Fluid Energy Group Ltd. v. Exaltexx Inc.

Fluid Energy Group Ltd. v. Exaltexx Inc.
Court (s) Database
Federal Court Decisions
Date
2020-01-20
Neutral citation
2020 FC 81
File numbers
T-1645-19
Decision Content
Date: 20200120
Docket: T-1645-19
Citation: 2020 FC 81
Ottawa, Ontario, January 20, 2019
PRESENT: Mr. Justice McHaffie
BETWEEN:
FLUID ENERGY GROUP LTD.
Plaintiff
and
EXALTEXX INC., NOVAMEN INC. AND
GLOBALQUIMICA PARTNERS LLC
Defendants
ORDER AND REASONS
I. Overview
[1] Cease and desist letters are a common part of pre-litigation proceedings in Canada, including in patent infringement cases. Although not required by law, such demand letters can serve laudable purposes of providing notice of a legal claim and a potential lawsuit, allowing the recipient to assess the claim and their conduct, and initiating discussions leading to resolution of the dispute before litigation is commenced.
[2] At the same time, cease and desist letters that threaten litigation, and all of its associated risks and costs, can be used tactically in a way that avoids a determination of the true merits of a claim. Sending infringement allegations and threats of expensive patent litigation to customers or suppliers of an alleged infringer can result in the defendant being significantly harmed in the marketplace, and even forced from it entirely, long before a determination of infringement is made. Where such letters are untrue, in that the patent is not valid or not infringed, they may themselves be actionable. Where the requirements for an injunction are met, they may be enjoined.
[3] In this patent infringement action, Fluid Energy Group Ltd asserts that products of its competitor, Exaltexx Inc, infringe its patents. After starting the action, Fluid sent three cease and desist letters, including to a company that supplies a chemical to Exaltexx, and a small trucking company that hauls product from Exaltexx to one of its customers. These letters made broad-ranging assertions of infringement covering Exaltexx products and threatened patent litigation against the companies if they refused to comply with the demand to immediately cease and desist. The trucking company in particular felt it had no choice but to comply with the demand and cease handling Exaltexx products.
[4] Exaltexx seeks an interlocutory injunction preventing Fluid from sending further cease and desist letters to third parties alleging that they or Exaltexx infringe Fluid’s patents, or demanding that they stop dealing with Exaltexx’s products. Exaltexx states that the letters go beyond acceptable pre-litigation correspondence, and are causing irreparable harm to its business.
[5] In the present case, I am satisfied that Exaltexx has raised a serious question to be tried that Fluid’s allegations that its suppliers of products and services are infringing Fluid’s patents are actionable under subsection 7(a) of the Trademarks Act, RSC 1985, c T‑13. I am also satisfied on the evidence that in the context of this industry, permitting Fluid to continue to write such letters to Exaltexx’s suppliers would cause irreparable harm to Exaltexx, given the small number of chemical suppliers and transporters available, the impact Fluid’s letters have had to date, and the impact Fluid clearly intends them to have. In the absence of any evidence filed by Fluid as to any harm the requested injunction would cause to their business interests, I find that the balance of convenience favours granting an injunction.
[6] However, Exaltexx has not filed adequate evidence to raise a serious question regarding the infringement allegations made about Exaltexx’s products themselves. This is not because there is evidence that Exaltexx infringes, but because there is no proper evidence one way or another and Exaltexx bears the onus on its motion. Absent such evidence, I am not satisfied that it has established a serious question that Fluid’s infringement allegations about the products themselves are false and thus actionable under subsection 7(a).
[7] An injunction is therefore issued on the terms set out below, enjoining Fluid from communicating with Exaltexx’s suppliers (a) alleging that they are infringing Fluid’s patents by dealing with Exaltexx’s products, (b) demanding that they cease dealing with Exaltexx’s products, and/or (c) threatening legal proceedings for infringement. However, the injunction will not at this time extend to enjoin Fluid from alleging that Exaltexx’s products infringe Fluid’s patents, or from communicating with customers or potential customers of Exaltexx.
II. The Litigation Background
[8] Fluid and Exaltexx are competitors in the sale of chemicals to the oil and gas industry. Each sells chemical products described as “safe acids”: strong acids that have been modified by blending them with additives to be more environmentally and dermatologically safe. These products are sold to customers who inject them downhole to stimulate oil production from a formation.
