Damages for Intellectual Property Infringement in Canada

The recoverable damages amount is often a key factor in a plaintiff’s decision to pursue litigation in the first place. Potential litigants commonly ask, “How much can I recover?” The answer can depend on several factors, including the specific intellectual property rights in issue, the extent and duration of the infringement and the evidence supporting the potential plaintiff’s losses. Regardless of the rights under consideration, the overarching purpose of damages awards is to compensate the plaintiff for its losses.

Patents

A patent gives the patent owner the right to exclude others from making, using, or selling the invention. Under the Patent Act, infringers are liable to the patentee for all damage sustained by the patentee after grant of the patent as a result of the infringement. Most often, damages awards for patent infringement are based on (a) profits lost by the patentee as a result of the infringer’s activity, or (b) a reasonable royalty rate for an appropriate licence.

Profits lost by the patentee

In an effort to compensate a plaintiff for its losses, courts consider the profits the plaintiff would have made but for the infringing activity of the defendant. Determining the sales (and subsequently, profits) that a patentee would have made in the absence of infringement involves consideration of a hypothetical scenario in which the infringing product never entered the marketplace—sometimes referred to as the “but for world”. The Federal Court has considered the following factors when determining the likely outcome of such a scenario:

• the presence of competing products in the market;
• the advantages of the patented product over competing products;
• the advantages of the infringing product over the patented product;
• the patentee’s market position;
• the infringer’s market position;
• the patentee’s market share before and after the infringing product entered the market;
• the size of the market before and after the infringing product entered the market; and
• the capacity of the patentee to produce additional products.

When calculating lost sales, courts in Canada also consider the defendant’s ability to utilize a non-infringing alternative instead of infringing. Awarding the patentee full damages without properly considering the market impact of competition from a lawful alternative may result in the patentee recovering more than it might have in the absence of infringement. Relevant inquires are (a) what non-infringing alternative could and would the defendant (or others) have sold in the “but for world”, and (b) to what extent would this competition have affected the patentee’s sales.

Lastly, a patentee may recover for all damages flowing from infringement of the patent, provided that the act of infringement occurs in Canada. For example, a patentee may recover damages based on lost profits for the sale of infringing products manufactured in Canada but sold elsewhere.

Reasonable royalty rate

Damages may also be calculated on the basis of a reasonable royalty rate, which reflects the infringer’s cost of obtaining an appropriate licence rather than infringing the patent. Damages based on a reasonable royalty rate are awarded, in part, to recognize that each sale by an infringer is still an illegal transaction, regardless of whether such a sale would have impacted the patentee’s profits.

The awarded royalty amount is based on a hypothetical negotiation between the parties – the analysis considers the licensor’s minimum willingness to accept and the licensee’s maximum willingness to pay. The hypothetical negotiation is considered as of the beginning of the infringing activity, and a one-time hypothetical negotiation may be appropriate even where there have been separate instances of infringing activity.

The Patent Act also allows patentees to obtain “reasonable compensation” for activity that (a) occurred after the patent application was laid open for public inspection but before the patent was ultimately granted, and (b) would have constituted infringement if the patent was granted. The reasonable compensation referred to in the Act has been interpreted by courts to mean a reasonable royalty rate.

Lost profits and a reasonable royalty rate are mutually exclusive approaches to determining damages for patent infringement. However, a court may utilize both separately where, for example, the patentee’s lost profits are connected to some, but not all, of the infringer’s activity or sales – a reasonable royalty rate may then be calculated for infringing sales that the plaintiff would not have otherwise made.

Trademarks

A registered trademark gives the trademark owner the exclusive right to use the trademark throughout Canada, exclude others from selling, distributing or advertising any goods or services in association with the same or a confusingly similar trademark or tradename, and exclude others from manufacturing, causing to be manufactured, possessing, importing, exporting or attempting to export any goods in association with the same or a confusingly similar trademark or trade name, for the purpose of their sale or distribution. Damages amounts in trademark disputes can often be difficult to quantify. How does one attach a specific dollar value to the loss of a trademark’s distinctiveness or depreciation of goodwill associated with a trademark?

In response to this difficulty, courts have awarded “nominal” damages where the plaintiff is unable to provide evidence of specific losses suffered. If there has been infringement, courts must use best efforts to ascertain appropriate damages, regardless of the difficulty in doing so, and are permitted to apply ordinary business knowledge and common sense. Further, although more typically associated with punitive damages, the need for deterrence has also been considered in compensatory damages awards in trademark disputes.

