T-617-83
Universal City Studios, Inc. and Merchandising
Corporation of America, Inc. (Plaintiffs)
v.
Zellers Inc. (Defendant)
Trial Division, Walsh J.—Ottawa, June 15 and
July 4, 1983.
Copyright — Application for interlocutory injunction —
Strong prima facie case of infringement of copyrights originat
ing in movie "E.T. The Extra-Terrestrial" — Question of
entitlement to copyright protection not sufficient to prevent
issuing of injunction — Given seriousness of consequences and
importance of principle involved, that harm not irreparable in
strictest sense not justifying refusal of injunction — Balance
of convenience strongly in favour of plaintiffs — Injuncti n
issued — Copyright Act, R.S.C. 1970, c. C-30, s. 46(1)
Industrial Design Act, R.S.C. 1970, c. I-8 — Copyright Act,
1911, 1 & 2 Geo. 5, c. 46, s. 22.
Industrial Design — Motion for interlocutory injunction for
delivery up of E.T. dolls and credit card keychains on ground
of copyright infringement — Defendant arguing dolls should
have been registered under Industrial Design Act rather than
Copyright Act — Latter Act not requiring production of
representation of object — Whether subject-matter by very
nature capable of being copyrighted — Difficult question of
law not determined on injunction application — Injunction
granted where serious question to be tried — Industrial Design
Act, R.S.C. 1970, c. I-8 — Copyright Act, R.S.C. 1970, c.
C-30.
This application for an interlocutory injunction directing the
delivery up of goods, packaging and advertising materials arises
out of the alleged infringement of the plaintiffs' coypright in
E.T. dolls and keychains, spin-offs from the motion picture
"E.T. The Extra-Terrestrial". The defendant argues, with
respect to the E.T. dolls, that they are not entitled to the
protection of the Copyright Act because they should have been
registered under the Industrial Design Act. The defendant also
argues that while the plaintiffs would suffer no irreparable
harm from the continued sale of the allegedly infringing mer
chandise, the defendant, on the other hand, would suffer con
siderable loss if the injunction were granted and it adds that
these sales create additional advertising and publicity for the
plaintiffs. It finally contends that the six-month delay before
bringing proceedings constitutes acquiescence and points out
that other infringing sales are taking place.
Held, the motion should be granted and an order go restrain
ing the defendant from further sales of this merchandise.
Defendant may remain in possession of the goods but must
undertake to neither advertise nor dispose of them. Attempts at
counterfeiting must be dealt with severely by the Courts.
Whether the unauthorized dolls are inferior does not have to be
settled at this stage of the proceedings. The issue as to the
plaintiffs' entitlement to the protection of the Copyright Act
should not prevent the granting of the interlocutory injunction,
it having been held in American Cyanamid that, where the
other conditions for it are satisfied, an injunction should not be
refused if there is a serious question to be tried.
On the question of irreparable harm, the possibility of col
lecting damages is not in all cases a sufficient answer to an
action against an infringer when the plaintiffs have a very
strong prima facie case. In such cases the question of balance
of convenience must then be looked into and, in this case, it is
strongly in favour of the plaintiffs. Their interest exceeds a
mere monetary one which can be compensated by the payment
of damages or an accounting of profits. The general principle of
protecting motion picture spin-off products is an important one.
The difficulty of assessing damages is not a ground for refusing
to award any.
The delay in instituting proceedings does not constitute
acquiescence and the fact that others are selling infringing
merchandise is not a defence in the instant case. The conten
tions that the defendant should not be prevented from continu
ing to sell allegedly infringing products because this would
result in financial losses for it or that it is thereby providing
additional advertising for the plaintiffs were unacceptable.
CASES JUDICIALLY CONSIDERED
APPLIED:
Webb & Knapp (Canada) Limited et al. v. The City of
Edmonton, [1970] S.C.R. 588; Smith Kline & French
Canada Ltd. v. Frank W. Horner, Inc. (1982), 68 C.P.R.
