Source: https://h2o.law.harvard.edu/text_blocks/5743
Timestamp: 2019-04-21 18:34:30+00:00

Document:
Indexed as: Euro‑Excellence Inc. v. Kraft Canada Inc.
Neutral citation: 2007 SCC 37.
2007: January 16; 2007: July 26.
Intellectual property — Copyright — Infringement — Secondary infringement — Exclusive licences — Exclusive Canadian distributor of imported chocolate bars bringing copyright infringement action against unauthorized distributor of bars after logos were registered in Canada as copyrighted artistic works — Whether Canadian distributor can establish hypothetical primary infringement — Whether chocolate bar can be copyrighted because of protected works appearing on its wrapper — Whether accessories or incidental works exempted from copyright protection — Copyright Act, R.S.C. 1985, c. C‑42, s. 27(2)(e).
KCI is the exclusive Canadian distributor of Côte d’Or and Toblerone chocolate bars in Canada for its parent companies KFB and KFS. Notwithstanding the exclusivity agreements, Euro continued to import and distribute Côte d’Or and Toblerone bars which it had acquired in Europe. In 2002, in order to allow KCI to mount the present case, KFB registered three Côte d’Or logos in Canada as copyrighted artistic works and granted KCI an exclusive licence in the works as used in association with confectionary products. KFS did the same with two Toblerone logos. KCI then called upon Euro to cease and desist distribution of any product to which the copyrighted works were affixed. When Euro refused, KCI brought an action against Euro alleging that it had engaged in secondary infringement under s. 27(2) of the Copyright Act by importing copies of KFS and KFB’s copyrighted works into Canada for sale or distribution. KCI does not rely on its rights as a trade‑mark holder. At trial, KCI was awarded $300,000 in damages and Euro was restrained from selling, distributing, exposing or offering for sale any copies of the copyrighted logos. It was also ordered to render the product non‑infringing. KCI’s motion for reconsideration was refused. The Federal Court of Appeal refused an appeal on the merits, but referred the matter of damages back to the trial judge. On hearing further submissions, the trial judge confirmed his original award.
Held (McLachlin C.J. and Abella J. dissenting): The appeal should be allowed.
Referred to: Robertson v. Thomson Corp., 2006 SCC 43 (CanLII),  2 S.C.R. 363, 2006 SCC 43.
Referred to: R. & A. Bailey & Co. v. Boccaccio Pty. Ltd. (1986), 84 F.L.R. 232; CCH Canadian Ltd. v. Law Society of Upper Canada, 2004 SCC 13 (CanLII),  1 S.C.R. 339, 2004 SCC 13; Théberge v. Galerie d’Art du Petit Champlain inc., 2002 SCC 34 (CanLII),  2 S.C.R. 336, 2002 SCC 34; Society of Composers, Authors and Music Publishers of Canada v. Canadian Assn. of Internet Providers, 2004 SCC 45 (CanLII),  2 S.C.R 427, 2004 SCC 45; Kirkbi AG v. Ritvik Holdings Inc., 2005 SCC 65 (CanLII),  3 S.C.R. 302, 2005 SCC 65; AstraZeneca Canada Inc. v. Canada (Minister of Health), 2006 SCC 49 (CanLII),  2 S.C.R. 560, 2006 SCC 49; British Leyland Motor Corp. v. Armstrong Patents Co.,  1 All E.R. 850; Houle v. Canadian National Bank, 1990 CanLII 58 (SCC),  3 S.C.R. 122; Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (SCC),  3 S.C.R. 701.
Théberge v. Galerie d’Art du Petit Champlain inc., 2002 SCC 34 (CanLII),  2 S.C.R. 336, 2002 SCC 34; Compo Co. v. Blue Crest Music Inc., 1979 CanLII 6 (SCC),  1 S.C.R. 357; Bishop v. Stevens, 1990 CanLII 75 (SCC),  2 S.C.R. 467; CCH Canadian Ltd. v. Law Society of Upper Canada, 2004 SCC 13 (CanLII),  1 S.C.R. 339, 2004 SCC 13; Bouchet v. Kyriacopoulos (1964), 45 C.P.R. 265; Robertson v. Thomson Corp.,2006 SCC 43 (CanLII),  2 S.C.R. 363, 2006 SCC 43; Éditions de la Table ronde s.a. v. Cousture,  Q.J. No. 1519 (QL); Dynabec Ltée v. Société d’informatique R.D.G. Inc. reflex, (1985), 6 C.P.R. (3d) 322; Fonds Gabrielle Roy v. Éditions internationales Alain Stanké ltée,  Q.J. No. 2525 (QL); British Actors Film Co. v. Glover,  1 K.B. 299.
Copyright Act, R.S.C. 1985, c. C‑42, ss. 2 “copyright”, “infringing”, 2.7, 3, 13(4), (5), (6), (7), 27, 36(1), (2), 64.
Patent Act, R.S.C. 1985, c. P‑4.
Trade‑marks Act, R.S.C. 1985, c. T‑13, s. 13(2).
Bently, L., and B. Sherman. Intellectual Property Law, 2nd ed. Oxford: Oxford University Press, 2004.
Drassinower, Abraham. “Taking User Rights Seriously”. In Michael Geist, ed., In the Public Interest: The Future of Canadian Copyright Law. Toronto: Irwin Law, 2005, 462.
McKeown, John S. Fox on Canadian Law of Copyright and Industrial Designs, 4th ed. Toronto: Thomson/Carswell, 2003 (loose‑leaf updated 2007, release 1).
