SUPREME COURT OF CANADA

Citation: Euro‑Excellence Inc. v. Kraft Canada Inc., [2007] 3 S.C.R. 20, 2007 SCC 37

Date: 20070726

Docket: 31327

Between:

Euro‑Excellence Inc.

Appellant

and

Kraft Canada Inc., Kraft Foods Schweiz AG and Kraft Foods Belgium SA

Respondents

‑ and ‑

Retail Council of Canada and Alliance of Manufacturers & Exporters Canada

Interveners

Coram: McLachlin C.J. and Bastarache, Binnie, LeBel, Deschamps, Fish, Abella, Charron and Rothstein JJ.

Reasons for Judgment: (paras. 1 to 51)

Concurring Reasons: (paras. 52 to 56)

Reasons Concurring in the Result: (paras. 57 to 106)

Dissenting Reasons: (paras. 107 to 130)

Rothstein J. (Binnie and Deschamps JJ. concurring)

Fish J.

Bastarache J. (LeBel and Charron JJ. concurring)

Abella J. (McLachlin C.J. concurring)

Euro‑Excellence Inc. v. Kraft Canada Inc., [2007] 3 S.C.R. 20, 2007 SCC 37

Euro‑Excellence Inc. Appellant

Kraft Canada Inc., Kraft Foods Schweiz AG and Kraft Foods Belgium SA Respondents

and

Retail Council of Canada and Alliance of Manufacturers & Exporters Canada Interveners

Indexed as: Euro‑Excellence Inc. v. Kraft Canada Inc.

Neutral citation: 2007 SCC 37.

File No.: 31327.

2007: January 16; 2007: July 26.

Present: McLachlin C.J. and Bastarache, Binnie, LeBel, Deschamps, Fish, Abella, Charron and Rothstein JJ.

on appeal from the federal court of appeal

Intellectual property — Copyright — Infringement — Secondary infringement — Exclusive licences — Exclusive Canadian distributor of imported chocolate bars bringing copyright infringement action against unauthorized distributor of bars after logos were registered in Canada as copyrighted artistic works — Whether Canadian distributor can establish hypothetical primary infringement — Whether chocolate bar can be copyrighted because of protected works appearing on its wrapper — Whether accessories or incidental works exempted from copyright protection — Copyright Act, R.S.C. 1985, c. C‑42, s. 27(2)(e).

KCI is the exclusive Canadian distributor of Côte d’Or and Toblerone chocolate bars in Canada for its parent companies KFB and KFS. Notwithstanding the exclusivity agreements, Euro continued to import and distribute Côte d’Or and Toblerone bars which it had acquired in Europe. In 2002, in order to allow KCI to mount the present case, KFB registered three Côte d’Or logos in Canada as copyrighted artistic works and granted KCI an exclusive licence in the works as used in association with confectionary products. KFS did the same with two Toblerone logos. KCI then called upon Euro to cease and desist distribution of any product to which the copyrighted works were affixed. When Euro refused, KCI brought an action against Euro alleging that it had engaged in secondary infringement under s. 27(2) of the Copyright Act by importing copies of KFS and KFB’s copyrighted works into Canada for sale or distribution. KCI does not rely on its rights as a trade‑mark holder. At trial, KCI was awarded $300,000 in damages and Euro was restrained from selling, distributing, exposing or offering for sale any copies of the copyrighted logos. It was also ordered to render the product non‑infringing. KCI’s motion for reconsideration was refused. The Federal Court of Appeal refused an appeal on the merits, but referred the matter of damages back to the trial judge. On hearing further submissions, the trial judge confirmed his original award.

Held (McLachlin C.J. and Abella J. dissenting): The appeal should be allowed.

Per Binnie, Deschamps and Rothstein JJ.: The Copyright Act does not exempt incidental works from the protection of copyright, and it is not for this Court to create such an exemption. The rights and remedies provided by the Copyright Act are also exhaustive. All artistic works, including logos, receive the protection of copyright if they meet the requisite standards of “skill and judgment”, and there is no dispute in this case that the logos in question are legitimate subjects of copyright. The Copyright Act does not support the introduction of a new equitable doctrine of “legitimate economic interest” to read down the legislation and to exclude logos on wrappers from the domain of copyright. In enacting s. 64(3)(b) of the Act, Parliament has authorized concurrent copyright and trade‑mark protection for labels. Until Parliament provides otherwise, the courts are bound to conclude that a logo on a chocolate bar wrapper can receive concurrent trade‑mark and copyright protection. [4‑5] [8] [13]

This case turns on a straightforward application of s. 27(2)(e) of the Copyright Act. For KCI to succeed, it must show that Euro imported works that would have infringed copyright if they had been made in Canada by the persons who made them. However, this hypothetical primary infringement cannot be established in this case. KFB and KFS made the impugned copies of the works in Europe. They would not have infringed copyright if they had produced the Côte d’Or and Toblerone logos in Canada because they are, respectively, the owners of the Canadian copyright in those logos. 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. [14‑15] [20] [23‑24]

Section 27(2)(e) of the Copyright Act, read in context with the definitional and liability provisions, leads to the necessary conclusion that an exclusive licensee may sue third parties for infringement, but not the owner‑licensor of the copyright. The exclusive licensee’s only remedy against the owner‑licensor lies in contract. Although the Act elevates exclusive licensees above mere licensees and permits exclusive licensees to acquire a limited property interest in the copyright, the treatment of exclusive licensees and assignees under the Act clearly manifests Parliament’s intent to treat exclusive licensees differently from copyright owners and assignees. First, express statutory language puts assignees on an equal footing with copyright owners, but no similar language applies to exclusive licensees. Second, unlike assignees, the exclusive licensee lacks the capacity to sue for infringement without joining the owner‑licensor as a party. Third, the language of s. 2.7 defining “exclusive licence” as an “authorization” suggests an interest short of ownership. Had Parliament wanted exclusive licensees to be able to sue the owner‑licensor for infringement, it would have put exclusive licensees on an equal footing with assignees or given exclusive licensees this right in the words of the legislation. [15] [31] [40‑41] [48] [50]

Per Fish J.: There is agreement with Rothstein J.’s reasons, but, without so deciding, grave doubt was expressed as to whether the law governing the protection of intellectual property rights in Canada can be transformed into an instrument of trade control not contemplated by the Copyright Act, as KCI seeks to do. [56]

Per Bastarache, LeBel and Charron JJ.: The merely incidental presence of the copyrighted works on the wrappers of the chocolate bars does not bring the chocolate bars within the protections offered by the Copyright Act. Section 27(2) of the Act, which prohibits parallel importation into Canada of copyrighted works, cannot be used to prevent Euro from importing genuine Côte d’Or and Toblerone chocolate bars into Canada for the purpose of selling, renting, distributing or trading, on the basis that the logos are copyrighted. [57]

The Copyright Act ought to be interpreted with an eye to the internal coherence of its own scheme and consistently with the Trade‑marks Act. Trade‑mark law protects market share in commercial goods, whereas copyright protects the economic gains resulting from an exercise of skill and judgment. The law of copyright should not be used to protect market share if that requires contorting it outside its normal sphere of operation where the economic interest at stake is only tangentially related to the copyrighted work. [83]

Section 27(2) is meant to protect authors from the unauthorized appropriation of the gains of their authorship, but this protection does not extend to include any and all economic gains claimed by an author or copyright owner. If the work in question is merely incidental to another consumer good, and it is that consumer good which is being sold or distributed, or dealt with by way of trade, s. 27(2) cannot be invoked. It is only when it is the work itself which is the subject of the sale or other commercial dealing that it can properly be said that the section applies and its protection becomes available. Section 27(2) is not meant to protect manufacturers from the unauthorized importation of consumer goods on the basis of their having a copyrighted work affixed to their wrapper, this work being merely incidental to their value as consumer goods. The rights transferred to a licensee must be limited in the same way as those of the original creator of the work to the legitimate economic interests resulting from the exercise of skill and judgment. [80] [90] [97]

Liability under s. 27(2)(e) relies on a finding that the defendant intended to commit an act enumerated in s. 27(2)(a) to (c): selling or renting out copies of a work, distributing copies of a work with prejudicial effect, or dealing with copies of a work by way of trade. If a reasonable consumer undertaking a commercial transaction does not think that the copyrighted work is what he or she is buying or dealing with, it is likely that the work is merely incidental to the consumer good and that s. 27(2) cannot be invoked. [90] [93‑94]

