Key parallel imports case heard by Supreme Court

The Supreme Court of Canada has heard oral arguments in the unusual parallel import case Euro Excellence Inc v Kraft Canada Inc (SCC File 31327). The decision will be awaited with interest as the Federal Court of Appeal's ruling suggested that IP rights owners may be better off relying on copyright rather than their trademark registrations when seeking to prevent parallel imports.

Parallel importation (otherwise known as 'grey marketing') refers to the sale in Canada of foreign-sourced products acquired outside the authorized Canadian distribution chain. The goods are not counterfeit, but they are in Canada against the wishes of the local rights holder.

The legitimacy of grey marketing is a subject of frequent debate. Proponents say that it helps deliver the lowest possible retail price for branded goods to consumers. Opponents say it is inherently unfair because parallel importers free-ride on investments by Canadian manufacturers and distributors in creating and supporting the local market for brands. In addition, when health or safety concerns develop in Canada in relation to grey-marketed goods, it is the local brand owner whose reputation suffers because consumers believe that it is responsible for all goods sold in Canada under the brand.

Euro Excellence (EE) is a parallel importer who acquired foreign-sourced TOBLERONE chocolate bars and sold them into Canada. Kraft Canada Inc (KCI) is the exclusive Canadian distributor for TOBLERONE brand bars. It did not make or authorize the bars imported by EE. KCI's demand letter to EE was ignored and litigation was commenced in the Federal Court.

Usually, Canadian rights holders attempt (with mixed success) to block parallel imports through trademark law. In this case, KCI took a different approach and sought relief under the Copyright Act. It asserted that it controlled the Canadian copyright in two artistic works (logos) appearing on TOBLERONE wrappers. KCI alleged that EE, by importing copies of these artistic works into Canada via packaged TOBLERONE bars, violated Section 27(2) of the Copyright Act. This subsection, said to define 'secondary infringement' of copyright, provides:

"It is an infringement of copyright for any person to ... (e) import into Canada for the purpose of [sale] ... a copy of a work that the person ... should have known ... would infringe copyright if it had been made in Canada by the person who made it."

KCI was successful before the Federal Court and the Federal Court of Appeal. EE's appeal to the Supreme Court of Canada was heard on January 16 2007 and attracted a full panel of the court. Leave to file intervener submissions was granted to Canadian Manufacturers & Exporters and the Retail Council of Canada.

This appeal requires the Supreme Court of Canada to consider many complementary, and sometimes competing, policy objectives. If EE's appeal is dismissed, the court will confirm a new weapon for brand owners to protect their domestic IP rights and the local market for their branded goods. If the appeal is allowed, brand owners may be required to consider alternative approaches in future cases. For example, brand owners faced with future grey-marketing problems may seek to explore the scope of relief available to them under Section 22 of the Trademarks Act, reviewed recently by the Supreme Court of Canada in Veuve Clicquot Ponsardin v Boutiques Cliquot Ltée (see Ambit of protection for famous marks increased despite defeat for mark owners).

The court's decision in Euro Excellence is expected to be released in the summer or autumn of 2007.

For background discussion of this case, see Copyright may help to prevent parallel imports and Supreme Court set to sink its teeth into Euro Excellence Case.

Kevin Sartorio, Gowling Lafleur Henderson LLP, Toronto