Euro v . Kraft - Further Thoughts

Some further thoughts beyond my first take on the Kraft decision of the Supreme Court of Canada delivered July 26, 2007:

1. While it is true that there is much comment about the interesting arithmetic comparing counts of how the four opinions split on the various issues, one thing is quite clear. Seven out of nine judges decisively ruled against Kraft.

2. In terms of arithmetical predictions for future cases based upon various splits on various issues, the law is not based on arithmetic. Otherwise, lawyers wouldn’t have much to do. The bottom line in this case presumably is that the Supreme Court of Canada has ruled - 7/2 - that based on these facts, there is no copyright infringement.

3. Several lawyers have suggested in blogs, law firm web sites, or in media interviews that assignments could now replace exclusive licenses and that the result would be different if Kraft had chosen this strategy. In fact, a Kraft spokesperson was quoted by Bloomberg as saying:

``We believe the outcome would've been in Kraft's favor if we had assignment of copyright,'' Galia said. ``So we do see an opportunity to look at further options.''

4. However, it has long been known that assignments - as contrasted with exclusive licenses - avoid the difficulties with the “hypothetical maker” doctrine as clearly now enunciated by Rothstein, J., with whom three other Justices agreed. Assignments, as opposed to exclusive licences, are “old news”, as they say.

5. So - why has nobody successfully used a strategy involving assignment of copyright in packaging elements before? There have been many reasons - and it’s not my job to set them out here. Let me simply say that any company contemplating such a strategy should make sure that it is getting not only well informed copyright advice, but also good trade-marks, tax, corporate and competition law advice as well - for starters.

6. One thing, however, that is news is that now, based on what we can see from last week’s decision, at least four of the current Justices - and maybe more - might well see through and reject a strategy based on assignments as either copyright abuse or misuse or, as Fish, J. stated, as “an instrument of trade control not contemplated by the Copyright Act.” They may see such a strategy as a blatantly artificial attempt to use copyright in a trade restrictive manner for products not themselves protected by copyright. The abuse/misuse issue was mentioned but not dealt with on the merits in last week’s ruling, which was quite predictable because there was no need to deal with it and there was an insufficient record. But it may be very different next time. It has been expressly mentioned and left open for another day.

7. As I often say, copyright owners must be careful what they wish for. A carefully developed strategy to thwart gray marketing of products not themselves protected by copyright based upon assignments (as contrasted with exclusive licenses) in packaging or labelling elements may well provoke an unintended and unpleasant result (from the owner’s viewpoint) on the copyright abuse/misuse front.

8. There are also several other good arguments not mentioned in the judgment that could sink any attempt to refloat this same ship with slightly different sails. They, too, may be left for another day.

9. As the old cliché about grey marketing goes, the law is rarely black and white. The underlying issue never goes away - which is that some IP owners crave monopolistic exploitation by market segmentation of their alleged rights, while the market place seeks competition and free trade in genuine goods. This issue has been in the Courts since the at least 1871 and nobody expected it to come to an end last week. It has a hydra-like aspect - one cuts off one head and more soon appear. Anyway, the last round went to the parallel importers and free traders - as it seems to more often than not overall, except with respect to books, records DVDs and other products actually protected themselves (and not simply their packaging) by copyright.

10. One can expect much more attention to the issue now with this decision and with a CDN $ dollar approaching par with the US $.

11. And there may be demands that this issue be dealt with by legislative reform - as has happened in Australia and the UK. But that would be extremely controversial.

12. For now, we have a 7/2 judgment and I’m glad to have been on the winning side. Full disclosure - we acted for an intervener supporting the successful Appellant in this case - but these views are purely my own.

HK

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

Choral Performance of SONY EULA

Here's a choral performance of the Sony/BMG End User License Agreement -- remember the Rootkit fiasco -- set to music and arranged for choir and recorded by Toronto recording artist Brian Joseph Davis.

Here's the story in Wired.

Hat tip to Fred Von Lohmann.

Apparently, Sony is suing the software supplier. Sony must be shocked, shocked that the software did what it did.

Now let's see if SONY goes after Mr. Davis.

HK

Kraft Decision - Judgment Day Set for July 26, 2007

The Supreme Court of Canada today announced that it will deliver its judgment in the very important case of Euro‑Excellence Inc. v. Kraft Canada Inc., Kraft Foods Schweiz AG and Kraft Foods Belgium SA this Thursday, July 26, 2007 at 9:45 AM.

