Loss of Control of Trademark Constitutes Damages for Passing Off


This blog previously reported on the Federal Court’s decision in Target Event Production Ltd. v. Paul Cheung and Lions Communications Inc. In that January 11, 2010 decision, the Court considered the trademark and copyright infringement claims of the Plaintiff, Target Event Production, which arose when the Defendants, Paul Cheung and his company Lions Communications, operated a Chinese night market beginning May 2008 in the location where Target had previously run a similar business until late 2007.  Specifically, Target’s claims were based on Lions’ use of a name similar to the “RICHMOND NIGHT MARKET” trademark owned by Target, as well as Lions’ use of a nearly identical site plan and vendor registration form.

The Court found that although Target’s trademark was valid as of January 2007, it was not durable and lost its distinctiveness when Target failed to re-open open a market by 2009.  However, the Court proceeded to find that Lions’ actions in 2008 were confusing to visitors (but not to vendors) of the market in breach of section 6(5) of the Trade-marks Act.  The Court found that since Lions had lost money operating its market, there could be no accounting of profits but only an award of $15,000 in damages for copyright infringement and the tort of passing off.  The Court held Paul Cheung jointly liable with Lions and issued an injunction preventing Paul Cheung and Lions from operating their market in a manner which was a “substantial reproduction” of Target’s site plan.

Paul Cheung and Lions appealed the Court’s decision and a 15 page judgement was issued by the Federal Court of Appeal on October 5, 2010.  Paul Cheung and Lions contended that the Federal Court was mistaken in finding that Target had a valid enforceable trademark, and that Target suffered damage, both of which are necessary for a court to have jurisdiction to entertain a claim for passing off under the Trade-marks Act (the existence of goodwill and deception due to misrepresentation being the other requirements).  Further, Paul Cheung and Lions argued that the Federal Court was mistaken in finding them jointly and severally liable and in enjoining them from operating their market.  Target cross appealed claiming that the Federal Court was mistaken in finding that its trademark lost its distinctiveness by 2009 and in awarding inappropriate injunctive relief.

The Court of Appeal quickly disposed of the appeal with respect to the existence and durability of Target’s trademark by holding that these were questions of fact that could only be overturned by an appellant court in the case of an overriding error by the trial court, which did not exist in this case.  The Court of Appeal proceeded to address the issue of whether Target had suffered damage.  Paul Cheung and Lions argued that there was no damage to Target because it had ceased to operate its market before any infringement of its trademark had taken place and that potential damage did not satisfy the test for passing off.  However, the Court of Appeal found that there was damage caused to Target because it lost control over the “impact of its trade name” and a “potential impediment to its using its trade mark when re-entering [business]” was created.  Therefore, the Court of Appeal did not decide whether mere potential damage satisfied the test for passing off.

The Court of Appeal found that Paul Cheung could be held jointly liable with Lions because even before Lions was incorporated, he undertook “wilful and knowing pursuit” of a course of action that was likely to constitute infringement of Target’s intellectual property rights.

With regards to the scope of the injunction against Paul Cheung and Lions it was held that the Trade-marks Act did not allow an injunction against further operation of the market in any manner, but only against further infringement of Target’s intellectual property.  The Court of Appeal modified the wording of the injunction accordingly.