Group Iii International Ltd v. Travelway Group International Ltd

Group III International Ltd. v. Travelway Group International Ltd.
Court (s) Database
Federal Court Decisions
Date
2024-10-11
Neutral citation
2024 FC 1195
File numbers
T-1380-13
Decision Content
Date: 20241011
Docket: T-1380-13
Citation: 2024 FC 1195
Ottawa, Ontario, October 11, 2024
PRESENT: The Honourable Mr. Justice Lafrenière
BETWEEN:
GROUP III INTERNATIONAL LTD., HOLIDAY GROUP INC. AND WENGER S.A.
Applicants
and
TRAVELWAY GROUP INTERNATIONAL LTD.
Respondent
PUBLIC INTERIM REPORT ON REFERENCE
(Public version of confidential interim report issued to the parties July 26, 2024)
I. Overview [1] After a long and somewhat convoluted history of litigation between the parties, the Federal Court of Appeal granted an accounting of profits by way of reference under Rule 153 of the Federal Courts Rules, SOR/98-106 [Rules]: Group III International Ltd et al v Travelway Group International Ltd, 2020 FCA 210 at para 48 [FCA 2020].
[2] In this interim report, I refer to the Applicants, Group III International Ltd., Holiday Group Inc. [Holiday] and Wenger S.A. collectively as Wenger (in the singular) and the Respondent, Travelway Group International Ltd. as Travelway.
[3] A reference hearing was held for the purpose of quantifying the profits made by Travelway from its sale of luggage, bags and other travel accessories [the Infringing Products] that were found to have been passed off as those of Wenger.
[4] The parties and their accounting experts agree on Travelway’s revenues from the sales of the Infringing products. They also agree on the costs of goods sold [COGS] incurred by Travelway to produce the Infringing Products. The parties have also agreed on the calculation of prejudgment interest, applying an agreed upon rate to the judgment amount up to the date of judgment under s. 36(3) of the Federal Courts Act, RSC 1985, c F-7. However, they disagree on the customer allowance data (i.e. credit memo discounts) as well as further deductions referred to as “omitted and miscellaneous costs” [O&M costs], resulting in a disagreement on the gross profits amounts. The parties and their experts also part ways or differ on various deductions for direct (incremental) costs, the applicability of the full costs method and deductions for overhead costs, and the applicability of any reduction of profits for “replaced sales”, described later in this report. Apart from these issues, there is a major dispute between the parties as to the implications of the Federal Court of Appeal’s passing off findings that gave rise to the present reference.
[5] I will first provide some background information to put this reference in context before turning to my analysis of the issues raised.
II. Procedural History [6] The history and facts of this case have been thoroughly canvassed in the decisions of the Federal Court and the Federal Court of Appeal that lead up to this reference and there is accordingly no need to repeat them here. I shall therefore limit myself to a brief overview.
[7] Wenger S.A. is a Swiss company that has been associated with the famous Swiss army knife for over 100 years. As early as the 1970s, Wenger adopted a logo comprised of a cross in a rounded quadrilateral and surrounded by an inlaid border [the Wenger Cross Logo]. The Wenger Cross Logo, depicted below, is typically presented featuring a white or metallic cross and border, set against a black or red background.
[8] In Canada, Wenger registered three trademarks [the Wenger Marks] that incorporate this logo for use in association with luggage and bags, depicted below.
[9] Travelway is a Canadian company focused on travel founded in the 1970s. It designs, manufactures, and distributes luggage, travel accessories and other non-luggage products, such as backpacks, tote bags and hip bags. Luggage products are generally suitcases. These have been sold over time in either hard side, soft side, or hybrid (a combination of hard side and soft side), and typically are sold in three different sizes as well as a variety of styles and colours. Travelway’s products are found in a variety of retailers in Canada, such as Walmart Canada Corp. [Walmart], Costco Wholesale [Costco], Canadian Tire, and Bentley.
[10] In 2013, Wenger brought an application against Travelway under the Trade-marks Act, now the Trademarks Act, RSC, 1985, c. T-13 [TMA]. Wenger objected to the use by Travelway of two registered trademarks, TMA740206 and TMA740200 (later struck from the Register, as discussed below), for use in connection with luggage and related products, as well as modified versions of the trademarks it began using in 2012. The first version renders the letter “S” difficult to see [Disappearing S Mark], and the second one omits the “S” altogether [Missing S Mark]. The two registered trademarks and a sample of the two variants [the Infringing Marks] are depicted below from left to right.
