Monday, March 13, 2017

Interlocutory Injunctions Update Part III: Trade-marks

Sleep Country Canada Inc v Sears Canada Inc 2017 FC 148 Kane J

Reckitt Benckiser LLC v Jamieson Laboratories Ltd 2015 FC 215 Brown J aff’d 2015 FCA 104 Noël CJ: Gauthier, Webb JJA

This is the third in a series of three posts looking at some more-or-less recent interlocutory injunction decisions. Last Thursday’s post considered some patent cases, Friday’s post discussed copyright cases, and today’s post focuses on a couple of trade-mark decisions. As discussed in Thursday’s post, most Canadian jurisdictions use a risk-balancing approach to interlocutory injunctions. In contrast, for about the last 25 years, the Federal Courts have used a high-threshold approach to irreparable harm, with the result that interlocutory injunctions have been very difficult to get in IP cases. Sleep Country and Reckitt are two trade-mark cases in which interlocutory injunctions have been granted. The question is whether the approach used in these cases can be reconciled with the high-threshold approach.

The plaintiff in Reckitt Benckiser v Jamieson Labs, Reckitt Benckiser, is the owner of the MEGARED mark, primarily used in association with supplements containing omega-3 fatty acids made from krill oil. The MEGARED products were well known in the US, but were not sold directly in Canada until December 2013. (Reckitt Benckiser decided to launch in Canada soon after acquiring the brand’s previous owner.) The defendant Jamieson had a krill-based omega-3 product called SUPER KRILL, which had over 80% of the Canadian market. When Jamieson became aware that Reckitt was going to enter the Canadian market with the MEGARED product, Jamieson re-branded SUPER KRILL to OMEGARED and launched a “massive marketing blitz,” in order to “pre-emptively strike out the MEGARED krill oil omega-3 brand product the Plaintiffs were launching into the Canadian market” [42]-[45].

Given that the marks were very similar and the products were the same, Brown J had no difficulty concluding there was a serious issue to be tried regarding trade-mark infringement [50].

Brown J also held that the plaintiffs had established irreparable harm, saying “[i]t will be difficult to the point of impossibility to calculate the Plaintiffs’ losses if they succeed at trial” [51]. However, he did not advert to any specific evidence to support that finding. He referred to the facts, saying that “[i]t will not be possible to ascertain the Plaintiffs’ before-OMEGARED launch market as a comparator to the after-launch market because the Plaintiffs never had the proper opportunity they ought lawfully to have had to enter the market with the exclusive rights to which they are entitled” [52]. He also referred extensively to three prior cases holding that there was irreparable harm in similar circumstances [53], concluding that “[i]n all three cases, there was no methodology to quantify the loss arising from conduct analogous to Jamieson’s misconduct in the case at bar, and arising from normal market competition. That is the situation here. . .” [54]. This suggests that in the absence of evidence of irreparable harm the plaintiff will prevail; or conversely, that the defendant bears the burden of showing that the harm is not irreparable. Brown J then summarized the cases as follows:

[55] In my view, where use of a confusing mark will cause the Plaintiffs’ mark to lose its distinctiveness, that is, its ability to act as a distinctive and unique signifier of the Plaintiffs’ wares or business, such damage to goodwill and the value of the mark is impossible to calculate in monetary terms. The courts have found that distinctiveness is lost when the infringer engages in national marketing which repeatedly emphasizes the confusing mark to the Canadian public. In my view, the evidence of confusion and my findings in relation to confusion provide clear and sufficient support to find irreparable loss of the MEGARED “name” goodwill and reputation if Jamieson’s conduct is not enjoined.

This is a clear statement that irreparable harm can be inferred from a finding of confusion on the merits. The difficulty with this proposition is that it is directly contrary to authorities such as Centre Ice v NHL (1994), 53 CPR(3d) 34, 54 (FCA), one of the seminal cases establishing the high threshold, stating that:

It appears that the allegation of irreparable harm in [the decision at first instance] is nourished only by the confusion which was established by the evidence. It cannot be inferred or implied that irreparable harm will flow wherever confusion has been shown.