There is agreement with the minority that, had s. 27(2) of the Copyright Act been applicable in this case, the exclusive licensee would have been able to sue the owner‑licensor of the copyright. [75]

Per McLachlin C.J. and Abella J. (dissenting): KCI has the right to seek remedies under the Copyright Act to prevent Euro from selling or distributing the copyrighted works (the logos). First, the copyrighted work is being “sold” or “distributed” when it is printed on the wrapper of a consumer product. There is nothing in the Act to endorse a restrictive definition of “sell” and s. 64(3)(b) of the Act extends copyright protection to trade‑marks and labels. Once a work falls within s. 27(2)(a) to (c) and is otherwise entitled to copyright protection, the Act grants no scope for judicially created limits to that protection based on whether the logos on the wrapper are “incidental” or whether the copyright holder has a “legitimate economic interest”. Second, an exclusive licensee in Canada can claim protection against secondary infringement when the copyrighted work was produced by the owner‑licensor. Where the owner of a copyright has granted an exclusive licence, it has temporarily granted a proprietary interest in the copyright itself to the exclusive licensee (s. 13(7)). The scope of the precise interest granted is shaped by the terms of the licensing agreement. Here, the agreement grants KCI the sole and exclusive right, in Canada, to produce, reproduce, use, distribute, and sell the products. These terms, read together with the rights granted to an exclusive licensee in ss. 2.7 and 13(7) of the Copyright Act, as well as the rights in s. 36(1) to protect and enforce its rights and interests through remedies provided by that Act, give the exclusive licensee the right to invoke the Act for copyright infringement not only against third parties, but also against the owner‑licensor. An owner‑licensor is, technically, still the owner of the copyright, but it is nonetheless liable to an exclusive licensee if it breaches the copyright interest it has granted. [108‑109] [118] [121‑123] [128]

Cases Cited

By Rothstein J.

Distinguished: Théberge v. Galerie d’Art du Petit Champlain inc., [2002] 2 S.C.R. 336, 2002 SCC 34; Kirkbi AG v. Ritvik Holdings Inc., [2005] 3 S.C.R. 302, 2005 SCC 65; referred to: Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559, 2002 SCC 42; CCH Canadian Ltd. v. Law Society of Upper Canada, [2004] 1 S.C.R. 339, 2004 SCC 13; Bishop v. Stevens, 1990 CanLII 75 (SCC), [1990] 2 S.C.R. 467; Compo Co. v. Blue Crest Music Inc., 1979 CanLII 6 (SCC), [1980] 1 S.C.R. 357; Dictionnaires Robert Canada S.C.C. v. Librairie du Nomade Inc. (1987), 1987 CanLII 9783 (FC), 11 F.T.R. 44; A & M Records of Canada Ltd. v. Millbank Music Corp. (1984), 1984 CanLII 5870 (FC), 1 C.P.R. (3d) 354; Fly by Nite Music Co. v. Record Wherehouse Ltd., [1975] F.C. 386; Clarke, Irwin & Co. v. C. Cole & Co. (1960), 1960 CanLII 137 (ON SC), 33 C.P.R. 173; Thomas v. Sorrell (1673), Vaughan 330, 124 E.R. 1098; Robertson v. Thomson Corp., [2006] 2 S.C.R. 363, 2006 SCC 43; Ritchie v. Sawmill Creek Golf & Country Club Ltd. (2004), 2004 CanLII 21366 (ON SCDC), 35 C.P.R. (4th) 163; United States Naval Institute v. Charter Communications, Inc., 936

F.2d 692 (1991); Architectronics, Inc. v. Control Systems, Inc., 935 F.Supp. 425 (1996); Griggs Group Ltd. v. Evans, [2004] F.S.R. 31, [2003] EWHC 2914.

By Fish J.

Referred to: Robertson v. Thomson Corp., [2006] 2 S.C.R. 363, 2006 SCC 43.

By Bastarache J.

Referred to: R. & A. Bailey & Co. v. Boccaccio Pty. Ltd. (1986), 84 F.L.R. 232; CCH Canadian Ltd. v. Law Society of Upper Canada, [2004] 1 S.C.R. 339, 2004 SCC 13; Théberge v. Galerie d’Art du Petit Champlain inc., [2002] 2 S.C.R. 336, 2002 SCC 34; Society of Composers, Authors and Music Publishers of Canada v. Canadian Assn. of Internet Providers, [2004] 2 S.C.R 427, 2004 SCC 45; Kirkbi AG v. Ritvik Holdings Inc., [2005] 3 S.C.R. 302, 2005 SCC 65; AstraZeneca Canada Inc. v. Canada (Minister of Health), [2006] 2 S.C.R. 560, 2006 SCC 49; British Leyland Motor Corp. v. Armstrong Patents Co., [1986] 1 All E.R. 850; Houle v. Canadian National Bank, 1990 CanLII 58 (SCC), [1990] 3 S.C.R. 122; Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (SCC), [1997] 3 S.C.R. 701.

By Abella J. (dissenting)

Théberge v. Galerie d’Art du Petit Champlain inc., [2002] 2 S.C.R. 336, 2002 SCC 34; Compo Co. v. Blue Crest Music Inc., 1979 CanLII 6 (SCC), [1980] 1 S.C.R. 357; Bishop v. Stevens, 1990 CanLII 75 (SCC), [1990] 2 S.C.R. 467; CCH Canadian Ltd. v. Law Society of Upper Canada, [2004] 1 S.C.R. 339, 2004 SCC 13; Bouchet v. Kyriacopoulos (1964), 1964 CanLII 1285 (CA EXC), 45 C.P.R. 265; Robertson v. Thomson Corp., [2006] 2 S.C.R. 363, 2006 SCC 43; Éditions de la Table ronde s.a. v. Cousture, [1995] Q.J. No. 1519 (QL); Dynabec Ltée v. Société d’informatique R.D.G. Inc. (1985), 1985 CanLII 6418 (QC CA), 6 C.P.R. (3d) 322; Fonds Gabrielle Roy v. Éditions internationales Alain Stanké ltée, [1993] Q.J. No. 2525 (QL); British Actors Film Co. v. Glover, [1918] 1 K.B. 299.

Statutes and Regulations Cited

17 U.S.C. § 101.

Patent Act, R.S.C. 1985, c. P‑4.

Trade‑marks Act, R.S.C. 1985, c. T‑13, s. 13(2).

Authors Cited

Bently, L., and B. Sherman. Intellectual Property Law, 2nd ed. Oxford: Oxford University Press, 2004.

Côté, Pierre‑André. The Interpretation of Legislation in Canada, 3rd ed. Scarborough, Ont.: Carswell, 2000.

Drassinower, Abraham. “Taking User Rights Seriously”. In Michael Geist, ed., In the Public Interest: The Future of Canadian Copyright Law. Toronto: Irwin Law, 2005, 462.

Driedger, Elmer A. Construction of Statutes, 2nd ed. Toronto: Butterworths, 1983.

Judge, Kathryn. “Rethinking Copyright Misuse” (2004), 57 Stan. L. Rev. 901.

Laddie, Hugh, et al. The Modern Law of Copyright and Designs, vol. 1, 3rd ed. London: Butterworths, 2000.

McKeown, John S. Fox on Canadian Law of Copyright and Industrial Designs, 4th ed. Toronto: Thomson/Carswell, 2003 (loose‑leaf updated 2007, release 1).

Megarry, Robert Edgar. A Manual of the Law of Real Property, 8th ed. by A. J. Oakley. London: Sweet & Maxwell, 2002.

Nimmer, Melville B., and David Nimmer. Nimmer on Copyright, vol 3. New York: Matthew Bender, 1981 (loose‑leaf updated December 2002, release 59).

Scassa, Teresa. “Using Copyright Law to Prevent Parallel Importation: A Comment on Kraft Canada, Inc. v. Euro Excellence, Inc.” (2006), 85 Can. Bar Rev. 409.

Tamaro, Normand. The 2006 Annotated Copyright Act. Toronto: Thomson Carswell, 2006.

Vaver, David. “The Exclusive Licence in Copyright” (1995), 9 I.P.J. 163.

Ziff, Bruce H. Principles of Property Law, 4th ed. Toronto: Thomson Carswell, 2006.

