An update on counterfeiting and piracy remedies in Canada
January 24, 2011

In the last decade, there has been a global escalation in counterfeit products, and an increase in the range of counterfeit products available, such as medicines, health care products, food and beverages, automobile and airplane parts, beauty products, batteries, and chemicals. A 2009 Frontier Economics report commissioned by Business Action to Stop Counterfeiting and Piracy (BASCAP), estimated that counterfeiting and piracy costs G20 governments and consumers €100 billion each year. By several estimates, counterfeiting and piracy have cost the Canadian economy $20-30 billion annually in lost tax revenue, investment and innovation. In addition to economic concerns, the Standing Committee on Public Safety and National Security stated in 2007 that "the counterfeiting of goods is a growing phenomenon in Canada, and one that increasingly involves goods that present health and safety hazards for consumers."

The development and implementation of an effective IP rights system in Canada continues to lag behind the efforts of other developed nations. Canada has no national IP law enforcement coordination body. Customs officers do not have an inherent mandate to monitor for or detain counterfeit products. A formal system is not in place for recording IP rights or information that may help customs officers to detect infringing products. Moreover, criminal penalties are generally insufficient to deter counterfeiters.

The RCMP is the primary enforcement agency in respect of IP crimes in Canada. However, the RCMP has insufficient resources dedicated to combating IP crime to proceed against all pirated and counterfeit products brought to their attention. Accordingly, the following priorities have been set by the RCMP regarding counterfeit activity:

  1. products that raise health and safety concerns;
  2. products that are linked to organized crime organizations;
  3. large commercial operations; and
  4. repeat retail offenders.

If the RCMP (through its own efforts or through information from the Canada Border Services Agency) detects suspect goods that raise issues high in the priority list, the goods will be detained. The RCMP then contacts rights holders and will take steps as deemed appropriate based on the circumstances of the particular case. To the extent that the importer/distributor is a first time offender and there are no clear facts to support recidivism, the RCMP may simply seek a signed relinquishment from the importer/distributor. Alternatively, they may undertake an investigation and lay charges, in which case they will generally look to the rights holder for evidence establishing the infringing nature of the products and other facts that may be required.

Ultimately, the primary responsibility for battling counterfeit products lies with intellectual property owners. While legislative changes have been slow to deal with counterfeiters, rights holders can look to a number of recent court cases as a signal that Canadian courts are prepared to take tough action, especially in cases where recidivism may be established. The courts have shown that they are willing to take into account intentional, repeated and contemptuous counterfeiting and evasive tactics used by counterfeiters, and to utilize the available tools to maximize awards against recidivists in particular.

In Louis Vuitton Malletier S.A. v. 486353 B.C. Ltd. (dba Wynnie Lee), the Court awarded significant damages against recidivist importers and retailers of counterfeit Louis Vuitton merchandise. Following the decision in Louis Vuitton Malletier S.A. v. Yang, the Court assessed trademark damages according to established judicial guidelines for nominal damages, adjusted for inflation, and on a per turn over basis to each of the plaintiffs (Louis Vuitton and Louis Vuitton Canada). Noting the blatant disregard for prior court orders and enforcement efforts, the Court took into account sale through separate retail outlets and importation to increase the nominal damage award to $540,000. In addition, the Court awarded $100,000 as statutory damages for copyright infringement, awarding the maximum $20,000 per work in respect of each store proven to have secondarily infringed. Finally, the Court awarded punitive damages totaling $300,000, $200,000 of which was specifically ordered against a primary principal, W. Lee who, along with another principal, were found to be personally liable.

At the original hearing, the Court adjourned issues relating to the extent of liability of J. Lee, a sister of the primary principal and the only defendant who had attended at the summary trial. In a second decision, applying similar principles but noting lack of evidence regarding J. Lee's early involvement in the counterfeiting activities, the Court awarded the plaintiffs an additional $83,000 in damages from Ms. Lee. The judgment was immediately registered in the Land Title Office against a residential property (the "real property") owned by Lee in joint tenancy with her husband. As Lee failed to pay any amount of the judgment owing, proceedings were initiated under British Columbia's Court Order Enforcement Act ("COEA") to enforce the judgment against Lee by proceeding with a Court-ordered sale of the real property. After Lee unsuccessfully attempted to argue that the real rroperty was held in trust for her parents, it was held that Lee was the legal owner of the real property along with her husband. Subsequently, on further application, the Court ordered that the entire real property be sold to satisfy the judgment against Lee, which was owing to Louis Vuitton. In coming to this decision, the Court accepted the arguments that selling the entire real property, as compared to Lee's half interest in the real property, was practical in that (a) it avoided trying to sell a half interest in the real property; (b) sale of the entire real property would satisfy both the judgment and an outstanding mortgage on the real property; and (c) there would be a benefit to both Lee and her husband in that their debt obligation to the mortgage holder would be paid out.

In Microsoft Corporation v. Carmello Cerrelli et al, Microsoft sought interlocutory relief against a serial software pirate, Carmello Cerrelli, and his companies. Microsoft had previously pursued Cerrelli for copyright and trademark infringement resulting from his sale of pirated copies of Microsoft software. Microsoft was granted injunctive relief and awarded damages for copyright and trademark infringement, punitive damages and costs (exceeding $2,000,000). Despite that judgement, Cerrelli continued to sell pirated Microsoft software.

Microsoft commenced a new action in the Federal Court naming Cerrelli and his companies, and immediately obtained an Anton Piller order, an interim Mareva injunction, and other relief. The Court confirmed the propriety of Microsoft's execution of previous orders, granted an interlocutory Mareva injunction freezing all Cerrelli's assets, granted an interlocutory injunction against Cerrelli, and awarded Microsoft solicitor-client costs.

In Chanel S. de R.L. c. Genève Accessoires Inc., the Court considered an application to set aside default judgment in a case involving counterfeit Chanel jewelry. The defendant asserted that it had purchased the infringing articles in good faith, but the court noted firstly that intent was not an issue, and secondly that the extremely low price of the products should have made the experienced individual defendant suspicious. As a result, the application was dismissed and default judgment was confirmed.

The cases above demonstrate that while Canada currently lacks a robust compliment of legislative and regulatory remedies for combating counterfeiting, an intellectual property owner can achieve effective results through the courts. As indicated above, Canadian courts appear to be increasingly prepared to take tough action, thus providing an avenue that warrants serious consideration by intellectual property owners seeking to protect their rights in this country.

Timothy P. Lo and Michael D. Manson, Vancouver