Benisti Import-Export Inc. v. Modes TXT Carbon Inc., 2005 FC 1587

Date:  20051123

Docket:  T-1517-01

Citation:  2005 FC 1587

Montréal, Quebec, November 23, 2005

Present:  Richard Morneau, Prothonotary

BETWEEN:

                                                BENISTI IMPORT-EXPORT INC.

                                                                                                                                              Plaintiff/

                                                                                                                Defendant to counterclaim

                                                                           and

                                                     MODES TXT CARBON INC.

                                                                                                                                          Defendant/

                                                                                                                    Plaintiff by counterclaim

                                            REASONS FOR ORDER AND ORDER

RICHARD MORNEAU, PROTHONOTARY

[1]               In this intellectual property case, both parties have filed motions before this Court.

[2]               The motion filed by the plaintiff and defendant to counterclaim Benisti Import-Export Inc. (hereinafter “Benisti”) is in two parts.

[3]               The first part seeks a bifurcation order pursuant to sections 3, 107 and 153 of the Federal Courts Rules (the Rules) so that, essentially, the issues of the parties’ liability for the acts respectively attributed to them are tried separately from the issue of the remedies sought for those same acts.

[4]               The second part of the motion seeks to dispose of objections raised on February 24, 2005, by the defendant and plaintiff by counterclaim Modes TXT Carbon Inc. (hereinafter TXT Carbon) during the examination for discovery of its new representative, Varda Levy.

[5]               The motion by TXT Carbon seeks to dispose of objections raised on February 28, 2005, by Benisti in the examination for discovery of Benisti’s representative, Maurice Benisti.

[6]               The motions will be addressed in my analysis in the order presented supra.

Background

[7]               Benisti brought an action against TXT Carbon for passing off and infringement of its industrial design No. 92,684 (the industrial design).

[8]               TXT Carbon filed a defence and counterclaim against Benisti’s action, alleging that the aforesaid industrial design was invalid.

[9]               After closure of the pleadings, the parties served their respective affidavits of documents and conducted an initial round of examinations on April 14, 2003 and June 10, 2003.

[10]           It is apparent that the issue of the remedies sought by the parties in the pleadings was not really addressed in the initial round of examinations.

[11]           Further to an order by this Court dealing with the objections arising from the initial round of examinations, the parties proceeded to submit their respective undertakings.

[12]           On December 9, 2004, TXT Carbon amended its pleadings in order to allege infringement of the ‘N1 trade-mark, registration of which it had obtained on February 11, 2004, under number TMA 601,957.

[13]           At the same time, Benisti amended its pleadings to allege that the registration of the ‘N1 trade-mark was invalid.

[14]           Benisti also obtained an order from the Court allowing it to replace Erminio Zappitelli with Varda Levy as TXT Carbon’s representative for the subsequent examination for discovery of TXT Carbon.

[15]           After the parties presented their respective undertakings and amended their pleadings, a second round of examinations was held on February 24, 2005 and February 28, 2005.

[16]           In the second round of examinations, counsel for TXT Carbon asked a number of questions of a financial nature.  Counsel for Benisti objected to any financial questions relating to remedy issues since, in fact, this aspect of the case had not been raised in the initial round. Counsel for Benisti also suggested that the liability issues be bifurcated from any remedy issues in dispute, which counsel for TXT Carbon rejected.

[17]           In the second round of examinations, objections were, naturally, raised by both parties.

[18]           It is, in my view, logical to begin by analysing the motion to bifurcate by Benisti, since its result could affect the questions to be answered.

[19]           Next, I will examine the motion by Benisti, followed by that of TXT Carbon, in order to resolve the objections on the basis of the categories respectively proposed by the parties.

Analysis

I.          Motion to Bifurcate by Benisti

[20]           The basic rule on this matter is set out in section 107 of the Rules, which reads as follows:

[21]           Under this rule, the applicable test is that developed by the Court in Illva Saronno S.p.A. v. Privilegiata Fabbrica Maraschino “Excelsior” (T.D.), [1999] 1 F.C. 146, at page 154, paragraph 14, where the Court establishes that:

Accordingly, on the basis of previous authority and in light of the changes introduced by the 1998 Rules, I would formulate the test to be applied under rule 107 as follows. On a motion under rule 107, the Court may order the postponement of discovery and the determination of remedial issues until after discovery and trial of the question of liability, if the Court is satisfied on the balance of probabilities that in the light of the evidence and all the circumstances of the case (including the nature of the claim, the conduct of the litigation, the issues and the remedies sought), severance is more likely than not to result in the just, expeditious and least expensive determination of the proceeding on its merits.

[Emphasis added]

[22]           For the reasons that follow, I find that Benisti has discharged the burden of proving on the balance of probabilities that the possibility of saving time and money and of achieving a just determination of the proceeding is such that a departure from the general principle to the effect that any issues raised in a proceeding should be examined together is warranted.

A.        Nature of Proceeding and Issues

[23]           Under this heading, we should bear in mind that a total of five (5) elements must be determined under the general issue of liability.

