2021 QCCA 1664, 2021 QCCA 1664

Constellation Brands US Operations Inc. c. Société de vin internationale ltée 2021 QCCA 1664 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No.: 500-09-028594-190 (500-17-095867-167) DATE: November 5, 2021 CORAM: THE HONOURABLE MANON SAVARD, C.J.Q. MARTIN VAUCLAIR, J.A. MICHEL BEAUPRÉ, J.A. CONSTELLATION BRANDS US OPERATIONS INC. APPELLANT – Plaintiff v. SOCIÉTÉ DE VIN INTERNATIONALE LTÉE RESPONDENT – Defendant JUDGMENT [ 1 ] The Appellant appeals the August 21, 2019 judgment of the Honourable Mr.

Justice Frédéric Bachand of the Superior Court, District of Montreal (as he then was), dismissing its claim for infringement of the Copyright Act and the Trademarks Act by the Respondent. [ 2 ] For the reasons of Savard, C.J.Q., with which Vauclair and Beaupré, JJ.A. concur, THE COURT : [ 3 ] DISMISSES the appeal, with legal costs. MANON SAVARD, C.J.Q. MARTIN VAUCLAIR, J.A. MICHEL BEAUPRÉ, J.A. Mtre Mortimer G. Freiheit FREIHEIT LEGAL Mtre Bruno Barrette Mtre Yann Canneva BARRETTE LÉGAL For the Appellant

Mtre Manon Dagenais Mtre Jérémie Brault MARCEAU & BOUDREAU AVOCATS For the Respondent Date of hearing: April 22, 2021 REASONS OF SAVARD, C.J.Q. [ 4 ] This appeal concerns the use of promotional leaflets by the Respondent (“SVI”) in 2015 as part of an advertising campaign for its new collection of wines. According to the Appellant (“Constellation”), these leaflets infringed both the Copyright Act (“ CRA ”) [1] and the Trademarks Act (“ TMA ”) [2] as they referred to, and used images of, its own wines (comparative advertisement).

It therefore seeks an accounting of profits, punitive damages and solicitor-client costs for the infringement of its copyright, the wrongful use of its trademark and the resulting depreciation of the value of its goodwill. [ 5 ] The Superior Court (Frédéric Bachand, J.S.C., as he then was) dismissed Constellation’s claim. [3] On appeal, Constellation contests each of the trial judge’s findings.

It claims, among other things, that the trial judge erred in law in the application of the burden of proof and in his finding with respect to its claim for an accounting of profits under s. 35 CRA and s. 53.2 TMA . [ 6 ] For the reasons that follow, I agree with the trial judge’s conclusion, although I arrive at that result by a slightly different path. Constellation’s appeal should therefore be dismissed with legal costs. Background [ 7 ] Constellation is a division of Constellation Brands, a company based in the United States that produces, sells and markets alcoholic beverages around the world.

Its wines are available for purchase in Quebec, including in Société des alcohols du Québec (“SAQ”) retail stores and in grocery stores. Constellation holds approximately 60% of the market share for wine in Quebec’s grocery sector. [ 8 ] Two of Constellation’s wines – a chardonnay and a pinot noir – are sold under the brand name “MEIOMI.” These wines are sold in Quebec exclusively through the SAQ. [ 9 ] SVI is a Quebec-based producer, importer and supplier of wines that are sold in grocery stores.

Therefore, SVI and Constellation are competitors in the Quebec grocery sector. [ 10 ] In May 2015, SVI launched a new line of products called “Apollo Découvertes” (which I refer to as “Apollo”). This line includes three wines: a Zinfandel (“Apollo Rouge”), a chardonnay (“Apollo Bleu”) and a pinot noir (“Apollo Jaune”). They were sold only in Quebec and exclusively in grocery stores (including Costco). [ 11 ] SVI created leaflets to advertise these products. These leaflets contained information such as the brand names of the wines, their countries of origin, the types of grapes used and their alcohol contents.

They used images of products sold at SAQ stores for comparative purposes. The leaflets that advertised Apollo Bleu and Apollo Jaune (the chardonnay and the pinot noir) compared these wines to Constellation’s MEIOMI wines. 2,500 of these leaflets were distributed between October 2015 and July 2016. [4] [ 12 ] This is how the trial judge summarized the factual framework that led to Constellation’s claim against SVI: [1] This case concerns the use of promotional leaflets by the defendant (“SVI”), a Quebec-based producer of wines sold in grocery and retail stores, during the fall of 2015 and the winter of 2016.

