Canada: Injunctions In The IP Context: Managing The Process

Originally published in the Commercial Litigation Review

When one seeks injunctive relief in an IP case, it is crucial to evaluate and obtain sufficient evidence to answer the tripartite test: evidence of loss of goodwill, reputation, permanent loss of market share and depreciation of a trademark's value and distinction are among the types of loss or damages that have been accepted as being "irreparable" and therefore enable counsel to obtain this rare but effective injunctive relief.

The phone rings. It is a potential client with a question regarding enforcement of intellectual property (IP) rights: "A competitor is infringing [or, about to infringe] my IP rights [substitute patent, trademark or design, here]. What can I do?" This is a question that many IP (and commercial) lawyers will receive during the course of their careers. It is a vexing one since the remedies available in the IP tool kit do not always provide a simple answer to this question, nor a quick and easy result.

A few remedies are available to assist you, as the IP lawyer, in the situation described above. Due to space limitations, this article will focus on only one of these — interlocutory injunctions — and explore what this remedy can offer to the injured client and the concerned IP lawyer. Alternative remedies to the injunction, such as summary judgment, summary trial, Anton Pillar orders, to name but a few, warrant their own dedicated review and are better left for future articles.

Appropriate Jurisdiction

Before we dive deeper into the specific requirements for obtaining an interlocutory injunction, you would need to consider the jurisdiction in which to file the application.

You have two possible routes to follow in seeking injunctive relief. The most appropriate route depends upon the location of the infringing activity. If this activity is local or has not extended beyond provincial borders, the best route may be to bring the application to the applicable provincial superior court. If there is no need to enforce the resulting injunction outside that province, you need not look beyond the provincially based rules and procedures that govern the granting and enforcement of this remedy. On the other hand, if the infringement is taking place in more than one province, it would be most efficient to bring the application to the Federal Court, which has jurisdiction for enforcement across Canada. The benefit here is that the Federal Court becomes a "one-stop shop" and enables the injured client to potentially curb the infringing activity in all provinces and territories.

The consequences may not be too dire if you commence an application seeking injunctive relief in Federal Court and the activity is restricted to one province. It is quite another situation if the application is commenced in a provincial superior court, but the infringing activity extends beyond that province's borders. In that case, your client will not be pleased to discover that the injunction that it fought hard to obtain can be enforced only in that one province. In the meantime, the infringing activity in other provinces can continue unabated.

Once you have determined the appropriate jurisdiction to bring the injunctive application, you would turn to the test that must be satisfied. The three-part test has been interpreted in the same way by provincial superior courts and the Federal Court.

The Test to Meet

The test for obtaining an interlocutory injunction is now well-known and often cited. It has three prongs, all of which must be considered in light of the available evidence:

1. Is there a serious issue or question to be tried?
2. Will your client (the applicant seeking the injunction) suffer irreparable harm if the injunction is not granted?
3. Does the balance of convenience favour your client?¹

In addition, your client must consider the potentially costly consequences of having an injunction granted but subsequently overturned at trial. Serious financial consequences may result because an applicant seeking an injunction must undertake to compensate the respondent for any damages incurred if its activities are restricted during the period from the granting of the injunction through to the trial at which the injunction is dissolved.

Serious Issue or Question to Be Tried

Simply put, the issues at play in the case in which injunctive relief is requested must have merit. They cannot be frivolous or vexatious.² The low threshold³ of this prong is relatively easy to meet as long as the evidence required to satisfy this part of the test is not too substantial or complex.

Because applications seeking injunctive relief are made at an early stage, the courts are not required to go too deeply into the merits of the overall case. That is better left for the trial judge, who will ultimately determine such questions as validity and infringement of the IP right in issue. In the context of an IP case, meeting the requirement of a serious issue could include establishing that (i) a presumption of validity of the infringed IP right exists;⁴ and (ii) sufficient evidence exists to reasonably conclude at this preliminary stage that there is, or will be, infringement.

The difficulty lies in determining how much evidence is sufficient to meet this prong of the test. The low threshold of this prong belies the need to put sufficient evidence before the court to establish a reasonable conclusion that there is or will be infringement. Not surprisingly, establishing a serious issue is easier when infringement already exists and is tangible, than when the offending activity has not yet happened. In attempting to establish a serious issue, you would be advised to investigate the basis for the injured client's belief or understanding of the extent of the infringing activity, or potential activity.

