Friday, March 10, 2017

Interlocutory Injunctions Update Part II: Copyright Cases

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

As discussed in yesterday’s post, most Canadian jurisdictions use a risk-balancing approach to interlocutory injunctions. The Federal Courts, in contrast, use a high-threshold approach to irreparable harm, with the result that interlocutory injunctions have been very difficult to get in IP cases. However, a series of copyright cases have held that in cases of blatant copying, the threshold for irreparable harm is much lower, and perhaps even nonexistent. These include the following copyright cases in which an interlocutory injunction was granted: IBM v Ordinateurs Spirales Inc (1984), 80 CPR (2d) 187 (FCTD), Reed J; Universal City Studios (1983), 73 CPR (2d) 1 (FCTD), Walsh J; Jeffrey Rogers Knitwear 6 CPR (3d) 409, Dubé J; 75490 Manitoba (1989) 29 CPR(3d) 89, Rouleau J; Diamant Toys 2002 FCT 384 Nadon J; Bell Canada 2016 FC 612 Tremblay-Lamer J. The question is whether these copyright cases can be reconciled with the patent cases, such as Unilin, and TearLab 2016 FC 606 J aff’d 2017 FCA 8 (discussed in yesterday’s post).

This question was directly addressed by Gascon J in Unilin. He reviewed a number of the copyright cases, which he summarized as follows:

[108] [T]hese "blatant infringement" cases did not go as far as suggesting or implying that no proof of irreparable harm is required in order to obtain an interlocutory injunction when there is evidence of blatant copyright infringement. In my view, they rather only hold for the proposition that a strong finding on the first prong of the tripartite injunction test in copyright cases may lower the threshold on the other two prongs, and that it may then be appropriate to consider a less severe test of potential damage than would otherwise be the case.

Here, Gascon J is explicitly acknowledging that there is a lower threshold for irreparable harm in cases of blatant copyright infringement. Whether the cases went so far as to say no proof at all is required is largely beside the point. A low threshold for irreparable harm would be a sea change in Canadian law, of the same magnitude, if it were at the FCA level, as the original cases holding that the threshold is very high. The effect of the high-threshold approach to irreparable harm is that it is almost impossible for a patentee to show a likelihood of irreparable harm, and this is often determinative.

Unilin itself is a standard high-threshold decision. Gascon J cited the standard requirement to show irreparable harm on the basis of “clear and non-speculative evidence” [117], and he concluded that irreparable harm had not been established [168]. Despite having concluded that the patentee had established a strong prima facie case of infringement [63], [113], he refused to grant an interlocutory injunction on the basis of failure to establish irreparable harm, even without consideration of the balance of convenience, because the motion will succeed “only if all three requirements are proved, and one of the elements has clearly not been established” [169]. Thus irreparable harm was expressly being used as a true threshold. He did go on to consider the balance of convenience in one paragraph, but even then it was entirely subsumed under consideration of irreparable harm [170]. With that said, on the facts, the case in favour of granting an interlocutory injunction was not as strong on its face as in TearLab, and it may be that the injunction would have been refused even on a risk-balancing analysis. But that is speculative, given that Gascon J did not undertake a risk-balancing exercise.

The question then is whether there is a principled distinction between these blatant copying cases, and other IP cases. In my view, the cases can be reconciled in principle if we accept a risk-balancing approach, but that would require rejecting the high-threshold approach. (Though that’s not to say the patent cases would have been decided the same way using a risk-balancing approach.) But the copyright cases cannot be justified on the high-threshold approach; they must be considered to be wrongly decided. The high-threshold approach is based on a principle of general application set out in Cutter v Baxter Travenol (1980), 47 CPR(2d) 53, 55-56 (FCA) (discussed yesterday), as is the risk-balancing approach, and it would be unprincipled to apply a risk-balancing approach to copyright cases and a high-threshold approach to patent cases.

