A decision of the Federal Court deals with some interesting points concerning claims relating to the sale of counterfeit goods. Lululemon Athletica Canada Inc. v Campbell 2022 FC 194
The Facts
The defendant, who is an individual, was using her Facebook page to offer counterfeit Lululemon branded merchandise to the public. When the defendant received orders from consumers, she placed an order for the merchandise from counterfeiters in the Orient and had the consumers pick up the goods at her premises.
When the brand owner learned of this activity the defendant was put on notice. In response the defendant indicated that her Facebook page has been deleted and that she had stopped selling the goods. Despite her assurances she simply set up additional Facebook pages and continued her infringing activities. The plaintiff devoted significant time and effort to monitoring the defendant’s activities.
In the absence of a response from the defendant to subsequent demands the plaintiff initiated an action in the Federal Court. The defendant delivered a statement of defence denying infringement and the plaintiff responded by moving for summary trial.
Summary Trial
In the Federal Court if a summary trial is ordered the matter generally proceeds based on affidavit evidence, which is subject to cross-examination. Summary trial is generally ordered in actions which are not complex, credibility is not an issue and there will be savings in terms of dollars and time by proceeding with the summary trial as opposed to having a full trial.
The judge ordered that a summary trial take place because the above requirements were satisfied. He noted that the Federal Court of Appeal has said that cases involving the sale of counterfeit goods where the defendant is putting forward a specious defence are well suited to be decided in this fashion.
There was not a serious issue concerning the defendant’s infringement. Clearly, she sold counterfeit goods to consumers, who were not aware of the source of the goods. In addition, it was not a defence to suggest the goods where “high-quality replicas” where the defendant used the defendant’s trademarks to sell goods.
Remedies
The plaintiff sought a declaration affirming its ownership and the validity of the registrations of its trademarks and the breach of several sections of the Trademarks Act. The judge said that while many judgements in infringement actions included similar declarations, the declarations recorded the outcome of a challenge to the validity of a trademark. Here the validity of the registrations was not in issue, so the judge refused to grant a declaration since there was no practical benefit in doing so.
The plaintiff also sought a permanent injunction directed at future infringement by the defendant. The judge indicated that to do so the plaintiff must show there was a risk that the infringement would continue. The judge observed that frequently in intellectual property cases permanent injunctions were granted as a matter of right if infringement was established. This follows from the fact that infringement is a continuing cause of action. In any event he granted an injunction since there was evidence that the defendant might continue to infringe. The wording of the injunction was specific to the actions taken by the defendant and did not extend to all forms of infringement as sought by the plaintiff.
The plaintiff sought compensatory damages based on case law in the Federal Court which awards lump sums for specific activities. This case law establishes that $3000 is awarded in the case of street vendors and flea market operators, $6000 in the case of sales from fixed retail premises and $24,000 in the case of manufacturers or distributors (subsequent cases have updated these figures to reflect inflation). This approach has been taken because it is difficult to assess damages with mathematical precision where the defendant is not cooperative or is in default.
The judge viewed this approach with caution as it violated the principal the plaintiff must prove the damages it has suffered. The judge said that damages in this type of case essentially compensated the brand owner for depreciation of goodwill rather than lost sales. As it is next to impossible for a plaintiff to show specific damages it has suffered, it was reasonable to assume that the harm to goodwill was proportional to the volume of sales of counterfeit goods. On reviewing the evidence, the judge awarded the plaintiff $1000 for each of the eight instances of infringement shown for a total of $8000.
The plaintiff also sought punitive damages. Typically, it is difficult to establish such a claim since the threshold is high. However, the judge referred to previous decisions which granted such damages against defendants who established a business to sell counterfeit goods for profit, especially when coupled with steps taken to avoid enforcement.
Knowingly importing, advertising and selling counterfeit goods is a serious disregard of the basic rules of our market economy. It is a form of appropriation of someone else’s goodwill. This cannot be tolerated, and the defendant’s conduct deserved punishment.
In such cases compensatory damages are insufficient to defer the defendant. The defendant knew her actions were unlawful, asserted a specious defence, attempted to hide her actions to escape detection and continued to sell counterfeit goods after assuring the plaintiff she had stopped doing so. In the circumstances the judge ordered that the defendant pay $30,000 in punitive damages.
The plaintiff incurred more than $100,000 relating to the action and sought costs on a solicitor and client basis. Costs on this basis are not frequently awarded in the Federal Court and only where there has been reprehensible, scandalous or outrageous conduct. Under the Federal Court tariff for fees in contested actions the plaintiff’s entitlement was $2700. The judge refused to order solicitor and client costs and only granted $2700 to the plaintiff.
Comment
This decision has positive and negative features. It is positive because it shows the court’s willingness to grant summary trial in appropriate cases. It is also positive in its treatment of counterfeiting and the statement that counterfeiting will not be tolerated.
There is no statutory right to grant fixed or statutory damages under the Trademarks Act although such damages can be granted under the Copyright Act. Using relatively standard awards of referred to above $3000, $6000 homes and $24,000 seems to be an attempt to fill the gap. Damages based on the standard awards have been made in many counterfeiting cases and it would be preferable to continue this approach and not attempt to replace it with something more ephemeral.
Counterfeiting is a significant worldwide problem. The high cost of litigation makes it difficult to deal with in the courts. Perhaps filing a request for assistance with the Canada Border Services Agency and hoping border officers would identify the suspect shipments might help.
Toronto, August 2022
If you have questions, please contact me at mckeown@gsnh.com.
John McKeown
Goldman Sloan Nash & Haber LLP
480 University Avenue, Suite 1600
Toronto, Ontario M5G 1V2
Direct Line: (416) 597-3371
Fax: (416) 597-3370
Email: mckeown@gsnh.com
These comments are general in nature and not intended to provide legal advice as
individual situations will differ and should be discussed with a lawyer.
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