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Posted in: Intellectual Property | Trademarks

Apr 29, 2020

Federal Court Grants Interlocutory Injunction Restraining Cease and Desist Letters

By L.E. Trent Horne

Fluid Energy Group Ltd. (“Fluid”) and Exaltexx Inc. (“Exaltexx”) are direct competitors in the sale of chemicals to the oil and gas industry. After commencing an action asserting infringement of nine patents by Exaltexx, Fluid sent cease and desist letters to companies that sold raw materials and provided transportation services to Exaltexx. The letters, at least in part, had the desired result. The transportation company declined to provide further services to Exaltexx. Based on a statutory requirement that prohibits making false and misleading statements about a competitor, a Federal Court judge granted an interlocutory injunction restraining further distribution of such letters. The decision can be seen here.

Exaltexx’s injunction motion was based on section 7(a) of the Trademarks Act, which prohibits a person from making false or misleading statements tending to discredit the business, goods or services of a competitor. While only found in the Trademarks Act, this section equally applies to patent and copyright matters.

For an injunction to be granted, the moving party must satisfy a three-part test: a serious issue to be tried; irreparable harm if the relief is not granted; and that the balance of convenience favours the moving party.

In assessing whether a serious issue was presented, the Court found that Fluid’s cease and desist letters were “threatening” (as opposed to “informative”). The letters demanded that the recipients cease supplying raw materials and providing transportation services to Exaltexx. A copy of the statement of claim was also enclosed, presumably to foreshadow what would occur if the recipient did not comply.

Upon receipt of the cease and desist letter, the trucking company, a small business, wrote to Exaltexx and indicated that it had no choice but to stop handling its products.

Exaltexx’s evidence established that the supplier only provided hydrochloric acid. None of the asserted patents claimed hydrochloric acid or the use of hydrochloric acid by itself. Since the sale of hydrochloric acid by itself could not infringe, there was a serious issue as to whether the allegations of infringement in the cease and desist letter were false and misleading. Similarly, the trucking company did not buy or sell the impugned product, only stored and shipped it. This, too, raised a serious issue that the allegations of patent infringement in the cease and desist letter were false and misleading.

The grant of an interlocutory injunction in patent cases is rare. Most motions fail on the second part of the test: irreparable harm – harm that cannot be adequately compensated by payment of damages. Here, the Court found that there was clear and non-speculative evidence of irreparable harm, namely damage to Exaltexx’s business reputation; harm to relationships with suppliers; the potential impact on Exaltexx’s business as a whole given the size of the industry and the size of Exaltexx; and the difficulties associated with quantifying the nature of that harm.

The balance of convenience also favoured Exaltexx. The grant of the injunction would not in any way curtail Fluid’s ability to promote its products. Nor would it prevent Fluid from appropriately enforcing its patent rights, either through litigation or through bona fide pre-litigation communications.

The injunction did not entirely prevent fluid from sending cease and desist letters. The evidence on the motion did not establish that the allegations of infringement relating to products made, used or sold by Exaltexx were false and misleading.

This decision was grounded solely on section 7(a) of the Trademarks Act. The Patent Act was recently amended (section 76.2) to provide a cause of action for written demands made in respect of a patented invention that do not “comply with the prescribed requirements.” Regulations setting out these requirements have yet to be promulgated. When they are, patent owners will be obliged to exercise further discretion before delivering a cease and desist letter.

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