TMA740206 TMA740200 INFRINGING MARKS
[11] In the prayer for relief, Wenger requested declarations of trademark infringement (s. 20 of the TMA), depreciation of goodwill (s. 22) and passing off (ss. 7(b)), based on its three trademark registrations. Injunctive orders and damages were also sought.
[12] Wenger’s application was dismissed by the hearing judge, Justice Martine St. Louis, on March 24, 2016: Wenger S.A. v Travel Way Group International Inc, 2016 FC 347 [FC 2016]. She determined, among other findings, that in the context of passing off under section 7 of the TMA, the element of misrepresentation had not been satisfied because confusion had not been established. Wenger appealed the decision.
[13] On November 6, 2017, the Federal Court of Appeal allowed the appeal and set aside the hearing judge’s judgment: Group III International Ltd et al v Travelway Group International Ltd, 2017 FCA 215 [FCA 2017]. It found that trademark infringement had been established under the TMA. It also found that the three necessary components of a passing off action, as set out in Kirkbi AG v Ritvik Holdings Inc, 2005 SCC 65, [2005] 3 SCR 302 [Kirkbi], at paragraphs 66-68, that is the existence of goodwill, deception of the public due to a misrepresentation, and actual or potential damage to the plaintiff, had been established.
[14] The Federal Court of Appeal noted that the hearing judge did not examine the issue of damage given her conclusion that the first two elements had not been established. In discussing this issue, the Court considered that Wenger and Travelway were direct competitors in the market for luggage and bags in Canada, and that their wares were very similar and sold largely through the same retail outlets. It concluded that “it only makes sense to infer a likelihood of loss of sales and business by (Travelway’s) misrepresentation.”
[15] An injunction was granted, and the matter was returned to the hearing judge to determine: (1) whether Travelway’s registered trademarks should be struck from the trademark register; (2) whether damages or an accounting of profits are recoverable by Wenger; and (3) if so, the amount and the appropriate procedure for determining them. Travelway did not seek leave to appeal FCA 2017 to the Supreme Court of Canada.
[16] After the injunction was issued in November 2017, Travelway removed the Infringing Marks from its products and replaced them with its SKROSS® marks.
[17] On August 29, 2019, the hearing judge concluded that Travelway’s registered trademarks should be struck from the Trademarks Register: Wenger SA v Travelway Group International Inc., 2019 FC 1104 [FC 2019]. She declined to award damages or an accounting of profits on the basis that Travelway was entitled to the benefit of s. 19 of the TMA, which states that “the registration of a trade-mark in respect of any wares or services, unless shown to be invalid, gives to the owner of the trade-mark the exclusive right to the use throughout Canada of the trade-mark in respect of those wares or services.” However, she added the following proviso at para 45:
[45] If I am wrong and the Applicants are entitled to monetary compensation for the past, I am of the view that it should take the form of an accounting of Travelway's profits, as sought by the Applicants, rather than an award of damages. Travelway has received, through its wrongful conduct, profits that should accrue to the Applicants.
[18] The Federal Court of Appeal allowed Wenger’s appeal in FCA 2020. The Court agreed that the use of a registered trademark does not give rise to liability in damages or an accounting of profits for infringement for the period prior to a trademark being struck from the register and the portions of the decision in FCA 2017 finding passing off should not be followed as authority in future cases. Nonetheless, the Court concluded that, as between the parties, there was a finding of passing off in its prior decision that had not been appealed, and monetary compensation in the form of an accounting of profits to be quantified by way of reference should be awarded.
[19] Leave to appeal the Judgment in FCA 2020 was dismissed by the Supreme Court of Canada on September 29, 2021: Travelway Group International Inc v Group III International Ltd, et al, 2021 CanLII 91645 (SCC).
III. Procedural Steps Leading to the Reference Hearing [20] By Order of Chief Justice Paul Crampton dated April 12, 2021, I was designated as referee under Rule 153(1) of the Rules.