APPEAL from a judgment of the Federal Court of Appeal (Desjardins, Noël and Pelletier JJ.A.), [2006] 3 F.C.R. 91, 265 D.L.R. (4th) 555, 346 N.R. 104, 47 C.P.R. (4th) 113, [2005] F.C.J. No. 2082 (QL), 2005 FCA 427, reversing in part a decision of Harrington J., [2004] 4 F.C.R. 410, 252 F.T.R. 50, 33 C.P.R. (4th) 246, [2004] F.C.J. No. 804 (QL), 2004 FC 652. Appeal allowed, McLachlin C.J. and Abella J. dissenting.

François Boscher and Pierre‑Emmanuel Moyse, for the appellant.

Timothy M. Lowman and Kenneth D. McKay, for the respondents.

Howard P. Knopf and Elizabeth G. Elliott, for the intervener the Retail Council of Canada.

R. Scott Jolliffe and James H. Buchan, for the intervener the Alliance of Manufacturers & Exporters Canada.

The reasons of Binnie, Deschamps and Rothstein JJ. were delivered by

1Rothstein 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.

(1) The Concerns

2This 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, [2002] 2 S.C.R. 559, 2002 SCC 42, at para. 26; CCH Canadian Ltd. v. Law Society of Upper Canada, [2004] 1 S.C.R. 339, 2004 SCC 13, at para. 9.)

3I 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., [2002] 2 S.C.R. 336, 2002 SCC 34, at para. 5; Bishop v. Stevens, 1990 CanLII 75 (SCC), [1990] 2 S.C.R. 467, at p. 477; Compo Co. v. Blue Crest Music Inc., 1979 CanLII 6 (SCC), [1980] 1 S.C.R. 357, at pp. 372-73. In my respectful view, Bastarache J.’s reasons depart from this doctrine.

4Throughout 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.

5I 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.

6Even 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.

7To 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.

8In 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.’s theory 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.

9I 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.

10To 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.

11It 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., [2005] 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.

12I 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.

13The 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.

(2) The Purposive Approach to the Copyright Act

Overview

14In 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.

15Under 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.

16Bastarache 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.

18But 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.

19The 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”.

20Section 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.

21The 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), 1987 CanLII 9783 (FC), 11 F.T.R. 44; A & M Records of Canada Ltd. v. Millbank Music Corp. (1984), 1984 CanLII 5870 (FC), 1 C.P.R. (3d) 354 (F.C.T.D.); Fly by Nite Music Co. v. Record Wherehouse Ltd., [1975] F.C. 386 (T.D.); Clarke, Irwin & Co. v. C. Cole & Co. (1960), 1960 CanLII 137 (ON SC), 33 C.P.R. 173 (Ont. H.C.).

22On 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.

23The 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.

24This 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 would be the hypothetical copyright infringers. The Kraft companies argue 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.

25The 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

26This 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.

27Under 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.

28A 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.

29Under 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 in concluding that an assignee, as a holder of a full property interest in copyright, can sue the assignor for copyright infringement.

30The 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.

31The 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.

32Section 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).

33Section 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 sue for 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.

34I 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.

35Section 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.

36The “grant of an interest” referred to in ss. 13(4) and 13(7) meant “grant of a property interest”: Robertson v. Thomson Corp., [2006] 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), 2004 CanLII 21366 (ON SCDC), 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.

37In 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.

38In 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.

39An 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.

40Section 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.

41Comparing 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.

42The 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

43Under 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.

44However, 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

45Under 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, [2004] F.S.R. 31, [2003] EWHC 2914 (Ch), at para. 58.

46Although 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.

47Unlike 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.

48Moreover, 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.

(3) Application to This Case

49To 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 prevents Kraft Canada from suing them 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).

50The 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.

51As there is no hypothetical primary infringement, Euro-Excellence cannot have engaged in secondary infringement. I would allow the appeal with costs in this Court and in the courts below.

The following are the reasons delivered by

52Fish J. — I agree with the reasons of Justice Rothstein and would dispose of the appeal as he suggests.

53Had it been necessary to do so, I would have been inclined to determine whether the appellant is in any event entitled to succeed on its alternative ground relating to the integrity of Canadian law regarding intellectual property rights.

54Kraft Foods Belgium SA and Kraft Foods Schweiz AG manufacture and sell chocolate packaged in Europe. The issue in this case is whether the Copyright Act, R.S.C. 1985, c. C-42, entitles them to prevent the sale in Canada of that very same chocolate, packaged exactly as it was when they sold it. Their claim that it does is based on agreements between commonly owned corporations — agreements that have more to do with a monopoly on the sale in Canada of those chocolates than with copyright protection of the “works” that appear on the package. In virtue of identical and simultaneous agreements, and for a nominal amount of $1,000 in each instance, Kraft Belgium and Kraft Schweiz granted Kraft Canada exclusive licences to use those “works”.

55I think it worth noting that the trial judge, in upholding Kraft’s claim, proceeded on the assumption that “the sole purpose of [Kraft Belgium and Kraft Schweiz] registering copyright in Canada and then assigning rights to Kraft Canada Inc. was to mount the very attack upon [Euro‑Excellence] which is currently before this Court” (Kraft Canada Inc. c. Euro Excellence Inc., [2004] 4 F.C.R. 410, 2004 FC 652, at para. 44 (emphasis added)). For the true purpose of the Copyright Act, see Robertson v. Thomson Corp., [2006] 2 S.C.R. 363, 2006 SCC 43, at para. 69.

56Without so deciding, I express grave doubt whether the law governing the protection of intellectual property rights in Canada can be transformed in this way into an instrument of trade control not contemplated by the Copyright Act.

The reasons of Bastarache, LeBel and Charron JJ. were delivered by

Bastarache J. —

Introduction

57Can a chocolate bar be copyrighted because of protected works appearing on its wrapper? In particular, can s. 27(2) of the Copyright Act, R.S.C. 1985, c. C-42, which prohibits parallel importation into Canada of copyrighted works, be used by the respondent Kraft Canada Inc. to prevent the appellant, Euro-Excellence Inc., from, in the words of s. 27(2), importing, for the purpose of selling, renting, distributing or trading, genuine Toblerone and Côte d’Or chocolate bars into Canada, without obscuring the logos of those chocolate bars, on the basis that the logos are copyrighted? I conclude that it cannot. Both s. 27(2) and the Copyright Act as a whole are about the protection of copyrighted works, not about the importation and sale of consumer goods in general. The merely incidental presence of the copyrighted works on the wrappers of the chocolate bars does not bring the chocolate bars within the protections offered by the Copyright Act. This appeal is allowed for the reasons set out below.

II. Facts

58Kraft Foods Belgium SA (“KFB”) and Kraft Foods Schweiz AG (“KFS”) make Côte d’Or and Toblerone chocolate bars in, respectively, Belgium and Switzerland. Kraft Canada Inc. (“KCI”) has distributed Toblerone bars in Canada as exclusive Canadian distributor since 1990. KCI was an authorized Canadian distributor of Côte d’Or bars before 1997, and in 2001 entered into an exclusive agreement to distribute the bars in Canada.

59Euro-Excellence also imports both Toblerone and Côte d’Or bars into Canada and distributes those bars here. Beginning in 1993, Euro-Excellence was an authorized distributor of Côte d’Or bars, and for a period of approximately three years ending in 2000, Euro-Excellence was the exclusive Canadian distributor of Côte d’Or bars; that distribution contract was not renewed. Since 2000, Euro-Excellence has been importing genuine Côte d’Or bars as an unauthorized distributor. In 2001, Euro-Excellence began importing and distributing genuine Toblerone bars, also on an unauthorized basis.

60Thus, from 2001 until the present litigation commenced, KCI was the exclusive licensed Canadian distributor of both Côte d’Or and Toblerone bars (that is, KCI had exclusive importation and distribution contracts with KFB and KFS, respectively). Notwithstanding these exclusivity agreements, Euro-Excellence continued to import and distribute both Côte d’Or and Toblerone bars which it had acquired legally in Europe. Euro-Excellence was successful enough in its distribution of the chocolate bars to give KCI cause to attempt to find a way to prevent Euro-Excellence from importing and distributing them.

61It is not contested that KCI is the owner in Canada of the trade-marks “Côte d’Or” and “Toblerone.” KCI does not rely in this dispute on its rights as trade-mark holder.

62On October 25, 2002, KFB registered three Côte d’Or logos in Canada as copyrighted works in the artistic category. That same day, a licensing agreement between KFB and KCI was also registered, pursuant to which KCI purported to acquire

the sole and exclusive right and license in the Territory to produce, reproduce and adapt the Works or any substantial part thereof, in any material form whatever, and to use and publicly present the Works in association with the manufacture, distribution or sale in Canada of confectionary products, including, but not limited to, chocolate.

