Obiter Dicta Issue 12 - March 9, 2015 | Page 9

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