The Gray Blog

The Supreme Court of Canada today reversed the lower court’s decision in Euro-Excellence Inc. v. Kraft Canada Inc. The Court explained that “[f]or KCI to succeed, it must show that Euro imported works that would have infringed copyright if they had been made in Canada by the persons who made them.” However, in the case of KCI, the products at issue were Toblerone bars bearing copyrighted works which where first manufactured and sold in Europe by the Licensors and owners of the copyrights. The Court reasoned that under section 27(2)(e) of the Copyright Act KCI as a licensee may not sue the owners of the copyrights for copyright infringement. Its only remedy is for breach of contract. Accordingly, no cause for copyright infringement exists against the legitimate purchaser.

This result is different from that previously reached in the United States in the case of Quality King Distributors, Inc. v. L’Anza Research International, Inc. (a case in which the Gray Blogger was amicus counsel) In Lanza the US Supreme Court ruled that where the manufacturing and sale of a product bearing a copyrighted work takes place abroad, such a sale does not take place under the laws of the US and the sale does not, therefore, constitute a valid first sale so as to exhaust the copyright owner’s rights.

This decision also delineates  a difference between US and Canadian law regarding licensor liability.  Under US law a licensor can be liable to the exclusive licensee for copyright infringement, if the licensor exercises rights that it has previously exclusively licensed.

The Euro-Excellence decision promises to keep different parallel market standards in the two neighboring countries for the foreseeable future.

On July 23, 2007, the Supreme Court of Canada announced that that it will deliver its decision on Euro-Excellence, Inc. v. Kraft Canada, Inc. tomorrow July 26, 2007. This is a case which, if sustained, will allow the exclusion of parallel market products which bear registered copyrights from the Canadian marketplace. Although the reasoning is different, the result would be similar to that of the Lanza decision in the United States. In anticipation of this important decision the Gray Blog felt that it was worth reviewing the issues involved and the history of the case.

The case began in 2004 when Kraft Canada, Inc. (KCI) brought suit against Euro-Excellence, Inc. (Euro), a former exclusive distributor, alleging copyright infringement under section 27(2)(e) of the Canadian Copyright Act. Based on the importation by Euro of Toblerone chocolate bars (the Gray Blogger’s favorite chocolate) bearing registered artistic copyrights. The copyrights at issue were the Toblerone bear in mountain design which was registered by Kraft Foods Schweiz in 2002 and the Cote d’Or elephant design which was registered by Kraft Foods Belgium in 2002. Both of these designs were licensed exclusively to Kraft Canada.

Section 27(2)(e) states in relevant part:

27. (1) It is an infringement of copyright for any person to do, without the consent of the owner of the copyright, anything that by this Act only the owner of the copyright has the right to do.

(2) It is an infringement of copyright for any person to

(a) sell or rent out,

(b) distribute to such an extent as to affect prejudicially the owner of the copyright,

(c) by way of trade distribute, expose or offer for sale or rental, or exhibit in public,

(d) possess for the purpose of doing anything referred to in paragraphs (a) to (c), or

(e) import into Canada for the purpose of doing anything referred to in paragraphs (a) to (c),

a copy of a work, sound recording or fixation of a performer’s performance or of a communication signal that the person knows or should have known infringes copyright or would infringe copyright if it had been made in Canada by the person who made it.

(3) In determining whether there is an infringement under subsection (2) in the case of an activity referred to in any of paragraphs (2)(a) to (d) in relation to a copy that was imported in the circumstances referred to in paragraph (2)(e), it is irrelevant whether the importer knew or should have known that the importation of the copy infringed copyright.

The trial court concluded that the defendant infringed KCI’s copyrights and awarded $300,000 in damages. The Federal Court of Appeal denied the appeal but referred the matter back to the trial court for a re-calculation of damages. The critical language in the Appellate Court’s ruling states:

[R]eproductions of protected works that are made outside Canada, even by the copyright holders KFB and KFS, may not be imported into Canada by Euro Excellence for the purpose of doing anything referred to in paragraphs 27(2)(a) to (c), without there being a secondary infringement of KCI’s copyright, because KCI has an exclusive right of reproduction for Canada, even as against KFB and KFS, and Euro Canada knew that KCIs exclusive rights in the two works had been registered for Canada.

If upheld, the appellate Court’s ruling would allow brand owners to bar parallel market imports by adding copyright content to product packaging. The Gray Blog will watch and report on the Supreme Court’s decision in this important case.

Special thanks to Howard Knopf for information regarding this case. Howard participated in the lawsuit as counsel for the Retail Council of Canada, a pro-parallel market group.