Wednesday, August 5, 2020

Is Harm to Third Parties Taken into Account at the Second or Third Step of the RJR-MacDonald Test?

Arctic Cat, Inc v Bombardier Recreational Products Inc 2020 FCA 116 Rivoalen JA


Yesterday’s post provided an overview of the facts in Rivoalen JA’s decision to deny Arctic Cat’s application for a stay pending appeal. This posts focuses on a purely legal issue: is harm to third parties taken into account at the second or third step of the RJR-MacDonald test for an interlocutory injunction / stay? Why does it matter?

To recap the facts, AC and BRP are competitors in the snowmobile market. BRP sued AC for infringement of various patents and finally prevailed in a decision released in June: 2020 FC 691 (here). AC then sought a stay pending an appeal, which is the subject of this decision. The stay will determine whether AC can ship infringing machines for the upcoming winter season (summer-fall 2020 is the crucial window [13]). Since the patent expires next June, AC will be able to return to this design for the following season, regardless of the outcome of any appeal, which will affect only damages. The sleds that are affected have already been manufactured and are stored in US warehouses [9]. AC submitted that it would not be be possible to redesign them for the upcoming season [9] and Rivoalen JA’s decision proceeded on that basis [34], [35].

As usual in the FC approach to the RJR-MacDonald [1994] 1 SCR 311 test, whether AC would suffer irreparable harm was a key issue. In addition to the harm that AC argued it would suffer directly, AC argued that their dealers would suffer irreparable harm, especially because many are single-line dealers who may not be able to supply a competing product because of territorial exclusivity agreements [27].

On this issue, Rivoalen JA found that irreparable harm to the dealers had not been established on the facts [31], but:

[32] More importantly, whatever harm the dealers may suffer personally cannot be relied upon by the appellants to establish irreparable harm. Only harms suffered directly by the appellants can be considered in the second branch of the RJRMacDonald test. This Court has refused attempts to rely on third-party harms, other than by charities.

As authority, Rivoalen JA cited Glooscap 2012 FCA 255 at [29-30], [33-34]; Air Passenger Rights v Canada 2020 FCA 92 at [30], and Chinese Business Chamber of Canada 2006 FCA 178 at [6-7]. These decisions (none of which concern patents), do indeed state that the interests of third parties can only be considered at the third stage of the test, the balance of convenience, relying on RJR-MacDonald [1994] 1 SCR 311 at 341, in which the Court stated that the public interest, and by implication harm to third parties, “is more appropriately dealt with in the third part of the analysis.” (Metropolitan Stores [1987] 1 SCR 110 at 128 is also relied upon, but that statement is much more ambiguous.)

On the other hand, there are cases such as Marketing International (1977) 35 CPR(2d) 226 at 231 (FCA), Procter & Gamble Co v Bristol-Meyers Canada Ltd (1978), 39 CPR(2d) 171 at 177 (FCA) and, post-RJR-MacDonaldAstraZeneca Canada 2005 FCA 208 [20], holding that it is proper to take harm to the public into account at the irreparable harm stage.

Given this apparent conflict, the point should be considered as a matter of principle. It seems inconceivable that the public interest should not be considered at all in deciding whether to grant an interlocutory injunction or a stay pending appeal. For example, if the patented product is a medical device that aids surgeons in performing life-saving operations, it is surely proper to consider the interests of the patients when considering whether to grant an injunction: see Bard Peripheral Vascular v WL Gore (D Ariz 2009). Indeed, the public interest is a major reason why US courts regularly deny a permanent injunction in medical device cases under eBay: see Seaman, Permanent Injunctions in Patent Litigation After eBay: An Empirical Study,” (2016) 101 Iowa Law Rev 1949 at 1991. Surely, the interests of patients in receiving life-saving treatment should equally be considered in the context of an interlocutory injunction or stay. Similarly, in the UK, the public interest may also be taken into account. For example, in Illinois Tool Works [1974] RPC 337 at 375 (Ch) the court granted a three month stay of a permanent injunction, to allow the infringer to launch a non-infringing product; this was justified primarily on general public interest grounds, namely the potential loss of employment in times of high general unemployment.

And indeed, none of the Canadian cases say that the public interest cannot be taken into account. The only question is whether it is to be taken into account at the second or third stage of the RJR-MacDonald test, with the cases cited by Rivoalen JA, as well as RJR-MacDonald, indicating it should be considered only at the third stage, while the cases I have cited consider the public interest at second stage.

The SCC in RJR-MacDonald is of course excellent authority, but I suggest that nonetheless it not good support for the proposition that the public interest should excluded from the irreparable harm analysis in the context of the Federal Court jurisprudence. On the contrary, I suggest that in the context of the Federal Courts’ approach to the RJR-MacDonald test, RJR-MacDonald itself actually supports the contrary position.

