On July 26, 2007, the Supreme Court of Canada issued an eagerly awaited decision in the case of Kraft Canada Inc. v. Euro Excellence Inc. The SCC allowed the appeal of Euro Excellence, reversing the Federal Court of Appeal judgment (2005 FCA 427), which had affirmed the trial decision (2004 FC 652) allowing Kraft Canada’s claim of secondary infringement of copyright against Euro Excellence. Four varied decisions were rendered by the Court: Rothstein J. (with Binnie and Deschamps JJ. concurring), Fish J. and Bastarache J. (with LeBel and Charron JJ. concurring) found that the grey-market activity complained of did not infringe Kraft's copyrights in the packaging; and Abella J. (with MacLachlin J. concurring) found that the copyrights existed and were infringed.

The case arose as an attempt to thwart grey-market activity. Grey marketing occurs when goods that are the subject of intellectual property rights in Canada are legitimately purchased outside of Canada, lawfully imported, and then re-sold against the wishes of the Canadian intellectual property owner. Kraft Canada Inc. (Kraft Canada) is the exclusive Canadian distributor of CÔTE D’OR and TOBLERONE confectionary products. Euro Excellence Inc. (Euro Excellence), formerly the exclusive dealer of CÔTE D’OR products in Canada, began parallel importing of CÔTE D’OR and TOBLERONE products after Kraft Canada was appointed the exclusive distributor of these products for Canada. The imported products were genuine products, manufactured in Europe, which Euro Excellence was distributing in Canada against the wishes of Kraft Canada.

Kraft Foods Belgium S.A., the producer of CÔTE D’OR, registered three CÔTE D’OR copyrights in Canada in the artistic category, covering various aspects of the brand’s packaging. On the same day, Kraft Foods Schweiz AG, the producer of TOBLERONE, registered the TOBLERONE "bear within the mountain" symbol as copyright in the artistic category. Two exclusive licensing agreements were registered the same day, giving Kraft Canada the exclusive right to produce, reproduce, and adapt the copyrighted material for the purpose of manufacturing, distributing or selling the products in Canada.

Relying on these copyrights, Kraft Canada asked Euro Excellence to cease and desist distributing the products in Canada. Euro Excellence refused, which led to the lawsuit.

The SCC's decision to allow the appeal was made by a margin of seven to two. However, even the majority arrived at their conclusions from varied angles. The Court was divided both in its response to whether incidental images on a chocolate-bar wrapper are an appropriate subject for copyright, and also in its response to whether such "artistic" works are being sold or distributed when the primary product is being sold. In addition, there appear to be disagreements about the nature of the rights granted to an exclusive licensee in Canada in respect of copyright.

A detailed analysis is being prepared and will be available in an upcoming eAlert.