No Primary Infringement, No Secondary Infringement: An Interesting Canadian Case – Part II

This post continues from Ananth’s last post; I (Sai) am posting it on his behalf because he's tied up.

Ananth’s Second Post in the Series

We had stopped yesterday with the facts and the contentions of the decision in Euro‑Excellence Inc. v. Kraft Canada Inc. 

This post is exclusively dedicated to the analysis of the ultimate verdict. Before getting straight on to the verdict, the procedural history of this case needs brief mention. After the Federal Court of Appeal held in favour of the plaintiff, the defendant appealed to the Supreme Court.

Four broad judicial perspectives emerged in this case. Of the nine judges, three favoured allowing the appeal on both the grounds raised by the defendant. Bastarache, Le Bel and Charron JJ. were of the view that mere incidental presence of the copyrighted works on the wrappers of the chocolate bars did not bring the chocolate bars within the protections offered by the Copyright Act. In their view:

“Section 27(2) of the Act is meant to prohibit secondary infringement resulting from the wrongful appropriation of the gains of another’s skill and judgment by way of the acts enumerated in paras. (a) to (c).  Conversely, other economic interests — although they may seem to be closely associated with the interests legitimately protected as emanating from that skill and judgment — are not protected. 

 In particular, if a work of skill and judgment (such as a logo) is attached to some other consumer good (such as a chocolate bar), the economic gains associated with the sale of the consumer good must not be mistakenly viewed as the legitimate economic interests of the copyright holder of the logo that are protected by the law of copyright.

Thus s. 27(2)(e) is meant to protect copyright holders from the unauthorized importation of works which are the result of their skill and judgment.  It is not meant to protect manufacturers from the unauthorized importation of consumer goods on the basis of their having a copyrighted work affixed to their wrapper, this work being merely incidental to their value as consumer goods.”

Based on this reasoning, they accepted the appellant - defendant’s first contention that the importation was not to meet the purposes mentioned in the first three sub-clauses of Section 27(2). On this sole point, they held in favour of the appellant – defendant since an important pre-condition for attracting Section 27(2)(e) was not satisfied.

Three other judges – Rothstein, Binnie and Deschamps JJ. – rejected this contention raised by the appellant. Expressly disagreeing with the view expressed by Bastarache on behalf of himself and the other two judges, Rothstein who penned the judgment for the latter three judges considered Bastarache’s interpretation of Section 27(2)(e) as one loaded with policy considerations that compel unnecessary and unjustified deviation from the statutory wording.

Rothstein notes that the incidental test expounded by Bastarache is statutorily incorporated, and hence applied, in Canada. This is unlike the scenario in Canada where the statute does not provide for a distinction between direct and merely incidental effects.

However, these three judges have also held in favour of the appellant based on his other contention, being that here, the manufacturer had affixed the logos to the wrappers. Had the manufacturer done this in Canada, there would not have been any infringement since the plaintiff was only an exclusive licensee and not an assignee. It is in this context that this Supreme Court decision assumes utmost relevance, since the Court has considered the concept of secondary infringement in detail.

While the analysis of the Court has to be received with the statutory context in mind, the distinction between primary and secondary infringement harped on by Rothstein J. is conceptual and applies across jurisdictions. In their view:

“Section 27(2)(e) stands out as an apparent exception to the rule in CCH that secondary infringement first requires primary infringement because, unlike s. 27(2)(a) to (d), it does not require actual primary infringement.  Instead, it requires only hypothetical primary infringement…..

 Section 27(2)(e) substitutes hypothetical primary infringement for actual primary infringement.  It is possible that the infringing imports may have been lawfully made outside of Canada.  Still, they are deemed to infringe copyright if the importer has imported into Canada works that would have infringed copyright if those works had been made in Canada by the persons who made the works abroad.”

This test of hypothetical primary infringement is not satisfied in this case as the owners of the copyright were only responsible for affixing the copyrighted logos on the wrappers. The plaintiff is only an exclusive licensee who is authorised to distribute the products, and not an assignee with rights vested in the copyright in the Canadian territory so as to contend none other than the plaintiff could legally affix such copies in Canada.

Factually, the license agreements did provide that the parent companies who owned the copyright could not reproduce the copyrighted works in Canada. However, Rothstein J. reasoned that this provision only attracted a liability to the parent companies for breach of contract and not for infringement in the event of them actually reproducing the logos. In such circumstances, the Court held that the second contention of the defendant, which again went to the root of the matter, was indeed a valid one.

Fish J. agrees with Rothstein J. but fears that the view taken by him on the use of copyright to stop any kind of parallel importation would result in a scenario where copyright law, meant for a very specific purpose, would far exceed that purpose and end up beingan instrument of trade control in a manner not contemplated by the statute.

