Ottawa, Ontario, October 28, 2005
PRESENT: THE HONOURABLE MADAM JUSTICE SNIDER
3925928 MANITOBA LTD, SHAPES NORTH LIMITED, SHAPES SOUTH LIMITED, SHAPES CO-ED LIMITED, SHAPES CO-ED EAST LIMITED AND SHAPES WOMEN'S EAST LIMITED,
Plaintiffs
and
101029530 SASKATCHEWAN LTD., CARRYING ON BUSINESS UNDER THE FIRM NAMES AND STYLES SHAPES FOR LIFE, SHAPES FOR LIFE - HEALTH, FITNESS AND NUTRITION CENTRES, SHAPES FOR LIFE HEALTH AND FITNESS CENTERS, SHAPES FOR LIFE.NET, SHAPES FOR WOMEN, SHAPES FOR MEN, SHAPES FOR WOMEN.BIZ, SHAPES FOR WOMEN HEALTH AND FITNESS CENTRES, SHAPES FOR WOMEN INC., JOPPA BUSINESS DEVELOPMENT AND WORLD DREAM BUILDERS, AND THE SAID 101029530 SASKATCHEWAN LTD., CURTIS MALINOWSKI, 101016102 SASKATCHEWAN LTD., CARRYING ON BUSINESS UNDER TH FIRM NAMES AND STYLES SHAPES FOR LIFE, SHAPES FOR LIFE - HEALTH, FITNESS AND NUTRITION CENTRES, SHAPES FOR LIFE HEALTH AND FITNESS CENTERS, SHAPES FOR LIFE.NET, SHAPES FOR WOMEN, SHAPES FOR MEN, SHAPES FOR WOMEN.BIZ, SHAPES FOR WOMEN HEALTH AND FITNESS CENTRES, SHAPES FOR WOMEN INC. AND FITNESS FOCUS HEALTH & ATHLETIC CENTRE, AND THE SAID 101016102 SASKATCHEWAN LTD. AND JASON TENEYKE,
Defendants
REASONS FOR JUDGMENT AND JUDGMENT
[1] In the motion filed with this Court on August 9, 2005, the Plaintiffs in this trademark dispute seek default judgment against the Defendants, Curtis Malinowski and 101029530 Saskatchewan Ltd. (collectively referred to as "Malinowski"), for the infringement of their various trade names and trademarks related to "Shapes for Life" franchise fitness centres.
[2] The Plaintiffs commenced this action by way of Statement of Claim filed with this Court on September 24, 2004. On April 28, 2005, I heard and allowed the Plaintiffs' motion for an interlocutory injunction, on the basis that the Plaintiffs had satisfied the test for the granting of the injunctive relief as set out in RJR MacDonald Inc. v. Canada (Attorney General) [1994] 1 S.C.R. 311. In addition to the interlocutory injunction, I also granted, pursuant to Rule 377(1) of the Federal Court Rules, S0R/98-106 an order for the custody or preservation of property that is or will be the subject matter of the proceeding.
[3] Although served with the motion materials, Malinowski did not appear for the hearing of this motion. At this point, based on the record filed and the submissions of the Plaintiffs, I am satisfied that the Plaintiffs have proved the elements of their claim. Specifically, I find that the Plaintiffs hold the rights to the "Shapes for Life" mark and that Malinowski knowingly and willingly infringed the Plaintiffs' trademarks. Further, I am satisfied that, while Malinowski has not acted in contravention of the injunction, he has failed to comply with the order for custody or preservation of property as required by the Order dated April 28, 2005. Accordingly, the Plaintiffs are entitled to default judgment. Judgment to that effect will issue.
[4] In addition to a permanent injunction and other remedies set out in the Order issued with these reasons, the Plaintiffs seek two types of monetary remedy: an accounting of profits and damages. At issue is what type and amount of remedy should be granted.
Relevant Legislation
[5] The power to order remedies in respect of trademark infringement derives from s. 53.2 of the Trade-Marks Act, R.S., c. T-10 (the "Act").
| 53.2 Where a court is satisfied, on application of any interested person, that any act has been done contrary to this Act, the court may make any order that it considers appropriate in the circumstances, including an order providing for relief by way of injunction and the recovery of damages or profits and for the destruction, exportation or other disposition of any offending wares, packages, labels and advertising material and of any dies used in connection therewith.
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53.2 Lorsqu'il est convaincu, sur demande de toute personne intéressée, qu'un acte a été accompli contrairement à la présente loi, le tribunal peut rendre les ordonnances qu'il juge indiquées, notamment pour réparation par voie d'injonction ou par recouvrement de dommages-intérêts ou de profits, pour l'imposition de dommages punitifs, ou encore pour la disposition par destruction, exportation ou autrement des marchandises, colis, étiquettes et matériel publicitaire contrevenant à la présente loi et de toutes matrices employées à leur égard.
