Date: 20030829
Docket: T-993-03
Citation: 2003 FC 1015
Toronto, Ontario, August 29th, 2003
Present: Roger R. Lafrenière, Esquire
Prothonotary
BETWEEN:
GIANNI VERSACE S.p.A. and G. V. DISTRIBUTION LLC
Plaintiffs
and
1154979 ONTARIO LIMITED, GIOVANNI BANDOLO
and GENARO CERULLO
Defendants
REASONS FOR ORDER AND ORDER
[1] The Plaintiffs seek an order under Rule 377 of the Federal Court Rules, 1998 for the preservation of merchandise bearing, or depicting, a representation of one or more of the trademarks of the Plaintiff, Gianni Versace S.p.A. ("Versace"), that were seized by the Peel Regional Police (the "Police") from the business premises of the Defendant, 1154979 Ontario Limited under a search warrant as part of a criminal investigation. In addition, the Plaintiffs seek production of documents seized by the Police, and an Order authorizing the Plaintiffs to inspect the merchandise, to take photographs, or make videotapes or digital images, of the merchandise, and to obtain and retain samples of the merchandise.
[2] This motion arises in an action where the Plaintiffs seek declaratory and injunctive relief, and damages, along with an order authorizing destruction of the merchandise that is the subject of this motion, by virtue of the Defendants' distribution and sale of allegedly counterfeit merchandise that infringe Versace's intellectual properties.
[3] On June 30, 2003, the date the Plaintiffs' motion was initially made returnable, Simpson, J. was informed by counsel that a Justice of the Ontario Superior Court was to hear a motion by the Defendants the following week for an order requiring the Police to release the merchandise and documents at issue to the Defendants, as a result of criminal charges having been withdrawn against them. The Plaintiffs sought an adjournment of their motion in order to file further material and to cross-examine the Defendants on their affidavits. Over the Defendants' objections, Simpson, J. granted an adjournment. To preserve the status quo pending the return of the motion, the parties consented to certain terms, including an Undertaking to the Court by counsel for the Defendants that provided that if the items seized by the Police were released by the Ontario Court of Justice to the Defendants, counsel would immediately take custody of the items, and not release them pending further order of the Court. The Undertaking was incorporated into the Order of Simpson, J. dated July 3, 2003 adjourning the motion to July 14, 2003.
[4] At the return of the motion, counsel for the parties made reference to the extensive material filed in support, and in opposition, to the motion, including the affidavits of Jack Hunter, Mario Iafrate, Roberto Perrone and Genaro Cerullo, the transcripts of the cross-examination of Jack Hunter, Genaro Cerullo and Mario Iafrate, and the Order of Madam Justice Kathryn L. Hawke dated July 11, 2003, issued in Ontario Court of Justice, Court File No. 02-13249. At the conclusion of the hearing, I advised counsel that the motion would be granted in part and directed them to submit a draft order. These are my reasons for disposition.
Background
[5] The following facts are not disputed by the Defendants. Versace is a company incorporated under the laws of Italy. It is the registered owner of the trademarks and copyrights, and other distinctive elements summarized in the Schedule attached to the Statement of Claim (the "Versace Intellectual Properties"). Among the Versace Intellectual Properties are registered Canadian trademarks bearing a depiction of a stylised Medusa head. As well, Versace is the owner of a version of the Versace Medusa Trademark, which has been used in Canada since 2000, but which has not yet received registration (the "Unregistered Versace Medusa Trademark").
[6] Versace is in the business of designing, manufacturing, and selling, a variety of wares bearing one or more of the Versace Intellectual Properties, including high end fashion men's and women's apparel, accessories, eye-wear and toiletries, as well as housewares, luggage, bags and wallets (collectively the "Versace Merchandise"). Authentic Versace Merchandise is constructed using innovative technology, design and assembly techniques, and is subjected to rigorous quality and design control checks. In every case, Versace Merchandise is only sold in association with one or more of the Versace Intellectual Properties.
