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May 3, 2004, Montréal - Federal Court Rules in Favour of Kraft in Toblerone and Cote d'Or Gray Marketing Case
Regarding the issue of gray marketing, the Federal Court of Canada granted a permanent injunction against a Québec distributor of genuine Toblerone and Cote d'Or chocolate bars based on a claim of copyright infringement in certain elements on the packaging. Gray marketing, at least from an international perspective, refers to the legal importation of genuine goods into a country through an unauthorized distributor. That is, a gray market is said to develop where goods intended for sale in one country end up in another country through an unauthorized distribution channel.
In this case, a Québec distributor, Euro Excellence (“Euro”) had distributed the Côte d'Or brand of chocolate bar under a distribution agreement with Kraft Foods Belgium S.A. (“Kraft”). In December 2000, Kraft chose not to renew this agreement, instead entering into a distribution agreement with Kraft Canada Inc. (“Kraft Canada”). Euro continued its Canadian distribution of Côte d'Or chocolate bars and began to also distribute the Toblerone chocolate bars. These products were obtained outside of Canada from an unknown supplier.
Kraft filed to register a number of copyrights associated with these brands. Three copyrights were registered for Côte d'Or: an elephant, a script of Côte d'Or and a red shield. For the Toblerone brand, a mountain in which a bear is discernable within the image was registered. Kraft immediately entered into an exclusive licensing agreement with Kraft Canada for the use of these works. Kraft then sought an order barring the importation of products bearing these copyrighted works. In other words, Kraft was not seeking to stop the sale of the chocolate bars themselves, just the distribution of certain artwork on the wrappers. According to the Court, “The idea is that the cost of re-wrapping or covering over the copyrighted artwork would act as a major disincentive.”
The court considered the validity of the copyrighted works in question. While the script and red crest of the Côte d'Or copyrights were found insufficiently creative to justify copyright, both the Côte d'Or elephant and the Toblerone mountain copyrights were upheld as works warranting protection. In finding that Euro infringed Kraft's copyrights, the Court ruled: “The language [of the Copyright Act] is clear, and the very purpose of the Act is to prevent unauthorized distribution of copyrighted works. There is nothing to prevent Euro Excellence from replacing the wrappers or otherwise covering over the copyrighted material.”
In its ruling, the court awarded Kraft Canada a permanent injunction restraining Euro from distributing, exposing or offering for sale any copies of the artistic works, namely packaging design elements identified as the copyrighted works. A similar injunction required Euro to render non-infringing any material in their possession before selling, distributing, exposing or offering for sale any Toblerone or Côte d'Or product. An additional $300,000 in damages was awarded. Euro has filed an appeal.
The decision can be found on the Federal Court of Canada website: http://decisions.fct-cf.gc.ca/fct/2004/2004fc652.shtml
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