Canada: The IP Year 2007 In Review: Copyright (Part 3)

This third part of The IP Year 2007 in Review covers the year's developments in copyrights. See parts 1 and 2 for a discussion of patents and trade-marks.

As a result of significant judicial and legislative action, the year 2007 saw several important developments in Canadian copyright law. As a result of amendments to the Criminal Code stemming from complaints by movie industry groups such as the Canadian Motion Picture Distributors Association, "camcording" a film in a movie theatre was made an offence. There were also rumblings of more substantial upcoming amendments to the Copyright Act. The Supreme Court of Canada also addressed whether an exclusive copyright licensee can stop parallel importation of "grey market" chocolate bars. In addition, the Federal Court awarded record damage awards in two cases under the statutory damages provision of the Canadian Copyright Act. Finally, a number of decisions of the Copyright Board set the tariffs applicable to various electronic media used for recording and downloading music.

"Camcording" Criminalized In a response to complaints by the Canadian movie industry, the Federal Government of Canada made the act of recording a film in a movie theatre ("camcording") without authorization an offence under the Criminal Code.⁵⁶ In June, An Act to Amend the Criminal Code (Unauthorized Recording of a Movie),⁵⁷ came into force with the stated purpose of closing a perceived loophole in Canadian copyright law and deterring the creation of illegal movie recordings in Canada.

Under the Copyright Act,⁵⁸ camcording is an infringement of copyright, and anyone who knowingly makes for sale or rental, sells or rents, or otherwise distributes an infringing copy of a work is subject to criminal sanctions. Industry groups have long argued, however, that these sanctions are insufficient.

Upon coming into force, two new offences have been added to the Criminal Code. The first offence, referred to as ‘simple camcording’, prohibits the recording of a "cinematographic work" (as defined by the Copyright Act) or its soundtrack in a movie theatre without the consent of the theatre manager. The second offence, referred to as ‘camcording for the purpose’, prohibits the recording of a "cinematographic work" or its soundtrack in a movie theatre without the consent of the theatre manager for the purpose of sale, rental or other commercial distribution of a copy. In addition to creating these new offences, the amendments also grant courts the authority to order the seizure of anything used in the commission of these offences, such as the recording device itself.

Already someone has been charged wearing night vision goggles and in possession of recording equipment and tools to upload data to the internet, which gave him the dubious honour of being the first individual in Canada to be charged under these new provisions!

Discussing Copyright Law Reforms Under growing domestic and international pressure, new copyright legislation may soon be introduced in Canada. In its current form the Copyright Act does not encompass downloading and sharing music files. It is expected that the upcoming copyright reforms may seek to protect the rights of copyright holders in the digital and online marketplace. The Canadian Recording Industry Association has long campaigned for changes that would protect the interests of copyright holders by facilitating the prosecution of those who share files of copyright material. However, not all industry groups share this perspective. For example, the Canadian Music Creators Coalition is promoting amendments that would allow file-sharing in certain circumstances that are of benefit to the Canadian copyright holder. While it is unclear what the reforms will be, it is hoped that any amendments will take into account the digital marketplace and help to determine issues arising there from.

Exclusive Copyright Licensee Cannot Stop Parallel Importation In 2007, the Supreme Court of Canada has considered copyright as a means of stopping parallel imports. In Euro-Excellence Inc. v. Kraft Canada Inc.,⁵⁹ the Supreme Court held that Kraft Canada Inc. could not use copyright law to prohibit the parallel importation of "grey market" chocolate bars from Europe. Kraft Canada was granted an exclusive license in Canada for the copyright in "logos" printed on the labels of TOBLERONE^TM and COTE D'OR^TM chocolate bars. Kraft Canada had previously been successful in obtaining damages for copyright infringement and obtained an injunction forcing former Canadian exclusive distributor Euro-Excellence Inc. to cover up the copyright material on chocolate bars bought in Europe and imported into Canada.

