February 13, 2017
By Jonathan Colombo and Noelle Engle-Hardy
The Canadian Federal Court rarely grants interlocutory injunctions in trademark cases, but for the second time in two years, an interlocutory injunction has been granted, this time in Sleep Country Canada Inc. v Sears Canada Inc.1 The Court held that the impossibility of quantifying damages supported a finding of irreparable harm, and, following many recent Federal Court decisions, was prepared to rely on its own analysis of the facts, as opposed to expert evidence, to find that the defendant’s slogan was confusing.
The question for trademark owners is whether Sleep Country signals a new willingness by the Federal Court to grant interlocutory injunctions in trademark cases, or whether the decision is restricted to its particular facts involving a well-known mark and arguably blatant infringement.
Since 1994, Sleep Country has used the slogan WHY BUY A MATTRESS ANYWHERE ELSE in TV, radio, print and online advertising, and owns two trademark registrations for the slogan. Evidence showed that the slogan had acquired national recognition of “iconic” proportions. In July 2016, Sears started to advertise “THERE IS NO REASON TO BUY A MATTRESS ANYWHERE ELSE” in online flyers and social media. Despite a demand letter alleging infringement, Sears refused to stop.
Sleep Country originally brought a motion for an interim injunction based on trademark infringement and depreciation of goodwill, which was dismissed on the basis that there was no clear evidence of irreparable harm. However, Sleep Country proceeded with its motion for an interlocutory injunction. It is not clear how the evidence on the second motion differed from the first. According to Sears, the evidence on the second motion was “largely the same”, but according to Justice Kane, the “record was more extensive” on the second motion. In any event, Justice Kane held that decision from the interim injunction motion was “not persuasive” given the absence of “detailed reasons”.
To obtain an interlocutory injunction, the moving party must establish that (1) a serious issue exists; (2) it will suffer irreparable harm that is not compensable in damages if the injunction is denied; and (3) the balance of convenience favours the moving party. The irreparable harm requirement is typically very difficult to meet – since the court requires clear and non-speculative evidence of harm that could not be compensated for by an award of damages at trial.
At the hearing of the interlocutory injunction motion, Justice Kane noted that there was no dispute that Sleep Country satisfied the “serious issue” requirement. She then made a number of key holdings when deciding to grant the interlocutory injunction:
First, Justice Kane held that when assessing likelihood of confusion, a court does not need expert marketing evidence. In particular, expert evidence is not required for the Court to put itself in the “shoes of the somewhat hurried consumer”, or to consider all of the surrounding circumstances or the factors listed in section 6(5) of the Trade-marks Act. In addition, expert evidence was not required to find that consumers seeing the Sears slogan would likely make a “mental connection” or association with the Sleep Country trademark, which is a requirement to prove depreciation of goodwill.
Second, in a detailed analysis of both the facts and caselaw on irreparable harm, and in particular, the expert evidence offered by the parties, Justice Kane held that where the allegation of confusion relates to a slogan (vs. a product), it would be “difficult to the point of impossibility” to quantify Sleep Country’s losses. That applied both to potential loss sales by Sleep Country, since losses relating to use of Sear’s slogan could not be parsed out from losses relating to Sears’ other marketing activities, and to damages to Sleep Country’s well-known trademark arising from depreciation and loss of goodwill.
Third, in noting that the application of the irreparable harm requirement can make it almost impossible to obtain an interlocutory injunction, Justice Kane stated that a line has to be drawn between determining whether it is possible, or impossible to quantify harm. If it is impossible to do so, the Court should find that the harm is irreparable.
Fourth, Justice Kane criticized Sears’ expert evidence on the issue of irreparable harm, noting that the evidence did not support the expert’s assumptions, and that a “core assumption” had not been stated in the expert opinion, as required by the Federal Court Code of Conduct for Experts.
Fifth, Justice Kane suggested that Sears’ argument that should a trial court find against it, damages would suffice was not a valid answer, since “disgorgement” of Sears’ profits was too speculative and Sears may or may not have profits arising from its new marketing strategy, or other factors, and it would be challenging to attribute those profits to use of the Sears slogan.
Finally turning to balance of convenience, Justice Kane held that Sears could easily revert to its “pre-slogan approach” that had been used for years, with the result that the balance of convenience favoured Sleep Country.
Implications of the Decision
This decision builds on the 2015 decision in Reckitt Benckiser v. Jameson2, where an interlocutory injunction was granted against Jameson’s use of MEGARED for vitamins. In both cases, the decisions turned on the issue of irreparable harm. In the Reckitt Benckiser case, the holding turned in part on the vulnerability of the moving party in terms of its new product launch. In the Sleep Country case, the holding turned on the impossibility of proving damages at trial.
Further, in Sleep Country, the Court acknowledged the difficulty faced by the moving party in meeting the irreparable harm requirement. In most cases, the motion is heard before there is significant use by a defendant, making it unlikely that there will be evidence of actual confusion, or that even if there evidence of actual confusion, that the resulting losses are irreparable and not quantifiable at trial. By acknowledging that irreparable harm can be shown when the defendant’s infringing conduct is mixed with other non-infringing actions, the decision may open the door to more successful injunction motions. The decision also offers guidance on how parties may wish to frame their arguments and supporting evidence, it being understood that each case is fact specific.
Interestingly, in Sleep Country, Justice Kane distinguished earlier decisions3 where interlocutory injunctions had been denied by noting that Sears was using a slogan vs. selling an infringing product. This distinction could limit the applicability of this decision to future cases, although it is not clear why the issue of irreparable harm would be viewed differently depending on the type of trademark that is at issue.
Finally, Justice Kane’s holding that there is “no need” for expert evidence when assessing likelihood of confusion continues the trend that limits the usefulness of expert evidence on that issue. That trend began with the decision of the Supreme Court of Canada in the Masterpiece v. Alavida4 case dealing with survey evidence. However, evidence from damages experts has been accepted by the Federal Court for years, and in the Sleep Country case, was instrumental in establishing that on the facts of the case, the damages likely to be suffered by Sleep Country were unquantifiable, and hence irreparable. Sears has until March 10, 2017 to appeal Justice Kane’s decision.
1 2017 FC 148
2 2015 FC 215, affirmed at 2015 FCA 10
3 See Centre Ice Ltd v National Hockey League (1994), 53 CPR (3d) 34 at 50; Aventis Pharma v Novopharm, 2005 FC 815
4 2011 SCC 27
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