Date: 20011019
Docket: T-836-01
Neutral Citation: 2001 FCT 1133
BETWEEN:
ERIC WHITE
Plaintiff
-and-
E.B.F. MANUFACTURING LIMITED, ELECTROBRAID
FENCE LIMITED, E. DAVID BRYSON, and
NOVATEC BRAIDS LIMITED
Defendants
REASONS FOR ORDER
KELEN J.:
[1] The plaintiff seeks an interlocutory injunction restraining the defendants from infringing the rights of the plaintiff as patentee of a Canadian patent entitled "Electrobraid Fence", and from manufacturing and selling the product. The plaintiff is the owner of a patent entitled "Electrobraid Fence".
[2] The defendants E.B.F. Manufacturing Limited ("EBF") and Electobraid Fence Limited ("Electrobraid Fence") are companies based in Yarmouth, Nova Scotia which respectively manufacture and market the patented "Electrobraid Fence". The current sole shareholder and director of these two companies is the defendant E. David Bryson ("Bryson"). The remaining defendant is Novatec Braids Limited ("Novatec"), a rope manufacturing company based in Yarmouth, N.S., which was previously authorized by the plaintiff to manufacture the patented electric fence.
The Facts
[3] In 1997 the plaintiff was working to bring to market his invention of an electric fence. He was introduced to the defendant Bryson who had the financial resources and business experience to assist the plaintiff in manufacturing and marketing his invention. On September 4, 1997, the plaintiff and the defendant Bryson entered into a Shareholders'Agreement with respect to a new company, E.B.F. Manufacturing Limited. Under this agreement, the defendant, Bryson, invested money and efforts towards developing and marketing the product.
[4] The new company, EBF, obtained financing from the Province of Nova Scotia. Part of the arrangement with the Province of Nova Scotia was that there be a formal License Agreement between the parties with respect to the manufacture and sale of the patented electric fence. This License Agreement contained the same royalty payment scheme.
[5] In 1999 and 2000 a number of disagreements arose between the parties with respect to the non-payment of royalties in a timely manner and in the correct amounts. As a result, White exercised his "shotgun" rights under the Shareholders' Agreement to either purchase or sell fifty percent (50%) of the shares. The defendant Bryson exercised his option to purchase fifty percent (50%) of the shares, rather than sell his shares. On or about September 29, 2000, Bryson paid White $125,000 for White's shares in EBF and paid $125,000 to White's associate, Jennifer Fried, for her shares in EBF.
[6] Under the Shareholders'Agreement and under the License Agreement, EBF had been granted an exclusive license to manufacture and market the patented "electrobraid fence" in exchange for a royalty in the amount of two percent (2%) of gross revenues.
[7] The disagreements between the parties led to court actions before the Nova Scotia Supreme Court. One of those court actions is still pending. The disagreements led to a complete breakdown in the relationship between White, the owner of the patent, and Bryson, officer and director of EBF and Electrobraid Fence, the two companies manufacturing and selling the product electrobraid fence.
[8] The plaintiff takes the position that the license agreement is terminated because the defendants EBF and Electrobraid Fence have not been paying the royalties, have not honoured the license agreement regarding the timing for remitting the royalties, and have misconstrued the meaning of "gross revenues", which is the basis upon which the royalty payment is calculated.
[9] Since the Shareholders'Agreement was executed on September 4th, 1997, the defendants, EBF, Electrobraid Fence, and Bryson have paid the plaintiff $225,000 plus a royalty cheque in the amount of $37,500, which White has not cashed for fear that it might prejudice his legal rights. In addition, the said defendants have paid Jennifer Fried $125,000. These various payments included advances against royalty payments, $250,000 for the shares owned by White and Fried, and actual payments for royalties following the issuance of the letters patent on March 27th, 2001.
[10] The sales by Electrobraid Fence in 1999 and 2000 were $2.5 million and $4.2 million respectively. If such sales constitute "gross sales", the royalty payments for such sales would be $134,000.
