John Stagliano Inc. v. Elmaleh, 2006 FC 585

Date: 20060510

Docket: T-1779-05

Citation: 2006 FC 585

Ottawa, Ontario, May 10, 2006

PRESENT:      The Honourable Madam Justice Gauthier

BETWEEN:

JOHN STAGLIANO, INC., JULES JORDAN VIDEO, INC.
and ASHLEY GASPER

Plaintiffs

and

ALAIN ELMALEH, JACKY ELKESLASSY,

GERALD OUZZAN, 144942 CANADA INC.

(cob KAYTEL VIDEO DISTRIBUTION),
LEISURE TIME CANADA INC.,

TRANSWORLD SALES AGENCY LTD.,
JACKY'S ONE STOP DISTRIBUTION INC.,

SYLNET DISTRIBUTION INC.,
JOHN DOE, JANE DOE and OTHER PERSONS,

NAMES UNKNOWN, WHO DEAL IN UNAUTHORIZED

OR COUNTERFEIT EA MERCHANDISE

Defendants

and

ALAIN ELMALEH and 144942 CANADA INC.

(cob KAYTEL VIDEO DISTRIBUTION)

Plaintiffs by Counterclaim

and

JOHN STAGLIANO, INC., JULES JORDAN VIDEO, INC.,
ASHLEY GASPER, SABIN BRUNET and JACKY ELKESLASSY

Defendants by Counterclaim

REASONS FOR ORDER AND ORDER

1.         Overview

[1]                This is a motion brought by the plaintiffs in respect of an Anton Piller order that this Court granted in their favour on October 17, 2005, and which was executed on October 18, 2005 and October 20, 2005 (Anton Piller Order).

[2]                The plaintiffs now ask the Court to review the matter and to confirm that the Anton Piller Order was properly granted and that it was executed in accordance with its terms against the defendants Alain Elmaleh (Elmaleh), 144942 Canada Inc. (cob Kaytel Video Distribution) (Kaytel) and Leisure Time Canada Inc. (Leisure Time). They also seek permission to use the evidence produced by or obtained from those defendants in these proceedings as evidence in two pending actions in the United States District Court for the Central District of California, provided such use is permitted by the law of that forum.[1]

[3]                In response, Kaytel and Elmaleh, who have filed a defence and a counterclaim against the plaintiffs, seek an order vacating the Anton Piller Order as well as the return of all documents and materials seized. They also ask for damages (most of which are costs incurred in contesting the Anton Piller Order) and solicitor and client costs.

2.         Factual Background

[4]                In view of the procedural history of this proceeding and the volume of material placed before the Court, a detailed review of the factual background is required.

            A.        The Plaintiffs

[5]                The plaintiffs are in the adult film business.

[6]                John Stagliano, Inc. is a corporation incorporated under the laws of California. John Stagliano, Inc. carries on business as EA Productions in association with the trade mark EVIL ANGEL, which is registered in the United States but not in Canada.

[7]                Jules Jordan Video, Inc. (Jules Jordan) is also a California corporation. Ashley Gasper (Gasper) is an individual who resides in Los Angeles, California. In addition to being the President and Chief Executive Officer of Jules Jordan, Gasper produces, directs and performs in Jules Jordan productions.

[8]                John Stagliano, Inc. markets adult films bearing the EVIL ANGEL name, including Jules Jordan productions, in Canada, the United States and internationally. Although EVIL ANGEL is not registered as a trade mark in Canada, the plaintiffs state that they have developed extensive goodwill and reputation in Canada in association with the EVIL ANGEL name.

B.          The plaintiffs' ex parte motion for the Anton Piller Order

[9]                On October 12, 2005, the plaintiffs filed their notice of motion in this Court seeking, on an ex parte basis, an "order in the nature of an Anton Piller Order ... authorizing the search and seizure of the Defendants' premises to secure evidence of the nature and extent of the Defendants' copyright infringement" as well as an order that the evidence obtained may be used in the U.S. proceedings referred to above.

[10]            The evidence placed before the Court at that time consisted of three affidavits. I will briefly describe some of the most pertinent facts they refer to.

(i)          The Brunet affidavit

[11]            The principal affidavit relied on by the plaintiffs was that of Sabin Brunet (Brunet). Brunet states that he was the president and majority shareholder of Diadem Digital Inc. (Diadem) and the vice-president and one-third shareholder of Distribution L.H. Inc. (L.H.).

[12]            Diadem and L.H., prior to Diadem's bankruptcy in June of 2005, were in the business of "commercial replication of motion pictures on DVDs".

[13]            Exhibit A to Brunet's affidavit was a Solemn Affirmation (Affirmation) dated August 17, 2005. The Affirmation is expressed to have been made "freely in accordance with the provisions of the Letter Agreement in Principle signed on June 6, 2005." By the terms of the Letter Agreement in Principle, appended to the Affirmation as an exhibit, Diadem and Brunet agreed to "[c]ooperate fully ... for the purpose of assisting [the plaintiffs] in determining the party [that] requested, ordered and purchased the infringing Titles" and to "act as a witness if necessary in any action initiated in Canada or United States based on the unauthorized replication of titles by Diadem."

[14]            In his Affirmation, Brunet recounts how, "approximately three (3) years ago", Diadem and L.H. "began taking orders" from the defendant Sylnet Distribution Inc. (Sylnet), of which Brunet believed the defendant Gerald Ouzzan (Ouzzan) "to be the owner, principal or manager", on behalf of Kaytel. Brunet states:

22.        Sylnet placed replication orders for, what I have now been informed were Evil Angel DVDs, including Jules Jordan DVDs, with Diadem and L.H. from about 2002[2] through approximately November 2003[3] on behalf of its customer, [Kaytel][4]. Thereafter, from approximately November 2003[5] to the present, Kaytel directly placed orders with us for the replication of, for what I now know are, Evil Angel DVDs, including Jules Jordan DVDs.

[15]            Brunet then lists 12 EVIL ANGEL and Jules Jordan titles that Sylnet allegedly ordered to be replicated (1250 each). In the corresponding exhibits, one finds invoices from October 2003 to Sylnet, as well as packing slips said to indicate that "LH was instructed to ship DVDs to Kaytel Video".

[16]            Brunet also lists a total of 47 Jules Jordan and EVIL ANGEL "DVDs"[6] allegedly replicated "without their authorization" by Diadem and L.H. "from approximately October 2003 until May 2005".

[17]            According to Brunet, the DVDs replicated by Diadem and/or L.H. were made using "stampers" purchased from Media Mastering Services, LLC (MMS), simply identified by Brunet as "a California Limited Liability Company". He further explains that:

18.        Based on my personal knowledge of the business operations of Diadem and L.H., I noticed that the alphanumeric code that was assigned by Philips Electronics to MMS is IFPI LV11. Thus, any Stamper made by MMS, and each DVD produced or replicated using the MMS Stamper, would contain on its face, embedded into the DVD, the alphanumeric code IFPI LV11. There are other codes that are embedded into DVDs manufactured by Diadem and L.H. These embedded codes are: "CID-002" and a ten digit, or so, number which starts "D050 xxxxxxx." and which are assigned to Diadem and L.H. by the mastering facility, in this case MMS. DVDs on the market that have these codes are in all likelihood DVDs manufactured by Diadem or L.H., or at the very least with Stampers ordered by Diadem or L.H.

[18]            Brunet also indicates that DVDs replicated by Diadem and/or L.H. based on orders from Sylnet, and allegedly shipped to Kaytel, were assigned a code beginning with "KT" followed by a four-digit number.[7]

[19]            With respect to DVD replication by Diadem and/or L.H. based on orders from Sylnet, and allegedly shipped to Kaytel, Brunet describes the procedure as follows:

30.      When we dealt with Sylnet, the practice was that Sylnet would send to us the DVD Masters, and sometimes the Stampers. ...

31.      However, the more frequent practice was for Sylnet to not provide Diadem or L.H. with Stampers, but Sylnet would provide the Masters, including Masters of Jules Jordan DVDs. I would then send the Masters my company had received from Sylnet of Jules Jordan DVDs to MMS. My recollection is that this was the procedure that was followed from October 2003 until May 2004.[8] (My emphasis.)

[20]            Brunet goes on to say that Diadem and/or L.H. began dealing directly with Kaytel "some time in the Spring of 2004"; that "[t]he contact person for Kaytel has always been Mr. Alain Elmaleh"; and that "[i]n May, 2004 Kaytel signed an indemnity and hold harmless Agreement and became my direct client for the replication of Jules Jordan Videos and Evil Angel products as appears from a copy of same which I attach as Exhibit G to my Affidavit."

[21]            Exhibit G is a copy of a general "Reproduction authorization, representations and warranties". It states, among other things:

The Client authorizes the Manufacturer ... to reproduce the audio or audiovisual program described in each order Form of the Client transmitted to the Manufacturer (hereinafter: the "Program") ...

The Client represents and warrants that it holds all the rights and authorizations from any person owning rights relative to the Program including owners of intellectual property rights giving it the right to grant the present reproduction authorization. ...[9]

[22]            Brunet also refers to the defendant Transworld Sales Agency Ltd. (Transworld). He describes Transworld as "an import-export company domiciled in Gibraltar" and states:

38.        ... I know from my dealings with Transworld, that Mr. Alain Elmaleh of Kaytel appears to have been authorized to be my contact with Transworld. I have reviewed the business records of Diadem kept in the regular course of business and based upon such review determined that Transworld, through Mr. Elmaleh, ordered the following titles to be duplicated by Diadem: ...[10] (My emphasis.)