Megarry, Robert Edgar. A Manual of the Law of Real Property, 8th ed. by A. J. Oakley. London: Sweet & Maxwell, 2002.
Nimmer, Melville B., and David Nimmer. Nimmer on Copyright, vol 3. New York: Matthew Bender, 1981 (loose‑leaf updated December 2002, release 59).
Scassa, Teresa. “Using Copyright Law to Prevent Parallel Importation: A Comment on Kraft Canada, Inc. v. Euro Excellence, Inc.” (2006), 85 Can. Bar Rev. 409.
Tamaro, Normand. The 2006 Annotated Copyright Act. Toronto: Thomson Carswell, 2006.
Ziff, Bruce H. Principles of Property Law, 4th ed. Toronto: Thomson Carswell, 2006.
APPEAL from a judgment of the Federal Court of Appeal (Desjardins, Noël and Pelletier JJ.A.), 2005 FCA 427 (CanLII),  3 F.C.R. 91, 265 D.L.R. (4th) 555, 346 N.R. 104, 47 C.P.R. (4th) 113,  F.C.J. No. 2082 (QL), 2005 FCA 427, reversing in part a decision of Harrington J., 2004 FC 652 (CanLII),  4 F.C.R. 410, 252 F.T.R. 50, 33 C.P.R. (4th) 246,  F.C.J. No. 804 (QL), 2004 FC 652. Appeal allowed, McLachlin C.J. and Abella J. dissenting.
François Boscher and Pierre‑Emmanuel Moyse, for the appellant.
1 ROTHSTEIN J. — I have read the reasons of Bastarache J. While I agree with his conclusion, I am respectfully unable to agree with his analysis. I have three main concerns with his reasons.
3 I am concerned that Bastarache J.’s approach in this case is inconsistent with this Court’s approach to statutory interpretation. The “modern” or “purposive” approach requires that the words of the statute “in their grammatical and ordinary sense” be read harmoniously with the objects of the Act. It does not, however, give judges licence to substitute their policy preferences for those of Parliament. This Court has consistently held that “copyright is a creature of statute and the rights and remedies provided by the Copyright Act are exhaustive”: see CCH, at para. 9; Théberge v. Galerie d’Art du Petit Champlain inc., 2002 SCC 34 (CanLII),  2 S.C.R. 336, 2002 SCC 34, at para. 5; Bishop v. Stevens, 1990 CanLII 75 (SCC),  2 S.C.R. 467, at p. 477; Compo Co. v. Blue Crest Music Inc., 1979 CanLII 6 (SCC),  1 S.C.R. 357, at pp. 372-73. In my respectful view, Bastarache J.’s reasons depart from this doctrine.
4 Throughout his reasons, Bastarache J. relies on a distinction between copyrighted works that are sold and works that are “merely incidental” to the item being sold. He concludes that since the Toblerone and Côte d’Or logos are merely incidental to the thing being sold (the chocolate bar), they do not receive copyright protection. I understand this distinction to be the crux of his analysis. However, I see no statutory authority for the proposition that “incidental” works are not protected by the Copyright Act, R.S.C. 1985, c. C-42. This Court’s holding in CCH confirms that all artistic works receive the protection of copyright if they meet the requisite standards of “skill and judgment”: CCH, at para. 16. The Copyright Act does not exempt so‑called “incidental” works from its protection. Neither Bastarache J. nor any of the parties contest that the Côte d’Or and Toblerone logos resulted from exercises of skill and judgment. As such, they are legitimate subjects of copyright.
5 I note that the “incidental” approach is similar to the Australian approach to this issue. However, the Australian approach was prescribed by statute and not by judges. In 1998, the Australian Parliament made a deliberate policy decision to amend its Copyright Act 1968, (Cth.), No. 63, to exclude “accessories” from the domain of copyright for the purposes of parallel importation (Copyright Amendment Act (No. 1) 1998 (Cth.), No. 104, Schedule 2). Under s. 10(1) of the Australian Copyright Act 1968, as amended, an infringing work includes a work that was “imported without the licence of the owner of the copyright, [and] would have constituted an infringement of that copyright if the article had been made in Australia by the importer, but does not include: . . . (g) a non‑infringing accessory whose importation does not constitute an infringement of that copyright”. The Australian Act defines “accessory” so as to include the labels and packaging that accompany an article. The Canadian Copyright Act, in contrast, has not exempted accessories or incidental works from the protection of copyright, and it is not for this Court to create such an exemption.
6 Even if one were to accept that “incidental” works are not protected under Canadian copyright law, it is not apparent from Bastarache J.’s reasons when a work will be considered “merely incidental”. The “reasonable consumer” test proposed at para. 94 offers little guidance on how to determine whether a work is “merely incidental”. Paragraph 95 draws a distinction between a small logo and a larger painting of that same logo on a t‑shirt. However, according to Canadian copyright law, it is skill and judgment — not the size of the work — that determines whether a work receives protection under the Copyright Act.
7 To support his argument for the “incidental” approach to copyright law, Bastarache J. introduces a concept of “legitimate economic interests” to read down rights expressly granted by the Copyright Act. The term “legitimate economic interest” was used by this Court in Théberge, but in a different context. The legitimate economic interest described in Théberge was the right of the creator of an artistic work to receive a reward for that work. The issue in Théberge was whether the transferring of an artistic work from a paper backing to a canvas backing constituted reproduction contrary to the “legitimate economic interests” of the artist. Binnie J., for the majority, found that reproduction did not occur on the facts of that case. Binnie J.’s holding relied on the concepts of originality and reproduction, which are firmly rooted in the words of the Copyright Act.