The proposition that the defendant bears the burden of proving that the harm is not irreparable is related, but somewhat different, from the view that irreparable harm can be inferred from confusion on the merits. In support, Brown J, [53], quoted Ciba-Geigy v Novopharm [1994] FCJ No 1120, 56 CPR(3d) 289, 336 (FCTD), where Rothstein J suggested that in the absence of evidence that quantification is possible, the plaintiff will prevail: “In the result, there is no evidence before me as to how the plaintiff's damages could be calculated if interlocutory injunctions are not granted and the plaintiff is successful at trial.” For his part, Rothstein J, 325-26, considered Centre Ice and stated that:

There is no actual evidence of harm [in Ciba-Giegy] because the defendants are not yet in the market-place. The evidence relating to loss resulting in irreparable harm must, of necessity, be inferred. I do not think that Heald J.A. [in Centre Ice] was precluding the drawing of such inferences or other inferences that logically follow from the evidence.

Thus, Rothstein J was not saying that irreparable harm can generally be inferred from the merits, but only in certain circumstances, namely when the defendants are not yet in the market-place. The FCA in Reckitt said something very similar, and yet very different, in distinguishing Centre Ice:

[29] Jamieson’s reliance on Centre Ice is misplaced given the facts of this case, wherein the party seeking to enforce its trade-mark entered the market in question after the alleged infringer. It of course makes no practical sense to require a plaintiff to demonstrate such damages as lost sales or price reductions when the only market environment in which the plaintiff has ever operated has been one in which the alleged infringer has operated as well.

If widely adopted, this would be a very significant reinterpretation of Centre Ice and related cases, by suggesting that in some circumstances it is not necessary after all for the plaintiff to establish irreparable harm by clear and non-speculative evidence. But what kinds of cases fall into this exceptional category? For Rothstein J, it was cases in which the defendants are not yet in the market; for the FCA in Reckitt, it was cases in which the defendant had entered the market first. These are very different interpretations of Centre Ice. In TearLab 2016 FC 60 aff’d 2017 FCA 8 the defendants were not yet in the market-place – a point stressed by the plaintiffs ([42], 2016 FC 350 [26]), and yet Manson J interpreted the case law as establishing that “it is TearLab [the plaintiff] who bears the onus to provide the Court with clear evidence of irreparable harm to their goodwill and reputation” [38]. Is this because the Reckitt exception only applies when the infringer entered the market first? This reconciles the cases on the facts, but what is the principle? It seems to be that in some circumstances it would be too difficult for the plaintiff to establish lost market share, and so it will be relieved of that burden. If that is the principle, TearLab is arguably within it. It is true that in TearLab the plaintiff had actually entered the market, and the defendant had not; but the market was not mature [FC 13], [FC 42], and it was the loss of the opportunity to develop that market that the plaintiff considered to be irreparable harm. The point of this paragraph from Reckitt is that it is easier to establish loss of market share when the market is mature and an infringer enters, so that the plaintiff’s prior sales can be taken as the baseline. But presumably that is also true that if the market is developing, in which case the plaintiff’s prior sale cannot be taken as the baseline either. Of course, this can all be taken care of by saying that it is a matter of the evidence as to how accurately the damages could be established on the particular facts. And indeed, that’s effectively what TearLab said: see e.g. [FC 67]. But that is just back to the Centre Ice principle pure and simple, and the Reckitt exception is gone.

It might be suggested that TearLab was a patent case, and the Reckitt exception – whatever it is – only applies to trade-mark cases. But what is the principle behind that distinction? It might be said that there is always some uncertainty as to the merits in a patent case, because granted patents often turn out to be invalid. But that can only be a consideration at the balance of convenience stage. At the irreparable harm stage we assume that the plaintiff would prevail at trial, and ask whether the harm that it would have suffered in the interim is irreparable: Ciba-Geigy v Novopharm [1994] FCJ No 1120, 56 CPR(3d) 289, 336 (FCTD) Rothstein J, (quoting Sodastream v Thorn Cascade [1982] RPC 459, 471 (CA)), quoted in Reckitt [FC 53]. Moreover, on appeal in Reckitt, the FCA, while it affirmed Brown J’s decision, chastised him for having delved too far into the merits, noting that the conclusion that Jamieson was likely an infringer was “beyond the bounds of necessity” [25]. Thus the strength on the merits cannot, in principle, distinguish the cases.

