A trademark cautionary tale: Personal liability cannot hide behind corporate veil

7 minute read
22 March 2016

In a recent decision, Diesel s.p.a. v. Benisti Import-Export inc. 2016 QCCA 1085, the Superior Court of Quebec reminds us that the principal of a corporate defendant can be found personally liable for damages along with the corporate defendant who committed the infringement or passing off.  This decision reminds us that the directors of a corporate defendant cannot hide behind the corporation when their personal decisions, on behalf of the corporation, cause harm to another.

This case deals with passing off in a label design applied diagonally to a front pocket of jeans which Diesel started commercializing in Canada in July 1988.  On February 15, 2005, Diesel filed an application with the Canadian Intellectual Property Office (CIPO) for the registration of the label, identified as “POCKET DESIGN”, on the basis of use of the mark since July 1988.  The label design includes the words DIESEL INDUSTRY DENIM DIVISION.  Diesel’s application issued to registration on November 28, 2007.

Shortly before the filing of Diesel’s application, namely on December 7, 2004, the defendant had filed an application for its own label design, claiming use of the trade-mark since June 20, 1999.  The defendant’s label design comprised the words POINT ZERO CO. DENIM DIVISION.  The defendant’s trade-mark application was approved by CIPO and published in the Trade-marks Journal.  On March 14, 2007, Diesel opposed the registration of the defendant’s label design.  Diesel produced evidence in support of its opposition in June 2008.  The opposition proceeding ended in April of 2009, when the defendant decided not to defend its application, which caused the application to be considered as abandoned. 

Although it chose not to pursue the registration of its label design mark, the defendant continued to use the trade-mark on two styles of jeans commercialized in Canada.  It was only during the summer of 2010 that Diesel learned that the defendant was still using the opposed label design.  A cease and desist letter was sent to the defendant who denied any wrongdoing and claimed both parties’ marks could co-exist since the defendant’s label comprised the defendant’s POINT ZERO brand, therefore avoiding any risk of confusion. On August 17, 2010, Diesel initiated proceedings before the Superior Court of Quebec for a provisional, interlocutory and  permanent injunction against the defendant.

The Court found that the defendant’s label design infringed Diesel’s POCKET DESIGN mark.  The Court found that the defendant’s label design was of the same color and placed similarly on the jeans as Diesel’s POCKET DESIGN, namely a white label placed diagonally on the coin pocket on the front of the jeans.  The only real difference consisted in the use of the words POINT ZERO CO. on the defendant’s label design, instead of the plaintiff’s DIESEL brand.  The defendant submitted that the use of the words POINT ZERO CO. was sufficient to avoid likelihood of confusion and argued that the POINT ZERO brand was the dominant portion of the defendant’s label design.  The Court rejected the argument, finding that the dominant element of the trade-mark was the position of the label, namely its diagonal placement on the coin pocket in the front of the jeans.  The Court found that the ordinary consumer in a hurry (our translation) will recall the design of the label rather than the words appearing on the label.  The Court further found that both label designs conveyed the same idea by their unique and identical designs, therefore creating a likelihood of confusion. 

The Court also found that Diesel had provided evidence of goodwill, misrepresentation and damages calculated on the basis of the defendant’s profits, thereby supporting a finding of passing off. 

Diesel also claimed punitive damages against the president and sole director and shareholder of the defendant.  The Court relied on the Quebec Court of Appeal decision in Meyerco Enterprises Ltd. v. Kinmont Canada Inc., 2016 QCCA 89 (CanLII) to conclude that the director of a corporate defendant can be found personally liable if he personally committed an extra-contractual fault which caused injury to another, as provided by article 1457 of the Civil code of Quebec which provides the general rule for determining extra-contractual liability in Quebec.  The Court found that in circumstances where it is shown that the director did not act as a reasonable person placed in the same circumstances would have acted, it is not necessary to pierce the corporate veil in order to find the director personally liable. 

At trial, the defendant’s president admitted to personally making the decision to abandon the application for the registration of the defendant’s label design, after the opposition filed by Diesel before CIPO.  He also admitted to personally deciding to continue using the opposed label design on the basis that CIPO had approved the application and this approval gave him the right to continue using the trade-mark.  The Court did not hesitate in finding that the president’s decision could not be considered as the decision which a reasonable person placed in similar circumstances would take.   The Court stated that no one can ignore the law and that a simple verification would have sufficed to learn that the approval of the defendant’s trade-mark application by CIPO did not give the corporate defendant the right to use its label design. In deciding to continue using the defendant’s label design, the defendant’s president circumvented the rules provided by the Trade-marks Act and committed a personal fault.  The defendant’s president was therefore ordered to pay 20,000.00$ in punitive damages.

This decision serves first as a reminder that trade-mark registration proceedings and infringement and passing off proceedings are separate procedures with different objectives.  Infringement and passing off proceedings before a court will determine whether the defendant is entitled to use the trade-mark.  The trade-mark registration procedure deals with the right to register the trade-mark.  The opposition procedure before CIPO will determine whether the applicant is entitled to the registration of a trade-mark, in the face of the opponent’s allegations.  In the context of an application  abandoned during the course of an opposition, particularly where the opponent alleges confusion, there is a real risk in continuing to use the opposed trade-mark in the marketplace. 

This decision also reminds us that a corporation acts through its people.  Under article 1457 of the Civil Code of Quebec, failure to act as a reasonable person will engage personal liability.  A person cannot hide behind the corporation when he or she personally makes decisions, albeit on behalf of the corporation, which result in injury to another. In Diesel v. Benisti Import-Export Inc., the decision taken by the president and sole director of the corporate defendant to continue using the trade-mark caused the defendant’s president to be found personally liable for punitive damages.  This decision serves as a cautionary tale for directors of corporations: your decisions as director may attract personal liability if these decisions cause prejudice to another, regardless of the corporate veil.

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