The agreement provided that KCI pay KFB $1,000 per year for the licence.

63Also on October 25, 2002, KFS registered two Toblerone logos in Canada as copyrighted works in the artistic category, and entered into a substantially similar licensing agreement with KCI. Again, KCI was to pay $1,000 per year for the licence.

64Armed with these new copyrights, KCI called upon Euro-Excellence to cease and desist distribution of any product to which the copyrighted works were affixed. When Euro-Excellence refused, KCI brought this action.

III. Judicial History

A. Federal Court, [2004] 4 F.C.R. 410, 2004 FC 652

65In the Federal Court, Harrington J. described KCI’s copyright action as an “interesting strategy in an effort to thwart Euro-Excellence’s distribution of” the chocolate bars (para. 4). (I will henceforth refer to the Côte d’Or and Toblerone bars collectively as “the chocolate bars” since there are no substantial differences in the treatment of the bars for the purposes of these reasons.) Harrington J. first found that at least some of the logos were original artistic works which were properly subject to copyright (paras. 34 and 37). (For simplicity’s sake I will refer only to those logos from this point on.) Having made this determination, he then turned to an analysis of s. 27(2) of the Act, and held that, consistent with the modern approach to statutory interpretation, s. 27(2) gave KCI a monopoly in the use of the copyrighted logos (para. 53).

66In response to Euro-Excellence’s argument that “copyright in a work cannot be used to prevent competitive distribution of goods, or at least in circumstances such as this where the copyright works are merely ancillary to the main product”, the trial judge declined to interpret the Act in such a way as to limit KCI’s rights (paras. 55-60). Harrington J. referred to the Australian case of R. & A. Bailey & Co. v. Boccaccio Pty. Ltd. (1986), 84 F.L.R. 232 (S.C.N.S.W.), in which a claim similar to KCI’s was allowed; he also noted that the Australian copyright legislation was thereafter amended to provide that copyright in a work is not infringed by importation of an article if the work is an accessory (such as a label or package) to the imported article. In light of the Australian history, Harrington J. found in favour of KCI:

Although, of course, not binding, I find the Bailey’s Irish Cream case persuasive and come to the same conclusion under our Act. I am not prepared to simply use the Copyright Act as a touchstone for an imaginative frolic of my own. The language is clear, and the very purpose of the Act is to prevent unauthorized distribution of copyrighted works. [para. 60]

67On the basis of this logic, Harrington J. awarded KCI damages in the amount of $300,000 and an injunction restraining Euro-Excellence from selling, distributing, exposing or offering for sale any copies of the copyrighted logos. He did not enjoin Euro-Excellence from distributing the bars altogether. Instead, he held that the appropriate order was “that the product be rendered non-infringing” (para. 64).

68Subsequent to his original order, Harrington J. refused a motion for reconsideration ((2004), 33 C.P.R. (4th) 242, 2004 FC 832) and provided instructions on negotiations between KCI and Euro-Excellence regarding Euro-Excellence’s attempts to conform to the terms of the injunction by covering the copyrighted material with opaque self-sticking plastic film ((2004), 35 C.P.R. (4th) 193, 2004 FC 1215).

B. Federal Court of Appeal, [2006] 3 F.C.R. 91, 2005 FCA 427

69The Federal Court of Appeal refused to allow an appeal of the decision of Harrington J. Writing for Noël and Pelletier JJ.A., Justice Desjardins found that the only two issues which warranted consideration by the Court of Appeal were the interpretation of s. 27(2) of the Copyright Act and the appropriateness of the damages award.

70Desjardins J.A. focussed her analysis on whether KCI’s claim required proof that the copies of the works imported by Euro-Excellence would have infringed copyright had they been made in Canada. She noted that CCH Canadian Ltd. v. Law Society of Upper Canada, [2004] 1 S.C.R. 339, 2004 SCC 13, at para. 82, held that “[a]bsent primary infringement, there can be no secondary infringement”, but distinguished it on the grounds that the wording of s. 27(2)(e) did not require proof of primary infringement abroad in order to ground a finding of secondary infringement by way of importation. In her view:

[S]ubsection 27(2) itself provides that secondary infringement occurs when any of the things referred to in paragraphs 27(2)(a) to (c) is done, when the production or reproduction of the work in question would be an infringement if the copy had been made in Canada by the person who made it. [para. 60]

Since KCI held the exclusive right of reproduction for Canada, even as against KFB and KFS, the mere fact that KFB and KFS were entitled to reproduce the protected works abroad did not excuse Euro-Excellence of liability for importing them. Desjardins J.A.’s reasons do not address the wording of paras. (a) to (c) of s. 27(2), or the question of whether Euro-Excellence’s activities had violated the terms of those paragraphs in any detail.

71Desjardins J.A. allowed the appeal in part and dismissed the cross-appeal. She referred the matter of damages back to the trial judge. Harrington J. heard further submissions and confirmed his original order that damages be awarded in the amount of $300,000 ((2006), 50 C.P.R. (4th) 425, 2006 FC 453).

IV. Analysis

A. The Issue

72The issue that needs to be determined in this appeal is the proper interpretation of s. 27(2) of the Copyright Act. It provides as follows:

It is an infringement of copyright for any person to

(a) sell or rent out,

(b) distribute to such an extent as to affect prejudicially the owner of the copyright,

(d) possess for the purpose of doing anything referred to in paragraphs (a) to (c), or

(e) import into Canada for the purpose of doing anything referred to in paragraphs (a) to (c),

a copy of a work, sound recording or fixation of a performer’s performance or of a communication signal that the person knows or should have known infringes copyright or would infringe copyright if it had been made in Canada by the person who made it.

73As the wording of the provision makes clear, KCI’s claim against Euro-Excellence, which is made under para. (e), stands or falls on the interpretation of paras. (a) to (c). Paragraph (e) is violated only if the defendant can be shown to have imported the copyrighted works for the purposes of doing one of the acts set out in paras. (a) to (c).

74Given this structure, what is needed is an interpretation of s. 27(2)(a) to (c) of the Act. At para. 9 of this Court’s decision in CCH, the Chief Justice set out the proper approach to interpreting the Copyright Act:

In interpreting the scope of the Copyright Act’s rights and remedies, courts should apply the modern approach to statutory interpretation whereby “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”: Bell ExpressVu Limited Partnership v. Rex, [2002] 2 S.C.R. 559, 2002 SCC 42, at para. 26, citing E. A. Driedger, Construction of Statutes (2nd ed. 1983), at p. 87.

75Thus, to properly interpret s. 27(2), we need to turn to an examination of the scheme and object of the Copyright Act. My colleague Rothstein J., at para. 4 of his reasons, would require a precise statutory provision to determine the scope of the protection afforded under s. 27(2). He believes that I am introducing a concept of legitimate interests to read down rights afforded by the Copyright Act (para. 7), that I am even introducing a new equitable doctrine (para. 8) or trying to substitute my policy preferences to those of Parliament (para. 3). I am simply applying our rules of statutory interpretation consistently to determine legislative intent and must, in doing so, give proper attention to the legislative context by looking at the provisions under scrutiny, the Act in general and the other legislative provisions that apply to related concepts. Rothstein J. does recognize in his own reasons that this legislation has to be interpreted in its proper legislative context and that it is not true that this Act is worded in such a way that no inferences have to be made. At paras. 34, 35, and 37 for instance, he finds that an exclusive licensee’s property interest is limited, and restricts the application of ss. 13(6) and 36(1), ascribing a particular meaning and scope to the word “authorization” in s. 2.7, where the legislator clearly said that an exclusive licensee could do any act that is subject to copyright to the exclusion of all others “including the copyright owner”. At para. 31, he speaks of limitations on the rights of exclusive licensees that are found by “necessary implication”. I think the purpose of s. 27(2) is determinative and that I need not deal with the licensing issue. I would however agree with Abella J. that the language of s. 2.7 is perfectly clear (para. 114), that a grant is a grant (para. 115), and that the grant in the present case is for an exclusive licence giving the “sole and exclusive right” to the copyright (para. 123). That right can be enforced under s. 36(1). It is obvious to me that Rothstein J. must therefore be wrong when he states at para. 22 that hypothetical infringement has not been made out. The Kraft parent companies in Europe could not have made a copy of the work in Canada without infringing the copyright. Furthermore, I see no legal justification for limiting the right of the licensee to a claim in contract (para. 27); this would be a clear contradiction of the terms of s. 36(1). Still I see no point in pursuing this course when the reasons of Rothstein J. clearly imply that the purpose of the Act could be circumvented by an assignment of the copyright rather than by the granting of a licence.