[7] Since 1974 when the "Gianni Versace" Trademark was first adopted and used by Versace, Versace has devoted substantial time, effort and money to develop and create distinctive advertising and trade dress featuring one or more of the Versace's Intellectual Properties. The same can be said about the Versace's Medusa Trademarks, since Versace first introduced them in 1989. Extensive advertising and promotion Versace Merchandise, in association with one or more of the Versace Intellectual Properties, has occurred within Canada by means of print advertisements in numerous periodicals. Similar advertisements originating in the United States have also reached the Canadian consumer.
[8] Versace's annual advertising and promotional expenditures worldwide for merchandise bearing one or more of the Versace Intellectual Properties are in the tens of millions of dollars (U.S.), and more than one million dollars (U.S.) is expended in Canada alone. As a result of the extensive use and advertising of merchandise manufactured, distributed, offered for sale and sold by, or under license or authority of, Versace, in association with one or more of the Versace Intellectual Properties, the Versace Intellectual Properties have become well-known in Canada and have come to be associated in the minds of Canadian consumers with Versace. According to the Plaintiffs, the presence of the Versace Intellectual Properties in association with merchandise signifies to the Canadian public merchandise of the highest quality and design.
[9] Authentic Versace Merchandise is currently marketed and sold in Canada at freestanding Versace owned or licensed boutiques and at high quality, prestigious department and specialty stores, such as Holt Renfrew in various cities in Canada. Versace Merchandise is often designed as high-end fashion apparel, and Versace's garments are often marked with one or more trademarks or designs reflecting or emphasising the lifestyle that accompanies them. Authentic Versace Merchandise is elusive to the vast majority of the population due to its expensive price point. Worldwide sales of goods bearing one or more of the Versace Intellectual Properties exceed four hundred million dollars U.S. with millions of dollars of sales coming from Canada.
[10] Based on the uncontradicted evidence above, I am satisfied that the Plaintiffs have established, for the purpose of this motion, that Versace enjoys a valuable reputation and goodwill in Canada in the Versace Intellectual Properties.
The Defendants and their allegedly infringing conduct
[11] 1154979 Ontario Limited is an Ontario corporation incorporated in 1995 (the "Company") that carries on business from premises located at 253 Jevlan Drive, Woodbridge, Ontario. The Company imports and sells at wholesale various items of merchandise imported from Italy, including synthetic leather jackets. It has two officers, Genaro Cerullo ("Cerullo") and Giovanni Bandolo ("Bandolo"), and employs a part-time bookkeeper, Marcello Sestino, who works one day a week for the Company. The Company does not sell to retail stores. Rather, the Company sells merchandise to individuals who, in turn, offer to sell and sell the merchandise to members of the public. The Company does not advertise, and appears to be known by its customers only by "word of mouth".
[12] In October 2002, Mario Iafrate, an investigator with Hallmark Investigations, was approached in the parking lot of a Home Depot Store located in Toronto by an individual in a Ford Explorer who offered to sell him a "leather jacket" bearing what he considered to be certain of the Versace Intellectual Properties. The seller advised Mr. Iafrate that the jacket was a "genuine Versace jacket".
[13] Mr. Iafrate reported this occurrence to his business partner, Jack Hunter, and also provided Mr. Hunter with the license plate number of the vehicle driven by the man who offered to sell him the "genuine Versace jacket". Soon thereafter, Mr. Hunter attended at the Company's premises, and observed five sport utility vehicles and two minivans being loaded with leather like jackets from the Premises. One of the vehicles being loaded bore a license plate number that matched the license number provided to Mr. Hunter by Mr. Iafrate.
[14] Mr. Hunter reported the information and his observations to Detective Rod Jones of the Police. The Police has also received a complaint from a citizen reporting that someone had attempted to sell the citizen a Versace jacket under circumstances that the citizen considered to be suspicious. Further to the citizen's complaint, uniformed officers conducted an interview and obtained additional information, as well as further vehicle license numbers.
