Knockout blow to knockoffs 


July 2011

Intellectual Property Bulletin

In Louis Vuitton and Burberry v Singga Enterprises, the Federal Court has delivered a stern warning to those engaging in counterfeiting luxury goods in Canada by awarding an aggregate of $1.98 million in damages for trade-mark and copyright infringement and a further $0.5 million in punitive damages.

While there are a number of important lessons in the decision, perhaps the most important was the court's adoption of the principle from the British Columbia Supreme Court case Louis Vuitton Malletier SA v 486353 BC Ltd: "a corporation will not be allowed to be used to shield officers, directors and principal employees from their actions in the willful and knowing sale of counterfeit and infringing goods."

As is usually the case, the counterfeiters did not have or at least did not provide any records regarding their sales of the infringing goods. Recognizing that difficulty in assessing damages or profits does not relieve the court from the duty of assessing them as best it can, over the years a number of rules of thumb have been developed to estimate damages in a counterfeiting case. In 1997, a scale of damages was developed: $3,000.00 if the counterfeiter operated from temporary premises such as a flea market, $6,000.00 if the counterfeiter operated from conventional retail premises, and $24,000.00 for manufacturers or distributors of counterfeit goods. These amounts are adjusted for inflation, and in this case the court calculated that the distributor amount in 2009 was $30,000.00. The court also estimated the number of inventory turn-overs, and multiplied this by the $30,000.00 amount to arrive at the final damages figure.

On the issue of punitive damages, the Federal Court reviewed the principles set out in earlier cases, particularly the need for such damages in cases where the defendants' conduct has been malicious, oppressive and high handed, and where all other penalties imposed by way of damages are inadequate to deter and denounce the conduct. The object is to ensure that ordinary damages are not treated as a mere cost of doing business by those who seek to profit through outrageous disregard for the rights of others. Such awards ought to be substantial enough to get the defendants' attention. Underscoring that the purpose of such an award is to deter such conduct, the damages awarded against one of the defendants was considerably less than the other punitive damages awards on the basis that that particular defendant showed contrition for her conduct and gave the court the impression that she had learned her lesson.

While the legal process can be frustrating and time consuming, this case makes it clear that Canada's courts will develop practical solutions to prevent parties from trying to thwart the system by hiding behind corporations without assets and refusing to provide documentation needed to prove the case. All of this ensures that justice is truly done among the parties.

by Peter E.J. Wells and Alexandra Kirschbaum, summer student

a cautionary note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2011