As fashion industry observers may be aware, Chanel is highly protective of its intellectual property. In a decision released last week, Chanel S. de R.L. v Lam Chan Kee Company Ltd., 2016 FC 987 the Federal Court reaffirmed an earlier decision awarding Chanel substantial damages and costs for trademark infringement.

In a prior action, Chanel sued the Lam Chan Kee Company Ltd., 2133694 Ontario Inc. and two individual defendants, Annie Pui Kwan Lam, and Siu-Hung Lam, alleging that they had sold counterfeit Chanel items and thereby infringed Chanel's intellectual property rights. Chanel was awarded default judgment against the two corporate defendants and was successful on a motion for summary trial against Ms. Lam on the basis of four separate instances of infringement, with the court granting declaratory relief, injunctive relief, and awarding $370,000 in damages and costs. Ms. Lam then appealed the decision to the Federal Court of Appeal, who directed that a new summary trial be heard by the Federal Court.

The limited question for consideration by the Federal Court was whether Ms. Lam was liable for the fourth instance of infringement and accordingly, whether the quantum of damages and costs awarded was appropriate. Ms. Lam took the position that she was not liable for the fourth instance on the basis that she was not associated with the Lam Chan Kee Company at the time of the fourth instance, and that damages awarded in the case were unreasonable, disproportionate, and out of line with precedent in other Canadian trade-mark and copyright cases.

Unfortunately for Ms. Lam, the court held that both the original finding of liability and the quantum of damages and costs award should remain unchanged. Key to the decision of the court were the following findings:

  1. As a controlling mind of Lam Chan Kee Company, Ms. Lam derived financial benefit from its ongoing activities. As noted by the court, she "was aware that the advertising and the selling of counterfeit product was contrary to both the law and the previous order rendered against her... [she] failed to prove that she took sufficient steps to halt this unlawful practice."
  2. Ms. Lam had "personal knowledge of the infringing and illegal activities"
  3. Ms. Lam had been ordered in 2006 to restrain from infringing Chanel's trade-marks. However, she failed to take proper steps after being served with the Statement of Claim, which allowed the infringing activities to continue. She failed to provide any evidence that they had attempted to stop the sale of counterfeit products. The defendants also failed to demonstrate that the four instances of infringement were isolated instances, from which the court drew a negative inference in respect of the daily activities of the defendants.

Interestingly, the court made several statements which were in support of Chanel's right to vigorously protect their intellectual property, and which may well be of use to other designers, whether they are a large corporation or a small, independent outfit. The court explicitly noted that while the infringement in question may not have seemed serious to the defendants, Chanel had worked very hard to protect their brand's reputation and as such, erosion of that reputation was a serious matter. The court also noted that despite the fact that Chanel's financial capacity was not in issue, they nevertheless remained vulnerable. Instead, Chanel's vulnerability was due to "their incapacity to control the daily sale of counterfeit merchandise which diminished the value of the goodwill associated with the Chanel trade-marks."

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