Euro-Excellence Inc. v. Kraft Canada Inc.
SUPREME COURT OF CANADA
The reasons of Binnie, Deschamps and Rothstein JJ. were delivered by
1 Rothstein J. –I have read the reasons of Bastarache J. While I agree with his conclusion, I am respectfully unable to agree with his analysis. I have three main concerns with his reasons.
2 This Court has repeatedly adopted Driedger’s approach to statutory interpretation:
Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.
(E. A. Driedger, Construction of Statutes (2nd ed. 1983), at p. 87; see also Bell ExpressVu Limited Partnership v. Rex,  2 S.C.R. 559, 2002 SCC 42, at para. 26; CCH Canadian Ltd. v. Law Society of Upper Canada,  1 S.C.R. 339, 2004 SCC 13, at para. 9.)
3 I am concerned that Bastarache J.’s approach in this case is inconsistent with this Court’s approach to statutory interpretation. The “modern” or “purposive” approach requires that the words of the statute “in their grammatical and ordinary sense” be read harmoniously with the objects of the Act. It does not, however, give judges licence to substitute their policy preferences for those of Parliament. This Court has consistently held that “copyright is a creature of statute and the rights and remedies provided by the Copyright Act are exhaustive”: see CCH, at para. 9; Théberge v. Galerie d’Art du Petit Champlain inc.,  2 S.C.R. 336, 2002 SCC 34, at para. 5; Bishop v. Stevens,  2 S.C.R. 467, at p. 477; Compo Co. v. Blue Crest Music Inc.,  1 S.C.R. 357, at pp. 372-73.In my respectful view, Bastarache J.’s reasons depart from this doctrine.
4 Throughout his reasons, Bastarache J. relies on a distinction between copyrighted works that are sold and works that are “merely incidental” to the item being sold. He concludes that since the Toblerone and Côte d’Or logos are merely incidental to the thing being sold (the chocolate bar), they do not receive copyright protection. I understand this distinction to be the crux of his analysis. However, I see no statutory authority for the proposition that “incidental” works are not protected by the Copyright Act, R.S.C. 1985, c. C-42. This Court’s holding in CCH confirms that all artistic works receive the protection of copyright if they meet the requisite standards of “skill and judgment”: CCH, at para. 16. The Copyright Act does not exempt so-called “incidental” works from its protection. Neither Bastarache J. nor any of the parties contest that the Côte d’Or and Toblerone logos resulted from exercises of skill and judgment. As such, they are legitimate subjects of copyright.
5 I note that the “incidental” approach is similar to the Australian approach to this issue. However, the Australian approach was prescribed by statute and not by judges. In 1998, the Australian Parliament made a deliberate policy decision to amend its Copyright Act 1968, (Cth.), No. 63, to exclude “accessories” from the domain of copyright for the purposes of parallel importation (Copyright Amendment Act (No. 1) 1998 (Cth.), No. 104, Schedule 2). Under s. 10(1) of the Australian Copyright Act 1968, as amended, an infringing work includes a work that was “imported without the licence of the owner of the copyright, [and] would have constituted an infringement of that copyright if the article had been made in Australia by the importer, but does not include: …(g) a non-infringing accessory whose importation does not constitute an infringement of that copyright”. The Australian Act defines “accessory” so as to include the labels and packaging that accompany an article. The Canadian Copyright Act, in contrast, has not exempted accessories or incidental works from the protection of copyright, and it is not for this Court to create such an exemption.
6 Even if one were to accept that “incidental” works are not protected under Canadian copyright law, it is not apparent from Bastarache J.’s reasons when a work will be considered “merely incidental”. The “reasonable consumer” test proposed at para. 94 offers little guidance on how to determine whether a work is “merely incidental”. Paragraph 95 draws a distinction between a small logo and a larger painting of that same logo on a t-shirt. However, according to Canadian copyright law, it is skill and judgment –not the size of the work – that determines whether a work receives protection under the Copyright Act.
