Crunching Numbers on Ontario's Fashion Industry

On today, which is Canada Day, let's reflect on the Canadian fashion industry.  Or, more importantly, what does it mean to Canada's purse strings? 

The Ontario government released a report that looks at the economic contributions of the fashion industry to Ontario's economy.  Here's a quick look:

- Toronto's fashion industry employs more than 50,000. 

- Fashion designers generally live where they work: a survey indicates that 73% live in Toronto.

- Toronto is home to 550 apparel manufacturers that bring in $1.4 billion annually.

- Shopping opportunties abound in Toronto.  There are 4,600 retail stores in Toronto, which generate $2.6 billion in revenue.

- Toronto's LG Fashion Week draws crowds.  Almost 35,000 people attended the fashion week that debuted Fall 2011 fashion lines.  Given that the LG Fashion Week occurs twice annually, that's a lot of tourism.

- A survey indicates that Canada's fashion industry will need to hire 7,000 more people over the next 2 years.

Makes you proud to be a Canadian, eh? 

Sting Like a Bee: Federal Court Awards $2.5 million for Trade-mark and Copyright Infringement

On June 27, 2011, Canada’s Federal Court issued the largest anti-counterfeiting damages award for trade-mark and copyright infringement $2.5 million, in Louis Vuitton Malletier S.A. et al. v. Singga Enterprises (Canada) Inc.

The Players 

Louis Vuitton Malletier S.A. and Burberry Limited, the intellectual property owners and only authorized manufacturers and distributors of Louis Vuitton and Burberry products, respectively, along with their exclusive Canadian distributors, Louis Vuitton Canada, Inc. and Burberry Canada Inc., combined forces to launch a suit for trade-mark and copyright infringement.

The defendants are a mélange of corporations and individuals whose illegal activities were interwoven throughout Canada.  Singga Enterprises (Canada) Ltd., along with the officer and director and principal, operated a warehousing, importation distribution and online business that imported, sold and distributed counterfeit goods from Burnaby, B.C. 

Altec Productions, along with its directing minds, operates out of Markham, Ontario.  Singga referred customers interested in bulk purchase to Altec for a commission. 

Carnation Fashion Company, along with its owner, also operates out of Burnaby, B.C.  Although no direct connection was found between Carnation and the remaining defendants, Carnation operated a warehouse that was located directly behind Singga.

The Sting

Louis Vuitton and Burberry became aware that from at least as early as January 2008 that Singga manufactured, imported, advertised and sold counterfeit products throughout Canada on a large scale.  The plaintiffs hired a private investigator who posed as as interested bulk buyer.  Compiled evidence indicated that the defendants imported the counterfeit products from China and warehoused them throughout Canada (Vancouver, Edmonton, Toronto and Halifax).  The defendants preferred to deal in bulk orders and also made the products available for sale online.  On several occasions the defendants acknowledged that the products were counterfeit.  The defendants even offered up services to custom-make counterfeit goods, as long as a photograph of the original product was provided. 

The Decision

Without a doubt, the evidence demonstrated that the defendants knowingly infringed the plaintiffs’ intellectual property rights.  The defendants’ sale of substantially inferior quality products caused irreparable harm and damage to the plaintiffs’ goodwill and reputation. 

The plaintiffs were awarded injunctive relief, delivery up, damages for both trade-mark and copyright infringement, statutory damages, punitive and exemplary damages and costs on a solicitor and client basis via a summary trial. 

The court found that the individual defendants were culpable and could not use their respective corporations as a shield from liability.  There were individually fined, in addition to their companies. 

All in all, cumulatively the defendants were ordered to pay $2.5 million to the plaintiffs. 

How Did it Reach $2.5 Million?

Allocating damages awards in anti-counterfeiting cases is challenging because of the unknowns: 

How can you quantify the depreciation of goodwill? 

Do the diverted profits to the counterfeiters actually reflect lost profits for the brand owner? 

Is it likely that the plaintiffs and the defendants would have the same consumers? 

Is it possible to obtain evidentiary documentation that supports all of the anti-counterfeiting activities, sales and profits? 

Bottom line: accurate quantification of damages in anti-counterfeiting cases is difficult. 

In 1997 the Federal Court devised a scale of quantification that could be applied in determining damages awards in anti-counterfeiting cases to overcome the quantification hurdles: $3,000 for flea markets, $6,000 for retail stores and $24,000 for manufacturers/distributors for each single count of infringement.  Recently the court has adjusted these amounts to account for inflation. 

In this instance, the court recognized that the infringement was on a large scale, was well-orchestrated, continued over a long period of time and involved the importation of counterfeit goods from China.  The court determined that the damages needed to be considered at a high level.  Moreover, damages should be awarded to each plaintiff individually. 

The court held that damages should be assessed at the importer/distributor level and, accounting for inflation in 2009, an award of $30,384.11 should be granted per each trade-mark infringing activity to each of the four plaintiffs. 

The court determined that the defendants’ conduct demonstrated that they were dismissive of the rule of law and clearly could benefit from deterrence, which is the goal of awarding statutory damages.  As such, the court also awarded statutory damages for copyright infringement at the highest end of the scale for each instance: $20,000.  

Deeming the defendants’ conduct egregious, outrageous, reprehensible, the court did not shy away from awarding punitive and exemplary damages.

Solicitor and client costs were also awarded.