In this column, I present five court decisions from last year, which either confirm or question our past understanding of various intellectual property law issues. The first involves the scope of an indemnity clause in a license agreement, the second involves the ownership of a commissioned work, the third involves a potential defence to copyright infringement, the fourth involves copyrighted words applied to useful articles, and the fifth involves whether a work, which draws significantly from a copyrighted work, may nevertheless be permitted under the law.
The Scope of an Indemnity Clause in a License Agreement
Walt Disney Co. (Canada) entered into a license agreement with Philhobar Design Canada Ltd. on January 1, 2006, granting Philhobar, the licensee, non-exclusive use of certain defined “Creative Works, Trademarks, Branded Icons, and Disney Character Artwork” in association with specified consumer goods, including t-shirts. The license agreement was governed by the laws of Ontario and the licensed rights were restricted to Canada. The license agreement contained a warranty and indemnity provision, which required the licensee to defend, indemnify and hold harmless Disney from all costs arising out of any third part claim in respect of any actual or alleged breach by the licensee of any representation, warranty, or covenant made in the license agreement, or otherwise arising out of licensee’s activities or omissions under the license agreement.
In August 2007, New Name, Inc. commenced legal proceedings in California against Disney and its US affiliate claiming that New Name owned copyright and trademark rights in “Reason” design and “Sweet & Toxic” design in Canada and the US. The plaintiff alleged that certain t-shirts, designed, manufactured or sold by the licensee, which included certain intellectual property licensed to the licensee pursuant to the license agreement, infringed the plaintiff’s legal rights.
Disney gave the licensee notice of the action, however the licensee refused to defend the action. The defendant contended that its obligation under the indemnity provision was limited to the territory of the license, namely, Canada. As a result, Disney brought an application in the Ontario courts to compel the licensee to fulfill its obligations under the license agreement.
The Ontario Superior Court of Justice ruled that because the warranty and indemnity provision of the license agreement was not qualified by any geographical territory, it was not geographically limited. The court said that if the indemnity were limited to the territory of the license, then the licensee would be permitted to sell products in association with the licensed intellectual property outside of Canada without consequence. As Disney had fulfilled all of its obligations under the license agreement, the court found that Disney was entitled to declaratory relief. The licensee was ordered to defend the action in California, indemnify and hold harmless Disney, and also to pay damages for breach of the license agreement.
It is the normal course that if an employee creates a work in which copyright arises in the course of his employment duties, then the employer of the employee is the first owner of the copyrighted work. Likewise, where an independent contractor creates a work in which copyright arises, it is the independent contractor who owns the copyright in such work. If you are hiring an independent contractor to create a copyrighted work, then it is important to expressly ensure that copyright ownership has been transferred from the independent contractor to the person who hired such contractor.
The Copyright Act does contain some exceptions. For instance, in the case that you commission a portrait, engraving, or photograph, the commissioner and not the person who actually created the portrait, etc., is the first owner of the copyright in such portrait, etc., provided certain other matters are true. So, what happens when an artist is not paid for the commissioned work?
In Don Hammond Photography Ltd. v. Consignment Studio Inc. a company commissioned a photography studio to take some photographs. However, such company never paid for such photographs. Nevertheless the company proceeded to use the photographs in advertisements even though the plaintiff asserted that any use of the photographs without payment to the plaintiff constituted copyright infringement. The company nevertheless claimed that by virtue of section 13(2) of the Copyright Act that such company was the copyright owner in the photographs because such company commissioned the work of the photographer. The court rejected the argument of the defendant and ruled that in the absence of payment for the commissioned work that section 13(2) did not apply and that the photographer was the copyright owner of the photographs.
Is Parody a Defence to Copyright Infringement (yet)?
Despite numerous attempts in the courts of Canada, parody remains an unreliable defence to copyright infringement.
This is despite the validity of the defence of parody in some other jurisdictions. In Canada, there is no reference to any such parody defence in the Copyright Act. Rather, it has always been the argument of litigants that the Canadian courts should read such a defence into the statute.