The leaflets relate to three wines forming part of a line of products called “Apollo Découvertes” that SVI launched earlier in 2015. [2] In addition to conveying information about the origins and features of those wines, the leaflets — which were primarily used during tastings that took place in various stores — contained images of wine bottles manufactured by the plaintiff (“Constellation”), a global producer of beer, wine and spirits based in the United States.

Those images were used in conjunction with statements claiming that two of SVI’s new wines were comparable to wines sold by Constellation in stores operated by the Société des alcools du Québec (“SAQ”). [3] The leaflets — 2,500 of which were printed in October 2015, at a cost of less than $600 — were merely one aspect of a multifaceted marketing strategy deployed by SVI to promote its new wines. A key element of that strategy, which cost SVI tens of thousands of dollars, was the endorsement of a then high-profile celebrity chef known as Mr. Giovanni Apollo.

The “Apollo Découvertes” line of products was also advertised on television and on the Internet during a period of several months.

[4] Constellation contends that SVI’s use of the leaflets infringed on some of its intellectual property rights. Asserting causes of action arising out of both the Copyright Act and the Trade-marks Act, it primarily seeks to recover profits made by SVI, which are alleged to amount to $833,680.

Moreover, Constellation seeks punitive damages in the amount of $50,000 as well as the reimbursement of its solicitor-client fees. [5] When this proceeding began in October 2016, Constellation was also asking the Court to issue various injunctive orders essentially aimed at enjoining SVI from making any use of the Constellation trade-marks and copyrighted materials at issue.

That aspect of the case was resolved in the fall of 2017, when SVI agreed to a partial judgment incorporating the orders sought by Constellation. [Emphasis added] [ 13 ] In its judicial application filed in 2016, Constellation alleged that SVI’s leaflets infringed its copyright and trademark rights (ss. 19 and 20 TMA ), constituted unfair competition under art. 1457 C.C.Q. and depreciated the value of the goodwill attached to the registered MEIOMI trademark (s. 22 TMA ).

Constellation thus claimed compensatory damages (for an unspecified amount), punitive damages ($50,000) and sought an accounting of profits (at the time, estimated to be $160,686). Towards the end of the first day of the trial, which took place in June 2019, Constellation elected to seek exclusively an accounting of profits as the remedy for the infringement of its rights, and it modified its claim to seek an accounting of profits in the amount of $833,680 just before its oral arguments at the end of the trial.

Superior Court Judgment [ 14 ] SVI did not question the validity of the MEIOMI trademark or the copyright that Constellation held in its MEIOMI products, namely “the MEIOMI products get-up, the label, image and logos”. [5] SVI also conceded that its promotional leaflets violated Constellation’s rights under the CRA . Therefore, the issues before the trial judge were limited to whether there was a violation of the TMA and whether the remedies that Constellation sought were appropriate. [ 15 ] In his reasons, the trial judge did not discuss the violation of the TMA.

Instead, he began his analysis with Constellation’s claim for an accounting of SVI’s profits under both s. 35(1) CRA and s. 53.2(1) TRA , working with the assumption that there was a violation of both acts.

After stating that the plaintiff was only entitled to recover profits resulting from the infringement of its intellectual property rights, he concluded that Constellation had not met its burden of proving that “the profits sought related to revenues resulting from SVI’s use of the leaflets”. [6] In his view, “one cannot simply assume that the use of the leaflets led to an increase in SVI’s revenues”. [7] The record did not contain evidence that suggested there was such a causal relationship. [ 16 ] Although it was not necessary to address the other issues related to Constellation’s claim for an accounting of profits, the trial judge added that if Constellation had established a causal link, the burden would have shifted to SVI to establish the costs and expenses to be deducted from its revenues derived from the sale of Apollo wines in order to determine the quantum of profits to be paid to Constellation.

Based on his review of the evidence, the trial judge held that SVI had not established that there were costs and expenses beyond the 46.3% conceded by Constellation.

SVI’s profits from all Apollo products (not just the two wines that were compared to wines produced by Constellation in the leaflets at issue) for the ten-month period covered by the claim [8] amounted to $833,680. [ 17 ] The trial judge also dismissed Constellation’s claim for punitive damages, holding that Constellation had not established that the case presented exceptional circumstances warranting an award of punitive damages under either s. 49 of the Charter of Human Rights and Freedoms [9] (“ Charter ”) or s. 53.2(1) TMA . [ 18 ] Lastly, the trial judge dismissed Constellation’s claim for a solicitor-client costs award under s. 34(3) CRA for the reason that, although SVI conceded that there had been a copyright infringement, Constellation’s claims for recovery of profits and punitive damages had failed.