8 In this case, Bastarache J. expands the concept of “legitimate economic interest” to exclude logos on wrappers from the domain of copyright. I find no authority in the Act or in our jurisprudence for Bastarache J.’s theory of “legitimate economic interests”. As this Court has often stated, “the rights and remedies provided by the Copyright Act are exhaustive”: CCH, at para. 9. I would not depart from this approach by introducing a new equitable doctrine of “legitimate economic interest” to read down the legislation.
9 I accept, of course, that the Copyright Act is to be given a purposive interpretation. However, I distinguish between an approach that is rooted in the words of the Act and the approach taken by my colleague Bastarache J. that involves reading words into the legislation that are at odds with Parliament’s intent. Section 64 of the Copyright Act, which can be found, along with the other relevant provisions of the Copyright Act, in the Appendix, addresses the very issue that is fundamental to my colleague’s approach: can a work of art appearing on a label and receiving trade-mark protection also be the subject of copyright protection? Parliament concluded that works can receive concurrent copyright and trade-mark protection.
11 It is for this reason that I must respectfully disagree with Bastarache J.’s attempted analogy between the present case and Kirkbi AG v. Ritvik Holdings Inc., 2005 SCC 65 (CanLII),  3 S.C.R. 302, 2005 SCC 65. In Kirkbi, this Court held that trade-mark law cannot be leveraged to extend protection to subjects that are ordinarily the domain of patent law. Bastarache J. suggests that Kirkbi stands for the further proposition that the subjects of copyright law and trade-mark law must not overlap and that because it is trade-mark law that ordinarily protects market share and goodwill, copyright holders cannot use copyright to protect their market share or the goodwill associated with their brand.
12 I do not read Kirkbi as underpinning a broad doctrine of copyright misuse. Although the Court in Kirkbi cautioned against interpreting trade-mark law in a way that undermined the Patent Act, R.S.C. 1985, c. P-4, the decision in that case was anchored in the language of the Trade‑marks Act, R.S.C. 1985, c. T-13, itself and not in a vague notion of trade-mark misuse. In Kirkbi, this Court held that the Trade‑marks Act had expressly incorporated the “doctrine of functionality” in s. 13(2) of the Act (para. 42). LeBel J., writing for the Court, held that “[t]his doctrine recognizes that trade-marks law is not intended to prevent the competitive use of utilitarian features of products, but that it fulfills a source‑distinguishing function”: Kirkbi, at para. 43. By incorporating the doctrine of functionality, s. 13(2) of the Trade‑marks Act had precluded the granting of trade-mark protection to functional works, which are the subjects of patent law.
16 Bastarache J., at para. 75, suggests that on my reading of the Act, the Kraft companies could have circumvented the purposes of the Act by calling their agreements “assignments” rather than “exclusive licences”. However, the distinction between assignments and exclusive licences is important and meaningful. By granting an assignment, the copyright owner intends to bestow upon the assignee the full panoply of rights and interests reserved for copyright owners. An exclusive licence, by contrast, permits owners to convey to licensees a more limited interest in the copyright. In my respectful view, an approach that conflates exclusive licences and assignments must be rejected. By enabling copyright owners to grant an interest in copyright either by assignment or exclusive licence, Parliament intended to provide copyright owners with two qualitatively different mechanisms by which to transfer their interests in whole or in part. Disregarding the distinctions between the two would lead to an unjustifiable narrowing of the owner’s options in dealing with its interest.
Section 3 sets out the catalogue of rights that the copyright owner possesses under the Act. These rights include the sole right to produce and reproduce copies of the copyrighted work. For the purposes of this case, primary infringement would have arisen if Euro‑Excellence had produced copies of the Toblerone or Côte d’Or logos.
18 But Euro‑Excellence does not want to produce labels with the Toblerone or Côte d’Or logos, and the Kraft companies have not alleged that it has done so. The Kraft companies seek to enjoin Euro‑Excellence from importing into Canada works that have been produced lawfully in Europe by the Kraft parent companies, KFS and KFB.
19 The Kraft companies thus allege that Euro‑Excellence has engaged in “secondary infringement” by importing for sale or distribution copies of KFS and KFB’s copyrighted works into Canada. Secondary infringement is dealt with under s. 27(2) of the Act. In CCH, at para. 81, this Court held that three elements must be proven to establish secondary infringement: (1) a primary infringement; (2) the secondary infringer should have known that he or she was dealing with a product of infringement; and (3) the secondary infringer sold, distributed or exposed for sale the infringing goods. Perhaps the most straightforward form of secondary infringement arises when one sells a copy of an infringing work. Under s. 27(2)(a), “[i]t is an infringement of copyright for any person to . . . sell . . . a copy of a work . . . that the person knows or should have known infringes copyright”.
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.
Section 27(2)(e) substitutes hypothetical primary infringement for actual primary infringement. It is possible that the infringing imports may have been lawfully made outside of Canada. Still, they are deemed to infringe copyright if the importer has imported into Canada works that would have infringedcopyright if those works had been made in Canada by the persons who made the works abroad.
