OPINION
Monday, March 9, 2015 9
Protecting Fifty Shades of Grey Market Goods
Preventing Parallel Imports through Copyright Law
heather pringle › layout editor
T
r a di t iona l ly, t r a de m a r k ow n e r s
have primarily relied upon exclusive distribution agreements between manufacturers
and distributors to control the flow of their
goods within the market. However, the territorial
restrictions in these agreements are subject to privity of contract and, therefore, suffer from the third
party beneficiary rule. As a result, while trademark
owners have control of their goods within these
established distribution networks, they cannot
enforce the terms of these agreements on third party
resellers who legally acquire goods in an alternative territorial market. Furthermore, when drafting
these agreements, trademark owners must be wary
of issues relating to anti-competition law. For example, provisions within Canada’s Competition Act
prohibit vertical restraints through practices such as
resale price maintenance, predatory pricing, refusals to deal, exclusive dealing, tied selling, and general market restrictions.
Failing to find adequate protection, trademark
owners have sought alternative remedies that lie
outside the boundaries of trademark law. Some of
these sources include: language legislation, packaging and labeling laws, specific product regulations,
or through contractual rights. However, one interesting strategy that trademark owners have recently
employed involves recourse to the Copyright Act.
Subsection 27(2) of the Act outlines what is known
as secondary infringement by stating that it is
infringement to import into Canada a copy of a work
for certain outlined purposes that the person should
have known would infringe copyright if it had been
made in Canada by the person who made it. In other
words, it is an infringement to sell “fruit of the poisonous tree.” Although the majority of commercial
goods do not qualify for copyright protection per
se, these rights can be claimed for incidental features such as logos, labels, or packaging. Trademark
owners have attempted to argue that importation
ê Legally sinful yet delicious. Photo credit: vikalinka.com
ê Photo credit: cellbharat.com
constitutes secondary infringement of the protected
artwork contained within their product’s dressing;
see Kraft Canada Inc. v Euro Excellence Inc.
The success of this strategy is dependent upon
several factors. First, because of the doctrine of
exhaustion, codified in s. 3(1)(j) of the Copyright
Act, simply reselling a legally acquired good is not
considered infringement; upon doing so, the seller
exhausts the copyright owner’s ability to assert their
rights in those goods. In other words, the goods
are free to be resold in the market without need of
the copyright owner’s consent. Rather instead, in
order to find secondary infringement from importing products into Canada for resale, there must have
been a primary
infringement of
copyright by the
manufacturer or
producer of those
goods. If primary infringement is required for a
finding of secondary infringement, then it follows
that the trademark owner must either be the owner
or possess an interest in the Canadian copyright
such that they may enforce it against all third parties. This is of importance because consent precludes
a finding of infringement. As David Vaver writes,
“the claimant who does not plead and prove his lack
of consent to the defendant’s act omits an essential element of copyright infringement and should
have his case dismissed as a result.” This was one
point of primary concern in Euro Excellence where
the Court’s decision suggests that where trademark
owners are not the owner of the Canadian rights
to an artwork, the solution is to simply restructure
agreements to transfer copyright as an assignment,
rather than an exclusive license.
As an aside, the distinction Rothstein J. makes
in Euro Excellence between the interest granted in
an assignment versus that in an exclusive license
is arguably based upon a fundamental misunderstanding of section 2.7 of the Copyright Act. The Act
reads that an exclusive license is an authorization to
do any act that is subject to copyright to the exclusion of all others including the copyright owner.
Rothstein J. misreads the words of the Act so as to
construe an exclusive license as dealing with matters
of agency rather than consent. This is largely due to
poor drafting within the Act itself, which is evidenced from the inconsistent language introduced
by the 2012 Copyright Modernization Act. This
can be supported by looking at section 27 where it
defines infringement as any act taken “without the
consent of the owner of the copyright” and again in
section 38.1(6)(c) where it states that statutory damages will not be awarded where the copy in question
was made with consent. The original language of the
Act suggests that
an integral element of infringement is a lack of
consent, which
is a concept distinct from authorization. The term
was likely introduced into the language of section
2.7 where it was intended to hold the same meaning as ‘consent.’ Given the reason for obtaining the
means of exclusive control when drafting exclusive
licenses, clearly a licensee must be able to enforce
the acquired rights, even as against the owner-licensor, otherwise, the licensor would have the ability
to compete directly with the licensee, thereby rendering the agreement meaningless. Rothstein