Sanjukta Tole is an Osgoode Hall alumnus and practiced with the IP group of a large Vancouver law firm.
In 2008, Louis Vuitton Malletier S.A. and Louis Vuitton Canada Inc. (collectively “LV”), the famous luxury goods maker, made headlines when it was awarded damages of over $1,000,000, the highest amount ever awarded in a counterfeit matter in Canada. The case was brought by LV in the British Columbia Supreme Court against three individual defendants and two corporate defendants involved in the sale and importation of counterfeit goods (see Louis Vuitton Mulletier S.A. v. 486353 B.C. Ltd. 2008 BCSC 799 [Lee]). LV was also awarded over $80,000 against a fourth individual defendant in a separate hearing in the same matter. Both decisions were delivered only months after LV successfully obtained judgment in the Federal Court against two other individuals doing business as K2 Fashions for the sale and importation of counterfeit LV goods amounting to over $250,000 (see Louis Vuitton Malletier S.A. et al v. Yang et al. 2007 FC 1179 [Yang]).
In my opinion, three factors contributed to the success of LV in its campaign against these particular counterfeiters. The first factor was LV’s investment (both in time and money) in persistent and diligent monitoring of the defendants’ activities combined with taking legal action against the defendants each time sufficient evidence of the sale of counterfeit LV goods was gathered. LV made this investment despite the fact that the defendants’ operations in both situations were small-scale in relation to LV’s cost to monitor and litigate. When levying the extraordinary amounts in damages, including the ever-elusive punitive damages, both levels of court placed heavy emphasis on the fact that the defendants were repeat offenders of trade-mark and copyright laws despite great efforts from LV to prevent such behaviour. LV had provided multiple warnings and served numerous court orders to restrain the defendants’ illegal counterfeiting activity. Thus, the investment by LV in follow-up investigations and its consistent legal action against the stubborn defendants proved to pay off.
The second factor that led to favourable results for LV was the courts’ recognition of an erosion of LV’s market share due to a depreciation of goodwill in relation to LV products resulting from the defendants’ activities. This was despite the fact that the courts assumed that “a person buying one of the counterfeit LV products would be motivated almost exclusively by price and would not likely pay the full price of the genuine article” (i.e. that the parties had a non-overlapping consumer base) (see para. 31 in Yang). The courts came to this conclusion based on the fact that consumers of LV products would be dissuaded from purchasing genuine LV products as a result of the defendants’ cheaper counterfeit LV products making the LV brand less exclusive and prestigious (see para. 25 in Yang and para. 77 in Lee). The courts’ acknowledgement of a depreciation of goodwill built by LV in the marketplace provided the courts with a basis on which to award damages to LV.
Last but not least, LV used a novel formula in calculating its damages. It argued that aside from each instance of proven infringement, courts should also recognize each turnover in the defendants’ inventory as an instance of infringement and award nominal damages to each plaintiff based on an estimated number of turnovers of the defendants’ inventory. In addition, the LV formula required that each turnover of the defendants’ inventory also be considered an instance of importation of the next consignment of counterfeit goods into Canada by the defendants. Unfortunately, LV was not able to convince the Federal Court to follow this formula in Yang due to a lack of evidence substantiating the existence of turnovers. However, the British Columbia Supreme Court in Lee applied the formula presented by LV based on an admission by the defendants of an estimated number of turnovers in their business. As a result, LV obtained nominal damages in excess of $450,000.
The above factors were critical in ensuring the success of LV in these particular cases. However, the combined (and intended) impact of these factors will likely be the deterrence of others from the sale or importation of goods infringing LV trade-marks or copyright in Canada. One would assume that the aggressive protection by LV of its intellectual property rights, the courts’ recognition of the losses suffered by LV due to counterfeiting activity and the imposition of high penalties for breaching LV’s rights would discourage even the most determined of counterfeiters.