The leading case ruling that parody is not a defence to copyright infringement is the Michelin case. Regardless of such ruling, when allegations of copyright infringement are made against defendants, they never fail to raise the defence of parody if the facts of such case may support it.
In Canwest Media works Publications Inc. v. Horizon Publications Ltd., the plaintiff, who owns and operates the Vancouver Sun, sued the defendants for printing and distributing a parody version of the Vancouver Sun. The defendant alleged that the plaintiff had a particular bias in relation to news matters stemming from the Middle East. For that reason, the defendant created a parody version of the Sun to emphasis his perception of the newspaper’s bias. The defendant seemed to assert that the fake Sun was a parody and therefore did not infringe the Copyright Act due to the “fair use” exception. The British Columbia court rejected the defendant’s argument and followed Michelin holding that parody does not constitute an exception to copyright infringement and therefore could not constitute a defence.
In Crocs Canada Inc. v. Holey Soles Holdings Ltd., the plaintiff Crocs Canada sued the defendant for copyright infringement and passing-off related to the defendant’s sale of shoes which were virtually identical to the plaintiff’s famous shoes. The defendant sought to dismiss both claims on a motion for summary judgment.
In respect of the copyright infringement claim, the defendant argued that because the plaintiff applied the design at issue, namely, shoes featuring circle and semi-circle designs, in which copyright existed, to a useful item, i.e. a shoe, in a quantity of more than 50, that section 64(2) of the Copyright Act prevented any claim for copyright infringement. However, the Copyright Act states at sections 64(3)(b) that copyright will remain in a work regardless of section 64(2), if the matter protected by copyright is used as or for a trademark.
As the court held that the plaintiff’s design may qualify as a trademark under the Trade-marks Act and consequently the exception under 64(3)(b) of the Copyright Act, the defendant’s contention, that the plaintiff’s design was not a trademark, was not a question to be decided on summary judgement.
Harry Potter Fans are going to have to wait: reference guide halted
In the case Warner Bros. Entertainment, Inc. and J.K. Rowling vs. RDR Books in the United States, a U.S. court granted a permanent injunction and awarded statutory damages against RDR Books for the infringement of the copyright present in books authored by J.K. Rowling.
RDR Books had planned to publish a reference guide containing various facts concerning Rowling’s famous Harry Potter series of novels. The author of the reference guide is also the creator of a website on which users could peruse through information on the Potter book series. The court found that the book, developed from the information on the author’s website, constituted a sufficient quantity and quality of material from Rowling’s books to infringe Rowling’s copyrights.
The court held that RDR Books could not use the defence of “fair use” to publish the reference guide. The court found that many portions of the reference guide took more from the Harry Potter books than is reasonably necessary in relation to the purpose of the reference guide. It may be that the idea of a reference guide is sufficiently transformative so that it may not infringe the copyright in the original books. However, because the author of the reference guide copied too much information from the original books, the actual final state of the reference guide was not sufficiently transformative. The court said that although reference guides for works of literature should generally be encouraged by copyright law as they provide a benefit to readers and students, the author of a reference guide should not be permitted to “plunder” the Harry Potter books. Further, the Potter series of books are highly original and unique making their ambit of protection much wider. In conclusion, however, the court did hold that Rowling could not monopolize the market for Harry Potter reference guides. Therefore, a sufficiently original reference guide may be capable of publication under the fair use defence.
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Ryan K. Smith is a lawyer and trade-mark agent at Feltmate Delibato Heagle LLP. He specializes in corporate and commercial law with expertise in intellectual property matters including trade-marks, copyrights, privacy, information technology, and confidential information. You can reach Ryan at firstname.lastname@example.org and (905) 287-2215.
 47 B.L.R. (4th) 306, 2008 CarswellOnt 4218
  A.J. No. 20, 2008 ABPC 9
 Compagnie Générale des Etablissements Michelin – Michelin & Cie v. National Automobile, Aerospace, Transportation and Générale Workers Union of Canada (CAW – Canada) (1996), 124 F.T.R. 192, 71 C.P.R. (3d) 348.
  B.C.J. No.2271, 2008 BCSC 1609.
 2008 FC 188.
 S.D.N.Y. 07 Civ. 9667 (RPP)