Companies invest significant resources in building consumer awareness and goodwill in their brands. Over time, strong brands come to represent more than just a product name or logo; they may signal a certain level of quality, reliability, trustworthiness and prestige to consumers. Brands develop consumer recognition with substantial investments in product development, marketing and customer service.
Some unscrupulous merchants seek to capitalize from the immediate consumer recognition and credibility associated with well-established brands by selling counterfeit products. Some of these merchants refuse to participate in the ensuing legal proceedings. However, even if counterfeiters refuse to engage in the litigation process and detailed financial information regarding their infringing activities is not available to the Plaintiff, the Federal Court will often still engage in a meaningful assessment of damages, which can result in significant damages awards for the brand owner.
Tactics of evasive counterfeiters
Brand owners often encounter challenges when attempting to enforce their rights against these unscrupulous merchants using strategies like ignoring formal correspondence from the brand owner, not participating in legal proceedings initiated by the brand owner or withholding key information from the brand owner.
Often, counterfeit merchants are uncooperative. Some may ignore cease-and-desist letters and subsequent legal proceedings issued by legitimate brand owners and their counsel. Other merchants may initially engage in the legal process, yet not be forthcoming, for example, by withholding relevant information during discovery. This lack of disclosure prevents the legitimate brand owner and their legal team from obtaining the information needed to assess the full scope of the infringement by the counterfeiter, including the duration of the conduct, the channels of sales, the quantities sold, and the profits earned. As a result, brand owners are often placed in the difficult position of attempting to quantify their actual damages or the defendants’ profits without access to the information required to do so.
Brand owners should not be discouraged from pursuing legal action against such merchants. The Federal Court is aware of the practical difficulties posed by evasive merchants of counterfeit goods and has developed a framework to, in appropriate cases, compensate for evidentiary challenges created by the defendants’ conduct when awarding damages. This article discusses one of these compensation efforts, namely ‘nominal damages’, also called ‘lump sum damages’.
Nominal damages
Pursuant to subsection 53.2(1) of the Trademarks Act, the Court may make any order that it considers appropriate for trademark infringement, including an order providing for the recovery of the trademark owner’s damages or the infringer’s profits; relief by way of injunction; punitive damages; and the destruction or other disposition of any offending goods, packaging, labels and advertising material and of any equipment used to produce the goods, packaging, labels or advertising material. Although this article addresses the financial compensation of the trademark owner, the remedies provided by subsection 53.2(1) may and often are awarded cumulatively.
If the counterfeiter/defendant fails to respond to the initial pleadings of the trademark owner, or if a representative of the defendant fails to attend an oral examination or refuses to answer a proper question, produce a document or other material required to be produced, the defendant is in default and the trademark owner can seek a default judgment pursuant to, respectively, Rules 210(1) and 97(d) of the Federal Courts Rules. In such cases, the trademark owner and the Court are left without a practicable method of accurately determining the true scope of the defendant's infringement and profits. In addition, the infringement entails a depreciation of goodwill and brand value that can be difficult to quantify.
In such cases, the Federal Court has developed an approach to estimate the harm suffered by the plaintiff, awarding what are referred to as “nominal damages.”
In instances of counterfeiting, the Court assesses a number of factual elements to determine the quantum of nominal damages. First, in appropriate circumstances, a standard amount of damages can be awarded, depending on the nature of the defendant: street vendor or flea market; fixed retail store; or manufacturer or distributor. In 1997, these amounts were determined to be, respectively, $3,000, $6,000 and $24,000. These amounts, designed to reflect damages based on evidence of a single instance of infringement, have subsequently been adjusted for inflation.
Second, considering that these standard amounts may not reflect the damages attributable to recidivist counterfeiting activities, the Federal Court will multiply the standard amounts where warranted. For example, in appropriate circumstances, the standard amount may be multiplied per instance of infringement for which the plaintiff can provide evidence of the infringing conduct. Often this evidence is obtained by investigations conducted at the request of the plaintiff at different time periods and through different channels of sale. Alternatively, in appropriate circumstances, the standard amount can be multiplied per inventory turnover. This approach reflects that the standard amount is intended to compensate for damages arising from the sale of goods on hand, which recur each time inventory is fully sold and replaced.