Brunet then lists eight EVIL ANGEL titles, and states that while "[t]he DVDs replicated by Diadem for Transworld[11] were label[led] to be shipped to locations outside of North America ... I know that we actually shipped the Transworld products to Kaytel's premises".

[23]            Brunet states that "[a]nother company, that has ordered from Diadem the replication of Evil Angel DVDs is Software Entertainment Ltd."[12]

[24]            Brunet's evidence concludes with the following:

43.        I can safely estimate that Diadem and L.H. have replicated at least twenty-five (25) titles of Evil Angel and Jules Jordan without their authorization as a result of orders from and on behalf of Alain Elmaleh, Kaytel, Sylnet and Transworld, Timeline [another Canadian DVD replicator] and Software Entertainment.[13]

(ii)                  The Norman affidavit

[25]            The second affidavit was that of Chris Norman (Norman), vice-president of operations for John Stagliano, Inc.

[26]            Norman stated:

31.        Further investigation of records obtained by our attorneys in the US and Canada, from [Diadem], and as subsequently authenticated in the Affidavit of Sabin Brunet ... confirms that [Diadem], and its sister entity [L.H.] ... had replicated/manufactured the counterfeit DVDs based upon orders from the defendants Elmaleh, Kaytel, [Transworld], [Sylnet] and/or [Ouzzan].

32.        Records provided by Diadem appear to establish that Diadem, acting as an agent for the defendants, manufactured approximately sixty-four thousand (64,000) counterfeit DVD copies of not less than forty-seven (47) different EA copyrighted titles.[14] (My emphasis.)

[27]            Regarding the quality of the alleged counterfeit copies, Norman stated:

21.        In January of 2005, EA began receiving shipments of (ostensible) EA DVDs which were being returned by end-users who claimed they were defective.[15] The DVDs appeared, at first glance, to be authentic EA DVDs. Each had what appears to be the original artwork, including the EVIL ANGEL trade-mark; however, a closer inspection reveals that they are, in fact, counterfeit.

22.        The printed box inserts are high quality colour reproductions of the authentic box inserts; however, EA affixes gold foil stickers on the original EA inserts. The counterfeit copies do not have gold foil stickers[,] but rather have the stickers printed as part of the insert. (The stickers appear as a dull grey instead of gold.)[16] Additionally, the authentic DVDs manufactured by EA are produced in DVD-9 format. The counterfeit DVDs are all DVD-5 format[17] which holds significantly less material.

23.        Because of the inferior nature of DVD-5, the counterfeit DVDs are missing various content that appears in the authentic units[18]. Further, the advanced and highly specialized interactive menus employed by EA in the production of our DVDs are non-functional on the counterfeit product. ...[19]

[28]            With respect to damages, Norman further adds:

24.       EA is one of the few production and distribution companies in the adult entertainment business that does not discount its productions. ...

He also states that it is crucial to remove the copies from the market and that, "[d]ue to the highly portable nature of DVDs", "it is all but certain" that once the defendants are aware of the proceedings, the DVDs will be "removed from their premises and either destroyed, or, worse yet, dumped on the market to unsuspecting consumers."[20]

(iii)       The Gasper affidavit

[29]            The third affidavit was that of Gasper.

[30]            Gasper also describes the quality of the allegedly counterfeit copies. He says:

20.        In or about March 2005, I discovered that counterfeit copies of my adult movie "Ass Worship I" and "Ass Worship II" were showing up on online retail distribution websites and being returned to my exclusive worldwide distributor, EA. The counterfeit copies appeared to be legitimate but for the packaging lacking the pull strip bottom on the bottom, the artwork raised on the DVD... Further, the counterfeit copies did not have the functioning menus and the additional materials, but otherwise looked identical to the untrained eye...

...

            23.        Authentic Jules Jordan DVDs are manufactured in DVD-9 format, and feature extensive additional materials and interactive menus. I have discovered that the counterfeit copies[21] are recorded in the inferior DVD-5 format[22] which does not have the storage capacity to include the additional materials (out-takes, photo shoots, and behind the scenes) and which is incapable of supporting the intricate menu system of my legitimate product. (My emphasis.)

[31]            Gasper goes on to state:

27.        Records provided by Diadem ... and authenticated in the Brunet affidavit establish that Diadem, acting as an agent of the defendants, manufactured not less than twelve hundred fifty counterfeit DVD copies (each) of not less than fifteen Jules Jordan copyrighted works from approximately 2002and November 2003, by the defendants Ouzzan and Sylnet, acting as agents for the defendants Elmaleh, Kaytel and Leisure Time.

[32]            With respect to the impact those copies have had or will have on the plaintiffs' business, he adds:

34.      Jules Jordan has suffered an economic decline in the last year that had been difficult to explain prior to the discovery of this operation. It is apparent that the defendants' counterfeit operation is directly competing with Jules Jordan through the sale of stolen content which I nor any legitimate competitor could ever match....

35.      The continuing sale of these inferior counterfeit copies could damage Jules Jordan's market share in the adult entertainment arena. If not enjoined will continue to harm Jules Jordan business.

36.      ... It is unlikely that a damage award would be adequate to repair the goodwill lost between Jules Jordan and its customers due to the counterfeit copies being available in the marketplace.

(iv)        The plaintiffs' allegations

[33]            The plaintiffs alleged that Elmaleh "personally devised, and carried out" the "scheme to manufacture counterfeit DVDs, to hide the actual source of the counterfeit DVDs and to launder the funds[23] derived from the sale of the counterfeit DVDs." In addition, the plaintiffs alleged that payments for the counterfeit DVDs were forwarded to "off-shore accounts controlled by Elmaleh."[24]

[34]            In their written submissions, the plaintiffs stated that Elmaleh is at the centre of "an unlawful conspiracy". To support this view they stated in their notice of motion:

Records provided by Diadem include a "Reproduction authorization, representations and warranties" document, dated May 5, 2004, executed personally by the Defendant Elmaleh, in which he fraudulently represents that Kaytel holds the necessary intellectual property rights to authorize the reproduction of the EA Productions." [25] (My emphasis.)

[35]            The plaintiffs also alleged that Kaytel, Leisure Time and Transworld[26] were "shell corporations which Elmaleh and one or more of the Doe Defendants used as conduits for their personal business, property and affairs."

[36]            It was on the basis of the above that the Anton Piller Order was issued.

[37]            The evidence referred to in the various notes included in this summary was not before the Judge who heard the ex parte motion. These notes indicate that many important assertions have now been challenged by Kaytel and Elmaleh.

[38]            There is little or no evidence as to the specific role of Leisure Time, if any, in the alleged conspiracy. Although the name of that defendant seems to be added as a matter of course to many of the allegations found in various affidavits, none of the supporting documentation or detailed factual assertions establish that Leisure Time was involved in any duplication or sale of any of the titles in which the plaintiffs hold intellectual property rights. Elmaleh is not the majority shareholder of Leisure Time. Although Elmaleh acknowledged that he is involved in Leisure Time, he stated that it was created for legitimate business and tax purposes.

C.        The execution of the Anton Piller Order

[39]            The Anton Piller Order was executed on October 18, 2005 against the defendants Sylnet, Ouzzan, Jacky's One Stop Distribution Inc. (Jacky's), Jacky Elkeslassy (Elkeslassy), Kaytel and Elmaleh.

[40]            A further execution of the Anton Piller Order against Sylnet took place on October 20, 2005.

[41]            No proper address for service was ever identified for Transworld. As such, Transworld was not served with the Anton Piller Order and related documentation, including the complaints and temporary restraining orders issued in the two American proceedings.

[42]            In addition, no affidavit was filed indicating that the Anton Piller Order was executed against Leisure Time.

(i)         Sylnet

[43]            When the plaintiffs attended at Sylnet's registered head office on October 18, 2005, they discovered that it was also Ouzzan's residence. Patrick J. Cotter, who attended on behalf of the plaintiffs' Canadian counsel, along with independent counsel, stated in his affidavit:

7.          As set out in greater detail below, Mr. Ouzzan initially denied knowing anything about the proceedings, about the parties to the proceedings, and about counterfeit DVD's or the Infringing Works. He later provided information that confirmed that at least some of these representations were false. He also initially stated that neither he nor Sylnet carried on business anywhere other than the Premises. He later provided information that confirmed that this representation was also false.

...

22.        I have since had an opportunity to review the issue of any "negotiations" with U.S. counsel for the plaintiffs, Mr. Sean Macias and Mr. Allan Gelbard, and have been advised by them and do verily believe that an approach was made to Mr. Ouzzan in the summer of 2005, with a view to having him and Sylnet cooperate with the plaintiffs in the prosecution of the U.S. actions only ... Thereafter, negotiations ensued between Mr. Ouzzan's counsel and the plaintiffs' [former Canadian counsel]. I am also advised by Mr. Macias and Mr. Gelbard and do verily believe that while he initially indicated that he would be prepared to co-operate, Mr. Ouzzan subsequently delayed and then refused to provide any assistance in the prosecution of the U.S. actions on terms acceptable to the U.S. plaintiffs. I am advised by Mr. Macias and Mr. Gelbard and do verily believe that they formed the opinion that Mr. Ouzzan was simply stalling the plaintiffs in their efforts. ... (My emphasis.)

[44]            Later on October 18, 2005, and only after evidence of this fact was discovered, Ouzzan acknowledged that he carried on Sylnet business at a location other than his residence. Ouzzan also, then with his former counsel present, stated that he had dealt with Kaytel but that he "only played a small part".