[15] Detective Jones took the information obtained from Mr. Hunter and from the Police officers, did a background check with respect to the motor vehicles involved, determined that they were rental vehicles and ascertained the identity of the parties who rented the vehicles. Detective Jones attended at the Company's premises, and observed a number of cardboard boxes bearing the stamp "Made in Italy"; a quantity of plastic garment bags, and a large number of white cloth labels that appeared to have been ripped out of something. The labels observed by Detective Jones were tags setting out the composition of merchandise as "ten (10%) percent nylon, eighty (80%) percent PVC and ten (10%) percent cotton". Detective Jones' discovery of these labels caused him to believe that they were being removed from the leather jackets at the Premises in order to permit the jackets to be described as "genuine leather."
[16] Detective Jones then arranged for police surveillance of the Premises, which was conducted on October 3, 2002, and further to this surveillance the police observed and videotaped several male individuals removing jackets from inside the Premises and loading them into vehicles. These vehicles were stopped, and leather jackets, allegedly bearing representations of the Versace Intellectual Properties, were seized, and six individuals were arrested.
[17] Among the individuals arrested was Vincenzo Bandolo, the son of the Defendant, Giovanni Bandolo. Following these arrests Detective Jones contacted Ms. Georgina Danzig, a lawyer with the law firm representing the Plaintiffs, to inquire whether the jackets were genuine Versace product, and whether the company that operated from the Premises, identified as the Defendant, 1154979 Ontario Limited, was an authorized distributor of Versace merchandise.
[18] After Detective Jones was advised that 1154979 Ontario Limited was not authorized by Versace to distribute or sell merchandise bearing any of Versace's intellectual properties and that the jackets seized were considered counterfeit, the Police executed a search warrant at the Company's premises and seized approximately 9,500 synthetic leather suede jackets.
[19] Representative samples of items of Merchandise were examined by Roberto Perrone, a representative of Versace who is responsible for overseeing the importation of shipments of Versace fashion apparel. Mr. Perrone states in his affidavit sworn July 10, 2003 that the merchandise seized by the Police bears and depicts counterfeit and unauthorized reproductions of certain Versace Intellectual Properties. He also confirms, and endorses, the basis for his findings of infringement, which is detailed in two earlier affidavits also included in the Court record. The Defendants have not challenged Mr. Perrone's evidence by way of cross-examination. In the circumstances, I am satisfied, for the purpose of this motion, that the merchandise seized by the Police from the Premises bears or depicts counterfeit reproductions of certain Versace Intellectual Properties, including the Versace Medusa Trademarks (hereinafter the "Merchandise").
[20] According to Cerullo, the Defendants have been selling the same or similar coats from a manufacturer in Italy for fifteen years without any problems. He states that there is no intention on the part of the Defendants to compete, or pass off their merchandise as though it were the Plaintiffs' product. Cerullo takes issue with the Plaintiffs' allegation that the head of a Medusa on buttons can be construed as trademark infringement. He points to the fact "the coats with these buttons are fake leather coats that sell for $40.00 each", compared to the Plaintiffs' coats that typically sell for thousands of dollars. Cerullo denies that anyone could be confused about the source of the coats.
[21] Cerullo states that the seizure of the coats has seriously compromised the ability of the Defendants to continue in business and that the Company may be forced out of business as a result of the conduct of the Crown, as instigated by the Plaintiffs.
Analysis
[22] Rule 377 (1) of the Federal Court Rules, 1998 provides that:
¼the Court may make an order for the custody or preservation of property that is, or will be, the subject-matter of a proceeding or as to which a question may arise therein.
[23] As part of the relief requested in the action, the Plaintiffs seek an Order authorizing the destruction of jackets seized by the Police bearing or depicting unauthorized reproduction of the Versace Intellectual Properties (previously defined as the "Merchandise"). The Defendants have admitted that if they obtain possession of the Merchandise, it is their intention to sell it. The Merchandise itself, and the disposition thereof, are accordingly at issue in this action.
