Since the mid-1990s, brand owners in Canada have considered that their chances of obtaining interlocutory injunctions for trademark infringement at the Federal Court of Canada were slim. The majority of decisions coming out of the Federal Court have denied these kinds of injunctions.

A recent case of the Federal Court, however, has allowed an interlocutory injunction on the basis of alleged trademark infringement. This decision has created speculation that the Federal Court may be entering a new era in which interlocutory injunctions are easier to obtain.

In Sleep Country Canada Inc. v. Sears Canada Inc., 2017 FC 148, the plaintiff, Sleep Country Canada, Inc., sought an interlocutory injunction against Sears Canada Inc. prohibiting Sears from using a new slogan, “There is no reason to buy a mattress anywhere else.” Sleep Country alleged that Sears’ new slogan was an infringement of Sleep Country’s registered trademark slogan, WHY BUY A MATTRESS ANYWHERE ELSE?, on the basis that Sleep Country’s slogan and its accompanying jingle were well known across Canada, having been used since 1994.

The Court granted the interlocutory injunction on the basis that Sleep Country proved that the alleged trademark infringement was a serious issue to be tried, provided clear and non-speculative evidence that it would suffer irreparable harm if the injunction was not granted, and proved the balance of convenience in granting the injunction favored Sleep Country, which had been using its trademark slogan for 22 years.

Trademark lawyers now are asking whether the Sleep Country decision is a sign that the Federal Court is willing to grant interlocutory injunctions more readily in trademark infringement cases.

This is doubtful.

The Question of Irreparable Harm
There is a single test for interlocutory injunctions in Federal Court. The test was set out by the Supreme Court of Canada in RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 SCR 311 (SCC) (RJR). The Court held that a plaintiff must prove the following elements to obtain an interlocutory injunction:

A serious issue has been raised;

1. The applicant will suffer irreparable harm if the injunction is not granted; and
2. The balance of convenience favors the applicant.

This test was first derived from the English decision in American Cyanmid, [1975] UKHL 1.  It is an attempt to be a risk-balancing exercise.

Trademark Infringement and Irreparable Harm
The second element of the RJR test—whether the applicant will suffer “irreparable harm” if the injunction is not granted—has traditionally been the most challenging factor to meet in trademark infringement cases, and almost always the crux of the interlocutory injunction analysis. As this is typically the most difficult element to satisfy, the majority of interlocutory injunction motions fail this second element.

RJR described “irreparable harm” as referring to “the nature of the harm suffered rather than its magnitude. It is harm which either cannot be quantified in monetary terms or which cannot be cured, usually because one party cannot collect damages from the other.”

Whether the original intention of RJR was to make irreparable harm a condition precedent to granting an injunction, subsequent case law has effectively made it so. The Federal Court in Centre Ice Ltd. v. National Hockey League, (1994), 53 CPR (3d) 34 (FCA), set the standard for when irreparable harm exists in the context of trademark infringement. The decision in Centre Ice requires the applicant to provide “clear and non-speculative” evidence to prove that an applicant will suffer irreparable harm in order to obtain an injunction. As cited in Sleep Country at paragraph 29, “confusion does not, per se, result in a loss of goodwill, and a loss of goodwill does not, per se, establish irreparable harm not compensable in damages. A loss of goodwill and any resulting irreparable harm cannot be inferred; it must be established by ‘clear evidence.’” A mere difficulty in quantifying damages does not entitle a party to an injunction.

Cases in which the clear evidence standard has been met, and therefore where injunctive relief has been granted, primarily have been limited to those facts where an injunction is being sought to enjoin an alleged infringer that had not yet entered the market. See Ciba-Geigy Canada Ltd. v. Novopharm Ltd., [1994] FCJ 1120 (FC), or where the applicant was attempting to stop an alleged infringer from being first to market so as to make it impossible to quantify damages suffered. See Jamieson Laboratories Ltd. v. Reckitt Benckiser LLC, 2015 FCA 104.

However, this standard of clear evidence has typically been extremely difficult to prove. Before Sleep Country, the challenge in proving clear evidence has been the plaintiff’s undoing in most trademark interlocutory injunction cases. Furthermore, it is an essential consideration when deciding whether to seek interlocutory injunctive relief in the first place.

Clear Evidence of Irreparable Harm 
The Court found that Sleep Country did establish clear and non-speculative evidence that it would have suffered irreparable harm as a result of the alleged infringement. Sleep Country’s allegation of irreparable harm was made on the basis of expert evidence. Sleep Country presented evidence from three different experts: a professor of marketing; an expert in branding valuation and marketing; and an expert qualified as a Chartered Professional Accountant, Chartered Business Valuator, and Chartered Fraud Examiner. These experts said that the harm attributable to Sears’ alleged infringement was not possible to quantify and that isolating the impact of the use of Sears’ new slogan from market forces was impossible. The experts also testified that Sleep Country would suffer a depreciation of goodwill and loss of distinctiveness and that this depreciation and loss would not be possible to quantify.