Issues on Appeal [ 19 ] The various issues that Constellation raised on appeal can be encapsulated in four main questions. Did the trial judge commit a reversible error in: 1. refusing to rule on the trademark violations that Constellation alleged? 2. his application of the burden of proof to Constellation’s claim for an accounting of profits for infringements of intellectual property rights under s. 35 CRA and s. 53.2 TMA ? 3. refusing to award punitive damages to Constellation? 4. refusing to award solicitor-client costs to Constellation? [ 20 ] I will address the first two questions together. * * * * * *

Trademark Violations and Burden of Proof [ 21 ] Constellation argues that the trial judge committed a reversible error by refusing to rule on the trademark violations that it alleged and in his application of the burden of proof to its claim for an accounting of profits under s. 35 CRA and 53.2 TMA .

In its view, the trial judge imposed a burden upon it to establish a causal link between the infringement and SVI’s revenues, which is contrary to the “long- standing rules respecting the burden of proof in intellectual property matters”. [10] Constellation contends that its burden was merely to prove the infringement and the gross revenues made by SVI from the Apollo products.

The burden would then shift to SVI to prove its deductible expenses and the portions of its profit attributable to factors other than the infringing leaflets (i.e . that its profit did not result from, or only partially resulted from, the infringing use of Constellation’s copyright and trademark). Constellation claims that the trial judge then erroneously placed the burden on it to establish this apportionment.

SVI’s leaflets could not be separated from the overall commercial effort associated with the Apollo product launch, such that none of the profits that SVI received from the Apollo products could be separated from the infringements of Constellation’s intellectual property rights.

From this perspective, it must be assumed that SVI’s leaflets led to sales of the Apollo products following their launch; causation is therefore “undeniable on a common sense basis”. [11] Since SVI failed to provide any evidence as to its costs and expenses and as to the apportionment of its profits, the trial judge should have ordered it to pay $833,681. [ 22 ] I disagree. [ 23 ] Constellation is correct to state that the trial judge failed to discuss the alleged violations of its intellectual property rights under the TMA , noting that SVI conceded that there had been a violation of the CRA .

The trial judge only addressed the remedies that Constellation sought, based on the assumption that there had been a violation of both statutes. His approach does not, however, constitute a reversible error because it does not impact the conclusion he reached. I concur with the trial judge’s finding that a remedy of accounting of profits is not justified in this case. Nonetheless, I will first address the arguments that Constellation raised with regard to the alleged violations of the TMA before turning to the trial judge’s decision to deny its request for an accounting of profits.

Trademark Violations [ 24 ] During its oral arguments before this Court, Constellation emphasized that its main argument is based on s. 22 TMA , although its written submissions say little about this issue. [12]

Section 22 TMA provides: 22(1) No person shall use a trademark registered by another person in a manner that is likely to have the effect of depreciating the value of the goodwill attaching thereto. (2) […] 22(1) Nul ne peut employer une marque de commerce déposée par une autre personne d’une manière susceptible d’entraîner la diminution de la valeur de l’achalandage attaché à cette marque de commerce. (2) […] [ 25 ] In brief, s. 22 TMA forbids the use of another’s trademark in a manner that would depreciate the value of the goodwill attached to it. [13] In Veuve Clicquot , the Supreme Court held that there are four elements to a claim under s. 22 TMA , namely: (1) the registered trademark has been used by the defendant in connection with wares or services – whether or not such wares and services are competitive with those of the claimant; (2) the registered trademark is sufficiently well known to have significant goodwill attached to it; (3) the trademark was used in a manner likely to have an effect on the goodwill; and (4) the likely effect of this use would be to depreciate the value of its goodwill. [14] [ 26 ] In the case at hand, the MEIOMI trademark owned by Constellation appeared only in SVI’s advertising material.

It did not appear on Apollo’s products or packaging. Such a use of the trademark, “for the purpose of comparing the goods with the goods of the plaintiff” , [15] is not per se a violation of “the exclusive right conferred by the [TMA]”. [16] A trade mark can be used in comparative advertising, without being considered an infringement of the mark (s. 4 TMA ). [17] Here, the evidence does not establish that SVI’s leaflets were used in a manner likely to have an effect on MEIOMI’s goodwill, [18] and even less so a negative impact.

Not only did the leaflets compare brands of wine, but they featured multiple brands, not just the MEIOMI brand. Moreover, the limited evidence of the MEIOMI brand’s “reputation” is insufficient to show that there was likely a depreciation of any alleged “goodwill”. Indeed, sales of MEIOMI wines continued to rise even after SVI distributed the leaflets at issue in 2015.