The Supreme Court had to consider "secondary" infringement under the Copyright Act. Kraft Canada was not claiming that Euro-Excellence had printed infringing labels or had obtained infringing labels from a source outside of Canada. In fact, the chocolate bars imported by Euro-Excellence were manufactured by Kraft Canada’s licensors. Kraft Canada instead relied on the provisions of the Copyright Act that secondary infringement in Canada occurs when a retailer or distributor deals in goods manufactured abroad that would infringe copyright had they been hypothetically manufactured in Canada. As Justice Rothstein pointed out, the purpose of this provision is to prevent dilution of the independent value of the Canadian copyright through foreign imports.

All judges recognized "logos" as legitimate subjects of copyright protection, but the majority of the Court agreed that Kraft Canada as exclusive licensee of copyright in the logos could not prevent parallel importation of chocolate bars. Although the majority judges agreed on the end result, it was for two very different sets of reasons. Justice Rothstein wrote one set of reasons that held that the exclusive licensee does not gain a property interest and, therefore, merely has a contractual claim against the copyright owner if the promised exclusivity is not respected by reason of the copyright owner’s action. In Rothstein’s view, the Copyright Act did not permit exclusive licensees to sue the copyright owner-licensor for infringement of its own copyright. As a result, secondary infringement under the Copyright Act does not prohibit Euro-Excellence’s importation because Kraft Canada’s European affiliates could have hypothetically reproduced the logos in Canada without infringing copyright law. Justice Bastarache, writing for the other half of the majority judges, held that the section of the Act restraining parallel importation does not apply where the copyrighted work is merely incidental to the consumer good. According to Justice Bastarache, Kraft Canada's status as owner or exclusive licensee therefore had no bearing on the outcome of the case.

As a result of the Kraft Canada case, foreign copyright owners may wish to consider whether to assign copyright in Canada to their Canadian affiliates in order to provide such affiliates with a remedy for "grey market" goods. Had Kraft Canada owned copyright in Canada a majority of judges (those adhering to Justice Rothstein's views and the minority judges) would apparently have upheld the copyright infringement claim.

What A Difference A Year Makes! Record Statutory Damages Against Counterfeiters As reported in our 2006 Review, the Federal Court previously resisted granting the maximum amount possible under the statutory damages provisions of the Copyright Act.⁶⁰ However, the maximum amount of statutory damages permitted under the Copyright Act has been awarded in recent decisions of the Federal Court which may signal that the Federal Court is willing to enforce the Copyright Act to its maximum extent. In Microsoft Corp. v. 9038-3746 Quebec Inc.,⁶¹ and Louis Vuitton Malletier S.A. v. Yang,⁶² the Federal Court found counterfeiters liable for the maximum statutory damages along with punitive damages.

Microsoft commenced a copyright and trade-mark infringement suit against the sellers of alleged counterfeit software. The Federal Court found that the vast majority of the items seized were counterfeit and that both defendants knew or should have known that the items were counterfeit and infringed copyright. The Court found not only that the counterfeit items had been imported into Canada, which was an infringement under the Copyright Act, but also that the "sale of such counterfeit items at low prices prejudicially affected Microsoft’s relationship with its chain of legitimate suppliers," was an infringement.

Regarding damages, Microsoft had elected to recover an award of statutory damages, which normally ranges from $500 to no more than $20,000 with respect to each work which was infringed. After reviewing the factors to be considered by the court in determining the appropriate statutory damages to award (i.e. good or bad faith, the conduct of the parties before and during the proceedings, and the need to deter other infringements of the copyrights in question), the Court concluded that the facts justified the maximum amount available and granted statutory damages of $500,000 against the defendants. Further, the Court determined that the defendants’ conduct before and during the proceedings was "outrageous", and that consequently Microsoft was entitled to punitive damages of $100,000 from each defendant. However, while Microsoft had also requested that the Court permanently enjoin the defendants and all related companies, from dealing in any Microsoft products whether or not they currently existed, the Court considered this injunction too broad and instead enjoined only the defendants (their officers, directors, servants, employees, and agents) from dealing with the copyrights at issue in the proceedings and counterfeit Microsoft trade-marks.

