The dispute between Microsoft Corporation and the defendants, PC Village Markham, PC Village Downtown - two software retailers in the Greater Toronto Area - and two of their employees, Syed Aziz and Johnson Ye, arose because the defendants were selling counterfeit Microsoft software, "software that was neither manufactured by Microsoft nor by any of its authorized replicators". 

The Federal court's decision in this case was in line with previous decisions made regarding counterfeit goods in cases such as Louis Vuitton Malletier S.A. v. 486353 B.C. Ltd., Louis Vuitton Malletier S.A. v. Yang, and Microsoft Corp. v. 9038-3746 Quebec Inc. This blog previously reported on the Louis Vuitton cases.

In this case, Microsoft Corporation was entitled to a default judgment. Although defendants' businesses have been dissolved, Microsoft was awarded statutory damages, punitive damages - amounting to $200,000 for copyright infringement -, $50,000 solicitor/client costs, and was given a permanent injunction against the defendants. Both retail stores and their named employees were liable for damages.

This case is noteworthy since it affirms Canada's stand regarding counterfeit products. It is interesting, for owners of intellectual property rights, to analyze the factors that led to the Court's decision and the damages awarded.

Default judgment:

On a motion for default judgment, where no Statement of Defence has been filed, Plaintiff should establish the following two criteria:

1.     Plaintiff should show that the Defendants were served with a Statement of Claim and that they have not filed a defence within the deadline specified in Rule 204 of the Federal Courts Rules. 

2.     Plaintiff should put forward evidence that allows the court to find on a balance of probabilities that infringement has occurred within the meaning of the Copyright Act and the Trade-marks Act.

Criterion 1:

In this case, given the provided affidavits, the Court was satisfied that the defendants were served. Furthermore no Statement of defence was ever filed with the court within the deadline. Thus, the first criterion was met.

Criterion 2:

Copyright gives the owner of a literary work the exclusive right to produce or reproduce the work. Section 27 of the Copyright Act defines infringement as doing anything reserved to the owner.  It is also an infringement for a person to offer for sale, sell or distribute copies of a work that the person knows infringes copyright.  A registered trade-mark in Canada gives the owner the sole right to use the mark throughout Canada for specified wares and services.

According to Microsoft's private investigator, there were 15 occasions where the defendants sold unauthorized copies of Microsoft software, containing Microsoft marks. This was sufficient to establish that on a balance of probabilities the defendants infringed on Microsoft copyrights and trade-marks.

Since both the criteria were satisfied and the timeline for filing a Statement of Defence had expired Microsoft was entitled to a default judgment pursuant to Rule 210 of the Federal Courts Rule.

Statutory and Punitive Damages:

Statutory Damages:

Section 38.1 of the Copyright Act, allows the copyright owner to seek statutory damages between the range of $500 and $20,000. Following factors assist the court in determining the amount.

(a) the good faith or bad faith of the defendant;

(b) the conduct of the parties before and during the proceedings; and

(c) the need to deter other infringements of the copyright in question.

In this case the defendants demonstrated bad faith. As stated by the private investigator, the defendants were well aware that their activities were illegal. They were previously put on a notice regarding the infringing nature of their activities. In addition, defendant corporations were dissolved voluntarily after Microsoft commenced its action. The Statement of Dissolution falsely stated that there were no proceedings in any court against the corporations. These factors led the court to decide that the defendant activities showed total disregard not only for Microsoft's copyright and trademark rights, but also for the Court and its processes.

Considering the factors present in this case, and in light of relevant case law (i.e. the cited Louis Vuitton and Microsoft cases), it was concluded that the damages awarded needed to be sufficiently high to deter defendants from future infringements. The amount set in this case was $10,000 for each infringement, which added up to $150,000 for the 15 infringements.      

Punitive Damages:

The fact that defendants' businesses had been dissolved did not stop the court from awarding punitive damages. According to sections 242 and 243 of the Business Corporation Act, the action against the defendant can be continued as if the corporation had not been dissolved. Thus, any property that would have been available to satisfy the judgment had the corporation not been dissolved remains available.

Due to the fact that the defendants demonstrated bad faith, Microsoft was awarded punitive damages amounting to $50,000 against all the defendants pursuant to section 38(1) of the Copyright Act.

Permanent Injunction:

Microsoft obtained a permanent injunction against all the defendants because the evidence advanced by Microsoft was suggestive of a continuing pattern of infringement.