Friday, February 26, 2016

No Presumption Against an Accounting of Profits

Philip Morris Products S.A. v. Marlboro Canada Limited 2016 FCA 55 Trudel, Scott, Boivin JJA aff’g 2015 FC 364 de Montigny J

This issue in this decision is whether the trademark owners who had prevailed in their infringement action should be entitled to elect an accounting of profits. While it is a trademark case, it is directly relevant to the same question in the patent context, both as a matter of principle and because the parties and the courts considered the patent case law. As discussed here, de Montigny J’s decision was noteworthy for its extensive review of the factors to be considered in deciding whether to allow a successful party to elect an accounting. Since the decision to award an accounting is discretionary, the standard of review is deferential and the FCA has affirmed on the basis that the appellants had not demonstrated any error sufficient to warrant intervention [23]. With that said, the FCA’s comments were broadly approving of de Montigny J’s analysis.

The most general issue raised is whether there is a presumptive entitlement to an accounting. That is, will a successful IP owner normally be permitted to elect an accounting unless there is some reason why that remedy should be denied; or will an accounting be denied unless the plaintiff can show some positive reason why it should be granted? As discussed in my post on Phelan J’s decision in Varco v Pason 2013 FC 75, there had been something of a split in the FC cases on this point. This case is the first time the question has been directly raised in the Court of Appeal. Relying on Hughes J’s decision in Janssen [2006] FC 1234, which indicated that an accounting would presumptively be denied, “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” [15]. The FCA rejected this argument, on two grounds. First, “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” [17]. I don’t want to parse this too finely, but this could be taken to indicate either that the causal link will be established in any IP case in which the plaintiff was successful; or at least any case in which the plaintiff suffered lost profits, though perhaps not in a case in which the plaintiff would only have been entitled to a reasonable royalty had it elected damages. Secondly, the FCA noted that “the statement in Janssen on which the appellants rely stands alone in the jurisprudence and is not supported by any prior case law” [18]. This is not quite the same thing as saying there is a presumptive entitlement to an accounting, but it does at least mean that there is no presumption against an accounting.

The appellants had also argued that de Montigny J had failed to consider the restitutionary purpose of an accounting. The FCA rejected this. The court noted that de Montigny J had clearly turned his mind to the restitutionary purpose [9], and moreover, the FCA indicated, correctly in my view, that Strother 2007 SCC 24 did not present a test requiring an accounting be granted solely for a restitutionary purpose [7]. Strother [75] noted that a disgorgement of profits “may be directed to either or both of two equitable purposes" (my emphasis), namely a prophylactic (deterrent) purpose or a restitutionary purpose, and as noted by Zinn J in Monsanto v Rivett, 2009 FC 317, [20] discussed here, “It is not necessary that both purposes be served in every case” [20]. I might add that in Strother the SCC gave the example of “wrongful exploitation by the defendant of the plaintiff’s intellectual property” [76] as a situation where the restitutionary rationale would be engaged, so a singular focus on restitution would not in any event militate against awarding an accounting to a successful IP owner.

The FCA also approved de Montigny J’s analysis of the question of the complexity of an accounting [14]. As discussed in my post on de Montigny J’s decision, this point is significant because the accounting remedy was rejected in US law because of the putative difficulty of carrying out an accounting, though this was at a time when the accounting remedy was not assessed on the same basis as it now is in Canadian law.

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