[9] In November 2017, Fluid sued Exaltexx in the Alberta Court of Queen’s Bench, alleging that Exaltexx breached a confidentiality agreement signed when the parties were discussing a potential business relationship. A second action in that Court was brought in November 2019, naming both Exaltexx and two of its officers. Those cases are ongoing.
[10] In this Court, Fluid alleges that Exaltexx products infringe patents held by Fluid. Fluid holds nine Canadian patents that pertain to acid compositions, issued between 2016 and 2019. By way of overview:
- six of these patents claim synthetic acid compositions for use in oil industry activities or, in the starred patent, “downhole oil industry activities”, and uses thereof (CA 2,892,876*; CA 2,961,777; CA 2,961,787; CA 2,961,792; CA 2,961,794; and CA 2,961,783);
- one claims synthetic acid compositions for use in industrial activities that do not include any downhole activities, and uses thereof (CA 2,892,875);
- one claims uses of a modified acid composition in various industries including the oil industry (CA 3,006,476); and
- the last claims aqueous synthetic acid compositions, uses thereof, and methods that comprise use of the compositions (CA 2,974,757).
These descriptions are provided for context and without making any findings regarding the scope or construction of the patents. As necessary below, I will refer to each patent by the final three numbers of the patent (e.g., the ’876 Patent).
[11] Fluid has also named as defendants two of Exaltexx’s chemical suppliers, GlobalQuimica Partners LLC and Novamen Inc. Fluid alleges that GlobalQuimica and Novamen have also infringed Fluid’s patents, and that they induced Exaltexx to infringe by supplying some or all of the components of the products alleged to infringe; induced other competitors, customers, suppliers and distributors to infringe; and conspired with Exaltexx to infringe. Counsel for GlobalQuimica and Novamen was present at the hearing of this motion, but those parties took no position on and no part in the motion. At the hearing, the Court was advised that a settlement had been reached between Fluid and Novamen that was expected to lead to the discontinuance of the action against Novamen.
[12] Fluid put GlobalQuimica and Exaltexx on notice of its infringement allegations through a cease and desist letter dated February 26, 2019. That letter identified an acid additive product manufactured by GlobalQuimica and marketed as GQ-300, which is relabeled by Exaltexx and resold in Canada as ACA (Acid Controlling Additive), which Fluid alleged infringed the ’876 Patent, the ’777 Patent and the ’787 Patent. The letter attached a copy of Fluid’s Statement of Claim against Exaltexx in the Alberta Court of Queen’s Bench.
[13] The Federal Court action was filed on October 9, 2019. In late October, Exaltexx’s counsel wrote to Fluid’s, alleging deficiencies in Fluid’s Statement of Claim, including a failure to adequately particularize the claims of infringement and inducing infringement. Exaltexx requested amendments to the Statement of Claim. After a brief exchange, on November 1, Fluid’s counsel indicated that it would consider the issue and respond, agreeing to extend the deadline for a defence in the interim. A follow up from Exaltexx on December 11 resulted in Fluid responding that it was considering the matter and would respond soon.
III. The Impugned Cease and Desist Letters
[14] While the pleadings issue was outstanding, Exaltexx discovered that Fluid’s counsel had written to Panther Industries Inc, one of Exaltexx’s raw chemical suppliers, and to Dwayne Hommy Trucking Ltd, the preferred transporter of one of Exaltexx’s clients. The two letters, dated December 9, 2019, are effectively identical, and are effectively identical to a third letter of the same date sent to Nitmoi Labs Inc.
[15] Because the content of the letters is material, I reproduce the text of the letter below, using the letter to Panther as an example. I have added paragraph numbers for ease of reference.
1. We are legal counsel for Fluid Energy Group Ltd. (Fluid). The purpose of this letter is to put you on notice of a potential legal claim and Court action by Fluid against Panther Industries Inc. (Panther) for patent infringement and/or inducing or procuring patent infringement.
2. It has come to Fluid’s attention that Panther has been storing for sale, transporting, importing, shipping, distributing, supplying, selling and/or using modified and synthetic acid products and systems that are marketed and sold by Exaltexx Inc. (Exaltexx) or their distributors that may be known only to you in Canada, including but not limited to products known and sold as Stimtexx SPA HCl, GQ-300 Acid Additive, Acid Controlling Additive, ACA Concentrate, and Ener-Ox HC Acid Replacement (collectively, the Infringing Products), for various uses in the oil and gas industry in Canada.