[ 27 ] The fact that there is a difference in price between Apollo and MEIOMI wines and that MEIOMI wines were sold at the SAQ to a “higher end” market than Apollo wines is insufficient to demonstrate a likely depreciation of the goodwill associated with Constellation’s trademark. [19] Even if SVI effectively intended, by its comparative advertisement, to ride the “coat-tails” of Constellation’s “well- established goodwill”, this does not establish that depreciation was likely to occur or actually occurred as a result. [20] [ 28 ] Moreover, there is no evidence to support Constellation’s claim, raised briefly during its oral argument before our Court, that there was a violation of s. 7(

a) TMA , under which “no person shall make a false or misleading statement tending to discredit the business, goods or services of a competitor”. [ 29 ] Constellation’s claims under ss. 7(

a) and 22 TMA should therefore be dismissed. [ 30 ] That said, since SVI conceded that it had violated the CRA , I will now turn my attention to the trial judge’s refusal to order an accounting of SVI’s profits. Accounting of Profits [ 31 ]

Section 35 CRA sets out two remedies for copyright infringement: damages for the plaintiff’s losses and disgorgement of the profits received by the defendant as a result of the violation.

Section 38.1 CRA provides for statutory damages. These options are mutually exclusive. [21] [ 32 ] In view of Constellation’s election for an accounting of profits exclusively (having withdrawn its claims for compensatory damages), there is no need to examine the remedy of statutory damages. [ 33 ]

Section 35 CRA outlines the type of evidence that each party must provide in order for the accounting of profits remedy to be available: [22] 35(1) Where a person infringes copyright, the person is liable to pay such damages to the owner of the copyright as the owner has suffered due to the infringement and, in addition to those damages, such part of the profits that the infringer has made from the infringement and that were not taken into account in calculating the damages as the court considers just.

(2) In proving profits, (

a) the plaintiff shall be required to prove only receipts or revenues derived from the infringement ; and (

b) the defendant shall be required to prove every element of cost that the defendant claims. 35(1) Quiconque viole le droit d’auteur est passible de payer, au titulaire du droit qui a été violé, des dommages-intérêts et, en sus, la proportion, que le tribunal peut juger équitable, des profits qu’il a réalisés en commettant cette violation et qui n’ont pas été pris en compte pour la fixation des dommages-intérêts.

(2) Dans la détermination des profits, le demandeur n’est tenu d’établir que ceux provenant de la violation et le défendeur doit prouver chaque élément du coût qu’il allègue. [Emphasis added] [ 34 ] The purpose of an accounting of profits “is to compel the wrongdoer to divest wrongful earnings to the party who was wronged” . [23] It thereby prevents unjust enrichment, [24] that is, the wrongdoer profiting from its wrongdoing.

Instead, profits that the wrongdoer improperly received should be diverted to the rightful owner of the infringed intellectual property rights. [25] [ 35 ] The Federal Court, in Marlboro , noted that the dual objectives of restitution and deterrence are served by this remedy: The Supreme Court and this Court have consistently recognized that as an equitable remedy, an award of profits serves one or both of two equitable purposes: a restitutionary purpose , and a non-punitive, prophylactic purpose aimed at deterring the wrongdoer and others who might emulate his infringing actions : see Strother v 3464920 Canada Inc , 2007 SCC 24 , at paras 74-77 ; Varco Canada Ltd v Pason Systems , 2013 FC 750 , at para 398 [ Varco ].

Either one of these purposes will suffice; indeed, ordering a wrongdoer to hand over profits illegally obtained to the person who has been wronged will generally serve a deterrence purpose. To that extent, it is not entirely accurate to describe an accounting of profits as being “compensatory” in nature; its most direct effect is to put the wrongdoer in the position he would otherwise have been if he had not committed any wrong, rather than to restore the wronged party to the position in which he would have otherwise been (see Monsanto Canada v Rivett , 2009 FC 317 , at paras 19-21 , varied in

part 2010 FCA 207 . [26] [Emphasis added] [ 36 ] There are many differences between damages and accounting of profits as remedies. Suffice it to say that an award of damages focuses on the losses incurred by the plaintiff, whereas these considerations are irrelevant when an accounting of profits is sought. [27]

Only the benefits that the wrongdoer derived from the improper use of intellectual property rights are relevant in these situations.

Damages aim to place the injured party in the position in which it would have been but for the infringement; an accounting of profits does the same for the infringing party. [28] The focus and starting point of the assessment thus differs, [29] as do the principles underlying both remedies. [30] The difference has been described in the jurisprudence as follows: The remedy of an accounting of profits is equitable in origin [...] Like an award of damages, an accounting of profits is designed to compensate the patentee for the wrongful use of its property.