[21] On December 13, 2021, Wenger filed a requisition for hearing. The parties identified the Statement of Issues for the reference simply as follows:
What is the quantum of profits owed by Travelway arising from the sale in Canada of all goods bearing the infringing trademarks (TMA740,200 and TMA740,206, and their variants) from the date of first sale to the date of last sale, and to which the applicants are entitled?
[22] The parties agreed on a process and timetable for the reference, including exchanging of affidavits of documents, conducting written interrogatories, followed by examinations for discovery and service of expert reports.
[23] The reference hearing was originally scheduled to take place in June 2022, but things did not go as planned for reasons explained further below. A five-day evidentiary hearing ultimately took place in May 2023. After the close of the evidentiary portion of the hearing, the parties submitted written representations. A hearing was held on September 26, 2023 for oral submissions, followed by additional written submissions on the issue of deductibility from profits of Travelway’s legal expenses incurred in the proceedings.
IV. The Witnesses A. Lay Witnesses [24] Wenger called one lay witness at trial: Raymond Durocher, the president of Holiday from January 2007 until 2022. Mr. Durocher adopted and updated the evidence he provided by affidavit dated August 13, 2013 [Durocher Affidavit] in support of the application. In his affidavit, Mr. Durocher expressed concerns about the damage being caused by Travelway’s conduct to Wenger’s business interests. He testified generally as to his experience in the luggage market in Canada, and with Holiday in particular, regarding luggage sales to retailer customers, such as Walmart, The Bay and Costco, including the importance of established brands to retailer orders.
[25] Three lay witnesses testified on behalf of Travelway: Gerald Shadeed, Maureen Mason, and Kristen Luff.
[26] Gerald Shadeed was executive vice-president, secretary, and treasurer of Travelway until his partial retirement in 2022. He spoke about Travelway’s business and origins, Travelway’s business relationship with a Swiss-based company, World Connect AG, Travelway’s trademarks and its SWISS TRAVEL PRODUCTS (STP) product line, Travelway’s relationship and contracts with Walmart and its predecessors, Travelway’s actions following the issuance of FCA 2017, and his involvement in the present proceeding.
[27] Ms. Luff is an employee of Travelway since 1994. She moved to the United States of America in 2016 to manage business development for Travelway’s sister company, Travelway Group USA Inc. She testified about Travelway’s sales, accounting, and financial records, variable and/or incremental costs incurred by Travelway in relation to the sale of products bearing the Infringing Marks, and Travelway’s overhead costs.
[28] Ms. Mason was a category manager (Luggage & Family Accessories) for Walmart until she left the company in September 2018. She spoke to issues such as Walmart’s customer base, marketing and pricing strategies and product categories, and Walmart’s purchases and sales of Travelway products, including those bearing the Infringing Marks. She also testified as to what transpired after the injunction was issued in FCA 2017.
[29] I found all four witnesses to be credible. They testified in a sensible, fair and forthright manner. They were not shaken in cross-examination, and at no time were they evasive, or prone to exaggeration. I found the evidence they provided at the hearing to be reliable and trustworthy.
B. Expert Witnesses [30] Wenger called two expert witnesses: Dr. Ruth Corbin and Nancy Rogers. Travelway in turn relied on the evidence of two experts: Andrew Harington and Dr. Ceren Kolsarici.
(1) Qualification of Experts [31] Procedurally, a voir dire must be held to determine the admissibility of expert opinion evidence. Before expert evidence can be given any weight, it must first be found admissible in accordance with the general principles enunciated by the Supreme Court of Canada in R v Mohan, [1994] 2 SCR 9 [Mohan]. The Mohan test requires the trial judge (the referee in this case) to scrutinize the proffered expert opinion evidence based on four criteria assessed on a balance of probabilities: (a) the relevance of the expert opinion to a fact-in-issue; (b) the necessity of the expert opinion in assisting the trier of fact; (c) the absence of any exclusionary rule; and (d) whether the witness is a properly qualified expert.
[32] Applying these principles to the evidence of the four expert witnesses, I found that all the criteria in the Mohan test were met. My task was made easier by the fact that neither party objected to the qualifications of the opposing party’s experts or to the admission of their evidence. Based on my own review of the experts’ curricula vitae and credentials, I found them to be qualified to express the opinions they presented to the Court. Their evidence was both relevant to central issues to be determined on the reference and necessary as it is outside my normal experience and knowledge.