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Analysis
[6] The Plaintiffs' submissions were unopposed.
[7] The Plaintiffs seek the following types of monetary relief:
(i) Accounting of profits;
(ii) Damages, including general damages, special damages, and interest; and
(iii) Punitive damages.
Accounting of profits
[8] The Plaintiffs seek an accounting of profits in the amount of $195, 442.24, based on franchise fees and equipment fees allegedly received by Malinowski.
[9] The object of an accounting of profits is to give a plaintiff the actual profits which the defendant has improperly made. The plaintiff has the onus of first proving the defendant's gross revenue from the infringing product or service, and then the defendant must prove any offsetting expenses, allowing the court to arrive at a net profit amount. An accounting is an equitable remedy whereby the owner of the mark is entitled to receive the entire benefit that the infringer had gained. If the plaintiff elects this mode, then the harm or damage suffered by the plaintiff is "completely irrelevant" and cannot be taken into consideration. Similarly, the knowledge, motive, intent or malice of the infringer is not relevant. The actual amount of profits must be paid from the infringer to the mark owner (Teledyne Industries Inc. et al. v. Lido Industrial Products Ltd. (1982), 68 C.P.R. (2d) 204).
[10] On the basis of affidavits sworn by three persons, I am satisfied that Malinowski received $101,388.23 in revenues from the sale of Shapes, which sales were made in contravention of the rights of the Plaintiffs. The details of this amount are as follows:
| Party Elaine Peterson Nancy Koops Angela Sladen Totals |
Licence Fee $14,995.00 $16,050.00 $16,050.00 $47,095.00 |
Equipment fee $30,977.00 $23,316.24 ____--___ $54,293.24 |
[11] In each of the situations involving equipment sales, no equipment was ever delivered. There is some unclear hearsay evidence that Malinowski may have expended some funds for purchasing equipment that ended up in the hands of other persons. However, this evidence is unclear and falls far short of establishing that Malinowski incurred expenses that reduced his "profit" of $101,388.24.
[12] The Plaintiffs also submit that it is reasonable to infer that Malinowski collected similar fees from two other parties which would amount to a further $32,100.00 in franchise or licence fees and $61,954.00 in equipment fees. In the absence of better evidence, I am not inclined to accept these amounts as "revenues" to Malinowski. Speculation should not, in my view, form the basis of an accounting for profits.
[13] As noted, the remedy of an accounting of profits is designed to disgorge any profits improperly received by the defendant as a result of its wrongful use of the plaintiff's property. The only consideration is the profit to the defendant. In this case, I am satisfied that the amount of such profit is $101,388.24 and am prepared to award this amount to the Plaintiffs.
Damages
[14] The Plaintiffs also seek an award of damages, which they submit should consist of:
• General damages of $2,250,000;
• Exemplary or punitive damages of $1,000,000; and
• Special damages of $2,210.40.
[15] The first problem I have with this request is whether, having been awarded an accounting for profits, the Plaintiffs should also receive an award in damages.
[16] The Plaintiffs admit that "it is not the norm for a party to receive both profits and general damages." In fact, I would go further. In trademark and patent cases, the plaintiff must elect whether to receive compensation by an accounting of profits or damages. Since the purpose of damages (excluding punitive damages) is compensation, to allow both an accounting of profits and damages would result in double recovery. The use of the phrase "recovery of damages or profits" in s. 53.2 of the Act is a clear indication that the Court cannot award both types of relief in the same judgment.
[17] In essence, the distinction to be made is that an accounting of profits is an equitable remedy, whereby the wrongdoer is compelled to divest his wrongful earnings to the party toward whom he had a duty. Damages, on the other hand, are a legal remedy aimed at compensation for loss. While a party may plead both equitable and legal remedies, they should only receive one remedy in judgment, as each remedy purports to sufficiently redress the wrong.
[18] Even if I accept that the Plaintiffs may obtain both remedies, I have the further problem of the dearth of evidence justifying the amounts claimed. The exception is the claim for special damages of $2,210.40 which is the cost of an advertisement in a national newspaper. This ad was an attempt by the Plaintiffs to mitigate the damage to their reputation done by Malinowski.
