The elephant parades the circus ring: grey goods versus copyright - no clear winner ... yet.

• Author: Renaud, Arthur
• Position: Canada

Copyright monopolies exist to reward the creation and dissemination of works of the literary, artistic, dramatic and musical arts. Copyright attaches to original works and the threshold for originality in Canada is low. Copyright law does not distinguish between artistic or literary elements of product packaging designs and the latest best-selling novel or compact disc.

Most products imported from abroad and sold in Canada bear or are accompanied by some kind of copyrightable subject matter. The marketing and distribution of these products are often in the hands of exclusive distributors who, with the foreign maker's assent, develop and maintain a market for these products in Canada, often at considerable cost to the distributor.

The success of an exclusive distributorship comes at vet another cost--parallel importers find ways to acquire the genuine products abroad and then import and sell these products in Canada, riding the coattails of the exclusive distributor's efforts.

Exclusive distributors have long sought an effective remedy in intellectual property law to combat the parallel importation of these "grey goods". A recent Supreme Court of Canada decision, the "Kraft" decision, may provide exclusive distributors with the remedy they have been seeking through the, application of the "secondary infringement' section of the Copyright Act. Some commentators argue that the application of copyright law principales to create a nontariff barrier to the trade m genuine products strays far afield from Parliament's original intent in enacting the Copyright Act. They are concerned that such an approach unduly rewards the owners of copyright in such works at the unfair expense of consumers of products. Other commentators argue that exclusive distributors deserve protection from the "unfair" competition posed by parallel importers who reap the rewards of the exclusive distributor's efforts, without any corresponding investment.

This article looks at past attempts by exclusive distributors to resort to intellectual property rights to curtail the parallel importation of grey goods. In most cases, intellectual property rights have been ineffective in combating parallel importation. The various Court pronouncements in the series of Kraft decisions reveal a potentially effective remedy to combat parallel importation. However, given the divergence of opinions in the Supreme Court of Canada, the effectiveness of the remedy is still open to question.

Les monopoles du droit d'auteur existent afin de recompenser la creation et la diffusion des eeuvres litteraires, artistiques, dramatiques et musicales. Le droit d'auteur vise les oeuvres originales, et le seuil d'originalite au Canada est bas. La loi sur le droit d'auteur ne fait pas la distinction entre les elements artistiques ou litteraires de la conception de l'emballage d'un produit et le plus recent roman ou disque compact a succes.

La plupart des produits importes de retranger et vendus au Canada sont proteges ou accompagnes de formes de produits protegeables par d'roit d'auteur. La commercialisation et la distribution de ces produits sont souvent le privilege exclusif de distr'ibuteurs qui, avec l'assentiment du fabricant etranger, developpent et maintiennent un marche pour ses produits au Canada, souvent en y investissant beaucoup d'argent.

Le succes du marche de la distribution exclusive se paye autrement encore. Des importateurs paralleles trouvent le moyen d'obtenir et d'importer de l'etranger des produits authentiques et de les vendre au Canada, sans egards aux crauses de protection des efforts de distribution exclusive.

Les distributeurs exclusifs ont longtemps cherche en droit de la propriete intellectuelle un remede efficace contre l'importation parallele de produits du marche gris. Une decision rece'nte de la Cour supreme du Canada dans l'affaire Kraft pourrait repondre a leur voeu par l'application la disposition de la Loi sur le droit d'auteur relative << aux violations a l'etape ulterieure >>. Certains pretendent que l'application des principes de la Loi sur le d'roit d auteur en matiere de la creation de barrieres non tarifaires au commerce de produits originaux est trop eloignee de l'intention initiale du legislateur en edictant la Loi sur le droit d'auteur. Selon eux, cela favoriserait indument les titulaires de droits d'auteur sur ces produits, au detriment du marche de la consommation qui absorberait le cout. D'autres soutiennent que les distributeurs exclusifs meritent une protection contre la concurrence deloyale des importateurs paralleles qui, sans invest'ir en consequence, recoltent les fruits de leurs efforts de distribution exclusive.

Cet article fait le survol des demarches prises anterieurement par les distributeurs exclusifs afin d'empecher l'importation parallele de produits du marche gris par le biais des droits de propriete intellectuelle. En regle generale, celles-ci se seront revelees inefficaces. Les decisions judiciaires rendues dans la serie des affaires Kraft enoncent un remede contre l'importation p afailele assez prometteur. Par contre, etant donne la divergence d'opinions entre les luges de la Cour suprime du Canada sur le sujet, le debat reste ouvert sur l'efficaeite de ce recours.

