Q: Can Parallel Importation be Prevented under the Canadian Copyright Act?A: The parallel importation (also known as grey marketing) of genuine goods into Canada by unauthorized persons has been the subject of debate and legal action for some time. Most recently, a manufacturer has attempted to prevent parallel importation using copyright law as a sword, albeit unsuccessfully on the facts of that case.
On July 26, 2007, in Euro-Excellence Inc. v. Kraft Canada Inc., the Supreme Court of Canada ruled that the holder of an exclusive license to the Canadian copyright interests in product packaging cannot rely on the Copyright Act to prevent an unauthorized distributor from competitively importing and selling those products. The question remains whether an owner by assignment of those copyright interests and rights can rely on the legislation to prevent this parallel importation. A majority of the justices of the Supreme Court appear to have concluded that an assignee can receive such protection.
Since 2001, Kraft Canada Inc. ("Kraft Canada") has been the exclusive licensed Canadian distributor of both Côte d’Or and Toblerone chocolate bars in Canada. These products were manufactured by Kraft Canada’s parent companies, Kraft Foods Belgium SA ("KFB") and Kraft Foods Schweiz AG ("KFS"), respectively, in Europe. The exclusive distribution licences were granted by KFB and KFS to Kraft Canada. However, Euro-Excellence legally acquired these products in Europe for unauthorized importation and distribution in Canada.
In an effort to put a stop to Euro-Excellence’s activities, in October, 2002, KFB and KFS registered the Côte d’Or and Toblerone logos in Canada as copyrighted works. At the same time, KFB and KFS granted Kraft Canada the "sole and exclusive right and licence" in Canada to use the copyrighted works in association with the chocolate bars. Kraft Canada then called upon Euro-Excellence to cease and desist distribution of any product upon which the copyrighted logos were affixed. When Euro-Excellence refused, the Kraft companies brought an action alleging that Euro-Excellence had engaged in secondary infringement under section 27(2) of the Copyright Act by distributing and selling copies of KFB and KFB’s copyrighted works in Canada.
In the Supreme Court of Canada, the Kraft companies lost the case. The Court was seriously divided and appears to have ruled in a manner that leaves it open for an assignee (as opposed to the licensee) of the Canadian copyrights and interests in packaging to prevent an unauthorized distributor from selling products with the protected packaging in Canada.
The ruling of the Supreme Court can be broken down as follows:
Three judges found that the packaging on a product is "ancillary" to the product itself and not capable of secondary copyright infringement, but a non-ancillary work could suffer secondary infringement regardless of whether the plaintiff is a licensee or an assignee
Four judges found that product packaging was capable of secondary infringement, but concluded that the plaintiff must be an assignee to invoke this protection
Two dissenting judges found that product packaging was protected, which protection could be enforced by either an assignee or a licensee
In summary, all nine judges of the Supreme Court of Canada appear to be of the view that a plaintiff assignee may take action for secondary infringement in order to protect their copyright interests, although three judges would not extend copyright protection to product packaging. Also, four judges showed some discomfort with the use of copyright law as "an instrument of trade control not contemplated by the Copyright Act", but expressly declined to rule on that point.
The ruling in Euro-Excellence v. Kraft Canada Inc. is complicated by the three sets of concurring reasons and a dissent. However, rather than closing the door to the prevention of parallel importation under the Copyright Act, this ruling appears to have given it new life in the right set of circumstances.
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.
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A recent Saskatchewan Court of Queen's Bench decision allowed a court-appointed receiver to sell and transfer intellectual property rights free and clear of encumbrances, finding that a license to use improvements of an invention was a contractual interest and not a property interest.
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