(2d) 42 (F.C.T.D.)
DISTINGUISHED:
Fruit of the Loom, Inc. v. Chateau Lingerie Mfg. Co.
Ltd. (1982), 63 C.P.R. (2d) 51 (F.C.T.D.).
CONSIDERED:
American Greetings Corporation et al. v. Oshawa Group
Ltd. et al. (1982), 69 C.P.R. (2d) 238 (F.C.T.D.); King
Features Syndicate Incorporated, and another v. O. and
M. Kleeman, Limited, [1941] A.C. 417 (H.L.); The
Bulman Group Ltd. v. Alpha One-Write Systems B.C.
Ltd. et al. (1981), 54 C.P.R. (2d) 179 (F.C.A.), reversing
(1980), 54 C.P.R. (2d) 171 (F.C.T.D.); Formules
Municipales Ltee v. Pineault et al. (1975), 19 C.P.R.
(2d) 139 (F.C.T.D.).
REFERRED TO:
Con Planck, Limited v. Kolynos, Incorporated, [1925] 2
K.B. 804 (K.B.D.).
COUNSEL:
S. Block and P. Jackson for plaintiffs.
H. Richard and F. Grenier for defendant.
SOLICITORS:
Rogers, Bereskin & Parr, Toronto, for
plaintiffs.
Léger, Robic & Richard, Montreal, for
defendant.
The following are the reasons for order ren
dered in English by
WALSH J.: Plaintiffs move for an interlocutory
injunction against defendant directing that all E.T.
dolls and packaging therefor and advertising ma
terial relating thereto, in the care, custody or
control of the defendant be delivered up into the
interim custody of plaintiffs' solicitors or of this
Honourable Court until the final disposition of this
action. These dolls and packaging are described in
the motion. Plaintiffs also ask that all E.T. credit
card keychains and packaging therefor and adver
tising material relating thereto similarly be deliv
ered up, that defendant be restrained from manu
facturing, importing, distributing, advertising, and
offering for sale or selling any E.T. dolls and E.T.
keychains which have not been authorized by
plaintiffs and that defendant provide plaintiffs'
solicitors with an accounting of the quantity of
each unauthorized E.T. doll and E.T. keychain or
any other unauthorized E.T. merchandise that is in
the care, custody or control of the defendant. This
motion was produced on March 4, 1983, and was
adjourned until April 11, 1983, to allow for cross-
examination. It was then again adjourned to April
18, simultaneous translation being requested by
counsel for plaintiffs. It was finally heard on June
15 in Ottawa. The action arises out of the sale of
allegedly counterfeit merchandise being sold by
defendant in Canada in alleged infringement of
plaintiffs' copyrights arising from the motion pic
ture entitled "E.T. The Extra-Terrestrial". In
March 1981 Universal retained Extra-Terrestrial
Productions, Inc. to produce the motion picture.
Universal was to own all rights in the motion
picture and the mechanical creature known as
"E.T." and the copyright in each. In the same
month Extra-Terrestrial Productions, Inc. engaged
Carlo Rambaldi Enterprises Inc. to design and
create E.T. and it was understood that all copy-
right in E.T. was to belong to Extra-Terrestrial
Productions, Inc. and hence to Universal. From
March to August 1981 Carlo Rambaldi while in
the employ of Carlo Rambaldi Enterprises Inc. as
President created the original preliminary draw
ings of E.T. Copies of them were produced as well
as photographs of the final E.T. The photography
of the motion picture commenced in September
1981, the picture being produced by Steven Spiel-
berg and Kathleen Kennedy, acting under con
tracts of service with them in the course of their
employment by Extra-Terrestrial Productions, Inc.
