The Federal Court has issued an interlocutory injunction prohibiting the sale of grey goods in Canada that bore a false label.

The injunction issued in the context of a trademark infringement action brought by the Plaintiff I-MEI Foods Co. Ltd. ("I-MEI") and its Canadian distributor TFI Foods Ltd. ("TFI") against Every Green International Inc. ("Every Green"). I-MEI is the owner of a number of registered Canadian trademarks for designs that contain the letters I-MEI ("the I-MEI Trademarks").

TFI is the exclusive distributor for I-MEI food products in Canada which bear the I-MEI Trademarks as well as a label that identifies TFI as I-MEI's distributor or importer. TFI discovered products being offered for sale by Every Green in Canada which featured the I-MEI Trademarks along with a label that stated that Every Green is the "Exclusive Distributor of Canada". In fact, Every Green had never been authorized to distribute I-MEI products in Canada.

Based on the evidence, the Court found that the Every Green goods were likely grey market goods or parallel imports; that is, genuine goods manufactured by I-MEI but which had entered the Canadian market without the approval of I-MEI.

The Court specifically noted that the sale in Canada of grey market goods does not in and of itself infringe a registered trademark or constitute passing off. The Court was satisfied however that the statement on the goods that Every Green is the "Exclusive Distributor of Canada" was false.

The Court considered the three requirements for an injunction:

  1. a serious question to be tried on the merits of the case;
  2. whether the moving party will suffer irreparable harm if the injunction is refused; and
  3. whether the balance of convenience favours the granting of the injunction.

A moving party must satisfy all three elements to obtain relief.

While the Plaintiffs had alleged trademark infringement, passing off, depreciation of goodwill and breaches of the Canadian Competition Act, the Court found that the issue could be decided on the basis of passing off alone. Section 7(b) of the Canadian Trademarks Act provides that:

no person shall direct public attention to his goods, services or business in such a way as to cause or be likely to cause confusion in Canada, at the time he commenced so to direct attention to them, between his goods, services or business and the goods, services or business of another.

The three necessary elements of a passing off claim are:

  1. the existence of goodwill in a valid registered or unregistered trademark;
  2. deception of the public due to a misrepresentation; and
  3. actual or potential damage.

The Court found that the evidence established the existence of valid registered trademarks owned by I-MEI and goodwill associated with those trademarks. Noting that Every Green's false label was potentially deceptive to both retailers and the purchasing public, the Court found that there was a serious issue to be tried as to whether Every Green's actions constituted passing off.

The hurdle that most plaintiffs face in bringing an interlocutory injunction motion in Canada is an inability to establish irreparable harm, which is harm that cannot be quantified in monetary terms or that cannot be cured, usually because one party cannot collect damages from the other. The evidence must be clear and not speculative that irreparable harm will result if the injunction is not granted. Canada's Federal Court of Appeal has confirmed that damage to goodwill can constitute irreparable harm. Permanent market loss or irrevocable damage to a plaintiff's business reputation have also been recognized as being irreparable harm.

In this case the Court noted the evidence that Every Green's conduct was resulting in:

  • the Plaintiffs' retail customers questioning why there were two entities claiming to be exclusive distributors;
  • harm to the reputation and goodwill in the I-MEI Trademarks as a result of the presence of the false labels on I-MEI products in the marketplace;
  • harm to the reputation and goodwill in the I-MEI Trademarks as a result of inaccuracies in the ingredient list and nutrition facts on the Every Green labels;
  • harm as a result of the fact that damages would be difficult to quantify and collect.

As Every Green did not participate in the motion, the Court had no evidence to rebut the Plaintiffs' assertions of irreparable harm. Ultimately the Court was satisfied that I-MEI would suffer irreparable harm to the reputation and goodwill in the I-MEI Trademarks should the interlocutory injunction not be granted, and that the balance of convenience favoured granting the injunction.

The Court ordered Every Green to cease offering for sale, selling or labelling products bearing the I-MEI Trademarks with labels that falsely identified Every Green as the exclusive distributor of Canada, and required Every Green to immediately recall all products bearing the offending labels from the marketplace. Noting that Every Green could simply re-label the recalled product and re-issue it, the Court also ordered that all unsold and recalled products be preserved by Every Green pending trial.

This decision is of assistance to brand owners faced with grey goods entering the Canadian marketplace. While parallel imports can be sold in Canada without constituting passing off or trademark infringement per se, the Canadian Court has established that it will act to prevent misrepresentations in association with such products, including by preventing the sale of such goods.