[24] Since the Plaintiffs seek an order authorizing the destruction of the Merchandise, the Plaintiffs have clearly satisfied the "subject-matter of a proceeding" element of Rule 377(1). The Defendants argue that although the Plaintiffs are not asking for an injunction, an order for custody of the coats until trial would effectively constitute an injunction. As a result, the Defendants submit that the criteria governing the grant of an interlocutory injunction apply to a request for a preservation order. According to the Defendants, these criteria require an applicant to establish that: 1) on a preliminary assessment of the merits of the case, there is a serious issue to be tried; 2) unless the injunction is granted, the applicant would suffer irreparable harm that is not susceptible to, or difficult to compensate in damages; and 3) the applicant would suffer greater harm from the refusal of the remedy than the opposing party would suffer from a grant of the remedy, pending a decision on the merits. I disagree.
[25] This Court has recently held that a party seeking a preservation order under Rule 377 of the Federal Court Rules, 1998 need not meet the tripartite test applicable to interlocutory injunctions. In Diamant Toys Ltd. v. Jouets Bo-Jeux Toys Inc., 2002 FCT 384 ("Diamant"), Nadon, J. relied upon a recent addition to the Copyright Act, and ordered allegedly infringing goods to be seized prior to trial. Nadon, J. found that the plaintiffs in that case had established a prima facie case of copyright infringement. He further concluded that section 38 of the Copyright Act, when read in conjunction with Rule 377, was sufficient authority to grant a preservation order, without having regard to the tripartite test. A similar provision as section 38 of the Copyright Act can be found in the Trade-marks Act.
[26] Logic dictates that by operation of sections 6, 7, 19, 20, 52 and, in particular, section 53 of the Trade-marks Act, and Rule 377(1) of the Federal Court Rules, 1998, this Court can entertain a motion by an applicant to preserve infringing goods before judgment. As was held by Nadon, J. in Diamant therefore, the Plaintiffs need not meet the tripartite test applicable to interlocutory injunction applications.
[27] In any event, I am of the opinion that the tripartite test has been met by the Plaintiffs. To begin with, the Plaintiffs have established, for the purposes of this motion, that the merchandise seized by the Police from the Premises bears or depicts counterfeit reproductions of certain Versace Intellectual Properties, including the Versace Medusa Trademarks. The Plaintiffs have also shown that Versace has not authorized, either expressly or impliedly, the Defendants or any of them to offer for sale and/or to sell products and merchandise bearing depictions of any of the Versace Intellectual Properties. The Plaintiffs' affidavit evidence also establishes that the Defendants have dealt in or have caused others to deal in unauthorized, or counterfeit, Versace merchandise, without the consent, authorization or license of the Plaintiffs. In fact, the Defendants have not contradicted the Plaintiffs' evidence in this regard, by way of cross-examination, or by way of contrary affidavit evidence. The Plaintiffs have established to my satisfaction a prima facie case of trade-mark infringement, which I would characterize as blatant. The serious issue part of the test is therefore met.
[28] Turning to the issue of irreparable harm, I agree, based on the reasoning of Nadon, J. in Diamant, that the Plaintiffs need not establish that they will suffer irreparable harm in order to obtain an injunction. In reaching his conclusion, Nadon, J. adopted the following passage from a decision by Reed, J. in International Business Corporation v. Ordinateurs Spirales Inc./Spirales Computers Inc. (1984), 80 C.P.R. (2d) 187 (F.C.T.D.) in which she states, at page 201:
In any event, I am not convinced that the degree of harm required to be proved in a case such as this, where there had been blatant copying, is as high as that required in other cases of interlocutory injunction. Counsel for the plaintiff argued that the irreparable harm test was appropriate to patents because it was easy to inadvertently infringe a patent right. Thus, the courts are slow to grant interlocutory injunctions to patent cases. He argued, however, that copying could not take place inadvertently and therefore the courts were more willing to grant interlocutory injunctions in copyright infringement actions when the copying was very clear, without requiring irreparable harm or a finding that damages would not be adequate. I accept this reasoning. It accords with my interpretation of the jurisprudence. It may be that the courts in such cases are doing no more than taking into account equitable considerations such as the bona fides or male fides of the party, as they have always done in granting equitable remedies. But, in any event, in copyright infringement cases it seems to me, when the copying is blatant, it is appropriate to consider a less stringent test of potential damage, than would otherwise be the case.