In November 1982 a set of confirmatory assign
ments was executed and confirmed the ownership
by Universal of the copyright of E.T. and all
photographs and drawings thereof, also of the
motion picture. By virtue of these Carlo Rambaldi
assigned his right as creator to Carlo Rambaldi
Enterprises Inc. Carlo Rambaldi Enterprises Inc.
assigned all their rights to Extra-Terrestrial Pro
ductions, Inc. Steven Spielberg and Kathleen Ken-
nedy assigned their rights to Extra-Terrestrial Pro
ductions, Inc. and Extra-Terrestrial Productions,
Inc. assigned their rights to Universal City Stu
dios, Inc. the co-plaintiff. The copyrights in both
the artistic work consisting of the sculpture E.T.
and in the motion picture have been registered
with the Canadian Copyright Office by Universal.
Serial No. 318012 is the registration for the pub
lished dramatic work entitled "E.T. The Extra
Terrestrial" registered July 26, 1982, and No.
320738 is the registration of the published dramat
ic and artistic work entitled "E.T. The Extra-Ter
restrial" registered December 3, 1982, and under
No. 321014 is the registration for published artis
tic work entitled "E.T." (sculpture) registered
December 17, 1982.
The motion picture was first exhibited to the
public on or about June 11, 1982 and became an
enormous box office success, becoming the most
successful motion picture of all time as disclosed
by its box office gross. As of February 17, 1983,
the box office gross in the United States for the
motion picture has been in excess of $293,241,000.
It is estimated that there has been in excess of
104,365,000 admissions in the United States. As of
the same date Universal had spent in excess of
$6,300,000 U.S. in the United States advertising
the motion picture, by media advertising, press kits
and the like and some of such advertising has
spilled over into Canada. The motion picture has
also been extremely successful in Canada and has
received substantial publicity in Canadian press
and in U.S. newspapers and magazines which have
substantial Canadian circulation. As a result of
this the copyrights have become extremely valu
able property. Plaintiff Universal has granted a
number of licences authorizing manufacturers to
manufacture and sell various goods representing or
relating to E.T. The quality and design of each
product produced under licence must first be
approved by Universal through its licensing agent,
Merchandising Corporation of America, Inc., the
co-plaintiff.
The affidavit of John Nuanes on behalf of plain
tiffs states that in October 1982 he became aware
that the defendant Zellers Inc. was selling plastic
E.T. dolls in plastic wrappers having a cardboard
header on each side of which is a photograph of
E.T. and Elliott. These were procured by Zellers
through a company called International Games of
Canada Ltd. and were made in Taiwan and are
not authorized by Universal either itself or
through its licensing agent Merchandising. On
October 25, 1982 letters were written to both
Zellers Inc. and International Games of Canada
Ltd. advising of Universal's copyrights and
requesting that they cease selling unauthorized
E.T. merchandise. International Games of Canada
Ltd. quickly undertook to cease all sales of unau
thorized E.T. merchandise and supplied a written
undertaking to such effect. Zellers however
refused to stop selling the unauthorized E.T. dolls.
In November 1982 witness became aware that
Zellers was selling credit card keychains contain
ing photographs taken from the motion picture
consisting of a keychain ring attached to a stack of
five small plastic sheets, each sheet containing two
photographs, a number of which show E.T., many
being copied from the motion picture. These also
were unauthorized by plaintiffs. Plaintiffs contend
that they are of poor quality and will damage the
goodwill that plaintiffs and their licensees have
worked to establish. The same allegations are
made with respect to the dolls which can be sold at
a substantially lower price than those licensed by
plaintiffs because of their alleged inferior quality
and because of defendant's ability to rely on the
reputation of plaintiffs and the advertising dollars
and publicity devoted to plaintiffs' program
instead of spending their own funds for such
promotion.
Copy of an agreement entered into on Septem-
ber 23, 1977 between Universal City Studios, Inc.
and Merchandising Corporation of America, Inc.
confirms a long standing arrangement whereby
Merchandising, which is the exclusive licensee and
licensing agent of Universal with respect to the
exploitation of the merchandising rights in its
property, divides the income derived therefrom
equally and Merchandising has the right to license
third parties as sub-licensees and exercise control
over advertising, quality and standards of the mer
chandise. Samples shall be periodically submitted
to Universal for its inspection and approval. This
blanket agreement covered the E.T. merchandise.
