SCR 110, 128), the SCC in RJR-MacDonald [1994] 1 SCR 311, 347 held that “the three-part American Cyanamid test should be applied to applications for interlocutory injunctions and as well for stays in both private law and Charter cases.”

This three-part test has generally been interpreted as a risk-balancing exercise. As Sharpe J has said (writing extra-judicially, in Injunctions and Specific Performance (2012), §2.60), “The problem posed by interlocutory injunction applications may best be understood in terms of balancing the relative risks of granting or withholding the remedy before full adjudication of the legal rights at issue.” The problem is one of balancing, because at the interlocutory stage the court cannot know with certainty which side will ultimately prevail. If the interlocutory injunction is ‘wrongly’ refused (in the sense that the plaintiff ultimately prevails at trial), the applicant will have had its rights denied in the interim, but it will be protected, at least partially, by the grant of damages. On other hand, if the interlocutory injunction is ‘wrongly’ granted, the defendant will have had its rights denied in the interim, but it will be protected, at least partially, by the grant of damages on the undertaking which is normally required as a condition of granting the injunction. The risk arises because we cannot know with certainty which party will prevail, and there is potential injustice to the extent of the difference between the true value of each party’s right, and the value of the damages that it will be awarded if its rights are not respected. So, Hoffmann J (as he then was) articulated the risk-balancing approach in the following terms, in Films Rover International Ltd v Cannon Film Sales Ltd:

The principal dilemma about the grant of interlocutory injunctions. . . is that there is by definition a risk that the court may make the “wrong” decision. . . . A fundamental principle is therefore that the court should take whichever course appears to carry the lower risk of injustice if it should turn out to have been “wrong.”

The “lower risk of injustice” approach is a more specific variant of the “risk-balancing exercise” described by Sharpe.*

Because balancing is required, in most jurisdictions the irreparable harm branch is not viewed as a strict threshold, and it does not require any particular degree of proof. Sharpe summarized the (non-Federal Court) Canadian case law by saying that “the test [for irreparable harm] is a relative and flexible one,” in which irreparable harm “can only be defined in the context of the risk-balancing exercise,” and consequently, “attempts to make irreparable harm, and hence a condition precedent, and hence a threshold test, have been rejected.” See similarly Potash Corp 2011 SKCA 120 [57]-[58] (quoting Sharpe with approval re “balancing the relative risks”); Apotex Fermentation 56 C.P.R. (3d) 20, 24-25 (Man CA) (quoting Sharpe with approval re “assessing the relative risks”); Circuit World 100 OAC 221, 33 OR(3d) 674 (ON CA) (noting “These three criteria are not watertight compartments. The strength of one may compensate for the weakness of another.”); Imperial Sheet Metal Ltd v Landry, 2007 NBCA 51 [7] (noting that irreparable harm is not a condition precedent to the granting of injunctive relief).

As the Sask CA noted in Potash Corp [51], the FCA is “at the far end of the range” with respect to the standard of proof of irreparable harm. Starting in the late 1980s and early 1990s, the FCA jurisprudence developed what can be described as a “high threshold” approach to irreparable harm. As Manson J noted, at [33], the plaintiff is required to adduce “clear and non-speculative” evidence that irreparable harm will follow if the injunction is not granted [33]. If it is “possible” to calculate damages they will be considered adequate unless the assessment is little more than a guess: Aventis 2005 FC 815, [59] aff’d 2005 FCA 390 [5]. Under this approach, the irreparable harm requirement is a true threshold, such that cases may be decided without substantial consideration of the balance of convenience. Second, and equally important, it is a high threshold, so that not only may cases be decided without assessing the balance of convenience, many cases are indeed decided without assessing the balance of convenience. This contrasts with the approach in other Canadian jurisdictions. As Seaton JA put it in British Columbia (Attorney General) v Wale 1986 CanLII 171, 6-7 (BCCA) aff’d [1991] 1 SCR 62, “It is important to note that clear proof of irreparable harm is not required. Doubt as to the adequacy of damages as a remedy may support an injunction,” citing Cyanamid and quoting Sharpe as stating that irreparable harm, status quo, and balance of convenience “ought not to be seen as separate, water-tight categories. These factors relate to each other, and strength on one part of the test ought to be permitted to compensate for weakness on another.”