Diamant Toys, 2002 FCT 384 is one of the copyright cases adopting a low threshold. Gascon J [107] distinguished Diamant Toys by noting that in Bell Canada 2016 FC 612, [29], Tremblay-Lamer J had remarked that Diamant Toys “has subsequently been read by this Court as being restricted to cases where there is a finding of blatant copyright infringement.” But Tremblay-Lamer J immediately elaborated as follows (my emphasis):

[30] That being said, I agree with the statement by Justice Annis in Geophysical Service Inc [2014 FC 450] that a strong finding on one prong of the tripartite injunction test – as is the case here – may lower the threshold on the other two prongs:

[35] Moreover, the three prongs of the interlocutory injunction test are to some degree to be treated together and not as separate silos: Robert J. Sharpe, Injunctions and Specific Performance, loose-leaf (Aurora: Canada Law Book, 2010 at para 2.600) as quoted in Morguard Corporation v InnVest Properties Ottawa GP Ltd, 2012 ONSC 80 at para 12:

The terms 'irreparable harm', 'status quo' and 'balance of convenience' do not have a precise meaning. They are more properly seen as guides which take colour and definition in the circumstances of each case. More importantly, they 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 weaknesses on another.

[36] There exist situations where the applicant’s case is sufficiently strong that the threshold for meeting the other two factors can be set so low as to be irrelevant. I believe that this may have been the approach underlying the statement in Diamant Toys, [2002 FCT 384], that it was not necessary to establish irreparable harm where copying is blatant.

This is a perfectly clear endorsement of the risk-balancing approach by both Tremblay-Lamer J and Annis J. They are not saying that the low-threshold approach in Diamant Toys was “restricted” in the pejorative sense of a line of reasoning which is now recognized as being wrongly decided, but which is too well-established to be overturned, and so is confined to its facts. Rather, Tremblay-Lamer J was saying that a sound principle, namely risk-balancing, will lead to a particularly low threshold when blatant copying gives rise to a particularly strong case on the merits; the very low threshold (irrelevance) is “restricted” to those cases where the case on the merits is particularly strong.

Tremblay-Lamer J also cited Western Steel 2009 FC 791, [11-12], for the proposition that Diamant Toys had been restricted to cases of blatant infringement. In Western Steel at [11], Snider J distinguished two low-threshold cases as involving a preservation order. More significantly, she distinguished two other low-threshold cases on the basis that they pre-date the FCA cases establishing the high threshold. In other words, Snider J is not really saying that these two cases are confined to blatant infringement, but rather that they are inconsistent with the high-threshold approach, and so would be considered wrongly decided under current law.

The bottom line is that the “blatant copying” copyright cases are squarely based on the risk-balancing approach. We can say they were rightly decided, on the view that the risk-balancing approach is sound in principle, as Tremblay-Lamer J in effect held; or we can say there were wrongly decided, as Snider J effectively said; but either way, they are inconsistent with the high-threshold approach.

With that said, I accept that there is a real distinction between a patent case and blatant infringement in copyright. One distinction is that when there is blatant copying it will be easier to establish a strong prima facie case on the merits. It will rarely be possible to establish such a strong case in an interlocutory patent proceeding, in part because patents are held to be invalid sufficiently often that at the interlocutory stage there will almost always be a real question as to whether a validity defence might succeed (except perhaps where the patent has already been held valid in prior separate proceedings): see Unilin [111]. But that is a generalization about the facts, not a distinction in principle. Even accepting that distinction on the facts, the lower threshold in copyright cases of blatant infringement is inconsistent with the basic rationale for the high threshold. The rationale for a high threshold is that even if the plaintiff’s right will be violated, there is no need to grant an interlocutory injunction if the plaintiff will be made whole by a money judgment (see yesterday’s discussion of Cutter v Baxter Travenol). If the plaintiff really will be made whole, why does it matter how strong the plaintiff’s case is? Conversely, if we accept that when the plaintiff has made out a very strong prima facie case on the merits, the threshold for irreparable harm is very low, it would seem to follow that if the plaintiff has made a strong prima facie case on the merits, the threshold for irreparable harm should be moderate, and if the plaintiff has only made out a weak cases on the merits (perhaps for lack of evidence, rather than because of an inherently weak case), then a high threshold for irreparable harm is required. But this is exactly what the risk-balancing approach demands. To reconcile the blatant copyright infringement cases with the otherwise high threshold, we would have to say that when the plaintiff presents a strong prima facie case, the threshold for irreparable harm is low, but when it presents a case that is ever so much slightly weaker, the threshold for irreparable harm suddenly becomes very high. That is not a consistent approach; it is a mishmash of irreconcilable approaches.