The dissenting opinion by McLachlin C.J. and Abella J. penned by the latter rejects both the contentions of the defendant. On the first contention, they agree with the reasoning adopted by Rothstein J. On the second issue, they disagree with Rothstein J. on the ground that an exclusive licensee is one authorised to do any act that is subject to copyright to the exclusion of all others including the copyright owner.

Since the licensing agreement restricts the owners of the copyright from reproducing the logos in Canada, these dissenting judges take the view that a suit initiated by the plaintiff for secondary infringement can be maintained even against the copyright owners to the extent they overstep the boundaries of the licensing agreement. This is a rather broad view of the concept of infringement.

To sum up, this is a classic case where different policy and legal considerations have led to varied results, all of which are to some extent correct. Whether the ultimate outcome of each of these views is correct or not, none can deny that adjudication should at the end of the day be as nuanced a process as seen from this case. This can only arise in a system where judges really apply their independent minds to the case at hand.

No Primary Infringement, No Secondary Infringement : An Interesting Canadian Case – Part I

In matters of copyright infringement, a finding of secondary infringement does not happen too often.

A. Section 51(a)(ii), which treats as infringement, the profitable permitting of any place for the purpose of communication of the work to the public where such communication itself constitutes an infringement of the copyright in the work, and

B. Section 51(b), which treats as infringement, the selling, renting, distribution, exhibition or importation of infringing copies, are the instances in Indian law when secondary infringement is frowned upon.

To my knowledge, very few decisions by Indian courts have made use of these provisions or explained them from a conceptual point of view. Different matter that there may have been very few opportunities so far to delve into this at all! At the end of the day, Courts of law work within a factual setting.

United States Supreme Court has rendered two path-breaking judgments on secondary infringement, one in 80s and the other 20 years later, in 2005. In Sony Corp. v. Universal City Studios, 464 U.S. 417 (1984), popularly known as the Betamax case, the US Supreme Court held that the manufacturers of home video recording devices such as Betamax would not be liable to copyright owners for secondary infringement since the technology was capable of substantially non-infringing and legitimate purposes.

The business of supplying such devices could therefore not be stifled simply because the equipment was used by some individuals to make unauthorized reproductions of copyrighted works. The 2005 decision in MGM Studios, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005) re-examined the principles laid down in the ’84 decision and came to a finding of contributory infringement on the facts involved therein. This case called into question the liability of websites that facilitated peer-to-peer (P2P) file-sharing, a mode commonly used to share infringing copies.

Re-formulating the test for copyright infringement, the US Supreme Court held that ‘one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties’.

Apart from some of these celebrated instances, cases of secondary infringement with prescient expressions of law are few and far between. It is at this juncture that we came to know of a Canadian decision on this issue.

A Perspective from Canada

The DemandingMistress now examines a significant verdict of the Canadian Supreme Court on the issue of secondary liability, in Euro Excellence Inc. v. Kraft Canada Inc., available here. The facts in brief:

Kraft Canada Inc., the plaintiff in the initial action, was the exclusive licensee for distribution of chocolate brands such as Toblerone and Côte d’Or, which were manufactured by Belgian and Swiss companies. The license was exclusively for the territory of Canada. Euro-Excellence Inc., the prior licensee for these products in Canada and the defendant in the initial action, continued to import these products to Canada and distribute the same even after its license with the manufacturer had expired.

This was resisted by the plaintiff who alleged secondary infringement under Section 27(2)(e) of the Canadian Copyright Act. This provision was relied on precisely due to the copyright registration obtained in Canada by the manufacturers for the Toblerone and Côte d’Or logos in the category of artistic works. As per this provision, importing the copy of a work into Canada would infringe the copyright in that work, provided the person who made the copy would have been liable for infringement had such copy been made in Canada.

The basic purpose of this Section appears to be preventing an infringer from getting over his infringement by committing such infringement outside the territorial limits of Canada and then importing the infringing copy to Canada. There is also another limitation contained in Section 27(2)(e) – the importation of the copy has to be for any of the purposes mentioned in the earlier sub-clauses.

The purposes stated are (a) sell or rent out the infringing copies, (b) distribute the infringing copies to such an extent as to affect prejudicially the owner of the copyright, and (c) by way of trade distribute, expose or offer for sale or rental, or exhibit in public, the infringing copies.

The defendant’s contentions were two-fold: (i) the importation of the chocolates was not for the purpose of selling or distributing the logos, but only to sell the actual chocolates; and (ii) the logos were reproduced by the manufacturer himself on the packets sold in territories outside Canada, and if the manufacturer had done the same in Canada, he would not be liable. So, there was no primary act of infringement that would arise at all in this case, since the defendant had never personally made the copies of the logo. He had only imported them into Canada.

There were multiple responses from the Supreme Court and my next post will discuss the verdict.