Federal Court of Appeal upholds significant statutory and punitive damages for successful copyright owner

6 minute read
04 March 2022

Authors:

The Federal Court of Appeal's recent decision in 2424508 Ontario Ltd et al v. Rallysport Direct LLC (2022 FCA 24) upholding an earlier-obtained award to the plaintiff Rallysport at the trial level of statutory damages ($357,000 plus prejudgment interest) for copyright infringement as well punitive damages ($50,000) against two Ontario companies and their two directors and officers jointly and severally, will be encouraging to copyright owners, particularly in instances where the quantum and extent of the harm arising from the infringement may be difficult for the copyright owner to precisely quantify. Gowling WLG's Calgary office successfully represented the copyright owner and plaintiff Rallysport (respondent on appeal) a US automotive parts re-seller, both at the trial level and on the appeal.



The Federal Court of Appeal confirmed that a federal court judge can, where a plaintiff has elected to recover statutory damages, award significant statutory damages for infringement of a copyright owner's copyright. Moreover, punitive damages may in addition be awarded against a party or parties, and to the extent the award of statutory damages award may include a deterrence factor, such does not necessarily preclude a further award of punitive damages where circumstances warrant.

The decision under appeal arose from an earlier decision of Justice Fuhrer of the Trial Division regarding a summary judgement motion brought by the defendants, who were a competing automotive after-market reseller and who had reproduced, and throughout a substantial period of the action continued to reproduce, the plaintiff's photographic works of its automotive components and parts kits on the defendants' competing website. The defendants on such motion had argued, among other things, that where a plaintiff is not in the business of selling photographic works (the plaintiff was in the business of selling specialized automotive parts which it depicted in extensive and detailed photographs on its e-commerce website) the plaintiff could allegedly not suffer damage and thus could not claim damages. The defendants' motion further seeking to dismiss the action ultimately backfired, and Justice Fuhrer, on the plaintiff's effective cross-motion, found instead in favour of the plaintiff and ordered the defendants jointly and severally pay statutory damages in the amount of $250 per work on 1430 infringing photographic works ($357,500 in total) and also punitive damages to the plaintiff in the amount of $50,000.

The defendants appealed both the statutory damages award and the punitive damages award, arguing that the damages individually and combined were grossly out of proportion to the infringement and excessive in light of all of the circumstances, and further argued, among other things, that:

(i) The plaintiff failed to prove it had suffered a quantifiable damage and that such was legal prerequisite which needed to be established before any statutory damages could be awarded;

(ii) The trial judge misapplied or failed to consider certain statutory considerations under the Copyright Act for awarding statutory damages; and

(iii) The statutory damage award included an amount for deterrence and thus the award of punitive damages was duplicative and over-compensatory.

The Federal Court of Appeal dismissed all of these arguments, and dismissed the defendants' appeal with costs. In particular, Justice Webb of the Federal Court of Appeal discredited the defendants' / appellants' arguments alleging that there must be a link between statutory damages and actual provable damages suffered by the copyright owners as a result of the infringement, holding that such was not the law in regard to an award of statutory damages for copyright infringement. Justice Webb found that the Trader Corp. v. CarGurus, 2017 ONSC 1841 decision, cited by the appellants, actually supports the opposite proposition, namely that "statutory damages can be awarded even if no monetary damages suffered and no business is lost."

The conduct of the defendants and the sanctions imposed by the Court for such conduct, should be a warning to potential infringers.

First, Justice Fuhrer pierced the corporate veil to find both the corporate and personal defendants (directors of the company, a husband and wife) all jointly and severally liable for infringement (see trial liability decision 2019 FC 1524 and trial quantum of damages decision 2020 FC 794.) Second, the defendants continued to infringe plaintiff's works for at least two years after the action was commenced, despite repeated warnings to cease and desist. The Court considered this along with other factors during its analysis under s. 38.1 of the Copyright Act[1] to determine the appropriate quantum of statutory damages. Third, punitive damages were awarded, due to the defendants' efforts to judgment-proof their actions by effectively putting their initial corporate entity into bankruptcy while having created another company to which it transferred the previous company's business and continued to infringe. The Court found this type of behavior as "high-handed and tantamount to 'stonewall[ing] while they continued to exploit the plaintiffs' rights'," and separate from any component of the statutory damages awarded to deter future or continued infringement.

Should you have any specific questions about this article or would like to discuss it further, please reach out to the authors or any member of our Intellectual Property Group.


[1] Copyright Act (R.S.C., 1985, c. C-42)


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