In response, Sears submitted affidavit evidence from an expert qualified as a Charted Professional Accountant, Chartered Financial Analyst, and Chartered Business Valuator, and also from a professor of marketing. These experts attempted to contradict Sleep Country’s evidence by providing a model by which the court could assess lost sales, and then parse out damages attributable to the infringing conduct. However, the Court did not find Sears’ experts compelling. Specifically, the Court found that Sears’ expert evidence contained a number of flaws.

The key flaw was that Sears’ primary expert acknowledged in cross-examination the lack of evidence to support the assumptions in his model of assessing total possible lost sales and then isolating or parsing-out damages attributable to the infringing conduct. In this regard, the Court stated that Sears’ expert failed to comply with the Code of Conduct for experts under the Federal Court rules in setting out his core assumptions.

The Court did not accept the method proposed by Sears’ expert to calculate Sleep Country’s damages. The method proposed by Sears’ experts was to compare Sleep Country’s sales when Sears used the new slogan versus Sleep Country’s sales when Sears did not use the new slogan. The Court held that this method assumed that all other factors that could impact Sleep Country’s sales would stay the same and that at some point Sears would stop using the new slogan in order to permit comparisons. The Court held that there was no evidence to support these assumptions.

After accepting Sleep Country’s expert evidence and rejecting Sears’ expert evidence, the Court determined there would be confusion in the marketplace if Sears continued to use its slogan. The Court found the respective slogans of Sears and Sleep Country were nearly identical. The Court also found on the evidence that Sears’ use of its slogan between the date of the injunction motion and trial would cause a loss of distinctiveness and would depreciate the value of Sleep Country’s slogan. The Court then followed Reckitt and stated that when a confusing mark will cause a plaintiff’s mark to lose distinctiveness, the monetary damage to goodwill and the value of the mark is impossible to calculate.

The Court concluded that Sleep Country had presented clear evidence that it would suffer a loss of distinctiveness and that such loss could not be quantified in damages. The Court found that Sleep Country would suffer irreparable harm if the alleged infringement continued and thus granted the interlocutory injunction.

A Road Map or a One-Off?
Sleep Country confirmed what practitioners have recognized when applying the RJR test to trademark infringement cases. Specifically, the Court confirmed that irreparable harm is a condition precedent to granting an interlocutory injunction and the applicant must show clear and non-speculative evidence to prove irreparable harm.

Sleep Country demonstrates the type of evidence that will likely be necessary to prove irreparable harm; that is, evidence from experts with marketing, business valuation, and accounting backgrounds. This in itself is not groundbreaking, but it is further direction from the Federal Court that irreparable harm may be proven by concrete and non-speculative evidence. However, the Court will strictly review the type of evidence presented, and whether an interlocutory injunction is granted may very well depend on the strength and believability of experts.

It is important not to lose sight of the fact that the Court found that Sears’ adoption of its slogan was a clear case of infringement. The Court took note of the prevalence of Sleep Country’s trademark in the marketplace as well as Sleep Country’s long history of use. The Court was openly skeptical of Sears’ evidence that it developed its slogan organically and held that it was “more than coincidence that Sears’ slogan is so similar to that of Sleep Country.”

From these findings it is fair to ask whether Sleep Country was successful in obtaining an interlocutory injunction because of one or all of the following: the marks in issue were two nearly identical marks; the reasons proffered for use of the alleged infringing marks were not seen as credible and it was simply an attempt to trade on the plaintiff’s goodwill; the plaintiff had used its mark for a significantly longer period of time (22 years) before the alleged infringer; and the evidence that the expert provided to the Court that the applicant trademark owner could be compensated in damages was flawed.

In other words, it is arguable that while the ostensible focus of the Sleep Country decision was on irreparable harm, the practical analysis may be simply that Sleep Country easily satisfied the other two elements of the RJR test which, combined with the flawed expert evidence on irreparable harm presented by Sears, allowed the Court to grant the injunction.

A Complex Matter
The importance of Sleep Country may be ultimately to demonstrate that proving irreparable harm is a complex matter of expert evidence. From a practical perspective, Sleep Country shows that plaintiffs may pursue an interlocutory injunction where:

• There is an overwhelming need to obtain an injunction to protect the business of the plaintiff trademark owner;
• There is a very strong case of confusion;
• There is an element of disingenuousness on the part of the alleged infringer; and
• The applicant trademark owner has long established prior rights.

Although Sleep Country has attracted excitement over whether interlocutory injunctions are now easier to obtain, it may be that a high standard of evidence is still required. The Sleep Country decision was not appealed, so there will be no further judicial review of this case. However, the decision is a signal that it is time for further guidance from appeal courts in Canada as to the criteria to obtain such injunctions.

Originally published in the International Trademark Association INTA Bulletin of July 2018, Vol. 73, No. 11.