[45]            Ouzzan indicated that because of his observance of the Jewish holiday Sukkot, he could not provide access to Sylnet's business premises as he could not drive there. Ouzzan indicated that it would take him approximately two hours to walk there and, after some discussion, he said he was prepared to do so.

[46]            Ouzzan indicated, however, that he could not carry the key to Sylnet's business premises because of his observance of Sukkot. Ouzzan initially agreed with Mr. Cotter's suggestion that the attending sheriff carry the key, but then stated that he would carry the key himself.

[47]            When Mr. Cotter and the executing parties arrived at Sylnet's business premises, approximately one hour and thirty minutes later, Ouzzan and his then counsel were already present. They indicated that they could not provide access to the building because neither could operate the electronic key pad in light of their observance of Sukkot. Ouzzan's then counsel refused to provide the code to the electronic key pad, stating that he and Ouzzan would only provide it to a sheriff (whom they knew was no longer available) or to a police officer. The police were called, but an officer was not dispatched in sufficient time.

[48]            No materials were seized on October 18, 2005.

[49]            Ouzzan provided the plaintiffs access to Sylnet's business premises two days later, on October 20, 2005.[27] It was at Sylnet's business premises that Ouzzan kept all documentation relating to its sales, including those allegedly pertaining to the events at issue in this proceeding.

[50]            Again on October 20, 2005, Ouzzan's former counsel objected to the execution being conducted on a Jewish holiday (although Ouzzan was at work and, apparently, had himself suggested that date). Ouzzan's former counsel then indicated that it was a "half day holiday".

[51]            During the execution of the Anton Piller Order against Sylnet on October 20, 2005, some documents were photocopied and others were seized.

(ii)        Jacky's

[52]            When the plaintiffs attended at the registered head office of Jacky's, they discovered that it was also Elkeslassy's residence. Patrick Ferland, who attended on behalf of the plaintiffs' Canadian counsel, along with independent counsel, indicates in his affidavit that Elkeslassy cooperated fully with them and spoke at length about Kaytel's and Elmaleh's involvement with "Evil Angel and/or Evil Empire" DVDs.

[53]            During the execution of the Anton Piller Order against Jacky's, some documents were seized.

(iii)       Kaytel

[54]            David Joanisse, who attended at Kaytel's business premises on behalf of the plaintiffs' Canadian counsel, notes in his affidavit that those premises consisted of a "two-storey industrial building"; that the "signage on the front of the building and on the door ... advertises Kaytel Video"; and that the premises included "a large warehouse area located in the back of the building which contained numerous copies of movies on DVD and VHS format stored either in boxes or put on shelves, and which also served as a manufacturing facility".

[55]            Mr. Joanisse's affidavit discloses that Gasper and Karen Stagliano, apparently the wife of the principal of John Stagliano, Inc., were actively involved in the search of Kaytel's premises. The Anton Piller Order allowed them to attend.

[56]            Mr. Joanisse's affidavit refers generally to "the finding of some material [at Kaytel] related to the 'Infringement Works' as defined in the Order, including some DVDs".[28]

[57]            Mr. Joanisse also stated in his affidavit that the executing parties' attendance at a nearby rental storage facility was based on information provided by Elkeslassy. Mr. Joanisse stated that Elmaleh opened both lockers, which Elkeslassy had identified by number. The first locker contained approximately 25 boxes of DVDs, "[n]one of [which] contained counterfeit material related to this case". The second locker was empty.[29]

[58]            Surprisingly, Mr. Joanisse's affidavit does not expressly refer to the DVD entitled "Feeding Frenzy 2", which was allegedly found by Karen Stagliano and which, according to the representations of the plaintiffs' counsel at the hearing of this motion, constitutes - along with the DVDs purchased by Gasper in October 2005 (see paragraph 77 and following, below) - their strongest evidence of infringement.[30]

[59]            The Court requested that the plaintiffs file this DVD, along with certain other evidence, as described later in these reasons.

D.        Consent orders concerning Sylnet, Ouzzan, Jacky's and Elkeslassy

[60]            On November 2, 2005, this Court ordered on the consent of Sylnet and Ouzzan that: (i) they are enjoined from infringing copyright in any of the works described in the motion material filed in support of the Anton Piller Order; and (ii) the evidence seized from them pursuant to the Anton Piller Order may be used in the pending actions in the United States, provided such use is permitted by the law of that forum.

[61]            On November 9, 2005, a similar consent order was issued in respect of Jacky's and Elkeslassy.[31]

[62]            In view of the above orders, there is no need to comment further on whether the execution of the Anton Piller Order was conducted in conformity with its terms as against Sylnet and Jacky's.

[63]            With respect to the execution of the Anton Piller Order against Kaytel, it appears to have been conducted in accordance with the terms of the Order and that Elmaleh cooperated fully in all respects.

E.         Elkeslassy's affidavit in support of the plaintiffs

[64]            On November 4, 2005, prior to the issuance of the consent order in respect of Jacky's and Elkeslassy, Elkeslassy swore an affidavit in this proceeding that attached a transcript of his "examin[ation] under oath by Mr. Sean Macias, attorney for the plaintiffs [Jules Jordan and Gasper] in the California Action". That examination was conducted on October 19, 2005, the day after the Anton Piller Order was executed against Jacky's. The transcript discloses that the only other party who was present was Gasper, Elkeslassy having waived his right to be represented by counsel.

[65]            In his examination by Mr. Macias, Elkeslassy provides additional information as to his role in handling "Jules Jordan and Evil Empire" DVDs as a Kaytel warehouse employee and as the sole director of Jacky's.

[66]            Asked by Mr. Macias to "tell us in your own words your understanding and your relationship regarding Kaytel and the counterfeiting operation", Elkeslassy stated:

I started working for Mr. Alain Elmaleh in two thousand and three (2003) ... and six (6) months later, we started receiving new, new DVDs which they were not with Kaytel Video, had nothing to do with Kaytel Video. And then, Mr. Elmaleh rented storage under his wife's name,[32] and we put shelves over there, he put shelves and then, he told me to move all the goods, all the goods to the, to the [rental storage facility], which is a warehouse. ...

[67]            Elkeslassy indicates that all the EVIL ANGEL and Jules Jordan titles sent to the rental storage facility were in "red boxes", that "he had sixty (60) titles",[33] and that "[t]hey were reproduced by the same guy who did for Kaytel Video all these DVDs, which is Diadem Digital".

[68]            Asked by Mr. Macias "who was aware of the selling of the Jules Jordan and Evil Empire DVDs from that locker", Elkeslassy says:

Most people at Kaytel Video, most employees at Kaytel Video, they all knew that Mr. Elmaleh kept stuff over the... the lockers over there. Most of them. Everybody knew. If you go ask anybody there, they knew, since they were putting them in the boxes themselves. And I had to go pick them up and bring them, they had to wait for me sometimes.

F.          Elmaleh's affidavit

[69]            On November 21, 2005, Elmaleh swore an affidavit in which he vehemently challenged the allegations made against him and Kaytel - which, he stated, had been in business for 21 years, duly acquiring the necessary rights to deal in adult films in the ordinary course of that business.

[70]            Elmaleh challenged Brunet's credibility as well as the veracity of documents provided, including the "Reproduction authorization, representations and warranties" allegedly executed by him. Elmaleh alleged that his purported signature on that form had been forged.

[71]            Elmaleh also attacked the credibility of Elkeslassy, stating that Elkeslassy had attempted to extort $50,000 from him and that, like Brunet, he had given false evidence.

[72]            Elmaleh stated that Kaytel only dealt in the plaintiffs' titles to the extent that it lawfully purchased those titles from the plaintiffs' licensed Canadian distributors.[34] He also attests that some of those titles were purchased from wholesalers overseas, such as Silver Media.

[73]            Elmaleh and Kaytel put forward a considerable volume of documentary evidence[35] pertaining to their business operations including the purchase and sale of the plaintiffs' films.

G.        Ouzzan's affidavit

[74]            On December 7, 2005, Ouzzan swore an affidavit in which he detailed how he had arranged for the replication by Diadem of DVD titles belonging to the plaintiffs on the basis of a "special order" allegedly placed by Elmaleh in or about August 2003.[36]

[75]            Ouzzan also referred to how he received "'Evil Angel' and 'Evil Angel/Jules Jordan' adult DVDs in red packages" from Elmaleh and forwarded 21 such DVDs directly to MMS. [37]

[76]            The numerous exhibits to Ouzzan's affidavit include copies of FedEx waybills[38]said to evidence the shipment of DVDs and materials required to prepare infringing copies thereof; lists prepared by Ouzzan purportedly of the DVDs that Elmaleh ordered replicated; e-mails between Ouzzan and both Kaytel[39] and Diadem; and Sylnet invoices[40] said to evidence the shipment from Diadem to Kaytel of infringing DVDs.

H.         Gasper's supplementary affidavit

[77]            The same day that Ouzzan swore his affidavit, Gasper stated that, on October 3, 2005, he had attended at two Ottawa stores owned and operated by Elmaleh.