21 The apparent purpose of s. 27(2)(e) is to give Canadian copyright holders an added layer of protection where the Canadian copyright holder does not hold copyright in that work in foreign jurisdictions. Section 27(2)(e) protects Canadian copyright holders against “parallel importation” by deeming an infringement of copyright even where the imported works did not infringe copyright laws in the country in which they were made. Without s. 27(2)(e), the foreign copyright holder who could manufacture the work more cheaply abroad could flood the Canadian market with the work, thereby rendering the Canadian copyright worthless. Section 27(2)(e) thus represents Parliament’s intention to ensure that Canadian copyright holders receive their just rewards even where they do not hold copyright abroad: see, e.g., Dictionnaires Robert Canada S.C.C. v. Librairie du Nomade Inc. reflex, (1987), 11 F.T.R. 44; A & M Records of Canada Ltd. v. Millbank Music Corp. reflex, (1984), 1 C.P.R. (3d) 354 (F.C.T.D.); Fly by Nite Music Co. v. Record Wherehouse Ltd.,  F.C. 386 (T.D.); Clarke, Irwin & Co. v. C. Cole & Co. (1960), 33 C.P.R. 173 (Ont. H.C.).
22 On the facts of this case, the Kraft companies have not made out all of the constitutive elements of a claim under s. 27(2)(e). Hypothetical infringement has not been established. The Kraft companies cannot prove that the impugned works imported and distributed by Euro‑Excellence would have infringed copyright if they had been made in Canada by the persons who made them in Europe.
24 This is because KFB and KFS are, respectively, the owners of the Canadian copyright in the Côte d’Or and Toblerone logos. On the Kraft companies’ argument, KFB and KFS would be the hypothetical copyright infringers. The Kraft companies argue that KFB and KFS would have infringed copyright if they produced the copyrighted works in Canada because they had licensed the Toblerone and Côte d’Or copyrights to Kraft Canada. Accepting this argument would mean that KFB and KFS have infringed their own copyrights — a proposition that is inconsistent with copyright law and common sense. Under s. 27(1), infringement arises when a person, without the consent of the owner, does something that under the Act only the owner has the right to do. By definition, no person can simultaneously be owner and infringer of copyright: see also CCH, at para. 37.
27 Under the common law, a licensee does not enjoy property rights: “A licence is merely a permission to do that which would otherwise amount to trespass” (B. H. Ziff, Principles of Property Law (4th ed. 2006), at p. 270). In contrast, an assignee receives a property interest from the original owner and steps into the shoes of the owner with respect to those rights assigned. As the recipient of a property interest, the assignee enjoys a right against the world, including the right to sue others (including the assignor) in trespass. The licensee’s rights, on the other hand, are contractual, and the licensee is empowered only to sue the owner for breach of contract; it cannot sue in trespass: Ziff, at p. 270; R. E. Megarry, A Manual of the Law of Real Property (8th ed. 2002), at p. 475; see also Thomas v. Sorrell (1673), Vaughan 330, 124 E.R. 1098, at p. 1109.
28 A contextual reading of the Copyright Act reveals that Parliament has preserved the traditional distinction between assignees and licensees with some modification. Under the present Act, there is a distinction between “assignee”, “licensee” and “exclusive licensee”. An assignee possesses full ownership rights in the copyright with respect to the rights assigned. A non-exclusive licensee has no property rights in the copyright, and enjoys only contractual rights vis‑à‑vis the owner-licensor. As a result, it cannot sue for infringement. An exclusive licensee, on the other hand, has a limited property interest in the copyright. For reasons explained below, this limited property interest enables the exclusive licensee to sue third parties for infringement but precludes the exclusive licensee from suing the owner‑licensor for infringement.
The assignee of an interest in copyright is a copyright owner, and thus enjoys rights against the world, including the right to sue the assignor for infringement. This is because the assignor is no longer the owner of the copyright with respect to the right assigned. This is further reflected by the fact that, under s. 36(2), the assignee is not required to join the assignor as co-plaintiff in an action for copyright infringement. In light of these provisions, I have no difficulty in concluding that an assignee, as a holder of a full property interest in copyright, can sue the assignor for copyright infringement.
30 The status of copyright licensees is different. Parliament has manifested its intent to preserve a distinction between assignees and licensees. There is no provision analogous to s. 13(5) that purports to put licensees or exclusive licensees on equal footing with copyright owners.
33 Section 36(2) further suggests that an exclusive licensee does not possess a full property interest in the copyright. Section 36(1) enables exclusive licensees to sue for infringement, but s. 36(2) states that where “a person other than the copyright owner”, namely the exclusive licensee, sues for infringement, “the copyright owner must be made a party to those proceedings . . .”. In the present case, KFB and KFS were joined as co‑plaintiffs throughout the proceedings. The requirement of joining the licensor to an infringement action suggests that the exclusive licensee does not have a full property interest in the copyright. If the exclusive licensee held a full property interest, it should not need to join the owner in an action for infringement because a property interest — which is a right against the world — implies the right to sue for infringement in one’s own name.
40 Section 2.7 is a definitional section, which enshrines the common law definition of exclusive licence in the Copyright Act. Section 2.7 defines an exclusive licence as an authorization to do any act that is a right described in s. 3 to the exclusion of all others including the copyright owner (i.e., the right to produce and reproduce a work to the exclusion of all others including the copyright owner). But it says nothing about the consequences of violating that exclusive right. Those consequences and remedies for a violation of an exclusive licence are dealt with in other provisions of the Act, e.g. ss. 27(1) and36(1). As discussed above, when the definitional and liability provisions are read in context, the necessary conclusion is that an exclusive licensee may sue third parties for infringement, but not the owner of the copyright who is liable only for breach of contract.
