Canada: The Federal Court Of Appeal Has Spoken: Actual Damage Doesn't Need To Be Proved In Order To Obtain Statutory Damages Under The Copyright Act

In its February 2022 decision in RallySport Direct LLC, the Federal Court of Appeal ("FCA") reiterated and confirmed the principle established in the decision of the Ontario Superior Court in Trader. This Court determined that a copyright owner could claim the statutory damages provided in section 38.1 of the Copyright Act ("Act"), even where there was no monetary damage and no loss of business opportunity.

The decision of the FCA is encouraging for copyright owners, since it makes a clear distinction between two scenarios in which a plaintiff may tie their claim to their ability to prove the harm done. On one hand, there is the classic claim for damages that are proportionate to or correlate with the actual damage suffered, for plaintiffs who are able to prove such damage. On the other hand, the FCA confirmed that statutory damages are available in situations where it is difficult for a copyright owner to quantify or even determine the economic loss resulting directly from the infringement of their rights.

Summary of the facts

RallySport, an American automotive parts retailer, advertised certain automotive components and kits on its website using photographic works and product descriptions. 2424508 Ontario Ltd., which became 2590579 Ontario Ltd. ("242/259") after its bankruptcy, reproduced those works and some other product descriptions on its own website. RallySport then brought an action against 242/259 asking the Federal Court for an injunction to compel 242/259 to cease reproducing its photographic works on its website. RallySport also claimed damages under section 38.1 of the Act.

Decision of the Federal Court

At trial, the Federal Court found for RallySport. The judge held that there was copyright infringement and ordered 242/259, jointly and severally, to pay statutory damages in the amount of $250 per work for 1,430 photographic works, for a total of $357,500, as well as punitive damages in the amount of $50,000.

242/259 appealed the award of damages, on the ground that the amount awarded was disproportionate and excessive.

Award of statutory damages

On appeal, 242/259 argued that the statutory damages established by the Act must be awarded only if there is some correlation or proportionality between the actual damage and the statutory damages. However, following what the Superior Court of Ontario held in Trader, the FCA upheld the principle stated in this case, meaning that statutory damages do not require a monetary loss or loss of business opportunity to be shown.

The FCA first noted that the use of the photographic works led to an increase in the company's revenue by making the products more visible. However, this value was difficult to quantify when it came time to assess the quantum of statutory damages. The FCA pointed out that even if the harm sustained by a copyright owner is difficult to quantify, the action is by no means doomed to fail. The statutory damages may be awarded even if no monetary damage was suffered and no loss of business opportunity occurred.

The FCA pointed out that in this situation, there could be no direct economic loss resulting from the infringement of RallySport's copyright since the works were not created for their own sale, but to facilitate the sale of other products. The FCA therefore extended the availability of statutory damages, given that quantifying actual business losses is not always possible. Instead, in this case, it used the cost of producing the photographs as a basis for assessing the quantum of statutory damages.

However, as the Supreme Court of British Columbia very recently observed in Equustek, it must be kept in mind that statutory damages are calculated on a per work basis, not per infringement. The owner of a single work, even if it is illegally reproduced and thousands of copies are made, can claim only the maximum prescribed by the Act, which is C$60,000. However, if several of an owner's works are infringed, as in RallySport, they may claim a substantial amount the total of which may be well beyond that threshold.

Reduction of statutory damages

242/259 also contested the quantum of damages awarded at trial, which was $250 per work. The Federal Court had already reduced those amounts, which would otherwise have been fixed at a minimum of $500 per work, pursuant to subsection 38.1(3) of the Act. In so doing, the Court considered factors which included (1) the good faith or bad faith of the defendants; (2) the conduct of the parties during the proceedings; and (3) the need to deter future infringements. The FCA noted that other factors could be taken into account, such as the production cost of creating the work. However, the FCA held that 242/259 did not demonstrate an error in that determination. Therefore, the FCA concluded that it was not necessary to further reduce that amount.

Award of punitive damages

The FCA clarified that even though the Act provides that statutory damages may have a deterrent effect, that does not preclude the possibility of obtaining punitive damages, depending on the case.

Applying that reasoning, the Court in RallySport Direct LLC upheld the award of punitive damages, finding that the defendants' actions demonstrated bad faith.

This FCA decision is of interest to copyright owners because it highlights that the Canadian copyright protection system is robust and offers easy avenues for copyright owners who wish to claim damages even when the actual damage are difficult to quantify.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.