A recent decision of the Federal Court of Appeal has confirmed the ability of rights holders to use copyright in works on product packaging to inhibit the importation of grey market goods into Canada. This provides a possible alternative for brand owners to address grey market goods other than under trademark law, which may not provide effective remedies in many situations, including where the trademark rights at issue are owned by the same entity in Canada and in the products’ originating country.
In Kraft Canada Inc. v. Euro Excellence Inc. (2005 FCA 427, among others), Kraft Canada, along with two European confection manufacturers, commenced proceedings against a former Canadian distributor for infringement of copyright in artistic works appearing on the packaging of genuine confections obtained by the Defendant from an unnamed source in Europe. The packaging of those products included the copyrighted works.
Prior to commencing the proceedings, copyright was registered in Canada and Kraft Canada was granted the exclusive right to reproduce the works in association with the sale of the confectionery products. Notice was given to the Defendant of the copyrights and licences, but the Defendant continued to sell the products. Kraft Canada then sought to enjoin the Defendant from distributing the products in packaging that included the works. The Court found infringement by commer-cial importation and distribution of the works in Canada, pursuant to section 27(2) of the Copyright Act, and the Defendant was enjoined from distributing products displaying the works.
Generally, copyright may be parsed into smaller bundles of rights. Copyright in label designs and packaging can be assigned or licensed to different entities in different countries. Further, section 27(2) of the Copyright Act provides that it is an infringement of copyright for any person to, inter alia, import into Canada for the purpose of distributing, offering for sale or selling, a copy of a work “that the person knows or should have known infringes copyright or would infringe copyright if it had been made in Canada by the person who made it.” Accordingly, when genuine goods subject to copyright in a foreign country are sold with authority from the copyright owner in that country, and then imported into Canada for commercial distribution, the Canadian right holder should have a good cause of action under section 27(2) if there is a different owner (or exclusive licensee) and the importer/distributor is aware of the ownership of the copyright in Canada.
Trademark rights, on the other hand, are often not effective to prevent the importation of grey market goods into Canada. The problem is that trademark rights are often owned by the same entity in all countries of the world. Further, once goods have been sold by the trademark owner anywhere in the world, the first sale or exhaustion doctrine applies and such goods are not infringing simply because they arrive in a geographical area where the owner does not wish them to be distributed. The use of trademark rights to prevent the importation of grey market goods into Canada has thus been quite limited.
There are two circumstances where Canadian courts may intervene in respect of the importation or distribution of grey market goods on the basis of trademark rights. First, if the trademark owner in Canada did not use the trademark itself, and did not directly or indirectly license or approve the use of the trademark on the wares in question, the products will be considered counterfeit or infringing and the courts will intervene.
Second, where the domestic goods are “materially different” from those being imported (such that the differences in the products render them “not genuine”) the courts may also intervene. For example, in Consumers Distributing v. Seiko Time Canada Ltd., [1984] 1 S.C.R. 583, the seminal case in Canada relating to grey market goods, Seiko Time Canada (“Seiko”) maintained a worldwide distribution network for watches. Consumers Distributing (“Consumers”), a Canadian retailer, purchased watches in the United States from a dealer in Seiko’s network, then imported the watches into Canada and sold them at its stores. The Court found that the product sold by Consumers was different from the product available through Seiko’s distribution network since the former did not include an international warranty available through authorized dealers. Consumers was enjoined from “holding itself out as an authorized Seiko dealer or advertising and selling Seiko watches as internationally guaranteed”. Consumers was still able to advertise and sell Seiko watches in Canada, so long as it was clear that it was not an authorized Seiko dealer and that the watches were not internationally guaranteed by Seiko.
An example combining both exceptions is H.J. Heinz Co. of Canada Ltd. v. Edan Foods Sales Inc., (1991), 35 C.P.R. (3d) 213, in which H.J. Heinz Co. of Canada (“Heinz Canada”) was successful in obtaining an interlocutory injunction preventing the importation and sale of HEINZ ketchup by the Defendant. The HEINZ ketchup had been purchased by the Defendant from the Plaintiff’s United States parent company and imported into Canada. The Defendant’s ketchup was clearly labeled as having been imported. However, the HEINZ trademark was owned in Canada by Heinz Canada, and the Canadian formulation was different from the United States’ formulation due to the different taste preferences in Canada and the United States.
Whenever grey market issues arise in Canada, in addition to considering existing remedies under trademark law or otherwise, consideration should be given to assigning or exclusively licensing copyright in artistic works appearing on label designs and packaging to an entity other than the foreign manufacturer of the goods.
Brian P. Isaac and Geneviève M. Prévost, Toronto