A recent landmark decision by the Federal Court awarded luxury brands Louis Vuitton and Burberry $2.48 million, the highest amount of damages awarded in a Canadian anti-counterfeiting case. 

Louis Vuitton Malletier S.A. and Burberry Limited, and their Canadian subsidiaries, commenced a trade-mark and copyright infringement action in August 2010 against Toronto-based Altec Productions and Vancouver-based Singga Enterprises Inc. and Carnation Fashion Company, and their respective owners and operators. Louis Vuitton and Burberry claimed that the defendants had been selling counterfeit handbags and other fashion accessories in their stores and online.  

The Defendants’ Large-Scale Manufacture, Importation and Distribution of Counterfeit Goods

The evidence demonstrated that the defendants knowingly and wilfully manufactured, imported, advertised and sold counterfeit and infringing handbags and other fashion accessories in Canada bearing trade-marks owned by Louis Vuitton and Burberry and/or trade-marks confusingly similar. The activities were carried out over a sustained period of time with full knowledge of Louis Vuitton and Burberry’s intellectual property rights and involved the large-scale manufacture and importation of bulk quantities of the counterfeit goods and Canada-wide distribution and sale of the merchandise.    

The Federal Court found that given that the items sold by the defendants bore trade-marks identical and/or confusingly similar to Louis Vuitton and Burberry trade-marks, the public could be led to believe that the counterfeit merchandise was authentic or that such items had been authorized, approved or manufactured by Louis Vuitton or Burberry. Such use of the trade-marks would therefore likely cause confusion between the defendants’ wares and business and the wares and business of Louis Vuitton and Burberry.

The Federal Court further held that the defendants’ sale of substantially inferior quality counterfeit merchandise caused serious damage and irreparable harm to the reputation and goodwill generated by the superior character and quality of the genuine Louis Vuitton and Burberry products bearing the well-known trade-marks.

Piercing the Corporate Veil

In awarding damages against the individual operators of the defendant corporations, the Federal Court upheld a British Columbia Supreme Court decision that found that a corporation will not be allowed to be used to shield officers, directors and principal employees from their actions in the wilful and knowing sale of counterfeit and infringing goods. The Federal Court held that the individual operators of the defendant corporations were personally involved in the operation of their respective businesses and had engaged in an illegal course of conduct outside the ordinary scope of a legitimate business purpose.

Calculating the Damages

In addition to awarding a permanent injunction against the defendants from further infringing activity and a demand that all offending merchandise be destroyed, the Federal Court ordered the defendants to pay a cumulative amount of $2.48 million to Louis Vuitton and Burberry.  

Damages for Trade-Mark Infringement

The defendants’ refusal to provide documentation in respect of the scope of their activities and their sale of the counterfeit and infringing items frustrated any possible assessment of damages. The Federal Court therefore applied a scale for the quantification of damages used in a previous counterfeiting case where business records of infringing sales were not available. In that case, it was held that damages per plaintiff could be quantified in the amount of $3,000 where the defendants were operating from temporary premises (such as flea markets), $6,000 where the defendants were operating from conventional retail premises and $24,000 where the defendants were manufacturers and distributors of counterfeit goods.

The Federal Court held that where a defendant is engaged in continuous and blatantly recidivist activities over a period of time, such as in this case, such activities warrant a much higher award of damages, calculated on a “per instance of infringement” or “inventory turnover” basis. Adjusting for inflation, the appropriate base of damages for each group of defendants in this case was held to be $30,000 per instance of infringement or inventory turnover per plaintiff. Taking into account each of the instances of infringement submitted into evidence, the defendants were held liable for a cumulative amount of $1.02 million to Louis Vuitton and $840,000 to Burberry.     

Damages for Copyright Infringement

In addition to the damages awarded for trade-mark infringement, the Federal Court awarded against each of the groups of defendants the maximum statutory amount of $20,000 per work infringed for each of the two Louis Vuitton copyrighted works which were found to be infringed by the defendants.  

Punitive Damages

The Federal Court found that given the egregious nature of the defendants’ activities, the normal trade-mark and copyright profit or damages assessments would not be sufficient and that punitive and exemplary damages should be awarded against them. The Federal Court found the “recidivist actions” of the defendants in infringing Louis Vuitton and Burberry’s intellectual rights were deliberate and knowing, and evidenced “a complete lack of regard for the laws of Canada, the process of this Court, and the intellectual property rights of Louis Vuitton and Burberry”. The Federal Court held that a substantial monetary award against the defendants was required to adequately compensate Louis Vuitton and Burberry for past activities and to prevent the defendants’ activities from continuing in the future. Accordingly, the Federal Court awarded $500,000 as punitive and exemplary damages.

Comment

It will be interesting to observe whether the Federal Court’s clear message that wilful and deliberate counterfeiting activities will be taken seriously by the courts and will result in significant monetary repercussions for all those involved will deter other infringers from engaging in counterfeit activities. 

Click here to read the decision.