[19] Damages are a compensatory method of relief. Fox on Canadian Law of Trade-marks and Unfair Competition (Harold G. Fox, 4th ed. (Toronto: Carswell)), states the following at 13-46 (citations omitted):
The plaintiff is entitled to an award of damages, which represented the actual loss suffered that is the natural and direct consequence of the unlawful acts of the defendant. This will include any loss of trade the plaintiff actually suffered, either directly from the offending acts, or any damage properly attributable to injury to the plaintiff's reputation, business, goodwill, and trade and business connections caused by the offending acts. Although as previously discussed, assessment with "mathematical certainty" is elusive, the damage award must not include any speculative and unproven damage. The court must roughly estimate the damages as a jury would, and is similarly entitled to use ordinary business knowledge and common sense. Some measure of damage to goodwill will occur if deceptive trading of any substantial volume persists.
[20] In damages, the Plaintiffs are entitled to compensation for lost sales, franchising fees, or royalties that they might have otherwise received from prospective clients, if Malinowski had not sold infringing licenses. While the amount received by Malinowski from his clients is some indication of the Plaintiffs' losses, it is not evidence of what they receive in fees, royalties, and other compensation for the true Shapes franchise. In the absence of that information, I am left to speculate on what the Plaintiffs would charge for their franchises and what, of such amount, would be profit.
[21] It is also important to note that the franchising fees received by Malinowski reflect revenue and not profit, as discussed further above. Assuming for the moment that every franchise client of
Malinowski would have contracted with the Plaintiffs, then the actual loss suffered by the Plaintiffs would be reflected by the profits they would have made, rather than the fees, before expenses, that they would have received.
[22] Finally, in order to receive compensation for lost clients, the Plaintiffs must establish a causal link between the purported loss of franchise sales and the infringement (Fox, supra, at 13-47; Electric Chain Co. of Canada v. Art Metal Works Inc., [1933] S.C.R. 581). Although the trademark jurisprudence is particularly sparse in this area, this rule accords with common sense and the Court's duty of fairness. In this case, there is no evidence to determine whether the Plaintiffs would have obtained the same clientele as Malinowski. The affidavits of Malinowski's clients in the Shapes of Life scheme indicate that, for the most part, Malinowski or his associates recruited the individual clients. Those clients were all actively interested in starting up fitness clubs, but there is no evidence that they were aware of or interested in the true Shapes franchise before Malinowski or his associates caught their attention.
[23] In my opinion, the evidence is not sufficient to establish that each client obtained by Malinowski in his Shapes for Life scheme represents a lost client for the Plaintiffs. All that can be said is that there is some possibility that those particular clients might have chanced upon the Plaintiffs' operation and contracted with them to open a fitness club. To my mind, this is not a compelling causal link.
[24] In damages, the Plaintiffs are also entitled to protection and compensation for damage to the reputation and goodwill associated with their trademarks and trade names. The Plaintiffs in this case claim $2,250,000 in general damages, which is the entire amount they invested to "build up" their trademarks. The Plaintiffs point to the damaging association that has been between Malinowski's reputation and the Shapes for Life marks, as well as evidence that some of the Plaintiffs' customers have drawn negative opinions or inaccurate conclusions about the Plaintiffs' business operations.
[25] I agree with the Plaintiffs' assertion that the goodwill associated with their trademarks and trade names is damaged. Malinowski's reputation as an untrustworthy, scheming confidence artist has been broadcast nationwide, and his name has been associated with the Shapes marks. I see no reason not to believe that some of the Plaintiffs' customers have been confused or have drawn incorrect conclusions about the nature and viability of the Plaintiffs' business.
[26] However, there is insufficient evidence to establish that the Plaintiffs' goodwill has been so damaged that they must be compensated for all or any of the amount they invested in building up the Shapes marks. The Plaintiffs have not established that they have lost any business. The Plaintiffs have not demonstrated a decline in their own financial experience, or that they have been threatened by the spectre of bankruptcy, or that individuals refuse to deal with them. The Plaintiffs' actual evidence of damage consists merely of a statement that some of their clients have inquired whether they were going out of business and that their plans of national expansion are threatened. The latter sounds dangerously close to a claim for damages in future profits, which was not pleaded. In short, the Plaintiffs have not established any facts that I would expect to accompany a complete destruction of goodwill, or even a severe depreciation of it. Therefore I have no evidentiary basis upon which to award any amount for the loss of goodwill or reputation.
[27] For these reasons, I conclude that no general damages will be awarded.
Punitive Damages
[28] The Plaintiffs also seek $1,000,000 in punitive damages. Once again, I doubt that the Plaintiffs are entitled to both an accounting of profits and punitive damages. However, in the event that I am wrong in this, I will consider the request on its merits. Punitive or "exemplary" damages are not compensatory in nature, but are awarded as punishment on the infringer. They must be sufficiently substantial to act as a deterrent (Lubrizol Corp. v. Imperial Oil Ltd., [1996] 3 F.C. 40, F.C.J. No. 454 (F.C.A.) (QL) at para. 40). A court must first assess general damages; punitive damages should only be ordered "in those circumstances where the combined award of general and aggravated damages would be insufficient to achieve the goal of punishment and deterrence" (Hill v. Church of Scientology of Toronto, [1995] 2 S.C.R. 1130, per Cory J. at 1208-1209).
