Parallel importing is the practice of buying legitimate goods in a country where they are sold at a relatively low cost, and importing them into a country—in this case, Canada—where their official distributors charge more.
C-8, on the verge of passing through the House of Commons, amends the Copyright Act and Trademarks Act to crack down on the importation and sale of counterfeit goods. However, it fails to address legal loopholes that keep parallel importers operating under the threat of lawsuits or the seizure of their goods.
In 2007, Euro-Excellence appealed to the Supreme Court of Canada to allow it to continue importing Toblerone bars from Europe and selling them in Canada, under protest by the licensed Canadian distributor, Kraft Canada. The importer won, on what Kraft Canada’s lawyer, Timothy Lowman of Toronto’s Sim Lowman Ashton and McKay LLP, called a technicality.
Parallel importers may be exposed: Lawyer
Bill C-8’s language could make it easier for Canadian copyright holders to sue parallel importers or have their products held up at the border, said Howard Knopf, an intellectual property lawyer at Ottawa’s Moffat and Co. Macera and Jarzyna, who represented an intervener in the Kraft Canada case.
“I think the government means well but I think that for one reason or another C-8 is not written well and it’s ambiguous, and it could end up accomplishing precisely the opposite of what they say they wanted to do,” he said in an interview.
C-8 includes a section that intends to exempt parallel importers from criminal liability, but the language used throughout the bill is just vague enough that it could be misinterpreted in civil or criminal courts, Mr. Knopf argued.
He pointed to several sections in C-8 that allow for the importation and sale of products manufactured with “the consent of the owner of the copyright in the country where the copy was made.” He said it is unclear whether that refers to a Canadian copyright owner giving a foreign manufacturer permission to make its product, or a foreign copyright owner doing the manufacturing itself.
Not so, said a handful of other copyright lawyers who argued the language clearly referred to the latter (making parallel importing legal). Each, in turn, listed other ways C-8 or existing law could be used to challenge parallel importation.
Section 27 of the Copyright Act contains language that makes it illegal to import copyrighted goods that were manufactured abroad if it would have been illegal for that manufacturer to make them in Canada.
During the Euro-Excellence case, Kraft Canada argued that its European parent company didn’t have the right to manufacture Toblerone bars—in particular, the logo on the wrapper, the subject of the copyright—in Canada. The court disagreed, since the parent company had only licensed its copyright to Kraft Canada, not transferred it, and thereby retained those rights. The judges were split over whether copyright could be applied to the label of products that, like chocolate bars, cannot be copyrighted.
Copyright holders can still try their luck in the courts using this provision, or by arguing that the foreign distributors parallel importers buy from have breached their contractual guarantees not to export, and C-8 won’t change that, Mr. Lowman said in an interview.
C-8 contains language similar to section 27 that could provide venues for legal action by Canadian copyright holders, who aren’t keen on being undercut by parallel importers cashing in on their product, said Mr. Knopf and Jeremy de Beer, a copyright lawyer and professor at University of Ottawa.
However, Brian Gray, a copyright lawyer with Norton Rose Fulbright Canada LLP, disagreed, arguing the inclusion of the word “and” between two clauses negated that point.
The language of the bill is “extremely complex, laden with uncertainty, and almost certain to provoke litigation,” Mr. de Beer wrote in an email. “In those circumstances, small and medium sized enterprises are typically disadvantaged.”
The disagreement on C-8 continued over sections giving greater power to Canada Border Services Agency officers to seize counterfeit goods. While designed to exempt parallel imported goods from such seizure, C-8 gives more discretion to the officers to distinguish one from the other, said Mr. Knopf.
C-8’s new criminal offences and border measures do not include parallel imported goods, Industry Canada spokesperson Derek Mellon said in an email.
Parallel imports tied to cross-border pricing
The ambiguity around parallel imports will continue at a time when their value is likely in play in trade deals and the government’s 2014 budget promise to address cross-border pricing discrimination.
The International Intellectual Property Alliance, a coalition of United States trade associations with a stake in intellectual property, recommended in a report last month that more power be given to CBSA officers to seize goods copyright holders believe to be counterfeit without first obtaining a court order.
However, blocking parallel imports would erect another barrier to the free flow of goods between countries. Furthermore, Canada’s government promised in this year’s budget to introduce legislation to “prohibit unjustified cross-border price discrimination to reduce the gap between consumer prices in Canada and the United States.”
Parallel importation can lower the price of goods, at least in theory, said Mr. Knopf and Mr. Gray.
“The restriction on parallel importing is one of the contributing factors to why prices in Canada are often more expensive than in the United States. In the 2014 Budget, the federal government announced its intent to address country pricing,” wrote Jason McLinton, federal government relations director for the Retail Council of Canada in an email, which Mr. Knopf represented in the Euro-Excellence case.
“Discriminatory cross-border pricing practices are unacceptable,” said Jake Enwright, press secretary for Industry Minister James Moore in an email. “That is why we will introduce legislation to prohibit [it].”
Mr. Lowman and McCarthy Tétrault copyright lawyer Barry Sookman say copyright holders have been unwilling to contort their licensing and ownership agreements and jump through the other hoops needed to exploit the existing legislation, and are unlikely to do so in great numbers if C-8 is passed into law.
Border officers won’t waste their time detaining parallel imported goods, and will instead focus on clear-cut cases of counterfeiting, said Kestenberg Siegal Lipkus LLP’s David Lipkus, who agreed rights holders are, for the most part, unwilling to bother suing over parallel imports.
Furthermore, parallel importation can lead to even higher prices, said Mr. Lowman. Importers take a “free ride” on the popularity of copyrighted brand names without paying the cost of promoting those brands, adding competition and straining the bottom line of copyright owners, he said.
In turn, those owners could raise prices, since the vendors that sell parallel imported products often match the pricing of goods manufactured by rights holders in order to maximize profit.
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