The rationale for the high threshold was set out most clearly in the seminal case of Cutter Ltd v Baxter Travenol Laboratories of Canada, Ltd (1980), 47 CPR(2d) 53, 55-56 (FCA) where the Court explained why the grant of an interlocutory injunction in a patent infringement action is “not a common occurrence”:

The principal reason for this practice is, in my opinion, the fact that in most instances the nature of the patent rights involved is such that damages (provided there is some reasonably accurate way of measuring them) will be an adequate remedy for such infringement of the rights as may occur pending the trial and because when the matter turns on the balance of convenience if the defendant undertakes to keep an account and there is no reason to believe that he will be unable to pay such damages as may be awarded, the balance will generally be in favour of refusing the injunction.

In other words, an injunction may be denied, because even if it turns out that the action succeeds, so the plaintiff’s rights were impaired in the interim, the plaintiff will be compensated in damages. This is one half of an excellent point. The other half is that if the injunction is granted and the action fails, so the defendant’s rights were impaired in the interim, the defendant will be compensated in damages on the undertaking that is normally required of plaintiff. Put the two halves together, and we have a justification, not for the high-threshold approach, but for the risk-balancing approach.

A second rationale for the high threshold is that an interlocutory injunction is such “serious relief” that the courts should be reluctant to grant it: Janssen 2014 FCA 112 [24]. I must say that I don’t really see the force of this point. Certainly it is a serious relief, but it is serious on both sides. If damages are adequate for the plaintiff, why are they not adequate for the defendant? The high threshold means that the patentee will often be denied an interlocutory injunction even though the risk of injustice is much greater than if the injunction were granted. I don’t see how the seriousness of the relief justifies that result.

The only real justification for the high-threshold approach rests on a much more tenuous basis, namely the view that damages fall into two radically different categories: either they are incapable of quantification; or they are perfect compensation. If damages are generally perfectly compensatory, then it is reasonable to refuse to grant an interlocutory injunction except in the rare cases where quantification is imperfect. But perfect quantification is an extremely stringent requirement: as Lord Shaw remarked “[t]he restoration by way of compensation is. . . accomplished to a large extent by the exercise of a sound imagination and the practice of the broad axe.” Watson Laidlaw (1914), 31 RPC 104, 117-18 (HL) cited and applied in Colonial Fastener [1937] SCR 36, 41. The more realistic view is that damages fall along a spectrum in terms of difficulty of assessment, and damages are rarely, if ever, perfectly compensatory in patent cases. If we accept that, then the balance of convenience requires a comparison of the losses suffered by both parties.

On the facts, TearLab was a particularly strong case for an interlocutory injunction. The invention at issue is a diagnostic device for testing tear fluid, and particularly for the diagnosis of dry eye disease. As noted by Manson J, [3], the undisputed facts were set out by Russell J in his decision in the previous interim injunction motion 2016 FC 350. As Russell J summarized at [26]:

• the Defendant [I-MED] has proceeded with full knowledge of TearLab’s rights, while refusing to disclose its launch date or to provide TearLab with advance notice prior to the launch of the i-Pen System in Canada;

• the Defendant has not yet marketed its i-Pen System

• The Defendant sells a variety of other products and is not reliant exclusively upon the i-Pen System

• TearLab’s revenue is derived solely from the sale and rental of the TearLab system and the TearLab Test Cards;

• The TearLab System had been sold in Canada since late 2009/early 2010, while the Defendant has not yet launched its product in Canada;

While none of these factors would be determinative in a risk-balancing approach, cumulatively they paint about as strong a case for irreparable harm as we are likely to see in a patent case.

A comparison with the US jurisprudence on this point is instructive. In the US since eBay 547 US 388, 391 (2006), a four-factor test is used in determining whether to grant a permanent injunction to a successful patentee. On the first branch of this test the plaintiff must demonstrate that it has suffered an irreparable injury. This is normally satisfied when the patentee and the infringer are competitors in the market, as in TearLab. Indeed, “the most common reason by far for finding irreparable harm was loss of market share: Seaman, Permanent Injunctions in Patent Litigation After eBay: An Empirical Study, 101 Iowa L Rev 1949, 1949 (2016). This is primarily because US courts are of the view that lost profits are particularly difficult to prove: see e.g. i4i v Microsoft 598 F. 3d 831, 862, where the Federal Circuit says: “In this case, a small company was practicing its patent, only to suffer a loss of market share, brand recognition, and customer goodwill as the result of the defendant's infringing acts. Such losses may frequently defy attempts at valuation, particularly when the infringing acts significantly change the relevant market, as occurred here.” The Federal Court, it seems, is much more confident of its ability to assess lost profits than are its US counterparts.