7 To support his argument for the “incidental” approach to copyright law, Bastarache J. introduces a concept of “legitimate economic interests” to read down rights expressly granted by the Copyright Act.The term “legitimate economic interest” was used by this Court in Théberge, but in a different context. The legitimate economic interest described in Théberge was the right of the creator of an artistic work to receive a reward for that work. The issue in Théberge was whether the transferring of an artistic work from a paper backing to a canvas backing constituted reproduction contrary to the “legitimate economic interests” of the artist. Binnie J., for the majority, found that reproduction did not occur on the facts of that case. Binnie J.’s holding relied on the concepts of originality and reproduction, which are firmly rooted in the words of the Copyright Act.
8 In this case, Bastarache J. expands the concept of “legitimate economic interest” to exclude logos on wrappers from the domain of copyright. I find no authority in the Act or in our jurisprudence for Bastarache J.’stheory of “legitimate economic interests”. As this Court has often stated, “the rights and remedies provided by the Copyright Act are exhaustive”: CCH, at para. 9. I would not depart from this approach by introducing a new equitable doctrine of “legitimate economic interest” to read down the legislation.
9 I accept, of course, that the Copyright Act is to be given a purposive interpretation. However, I distinguish between an approach that is rooted in the words of the Act and the approach taken by my colleague Bastarache J. that involves reading words into the legislation that are at odds with Parliament’s intent.Section 64 of the Copyright Act, which can be found, along with the other relevant provisions of the Copyright Act, in the Appendix, addresses the very issue that is fundamental to my colleague’s approach: can a work of art appearing on a label and receiving trade-mark protection also be the subject of copyright protection?Parliament concluded that works can receive concurrent copyright and trade-mark protection.
10 To that end, Parliament adopted s. 64 of the current Act, which excludes certain functional articles from copyright protection, but affirms that copyright shall subsist in “a trade-mark or a representation thereof or a label”. Parliament enacted this provision after having turned its mind to the possibility of overlap between trade-mark and copyright law. Were the Court to hold that the Kraft labels cannot be subjects of trade-mark and copyright concurrently, we would be substituting a different policy preference from that chosen by Parliament.
11 It is for this reason that I must respectfully disagree with Bastarache J.’s attempted analogy between the present case and Kirkbi AG v. Ritvik Holdings Inc.,  3 S.C.R. 302, 2005 SCC 65. In Kirkbi, this Court held that trade-mark law cannot be leveraged to extend protection to subjects that are ordinarily the domain of patent law. Bastarache J. suggests that Kirkbi stands for the further proposition that the subjects of copyright law and trade-mark law must not overlap and that because it is trade-mark law that ordinarily protects market share and goodwill, copyright holders cannot use copyright to protect their market share or the goodwill associated with their brand.
12 I do not read Kirkbi as underpinning a broad doctrine of copyright misuse. Although the Court in Kirkbi cautioned against interpreting trade-mark law in a way that undermined the Patent Act, R.S.C. 1985, c. P-4, the decision in that case was anchored in the language of the Trade-marks Act, R.S.C. 1985, c. T-13, itself and not in a vague notion of trade-mark misuse. In Kirkbi, this Court held that the Trade-marks Act had expressly incorporated the “doctrine of functionality” in s. 13(2) of the Act (para. 42). LeBel J., writing for the Court, held that “[t]his doctrine recognizes that trade-marks law is not intended to prevent the competitive use of utilitarian features of products, but that it fulfills a source-distinguishing function”: Kirkbi, at para. 43. By incorporating the doctrine of functionality, s. 13(2) of the Trade-marks Act had precluded the granting of trade-mark protection to functional works, which are the subjects of patent law.
13 The difficulty in attempting to analogize this case and Kirkbi is that the Court in Kirkbi relied on a provision of the Trade-marks Act in order to find that there could be no overlap between trade-mark and patent. In contrast, s. 64(3)(b) of the Copyright Act permits a single work to be the subject of both copyright and trade-mark protection. In other words, Parliament has authorized an overlap between copyright and trade-mark. I do not doubt the wisdom of LeBel J.’s general statement, at para. 37 of Kirkbi, that it is important to bear in mind the “basic and necessary distinctions between different forms of intellectual property and their legal and economic functions”. However, this guiding principle must be qualified by the proviso: except where Parliament provides otherwise. Parliament has authorized concurrent copyright and trade-mark protection for labels. Until it provides otherwise, the courts are bound to conclude that a logo on a chocolate bar wrapper can receive concurrent trade-mark and copyright protection.