3. Fluid believes that the composition and use of the Infringing Products, either as sold, or when mixed as intended with other additives, fall within the scope of the claims of Fluid’s Canadian Patents No. 2,892,875, 2,892,876, 2,961,777, 2,961,787, 2,961,792, 2,961,794, 2,961,783, 2,974,757 and 3,006,476 (the Fluid Patents), which grant Fluid the exclusive right to manufacturer, sell, and license the use of the protected compositions for the life of the patents.
4. Fluid has commenced a legal action for patent infringement in the Federal Court of Canada against Exaltexx, and other manufacturers and distributors of the Infringing Products. A copy of the Statement of Claim is enclosed.
5. Please take note that by storing for sale, transporting, importing, shipping, distributing, supplying, selling and/or using the Infringing Products in Canada, Panther has infringed, is continuing to infringe, and/or has induced and procured others to infringe, the Fluid Patents. Fluid hereby demands that Panther immediately cease and desist from storing, transporting, importing, shipping, distributing, supplying, selling and/or using the Infringing Products, or any similar infringing products, in Canada, and confirm in writing to the undersigned that it has done so and will continue to do so, by no later than Friday, December 20, 2019.
6. If Panther refuses to comply with this demand, Fluid will take legal action to protect its intellectual property and patent rights without further notice, including an action for injunctive relief and to recover damages, including loss of profits and reputational damage, and/or an accounting and delivery up of profits received by Panther as a result of its unlawful acts, together with punitive damages and legal costs.
7. Fluid further demands that Panther take immediate steps to retain and preserve all potentially relevant records, both in paper and electronic format (the Records), including but not limited to: active data and records (such as all material, safety and product data sheets, and all shipping, delivery, inventory, customs, waybill and sales records related to the Infringing Products); archived and back-up data, including any data at risk of timed or routine deletion; data on stand-alone computers, cell phones, tablets, and other electronic devices, including metadata from all such devices; and text messages, voicemails, or any other recorded interactions. As a potential party to impending legal action, Panther is obligated to assist in the retention and preservation of the Records. We ask that you consult with forensic and information technology consultants, as needed, to ensure the proper preservation of electronic Records. Panther must not destroy, delete, or alter the Records in its possession or control in any manner.
8. We await your timely response.
[Bold in original.]
[16] Other than forwarding the letter to Exaltexx, there is no information on the record regarding Panther’s response or reaction to the letter. Hommy Trucking, however, retained counsel, who wrote to Fluid’s counsel indicating that Hommy Trucking was a small trucking company and asking Fluid to rescind its letter. When Fluid refused to do so, Hommy Trucking’s counsel wrote to Exaltexx’s counsel, saying they had no choice but to advise their client to agree to cease handling Exaltexx products.
IV. Exaltexx’s Motion
[17] This motion was brought on December 18, 2019, requesting a hearing by December 20. The motion sought both an order pursuant to Rule 221 of the Federal Courts Rules, SOR/98-106, striking the Statement of Claim without leave to amend, and an injunction enjoining Fluid from
disseminating any further statements, including the provision of copies of the Statement of Claim of the within action, to any supplier, distributor, customer or other party associated or involved with Exaltexx’ safe acids business which allege breach or infringement of the Asserted Patents and/or which threaten legal proceedings for infringement or breach of the Asserted Patents[.]
Exaltexx’s motion also sought disclosure of parties to whom Fluid had sent statements alleging breach or infringement and/or which threaten legal proceedings.
[18] Exaltexx’s motion is supported by an affidavit from Katherine Ayotte, Chief Financial Officer of Exaltexx, and a law clerk’s affidavit attaching various correspondence.
[19] The day following service of Exaltexx’s motion, Fluid served an Amended Statement of Claim. Exaltexx asserts that the amendments do not satisfy its concerns about the Statement of Claim and the particularization of the allegations of infringement and inducing infringement. Exaltexx maintains its motion to strike the Statement of Claim, which remains outstanding.