While the goal of each remedy is the same, the underlying principles are very different . An award of damages seeks to compensate the plaintiff for any losses suffered by the plaintiff as a result of the infringement. The amount of profits earned by the infringing party is irrelevant. An accounting of profits, on the other hand, aims to disgorge any profits improperly received by the defendant as a result of its wrongful use of the plaintiff's property. Such profits, having been earned through the use of the plaintiff's property, rightly belong to the plaintiff.

The aim is to remedy the unjust enrichment of the defendant by transferring these profits to their rightful owner, the patentee. [31] [Emphasis added] [ 37 ] Being an equitable and discretionary remedy designed mainly to prevent unjust enrichment, [32] it is settled in the jurisprudence that “[w]hether or not accounting for profits is an appropriate remedy varies according to the circumstances of the case and is at the discretion of the Court”. [33] The Federal Court of Appeal held that there is “no right to an accounting of profits but that the [plaintiff or intellectual property right holder] should not be denied that option in the absence of any compelling reasons”. [34] [ 38 ] Courts have, however, stressed the inconveniences associated with the accounting of profits remedy, as it often “lead[s] to considerable expense and delay”. [35] In Reading & Bates , the Federal Court of Appeal stated that “[i]t is trite to say that the exercise of this remedy has been associated with a number of practical difficulties which have somewhat diminished its usefulness”. [36] The Court emphasized that: The remedy often leads to a relitigation of the nature and extent of the infringement in an attempt to minimize the amount of profits made from it or to obtain apportionment.

It also gives rise to litigation in the determination of the secondary benefits, i.e., the level and amount of earnings made on the profits by a defendant. Central to the debate between the litigants are the extent and the proper allocation of the burden of proof. […]. [37] [ 39 ] Authors have also emphasized this issue. As Bently writes: The main difficulty raised by the remedy of an account concerns the way the profits are calculated . In part this is because it will be very rare for the infringement of the intellectual property right to be the single cause of any profit.

It is more likely that only part of the product sold by the defendant will have been infringing. In such cases the court must try to determine what profits have been caused , in a legal sense, by those acts. […] [38] [ 40 ] And as Siebrasse writes: The goal of an accounting of profits is to force the wrongdoer to disgorge all profits made by the defendant as a result of his infringement. This can quickly lead to difficult questions, because profits may spring from the use of many complementary non- infringing assets.

The traditional solution was to award the plaintiff only that portion of the defendant’s overall profits which was attributable to the infringement . Determining when and how to conduct this “apportionment” of profits has been among the most difficult legal questions […]. [39] Indeed, determining causation is the key task of any court that assesses a claim for an accounting of profits.

Courts must identify and calculate “the actual benefit received by the infringer that was caused by the infringement”. [40] [ 41 ] Determining the portion of the profit to be disgorged is left to the court’s discretion: While the calculation of profits can be the result of an arithmetical operation, it is still left to the court’s discretion to decide what part of those profits will be granted to the plaintiff. [41] [ 42 ] This case is no exception to these well-established principles.

As previously mentioned, the trial judge concluded that Constellation had not met its burden of proving that “the profits sought related to revenues resulting from SVI’s use of the leaflets”.

In his view, “one cannot simply assume that the use of the leaflets led to an increase in SVI’s revenues”. [42] The trial judge emphasized two points that were omitted in Constellation’s argument: [12] However, Constellation’s position overlooks two key points. [13] The first is that the holder of a copyright or trade-mark is only entitled to recover profits made as a result of an infringement of its intellectual property rights . That is clear from the text of

section 35 of the Copyright Act, [reference omitted] but the point is equally valid in the context of an action seeking to recover profits based on

section 53.2(1) of the Trade-marks Act [reference omitted]. [14] The second key point is that, in an action seeking the recovery of profits, it is the plaintiff who bears the burden of proving the increase in the defendant’s revenues resulting from the infringement of its intellectual property rights [reference omitted].

The burden only shifts to the defendant, with respect to costs and expenses, upon proof of revenues resulting from the infringement . [Italics in original; underlining added] [ 43 ] I agree with Constellation that the terms used by the trial judge to suggest that Constellation had the burden of proving that there was an increase in SVI’s revenues due to the infringement, are unfortunate . [43] The goal of an accounting of profits is not to remit the

increase in profits, but “[…] to force the wrongdoer to disgorge all profits made by the defendant as a result of his infringement”.[44] Itis not the increase in revenues that must be proven, but that the infringer’s profit is causally attributable to the infringement.[45] Areview of the case law shows that different terms have been used interchangeably to describe this requirement for a causal link: theprofits must be “attributable to”,[46] “derived from”,[47] “generated”[48] or “caused by”[49] the infringement or infringing activities. [44] Regardless of which terms have been used, courts have generally applied a “common sense view of causation” in assessingclaims for an accounting of profits.

