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Supreme Court Stops Use of Copyright to Block Parallel Imports

The Supreme Court of Canada released its decision in the Euro-Excellence v. Kraft Foods case this morning, overturning the lower court decisions to find that the Copyright Act could not be used to block the parallel importation of Toblerone and Cote D'Or chocolates from Europe into Canada (I attended the SCC hearing and commented here).  Kraft Canada tried to use copyright law to block the imports, arguing that while the chocolates were legit, the inclusion of the image of the mountain on the Toblerone bar involved an infringement of copyright. 

The decision will take some time to unpack as, unusually for this court, it includes written reasons from four justices.  In a nutshell, seven members of the court (Abella and McLachlin dissented) ruled that the Copyright Act could not be used to block the parallel imports for two different reasons.  This represents an important finding as the court took a clear stand against the claim by Kraft Canada that it could use copyright to block the parallel imports.  In doing so, one block of the court limits its decision to statutory interpretation of the Copyright Act, while a second block establishes a new copyright doctrine that suggests that the Copyright Act only protects "legitimate economic interests."  In reading the decision, there is the sense that the court was uncomfortable with the use of copyright here, yet split on whether to adopt a conservative approach that relies solely on the text of the Act or to more aggressively interpret the Act to include the legitimate economic interest doctrine. 
The first block of the court, led by Justice Rothstein (joined by Binnie and Deschamps), ruled that the decision comes down to a simple (albeit highly technical) matter of statutory interpretation.  Kraft tried to rely on a provision in the Copyright Act that involved a "secondary" infringement of copyright (the provision reads "it is an infringement of copyright for any person to. . . import. . .a copy of a work. . .that the person knows. . . would infringe copyright if it had been made in Canada by the person who made it").  In order for Kraft to succeed on the secondary infringement grounds, it needed to show that the use of the copyrighted logos would have constituted a "primary" infringement in Canada (ie. without a primary infringement there can be no secondary infringement).  The court ruled that there would not be a primary infringement in Canada since the Kraft parent companies, which manufactured the chocolates in Europe, hold the copyright in Canada (they licensed, rather than assigned, the copyright to Kraft Canada).   This portion of the decision includes considerable discussion on the nature of a copyright license.

Justice Fish wrote a brief, middle ground opinion, in which he agrees with the Rothstein block, but expresses "grave doubt whether the law governing the protection of intellectual property rights in Canada can be transformed in this way into an instrument of trade control not contemplated by the Copyright Act."

This brings Fish far closer to the second block on the matter of whether using copyright in this manner is appropriate.  Writing for the second block, Justice Bastarache (joined by LeBel and Charron) roots his decision in the prior court decisions that focused on the importance of balance, the limited nature of copyright rights, and the importance of user rights stating that:

"sometimes a substantial reproduction of a copyrighted work will not be an infringement, because copyright protection is limited to protection of legitimate economic interests which are the result of an exercise of skill and judgment, and that protection must not be extended beyond its proper limits.  The CCH decision thus confirms that in order to protect the essential balance which lies at the heart of copyright law, care must be taken to ensure that copyright protection is not allowed to extend beyond the legitimate interests of a copyright holder. Copyright will not be granted to works which are not the result of an exercise of skill and judgment, which is the special kind of labour for which copyright is the appropriate protection.  Similarly, once copyright is granted in a given work, the protection that it provides must not be extended beyond its natural limits, and must take proper account of user rights such as the right to deal fairly with a copyrighted work."

This review (which includes a quote from the excellent piece on user rights by Drassinower) leads Bastarache to establish a doctrine of "legitimate economic interests."  He states that:

The Act protects only the legitimate economic interests of copyright holders.  It protects the economic benefits of skill and judgment; it does not protect all economic benefits of all types of labour.  Section 27(2) of the Act is meant to prohibit secondary infringement resulting from the wrongful appropriation of the gains of another’s skill and judgment by way of the acts enumerated in paras. (a) to (c).  Conversely, other economic interests – although they may seem to be closely associated with the interests legitimately protected as emanating from that skill and judgment – are not protected.  In particular, if a work of skill and judgment (such as a logo) is attached to some other consumer good (such as a chocolate bar), the economic gains associated with the sale of the consumer good must not be mistakenly viewed as the legitimate economic interests of the copyright holder of the logo that are protected by the law of copyright.

He later adds that:

This interpretation of s. 27(2) respects copyright’s insistence that only legitimate economic interests receive copyright protection.  To allow s. 27(2) to protect all interests of manufacturers and distributors of consumer goods would upset the copyright balance.  Far from ensuring a “just reward” for creators of copyrighted works, it would allow a copyright to be leveraged far beyond the use intended by Parliament, allowing rights to be artificially enlarged into protection over consumer goods.  This undue expansion of copyright would certainly be a failure to give heed to Binnie J.’s insistence, at para. 31 of Théberge, that the law give due weight to the limited nature of the rights of a copyright holder.

It should be noted that Bastarache also references the issue of copyright misuse.  In light of his earlier reasoning, he states that he need not determine its possible application in Canada and that the issue is "best left for another day."

The decision concludes with a dissent from Justice Abella (joined by McLachlin).  It rejects the legitimate economic interest doctrine found in the Bastarache reasonings and differs from Rothstein in concluding that the  copyright license from the Kraft parent companies was sufficient to create a case of infringement.

3 Comments

  1. Daithí says:

    http://www.lexferenda.com
    I may be reading it wrong ([ link ]) but I think it may be a little less positive – the legit economic interest doctrine was explicity rejected by five judges and Fish sat on the fence. I’m concerned that future courts might read this as some measure of a rollback on what was said about caching in SOCAN. I sincerely hope not, but we’ll see.


  2. I would say two “blocs” of justices — not “blocks”. I could be wrong, though…

  3. How
    How exactly do they plan on enforcing this law?

    Many websites are hosted outside of North America and the U.S. where it is cheaper… if this law passes.. more people will be inclined to take their business elsewhere.. so much for increasing consumer spending in the Country