Copyright — Offences — Selling infringing works — Sentence, punishment and fines — Fines.

       Sentencing of Chen on his guilty plea to selling and offering for sale clothing knowing that the products infringed a copyright. Chen purchased clothing which replicated brand name items. She sold them out of her home. There was no suggestion that Chen held out the clothing to be genuine and she sold the clothing at 10 per cent of the value of the genuine merchandise. Chen was a single mother supporting two children. She stated that she earned $1,800 per month from the sale of the clothing. The Crown and defence made a joint submission of 12 months imprisonment to be served conditionally. They disagreed as to the amount of a fine. The Crown suggested a fine based on 25 per cent of the estimated revenue from the illegal sales.

       HELD:  Chen was sentenced to 12 months imprisonment to be served conditionally and a fine of $2,500 with 18 months to pay. A fine of $5,000 would have been reasonable, but did not take into account Chen's ability to pay. The likelihood of her re-offending was low. Chen's activities did not have the effect of taking customers away from the actual brand name providers.

Statutes, Regulations and Rules Cited:

Copyright Act, s. 42(1)(b), 42(1)(g).

Counsel:

Counsel for the Crown: C. Osborne

Counsel for the Defendant: C. Johnston

       BRUCE PROV. CT. J.:—

INTRODUCTION

¶ 1      The defendant entered a guilty plea to selling and offering for sale clothing and accessories knowing that such products infringed the copyright belonging to various brand name manufacturers contrary to Section 42(1)(b) of the Copyright Act. The offence took place between February 2, 2002 and April 21, 2002.

¶ 2      Section 42(1)(b) of the Act prohibits the sale or offer for sale an infringing copy of a work or other subject matter in which copyright exists and Section 42(1)(g) of the Act sets out the penalty for this offence as a fine of not more than $1,000,000 or to a term not exceeding five years or both.

¶ 3      The defendant and the Crown made a joint submission regarding a twelve month jail term to be served in the community under the terms of a Conditional Sentence Order. They also agreed that a fine should be imposed but are at odds in regard to the amount of the fine.

¶ 4      The Crown maintains a fine in the amount of $10,000 should be imposed representing approximately 25% of the estimated gross sales revenue. In support of this formula for calculating the fine the Crown cites The Queen v. Etheridge Unreported (July 28, 2000) Reg. No. 30569 (Ontario Court of Justice) and Regina v. AFC Soccer, [2002] M.J. No. 441 (September 4, 2002) (Manitoba Prov. Ct.). The defendant argues for a fine in the range of $1000 to $2500 based upon the mitigating circumstances, the defendant's ability to pay, and the limited amount of profit earned from the sale of the clothing and accessories.

CIRCUMSTANCES OF THE OFFENCE

¶ 5      The defendant purchased clothing and accessories from manufacturers in Hong Kong and Toronto that replicated brand name items made by companies such as Tommy Hilfiger, Versace, Gucci, Fendi, Adidas, Nike, Louis Vuitton as well as many other familiar names. The defendant purchased these products at a fraction of the cost of the genuine copyrighted clothing and accessories and sold them out of her home and her business premises.

¶ 6      An undercover officer was introduced to the defendant some time in January 2002 and through this introduction was able to make purchases from the defendant between February 2, 2002 and April 21, 2002. These purchases were made in cash and the defendant provided no receipts. On seven occasions during this period the undercover officer purchased clothing and accessories from either the defendant's residence or her business premises and paid a total of $2108 for these items. This amount was estimated to be about 10% of the price that would have been paid for the items had they been genuine clothing and accessories manufactured by the brand name companies.

¶ 7      Subsequent the defendant's arrest, search warrants were executed at her residence and business premises and many boxes of counterfeit clothing were discovered. An expert report authored by Lorne Lipkus estimated the value of the counterfeit clothing and accessories, if genuine, at approximately $500,000. The Crown estimates the sale value of the inventory to the defendant at 10% of this figure or $50,000.

¶ 8      There is no suggestion that the defendant held out the clothing and accessories to be genuine brand name products. It is apparent that the undercover officer and other customers of the defendant were well aware they were purchasing counterfeit clothing rather than genuine brand name products.