Of course, eBay dealt with a permanent injunction, not an interlocutory injunction, and the test, at least in Canada, is different: see 1711811 Ontario Ltd 2014 ONCA 125, [74]-[80]; Cambie Surgeries Corp 2010 BCCA 396 [23]-[32], esp [28]). But the irreparable harm requirement is the same: “[t]he traditional rule is that an injunction will be granted only where damages would provide an inadequate remedy.” That rule is applicable to every kind of injunction, and indeed to all equitable relief: Sharpe, § 1.60. Thus, while the eBay Court was applying a different test, it was discussing the same concept of “irreparable harm.” (I should stress that I am by no means advocating the adoption of the eBay approach in Canada: see Mark P. Gergen, John M. Golden & Henry E. Smith, The Supreme Court's Accidental Revolution? The Test for Permanent Injunctions, 112 Colum. L. Rev. 203 (2012) for a critique. My point is the contrast with respect to the concept of irreparable harm in particular.)

The reason the irreparable harm requirement applies to any type of injunction, is, as I explain in my Irreparable Harm article, that the requirements were a (self-imposed) limit on the jurisdiction of the courts of equity: see also Sharpe, § 1.60. While the irreparable harm requirement is the same for both permanent and interlocutory injunctions, its application is very different. Consider the contrast between the Federal Courts’ approach to irreparable harm in the context of interlocutory as opposed to permanent injunctions. Permanent injunctions are routinely granted to a successful patentee. I am aware of only one Canadian case in which a permanent injunction has been entirely denied to a successful patentee, namely Unilever PLC v Procter & Gamble Inc (1993), 47 CPR(3d) 479, 572 (FCTD, and one other in which it was granted in a modified form, Janssen v Abbvie 2014 FC 489 (set aside for other reasons 2014 FCA 241, as discussed here). In Unilever the injunction was denied, not because the patentee had failed to establish irreparable harm, which was not even mentioned, but primarily because of the hardship on the infringing defendants and particularly its employees. A fortiori, permanent injunctions are routinely granted to successful patentees in cases in which an interlocutory injunction would be refused in Canada for failure to establish irreparable harm.

These different approaches to permanent and interlocutory injunctions are easy to explain on a balancing approach. Once infringement of a valid patent has been established, we are left to balance the risk that damages will not be accurately quantified, against the hardship to the infringer. A relatively small risk of inaccurate quantification will justify an injunction, except in the face of serious hardship to the infringer. This balancing approach was explicit in the decision of Hughes J in Janssen v Abbvie 2014 FC 489, [16] (blogged here), in which he stated that in deciding whether to grant an injunction,

the Court is required to balance on the one hand, the rights of a patentee to the exclusive use of their claimed invention, including the right to control, by licence, others who wish to use the claimed invention, with the commercial desire of the Defendant to sell the infringing drug and, with a medical need by some members of the Canadian public to have continued access to the infringing drug.

Consequently, irreparable harm is not applied as a test, but “may inform the determination as to whether an injunction is an appropriate remedy” [38]. Put another way, there is really only one question as to whether injunctive relief, of any type, should be granted, namely whether it is appropriate in light of all the relevant circumstances. One there has been a final determination on the merits, we have more certainly on that front, and the difficulty of quantification of damages takes on relatively less weight.

It is much more difficult to explain the Federal Courts’ approach to permanent injunctions with their high-threshold approach to interlocutory injunctions. As noted, the origin of the irreparable harm requirement is the same for both interlocutory and permanent injunctions, which implies that the nature of the test should be the same in either context. If it is one factor among several to be considered, then the relative weight of the difficulty of quantifying damages will shift as the other factors weigh more or less heavily; but if it is truly a threshold test, then the threshold must be the same for interlocutory injunctions as for permanent injunctions. Given that the requirement of irreparable harm applies to both interlocutory and permanent injunctions, if it is truly a threshold, the threshold is – inexplicably – much higher in the context of interlocutory injunctions than in the context of permanent injunctions.

