Québec Court Grants Provisional Injunction Relating To Trademark License Agreements

On January 29, 2024, the Québec Superior Court of Justice (the Court), in 4207602 Canada Inc. (Cameo Knitting) c Kodiak Group Holdings, 2024 QCCS 292, granted a provisional injunction enjoining the Defendants, Kodiak Group Holdings Co. and IW Apparel, LLC, from terminating their agreement for cause.

4207602 Canada Inc., doing business as Cameo Knitting, (the Plaintiff) and the Defendants are parties to a trademark license agreement involving the sale of apparel (the Trademark License Agreement), wherein the Plaintiff is granted an exclusive license to distribute socks and other apparel bearing the Defendant’s trademarks within North America.  The parties began negotiating terms of a new Trademark License Agreement in August 2023.  The parties were unable to agree to new terms, and on December 23, 2023, and reiterated on January 3, 2024, the Defendants terminated the existing contract for cause.

The Plaintiff brought an application seeking a provisional injunction against the Defendants preventing them from terminating the contract in order to temporarily maintain the parties’ commercial relationship.  The Defendants argued that the application should be dismissed on four grounds: (1) abuse of urgency of the Plaintiff’s Application, (2) absence of a strong appearance of right for the Plaintiff’s claim, (3) absence of an irreparable prejudice, and (4) absence of clean hands on the Plaintiff’s part.

The Court considered each of the Defendants’ arguments.  First, the Court found that the matter before the Court was urgent, as the Defendants recently sent notices to the Plaintiff terminating a twenty-year relationship.  The Court noted that it appeared abusive for the Defendants to terminate the contract, during final contract revision, on a few days’ notice, just before the holidays, particularly where the Defendants, by their actions and/or words, allowed the Plaintiff to believe that (i) the Plaintiff’s key terms were agreed upon and (ii) its default to pay outstanding licence fees could be remedied upon closing of the new contract.  Consequently, the Court found that the Plaintiff had a strong appearance of right regarding both the Plaintiff’s allegation that the contract had been renewed and the allegation that the Defendants had acted abusively or in bad faith.

Further, the Court found that the balance of inconvenience was in favour of the Plaintiff and that the Plaintiff suffered serious or irreparable prejudice in the matter.  In reaching this conclusion, the Court noted that the Plaintiff was known internationally as the exclusive distributor of the licensed products in North America with most of its business model revolving around the distributorship of apparel bearing the Defendants’ trademarks.

Lastly, on the question of clean hands, the Court found that, although the Plaintiff did not pay the Defendants the minimum royalty due under the Trademark License Agreement, the Plaintiff communicated to the Defendant that it would cause the remittance of all sums placed in trust to the Defendants upon signature of the new contract.  Given that the parties allegedly agreed on all essential conditions of a new agreement, the Court found that the delay in executing the new agreement appears generally to be the Defendants’ fault.

Consequently, the Court ruled that the Plaintiff met its burden to establish a case for a temporary 10-day order and should be entitled to the immediate and temporary relief sought.

Summary By: Victoria Di Felice