14 In my view, this case turns on a straightforward application of s. 27(2)(e) of the Copyright Act. The Kraft companies allege that Euro-Excellence Inc. is liable for secondary infringement under s. 27(2)(e). However, Kraft Canada Inc. has failed to establish “hypothetical infringement”, which is one of the three constitutive elements required to ground a claim under s. 27(2)(e). For Kraft Canada to succeed, it must show that Euro-Excellence imported works that would have infringed copyright if they had been made in Canada by the persons who made them. It fails to do so.
15 Under the Kraft companies’ argument, the putative “hypothetical infringers” (the persons who would have infringed copyright if they made the impugned works in Canada) are the Kraft parent companies, Kraft Foods Belgium SA (“KFB”) and Kraft Foods Schweiz AG (“KFS”). But KFB and KFS are also, respectively, the owners of the Côte d’Or and Toblerone copyrights at issue in this case. The copyright itself was not assigned to Kraft Canada. Therefore, to accept the Kraft companies’ argument, this Court would have to find that copyright owners can infringe their own copyright if they have licensed copyright to an exclusive licensee despite their retention of the copyright. In my view, the Copyright Act does not permit exclusive licensees to sue the copyright owner-licensor for infringement of its own copyright. If KFS or KFB had reproduced Kraft labels in Canada in violation of its licensing agreement with Kraft Canada, Kraft Canada’s only remedy would lie in breach of contract and not in copyright infringement. Because a copyright owner cannot be liable to its exclusive licensee for infringement, there is no hypothetical infringement and thus no violation of s. 27(2)(e) in this case by Euro-Excellence.
16 Bastarache J., at para. 75, suggests that on my reading of the Act, the Kraft companies could have circumvented the purposes of the Act by calling their agreements“assignments” rather than “exclusive licences”. However, the distinction between assignments and exclusive licences is important and meaningful. By granting an assignment, the copyright owner intends to bestow upon the assignee the full panoply of rights and interests reserved for copyright owners. An exclusive licence, by contrast, permits owners to convey to licensees a more limited interest in the copyright. In my respectful view, an approach that conflates exclusive licences and assignments must be rejected. By enabling copyright owners to grant an interest in copyright either by assignment or exclusive licence, Parliament intended to provide copyright owners with two qualitatively different mechanisms by which to transfer their interests in whole or in part. Disregarding the distinctions between the two would lead to an unjustifiable narrowing of the owner’s options in dealing with its interest.
Why there is no hypothetical infringement by KFS and KFB and therefore no secondary infringement by Euro-Excellence
17 Section 27 of the Copyright Act describes infringement under the Act. Section 27(1) describes what is known as “primary infringement”. It provides that:
It is an infringement of copyright for any person to do, without the consent of the owner of the copyright, anything that by this Act only the owner of the copyright has the right to do.
Section 3 sets out the catalogue of rights that the copyright owner possesses under the Act. These rights include the sole right to produce and reproduce copies of the copyrighted work. For the purposes of this case, primary infringement would have arisen if Euro-Excellence had produced copies of the Toblerone or Côte d’Or logos.
18 But Euro-Excellence does not want to produce labels with the Toblerone or Côte d’Or logos, and the Kraft companies have not alleged that it has done so. The Kraft companies seek to enjoin Euro-Excellence from importing into Canada works that have been produced lawfully in Europe by the Kraft parent companies, KFS and KFB.
19 The Kraft companies thus allege that Euro-Excellence has engaged in “secondary infringement” by importing for sale or distribution copies of KFS and KFB’s copyrighted works into Canada. Secondary infringement is dealt with under s. 27(2) of the Act. In CCH, at para. 81, this Court held that three elements must be proven to establish secondary infringement: (1) a primary infringement; (2) the secondary infringer should have known that he or she was dealing with a product of infringement; and (3) the secondary infringer sold, distributed or exposed for sale the infringing goods.Perhaps the most straightforward form of secondary infringement arises when one sells a copy of an infringing work. Under s. 27(2)(a), “[i]t is an infringement of copyright for any person to …sell …a copy of a work …that the person knows or should have known infringes copyright”.