B. The Purpose of the Copyright Act

76In Théberge v. Galerie d’Art du Petit Champlain inc., [2002] 2 S.C.R. 336, 2002 SCC 34, Binnie J. set out the dual objectives of the Copyright Act, at paras. 30-31:

The Copyright Act is usually presented as a balance between promoting the public interest in the encouragement and dissemination of works of the arts and intellect and obtaining a just reward for the creator . . .

The proper balance among these and other public policy objectives lies not only in recognizing the creator’s rights but in giving due weight to their limited nature.

As the Chief Justice noted in CCH, at para. 10, applications of the Copyright Act should attempt “to maintain an appropriate balance between these two goals”. It is also important to keep in mind Justice Binnie’s holding in Théberge which limits copyright protection to the “legitimate economic interests” of the copyright holder (para. 38 (emphasis added)).

77The CCH decision recognized the “limited nature” of the rights of a copyright holder in two important ways: in its definition of originality and in its treatment of fair dealing.

78The Copyright Act protects original works only. In CCH, the Chief Justice held that, to be considered original in the sense required by the Act, a work must be the result of “an exercise of skill and judgment” (para. 16). This standard is consistent with the purpose of the Act, in that it provides a just reward for the labour of the creator; a “creativity” standard of originality was rejected insofar as it required novelty or uniqueness for copyright protection and failed to take account of the division between copyright and patent: CCH, at para. 24. However the skill and judgment standard does not provide a reward for all types of labour: the “sweat of the brow” standard of originality was rejected in CCH because it fails to take account of the “knowledge, developed aptitude or practised ability” and “capacity for discernment or ability to form an opinion or evaluation” which are the special hallmarks of the types of labour which produce the type of works protected by the Copyright Act (CCH, at paras. 16 and 24).

79The CCH decision recognized the limited nature of the rights of a copyright holder in its treatment of fair dealing, which recognized that, unlike other exceptions, fair dealing is an essential part of copyright protection, and therefore that fair dealing is constitutive of the idea of the wrong in copyright law. Not every substantial reproduction of a copyrighted work counts as an infringement of copyright. This logic is clarified by Professor Abraham Drassinower in his article “Taking User Rights Seriously”, in M. Geist, ed., In the Public Interest: The Future of Canadian Copyright Law (2005), 462. As Drassinower writes, at p. 470, “Fair dealing stands for the proposition that responding to another’s work in one’s own does not mean that one’s work is any less one’s own. Thus the defendant who makes out the fair dealing defence is an author in her own right.” This is consistent with the understanding of copyright discussed above: sometimes a substantial reproduction of a copyrighted work will not be an infringement, because copyright protection is limited to protection of legitimate economic interests which are the result of an exercise of skill and judgment, and that protection must not be extended beyond its proper limits.

80The CCH decision thus confirms that in order to protect the essential balance which lies at the heart of copyright law, care must be taken to ensure that copyright protection is not allowed to extend beyond the legitimate interests of a copyright holder. Copyright will not be granted to works which are not the result of an exercise of skill and judgment, which is the special kind of labour for which copyright is the appropriate protection. Similarly, once copyright is granted in a given work, the protection that it provides must not be extended beyond its natural limits, and must take proper account of user rights such as the right to deal fairly with a copyrighted work. It is useful to note here that, while copyright protection results from an action of an individual — that is, the exercise of skill and judgment in creating an original work — that protection inheres in the work created, rather than its creator. In this manner, a copyrighted work is a form of property which may be transferred or licensed to others. But the rights transferred to a licensee must be limited in the same way as those of the original creator of the work to the legitimate economic interests resulting from the exercise of skill and judgment.

81This Court’s recent decision in Society of Composers, Authors and Music Publishers of Canada v. Canadian Assn. of Internet Providers, [2004] 2 S.C.R. 427, 2004 SCC 45, confirms this purposive interpretation of the Act. In that case, Binnie J. wrote, at para. 116: “‘Caching’ is dictated by the need to deliver faster and more economic service, and should not, when undertaken only for such technical reasons, attract copyright liability” (emphasis added). While “caching” is certainly an instance of substantial reproduction, it is a technical process only; as such it does not consist in an attempt to appropriate the legitimate economic interests of the copyright holder, and therefore does not constitute infringement.

82The logic of this view of copyright has also been held to extend to other forms of intellectual property. In Kirkbi AG v. Ritvik Holdings Inc., [2005] 3 S.C.R. 302, 2005 SCC 65, LeBel J., for the Court, noted, at para. 37, the importance of “basic and necessary distinctions between different forms of intellectual property and their legal and economic functions”. He then went on to review the purposes of trade-marks and patents, noting that “[p]atent rights focus on the patented product or process”, but that “[i]n the case of trade-marks, the focus shifts from the product itself to the distinctiveness of its marketing”: see paras. 38-39. This focus on the fundamental natures and purposes of different sorts of intellectual property protections and the necessary divisions between them suggests that each form of protection relies on some core normative notion which must ground the economic interests claimed. Thus, a trade-mark, which protects distinctiveness of marketing and goodwill, cannot be leveraged to extend protection to products themselves, which is usually granted by patent.

83The approach in Kirkbi is consistent with the principle of statutory interpretation which requires coherent interpretation of statutes in pari materia: see P.-A. Côté, The Interpretation of Legislation In Canada (3rd ed. 2000), at pp. 342 ff. According to this principle, the Copyright Act ought not only to be interpreted with an eye to the internal coherence of its own scheme; it must also not be interpreted in a fashion which is inconsistent with the Trade-marks Act, R.S.C. 1985, c. T-13. Trade-mark law protects market share in commercial goods; copyright protects the economic gains resulting from an exercise of skill and judgment. If trade-mark law does not protect market share in a particular situation, the law of copyright should not be used to provide that protection, if that requires contorting copyright outside its normal sphere of operation. The protection offered by copyright cannot be leveraged to include protection of economic interests that are only tangentially related to the copyrighted work. This Court’s decision in AstraZeneca Canada Inc. v. Canada (Minister of Health), [2006] 2 S.C.R. 560, 2006 SCC 49, which was based on a simultaneous interpretation of “two regulatory systems with sometimes conflicting objectives” (para. 12), is also consistent with the principle.

84With this view of the purpose of the Act, which provides us with a principled fulcrum on which we may undertake copyright’s balance, we may turn now to an examination of the purpose of s. 27(2) of the Act.

C. The Purpose of Section 27(2)(e) of the Copyright Act

85The Act protects only the legitimate economic interests of copyright holders. It protects the economic benefits of skill and judgment; it does not protect all economic benefits of all types of labour. Section 27(2) of the Act is meant to prohibit secondary infringement resulting from the wrongful appropriation of the gains of another’s skill and judgment by way of the acts enumerated in paras. (a) to (c). Conversely, other economic interests — although they may seem to be closely associated with the interests legitimately protected as emanating from that skill and judgment — are not protected. In particular, if a work of skill and judgment (such as a logo) is attached to some other consumer good (such as a chocolate bar), the economic gains associated with the sale of the consumer good must not be mistakenly viewed as the legitimate economic interests of the copyright holder of the logo that are protected by the law of copyright.

86Thus s. 27(2)(e) is meant to protect copyright holders from the unauthorized importation of works which are the result of their skill and judgment. It is not meant to protect manufacturers from the unauthorized importation of consumer goods on the basis of their having a copyrighted work affixed to their wrapper, this work being merely incidental to their value as consumer goods.

87I should note here that, contrary to what was argued before this Court at the hearing, s. 27(2) is not meant to protect manufacturers from the importation of counterfeit versions of their consumer goods. The laws of trade-mark and passing off provide protection to manufacturers who fear the importation of cheap imitations of their products with a copy of the logo of the real product affixed to them. Indeed, this protection is central to the purpose of trade-mark law, as identified by LeBel J. in Kirkbi, at para. 39: “Trade-marks seek to indicate the source of a particular product, process or service in a distinctive manner, so that, ideally, consumers know what they are buying and from whom.” While it is certainly true that one work can be the subject of both copyright and trade-mark protection (see s. 64(3)(b) of the Act), it is equally certain that different forms of intellectual property protect different types of economic interests. To ignore this fact would be to ignore the “basic and necessary distinctions between different forms of intellectual property and their legal and economic functions”, as noted by LeBel J. at para. 37 of Kirkbi.