[29] Damage to reputation by virtue of the inferior quality of counterfeit products has been recognized as establishing sufficient harm to meet the serious damage threat. Moreover, loss of quality control over unauthorized and counterfeit merchandise has been found to satisfy the irreparable harm component of the tripartite injunction test. I agree with the Plaintiffs that the distribution of merchandise bearing unauthorized reproductions of one or more of the Versace Intellectual Properties damages Versace's reputation and goodwill.
[30] It is patently evident that consumers who purchase counterfeit Versace products bearing or depicting one or more of the Versace Intellectual Properties, particularly the inferior ones sold by the Defendants, would likely be disappointed with the quality of the goods and, being unaware that the merchandise which caused their disappointment was counterfeit, would not be inclined to purchase legitimate quality merchandise bearing the Versace Intellectual Properties, to the detriment of Versace. A consumer's disappointment with a single item of counterfeit Versace Merchandise could detrimentally affect the sale of authentic Versace merchandise bearing the Versace Intellectual Properties. Thus, the sale of inferior counterfeit Versace merchandise damages Versace's reputation for production of quality merchandise, and diminishes the value of the goodwill associated with the Versace Intellectual Properties. Again, the Defendants have not contradicted or even challenged the Plaintiffs' evidence in this regard.
[31] On the evidence before me, I find that the damages to Versace's rights in the Versace Intellectual Properties caused by the Defendants' wrongful conduct will be practically impossible to calculate, and that the damages to Versace's reputation and goodwill will be irreversible. Moreover, I am not satisfied that the Plaintiffs would be able to recover its damages from the Defendants in the event they obtain judgment. As acknowledged by Cerullo, the Company will likely cease operation if it is unable to sell the very product which is the subject of this proceeding.
[32] As I view this case, it is not a run-of-the-mill action for damages. In the underlying proceeding, the Plaintiffs seek, among other things, the destruction of the counterfeit coats. While it is true that Plaintiffs could simply obtain judgment and then try to recover their pecuniary damages from the Defendants, the seizure and ultimate destruction of the actual coats remains the best remedy, making unnecessary a time-consuming and expensive debate as to the Plaintiffs' damages, particularly those relating to goodwill and reputation, if the coats were disposed of by the Defendants.
[33] Finally, with respect to the balance of convenience, I consider that it lies in favour of the Plaintiffs. In 75490 Manitoba Ltd. v. Meditables Inc. (1989), 29 C.P.R. (3d) 89, Mr. Justice Rouleau made the following remarks, at pages 93 and 94:
I am satisfied that a serious issue has been raised, if not in fact a prima facie case. The defendant has not denied the copying, but argued that an injunction should not issue since there was no evidence of irreparable harm. However, I am satisfied that the balance of convenience favours the plaintiffs regardless, having established such a flagrant case of infringement. To allow this prima facie infringement to continue until such time as the trial may be heard would be unconscionable. I note in this regard the formulation of the test for interlocutory injunctions as recently stated by the Federal Court of Appeal in Turbo Resources (A-163-88, rendered January 18, 1989, at pp. 22-3 [reported 27 C.P.R. (3d) 1, [1989] 2 F.C. 451, 22 C.I.P.R. 172]), as well as the following quote by Dubé J. in Jeffrey Rogers Knitwear Productions Ltd. v. R.D. International Style Collections Ltd. (1985), 6 C.P.R. (3d) 409 at pp. 410-11, [1985] 2 F.C. 220 at p. 222, 6 C.I.P.R. 263:
However, in matters of clear violations of copyrights registered under the Copyright Act, R.S.C. 1970, c. C-30, the jurisprudence of the Federal Court has been to grant interlocutory injunctions without concerning itself with irreparable injury or the balance of convenience.
[34] Taking all the circumstances into account, I conclude that is would be unconscionable to allow the Defendants' prima facie infringement to continue until such time as the trial may be heard. I therefore conclude that the Plaintiffs are entitled to the Order which they seek.
