The decision of the Federal Court of Appeal in Annie Pui Kwan Lam v. Chanel S. De R.L. et al1 reviewed a finding of liability for trademark infringement arising from the offering for sale and sale of counterfeit CHANEL merchandise. The case against the individual defendant, Ms. Lam, proceeded by way of summary trial. Corporate defendants that did not participate in the appeal were previously judged in default.

On appeal, the trial judge’s decision was set aside and remitted back to him for redetermination, in particular on the issue of “the quantum of damages and costs.” The Court of Appeal found that as a result of ambiguity in the trial judge’s Reasons, it was impossible to discern whether Ms. Lam was found to have committed all four acts of alleged infringement or only three. Faced with this uncertainty, and given that the trial judge “premised his liability determination on an adverse credibility finding”, the Court of Appeal held “it would not be appropriate for this Court to step in and resolve the ambiguity by determining whether the appellant should be held liable for three or four occasions of infringement.”

Notwithstanding the foregoing, in its review of the underlying Reasons the Court of Appeal provided helpful guidance in respect of a number of issues relevant to counterfeiting and other trademark infringement cases.

Summary trial was “particularly well-suited”

The Court of Appeal endorsed the trial judge’s decision to allow the matter against the individual defendant to proceed by way of a summary trial. In coming to its conclusion, the Court of Appeal agreed with the trial judge that there was no need for a full trial in this case as the plaintiffs had put forward convincing proof of infringement, while the defendants had put forward little evidence in support of their defence. The Court of Appeal’s more general endorsement of the summary trial procedure in cases such as this one is clear from its statement that,

Cases 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.

Nominal Damages

Given the factual particularities of the case, the actual quantum of compensatory damages arising from the infringing acts was difficult to assess, and as a result nominal damages were awarded by the trial Court. The Court of Appeal agreed that the award of nominal damages is appropriate in cases in which “the defendants are uncooperative, proof of actual damages is difficult and it is hard to estimate the harm done to the trade-mark owner’s goodwill through the sale of inferior quality counterfeit goods”. In this case nominal damages were assessed at $8,000 per act of infringement.

Proving damages can be a challenge in counterfeiting cases, and the Court of Appeal’s endorsement of nominal damages is helpful for rights holders seeking at least some form of monetary compensation for harm caused.

Punitive Damages Award

At the trial level the Court awarded the plaintiffs $250,000 in punitive damages, holding that such an award was warranted given the defendants’ “blatant disregard for the rights of the plaintiffs, as well as the blatant disregard for the process and Orders of this Court” and because “… the amount of nominal damages awarded … is simply not sufficient to denounce and deter the subject defendants’ activities.”

The Court of Appeal confirmed that although larger than awards in prior cases, such an award may be appropriate, particular given 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 defendant’s infringing acts.” The Court of Appeal went on to hold that “the 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.”

Notwithstanding the foregoing, as noted above, the Court of Appeal remitted the issue of damages, including punitive damages, back to the trial judge for re-determination.