The Federal Court, in the later case Louis Vuitton Malletier S.A. v. Yang,⁶³ endorsed the approach of its earlier decision in Microsoft Corp. v. 9038-3746 Quebec Inc regarding the appropriate quantum of statutory damages to award for copyright infringement. The Court in Louis Vuitton concluded that the deliberate and malicious conduct of the defendants warranted an order for the maximum amount of statutory damages permitted under the Copyright Act for each violation of the plaintiff’s copyright. In granting the maximum statutory award, the Court considered the deliberate and conscious decision of the defendants to infringe, and continue infringing, the plaintiff’s copyright. The Court was of the view that a high award was required to deter similar future infringement and encourage respect for the copyright laws of Canada. In considering punitive damages, it determined that statutory damages did not sufficiently penalize the defendants for their egregious and wilful disregard of the plaintiff’s rights and the copyright laws of Canada. The Court granted the plaintiff’s request for punitive damages totalling $100,000.

Previews Of Songs From Online Music Services Not Infringing In a decision that marks the second stage of a 10-year process to consider SOCAN’s Tariff 22, the Copyright Board has found that by providing 30-second previews of songs, online music services do not infringe copyright. In October, the Copyright Board released its reasons with respect to a portion of a proposed tariff for the use of music over the internet.⁶⁴

This tariff established the royalties that the Society of Authors, Composers and Music Publishers of Canada ("SOCAN"), the collective society that administers the performing rights of the world repertoire of music in Canada, can collect for communication over the Internet of musical works from 1996 to 2006. SOCAN had proposed a very broad tariff which could apply to conceivably every use of music on the internet including music downloads, audio and video webcasts, on-demand applications, gaming sites, and TV and radio simulcasts. In its October 18 decision, the Board only addressed the application of SOCAN Tariff 22 to the use of music by online music services, with an indication that the rest of the uses would be covered in a second set of reasons to be released at an undetermined later date.

In a previous decision, the Copyright Board ruled that internet service providers are not liable for the payment of copyright royalties to SOCAN for the transmission of music over the internet. Now the Copyright Board was considering the rates payable for the various uses covered by SOCAN’s proposed tariff. The tariff was opposed by a broad group of objectors including broadcasters, online music services, wireless carriers, the Canadian Recording Industry Association, campus and community radio stations, the entertainment software industry, and the Canadian Broadcasting Company.

First, the Board disagreed with objectors who argued that the downloading by an individual consumer of a file containing a musical work does not constitute a communication to the public by telecommunication. The Board made a similar finding in its decision with respect to ring tones (segments of songs that are downloaded to cell phones and are used to signal an in-coming call).⁶⁵

The Board also ruled that the use of 30-second previews by online music services is "fair dealing for the purpose of research" within the meaning of the Copyright Act. As a result, SOCAN was not entitled to compensation from the use of previews. The purchase of a full track music download involved "searching, investigation: identifying sites that offer those products, selecting one, finding out whether the track is available, ensuring that it is the right version or cover and so on. Listening to previews assists in this investigation." The Board reasoned that if copying a judicial decision for the purpose of advising a client is fair dealing under the Copyright Act, then so is listening to a 30-second preview to decide whether or not to purchase a download or a CD.

Better Late Than Never? New Tariff For Online Music Services The Copyright Board released its decision establishing the royalties to be paid to the Canadian Musical Reproduction Rights Agency Ltd. ("CMRRA") and Société du droit de reproduction des auteurs, compositeurs et éditeurs au Canada ("SODRAC") by online music services, such as Puretracks and iTunes, for the right to reproduce musical works.⁶⁶

CMRRA and SODRAC (collectively "CSI") filed a joint proposed tariff seeking royalties imposed on online music services’ gross revenues for permanent downloads of musical works, on-demand streams and limited downloads. CSI based its proposed royalties on the reproduction royalties payable for ring tones. The proposed tariffs were opposed, not surprisingly, by many of the online music industry’s biggest players.

The Copyright Board agreed with the objectors and rejected CSI’s comparison with ring tones, finding that the market for ring tones is too different from the market for full track downloads to serve as a useful proxy. However, the Board also rejected a number of the adjustments that the objectors had proposed to the rate in the pre-recorded CD market. It concluded that the appropriate rate is 8.8 per cent of the amount paid by consumers to download a music file. Taking into account that this was the first time the tariff was being certified, the Board decided to phase-in its impact by applying a 10 per cent discount for the initial period, resulting in a final, certified rate of 7.9 per cent of the amount paid by consumer.

