Kraft Canada: The Chocolate Covered Copyright

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.