[78]            Gasper stated that he found two "pirated copies of two Evil Angel Adult DVD titles" at one of the stores, and "another Evil Angel Adult DVD title that had been pirated" at the second store. Gasper stated that he purchased the three "pirated" DVDs, and attached the receipts as exhibits to his supplementary affidavit.[41]

[79]            Gasper also stated that, "[i]n or about July, 2005", he "purchased what turned out to be pirated Evil Angel Adult DVDs on the internet from Shots Video BV, a Dutch adult entertainment retailer."[42] Gasper went on to state that, also in July, 2005, he spoke with a representative of Shots Video who "advised [Gasper] that he had purchased the Evil Angel Adult DVDs from Mr. Elmaleh while attending a trade show in Las Vegas, Nevada, in January of 2005."[43]

I.          Brunet's supplementary affidavit

[80]            On December 8, 2005, Brunet attested to having been "advised by Mrs. Micheline Charbonneau, then of Diadem Digital Inc.'s accounting department ... that on May 5, 2004, pursuant to my request of Mr. Alain Elmaleh of Kaytel Video ... Diadem received through its fax machine[44] a Reproduction authorization, representations and warranties letter from Kaytel". He also confirmed that he could not locate the original of this document.

J.          Expert reports

[81]            To his affidavit dated December 9, 2005, Jacques Bourdeau - a Security Engineer employed by ESI Technologies Inc., retained by the plaintiffs - attached his report analysing "the information and documents found on various computers located on Kaytel's premises".

[82]            In his report, Mr. Bourdeau made the following statements regarding alleged "subversion of evidence" on Kaytel's computer system: (i) "The password of the Administrator account ... was changed" three minutes after "[t]he persons who were serving the order met ... in front of Kaytel's premises"; (ii) "logging was interrupted at the same time as the Administrator password was changed", meaning that "any actions taken on the computer can no longer be traced or documented"; and (iii) "ESI found that the one and only partition left a large portion of the disk unused", which "is a sign of a deleted or hidden partition".[45]

[83]            On December 12, 2005, Marco Ghirotto - a handwriting expert - swore an affidavit to which he attached his report concluding that the signature on the "Reproduction authorization, representations and warranties" document is not Elmaleh's.

[84]            After the filing of this report, the plaintiffs changed the position they had taken on the ex parte motion. Brunet stated in cross-examination that the form may well have been signed by Alain Richer, the General Manager of the warehouse at Kaytel.

[85]            Elmaleh filed a supplementary affidavit on December 16, 2005, in which he raised many of the points that have been described in the notes to the above summary. Largely, Elmaleh put forward evidence directly challenging Ouzzan's account of the "special order", as well as the report of Jacques Bourdeau. Elmaleh also questioned Gasper's account of his purchase of allegedly "pirated" DVDs from two of Elmaleh's stores in October 2005.

[86]            The same day, Jacques Amar - maintenance manager of Kaytel's computer system for the past eight years - swore an affidavit attesting that the system's password has been the same for the past seven years. This supported Mr. Castonguay's conclusion contained in his report (see note 45).

[87]            Prior to the hearing of the present motion, and one can only assume having considered the responding expert report filed on behalf of Elmaleh and Kaytel, the plaintiffs advised counsel for Elmaleh and Kaytel that they would not be relying on Mr. Bourdeau's evidence pertaining to the alleged "subversion of evidence" on Kaytel's computer system. There is no need, therefore, to go into any further detail in respect of this issue.

[88]            The parties filed the transcripts of the cross-examinations of the following affiants: Brunet, Norman, Gasper, Elkeslassy, David Joanisse, Jacques Bourdeau, Allan Gelbard (of the plaintiffs' U.S. counsel), Elmaleh, Robert Castonguay and Jacques Amar. Several answers to undertakings were also filed.

[89]            This (albeit rather long) summary of the extensive evidence presented by the parties is just that - a summary. But the parties can rest assured that the Court has reviewed it all, as well as their written submissions which, in the case of Kaytel and Elmaleh, were too extensive (462 paragraphs).

3.         Material Evidence

[90]            As noted earlier, on the hearing of this motion the plaintiffs provided to the Court, at its request, two of the three allegedly "pirated" DVDs purchased by Gasper on October 3, 2005.

[91]            Counsel for the plaintiffs undertook to provide to the Court the third DVD purchased by Gasper, as well as the "Feeding Frenzy 2" DVD seized at Kaytel and related materials referred to in Mr. Joanisse's affidavit (as listed in the bailiff's notes appended thereto).

[92]            Along with the exhibits that counsel agreed to provide, the plaintiffs purported to submit a number of additional items. The tendering of those items was not discussed or agreed to during the hearing of this motion and Elmaleh objected, stating that they were not properly before the Court. I agree. The Court will not consider the additional items in disposing of this motion. They will be returned to the plaintiffs.

[93]            I now turn to the material evidence that is before the Court.

[94]            The two allegedly infringing DVDs tendered during the hearing of this motion (which Gasper purchased) are entitled "Jules Jordan's Trained Teens 2" and "John Leslie's Fresh Meat 10". Embedded into both disks are the following: (i) "IFPI LV11"; (ii) "CID-D002" and a number that starts with "D050"; and (iii) a four-digit number with a "KT" prefix.

[95]            As noted above, according to Brunet's Affirmation, these codes respectively denote: (i) the alphanumeric code that was assigned by Philips Electronics to MMS, which would be embedded into any DVD produced or replicated using an MMS stamper; and (ii) the codes "assigned to Diadem and L.H. by the mastering facility, in this case MMS". In respect of (iii), above, Ouzzan explained in his affidavit that he "randomly assigned a Kaytel serial number" to each DVD provided to him by Elmaleh as part of the "special order".

[96]            The "IFPI LV11", "CID-D002", "D050" and "KT" codes embedded into "Jules Jordan's Trained Teens 2" and "John Leslie's Fresh Meat 10" correspond to the codes identified for those titles in Brunet's Affirmation.

[97]            The third allegedly "pirated" DVD purchased by Gasper, which was provided subsequent to the hearing, is a Jules Jordan production entitled "Lex the Impaler 2".[46] This DVD, while containing the embedded "IFPI LV11" code purportedly assigned by Philips Electronics to MMS, has embedded into it the code "DDI-0012" - not "CID-D002", nor is there a "KT" number embedded into this third disk.

[98]            The fourth allegedly infringing DVD before the Court is the "Feeding Frenzy 2" DVD which, while seized during the execution of the Anton Piller Order at Kaytel, was not specifically identified in Mr. Joanisse's affidavit as being infringing, nor were the circumstances in which it was found attested to until March 7, 2006, in the course of Gasper's cross-examination.

[99]            Unlike the other three allegedly infringing DVDs referred to above, this DVD was copied onto a "DVD-R" disk. As with "Lex the Impaler 2", there is no "KT" number embedded into it. Embedded into this DVD is the code "IFPI FG99" - not "IFPI LV11", the code Brunet stated was assigned by Philips Electronics to MMS. Finally, on the cover of the box is a sticker that states: "Maritime XXX Classified / Classifié Explicit Material Adults 18 and over".[47]

[100]        In respect of the other materials listed in the bailiff's notes, the plaintiffs advised the Court at the hearing that they do not allege that they are infringing or relevant to the determination of the issues before the Court.

4.         Analysis

            Legal principles applicable to Anton Piller orders

[101]        In Adobe Systems Inc. v. KLJ Computer Solutions Inc., [1999] 3 F.C. 621 (T.D.), Chief Justice John Richard stated at paragraph 31:

As noted by the Federal Court of Appeal in Indian Manufacturing Ltd. v. Lo (1997), 75 C.P.R. (3d) 338 at 341-342:

An Anton Piller order takes its name from that of the plaintiff in Anton Piller KG v. Manufacturing Processes Ltd., [1976] 1 Ch. 55, a decision of the English Court of Appeal. The purpose of such an order is to preserve property as to which there is strong prima facie evidence that it consists of articles infringing the plaintiff's copyright, trade-mark or other rights. The order is obtained ex parte because the essence of the exercise of judicial power "is surprise, so that the defendant should not have advance knowledge of the application or the order and so have the opportunity of destroying or disposing of relevant materials or documents". (My emphasis.)

[102]        The Court has consistently held that an Anton Piller order is an "extraordinary remedy": Titan Sports Inc. v. Mansion House (Toronto) Ltd.,[1989] F.C.J. No. 805 (T.D.) (QL) at paragraph 15; Adobe, above, at paragraph 42; WIC Premium Television v. Levin, [1999] F.C.J. No. 652 (T.D.) (QL) at paragraph 21; Proctor & Gamble Inc. v. John Doe (c.o.b. Clarion Trading International), [2000] F.C.J. No. 61 (T.D.) (QL) at paragraph 48.

[103]        The nature of the Anton Piller remedy has also been characterized as "extreme": Top Star Distribution Group Inc. v. Sigma, [2000] F.C.J. No. 41 (T.D.) (QL) at paragraph 27.

[104]        In his recent decision in Netbored Inc. v. Avery Holdings Inc., 2005 FC 1405, Justice Roger T. Hughes refers to some fundamental abuses of the Anton Piller order which have made certain courts cautious about granting them.

[105]        The Court should thus remain alert, especially at the review stage, to the fact that this powerful legal tool should only be used in special cases that truly justify it.

[106]        There are three essential conditions that must be fulfilled in order for the Court to grant an Anton Piller order. As stated in Adobe, above, at paragraph 35:

... These conditions were established by Lord Ormrod L.J. in the case of Anton Piller KG v. Manufacturing Processes Ltd., [1976] 1 Ch. 55 (C.A.) at p. 62, and confirmed by the Federal Court of Appeal in Nintendo of America, Inc. v. Coinex Video Games Inc., [1983] 2 F.C. 189, 69 C.P.R. (2d) 122:

First, there must be an extremely strong prima facie case. Secondly, the damage, potential or actual, must be very serious for the applicant. Thirdly, there must be clear evidence that the defendants have in their possession incriminating documents or things, and there is a real possibility that they may destroy such material before any application inter partes can be made.

