Federal Court reconsiders and confirms its earlier Chanel counterfeiting decision

As directed by the Federal Court of Appeal, the Federal Court reconsidered its earlier Chanel S De RL v. Lam Chan Kee Co.¹ decision in which it held the defendants liable for trademark infringement arising from the offering for sale and sale of counterfeit CHANEL goods. ²

The Federal Court of Appeal remitted the earlier decision back to the Federal Court primarily on the basis that it was unclear in the original decision whether the defendant, Mrs. Lam, was to be held personally liable for four acts of infringement, or only three. As a consequence, it was unclear if the damages awards imposed by the Court were premised on three or four acts of infringement. In addition, the Federal Court of Appeal stated that while the awarded punitive damages may be appropriate, the quantum of the award required a more expansive explanation.

As outlined below, on redetermination, the Federal Court did not vary its original decision. Mrs. Lam and the corporate defendants were held jointly and severally liable for four acts of infringement and ordered to pay $64,000 in compensatory damages, $250,000 in punitive damages, and $66,000 in costs.

The Court's decision clearly communicates its willingness to take a strong stance against counterfeiting and, in particular, recidivist counterfeiting. The decision also reaffirms the Court's willingness to tackle such issues through the summary trial procedure.

The Federal Court clarified its original decision regarding personal liability, the quantum of punitive damages, and costs.

Personal Liability

Based on the factual findings articulated in its original decision, the Federal Court reiterated that Mrs. Lam was the controlling mind for both corporate defendants at all relevant times, noting in particular that the defendants' evidence of the sale of the business to Mrs. Lam's children was found to be "self-serving, inconclusive and contradictory."

The Federal Court identified the following factors as sufficient to hold Mrs. Lam jointly and severally liable with the corporate defendants for the infringing activities:

• the continued control and profit from the business and as the landlord of the premises where the infringing activities were carried out;
• the personal knowledge of the infringing activities at the premises; and
• the failure to take proper means to prevent any further infringing activities from taking place on the rented premises after being served with the Statement of Claim.

Punitive Damages

In reconsidering the quantum of punitive damages, the Federal Court rejected the defendants' argument that a lower award of $75,000 would accomplish the Court's goals. The Federal Court stated that "while the amount of $250,000…looks somewhat higher than some prior cases, the Court is satisfied that it is no higher than necessary to deter the subject defendants' misconduct in these specific circumstances."

In support of this position, the Federal Court identified nine key aggravating factors:

• The fact that Mrs. Lam had previously consented to permanently restrain herself and her company from infringing the CHANEL trademarks showed the defendants' bad faith, and that their misconduct was planned and deliberate;
• The defendants' motivation was for profit and the compensatory damages alone were not likely to affect their behaviour;
• Lam's attempt to disclaim responsibility through placing blame on her children and transferring assets to a different corporation;
• Lam's delay in asserting as a defence the transfer of assets between corporations which had allegedly occurred years earlier, and the corporate defendants' disdain for the legal process in failing to file Statements of Defence, or any independent documentary evidence;
• The seriousness of the offense and the lucrative nature of the conduct for the defendants;
• The unrepentant and recidivist behaviour of the defendants;
• Lam's attempts to materially mislead the Court regarding her involvement;
• The vulnerability of the plaintiffs, given that they cannot exert control over the daily unauthorized distribution of counterfeit merchandise which diminish the value of goodwill associated with the CHANEL trademarks; and
• The bad faith on the part of the defendants in their attempt to conceal the extent of their profits from the infringing activities.

Costs Award

The Federal Court of Appeal did not find any error in the Federal Court's original determination of costs. On redetermination, the Federal Court followed its earlier decision ordering a lump sum $66,000 award in lieu of assessed costs.

No additional costs were awarded given that the redetermination before the Court was the result of a Federal Court of Appeal decision in which no costs were awarded, and that neither party should be held responsible for ambiguity in the original judgment.