Lululemon “high quality replicas” result in a tight bind

The Federal Court reviewed first principles applicable to remedies for trademark infringement for counterfeit goods in an uncontested summary trial.

The defendants sold “high quality replicas” of lululemon clothing on Facebook by taking orders and electronic payments from buyers, and then making bulk purchases from a supplier abroad. On March 5, 2021, lululemon commenced an action for trademark infringement, passing off, and depreciation of goodwill against the four defendants. Three of the four defendants settled and provided details implicating the sole remaining defendant.  By July 2021, Campbell, the sole remaining defendant, ceased discussions with lululemon and stopped participating in the court proceeding. Lululemon brought a motion for summary trial to resolve all issues against Campbell.

After deciding a summary trial was appropriate, the Court found overwhelming evidence that Campbell had infringed lululemon’s marks under sections 19 and 20 of the Trademarks Act,based on her associates’ affidavits and the intelligence gathered from lululemon’s investigations. The Court declined to consider passing off and depreciation of goodwill, under sections 7 and 22 of the Act, finding that lululemon had provided very little evidence or submissions on these issues.

Justice Grammond then turned to remedies under section 53.2 of the Act.

Declarations: Lululemon sought declarations as to the validity of its trademarks and the infringement by Campbell.The Court declined to provide a declaration on infringement apart from its findings in the Reasons, as “[l]ululemon ha[d] not shown what practical benefit would be derived from a formal declaration.” Moreover, the Court noted that “A declaration can only be granted if it will have practical utility,” citing the Supreme Court in Daniels v Canada.

The Court similarly declined to declare that lululemon’s trademarks were valid, as Campbell had not challenged their validity, and such a declaration would not “settle any controversy between the parties.”

Injunction: Justice Grammond applied the approach in NunatuKavut Community Council.  Given the defendant’s history of closing and setting up Facebook pages to evade cease and desist letters and continuing to sell merchandise after assuring lululemon that she had stopped doing so, the Court found an injunction necessary, given the “risk of future harm.”  Rather than enjoining Campbell from “further infringing the lululemon Trademarks,” as requested by lululemon, which may cover other situations giving rise to a legitimate debate, the Court enjoined her “from persisting in the conduct that [it] found in breach of lululemon’s rights.”

Compensatory Damages: The usual approach to damages in counterfeit cases derives from Ragdoll Productions, which provides for:

• $3,000, in the case of street vendors and flea market operators;
• $6,000, in the case of sales from fixed retail premises; and
• $24,000, in the case of manufacturers and distributors.

Justice Grammond emphasized that “lump sum damages must be approached with caution, as the plaintiff has the burden to prove damages, and the Court has a corresponding duty to reach the best estimate of harm suffered by the plaintiff. The Court awarded $1,000 per infringement because the evidence demonstrated Campbell’s bulk orders were often between $1,800-$2,200, and half comprised the infringing lululemon merchandise. He multiplied this amount by eight proven instances of infringement (each bulk order) for a total of $8,000.

Punitive Damages: The Court awarded $30,000 in punitive damages, rather than the $100,000 lululemon sought. The Court held that “knowingly importing, advertising and selling counterfeit goods is a serious disregard of the basic rules of our market economy” and “deserves punishment.” Justice Grammond also found “[t]he compensatory damages awarded to lululemon are insufficient to deter Ms. Campbell and others,” in part because “the Act entitles a trademark owner to exclusivity of use, not to a compulsory licence fee.”

Turning to the quantum of punitive damages, the Court found a high degree of blameworthiness on Campbell’s part. This blameworthiness was proportional, however, to the smaller scale of her operation in comparison to cases where $100,000+ in punitive damages were awarded. Justice Grammond therefore awarded $30,000 in this case.

Costs: Finally, the Court awarded costs according to the tariff, rather than the solicitor-and-client costs lululemon sought. Justice Grammond noted “[t]he mere fact that punitive damages are awarded does not entail that costs should automatically be awarded on a solicitor-client basis. In fact, punitive damages may be sufficient to denounce and deter reprehensible conduct.” He also noted that failure to respond to opposing counsel did not itself warrant higher damages.

A copy of the decision can be found here.