20 Section 27(2)(e) stands out as an apparent exception to the rule in CCH that secondary infringement first requires primary infringement because, unlike s. 27(2)(a) to (d), it does not require actual primary infringement. Instead, it requires only hypothetical primary infringement. Under s. 27(2)(e),
It is an infringement of copyright for any person to …import …a copy of a work …that the person knows …would infringe copyright if it had been made in Canada by the person who made it.
Section 27(2)(e) substitutes hypothetical primary infringement for actual primary infringement. It is possible that the infringing imports may have been lawfully made outside of Canada. Still, they are deemed to infringe copyright if the importer has imported into Canada works that would have infringed copyright if those works had been made in Canada by the persons who made the works abroad.
21 The apparent purpose of s. 27(2)(e) is to give Canadian copyright holders an added layer of protection where the Canadian copyright holder does not hold copyright in that work in foreign jurisdictions. Section 27(2)(e) protects Canadian copyright holders against “parallel importation” by deeming an infringement of copyright even where the imported works did not infringe copyright laws in the country in which they were made. Without s. 27(2)(e), the foreign copyright holder who could manufacture the work more cheaply abroad could flood the Canadian market with the work, thereby rendering the Canadian copyright worthless. Section 27(2)(e) thus represents Parliament’s intention to ensure that Canadian copyright holders receive their just rewards even where they do not hold copyright abroad: see, e.g., Dictionnaires Robert Canada S.C.C. v. Librairie du Nomade Inc. (1987), 11 F.T.R. 44; A & M Records of Canada Ltd. v. Millbank Music Corp. (1984), 1 C.P.R. (3d) 354 (F.C.T.D.); Fly by Nite Music Co. v. Record Wherehouse Ltd.,  F.C. 386 (T.D.); Clarke, Irwin & Co. v. C. Cole & Co. (1960), 33 C.P.R. 173 (Ont. H.C.).
22 On the facts of this case, the Kraft companies have not made out all of the constitutive elements of a claim under s. 27(2)(e). Hypothetical infringement has not been established. The Kraft companies cannot prove that the impugned works imported and distributed by Euro-Excellence would have infringed copyright if they had been made in Canada by the persons who made them in Europe.
23 The persons who made the impugned copies of the works in Europe were the Kraft parent companies, KFB and KFS. However, KFB and KFS would not have infringed copyright if they had produced the Côte d’Or and Toblerone logos in Canada.
24 This is because KFB and KFS are, respectively, the owners of the Canadian copyright in the Côte d’Or and Toblerone logos. On the Kraft companies’ argument, KFB and KFS wouldbe the hypothetical copyright infringers. The Kraft companiesargue that KFB and KFS would have infringed copyright if they produced the copyrighted works in Canada because they had licensed the Toblerone and Côte d’Or copyrights to Kraft Canada. Accepting this argument would mean that KFB and KFS have infringed their own copyrights – a proposition that is inconsistent with copyright law and common sense. Under s. 27(1), infringement arises when a person, without the consent of the owner, does something that under the Act only the owner has the right to do. By definition, no person can simultaneously be owner and infringer of copyright: see also CCH, at para. 37.
25 The Kraft companies allege that KFB and KFS can, hypothetically, infringe copyright because they had licensed the exclusive rights to produce and reproduce the copyrighted works in Canada to Kraft Canada, their Canadian subsidiary. The Kraft companies thus assume that an exclusive licensee becomes the owner of the copyright and able to sue the licensor for infringement. This assumption is incorrect. Under the Copyright Act, exclusive licensees are not able to sue the owner-licensor for infringement. I arrive at this conclusion after considering the Copyright Act’s provisions on copyright ownership and licensing.
Licensing Under the Copyright Act
26 This case turns on the nature and scope of an exclusive licensee’s rights under the Copyright Act. An exclusive licence under copyright law exists when the following conditions are met: (a) the copyright owner (the licensor) permits another person (the licensee) to do something within the copyright; (b) the licensor promises not to give anyone else the same permission for the duration of the licence; and (c) the licensor itself promises not to do those acts that have been licensed to the licensee for the duration of the licence: Copyright Act, s. 2.7; see also D. Vaver, “The Exclusive Licence in Copyright” (1995), 9 I.P.J. 163, at pp. 164-65. The parties agree that the agreements between Kraft Canada and the Kraft parent companies are exclusive licence agreements.
