Date: 20080613
Docket: T-1905-07
Citation: 2008 FC 737
Ottawa, Ontario, June 13th 2008
PRESENT: The Honourable Mr. Justice de Montigny
BETWEEN:
THE
CANADIAN COPYRIGHT LICENSING AGENCY
Plaintiff / Defendant by
Counterclaim
and
THE
BUSINESS DEPOT LTD.
Defendant / Plaintiff by Counterclaim
REASONS FOR ORDER AND ORDER
[1]
This is an
appeal by the Defendant/Plaintiff by Counterclaim, The Business Depot Ltd.
(“Business Depot”), of an Order of Prothonotary Aalto dated April 30, 2008. In
his order, the Prothonotary struck out the Counterclaim of the Defendant
without leave to amend and held that “[t]he counterclaim simply does not plead
material facts sufficient to support a cause of action under Section 7(a) of
the [Trade-marks Act]”. The Prothonotary also ruled that “the
[Defendant’s] claims for aggravated, exemplary and punitive damages and the
injunctive relief must fail since they flow from the claims arising from
Section 7(a)”.
[2]
In this
appeal, Business Depot argues that the Prothonotary made reviewable errors of
law and misapprehended the facts. As a result, it seeks an order allowing this
appeal and setting aside the decision of the Prothonotary or, in the
alternative, granting Business Depot leave to amend the Statement of Defence
and Counterclaim.
I. Factual background
[3]
The
plaintiff, the Canadian Copyright Licensing Agency (“Access Copyright”) is a
non profit corporation that acts as a collective society under section 70.1 of
the Copyright Act ( R.S., 1985, c. C-42 ) (“Copyright Act”) to carry out
the collective administration of copyright for the benefit of the owners of the
copyright in certain published works.
[4]
The
defendant is a retailer that operates approximately 298 retail locations in Canada under the business names
“Staples”, “Business Depot”, “Staples Business Depot”, “Bureau en Gros” and
“Staples Bureau en Gros”. Business Depot sells office supplies, business
machines and office furniture, and provides business services, including
in-store photocopying services, to retail and small business customers.
[5]
The
plaintiff has alleged in its Statement of Claim that, through its offering of
photocopying services, the defendant has engaged in both direct copyright
infringement and the authorization of copyright infringement over a period of
several years. In its Statement of Defence, Business Depot has defended the
infringement claim on the basis, inter alia, that it allows its
employees to make copies of works only for patrons who represent that they own
the copyright in a particular work or have the permission of the copyright
owner to copy the work, that it is not necessary to have a license from Access
Copyright to offer photocopying services to the public, and that any copying by
Business Depot customers constituted fair dealing pursuant to section 29 of the
Copyright Act.
[6]
Following
the filing of the Statement of Claim, the plaintiff issued a press release
summarizing the claims being asserted against the defendant in this action. This
statement was posted on Access Copyright website, and reads as follows:
FOR IMMEDIATE RELEASE :
Access
Copyright Sues Staples/Business Depot for Copyright Infringement
November
15, 2007
Toronto, ON – Access Copyright, an organization
representing the copyright of almost 9,000 Canadian writers and publishers is suing
Staples/The Business Depot for copyright infringement.
The
lawsuit, filed by Access Copyright, contains the largest claim to arise from
copyright infringement of published works in Canada.
The
lawsuit seeks $10 million in damages, including a claim for punitive damages.
Staples/Business
Depot is a sizeable, for-profit organization that has built part of its
business through a lucrative service that exploits the published works of
authors, photographers and publishers. Companies that photocopy illegally are
effectively taking money directly out of the pockets of creators and publishers
who depend on book sales and copyright royalties for their livelihood.
“Companies
that profit from illegal photocopying are undermining the work of others”, said
Maureen Cavan, Executive Director of Access Copyright. “Staples/Business Depot”
is no different from those organizations that profit from illegally downloading
copyright protected music or the unauthorized sharing of videos and published
works on the internet.”
Access
Copyright has been continuously investigating Staples/Business Depot since 1998
in response to concerns raised by creators and publishers over infringement
activities. Despite repeated attempts by Access Copyright to reach a settlement
and come to an amicable resolution, Staples/Business Depot has made no
perceivable changes to their business practices.