An examination of the dolls submitted as exhib
its indicates that there is no doubt whatsoever that
the unauthorized dolls constitute an attempt to
copy the authorized E.T. dolls portraying the crea
ture called "E.T." Whether they are inferior, as
plaintiffs allege and defendant denies, is not an
issue which has to be settled at this stage of the
proceedings in the absence of expert evidence.
Certainly the licensed dolls are more intricate in
design and have more moveable parts; on the other
hand they may well be more fragile. There is no
doubt however that they derive from the original
E.T. creation and are not an original conception or
design. Zellers was well aware of the differences as
it also sold some authorized E.T. dolls, presumably
obtained through authorized licensees. Zellers may
have been in good faith in connection with the
original purchases from International Games of
Canada Ltd., a supplier which regularly supplies
Zellers with merchandise, and in fact claims that it
holds International Games of Canada Ltd. respon
sible for any consequences resulting from the sale
of such dolls. This is a matter between Internation
al Games of Canada Ltd. and Zellers and not an
issue before this Court, although Zellers' witness
in cross-examination on his affidavit explained
that postponement in April was as a result of an
anticipated settlement between it and Internation
al Games of Canada Ltd. which however did not
materialize. Zellers did however take the key-
chains off the market altogether in January, and in
March after the institution of the injunction pro
ceedings stopped all further sales of the allegedly
infringing merchandise.
Zellers points out that this is not a passing off
action, nor would this Court have jurisdiction over
such an action, but must be limited to infringe
ment of copyright and this does not include any
claim for damages to reputation. Nevertheless
plaintiffs have over 60 licensees authorized to sell
the Canadian merchandise, some of whom are
rightfully complaining of competition from the
infringing merchandise, and both plaintiffs stand
to suffer considerable loss should infringing mer
chandise be allowed to remain on the market and
be sold, possibly at lower prices than the author
ized merchandise, and if this is so whether or not
the infringing merchandise is inferior.
It is not unusual for spin-off rights for merchan
dise of all sorts such as dolls, keychains, T-shirts,
posters, and so forth, originating from a motion
picture which has captured the public imagination
such as "E.T. The Extra-Terrestrial" to be of
immense value to the creators of the motion pic
ture and of the designs of the merchandise origi
nating from it. One has only to look at the Walt
Disney characters such as Mickey Mouse and
Donald Duck to realize the potential for such
distribution and also the temptation to counterfeit,
which is also frequently attempted with puzzles or
toys such as Rubik's Cube, the original frisbees,
yo-yos and so forth. It is trite to state that such
attempts at counterfeiting, whether they result
from copyrights, trade marks, industrial design or
patents must be dealt with severely by the courts
so as to protect the valuable rights of the creators.
In the present case, however, defendant argues
with respect to the dolls that they should have
been registered under the Industrial Design Act
[R.S.C. 1970, c. I-8] rather than the Copyright
Act [R.S.C. 1970, c. C-30], that the American
corporations involved do not appreciate this dis
tinction in Canada, as there is nothing in the
United States equivalent to our Industrial Design
Act. The Copyright Act does not require a
representation of the object, in this case the E.T.
doll to be produced, and in fact defendant states
that affidavits submitted at this stage of proceed
ings and exhibits annexed thereto do not clearly
indicate the origin of the dolls. It was admitted by
Mr. Nuanes, plaintiffs' witness in cross-examina
tion on his affidavit that one of the photographs of
E.T. produced was taken from an American maga
zine, and there was no production even of an
enlarged single frame from the film, but copies of
the original drawings leading to the creation of
E.T. were produced. Certainly the mechanical fig
ures used in the film, which are of course the
originals, were not produced in Canada, nor is it
likely that they would be.