In Monsanto, the Supreme Court wrote:[50] [101] It is settled law that the inventor is only entitled to that portion of the infringer’s profit which is causally attributable to theinvention: Lubrizol Corp. v. Imperial Oil Ltd., (FCA), [1997] 2 F.C. 3 (C.A.); Celanese International Corp. v. BPChemicals Ltd., [1999] R.P.C. 203 (Pat. Ct.), at para. 37. This is consistent with the general law on awarding non-punitive remedies: “[I]t is essential that the losses made good are only those which, on a common sense view of causation, were caused by the breach”(Canson Enterprises Ltd. v.

Boughton & Co., (SCC), [1991] 3 S.C.R. 534, at p. 556, per McLachlin J. (as she then was),quoted with approval by Binnie J. for the Court in Cadbury Schweppes Inc. v.

FBI Foods Ltd., (SCC), [1999] 1 S.C.R.142, at para. 93). [45] Recently, in Nova, a case presently pending before the Supreme Court, the Federal Court of Appeal gave a “prudent reminder toapply causation principles properly and rigorously, to ensure that the gain earned by the infringer as a result of the infringement isreversed, no more, no less”.[51] The Court stressed that the key words are “as a result”:[52] [33] To reiterate, under an accounting of profits, the patentee is entitled to the benefits obtained by infringers as a result of theinfringement of the patent, properly construed and understood, no more, no less.

The key words are “as a result” and “infringement ofthe patent, properly construed and understood”. The former stresses the need for the court to analyze causation, for only those amountscausally linked to the infringement are captured by the accounting of profits; anything extra is punitive.

The latter reminds us that thefocus is on the protection afforded by the patent; anything extra effectively extends, improperly, the scope of protection afforded by thepatent. [Emphasis added] [46] The assessment of causation is thus an integral part of – and a prior condition for – the determination of whether profits can bedisgorged. In fact, where there is no causal connection between the wrongful use of the plaintiff’s intellectual property rights and thedefendant’s profits, the accounting remedy is simply not available.

This means that causation is a preliminary issue, which is distinctfrom “apportionment”, even though the two issues often overlap. [47] For example, in Leuthold v.

Canadian Broadcasting Corporation, the Federal Court held that: [147] In this case the Court will not grant an accounting of profits for the following reason: there exists no causal link between the feepaid by Newsworld subscribers and the six unauthorized communications to the public that infringed on Miss Leuthold’s rights. [148] The Court will only grant an accounting of profits where it finds a direct link between the infringements and the profits of theinfringer. In the present case, there is no evidence on the record linking the revenues of Newsworld to the six unauthorizedcommunications to the public.

Newsworld revenues did not increase as a result of the six communications to the public […].[53] [48] In fact, causation initially determines the availability of the accounting of profits remedy, as it is a condition sine qua non of theremedy. It also serves to identify what portion of the profits are to be disgorged.

The Federal Court noted that, according to the SupremeCourt’s holding in Monsanto: In an accounting of profits, it must first be shown that the infringer's profits are causally related to the act of infringement, and then theappropriate quantification or apportionment of profits attributable only to the infringing activity must be determined: Monsanto CanadaInc v Schmeiser, 2004 SCC 34, at paras 101-105; Merck & Co v Apotex, 2013 FC 751, at paras 83-84; Varco, above, at paras 416-417.[54] [49] In that case, the Federal Court was called upon to determine whether the plaintiffs were entitled to choose between damages andan accounting of profits under s. 53.2(1) TMA, and it held that they were.

It is worth mentioning that the Federal Court had alreadyconcluded that the violation under s. 20 TMA had generated unjust enrichment,[55] therefore recognizing the causal link required for theremedy to be available.[56] [50] The Supreme Court, in Cinar, recognized the issue of causation under s. 35, CRA and reiterated that causation requires a fact-sensitive analysis.[57] Chief Justice McLachlin, writing for a unanimous Court, wrote: [77]

Section 35 of the Copyright Act provides that a defendant can be ordered to “disgorge its profit to the extent that such profit iscaused by the infringement. The requirement for a [causal] link between infringement and profit may require that the profit beapportioned between that which is attributable to the infringement and that which is not”: McKeown, at p. 24-82.3 (emphasis added).The onus is on the infringer to “satisfactorily separate non-infringing from infringing activities”: Vaver, at p. 653; Sheldon v. Metro-Goldwyn Pictures Corporation, 106 F.2d 45 (2d Cir. 1939), per Learned Hand J.