As well as appealing to lack of evidence that damages could be quantified, Brown J also appealed to the authority of RJR-MacDonald [1994] 1 SCR 311:

[57] In my view, the likely infringing and confusing market entry by OMEGARED is the very situation contemplated by [RJR-MacDonald [1994] 1 SCR 311, 341] where our highest Court said that injunctive relief is available to prevent permanent market loss or irrevocable damage to business reputation. That is the situation here, irrevocable damage to the reputation of the registered trade-mark. The Supreme Court of Canada stated:

It is harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other. Examples of the former include instances where one party will be put out of business by the court's decision (R.L. Crain Inc. v. Hendry (1988), 48 D.L.R. (4th) 228 (Sask. Q.B.)); where one party will suffer permanent market loss or irrevocable damage to its business reputation. [Brown J’s emphasis]

The SCC cited American Cyanamid [1975] UKHL 1, [1975] 1 All ER 504, for the underlined proposition, apparently referring to the following passage (at 511-12):

The factors which [the motion judge] took into consideration and, in my view properly, were that Ethicon's sutures XLG were not yet on the market; so they had no business which would be brought to a stop by the injunction; no factories would be closed and no work-people would be thrown out of work. They held a dominant position in the United Kingdom market for absorbent surgical sutures and adopted an aggressive sales policy. Cyanamid on the other hand were in the course of establishing a growing market in PHAE surgical sutures which competed with the natural catgut sutures marketed by Ethicon. If Ethicon were entitled also to establish themselves in the market for PHAE absorbable surgical sutures until the action is tried, which may not be for two or three years yet, and possibly thereafter until the case is finally disposed of on appeal, Cyanamid, even though ultimately successful in proving infringement, would have lost its chance of continuing to increase its share in the total market in absorbent surgical sutures which the continua- tion of an uninterrupted monopoly of PHAE sutures would have gained for it by the time of the expiry of the patent in 1980. It is notorious that new pharmaceutical products used exclusively by doctors or available only on prescription take a long time to become established in the market, that much of the benefit of the monopoly granted by the patent derives from the fact that the patented product is given the opportunity of becoming established and this benefit continues to be reaped after the patent has expired.

In addition there was a special factor to which Graham J. attached importance. This was that, once doctors and patients had got used to Ethicon's product XLG in the period prior to the trial, it might well be commercially impracticable for Cyanamid to deprive the public of it by insisting on a permanent injunction at the trial, owing to the damaging effect which this would have upon its goodwill in this specialised market and thus upon the sale of its other pharmaceutical products.

As Brown J rightly pointed out, the facts in Cyanamid – in which, we should recall, the interlocutory injunction was granted – were very analogous to those in Reckitt. Cyanamid, the patentee, was entering the UK market with a new product, and had not yet established its competitive position, while the defendant, Ethicon, was dominant in the existing market. It was the opportunity to become established in the market – and to maintain that market position after the patent was expired – that was crucial to the finding of irreparable loss. Similarly, Reckitt was trying to enter the Canadian market, with a new product, in which Jamieson was dominant, and the loss of the opportunity to establish itself constituted the irreparable harm.

But of course, the analogy between Cyanamid and TearLab 2016 FC 606 aff’d 2017 FCA 8, is also very close. The plaintiff, TearLab, had recently entered the market, which was not mature, and the defendant intended to enter the market with an allegedly infringing product, but had not ye done so – exactly as in Cyanamid – and as in both Cyanamid and Reckitt, the plaintiff feared loss of future market share [38]. Reckitt relied on Cyanamid, as approved in RJR-MacDonald, as establishing such loss constituted irreparable harm; in TearLab Manson J and the FCA did not dispute the analogy, but dismissed Cyanamid as “dated” [FC 45] (and see similarly FCA [11]). It would seem that Cyanamid remains good law as to irreparable harm in trade-mark cases, but not in patent cases – even though Cyanamid was itself a patent case.