I had occasion to deal with this somewhat dif
ficult question recently in the case of American
Greetings Corporation et al. v. Oshawa Group
Ltd. et al. [(1982), 69 C.P.R. (2d) 238
(F.C.T.D.)] judgment dated October 15, 1982
dealing with infringing merchandise known as
"Sweet Fruitie Dolls" and packaging for them.
Plaintiffs had originated greeting cards, depicting
a series of characters known as "Strawberry
Shortcake", "Blueberry Muffin", "Raspberry
Tart", "Apple Dumplin" and "Lemon Meringue",
and had developed a toy and general merchandis
ing licensing program involving among others the
one known as "Strawberry Shortcake" character.
Sales of the three-dimensional dolls from February
1980 to September 1982 had amounted to over
$14,000,000 developed from the drawings which
were copyrighted in Canada. That action closely
resembles the present case on its facts. In that
case, too, it was feared that damage would be done
to plaintiffs' reputation by allegedly inferior dolls
so they were therefore not satisfied to permit
defendants to continue to dispose of their inventory
even subject to an accounting. At page 242 the
judgment states:
In any event quite aside from any damages which may be
caused to Plaintiffs' reputation for these and other toys it is
evident that purchasers of such "Sweet Fruitie Dolls" would be
potential purchasers of the "Strawberry Shortcake" dolls, even
though the latter are more expensive, and the profits from such
sales would be lost.
The argument was raised that the registration did
not protect the dolls made from the drawings
which should have been registered under the
Industrial Design Act. Subsection 46(1) of the
Copyright Act which reads as follows:
46. (1) This Act does not apply to designs capable of being
registered under the Industrial Design Act, except designs that,
though capable of being so registered, are not used or intended
to be used as models or patterns to be multiplied by any
industrial process.
was referred to. In that case plaintiffs contended
that the designs, when created, were not intended
to be used as models or patterns to be multiplied
by any industrial process, which is not of course
the case here. The jurisprudence was examined
including the British cases of Con Planck, Limited
v. Kolynos, Incorporated' and King Features Syn
dicate Incorporated, and another v. D. and M.
Kleeman, Limited 2 which latter action dealt with
copyright for the comic character of Popeye.
Plaintiffs subsequently granted licences to make
dolls, mechanical toys, brooches and other articles
featuring the figure of Popeye. It was held that
defendants' dolls and brooches were reproductions
in a material form of plaintiffs' original artistic
work, and were not the less so because they were
copied not directly from the sketches put forward
but from reproductions in material form derived
directly or indirectly from the original work, and
that section 22 of the British Copyright Act, 1911
[1 & 2 Geo. 5, c. 46] did not operate to bring an
existing copyright to an end or to absolve pirates
from the offence of piracy. At page 244 of the
"Sweet Fruitie Dolls" judgment I stated:
While I am far from being convinced of the validity of
defendants' argument, it must be borne in mind that the
present action is not an action for passing off but for infringe
ment of copyright and if it should be found that the dolls
themselves were not covered by the artistic drawings copyright
ed by plaintiffs this would be a valid defence.
' [1925] 2 K.B. 804 [K.B.D.].
2 [1941] A.C. 417 [H.L.].
The same cannot be said for the containers themselves which
were also copyrighted and contain reproductions of the artistic
drawings copyrighted by plaintiffs. At a glance it can be seen
that the packaging of defendants and the artistic representa
tions thereon resemble so closely those of plaintiffs as well as
the dolls themselves as to be calculated to deceive. This issue
was not seriously argued by defendants. Whether the dolls
could be removed from the clearly infringing packaging and
sold unpackaged or in plain boxes is not an issue which has to
be decided at this stage of the proceedings.