The threshold level of this prong of the tripartite test would rise if the injunction would effectively determine the issues in contention without the necessity for a trial. In that case, the threshold is increased to a strong prima facie case. In other words, the applicant will be required to establish that there is a strong likelihood of success if the matter proceeds to trial.⁵

Irreparable Harm

Establishing that your client, the applicant, will suffer irreparable harm unless the injunction is granted is the Achilles heel in IP cases, especially in patent cases, and has a high threshold. For harm to be considered irreparable, it either cannot be monetarily quantifiable or, if it can be quantified, the respondent is unable to pay.⁶ It is the nature of the harm that is the relevant consideration, not its magnitude. In other words, if your client can be financially compensated for damages flowing from the respondent's infringing activity and the respondent has the ability to pay, an injunction will not be issued. The battleground then shifts to the trial for the ultimate consideration of infringement and resulting damages.

This prong of the test is challenging. The typical result of infringing activity tends to be loss of market share, which translates into loss of profit. Even if the loss of market share is permanent, it can be quantified.⁷ Hence, it is not typically the type of harm to qualify for the granting of injunctive relief, at least at the interlocutory stage.

The type of harm that the courts have generally accepted as being irreparable includes loss of goodwill or reputation;⁸ permanent loss of market share so that the very existence of the business is threatened;⁹ depreciation of a trademark's value and distinction,¹⁰ especially where the competing mark or business is of a lower quality than your client's;¹¹ dilution or loss of control of brand;¹² loss of actual and potential customers and loss of industry opportunity.¹³

Adding to the difficulty in satisfying this prong of the test is the requirement that the evidence establish more than a mere inference or the speculation of harm. There must be "clear evidence"¹⁴ — meaning, a clear, factual basis to establish that your client would suffer actual irreparable harm.¹⁵ The applicant must show how the harm would occur and why it is irreparable. To likely suffer irreparable harm in the absence of the injunction is not enough.

Often, the only means of providing this factual record, especially when the harm has not yet occurred, is the submission of expert evidence. For instance, accountants can provide opinions on commercial loss; survey experts can provide opinions on destruction of trademark distinction and branding reputation; industry experts can provide opinions on reputational loss.

Balance of Convenience

The third prong of the tripartite test requires balancing the parties' interests to determine which party will suffer the greater harm if the injunction is granted or, alternatively, refused, pending a decision on the merits at trial. Whereas the irreparable harm prong of the tripartite test is focused on the harm suffered by the applicant, this prong requires a review of the harm suffered by both parties.

This balancing of convenience necessarily imports a level of proportional risk. Will the applicant seeking the injunction suffer greater harm if the injunction is not granted? Or will the respondent suffer greater harm if it is?

If the proportionality of risk suffered is the same for both parties, the courts will tend to preserve the status quo pending trial.¹⁶ This may not benefit your client if the respondent is in the market or already doing what it is that now harms your client. In such a case, the status quo may be maintained only through refusal of the injunction. On the other hand, your client may benefit if the harm has not yet occurred or the respondent has "springboarded" into the marketplace (that is, the infringer has entered the market by taking advantage of your client's reputation, presence or brand, etc.). If the respondent has not yet entered the market, the status quo may be maintained by requiring the respondent to remain out of the market until a final determination of the parties' rights has been made at trial. Similarly, the status quo may be determined to be that point in time before the respondent entered the marketplace if the respondent entered to obtain a competitive advantage with full knowledge of the applicant's IP rights.¹⁷

Clearly, these last two prongs — irreparable harm and balance of convenience — are interconnected. The courts will weigh the harm incurred by each party and consider whether one can be compensated for its harm, either through damages payable to the applicant at trial or through the applicant's undertaking to the respondent. The balance will tilt in favour of the party with the stronger case in this respect — that is, the party that will suffer the greater inconvenience and harm.

Undertaking Regarding Damages

As previously discussed, your client must undertake to compensate the respondent for damages incurred if the injunction is dissolved at trial and the merits are ruled in favour of the respondent. This undertaking must be formally made and should be included in the injunction materials at first instance. In the absence of special circumstances, the failure to provide such an undertaking or providing it after the filing of the injunction materials may be fatal.¹⁸

The importance of engaging your client in a full and frank discussion on the consequences of this undertaking and the ability to pay cannot be overemphasized. The risk to your client of having to pay not only your fees and the costs ordered by the court but also a sum of money to compensate the respondent for damages must be weighed thoughtfully in light of the available evidence and may ultimately influence your client's instructions.

Conclusion

Aside from your and your client's careful consideration of the aspects discussed above regarding injunctive relief, a couple of notable procedural matters should also be considered.

Once the decision is made to pursue interlocutory relief and the evidentiary record becomes your focus, it is important not to lose sight of the drafting of the underlying, originating document (statement of claim or notice of application). Considering the compressed time frame within which to complete the record for injunctive relief, preparing the originating document (required to be filed at or near the time of the filing of the injunction application) becomes less of a priority. Taking time to review the originating document to ensure it is complete and robust is imperative. Failure to include a claim for permanent injunctive relief, for instance, could be fatal to the success of the application for interlocutory injunctive relief.¹⁹

In addition, failure to act expeditiously either to request an injunction or move toward the trial on the merits can also prove to be fatal. In the former instance, the injunction may not be granted if the applicant continues its business with minimal impact despite the infringing activity²⁰ or simply delays commencing with the interlocutory injunction proceeding.²¹ In latter instance, it is assumed that a successful applicant will proceed to trial promptly. Failure to do so may result in dissolution of the injunction.²²

It is therefore essential to seek the right information during the initial phone call from the injured client. It is also imperative to treat the resulting injunctive proceedings with urgency, whether you are embarking on the process to obtain interlocutory relief or, having obtained interlocutory relief, moving toward a trial on the merits.