In Sleep Country, Kane J was faced with the problem of how to interpret Reckitt, which the plaintiff relied on (at [44]), while the defendant insisted that “Centre Ice continues to govern” [113] (and similarly [68]). Kane J adopted the view, discussed above, that Reckitt FC established the general proposition that “where there is loss of distinctiveness, the damage to goodwill is not possible to calculate” [116]. This is significant as further establishing the Reckitt exception in the law, particularly because Kane J not only endorsed Reckitt, she also actually granted an interlocutory injunction. Consequently, this part of the decision is not easy to reconcile with the high-threshold approach to irreparable harm.

But Kane J also went on to consider the evidence relating to quantification of damages. After a detailed review of the approaches that each expert proposed [136]-[149], Kane J concluded that the application of [the defendant’s expert’s] methodology in the present circumstances will be difficult to the point of impossibility to quantify Sleep Country's losses” [156]. This is consistent with the high-threshold approach, which requires evidence that is “clear and not speculative,” that irreparable harm will occur. After hearing evidence on both sides, she concluded that that threshold has been met.

There are a couple points of interest nonetheless. First, Kane J held, rightly in my view, that for harm to be “irreparable” it need not be literally impossible to quantify [154]. The contrary view is suggested by the SCC’s statement in RJR-MacDonald, 341, that "Irreparable" refers to the “nature of the harm suffered” and is harm which “cannot be quantified in monetary terms.” But many of the types of harm actually given as examples by the SCC, such as permanent market loss, are in their nature purely monetary, and the Court also noted that in light of uncertainty of the law at the time, “financial damage” consequent on a Charter breach constitutes irreparable harm “even though capable of quantification” (342). This makes it clear that purely monetary harm might be irreparable, and the question is, as Kane J put it, “how much difficulty and estimation is acceptable?” [151]. While the point is not novel in principle, it is nonetheless significant that Kane J has recognized it explicitly. To my mind, once we accept that there is no bright line with respect to difficulty of quantification of damages, the obvious question is why we do not also consider how difficult it would be to quantify the infringer’s loss in the event it sought damages on the undertaking? The irreparable harm threshold may not be one of impossibility, but it is nonetheless high. If the patentee will suffer losses that are difficult to quantify, but are not quite “irreparable,” and on the other hand, the infringer would suffer losses that are easy to quantify, this would seem to me to weigh in favour of granting an interlocutory injunction; and it does, in the risk-balancing approach, though not on the high-threshold approach.

More importantly, in practical terms, this means that if a plaintiff is to get an interlocutory injunction, it will have to submit detailed evidence as to its damages methodology, which will no doubt, as in Sleep Country, be answered by detailed evidence from the defendant’s expert. This is troubling in itself. We are now absorbed with the irreparable harm requirement, but recall that the problem addressed in Cyanamid was the rule that the plaintiff was required to establish a prima facie case on the merits as a prerequisite to obtaining an interlocutory injunction (507). In addition to stultifying the courts’ discretion (509), the practical result of this rule is that the courts had to “undertake what is in effect a preliminary trial” on the merits (509). The point of lowering the threshold on the merits to a “serious question to be tried” was to eliminate this onerous proceeding:

It is no part of the court's function at this stage of the litigation to try to resolve conflicts of evidence on affidavit as to facts on which the claims of either party may ultimately depend nor to decide difficult questions of law which call for detailed argument and mature considerations.

The high-threshold approach to irreparable harm has replicated the problem addressed by Cyanamid almost precisely, except in the context of irreparable harm rather than the merits. There is a technical rule, with, as we have seen above, very technical exceptions, which stultifies the courts discretion, while at the same time leading to what is effectively a mini-trial on issues that should more properly be dealt with at trial.

In my view, in the copyright and trade-mark cases I have discussed, we see the high-threshold approach to irreparable harm crumbling as a result of its fundamental weakness. The traditional role of the courts of equity has been to balance the relevant considerations in deciding whether to grant an interlocutory injunction. No doubt a framework can provide useful structure in the exercise of that discretion, but the high-threshold approach to irreparable harm has turned a guiding framework into a rigid rule. The exceptions for blatant infringement and the Reckitt exception (whatever it might be) are the kind of contortions that we should expect from courts trying to do justice on the facts when fettered by a rule that is unsound in principle. The law is becoming more complex, less principled, more expensive – and less just.

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