What Zellers have done in the present case is to
remove the packaging of the dolls, which are now
sold unpackaged so that the pictorial representa
tion of E.T. and Elliott on the packaging does not
appear in the merchandise being sold. This does
not alter the fact however that the doll itself
clearly resembles the licensed version of E.T. dolls.
In the case of The Bulman Group Ltd. v. Alpha
One-Write Systems B.C. Ltd. et a1., 3 Addy J.
stated at page 174:
Basically an interlocutory injunction is a practical device or
procedure by means of which a Court may prevent what it
perceives as a prima facie injustice causing continuing harm,
from being prolonged until the issue is finally determined.
and on the same page:
Normally, a person who is alleged to have infringed a
copyright should not be heard to attack at this stage of the
proceedings the validity of the copyright on such grounds as
lack of originality, uniqueness or any similar ground in order to
avoid being subjected to an interlocutory injunction for its
infringement. As W. R. Jackett, the former Chief Justice of
this Court, stated in his text entitled La Cour Fédérale Du
Canada Manuel De Pratique (1971) at p. 63:
So, in industrial property matters, where there is a clear case
of copying or otherwise infringing a right that is a matter of
public record under Canadian statute and the defendant is
seeking to find some basis to attack validity after he has been
caught in his infringement, I should have thought that
maintenance for respect for the law calls for enjoining the
transgressor until he makes good his attempt to invalidate
the rights he had been appropriating to his own use.
Where, however, a claim for a monopoly is invalid on the
face of it and no extrinsic evidence is required, the defendant
can, even at this preliminary stage, successfully attack it wheth
er it be a patent or a copyright. This would apply to cases such
as the present one, where the question arises as to whether by
the very nature of the subject-matter, it is capable of being
copyrighted.
3 (1980), 54 C.P.R. (2d) 171 [F.C.T.D.].
He refused the injunction finding plaintiffs were
not entitled to copyright protection. In an appeal
from this judgment however" the Federal Court of
Appeal held that it was arguable that the forms
might have been proper subject-matter for copy
right protection. At page 182 the judgment holds:
It has been held that an application for an interlocutory
injunction is not the stage for determining difficult questions of
law on which the merits of the case depend, and that where the
other conditions for an interlocutory injunction are satisfied, it
should not be refused if there is a serious question to be tried:
American Cyanamid Co. v. Ethicon Ltd., [1975] R.P.C. 531 at
p. 541.
In the case of Formules Municipales Ltee v.
Pineault et al. 5 the Court refused to grant an
interlocutory injunction on the grounds that there
was no irreparable harm suffered by plaintiffs.
Defendants operated a substantial and apparently
prosperous business; any damages suffered by
plaintiffs could be compensated by a monetary
award. In making this finding however I concluded
at page 146:
It would appear, however, that plaintiff would not suffer any
serious damage to its reputation by the alleged infringement of
its copyright in the forms by defendants since it cannot be
contended that defendants' forms are substantially different
from or inferior to those of plaintiff so as to damage plaintiffs
reputation should an unwary purchaser purchase them from
defendants believing them to be plaintiffs forms.
In the case of Fruit of the Loom, Inc. v. Chateau
Lingerie Mfg. Co. Ltd. 6 Addy J. stated at page 54:
As to the question of irreparable harm, the plaintiff has
established that it would be most difficult to obtain a new
licensee as long as the defendant is not enjoined from distribu
ting the merchandise and the loss which might flow from that
state of affairs would be very difficult to calculate; further
more, the plaintiff would have no control over quality and the
possible loss of goodwill would again be very difficult to
establish in damages.
This was a trade mark case however, in which loss
of goodwill was an issue, and it has been held the
mere difficulty in calculating damages does not
make these damages irreparable. In the case of
4 (1981), 54 C.P.R. (2d) 179 [F.C.A.].
5 (1975), 19 C.P.R. (2d) 139 [F.C.T.D.].
6 (1982), 63 C.P.R. (2d) 51 [F.C.T.D.].
Smith Kline & French Canada Ltd. v. Frank W.