The announcement contains the Court's summary of the case.

Here's what I said about the case at the time that leave was granted, on May 18, 2006 on the subject of: Copyright, Competition, Free Trade & Chocolate Bars.

I acted for the Retail Council of Canada, which was an intervener in this case.

HK

iPod Levy - Déjà Vu All Over Again?

Last week the Copyright Board ruled that CPCC's proposed new tariff that would include a levy on Digital Audio Recorders, e.g. iPods, could proceed. The Board indicated that it will entertain CPCC's request for a levy on digital audio recorders.

Here's the Board's ruling.

Here's an article in today's Globe and Mail, quoting my client, the Retail Council of Canada.

And here's the judgment of the Federal Court of Appeal from 2004 which says, among other things;

[160] A digital audio recorder is not a medium; the CPCC recognized so much when it asked that the levy be applied on the memory found therein but not on the recorder itself. The Board erred when it held that it could certify a levy on the memory integrated into a digital audio recorder.

...

[164] In my respectful view, it is for Parliament to decide whether digital audio recorders such as MP3 players are to be brought within the class of items that can be levied under Part VIII. As Part VIII now reads, there is no authority for certifying a levy on such devices or the memory embedded therein.

The Supreme Court of Canada refused to grant leave to appeal from this decision.

Since I'm quite involved with this, I'll say no more. I just thought the above would be useful for information purposes.

HK

President Bush on Neighbouring Rights

This was the President's response to a question posed during his recent visit to Nashville:

Q Mr. President, music is one of our largest exports the country has. Currently, every country in the world -- except China, Iran, North Korea, Rwanda and the United States -- pay a statutory royalty to the performing artists for radio and television air play. Would your administration consider changing our laws to align it with the rest of the world?

THE PRESIDENT: Help. (Laughter.) Maybe you've never had a President say this -- I have, like, no earthly idea what you're talking about. (Laughter and applause.) Sounds like we're keeping interesting company, you know? (Laughter.)

Look, I'll give you the old classic: contact my office, will you? (Laughter.) I really don't -- I'm totally out of my lane. I like listening to country music, if that helps. (Laughter.)

One has to admire his honesty and sense of humour in this instance.

HK

HAIR SALONS & SOCAN

SOCAN - the $200 million or so a year grand daddy of all music collectives in Canada - is after hair salons. Last time, the campaign was against dentists.

They want money. Minimum $95 a year.

It is worth reminding beleaguered and overtaxed business persons that s. 69(2) the Copyright Act has a bit of very good news for them on this issue. If they just play music on a "radio receiving set" - in other words a "radio", there is no need to pay SOCAN. Just don't play tapes or CDs, even if the radio includes these features.

I don't know if SOCAN is clearly and actively pointing this exception out to business owners. I doubt it. They really should be required to do so.

HK

Harry Potter and the Deathly Shallows of Copyright

Once again, Canada's Raincoast publishers who had the immensely good fortune to become the exclusive Canadian distributors of this legendary money maker are pushing the envelope of copyright far beyond any legal basis, according the the Globe and Mail.

According to the Globe, Raincoast's position is that:

"the legal framework in Canada recognizes and protects the confidentiality of the book and its content until the release date chosen by the author and the publishers as holders of the copyright, notwithstanding attempts at spoilers or other breaches of the embargo."

The Globe's lawyer, Peter Jacobsen says:

... that Raincoast's position "misstates the law." While copyright is protected under the law, the law "does not prevent comment ... for the purposes of review ... and news reporting," he said. "If someone were to obtain a copy of [Harry Potter and the Deathly Hallows] in a legitimate way, they can do any kind of review or discussion of it as they see fit, so long as it falls within the definition or criticism or review or news reporting."

Jacobsen said copyright law "restricts the amount you can quote," but he cautioned that Potter's publishers "attempt to misstate the law is a way to say there's kind of an injunction against revealing anything about [the book]."

Jacobsen is absolutely right and Raincoast is quite wrong.

Copyright law does not cover facts and anyone has the right to talk about a book, and to quote parts of it for purposes of criticism or review.

The issue of "spoilers" and giving away the ending is not a copyright issue - but rather a time honoured tradition amongst professional critics and, indeed, most decent ordinary people...