27 Under the common law, a licensee does not enjoy property rights: “A licence is merely a permission to do that which would otherwise amount to trespass” (B. H. Ziff, Principles of Property Law (4th ed. 2006), at p. 270). In contrast, an assignee receives a property interest from the original owner and steps into the shoes of the owner with respect to those rights assigned. As the recipient of a property interest, the assignee enjoys a right against the world, including the right to sue others (including the assignor) in trespass.The licensee’s rights, on the other hand, are contractual, and the licensee is empowered only to sue the owner for breach of contract; it cannot sue in trespass: Ziff, at p. 270; R. E. Megarry, A Manual of the Law of Real Property (8th ed. 2002), at p. 475; see also Thomas v. Sorrell (1673), Vaughan 330, 124 E.R. 1098, at p. 1109.
28 A contextual reading of the Copyright Act reveals that Parliament has preserved the traditional distinction between assignees and licensees with some modification. Under the present Act, there is a distinction between “assignee”, “licensee” and “exclusive licensee”. An assignee possesses full ownership rights in the copyright with respect to the rights assigned. A non-exclusive licensee has no property rights in the copyright, and enjoys only contractual rights vis-à-vis the owner-licensor. As a result, it cannot sue for infringement. An exclusive licensee, on the other hand, has a limited property interest in the copyright. For reasons explained below, this limited property interest enables the exclusive licensee to sue third parties for infringement but precludes the exclusive licensee from suing the owner-licensor for infringement.
29 Under the Act, the nature of the assignee’s interest in the copyright is clear. Section 13(5) states expressly that assignees of copyright are, with the exception of moral rights, on equal footing with the original copyright owner:
Where, under any partial assignment of copyright, the assignee becomes entitled to any right comprised in copyright, the assignee, with respect to the rights so assigned, and the assignor, with respect to the rights not assigned, shall be treated for the purposes of this Act as the owner of the copyright, and this Act has effect accordingly.
The assignee of an interest in copyright is a copyright owner, and thus enjoys rights against the world, including the right to sue the assignor for infringement. This is because the assignor is no longer the owner of the copyright with respect to the right assigned. This is further reflected by the fact that, under s. 36(2), the assignee is not required to join the assignor as co-plaintiff in an action for copyright infringement. In light of these provisions, I have no difficulty inconcluding that an assignee, as a holder of a full property interest in copyright, can sue the assignor for copyright infringement.
30 The status of copyright licensees is different.Parliament has manifested its intent to preserve a distinction between assignees and licensees. There is no provision analogous to s. 13(5) that purports to put licensees or exclusive licensees on equal footing with copyright owners.
31 The Act does however elevate “exclusive licensees” above mere licensees. Exclusive licensees are not licensees in the common law sense because exclusive licensees under the Act do have a limited proprietary interest in the copyright that has been licensed to them. The rights of exclusive licensees are set out in ss. 2.7, 13(4), 13(6) and 13(7) of the Act. These provisions do not state expressly whether or not an exclusive licensee can sue the licensor for infringement. However, by necessary implication, they enable exclusive licensees to sue third parties but not the owner-licensor for copyright infringement.
32 Section 2.7 defines “exclusive licence” as “an authorization to do any act that is subject to copyright to the exclusion of all others including the copyright owner”. The deliberate choice of the term authorization is inconsistent with the granting of property or ownership rights. In CCH, at para. 38, this Court agreed that “authorize” meant “sanction, approve and countenance”. This is consistent with the common law definition of licence (i.e., permission to do something that would otherwise amount to an infringement).
33 Section 36(2) further suggests that an exclusive licensee does not possess a full property interest in the copyright. Section 36(1) enables exclusive licensees to suefor infringement, but s. 36(2) states that where “a person other than the copyright owner”, namely the exclusive licensee, sues for infringement, “the copyright owner must be made a party to those proceedings . . .”. In the present case, KFB and KFS were joined as co-plaintiffs throughout the proceedings. The requirement of joining the licensor to an infringement action suggests that the exclusive licensee does not have a full property interest in the copyright. If the exclusive licensee held a full property interest, it should not need to join the owner in an action for infringement because a property interest – which is a right against the world – implies the right to sue for infringement in one’s own name.