Horner, Inc.' I had occasion to state at page 53:
I cannot accept plaintiffs argument that because it is impos
sible to segregate damages caused or profits resulting from the
legally licensed sale of the drug Peptol from those resulting
from the alleged infringement of plaintiffs copyright in the
TAGAMET material prepared for use to enable these sales to be
made, its damages are therefore irreparable. In other contexts
it has frequently been held that the mere difficulty or even
impossibility of calculating the quantum of damages by the use
of any mathematical calculations does not justify a finding that
no damages can be awarded when a finding of fault will result
in entitlement to such damages, and the same would apply to
an accounting of profits. The court must simply do the best it
can under the circumstances and fix a global amount.
A similar finding was made in the Supreme Court
case of Webb & Knapp (Canada) Limited et al. v.
The City of Edmonton 8 in which it was found that
the assessment of damages for breach of appel
lant's copyright presented a question of difficulty,
but the fact that the assessment was difficult was
not a ground for awarding only nominal damages.
It is the question of irreparable harm which
causes the most difficulty in the present proceed
ings. While it is somewhat difficult to conclude
that sales of the dolls by the defendant and of the
keychains if it should decide to put them on the
market again would cause irreparable harm to
plaintiffs which could not be compensated by dam
ages, difficult as they would be to calculate since
they would allegedly depend on loss of sales by
licensees and possible loss of such licensees for
want of adequate protection, and the amount of
royalties or other payments which would flow
through to plaintiffs as a result of these sales, there
is no doubt that they would suffer serious harm. I
do not believe that the possibility of collecting
damages is in all cases a sufficient answer to an
action brought against an infringer when the plain
tiffs have a very strong prima facie case. The
protection of industrial property rights from coun
terfeiting is an increasingly important question. In
principle these rights should be protected whether
or not breach of them causes serious damages. I
7 (1982), 68 C.P.R. (2d) 42 [F.C.T.D.].
8 [[1970] S.C.R. 588, at p. 601.]
therefore believe that the question of balance of
convenience must be looked into. Plaintiffs have a
very valuable property to protect both in their own
interest and in that of their licensees, and their
interest exceeds a mere monetary interest which
can be compensated by payment of damages or an
accounting of profits by Zellers on its sales of the
offending merchandise. The general principle of
protecting the extensive spin-offs of merchandise
originating in a motion picture in which the crea
ture E.T. has become an almost cult figure for
contemporary youth is an important one, and the
principle will also apply to merchandise derived
from other motion pictures in future.
While defendant contends that plaintiffs waited
nearly six months from October 1982 until March
1983 before bringing proceedings it was necessary
for plaintiffs to fulfil certain legal requirements
first by way of the formal assignments of the
copyrights in November, and the registration of
E.T. sculpture in December 1982. As soon as the
alleged infringing sales were discovered letters to
desist were written both to Defendant Zellers Inc.
and to International Games of Canada Limited in
October, and International Games responded posi
tively, undertaking to withdraw any merchandising
of the dolls. It was only in November that plain
tiffs became aware of the sale by defendant of the
keychains. I do not consider therefore that the
delay in instituting proceedings constitutes
acquiescence. Defendant also produced an affida
vit of Marc André Filion which states that in April
1983, three keychains similar to those sold by
Zellers were bought by him in various stores in the
Montreal area, with plastic tabs depicting E.T.
and other pictures purportedly taken from the
motion picture E.T. The fact that other infringing
sales are taking place is not a defence available to
defendant nor is there any evidence before the
Court in the present proceedings to indicate that
steps have not also been taken by plaintiffs against
the other vendors of such allegedly infringing mer
chandise as soon as these sales are ascertained.
They may well be so common that it is difficult for
plaintiffs to keep up with all such sales. In the case
of small infringers it may well not be worth their
while to institute proceedings against them. I do
not believe however that on the evidence before me
it can be said that plaintiffs have tolerated or
condoned any such infringement.
