No Harm, No Foul: FCA Reaffirms No Mandatory Correlation Between Statutory Damages and Actual Damages

The Federal Court of Appeal has reaffirmed the rule in Trader Corp. v. CarGurus, 2017 ONSC 1841 (Trader) that while there should be some correlation or proportionality between actual damages and statutory damages, there is no requirement that the two must be linked. Furthermore, the Federal Court of Appeal stressed the importance of appropriately and correctly including into pleadings precedential jurisprudence that supports one’s arguments being advanced.

In our 2020 Copyright Year in Review article, we previously reported on the decision in Rallysport Direct LLC v. 2424508 Ontario Ltd, 2020 FC 794, where the Federal Court awarded $357,500 in statutory damages (s. 38.1 Copyright Act) and $50,000 in exemplary and punitive damages to the Respondents (RallySport) for copyright infringement in 1430 photographs in which the Respondents owned copyright. In the current appeal, the Appellants argued that the amounts awarded were grossly out of proportion to the infringement and excessive in light of all of the circumstances, including the cost of producing the photographs. In 2424508 Ontario Ltd. v. Rallysport Direct LLC, 2022 FCA 24, the Federal Court of Appeal disagreed with the Appellants, finding that the lower court made no palpable and overriding error in establishing the statutory damages and awarding punitive damages.

The appellants’ main argument on appeal was that the award of $250 per work infringed—representing a 50% reduction in the statutory minimum—was still too high because it was neither linked to the actual damages suffered by RallySport nor the profits earned by the Appellants. The Appellants erroneously asserted (based on a misreading of the Trader decision) that there must be some correlation or proportionality between actual damages and statutory damages. However, the Federal Court of Appeal held that Trader included no such mandatory language. In fact, the Federal Court of Appeal held that not only did Trader not support the appellants’ proposition, but it actually supported Rallysport’s position that statutory damages can be awarded even if no monetary damages are suffered and no business is lost. As a reminder for counsel, the Federal Court of Appeal emphasized the importance of parties understanding the precedential value of the cases being cited in support of their position. The Federal Court of Appeal noted that not only did the Appellant cite irrelevant case law, but it failed to acknowledge that the relied-upon passages were drawn from the dissenting reasons. By inappropriately citing the minority as if it were in the reasons of the majority and at times indiscriminately citing from either, parties (and their counsel) can cause undue confusion for the court and ultimately undermine their own position.

Under section 38.1 of the Copyright Act, statutory damages ranging from $500 to $20,0000 are awarded on a per copyrighted work infringed basis without regard to damages suffered by the copyright owner and profits made from the copyright infringement, and may only be reduced below $500 after having taken into account: (i) the good or bad faith of the defendant; (ii) the conduct of the parties; (iii) the need to deter other infringements of the copyright in question; and (iv) the overall proportionality of the award. Other considerations include factors such as the production costs of creating the copyrighted work. Ultimately, the Federal Court of Appeal held that the lower court’s decision to fix the statutory damages at $250 per work infringed was fair and proportionate having considered Rallysport’s labour costs in producing the works, the Appellant’s bad faith in engaging in “judgment-proofing” and the need for specific and general deterrence. This decision provides helpful guidance when seeking statutory damages awards as it serves as a reminder that courts may exercise discretion to award damages below the statutory minimums (and is something to expect as a possibility where there is a great volume of copyrighted works infringed).