Canada’s Intellectual Property Law Firm

Whether or not there’s a will, there’s still a way to infringers’ profits in Canadian trademark litigation

Late last month, in a landmark decision heralded by brand owners, the U.S. Supreme Court ruled in Romag Fasteners, Inc v Fossil Group, Inc that a plaintiff in a trademark infringement suit is not required to show that a defendant willfully infringed the plaintiff’s trademark rights as a precondition to a profits award. Romag was thus entitled to collect Fossil’s profits even though its infringing activities were not found to be willful.

So, how does this decision accord with Canadian law?

In Canada, it has long been the case that if a defendant is found liable for trademark infringement, the plaintiff is entitled to claim either damages or the profits generated from the defendant’s sale of its infringing goods or services. While an accounting of profits is considered to be an equitable remedy, such that it is only available at the discretion of the court, like in the U.S., a plaintiff in Canada need not demonstrate that a defendant willfully infringed its rights in order to claim the defendant’s profits.

However, the U.S. Supreme Court in Romag Fasteners noted that willfulness is a precondition to an award of profits where a defendant is found liable for trademark dilution.

This is not the case in Canada, as a defendant that is found liable for trademark dilution, or “depreciating the value of the goodwill” attaching to a plaintiff’s registered trademark (under section 22 of Canada’s Trademarks Act), may be ordered to disgorge the profits generated from its unlawful use of the plaintiff’s mark, whether or not the defendant acted willfully.

Thus, a brand owner’s ability to obtain profits in Canada is broad, and is not limited to cases of trademark infringement. Indeed, the provision governing remedies in Canada’s Trademarks Act empowers the court to “make any order that it considers appropriate in the circumstances”.

As noted above, a successful plaintiff in an infringement action is entitled to elect either an accounting of the defendant’s profits or the payment of such damages as the plaintiff may have suffered as a result of the defendant’s infringing activities. The remedies are alternative; the successful litigant cannot have both.

Damages awards

Compensatory damages

If the successful litigant elects an award of damages, it is entitled to be “made whole”. However, it can be challenging, and costly, to demonstrate to a court the extent to which the litigant has suffered damages as a result of the infringer’s unlawful activities. This difficulty is compounded where the infringer is not forthcoming in its documentary disclosure, and the full extent of its activities are unknown (an unfortunate reality in cases involving trademark counterfeiters).

However, when it comes to assessing damage, Canadian courts are not so naïve as to confine the damage to directly provable losses of sales, or “direct sale for sale substitution”. The law recognizes that damage from wrongful association can be wider than that. Indeed, proof of actual financial loss is not required to establish damage. Rather, damage may be inferred from the unauthorized use of another’s goodwill. The Federal Court has recognized repeatedly that damage may also be inferred from the loss of control over one’s goodwill.

In recent trademark infringement decisions, the Federal Court has awarded lump sum compensatory damages to brand owners even though the infringers’ records of profits generated from their unlawful activities were not before the Court.

For example, in Louis Vuitton Malletier SA v Yang, the Court awarded Louis Vuitton $87,000 in compensatory damages for the defendants’ infringing activities. In Louis Vuitton Malletier SA v Singga Enterprises (Canada) Inc, the co-plaintiffs, Louis Vuitton and Burberry, were awarded $1.98 million in compensatory damages. In Chanel S de RL v Lam Chan Kee Co, the Court awarded Chanel $64,000 in compensatory damages.

Furthermore, the Federal Court of Appeal has clearly indicated that an award of “nominal” damages, multiplied per act of infringement, is reasonable and proper where the infringers are uncooperative, proof of actual damages is difficult and it is also difficult to estimate the harm done to the brand owner’s goodwill.

In such cases, damages are often calculated depending on the nature and scale of the infringer’s operations.

Punitive damages

While an infringer’s willfulness is not a precondition to a profits award, it is nevertheless a relevant factor in considering punitive damages, the general objectives of which are punishment, deterrence and denunciation.

Although there is no statutory provision in Canada for awarding treble damages like there is in the U.S., punitive damages are to be awarded against a party whose “misconduct … represents a marked departure from ordinary standards of decent behaviour”. Canadian courts have described such misconduct as “deliberate”, “egregious”, “wilful” and “showing a contempt of the plaintiff’s rights”. Not surprisingly, they are often awarded in cases involving trademark counterfeiters.

Furthermore, a court may award both compensatory and punitive damages where compensatory damages are likely insufficient to deter further unlawful activities. The Supreme Court of Canada has recognized that “it is rational to use punitive damages to relieve a wrongdoer of its profit where compensatory damages would amount to nothing more than a licence fee to earn greater profits through outrageous disregard of the legal or equitable rights of others”.1

The infringer’s conduct must be so egregious as to call for more than a simple finding of trademark infringement. Punitive damages require a calculated, deliberate and conscious breaking of the law. Such damages must be justified by clear evidence of a cynical disregard for a brand owner’s rights, and of the law intended to protect those rights.

Legal fees

In Canada, a successful litigant will typically recoup a portion of its legal fees and all reasonable disbursements, in addition to either an accounting of the infringer’s profits or the payment of the litigant’s damages.

In recent years, the Federal Court has often awarded lump sum legal fees of approximately 25-50% of the actual costs reasonably incurred by the litigant, together with all reasonable disbursements. While less typical, if a party has engaged in egregious conduct, the Federal Court may go so far as to award a party all of its legal fees reasonably incurred in the litigation.

Conclusion

The remedies available under Canada’s Trademarks Act serve to benefit brand owners. They are broad in scope, and the Act permits a court to exercise its discretion to “make any order that it considers appropriate in the circumstances”. Notably, it is not necessary in Canada for a brand owner to prove an infringer’s willfulness before collecting its profits, and even when the infringer’s records of profits are unavailable, the Federal Court may award large, lump sum compensatory damages, in addition to permanent injunctive relief, delivery up or destruction under oath, and legal fees.

Together with the rapid pace at which a brand owner may obtain such relief, the remedies available to brand owners under the Trademarks Act make Canada an attractive forum for efficiently enforcing trademark rights against infringers.

For more information on this, please contact a member of our Trademarks & Brand Protection team.

The preceding is intended as a timely update on Canadian intellectual property and technology law. The content is informational only and does not constitute legal or professional advice. To obtain such advice, please communicate with our offices directly.

 


 

1. Whiten v Pilot Insurance Co, 2002 SCC 18 at para 72.