34 I recognize that other provisions of the Act suggest that exclusive licensees can acquire a property interest in the copyright. However, I am of the opinion that the property interest so acquired is limited and does not include an interest that defeats the ownership interest of the licensor or that could constitute the licensor an infringer of its own copyright.
35 Section 13(4) states:
The owner of the copyright in any work may assign the right, either wholly or partially, and either generally or subject to limitations relating to territory, medium or sector of the market or other limitations relating to the scope of the assignment, and either for the whole term of the copyright or for any other part thereof, and may grant any interest in the right by licence, but no assignment or grant is valid unless it is in writing signed by the owner of the right in respect of which the assignment or grant is made, or by the owner’s duly authorized agent.
Section 13(7) was enacted in 1997 to clarify the meaning of s. 13(4) with respect to exclusive licensees. It states that
For greater certainty, it is deemed always to have been the law that a grant of an exclusive licence in a copyright constitutes the grant of an interest in the copyright by licence.
The use of the term “grant of an interest” in ss. 13(4) and 13(7) would seem to refer to the granting of a property right. This language stands out in comparison to s. 2.7, which suggests that an exclusive licence is not a “grant of an interest” but rather a non-proprietary “authorization” to do something that would otherwise amount to infringement.
36 The “grant of an interest” referred to in ss. 13(4) and 13(7) meant “grant of a property interest”: Robertson v. Thomson Corp.,  2 S.C.R. 363, 2006 SCC 43. At para. 56 of that case, the majority of this Court adopted the following passage from Ritchie v. Sawmill Creek Golf & Country Club Ltd. (2004), 35 C.P.R. (4th) 163 (Ont. S.C.J.), at para. 20:
The “grant of an interest” referred to in s. 13(4) is the transfer of a property right as opposed to a permission to do a certain thing. The former gives the licensee the capacity to sue in his own name for infringement, the latter provides only a defence to claims of infringement. To the extent there was any uncertainty as to the meaning of “grant of an interest” and whether this section applied to non-exclusive licences, the issue was resolved in 1997 when the Copyright Act was amended to include s. 13(7)…. [Emphasis added.]
According to this Court’s decision in Robertson, the Act permits licensors to convey a property interest in the copyright to the exclusive licensee. However, neither Robertson nor the words of the Act delineate the precise scope of the exclusive licensee’s property interest.
37 In my view, the exclusive licensee’s property interest in the copyright is limited. An exclusive licence is not a complete assignment of copyright. The owner-licensor retains a residual ownership interest in the copyright. The owner-licensor’s residual ownership interest precludes it from being liable for copyright infringement. An owner-licensor is liable to its exclusive licensee for breach of the licensing agreement but not for copyright infringement.
38 In para. 75, Bastarache J. suggests that I have read down the words of s. 2.7 in order to reach this conclusion. And the Kraft companies argued that the words “to the exclusion of all others including the copyright owner” means that the exclusive licensee has standing to sue the owner-licensor for infringement. I would respectfully disagree with both. Section 2.7 must be interpreted with an eye to the other provisions of the Act. Section 2.7 states:
For the purposes of this Act, an exclusive licence is an authorization to do any act that is subject to copyright to the exclusion of all others including the copyright owner, whether the authorization is granted by the owner or an exclusive licensee claiming under the owner.
39 An exclusive licence is an “authorization to do any act that is subject to copyright”. Under s. 2 of the Act,
“copyright” means the rights described in
(a) section 3, in the case of a work,
Section 3 includes, inter alia, the right to produce and reproduce a work.
40 Section 2.7 is a definitional section, which enshrines the common law definition of exclusive licence in the Copyright Act. Section 2.7 defines an exclusive licence as an authorization to do any act that is a right described in s. 3 to the exclusion of all others including the copyright owner (i.e., the right to produce and reproduce a work to the exclusion of all others including the copyright owner). But it says nothing about the consequences of violating that exclusive right. Those consequences and remedies for a violation of an exclusive licence are dealt with in other provisions of the Act, e.g. ss. 27(1) and 36(1). As discussed above, when the definitional and liability provisions are read in context, the necessary conclusion is that an exclusive licensee may sue third parties for infringement, but not the owner of the copyright who is liable only for breach of contract.