[24]           The Court must determine:

1.         the potential liability of TXT Carbon for passing off;

2.         the potential liability of TXT Carbon for infringement of industrial design;

3.         the potential liability of Benisti for infringement of the ‘N1 trade-mark;

4.         the validity of the industrial design; and

5.         the validity of the ‘N1 trade-mark.

[25]           Furthermore, in the first part of the trial, the parties will have to explain their respective positions concerning the availability of the remedy for profits.  The Court will have to decide whether the party that is successful is entitled to the opposing party’s profits as a remedy.   

[26]           Only when these issues have been resolved will the remedy stage or issue come into play.  It must therefore be concluded that the issue of liability in general is not intertwined with the issue of remedies.  In my opinion, there is a clear enough separation between the two issues.

B.        The Status of the Proceedings and the Remedies Sought

[27]           It appears at this stage of the proceedings that the parties have invested few or no resources in the remedy issue.  Apparently, the affidavits of documents of the respective parties are incomplete on the issue of remedies.

[28]           Furthermore, despite the fact that two rounds of examination for discovery have been held to date and that counsel for TXT Carbon has raised certain questions of a financial nature, by and large, the issue of remedies in general has not yet been explored in depth.

[29]           It also appears that the case has definitely moved forward in terms of liability and validity issues.  If bifurcation is not ordered here, the parties will have to hold additional examinations to explore the remedy issues.

[30]           Since it is certain in this case that the past points the way to the future, we can probably expect this additional exercise to lead to further interlocutory motions and definite delays in completing the case.  To be sure, that the parties in this case are direct competitors for the Canadian market has some bearing on the fact that this case is still not ready for trial.

[31]           Furthermore, since the parties have not elected for profits or damages, and although the awarding of profits is ultimately at the Court’s discretion, the fact remains that profits are still an issue at this stage of the proceedings.

[32]           On this point, TXT Carbon complained that Benisti had submitted in support of its motion an affidavit from a lawyer with the firm acting for Benisti.  Although that may be the case and the affidavit may consequently reflect hearsay to some extent, the affidavit in question appears to offer a credible description at paragraphs 36 et seq., for example, of a lengthy, costly exercise or process for calculating profits.

[33]           The exercise apparently need not be different from that undertaken in other intellectual property cases in which it has been recognized that, in order to establish one party’s profits, a variety of financial data from a business must be taken into account.  (See Teledyne Industries, Inc. v. Lido Industrial Products Ltd. (1982), 68 C.P.R. (2d) 56; Diversified Products Corp. v. Tye-Sil Corp. (1990), 32 C.P.R. (3d) 385.)  In Depuy (Canada) Ltd. v. Joint Medical Products Corp. (1996), 67 C.P.R. (3d) 145, the Federal Court of Appeal indicated at pages 146-147:

We are also of the view that had the motions judge correctly instructed himself in the law he would have granted the order sought. This is a patent infringement action in which the defence and counterclaim raise serious issues of validity. The plaintiffs reserve the right to seek an accounting of profits with the result that, if severance is not ordered, discovery will necessarily range across the whole of the defendants’ business and not be limited to the single allegedly infringing item.

[34]           Accordingly, it is hereby ordered:

(a)        That there be separate proceedings on the issue of the parties’ liability for the acts respectively attributed to them—including the defendant’s liability for passing off and infringement of Canadian industrial design, the plaintiff’s liability for infringement of registered trade-mark ‘N1, and the issue of the validity of the industrial design and the validity of the ‘N1 trade-mark—and on the issue of the remedies sought as a result of the acts attributed by each party to the other.

(b)        The parties are relieved of their respective obligations for discovery of any documents relating to the issue of remedies (damages and/or profits) before the trial on the issue of liability.

( c)       The parties are authorized to proceed with service of affidavits of documents, discovery of documents, and examination for discovery in accordance with the rules concerning the issue of respective remedies sought, after the issue of liability is heard and on a date to be determined subsequently by the Court at the parties’ request.

[35]           Costs on this aspect of Benisti’s motion are to be in the cause.

II.        Motion by Benisti to Dispose of Objections

Category 1:     Questions concerning Ms. Levy’s employment with Benisti

[36]           It appears from the pleadings and examinations by the parties that Ms. Levy is a former employee of Benisti.  Benisti alleges that TXT Carbon committed acts of passing off, in that, following Ms. Levy’s move to TXT Carbon:

(a)        TXT Carbon adopted and used the ‘N1 trade-mark and subsequently registered it on February 11, 2004;

(b)        TXT Carbon marketed a coat design that was identical or so similar that it was confused with Benisti’s industrial design.

[37]           It therefore seems to me that the circumstances leading to the adoption and use of the aforesaid trade-mark and the manufacture by TXT Carbon of coats that, according to Benisti, infringe the industrial design, are relevant.

[38]           Furthermore, it is clear that a party’s intention is relevant in cases of passing off, since one party’s right to a remedy (damages, profits, exemplary damages) may hinge on evidence as to the intention of the opposing party.  (See Kun Shoulder Rest Inc. v. Joseph Kun Violin and Bow Maker Inc. (1997), 76 C.P.R. (3d) 488, 490-492 (F.C.).)