Access
Copyright, The Canadian Copyright Licensing Agency, is a not-for-profit
organization founded by Canadian creators and publishers to meet the needs of
users of copyright protected works, while ensuring fair compensation for that
use. Access Copyright works with organizations in all sectors to help them
operate legally by providing access to licences that allow for the legitimate
use of published copyright protected materials.
[7]
In its Counterclaim,
the defendant alleged that certain quoted statements in the press release
issued by the plaintiff were « false and misleading », « tend to
discredit the business, wares and services » of the defendant, and
« have damaged the corporate image, reputation and goodwill » of the
defendant. As a result, Business Depot claims against Access Copyright general
damages in the amount of $1 million pursuant to section 7(a) of the Trade-marks
Act ( R.S., 1985, c. T-13 ) (“Trade-marks Act”) ,
aggravated, exemplary and punitive damages, and an injunction prohibiting the
plaintiff from making any statements that the defendant is infringing any
copyright.
[8]
Since the hearing of
the motion to strike before the Prothonotary, but before the decision was
rendered, the defendant commenced a defamation action in the Superior Court of
Ontario based upon the same press release statements that were the basis of the
counterclaim.
II.
The impugned decision
[9]
Applying the well known
“plain and obvious” test for striking a claim, the Prothonotary was of the view
that the pleading fails to meet a clear and legislative imperative which
creates the cause of action, and therefore found that it is plain and obvious
the counterclaim cannot succeed. More particularly, he found that there is no
allegation in the counterclaim that Access Copyright is a competitor of
Business Depot, nor that any statement made by Access Copyright relates to any
intellectual property of Business Depot.
[10]
Quite apart from
these defects in the pleadings, the Prothonotary also found that Access
Copyright and Business Depot are not competitors within the meaning of s. 7(a)
of the Trade-marks Act, and that a statement can only be actionable
under that provision if it impugns the intellectual property of Business Depot,
which it does not.
[11]
Finally, the
Prothonotary also came to the conclusion that the press release did not amount
to a threat to revert to the legal access directed to third persons dealing
with the defendant’s product.
III.
Standard of review
[12]
There is no dispute
between the parties that the Prothonotary’s decision with respect to striking
the Counterclaim relates to a question that is vital to the final issue of the
Counterclaim, as it disposed of the cause of action in the Counterclaim in its
entirety. Accordingly, this Court ought to exercise its discretion de novo:
Canada v. Aqua-Gem Investments Ltd.,
[1993] 2 F.C. 425 (F.C.A.), 149 N.R. 273; Merck & Co., v. Apotex
Inc., 2003 FCA 488, [2004] 2 F.C.R. 459, (2003).
IV.
Issues
[13]
At issue in this
appeal are the following questions:
a.
What is the test to
be applied in determining whether to strike out a pleading pursuant to Rule
221(1)(a) of the Federal Courts Rules (SOR/98-106)?
b.
Did the Prothonotary
err in determining that the defendant was not a “competitor” of the plaintiff
within the meaning of section 7(a) of the Trade-marks Act?
c.
Did the Prothonotary
err in determining that the scope of section 7(a), as constitutionally
restricted by previous court decisions, did not extend to the impugned
statements made by the defendant because those statements were not about the
intellectual property of the defendant?
V.
Analysis
[14]
The test for striking
out a pleading is well established and has been spelled out by the Supreme
Court of Canada in Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959,
74 D.L.R. (4th) 231. Assuming the facts alleged in the pleadings to
be true, it must be “plain and obvious” that the pleading discloses no
reasonable cause of action for a claim to be struck out. Since this is quite a
draconian measure, the onus of proof on the party seeking to strike pleadings
is a heavy one. The complexity or novelty of the question that the plaintiff
wishes to bring to trial should not act as a bar to that trial taking place.
[15]
That being said, a
claim must nevertheless meet a minimum standard of “reasonableness” and have
some chance of success in order to avoid being struck out. As the Federal
Court of Appeal stated in Prentice v. Canada (RCMP), 2005 FCA 395,
[2006] 3 F.C.R. 135:
[23]
A motion to strike a pleading under paragraph 221(1)(a) of the Federal Court
Rules, on the ground that it discloses no reasonable cause of action will
be allowed only if, assuming the facts alleged in the statement of claim to be
true, the judge concludes that the outcome of the case is “plain and obvious”
or “beyond reasonable doubt” (see Hunt v. Carey Canada Inc.,
[1990] 2 S.C.R. 959, Wilson J. at page 980). It is clear from what Madam
Justice Wilson said that the power to strike out pleadings must be exercised
with considerable caution and reluctance and that neither the length or
complexity of the issues nor the novelty of the cause of action should prevent
a plaintiff from proceeding with his or her action.
