ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-11-431862
DATE: 20120717
BETWEEN:
Direct Energy Marketing Limited Applicant – and – National Energy Corporation Respondent
Paul Le Vay and Brennagh Smith, for the Applicant
Brad Teplitsky, for the Respondent
HEARD: February 1 and June 27, 2012
j.s. o’neill
REASONS ON APPLICATION
[ 1 ] Part A: Introduction
[ 2 ] On July 29, 2011 the Applicant filed the within application and requested, in part, the following relief:
a declaration that the Respondent, has breached s. 7(a) and 22 of the Trade-Marks Act ;
a declaration that the Respondent has breached s. 52 and 74 of the Competition Act ;
an Order requiring the Respondent to pay damages to the Applicant for breaching the Trade-Marks Act and the Competition Act , or in the alternative, an Order directing a reference with respect to the issue of damages, including an order requiring National to produce information regarding the duration and geographical scope of distribution of the Brochure;
a permanent injunction enjoying the Respondent from distributing the Brochure to Direct Energy customers and to the public at large;
a mandatory order requiring the Respondent to publish a formal retraction in terms acceptable to the Applicant in newspapers covering the areas affected by the Brochure and notifying customers that they should disregard the contents of the Brochure.
[ 3 ] The application was argued in Toronto on February 1 and June 27, 2012. For the reasons which follow, I would allow the application in part and award portions of the relief claimed by the Applicant.
[ 4 ] Part B: The Brochure In Question
[ 5 ] The brochure at the heart of this application can be found at Tab I of the Application Record. I am satisfied that the brochure makes certain false and misleading representations about the Applicant’s services and products on the following basis:
i. The 10.4% figure included in the brochure is a non-weighted average calculation based on only seven of the thirty tank models listed in the 2010 bill insert. The seven models listed in the brochure only account for approximately 40-60% of Direct Energy’s Residential Water Heater Portfolio. At the hearing before me the Respondent did not take issue with the fact that the non-weighted average rate increase for those tank models included in the 2010 bill insert was 7.18%.
ii. The brochure incorrectly lists the 2009 rate for the PDB 50/65 model as $24.99 when it was $27.41. The brochure attributes a 12% increase for that Direct Energy tank model when in fact it was only 2%.
iii. The circled words at page 1 of the brochure – non Energy Star – imply that Direct Energy’s water heaters are less efficient and non compliant with the industry standard. This is inaccurate as it misleads customers into believing that none of Direct Energy’s water heaters are Energy Star efficient and that Direct Energy does not offer Energy Star water heaters. The evidence on the application satisfies me that approximately 40 of Direct Energy’s 50 product categories are eligible for Energy Star certification.
iv. On page 2 of the brochure there is reproduced Direct Energy’s trademark and logo. This reproduction is contrary to paragraph 1 of the consent order of Justice Strathy dated May 2009 as well as the Trademarks Act .
[ 6 ] Part C: Justice Strathy’s Consent Order
[ 7 ] Justice Strathy’s consent order of May 2009 is set out at Tab F of the Application Record. Paragraph’s 4 and 5 of the order are important as they prevent Direct Energy from making any statements that National Energy is making false or misleading statements regarding Direct Energy or its business operations and that any water heater rental provider is making false or misleading statements, subject to the exceptions found at paragraph 5. It is clear that the prescriptive effect of Justice Strathy’s order, combined with the wording in the brochure in question, contributed in large part to the bringing of the within application.
[ 8 ] Part D : Distribution of the Brochure to the Public
[ 9 ] The weight of the evidence leads me to conclude that the brochure in question was largely distributed to the public in the greater Toronto area (as well as in Kitchener and London) beginning in the winter and spring of 2010 and ending in the late fall or towards the very end of 2010. It is not necessary for my examination of the submissions and issues on this application to determine whether the brochure itself was further distributed in 2011. Considerable evidence was led on the application as to, information provided by Mr. Conway and about the scope and duration of the brochures distribution.
