Molson v. Miller: Termination of License Enjoined Pending Trial
July 5, 2013
By Daniel R. Bereskin, Q.C.
Since 1982, Molson has been the exclusive licensee in Canada for Miller beer, including such popular beer as Miller Genuine Draft (“MGD”). MGD is a Miller flagship brand, and for years has been the largest-selling imported beer by volume in Canada. MGD has to be imported because it is produced in clear bottles that Canadian brewers are not currently authorized to use. This is so because the Industry Standard Bottle Agreement (“ISBA”) among Canadian brewers requires beer produced in Canada to be bottled in bottles of uniform size, shape and brown colour.
Although until several years ago Molson met the minimum volume targets set out in the licence, the sales of licensed Miller beer recently were in decline. In 2011, the parties expected that the ISBA would be amended to permit beer to be bottled in Canada in clear bottles, which would have permitted MGD to be produced and bottled in Canada, with higher expected sales. Largely on the basis of this expectation, the parties executed an Amending Agreement taking effect from January 1, 2012.
An important provision of the Amending Agreement is that if the ISBA is not amended prior to January 1, 2013 to allow production in Canada of Miller brands such as MGD, the original license agreement is to continue in force without regard to the modifications contained in the Amending Agreement provided that the parties agreed to re-negotiate minimum volume targets, profit splits and other issues. In the result, the ISBA was not amended in 2012.
On January 18, 2013, Miller delivered a notice of termination to Molson. Miller based its decision to terminate on the ground that failure of the ISBA to be amended required that the minimum volume targets of the original license be reinstated, and that on this basis Molson had failed to meet the targets for 2010, 2011 and 2012.
On January 30, 2013, Molson commenced an action in Ontario seeking declarations that the licence agreement remained in full force and effect, that Miller’s purported termination of the licence agreement constituted a breach of contract and a breach of Miller’s duty of good faith owed to Molson, and that Miller could not terminate the licence agreement on the basis of any known facts or circumstances that occurred prior to January 1, 2013. Molson also sought, amongst other things, injunctive relief against Miller’s purported termination of the licence agreement and an order of specific performance directing Miller to perform its obligations under the licence agreement. The trial is scheduled for five days commencing December 9, 2013.
This case primarily involves interpretation of a license, and therefore it was appropriate for Molson to sue in the Ontario Court rather than the Federal Court. Fortunately for Molson, the Ontario Court is more open to accepting proof of irreparable harm in interlocutory injunction applications than has been the case to date in the Federal Court.
The test for an injunction is set out in the three-part test in RJR-MacDonald Inc. v. Canada (Attorney-General),  1 S.C.R. 311 at para. 48 [RJR-MacDonald] as follows:
Wilton-Siegel J. concluded that Molson satisfied the standard of a serious issue to be tried, based on the Court’s interpretation of the Amending Agreement that provided, amongst other things, that Molson would be responsible for paying royalties based on the minimum target levels irrespective whether those levels were achieved in fact.
Wilton-Siegel J. held that it was reasonable to conclude that there would be some irreparable harm to Molson’s customer relationships flowing from the fact that those customers for whom the Miller-brand beers are an important segment of their purchases would be forced to source that beer from Miller, or to switch to a different product from Molson, if Miller were to commence marketing.
Further, such damage would not be limited to the loss of the sales of Miller-brand beers. The judge held that it was reasonable to infer that, in at least some cases, termination of Molson’s distribution of Miller-brand beers would also result in a loss of sales of other beers sold by Molson as customers re-evaluated their needs and their relationship with Molson when the Miller-brand beers were taken out of the equation, and there was a real likelihood that such losses would not be quantifiable.
The judge also concluded that there was a real likelihood of damage to the Miller brand equity in Canada if Miller products were marketed according to significantly different marketing plans within a relatively short period of time. There was a real risk that, if Miller commenced marketing according to a new plan but Molson were successful at trial, Molson would be unable to restore the original Miller image upon which it bases its marketing plans, even if it were to dedicate additional marketing resources.
The judge concluded that Miller, too, could suffer irreparable harm if the injunction were granted. First, because it would be prohibited from “re-invigorating” its own brands and taking steps to restore the Miller products that have declined, in particular MGD, or have not been launched, in particular Miller High Life, under Molson’s marketing of the Miller brands. Second, Miller would be essentially a new entrant into the Canadian beer market, and it would not be possible to determine with any certainty the additional sales volumes that Miller would generate above those that Molson would expect to achieve, given the absence of any records upon which to base such considerations.
Balance of Convenience
Wilton-Siegel J. considered numerous factors in determining whether the balance of convenience favoured granting the injunction, including: the continuity of Molson’s business; the parties’ likelihood of success at trial; the small period of time at issue; Miller’s ability to assert a further right of termination in 2014 (shortly after the scheduled trial date); the impossibility of quantifying the relative impact of an injunction; the likelihood of irreparable harm if Miller were to commence a new marketing strategy and Molson were subsequently successful at trial; the relationship between the parties; and the objective of preserving the status quo.
After considering all these factors, the judge concluded that Molson satisfied the requirements of the test for the granting of an injunction prohibiting Miller from terminating the licence agreement pursuant to the termination notice pending the trial.
In this case the market realities made quantifying the potential harm suffered by the parties almost impossible to determine, making it easier for Molson to establish that a likelihood of irreparable harm existed.
Clients who actively engage in licensing may wish to review the termination clauses in existing agreements, and consider the implications of termination when re-negotiating or amending agreements, to avoid being the target of an injunction motion should they wish to terminate their agreement(s).
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