(2) Marketing Experts [33] Dr. Kolsarici was qualified as an expert in marketing, marketing research and analytics, consumer behaviour, econometrics, and statistical modeling. She was asked to provide her opinion and prepare a report [Kolsarici Report] on: (a) the current state of scientific research in the field of marketing regarding the importance of trademarks as a factor in consumer purchase decision-making; (b) the current state of scientific research in the field of marketing regarding the importance of the perceived country of origin of a product as a factor in consumer purchase decision-making; (c) the causal link between Travelway’s use of the Infringing Marks and their sales of the Infringing Products; and (d) the causal link between the perceived country of origin of the Infringing Products on sales of these products, given Travelway’s use of the brand name STP, along with the Infringing Marks, on these products.
[34] It should be noted that the Infringing Marks were never used alone on the Infringing Products, such that the STP mark, depicted below, was always associated with the Infringing Products as well.
[35] Dr. Corbin was qualified as an expert to give opinion evidence in the areas of consumer perception, attitudes and buying intentions, marketing, forensic market research, and standards for social science research. She was retained by Wenger to review and update her affidavit evidence filed in 2013 that raised substantive issues of the risks to well-known brands arising from confusion. In her report [Corbin Report], she also provided reply comment to the Kolsarici Report.
[36] The two experts agreed on the general importance of brands to consumer decision-making and generally agreed on foundational marketing models and theories. Their areas of disagreement were mainly on the fringe – a result of each expert adopting a different scope of analysis. Although, I have not accepted certain opinions rendered or conclusions reached by these experts, I did not do so on the basis of any lack of credibility or impartiality on their part.
(3) Accounting Experts [37] Ms. Rogers was qualified as an expert to give opinion evidence in the areas of investigative and forensic accounting, business valuation, and quantification of financial remedies, including accounting for profits. She submitted an expert report dated March 22, 2023 [Rogers Report] providing the quantification of net profits earned by Travelway on the sale in Canada of all goods bearing the Infringing Marks from the date of first sale to the date of last sale. A supplementary report was prepared on April 17, 2023 [Rogers Supplementary Report].
[38] Mr. Harington was qualified as an accounting expert in the exact same fields as Ms. Rogers, with the notable exception that he was also qualified as an expert in accounting for profits “in intellectual property matters.” This is contrary to Ms. Rogers, who did not profess to have any expertise in such matters. Mr. Harington was asked to provide his opinion as to the profits earned by Travelway as a result of its use of the Infringing Marks and to isolate their value relative to sales of the Infringing Products. He prepared a report on March 22, 2023 [Harington Report] and provided his reply to the Rogers Report [Harington Reply Report] on April 17, 2023.
[39] Following the exchange of their expert reports, the two accounting experts attended a Zoom call to discuss certain mathematical components of their reports. Mr. Harington subsequently issued an additional report. He later provided revised calculations to his quantification of Travelway’s profits by way of letter dated May 1, 2023. This was followed by an addendum to the Rogers Supplementary Report dated May 5, 2023.
[40] I find that both financial experts testified in a fair and balanced manner. Each made an honest attempt to assist the Court with their evidence, which was constrained by certain mandated assumptions and instructions, and dependent upon the accuracy of information provided to them by others. In assessing their expert evidence and determining what weight to assign to it, I carefully considered the soundness of the expert’s assumptions, the appropriateness of the instructions they were given as well as their methodology, and the reliability of the facts underlying each opinion.
V. Analysis [41] In asking this Court to quantify the profits made by Travelway from its sale of goods found to have been passed off as those of its own, Wenger suggests that the task revolves primarily around five themes:
the evidence and logic relied on in deducting expenses (both incremental and fixed) from gross sales;
the accuracy, appropriateness and legitimacy of the calculations employed;
the reliability of the records relied upon;
the validity and reliability of the expert analysis; and
the legal obstacles of res judicata, the Federal Courts Rules and the law of evidence.
