Copyright Infringement: Damages? Statutory damages? Accounting of Profits? You must choose but choose wisely…
December 7, 2021
By François Larose and Mitchel Fleming
The Quebec Court of Appeal recently ruled on an appeal of a Quebec Superior Court (QCSC) judgment dismissing a claim by the plaintiff, Constellation Brands US Operations Inc. (Constellation), for infringement of the Copyright Act and the Trademarks Act by Société de Vin Internationale Ltée (SVI). In Constellation Brands US Operations c. Société de vin internationale Ltée, 2019 QCCS 3610, the QCSC was tasked with determining whether the use of promotional leaflets containing copies of images of Constellation’s products and comparative statements claiming that two of SVIs new wines were comparable to wines sold by Constellation constituted trademark and copyright infringement, as well as depreciation of the goodwill attached to its trademarks. In that decision, the QCSC took aim at Constellation’s understanding of the allocation of the burden of proof as between the parties to prove lost profits, ultimately holding that, while SVI had admitted infringing Constellation’s copyright, Constellation had failed to show that SVI’s revenues increased as a direct result of their use of promotional leaflets, thereby disentitling them to the remedy. On appeal (Constellation Brands US Operations Inc. c. Société de vin internationale ltée, 2021 QCCA 1664), Constellation claims that the trial judge erred in law in the application of the burden of proof and in its finding with respect to the claim for an accounting of profits under s. 35 of the Copyright Act, and committed a reversible error by applying too strict a burden of proof to its claim for punitive damages. Lastly, Constellation contests the QCSC’s decision not to rule on the trademark infringement and depreciation of goodwill.
Accounting of Profits
Regarding the account of profits, the Court of Appeal rejected the Appellant’s argument that the QCSC misapplied the burden of proof. Determining causation, i.e., determining what portion of SVIs overall profits was attributable to the infringement of Constellation’s logo is the key task of any court that assesses a claim for an accounting of profits. The QCSC concluded that Constellation had not met its burden of proving that “the profits sought related to revenues resulting from SVI’s use of the leaflets”. The Court of Appeal held that the QCSC was correct in distinguishing the promotional leaflets from the wines themselves. The infringing leaflets were separate and distinct from SVI’s revenue-generating, non-infringing wine and Constellation had adduced no evidence demonstrating that on the balance of probabilities there was a causal link between the copyright infringement in the leaflets and the profits from the sale of SVI’s wines. Therefore, the Court of Appeal held that the QCSC was justified in coming to its conclusion. In the QCSC’s opinion, one cannot simply assume that the use of the leaflets led to an increase in SVI’s revenues, particularly where the leaflets played a negligible role in SVI’s overall marketing strategy. It is ultimately the plaintiff who bears the burden of proving a causal link between the infringement and SVI’s revenues, after which the burden only then shifts to the defendant, with respect to costs and expenses to be deducted from these revenues.
In addition, the Court of Appeal held that there was no error of law or palpable and overriding error of fact that justified its intervening in the QCSC’s decision to not award punitive damages. The Court of Appeal was satisfied with the QCSC’s conclusion that Constellation had failed to demonstrate exceptional circumstances embodying the requisite level of blameworthiness that would justify an award of punitive damages. The willful or knowing violation of copyright does not in and of itself warrant punitive damages. The Court of Appeal was equally unconvinced that the false comparison between Constellation and SVI’s products possessed the requisite blameworthiness to attract punitive damages.
Trademark Infringement and Depreciation of Goodwill
The Court of Appeal also briefly touched upon Constellation’s trademark infringement and depreciation of goodwill arguments, holding that the use of trademarks in advertising material for the purposes of comparative advertising does not per se constitute a violation of the rights conferred under the Trademarks Act. The fact that there is a difference in price between the two parties’ wines and that Constellation’s wines were sold at the SAQ (Quebec’s liquor retail stores) to a “higher end” market than SVI’s wines is insufficient to demonstrate a likely depreciation of the goodwill associated with Constellation’s trademark. As the Court of Appeal noted, even if SVI effectively intended, by its comparative advertisement, to ride the “coat-tails” of Constellation’s “well-established goodwill”, this does not establish that depreciation was likely to occur or actually occurred as a result. Ultimately the Court of Appeal held that the evidence did not establish that SVI’s advertising leaflets were used in a manner likely to have an effect on Constellation’s goodwill and even less so a negative impact.
This case is an important reminder to litigants to ensure that the proper form of redress is being pursued in courts. Under Canadian copyright law, a litigant can choose between an accounting of profits, or compensatory damages, or statutory damages set by the Copyright Act. However, whereas Constellation relied exclusively on accounting of profits, the Court need not consider the award of compensatory damages or statutory damages for the copyright infringement.
Furthermore, this case stands as a good reminder that courts have generally applied a “common-sense view of causation” in assessing claims for an accounting of profits. It will only be those amounts causally linked to the infringement of copyright or trademark that are captured by the accounting of profits. Where there is no causal connection, the only redress a complainant might find is at the bottom of an empty bottle.
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