[24]
That does not mean, however, that a party who advances an unprecedented cause
of action will have an easy time of it at the motion to strike stage. The
courts are certainly prepared to give such a party his or her day in court, but
the cause of action, novel as it may be, must still have some chance of being
recognized at the end of the road. A cause of action is not “reasonable”
simply because it has not yet been explored. The courts must not naively
assume that something novel is or may be part of the normal course of evolution
in the law…
(…)
[26]
It also goes without saying that it is the facts that are assumed to be true,
not the facts as they may be interpreted by the plaintiff in his statement of
claim or the legal assertions that he may make in it.
[16]
It is therefore with
this standard in mind that I must now proceed to determine whether the
Prothonotary erred in striking the defendant’s counterclaim without leave to
amend.
[17]
Section 7(a) of the Trade-marks
Act provides as follows:
|
Prohibitions
7. No person shall
(a) make a false or misleading
statement tending to discredit the business, wares or services of a
competitor;
|
Interdictions
7. Nul ne peut :
a) faire une déclaration fausse
ou trompeuse tendant à discréditer l’entreprise, les marchandises ou les
services d’un concurrent;
|
[18]
It appears from the
wording of that subparagraph that the “competitor” requirement is a fundamental
element of section 7(a). Yet, there is no allegation in the counterclaim that
the plaintiff is in any way a “competitor” of the defendant. On its face, the
counterclaim is therefore deficient as it fails to allege on of the constituent
elements of the statutory prohibition.
[19]
Leave could obviously
be granted to amend the counterclaim. But the real issue is whether it could reasonably
have been alleged that the plaintiff is in any way a competitor of the
defendant. The Prothonotary found that the parties are clearly not in the same
business and could not be described as competitors, especially in light of the
fact that one is a non-profit corporation established to carry out the
collective administration of copyright for the benefit of the owners of
copyright in certain published works while the other carries on a retailing
business.
[20]
It is no doubt true,
as argued by the defendant, that there is no definition of “competitor” in the Trade-marks
Act, and there is no definitive case law on this issue. But is that
sufficient to conclude that there exists a contentious legal issue of statutory
interpretation to be resolved, and a reasonable cause of action that should be
left for argument at trial? I do not think so.
[21]
In the absence of any
specific definition of a word in a statute, it must be given its natural
meaning, taking into account the objective of the Act. Dictionaries are
replete with definitions of “competitors” and “competition” which, by and
large, accord with the Prothonotary’s own interpretation. West’s Law and
Commercial Dictionary in Five Languages (west Publishing Company, 1985),
for example, defines “competitors” as “persons endeavoring to do the same thing
and each offering to perform the act, furnish the merchandise, or render the
service better or cheaper than his rival”. Similarly, the Pocket Dictionary
of Canadian Law (Thomson Carswell, 4th ed., 2006) ascribes to
the word “competition” two meanings, the most relevant of which for our
purposes being “a situation when two or more businesses seek customers in the
same market-place”.
[22]
The defendant argues
that a non-profit copyright collective like the plaintiff can be a “competitor”
of a retailer like the defendant because each party alleges that their revenue
is affected by the other party’s activities. Indeed, Access Copyright alleges
in its Statement of Claim that it has lost income, royalties and opportunities
to enter into licenses because of Business Depot’s activities, while Business
Depot alleges in the Counterclaim that the press release aimed to coerce it to
take a license. To put it differently, the defendant argues that the parties
are competitors because Access Copyright is competing for revenue generated
from photocopy sales, directly by trying to coerce Business Depot to pay part
of its photocopying revenue to Access Copyright, and indirectly because Access
Copyright earns revenue through licensing other photocopy service providers in Canada.