The contrast between Federal Court practice and Canadian case law more generally is highlighted by Manson J’s discussion of American Cyanamid:

[45] While American Cyanamid, above, is certainly relevant for the principles underlying interlocutory injunctions, I agree with the Defendant that analogising to a somewhat dated decision of the House of Lords does not trump more recent and relevant decisions of Canadian Courts that have qualified and expanded upon those principles in the Canadian context.

The FCA similarly dismissed Cyanamid along with other “outdated” decisions of the Federal Courts, saying these “cannot displace the seminal decision of the Supreme Court of Canada in RJR Mac-Donald and Manitoba (AG) v Metropolitan Stores Ltd” [11]. In my Irreparable Harm article I noted that “it is clear that the injunction granted in Cyanamid would be refused under the Federal Courts’ high threshold approach,” and this is explicit judicial confirmation of that observation. As a matter of authority, it is of course true that RJR Mac-Donald, and not Cyanamid itself, is the binding authority in Canada; but the SCC in RJR Mac-Donald explicitly approved Cyanamid’s analysis of irreparable harm analysis, citing it for the proposition that an example of harm that cannot be quantified in monetary terms is “where one party will suffer permanent market loss or irrevocable damage to its business reputation” (341).

With that said, it is true that the law evolves, and even a high authority may become outdated. But age alone is never cause for rejecting a leading case, as the test of time may just as easily demonstrate the lasting wisdom of the decision. Despite his reference to Canadian decisions as qualifying Cyanamid with respect to irreparable harm, Manson J only cited FC and FCA decisions. Other Canadian decisions have also qualified Cyanamid, but in very different ways, primarily with a general trend away from a strict three-part test and towards a greater emphasis, not less, on the balance of convenience. My point here is not that the law set out in Cyanamid, even as adopted in RJR Mac-Donald, is cast in stone, but rather that the comparison with the facts in Cyanamid, shows how far the Federal Courts’ jurisprudence has diverged from that in other Canadian jurisdictions.

The high threshold approach was also evident in Manson J’s statement, “My conclusion on the balance of convenience aspect of the tripartite conjunctive test set out in RJR MacDonald flows from my above finding that TearLab has not established it will suffer irreparable harm if an injunction is not issued pending trial, and my conclusion that damages will be an adequate remedy” [82]. In other words, the balance of convenience is entirely subsumed by the irreparable harm requirement.

In summary, we have long known that the Federal Courts’ jurisprudence on irreparable harm has evolved since Cyanamid was approved by the SCC. The strength of the facts in TearLab emphasize just how far it has diverged from the requirements set out in Cyanamid, in other Canadian jurisdictions, and even in US case law. The interesting question, which I will explore in the next two posts, is whether the Federal Courts’ copyright and trade-mark jurisprudence is departing from the patent jurisprudence.

*Addendum: The current leading case in the UK is the decision of the Privy Council in National Commercial Bank Jamaica Ltd v Olint Corp Ltd [2009] UKPC 16, [16]-[20], in which Lord Hoffmann, interpreting Cyanamid, endorsed the lower risk of injustice approach, saying “The basic principle is that the court should take whichever course seems likely to cause the least irremediable prejudice to one party or the other.” He noted that “ it is often hard to tell whether either damages or the cross-undertaking will be an adequate remedy.” This contrasts with the high-threshold approach both in saying that damages will “often” be inadequate, and in treating both parties symmetrically. He noted that

[18] Among the matters which the court may take into account are the prejudice which the plaintiff may suffer if no injunction is granted or the defendant may suffer if it is; the likelihood of such prejudice actually occurring; the extent to which it may be compensated by an award of damages or enforcement of the cross-undertaking; the likelihood of either party being able to satisfy such an award; and the likelihood that the injunction will turn out to have been wrongly granted or withheld, that is to say, the court’s opinion of the relative strength of the parties’ cases.

The adequacy of damages is merely one factor to be considered in the risk-balancing exercise, not a strict threshold requirement.

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