[11] The defendant Novatec was manufacturing the patented electric fence with the written agreement of the plaintiff White and the defendants EBF and Bryson. This manufacturing took place with the knowledge and consent of the parties for approximately three (3) years until March 28, 2001, when the solicitors for the plaintiff demanded that Novatec cease manufacturing the patented "Electrobraid Fence". Novatec claims that it did cease manufacturing the fence immediately, at which time it was owed $232,986 by the defendant EBF. Novatec states that it did not produce anything for EBF during the months of April, 2001 and the first part of May, 2001. Then Novatec made arrangements with EBF to supply rope product, but did not manufacture the patented "Electrobraid Fence". EBF paid Novatec the $232,986 which it was owed when it ceased manufacturing at the end of March, 2001.
[12] The plaintiff White claims that Novatec is continuing to manufacture the patented electric fence. There is little evidence to support this allegation, and this allegation is contrary to the evidence adduced by the Novatec witness, who was cross-examined on his affidavit.
Legal Analysis
[13] Since the Decision of the Supreme Court of Canada in RJR-MacDonald Inc. v. Canada (Attorney General) [1994] 1 S.C.R. 311, there have been a number of Federal Court cases which have assessed the merits of applications for interlocutory injunctions on the basis of the tripartite test
as set out in the RJR-MacDonald case; as per Sopinka and Cory JJ. at page 334:
Metropolitan Stores adopted a three-stage test for courts to apply when considering an application for either a stay or an interlocutory injunction. First, a preliminary assessment must be made of the merits of the case to ensure that there is a serious question to be tried. Secondly, it must be determined whether the applicant would suffer irreparable harm if the application were refused. Finally, an assessment must be made as to which of the parties would suffer greater harm from the granting or refusal of the remedy pending a decision on the merits. It may be helpful to consider each aspect of the test and then apply it to the facts presented in these cases.
Therefore it is appropriate to apply the RJR test to the case at hand.
(1) Serious Issue to be Tried
The first question is whether the plaintiff has a serious case to be tried. I am satisfied that the plaintiff has presented a serious case to be tried with respect to the defendants.
(2) Irreparable Harm
The second question is whether damages will provide the plaintiff with an adequate remedy. An interlocutory injunction is a discretionary and equitable remedy which will not be granted in the absence of the applicant showing irreparable harm. "Irreparable" refers to the nature of the harm suffered rather than its magnitude. It is harm which cannot be quantified in monetary terms or which cannot be cured with damages. It is a well established principle that an interlocutory injunction can only be granted in cases where there is clear evidence of irreparable harm. The jurisprudence establishes that the applicant in this case must adduce "clear and not speculative" evidence that irreparable harm "would" flow from the continued manufacture and sale by the defendants of the patented "Electrobraid Fence"; Centre Ice Ltd. v. National Hockey League (1994), 166 N.R. 44 (F.C.C.A.).
(a) Loss of Goodwill
The plaintiff alleged that he was suffering loss of goodwill. The courts have considered a multitude of cases where loss of goodwill does not, per se, establish irreparable harm. Moreover, loss of goodwill must be established by "clear evidence", and then on clear evidence it is to be seen whether that loss of goodwill can be quantified in damages. There must be evidence of both elements of the alleged irreparable harm with respect to loss of goodwill. In the case at bar the plaintiff has not adduced clear evidence of either element with respect to loss of goodwill.
As per Heald J., Centre Ice Ltd. v. National Hockey League (supra.) at page 47:
This view of the matter runs contrary to this Court's jurisprudence to the effect that 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. The loss of goodwill and the resulting irreparable harm cannot be inferred, it must be established by "clear evidence". On this
record, there is a notable absence of such evidence.... Loss of goodwill, of reputation, of distinctiveness, if established after a full hearing at trial may well constitute irreparable harm and lead to the issuance of a permanent injunction. However, as this Court's jurisprudence has shown, in the absence of clear evidence that irreparable harm would result at this juncture, an interlocutory injunction should not be issued.
(b) Precarious Financial Position
The plaintiff alleged that he was in such a precarious financial position that the plaintiff would be forced into bankruptcy should the injunction not be granted. In this case, I do not find clear evidence that the plaintiff would be forced into bankruptcy. Rather, the evidence shows that the plaintiff has received $225,000 from some of the defendants over the past year, plus a cheque for $37,500 which the plaintiff has chosen not to cash upon the fear that it would prejudice his legal rights. In any event, the fact that the plaintiff may be in a precarious financial position can be compensated for by damages. Moreover, there is no clear evidence that the granting of this injunction will provide White with financial resources since the manufacturing and marketing of the "Electorbraid Fence" has shown to be an expensive and risky business.
