BackgroundThe underlying action in VisionWerx was a claim for passing-off under Section 7 of the Trademarks Act involving an alleged distinguishing guise. The plaintiff VisionWerx, a designer, manufacturer, and seller of hot tubs, alleged that it owned an unregistered trademark for the distinguishing guise of its two-person hot tub, the Spaberry 5.0. The defendant Strong Industries was a competitor of the plaintiff’s and sold its own two-person hot tub, the Solstice, through the defendant Costco. The plaintiff claimed that the Solstice infringed on the unregistered distinguishing guise of the Spaberry 5.0 and, thus, the defendants had passed-off their goods for those of the plaintiff contrary to Section 7 of the Act. The plaintiff then brought a motion for an interlocutory injunction to restrain the defendants from continuing to sell their Solstice hot-tub.
The DecisionJustice Kane of the Federal Court ultimately dismissed VisionWerx’s motion for an interlocutory injunction because the company had failed to establish it would be irreparably harmed if the injunction were not granted. Irreparable harm is the second of three requirements which a moving party must demonstrate in order to obtain an interlocutory injunction and it is generally the highest hurdle to jump. If the moving party can show it will be irreparably harmed, then an injunction is usually ordered. Irreparable harm means harm that cannot be calculated or compensated in monetary terms and must be shown through clear and not-speculative evidence, following the Federal Court of Appeal’s 1994 decision in Centre Ice Ltd. v National Hockey League. VisionWerx argued that Strong Industries and Costco’s conduct, namely selling the alleged “knock-off” Solstice hot-tub at a lower price than the Spaberry 5.0, would result in lost sales and a loss of distinctiveness and damage to the goodwill in the Spaberrry 5.0 distinguishing guise. VisionWerx argued this constituted irreparable harm. The Federal Court rejected VisionWerx’s argument on two bases. First, VisionWerx had not brought clear and not-speculative evidence to support its contention that confusion between the Solstice and Spaberry 5.0 would result in a loss of distinctiveness and/or damage to goodwill that could not be compensated or calculated in damages. Specifically, Justice Kane held that VisionWerx’s evidence, in the form of an affidavit from one of its officers attesting to instances of consumer confusion between the Solstice and Spaberry 5.0, was insufficient to establish a loss of distinctiveness or damage to goodwill. In so finding, Justice Kane relied on the Centre Ice precedent, which is oft-cited in the Federal Court for the proposition that confusion does not automatically lead to a loss of distinctiveness or damage to goodwill. Rather, to obtain an interlocutory injunction the moving party must have clear and not-speculative evidence showing how the alleged confusion would lead to a loss of distinctiveness and/or depreciation of good that cannot be calculated in damages. VisionWerx’s evidence was lacking in this regard. Second, Justice Kane held that VisionWerx’s lost sales were easily quantifiable and it was not impossible to “unscramble” any losses due to confusion from losses due to other factors. On this point, Justice Kane distinguished the facts at hand from those in Sleep Country Canada Inc. v Sears Canada Inc., which VisionWerx had relied on in making its argument. In Sleep Country (which we discussed in a previous blogpost), the Federal Court issued an interlocutory injunction restraining Sears Canada from using a slogan that was allegedly confusing with Sleep Country’s own slogan. In that case, the Court concluded it would be impossible to “unscramble” Sleep Country’s losses because the infringement at-issue was not tied to sales of any one particular product, but rather a slogan – which the Court described as a “value proposition” that “is only one element of a multi-faceted marketing strategy.” In comparison, the VisionWerx dispute involved sales of a particular product. Meaning if it was ultimately held that the defendants had passed-off the Solstice hot-tub for the Spaberry 5.0, then the plaintiff’s losses would be easily quantifiable. In this regard, Justice Kane explained at para 98: The dispute between the Plaintiff and the Defendants is about hot tubs, i.e., the sale of potentially infringing products. This type of harm is generally quantifiable (emphasis added). Therefore, the Federal Court concluded that VisionWerx had not demonstrated irreparable harm and, as a result, an interlocutory injunction was not justified.
ImplicationsAt first glance, the VisionWerx decision seems to suggest that while the threshold for establishing irreparable harm is always high it is, by default, even higher in cases of trademark infringement or passing off involving sales of infringing products. But comparing the VisionWerx decision with that in Sleep Country, can it really be said that there is a difference between the harm caused by use of an confusing slogan and the harm caused by sales of a “knock-off” product? From Justice Kane’s perspective, the answer is yes. The difference being that it is “difficult to the point of impossibility” to separate lost sales due to confusion between slogans from lost sales due to other factors. Whereas, with a particular infringing product, the calculus is decidedly simpler. Given the above, how do we reconcile the case law and how can we predict for which kinds of trademarks a court is likely to find irreparable harm? The important factor appears to be the extent to which the trademark at issue is intertwined with the relevant goods or services. For so-called “products”, where the trademark is inextricably intertwined with the product – for example, appearing on the product itself or its packaging – establishing irreparable harm will be inherently more difficult, since a consumer would necessarily encounter the trademark when making a purchasing decision. According to this theory, any sales by an infringer can be correlated with sales lost by the trademark owner to arrive at a reasonably accurate calculation of damages. On the other hand, trademarks like slogans are not inextricably intertwined with the goods or services they cover because a consumer may make a purchasing decision without any knowledge or awareness of the slogan. Therefore, the number of sales lost by the trademark owner, or gained by an infringer, do not necessarily correspond with the infringer’s use of a confusing slogan. The same could also be said for trademarks used to advertise services. In these circumstances, losses due to infringing-use of a trademark are inherently more difficult to “unscramble” from losses due to other factors, since there would be little way of knowing the extent to which use of a confusing trademark had any impact on a consumer’s purchasing decision.
Take-awaysThere are three key take-aways from the Federal Court’s decision in VisionWerx:
- The threshold for establishing irreparable harm in an interlocutory injunction motion remains high and requires clear and not-speculative evidence;
- Because the determination of an interlocutory injunction motion is case-specific, the relationship between a trademark and the goods or services it covers must be taken into consideration; and,
- Where the trademark is inextricably intertwined with particular goods, such that the trademark forms an integral part of the “product”, lost sales will be generally quantified and thus insufficient to show irreparable harm.