It's been a costly week for intentional infringers of intellectual property (IP) rights. In two separate decisions, the Federal Court of Canada has awarded $1 million in punitive damages. These are among the highest punitive damages awards ever made in Canadian IP cases, and send a signal to both counterfeiters and sophisticated businesses that deliberate infringement can have significant monetary consequences.

Digital Locks and Video Games

Nintendo sells popular video game consoles including the Nintendo DS, 3Ds and Wii. The games and consoles include technological protection measures (TPMs) that, among other things, prevent the consoles from playing unauthorized copies of Nintendo's games.

Nintendo sued Go Cyber Shopping (2005) Ltd. for circumventing its TPMs. Through a retail and online store, Go Cyber sold "game copiers" that would allow a person to play an illegally downloaded game on a Nintendo DS or 3DS console. It also sold "mod chips" that would disable security features on a Wii console to permit the use of pirated video games. In the first decision since the prohibition on circumventing TPMs was added to Canada's Copyright Act in 2012, the sale of the game copiers and mod chips was found to breach Nintendo's rights.1

For its compensatory damage claim, Nintendo elected statutory damages. It asked for, and the court awarded, the maximum amount ($20,000) on a per-work basis. The court cited the need for deterrence as one of the factors in awarding the maximum amount. Since Go Cyber's game copiers and mod chips provided unauthorized access to each of Nintendo's 585 video games, the statutory damage award came to $11.7 million ($20,000 x 585).

Turning to punitive damages, the court considered the objectives of retribution, deterrence and denunciation. Go Cyber had shown callous disregard for Nintendo's rights; its activities had gone on for years, and continued after the litigation had commenced. Deterrence was also a factor in the punitive damages analysis. Nintendo asked for, and received, punitive damages of $1 million, one of the highest punitive damage awards ever made by the Federal Court.

Helicopter Parts and Patent Claims

For at least a decade, punitive damages were almost unavailable in patent cases.

In 2005 the Federal Court heard a patent case involving electric fireplaces.2 The plaintiff was successful–its patent was held to be valid and infringed. Even though the trial judge found that the defendant's appropriation of intellectual property was deliberate, its conduct was not so high handed, callous or oppressive to offend the court's sense of decency. Malice was not established, and there was no evidence that the defendant regarded the risk of damages for patent infringement as a mere cost of doing business. The court also noted that there appeared to be no patent cases where punitive damages were awarded simply because the defendant knowingly or intentionally infringed a patent without more. Punitive damages had been awarded in connection with litigation misconduct or abuse of process, but not solely for intentional infringement. Ultimately, the court concluded that the infringing behaviour would be sufficiently deterred by a general award of damages.

After this decision was released, and upheld by the Court of Appeal, it was well-established that a claim for punitive damages in a patent case could not be sustained solely on an allegation of intentional infringement. In at least one case, such an allegation was struck on a preliminary motion for failing to disclose a reasonable cause of action.3

In 2012, the doorway to punitive damages for patent plaintiffs was opened in Monsanto v. Bar V Farms.4 This was an infringement action for saving and re-planting genetically modified canola seed without a license. The court awarded damages of about $340,000, plus $150,000 in costs. $50,000 in punitive damages were also awarded, largely because of the defendant's intentional infringement. While the amount was somewhat modest compared to the compensatory awards, it was the first time in recent memory that punitive damages had been awarded and quantified in a patent case.

Eurocopter v. Bell Helicopter Textron Canada Limitée was a patent infringement case involving landing gear for helicopters. The action was bifurcated; at the initial trial, the patent was held valid and infringed. The trial judge also determined that Eurocopter was entitled to punitive damages in an amount to be determined, a finding that was upheld by the Court of Appeal.5

The court's decision on remedies was released this week.6 Even though Bell Helicopter did not sell any of the 21 infringing landing gear it had manufactured, compensatory damages were assessed at $500,000, representing what the parties would have negotiated as a royalty immediately before the infringing activity.

As for punitive damages, the court found that the defendant's landing gear was a "slavish copy" of the plaintiff's, and that the defendant marketed the design as its own. Notwithstanding its own policy manuals and guidelines that included measures to avoid infringing IP rights, the court concluded that Bell Helicopter must have known about the plaintiff's patent and acted in a foolhardy manner. After considering the blameworthiness of the defendant's conduct, the plaintiff's vulnerability, the potential harm to the plaintiff, the need for deterrence and the advantages wrongfully gained by the defendant, punitive damages were assessed $1 million. Not only is this at the very high end of punitive damage awards in Canadian intellectual property cases, it is one of the few instances where such damages have been awarded in a case between sophisticated litigants.

Looking Ahead

While Canada's Patent Act does not have a “treble damages” provision for intentional infringement, that remedy may now be practically available in other cases where the infringement can be shown to be deliberate.