[20] After discussions between Exaltexx and Fluid, the parties reached an agreement that allowed for the orderly conduct of the injunction aspect of the motion. That agreement included a requirement that Fluid provide a list of parties that had been contacted alleging that Exaltexx is infringing Fluid’s patents or demanding that the recipient cease and desist from selling Exaltexx products, and providing non-privileged communications. It also included a temporary agreement by Fluid not to send further correspondence, on terms that Exaltexx now submits should be continued by the Court, namely that:
1) Fluid not communicate with any new parties alleging that (i) Exaltexx is infringing its patents or (ii) demanding that they cease and desist from selling, distributing, etc. Exaltexx’s products on that basis.
2) Fluid not initiate further contact with the parties it has already contacted alleging that (i) Exaltexx is infringing its patents or (ii) demanding that they cease and desist from selling, distributing, etc. Exaltexx’s products on that basis.
[21] No prohibition was agreed to, or is sought by Exaltexx, restricting Fluid from commencing any patent infringement actions, either by way of new action or adding parties to this action, or from discussing settlement with any of the defendants.
[22] The interim agreement pending the injunction hearing was expressly without prejudice to the parties’ positions and arguments on the motion.
[23] Subsequent to the agreement, Fluid advised Exaltexx that the only parties that Fluid had communicated with were Panther, Hommy Trucking, Nitmoi Labs, and Brenntag Canada Inc. Ms. Ayotte’s evidence is that Brenntag is a chemical supplier Exaltexx had been dealing with since 2015, but that in early November 2019, Brenntag advised that it was rescinding a quote on acid supply and blending services and would no longer be able to provide custom acid blending to Exaltexx. Fluid did not provide a copy of written correspondence with Brenntag, so it can be inferred that communications with Brenntag were either oral or are subject to a claim of privilege.
[24] Fluid briefly cross-examined Ms. Ayotte on her affidavit, but chose not to file any evidence itself in response to Exaltexx’s injunction motion.
V. Preliminary Issues
[25] Fluid raises two preliminary issues regarding the prerequisites for bringing a motion for injunctive relief. While each raises an important issue, I find that each is answered by undertakings given by counsel at the hearing of the motion.
A. Motion Prior to Proceedings
[26] Rule 372 provides that motions may only be brought before “the commencement of proceedings” in situations of urgency and only if an undertaking to commence proceedings is given:
Motion before proceeding commenced
Requête antérieure à l’instance
372 (1) A motion under this Part may not be brought before the commencement of a proceeding except in a case of urgency.
372 (1) Une requête ne peut être présentée en vertu de la présente partie avant l’introduction de l’instance, sauf en cas d’urgence.
Undertaking to commence proceeding
Engagement
(2) A party bringing a motion before the commencement of a proceeding shall undertake to commence the proceeding within the time fixed by the Court.
(2) La personne qui présente une requête visée au paragraphe (1) s’engage à introduire l’instance dans le délai fixé par la Cour.
[Emphasis added.]
[Je souligne.]
[27] Fluid notes that Exaltexx has not commenced a claim or counterclaim against Fluid, and that its motion materials gave no undertaking to do so. Exaltexx responds that an action has already been commenced by Fluid, such that the Rule does not apply. In the alternative, counsel for Exaltexx indicated that the matter was brought on an urgent basis, and confirmed that he had instructions to undertake to commence a counterclaim as required by the Court. Exaltexx submitted that it would be appropriate to await the outcome of the outstanding pleadings motion, and to commence the counterclaim in due course in response to the claim if and as it stood after that motion. At the same time, counsel asked that any requirement to file a counterclaim before the pleadings motion be expressly without prejudice to the outstanding pleadings motion, a proviso that Fluid did not object to.
[28] I agree with Fluid that a counterclaim must be considered a separate proceeding for purposes of Rule 372. The Federal Courts Rules generally recognize counterclaims as separate actions from the main claim, although they are asserted within the same court file. Thus counterclaims must themselves be “commenced;” may proceed independently from the main action; may be brought against parties not party to the main action; and are described as “proceedings” in a number of places: Federal Courts Rules, Rules 62(2), 63(1)(b), 105, 171(b), 182, 189-192, 419, Form 171E.
[29] Further, the principle behind Rule 372 is that the motions described in Part 8, including injunction motions, are for the preservation of rights in a proceeding, i.e., they address matters on an interlocutory basis pending a full determination of rights. The nature of the pending claim, and the relief sought, are to be described and defined in pleadings. This is as true for motions brought by a defendant to preserve rights pending determination of a counterclaim as it is for motions brought by a plaintiff to preserve rights pending determination of the main action: AMTIM Capital Inc v Appliance Recycling Centers of America, 2018 CarswellOnt 8793 at para 19.