41 Comparing the treatment of exclusive licensees and assignees under the Act supports this conclusion. If the exclusive licensee could sue the owner-licensor for infringement, then the rights of exclusive licensees would be identical to those of assignees. However, Parliament has clearly manifested its intent to treat exclusive licensees differently from copyright owners and assignees. First, Parliament used express language in putting assignees on equal footing with copyright owners, but refrained from doing the same with exclusive licensees (s. 13(5)). Second, unlike assignees, the exclusive licensee lacks the capacity to sue for infringement alone; it must join the owner-licensor as a party (s. 36(2)). Third, the language of s. 2.7defining “exclusive licence” as an “authorization” suggests an interest short of ownership. These are all reasons why the Canadian Copyright Act should be interpreted so that an exclusive licensee’s property interest in a copyright is limited, such that the exclusive licensee does not have a right against the licensor-owner for infringement of the copyright owned by the licensor-owner.
43 Under U.S. copyright law, “the licensor may be liable to the exclusive licensee for copyright infringement, if the licensor exercises rights that have theretofore been exclusively licensed”: Nimmer on Copyright (loose-leaf), vol. 3, at pp. 12-58 and 12-59; United States Naval Institute v. Charter Communications, Inc., 936 F.2d 692 (2d Cir. 1991), at p. 695; Architectronics, Inc. v. Control Systems, Inc., 935 F.Supp. 425 (S.D.N.Y. 1996), at p. 434.
U.K. commentators have taken this provision to mean that “[t]he exclusive licensee may sue in his own name to restrain infringements occurring after the grant of the licence as if the licence had been an assignment”, and that “[e]xcept as against the owner of the right he has the same rights and remedies for infringement of the right as if the licence had been an assignment”: H. Laddie et al., The Modern Law of Copyright and Designs (3rd ed. 2000), vol. 1, at p. 905; see also L. Bently and B. Sherman, Intellectual Property Law (2nd ed. 2004), at pp. 254-55. Consequently, the exclusive licensee is able to sue third parties but not the owner-licensor for infringement: Griggs Group Ltd. v. Evans,  F.S.R. 31,  EWHC 2914 (Ch), at para. 58.
49 To establish a claim under s. 27(2)(e) against Euro-Excellence, Kraft Canada must show that the makers of the impugned works — the Kraft parent companies — would have infringed copyright if they had made the Toblerone and Côte d’Or labels in Canada instead of Europe. Under the exclusive licence agreements, the Kraft parent companies are not permitted to produce or reproduce the copyrighted works in Canada. However, if, hypothetically, KFS were to produce a copy of a Toblerone logo in Canada, Kraft Canada’s only remedy would lie in breach of contract. As owners of the Canadian copyright in the Toblerone and Côte d’Or logos, the Kraft parent companies cannot infringe their own copyright. Although Kraft Canada, as an exclusive licensee, has a property interest in the copyright that enables it to sue third parties for infringement, the Kraft parent companies retain a residual ownership interest in the copyright, which prevents Kraft Canada from suing them for infringement. Kraft Canada has thus failed to establish “hypothetical infringement”, which is necessary to ground a claim against Euro-Excellence under s. 27(2)(e).
52 FISH J. — I agree with the reasons of Justice Rothstein and would dispose of the appeal as he suggests.
54 Kraft Foods Belgium SA and Kraft Foods Schweiz AG manufacture and sell chocolate packaged in Europe. The issue in this case is whether the Copyright Act, R.S.C. 1985, c. C-42, entitles them to prevent the sale in Canada of that very same chocolate, packaged exactly as it was when they sold it. Their claim that it does is based on agreements between commonly owned corporations — agreements that have more to do with a monopoly on the sale in Canada of those chocolates than with copyright protection of the “works” that appear on the package. In virtue of identical and simultaneous agreements, and for a nominal amount of $1,000 in each instance, Kraft Belgium and Kraft Schweiz granted Kraft Canada exclusive licences to use those “works”.
55 I think it worth noting that the trial judge, in upholding Kraft’s claim, proceeded on the assumption that “the sole purpose of [Kraft Belgium and Kraft Schweiz] registering copyright in Canada and then assigning rights to Kraft Canada Inc. was to mount the very attack upon [Euro‑Excellence] which is currently before this Court” (Kraft Canada Inc. c. Euro Excellence Inc., 2004 FC 652 (CanLII),  4 F.C.R. 410, 2004 FC 652, at para. 44 (emphasis added)). For the true purpose of the Copyright Act, see Robertson v. Thomson Corp., 2006 SCC 43 (CanLII),  2 S.C.R. 363, 2006 SCC 43, at para. 69.
57 Can a chocolate bar be copyrighted because of protected works appearing on its wrapper? In particular, can s. 27(2) of the Copyright Act, R.S.C. 1985, c. C-42, which prohibits parallel importation into Canada of copyrighted works, be used by the respondent Kraft Canada Inc. to prevent the appellant, Euro-Excellence Inc., from, in the words of s. 27(2), importing, for the purpose of selling, renting, distributing or trading, genuine Toblerone and Côte d’Or chocolate bars into Canada, without obscuring the logos of those chocolate bars, on the basis that the logos are copyrighted? I conclude that it cannot. Both s. 27(2) and the Copyright Act as a whole are about the protection of copyrighted works, not about the importation and sale of consumer goods in general. The merely incidental presence of the copyrighted works on the wrappers of the chocolate bars does not bring the chocolate bars within the protections offered by the Copyright Act. This appeal is allowed for the reasons set out below.
61 It is not contested that KCI is the owner in Canada of the trade-marks “Côte d’Or” and “Toblerone.” KCI does not rely in this dispute on its rights as trade-mark holder.