[ 10 ] Part E: The Number of Brochures Printed
[ 11 ] The precise number of brochures printed and delivered door to door by the Respondent’s sales forces cannot be accurately gauged. However, at the close of submissions before me, and in furtherance of an undertaking given earlier in the litigation, counsel for the Respondent forwarded documentation confirming that the last printing order for these brochures was made in early September of 2010, for 10,000 pieces. Reference was also made to a printing invoice dated January 31, 2010 for 20,000 Direct Energy Pieces. Altogether approximately 38,000 brochures were printed and shipped to greater Toronto sales offices. Sales offices in London and Kitchener also distributed the brochure.
[ 12 ] Part F : Issues on the Within Application
[ 13 ] At paragraph 41 of its factum, the Applicant identified the three issues present on the within application. I reproduce them in full:
I. Did the Respondent make false and misleading statements tending to discredit Direct Energy, contrary to s. 7(a) of the Trade-Marks Act and s. 52(1) of the Competition Act ?
II. Did the Respondent use Direct Energy’s registered trade-marks in a manner that is likely to depreciate the value of goodwill attaching thereto?
III. What relief is appropriate?
[ 14 ] Part G: Legal Principles
[ 15 ] The legal principles on this application are governed by s. 7 and s. 53.2 of the Trade-Marks Act , R.S.C., 1985, c. T-13 . I reproduce both of these sections below:
Subsection 7(a) of the Trade-Marks Act provides:
- No person shall (a) make a false or misleading statement tending to discredit the business, wares or services of a competitor;
Subsection 53.2 of the Trade-Marks Act provides as follows:
Power of court to grant relief
53.2 Where a court is satisfied, on application of any interested person, that any act has been done contrary to this Act, the court may make any order that it considers appropriate in the circumstances, including an order providing for relief by way of injunction and the recovery of damages or profits and for the destruction, exportation or other disposition of any offending wares, packages, labels and advertising material and of any dies used in connection therewith.
[ 16 ] I accept the Applicant’s submission that the combined effect of these sections is to create a statutory cause of action for which damages or injunctive relief may be awarded if a person is damaged by false or misleading statements by a competitor attempting to discredit the claimant’s business, wares or services.
[ 17 ] The essential elements of a s. 7(a) breach of the Act are as set out at para. 46 of the Applicant’s Factum, namely:
A false or misleading statement;
Tending to discredit the business, wares or services of a competitor; and
Resulting damage.
[ 18 ] I have already reviewed the brochure in question and concluded that for the reasons given, representations made in it by the Respondent are either incomplete, inaccurate or misleading. I include in this the words on page 2 of the brochure:
Direct Energy also “promises” to increase your rate by over 10.4% this year.
[ 19 ] In all of the circumstances I find this statement “promises to increase” both inaccurate and misleading to any member of the public to whose door the brochure would be delivered.
[ 20 ] Part H: Misuse of Registered Intellectual Property
[ 21 ] S. 22(1) of the Trade-Marks Act states:
No person shall use a trade-mark registered by another person in a manner that is likely to have the effect of depreciating the value of the goodwill attaching thereto.
[ 22 ] I accept the Applicant’s submissions that on its face, the brochure was likely to leave the public at large or consumers with a negative impression of Direct Energy for the following reasons:
(a) Direct Energy promises ascertainable rate increases
(b) Direct Energy does not have Energy Star efficient products
(c) The Respondent alone or compared to the Applicant does have Energy Star products
(d) The brochure is more directed at misleading consumers with respect to Direct Energy or discrediting this company, then informing fairly and fully the consumer with the information he or she required to make an informed decision.
[ 23 ] Part I : The Issue of Damages
[ 24 ] On the application, counsel for the Applicant submitted that even if the Applicant has succeeded on establishing liability, it has not proven an amount of damages, or any damages loss whatsoever. The Respondent accordingly argued that it would be improper to remit this case to a Master for the purposes of conducting a damages reference.
[ 25 ] I am not able to accept this submission. The information provided on the application establishes that between 2010 and 2011 the Applicant lost over 60,000 water heater rental contracts. Further, the clear purpose of the misleading and inaccurate brochure was to draw customers away from the Applicant and bring them to the Respondent.