[35] Finally, the Defendants were quite critical of the Plaintiffs' conduct in allegedly instigating the investigation and criminal proceedings against them. Notwithstanding the Defendants' suspicions, there is simply no evidence that the Plaintiffs' lawyers either initiated the first contact with the police, or were otherwise operating behind the scenes. The Defendants have proffered no evidence to question or contradict the Plaintiffs' evidence, nor have they examined Detective Jones on this issue. In any event, I am not satisfied that the allegation of misconduct by the Plaintiffs, even if true, is relevant to the issues raised in this motion.
ORDER
THIS COURT ORDERS that
36. Production to counsel for the Plaintiffs of all documents seized by the Peel Regional Police (the "Police") from the Defendants, which are currently in the possession of the Police and under the power or control of Gardiner Roberts LLP, solicitors for the Defendants, pursuant to the Order of Madam Justice Hawke dated July 11, 2003, issued in Ontario Court of Justice Court File No. 02-13249.
37. That all merchandise seized by the Police from 1154979 Ontario Limited's business premises located 253 Jevlan Drive, Unit 8, Woodbridge, Ontario (the "Premises") bearing or depicting representations of one or more of the intellectual properties of the Plaintiff, Gianni Versace S.p.A. (the "Merchandise") which are currently in the possession of the Police and under the power or control of Gardiner Roberts LLP, solicitors for the Defendants, pursuant to the Order of Madam Justice Hawke dated July 11, 2003, issued in Ontario Court of Justice Court File No. 02-13249 shall be delivered to the Plaintiffs' counsel to be preserved and maintained at the Plaintiffs' expense pending further order of this Court or the consent of all parties.
38. That the parties be and are hereby authorized to inspect the Merchandise and to take photographs, digital images and/or make videotapes of those items, and the opposing parties, upon written request and at their sole cost and expense, shall be entitled to copies of any such photographs, digital images and/or videotapes taken or made by the inspecting party.
39. That the Plaintiffs be and are hereby permitted to retain samples (up to three (3) per style) of the Merchandise, and the Defendants shall be entitled to access to the samples retained by the Plaintiffs upon reasonable notice given to the Plaintiffs' counsel, Kestenberg Siegal Lipkus LLP provided that custody and control of these samples remain with the Plaintiffs.
40. The Plaintiffs shall provide an undertaking to abide by any order concerning damages that the Court may make if it ultimately appears that the granting of this Order respecting preservation of the Merchandise has caused damage to the Defendants for which the Plaintiffs ought to compensate the Defendants.
41. The Plaintiffs shall be entitled to their costs of this Motion, excepting the costs attendant to the attendance on June 30, 2003, payable in the cause on a scale determined by the application of the middle of column III to Tariff B.
42. This action be and is hereby continued as a specially managed proceeding.
43. This Order does not take effect until the date that the Order is signed.
44. Paragraph 4 of the Order of Madam Justice Simpson dated July 3, 2003, issued in this action, shall remain in force and effect until the date this Order is signed.
"Roger R. Lafrenière"
Prothonotary
FEDERAL COURT
NAMES OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-993-03
STYLE OF CAUSE: GIANNI VERSACE S.p.A. and G. V. DISTRIBUTION LLC
Plaintiffs
and
1154979 ONTARIO LIMITED, GIOVANNI BANDOLO
and GENARO CERULLO
Defendants
PLACE OF HEARING: TORONTO, ONTARIO
DATE OF HEARING: JULY 21, 2003
REASONS FOR ORDER
AND ORDER: LAFRENIÈRE P.
APPEARANCES: Mr. Thomas M. Slahta
For the Plaintiffs
Mr. Howard Wolch
For the Defendants
SOLICITORS OF RECORD: Kestenberg Siegal Lipkus
Toronto, Ontario
For the Plaintiffs
Gardiner Roberts LLP
Toronto, Ontario
For the Defendants
FEDERAL COURT
Date: 20030829
Docket: T-993-03
BETWEEN:
GIANNI VERSACE S.p.A. and G. V. DISTRIBUTION LLC
Plaintiffs
and
1154979 ONTARIO LIMITED, GIOVANNI BANDOLO and GENARO CERULLO
Defendants
REASONS FOR ORDER
AND ORDER