These conditions have been consistently applied by the Court: see Titan, above, at paragraph 15; Proctor & Gamble, above, at paragraph 45; Top Star, above, at paragraph 3; Nike Canada Ltd. v. Jane Doe, [2000] F.C.J. No. 498 (T.D.) (QL) at paragraph 10, affirmed, 2001 FCA 395; Canadian Private Copying Collective v. Amico Imaging Services Inc., 2004 FC 469 at paragraphs 16-17, affirmed, 2004 FCA 412.

[107]        Of the three conditions, the third - that there be clear evidence that the defendants have in their possession incriminating documents or things, and a real possibility that they may destroy such material - is the most crucial element required to obtain an Anton Piller order: Adobe, above, at paragraph 36; Nike Canada, above, at paragraph 11. See also Amico, above, at paragraph 19.

[108]        Because of the ex parte nature of Anton Piller orders, there is a duty of full and frank disclosure by the moving party: Adobe, above, at paragraph 46; Proctor & Gamble, above, at paragraphs 47-48; Top Star, above, at paragraph 4; CHUM Ltd. v. Stempowicz (c.o.b. Lizard King's Playhouse), 2003 FCT 800 at paragraph 20; Amico, above, at paragraph 26; Netbored, above, at paragraph 42.

[109]        It is trite law the Court has discretion to set aside an ex parte order, such as an Anton Piller order, if the disclosure made in obtaining the order was deficient: see Proctor & Gamble, above, at paragraph 55. This is so even where the "three-prong test for the issuance of the Anton Piller order" has been met: see Top Star, above, at paragraph 26.

[110]        Finally, the review of an Anton Piller order is a de novo proceeding, both as to facts and law: WIC Premium, above, at paragraph 3; Adobe, above, at paragraph 47; Top Star, above, at paragraph 2; Nike Canada, above, at paragraph 48; Amico, above, at paragraphs 27-28; Netbored, above, at paragraph 27. The parties are agreed that I must therefore consider all of the evidence before me.

[111]        Against this background, I turn to the first condition for the granting of the Anton Piller Order as against Kaytel and Elmaleh.

                        (i)          Extremely strong prima facie case

[112]        This condition is normally satisfied through proof of title to intellectual property rights and clear evidence of infringement: Adobe, above, at paragraph 36; Nike Canada, above, at paragraph 11; Amico, above, at paragraph 18.

[113]        The plaintiffs' title to intellectual property rights (copyright and the unregistered trade-mark: EVIL ANGEL[48]) in their adult films is not in dispute. The relevant copyrights were registered in Canada between September 27, 2005, and September 30, 2005, shortly before the plaintiffs filed their notice of motion for the Anton Piller Order.

[114]        However, as mentioned, Kaytel and Elmaleh vigorously contest that the plaintiffs have provided clear evidence of infringement.

[115]        The Court indeed has many concerns, some quite serious,[49] with respect to the evidence adduced in this respect.

[116]        Clearly, somebody is lying, but at this stage I am not in a position to properly determine the issue because the documentation put forward to corroborate each side's version is not as useful as it appears at first sight. There are simply too many unanswered questions.

[117]        The plaintiffs assert that the Court should adopt their version because the testimony of Ouzzan corroborates that of Brunet, and because Ouzzan was not cross-examined to test his credibility. The Court cannot accept that assertion.

[118]        The Court is not convinced that Ouzzan was not aware of the plaintiffs' investigations well before the Anton Piller Order was sought. As indicated in the affidavit of Patrick J. Cotter, Ouzzan had discussions with the plaintiffs' former Canadian solicitors in the summer of 2005 about a possible cooperation agreement. Exhibit T to Ouzzan's affidavit consists of documents from Diadem files regarding the alleged DVD shipments to Kaytel in 2003, which were faxed from Diadem in July 2005. No explanation was given in that respect. Were these documents sent to Ouzzan at that time or was he simply used as a channel to produce documents that should have been in Brunet's affidavit?

[119]        Having considered the whole of the evidence concerning Ouzzan, including his initial statement during the execution of the Anton Piller Order that he knew nothing about either the alleged counterfeiting or the parties to this proceeding, the Court is not satisfied that his testimony was a spontaneous and truly independent corroboration of Brunet's evidence.

[120]        Also, when one considers all of the evidence presented by the plaintiffs, there are significant contradictions and inaccuracies in the evidence of Brunet, Ouzzan and Elkeslassy.

[121]        That said, there is no need to come to a conclusion on any of the issues raised by Kaytel and Elmaleh and I do not wish to comment further on matters which clearly will have to be decided by the judge who will hear this case on its merits.

[122]        At the hearing, the plaintiffs agreed that the Court should disregard Norman's statement in his affidavit that Diadem "manufactured approximately sixty-four thousand (64,000) counterfeit DVD copies of not less than forty-seven (47) different EA copyrighted titles". Not only is there no supporting documentary evidence from Diadem in that respect, but, as noted, the evidence of Brunet during his cross-examination contradicts this statement directly.

[123]        The plaintiffs also took the position that, for the purpose of this motion only, they were not relying on the allegations of infringement made against Transworld.

[124]        Counsel for the plaintiffs submitted that even if the Court discards everything else and looks only at the two DVDs referred to in paragraph 94, above, the Court should conclude - on the basis of the objective information contained in Brunet's affidavit with respect to the meaning of the various codes used by MMS and Diadem and embedded into the DVDs - that the plaintiffs have satisfied the first part of the test and established an extremely strong prima facie case.

[125]        I agree, despite the fact that, in my view, the other two DVDs before the Court appear to support the defendants' version.

[126]        There is thus some clear evidence of infringement in respect of at least those two titles. To that extent, I am prepared to accept that the plaintiffs have fulfilled the first condition.

                        (ii)         Very serious damage

[127]        There is no doubt that the plaintiffs have suffered some damage from the sale of infringing copies of their products. However, as mentioned by Justice Karen R. Sharlow in WIC Premium, above, at paragraph 21, "[i]t is the nature of this extraordinary remedy that mandates the requirement of 'very serious damage', not just 'some damage'".

[128]        As appears from the consistent case law of the Federal Courts, in the context of the conventional injunction, generally, monetary damage is not considered to be irreparable. In the present case, there is no allegation that Kaytel or Elmaleh would not be able to pay damages that could eventually be awarded to the plaintiffs.

[129]        The concept of "very serious damage" lies somewhere between some damage and irreparable damage; it does not necessarily require proof of irreparable damage. Obviously when an injunction is also sought, the criteria to be met to justify the issuance of such an order must also be present.

[130]        "Very serious damage" can refer to various types of situations. This condition could be met by proving, for example, that infringement is perpetrated on such a large scale that it jeopardizes the plaintiff's business or its operation in a particular market (Nintendo of America, Inc. v. Coinex Video Games Inc., [1983] 2 F.C. 189 at 198) or that, in addition to an actual loss of revenue, piracy represents such a problem in a given industry that it deters investment in new products and technology and contributes to higher prices, thereby hurting consumers (Adobe, above).

[131]        In Nike Canada, above, Justice Danièle Tremblay-Lamer was satisfied that there was very serious damage because the plaintiffs' reputations for production of high quality merchandise (Walt Disney, Nintendo, Time Warner) was threatened by the sale of inferior and inexpensive counterfeit products. She found that "a consumer's disappointment with a single item of counterfeit merchandise" bearing the plaintiffs' intellectual properties, i.e., their trademarks, "could detrimentally affect the sale of other merchandise" bearing the same trademarks.

[132]        Regarding "the difficulty in quantifying damages of this type", Justice Judith A. Snider stated in CHUM Ltd., above, at paragraph 42:

... the requirement of specific evidence of these damages is not stringent (Bell ExpressVu Ltd. Partnership v. Tedmonds & Co. Inc., [1999] O.J. No. 3679 (Ont. S.C.J.) (QL) [hereinafter Tedmonds]; Pomeroy, supra).    These damages include the loss of market share and revenue from lost subscriptions, the loss of revenue and profit from lost advertising, and the threat that the "grey market" poses to the long-term interests of the industry.    It is estimated that legitimate broadcasting entities have lost $450 million as a result of satellite signal piracy.    Evidence before Kelen J. included a number of reports and studies in support of damages suffered. ...

[133]        Obviously, each case must be considered on its own facts. The Court must consider, among other things, the reputation and the quality controls associated with the particular products, their market and the expectation of the particular consumers.

[134]        In the present case, the evidence on the issue of damage is found in the original affidavits of Norman and Gasper, and was touched upon during their cross-examinations.

[135]        As noted in paragraph 122, above, the credibility of Norman's evidence is diminished by the fact that he made unsupported assertions on material issues.

[136]        As to Gasper, it appears from his cross-examination that he has little knowledge about the licensing and distribution aspect of his films, as these matters are handled by John Stagliano, Inc. He had no, or very limited, information about the number of returns of his legitimate products.[50]

[137]        The Court has no reason to doubt the sincerity of this witness, but he appears quick to make conclusions and statements regarding issues about which he has insufficient knowledge. For example, he testified that he saw a "paper signed by Mr. Elmaleh, stating that he had rights for these titles". As mentioned, the Court has found that this document was not in fact signed by Elmaleh. Gasper also stated that all of the DVDs listed at paragraph 21 of his affidavit came from Diadem. This statement is not supported by the information in Brunet's affidavit: the various codes used by MMS and Diadem do not include those listed at paragraph 21(e), (g) and (i)[51] of Gasper's affidavit.