[ 26 ] As many as 38,000 brochures were distributed throughout the communities and cities in question. It defies logic to argue that as a result of this printing and distribution run, not a single customer or consumer of the Applicant would have been swayed by the publication, and that any such customer would not have directed his business to the Respondent or to another water heater rental provider. Changing rental contracts and moving business to another supplier clearly comes at a financial cost to the Applicant, even if at this stage of the proceedings the amount of the loss cannot be accurately verified and calculated. I am also satisfied that the distribution of the brochure was likely to have the effect of depreciating, to some extent, the value of the goodwill attaching to the Applicant’s trade-mark. In short, I conclude that the Applicant has demonstrated a prima facie case of damages which on a reference will require appropriate computation and calculation.
[ 27 ] Stated differently it is reasonable to infer that it is more likely than not that Direct Energy suffered damage as a result of the distribution of the brochure, even if quantification of the damage cannot be finalized at this stage of the Application.
[ 28 ] Part J : Concluding Orders and Declarations
[ 29 ] On the Application, the Applicant requested, amongst other relief, a permanent injunction enjoining the Respondent from distributing the brochure to Direct Energy customers and to the public at large. The Applicant’s position was that the Respondent (through Mr. Galbo) had no records of cease distribution orders or records with respect to return or destruction of the brochures in question. The Applicant further submitted that another agency in Toronto also distributed the brochures, but there are no existing records as to whether they were fully distributed, recalled or destroyed. For that reason, much time was spent on the application dealing with the evidence of Mr. Conway and the likelihood or non likelihood that the brochure in question was distributed to him in 2011.
[ 30 ] It is obvious that to a large extent, “the horses have left the barn” and apart from the issue of damages, there is little that a court order could achieve to stop, reverse or impede further distribution of the brochure. But having said that, it is also clear that records of distribution, knowledge of distribution plans, and ongoing distribution efforts by agents or forces of the Respondent are not known or clear at this time. In my view, this court should err on the side of caution and enjoin the Respondent from any further possible distribution activities.
[ 31 ] The request for a mandatory order requiring the Respondent to publish a formal retraction in communities or cities affected by the brochure in question raises certain difficulties. The bulk of the brochures in question were most likely largely distributed in 2010. Far fewer brochures were distributed in 2011, if at all, and likely none in 2012.
[ 32 ] Damage done to the Applicant has already occurred. A retraction in a newspaper published 12 months after a June 2011 distribution or 18 or 24 months after a December or June 2010 distribution would likely be of little benefit or help to the public at large or to any consumers affected by the brochure. Put simply, too much time has passed.
[ 33 ] Accordingly, I decline to make a mandatory order requiring the Respondent to publish a formal retraction.
[ 34 ] For the reasons herein outlined, a declaration shall issue:
i. That the Respondent has breached s. 7(a) and s. 53.2 of the Trade-Marks Act
ii. That the Respondent has breached s. 52 of the Competition Act
iii. That the Respondent has breached s. 22 of the Trade-Marks Act
iv. An Order shall issue directing a reference to the Master with respect to the quantification and computation of monetary damages sustained by the Applicant as a result of the said breaches by the Respondent.
v. A permanent injunction shall issue enjoining the Respondent from distributing the brochure in question to Direct Energy customers and to the public at large.
[ 35 ] The Applicant is entitled to its costs of this application on the partial indemnity scale. If those costs cannot be agreed, they shall be fixed by me following my receipt of written submissions by the parties. Accordingly, failing agreement the parties shall forward to the Trial Coordinator at Parry Sound (fax: 705-746-6189) written cost submissions not to exceed 15 pages. In the case of the Applicant, the submissions shall include a Bill of Costs and an outline of the Applicant’s hourly rate, substantial indemnity rate and partial indemnity rate.
[ 36 ] Orders and declarations accordingly.
Justice J.S. O’Neill
Released: July 17, 2012
ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: Direct Energy Marketing Limited Applicant – and – National Energy Corporation Respondent REASONS ON application Justice J.S. O’Neill
Released: July 17, 2012