Nominal damages (more properly named ‘lump sum’ damages) can be significant
Describing court-awarded damages, which are estimated as best as the Court can, where the extent of infringement and resulting harm are difficult to establish, as “nominal” damages is a misnomer. These damages can be significant. Justice McHaffie of the Federal Court has noted that the nomenclature “nominal” damages may not be accurate,1 while Justice Stratas of the Federal Court of Appeal has noted these are lump sum damages that are sometimes misdescribed as nominal damages.2
There are two notable recent examples:
1. Exxon Mobil Corporation v Mobil Plus Lubricant Inc, 2025 FC 1987
In this case, the Court awarded the plaintiff $200,000 in nominal damages (and an additional $75,000 lump sum cost award for legal fees).
The plaintiff proposed three approaches to justify the $200,000 nominal damages sought.
First, using the counterfeiter model discussed above, the plaintiff argued that the distributor standard amount of $24,000 should apply, as the evidence showed that the defendants ran a significant operation (at least one service shop, seven international offices, and a franchisee program). Adjusted for inflation to $40,000, this base amount was multiplied by five for the five instances of infringement uncovered by the plaintiff.
Second, using the same counterfeiter model and the same base amount of $40,000, the plaintiff asserted that the base amount should be multiplied by an estimated five-time inventory turnover.
Third, using a product-based approach, the plaintiff relied on the defendants’ website, which indicated that 40,000 products had been sold Canada. The plaintiff estimated a $5 profit per infringing product, for a total of $200,000.
The Court was careful to note that the counterfeit model was not a direct parallel in this case because the defendants’ products were not true counterfeit products. As the estimate reached using the first two approaches was consistent with the third, product-based approach, the first two approaches were considered supportive overall to the determination that a $200,000 award was appropriate in the circumstances.
2. Burberry Limited et al v Ward, 2023 FC 1257
In this case, involving Chanel and Burberry plaintiffs, the Court awarded the Burberry plaintiffs $395,000 for nominal damages and awarded the Chanel plaintiffs $394,000 in nominal damages. In addition, the Court awarded (i) $120,000 in statutory damages for copyright infringement,3 for the Burberry plaintiffs, (ii) $100,000 as punitive and exemplary damages and (iii) costs to be determined at a later date.
The plaintiffs demonstrated that the defendants (i) operated an online business of significant reach with continuing sales through multiple Facebook pages; (ii) maintained an established, well-stocked showroom; (iii) broadcasted or livestreamed sales events; and (iv) carried out numerous known importations of the counterfeit merchandise.
Using the counterfeiter model discussed above, the Court determined the retail store standard amount should apply as the volume of online sales was equivalent to a retail store. The Court showed flexibility in adapting the model, which was developed prior to the advent of online sales. The standard amount for a retail store of $6,000 was adjusted for inflation to obtain $9,000 for infringements in 2021; $9,500 for infringements in 2022; and $10,000 for infringements in 2023. The instances of infringements (whether by importation, advertising, or sale) were multiplied by the standard amount based on the year the infringement occurred. These damages of $197,500 for Burberry and $197,000 for Chanel were awarded to both the main Chanel and Burberry entity and their related Canadian entity to arrive at a global award of $395,000 for the Burberry plaintiffs and $394,000 for the Chanel plaintiffs.
Conclusion
It is critical for brand owners to take legal action against counterfeiters to preserve their goodwill and brand value; however, taking legal action against counterfeiters can be challenging, since they are often deliberately structured to obscure the full scope of their activities and they will often evade legal proceedings. The Federal Court is aware of this challenge and has demonstrated a willingness to assess damages based on the available evidence when counterfeiters choose not to participate in the legal proceedings.
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References
1. Louis Vuitton Malletier S.A. v Torf, 2024 FC 1152 at para 88
2. Patel v Dermaspark Products Inc, 2025 FCA 145 at para 27.
3. For more information on statutory damages for copyright infringement, see our previous article here.