88This interpretation of s. 27(2) respects copyright’s insistence that only legitimate economic interests receive copyright protection. To allow s. 27(2) to protect all interests of manufacturers and distributors of consumer goods would upset the copyright balance. Far from ensuring a “just reward” for creators of copyrighted works, it would allow a copyright to be leveraged far beyond the use intended by Parliament, allowing rights to be artificially enlarged into protection over consumer goods. This undue expansion of copyright would certainly be a failure to give heed to Binnie J.’s insistence, at para. 31 of Théberge, that the law give due weight to the limited nature of the rights of a copyright holder.

D. The Correct Interpretation of Paragraphs (a) to (c) of Section 27(2)

89As mentioned above, para. (e) of s. 27(2) prohibits the importation into Canada of any copy of a work that would have infringed copyright had it been made in Canada by the person who made it, if that importation is for the purpose of doing anything referred to in paras. (a) to (c) of s. 27(2). Liability under para. (e) therefore relies on a finding that the defendant intended to commit on act enumerated in paras. (a) to (c), which prohibit the selling, renting out, distribution with a prejudicial effect, or dealing with by way of trade of copies of a work. How are we to interpret these prohibitions in light of the foregoing review of the purpose of s. 27(2)(e) and of the Copyright Act as a whole?

90Paragraph (b) provides that “[i]t is an infringement of copyright for any person to . . . distribute to such an extent as to affect prejudicially the owner of the copyright . . . a copy of a work”. Parliament’s inclusion of the word “prejudicially” here is another important key to the interpretation of s. 27(2) as a whole. One can imagine many ways that the distribution of a copyrighted work could prejudicially affect the copyright holder which surely would not be considered secondary infringement. As a somewhat trivial example, consider a book containing accurate and damning portrayals of the author’s family, written under a pseudonym unbeknownst to the family of the author. Distribution of copies of this book — bought in full compliance with the Act — to the author’s family would certainly tend to “affect prejudicially” the owner of the copyright; nevertheless, I am sure that this situation is not intended to fall within s. 27(2)(b). This hypothetical situation suggests that to “affect prejudicially” a copyright holder has a more limited meaning: this phrase limits protection to the interests of the copyright holder as author. That is, only those distributions which affect the legitimate economic interests protected by copyright will be held to affect prejudicially the owner of the copyright. Economic consequences of unauthorized importation of consumer goods are not, generally speaking, the types of legitimate economic interests protected by the copyright in a work which is merely incidental to the sale or distribution of the consumer good to which it is attached. The effects of such importation do not meet the requirement of prejudice which is embedded in para. (b), which informs all of s. 27(2).

91Paragraph (a) provides that “[i]t is an infringement of copyright for any person . . . to sell or rent out” a copy of a work. Simply put, to sell a consumer good with a copyrighted work attached as a logo is not to sell that work. The work, qua work, is merely incidental to the consumer good, and thus a sale of the latter cannot be said in any real sense to be a sale of the former. While it is true that a logo affixed to a package can play an essential role in the sale of that package, that is the role of the logo as a trade-mark, not as a copyright. A finding that s. 27(2)(a) is violated requires that the work be sold as something more than a mere incident of the sale of some other item.

92Similar logic applies to para. (c). It provides that it is an infringement to, “by way of trade distribute, expose or offer for sale or rental, or exhibit in public” a copy of a work. It must be noted that the modifier “by way of trade” clearly applies to all of the actions referred to in para. (c). This can be seen more clearly by referring to the French version of the provision which refers to “la mise en circulation, la mise ou l’offre en vente ou en location, ou l’exposition en public, dans un but commercial.” When para. (c) is seen in this way, consistent with the purpose of the rest of s. 27(2) and the Act as a whole, it is clear that its protection is limited to those instances where the work itself is what is being distributed, exposed, offered for sale or exhibited in public. In other words, when the “trade” taking place, or the “but commercial” being sought, concerns the work itself; when the trade is a trade in some consumer good with which the work is only incidentally related, para. (c) is not triggered.

93Each of paras. (a) to (c) must be interpreted in a manner consistent with the view that s. 27(2) is meant to protect authors from the unauthorized appropriation of the gains of their authorship; protection does not extend to include any and all economic gains claimed by an author or copyright owner. In each case, the wording of the provision, read in light of the purpose of s. 27(2) and the purpose of the Copyright Act as a whole, makes it clear that if the work in question is merely incidental to another consumer good, and it is that consumer good which is being sold or distributed, or dealt with by way of trade, s. 27(2) cannot be invoked. It is only when it is the work itself which is the subject of the sale or other commercial dealing that it can properly be said that the section applies and its protection becomes available.

94The determination of when a work is merely incidental to a consumer good will not always be an easy one. Some factors which may be useful in making such a determination could include the nature of the product, the nature of the protected work and the relationship of the work to the product. If a reasonable consumer undertaking a commercial transaction does not think that the copyrighted work is what she is buying or dealing with, it is likely that the work is merely incidental to the consumer good.

95Contrary to what Rothstein J. seems to argue at para. 4, the previous analysis does not suggest that the simple fact of a work being attached to a consumer good would preclude that work from copyright protection: the Act is clear that protection extends to, inter alia, works produced or reproduced “in any material form whatever” (s. 3(1)). The “merely incidental” analysis goes to secondary liability under s. 27(2) only; rather than being about what is and is not copyrightable, its intention is to prevent that section from being improperly leveraged to use the Copyright Act as a protection of commercial interests completely unrelated to copyright’s intended domain. Thus, the sale of a t-shirt with a reproduction of a painting on its front may constitute the sale of the work (the painting); on the other hand, the location of a small logo on the corner of a shirt pocket would not thereby transform an otherwise plain shirt into a copyrighted work, as the logo qua copyrighted work would be merely incidental to the shirt being sold (and, as noted above, any value the logo has as identifying a brand would be protected by trade-mark law, rather than by copyright). To take a slightly different example, a copyrighted instruction booklet included in the box of some consumer good would, as copyrighted work, be merely incidental to the good for the purposes of s. 27(2): see British Leyland Motor Corp. v. Armstrong Patents Co., [1986] 1 All E.R. 850 (H.L.).

E. Other Considerations

96In my view, this purposive interpretation of s. 27(2), which views the provision in light of the purpose and scheme of the Copyright Act as a whole, is sufficient to deal with the problem of parallel importation. This interpretation means that two other arguments, raised before us by the appellant, become unnecessary. However, I think it would be useful to mention those arguments briefly.

97The appellant argued that an attempt to extend copyright protection to prevent parallel importation of consumer goods could trigger the application of the civilian doctrine of abus de droit. This doctrine, which was recognized by this Court in Houle v. Canadian National Bank, 1990 CanLII 58 (SCC), [1990] 3 S.C.R. 122, provides that a party may not exercise a right in an unreasonable manner. (See also Wallace v. United Grain Growers Ltd., 1997 CanLII 332 (SCC), [1997] 3 S.C.R. 701, at para. 145, with respect to a similar concept in the common law.) Given the analysis above, I do not see an appeal to this doctrine as necessary to resolve this issue.

98Similarly, the appellant argued that the newly developing American doctrine of “copyright misuse” applies to parallel importation of consumer goods. This doctrine is meant to act as a sort of equitable defence when “a copyright holder attempts to extend his copyright beyond the scope of the exclusive rights granted by Congress in a manner that violates [federal antitrust law or] the public policy embodied in copyright law”: see K. Judge, “Rethinking Copyright Misuse” (2004), 57 Stan. L. Rev. 901, at pp. 904. The doctrine has been adopted by some Federal Circuit Courts of Appeal, but has not as of yet found favour at the United States Supreme Court (Judge, at pp. 902-3). As with the concept of abus de droit, my analysis renders an appeal to this developing doctrine unnecessary to deal with parallel importation of consumer goods. However, this is not to comment on the possible application of this doctrine in Canada; a determination on that issue is best left for another day.

V. Application to the Facts

99It is clear on the facts of the appeal before us that the protected works in question — the Côte d’Or and Toblerone logos, considered as copyrighted works — cannot be seen as anything other than merely incidental to the chocolate bars to which they are affixed. Therefore, Euro-Excellence’s dealings with the chocolate bars are not caught within the language of s. 27(2) of the Act. I reach this conclusion on the basis of a consideration of the role of the logos as merely incidental to the sale of the chocolate bars in general.

