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| May M. Cheng |
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| Mercedes Simon |
Historically, Canadian courts have been reluctant to find personal liability in infringement cases, absent exceptional circumstances where an individual director or officer acted outside of the norms of acceptable business conduct. The test for personal liability had previously been well established in Mentmore Manufacturing Co. v. National Merchandise Manufacturing Co., [1978] F.C.J. No. 521 along with subsequent Federal Court cases that followed, which held that an individual’s actions must constitute “deliberate, willful, and knowing pursuit of conduct likely to infringe” or demonstrate “indifference to the risk of it” in order to engage personal liability, bearing in mind all of the surrounding circumstances. Needless to say, few cases have ordinarily met this high threshold.
Seeking to break this trend, in 2022 Dermaspark pursued a personal liability claim in Dermaspark Products Inc. v. Prestige MD Clinic, 2022 FC 1550, but initially, the case management judge struck the claim against the individual defendants, applying the Mentmore standard to limit personal liability for corporate officers and directors. Dermaspark appealed the ruling before the Federal Court, resulting in the personal liability claims being restored by Madam Justice Furlanetto, who held that the Mentmore test applied specifically to personal liability as it relates to corporate officers and directors, whereas the individual defendants, in this case, were a general partnership, making them jointly
d1sk: ISTOCKPHOTO.COM
Dermaspark continued its pursuit of personal liability with two more cases in 2023 in Dermaspark Products Inc v. Patel, 2023 FC 388, (and Dermaspark Products Inc. c Étienne, 223 QCCS 1268.)
In Patel, Balsam Spa and its owner/operator purchased a counterfeit version of Dermaspark’s OxyGeneo machine from Alibaba and subsequently used Dermaspark’s trademarks on their website to promote their services. At a summary trial brought by motion on behalf of the defendants, Justice Kane ruled in favour of the plaintiff Dermaspark on the passing off claims and on depreciation of goodwill, based on evidence that Dermaspark had received complaints from customers of the defendants who had suffered skin damage, including rashes and topical burns. The court first determined that the case was appropriate for summary trial, as there was agreement on the part of both sides to proceed by way of summary trial and that the issues were well-defined — including the quantification of damages, despite some conflicts in the evidence and questions of credibility of the witnesses.
The defendants’ assertions that the OxyGeneo machine at the heart of the dispute might be “grey goods” rather than counterfeit was not persuasive, nor was the suggestion that Dermaspark should have instead pursued the seller of the counterfeit goods on the Alibaba online seller platform. In addition to using a counterfeit machine, the defendants were found to have used trademarks, images and promotional materials belonging to Dermaspark without a license. On the question of personal liability for the claims, Balsam Spa argued that the personal defendant Patel was merely the directing mind and had not acted outside the scope of her role as the corporate decision-maker, relying on the recent decision in Vachon Bakery Inc. v. Racioppo, 2021 FC 308. Justice Catherine Kane was not persuaded and assigned personal liability to Patel, who clearly chose to ignore the overwhelming evidence the OxyGeneo machine was counterfeit or acted with indifference to this reality, noting Patel was responsible for the purchase. The defendants in Patel were ultimately found jointly and severally liable for $45,000 in total damages; representing $5,000 for copyright infringement, compensatory damages of $20,000 for trademark infringement and punitive damages of $20,000. A counterclaim brought by the defendants was also dismissed.
Less than a month later in Étienne, Justice Jeffrey Edwards of the Quebec Superior Court held the individual defendants named in that action were liable for infringement of Dermaspark’s OxyGeneo mark for misrepresenting counterfeit machines sold on Facebook as the genuine article. The judge noted that the counterfeit devices purchased by the defendant from China for a mere US$230 plus shipping fees were resold as “brand new” and genuine OxyGeneo devices for CAD$4,600, representing a price markup of 900 per cent. A depreciation of goodwill claim was also successful, as in Patel, as a result of Justice Edwards finding the defendant had severely misled customers and behaved in a highly deceitful manner — compounded by evidence of customer complaints for those suffering injuries and negative health consequences. Personal liability was easier to attribute to Étienne, who personally sold the counterfeit OxyGeneo machines on Facebook using a false name rather than through a company. Ultimately, $70,000 in total damages was awarded; including $30,000 in punitive damages, plus legal costs of $24,000, owing to the cavalier nature of the individual defendants’ actions in the face of knowledge of the harm caused by the sale of the counterfeit machines.
Now, Dermaspark seems to be picking up where it left off last year, filing four new claims, all against the companies and individual defendant principals:
- Dermaspark Products Inc. et al. v. Marwa Azmi Alsawwah (also naming Miiamo Beauty & Spa)
- Dermaspark Products Inc. et al. v. Rebound Health and Wellness Inc. et al. (personally naming Sonya Hamilton Obara)
- Dermaspark Products Inc. et al. v. Michele’s Medical Aesthetics Ltd. et al. (personally naming Michele and Brendan Power); and
- Dermaspark Products Inc. et al. v. Aveena Cosmetic Clinic Inc. et al. (personally naming Fatemah Fakourna).
The outcome of these cases could further influence findings of personal liability going forward as it remains to be seen how the Mentmore test will be applied in these cases. Given that the defendants in all cases appear to operate small aesthetician spas, Dermaspark could be setting up a new judicial approach to personal liability claims in trademark enforcement.
May M. Cheng is a certified specialist in intellectual property (IP) law and a partner at Dipchand LLP. Mercedes Simon is a student at law at Dipchand LLP.
The opinions expressed are those of the author and do not reflect the views of the author’s firm, its clients, Law360 Canada, LexisNexis Canada or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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