Let's not forget that copyright law - despite enormous efforts to the contrary and incrementally creeping inroads - doesn't yet include the exclusive right to read, talk about or think about things of interest and even importance....

HK

Counterfeit Kalashnikovs

It turns out that the Russians are shocked, shocked that one of their favourite brands and products is being knocked off in lots of places, and one of the main purchasers and distributors has been the USA, who, of course, believes in respect for IP.

We're talking Kalashnikov AK-47 machine guns, here. And the inventor is still alive.

Even General Kalashnikov himself is venting his dismay over proliferation without Russian profit. “I take them into my hands and, my goodness, the marks are foreign,” he said of the knockoffs the Soviet Union once championed. “Yes, they look alike. But as to reliability and durability — they do not meet the high standards of our military.”

Anyway, here's the whole ironic story in the NY Times. Maybe Canada's brave RCMP can go after these counterfeit death causing products.....consistent with their new zeal in enforcing antipiracy so that cute little girls don't die..... and so that the CACN will be happy....(Amazing, the resemblance of the content revealed by these two links).

Maybe the Russians should have respected IP sooner, and/or had better IP lawyers....

Then, the world might have been a better place ;-)

Given that the weapon has been around for 60 years (although it is constantly being improved), patent protection is out the question for the older versions, anyway. Mr. Kalashnikov himself says on a video on the NY Times site that "I am a child of the time when we didn't care about patents."

In Canada, oddly enough, the word "Kalashnikov" & Design was registered on November 30, 2006 as a trade-mark for vodka - another mainstay of the Russian export economy. The registration indicates that:

As per the applicant, the transliteration of the Russian characters is KALASHNIKOV. We have been advised that the word "KALASHNIKOV" has no meaning in English or French.

And oddly enough, there are two applications for "AK-47" & design for various beverages, including, oddly enough, vodka.

Anyway, back to machine guns. We must respect creators, as certain of my colleagues constantly remind the Government, the Courts, and the Copyright Board.

After all, we wouldn't want people being killed by counterfeit Kalashnikovs, would we? If we really respect IP, not to mention health and safety issues, they ought to be killed by the real thing....

More to come on counterfeiting in due course....

HK

Organized Crime and Organized Conflation for the Nation

In a glossy report entitled "Out of the Shadows" that ranges far and wide from drugs to tobacco smuggling to motorcycle gangs to human trafficking and to - you guessed it - intellectual property, the Ontario Association of Chiefs of Police has joined the bandwagon of conflating IP "crime" with all manner of organized evil. Our police chiefs copied (or was it fair dealing?) a good chunk of their material on IP from the Canadain Anti- Counterfeiting Coaltion ("CACN") FAQ, where it says:

How can I ensure that the product I’m buying is not counterfeit?

Some indicators to watch for include the price being much lower than average, spelling mistakes on the product or packaging, products that are normally sold in packages being sold individually, shoddy appearance of the product or package, or products (particularly electrical products) that have no name brand. In addition, if you buy products from a reputable retailer, there’s less chance they will be counterfeit.

I can't be bothered to do the side by side, since the police chiefs have made their presentation non cut-and-pastable. (Too bad for access to knowledge). It's at page 21 of their report.

And for a little melodrama - and the evident source of the police chief's wording, see this touching poster from the CACN of an adorable young child whose life is threatened by such things as a price being "much lower than average."

One GOOD thing about the police version of things is that they only say that counterfeiting is costing the Canadian economy a billion a year - a far cry from Ambassador Wilkins outrageous pronouncement of up to $30 billion.

The police chiefs are clearly concerned with organized crime. And rightly so.

But the risk of conflating "patent, trademark [sic] and copyright infringements" with all of the rest of the litanies of organized evil belies not only an organized IP lobby but some real dangers for public policy.

Could the legitimate, time honoured and competitive practice of parallel importation (which by definition involves perfectly legitimate and authentic goods) get mixed up in policy makers' minds with the counterfeiting issue? Parallel imports are often sold at a price "much lower than average", simply because they enter the country other than via the "exclusive" Canadian distributor, having been legitimately bought abroad at a more favourable wholesale price than the Canadian exclusive distributor is able or willing to offer. This very issue just happens to be pending before the Supreme Court of Canada.

Anway, it seems as if this campaign will never end. Talk about "organized"!