[30] I therefore agree that this motion was brought before commencement of proceedings for purposes of Rule 372, so the urgency and undertaking requirements must be met. As to the former, I am satisfied that Exaltexx’s motion was brought in a situation of urgency. The motion was originally brought on short notice within a week of Exaltexx becoming aware of the letters sent to Panther and Hommy Trucking. In the circumstances, and particularly in light of the outstanding concerns raised regarding the Statement of Claim, I accept that it was reasonable to bring the motion before commencing a counterclaim.
[31] As to the latter, the undertaking required by Rule 372(2) was not given by Exaltexx in its motion materials. However, counsel at the hearing indicated that he was instructed to provide the undertaking and did so. In particular, counsel indicated Exaltexx’s intention and undertaking to counterclaim against Fluid when required to plead in response to “a proper pleading,” including a counterclaim for damages and an injunction under subsection 7(a) of the Trademarks Act arising from the cease and desist letters sent by Fluid. Counsel for Fluid accepted that an undertaking from counsel was satisfactory for this purpose.
[32] With reference to AMTIM Capital, Fluid suggests that a draft counterclaim ought to have been filed by Exaltexx pending the pleadings motion. However, as Exaltexx points out, the situation in AMTIM Capital was rather different, as the main action in that case had been commenced in 2011 (although a motion to amend the claim was pending), and it was “not exactly clear what the basis for the injunction request will be”: AMTIM Capital at para 16. In any case, I do not take AMTIM Capital as standing for the proposition that a draft pleading must always be provided where an injunction is sought prior to proceedings.
[33] I agree with Exaltexx that there is little to be gained in requiring Exaltexx to serve a Statement of Defence and Counterclaim in response to the Amended Statement of Claim before the determination of the outstanding pleadings motion, which may result in striking or further amendment of the Amended Statement of Claim. Exaltexx will therefore be required to serve a counterclaim together with any Statement of Defence in accordance with any order made disposing of the motion to strike the Statement of Claim. In the event that that motion results in the striking of the Statement of Claim, Exaltexx’s claim shall be filed as an independent action, subject to further order of the Court in disposing of the pleadings motion. If the parties reach a settlement, either of the counterclaim or the entire action, Exaltexx will be relieved of its undertaking.
[34] For clarity, I make no comment on the situation of a respondent to an application invoking the powers of the Court pursuant to section 18.2 of the Federal Courts Act, RSC 1985, c F-7, nor on the powers of the Court under section 44 of that Act in situations where the final disposition is left to another body, as discussed in Canada (Human Rights Commission) v Canadian Liberty Net, [1998] 1 SCR 626.
B. Undertaking as to Damages
[35] Rule 373(2) requires a party seeking an interlocutory injunction to undertake to abide by any order concerning damages caused by the granting of the injunction, absent contrary order:
Interim and Interlocutory Injunctions
Injonctions interlocutoires et provisoires
Availability
Injonction interlocutoire
373 (1) On motion, a judge may grant an interlocutory injunction.
373 (1) Un juge peut accorder une injonction interlocutoire sur requête.
Undertaking to abide by order
Engagement
(2) Unless a judge orders otherwise, a party bringing a motion for an interlocutory injunction shall undertake to abide by any order concerning damages caused by the granting or extension of the injunction.
(2) Sauf ordonnance contraire du juge, la partie qui présente une requête pour l’obtention d’une injonction interlocutoire s’engage à se conformer à toute ordonnance concernant les dommages-intérêts découlant de la délivrance ou de la prolongation de l’injonction.
[Emphasis added.]
[Je souligne.]
Again, Exaltexx did not provide this undertaking in its motion materials, as is common practice. Fluid submits that this is fatal to Exaltexx’s motion.
[36] An undertaking as to damages is an important and necessary precondition to the granting of an injunction. As extraordinary interlocutory relief, an injunction grants the moving party significant advantages in advance of a full determination on its merits. As a risk-balancing mechanism, those advantages are coupled with the requirement to pay any damages arising if it is ultimately determined that the injunction should not have been granted: see, e.g., Ordina Shipmanagement Ltd v Unispeed Group Inc, 1998 CanLII 8785 (FC) at para 12, quoting Robert J Sharpe, Injunctions and Specific Performance, 2nd ed. (Toronto: Thomson Reuters, looseleaf) at p 2‑28. The risk-balancing nature of the undertaking is such that it is also relevant to the balance of convenience: Commodore v Canada (Attorney General), 2001 FCA 387 at para 13; Lac La Biche (Town) v Alberta, 1993 ABCA 104 at para 26.
[37] Exaltexx argues that it should not be required in the circumstances to give an undertaking as to damages since (1) it is not seeking to enjoin Fluid from engaging in a revenue-producing activity by competing or selling product, and (2) the only possible damages arising from the injunction would be due to sales by Exaltexx and thus be duplicative of the main claim for infringement. In the alternative, counsel again advised at the hearing that he had received instructions to give the requisite undertaking as to damages.
[38] An undertaking as to damages is required here. While the injunction sought does not prevent Fluid from competing, it seeks to stop Fluid from engaging in activity relating to its commercial operations that could have an impact on its business. In any case, it is not only injunctions that relate to revenue-producing activity that require an undertaking as to damages—Rule 373(2) is not so limited. The potential damages to Fluid are also not necessarily co-extensive with the claim for infringement, as the trial judge might, for example, dismiss both Fluid’s infringement claim and Exaltexx’s counterclaim under subsection 7(a) of the Trademarks Act and determine that the injunction should not have been granted.
[39] Exaltexx’s argument that Fluid has not filed evidence that they would suffer harm must similarly be rejected. The obligation is on Exaltexx to meet the conditions for the relief it seeks on the motion, including through giving the requisite undertaking, and not on Fluid to prove that an undertaking is necessary. While it will be for Fluid to establish damages arising from the issuance of the injunction at the appropriate stage, they are theoretically possible and Exaltexx must give an undertaking to pay them.
[40] At the same time, the absence of evidence from Fluid does undermine its argument regarding the need to be able to examine on the undertaking. Since Exaltexx did not give its undertaking in its motion materials, Fluid argues that it was unable to test or examine on the strength and enforceability of the undertaking. While this may be a more significant factor in other cases, I do not find it affects the validity of the undertaking in this case. The injunction Exaltexx seeks does not inherently suggest that it could cause significant financial harm. Contrary to Fluid’s submissions, Exaltexx does not seek to prevent Fluid from enforcing its patent rights, nor from promoting its products and competing in the marketplace. In the absence of evidence of a significant financial impact on Fluid from being unable to continue to write letters accusing Exaltexx and its suppliers of infringement, I am satisfied with the undertaking as to damages given by Exaltexx.
VI. Exaltexx Has Met the Requirements for an Injunction
[41] To obtain an interlocutory injunction, Exaltexx must show that: (A) it has raised a serious question to be tried in respect of its claim against Fluid; (B) it will suffer irreparable harm if the injunction is not granted; and (C) the balance of convenience favours the granting of the injunction: RJR-MacDonald Inc v Canada (Attorney General), [1994] 1 SCR 311 at p 334.
[42] The elements of the RJR-MacDonald test are conjunctive, in that the moving party must satisfy all three to obtain relief. However, they are not independent silos, and a stronger finding on one or more of the elements may lower the threshold for the other elements: Bell Media Inc v GoldTV.Biz, 2019 FC 1432 at para 56; Boehringer Ingelheim (Canada) Ltd v Pharmacia Canada Inc, [2001] OJ No 1911 (QL) at paras 35-37. The Supreme Court of Canada has recently confirmed that the “fundamental question is whether the granting of an injunction is just and equitable in all of the circumstances of the case”: Google Inc v Equustek Solutions Inc, 2017 SCC 34 at paras 1, 25.
[43] For the reasons below, I am satisfied that Exaltexx has met its onus to establish each of the three parts of the RJR-MacDonald test with respect to Fluid’s allegations that Exaltexx’s suppliers (using that term in reference to suppliers of both products and services such as transport services) infringe Fluid’s patents.
A. Exaltexx has Raised a Serious Question to be Tried
[44] Exaltexx grounds its serious question (or serious issue) to be tried in subsection 7(a) of the Trademarks Act. Exaltexx has also raised section 52 of the Competition Act, RSC 1985, c C‑34, which similarly addresses false and misleading statements, but places its reliance on the Trademarks Act for the purpose of this motion. The Court therefore does not need to address whether injunctive relief may be had pursuant to sections 36 and 52 of the Competition Act: see Energizer Brands, LLC v The Gillette Company, 2018 FC 1003 at paras 86-91.