Defendant contends that on balance of conve
nience it will suffer considerable loss if it is pre
vented from disposing of the remaining allegedly
infringing merchandise in its hands, of which it
has a considerable quantity, and it points out that
there is a short life of sales of such products during
the period while the motion picture and advertising
emanating from it is in the forefront of the public's
mind, after which the merchandise becomes dif
ficult if not impossible to sell. This argument
applies of course equally to plaintiffs' licensed
vendors who also must realize their profits and
pass on to plaintiffs their share of them as soon as
possible, so any diminution of their sales resulting
from counterfeit competing merchandise, sold
most likely at a lower price, can also be damaging
to them. Defendant argues that plaintiffs' witness
even admits the possibility that the sale, even of
infringing E.T. dolls and other products creates
additional advertising and publicity for E.T. which
might result in increased interest in purchasers in
seeing the motion picture. Plaintiffs' witness points
out, and I am inclined to agree, that it is more
likely the other way around, and that it is people
who have seen the motion picture who are interest
ed in buying the spin-off products.
In any event it is not in my view acceptable for
an alleged infringer (and there is a strong prima
facie case of this in these proceedings) to contend
that it should be allowed to continue to do so, as it
will suffer financial loss if it is prevented from
continuing allegedly infringing sales, or that it
may be doing plaintiffs a favour by providing
additional advertising for their product. While
defendant is well able to pay damages which may
be suffered by plaintiffs as the result of continuing
the sales if infringement is found, it is equally true
that plaintiffs are well able to pay any damages
the defendant may have suffered if it eventually
succeeds on the merits but finds that it is unable to
dispose of, or can only dispose of at a loss, mer
chandise remaining in its hands. Moreover plain
tiffs are prepared to give an undertaking to this
effect. It may be added that the sale of E.T. dolls
and keychains represents a negligible part of
defendant's business.
To summarize I therefore conclude as follows:
1. Plaintiffs have a strong prima facie case of
infringement. While the affidavits identifying the
infringing dolls and keychains with the E.T. char
acter created for the motion picture and copyright
ed in Canada are not as complete as they might be,
there is a sufficient connection to satisfy me that
an injunction application should not be refused at
this stage of proceedings as a result of any minor
defects in the proof. The overall evidence of
infringement is fully adequate to make a prima
facie case at this stage of the proceedings,
although it will no doubt be elaborated and reme
died by proof at trial on the merits. Defendant
however has an arguable case as to whether the
doll should have been registered under the Indus
trial Design Act, and on certain other issues.
2. On the question of irreparable harm, while the
harm suffered by plaintiffs by allowing the sales to
continue may not be irreparable in the strictest
sense of the word, the consequences are so serious
and the principle involved is so important, that,
when it is apparent that continuing infringement,
if in fact an infringement is taking place, will
continue to cause serious damages, an interlocuto
ry injunction should not be refused on this ground
alone. As previously stated it is more important to
plaintiffs to stop continuing infringement than to
collect damages resulting from same.
3. The balance of convenience is strongly in favour
of plaintiffs.
ORDER
An injunction is issued against defendant to
remain in effect until final determination of the
issue on the merits to restrain defendant from
further purchases, other than from authorized lic
ensees of plaintiffs, of E.T. dolls, keychains, or
other merchandise related to E.T., and from any
further sales of any such merchandise now in its
possession and not acquired from said authorized
licensees. Defendant shall provide plaintiffs' solici
tors with an accounting of the quantity of such
unauthorized items in its care, custody or control,
but may remain in possession of them on undertak
ing not to advertise or dispose hereafter of any
such items unless authorized to do so by plaintiffs
or as a result of final judgment in its favour on the
merits. This injunction is issued subject to plain
tiffs undertaking to compensate defendant for any
damages suffered as a result thereof, in the event
of defendant succeeding on the merits.
Costs of this motion are in favour of plaintiffs.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.