Friday, October 4, 2013

Ontario Court Grants Molson's Request for Injunction to Prevent Miller from Terminating Beer License

In a recent decision, Mr. Justice Wilton-Siegel of the Ontario Superior Court of Justice, granted an interlocutory injunction preventing the Miller Brewing Co. ("Miller") from terminating its long-standing license agreement with Molson Canada 2005 ("Molson") pending the trial of an action between the parties.  ( see Molson Canada 2005 v. Miller Brewing Co. 116 O.R. (3d) p 108)
Molson had been the exclusive Canadian licensed distributor of Miller's key trademarks and brands since 1982.  The license agreement covered both Molson's domestic production of Miller's products and the importing into Canada of Miller products produced in the United States.  The license agreement had been restated and amended several times since it was first executed.  The last restatement was effective as of January 1, 2003.  
Miller is not currently a significant player in the Canadian beer market.  However, Molson has 8 strategic brands that account for approximately 90% of its Canadian business including Coors Light, Canadian and MGD.  The Miller brands licensed to Molson, which included MGD and Miller Chill, represented less than 5% of Molson's total sales volume in Canada in 2012.  Molson's evidence was that during the period of 2006 to 2009, Miller had suffered a substantial decline in MGD sales in the United States but during that same period Molson was able to increase the market share of MGD in Canada.
With MGD sales in decline, the parties began discussions in the summer of 2010 to amend the license agreement yet again.  However, Molson was forecasting MGD sales for 2010 that would fall short of the minimum volume targets in the agreement.  The negotiations led toward a letter of intent.  For its part, Molson stated that it would rely less on MGD volumes and would emphasize instead its overall portfolio of Miller products. The letter of intent was executed on July 26, 2011, and was mostly non-binding except for Miller's right to terminate the license agreement if Molson failed to meet the minimum volume targets for the years 2010 and 2011.  
Immediately after the letter of intent was signed, the parties commenced negotiations on yet another amendment to the license agreement which was executed on or about December 19, 2011.  Among other things, Miller waived its right to terminate the agreement based on Molson's failure to achieve volume targets in calendars 2010 and 2011. However, Miller delivered a notice of termination on January 18, 2013, citing in part, Molson's failure to achieve minimum volume targets.
Molson commenced the action on January 30, 2013.  In the action, Molson sought a declaration that the license agreement remained in full force and effect and that Miller could not terminate the license agreement on the basis of any known facts or circumstances that occurred prior to January 1, 2013.  Molson also sought injunctive relief preventing Miller's purported termination of the license agreement.
In granting the injunction sought by Molson, Justice Wilton-Siegel found that the three part test for an interlocutory injunction set out in the RJR MacDonald case had been met:
1.    There was a serious issue to be tried.  Justice Wilton-Siegel held that Molson had established that there was a serious issue as to whether Miller had failed to satisfy a condition precedent to the exercise of its right to terminate the license agreement in the form of satisfaction of Miller's obligation to negotiate with Molson in good faith. 
2.    In respect of the issue of irreparable harm, the judge accepted Miller's submission that proof of irreparable harm must be clear not merely speculative and must be supported by the evidence.  However, he ruled that such evidence could take many forms.  In this case neither party had provided any market studies or reports to support their respective assertions that they would suffer irreparable harm if the court's decision was adverse to their interests.  However, the judge ruled that a court is entitled to draw inferences of irreparable harm from the facts if such inferences reflect commercially reasonable conclusions based on the facts.  He concluded that Molson had satisfied the test because it was reasonable to conclude that there would be irreparable harm to Molson's customer relationships flowing from the fact that those customers for whom the Miller brand beers were an important segment of their purchases would be forced to source that beer from Miller or to switch to a different product from Molson.  The judge was satisfied Molson's damage would not be limited to the loss of the sales of Miller brand beers.  In his opinion it was reasonable to infer that in at least some cases, terminating Molson's distribution of Miller brand beers would also result in a loss of sales of other beer sold by Molson as its customers would re-evaluate their needs and their relationship with Molson when the Miller brand beers were taken out of the equation.  There was no real likelihood that any such losses would not be quantifiable.  
3.    As for the balance of convenience, the judge held that the balance of convenience favoured  preservation of the status quo. 



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