In Kraft, Kraft Canada Inc. (“Kraft Canada”), the exclusive Canadian importer and distributor of Côte d'Or and Toblerone confectionery products, claimed that the importation and distribution of genuine Côte d'Or and Toblerone confectionery products into Canada by Euro-Excellence Inc. (“Euro-Excellence”) constituted a breach of copyright.  It was not contested that Kraft Canada was the owner of the relevant trademarks.  However, Kraft Canada did not rely on its trademark rights in this dispute.

The European manufacturers of the said products registered Canadian copyrights in the logos appearing on the packaging and product wrappers.  They then granted Kraft Canada an exclusive license to use the logos in association with the manufacture, distribution or sale in Canada of the confections.  By doing so, Kraft Canada sought to prevent Euro Excellence's importation and distribution of the confections by alleging that Euro-Excellence's activities violated section 27(2)(e) of the Canadian Copyright Act.

Section 27(2) of the Copyright Act prevents what are termed “secondary infringements.”  Specifically, subsection (e) makes it an infringement of copyright for any person to import into Canada, for the purpose of sale or distribution, a copy of a work that the person either knows (or should have known):

1. infringes copyrights in Canada; or.
2. would infringe copyrights in Canada if the copy of the work had been made in Canada by the person who made it abroad.  This latter portion is known as “hypothetical primary infringement.”

Section 27(2) of the Copyright Act thus operates to prevent the importation and commercial handling of unauthorized copies of a copyrighted work which were made outside of Canada by holding the importer secondarily liable for knowingly importing into Canada the infringing copies of a protected copyrighted work.

In the Kraft decision, a divided court held in favour of Euro-Excellence and dismissed Kraft Canada's claim. Several of the judges forming part of the majority decided that Kraft Canada was not able to invoke Section 27(2) of the Copyright Act because its rights are merely contractual and do not create an interest in copyright.  In other words, because the European manufacturers still owned the Canadian copyrights in the logos and Kraft Canada was only a licensee, there could be no secondary infringement impugning Euro-Excellence as importer because the owners of the copyrights in the logos in Canada were the same entities that were producing the logos abroad.  In order to have accepted the manufacturers' arguments, the Court would need to have found that copyright owners can infringe their own copyrights where they have licensed copyright to an exclusive licensee despite their retention of the copyright – which they refused to do.  These judges held that the apparent purpose of Section 27(2)(e) of the Copyright Act is to give Canadian copyright holders an additional layer of protection where the Canadian copyright holder does not hold copyright in that work in foreign jurisdictions.  Without Section 27(2)(e) of the Copyright Act, the foreign copyright holder can manufacture the work more cheaply abroad and could flood the Canadian market with the work, thereby rendering the Canadian copyright worthless.

Certain other justices of the Court took a different view but reached the same conclusion.  Specifically, they found that the mere incidental presence of the copyrighted works (the logos) on the wrappers of the confections did not bring the confections within the ambit of the protections offered by the Copyright Act.  While section 27(2) of the Copyright Act is meant to protect authors from unauthorized appropriation of the gains of their authorship, if the work in question is merely incidental to another consumer good, and it is that consumer good which is being sold or distributed, then section 27(2) of the Copyright Act could not be invoked.  In other words, a consumer purchasing a Toblerone chocolate bar is purchasing the chocolate bar for the chocolate bar itself and not because of the copyrighted logo.  They held that the copyrighted logo on the chocolate bar is merely incidental to the value of the chocolate bar and, therefore, no protection under section 27(2) of the Copyright Act is available.  It should be noted that the majority of the Justices of the Court were opposed to this line of reasoning which imports into the Copyright Act judicially created limits to copyright protection based on discretionary perceptions of whether the use of the logos on the wrappers was merely “incidental” or whether the copyright holder has a “legitimate economic interest”.

Davies Ward Phillips & Vineberg LLP, with over 235 lawyers, practises nationally and internationally from offices in Toronto, Montréal, New York and an affiliate in Paris and is consistently at the heart of the largest and most complex commercial and financial matters on behalf of its North American and overseas clients.

The information and comments herein are for the general information of the reader and are not intended as advice or opinions to be relied upon in relation to any particular circumstance. For particular applications of the law to specific situations, the reader should seek professional advice.