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No liability for infringing comparative advertising

Author(s): May Cheng

Jan 26, 2022

The Quebec Court of Appeal decision in Constellation Brands US Operations Inc. v. Société de vin internationale ltée 2021 QCCA 1664, which was issued on Nov. 5, 2021, has received a lot of attention for its discussion of when comparative advertising constitutes infringement and whether comparative advertising can depreciate goodwill (including an article in The Lawyer’s Daily by John McKeown). However, the case is noteworthy for its consideration of the court’s discretion to refuse to grant an accounting of profits after having found infringement, and more discussion is merited on this aspect of the decision.

The defendant, Société de vin internationale ltée (SVI), in this case had distributed 2,500 promotional leaflets comparing its new collection of APOLLO wines to the MEIOMI branded wines of the plaintiff, Constellation Brands US Operations Inc. (Constellation), using images of the plaintiff’s products and its trademarks and asserting that the new wines were comparable. Constellation sought the right to recover profits made by SVI from the new APOLLO collection of wines sold using the comparative advertising, by way of an accounting of profits for infringement, seeking in excess of $800,000 in profits, as well as punitive damages of $50,000.

The plaintiff’s claims for copyright infringement and depreciation of goodwill associated with its trademarks were dismissed at trial in the Quebec Superior Court, and the Quebec Court of Appeal also rejected the claims, dismissing the appeal with costs, but arriving at the same conclusions in a slightly different way.

Refusal to grant accounting of profits

Notably, the Appeal Court upheld the trial judge’s refusal to grant an accounting of profits despite the defendant’s admission that it had violated the plaintiff’s copyright in the images used on leaflets. The trial judge implicitly accepted that the distribution of the leaflets had resulted in an infringement of the plaintiff’s trademark and copyrights, based on other statements in the judgment, but did not accept that there was any causal connection established in evidence between the leaflets and the defendant’s profits. The trial judge also did not award punitive damages, indicating that the plaintiff did not demonstrate the existence of exceptional circumstances justifying such an award. 

The Quebec Court of Appeal emphasized that s. 35 of the Copyright Act explicitly requires that the plaintiff demonstrate that the profits are “derived from the infringement.” The appellate court further noted that the Supreme Court of Canada has consistently required that in order to obtain an equitable remedy, such as an accounting of profits, one or both of two equitable purposes must be present: a restitutionary purpose and a deterrent purpose aimed at the wrongdoer and others, citing the decisions in Strother v. 3464920 Canada Inc. 2007 SCC 24 at paras. 74-77 and Varco Canada Ltd. v. Pason Systems 2013 FC 750 at para. 398.

The appellate court spent a significant portion of its reasons expanding on the rationale behind an award of disgorgement of profits, and that such profits are only to be awarded where it can be shown that the profits are the result of the wrongful use of the intellectual property of the plaintiff. In essence, the accounting of profits remedy is not only equitable and discretionary in nature, it is designed to prevent unjust enrichment. It follows that the burden on the plaintiff must include demonstrating that profits are attributable to the infringement, under principles of causation.

Consideration of decisions from Federal Court and Supreme Court of Canada

The Quebec Court of Appeal considered a large body of decisions from the Federal Court and Supreme Court of Canada that have consistently emphasized the need for a causal link to the infringement to be captured by an accounting of profits, and the refusal of courts to grant an accounting of profits where no direct link can be shown between the infringements and the profits of the infringer: Monsanto Canada Inc. v. Schmesier 2004 SCC 34 at paras. 101-105; Cinar Corporation v. Robinson 2013 SCC 73; Philip Morris Products SA v. Marlboro Canada Ltd. 2015 FC 364 para. 42 (appeal dismissed Philip Morris Products S.A. v. Marlboro Canada Ltd. [2016] F.C.J. No. 175); Leuthold v. CBC 2012 FC 748 para. 748 (appeal dismissed Leuthold v. Canadian Broadcasting Corporation [2015] 3 F.C.R. 760, leave to appeal to Supreme Court of Canada dismissed 2015-04-30).

The Quebec Court of Appeal highlighted that in this case the leaflets were separate from the wines themselves and that no part of SVI’s APOLLO wines actually infringed the plaintiff’s intellectual property rights. Thus, while the defendant’s leaflets infringed, there was no causal link established by Constellation to the profits from the sales of the wines by SVI. Adding to the difficulty of making a causal link, the leaflets at issue were largely distributed at Costco where the particular wine sold by the defendant at Costco was not featured on the leaflets. The overall marketing strategy of SVI for the APOLLO wines also apparently included a celebrity chef, Giovanni Apollo, and television and Internet advertisements that ran over a period of several months. These additional marketing strategies would render it nearly impossible to discern what portion of the sale of APOLLO wines might have been generated as a result of the leaflets as opposed to other marketing efforts. The court spent considerable time examining the concept of apportioning profits from infringing versus non-infringing activities, which would undoubtedly give rise to a very complex exercise, and would also be considered a factual determination subject to judicial discretion, referring to authorities on this point: Wellcome Foundation Ltd. v. Apotex Inc. [2001] 2 FC 618 and Lubrizol Corp. v. Imperial Oil Ltd. [1997] 2 FC 3.

Appeal court findings

In the result, the Appeal Court upheld the finding that the infringing leaflets played a negligible role in the marketing of the wines at issue and consequently there was not a sufficient causal link found between the leaflets and the sale of the wines. The court also found no overriding error of law in the decision to not award punitive damages, which are also discretionary. The trial judge indicated that wilful and knowing infringement did not suffice to attract punitive damages. Not even solicitor and client costs were awarded, and this was also upheld on appeal. The court concluded that there was no bad faith or other conduct that would warrant solicitor-client costs.

This case follows a number of strong Quebec Court of Appeal decisions in the past few years in the intellectual property field that delineate principles applicable to infringement cases in a very helpful manner, particularly on the question of punitive damages and other equitable remedies. In this instance, the appellate court’s reasons should give pause to any plaintiff looking to commence proceedings based on comparative advertising copy that merely references their trademarks or copyright-protected photographs of their goods in a reasonable manner. Unless there is a clear link that can be asserted between the profits from the defendant’s sales and the infringing conduct, there is unlikely to be a discretionary award of profits or punitive damages.

This article was originally published by The Lawyer’s Daily (https://www.thelawyersdaily.ca/), part of LexisNexis Canada Inc.