Table of Contents I. INTRODUCTION II. TERRITORIAL CONSIDERATIONS AFFECTING COPYRIGHTS AND TRADEMARKS III. EXCLUSIVE DISTRIBUTORS IV. SUCCESS BREEDS UNLAWFUL COMPETITION V. GREY GOODS VI. THE SEIKO CASE A. Facts B. Proceedings in the Ontario High Court of Justice C. Proceedings in the Ontario Court of Appeal D. Appeal to the Supreme Court of Canada VII. ASSERTING TRADE-MARK RIGHTS AGAINST PARALLEL IMPORTATION VIII. COPYRIGHT IN CANADA IX. THE KRAFT CASE--APPPLICATION OF SECTION 27(2)(E) IN THE PARALLEL IMPORTATION CONTEXT A. Background B. Facts C. Proceedings in the Federal Court D. Proceedings in the Federal Court of Appeal E. Proceedings in the Supreme Court of Canada F. The Interveners' Arguments 1. Retail Council of Canada 2. Alliance of Manufacturers and Exporters Canada G. A Divided Supreme Court of Canada 1. Overview 2. Three Justices--No Copyright for "Incidental" Works 3. Three Justices--An Exclusive Licensee has no Higher Rights Than its Owner 4. One Justice--Copyright not to be Used as an Instrument of Trade Control 5. Two Justices--The Lower Courts got it Right X. AFTERMATH I. INTRODUCTION

An inventor who makes a new, useful and unobvious invention available to the public may be rewarded, upon application, with a patent. Upon issuance of the patent, the inventor enjoys a time-limited monopoly during which only the inventor of his or her permitted assignees and licensees may commercially exploit the invention. The reward of exclusivity is the quid pro quo for the inventor's public disclosure of a new and useful technological advance.

An artist of author who creates an original literary, artistic, dramatic of musical work enjoys, in Canada, without formality, the exclusive right, among other rights, to reproduce the work for the duration of his or her life and 50 years thereafter. The reward of exclusivity is the quid pro quo for the author's creation and dissemination of a work of art and of his intellect to the public.

A manufacturer who adopts and uses a distinctive word, logo, slogan or design in association with its products or services as an indicator of their source may acquire, without formality, an unregistered trade-mark right. Upon application, the trademark may be registered. Whether the trade-mark is registered of unregistered, the trade-mark owner enjoys exclusive rights to the use of that trade-mark in association with those wares and services and has the ability to restrain the use of confusing trade-marks. The reward of exclusivity is the quid pro quo for the manufacturer's commercial investment in creating a trade-mark which more easily allows consumers, when making purchasing decisions, to distinguish between products in the marketplace.

In all these scenarios, the reward of an exclusive "intellectual property" right is the trade-off for a valuable contribution to the public.

An owner of intellectual property rights may enforce those rights against persons who reproduce, make, use or sell products which infringe upon those exclusive rights. Generally speaking, infringement occurs when another person, without authority, performs an act which only the rights-holder is entitled to perform.

The right to enforce an intellectual property right, in court if necessary, is not controversial. While those accused of infringement may contest the validity of the asserted intellectual property right and may deny infringement, the concept of infringement--the unauthorized use of intellectual property--is well understood and accepted by commercial traders.

2. TERRITORIAL CONS1DERATIONS AFFECTING COPYRIGHTS AND TRADEMARKS

   Upon completion of an original work which attracts copyright, and subject to certain statutory exceptions and requirements, the author enjoys copyright protection in practically every country of the world. However, the owner of this "worldwide" copyright may assign of exclusively license the right to another person, either wholly or partially, and subject to geographic and temporal limitations. It is not uncommon for the owner of copyright in Canada to be different from the person who enjoys the exclusive copyright in the work in other countries.

   Trade-marks, as indicators of source, are usually owned by the same person in every country. Prima facie, to have different owners in different countries confounds the "one source" theory of trade-marks and may imperil the distinctiveness of the trade-mark.

   Exceptionally, foreign makers of branded products may assign their Canadian trade-mark rights to another person in Canada, for example a subsidiary or related entity, or a trusted exclusive distributor. Provided the public is alerted to any change in source and considers the assignee to be the "new" source of the...