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.

One Response to “Supreme Court of Canada Overturns use of Copyright Law against Parallel Market”

• LIKELIHOOD OF CONFUSION® » Blog Archive » Canada: Copyright law not meant to protect distribution networks 14August2007

  [...] The Gray Blog reports that the Canadian Supreme Court has rejected an attempt — the sort made all day all over North America — to utilize copyright law as a “guaranteed distribution network protection act.” It’s the “grey market” or “parallel market” issue: Does a company have the right to demand that its goods be sold only through “authorized dealers”? The law is pretty clear that it can’t, but firms cook up all sorts of causes of action — tortious interference with contract, trademark infringement and dilution — to try to make get around the free market and to protect their distributors. This, in turn, protects their ability to control both retail prices and brand placement.  These are completely legitimate business goals, but misusing the IP laws to achieve them is crooked.  Unfortunately, the courts — typically dizzied by the assertion of the strong trademark rights that companies big enough to have this isue are likely to have — go along with this all too often. Copyright, if you can make it work, is the best for this, because it has those famous teeth: Attorneys’ fees and statutory damages. The prospect of losing a copyright case is devastating for a small business.  So big firms claim that all sorts of things, such as product descriptions, labels, the way the sun reflects off the bottle — are “protected works.” [...]

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