Footnotes

1 RJR-MacDonald Inc. v. Canada (Attorney General), [1994] S.C.J. No. 17, [1994] 1 S.C.R. 311 [RJR-MacDonald].

2 RJR-MacDonald, supra note 1 S.C.R. at 337.

3 Ibid.

4 In cases involving a registered patent, trademark or copyright, this may be as simple as establishing the statutory right giving rise to the presumption of validity. A passing-off case may require something more to show the existence of circumstances giving rise to a proprietary right owned by the client.

5 Quizno's Canada Restaurant Corporation v. 1450987 Ontario Corp., [2009] O.J. No. 1743, 176 A.C.W.S. (3d) 1016 at paras. 38-40 (Ont. Sup. Ct. J.).

6 RJR-MacDonald, supra note 1 S.C.R. at 341; see also Carbo Ceramics Inc. v. China Ceramics Proppant Ltd., [2004] F.C.J. No. 1451, 2004 FCA 283 at para. 11 [Carbo Ceramics].

7 See Bayer HealthCare AG v. Sandoz Canada Inc., [2007] F.C.J. No. 585, 2007 FC 352 at paras. 61-64.

8 Centre Ice Ltd. v. National Hockey League, [1994] F.C.J. No. 68, 53 C.P.R. (3d) 34 at 47 (F.C.A.) [Centre Ice].

9 Shaw v. Shaw, [2007] O.J. No. 2758, 158 A.C.W.S. (3d) 989 at para. 27 (Ont. Sup. Ct. J.); Procter & Gamble Inc. v. Colgate Palmolive Canada Inc., [1995] F.C.J. No. 719, 61 C.P.R. (3d) 160 at 177 (F.C.T.D).

10 Imax Corp. v. Showmax, Inc., [2000] F.C.J. No. 69, 5 C.P.R. (4th) 81 at paras. 70-73 (F.C.T.D.).

11 See, for example, 826129 Ont. Inc. v. Sony Kabushiki Kaisha, [1995] F.C.J. No. 1709, 65 C.P.R. (3d) 171 (F.C.T.D.); S.C. Johnson & Son, Inc. v. Reckitt & Colman (Overseas) Ltd., [1995] F.C.J. No. 46, 59 C.P.R. (3d) 317 at 329 (F.C.T.D.).

12 Toronto Cricket Skating & Curling Club v. Cricket Club Townhouse Inc., [2003] O.J. No. 6261, 2003 CarswellOnt 8408 at paras. 41-43 (Ont. Ct. Gen. Div.).

13 Telewizja Polsat S.A. v. Radiopol Inc., [2005] F.C.J. No. 1435, 2005 FC 1179.

14 Centre Ice, supra note 8 C.P.R. at 54.

15 Syntex Inc. v. Novopharm Ltd., [1991] F.C.J. No. 424, 36 C.P.R. (3d) 129 at 135 (F.C.A.).

16 Carbo Ceramics, supra note 6; see also Apotex Inc. v. Sanofi-Aventis Canada Inc., [2007] F.C.J. No. 24, 2007 FCA 7 at para. 33.

17 Carbo Ceramics, supra note 6 FCA at paras. 9-10.

18 See the following non-IP cases: Soowahlie Indian Band v. Canada (AG), [2001] F.C.J. No. 1885, 2001 FCA 387; Randall v. Caldwell First Nation of Point Pelee & Pelee Island Band Council, [2000] F.C.J. No. 524, 189 F.T.R. 182 (F.C.T.D.).

19 Cellular Rental Systems Inc. v. Bell Mobility Cellular Inc., [1995] O.J. No. 1535, 23 O.R. (3d) 766 at 779 (Ont. Div. Ct.).

20 See, for example, Nestlé Enterprises Ltd. v. Edan Food Sales Inc., [1991] F.C.J. No. 801, [1992] 1 F.C. 182 (F.C.T.D.).

21 Hyundai Auto Canada v. Cross Canada Auto Body Supply (West) Ltd., [2008] F.C.J. No. 25, 2008 FCA 12.

22 See CIBA-Geigy Ltd. v. Novopharm Ltd., [1997] F.C.J. No. 1836, [1998] 2 F.C. 527 (F.C.T.D).

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The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.