[42] The first four themes are routine questions that a referee is called upon to deal with on a reference. In regard to the fifth theme, Wenger submits that much of Travelway’s case seems to be based on the theory that the Infringing Products might have been bought for some reason other than the confusion and misrepresentation for which Travelway is responsible. According to Wenger, “this is an impermissible effort to retain profits Travelway alleges it could have or would have earned instead of wrongly passing off” [emphasis theirs].
[43] Wenger submits that the tort and statutory wrong of passing off has been established for sales of the Infringing Products, and it is entitled to an accounting of the profits Travelway earned from them. It strongly insists that findings and orders by the Federal Court of Appeal in its two judgments and their reasons are res judicata.
[44] Travelway submits that the issue as to whether it is entitled to rely on the benefit of s. 19 of the TMA has yet to be finally decided, despite the finding of passing off in FCA 2017, and that it is open to me to conclude that no compensation is owed for the period that its trademarks were registered. Travelway also claims that the period of time during which sales took place that are relevant in this reference remains at issue. Finally, it argues that the causal link between the use of the Infringing Marks and the sales of the Infringing Products has yet to be established.
[45] These arguments must be addressed first before turning to the evidence adduced and the parties’ arguments that pertain to the quantification of profits to be disgorged by Travelway.
A. What Has (and Has Not) Been Finally Decided [46] When it comes to making findings in this case, it is important to bear in mind that I am not wearing the hat of a judge, but rather that of a referee. The function of a referee is to undertake factual investigations that are necessary to the resolution of the matters in controversy between the parties that have been referred for adjudication. Conclusive findings that have been finally determined by the Federal Court of Appeal are binding on me and define the legal and factual context of the purpose of, and evidence tendered within, this reference.
(1) Whether Travelway can Avail Itself of the Protection Afforded by s. 19 of the TMA [47] Travelway claims that it need not disgorge its profits for the period from when the Infringing Marks were registered to the date of their expungement. It submits that FCA 2020 does not explicitly state that the principles governing s.19 of the TMA in respect of the infringement of a registered trademark do not apply when the cause of action is s. 7(b) and the protection afforded by s.19 has been preserved. I find this to be an entirely specious argument. Travelway is clearly estopped from making it.
[48] As explained below, there has been a final determination that Travelway is liable for passing off, despite having valid trademarks.
[49] Issue estoppel is a branch of res judicata, which precludes the relitigation of issues previously decided in court in another proceeding. For issue estoppel to be successfully invoked, three preconditions must be met: (1) the issue must be the same as the one decided in the prior decision; (2) the prior judicial decision must have been final; and (3) the parties to both proceedings must be the same, or their privies (Danyluk v Ainsworth Technologies Inc, [2001] 2 SCR 460, 2001 SCC 44 at para 25, per Binnie J.).
[50] The third requirement of issue estoppel is met in this case.
[51] As for the first requirement, Travelway is asking me, in my role as a referee, to find that it need not disgorge its profits for the period from when the Infringing Marks were registered to the date of expungement. However, this very issue was raised by Travelway and rejected by the Federal Court of Appeal in FCA 2020. In applying for leave to appeal to the Supreme Court of Canada, Travelway acknowledged that the Federal Court of Appeal ordered an accounting of profits for passing off for the years its registrations were in effect. In fact, the entire basis of Travelway’s unsuccessful leave application was that the Federal Court of Appeal erred in ordering the remedy for the period when Travelway had valid registrations.
[52] The second requirement of issue estoppel is also met. When the Supreme Court denied leave to appeal, litigation of that issue came to an end. Travelway knows this all too well.
[53] Travelway’s attempt to now argue that the issue of Wenger’s entitlement to monetary compensation for the period when the registrations were in effect was never decided is nothing more than a blatant case of revisionism that does not accord with the unambiguous finding in FCA 2020 at para 47.
[54] To deny the remedy of disgorgement during the period when the registrations were in effect would fly in the face of the passing off finding in FCA 2017 and the subsequent holding in FCA 2020 that this finding remains binding “as between the parties.”
(2) Whether the Specific Period of Time during Which Relevant Sales Took Place Remains at Issue [55] Travelway submits that FCA 2020 does not state Wenger is entitled to compensation for any specific period and had no evidence before it as to the start and end dates of Travelway’s sales. I disagree.