[23]
This argument, though
appealing, cannot hold sway. It is a matter of common sense that a
“competitor” of the defendant must compete with the defendant for customers in
the marketplace. The plaintiff clearly does not do so, either directly or
indirectly. Far from competing with retailers, it provides them with copyright
licenses that they require in order to carry on their businesses. Indeed, the
defendant offers no explanation of how the plaintiff can offer a license to the
defendant and yet remain a “competitor”.
[24]
The defendant’s
arguments rely upon the fact that the plaintiff is entitled to a portion of the
photocopying revenue earned by retailers like the defendant when they reproduce
the plaintiff’s copyright works, but this should not be confused with competing
for photocopying customers or revenues. It seems to me the royalties to be
paid by the defendant to the plaintiff should be more properly equated to the
various costs incurred by a retailer involved in a business similar to that of
the defendant. The fact that a rent increase may have an impact on a
retailer’s profit, for example, does not make the landlord a competitor of the
defendant.
[25]
I am therefore of the
view that the Prothonotary was correct, on the facts before him, in finding
that Business Depot and Access Copyright are not competitors for the purpose of
subsection 7(a) of the Trade-marks Act. They simply do not sell the
same products, and they are not in the same market. Even if it could be argued
that Access Copyright is losing revenue as a result of its licensed photocopy
service providers themselves being stripped of photocopying revenues at the
expense of Business Depot, this would still not be sufficient to consider that
they are competing with each other. Loss of revenue in such an indirect way
does not turn a non-profit corporation, established to carry out the collective
administration of copyright, into a competitor of a retailer. In coming to
that conclusion, I do not need to determine whether a licensor is always to be
excluded from the ambit of subsection 7(a). It may be that in some
circumstances, a licensor and a licensee can be competitors. But this is
clearly not the case here, and there is no need for a trial to determine that
issue. Nothing that could be added to the pleading would enable the defendant
to obviate this obstacle.
[26]
This finding, in and
of itself, would be sufficient to dispose of the appeal. But the Prothonotary
gave another reason for striking out the counterclaim. As already mentioned,
he came to the conclusion that the cause of action, pursuant to s. 7(a) of the Trade-marks
Act, must relate to a false and misleading statement made in respect of a
trade mark or other intellectual property. As there is no allegation that any
statement made by Access Copyright relates to any trade mark or intellectual
property of Business Depot, but only refers to infringing business activities,
he found that the counterclaim could not stand.
[27]
It is not in dispute
that section 7(a) of the Trade-marks Act creates a cause of action that
is similar to the tort of slander of title or injurious falsehood and has the
same requirements: (a) a false and misleading statement; (b) tending to
discredit the business, wares and services of a competitor; and(c) resulting
damage. The Supreme Court of Canada has held, however, that the scope of
section 7(a) must be further “read down” in order to be constitutionally
valid. Section 7(a) can only be a constitutionally valid enactment of the
federal Parliament if it is limited to “rounding out” the regulatory scheme in
the Trade-marks Act. For section 7(a) to be valid, its application must
be limited to creating a cause of action relating to false and misleading
statements made about a trade-mark or other intellectual property owned by the
claimant. As Chief Justice Laskin stated in MacDonald v. Vapor
Canada Ltd. (1977), 66 D.L.R. (3d) 1, [1977] 2 S.C.R. 134, at pp. 172-173:
…Neither
s. 7 as a whole, nor section 7(e), if either stood alone and in association
only with s. 53, would be valid federal legislation in relation to the
regulation of trade and commerce or in relation to any other head of federal
legislative authority. There would, in such a situation, be a clear invasion of
provincial legislative power. Section 7 is, however, nourished for federal
legislative purposes in so far as it may be said to round out regulatory
schemes prescribed by Parliament in the exercise of its legislative power in
relation to patents, copyrights, trade marks and trade names.
See
also: Gill and Jolliffe, Fox on Canadian Law of Trade-marks and Unfair
Competition, 4th ed., Toronto, Thomson Carswell, 2002, at p. 2-23.
[28]
In an attempt to
avoid the limitations set by the Supreme Court, the defendant argues that the
elements of section 7(a) of the Trade-marks Act form the basis for a
cause of action if there is an association between the false and misleading
statements and the intellectual property either of the plaintiff or of the
defendant. The Prothonotary therefore erred, according to the defendant, in
holding that the abuse of rights must relate to intellectual property belonging
to Business Depot, not Access Copyright. In any event, contends the defendant,
there is a link between Access Copyright’s statements and the intellectual
property both of Business Depot and of Access Copyright.
