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False IP complainants get shrunken bank accounts

Keezio Group and The Shrunks’ Family Toy Company were market competitors who sold inflatable beds for children through Amazon.com. Keezio brought a civil claim alleging that The Shrunks made unfounded IP infringement complaints to Amazon, posted a negative “one star” review of Keezio’s product online, and made disparaging remarks about Keezio to its primary manufacturer, Ho Lee.

The matter proceeded by way of summary trial. Keezio chose to advance claims relating to certain communications:

  • A February 2019 call between the principal of The Shrunks and Ho Lee in which the principal made disparaging statements about Keezio, including that Keezio was copying The Shrunks’ products;
  • A November 22, 2019 email notice from Amazon stating that it had received a trademark infringement complaint regarding Keezio’s product webpages. As a result of this notice, Amazon delisted at least one Keezio product webpage which contained a chart comparing features of Keezio’s product to features of The Shrunks’ product. Keezio later modified the webpage by replacing all references to The Shrunks with “Rhymes with Skunks”; and
  • A November 28, 2019 email notice from Amazon stating that it had received a copyright infringement complaint regarding six Keezio product webpages, which were later delisted.

Keezio advanced its claims under section 7 of the Trademarks Act (TMA), which, in combination with section 52, creates a statutory cause of action for damages if a person is damaged by false or misleading statements tending to discredit the claimant’s business, wares, or services. In S&S Industries Inc. v. Rowell, [1966] R.C.S. 419 at 424, the Supreme Court of Canada articulated three essential elements of this cause of action:

  1. A false or misleading statement (proof of knowledge of the statement’s falsity or proof of malice on the part of the perpetrator are not required);
  2. Tending to discredit the business, wares, or services of a competitor; and
  3. Resulting damage.

The Court found that The Shrunks were responsible for the November 2019 trademark and copyright complaints. The complaints identified Tomislav Kacunic, an employee of The Shrunks, as the rights holder who reported the infringement.

False or Misleading Statements

Keezio’s claim based on the February 2019 phone call failed for want of evidence.

The November 2019 trademark infringement notice identified a Keezio webpage setting out comparative data for several product features between Keezio and The Shrunks’ products. The Court acknowledged that the trademark complaint concerned Keezio’s use of the name “The Shrunks” on the webpage, which is a registered trademark.

Justice Loo held that The Shrunks’ November 2019 trademark complaint was a false statement, citing Clairol International Corp. v. Thomas Supply & Equipment Co., [1968] 2. Ex.C.R. 552 at 567-568 and United Airlines, Inc. v. Cooperstock, 2017 FC 616 at paragraph 36 for the proposition that use of a competitor’s trademark for comparison purposes does not constitute trademark infringement under the TMA.

Justice Loo likewise held that The Shrunks’ November 2019 copyright complaint was a false statement. The copyright infringement notice identified six Keezio sales webpages. Applying section 64(2) of the Copyright Act, Justice Loo held it was not unlawful for Keezio to copy The Shrunks’ product design because the product had been reproduced in a quantity of more than 50 and The Shrunks had no trade dress rights in the design.

Tending to Discredit the Business, Wares, or Services of a Competitor

The November 2019 complaints tended to discredit Keezio’s business, wares, or services because they misled Amazon into delisting Keezio’s sales webpages.

Damages

Keezio did not put forward any expert evidence regarding the assessment or calculation of damages, instead claiming a total of $93,718 USD in lost profits from the November 2019 complaints.

Justice Loo held that Keezio’s evidence in support of its damages claim was inadequate and assessed damages by comparing Keezio’s 2018 sales figures to its 2019 figures, multiplying its decreased sales by a profit margin of $50 per unit for the days its sales webpages were delisted from Amazon. Justice Loo also compared Keezio’s sales on Black Friday and Cyber Monday in 2018 to Black Friday and Cyber Monday in 2019 as, for those two days out of the year, most vendors see heightened business and offer promoted sales at discounted prices.

Justice Loo concluded that The Shrunks was liable to Keezio under s. 7 of the TMA for the November 2019 complaints and awarded damages of $24,450 USD, reflecting the difference between 1,129 units sold during the relevant period in 2018 and 640 units sold during the relevant period in 2019.

Keezio’s claims for a permanent injunction, punitive damages, and its claim against the principal of The Shrunks personally were dismissed.

A copy of the decision is available here.