In select scenarios, other approaches may be used to calculate damages awards:

Counterfeit goods cases

In cases involving counterfeit goods, courts have calculated damages by multiplying a nominal amount for each act of infringement or turnover of counterfeit inventory. The Federal Court of Appeal has stated that damages awarded on this basis are supported where (a) the defendants are uncooperative, (b) proof of actual damages is difficult and (c) it is hard to estimate the harm done to the trademark owner's goodwill through the sale of inferior quality, counterfeit goods. Documented purchases, offers for sale or observations of counterfeit items may all constitute individual acts of infringement when calculating damages based on this approach.

As might be expected, damages awards in decisions involving counterfeit goods can be much greater than those of other trademark matters; these awards can extend into six figures and, in rare instances, have totalled over $1M.

Cases involving a “hybrid approach”

Recently, some courts have adopted a “hybrid approach” – this involves using less-than-ideal financial data as a baseline to then calculate a type of “per incident” award that is also justifiable as a global compensatory award. The court may use its discretion to make adjustments as necessary. For example, in Biofert Manufacturing Inc v Agrisol Manufacturing Inc, 2020 FC 379, the Court awarded an amount for the period of infringement in issue that took into consideration the defendant’s specific infringing activity on a month-by-month basis.

Copyright

A copyright holder has the sole right to produce or reproduce a work or a substantial part of it in any form. It also includes the right to perform the work or any substantial part of the work, and the right to publish an unpublished work or any substantial part of it. Under the Copyright Act, a successful plaintiff may elect compensatory damages and an accounting of the defendant’s profits, provided that such profits are not already included as part of the damages award. Like damages awards in many trademark disputes, damages awards in copyright disputes may not be readily calculable. Nonetheless, courts must do the best they can as a matter of common sense and, in any event, may still award a nominal amount.

Statutory damages

At any time before final judgment is rendered, a plaintiff may elect statutory damages instead of damages and profits. A successful plaintiff need not prove the extent of its losses to obtain statutory damages. As a result, statutory damages may be preferable where a plaintiff is either unable or unwilling to prove the full extent of its losses.

If the infringement was for commercial purposes, then, subject to applicable exceptions, a court may award from $500 to $20,000 for all infringements relating to each work in issue. That is, statutory damages for commercial infringement are awarded on the basis of each work infringed. A court may, in select circumstances, exercise its discretion to award less than the minimum statutory amount of $500. A court exercising such discretion must consider the good faith or bad faith of the defendant, the conduct of the parties before and during the proceedings and the need to deter further infringement.

For example, in Trader Corp v CarGurus, Inc, 2017 ONSC 1841, the Ontario Superior Court of Justice awarded $2 for each of the 152,532 infringed photos, which totalled $305,064. The Court readily concluded that an award reflecting the minimum statutory damages amount per work infringed – $76,266,000 – would have been grossly out of proportion to the infringement in issue. Nonetheless, courts have awarded the maximum statutory amount of $20,000 for serious acts of infringement that often involve further aggravating factors, such as repeat infringement, large profits earned by the infringer or breach of a court order.

If the infringement was for non-commercial purposes, then a court may award from $100 to $5,000 in statutory damages for all infringements relating to all works in issue – the award cannot exceed $5,000, regardless of the number of works infringed.

While the provisions of the Copyright Act governing statutory damages do not address actual damages, an award of statutory damages should correlate to some degree with the plaintiff’s actual losses. More broadly, courts should assess all of the circumstances in order to yield a just result.

Punitive damages

In Canada, punitive damages are considered an exceptional remedy, regardless of the intellectual property rights in issue – they are awarded where a party's conduct has been malicious, oppressive and high-handed, offends the court's sense of decency, and represents a marked departure from ordinary standards of decent behaviour.

The purpose of punitive damages is to deter the defendant and others from similar misconduct in the future rather than compensate the plaintiff for losses suffered. Punitive damages may be awarded in addition to compensatory or statutory damages, as the case may be, but only where compensatory (or statutory) damages alone would be insufficient to deter future misconduct.

A clear understanding of obtainable remedies, including the likelihood and quantum of a possible damages award, is key to making an informed decision to pursue, defend or settle a dispute. If you are facing or contemplating intellectual property litigation, please contact us for a complimentary and confidential initial telephone appointment with a member of our team.