[56] There are clear findings of fact in FCA 2017 that Travelway started selling Infringing Products in 2009. In that decision, the Federal Court of Appeal concluded at paragraph 82 that there was misrepresentation from the time that Travelway’s wares first entered the marketplace in 2009:
[82] In my view, the evidence clearly establishes that there has been misrepresentation. From the time that the respondent’s wares first entered the marketplace in 2009, the Travelway marks were quite similar to the Wenger marks. The resemblance was subsequently made stronger by several modifications to the Travelway triangle mark. The result is that the Travelway triangle mark and the Wenger marks are strikingly similar, particularly when displayed as the Disappearing S variant. In addition, the respondent associated its wares with Swiss-ness, as the appellants had done, and some of these claims were false. The only connection between the respondent and Switzerland revealed by the evidence is a branding arrangement with a Swiss corporation that allows the respondent to use the words “SWISS TRAVEL PRODUCTS.” Accordingly, the respondent not only has used very similar trademarks but it made other claims of Swiss-ness that would have exacerbated the confusion in the public’s mind.
[57] Travelway submits, citing Mr. Durocher’s testimony, that Wenger itself was of the view that no harm was being caused to the goodwill of its trademarks until November 2012. It argues that because Wenger failed to take any action until then, it is plain and obvious that no profit was being derived by Travelway which could arise out of confusion amongst consumers during the previous three year period. I disagree. In FCA 2017, no distinction is made between Travelway’s registered trademarks and the variants when it came to concluding that there was a likelihood of confusion. As the Court noted, the diminishment of the prominence of the “S” in Travelway’s “Disappearing S Mark” and the removal of the “S” in the Missing S Mark only served to increase the likelihood of confusion. This finding is binding on me.
[58] It is common ground that Travelway only ceased sales of the Infringing Products after the injunction was issued in 2017. In the circumstances, it is not open to me to shrink the period of the sales of Infringing Products to be taken into account in this reference.
[59] This brings me to the issue of causation.
(3) Whether Causation Remains at Issue [60] Trademark law aims to prevent a competitor from unlawfully benefitting from the goodwill acquired by a trademark owner in its trademark or damaging that goodwill. The civil remedy in s. 7(b) protects the goodwill associated with trade-marks and is directed to avoiding consumer confusion through use of trade-marks: Kirkbi at para 35.
[61] The Federal Court of Appeal concluded in FCA 2017 that the evidence demonstrated a “likelihood” or “strong likelihood” of confusion between the Travelway marks and the Wenger mark, that “it only makes sense to infer a likelihood of loss of sales and business” by Travelway’s misrepresentation. The Court went on to conclude that the element of damage had been established. In FC 2019, the hearing judge found that in the event she had erred in her interpretation of the protection granted by section 19 of the TMA, Travelway had received profits that should accrue to Wenger.
[62] Travelway submits that despite these findings, there has been no determination whether the profits claimed by Wenger were actually gained because of the misrepresentation. Travelway says it would be an error of law to assume that decisions by consumers to purchase its products were not due to any other factor. It maintains that the profits to be disgorged must only be those proven to be causally attributable to the misrepresentation.
[63] In answer, Wenger submits that Travelway’s arguments reflect a fundamental misunderstanding of the law and the findings that have been made in this case. According to Wenger, the law is clear that an order for an accounting of profits necessarily entails a finding of causation ̶ that causation is a “condition sine qua non of the remedy” ̶ and that in an accounting of profits, the rights holder need only prove the infringer’s sales. The onus would then be on the infringer to prove any costs that it claims should be deducted from those sales numbers. Wenger cites various case law in support of this proposition, including Constellation Brands US Operations Inc v Société de vin international ltée, 2021 QCCA 1664 [Constellation Brands], at paras 46-48 and Philip Morris Products S.A. v Marlboro Canada Limited, 2016 FCA 55 at paras 17-18.