In some cases, “an infringer may so interweave theright-holder’s work with its own as to make separation impossible”: Vaver, at p. 637. [78] The apportionment of profits between infringing and non-infringing components of a work is essentially a factual determinationwhich is subject to judicial discretion: Wellcome Foundation Ltd. v. Apotex Inc., (FCA), [2001] 2 F.C. 618 (C.A.), atpara. 23; Lubrizol Corp. v. Imperial Oil Ltd., (FCA), [1997] 2 F.C. 3 (C.A.), at para. 9.

An appellate court may onlydisturb the trial judge’s findings on apportionment if there are errors of law or palpable and overriding errors of fact (Housen).

[Emphasis in original] [ 51 ] In this case, the trial judge rightly took into consideration the fact that the promotional leaflets must be distinguished from the Apollo wines themselves. The leaflets were separate from the products that SVI actually sold. As the trial judge concluded, no part of the Apollo wines themselves infringed Constellation’s intellectual property rights. [ 52 ] Thus, the trial judge was right to distinguish this case from other cases in which the apportionment of profits was at issue.

In those cases, the revenue-generating products themselves – in whole or in part – infringed the plaintiff’s intellectual property rights. [58] [ 53 ] Although SVI’s leaflets infringed Constellation’s intellectual property rights, this does not necessarily mean that there was a causal link between the profits from the sale of the Apollo wines and the infringement.

That is a question of fact. [ 54 ] The trial judge concluded that Constellation had not established, on a balance of probabilities, that SVI’s profits were causally linked to the act of infringement, (i.e. that they were derived from the leaflets’ distribution or content).

Before this Court, Constellation failed to establish that the trial judge made any palpable or overriding errors in coming to this conclusion. [ 55 ] The trial judge noted that the 2,500 leaflets at issue, which were printed at a cost of less than $600, “were merely one aspect of a multifaceted marketing strategy deployed by SVI to promote its new wines” [59] and limited as to time and geographical scope. [60] Indeed, there were many more significant elements of SVI’s marketing strategy, including the endorsement of a celebrity chef, Mr.

Giovanni Apollo, as well as television and internet advertisements that ran over a period of several months. [ 56 ] In addition, only two of the three Apollo wines were compared to MEIOMI wines on the leaflets at issue.

The leaflets were, for the most part (although not exclusively), distributed to Costco customers, where the only Apollo wine sold was not featured in the leaflets. [ 57 ] Thus, while it may be problematic that the trial judge referred to an “increase in the defendant’s revenues”, this did not impact the conclusion he reached. [ 58 ] Since the infringing leaflets played a negligible role in SVI’s marketing effort, the evidentiary record is capable of supporting the contention that there was no sufficient causal link between them and SVI’s revenues from the sale of the Apollo wines.

Thus, it was open to the trial judge to reach this conclusion and, accordingly, to refuse Constellation’s request for the accounting of profits remedy . [ 59 ] Therefore, Constellation’s claim for an accounting of profits should be dismissed.

Consequently, I would uphold the trial judge’s decision on this point. [ 60 ] Since Constellation’s claim was based only on a claim for an accounting of profits, there is no need to consider whether statutory damages (s. 38.1 CRA ) or compensatory damages (s. 35 CRA ) could have been awarded. * * * * * Punitive Damages [ 61 ] Constellation further argues that the trial judge committed a reversible error by applying too strict a burden of proof to its claim for punitive damages.

In its view, in cases concerning trademark and copyright infringement, punitive damages may serve to compensate the victim when an ordinary compensatory damage award would not adequately do so.

It contends that SVI’s misconduct, which was alleged to be deliberate and intentional, justifies punitive damages in the amount of $50,000 because it profited from its infringement and an accurate assessment of its profits is impossible. [ 62 ] I disagree. [ 63 ] It is an established principle that an appellate court may only intervene in a lower court’s assessment of punitive damages – which is a discretionary decision – if there is an error of law or a palpable and overriding error of fact. [61] I find no such error. [ 64 ] The trial judge correctly set out the principles applicable to punitive damages in copyright infringement cases (s. 38.1(7) CRA ).