The Board’s decision highlights the challenges of establishing copyright royalties in an environment of rapidly changing technological developments. Online music services entered the market and established a dominant retail price of 99 cents per track. It has taken several years for the copyright regulatory system to catch up and to establish the price for the rights that are inputs to the final product. It will be interesting to see whether the rates set by the Board in this proceeding and the related SOCAN Tariff 22 decision noted above, will have an impact on the operations and pricing strategy of the online music services in Canada.

Private Copying Levy May Now Apply To Portable Media Players In Canada, individuals can make private copies of musical works embodied in sound recordings (e.g. pre-recorded CDs), pursuant to the private copying exception established under the Copyright Act. The Copyright Board of Canada has ruled that the private copying levy can apply to "digital audio recorders" (e.g. MP3 players and iPOD^TM portable media players) despite a 2005 decision by the Federal Court of Appeal which states that such devices are not subject to the levy.⁶⁷

The Copyright Act provides a right of remuneration in the form of a levy collected from manufacturers and importers of blank audio recording media (e.g. audio cassettes, digital audio tapes, recordable compact discs, and rewritable compact discs). In 2005, the Canadian Private Copying Collective ("CPCC") proposed that the levy be applied to non-removable memory cards, non-removable flash memory storage media, and non-removable hard drives incorporated into portable media devices with which the Copyright Board agreed. The Canadian Storage Media Alliance ("CSMA") sought judicial review of the Board’s decision on the grounds that the Board erred in applying the levy to the non-removable memory incorporated into such devices. In its 2005 decision, the Federal Court of Appeal set aside the Board’s decision on the basis that portable media players are not audio recording media; it would be up to Parliament to decide whether such devices should be brought into the class of items that can be levied.

In January 2007, CPCC filed its proposed private copying tariff for 2008 and 2009. In addition to the usual list of audio recording media such as recordable CDs, CPCC again sought to apply the levy to "products that can record, store and play back sound recordings without the need for an external recording medium (‘digital audio recorders’)", such as MP3 players and iPOD^TM portable media players. CSMA and the Retail Council of Canada ("RCC") brought motions before the Board on the basis that the Federal Court of Appeal had already ruled that such devices were not "audio recording media" and could not be subject to the levy. The Board dismissed the motion and found that the Federal Court of Appeal’s earlier statements were obiter and therefore not binding on the Board.

In considering whether a digital audio recorder is an audio recording medium, the Copyright Board found that it is, based on the very broad definition of "audio recording medium" set out in the Act. The Board based its decision on the finding that digital audio recorders store reproductions of sound recordings and it does not matter that they can also make or play such reproductions.

We will have to wait to get further word on this issue as the Board’s decision is now back before the Federal Court of Appeal on a judicial review application brought by CSMA and RCC.

Footnotes (cont'd)

56 R.S., 1985, c. C-46, as amended. (http://laws.justice.gc.ca/en/C-46/)

57 c. 28 (Bill C-59) (http://www.parl.gc.ca/39/1/parlbus/chambus/house/bills/summaries/c59-e.pdf )

58 R.S., 1985, c. C-42, as amended. (http://laws.justice.gc.ca/en/C-42/index.html)

59 2007 SCC 37 (http://csc.lexum.umontreal.ca/en/2007/2007scc37/2007scc37.html)

60 See "Statutory Damages Under The Copyright Act" in The IP Year 2006 In Review (see note ).

61 2007 FC 659 (http://decisions.fct-cf.gc.ca/en/2007/2007fc659/2007fc659.html); affirmed at 2007 FCA 76 (http://decisions.fca-caf.gc.ca/en/2007/2007fca76/2007fca76.html)

62 2007 FC 1179 (http://decisions.fct-cf.gc.ca/en/2007/2007fc1179/2007fc1179.html)

63 2007 FC 1179 (http://decisions.fct-cf.gc.ca/en/2007/2007fc1179/2007fc1179.html)

64 http://www.cb-cda.gc.ca/decisions/m20071018-b.pdf

65 See "Ring Tones Cash In" in The IP Year 2006 In Review (see note ). An application for judicial review of the Ring Tone decision was heard by the Federal Court of Appeal on October 22, 2007. The Court has yet to release its decision.