[64] It is Wenger’s position that the terms of the judgments of the Federal Court and the Federal Court of Appeal exclude any possibility of leading evidence at the reference on the issue of causality or apportionment. With respect, I disagree. Beyond being at odds with the very relief it requested when it commenced the underlying proceeding, Wenger’s position is simply wrong. As noted by the Federal Court in Monsanto Canada Inc v Rivett, 2009 FC 317 (CanLII), [2010] 2 FCR 93, at para 47, citing Justice Ian Binnie of the Supreme Court of Canada in Bristol-Myers Squibb Co v Canada (Attorney General), [2005] 1 SCR 533 at para 52, “linking the making of a profit to the use of the patented product is insufficient.” The critical question on this reference is not whether Travelway is at fault, but rather whether Travelway made any profits as a result of actual confusion created by its conduct.
[65] It bears noting that the underlying proceeding was commenced by way of application, and not as an action. There are important procedural differences between the two proceedings, as explained by Associate Judge Horne in C-Tow Marine Assistance Ltd v Sea Tow Services International, Inc, 2024 FC 101 at paragraphs 28 to 35. Unlike an action, an application is heard on a paper record. There is no discovery process and interlocutory motions are discouraged.
[66] A party to a proceeding (more typically an action) may request an order pursuant to Rule 107 of the Rules that certain issues in a proceeding be determined separately. Although Wenger did not formally move for a bifurcation order in this case, it requested this specific relief at paragraph 69 of the Notice of Application:
69. The issues of liability for infringement and of the Applicants’ entitlement to declaratory and injunctive relief should be determined first and, subject to the determination of liability, a reference relating to the issues of quantum of damages or profits should then be conducted on such terms as counsel may advise and this Honourable Court deems just.
[67] It is therefore not surprising that the parties’ affidavit evidence, cross-examinations and submissions at the hearing stage were focussed exclusively on the issues of liability and entitlement to a remedy. The power to order remedies in respect of trademark infringement derives from s. 53.2 of the TMA, which includes “the recovery of damages or profits.”
[68] In FCA 2017, the Court concluded that “it only makes sense to infer a likelihood of loss of sales and business by the respondent’s misrepresentation” (para 84) and “the element of damages is […] established.” However, the only evidence before the Court in FCA 2017 to support Wenger’s claim for monetary relief was that of Mr. Durocher. The Durocher Affidavit speaks generally to potential damage or destruction of the value and distinctiveness of the Wenger Marks. Mr. Durocher stated that deficiencies in the quality of the Respondent’s goods would lead consumers to devalue the quality of Wenger’s wares, permanently damaging the reputation for quality and the brand characteristics of the Wenger Marks and the wares sold in association with those Marks. He also claimed that the very low price points of Travelway’s goods would cause consumers to be less willing to pay the higher prices at which Wenger’s wares are generally sold, eroding the profit margin of Holiday (and notably adding) “in a manner that is difficult to measure.” It is on the basis of this evidence that the matter was referred back to the hearing judge “to determine whether damages are recoverable and, if so, the amount of damages”. [Emphasis mine.]
[69] An award of damages differs fundamentally from an accounting of profits. A claim for damages focuses on the plaintiff’s loss whereas an accounting of profits looks at the benefit or advantage that a defendant derived from the use of the invention. In the case at hand, the hearing judge declined to grant Wenger’s request for a reference on damages and chose instead to award an accounting of profits. Consequently, any damages that may have been sustained by Wenger as a result of passing off, such as depreciation or damage to the value of goodwill in its trademarks or unfair trading on Wenger’s reputation, are not relevant. Had Wenger elected damages as a remedy, it would still have been required to demonstrate a causal link between the use of the Infringing Marks and its lost profits: Energizer Brands, LLC v Gillette Company, 2023 FC 804 at paras 249 [Energizer].
[70] While the findings in FCA 2017 and FCA 2020 finally determined the issue of liability for misrepresentation and Wenger’s entitlement to damages, the Court did not purport to make any determination that there was a causal link between the profits made by Travelway from the sales of the Infringing Products and the misrepresentation. There was simply no evidence of actual confusion before the Court. Nor for that matter was the issue of apportionment raised by either party. That being so, it would certainly be paradoxical that the formal judgments leading to this reference should have the effect now contended for by Wenger.