The reason is that in the Federal Court jurisprudence, if the public interest is not taken into account at the irreparable harm stage, it may never be taken into account at all, no matter how compelling. This is because the Federal Court has interpreted the irreparable harm branch of the RJR-MacDonald test as a strict threshold, so that if it is not satisfied, it is not necessary to proceed to the balance of convenience. For example, suppose a specialized medical device facilitates a life-saving operation from a relatively rare condition, but because the condition is rare, the device is only a small part of the manufacturer’s product line. In that case, the device manufacturer would not suffer irreparable harm from being kept off the market and any application for an interlocutory injunction would fail at that stage; the balance of convenience would never be reached, so that the lives of the patients would not, in principle, be taken into account by the Federal Court in deciding whether to grant the injunction.

In contrast, while RJR-MacDonald stated that the public interest is more appropriately taken into account in considering the balance of convenience, it is important to recognize that in this did not mean that the public interest would not be taken into account at all. On the contrary, in both RJR-MacDonald and Metropolitan Stores the SCC emphasized the importance of the public interest. In Metropolitan Stores at [80] the SCC stated that “in constitutional litigation, an interlocutory stay of proceedings ought not to be granted unless the public interest is taken into consideration in the balance of convenience and weighted together with the interest of private litigants” (and see similarly [88-90]), and on the facts, one of the reasons for reversing the Manitoba Court of Appeal was its failure to consider the public interest: [112]. In RJR-MacDonald at 344 the Court stated that “We would therefore reject an approach which excludes consideration of any harm not directly suffered by a party to the application.” The public interest also featured prominently in the Court’s discussion of the facts at 351-54.

As the SCC explained in RJR-MacDonald, the reason the public interest should be dealt with in the balance of convenience is the “polycentric” nature of the public interest (343):

It is, we think, appropriate that it be open to both parties in an interlocutory Charter proceeding to rely upon considerations of the public interest. Each party is entitled to make the court aware of the damage it might suffer prior to a decision on the merits. In addition, either the applicant or the respondent may tip the scales of convenience in its favour by demonstrating to the court a compelling public interest in the granting or refusal of the relief sought. "Public interest" includes both the concerns of society generally and the particular interests of identifiable groups (344).

While this is in the context of the Charter, the logic is more generally applicable; irreparable harm to third parties might be consequent on either the grant or denial of an interlocutory injunction. In this case, for example, AC argued that its dealers would be harmed if a stay were not granted, but BRP’s dealers might be harmed if a stay were granted. For that reason, the harm to third parties should be taken into account at the balance of convenience stage, where all interests are being considered, rather than at the irreparable harm stage, which focuses on the applicant.

But this does not detract from the more fundamental point arising from both RJR-MacDonald and Metropolitan Stores, which is that the harm to third parties must be taken into account. In most Canadian jurisdictions it is appropriate to do so at the third stage, for the reasons given by the SCC, because in most Canadian jurisdictions “the test [for irreparable harm] is a relative and flexible one,” and “attempts to make irreparable harm, and hence a condition precedent, and hence a threshold test, have been rejected” (Sharpe, Injunctions and Specific Performance § 2.450*). Under such an approach, focusing solely on harm to the applicant at the irreparable harm stage merely postpones consideration of the public interest to the third stage, but never precludes it entirely. In contrast, in the Federal Courts’ approach, where each stage is a strict threshold, there is a conflict between the SCC’s guidance that the public interest should be taken into account at the third stage, and its holding that the public interest must be considered. The best way to resolve that conflict (apart from adopting a more flexible approach to the RJR-MacDonald test), is to address the public interest at the irreparable harm stage.

While we’re on the topic of the effect of the public interest on interlocutory injunctions, I’ll finish with one observation that is not raised by this decision. My own view is that the public interest and harm to third parties should be taken into account, but only to the extent that such harm is likely to actually be realized. Even if an injunction is obtained, that does not necessarily mean it will be enforced, as the patentee will often use the injunction as leverage in licensing negotiations. That is particularly likely when the patentee does not sell a product that can take the place of the infringer’s product. So, in the example of the life-saving medical device, if the patentee sells an equivalent product, then enjoining the sale of the infringing product will not adversely affect the health of patients; and if the patentee does not sell an equivalent product, it is more likely to seek to licence, so that the infringing product will continue to be sold: and see Abbvie v Janssen 2014 FC 489, discussed here, in which the patentee did not even request an injunction covering an infringing product when the patentee’s product was not a substitute. So, in Biddle, Contreras, Love & Siebrasse (eds), Patent Remedies and Complex Products: Towards a Global Consensus (Cambridge University Press, 2019), Ch 4 Injunctive Relief, Section, “Negative Effects on Related Third Parties and the Public,” we recommended that “courts should consider, as a potential basis for denying injunctive relief, harms to the public that substantially outweigh the costs inherent in a functioning patent system . . . to the extent such harms are likely to be realized.”

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