[138]        This obviously affects the weight to be given to other statements or assertions made by these two affiants, especially when little detail and/or no supporting documentation are provided.

[139]        Indeed, there is little evidence as to the extent of the damage, the plaintiffs have suffered or will likely suffer in the future.[52]

[140]        The illegal activities described in the Brunet and Ouzzan affidavits have ceased. There is no evidence that Kaytel or Elmaleh are still replicating the plaintiffs' titles through another replicator.[53] The Court also understands that Kaytel and Elmaleh are not equipped to make these types of high quality copies themselves.

[141]        Gasper says that there was decline in Jules Jordan's business that he could not explain before the plaintiffs found out in early 2005 about the infringing copies referred to in his affidavit. However, this decline is not quantified in any way, either as an estimate in dollars or as a percentage of the plaintiffs' business.[54]

[142]        Similarly, Gasper asserted that he may lose his market share because of the defendants' activities, but admitted that he did not know what was his market share was. The absence of such evidence is problematic for demonstrating very serious damage: see WIC Premium, above, at paragraph 23.

[143]        The Court has no means of determining whether the actual number of copies made according to Brunet for the alleged "special order", i.e. 15,000 copies, is significant when compared with the number of legitimate products sold during the same period. However, it appears that, in one transaction, Kaytel bought 12,000 legitimate products from the plaintiffs' former licensed Canadian distributor, and that other sizeable orders were made from the plaintiffs' current distributor, Videoville Showtime.

[144]        Considering the industry awards won by the plaintiffs, and the fact that many of their films have been on top rental and sale charts, the Court accepts that there is goodwill associated with these products. They are clearly popular.

[145]        However, it is less clear that legitimate products on the market, which include not only those made by the plaintiffs themselves in DVD-9 format but also those legitimately manufactured by their various licensed distributors around the world, have a reputation with respect to quality that could be affected by the counterfeit copies produced by Diadem.

[146]        There is no evidence that the plaintiffs exercised much control over the quality of the products that their licensed distributors were authorized to reproduce.

[147]        It also appears that the plaintiffs have had a serious problem with so-called "grey goods" - i.e., legitimate products made by a licensed distributor in one country and resold by others in different markets.

[148]        Although the article "Evil Empire extends across Europe" dated February 2006 (the exhibit to Norman's cross-examination) refers only to the European market, it is evident that this has also been an issue in North America. Norman acknowledged during his cross-examination that U.S. products were sold in Canada and that Canadian products were sold in the U.S. The evidence also indicates that Silver Media, a wholesaler in Greece, bought and sold titles belonging to the plaintiffs in Canada.[55]

[149]        Norman vaguely referred to the fact that there were some "stipulations" with Videoville Showtime with respect to quality control over replication. It is not clear how these "stipulations" were implemented or verified for compliance, if at all. There is no evidence whatsoever in this regard with respect to other distributors in Europe. No licensing agreement with any distributor was filed with the Court.

[150]        Software Entertainment Ltd. certainly used Diadem as a replicator for some of its products, as indicated in Brunet's affidavit. It employed the DVD-5 format which, according to the plaintiffs, is of inferior quality. In cross-examination, Normanstated that this format "could" be suitable for the shorter Canadian version of the plaintiffs' films, but this apparently crucial point (the length of the films) was not mentioned in his affidavit. No copies of DVDs replicated by Diadem for Software Entertainment Ltd. were presented to the Court.

[151]        The plaintiffs did not provide any evidence to contradict Elmaleh's assertion that the DVD entitled "Lex the Impaler 2", purchased by Gasper at one of Elmaleh's stores in Ottawa, came from a licensed distributor (see paragraph 97, above, and note 46). According to Gasper, he purchased this DVD because he noticed it had defective box art. As it clearly appears on the box art insert of this DVD, the length of the film is 2 hours 12 minutes. This is certainly longer than the allegedly shorter Canadian version.

[152]        In his supplementary affidavit, Gasper does not comment on the length of the DVDs which he bought at Elmaleh's stores (two of which do not indicate the length on the box art insert) and from Shots Video BV, or on the quality of their menu systems.

[153]        It is not apparent to the Court that any of the three allegedly infringing DVDs purchased by Gasper, or the allegedly infringing DVD seized at Kaytel, are missing content or that the menus are "non-functional".

[154]        Specifically, the menu systems for the DVDs provided to the Court appear to function properly, subject to a glitch in one "fetish menu" item in one of the DVDs.

[155]        As mentioned, there is no information before the Court as to the number of returns of legitimate products, including those not made directly by the plaintiffs. It is thus impossible to assess the significance of the 1,054 DVDs that Norman, in his answers to undertakings, indicated were returned.

[156]        While I am mindful of Justice Snider's caution in CHUM Ltd., above, regarding "the difficulty in quantifying damages of this type", I note that she went on to refer (at paragraph 42) to evidence filed in that proceeding which included "a number of reports and studies in support of damage suffered".

[157]        I am not satisfied that a sufficient effort has been made in that regard in this proceeding, particularly considering that the plaintiffs had many months to gather this evidence. They knew about this issue long before they sought the Anton Piller Order.

[158]        Based on my review of the evidence, I am not satisfied that the plaintiffs have established that they meet the second condition.

(iii)        Clear evidence that the defendants have in their possession incriminating documents or things, and a real possibility that they may destroy such material

[159]        Although the conditions are conjunctive, and the above finding would be sufficient to dismiss this motion, the Court will examine the evidence in respect of the third condition, for it is the most important one.

[160]        The main justification for granting an Anton Piller order is to prevent the destruction or disappearance of important evidence.

[161]        The plaintiffs have two distinct elements to establish here.

[162]        With respect to the first one, Justice Hughes recently commented in Netbored, above, at paragraph 59:

Much of the evidence necessary to prove the Plaintiff's case, if any, is already publicly available. Avery's website was posted for all to see, as it must be in order to attract customers. The meta tags can be made visible by a simple "right click" on the website. (My emphasis.)

And at paragraph 62, concluding his analysis that the third condition had not been satisfied:

... Is any evidence that may have existed so crucial to the Plaintiff's case that it could not be made without it? No, the Plaintiff's case rests essentially on what the public sees or can readily access. (My emphasis.)

[163]        This view is not new. In a different context but addressing the same point, Justice Max M. Teitelbaum in Proctor & Gamble, above, at paragraph 47, adopted the following comments of Justice Barbara Reed in Fila Canada Inc. v. Doe, [1996] 3 F.C. 493 (T.D.) at page 499:

... A judge must be convinced that the applicant's apprehension, that the counterfeit goods will not be available as evidence for trial if they are not seized, is well founded.    If, for example, a representative item could be purchased by the plaintiff's investigators and action proceeded with against the vendors, in the normal way, a case has not been made out for an Anton Piller order nor for the execution of it against a given defendant. (My emphasis.)

[164]        Once it is established that it is likely that a party has in its possession evidence that is important to the plaintiff's case, it must be established that there is a real possibility of destruction.

[165]        Obviously, evidence of an intention to destroy evidence is difficult to prove directly. This is why Courts have been willing to infer that a defendant will likely destroy evidence in certain circumstances. For example, in Adobe, above, Chief Justice Richard stated at paragraphs 37-38:

It is difficult to prove with tangible evidence that an infringer has a history of destroying evidence or will dispose of important evidence. Applicants have therefore focused on the dishonest character of the infringer and the easily disposable nature of the infringing articles to invite the Court to draw an inference that evidence will disappear if notice is given.

The Court has examined market-place realities and has been prepared to draw such an inference in cases involving vendors of counterfeit goods in situations such as flea markets, street stalls or concerts, given the temporary nature of their business, and their propensity to flee at the first hint of enforcement and to warn each other of execution of the orders. (My emphasis.)

[166]        In the same vein, Chief Justice Allan Lutfy made the following remarks in Top Star, above, at paragraph 14:

The plaintiffs were aware that the defendants carried on business from a fixed address and that they also operated a large warehouse.    ... There is no evidence that the defendants disposed of or attempted to dispose of any products or documents.    In short, on the record before me, no inference can be drawn that the defendants are the kind of "fly-by-night" operation suggested by the plaintiffs.    The defendants' business appears to be a far more stable operation than the flea markets and street stalls which are often targeted with Anton Piller orders.    There is little, if any, credible information to suggest that the defendants' business was temporary in nature.

[167]        In Nike Canada, above, although Justice Tremblay-Lamer expressed some doubt as to whether "a distinction can be drawn from the fact that a vendor operates as a retailer, as opposed to a flea market vendor", she noted that in the case before her "transactions [were] made on a general cash register thereby preventing the itemization of merchandise sold" (paragraph 67).

[168]        Also, she found that it had been established that it was likely that some of the defendants would continue to sell infringing products which, in one instance, constituted 80% of the merchandise in the retailer's store. The proposed defendants in that case admitted that they intended to return the counterfeit goods to their Chinese suppliers.

[169]        As noted, the Court issued consent orders in respect of Sylnet and Ouzzan and in respect of Jacky's and Elkeslassy. In addition, the plaintiffs appear to have secured the full cooperation of these parties.