[71] I am fully aware that the hearing judge concluded in FC 2019 that “Travelway has received, through its wrongful conduct, profits that should accrue to the Applicants.” According to Wenger, this statement clearly establishes that Travelway’s profits are causally related to the act of infringement. It should be said, with respect, that the hearing judge’s statement (which I view as an inference rather than a finding of fact) was not based on any evidence or any analysis regarding the link between the sales of the Infringing Products and the use of the Infringing Marks. This is apparent from the hearing judge’s later observation in her reasons that evidence of Travelway's profits “was neither in the initial application nor in the affidavits that were filed.” I should add that even if the hearing judge’s “finding” stands, it does not necessarily amount to a conclusion that all the profits from the sales of the infringing products are profits arising from the misrepresentation. As explained further below, such conclusion is not borne out by the evidence before me. Wenger’s own expert conceded that it was implausible that all of the profits earned by Travelway from the sales of the Infringing Products could have been causally attributable to the use of the Infringing Marks.
[72] If no benefits were unlawfully gained as a result of the use of trademarks found to be confusing, there are no profits to be disgorged. It is settled law that the rights holder is only entitled to that portion of the infringer’s profit which is causally attributable to the infringed right.
[73] The requirement that an infringer’s disgorged profit must be only the profit which is causally attributable to the infringement was recently reaffirmed in Nova Chemicals Corporation v Dow Chemical Company, 2020 FCA 141 at para. 32 [Nova FCA]. The Federal Court of Appeal gave a “prudent reminder to apply causation principles properly and rigorously, to ensure that the gain earned by the infringer as a result of the infringement is reversed, no more, no less.” The Court stressed at paragraph 33 that the key words are “as a result.”
[33] To reiterate, under an accounting of profits, the patentee is entitled to the benefits obtained by infringers as a result of the infringement of the patent, properly construed and understood, no more, no less. The key words are “as a result” and “infringement of the patent, properly construed and understood”. The former stresses the need for the court to analyze causation, for only those amounts causally linked to the infringement are captured by the accounting of profits; anything extra is punitive. The latter reminds us that the focus is on the protection afforded by the patent; anything extra effectively extends, improperly, the scope of protection afforded by the patent.
[Emphasis added.]
[74] The very existence of the order for the reference in FCA 2020 lead to the belief that the issues of causation and apportionment remain open to be considered in light of all the evidence adduced by the parties. I am satisfied that there was no intention on the part of the hearing judge or the Federal Court of Appeal to circumscribe in any way the profits analysis in accordance with the case law.
[75] For the above reasons, I find that causality and remoteness may properly be explored at the quantification phase of this proceeding: Lubrizol Corp v Imperial Oil Ltd, 1996 CanLII 4095 (FCA), [1997] 2 FC 3. These are issues of fact: Beloit Canada Ltée/Ltd v Valmet Oy (1992), 45 CPR (3d) 116 (FCA).
[76] According to the Supreme Court’s holding in Monsanto Canada Inc v Schmeiser, 2004 SCC 34, at paragraphs 101-105, in an accounting of profits, it must first be shown that the infringer’s profits are causally related to the act of infringement, and then the appropriate quantification or apportionment of profits attributable only to the infringing activity must be determined. Accordingly, I will address the issue of causality before tackling the monetary issues.
B. Causal Link between the Profits made from the sales of the Infringing Products and the use of the Infringing Marks [77] With respect to the burden of proof that rests on the parties at the quantification phase, Wenger is required to prove only Travelway’s revenue from sales of the Infringing Products. The burden then shifts to Travelway to establish, based on the usual evidentiary standard of a balance of probabilities, which portion of its profits from the sales of the Infringing Products was not made as a result of the misrepresentation: Philip Morris Products S.A. v Marlboro Canada Ltd, [2015] FCJ No. 1564 at paras. 10-11, 45, affd Philip Morris Products S.A. v Marlboro Canada Limited, 2016 FCA 55.
[78] Travelway relies on the evidence of two witnesses (Dr. Kolsarici and Ms. Mason) to support its claim that Travelway’s misrepresentation had little to no effect on customers when deciding to purchase the Infringed Products. Wenger called Dr. Corbin to provide reply comment to the Kolsarici Report and to confirm and update her expert report filed earlier in support of the application. As explained further below, the experts fundamentally disagree on the importance of brands and logos at the purchase stage of the products at issue.
(1) Evidence of the Marketing Experts on Causality [79] As