100As discussed above, to be brought within the protection of s. 27(2), a copyrighted work must be more than merely incidental to the consumer good to which it is affixed. Only when that condition is satisfied can it accurately be said that it is the copyrighted work itself which is the subject of one of the activities described in paras. (a) to (c) of s. 27(2).

101In this appeal, the logos, considered as copyrighted works, are unarguably best described as merely incidental to the chocolate bars themselves. It cannot be reasonably maintained that in the course of a commercial transaction in which a customer buys a Côte d’Or or a Toblerone chocolate bar from a merchant, the customer is actually paying for a copyrighted work. This is not a situation in which the copyrighted work, as such, is an important aspect of the consumer transaction: it is a logo on a wrapper for a product which serves to identify the product’s origins, nothing more.

102Thus it cannot be said that Euro-Excellence is selling the copyrighted works themselves, as proscribed by para. (a); it cannot be said that Euro-Excellence is distributing those works to the extent of prejudicing KCI’s interest as author or copyright holder, as prohibited by para. (b), when those interests are properly limited to the legitimate economic interests protected by the Act; and it cannot be reasonably maintained that Euro-Excellence is in contravention of para. (c) by dealing with those works “by way of trade” once it is understood that it is the works themselves which must be dealt with by way of trade rather than the chocolate bars to which they are attached. Thus, as Euro-Excellence’s importation of the Côte d’Or and Toblerone bars was not done “for the purpose of doing anything referred to in paragraphs (a) to (c)” of s. 27(2), Euro-Excellence has not violated s. 27(2)(e).

103The above does not imply that the Côte d’Or or Toblerone logos are not copyrightable works. Quite the opposite: the logos have been properly registered and there is no reason to dispute the trial judge’s conclusions that the logos meet the Act’s originality threshold and are therefore copyrightable works. KCI, as holder of those copyrights in Canada, would surely succeed in an action for copyright infringement against a defendant who produced and distributed posters of the logos, for example. However, it is necessary to ensure that this legitimate copyright protection is not illegitimately leveraged into a protection for a market in consumer goods.

104Similarly, I do not mean to suggest that logos play no role whatsoever in the sale of chocolate bars. So I think it is therefore useful to stress, once again, that in the s. 27(2) analysis the logos must be viewed strictly through the copyright lens as works. The analysis does not speak to the possibility — indeed, the certainty — that the logos, as trade-marks, can play a large role in the sale of the chocolate bars and are of great value to KCI. It is not disputed that part of the reason that a consumer buys a Côte d’Or bar or a Toblerone bar is because of the reputation and goodwill associated with each brand. But that is not a consideration which is relevant under the Copyright Act. It cannot be reasonably maintained that anyone buys a Côte d’Or or Toblerone because of the logos as works of art.

105Côte d’Or and Toblerone are chocolate bars. When a consumer buys one of these bars, the bar is exactly what he or she is buying. The logo may play a role in that transaction qua trade-mark, but qua copyright it cannot be seen as anything other than a mere incident to the chocolate bars. Thus, Euro-Excellence did nothing for the purpose of selling the logos as copyrighted works, or dealing with those works by way of trade; nor did Euro-Excellence distribute the logos as works to the extent of prejudicially affecting the legitimate interests of KCI as copyright holder. In short, Euro-Excellence did not violate or intend to violate the terms of paras. (a) to (c) of s. 27(2), and therefore cannot be found liable under s. 27(2)(e).

VI. Conclusion

106For the above reasons, the appeal should be allowed with costs in all courts.

The reasons of McLachlin C.J. and Abella J. were delivered by

107Abella J. (dissenting) — The central issue in this appeal is whether an exclusive licensee of a copyright can claim remedies under the Copyright Act, R.S.C. 1985, c. C-42, when the copyrighted work is displayed on the label of a product imported in circumstances envisioned by s. 27(2) of the Act.

108Like the trial judge and the Federal Court of Appeal, it is my view that Kraft Canada Inc. has the right to seek remedies under the Act to prevent Euro-Excellence from selling or distributing the copyrighted works. Section 27(2) of the Copyright Act states:

It is an infringement of copyright for any person to

(a) sell or rent out,

(b) distribute to such an extent as to affect prejudicially the owner of the copyright,

(d) possess for the purpose of doing anything referred to in paragraphs (a) to (c), or

(e) import into Canada for the purpose of doing anything referred to in paragraphs (a) to (c),

109Resolving this appeal depends on the answers to two questions. First, is the copyrighted work being “sold” or “distributed” when it is printed on the wrapper of a consumer product? Second, can an exclusive licensee in Canada claim protection against secondary infringement when the copyrighted work was produced by the owner-licensor?

110On the first issue, I agree with the conclusion reached by Rothstein J. There is nothing in the Act to endorse a restrictive definition of “sell”. Section 64(3)(b) of the Act extends copyright protection to trade-marks and labels. When a product is sold, title to its wrapper is also transferred to the purchaser. The Act is indifferent as to whether the sale of the wrapper is important to the consumer.

111Like Bastarache J., I agree with the trial judge that the logos are copyrighted works. I respectfully disagree with his view, however, that no infringement is made out because the elephant and bear logos are incidental to the chocolate bars and are therefore not protected by s. 27(2). To inject an exception for logos on the basis that they are “incidental” would be to introduce unnecessary uncertainty, inviting case-by-case judicial explorations into the uncharted area of what is “merely” incidental, “somewhat” incidental, or not incidental at all. Such an approach also takes insufficient account of the reality that many products are, to a significant extent, sold on the basis of their logo or packaging.

112Nor do I share the view that s. 27(2)(e), which on its face appears to me to be applicable, “protects only the legitimate economic interests of copyright holders”, that is, “the unauthorized importation of works which are the result of their skill and judgment” (paras. 85-86). It seems to me, with respect, that once a work falls within s. 27(2)(a) to (c) and otherwise meets the requirements established by the Act as prerequisites to copyright protection, there is no scope for a judicially created limit to that protection based on what might — or might not — be a “legitimate economic interest”. I do not believe that Théberge v. Galerie d’Art du Petit Champlain inc., [2002] 2 S.C.R. 336, 2002 SCC 34, stands for such a proposition.

113The answer to the second question depends on how one defines the rights of exclusive licensees. Copyright law in Canada, as Estey J. stated in Compo Co. v. Blue Crest Music Inc., 1979 CanLII 6 (SCC), [1980] 1 S.C.R. 357, at pp. 372-73, is:

[N]either tort law nor property law in classification, but is statutory law. It neither cuts across existing rights in property or conduct, nor falls between rights and obligations heretofore existing in the common law. Copyright legislation simply creates rights and obligations upon the terms and in the circumstances set out in the statute.

Copyright today remains an exclusively statutory creation: Théberge; Bishop v. Stevens, 1990 CanLII 75 (SCC), [1990] 2 S.C.R. 467; CCH Canadian Ltd. v. Law Society of Upper Canada, [2004] 1 S.C.R. 339, 2004 SCC 13.

114In my view, the clear language of the Act is determinative. “Exclusive licence” is defined in s. 2.7:

. . . 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.

115Clarification of the nature and quality of the rights enjoyed by an exclusive licensee is found in a combination of ss. 13(4), 13(6), 13(7) and 36(1) of the Act, which state:

. . .

(4) 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.

(6) For greater certainty, it is deemed always to have been the law that a right of action for infringement of copyright may be assigned in association with the assignment of the copyright or the grant of an interest in the copyright by licence.

(7) 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.

(1) Subject to this section, the owner of any copyright, or any person or persons deriving any right, title or interest by assignment or grant in writing from the owner, may individually for himself or herself, as a party to the proceedings in his or her own name, protect and enforce any right that he or she holds, and, to the extent of that right, title and interest, is entitled to the remedies provided by this Act.

116Under s.13(4) and s.13(6), the owner of a copyright is free to divest itself of any interest in the copyright, in whole or in part, either by assignment or by licence: J. S. McKeown, Fox on Canadian Law of Copyright and Industrial Designs (4th ed. (loose- leaf)), at p. 19-24.

117A copyright holder’s ability to alienate its interest either through licensing or assignment is perfectly consistent with the statutory scheme. Vertical and horizontal divisibility is, arguably, a hallmark of copyright: see Bouchet v. Kyriacopoulos (1964), 1964 CanLII 1285 (CA EXC), 45 C.P.R. 265 (Ex. Ct.). And, as Binnie J. noted in Théberge, at para. 12, the economic objectives of copyright law are furthered through the transferability of either full or partial copyright interests.