[39]           Consequently, the questions in both categories 1 and 2 (those relating to Ms. Levy’s contact with TXT Carbon) will have to be answered.

Category 3:     Questions concerning the products (designs) on which Ms. Levy worked, including the design at issue.

[40]           I believe that Benisti is justified in enquiring as to Ms. Levy’s involvement in the process of creating and marketing TXT Carbon’s coat, in order to determine more clearly the extent of the alleged acts of infringement.

[41]           Therefore, the Category 3 questions will also have to be answered.

[42]           With regard to Category 4, General Questions, these questions need not be answered, because they are in the nature of a fishing expedition.

[43]           Accordingly, TXT Carbon shall, within twenty (20) days of the date of these Reasons for Order and Order, deliver answers in writing to those questions to which it must here respond.

[44]           The motion by Benisti is otherwise dismissed.

[45]           Given the mixed success on this aspect of the motion, no disposition as to costs will be made.

III.       Motion by TXT Carbon to Dispose of Objections

Category 1:     Losses suffered by the plaintiff

[46]           Given the bifurcation order issued supra, the Category 1 questions need not be answered for the time being.  This reason also stands for the Category 5 questions.

Category 2:     Benisti’s conduct before the present action was brought

[47]           The Category 2 questions must be answered, because Benisti’s conduct between July 1998 and August 23, 2001, relating to its knowledge of the use of the ‘N1 trade-mark by TXT Carbon, is relevant and may shed light on Benisti’s claim concerning its prior use of the ‘N1 trade-mark, that is, since July 1997.

[48]           These questions are also relevant with respect to Benisti’s accusation concerning registration of the ‘N1 trade-mark by TXT Carbon.

Category 3:     Use of “Point Zero” and “Benisti”

[49]           The Category 3 questions relate to the use of “Point Zero” and “Benisti” independently of or in conjunction with the ‘N1 trade-mark.

[50]           The Category 3 questions are relevant and must be answered, since they seek to establish whether the ‘N1 trade-mark was actually used by Benisti as a trade-mark, or simply as a descriptive internal identifier in situations where the identifiers “Point Zero” and “Benisti” would have been used as trade-marks.

Category 4:     When ‘N1 of the plaintiff first appeared on products - Produce labels since December 1997 and confirm sales with hangtags - Where, when, to whom products with ‘N1 labels were sold including years and amounts -  Advertisements

[51]           Unless this is not the case, it appears to me that questions i, ii, iii, iv, vii, ix, x, xi and xvi were answered in Benisti’s undertakings filed on June 22, 2005.

[52]           On questions xvii and xviii, Benisti states that it provided all the documents and answered all the questions when it filed its undertakings.  As stated by counsel for Benisti, it has no other information to offer but undertakes, should it discover any additional documents or information, to provide such material to counsel for TXT Carbon.

[53]           The other Category 4 questions must be answered, given the arguments by TXT Carbon set out in paragraph 31 of its written submissions. The paragraph reads as follows:

31.           In order to establish use of a trade-mark in association with wares the Plaintiff must establish that ‘n1 was used on the articles themselves as a trade-mark or on packaging. The invoices produced only show ‘n1 in a descriptive sense. The Defendant is entitled to have access to all documents, including labels and handtags for the purpose of establishing that ‘n1 was in use as a trade-mark per se, when such use commenced, how it occurred, on what materials and that such use was and is continuous.

Category 6 :    Who selected 3’N1 - Who is in charge of design - Meaning of abbreviations - Definition of multifunctional and elements

[54]           I do not believe that the Category 6 questions are in fact seeking an expert opinion from Mr. Benisti.  Given his involvement in Benisti, I believe that he can and must answer the questions, since they appear to be relevant in light of the comments by TXT Carbon in paragraph 37 of its written submissions.

[55]           Accordingly, Benisti shall, within twenty (20) days of the date of these Reasons for Order and Order, deliver answers in writing to those questions to which it must respond here.

[56]           The motion by TXT Carbon is otherwise dismissed.

[57]           Given the mixed success of this motion, no disposition as to costs will be made on the aforesaid motion.

[58]           The following schedule shall be followed by the parties in order to finally bring this case to trial:

1.         As indicated supra, both Benisti and TXT Carbon shall, on or before December 13, 2005, serve written responses to the questions that they must answer in accordance with these reasons.

2.         On or before December 13, 2005, the parties shall, if they have not already done so, complete the undertakings previously made by them.

3.         On or before January 6, 2006, Benisti shall serve and file an application for a pre-hearing conference.

Certified true translation

Michael Palles

                                     FEDERAL COURT

                              SOLICITORS OF RECORD

DOCKET:

STYLE OF CAUSE:

T-1517-01

BENISTI IMPORT-EXPORT INC. v.MODES TXT CARBON INC.

PLACE OF HEARING:                                Montréal, Quebec

DATE OF HEARING:                                  October 26, 2005

REASONS FOR ORDER:                           Richard Morneau, Prothonotary

DATED:                                                         November 23, 2005

APPEARANCES:

SOLICITORS OF RECORD: