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Losses that Can’t be Quantified may be Irreparable Harm

A recent decision of the Ontario Supreme Court of Justice granted an injunction until trial (an interlocutory injunction) in a passing off case.

The Facts

The plaintiff carries on business as a purchaser, seller, installer and servicer of automatic garage doors for residential and commercial buildings in Ontario. The defendant is also in the automatic garage door installation and service business.

Before 2015, the plaintiff and defendant were shareholders in a predecessor company, On-Track Door Systems Inc. In January 2015, the parties signed an agreement where the defendant sold its business and interest in the predecessor company to the plaintiff. The agreement included non-competition and non-solicitation obligations on the part of the defendant from competing in a defined geographic area for five years. To phase out its business in association with the ON-TRACK trade name, the defendant also obtained a license to use this trade name for an additional four months after the transaction was closed.

On the expiration of the license the defendant amended its corporate name to On-Track Door Systems Canada Inc. and began to carry on business in association with the trade name On-Track. In addition, the defendant commenced to use the domain name ontrackdoorsystems.ca notwithstanding that it had sold the domain name ontrackdoorsystems.com to the plaintiff as part of the transaction.

The Action

The plaintiff sued and then sought an interlocutory injunction pending trial.

The judge, who heard the motion seeking the interlocutory injunction, applied the standard test relating to granting such relief. The test requires that the plaintiff demonstrate that:

  1. there is a serious issue to be tried;

  2. the plaintiff will suffer irreparable harm if the injunction is not granted; and

  3. the balance of convenience favours the plaintiff.

To succeed with a claim for passing off the plaintiff must show: the existence of goodwill, deception of the public due to a misrepresentation and actual or potential damage to the plaintiff.

The judge was satisfied that the plaintiff had raised strong arguments to support the claim for passing off, which satisfied the “serious issue to be tried” threshold. The judge also referred to recent cases which have confirmed that the passing of doctrine extends to domain names.

More contentious was whether the plaintiff had shown irreparable harm. Case law in the Federal Court has clarified that the plaintiff must present evidence of irreparable harm which is clear and not speculative. However, recent cases have established that if there is no possibility of quantifying a party’s losses, those losses can be irreparable. Frequently a similar approach is adopted in the Ontario Courts, but the situation is less clear.

Here the judge said that confusion and injury to the plaintiff’s goodwill was inevitable. Given the industry, in which customers may return to the installer for service, there was a real risk that the defendant’s conduct would cause permanent market loss. This harm is difficult to translate into monetary terms.

In addition, the defendant’s use of the impugned domain name will also result in irreparable harm since it will be impossible to tell how many potential clients were redirected from one site to another.

Finally, the Judge said that the balance of convenience favoured the plaintiff. The interlocutory injunction was granted in the plaintiff’s favour.

Comment

The decision illustrates the flexible nature of the doctrine of passing off. It also takes a position similar to that arrived at in the Federal Courts concerning the grant of an interlocutory injunction but without expressly saying so.

It does not appear that the plaintiff attempted to obtain a trademark registration for the trade name in issue. If it had have taken this step, it would have been in a position to sue for trademark infringement which is generally advantageous.

John McKeown

Goldman Sloan Nash & Haber LLP

480 University Avenue, Suite 1600

Toronto, Ontario M5G 1V2

Direct Line: (416) 597-3371

Fax: (416) 597-3370

Email: mckeown@gsnh.com

These comments are of a general nature and not intended to provide legal advice as individual situations will differ and should be discussed with a lawyer.

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