Should “winning” a trademark infringement claim automatically mean an award of monetary damages, even without evidence of economic loss or other damage? Does the stress and strain of litigation, even in a potential “David and Goliath” scenario, justify an award of punitive damages? Those were the issues presented to the Federal Court in Clearview Plumbing & Heating Ltd. and Giraffe Corp vs. Clockwork IP, LLC, et al. 2018 FC 169, a recent decision of Justice McVeigh.
Before trial, there was an agreed statement of facts in which both parties agreed that they infringed each other’s trademark and that there has been no confusion or any loss suffered as a result of the infringement. Despite this, the plaintiffs were seeking “damages at large”, or in the alternative, punitive damages, based on the defendants’ allegedly reprehensible conduct. The decision confirmed that even if the other party concedes infringement, damages may not be awarded unless there is evidence of an actual loss. Further, the decision confirmed that punitive damages will only be awarded in exceptional cases involving reprehensible conduct, and that the ordinary steps and tactics in litigation will typically not satisfy this test.
The facts, in brief, are as follows: The plaintiffs (“Clearview”) are the owner and license of a 2006 trademark registration for THE PUNCTUAL PLUMBER for plumbing and other home care services, now owned by a holding company. Clearview also used THE TECHNICIAN SEAL OF SAFETY, but did not register this mark. The defendant Clockwork operates a franchise business, with U.S and Canadian franchisees, and owns a 2007 United States registration for PUNCTUAL PLUMBER for similar services, which claims 2002 as its U.S. date of first use, and registered a TECHNICIAN SEAL OF SAFETY mark in both Canada and the United States. It filed for a design version of the PUNCTUAL PLUMBER mark in Canada in 2011, but the application was subsequently abandoned, presumably after being blocked by Clearview’s mark. It expanded its franchise network in Canada using this mark, despite, in the words of the Judge, “dropping the ball on the Canadian trademark”.
Clearview sued Clockwork, its franchising entity and Canadian franchisees (“Clockwork”) for infringement upon seeing Clockwork’s “coming soon” advertisements in Calgary. Clockwork then applied to register the TECHNICIAN SEAL OF SAFETY mark, and counterclaimed alleging confusion with a number of marks, copying of its website, and misuse of its business information and skills described as its “secret sauce”. The parties disputed the origin of THE PUNCTUAL PLUMBER mark, with Clockwork suggesting that it was the inspiration for the plaintiff’s mark.
Ultimately both parties ceased using the marks alleged to be infringed. Clockwork stopped using/franchising THE PUNCTUAL PLUMBER, and Clearview stopped use (which was claimed to be both minor and innocent) of the TECHNICIAL SEAL OF SAFETY mark.
Both parties claimed damages, but the agreed statement of facts specifically stated that neither suffered any loss, and there was no evidence of any loss of reputation, business, goodwill or trade, which would normally be required to support a damages claim. The plaintiff, however, claimed damages “at large” in the amount of $40,000, noting decisions awarding amounts in the range of $10,000 - $15,000 where there was, allegedly, no evidence of economic loss. It also claimed that the defendants’ activities had caused significant stress, much of which seemed to be related to the prospect of competing with a large, well-funded competitor, as opposed to trademark issues.
The Judge noted that the concept of “damages at large” (i.e. damages without proof of loss) does not exist at law. While damages without evidence of actual loss have been awarded in cases involving default judgments, in those cases it was not possible to determine the profits made by the defendant (and therefore lost to the plaintiff) as there had been no documentary or oral discovery. That was not the case here, where there was a full trial and agreement that neither party had suffered any loss. Further, while courts will on occasion award “lump sum damages” when it is difficult to quantify the loss, there still must be evidence of a loss. Since in this case there was no loss by either party, there was no legal basis to award damages.
The plaintiff also claimed punitive damages, referring to the stress of potential competition by a major U.S. company, and the strain of the litigation, including having to defend against claims of infringement of multiple marks only one of which was ultimately relied on at trial, and a “last minute” challenge to the validity of THE PUNCTUAL PLUMBER registration. The Judge noted that “bringing a lawsuit regarding trademark infringement is not in itself an indication of malicious or irreprehensible behavior. “The Judge cited the 2014 decision in Bauer Hockey Corp. vs. Sport Maska Inc., 2014 FC 158 as setting the test for punitive damages – behavior that is malicious, oppressive, high-handed and offensive to the court’s decency, or egregious and truly outrageous. The goal of the court in awarding punitive damages is not to provide restitution to the plaintiff, but to punish the defendant and to warn others of the consequences of such behavior.
Clearview also argued that factors such as the length of time the defendants used the PUNCTUAL PLUMBER mark, the shifting claims over the course of the litigation, and starting an action in the U.S. justified punitive damages. The Court disagreed, finding these facts did not indicate malicious or irreprehensible behavior – instead the defendants’ conduct was just ordinary business practice. Ultimately, the Judge left it to the parties to agree on costs (since in Canada the losing party typically pays a portion of the winning party’s costs). Failing agreement, either party may make submissions to Court on the issue.
This decision is consistent with others in Canada confirming the need for evidence regarding the existence of an actual loss or damage, as opposed to speculative claims or arguments. Further, litigants and their advisors need to be aware that success in litigation, as here, where the infringement claims were agreed to by the parties, does not guarantee an award of damages, nor an award of legal costs and disbursements. In short, it is vitally important that when contemplating litigation, consideration is given to how damages can be proven, and whether expert evidence is needed. In addition, since a case may take years to reach trial, steps to ensure the collection of evidence of loss during the pendency of the action are also important.
Finally, this decision confirms that Courts are unlikely to award punitive damages without reprehensible conduct, or repeated infringements. The ordinary steps and tactics in litigation, which may be aggressive and cause stress and anxiety to the participants, are typically not enough to justify an award of punitive damages.