• Counterfeit Luxury Products: Not Simply a Question of Trade-Mark Infringement
  • December 7, 2012 | Author: Brian P. Isaac
  • Law Firm: Smart & Biggar/Fetherstonhaugh - Toronto Office
  • Deterring counterfeiters is especially important to luxury brand owners. For this reason, brand owners should always keep in mind that augmented damage awards may be available when seeking concurrent relief for copyright infringement as well as trade-mark infringement. Similarly, brand owners in copyright industries should keep the same thing in mind and consideration should be given to seeking both copyright and trade-mark relief in all counterfeiting and pirating scenarios in Canada. Considering the question from the point of view of luxury brand owners exemplifies the point.

    Copyright aims to protect against the unauthorized reproduction of original literary, dramatic, musical and artistic works. Logos and designs or patterns used by luxury brands may constitute artistic works in which copyright subsists in Canada. Further, in the case of a counterfeit item, such works are clearly reproduced without the consent of the copyright holder.

    Combining a trade-mark infringement claim with a claim for copyright infringement may result in a significantly increased damage award. The somewhat clandestine nature of a counterfeiter’s activities makes this strategy particularly attractive. Counterfeiters often find means to avoid disclosing the extent of their counterfeiting activities, and thus an accurate or even very rough assessment of damages is impossible in many cases. While Canadian courts have recognized this difficulty by providing judicially set amounts for nominal damages in such situations, as discussed below, the amounts are fairly low such that it is believed brand owners are generally undercompensated when forced to request nominal damages in counterfeiting cases where the true extent of the counterfeiting of their products by the defendant cannot be proven. Canadian copyright law is also equipped to deal with situations where assessing damages is problematic, namely through statutory damages. Further, Canadian courts have awarded cumulative trade-mark nominal damages and copyright statutory damages in several recent cases. Accordingly, it is advisable to consider combining claims for relief under both trade-mark and copyright law whenever possible to increase the damages awarded against the counterfeiter.

    In trade-mark infringement cases concerning counterfeit goods where business records of infringing sales are not available, the Federal Court applies a scale for the quantification of damages. The scale contemplates different amounts for each of three distinct types of defendant, categorized according to 1) whether it operates from a temporary premise such as a flea market (about $4,000); 2) whether it operates from a conventional retail premise (about $8,000); or 3) whether it manufactures or distributes the counterfeit goods (about $30,000). The court will increase the tariff to account for inflation (which is why exact numbers are not provided above) and will multiply the damages based on factors such as proven turnover of the counterfeit products (for instance the number of shipments of the counterfeits proven to have been imported by the counterfeiter) but absent long and intensive investigation, it is often not possible to prove the multiplying factors.

    On the other hand, the Copyright Act addresses the difficulty of assessing compensatory damages in counterfeit cases by means of pre-determined statutory damages, ranging between $500 and $20,000 per infringed work in commercial scenarios. In contrast to the damages scale used in trade-mark infringement cases, statutory damages focus less on the nature of a defendant’s activities and instead take into consideration the number of works that have been infringed together with the following factors:

    1. good or bad faith;
    2. the conduct of the parties before and during the proceedings; and
    3. the need to deter other infringements of the copyrights in question.

    Indeed, in the landmark counterfeiting case of Louis Vuitton Malletier SA v Singga Enterprises (Canada) Inc, 2011 FC 776, where the Federal Court awarded luxury brands Louis Vuitton and Burberry damages in the order of $2.48 million, it is noteworthy that while damages for trade-mark infringement and punitive and exemplary damages constituted the bulk of the total award, the Court also awarded the maximum statutory amount of $20,000 for each of the two Louis Vuitton copyright works infringed by each of the three groups of defendants. Although the $120,000 awarded for copyright infringement is a small fraction of the total damages awarded in that case, if there is no impediment to claiming copyright infringement, it exemplifies the fact that copyright infringement should be combined with the typical trade-mark infringement claim(s) sought in cases of counterfeit luxury goods. This is especially so given that the aforementioned three factors for determining the appropriate level of statutory damages strongly favour the plaintiff in most counterfeiting cases and, as such, support a damage award of the maximum $20,000.

    For instance, in most, if not all, of such cases, the deterrence factor will favour the brand owner. In this regard, the Court in Louis Vuitton Malletier SA v Lin Pi-Chu Yang, 2007 FC 1179, another counterfeiting case, stressed the need for deterrence in awarding statutory damages in the context of counterfeit luxury goods:

    Next, I turn to the need to deter others. The LV products that are the subject of copyright protection are highly-valued by consumers. Being seen with one of the Plaintiffs’ Copyrighted Works is a statement that carries significant societal weight in some sectors of the population. However, the continuing infringement of this and similar high-fashion accessories with similar copyright protection erodes the position that legitimate copyrighted products hold in the marketplace. Why would a person buy the Plaintiffs’ Copyrighted Works when “knock-offs” can be sold and bought with few negative consequences? More seriously, why buy the legitimate product when others seeing it will assume that it is not likely a “real” LV Copyrighted Work? Although, to many, this aspect of the infringement is not serious, the erosion of the market for which the Plaintiffs have worked very hard is a serious consequence of the continuing behaviour of the Defendants and others who may also be infringing the Copyrighted Works. Another aspect of deterrence that is relevant is the behaviour of the Defendants. The award in this case should attempt to deter conduct where orders of the Court and other legal remedies are blatantly ignored. In my view, a high award is necessary to deter future infringement and, secondarily, to deter open disrespect for Canada’s copyright protection laws.

    It should be noted that in parallel with the strategy of combining claims for trade-mark and copyright infringement, it is also recommended that a brand owner obtain a copyright registration in respect of the artistic work at issue (e.g. an artistic pattern applied to a handbag). In this regard, although copyright registration is not a prerequisite for advancing a copyright infringement claim, the process for obtaining such a registration is relatively simple and inexpensive and registration provides prima facie proof of the subsistence and ownership of the copyright. Moreover, a copyright registration obtained prior to proven infringement is beneficial insofar as it precludes a defendant from relying on the defence that it was not aware of and had no reasonable ground for suspecting that copyright subsisted in the artistic work at issue. Such a defence is expressly provided for under the Copyright Act and, where applicable, disentitles a plaintiff from obtaining any remedy other than an injunction (i.e. no monetary remedy).

    Even though trade-mark and copyright law each protect different interests, they are not mutually exclusive and in many cases the sale and distribution of a counterfeit product or a pirated copyright work may constitute both trade-mark and copyright infringement. In such circumstances, brand owners should be mindful of the possibility of claiming both trade-mark infringement and copyright infringement not only to maximize their damages but, ultimately, to have an increased deterrent effect on counterfeiters in Canada.

    Brian P. Isaac, Toronto
    Tomek Nishijima, Montreal 

    The preceding is intended as a timely update on Canadian intellectual property and technology law. The content is informational only and does not constitute legal or professional advice. To obtain such advice, please communicate with our offices directly.