(c) Loss of Market Share
The plaintiff alleges that it has suffered a loss of market share due to the defendants' infringement. Under the License Agreement, the defendants have the exclusive right to manufacture and market the "Electrobraid Fence". The plaintiff alleges that he tried to entice other companies to manufacture and market the "Electrobraid Fence".
There was no clear evidence of this, and in any event, such loss of market share can be compensated for with damages.
(d) Inability of Defendants to Pay Damages
The plaintiff alleges that the defendants will not be able to pay damages or the royalties owing. The evidence is clear that the defendants have paid White, and have paid other creditors, significant sums of money over the past two years. Therefore, there is no clear evidence that the defendants will not be able to pay damages if the plaintiff's action succeeds.
(e) Safe Operation
The plaintiff alleges that the defendant, EBF, is not properly advising customers regarding the safe operation of the "Electrobraid Fence", causing detrimental impact to the goodwill of the patented electric fence. However, the evidence and allegations
only recognize a possibility, not a likelihood, that there will be a permanent loss of goodwill due to the defendants not properly advising customers about the safe operation of the electrobraid fence. There is no clear evidence that this is occuring, and in any event, there is no evidence that such loss of goodwill could not be quantified in monetary damages.
(f) Conclusion with Respect to Irreparable Harm
It is not clear that the plaintiff will suffer irreparable harm, i.e. harm not able to be compensated in damages, if the defendants continue manufacturing and selling the plaintiff's electric fence. The defendants acknowledge that the plaintiff is owed royalties with respect to its sales and have made some royalty payments to date. There must be evidence to support a finding that the applicant would suffer irreparable harm. In the case at bar, I find that the evidence of irreparable harm is far from clear.
(3) Balance of Convenience
The final question in the three part test recited by the Supreme Court in RJR-MacDonald (supra.) is where the balance of convenience rests. At page 406 the Supreme Court held:
"In light of the relatively low threshold of the first test and the difficulties in applying the test of irreparable harm ... , many interlocutory proceedings will be determined at this stage".
It is not necessary in the case at bar to decide where the balance of convenience rests since there is no irreparable harm. In obiter, I find that granting the interlocutory injunction will effectively change the status quo, will effectively end the litigation, and will put the defendants out of business and into insolvency. The latter will result in employee layoffs. On the other hand, if the injunction is denied, the plaintiff will continue to benefit from the
royalties which will be payable if this Court, or the Nova Scotia Supreme Court, adjudicates in his favour at the trial of this matter. Accordingly, the balance of convenience lies with the defendants so that an interlocutory injunction would be denied on this basis.
Conclusion
[14] There being no clear evidence of irreparable harm or that the balance of convenience favours the imposition of an interlocutory injunction, this part of the motion is dismissed. The plaintiff has not demonstrated that unless this interlocutory injunction is granted, his rights will be nullified or impaired by the time of the trial. The plaintiff has a serious issue to be tried. An interlocutory injunction at this stage would effectively end the litigation. It is not appropriate for the Court to attempt to resolve difficult issues of fact on this application for an interlocutory injunction. For these reasons the plaintiff's application for an interlocutory injunction is dismissed with costs in the cause.
Expedited Trial
[15] The plaintiff also seeks an order that the trial in this action be expedited and a schedule set for the pre-trial steps. On the hearing of this motion the parties agreed that the examinations for discovery and other pre-trial steps would be completed by December 15th, 2001. Accordingly, the Court, on consent of the parties, will order that all pre-trial steps be completed by December 15, 2001. At that time, the parties may file a requisition for a Pre-Trial Conference in accordance with Rule 258 of the Federal Court Rules, 1998. The action will be managed as a specially managed proceeding under Rule 384 of the Federal Court Rules, 1998.
"Michael A. Kelen"______________________________
JUDGE
OTTAWA, ONTARIO
OCTOBER 19, 2001
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