Docket: A-187-15
Citation:
2016 FCA 55
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CORAM:
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TRUDEL J.A.
SCOTT J.A.
BOIVIN J.A.
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BETWEEN:
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PHILIP MORRIS
PRODUCTS S.A. and ROTHMANS, BENSON & HEDGES INC.
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Appellants
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and
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MARLBORO CANADA
LIMITED and IMPERIAL TOBACCO CANADA LIMITED
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Respondents
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REASONS
FOR JUDGMENT OF THE COURT
[1]
This is an appeal by Philip Morris Products S.A.
and Rothmans, Benson & Hedges Inc. (the appellants) from a discretionary Order
of a judge of the Federal Court (2015 FC 364) (the Judge) pursuant to paragraph
27(1)(c) of the Federal Courts Act, R.S.C., 1985, c. F-7. The
Judge ruled that Marlboro Canada Limited and Imperial Tobacco Canada Limited
(the respondents) were entitled to elect an accounting of profits or all
damages sustained as a result of the infringement of their rights in the
registered trade-mark MARLBORO. The Judge also ordered that pre and post
judgment interest would be determined by the reference judge, should the
respondents opt for accounting of profits.
[2]
This Order came as a result of this Court’s
decision allowing in part the respondents’ appeal of the Federal Court’s
decision (2010 FC 1099) finding that there was a likelihood of confusion
between the appellants’ no-name cigarettes and the respondents’ MARLBORO,
especially in the so-called “dark market”, and therefore infringement of the
respondents’ trademark under paragraph 20(1)(a) of the Trade-marks
Act, R.S.C., 1985, c. T-13 (2012 FCA 201). Consequently, this Court referred
the matter back to the Judge to determine whether the respondents could elect
between damages or an accounting of profits and make representations with regards
to interests and costs. It is that discretionary Order by the Judge further to
this Court’s referral that is the subject of this appeal.
[3]
The Judge determined that it was appropriate to
exercise his discretion and allow the respondents to elect an accounting of
profits, on the balance of factors that had been identified by the parties as
significant in their submissions before him, namely: the claimant’s conduct,
the complexity of an accounting of profits, the infringer’s conduct, the
claimant’s damages, and the presence of actual confusion.
[4]
The appellants challenge the Judge’s Order on
four grounds:
▪ First, they assert that the Judge applied an incorrect legal test by
ignoring the restitutionary purpose of an accounting of profits;
▪ Second, the appellants claim that the Judge erred when he determined
that any reference on damages could be equally complex as an accounting of profits;
▪ Third, they argue that the Judge erred by failing to require the
respondents to demonstrate a positive basis for his exercise of discretion,
holding instead that they were entitled to it absent a bar to its exercise;
▪ Finally, the appellants argue that the Judge erred in failing to
recognize that an accounting of profits would seriously prejudice them in view
of the current ongoing challenge by the respondents to their redesigned ROOFTOP
packaging (Federal Court File T-1280).
I.
Restitutionary Purpose
[5]
The appellants argue that in order for the
equitable remedy of an accounting of profits to be granted, it must be used for
a restitutionary purpose, a prophylactic purpose, or both. They contend that
the Supreme Court elaborated this test in Strother v. 3464920 Canada Inc.,
2007 SCC 24, [2007] 2 S.C.R. 177 at paragraphs 74-77 [Strother],
and that the Judge failed to apply it by ignoring the restitutionary purpose of
an accounting of profits.
[6]
Because they had not actually used the
respondents’ property, the appellants argue, they were not unjustly enriched.
This, they submit, should have led to a conclusion that an accounting of
profits would not serve the restitutionary purpose.
[7]
The facts in Strother are different from
the present case since it dealt with a breach of fiduciary duty by a solicitor,
and the restitutionary purpose of the remedy actually had no application in
that case. The appellants have not convinced us that Strother presents a
test, and if it does, that it must necessarily be applied to the present case,
or that there was any defect in the Judge’s conclusion at paragraph 21 that the
set of relevant factors will vary according to the different circumstances in
each case. Nevertheless, the Judge did refer to Strother at paragraph 17
of his reasons and we are satisfied that he turned his mind to it in his
analysis.
[8]
The Judge acknowledged that his discretion to
grant equitable remedies is not untrammelled (Judge’s reasons at paragraph 20,
referring to Apotex Inc. v. Bristol-Myers Squibb Co., 2003 FCA 263, 308
N.R. 152). He therefore needed to “weigh the relevant
factors in light of the equitable purposes of the remedy, bearing in mind that the
[respondents] have no right to an accounting of profits but that they should
not be denied that option in the absence of any compelling reasons” (Judge’s
reasons at paragraph 21).