[170]        Also as already stated, the most material evidence which linked Elmaleh to the infringing activities was two of the DVDs purchased by Gasper from Elmaleh's stores. This evidence was publicly available and, despite the plaintiffs' knowledge of the existence of these stores, their existence was not disclosed and they were thus not included in the premises inspected pursuant to the Anton Piller Order.

[171]        During the execution of the Anton Piller Order at Kaytel, the plaintiffs found few items related to EVIL ANGEL and Jules Jordan.

[172]        Although the plaintiffs submitted that this is because Elmaleh had emptied the lockers and shipped the counterfeit DVDs to the U.S. the week before, the Court notes that the plaintiffs also rely on evidence purporting to establish that all the counterfeit copies of the plaintiffs' titles were gone before Elkeslassy went on holidays in early June, 2005.

[173]        The latter version is certainly more consistent with Brunet's evidence that all the counterfeit copies were delivered before June 2005 (this includes any copies made for any of the defendants against whom the Anton Piller Order was issued).

[174]        It also appears that a list of all the faxes sent by Kaytel and Elmaleh can be found in the records of an independent third party, Connectel (see note 44). Also, Kaytel appears to use a third party server to store its e-mails.

[175]        All this to say that it is not clear that important or material evidence not otherwise available is in the possession of Kaytel and Elmaleh.

[176]        However, even if the Court were to assume that there may be some such evidence, the plaintiffs must still establish that there is a real possibility of destruction.

[177]        In their memorandum on the ex parte motion, the plaintiffs alleged that Elmaleh was at the center of an "unlawful conspiracy" involving money laundering and the use of off-shore accounts to funnel the proceeds of the counterfeiting operation. It is now clear that there is no evidence supporting such allegations of money laundering and use of off-shore accounts (see notes 23 and 24).

[178]        With respect to the nature of the business operation of Kaytel and Elmaleh, Brunet testified that Kaytel is an established and faily sizable company. It was incorporated in 1985. It is licensed to distribute more than 4,200 adult films. Although Elmaleh owns a few retail stores across Canada, Kaytel is essentially a wholesaler.

[179]        The considerable volume of documentary evidence in this proceeding shows that Kaytel kept extensive, which is not to say perfect, records of its business activities. Its method of business operation is far from simply involving transactions "made on a general cash register".

[180]        Despite the fact that Elkeslassyexpressed the view that Kaytel's copies of the plaintiffs' titles were "hidden" in the two storage lockers, the Court must consider that he also indicated that this stock was handled in the open and that many, if not all, Kaytel employees knew about these titles. The packing for shipment of these titles was done by the same employees that were dealing with Kaytel's other inventory. This does not indicate that the operation was conducted in secret.

[181]        In my view, the nature of the business operation of Kaytel and Elmaleh does not lend itself to an inference of a risk that these defendants might destroy evidence.

[182]        The plaintiffs argued that the Kaytel and Elmaleh tried to hide records of their counterfeiting operations by asking Sylnet not to invoice them for the alleged "special order". This is contested by Elmaleh, who indicated that it was Ouzzan who had asked him to pay cash for some of his "repeat titles".

[183]        As mentioned earlier, the Court does not intend to decide on this motion whether Elmaleh's version is more credible than Ouzzan's or Elkeslassy's.

[184]        I have, however, for the purpose of this analysis, considered the possibility that the two elements referred to in paragraph 37(a) and (b) of the plaintiffs' memorandum (i.e., the request that Sylnet not issue invoices and the use of Jacky's as a vehicle for the sale of counterfeit products) may be true.

[185]        The plaintiffs argued that the fact that Elmaleh knew that they owned copyright in these titles and nevertheless engaged in counterfeiting gives rise to a risk of destruction. It is indeed an element that can be relevant and it has been considered.

[186]        As mentioned earlier, prior to the hearing of this motion, the plaintiffs advised counsel for Elmaleh and Kaytel that they would not be relying on Mr. Bourdeau's evidence pertaining to the alleged "subversion of evidence" on Kaytel's computer system.

[187]        Both prior to and following the withdrawal of that evidence, there was no other evidence that Elmaleh or Kaytel had tampered with, destroyed or attempted to destroy any evidence.

[188]        Finallly, but importantly, in this case, the Court has also considered the fact that, as mentioned, the plaintiffs became aware of the alleged counterfeiting operations of Elmaleh and Kaytel in June or July 2005. They did nothing to stop those activities until October 2005.

[189]        Having reviewed all of the evidence, I am not satisfied that it establishes more than a mere possibility that Kaytel and Elmaleh may destroy incriminating documents or things in their possession. I cannot conclude that the evidence shows, or justifies an inference of, a real possibility that this may happen.

                        (iv)        Full and frank disclosure

[190]        Even if I am wrong in my assessment of the evidence with respect to the last two conditions for the granting of the Anton Piller Order, in my view, in this case, the Order must still be set aside as against Kaytel and Elmaleh (and, to the extent applicable, if any, Leisure Time) because of the deficient and incomplete disclosure provided on the plaintiffs' ex parte motion: see Proctor & Gamble, above, at paragraph 55 and Top Star, above, at paragraph 26.

[191]        There is no doubt that the plaintiffs should have given more information to the Court about the nature of Kaytel's and Elmaleh's business. This evidence was material and the plaintiffs knew or ought to have known that it was militating against them. In R.S.M. International Active Wear Inc. v. Quality Goods I.M.D. Inc. (1994), 57 C.P.R. (3d) 353 at 354, Justice Jean-Eudes Dubé suggested that an Anton Piller order he had previously granted (but which was later rescinded by another Judge of the Court) might never have been issued had it been brought to the Court's attention that the defendant was not a "fly-by-night" operation, but rather a "substantial operation which [had] been in existence in Montreal for the past 30 years ... and [had] annual sales of $9 million". Kaytel has been in business for 21 years and has annual revenues of about ten million dollars.

[192]        Although the circumstances here are obviously different from those before Justice Dubé, this is an important breach of the plaintiffs' duty of disclosure.

[193]        Another very significant omission, in my view, was the plaintiffs' decision not to disclose to the Court that Gasper - exactly two weeks prior to the hearing of the ex parte motion - had purchased what he had identified as three "pirated copies" of the plaintiffs' DVDs from two of Elmaleh's stores. Nor did the plaintiffs see fit to disclose that, "[i]n or about July, 2005" - some three months prior to ex parte hearing - Gasper had "purchased what turned out to be pirated Evil Angel Adult DVDs on the internet from Shots Video BV, a Dutch adult entertainment retailer"; a representative of whom, Gasper stated, "advised [him] that he had purchased the Evil Angel Adult DVDs from Mr. Elmaleh while attending a trade show in Las Vegas, Nevada, in January of 2005."

[194]        This information was obviously relevant, as the plaintiffs later determined it had to be disclosed in Gasper's supplementary affidavit. It not only enabled them to establish their prima facie case, but it was also relevant to the assessment of the third condition.

[195]        While Brunet stated in his Affirmation that "[a]nother company, that has ordered from Diadem the replication of Evil Angel DVDs is Software Entertainment Ltd.", the plaintiffs neglected to mention that that company was one of their licensed Canadian distributors - as Norman later confirmed in cross-examination. This would have immediately raised a question as to the DVD-5 format, among other things. It is not clear, either, that the plaintiffs did not know that Kaytel, in the ordinary course of its business, had lawfully purchased the plaintiffs' titles from their licensed Canadian distributors, both past and present.

[196]        Through an obvious failure to properly investigate the matter with Brunet, the plaintiffs misrepresented to the Court that "approximately sixty-four thousand (64,000) counterfeit DVD copies of not less than forty-seven (47)" different titles were reproduced by Diadem for the defendants.

[197]        After discussing the evidence of Brunet in that respect, particularly his cross-examination, the Court asked the plaintiffs' counsel who it was that copied these 47 titles. Counsel responded "I don't know". The Court finds this very troubling.

[198]        With respect to the allegation that Elmaleh "personally" executed the "Reproduction authorization, representations and warranties" document dated May 5, 2004, the plaintiffs stated that they had not in fact presented affidavit evidence in that respect, and could thus change their position.

[199]        In my view, this allegation, which was made in the ex parte notice of motion itself, constitutes a breach of the plaintiffs' duty of full and frank disclosure.

[200]        The same can be said about the allegations of money laundering and off-shore accounts, for which the plaintiffs had absolutely no evidence.

[201]        There is no need to say more on this subject. The Court is satisfied that the disclosure provided by the plaintiffs was deficient and fell short of the standard of full and frank disclosure required on an ex parte motion, particularly in the context of such an "extraordinary" and "extreme" remedy as an Anton Piller order.

[202]        The plaintiffs, in my view, failed to provide the Court with a sufficiently complete picture.

[203]        In this particular case, even if the plaintiffs had met all three conditions for the issuance of the Anton Piller Order, I would still have set the Order aside as against Kaytel and Elmaleh (and, to the extent applicable, if any, Leisure Time) on the basis of such breach.

[204]        Accordingly, independently of my reasons regarding the three conditions, I have determined that, in the exercise of my discretion, the Anton Piller Order must be set aside as against Kaytel and Elmaleh (and, to the extent applicable, if any, Leisure Time).

                        (v)        Further use of the evidence

[205]        As noted above, by the consent orders issued in respect of Sylnet and Ouzzan and in respect of Jacky's and Elkeslassy, the evidence in respect of these defendants that was seized pursuant to the Anton Piller Order may be used in the two pending actions in the United States. In their written submissions on this motion, the plaintiffs seek similar relief in respect of "the evidence produced by or obtained from the Elmaleh Defendants" (i.e., Elmaleh, Kaytel and Leisure Time).