[45] The “serious question to be tried” threshold is a low one and requires only that the applicant’s case be “neither frivolous nor vexatious”: RJR-MacDonald at pp 335, 337; R v Canadian Broadcasting Corp, 2018 SCC 5 at para 12. Nonetheless, it requires the Court to make a “preliminary assessment of the merits of the case”: RJR-MacDonald at p 337. This assessment is to be made on the evidence filed on the motion. As the Federal Court of Appeal stated in its pre-RJR-MacDonald decision in Turbo Resources, “the party seeking the injunction must satisfy the court that his claim is neither frivolous nor vexatious; in other words that the evidence before the court discloses that there is a serious question to be tried” [Emphasis added]: Turbo Resources Ltd v Petro Canada Inc, [1989] 2 FC 451 (CA) at paras 19, 21; see also Unilin Beheer BV v Triforest Inc, 2017 FC 76 at para 112.
[46] To raise a serious question for the purposes of this motion, Exaltexx must establish on the evidence that there is a serious question to be tried regarding its proposed claim against Fluid under subsection 7(a) of the Trademarks Act arising from the statements it seeks to enjoin. To assess this, I will first review the requirements of subsection 7(a) of the Trademarks Act and cases that have applied it in the context of cease and desist letters. I will then review the letters and the evidence filed to assess whether a serious question has been raised with respect to each of the required elements of subsection 7(a).
(1) General principles regarding subsection 7(a) of the Trademarks Act
[47] Subsection 7(a) of the Trademarks Act contains the following prohibition:
Prohibitions
Interdictions
7 No person shall
7 Nul ne peut :
(a) make a false or misleading statement tending to discredit the business, goods or services of a competitor;
a) faire une déclaration fausse ou trompeuse tendant à discréditer l’entreprise, les produits ou les services d’un concurrent;
[48] Section 7 of the Trademarks Act is “nourished for federal legislative purposes in so far as it may be said to round out regulatory schemes prescribed by Parliament in the exercise of its legislative power in relation to patents, copyrights, trade marks and trade names”: MacDonald v Vapor Canada Ltd, [1977] 2 SCR 134, 1976 CanLII 181 (SCC) at p 172. Thus for subsection 7(a) to be valid, it must be read to pertain to false and misleading statements made about a trademark or other intellectual property: Riello Canada Inc v Lambert (1986), 9 CPR (3d) 324 at para 35; Canadian Copyright Licensing Agency v Business Depot Ltd, 2008 FC 737 at para 27.
[49] It has long been recognized that a false allegation that a competitor infringes a patent may fall within subsection 7(a): S&S Industries Inc v Rowell, [1966] SCR 419 at pp 422, 424-425, 429-432. This is so even if the falsity of the allegation may not be established until later, such as after a finding that the patent is invalid: S&S Industries at p 425. The essential elements of such an action are (a) a false or misleading statement; (b) tending to discredit the business, wares or services of a competitor; and (c) resulting damage: S&S Industries at p 424.
[50] Justice Manson of this Court recently applied S&S Industries and subsection 7(a) in Excalibre Oil Tools Ltd v Advantage Products Inc, 2016 FC 1279, aff’d 2019 FCA 121. After concluding that none of the relevant patents was infringed, Justice Manson addressed the claim that Advantage’s statements to customers that Excalibre’s product infringed were false or misleading. Since no version of Excalibre’s product infringed any of Advantage’s patents, Justice Manson concluded that it was clear that the letters alleging infringement contained false and misleading statements: Excalibre at paras 29, 52, 280.
[51] As to whether the letters tended to discredit Excalibre’s business or wares, Justice Manson distinguished at paragraphs 281-283 between cease and desist letters that are “informative” and those that are “threatening”, referencing the decision of Justice Hughes in E Mishan & Sons, Inc v Supertek Canada Inc, 2016 FC 986:
Patentees are entitled to assert that they have rights flowing from a valid patent. Therefore, not every assertion of a patent or other intellectual property, which may subsequently be held to be invalid, will be held to constitute a false and misleading statement per section 7(a) ([Supertek] at para 11).