[29]
As for the
association with Business Depot’s intellectual property, the defendant contends
that the requirement does not mean that the statement must be “about” the trade
mark, trade name or other intellectual property of the claimant, but merely
that it “evokes” such intellectual property. The sole authority for this
proposition is an injunction decision of the Ontario Court (General Division)
in Maple Leaf Foods Inc. v. Robin Hood Multifoods Inc. (1994), 58
C.P.R.(3d) 54, 17 B.L.R. (2d) 86 which does not mention section 7(a) and merely
notes that the plaintiff had an arguable case in order to justify an
interlocutory injunction. Not only was the distinction now suggested by the
defendant not mentioned or discussed by the court, but the advertisements
complained of included the plaintiff’s trade-marks. None of the other cases
that have specifically dealt with section 7(a) support this argument by the
defendant.
[30]
The defendant also
submits that section 7(a) serves to limit the extent to which owners of
intellectual property can assert their rights in intellectual property.
According to the defendant, that section is intra vires when the basis
for a false and misleading statement is an allegation of unauthorized use of
intellectual property. In the present case, so goes the argument, Access
Copyright has made untrue statements about the scope of its interest in
copyright, accusing Business Depot of copyright infringement. Such statements
constitute an abuse of rights granted by the Copyright Act, contends the
defendant.
[31]
In support of its
argument, the defendant relied on a line of patent abuse cases in which
defendants threatened (but had not commenced) infringement proceedings in order
to intimidate customers into refusing to deal with a competitor. It is true
that in Riello Canada, Inc. v. Lambert, [1986] 3 F.T.R. 23, 9
C.P.R.(3d) 324 (Riello) and in S. & S. Industries Inc. v. Rowell,
[1966] S.C.R. 419, 56 D.L.R. (2d) 501 (S. & S. Industries Inc.) the
statements at issue referred to the writer’s intellectual property (contrary to
what the Prothonotary stated in referring to Riello), just as Access
Copyright’s statement referred to Access Copyright’s intellectual property.
[32]
But this is not
sufficient to overturn the Prothonotary’s decision. The line of patent abuse
cases, commencing with the decision of the Supreme Court in S&S
Industries, has clearly limited the validity of a section 7(a) claim to the
improper assertion of patent rights without the commencement of an infringement
action, and is an extension of the common law in the 19th century.
But this line of cases has never been applied to copyright claims or to
statements made after litigation has been commenced (Safematic, Inc. v. Sensodec
Oy (1988), 20 FTR 132, 21 C.P.R.(3d) 12; Levi Strauss & Co. v. Timberland
Co. (1997), 74 C.P.R. (3d) 49, 79 A.C.W.S. (3d) 929)..
[33]
The facts of this
case are quite different from those at issue in Riello. Access Copyright
did not say to potential consumers that they owe royalty to licensors.
Moreover, Business Depot can certainly run its business without a license,
provided it does not infringe the Copyright Act. Section 7(a) of the Trade-marks
Act deals essentially with trade liability, and relates to unfair
competition. While it has been expended to cover false misleading statements
related to patents, it has never been used in the context of copyright,
especially when a statement has been made after an action has been launched.
[34]
The defendant does
not dispute that once its claim pursuant to section 7(a) of the Trade-marks
Act was struck out, there was no remaining cause of action upon which a
claim for aggravated, exemplary and punitive damages or an injunction can be
founded.
[35]
As a result of the
foregoing, this appeal from the decision of the Prothonotary is dismissed, and
his decision striking out the Counterclaim of the defendant without leave to
amend is confirmed.
ORDER
THIS COURT ORDERS that:
·
The appeal
is dismissed;
·
The
decision of the Prothonotary striking out the Counterclaim of the defendant
without leave to amend is confirmed;
·
The time
for the delivery by the plaintiff of its reply is extended to 30 days from the
date of this Order; and
·
Costs of
this motion and costs of the motion before the Prothonotary are awarded to the
plaintiff, to be computed in accordance with the middle of Column III of Tariff
B of the Federal Courts Rules.
"Yves
de Montigny"
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