CIRCUMSTANCES OF THE DEFENDANT

¶ 9      The defendant was born in China. She immigrated to Canada in 1984 and worked in a clothing factory as a seamstress for five years and as a janitor for six years. The defendant has two children ages 19 and 12. She married in 1984 and divorced her husband in 1995.

¶ 10      The defendant is a person of limited financial means. She rents a modest house and currently works full time as a house cleaner earning $1500 per month. She receives no child support from her ex-husband. While she operated a business selling herbal products from 2000 until eight months after her arrest in 2002, it was never a very profitable business.

¶ 11      The defendant says the average monthly income from the sale of the counterfeit clothing was about $1800. The product itself was purchased very cheaply and the defendant estimates that the total cost of the inventory seized by the police is between $2000 and $3000.

ARGUMENT

¶ 12      The defendant argues that a fine of $10,000 is beyond her ability to pay. She maintains the lack of sophistication in her business as well as the minimal profits should be regarded as mitigating circumstances. Further, the defendant's early guilty plea and the lack of any prior criminal record are proffered as mitigating factors. Finally, the defendant says the authorities cited by the Crown represent far more serious circumstances. In those cases either there was a demonstrated financial impact on the brand name manufacturer or the customers were falsely led to believe that the product was genuine. In the case before the Court the defendant argues the brand name companies did not lose business by reason of the sale of counterfeit products because the customers who purchase counterfeit products are not the kind of persons who could afford the genuine brand name articles.

¶ 13      The Crown argues for a fine that not only removes all of the defendant's profits but acts as a general deterrent to others who may consider becoming involved in this type of business. Further, the Crown says the fine must be sufficiently high to denounce the misconduct that has an obvious financial impact on the brand name manufacturers.

DECISION

¶ 14      The first issue before the Court is whether the joint submission with respect to a fine and a jail term to be served in the community represents the appropriate disposition. There are few reported judgements dealing with sentences imposed under Section 42(1)(g) of the Copyright Act and the one decision cited by the Crown that contains a reference to a Conditional Sentence Order was by way of a joint submission with almost no reasoning provided by the court for accepting it (See, Etheridge at p. 8 and 10.).

¶ 15      Clearly a fine is appropriate where the object of the sentence is to take the accused's illegal profits away. A fine also meets the principles of sentencing where restitution to the victims is impracticable. The circumstances of the case at hand meet both these criteria. The only real dispute is the quantity of the fine.

¶ 16      What is not so clear is whether it is necessary to impose both a fine and a jail term in the particular circumstances of this case. Consistent with the fundamental principles of sentencing the punishment must be proportionate to the gravity of the offence and the degree of responsibility of the offender.

¶ 17      The defendant's circumstances present substantial mitigating factors. She is a single parent with two children to support. She has no prior criminal history and is deeply regretful of her actions. The defendant was not living the high life on the profits made from the sale of the counterfeit clothing and, although the exact amount of her illegal gains is unknown, it is apparent that such profits were not substantial. The likelihood of her re-offending is extremely low.

¶ 18      It is also apparent that, although fairly unsophisticated, the business operated by the defendant had the potential to cause a loss to the brand name manufacturers whose product was sold in counterfeit form. However, I agree that the potential loss is somewhat less than in the authorities cited by the Crown. In Etheridge and AFC Soccer the products sold replaced those manufactured by the brand name companies and in this way took business away from them directly. By selling counterfeit clothing to knowing buyers the defendant was serving a market for replica products not stealing potential customers by replacing the genuine articles with products purporting to be genuine. Further, unlike the facts in AFC Soccer, the defendant did not hold out the counterfeit items as genuine.

¶ 19      I also accept, in part, the defendant's submission that her customers would not likely have purchased the expensive brand name clothing and accessories absent her replicas. Clothing and accessories by such manufacturers as Gucci and Louis Vuitton are notoriously expensive and the market for these items is limited to wealthy individuals. The same cannot be said of products manufactured by Nike, Adidas, Fila, and Tommy Hilfiger which are less expensive and thus available to a larger market.