It is important to distinguish between cease and desist letters that are informative and letters that are threatening. In Supertek, above, Mr. Justice Roger Hughes contrasted the situation in S&S, where the false and misleading statements consisted of a cease and desist letter threatening litigation that never came to pass, with the situation in M&I Door Systems Ltd v [Indoco] Industrial Door Co Ltd (1989), 25 CPR (3d) 477 (FCTD), where the cease and desist letter was more informative than threatening. Informative letters set out a patentee’s rights and provide information that will enable the recipient to understand what may constitute infringement. Threatening letters contain explicit or veiled threats that the recipient will be sued if they do not change a particular course of conduct.
Statements made in a threatening cease and desist letter will tend to discredit the goods or services of the patentee’s competitor. …
[Emphasis added; some citations omitted]
[52] Justice Manson found the letters at issue in that case to be threatening, and to discredit Excalibre’s product. He therefore found the subsection 7(a) claim to be made out, with the quantum of damages to be determined on reference: Excalibre at paras 284-289.
[53] Fluid notes that Excalibre was a finding after trial rather than on an injunction motion, and points to this Court’s decision in Mr. Safety Check Systems Inc v Brake Safe Inc (1997), 76 CPR (3d) 136 (FCTD). There, Mr. Safety Check had sent letters to Brake Safe’s customers advising that anyone infringing their patent would be liable to pay damages, and also distributed copies of advertisements comparing Brake Safe’s product with “Cheap Lookalikes” (although not specifically naming Brake Safe’s product as a cheap lookalike). In declining to grant an injunction restraining Mr. Safety Check’s conduct, Justice Cullen made the following observations at paragraphs 17-20:
As I found in the previous motion I heard in this case, an extremely limited review of the case on the merits leads me to conclude that there are several real issues that need determination on the basis of findings of fact and credibility. As well, there are several complex legal issues that need resolution regarding ownership/co-ownership, inventorship, and infringement, to name a few. Credibility and issues going to the very heart of infringement cannot be determined in this motion. It appears that there may even be two different products at issue here. Such issues require a full-blown trial.
I believe that there may be a serious issue as to whether the activities of the respondents could be in breach of subsection 7(a) of the Canadian Trade-marks Act. I agree with counsel to the applicants that this Court has jurisdiction to make determinations on this provision, and on all of the documents at issue in this motion. Although, at times the present issues may seem like a breach of contract situation, the issues are, nevertheless, clearly all tied to the patent dispute before this Court. However, because of the complexity of the case, the trade-marks question is better answered after a full exposition of the facts at issue, such as that which would occur in a trial, and not as a preliminary matter as it has been presented here.
The question of whether the respondent’s statements are false and misleading is inextricably tied to the issues that must be resolved at trial. There is no way to divorce the applicant's allegations from the resolution of the main action. There is no way to pronounce on these allegations without the resolution of the main action.
For the above reasons, I am not convinced that there is a serious issue that must, or even could, be resolved in a preliminary way. Nevertheless, because I do not believe that the applicants' case is frivolous or vexatious, it is now prudent to consider the second and third prongs of the interlocutory injunction test.
[Emphasis added.]
[54] While Justice Cullen concluded, on the facts before him, that there was no serious issue appropriate for injunctive relief, I do not take Mr. Safety Check as standing for a general proposition that a subsection 7(a) claim can never be the subject of an injunction. Although, as Fluid points out, the truth or falsity of the allegations of infringement may only be ultimately determined after trial, the same is true of any claim raised as the basis for an injunction. The standard on a motion for an injunction is only whether, on a preliminary assessment of the merits, there is a serious issue to be tried: RJR-MacDonald at p 334. There is no basis to treat a claim under subsection 7(a) as being subject to a different test. I note that Justice Cullen does appear to have recognized that despite his misgivings, he ought to consider the remaining parts of the RJR-MacDonald test, since the applicant’s case was not frivolous or vexatious: Mr. Safety Check at paras 20-26.
[55] I note too that in the “previous motion” between the same parties referred to at the outset of the passage above, Justice Cullen also dismissed Mr. Safety Check’s request for an injunction to restrain the alleged patent infringement by Brake Safe, raising similar concerns regarding the need for a final determination at trial, but still proceeding to consider the other branches of the test since the case was not frivolous or vexatious: Mr. Safety Check Systems Inc v Brake Safe Inc (1997), 77 CPR (3d) 1 (FCT