Federal Court denies interlocutory injunction for moving party's failure to provide sufficiently clear evidence that it would suffer irreparable harm if the injunction was not issued.
A recent case before the Federal Court, The Regents of the
University of California et al v I-Med Pharma Inc1,
reaffirmed that in order to establish irreparable harm when seeking
an interlocutory injunction in the context of an action for patent
infringement, sufficiently clear evidence demonstrating irreparable
harm was necessary. In denying the motion for interlocutory
injunction, Justice Manson made several interesting observations
about the arguments presented by the moving party. Justice Manson
also ordered the Plaintiffs to post security for costs.
The Plaintiff and moving party, TearLab Corporation
(TearLab), is an exclusive licensee of Canadian
Patent No. 2,494,540 (the '540 Patent), which
is owned by the other Plaintiff in this case, the Regents of the
University of California (University). The
'540 Patent generally relates to diagnostic devices, systems,
and methods for measuring the osmolarity of tears, said to be
useful for diagnosing and treating dry eye disease.
TearLab sought an interlocutory injunction to prevent the
Defendant, I-MED Pharma Inc (I-MED), from selling
its ophthalmic medical device pending determination at trial on the
issues of patent infringement and validity.
I-MED sought security for costs for defending the present
interlocutory motion and the patent infringement action as neither
TearLab nor the University are ordinarily resident in Canada.
Interlocutory injunction
The three-part test for an interlocutory injunction as outlined
by the Supreme Court of Canada2 requires that TearLab
establish:
1. a serious issue to be tried;
2. that it will suffer irreparable harm if the injunction is not
granted; and
3. that the balance of convenience favours the granting of an
injunction.
The Federal Court did not grant TearLab an interlocutory
injunction. Justice Manson held that TearLab did not provide
sufficiently clear evidence that it would suffer unquantifiable and
irreparable harm if the injunction was not issued. TearLab
presented four arguments, but was unsuccessful on all four
fronts.
Harm to TearLab's goodwill and
reputation
TearLab argued that I-MED's product might be inferior to
TearLab's product, thereby causing irreparable harm by turning
ophthalmologists off of TearLab's technology. Justice Manson
ruled that the evidence in support of this argument was speculative
and unclear, especially since I-MED's device was approved by
Health Canada.
Loss of market opportunity
TearLab also argued that without an interlocutory injunction, it
would suffer permanent loss of market share, loss of opportunity to
increase its market share, and permanent damage to its goodwill and
reputation. Again, Justice Manson held that this argument was
unsubstantiated as TearLab's evidence was speculative. Justice
Manson noted that TearLab relied heavily on American Cyanamid v
Ethicon Ltd3, a 1975 House of Lords decision. While
Justice Manson acknowledged that this decision was relevant, it did
not trump more recent and relevant decisions of Canadian
Courts.
Inability to quantify damages
TearLab argued that irreparable harm ensued from the impossibility
of calculating lost sales, as there was no reasonable methodology
available to quantify the Defendant's activities. I-MED's
expert testified that either (i) an epidemiological model or (ii) a
quantitative statistical model could be used to estimate
damages.
TearLab's expert argued that the epidemiological model was not
viable as additional data, research, and analysis were required to
predict damages using the model. Justice Manson held that the
non-viability of the epidemiological model was immaterial, as it
could be used to calculate reasonable damages if no injunction were
granted following trial.
TearLab's expert also criticized the statistical model proposed
by I-MED's expert on the basis that future prediction based on
TearLab's historical sales data was impossible. TearLab's
expert argued that incomplete data, market complexities, and
interrelated variables rendered the predicted damages by the
statistical model inadequate. Justice Manson found that the
evidence submitted by TearLab's expert was insufficient to
constitute "clear and not speculative" evidence that
actual unquantifiable harm would occur. Furthermore, Justice Manson
held that after trial, there were ways of quantifying actual losses
in monetary terms even if no injunction were granted. The
incomplete information before I-MED's expert at this time would
no longer be hypothetical after trial. Data from any intervening
and unexpected future events could be incorporated into the
statistical model to adjust the projection of losses. Justice
Manson stated that "[t]heoretical complexity in calculation is
not alone clear evidence that damages are not capable of reasonable
quantification".4
Moreover, in rejecting TearLab's claim that its losses were
unquantifiable, Justice Manson accepted I-MED's argument that
TearLab's position was inconsistent. TearLab argued that,
because of the unique nature of the market, its losses could not be
quantified if an injunction were refused and it prevailed at trial.
Yet, TearLab offered an undertaking to compensate I-MED for
I-MED's losses if an injunction were granted and TearLab lost
at trial. If I-MED's damages could be quantified if an
interlocutory injunction were granted and I-MED prevailed at trial,
he saw no reason why TearLab's damages could not be quantified
in the opposite scenario.
Ability to pay damages was not properly before the
Court
TearLab attempted to argue that I-MED would be unable to pay a
monetary award after trial, notwithstanding that it neither
alleged, nor led evidence on, this issue. TearLab served a
direction to attend on an affiant from the Defendant, requiring him
to bring voluminous financial information to his cross-examination.
No such documents were produced. Justice Manson refused to draw an
adverse inference as the issue was not pleaded in the motion or
addressed in the evidence.
Security for costs
I-MED brought a motion for security for costs. Justice Manson
followed a trend that requires substantial security to be posted in
stages and ordered TearLab (which has virtually no assets in
Canada) to post $100,000 through the discovery process with I-MED
entitled to seek additional security later in the
proceedings.
This decision by the Federal Court reaffirms that it is generally
difficult for a moving party seeking an interlocutory injunction to
sufficiently and clearly establish that it will experience
irreparable harm if the injunction is not granted.
TearLab has appealed the decision.
Link to decision:
Footnotes
1 2016 FC 606.
2 RJR-MacDonald Inc v Canada (Attorney General), [1994] 1
SCR 311 at 347-349.
3 [1975] RPC 13 at 542.
4 The Regents of the University of California et al v I-Med
Pharma Inc, 2016 FC 606 at para 70.
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