[29] Punitive damages express outrage at the "egregious conduct of the defendant" (ibid.). The Court of Appeal in Lubrizol, supra, approved of the following adjectives for conduct that warranted punitive damages: harsh, vindictive, reprehensible and malicious, oppressive, and "so extreme in its nature and such that by any reasonable standard it is deserving of full condemnation and punishment" (at para. 30, quoting Vorvis v. Insurance Corporation of British Columbia, [1989] 1 S.C.R. 1085 at 1108).
[30] In this case, in the absence of evidence that Malinowski continued to infringe once an injunction had been granted, I find little reason to recommend that punitive damages should be awarded. I recognize that the Malinowski has failed to comply with the order for custody or preservation of property. Nevertheless, this failure did not prevent the Plaintiffs from seeking and obtaining the final determination of their rights. I do not see a reasonable basis for characterizing Malinowski's conduct in this litigation as vindictive, reprehensible and malicious, oppressive, or extreme. There will be no award of punitive damages.
Costs
[31] I agree with the Plaintiffs' submissions in regards to costs, and interest. Specifically, I am satisfied that the Plaintiffs should receive:
- Costs of the action and all motions, including this motion, on a solicitor and client basis;
- Pre-judgment and post-judgment interest at the rate of 2.5% from April 2, 2004.
Conclusion
[32] For the reasons set out above, Judgment will issue in favour of the Plaintiffs. With respect to monetary relief, the Plaintiffs will be awarded the following:
- Profits in the amount of $101,388.24;
- Costs of the action and all motions, including this motion, on a solicitor and client basis;
- Pre-judgment and post-judgment interest on the profits at the rate of 2.5% from April 2, 2004.
JUDGMENT
THIS COURT orders, declares and adjudges that:
1. final judgment is granted against the Defendants Curtis Malinowski and 101029530 Saskatchewan Ltd.
2. as between the Plaintiffs and the Defendants Malinowski and 101029530 Saskatchewan Ltd., the said Defendants have infringed the exclusive rights of the Plaintiffs in the trade-marks that are the subject of registration nos. TMA501,172, TMA589, 239 and TMA589,150 contrary to sections 7(6), 19, 20, 22(1) of the Trade-marks Act;
3. the Defendants Curtis Malinowski and 101029530 Saskatchewan Ltd., their officers, directors, servants, agents, employees either directly or indirectly, (hereinafter "Malinowski") are permanently enjoined and restrained from infringing the exclusive rights of the Plaintiffs in the trade-marks that are the subject of registration nos. TMA501,172, TMA589,239 and TMA589,150; from using in any way the name "Shapes" in the operation of any business; and from opening or operating or entering into any agreement to open or operate any facility using the name or word "Shapes" in any manner or form now or in the future;
4. Malinowski shall deliver up, at his expense, to the Plaintiffs the following items so that the Plaintiffs can destroy them at Malinowski's expense:
i) all wares, including without limitation, all publications, letterhead, merchandising, promotional and advertising materials, the use of which would violate the rights of the Plaintiffs, including any such wares that display the name or word "Shapes", which are in the possession, power or control of Malinowski now or in the future;
ii) any such other property as may infringe the exclusive rights of the Plaintiffs in the said Trademarks; and
iii) any chattels used in the design or manufacture or any of the articles referred to in paragraphs i) and ii) above that are in the possession of Malinowski or in the possession of their agents or otherwise in the control of Malinowski, either directly or indirectly.
5. the Plaintiffs are awarded profits in the amount of $101,388.24 payable by Malinowski;
6. the Plaintiffs are awarded pre and post judgment interest on $101,388.24 at the rate of 2.5% from April 2, 2004, payable by Malinowski;
7. the Plaintiffs are awarded the costs of this action including all motions, on a solicitor and client basis, as well as, all disbursements reasonably incurred payable by Malinowski.
Judith A. Snider
JUDGE
FEDERAL COURT
NAME OF COUNSEL AND SOLICITORS OF RECORD
DOCKET: T-1738-04
STYLE OF CAUSE: 3925928 MANITOBA LTD et al
v. 101029530 SASKATCHEWAN LTD. et al
PLACE OF HEARING: Winnipeg, Manitoba
DATE OF HEARING: September 19, 2005
APPEARANCES:
| Mr. John A. MacIver
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SOLICITORS OF RECORD:
| Wilder Wilder & Langtry Winnipeg, Manitoba
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| Cuelenaere, Kendall, Katzman & Watson Saskatoon, Saskatchewan |