Publication
title
Grey Goods: Encouraging News for Canadian Distributors
DATE
February 8, 2006
EXPERTISE
Grey Goods
The bane of local distributors. They are genuine, thereby escaping anti-counterfeiting recourses based on trade-mark registrations,[i] but they are imported and sold in violation of the Canadian distributor's rights. How many importers and resellers simply "laugh off'' threats of legal action? In the wake of a December 2005 Federal Court of Appeal decision, the marketplace would be wise to take these rights more seriously. The famous TOBLERONE® and CÔTE D'OR® chocolate bars have given the country's second highest court an opportunity to confirm that the selling of grey goods constitutes "secondary" copyright infringement.[ii] In that case, Kraft, which manufactures TOBLERONE® and CÔTE D'OR® chocolate bars in Europe, sought to prevent Euro, its former Canadian distributor, from distributing unauthorized, yet genuine TOBLERONE® and CÔTE D'OR® chocolate bars which it obtained from another European source. Euro imported and distributed these products in Canada in their European-made wrappers, with a label affixed in an effort to conform to Canadian packaging regulations (for a discussion of the lower court's decision see the September 2004 issue of our newsletter).
The good news
The Federal Court of Appeal has confirmed that when a product or its packaging bears a particular design, such as a logo, the resale of products bearing such logos can constitute "secondary'' copyright infringement. As opposed to direct copyright infringement (i.e., the production or reproduction of a copyright work), "secondary infringement", which is prohibited by s. 27(2) of the Copyright Act, concerns dealing in unauthorized works. In upholding the substance of the trial judge's decision on the issue of infringement, the Federal Court of Appeal confirmed the use of a valuable strategy employed by Kraft: obtaining copyright registrations for the famous elephant and mountain logos which appear on its products and thereby forcing Euro Excellence to re-wrap or conceal these logos on the products imported and sold by it in the Canadian marketplace.
Point of interest
The Court of Appeal emphasized that the right to assert the copyright must be vested in someone other than the person who manufactured the grey goods. In other words, a structure must exist granting a person other than the manufacturer the right to claim a violation in Canada. If the manufacturer owns the copyright, the simplest way to do this is by granting an exclusive licence to a third party, such as its Canadian distributor. This exclusive licence should also be registered with the Canadian Intellectual Property Office.
The cloud
Every silver lining has one. Although the Federal Court of Appeal confirmed the strategy employed in Kraft, the initial $300,000 award of profits was sent back to the trial judge for re-assessment due to discrepancies in the evidence.
What to learn from this?
For rights owners: register copyrights (and the associated exclusive licence) for designs appearing on your product or its packaging. Copyright registrations can be obtained in a matter of days, at minimal cost. Registration should be sought well before acts of infringement are noticed, as a copyright registration prevents a defendant from arguing that he or she had no way of knowing that copyright subsisted in the designs. For importers: acquire goods only from a source authorized to supply them for import into Canada or, at the very least, obtain the requisite indemnifications from the source.
The Kraft saga is not over yet
Euro Excellence has until February 19, 2006 to seek leave to appeal to the Supreme Court of Canada.
[i]. This is so, save in a case where the composition of the goods differs between jurisdictions, as was the case in H.J. Heinz Co. of Canada Ltd. v. Edan Foods Sales Inc. (1991), 35 C.P.R. (3d) 213 (Federal Court of Canada) Cullen J. Heinz manufactured ketchup in Canada under the "Heinz" trade-mark. Edan imported into Canada ketchup bearing the "Heinz" trade-mark as affixed by Heinz's U.S. parent for the U.S. market and relabelled the ketchup to comply with Canadian legislation. The Court found that Edan had depreciated the value of the goodwill attaching to the Heinz trade-mark registered by Heinz in Canada in association with ketchup and other food products. The ketchup imported from the U.S. and sold by Edan in Canada tasted sweeter than the ketchup sold by Heinz in Canada, thereby diminishing the value of the goodwill attaching to Heinz's trade-mark in Canada.
[ii]. Euro Excellence Inc. c. Kraft Canada Inc., 2005 CAF 427 (Federal Court of Appeal), Desjardins, Noël and Pelletier JJ.A., confirming Kraft Canada Inc. v. Euro Excellence Inc., (2004) 33 C.P.R. (4th) 246, 2004 FC 652 (Federal Court of Canada), Harrington J. (the English translation of the appeal judgment is not yet available).
The purpose of this document is to provide information as to developments in the law. It does not contain a full analysis of the law nor does it constitute an opinion of Ogilvy Renault LLP or any member of the firm on the points of law discussed.
Contacts
Daniel S. Drapeau
Montréal
514.847.4418
ddrapeau@ogilvyrenault.com
Profile
Nicolas Sapp
Québec
418.640.5070
nsapp@ogilvyrenault.com
Profile
Kenneth Sharpe
Ottawa
613.780.8618
ksharpe@ogilvyrenault.com
Profile
