Grey Law on Grey Books

Last month, the United States Supreme Court held in Kirtsaeng v. John Wiley & Sons that it was non-infringing of copyright to import books into the United States that had been legally purchased elsewhere. The decision upheld the “first sale doctrine,” a concept that says once a publisher sells a copy of a work to a member of the public, the buyer is free to do sell or dispose of the copy as they wish. In Canada, the situation is less clear.

The defendant in the United States proceeding, Mr. Kirtsaeng was a student at Cornell University who bought foreign editions of English language textbooks at book stores in Thailand, imported them into the Unites States and sold them to other students for a profit. These were books published by John Wiley & Sons’ Asian licensees – they were not counterfeit or pirated. The Court’s holding that such importation was not copyright infringement was based on the wording of the U.S. law.

The Copyright Act addresses parallel imports in the definition of “infringing”

The definition [of infringing] 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;

For books, Section 27.1 explicitly restricts the parallel importation or gray market in books where there is an exclusive distributor of the book for the particular region or market sector. The importer can be sued for copyright infringement and the books held at the border by customs officials. According to a 2012 report by Canadian Heritage, approximately 70% of foreign book titles are sold by an exclusive distributor.

The Copyright Act requires that the exclusive distributor provide notice to the importer before it can bring an infringement action and to meet certain service and pricing requirements. The Book Importation Regulations provide details on the requirements and scope of the book importation restrictions.

The Regulations impose requirements on the notice provisions and on the markup permitted by the distributor. The Copyright Act contains several exceptions relating to the importing of books, including importing copies for a person’s own use, importing used books and used textbooks. These special provisions for books were introduced, in part to protect the Canadian publishing sector. It has not been determined if the Book Importation Regulations or other book-specific provisions apply to e-books – a “book” is defined in the Copyright Act as being “in printed form”.

For copyright protected works, including books, parallel imports are also addressed by Section 27(2) of the Copyright Act which defines “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,

(c) by way of trade distribute, expose or offer for sale or rental, or exhibit in public,

(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. (emphasis added)

The Supreme Court of Canada considered the parallel importation of chocolate bars having copyright protected logos in its 2007 decision, Euro-Excellence Inv. v. Kraft Canada Inc. Euro Excellence purchased Côte d’Or and Toblerone chocolate bars in Europe, imported the bars into Canada and sold them to the public. Kraft Canada was Kraft’s exclusive distributor in Canada and sued for copyright infringement.

The judges of the Supreme Court of Canada provided four separate written decisions. A majority of the judges held for Euro Excellence but for different reasons which makes it difficult to draw any strong conclusions. A majority of judges held in favour of Kraft on the two main issues before the Court but due to vote dividing the appeal was allowed.

One focus of the decision was on the relationship between the Kraft parent companies which owned all the copyright at issue and Kraft Canada, which was merely an exclusive licensee in Canada.

A minority of judges held that an exclusive licensee could not sue the copyright owner for copyright infringement. In the hypothetical of the final clause of Section 27(2), if the Kraft parent companies, the actual “makers” of the copyright works at issue, had made the chocolate bars in Canada, Kraft Canada would not be entitled to sue them for infringement under the Copyright Act, but only for breach of contract. A majority of the Court held that Kraft Canada would have been able to sue.

A number of judges were also troubled by the “incidental” use of copyright on the packaging to restrict international trade in chocolate bars. Justice Fish wrote at paragraph 56:

Without 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.

After losing at the Supreme Court, Kraft assigned, as opposed to licensed, all Canadian rights to the copyright to Kraft Canada. As owner of the copyright in Canada, Kraft Canada brought a new action against Euro Excellence for copyright infringement, which settled.

If Kirtsaeng, the plaintiff in the US proceeding, had studied at the University of Toronto instead of at Cornell University, could he have legally imported English language textbooks into Canada? It depends.

There are a number of factors that would affect whether the importation would be infringement, including whether copyright was owned in Canada or elsewhere, the type of license agreement, if any, with a Canadian distributor, whether there was an “exclusive distributor” for the books; if he is found to have been operating as a “bookseller” under the Regulations, and whether the exclusive distributor notified him of the distribution agreement for Canada and is meeting its service requirements under the Regulations.

It is unlikely that a Canadian court would have made such a broad ruling as Kirtsaeng allowing the parallel importation of books under Canadian law because of the book specific regulations we have.