When Not to Seek a Summary Trial! Dermaspark Products Inc v. Patel 2023 FC 388
A defendant categorized the plaintiff’s claims as an abuse of process and asserted the plaintiff was a “trademark bully”. The defendant brought a motion for summary trial to dismiss the plaintiff’s action.
The Facts The plaintiff is based in Israel and manufactures professional facial treatment products, including a specific line of products. This product line includes a machine developed to administer treatments (the Plaintiff’s Machine), the Capsugen (a disposable component of the machine) and treatments such as NeoBright and NeoRevive.
The plaintiff claims that the defendant purchased a counterfeit copy of the Plaintiff’s Machine and related products online and used the machine and the products at its spa from February 2018 to approximately March 2020. The plaintiff asserted the defendant’s use of counterfeit products and the plaintiff’s advertising and marketing material infringed their rights under the Trademarks Act, and the Copyright Act. In addition, the counterfeit products are dangerous to use and that the sale of the counterfeit machine is prohibited as the plaintiff’s Machine is a Class III medical device, licenced by Health Canada.
The defendant alleged the machine it purchased was a “real” machine and its products were the same as those sold by the plaintiff. However, on receipt of the plaintiff’s cease and desist letter it immediately disposed of the machine and products and stopped all use of plaintiff’s promotional material.
The Summary Trial
Both parties were content to proceed by way of summary trial. The Judge observed while this was not determinative, it was an important factor in assessing whether it is “suitable” and “just” to proceed by summary trial. If all parties are prepared to proceed through the simplified and typically less expensive summary trial process, this suggests it was just to proceed in this manner. A Court should be reluctant in such circumstances to require the parties to incur the further cost and delay of proceeding to a full trial. Conflicting evidence and credibility issues do not preclude summary trial unless it would be unjust to decide the issues without trial.
In addition to the affidavits filed by the parties, three witnesses testified on behalf of the plaintiff and one on behalf of the defendant. More weight was given to the evidence of the plaintiff’s witnesses. The evidence of the defendant’s witness regarding the defendant’s machine and communications with plaintiff was categorized as not capable of being relied on. The evidence was inconsistent, evasive and evolving. While the defendant made broad claims there was minimal evidence and law to support them.
Copyright
The plaintiff’s evidence established that it owned the copyright in the works that the defendant had copied and posted on the defendant’s website. The plaintiff presented screen captures which showed use of its promotional material which included its registered trademarks. In addition, the “before and after” images were identical. As the plaintiff had not consented to such use, this established that the defendant had infringed the plaintiff’s copyright.
The Trademarks
The plaintiff owned several registered trademarks. Once again, screen captures of the defendant’s website showed it had actively used these marks in its advertising, promotion and sale of the spa services and treatments. In substance the defendant was promoting and offering it products and services as those of the plaintiff.
Based on this evidence the plaintiff established the defendant was infringing its rights under section 19 and 20 of the Trademarks Act, passing off its goods and services under section 7 and depreciating the value of the goodwill attached to the plaintiff’s trademarks contrary to section 22.
Whether the machine the defendant was using was counterfeit was not directly relevant, but the defendant destroyed it before advising the plaintiff of its serial number or providing a picture of it and without allowing it to be inspected. For this and other reasons no weight was given to the defendant’s evidence.
The Remedies The plaintiff sought statutory damages for copyright infringement. The Judge considered the need to deter copyright infringement; the defendant’s reckless or willfully blind behaviour and lack of due diligence in purchasing its machine via Alibaba, despite being aware of the plaintiff’s products in Canada and their price; and, also acknowledging that the defendant appears to have promptly complied with the plaintiff’s demand to cease using the products and removed promotional material from its website. A $1,000 per infringement for $5,000 for statutory damages for breach of copyright was granted.
There was little evidence in the record relating to the claim for damages under the Trademarks Act and the claim was limited to nominal damages. The Judge noted there was a need to deter the conduct of those who take risks with counterfeit products that damage the reputation of the trademark owner and may cause even greater damage to the customer who is provided with counterfeit products. $20,000 was an appropriate award of nominal damages.
A claim was also made for punitive damages. Such damages are reserved for situations of “malicious, oppressive, and high-handed” conduct that “offends the court’s sense of decency”. Punitive damages are only to be awarded if compensatory damages are insufficient. Given the defendant’s actions punitive damages of $20,000 were granted.
The plaintiff submitted that the principal shareholder and director of the defendant should be held jointly and severally liable because she made all the decisions, including to purchase counterfeit products, or products that a reasonable person would have realized were counterfeit due to the extremely low cost. We dealt with this issue in a recent article When are Directors and Officers Liable for Infringment? In substance the corporate veil can only be pierced if there are circumstances from which it is reasonable to conclude that the purpose of the director was not the direction of the manufacturing and selling activity of the company in the ordinary course of her relationship to it but the deliberate, wilful and knowing pursuit of a course of conduct that was likely to constitute infringement or reflected an indifference to the risk of it.
The decisions made by the director and no one else resulted in the defendant’s use of counterfeit products and breach of copyright. She was indifferent to the risks arising from her conduct and she should be responsible for the consequences. In these circumstances, Ms. Patel was found to be jointly and severally liable for the damages awarded to the plaintiff.
Comment The decision shows that the Federal Court is serious about summary trial and what can be accomplished.
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These comments are of a general nature and not intended to provide legal advice as individual situations will differ and should be discussed with a lawyer.
A version of this article originally appeared in the Law360 Canada published by LexisNexis Canada Inc.