May 10, 2007
Euro-Excellence Inc. v. Kraft Canada Inc., 2007 SCC 37, is an interesting copyright case dealing with “gray marketing”. This appeal from the Federal Court of Appeal was heard by the Supreme Court of Canada in January of 2007 and is awaiting judgment.
The respondent, Kraft Canada Inc. ("KCI"), brought an action against the appellant, Euro-Excellence Inc. for copyright infringement under s. 27(2)(e) of the Copyright Act, RSC 1985, c C-42. Between 1997 and 2000, Euro-Excellence was the exclusive Canadian distributor of the Cote d’Or confectionery product line, which is manufactured by Kraft Foods Belgium S.A ("KFB"). Following the expiration of Euro-Excellence’s distribution contract, KCI, the Canadian distributor of Toblerone chocolate bars, began distributing the Cote d’Or line pursuant to a new contract in 2001. Although Euro-Excellence’s contract was not renewed, they continued to distribute Cote d’Or products in Canada, as well as Toblerone chocolate bars. In October 2002, KFB registered an artistic copyright in Canada for the Cote d’Or elephant, while Kraft Foods Schweiz AG ("KFS"), the manufacturer of Toblerone chocolate bars, registered an artistic copyright for the Toblerone bear within the mountain. These symbols appeared on the packaging of Cote d’Or and Toblerone chocolate. Both companies also registered a licence agreement with KCI that gave KCI the exclusive right to produce, reproduce, and adapt the copyrights in the manufacture, distribution, or sale of the Cote d’Or or Toblerone products in Canada. Although Kraft was not opposed to Euro-Excellence’s sale of the chocolates within Canada, they did ask that Euro-Excellence cease distribution of products bearing wrappers containing the artistic copyrights. Effectively, this would prevent Euro Excellence from selling the Cote d’Or and Toblerone chocolates in their recognized packaging. After Euro-Excellence refused this request, KCI filed the action.
At trial in the Federal Court of Canada, the judge concluded that the defendant infringed copyright. The defendant was then ordered to pay $300,000, which was calculated in proportion to their profits. The Federal Court of Appeal dismissed Euro-Excellence’s appeal, but referred the case back to the trial judge for a re-determination of the profits made by the defendant. In coming to this finding, the Federal Court of Appeal explained in paragraph 60 of the judgment,
"Accordingly, reproductions 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."
The sale or offer for sale and/or the distribution, possession or importation of goods into Canada for the purpose of their sale is prohibited if a person knows, or should have known, that the goods in question would violate copyright. Thus, according to s. 27(2)(e) of the Copyright Act, Euro Excellence committed a secondary infringement of copyright by importing the goods into Canada for their sale.
This case tackles the issue of “gray marketing”, which is the importation or distribution of genuine goods, contrary to the wishes of the authorized importer or copyright holder in that specific area. If the Federal Court of Appeal’s decision is upheld at the SCC, copyright may serve as a method for manufacturers to curb unauthorized and unwelcome use of their products and for authorized distributors to minimize gray marketing. On the other hand, as argued by Euro Excellence Inc. in paragraph 14 of the Federal Court of Appeal judgment, “copyright cannot be used to create a monopoly that would infringe upon a free market exchange of goods.” According to this line of thinking, if the judgment is upheld, competition and free trade may be compromised by discouraging the parallel importation of goods based on copyright in the art or graphics on the packaging of such products. The case is certainly worth watching by those with a special interest in copyright, and for the manufacturers and distributors of products within Canada, both of whom may be variously impacted by the decision.
3 Comments
Well, I seem to be your only commenter, so maybe you can help me out here. I'm having trouble seeing where the breach of copyright is. I understand that KCI has exclusive rights to reproduce the symbols in Canada. But weren't the actual chocolate bars produced, and labelled, with the full authority of the copyright owner? How does buying and importing such stock involve "reproducing" the symbols on the labels?
I can't help but notice that there are Toblerone and Cote d'Or bars for sale all around me. If I yield to temptation and buy one, and if I then yield to greed and sell it to a passing schoolchild at a slight profit, while no doubt I prove myself base, how do I violate the copyright in the symbol on the label? I hold no license from the copyright holder; in fact, I would seem to be in the same position as Euro Excellence, except I dare say they buy lower and sell at a better margin. If they're doing wrong, how can I not be? And yet I don't see what I've done.
It's a different matter, of course, if the labels are fake. And I can see Kraft's situation. They've signed an exclusive agreement which they want to keep exclusive, but having cut their ties with Euro Ex, they have no contractual rights to enforce against them, and they have to find some other tool. The real solution is to control distribution more tightly so that unapproved buyers like Euro can't find suppliers. But if they can't practically do that, aren't they out of luck? And if they have a remedy, is this really it?
EBT,
It would seem that Kraft's claim of copyright infringement is not a direct claim, i.e., Kraft is not claiming Euro Excellence reproduced the artwork without authorization. Instead, Kraft is claiming secondary infringement, as per s.27(2)(e) of the Copyright Act, i.e., by importing and distributing the chocolate with the artwork attached, Euro Excellence prejudiced Kraft in their sale of the chocolates that they had bargained to import.
Indeed, it doesn't exactly seem intuitive that even though Euro Excellence's source of the artwork is legitimate, that they may still be infringing copyright. In this particular case, it seems the concern is that Kraft may be extending the reach of secondary infringement under copyright too far, beyond the interests it was originally intended to protect. I suppose the fear is exactly that if the SCC affirms the Federal Court of Appeal's decision, your example of reselling a purchased chocolate bar might very well render a person liable for secondary infringement under s.27(2)(b) of the Copyright Act.
While I'm not about to undertake a thorough (or even a brief) overview of the jurisprudence around s.27(2) of the Copyright Act (I'll leave that to the interested reader) which may help elucidate what factors influence secondary infringement, I will instead point the reader to Professor Geist's coverage of the hearing of this case at the SCC, which may help the reader understand what issues were bothering the SCC justices in this case. The link can be found here: http://www.michaelgeist.ca/content/view/1614/125/.
Thank you, Mr. Ho.
I wouldn't have any trouble with Kraft's case if this was actually a matter of the labels themselves being sold or imported. There is surely at least one printer authorised to run up wrappers and labels for Kraft; what if he runs up an extra container full, and diverts them to his own use? Any wrapper than you can put on a chocolate bar and leave it saleable has some value to a chocolate bar maker or distributor. But the Cote d'Or design on the wrapper will (we can assume) allow a sale at a premium. So the printer might find a buyer.
Now, in that case, the item actually being sold is the reproduction of the Cote d'Or symbol; that at least is making up most of the market value. The application of s. 27 is pretty clear.
Here, the problem is that it's not the wrappers that are being sold; it's the chocolate bars. Eurex hasn't imported or sold wrappers; it's imported and sold chocolate bars. It just gave away the wrappers to anyone who bought a bar. Which is exactly what the copyright holder does with them too.