41 Comparing the treatment of exclusive licensees and assignees under the Act supports this conclusion. If the exclusive licensee could sue the owner-licensor for infringement, then the rights of exclusive licensees would be identical to those of assignees. However, Parliament has clearly manifested its intent to treat exclusive licensees differently from copyright owners and assignees. First, Parliament used express language in putting assignees on equal footing with copyright owners, but refrained from doing the same with exclusive licensees (s. 13(5)). Second, unlike assignees, the exclusive licensee lacks the capacity to sue for infringement alone; it must join the owner-licensor as a party (s. 36(2)). Third, the language of s. 2.7 defining “exclusive licence” as an “authorization” suggests an interest short of ownership. These are all reasons why the Canadian Copyright Act should be interpreted so that an exclusive licensee’s property interest in a copyright is limited, such that the exclusive licensee does not have a right against the licensor-owner for infringement of the copyright owned by the licensor-owner.
42 The U.S. and the U.K. copyright regimes are helpful in elucidating the Canadian approach. Under U.S. copyright law, exclusive licensees have the right to sue the owner-licensor for infringement. U.K. copyright law, by contrast, does not permit exclusive licensees to sue the owner-licensor for infringement.
U.S. Copyright Law
43 Under U.S. copyright law, “the licensor may be liable to the exclusive licensee for copyright infringement, if the licensor exercises rights that have theretofore been exclusively licensed”:Nimmer on Copyright (loose-leaf), vol. 3, at pp. 12-58 and 12-59; United States Naval Institute v. Charter Communications, Inc., 936 F.2d 692 (2d Cir. 1991), at p. 695; Architectronics, Inc. v. Control Systems, Inc., 935 F.Supp. 425 (S.D.N.Y. 1996), at p. 434.
44 However, there are some notable differences between the American and the Canadian statutes. Under the U.S. Act (17 U.S.C. § 101), a “transfer of copyright ownership” is defined as
an assignment, mortgage, exclusive license, or any other conveyance, alienation or hypothecation of a copyright or of any of the exclusive rights comprised in a copyright, whether or not it is limited in time or place of effect, but not including a nonexclusive license.
Unlike the Canadian Act, the U.S. statute appears to put exclusive licensees on equal footing with assignees. Under U.S. copyright law, there would be no functional difference between an “exclusive license” and an “assignment”. The two terms had emerged from the 1909 Act, which had put assignees but not exclusive licensees on equal footing with copyright owners. That distinction has since been eliminated under the current Act: Nimmer on Copyright, at pp. 10-1 to 10-22. Because exclusive licensees are equated with copyright owners, the exclusive licensee can sue for infringement as an owner, which means that it can sue even the owner-licensor for copyright infringement.
U.K. Copyright Law
45 Under the Copyright, Designs and Patents Act 1988 (U.K.), 1988, c. 48, the exclusive licensee lacks the capacity to sue the copyright owner-licensor. Under s. 101(1) of the U.K. Act,
[a]n exclusive licensee has, except against the copyright owner, the same rights and remedies in respect of matters occurring after the grant of the licence as if the licence had been an assignment.
U.K. commentators have taken this provision to mean that “[t]he exclusive licensee may sue in his own name to restrain infringements occurring after the grant of the licence as if the licence had been an assignment”, and that“[e]xcept as against the owner of the right he has the same rights and remedies for infringement of the right as if the licence had been an assignment”: H. Laddie et al., The Modern Law of Copyright and Designs (3rd ed. 2000), vol. 1, at p. 905; see also L. Bently and B. Sherman, Intellectual Property Law (2nd ed. 2004), at pp. 254-55.Consequently, the exclusive licensee is able to sue third parties but not the owner-licensor for infringement: Griggs Group Ltd. v. Evans,  F.S.R. 31,  EWHC 2914 (Ch), at para. 58.
