SCC Divided On Key Issues Of Copyright Law And Policy: Grey Marketer Prevails

On July 26, 2007, the Supreme Court of Canada (SCC) issued its decision in the case of Kraft Canada Inc. v. Euro Excellence Inc. The SCC allowed the appeal of Euro Excellence, thereby disallowing Kraft Canada's claim of secondary infringement of copyright against Euro Excellence.

While the SCC's decision to allow the appeal was made by a margin of seven to two, a deeply divided SCC produced four sets of reasons in reversing the decisions of both the Federal Court of Appeal (2005 FCA 427) and Federal Court (2004 FC 652). The decision raises interesting questions about the interface of intellectual property and competition law, in particular the extent to which copyright law can and should be used to limit competition from grey-market imports.

Background

The case arose as an attempt to prevent grey market activity in CTE D'OR and TOBLERONE chocolate. In this case, Euro Excellence had purchased genuine CTE D'OR and TOBLERONE chocolate outside of Canada, and then imported into Canada and sold the chocolate, against the wishes of Kraft Canada, which was the exclusive Canadian distributor of the CTE D'OR and TOBLERONE products.

To address the grey marketing, Kraft Foods Belgium S.A. (Kraft Belgium) and Kraft Foods Schweiz AG (Kraft Switzerland), the producers of CTE D'OR and TOBLERONE chocolates, respectively, registered copyrights in Canada in the artistic category covering various aspects of the brands' packaging. Two exclusive licence agreements were registered the same day, granting Kraft Canada the exclusive right to produce, reproduce, and adapt the copyrighted material for the purpose of manufacturing, distributing or selling the products in Canada.

Relying on these copyrights, Kraft Canada asked Euro Excellence to cease and desist from distributing the grey market products in Canada. Euro Excellence refused, which led to Kraft's lawsuit.

The Reasoning of the Court

The principal reasons for judgment were written by Rothstein J. (Binnie J. and Deschamps J. concurring), with a very brief concurring judgment written by Fish J. As discussed in greater detail below, Bastarache J. (writing for himself, Charron J. and LeBel J.), concurred in the result, but did so using an approach that differed markedly from that of Rothstein J.

In the view of Rothstein J., the case turned on a straightforward application of the provisions governing secondary infringement, which are set out in s. 27(2)(e)1 of the Copyright Act. Rothstein held that the purpose of that provision was to ensure that Canadian copyright holders receive their "just rewards," even where they do not hold the copyright abroad. The statute protects Canadian copyright holders against parallel importation by deeming, in certain circumstances, that there is an infringement of copyright in Canada even where the imported works did not infringe copyright laws in the country in which they were made. Without this protection, a foreign copyright holder who could cheaply manufacture the relevant work abroad could flood the Canadian market with the work, thereby significantly devaluing the Canadian copyrights.

However, for Kraft Canada to succeed in its claim for secondary infringement, it had to show that Euro Excellence imported works that would have infringed copyright if they had been made in Canada by the persons who actually made them. In the present case, it was the copyright owners (Kraft Belgium and Kraft Switzerland) that had made the works which were subsequently imported into Canada by Euro. It was therefore necessary to establish that Kraft Belgium and Kraft Switzerland (which were the licensors/owners of the copyright in the chocolate-bar logos) would have infringed the copyrights of their licensee (Kraft Canada), if the chocolate-bar wrappers had been made by Kraft Belgium and Kraft Switzerland in Canada.

Rothstein J. held that Kraft...