Thursday, July 26, 2007

Euro v. Kraft Decision - First take on landmark parallel imports decision

Updated*

Here's the Supreme Court decision in Euro Excellence v. Kraft.

Here's my quick analysis on this landmark decision.

1. The main judgment by Rothstein, J. (+ Binnie & Deschamps) is based upon highly technical arguments we put forward on the “hypothetical maker” doctrine, and the nature of exclusive licenses. These reasons highlight very important differences between the rights of assignees and exclusive licensees. Although some companies may now look to use assignments as a basis to block parallel imports of goods not themselves protected by copyright, they would do well to remember why this has not been done much if at all in the past. They will need to think through the practical tax and loss of control issues, and look carefully at the reasoning of Justices Fish, Bastarache, LeBel and Charron - which suggest that even an assignee may have great difficulty in using copyright law to block parallel imports where the copyright element in question is only “incidental” to the real transaction. An intercorporate assignment may be disregarded for purposes of blocking trade in legitimate articles, and an arms length assignment means just that - an assignment. Who is going to sell the artwork in their crown jewels?

2. Fish, J. agrees with the foregoing and notes the purely nominal consideration for the intercorporate transaction and says in admitted obiter dicta that he has “grave doubts” about using IP law as “an instrument of trade control not contemplated by the Copyright Act.”

3. Bastarache, J. (with LeBel and Charron, JJ.) looked at the “incidental” aspect of the work in question and that the Act was not meant to stop parallel imports where the copyright interest is merely incidental to the consumer good in question. This is not consistent with the “legitimate economic interest” of the owner or in turn the exclusive licensee. These Justices also leave the door open to application of the copyright misuse doctrine, which was unnecessary to consider in this instance and would be “best left for another day.”

4. Abella, J. (with McLachlin, C.J.) basically said that the transaction was caught by the literal language of the legislation and disagreed with any judicially created limit on this meaning. Her reasoning on exclusive licenses, in particular. appears to be quite different from that of Rothstein, J.

Bottom line:

This is a major victory for those who who favour free trade and real competition. The core reasoning turns mainly on the hypothetical maker doctrine and the rights (or lack thereof) of exclusive licensees.

The Court looked very carefully at comparative jurisprudence here. Although only briefly mentioned, I believe that Sir Hugh Laddie's material on the hypothetical maker doctrine and exclusive licenses from his major treatise on UK law was very influential. There were also a couple of references on the point of exclusive licenses to Nimmer’s American treatise. Bill Patry’s major new seven volume treatise was published only after the case was heard by the Court. Bill has already blogged about the decision.

The additional theory of “incidental” work or use and “legitimate economic interest” could be helpful in any borderline situations that may arise in the future. These theories could certainly lead to beneficial policy results in other contexts as well.

The academics will have a field day with this - trying to parse the differences between the judges and in turn with previous jurisprudence from this and other high courts.

Bloomberg has a business oriented article that cuts to the chase....

Interestingly, one major Canadian law firm - Ogilvy, Renault - which had nothing to do with the case - has issued a frankly rather confusing press release [now updated - see below*] inexplicably - and incorrectly - claiming that :

“Grey Market Goods Illegal According to Supreme Court of Canada - Decision rendered today in Euro-Excellence v. Kraft”

So - there are clearly still going to be many questions ahead on the issue of grey (gray as the Americans say) marketing and parallel imports.

However, the victory today is clearly on the side of those who believe in free trade, real competition and what I argued to be a correct reading of the current Canadian Copyright Act.

I acted in this instance for the intervener, Retail Council of Canada - which supported the successful appellant and argued in favour of free trade and a competitive marketplace, where copyright law cannot be used as an artificial “strategy” to “thwart” importation of genuine products other than through an exclusive distributor’s own distribution channel. However, as always, on this blog, these comments are my own.

*Update:

Michael Geist, as usual, was very quick to analyze the judgment.

Warwick Rothnie in Australia - who wrote a wonderful monograph on parallel imports published in 1993 and which I hope he updates one of these years - has a blog entry on this decision.

Jorge Espinosa, a Miami lawyer, has an entire and very impressive blog devoted to "gray" marketing called the Gray Blog. He has sympathy for the correct Canadian/Commonwealth spelling - but he is, after all, in America. He has opened up a section on his blog for Canada and has a couple of entries already on this decision.

As a reader comments below, Ogilvy, Renault has updated the headline in its press release.
Supreme Court of Canada: selling grey goods is not necessarily copyright infringement - Decision rendered today in Euro-Excellence v. Kraft
Well, with respect, 7 out of 9 of the Justices said that what took place in this instance was *not* copyright infringement. There was no qualification about "necessarily."


HK

4 comments:

  1. Ogilvy Renault's press release has been updated to "Supreme Court of Canada: selling grey goods is not necessarily copyright infringement - Decision rendered today in Euro-Excellence v. Kraft" as of 11pm.

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  2. Great blog. I'm not sure that the exclusive license v. assignment matter will be a big deal going forward though. 5 of 9 judges rejected Rothstein's distinction between exclusive licenses and assignments.

    Bastarache at para 75 agreed with the dissent on that issue. "..Rothstein J. must therefore by wrong..that hypothetical infringement has not been made out." "I see no legal justification for limiting the right of the licensee to a claim in contract")

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  3. Jorge EspinosaJuly 27, 2007 2:18 pm

    Thanks for the mention Howard and for your invaluable input on this important decision. In fact, I not only have sympathy for the Canadian spelling "grey" but it is my preferred spelling. You can access the blog with either www.thegrayblog.com or www.thegreyblog.com. Unfortunately my wife demanded that I stick to the US spelling in the body of the blog and, to paraphrase Rumpole of the Bailey, "she who must be obeyed, must be obeyed."

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  4. Its very interesting that, even with the Euro having risen in value against the Canadian dollar that Euro Excellence Inc. was, allegedly, able to get genuine product at a lower cost than Kraft.

    Here's some interesting collusion by Nestle and Kraft:
    http://www.endevil.com/morecoffee.html

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