The Supreme Court of Canada recently released its decision in the grey-marketing case Euro-Excellence Inc. v. Kraft Canada Inc. The Court appears to have confirmed that copyright law may be used by brand owners to effectively restrain grey-marketing activities in Canada. Seemingly, local rights holders of copyright now benefit more from a full assignment of copyright in Canada rather than an exclusive license to use the copyright in Canada to prevent grey marketing. It also appears that where the copyrightable elements are more than incidental to the goods, a claim of secondary infringement will likely succeed as against a grey marketer.

Euro-Excellence (“Euro”) imported and sold foreign-sourced Toblerone chocolate bars into Canada. Kraft Canada Inc. (“Kraft”) is the exclusive Canadian distributor for Toblerone brand bars. Kraft neither made the bars nor authorized the importation of the bars by Euro to Canada. Kraft argued that it controlled, through an exclusive license from its parent companies, the Canadian copyright in two artistic works (i.e. the logos) appearing on Toblerone wrappers. Kraft alleged that by importing copies of these artistic works into Canada via packaged Toblerone bars, Euro violated section 27(2) of the Copyright Act, which defines secondary infringement in Canada.

The Court found unanimously that copyright subsists in Kraft’s logos, and they are protected by copyright law even though they are also capable of functioning as trade marks. As to whether the sale of the Toblerone bars featuring the copyrighted logos constituted a sale for the purposes of section 27(2) of the Copyright Act, six Justices held that the logos were being sold within the meaning of the Copyright Act when they appeared on packages associated with the products that were sold, as there is no basis in law to distinguish between the sale of goods that feature copyrightable material or are themselves copyrightable. The remaining three Justices held that a sale was not triggered in accordance with the Copyright Act by the sale of a product that featured incidental elements that were protected by copyright.

Five Justices also held that had the parent companies made the packaging in Canada, they would have, in theory, infringed the copyright in the logos thereby enabling Kraft to sue for copyright infringement as the exclusive licensee of the copyright in Canada. The remaining four Justices found that there was no such infringement in theory, and therefore no secondary infringement by Euro because the owner-licensor cannot infringe its own copyright, but Kraft may have a claim of breach of license against the patent companies in such circumstances. Had Kraft received an assignment of copyright from the parent companies, all of the Justices agreed that the parent companies would have in theory infringed Kraft’s copyright if they had made the Toblerone bars in Canada.