¶ 20      On the other hand, the offence committed by the defendant is still a serious one. Both the potential financial harm to the manufacturers and the difficulty in detecting and investigating these offences demands that the penalty imposed denounce the misconduct and act as a general and specific deterrent to the defendant as well as to others who may be tempted to engage in this type of illegal activity. It is clear that counterfeit clothing is becoming a large problem for retailers and manufacturers and if not checked will become a financial impediment to their continued existence.

¶ 21      After weighing these factors, and applying the fundamental principles of sentence, I find that while the joint submission for a twelve month Conditional Sentence Order is at the higher end of the range, it is not obviously unfit or unreasonable. The defendant also clearly meets the preconditions to a Conditional Sentence Order given the mitigating circumstances described above.

¶ 22      Thus I impose a twelve month Conditional Sentence Order on the following terms:

¶ 23      Turning to the quantity of the fine, the Court must first measure the fine against the gravity of the offence. Once this is determined the defendant's means must be examined to establish whether she has the ability to pay the fine. By following this procedure the fine will be of sufficient magnitude to make it uneconomical for the defendant to carry on her unlawful activity and prevent the fine becoming a mere licence fee.

¶ 24      The magnitude of the fine must take into account the gravity of the offence, all of the principles of sentencing including general and specific deterrence, and the amount of profit realized by the defendant. In AFC Soccer the court imposed a fine equal to 25% of the gross revenue realized by the accused in the sale of the infringing product. In my view, however, this method of calculating a fine fails to give sufficient weight to the restorative objectives in sentencing and places too much emphasis on removing the offender's profits. I note that AFC Soccer appealed the sentence but the appeal was granted on different grounds.

¶ 25      The Crown has produced little cogent evidence as to the profits made by the defendant during the course of her illegal trade in counterfeit clothing. The only expert opinion available to the Court is with respect to the value of the items seized if they were sold as genuine brand name products. This gives the Court minimal guidance in estimating the defendant's profits. The defendant, on the other hand, maintains her average profit from the sale of the clothing and accessories was $1800 per month. The Crown is unable to dispute this figure based on the evidence before the Court. While there is no clear indication as to when the defendant began selling the counterfeit products, it is conceded that the business was operating between January and April 2002. The total gross revenue for this period is estimated at $7200 ($1800 x 4 months).

¶ 26      Imposing a fine of $7200 would remove all the known profits and more as this figure does not take into account the costs of the clothing to the defendant. A fine of this magnitude, however, does not reflect the mitigating circumstances of this case, and in particular, the defendant's guilty plea and the fact that she is a first offender. It also fails to take into account the fact that the accused will be serving a lengthy conditional sentence during which she will perform 100 hours of community work service in reparation for her crime. Bearing in mind these mitigating circumstances I have concluded that a fine of $5000 is the appropriate amount.

¶ 27      The final issue is whether the defendant has the ability to pay this fine. The defendant is a single parent with two dependent children. She is an immigrant to Canada and possesses neither the education nor the skills necessary to earn more than a minimal income. Her gross wages each month are approximately $1500. In my view the defendant's circumstances make it highly unlikely that she could pay a $5000 fine even given time to pay. A fine should impose some hardship but not so as to create an impossible burden on the defendant or one that hangs over her for a lengthy period, (see Sentencing 5th Ed. Ruby (Butterworths at p. 382).

¶ 28      Accordingly, the fine must be reduced to bring it within the defendant's ability to pay. Given her income and corresponding financial responsibilities, I find it is reasonable to expect the defendant to be able to pay of fine in the amount of $2500 provided she is given considerable time to pay. In this regard I calculate eighteen months as reasonable in the circumstances (approximately $138 per month).

¶ 29      A fine in the amount of $2500 will be imposed with 18 months to pay. The fine is payable to the Clerk of the Court.

¶ 30      There will be an order for forfeiture of the items noted on the Crown's flow chart marked as Exhibit 4 in these proceedings.

BRUCE PROV. CT. J.

QL UPDATE:  20041013
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