In 1994, when the member states of what would later become the World Trade Organization sat to draft the TRIPs Agreement they could not agree on the question of parallel importation and the extent to which IP law should regulate it and eventually decided not to decide and let each country decide its own policy. It seemed that in Euro-Excellence v. Kraft the same thing happened to the justices of the Supreme Court of Canada. They too could not agree on what Canada’s copyright law says on the issue.
If I have to summarize in one word yesterday’s Supreme Court’s decision in Euro Excellence v. Kraft it will be “mess”. The decision might have solved the current dispute between Euro Excellence and Kraft but provides very little guidance for future disputes. Moreover, a majority of the Court based their respective decisions on technical grounds, presenting the question merely as one of statutory interpretation. (You can read reports on the decisions in the blog posts of Michael Geist, Howard Knopf and Norman Siebrasse).
What I find most interesting—and perhaps most troubling—is that the all Justices seem to think that copyright law does, and perhaps should, be used to regulate parallel trade: the only differences are in their view of the exact circumstances in which copyright law would block such trade. Rothstein, Binnie and Deshacmps think that this is the case when the copies were made abroad and the local distributor is an assignee rather than an exclusive. Bastarache, LeBel and Charron think that copyright law could prevent parallel trade in “real” works but not in consumer goods bearing copyrighted logos. Abella and McLachlin think that both assignees and exclusive licensees can stop parallel imports regardless of the nature of the work. Fish may be an exception, but it’s difficult to know whether the grave doubts that he expressed on “whether the law governing the protection of intellectual property rights in Canada can be transformed in this was into an instrument of trade control not contemplated by the Copyright Act.” (para. 56) overlap Bastarache’s objections, or exceed them.
So with the possible exception of Fish, all Justices seem to think that s. 27(2)(e) does contemplate using copyright law as an instrument of trade control. I’m not sure if that is so simple, despite the apparent clear language. The question of parallel imports relates to a principle known as “exhaustion” of IP rights: the extent to which these rights are survive the first authorized disposition of an article that embodies those rights. The debate is whether exhaustion is only “domestic” (in which case the local right holder could invoke her IP right to block importation of goods that were initially sold abroad), or whether it is “international” (meaning that any authorized sale anywhere in the world exhausts the right).
That when the copy was made domestically and put into the market the copyright owner cannot invoke its copyright to further control its flow is quite settled law. As the Court explained in Théberge “once the authorized copy of a work is sold to a member of the public, it is generally for the purchaser, not the author, to determine what happens to it.” (at para. 31). As far as I recall there is no express provision in the statute on which this principle is based, and therefore I’m not sure whether the question of whether this principle applies only domestically or extends internationally could be found in the statute. Although s. 27(2)(e) may seem as a potential statutory basis for an answer I’m not sure that it actually is.
In order to understand why the section may not be dispositive of the question of parallel imports let’s consider other situations to which the section probably does apply. Consider a case where a work is reproduced in a country A that has no copyright or that has a shorter copyright term than Canada. Or consider a case where the imported work is a work which borrowed from another and the borrowing constitutes infringement in Canada but not in another country which has different copyright standards (e.g, would constitute “fair use” in the US but not “fair dealing” in Canada). Or consider a dispute regarding who owns the copyright: a Canadian court finds that X is the owner and a foreign court finds that Y is the owner; or a case in which the work is reproduced in country A under a compulsory license, or even when the low price in A is a result of price-controls. In all of these cases the reproduction in A is not an infringement in that country, but (in the absence of s. 27(2)(e)) would not be an infringement in Canada because the law is territorial and no reproduction had taken place in Canada. So here’s the dilemma: Finding that such copies infringe Canada’s law would imply extra-territorial application of Canadian law. Yet allowing the importation of the work into Canada would equally mean importing a foreign country’s regulatory regime. It would undermine the integrity of the Canadian legislation in Canada and apply the foreign law extra-territorially. So understood, s. 27(2)(e) simply preserves the territorial nature of copyright law and the sovereignty of each country to determine its own policy. So understood, s. 27(2)(e) is not highly contentious.
But the question of parallel importation seems to me to be of a different species. As I mentioned earlier, the question is about whether the law in Canada applies domestic or international exhaustion. There may be more or less valid arguments for both views, and as far as I know the laws of many countries is quite fuzzy about this issue, but this question about exhaustion seems to be of an entirely different kind than the hypothetical cases that I mentioned earlier (which could be infringing even under international exhaustion). Therefore, I’m not sure at all whether s. 27(2)(e) is the right place to look for the answer to the exhaustion question. Presumably, if that were the case, wouldn't s. 27.1--specifically banning parallel trade in books--be redundant?
I don’t know whether the legislative history of s. 27(2)(e) can really clarify the issue and whether any of parties raised the argument before the Court in the present case, so if any of the readers of this post can illuminate the question I’ll be grateful.