[9]
The Judge’s analysis clearly indicates that the
he did turn his mind to the restitutionary purpose of the remedy as he weighed
the relevant factors in this case. Discussing the factor of the claimant’s
damages, he clearly acknowledged the appellants’ position that the respondents
were not entitled to restitution through an accounting of profits, at paragraph
36. After reviewing the parties’ positions on damages and the evidence on that
issue, the Judge indicated that although the evidentiary issues were not to be
decided at the entitlement stage, they tended to undermine the appellants’
argument “that the sales of their no-name product do
not represent an unjust enrichment requiring a restitutionary remedy” (Judge’s
reasons at paragraph 39). He also addressed unjust enrichment, implicitly
invoking the restitutionary purpose of an accounting of profits, when
considering the parties’ submissions with respect to confusion.
[10]
In sum, the Judge gave due consideration to the
relevance of restitution in his analysis, and the appellants have not convinced
us that this Court should intervene on this point.
II.
Complexity
[11]
Second, we find no merit in the appellants’
argument that the Judge erred in his conclusion that the complexity of an
accounting of profits is neutral as a factor because the calculation of damages
could be as complex as an accounting of profits.
[12]
The Judge had the benefit of hearing the
parties’ positions and arguments on the complexity of calculating damages,
knowing full well that these submissions were necessarily speculative at this
stage since the actual calculation had not taken place and was not before him.
[13]
At paragraph 31, the Judge provided specific
reasons why the calculation of damages would likely be complex in this case
supported by doctrinal authority for the proposition that calculation of
damages can be as complex as an accounting of profits.
[14]
Reading the Judge’s reasons as a whole, it is
clear that he considered all of the issues and the evidence before him in coming
to his conclusion that calculation of damages was likely to be as complex as an
accounting of profits. Again, there is no reviewable error.
III.
Whether the appellants must show basis for the
equitable remedy
[15]
Third, the appellants claim that the onus was on
the respondents to show their entitlement to the accounting of profits by
establishing a causal link between the damages suffered and the use of their
property by the appellants.
[16]
They rely on Janssen-Ortho Inc. v. Novopharm
Ltd., 2006 FC 1234,[2006] F.C.J. No. 1535 (QL) [Janssen] for the
proposition articulated by Hughes J. that it is necessary for a party seeking
an equitable remedy, such as an election of profits, to “show some basis” for the exercise of equity (Janssen
at paragraph 132).
[17]
We find this to be of no assistance to the
appellants. In the present matter, it is clear that a causal link has been
established since this Court has determined that there was confusion and
infringement, which is the source of the appellants’ unjust enrichment (Judge’s
reasons at paragraph 42).
[18]
We further note that the statement in Janssen
on which the appellants rely stands alone in the jurisprudence and is not
supported by any prior case law. The Judge did not err when he stated that he
would not deny the respondents an accounting of profits in the absence of
compelling reasons (Judge’s reasons at paragraph 21).
IV.
Prejudice
[19]
Finally, we must also reject the appellants’
argument that they will be prejudiced if the respondents elect an accounting of
profits, in view of the parallel litigation that has been initiated by the
respondents alleging infringement of their MARLBORO trademark further to the
introduction in July 2012 of the appellants’ redesigned ROOFTOP packaging.
[20]
The Judge acknowledged and considered the
appellants’ position on this issue at paragraph 27 of his reasons, but
concluded nonetheless that an accounting of profits should be available.
[21]
We note that the evidence and factual
determinations to be presented in the reference and new infringement
proceedings will necessarily be similar, to the extent that the appellants
intend to rely on their redesigned ROOFTOP packaging as a non-infringing
alternative. We expect the respondents will dispute that position. Consequently,
whether the ROOFTOP packaging infringes the MARLBORO trademark will undoubtedly
be an issue in both the reference and the infringement proceeding.
[22]
When either the infringement proceeding or the
reference is ready to be heard, the other proceeding may be stayed until a
decision is rendered. We agree with the respondents that this will effectively
avoid potential prejudice posed by the parallel proceedings. Further, the Judge
did not ignore this issue, and it is not the role of this Court to reweigh each
factor considered by the Judge in a discretionary decision.
[23]
In sum, the appellants have failed to
demonstrate that the Judge committed any error that would warrant this Court’s
intervention against his discretionary decision to allow the respondents to
elect between damages or an accounting of profits for the appellants’
infringement of their trademark.
[24]
For these reasons, this appeal will be dismissed
with costs set at $10,000 inclusive of tax and disbursements.
“Johanne Trudel”
“A.F. Scott”
“Richard Boivin”
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