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Knock it Off! The Rising Cost of Counterfeiting!

January 2009

In separate Federal Court cases, Louis Vuitton and Microsoft were recently awarded extensive damages against counterfeiters.  These court decisions and others are sending a strong message to companies engaged in profiting from knock-offs.

Louis Vuitton is a well-known maker of fashion accessories.  Since 2001, the company had been pursuing the owners of K2 Fashions in British Columbia for alleged trademark and copyright infringement through the sale of counterfeit goods. Two previous judgments had been entered against the defendants, although the awards made in those cases have not been paid. Subsequent to those judgments, Louis Vuitton orchestrated the seizure of numerous counterfeit copies from K2 Fashions and repeatedly advised the defendants to cease their infringing activities. Their attempts to curb the infringing activities had been largely unsuccessful.

The company undertook action in July, 2007 alleging trademark and copyright infringement by K2 Fashions’ sale of counterfeit Louis Vuitton goods. The defendants failed to defend the action and Louis Vuitton brought a motion for default judgment, which the Court granted, easily finding that both trademark and copyright infringement had occurred.

Louis Vuitton elected an award of statutory damages in relation to infringement of its copyrighted works.  Such damages typically range between $500 and $20,000 per infringed work.

In the Microsoft case, the Court found that $40,000 was appropriate, given that the defendants had acted in bad faith and had persistently engaged in infringing activities despite being advised numerous times to stop. Justice Snider also found a high award to be “necessary to deter future infringement and, secondarily, to deter open disrespect for Canada’s copyright protection laws.”

Apart from the number of infringed works, a “nominal” award of $6,000 per instance of infringement is often given to each plaintiff in actions for trademark infringement – i.e. as an approximation of damages, where neither damages nor profit can be accurately quantified. This is often the situation when defendants do not defend or participate in the action.

Using the test set out by the Supreme Court of Canada in Whiten v. Pilot Insurance Co., additional punitive and exemplary damages of $100,000 were awarded with a notation that such an award would be consistent with that given in the Microsoft case. Indeed, in this case, the Court found such an award was justified in view of the egregious conduct of the defendants and the disproportionately low award of damages for trademark infringement when compared to the profits that were probably made (and which profits could not be determined due to the non-participation of the defendants in the action). The plaintiffs were also awarded $36,699 in costs, bringing the total award of damages and costs to $263,699.

The similarity of scale for the statutory and punitive damage awards in this case in comparison with those of the Microsoft case serves to reinforce the message that holders of intellectual property rights are now in a strong position to seek extensive damages against counterfeiters. This decision is also a further warning to counterfeiters of the high risk of taking a flippant attitude toward court proceedings and other attempts to curtail their infringing activities.

Matthew Thurlow is an associate in the Intellectual Property Group in Toronto. Contact him
directly at 416-307-4139 or mthurlow@langmichener.com.

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