Magazine battle ends in punitive damages award

In Parks v 2703203 Manitoba Inc, the Nova Scotia Court of Appeal has ordered the appellants to pay both general and punitive damages.

The case stemmed from a dispute between the owners of two magazines, namely Coffee News and the Flying Cow. Coffee News was designed by Jean Daum, and is published and franchised throughout Canada and in 50 countries by her company, 2703203 Manitoba Inc. It has acquired a reputation as a highly rated, award winning trade publication. It has a distinctive format, colour and style. Each franchisee is provided with the content, which is then printed and distributed by the individual franchisee, free of charge, to restaurants, coffee shops and convenience stores.

Daum first encountered the first appellant, Ross Parks, in September 1998 in relation to negotiations to purchase a Coffee News franchise. Perturbed by Parks's business methods, Daum vowed that she would never have any further dealings with Parks. However, unknown to Daum, Parks secretly negotiated for several other Coffee News franchises through another individual, Lloyd Smith. Smith and Parks kept Daum completely in the dark as to the extent of Parks's involvement.

In June 2002 Parks's company, Parrcom Atlantic Concepts Incorporated, entered into an agreement with two other individuals to supply editorial material for a new publication named Flying Cow. Witnesses at trial testified that the first several issues of Flying Cow were published by the same printer as Coffee News, and were identical to Coffee News in almost every respect, including design, format, and the quality and colour of the paper. Only the editorial content and the mast-head were different. The evidence also revealed that Coffee News was often removed from its display stands in stores and replaced with copies of Flying Cow by Parks or his associates. Witnesses said that stacks of Coffee News disappeared from their locations or were destroyed at the hands of Parks.

Daum, through her Manitoba company, brought proceedings against Parks, Parrcom Atlantic and Smith. The first instance court upheld the claim and awarded Daum general and punitive damages. Parks, Parrcom Atlantic and Smith appealed.

The Nova Scotia Court of Appeal held that Manitoba, through years of significant use of a publication with a distinctive get-up, had established goodwill and a reputation in its publication. This was reinforced by a number of awards and other accolades received by Coffee News over the preceding years.

The court found that the appellants' conduct was clearly planned and deliberate. Their intent and motive was to deprive Manitoba of its franchising business opportunities. The conduct was designed to deceive Manitoba and do it harm. Moreover, the appellants profited from their misconduct.

The court also found that the appellants had misrepresented Flying Cow as either the successor to or sister publication of Coffee News and had thereby deceived members of the public. Such misrepresentation did actually or potentially cause damage to Manitoba.

It is only recently that punitive damages have been awarded in Canada in respect of IP cases. The court stated that while such damages are available, it must be remembered that an award is justified only in exceptional cases when the conduct is such as to require punishment. The court went on to assess:

• the blameworthiness of the appellants;
  
  
• the vulnerability of Manitoba;
  
  
• the potential harm resulting from the appellants' actions;
  
  
• the need for general and specific deterrence;
  
  
• the other penalties imposed upon the appellants; and
  
  
• the advantages wrongfully gained by the appellants.

Having assessed these factors, the court concluded in finding that this was a case where punitive damages, in addition to general damages, were warranted. However, the court reduced the original amount of punitive damages awarded by the first instance court, stating that the proper amount should be C$40,000.

John Macera, Macera & Jarzyna - Moffat & Co, Ottawa