A Quarter Million in Punitive Damages Upheld in Chanel Counterfeit Appeal
February 28, 2017
By Mark Robbins and Tamara Céline Winegust
$314,000 in damages, $66,000 in costs at first instance, plus solicitor-client costs on the appeal (which was found to be “without merit”). In Lam v. Chanel S. de R.L., 2017 FCA 38, the Federal Court of Appeal confirmed these awards for four instances of selling counterfeit CHANEL goods at a Toronto-area mall between 2011 and 2013. The volume of counterfeits was less than 200 and included items such as cell phone cases, wallets, earrings, plastic bracelets and “fake nail stickers”.
This decision represents an apparent close to a four-year saga involving a judgment after summary trial (2015 FC 1091), an appeal and remand back to the Federal Court on a damages issue (2016 FCA 11), and then a further decision by the trial judge (2016 FC 987). At issue on this appeal were the awards of compensatory and punitive damages, and costs. The FCA confirmed the decision below, which itself confirmed the 2015 summary trial decision awarding $64,000 in compensatory damages, plus $250,000 in punitive and exemplary damages.
The FCA held $250,000 in punitive damages, although proportionately higher than awards in earlier cases, was justified in light of the facts and the governing principles. In particular, the award was “rationally required to punish the defendant’s misconduct” (citing the Supreme Court of Canada in Whiten v. Pilot Insurance) and was consistent with the objectives of “retribution, deterrence and denunciation” in light of the defendants’ reprehensible conduct. The FCA noted the trial judge’s findings that the defendants were motivated by profit, and:
"The vulnerability to, and erosion of, the plaintiffs trade-mark rights arising from counterfeiting and infringement; the defendants’ attempts to mislead the Court; the fraudulent transfer, after the filing of the Statement of Claim, of ownership of the defendants’ company to avoid liability; the defendants’ recidivist conduct in light of previous orders in respect of the same matter; the defendants’ awareness of the unlawful nature of the activity; the scope of the infringement; the sale of infringing articles after filing and service of the Statement of Claim; the defendants’ failure to produce any records; and, the judge’s conclusion that the infringement was continuous and deliberate…"
The FCA rejected the argument that punitive damages should be calculated based on a ratio to the compensatory damages amount. Rather, determining the amount is a “highly contextual exercise, influenced by factors particular to the defendants’ behaviour and informed by considerations unique to infringement of trademarks”.
Rubbing salt in the wound, the FCA awarded costs of the appeal on a solicitor-client basis, citing the appellant’s failure to identify any error in Justice Martineau’s decision and merely re-arguing prior rejected arguments. The FCA appeared to agree that this was merely a nuisance appeal, the effect of which was to delay Chanel’s recovery on its judgment.
This set of decisions will be an important tool in the arsenal of rights holders seeking restitution from sellers of counterfeits, especially recidivist infringers.
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