66 http://www.cb-cda.gc.ca/decisions/i16032007-b.pdf

67 http://www.cb-cda.gc.ca/decisions/c19072007-b.pdf

68 See http://www.lexpert.ca/risingstars/pdf/G_and_M_web.pdf.

THE FASKEN MARTINEAU INTELLECTUAL PROPERTY GROUP KEEPS GROWING! In 2007, we again increased our patent bench strength by adding three patent agents to the group: Alexandre Abecassis, Serge Lapointe and Lesley Morrison. Alexandre practices in the area of high technology while Serge Lapointe is responsible for patents and patent applications in the biotechnology, pharmaceutical and chemical industries. Our most recent addition, Lesley practices in the area of high technology. All of our new patent agents draft, file and prosecute patent applications before CIPO, the USPTO and WIPO.

Chloé Latulippe and Marc-André Nadon have also joined us. Chloé and Marc-André practice in the fields of intellectual property, media and communications law. They represent and advise our clients on various aspects of intellectual property law, notably copyrights, trade secrets, patents and trade-marks.

On February 1, 2007 Fasken Martineau merged with U.K.’s Stringer Saul LLP, a London-based firm that specializes in listing companies on the Alternative Investment Market (AIM), the junior listing arm of the London Stock Exchange. The firm's London office, Fasken Martineau Stringer Saul (FMSS), is the world's first ever full service U.K.-Canadian law partnership and provides lawyers that practice both English and Canadian law. The office comprises more than 50 lawyers, many of whom are recognised specialists in their field of expertise.

The office provides a broad-based capability in commercial law including company and corporate, commercial agreements, intellectual property, information technology, tax, commercial property, employment, international trade and litigation services. The firm has a strong reputation, born out of specialist legal and commercial expertise, in a number of specific business areas including the AIM market, life sciences, mining and natural resources, publishing and retail property. Its expertise in patent litigation is recognised by its ranking amongst leading London firms in the Chambers 2008 directory, with Ralph Cox being named as a leading individual in the field. Chambers 2008 also gives a high ranking for the life sciences team with Gary Howes and Paul Ranson being highly rated leading individuals.

FMSS provides a gateway for businesses in the U.K. seeking to enter the Canadian market or faced with a Canadian legal issue. Similarly, it provides strategic legal advice on a wide range of Canadian business initiatives to the U.K., Europe and Africa.

In addition to our merger with U.K.’s Stringer Saul, Fasken Martineau also merged on April 1st, 2007 with the Ottawa firm of Johnston & Buchan LLP, a highly regarded Ottawa practice founded in 1980. The new Ottawa office of Fasken Martineau is comprised of 13 lawyers with extensive experience in communications, trade and business law as well as in a number of other areas of public law. With the new office, Fasken Martineau has added a substantial capability in intellectual property in the Ottawa region. In addition to their communications practices, Stephen Acker has an ancillary practice in trade-mark prosecution and oppositions while Aidan O'Neill, Jay Kerr-Wilson and Robert Buchan practice extensively in copyright law, particularly before the Canadian Copyright Board.

FASKEN MARTINEAU IN THE NEWS. Christian Leblanc of our Intellectual Property Group named Rising Star in the legal industry by Lexpert.⁶⁸ Christian is a partner in our Montreal Office. He practices commercial and civil litigation, with a particular emphasis on intellectual property, high technology, media law, communications and defamation. Honouring Canada's Leading Lawyers Under 40 from law firms and in-house, this Lexpert annual award recognizes the country's best and brightest lawyers under 40. The Lexpert Leading Lawyers Under 40 will be featured in the November/December issue of Lexpert magazine.

Congratulations to Stéphane Gilker and Marek Nitoslawski of our Intellectual Property Group who were both recognized Best Lawyers in Canada 2008. The prestigious The Best Lawyers in Canada 2008 directory lists 79 of the firm's lawyers as experts in various areas of practice. Each year, the legal directory compiles a list of lawyers recognized for their excellence in their field of practice. Nominees are selected by means of a rigorous survey and a series of interviews conducted with frontline lawyers. Inclusion in The Best Lawyers in Canada is a great distinction only conferred upon the very best practitioners.