The legal basis for an award of punitive damages is provided for in s. 49 of the Charter (since a copyright infringement is a violation of s. 6 of the Charter ). [62] As the Supreme Court held in Cinar, for an award of punitive damages to be justified in these circumstances, the interference with protected rights and freedoms must be “intentional:” [118] […] Under s. 49 of the Charter , punitive damages are only awarded if an interference with protected rights and freedoms is “intentional” .

An interference is intentional “when the person who commits the unlawful interference has a state of mind that implies a desire or intent to cause the consequences of his or her wrongful conduct, or when that person acts with full knowledge of the immediate and natural or at least extremely probable consequences that his or her conduct will cause”: St-Ferdinand , at para. 121. […] [63] [Emphasis added] [ 65 ] As I mentioned, the trial judge concluded that Constellation had not established any exceptional circumstances that would justify an award of punitive damages.

In his view, SVI’s conduct did not rise to the required level of blameworthiness. [64] [ 66 ] I cannot find any palpable and overriding error in the trial judge’s conclusion. Based on the evidentiary record, it was open to the trial judge to conclude that SVI’s conduct did not rise to the required level of blameworthiness. Even though SVI conceded that it had violated Constellation’s copyright, that does not in and of itself warrant punitive damages.

As the Federal Court of Appeal wrote (albeit in the context of a trademark infringement): [25] […] Allegations of willful and knowing infringement are alone insufficient to support a claim to punitive damages. Intellectual

property infringement cases, even in voluntary infringement circumstances, will not necessarily attract punitive damages. [65] [ 67 ] As to the false comparison between the Apollo and MEIOMI products that Constellation alleged, the evidence adduced to that effect did not convince the trial judge. The evidentiary record is capable of supporting the trial judge’s conclusion. Constellation has not identified any palpable and overriding error. Constellation merely asks this Court to re-evaluate the evidence because it disagrees with the trial judge’s conclusion.

It is well-established that second-guessing these types of decisions by trial judges, absent a reversible error, is not consistent with the role of an appellate court. [ 68 ] Lastly, there is no need to analyze Constellation’s argument under s. 53.2 TMA because there was no violation of that Act. * * * * * * Solicitor-Client Costs [ 69 ] Finally, Constellation argues that the trial judge committed a reversible error by refusing to award solicitor-client costs in its favour because it was unsuccessful in its claim for an accounting of profits and punitive damages, which was an improper exercise of his discretion under s. 34(3) CRA . [ 70 ] I agree that the trial judge committed an error by concluding that Constellation’s claims for solicitor-client costs should be dismissed simply because it failed in its claim for an accounting of profits and punitive damages.

However, in my view, this error did not impact the conclusion he reached. [ 71 ] An award of solicitor-client costs under s. 34(3) CRA is discretionary: [66] 34(3) The costs of all parties in any proceedings in respect of the infringement of a right conferred by this Act shall be in the discretion of the court. 34(3) Les frais de toutes les parties à des procédures relatives à la violation d’un droit prévu par la présente loi sont à la discrétion du tribunal. [ 72 ] The Federal Court, in Microsoft Corporation v.

Liu , summarized the factors to be weighed in the exercise of a judge’s discretion to award solicitor-client costs under the CRA : [40] […] Costs on [a solicitor-client basis] are appropriate where a party has acted in a reprehensible, scandalous or outrageous manner (see: Yang , at para 59; also see Mackin v.

New Brunswick (Minister of Finance) ; Rice v New Brunswick , 2002 SCC 13 , at para 86 , [2002] 1 SCR 405 ). […] . [67] [Emphasis added] [ 73 ] In Constellation’s view, it is entitled to solicitor-client costs “in the amount to be determined at the Court’s discretion” considering (1) that SVI never answered the cease and desist letter which Constellation sent, leaving Constellation with no choice but to bring an action against SVI, and (2) that SVI admitted its infringement of the CRA. [ 74 ] However, these facts would not justify the cost award that Constellation is seeking.

The evidentiary record does not support the contention that SVI acted in bad faith or otherwise conducted itself in a manner that would warrant an award of solicitor-client costs. Although Constellation had to commence an action to protect its intellectual property rights, SVI conceded the violation of the CRA and, as early as July 2017, agreed to the injunction that was being sought.

In fact, the trial judge noted that the only “substantial breach” that involved SVI’s procedural behaviour was its failure to disclose its documentary evidence in a timely manner ahead of the trial, for which he ordered SVI to pay $3,500 under art. 342 CCP . [ 75 ] Therefore, this aspect of Constellation’s appeal should also fail. * * * * * Conclusion [ 76 ] Overall, I would dismiss Constellation’s appeal in its entirety with legal costs. MANON SAVARD, C.J.Q.