And a Parliamentary Committee has already credulously bought into this, hook, line and sinker, as Michael Geist has duly documented.

BTW, here's a fact. And I'm not inciting, counseling, or encouraging anything here. Counterfeit "Rolex" watches for $10.00 and lots of other counterfeit brand name goods at really cheap prices are still flagrantly available in New York City - much more flagrantly, I daresay, than in Toronto or Montreal, for example, in Canada. This is more than ironic because the source of virtually all of the organized pressure on Canada is the US Government and its own lobby of organized multinationals.

In any event, don't just take my word on the issue of over-criminalizing IP infringement. Two of the leading thinkers and scholars of our time or any time in IP - namely, Sir Hugh Laddie and Bill Patry - have recently weighted in. See Bill's recent blog here.


HK

Avril Update

Thanks to Gordon Duggan, leader of Appopriationart.ca for making me aware of reports of a lawsuit against iTunes involving Avril's allegedly infringing song. The source of the reports appears to the the sometimes reliable Appleinsider site, here.

What is clearly NOT reliable is the suggestion that the Plaintiffs "could alternately collect $150,000 for every infringement and skim interest on the pre-judgment financial award, potentially forcing a significant payout."

Much as I decry statutory damages, they don't work that way. The award is up to $150,000 in the USA per work and NOT per infringing copy and the Plaintiff has the burden of proving that the infringement was done "willfuly" to escalate to that high figure. One can be quite confident that iTunes did not "willfully" peddle an infringing work, assuming Avril's song is ever held to be infringing, which is far from certain.

HK

Big News From Belgium

Belgium seems to be a country that loves high levels of copyright protection. So much so that it has, apparently, mistakenly unilaterally ratified the 1996 WIPO Treaties by itself. Belgium, of course, is part of the EU and the EU and all its members will do this ensemble, if and when they do it at all - which is long overdue and not necessarily a fait accomplit - but that's another story.

Meanwhile, according to Dugie Standeford at IP-Watch, a Belgian Court has ordered an ISP to install filtering software to stop the P2P delivery of music whose copyright is in the repertoire of the Belgian Society of Authors, Composers and Publishers (SABAM). They are being ordered to use the Audible Magic system.

This raises a host of privacy, technical, legal, and political issues. The decision will likely be appealed. It will be interesting to see how civil law courts approaches this type of issue.

But what I mainly wonder is simply whether the Court's solution can even work. And what will be the collateral damage in terms of restriction of P2P activity that is legitimate by anybody's measure, not mention privacy and network efficiency?

EFF, of course, is always ahead of the curve and has already looked carefully at Audible Magic and doesn't believe that the Audible Magic system will even be effective and that it will be easily defeasible.

Wnether these efforts to defeat would constitute illegal circumvention remains to be seen. But experience shows that, as the legendary John Gilmore famously said, "The Net treats censorship as damage and routes around it."

HK

Avril Lavigne - alleged infringer

Being sued for copyright infringement can be interesting if you are big time.

Avril is - of course- a big time international star.

And she's being sued. Her song is called "Girlfriend" and it goes on and on about "I wanna be your Girlfriend". She's being sued by members an old 70' s band called the Rubinoos, who had a song called "I Wanna Be Your Boyfriend." The two songs are side by side here. The songs are far from identical - but beyond that I won’t comment. The litigation is in the USA - where almost anything can happen in the courts.

Terry McBride of Nettwerk Managment - Avril’s manager and a real hero and leader of the Canadian Indies who broke with CRIA last year - talks rather frankly about the litigation in Billboard, here. Perhaps more frankly than he should - but I'm not his copyright lawyer. And he didn't ask me. And he’s a pretty smart guy. Interestingly, another one of his big star acts, Chantal Keviazuk has also been accusing Avril of song theft - though she hasn't sued.

The interesting thing is that I just heard the Boyfriend song on some MOR station in some commercial space I was in today - and I expect both songs will do really well now. Girlfriend is #8 on the Billboard Hot 100 list and doing really well.

Even George Harrison lost a big copyright infringement case over My Sweet Lord. It didn't hurt his career one bit.

As long as it doesn’t involve outright plagiarism, getting sued for copyright infringement is not necessarily bad for a super star’s career.

So everyone could win here. And the Rubinos may come out of obscurity and hopefully get a prettier web site.

As they sometimes say in show biz, all publicity is good publicity.....

HK