Rare jail sentence ordered for contempt in trademark infringement saga
In Trans-High Corporation v Hightimes Smokeshop and Gifts Inc (2015 FC 1104, September 23 2015), a Canadian Federal Court judge has ordered the principal of a corporation to be imprisoned for a minimum of 14 days and to remain imprisoned until payment is made of more than $100,000 in fines, costs and damages awarded in a trademark infringement proceeding and subsequent contempt proceeding. This decision represents a rare exercise of the court’s power to enforce civil orders against corporations through imprisonment of an officer and director of the corporation.
The original judgment in Trans-High Corporation v Hightimes Smokeshop and Gifts Inc issued on November 26 2013. Trans-High Corporation was the owner of the trademark HIGH TIMES, used since 1982 in Canada in association with a popular magazine called High Times, which focuses on the “interests of counterculture, including the medical and recreational uses of marijuana”. Hightimes Smokeshop and Gifts Inc was a retail store selling smoking and marijuana accessories. The court found that the use of the name High Times Smoke Shop & Gifts constituted trademark infringement and passing off of the trademark HIGH TIMES. The court ordered a permanent injunction against further use of the term 'High Times' and awarded payment of $55,000 ($25,000 in damages and $30,000 in legal costs).
Hightimes failed to make the required payment and Trans-High subsequently discovered that it continued to infringe the HIGH TIMES trademark despite having been served with the judgment. In May 2014 Trans-High again served the judgment, explained its effect to the employees of Hightimes, and threatened to bring contempt proceedings against the company and its sole officer and director, Ameen Muhammad.
Hightimes continued to ignore the terms of the judgment and Trans-High began contempt proceedings in August 2014 against both the company and Mr Muhammad. In February 2015 the parties reached a settlement which required full compliance with the original judgment and the guilty pleas of Hightimes and Mr Muhammud in the pending contempt proceeding. Following settlement, Hightimes failed to make the required payment and was slow in removing the trademark from the store, but did eventually remove the mark. At the contempt proceeding, the company and Mr Muhammud entered a guilty plea.
In a decision dated July 27 2015, the court noted that contempt has a public aspect (general deterrence) and private aspect (specific deterrence). In this regard, the court noted that in IP cases, general deterrence is a primary consideration. The court discussed several aggravating factors, including the objective and subjective seriousness of the behaviour and the lack of an explanation or apology. The court also noted certain mitigating factors, such as the guilty plea and the lack of prior contempt convictions. Overall, the court determined that it was appropriate to order fines jointly payable by Hightimes and Mr Muhammud, with imprisonment for non-compliance.
The court ordered payment of $50,000 in fines to the court, $55,000 to Trans-High as required by the original judgment, and an additional $62,000 to Trans-High in full reimbursement for costs and disbursements related to the contempt hearings. The court further ordered that, in the event of non-compliance within 30 days, Mr Muhammed was liable to be imprisoned for not less than 14 days, to continue until the contempt is purged and the penalties are paid.
Hightimes and Mr Muhammud failed to make the payment required by the court’s contempt order. By the decision dated September 23 2015, the court issued a warrant of committal to have Mr Muhammud arrested and imprisoned for not less than 14 days and to remain until payment was made of fines, costs and other amounts previously awarded by the court. Mr Muhammud may seek an order for his release upon filing evidence that the full amounts have been paid.
It is established practice that contempt proceedings may be used to secure compliance with court orders, including in IP cases. This decision highlights the Federal Court’s willingness in appropriate cases to order remedies for contempt against directors and officers of corporations that fail to comply with court orders, including imprisonment.
Daniel Anthony, Smart & Biggar/Fetherstonhaugh, Ottawa
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