68 Subsequent to his original order, Harrington J. refused a motion for reconsideration (2004 FC 832 (CanLII), (2004), 33 C.P.R. (4th) 242, 2004 FC 832) and provided instructions on negotiations between KCI and Euro-Excellence regarding Euro-Excellence’s attempts to conform to the terms of the injunction by covering the copyrighted material with opaque self-sticking plastic film (2004 FC 1215 (CanLII), (2004), 35 C.P.R. (4th) 193, 2004 FC 1215).
71 Desjardins J.A. allowed the appeal in part and dismissed the cross-appeal. She referred the matter of damages back to the trial judge. Harrington J. heard further submissions and confirmed his original order that damages be awarded in the amount of $300,000 (2006 FC 453 (CanLII), (2006), 50 C.P.R. (4th) 425, 2006 FC 453).
In interpreting the scope of the Copyright Act’s rights and remedies, courts should apply the modern approach to statutory interpretation whereby “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”: Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42 (CanLII),  2 S.C.R. 559, 2002 SCC 42, at para. 26, citing E. A. Driedger, Construction of Statutes (2nd ed. 1983), at p. 87.
The Copyright Act is usually presented as a balance between promoting the public interest in the encouragement and dissemination of works of the arts and intellect and obtaining a just reward for the creator . . .
79 The CCH decision recognized the limited nature of the rights of a copyright holder in its treatment of fair dealing, which recognized that, unlike other exceptions, fair dealing is an essential part of copyright protection, and therefore that fair dealing is constitutive of the idea of the wrong in copyright law. Not every substantial reproduction of a copyrighted work counts as an infringement of copyright. This logic is clarified by Professor Abraham Drassinower in his article “Taking User Rights Seriously”, in M. Geist, ed., In the Public Interest: The Future of Canadian Copyright Law (2005), 462. As Drassinower writes, at p. 470, “Fair dealing stands for the proposition that responding to another’s work in one’s own does not mean that one’s work is any less one’s own. Thus the defendant who makes out the fair dealing defence is an author in her own right.” This is consistent with the understanding of copyright discussed above: 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.
80 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. It is useful to note here that, while copyright protection results from an action of an individual — that is, the exercise of skill and judgment in creating an original work — that protection inheres in the work created, rather than its creator. In this manner, a copyrighted work is a form of property which may be transferred or licensed to others. But the rights transferred to a licensee must be limited in the same way as those of the original creator of the work to the legitimate economic interests resulting from the exercise of skill and judgment.
81 This Court’s recent decision in Society of Composers, Authors and Music Publishers of Canada v. Canadian Assn. of Internet Providers, 2004 SCC 45 (CanLII),  2 S.C.R. 427, 2004 SCC 45, confirms this purposive interpretation of the Act. In that case, Binnie J. wrote, at para. 116: “‘Caching’ is dictated by the need to deliver faster and more economic service, and should not, when undertaken only for such technical reasons, attract copyright liability” (emphasis added). While “caching” is certainly an instance of substantial reproduction, it is a technical process only; as such it does not consist in an attempt to appropriate the legitimate economic interests of the copyright holder, and therefore does not constitute infringement.
82 The logic of this view of copyright has also been held to extend to other forms of intellectual property. In Kirkbi AG v. Ritvik Holdings Inc.,2005 SCC 65 (CanLII),  3 S.C.R. 302, 2005 SCC 65, LeBel J., for the Court, noted, at para. 37, the importance of “basic and necessary distinctions between different forms of intellectual property and their legal and economic functions”. He then went on to review the purposes of trade-marks and patents, noting that “[p]atent rights focus on the patented product or process”, but that “[i]n the case of trade-marks, the focus shifts from the product itself to the distinctiveness of its marketing”: see paras. 38-39. This focus on the fundamental natures and purposes of different sorts of intellectual property protections and the necessary divisions between them suggests that each form of protection relies on some core normative notion which must ground the economic interests claimed. Thus, a trade-mark, which protects distinctiveness of marketing and goodwill, cannot be leveraged to extend protection to products themselves, which is usually granted by patent.
83 The approach in Kirkbi is consistent with the principle of statutory interpretation which requires coherent interpretation of statutes in pari materia: see P.-A. Côté, The Interpretation of Legislation In Canada (3rd ed. 2000), at pp. 342 ff. According to this principle, the Copyright Act ought not only to be interpreted with an eye to the internal coherence of its own scheme; it must also not be interpreted in a fashion which is inconsistent with theTrade-marks Act, R.S.C. 1985, c. T-13. Trade-mark law protects market share in commercial goods; copyright protects the economic gains resulting from an exercise of skill and judgment. If trade-mark law does not protect market share in a particular situation, the law of copyright should not be used to provide that protection, if that requires contorting copyright outside its normal sphere of operation. The protection offered by copyright cannot be leveraged to include protection of economic interests that are only tangentially related to the copyrighted work. This Court’s decision in AstraZeneca Canada Inc. v. Canada (Minister of Health), 2006 SCC 49 (CanLII),  2 S.C.R. 560, 2006 SCC 49, which was based on a simultaneous interpretation of “two regulatory systems with sometimes conflicting objectives” (para. 12), is also consistent with the principle.
85 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.