[206]        To that end, the plaintiffs seek relief from the implied undertaking rule. That rule originated in the context of the discovery process, and requires that information obtained on discovery in a given proceeding be used only for purposes of that proceeding: see Canada v. ICHI Canada Ltd., [1992] 1 F.C. 571 (T.D.).

[207]        In Kirkbi AG v. Ritvik Holdings Inc.,[2000] F.C.J. No. 1793 (T.D.) (QL), Justice Francis C. Muldoon described the basis for the implied undertaking rule as follows, at paragraph 6: "The implied undertaking rule associated with the discovery process is meant to protect private information which is judicially compelled through the disclosure/discovery process and could not otherwise have been legitimately obtained." (My emphasis.)

[208]        In Merck & Co. v. Apotex Inc.(1996),65 C.P.R. (3d) 292 (F.C.T.D.), Justice W. Andrew MacKay held that the implied undertaking also applies to information received by one party from another under compulsion of a court order.

[209]        The plaintiffs submit that they should be relieved from the application of the implied undertaking rule primarily because this proceeding and the U.S. actions involve the same or similar parties and the same or similar issues. At the hearing of this motion, counsel for the plaintiffs stated that the information in question would be compellable in the U.S. actions in any event, and that relieving the plaintiffs from the implied undertaking rule would thus facilitate "judicial expediency": it is simply "an issue of timing", counsel advised.

[210]        In the alternative, the plaintiffs state in their written submissions that the implied undertaking rule generally does not restrict the use of any information "which subsequently is made part of the public record": ICHI Canada Ltd., above.

[211]        In the context of this proceeding, the implied undertaking rule is obviously not the only relevant consideration. The effect of vacating the Anton Piller Order as against Kaytel is that the plaintiffs should not have obtained the items and information that they did by virtue of the execution of the Order against Kaytel (see WIC Premium Television, above). For that reason, it would be inequitable for the plaintiffs to be permitted to use those items and information outside the context of this proceeding, if at all.

[212]        Accordingly, an order will issue that the plaintiffs shall restore to Kaytel all items (originals and copies) seized during the execution of the Anton Piller Order against Kaytel; except, of course, material evidence filed with the Court. As well, the order will provide that both the material evidence filed with the Court and all information in connection with the execution of the Anton Piller Order against Kaytel (including the affidavit materials of David Joanisse, Cherif Nicolas and Jacques Bourdeau, as well as the cross-examinations of Mr. Joanisse and Mr. Bourdeau) - except to the extent necessarily described in these reasons - shall be kept confidential: see WIC Premium, above, at paragraph 45. Such confidentiality shall be effected through paragraphs 55 and 151-152 of the Federal Courts Rules.

[213]        This does not result in injustice to the plaintiffs, who may and should avail themselves of the normal discovery process in the U.S. proceedings.

[214]        With respect to the affidavit materials of Elkeslassy and Ouzzan, inasmuch as they were voluntarily filed in support of the plaintiffs' case, I am of the view that the plaintiffs are free to make such use of them as they see fit.

[215]        That leaves the question of the affidavit materials filed by and on behalf of Elmaleh. They disclosed private information that, while not directly compelled by the Anton Piller Order, was disclosed to defend against the Order. In other words, had the plaintiffs not obtained the Anton Piller Order, which is to be vacated as against the "Elmaleh Defendants", they could not legitimately have obtained - and in fact would not have obtained - the information disclosed in these affidavit materials.

[216]        While neither party raised the question, it would have been both appropriate and advisable, in my view, for all materials - including all affidavit materials - in this proceeding to have been filed confidentially pursuant to paragraph 151 of the Federal Courts Rules pending the determination of this motion.

[217]        Elmaleh, however, did not object to the public filing of his affidavit materials, and did not attempt to obtain an order under paragraph 151 of the Federal Courts Rules. As such, Elmaleh's affidavit materials form part of the public file in this proceeding. That said, the present scenario was not, in my view, within Justice Reed's contemplation in ICHI Canada Ltd., above, when she referred to information "which subsequently is made part of the public record". Rather, Justice Reed was speaking in the context of the discovery process, in which information is later adduced at trial, and then often only in part.

[218]        Nevertheless, although the information contained in Elmaleh's affidavit materials normally would not have been obtained at this stage, and certainly would not have been made part of the public record, no party raised any argument that, in my view, could be relied on to restrict the plaintiffs' ability to use the information outside the context of this proceeding.

[219]        Accordingly, the plaintiffs' request for relief from the application of the implied undertaking rule to the information obtained in connection with the execution of the Anton Piller Order against Kaytel will be dismissed.

[220]        The information obtained through the execution of the Anton Piller Order against Jacky's and Sylnet, and the other affidavit materials filed in this proceeding are not subject to the implied undertaking rule.

[221]        If any party wishes to make submissions regarding the confidentiality provisions of the within order, they may do so in writing within 10 days of its issuance.

7.          Damages

[222]        Although in their motion materials Elmaleh and Kaytel have asked the Court to award them damages against the plaintiffs, I do not intend to do so. It was acknowledged at the hearing that the damages are sought in the defendants' counterclaim. Whether damages should be awarded as a result of the present proceeding is a question to be dealt with by the judge who will hear this case on its merits.

[223]        The Court will assess costs as it would otherwise have done, and any amount incurred by the defendants in the defence of the action, including this proceeding, can, if the defendants so wish, be included as part of the amount they are seeking in their counterclaim.

8.          Costs

[224]        Kaytel and Elmaleh seek costs on a solicitor and client scale. It is interesting to note that the plaintiffs also sought their costs on that basis.

[225]        According to the draft bill of costs prepared by the plaintiffs pursuant to tariff B, column III, exclusive of disbursements, the taxable costs of Kaytel and Elmaleh would normally be in the range of approximately $13,000 to $20,000, depending on the number of units used. The Court finds that, in view of the voluminous amount of documentation and the number of affidavits and cross-examinations, the presence of a second lawyer was reasonable and appropriate.

[226]        Kaytel and Elmaleh produced copies of their counsel's statements of account totaling approximately $127,000 in pre-tax fees (exclusive of disbursements). This would obviously include work relating to the defence and counterclaim filed by the plaintiffs.

[227]        While I am not prepared to award full solicitor-client costs, I have determined, in the exercise of my discretion under paragraph 400 of the Federal Courts Rules, having regard to all the relevant factors, that it is appropriate to fix the costs of Kaytel and Elmaleh at a lump sum of $40,000 plus disbursements and expert costs.

[228]        I would add that Elmaleh made his position clear early on that he did not sign the "Reproduction authorization, representations and warranties" document dated May 5, 2004, and that there had been no attempted subversion of evidence on Kaytel's computer system - in particular, that the password had not been changed. The plaintiffs only renounced these allegations after the filing of the defendants' expert reports. In my view, these costs could have been avoided had the issues been re-examined at an earlier stage.

ORDER

THIS COURT ORDERS that:

1.          The plaintiffs' motion is dismissed with costs. Elmaleh's and Kaytel's costs are fixed at a lump sum of $40,000 plus taxable disbursements and their expert costs.

2.          All items seized (originals and copies) duringthe execution of the Anton Piller Order against Kaytel, except material evidence filed with the Court, shall be restored to Kaytel and Elmaleh.

3.          The material evidence filed with the Court and all information in connection with the execution of the Anton Piller Order against Kaytel including the following materials (including any exhibit(s) thereto):

            (a) the affidavit of David Joanisse sworn October 25, 2005;

(b) the affidavit of Cherif Nicolas sworn October 26, 2005;

(c) the additional affidavit of David Joanisse sworn November 4, 2005;

(d) the affidavit of David Joanisse sworn November 7, 2005;

(e) the affidavit of Jacques Bourdeau sworn December 9, 2005;

(f) the affidavit of Jacques Bourdeau sworn February 24, 2006;

(g) the transcript of the cross-examination of David Joanisse on March 9, 2006; and

(h) the transcript of the cross-examination of Jacques Bourdeau on March 10, 2006

            shall be kept at the Registry in sealed envelopes marked "T-1779-05 - Subject to Confidentiality Order dated May 10, 2006". Any copies in the possession of the parties shall be treated as confidential within the meaning of paragraphs 151 and 152 of the Federal Courts Rules, and shall not be used by the parties, including any of their representatives, for any purpose other than this motion.

"Johanne Gauthier"

FEDERAL COURT

SOLICITORS OF RECORD

DOCKET:                                           T-1779-05

STYLE OF CAUSE:                           John Stagliano, Inc. et al. v. Alain Elmaleh et al.

PLACE OF HEARING:                     Ottawa, Ontario

DATE OF HEARING:                       April 19, 2006

                                                            Further submission on April 24, 2006

REASONS FOR ORDER AND ORDER:               Gauthier J.

DATED:                                              May 10, 2006

APPEARANCES:

Mr. George Karayannides                                                         FOR THE PLAINTIFFS

Mr. Mark Edward Davis

Mr. Serge Segal                                                                        FOR THE DEFENDANTS

Mr. Maxime Bourret

SOLICITORS OF RECORD:

Heenan Blaikie LLP                                                                   FOR THE PLAINTIFFS

Toronto, Ontario

Segal, Laforest                                                                          FOR THE DEFENDANTS

Montréal, Quebec