A recent decision from the BC Supreme Court serves as a reminder both of the risk of getting sued for defamation for publicly alleging copyright infringement, including on Amazon, and also that companies may be required to post security for costs in order to proceed with copyright and other intellectual property (IP) claims.
The decision was issued in an ongoing action between the Keezio Group LLC (Keezio) and The Shrunks’ Family Toy Company Inc. (The Shrunks) and the latter’s sole shareholder, David Cirjak. The two companies are competitors in the market for children’s bedding and both primarily sell their goods through Amazon.
The Shrunks made several complaints to Amazon that Keezio had infringed its IP, and they also posted a negative one-star review of Keezio that repeated the allegations of infringement. Keezio sued The Shrunks for defamation, libel, and making false and misleading statements in contravention of both section 7 of the Trademarks Act and Section 52 of the Competition Act.
The Shrunks counterclaimed that Keezio had infringed their copyright, asserting that their bed design constituted an artistic work, specifically a sculpture. The Shrunks also alleged that Keezio committed two breaches of the Trademarks Act: first by drawing attention to their beds in a manner likely to cause confusion with those of The Shrunks; and, second, by depreciating The Shrunks’ goodwill through Keezio’s use of a chart that compared their products to those of another brand that “Rhymes with The Skunks.”
Keezio alleged that The Shrunks would be unable to pay Keezio’s costs if their counterclaim failed and applied for an order that The Shrunks post security for costs.
The Court has discretion to require a plaintiff (including a plaintiff by counterclaim) to post security for costs. In the context of a counterclaim, the Court will primarily consider whether: (1) the plaintiff will be able to pay the defendant’s costs; (2) the order may impose undue hardship on the plaintiff so as to stifle a valid claim; (3) the defendant has an arguable case; and (4) the counterclaim would result in an incremental cost to the party applying for the order.
The Shrunks did not present evidence to argue the first two elements. Moreover, the threshold for an arguable defence is merely that a bona fide defence be advanced and was met in this case. The decision therefore turned on whether there would be incremental costs to Keezio because of the counterclaim.
Ultimately, the Court rejected The Shrunks’ argument that the counterclaim entirely overlapped with the initial claim. The Court held that The Shrunks’ copyright infringement claim was novel and in any event there would be additional costs to Keezio in defending the counterclaim.
However, given the overlap in the claims, the Court ordered security in the amount of $25,000, rather than the $75,000 Keezio initially requested.
The Court made clear that until the security was posted, The Shrunks’ counterclaim would be stayed. The decision thus illustrates the upfront cost of a counterclaim for a corporate defendant that is unable to demonstrate that it may be able to pay the defendant’s costs if the counterclaim fails.
The end result is that The Shrunks, who were trying to protect their copyright through complaints to Amazon and ultimately a claim in Court, ended up being sued for defamation and having to post security to proceed with its copyright claim. The decision serves as a reminder of some risks associated with intellectual property enforcement and potential self-help remedies.
Special thanks to Kevin Bushell for his assistance with this article.