87 I should note here that, contrary to what was argued before this Court at the hearing, s. 27(2) is not meant to protect manufacturers from the importation of counterfeit versions of their consumer goods. The laws of trade-mark and passing off provide protection to manufacturers who fear the importation of cheap imitations of their products with a copy of the logo of the real product affixed to them. Indeed, this protection is central to the purpose of trade-mark law, as identified by LeBel J. in Kirkbi, at para. 39: “Trade-marks seek to indicate the source of a particular product, process or service in a distinctive manner, so that, ideally, consumers know what they are buying and from whom.” While it is certainly true that one work can be the subject of both copyright and trade-mark protection (see s. 64(3)(b) of the Act), it is equally certain that different forms of intellectual property protect different types of economic interests. To ignore this fact would be to ignore the “basic and necessary distinctions between different forms of intellectual property and their legal and economic functions”, as noted by LeBel J. at para. 37 of Kirkbi.
90 Paragraph (b) provides that “[i]t is an infringement of copyright for any person to . . . distribute to such an extent as to affect prejudicially the owner of the copyright . . . a copy of a work”. Parliament’s inclusion of the word “prejudicially” here is another important key to the interpretation of s. 27(2) as a whole. One can imagine many ways that the distribution of a copyrighted work could prejudicially affect the copyright holder which surely would not be considered secondary infringement. As a somewhat trivial example, consider a book containing accurate and damning portrayals of the author’s family, written under a pseudonym unbeknownst to the family of the author. Distribution of copies of this book — bought in full compliance with the Act — to the author’s family would certainly tend to “affect prejudicially” the owner of the copyright; nevertheless, I am sure that this situation is not intended to fall within s. 27(2)(b). This hypothetical situation suggests that to “affect prejudicially” a copyright holder has a more limited meaning: this phrase limits protection to the interests of the copyright holder as author. That is, only those distributions which affect the legitimate economic interests protected by copyright will be held to affect prejudicially the owner of the copyright. Economic consequences of unauthorized importation of consumer goods are not, generally speaking, the types of legitimate economic interests protected by the copyright in a work which is merely incidental to the sale or distribution of the consumer good to which it is attached. The effects of such importation do not meet the requirement of prejudice which is embedded in para. (b), which informs all of s. 27(2).
91 Paragraph (a) provides that “[i]t is an infringement of copyright for any person . . . to sell or rent out” a copy of a work. Simply put, to sell a consumer good with a copyrighted work attached as a logo is not to sell that work. The work, qua work, is merely incidental to the consumer good, and thus a sale of the latter cannot be said in any real sense to be a sale of the former. While it is true that a logo affixed to a package can play an essential role in the sale of that package, that is the role of the logo as a trade-mark, not as a copyright. A finding that s. 27(2)(a) is violated requires that the work be sold as something more than a mere incident of the sale of some other item.
97 The appellant argued that an attempt to extend copyright protection to prevent parallel importation of consumer goods could trigger the application of the civilian doctrine of abus de droit. This doctrine, which was recognized by this Court in Houle v. Canadian National Bank, 1990 CanLII 58 (SCC),  3 S.C.R. 122, provides that a party may not exercise a right in an unreasonable manner. (See also Wallace v. United Grain Growers Ltd.,1997 CanLII 332 (SCC),  3 S.C.R. 701, at para. 145, with respect to a similar concept in the common law.) Given the analysis above, I do not see an appeal to this doctrine as necessary to resolve this issue.
99 It is clear on the facts of the appeal before us that the protected works in question — the Côte d’Or and Toblerone logos, considered as copyrighted works — cannot be seen as anything other than merely incidental to the chocolate bars to which they are affixed. Therefore, Euro-Excellence’s dealings with the chocolate bars are not caught within the language of s. 27(2) of the Act. I reach this conclusion on the basis of a consideration of the role of the logos as merely incidental to the sale of the chocolate bars in general.
103 The above does not imply that the Côte d’Or or Toblerone logos are not copyrightable works. Quite the opposite: the logos have been properly registered and there is no reason to dispute the trial judge’s conclusions that the logos meet the Act’s originality threshold and are therefore copyrightable works. KCI, as holder of those copyrights in Canada, would surely succeed in an action for copyright infringement against a defendant who produced and distributed posters of the logos, for example. However, it is necessary to ensure that this legitimate copyright protection is not illegitimately leveraged into a protection for a market in consumer goods.
104 Similarly, I do not mean to suggest that logos play no role whatsoever in the sale of chocolate bars. So I think it is therefore useful to stress, once again, that in the s. 27(2) analysis the logos must be viewed strictly through the copyright lens as works. The analysis does not speak to the possibility — indeed, the certainty — that the logos, as trade-marks, can play a large role in the sale of the chocolate bars and are of great value to KCI. It is not disputed that part of the reason that a consumer buys a Côte d’Or bar or a Toblerone bar is because of the reputation and goodwill associated with each brand. But that is not a consideration which is relevant under the Copyright Act. It cannot be reasonably maintained that anyone buys a Côte d’Or or Toblerone because of the logos as works of art.
107 ABELLA J. (dissenting) — The central issue in this appeal is whether an exclusive licensee of a copyright can claim remedies under theCopyright Act, R.S.C. 1985, c. C-42, when the copyrighted work is displayed on the label of a product imported in circumstances envisioned by s. 27(2) of the Act.
109 Resolving this appeal depends on the answers to two questions. First, is the copyrighted work being “sold” or “distributed” when it is printed on the wrapper of a consumer product? Second, can an exclusive licensee in Canada claim protection against secondary infringement when the copyrighted work was produced by the owner-licensor?
110 On the first issue, I agree with the conclusion reached by Rothstein J. There is nothing in the Act to endorse a restrictive definition of “sell”. Section 64(3)(b) of the Act extends copyright protection to trade-marks and labels. When a product is sold, title to its wrapper is also transferred to the purchaser. The Act is indifferent as to whether the sale of the wrapper is important to the consumer.
