One of the most oft heard “defence” from a purveyor of counterfeit goods, when faced with the prospect of a significant damages award, is “I’ll just go bankrupt”. The threat being that, unless the right holder lets the counterfeiter off the hook, the counterfeit will seek to render themselves judgment proof, looking to disincentivize legal action against them.
What right holders need to know, and what counterfeiters should be made to understand, is that if you are engaged in the sale of counterfeit goods, you are engaged in fraud. And fraud is an exception to bankruptcy that will allow a judgment to stick with a counterfeiter until it is paid.
This point has been illustrated by decisions of Canadian provincial courts, including recently by the Ontario Superior Court of Justice in Dead End Survival, LLC v. Marhasin, 2020 ONSC 766: the Plaintiff in that case had obtained a US judgment for the sale of counterfeit goods, for which it duly obtained an order for enforcement from the Ontario Court. The Court found that the Ontario judgment flowing from the US judgment fell within the “fraud” exception established in s. 178(1)(e) of Canada’s Bankruptcy and Insolvency Act, which exempts from discharge:
(e) any debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation, other than a debt or liability that arises from an equity claim.
In finding that a judgment for the sale of counterfeit goods fell within this exception, the Court confirmed that the order of discharge of the bankrupt in the bankruptcy proceeding did not release the bankrupt from the Ontario judgment Instead, the Ontario judgment remained payable by the bankrupt counterfeit.
Therefore, right holds shouldn’t fear – but counterfeiters should – pursuing defendants for their sale of counterfeit goods merely on the basis of potential bankruptcy; it is a hollow threat and should not dissuade seeking legal recourse against counterfeiters for their illegal actions.