Fakes Are Not A Substitute for the Real Deal Under the Sale of Goods Act

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In the recent decision of Computron Systems International Inc. v. Ladhani et al., 2020 ONSC 3188, the Ontario Superior Court reaffirmed the role of the Sale of Goods Act, R.S.O. 1990, c. S.1 in protecting the intentions of parties to a commercial contract even if those intentions are not expressly written into the contract. Specifically, the Court confirmed that s. 14 of the Sale of Goods Act protects a consumer’s right to receive goods that correspond with their description. In Computron, the Court held that the purchaser was entitled to receive authentic versions of branded goods (Beats headphones) even though the contract did not expressly state that the products would be authentic. This decision provides some reassurance to businesses that contract for the purchase of authentic branded products, but may not have the word “authentic” in their contracts, that courts will protect the intention that the products be authentic.

 Background to Computron

The facts of Computron concern various transactions in which Beats wireless headphones were ultimately sold to the plaintiff, Computron Systems International (“Computron”). The defendant, Hussain Ladhani (“Ladhani”), was the operator of a wholesale electronics business through which he sold Beats wireless headphones to Computron. Ladhani purchased his supply of Beats from two providers who were also defendants in the action: Prosonic Canada Inc. (“Prosonic”) and Techlogics Canada Inc. (“Techlogics”). In addition to the orders from Ladhani, Computron ordered some models of Beats directly from Techlogics.

After placing the order with Techlogics, Computron received a shipment of headphones that were virtually indistinguishable from those of authentic Beats products. However, upon further inspection, Computron discovered that the headphones it had purchased all had the same serial number; this led Computron to believe that the headphones were not authentic. As a result, Computron sought to return not only the headphones it purchased through Techlogics, but also through Ladhani.

The central dispute was whether Ladhani and/or Computron knew that the headphones supplied by Techlogics were not authentic Beats products. Techlogics maintained that it expressly told Computron and Ladhani that the headphones it supplied would be physically exactly the same as the genuine product, but not authorized for sale or warrantied by the brand holder and therefore not “authentic”. Despite Techlogics’ contention, both Computron and Ladhani maintained that they always intended to purchase genuine branded Beats headphones and believed that this is what they were contracting to buy.

Section 14 of the Sale of Goods Act provides that where there is a contract for the sale of goods by description, there is an implied condition that the goods will correspond with the description. In this case, no formal, written contact existed between any of the parties; instead, the purchase and sale agreements were formed via a series of exchanged text messages, purchase orders, and oral conversations. Each purchase order, conversation, and invoice between the parties referred to the headphones being purchased and sold by their trademarked brand and model names (such as “Powerbeats”, “Solo 2 Wireless Beats”, and “Solo 3 Wireless Beats”).

The Court concluded that s. 14 protected Computron and Ladhani’s intentions to purchase authentic, properly branded Beats headphones. The Court confirmed earlier jurisprudence under s. 14 holding that there is an implied condition in contracts for the sale of goods by description that the goods will correspond to their description. When goods are described by referring to a brand name and model, that description will generally imply that the seller is agreeing to provide authentic branded products rather than inauthentic copies, however physically similar those inauthentic copies may be. As a result, there was no need in this case for Computron and Ladhani to specifically insist that the products they were purchasing be authentic Beats products in order for authenticity to become a term of the contract.

Techlogics also argued that, despite using branded names when referring to the Beats headphones, both Computron and Ladhani either knew or should have known that the headphones could not be authentic because of the price at which Techlogics sold them. The Court rejected this argument for two reasons: there was no evidence on the record to suggest that the price paid for the wholesale headphones was unreasonably low at the time of the purchase, and in any event, the analysis under the Sale of Goods Act focused not on what the parties should have thought, but rather on what they actually intended.

Ultimately, the court disagreed that the purchasers had to specify that they wanted to be supplied “authentic Apple products”, stating that if the suppliers wanted to sell inauthentic products, then the onus would be on the supplier to make that proposal. Otherwise, it is an implied term of the contract that the purchaser would receive an authentic set of Beats or Powerbeats headphones. Under the circumstances, it was sufficient for the buyers to say they wanted to purchase Beats, and for Techlogics to agree to provide them, to establish that an implied term of this contract was that these headphones would be genuine.

Why this case matters

Computron’s significance is grounded not in what it establishes, but in what it reaffirms: that a contract for the sale of commercial goods per the Sale of Goods Act will protect the intentions of the parties to that sale. Where the sale concerns branded products, purchasers may be reassured that a Court will protect their intentions to purchase authentic versions of those branded products even if a word such as “authentic” does not appear in the written agreement.

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