112 Nor do I share the view that s. 27(2)(e), which on its face appears to me to be applicable, “protects only the legitimate economic interests of copyright holders”, that is, “the unauthorized importation of works which are the result of their skill and judgment” (paras. 85-86). It seems to me, with respect, that once a work falls within s. 27(2)(a) to (c) and otherwise meets the requirements established by the Act as prerequisites to copyright protection, there is no scope for a judicially created limit to that protection based on what might — or might not — be a “legitimate economic interest”. I do not believe that Théberge v. Galerie d’Art du Petit Champlain inc., 2002 SCC 34 (CanLII),  2 S.C.R. 336, 2002 SCC 34, stands for such a proposition.
Copyright today remains an exclusively statutory creation: Théberge; Bishop v. Stevens, 1990 CanLII 75 (SCC),  2 S.C.R. 467; CCH Canadian Ltd. v. Law Society of Upper Canada, 2004 SCC 13 (CanLII),  1 S.C.R. 339, 2004 SCC 13.
. . . an authorization to do any act that is subject to copyright to the exclusion of all others including the copyright owner, whether the authorization is granted by the owner or an exclusive licensee claiming under the owner.
36. (1) Subject to this section, the owner of any copyright, or any person or persons deriving any right, title or interest by assignment or grant in writing from the owner, may individually for himself or herself, as a party to the proceedings in his or her own name, protect and enforce any right that he or she holds, and, to the extent of that right, title and interest, is entitled to the remedies provided by this Act.
116 Under s.13(4) and s.13(6), the owner of a copyright is free to divest itself of any interest in the copyright, in whole or in part, either by assignment or by licence: J. S. McKeown, Fox on Canadian Law of Copyright and Industrial Designs (4th ed. (loose- leaf)), at p. 19-24.
118 Section 13(7) clarifies that an exclusive licence is the grant of a proprietary interest in the copyright itself: see Robertson v. Thomson Corp.,2006 SCC 43 (CanLII),  2 S.C.R. 363, 2006 SCC 43, at para. 56. And s. 36(1) stipulates that any such grant of an interest in the copyright can be protected through the remedies provided in the Act.
120 In other words, when the owner-licensor transfers an interest to the exclusive licensee, that licensee becomes, under the Act, the owner of a defined interest in the copyright: see Éditions de la Table ronde s.a. v. Cousture,  Q.J. No. 1519 (QL) (S.C.), and Dynabec Ltée v. Société d’informatique R.D.G. Inc. reflex, (1985), 6 C.P.R. (3d) 322 (Que. C.A.).
124 The trial judge, not unreasonably, treated this exclusive licence as an assignment: Kraft Canada Inc. v. Euro Excellence Inc., 2004 FC 652 (CanLII),  4 F.C.R. 410, 2004 FC 652, at para. 39. However, even as an exclusive licence, the proprietary interest clearly extends to the production and distribution of copyrighted works in Canada.
129 Copyright confers a limited monopoly to “produce or reproduce” the work in any material form whatever. In this case, KCI purchased the exclusive licence to the copyrighted work precisely because it wanted copyright on chocolate bar wrappers. Euro-Excellence purchased chocolate bars with labels displaying the copyrighted works; it imported those works into Canada after being notified of KCI’s Canadian copyright interest; its purpose in importing the chocolate bars and the wrappers was to sell them or distribute them by way of trade. A s. 27(2)(e) infringement is therefore made out. KCI is entitled to the remedies provided by the Act.
2.7. [Exclusive licence] For the purposes of this Act, an exclusive licence is an authorization to do any act that is subject to copyright to the exclusion of all others including the copyright owner, whether the authorization is granted by the owner or an exclusive licensee claiming under the owner.
(4) [Assignments and licences] The owner of the copyright in any work may assign the right, either wholly or partially, and either generally or subject to limitations relating to territory, medium or sector of the market or other limitations relating to the scope of the assignment, and either for the whole term of the copyright or for any other part thereof, and may grant any interest in the right by licence, but no assignment or grant is valid unless it is in writing signed by the owner of the right in respect of which the assignment or grant is made, or by the owner’s duly authorized agent.
(5) [Ownership in case of partial assignment] Where, under any partial assignment of copyright, the assignee becomes entitled to any right comprised in copyright, the assignee, with respect to the rights so assigned, and the assignor, with respect to the rights not assigned, shall be treated for the purposes of this Act as the owner of the copyright, and this Act has effect accordingly.
(6) [Assignment of right of action] For greater certainty, it is deemed always to have been the law that a right of action for infringement of copyright may be assigned in association with the assignment of the copyright or the grant of an interest in the copyright by licence.
(7) [Exclusive licence] For greater certainty, it is deemed always to have been the law that a grant of an exclusive licence in a copyright constitutes the grant of an interest in the copyright by licence.
27. (1) [Infringement generally] 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.
36. (1) [Protection of separate rights] Subject to this section, the owner of any copyright, or any person or persons deriving any right, title or interest by assignment or grant in writing from the owner, may individually for himself or herself, as a party to the proceedings in his or her own name, protect and enforce any right that he or she holds, and, to the extent of that right, title and interest, is entitled to the remedies provided by this Act.
Solicitor for the appellant: François Boscher, Montréal.
Solicitors for the respondents: Sim, Lowman, Ashton & McKay, Toronto.
Solicitors for the intervener the Retail Council of Canada: Macera & Jarzyna, Ottawa.

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