46 Although our Act is not explicit as is the U.K. Act in this regard, a contextual reading of the Canadian Act reveals that exclusive licensees lack the capacity to sue the owner-licensor for infringement. Our Act shares a number of similarities with the U.K. Act, including common origins. In Canada, The Copyright Act, 1921, S.C. 1921, c. 24, the precursor to the current Act, was based largely on the British Copyright Act, 1911, 1 & 2 Geo. 5, c. 46. Since the 1921 Act was enacted, there have been successive rounds of amendments, but our provisions on licensing and assignments are more similar to that of the U.K. than to the U.S.
47 Unlike the U.S. statute, which puts exclusive licensees on equal footing with assignees, the Canadian and U.K. Acts preserve the distinction between exclusive licensees and assignees. Whereas the U.S. statute permits transfers of copyright ownership by way of exclusive licence, the U.K. Act states that a transfer of ownership in copyright can occur only “by assignment, by testamentary disposition or by operation of law, as personal or moveable property” (s. 90(1)). Similarly, s. 13(5) of the Canadian Act states that only the assignee “shall be treated for the purposes of this Act as the owner of the copyright”. On their face, the Canadian and U.K. statutes do not permit transfer of copyright ownership by exclusive licence.
48 Moreover, the Canadian and U.K. Acts define exclusive licence in similar terms. Section 92(1) of the U.K. Act states:
In this Part an “exclusive licence” means a licence in writing signed by or on behalf of the copyright owner authorising the licensee to the exclusion of all other persons, including the person granting the licence, to exercise a right which would otherwise be exercisable exclusively by the copyright owner.
This definition is almost identical to s. 2.7 of the Canadian Act. These similarities between the the Canadian and U.K. Acts suggest that our Parliament has created a copyright licensing regime similar to that of the U.K. If our Parliament had wanted exclusive licensees to be able to sue the owner-licensor for infringement, it would have put exclusive licensees on equal footing with assignees (as the U.S. Congress has done under its Act) or given exclusive licensees this right in the words of the legislation. The fact that our Parliament has retained a distinction between exclusive licensees and assignees suggests that exclusive licensees under our Act have a limited property interest in the copyright that falls short of ownership. The procedural machinery of the Act enables the exclusive licensee to sue third parties for infringement. However, the owner-licensor is liable to the exclusive licensee only in contract.
49 To establish a claim under s. 27(2)(e) against Euro-Excellence, Kraft Canada must show that the makers of the impugned works – the Kraft parent companies – would have infringed copyright if they had made the Toblerone and Côte d’Or labels in Canada instead of Europe. Under the exclusive licence agreements, the Kraft parent companies are not permitted to produce or reproduce the copyrighted works in Canada. However, if, hypothetically, KFS were to produce a copy of a Toblerone logo in Canada, Kraft Canada’s only remedy would lie in breach of contract. As owners of the Canadian copyright in the Toblerone and Côte d’Or logos, the Kraft parent companies cannot infringe their own copyright. Although Kraft Canada, as an exclusive licensee, has a property interest in the copyright that enables it to sue third parties for infringement, the Kraft parent companies retain a residual ownership interest in the copyright, which preventsKraft Canada from suingthem for infringement. Kraft Canada has thus failed to establish “hypothetical infringement”, which is necessary to ground a claim against Euro-Excellence under s. 27(2)(e).
50 The Canadian Copyright Act does not extend protection against parallel importation to exclusive licensees. Section 27(2)(e) of the Copyright Act, read in context with the provisions discussed above, shows that an exclusive licensee cannot sue for secondary infringement where the licensor is the hypothetical infringer because the owner-licensor cannot infringe its own copyright and cannot be sued for copyright infringement. If Parliament decides that this result is problematic, it can amend the Copyright Act. In the meantime, this Court must apply the Act that Parliament has given us.
Appeal allowed with costs, McLachlin C.J. and Abella J. dissenting.
Solicitor for the appellant:François Boscher, Montréal.
Solicitors for the respondents:Sim, Lowman, Ashton & McKay, Toronto.
Solicitors for the intervener the Retail Council of Canada:Macera & Jarzyna, Ottawa.
Solicitors for the intervener the Alliance of Manufacturers & Exporters Canada: Gowling Lafleur Henderson, Toronto.
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