118Section 13(7) clarifies that an exclusive licence is the grant of a proprietary interest in the copyright itself: see Robertson v. Thomson Corp., [2006] 2 S.C.R. 363, 2006 SCC 43, at para. 56. And s. 36(1) stipulates that any such grant of an interest in the copyright can be protected through the remedies provided in the Act.

119The effect of s. 13(7) is to limit the distinction between the rights of assignees and exclusive licensees: McKeown, at p. 19-25 ; T. Scassa, “Using Copyright Law to Prevent Parallel Importation: A Comment on Kraft Canada, Inc. v. Euro Excellence, Inc.” (2006), 85 Can. Bar Rev. 409, at p. 416; N. Tamaro, The 2006 Annotated Copyright Act (2006). The interest granted under s. 13(7) therefore includes a right, under s. 36(1), to protect that interest as against all others, including the owner-licensor, by availing itself of the remedies in the Act.

120In other words, when the owner-licensor transfers an interest to the exclusive licensee, that licensee becomes, under the Act, the owner of a defined interest in the copyright: see Éditions de la Table ronde s.a. v. Cousture, [1995] Q.J. No. 1519 (QL) (S.C.), and Dynabec Ltée v. Société d’informatique R.D.G. Inc. (1985), 1985 CanLII 6418 (QC CA), 6 C.P.R. (3d) 322 (Que. C.A.).

121Where the owner of a copyright has granted an exclusive licence, therefore, it has, to the extent of the duration, territorial scope, and terms of that licence, temporarily granted that interest in the copyright to the exclusive licensee.

122The scope of the precise interest granted is shaped by the terms of the licensing agreement: see Fonds Gabrielle Roy v. Éditions internationales Alain Stanké ltée, [1993] Q.J. No. 2525 (QL) (S.C.); and British Actors Film Co. v. Glover, [1918] 1 K.B. 299, at p. 307. In this case, the agreement stated:

2.01 The Licensor grants to the Licensee the sole and exclusive right and licence in the Territory to produce, reproduce and adapt the Works or any substantial part thereof, in any material form whatever, and to use and publicly present the Works in association with the manufacture, distribution or sale in Canada of confectionery products, including, but not limited to, chocolate.

123This is the grant of the “sole and exclusive right”, in Canada, to “produce”, “reproduce”, “adapt”, “use”, “distribute” and “sell” the products. These terms, read together with the rights granted to an exclusive licensee in ss. 2.7 and 13(7), as well as the rights in s. 36(1) to protect and enforce its rights and interests through remedies provided by the Act, give the exclusive licensee the right to invoke the Act for copyright infringement not only against third parties, but, as s. 2.7 confirms, against the owner-licensor as well.

124The trial judge, not unreasonably, treated this exclusive licence as an assignment: Kraft Canada Inc. v. Euro Excellence Inc., [2004] 4 F.C.R. 410, 2004 FC 652, at para. 39. However, even as an exclusive licence, the proprietary interest clearly extends to the production and distribution of copyrighted works in Canada.

125I accept that exclusive licences are distinct from assignments under the Act. This difference is recognized in s. 13(5) of the Act, dealing with partial assignments of copyright:

(5) 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.

This provision is interpretive in nature, clarifying that a partial assignee enjoys complete control over what was assigned to it, while the assignor retains ownership rights in what was not assigned.

126As Rothstein J. notes, there is no analogous provision with respect to licensees. But, in my view, the absence of such a provision does not derogate from the rights the Act does unambiguously assign to exclusive licensees.

127An exclusive licence which did not prevent others, including the owner-licensor, from performing the acts addressed in the licensing agreement, would no longer be exclusive. It would also render meaningless the statutory definition found in s. 2.7 of an exclusive licensee as the holder of rights “to the exclusion of all others including the copyright owner”.

128While an owner-licensor is, technically, still the owner of the copyright, it is nonetheless liable to an exclusive licensee if it breaches the copyright interest it has granted. Otherwise, the owner-licensor could continue to assert that despite having granted an exclusive interest in its copyright, it was free to compete with the exclusive licensee without fear of attack from the Act’s remedial tentacles. The legislation, in my view, contradicts such immunity from the statute and, on the contrary, clearly entitles an exclusive licensee to sue for secondary infringement, even where the work was reproduced by the owner-licensor.

129Copyright confers a limited monopoly to “produce or reproduce” the work in any material form whatever. In this case, KCI purchased the exclusive licence to the copyrighted work precisely because it wanted copyright on chocolate bar wrappers. Euro-Excellence purchased chocolate bars with labels displaying the copyrighted works; it imported those works into Canada after being notified of KCI’s Canadian copyright interest; its purpose in importing the chocolate bars and the wrappers was to sell them or distribute them by way of trade. A s. 27(2)(e) infringement is therefore made out. KCI is entitled to the remedies provided by the Act.

130I would dismiss the appeal and, as requested by KCI, return the matter to Harrington J. for a reassessment of damages.

APPENDIX

[Definitions]

“copyright” means the rights described in

(a) section 3, in the case of a work,

“infringing” means

(a) in relation to a work in which copyright subsists, any copy, including any colourable imitation, made or dealt with in contravention of this Act,

(b) in relation to a performer’s performance in respect of which copyright subsists, any fixation or copy of a fixation of it made or dealt with in contravention of this Act,

(c) in relation to a sound recording in respect of which copyright subsists, any copy of it made or dealt with in contravention of this Act, or

(d) in relation to a communication signal in respect of which copyright subsists, any fixation or copy of a fixation of it made or dealt with in contravention of this Act.

The definition includes a copy that is imported in the circumstances set out in paragraph 27(2)(e) and section 27.1 but does not otherwise include a copy made with the consent of the owner of the copyright in the country where the copy was made;

2.7. [Exclusive licence] 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.

(1) [Copyright in works] For the purposes of this Act, “copyright”, in relation to a work, means the sole right to produce or reproduce the work or any substantial part thereof in any material form whatever, to perform the work or any substantial part thereof in public or, if the work is unpublished, to publish the work or any substantial part thereof, and includes the sole right

(a) to produce, reproduce, perform or publish any translation of the work,

and to authorize any such acts.

. . .

(4) [Assignments and licences] 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.

(5) [Ownership in case of partial assignment] 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.

(6) [Assignment of right of action] For greater certainty, it is deemed always to have been the law that a right of action for infringement of copyright may be assigned in association with the assignment of the copyright or the grant of an interest in the copyright by licence.

(7) [Exclusive licence] 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.

(1) [Infringement generally] 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.

(2) [Secondary infringement] It is an infringement of copyright for any person to

(a) sell or rent out,

(b) distribute to such an extent as to affect prejudicially the owner of the copyright,

(d) possess for the purpose of doing anything referred to in paragraphs (a) to (c), or

(e) import into Canada for the purpose of doing anything referred to in paragraphs (a) to (c),

(1) [Protection of separate rights] Subject to this section, the owner of any copyright, or any person or persons deriving any right, title or interest by assignment or grant in writing from the owner, may individually for himself or herself, as a party to the proceedings in his or her own name, protect and enforce any right that he or she holds, and, to the extent of that right, title and interest, is entitled to the remedies provided by this Act.

(2) [Where copyright owner to be made party] Where proceedings referred to in subsection (1) are taken by a person other than the copyright owner, the copyright owner must be made a party to those proceedings, except

(a) in respect of proceedings taken under section 44.1, 44.2 or 44.4;

(b) in respect of interlocutory proceedings unless the court is of the opinion that the interests of justice require the copyright owner to be a party; and

(c) in any other case, if the court is of the opinion that the interests of justice do not require the copyright owner to be a party.

. . .

(2) [Non-infringement of certain designs] Where copyright subsists in a design applied to a useful article or in an artistic work from which the design is derived and, by or under the authority of any person who owns the copyright in Canada or who owns the copyright elsewhere,

(a) the article is reproduced in a quantity of more than fifty, or

(b) where the article is a plate, engraving or cast, the article is used for producing more than fifty useful articles,

it shall not thereafter be an infringement of the copyright or the moral rights for anyone

(i) making the article, or

(ii) making a drawing or other reproduction in any material form of the article, or

(d) to do with an article, drawing or reproduction that is made as described in paragraph (c) anything that the owner of the copyright has the sole right to do with the design or artistic work in which the copyright subsists.

(3) [Exception] Subsection (2) does not apply in respect of the copyright or the moral rights in an artistic work in so far as the work is used as or for

(b) a trade‑mark or a representation thereof or a label;

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.