FederalCourt of Appeal Takes a Firm Stance against Counterfeiters
Arecent decision of the Federal Court of Appeal sends a clear message to thosewho engage in the sale of counterfeit goods.
The Facts
Theappellant in this case was involved in the sale of counterfeit Chanel merchandise. In 2006 two previous actions were commenced againstthe appellant and a corporate co-defendant relating to such activities. The actions were settled and the appellantand her co-defendant were enjoined from continuing to sell the counterfeitmerchandise.
Despitethese orders, it was alleged that the appellant continued to sell counterfeitChanel merchandise through a new business. As a result, Chanel and its Canadian licensee instituted an additionalaction in the Federal Court. Theappellant claimed she had ceased her involvement in the new business before theinfringement took place and that the business had been transferred to anumbered company operated by her children.
The Trial
Inorder to expedite the resolution of the claim, Chanel brought a motion forsummary trial and filed a number of affidavits relating to their case. The defendants submitted affidavits as welland argued that the case was not suitable for summary trial because there werecredibility issues relating to the transfer of assets to the numbered company whichshould only be decided at a conventional trial where the witnesses testify andare cross-examined in court.
Thetrial judge did not agree and said the question as to whether there was aneffective transfer of assets could be resolved without a full trial. After considering the evidence and therepresentations of the parties, the judge was not satisfied that there was alegitimate transfer of the assets and found that the appellant and various corporatedefendants continued to engage in ongoing infringing activity by sellingcounterfeit goods.
Thetrial judge concluded that the rights of Chanel and its Canadian licensee wereviolated and calculated nominal damages at $64,000 in favour of each of them. The judge also found that the appellant andthe corporate defendants were jointly and severally liable for payment of thedamages.
Thejudge also made an order for punitive damages on the basis that the appellantand corporate defendants were all involved in continuing acts of infringementand found that they were jointly and severally liable for $250,000 under thishead of damage.
The Appeal
Theappellant appealed to the Federal Court of Appeal and argued that the judge haderred in deciding the action by way of summary trial and that nominal damagesand punitive damages should not have been awarded against her.
Theappeal court refused to find that the judge had erred in proceeding by way ofsummary trial. A decision to do so isdiscretionary and entitled to deference on appeal. The court said cases like the present oneinvolving ongoing sales of counterfeit goods by a defendant who seeks to putforward an specious defence, were particularly well suited to being decided byway of summary trial.
Withrespect to the attack on the award of nominal damages, the court said thatwhere defendants are uncooperative, proof of actual damages is difficult and itis hard to estimate the harm done to the trademark owner’s goodwill through thesale of inferior quality goods. As aresult, the award of nominal damages was appropriate.
Anumber of judges at the trial level of the Federal Court have granted conventionalsums of nominal damages for each act of infringement and the court agreed thatsuch a practice was appropriate.
Withrespect to punitive damages, the court observed that it was entirely possiblethat an award of punitive damages in the amount of $250,000 could beappropriate even though it was higher than awards made in previous cases. The violation of trademark rights through therepeated sale of counterfeit goods is serious misconduct worthy of sanction andjustifies damage awards that are high enough so as to deter the defendants andothers from engaging in such reprehensible conduct. The need for deterrence is very real and mayrequire a significant punitive damage award where compensatory damages can onlybe calculated on a nominal basis due to the nature of the defendant’sactivities.
Unfortunatelyfor the respondent, the trial judge’s findings regarding the extent of theappellant’s involvement in the acts of infringement were said to be ambiguousand the reasons were not sufficiently clear. As a result, the appeal was allowed and the action remitted to the trialjudge for a redetermination in accordance with the Court of Appeal’s reasons.
Comment
Thisdecision will be welcomed by brand owners who are the victims of counterfeitingactivities. The decision supports theavailability of motions for summary trial, which can expedite the proceedings,the award of nominal damages in fixed amounts and the possibility ofsignificant awards for punitive damages.
John McKeown
Goldman SloanNash & Haber LLP
480University Avenue, Suite 1600
Toronto,Ontario M5G 1V2
Direct Line:(416) 597-3371
Fax: (416)597-3370
Email: mckeown@gsnh.com
These comments are of a general nature and not intended to provide legaladvice as individual situations will differ and should be discussed with alawyer.
0+