There is another reason for distinguishing patent and copyright cases that was accepted in Diamant Toys at [56], and by Reed J in IBM v Ordinateurs Spirales Inc./Spirales Computers Inc. (1984), 80 CPR (2d) 187, 201 (FCTD), the case relied on by Nadon J in Diamant Toys. Namely, “it was easy to inadvertently infringe a patent right,” but blatant copying is deliberate, or, as Gascon J said in Unilin, “the infringement needs to be undeniable and unmistakable” [111]. As Reed J noted in IBM at 201,“Courts in such cases are doing no more than taking into account equitable considerations such as the bona fides or male fides of the party, as they have always done in granting equitable remedies.” But this is even more difficult to reconcile with the high-threshold approach. Mala fides could be seen as making it easier to establish a strong prima facie case, in which case this consideration collapses to the above discussion. But to the extent it is different, surely it is a consideration that weighs at the balance of convenience stage. In assessing the balance of convenience, it is very reasonable to say that mala fides should weigh against the defendant. Suppose the defendant had infringed intentionally, knowing that the right was probably valid, so that the defendant could, and should, have avoided the litigation by taking a license in the first place, but had not done so because it knew the IP owner was cash-strapped and would be unlikely to be able to pursue an action. In that case it would be reasonable to require a lower threshold for irreparable harm in granting an interlocutory injunction. But that again is a matter of balancing one factor against another, which can’t arise unless we get to the third stage. The theory of the high threshold is that the IP owner will be made whole by damages, and if that theory is correct, it is correct whether the infringement was in a bona fide belief that the right was not infringed, or committed with mala fides. The mala fides of the infringer does not change how difficult it is to quantify the loss.

Gascon J evidently felt this conflict, and he attempted to reconcile the low-threshold cases with the current approach. So, he noted that Diamant Toys was not an interlocutory injunction case but rather a case involving a preservation order, where the legal requirements are different [109]. While that is true, Nadon J in Diamant Toys, [56], explicitly applied the test for an interlocutory injunction, separately, and after having first applied the test for a preservation order. Consequently, to distinguish Diamant Toys on the basis that it involved a preservation order is to implicitly acknowledge the interlocutory injunction test it expressly applied cannot be reconciled with the current high-threshold approach.