Fasken Martineau awarded Best Integration Award by the Marketing Research and Intelligence Association (MRIA) On June 15, 2007, the Marketing Research and Intelligence Association (MRIA) granted Fasken Martineau and Corbin Partners Inc. its prestigious Best Integration Award. The award came as a result of the efforts of May Cheng, Julie DesRosiers and Leanne Shaughnessy for their innovative work in a trade-mark infringement case involving trade-marks owned by Victoria's Secret and La Senza. In conjunction with Corbin Partners Inc., the team integrated different sources of information including a mystery shopping survey which was accepted by the Ontario Superior Court of Justice as evidence of confusion on the interlocutory injunction application. This represented the first time a Canadian court has accepted mystery shopping as expert survey evidence in an intellectual property dispute.

Recognition for Fasken Martineau Stringer Saul’s IP and life sciences teams. The partners in our London office’s IP group are recognised leaders in the field in Chambers 2008 and the IP and life sciences group is also recommended by Legal 500. Our expertise in patent litigation is recognised by its ranking amongst leading London firms in the Chambers 2008 directory, with Ralph Cox being named as a leading individual in the field. Chambers 2008 also gives a high ranking for the life sciences team with Gary Howes and Paul Ranson being highly rated leading individuals.

think of us for ip. Comprised of a specialized group of lawyers, patent agents and trade-mark agents, our multidisciplinary group advises clients on all aspects of intellectual property and is dedicated to understanding the technology and business environment of our clients. Our combined technical training and experience offer a breadth of patent expertise in the life sciences, physical and logical systems, software, business methods, mechanical and electromechanical devices as well as manufacturing systems, methods and processes.

We also have trade-mark lawyers, registered agents and clerks who file and prosecute trade-mark applications in Canada and internationally through an established network of associate law firms. Our trade-mark professionals are also experienced in validity/infringement opinions, availability/clearance reports, litigation and commercial transactions.

Professionals in our Intellectual Property Group are active committee members of various legal and industry associations, and frequently present and publish on topics of interest in the field of intellectual property law. Our IP litigators have extensive tribunal and litigation expertise having litigated on both the provincial and federal levels, and are experienced with all Courts at all levels of common law and civil law, including Quebec, in a wide range of intellectual property disputes.

Overview Fasken Martineau is one of Canada’s leading national business law and litigation firms. Internationally, our London and New York locations make Fasken Martineau a leader among Canadian firms with an established presence in the two major financial centres of the world and our Johannesburg office makes Fasken Martineau unique, as the only Canadian law firm with an office on the African continent.

Our Global Mining Group has been ranked Number One globally for three years in a row by Who’s Who Legal; the International Who’s Who of Business Lawyers. Many of the firm’s lawyers are acknowledged leaders in their fields of expertise. Seventy-five of our lawyers are recognized in the Canadian Legal Lexpert Directory. Nineteen are ranked among the 500 leading lawyers in Canada. Fourteen of the firm’s partners are cited in the prestigious Chambers Global "The World’s Leading Lawyers" Directory. Fasken Martineau is acknowledged for its particular experience in cross-border M&A and securities work, banking and financial services, information technology law and intellectual property, insolvency and restructuring, tax, litigation, labour, estates and trusts, and arbitrations.

The firm provides services in virtually all areas of Canadian law to clients located within Canada and internationally, and in almost all industry sectors. Fasken Martineau also has expertise in both of Canada’s legal systems, common law and civil law, and offers services in both English and French.

Co-Editors: Mark D. Penner and Leanne Shaughnessy. Any questions or comments regarding this publication as well as requests for reproductions should be directed to the editors.

This publication is intended to provide information to clients on recent developments in provincial, national and international law. Articles in this bulletin are not legal opinions and readers should not act on the basis of these articles without first consulting a lawyer who will provide analysis and advice on a specific matter. Fasken Martineau DuMoulin LLP is a limited liability partnership and includes law corporations.

**Please click on the Previous Page' link below to read Part 2 of The IP Year 2007 In Review: Trade-marks.

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