2011 FC 1303 (November 10, 2011)
Overview
The Federal Court applied recently developed jurisprudence on damages, and punitive and exemplary damages, in matters involving the sale of counterfeit goods, granting over $320,000 to the plaintiffs by way of default judgment. The plaintiffs were successfully represented by Karen F. MacDonald of our Vancouver office.
Abstract
The plaintiffs applied to the Federal Court for default judgment against the defendant, Jiang Chu, who was alleged to have imported, advertised, offered for sale and sold fashion accessories bearing Chanel's famous CC and CHANEL trademarks. The Court awarded over $320,000 against the defendant for his infringing activities, which included the operation of four active websites selling counterfeit Chanel merchandise, and the use of over 300 domain names and over 70 Google Adword sponsored links in an attempt to direct consumers to such active websites. The Court granted damages on the basis of an importer/distributor starting level of $31,000 per plaintiff, multiplied by three instances of infringement as supported by the evidence, for a total of $186,000 in damages. The Court also granted $100,000 in punitive and exemplary damages, and solicitor and client costs.
Case summary
Facts. Since at least 2006, the defendant, an individual located in Canada, had operated various websites offering for sale and selling counterfeit Chanel merchandise. With evidence covering activities from 2009 to 2011, the plaintiffs were able to establish the operation of four independent websites offering for sale and selling counterfeit Chanel merchandise, as well as over 300 domain names being used by the defendant to direct traffic to those four operating websites. The defendant was also using Google Adword sponsored links, using keywords including "Chanel," to direct individuals to his operating websites. While Google removed such Adword links as they came up, at the request of Chanel, the defendant continued to add new sponsored links. The plaintiffs also established that the defendant was directly importing the counterfeit Chanel merchandise into Canada, with purchases made through three of the operating websites.
The plaintiffs commenced their action against the defendant, seeking inter alia an injunction, damages and punitive and exemplary damages. After substantial efforts to serve the defendant personally, the plaintiffs obtained an order for substituted service, with the Statement of Claim being sent to the email addresses associated with the defendant's websites and to his last known residence. While the defendant did shut down the four operating websites after having been served substitutionally, the defendant did not defend the action, and the plaintiffs sought default judgment under the Federal Courts Rules.
Analysis. The Court confirmed that on a motion for default judgment, the plaintiffs must prove their case on a balance of probabilities. Additionally, given that the defendant was served substitutionally, the Court had to be satisfied that it would be just to grant default judgment having regard to all the circumstances. The Court found that the plaintiffs had established their case on the evidence before the Court, and also that it would be just to grant default judgment under the circumstances, with the Court being satisfied that the Statement of Claim in all likelihood came to the attention of the defendant (particularly since the websites were shut down) and that "it would be unjust to allow [the defendant] to avoid default judgment against him on the technicality that the Plaintiffs have been unable, despite substantial effort on their part, to determine [the defendant's] current whereabouts."
With respect to remedies awarded to the plaintiffs, the Court readily granted declarations of infringement and an injunction against future activities.
On the issue of damages, the Court applied recent jurisprudence of both the Federal Court and the British Columbia Supreme Court (see Louis Vuitton Malletier S.A. and Burberry Limited et al. v. Singga Enterprises et al. (2011 FC 776) and Louis Vuitton Malletier S.A. et al. v. 486353 B.C. Ltd. et al. (2008 BCSC 799), where the Courts have recognized the difficulty in assessing damages in cases involving the sale of counterfeit goods, given the problems in quantifying depreciation of goodwill, and in determining lost sales, complicated by the fact that someone who buys a "knock-off" would not necessarily buy a genuine item. Such issues are compounded by the failure of the defendant to participate in the proceeding and provide any documentation of sales. Accordingly, the courts have applied an assessment of damages starting with the base amounts of $3,000 (flea market), $6,000 (retail) and $24,000 (importer/manufacturer), which are adjusted for inflation from 1997 to the relevant time frame, and then multiplied on a per instance or per turn-over basis, depending on the evidence, and awarded to each plaintiff who has suffered damages.
In the circumstances of the present case, the Court confirmed that the defendant, given the scope of his activities in operating four separate online websites or "retail premises," importing directly into Canada and having ties with the manufacturing facilities, was considered at the higher level of importer/distributor. Therefore, adjusting $24,000 to the inflated value of $31,000 in the 2009 to 2011 time frame, the Court applied such amount to the three "instances" of infringement supported by the evidence. The evidence consisted of (i) printouts from the offers for sale of counterfeit Chanel merchandise on the defendant's various operating websites (and linking domain names) in 2009, (ii) purchases from three of the websites in 2010 and 2011, and (iii) printouts from the offers for sale of counterfeit Chanel merchandise on the defendant's various operating websites (and linking domain names) in 2011. Granting such amount to both the trademark owner and its licensee in Canada, both of whom suffered damages as a result of the defendant's activities, the Court granted a total damages award of $186,000.
Further, the Court also granted $100,000 in punitive and exemplary damages, citing the defendant's "highly reprehensible conduct," in using the more than 300 domain names and 78 Google AdWords to direct traffic to his operating websites and in attempting to conceal his identity and the scope of his activities, including his actions in "clearly trying to avoid being detected by Customs by fragmenting the large volume of goods he is importing." Solicitor and client costs were also awarded.
Conclusion
As with the previous recent counterfeiting decisions of the Federal Court and the British Columbia Supreme Court, this judgment will hopefully send another strong message to counterfeiters in Canada about their potential risks and liabilities for engaging in these activities. This decision also confirms that the courts are willing to grant substantial judgments against purveyors of counterfeit goods even where the operations involved are being carried out entirely online, where less information on the scope of the defendant's activities is generally available as compared to brick and mortar operations, where more concrete evidence of the volumes involved may be available to the plaintiffs.
Karen F. MacDonald, Vancouver
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