Gascon J also stated that “these ‘blatant infringement’ cases did not go as far as suggesting or implying that no proof of irreparable harm is required in order to obtain an interlocutory injunction when there is evidence of blatant copyright infringement,” and he continued by remarking, “I am not aware of injunction cases where an applicant's case was sufficiently strong, even in the copyright context, that the threshold for meeting the other two factors was set so low that no proof of irreparable harm was required” [108]. This is odd. Jeffrey Rogers Knitwear [1985] 2 FC 220, 6 CPR(3d) 409, is a copyright case in which an interlocutory injunction was granted without even considering irreparable harm, on the view that “the jurisprudence of the Federal Court has been to grant interlocutory injunctions without concerning itself with irreparable injury or the balance of convenience” (410). The cases cited therein do support that proposition: in Universal City Studios Inc. v Zellers Inc (1983), 73 CPR(2d) 1 (FCTD), a copyright case, Walsh J stated at 10 that “In principle [industrial property] rights should be protected whether or not breach of them causes serious damages,”and she went on to say that the harm suffered from continued infringement “may not be irreparable in the strictest sense of the word,” but “an interlocutory injunction should not be refused on this ground alone.” In Horn Abbot (1984) 77 CPR(2d) 145, Cattanach J granted an interlocutory injunction to restrain copyright infringement, saying “In the case of copyright actual damage need not be proved.” In Universal City Studios the court described the damages as “serious” and in Horn Abbott the court stated that “infringement cannot be readily compensated for in damages,” but in both those cases it is clear that this was because the court was of the view that damages flowing from IP infringement are serious per se – “the principle involved is so important,” as Walsh J said – and not because of the peculiar difficulty of assessing damages in that case. In both cases the damages would have been for lost profits or a reasonable royalty, that would routinely be considered not to be irreparable in the modern jurisprudence. In Duomo Inc v Giftcraft Ltd (1984), 1 CPR(3d) 165 (FCTD), a copyright case, Strayer J would have granted the interlocutory injunction on the basis of the fact alone that the plaintiff had established a strong prima facie case. That was a time at which there was some dispute as to whether the first branch required a strong prima facie case or merely a serious question to be tried, and he went on to consider the test based on the “serious question” test in the alternative. He stated that “it is somewhat difficult to say in these circumstances that either party would suffer irreparable harm if they were to be unsuccessful with respect to this motion,” but he granted the injunction nonetheless after considering the balance of convenience. Subsequently, in 75490 Manitoba v Meditables (1989), 29 CPR(3d) 89, Rouleau J stated that “there was no evidence of irreparable harm. However, I am satisfied that the baance of convenience favours the plaintiffs regardless” (93), citing Jeffrey Rogers Knitwear. He therefore granted the interlocutory injunction to restrain the copyright infringement.

The foregoing cases are all very easily distinguished, on the basis that they were decided before the law changed in the early 1990s. Snider J distinguished Jeffrey Rogers Knitwear and 75490 Manitoba on exactly that basis in Western Steel [11]. But this serves only to emphasize the contrast between the high-threshold approach, in which irreparable harm is so firmly entrenched that Gascon J could not imagine that there might be a case that did not turn on it, and the risk-balancing approach which was previously used, under which a strong prima facie case, combined in some cases with mala fides, could compensate for an absence of any showing of irreparable harm.

Gascon J concluded that:

[110] For all those reasons, I am not convinced that the "blatant infringement" case law should guide my approach to the assessment of irreparable harm in this patent case, or that I should depart from the well·accepted principles governing the evidentiary requirements for this second element of the RJR-MacDonald test.

They may be implicitly acknowledging that the blatant copying cases cannot be reconciled with the well accepted high threshold principles. That is a perfectly good reason for refusing to follow those cases as a matter of law, given that none of them is at that FCA level. But the blatant copying cases are nonetheless important, as they graphically illustrate the weakness of the high-threshold approach. The next time we see a plaintiff with an ironclad case on the merits, will the court hew to the high-threshold approach nonetheless, reject the blatant copying cases, and refuse the interlocutory injunction? Or will it adopt a risk balancing approach, implicitly rejecting the FCA authority?

Even though copyright cases involving blatant infringement often present a stronger case on the merits than in patent cases, the principle is nonetheless important. Once we acknowledge that a very strong case on the merits can reduce the harm threshold to almost nothing, then it follows that a strong case on the merits might warrant an interlocutory injunction even if the harm is serious, but does not quite rise to the high threshold that is currently required.

In summary, the copyright cases involving blatant infringement, are sound in principle on a risk-balancing analysis, but they cannot be reconciled with the high-threshold approach to interlocutory injunctions. ” As the Sask CA noted in Potash Corp 2011 SKCA 120 [51], the Federal Court jurisprudence on interlocutory injunctions is out of step with most Canadian jurisdictions. Now, it seems, the Federal Court is adopting a more orthodox approach in copyright, leaving the patent cases an increasingly isolated outpost of the high-threshold approach.

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