Court of Appeal on counterfeiting: green light for significant damages and summary trial

Publication April 2016

The Federal Court of Appeal of Canada, in Annie Pui Kwan Lam v. Chanel S. de R.L et al. 2016 FCA 111, has confirmed the appropriateness of a multiplier-based calculation of nominal damages and significant punitive and exemplary damages, along with determination of counterfeiting cases by way of summary trial even where credibility issues exist.

The appeal arose from a judgment of the Federal Court, previously reported here, granting judgment of $380,000 against purveyors of counterfeit Chanel merchandise, based on joint and several liability of two corporations and an individual defendant, Annie Lam, through the business “Lam Chan Kee” operating at Pacific Mall in Markham, Ontario.

While the Court ultimately sent the matter back to the trial judge for the purpose of reconciling an ambiguity in the Judgment with respect to whether the individual defendant was liable for the final of four independent instances of infringement – a finding which the Court noted might affect quantum of both general and punitive and exemplary damages – the Court of Appeal otherwise found “the trial judge’s findings to be suffused by factual appreciation” and free of any palpable or overriding error, including with respect to:

  • using his discretion to make a final determination under the summary trial rules, by way of affidavit evidence, notwithstanding the existence of conflicting evidence and corresponding need to assess credibility and thereby disregard Ms. Lam’s evidence;
  • assessing general damages by multiplying $8,000 (as adjusted for inflation) by the “instances” of infringement, as well awarding such amount for both the trademark owner and Canadian licensee; and
  • granting substantial punitive and exemplary damages against the Defendants.

Summary trial – credibility and counterfeiting cases

The appropriate use of the summary trial rules, which were introduced in 2009 with a view to providing more expeditious and efficient access to justice, is still developing before the Federal Court.  The Court of Appeal’s reasons make clear that (i) the decision to proceed by way of summary trial is a discretionary one and will be given broad deference on appeal; and (ii) credibility issues will not defeat a motion for summary trial, in contrast to the general rule in a motion for summary judgment.

The Court determined there was “no reviewable error [of the trial judge] in finding that it was unnecessary to hold a trial and hear evidence in order to assess the appellant’s credibility”, noting the ample basis for the trial judge to have rejected Ms. Lam’s version of events and the “paucity” of her evidence.  The Court went on to comment that “[c]ases like the present, involving ongoing sales of counterfeit goods by a defendant that seeks to put forward a specious defence, are particularly well-suited to being decided by way of summary trial”.

General damages – nominal multipliers

With respect to the calculation of general damages, the Court of Appeal cited with approval the line of cases in recent years that have allowed for a calculation of nominal damages in counterfeiting cases based on a starting point of $6,000 for retail establishments (adjusted to $8000 based on inflation), multiplied by “instances” of infringement.  The Court likewise confirmed that such nominal damages may be granted to both the trademark owner and the Canadian licensee.

However, given the ambiguity in the trial judge’s findings relating to the final instance of infringement in this case, the Court found it impossible to know whether Ms. Lam was liable for three or four acts of infringement.  Noting that it would not be appropriate for an appellate court to step in and resolve the ambiguity, the Court set aside the damages for now and sent that issue back to the trial judge for “re-determination” relating to that specific question of fact.

Punitive and exemplary damages – the need for deterrence is “very real”

Similarly, as punitive and exemplary damages are tied to general damages, and may depend on the finding of personal liability for the final instance of infringement, the Court of Appeal required that the trial judge revisit the quantum of punitive and exemplary damages as well.

Nonetheless, the Court of Appeal clearly stated that the quantum of $250,000 in punitive and exemplary damages could well be supported in this case, depending on the trial judge’s further findings and considerations regarding the final instance of infringement, notwithstanding that the award was proportionally higher than the awards made in earlier cases when one compared the amount to the general damages.

After citing factors from the seminal case of Whiten v. Pilot Insurance Co., 2002 SCC 18, the Court noted that “violation of trade-mark rights through the repeated sale of counterfeit goods is serious misconduct worthy of sanction and justifies damages awards that are high enough so as to deter the defendant and others from engaging in such reprehensible conduct”.

The Court further stated that the “need for deterrence is … very real and may require a significant punitive damages award where compensatory damages can only be calculated on a nominal basis due to the nature of the defendants’ infringing acts”.  The Court confirmed that repeated violations, flouting court orders and attempts to obscure involvement in the activities are all factors that can legitimately be relied upon to support significant punitive and exemplary damages.

A clearer path forward?

While the matter has been reverted to the trial judge for re-determination on the narrow factual finding around the last instance of infringement, the holdings and commentary of the Federal Court of Appeal provide clear support for brand and copyright owners to continue to seek summary determination by way of affidavit evidence in counterfeiting and piracy matters, without the fear that conflicting, but not credible, evidence will force a full trial and therefore substantially increase costs.  Rights-holders can also be more confident in the fact that, despite efforts by purveyors of counterfeit goods to obscure the extent of their sales, the trial court has been given clear and unequivocal support to continue to award meaningful general damages, as well as significant and deterrent punitive and exemplary damages.
 

Chanel was represented by Karen MacDonald and Mathew Brechtel.


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