In Rallysport Direct LLC v 2424508 Ontario Ltd, 2020 FC 794, the Canadian Federal Court awarded $357,500 in statutory damages and $50,000 in punitive damages for infringement of copyright in 1,430 photographs.
Rallysport Direct LLC (RSD) is a wholesaler and direct-to-consumer supplier of aftermarket automotive components and accessories. It sells its products on its website using photographs of RSD’s products created by its employees under its direction.
The defendants also carried on business as an aftermarket automotive components and accessories supplier. In 2016, one of the individual defendants directed third party contractors to copy RSD’s photographs for the defendants’ website, which was owned by the first corporate defendant, 2424508 Ontario Ltd. (242 Ontario Ltd.).
When RSD became aware of the infringement, it sent 242 Ontario Ltd. a cease and desist letter and brought this action for copyright infringement against 242 Ontario Ltd. in early 2017. Several months later, the individual defendants incorporated 2590579 Ontario Ltd. (NewCo), transferred ownership of the defendants’ website from 242 Ontario Ltd. to NewCo, and commenced bankruptcy proceedings for 242 Ontario Ltd.
When RSD became aware of NewCo and 242 Ontario Ltd.’s impending bankruptcy, it successfully brought a motion to amend its pleadings to add claims against NewCo and the individual defendants. The defendants then brought a motion for summary judgement, alleging that copyright did not protect RSD’s photographs. The defendants were unsuccessful, and the Court awarded summary judgement in favour of RSD (Rallysport Direct LLC v 2424508 Ontario Ltd, 2019 FC 1524).
RSD elected to pursue statutory damages for infringement for commercial purposes at a rate of $500 per infringement under paragraph 38.1(1)(a) of the Copyright Act. Statutory damages recognize that actual damages for copyright infringement are often difficult to prove. They are supposed to incentivize copyright owners to invest in and enforce copyright, while deterring would-be infringers. Statutory damages for infringement for commercial purposes range from $500 to $20,000 per infringement.
Subsection 38.1(3) gives the Court the discretion to award statutory damages of less than $500 per commercial infringement if either there is more than one work in a single medium or the infringement is done by way of the Internet, and awarding the minimum amount would be grossly out of proportion to the infringement. In this case, the Court decided to exercise this discretion and awarded statutory damages at an amount of $250 per infringement, totaling $357,500.
The Court arrived at this rate by taking into account RSD’s labour costs to create its 1,430 photographs, the defendants’ bad faith, and the amount of damages that would deter future infringement. The Court found that production costs are a relevant factor when determining whether the statutory minimum is grossly disproportionate in the e-commerce context, because the copyrighted works were created to sell other products and not to be sold themselves. The defendants’ evolving explanations regarding their actions led the Court to conclude that they were acting in bad faith. The Court also held that deterrence is particularly important where technology makes it easy to infringe, as was the case here.
Subsection 38.1(7) allows the Court to award punitive and/or aggravated damages in addition to statutory damages. Punitive damages “should only be awarded where the evidence shows that there has been high-handed, malicious, arbitrary or highly reprehensible conduct that departs to a marked degree from the ordinary standards of decent behaviour”, which is a high threshold. Aggravated damages aim to compensate parties for intangible injuries such as distress or humiliation. There is doubt as to whether corporations can claim aggravated damages. The Court found that RSD was not entitled to aggravated damages but was entitled to $50,000 in punitive damages.
The Court considered six factors in determining whether the defendants’ actions met the threshold for awarding punitive damages:
- was the conduct planned and deliberate;
- the intent and motive of the defendant;
- whether the defendant persisted in the outrageous conduct over a lengthy period of time;
- whether the defendant concealed or attempted to cover up its misconduct;
- the defendant’s awareness that what it was doing was wrong; and
- whether the defendant profited from its misconduct.
The award of punitive damages was based on the defendants’ efforts to “judgment-proof” their actions by creating NewCo, transferring their website to it, and putting 242 Ontario Ltd. into bankruptcy during litigation when it was the only defendant. The Court found that this behaviour engaged factors (a), (b), (d), and (e) above. Punitive damages of $50,000 were consistent with awards in previous cases the Court reviewed and which ranged from $10,000 to $100,000.