Misuse of Copyright or Misuse of Court Resources: Federal Court Upholds CMJ Order Allowing Misuse of Copyright Defence and Barring Plaintiff’s Arguments Against Viability on the Grounds of Issue Estoppel and Abuse of Process

The Federal Court released its decision of Zoe International Distributing Inc. v Smoke Arsenal Inc., 2026 FC 792 on June 12, 2026, affirming that misuse of copyright remains a novel but arguable defence in Canada. Misuse of copyright is a defence to copyright infringement in the United States, premised on the allegation that the copyright holder has attempted to extend copyright protection beyond the rights afforded to them in a manner that violates antitrust law or public policy.

The decision is an appeal from a motion to strike, in which the case management judge struck portions of the defendants’ defences relating to misuse of copyright but granted leave to amend the defences. The case management judge found that, in addition to it not being plain nor obvious that the defence of misuse of copyright was doomed to fail, the plaintiff Zoe International was also barred from arguing the defence does not exist in Canada based on the doctrines of issue estoppel and abuse of process. This was because the plaintiff did not challenge the existence of the defence in a previous motion to strike portions of the defendants’ pleadings.

On appeal, the plaintiff challenged the case management judge’s conclusions in finding that the doctrines of issue estoppel and abuse of process barred them from advancing arguments that the defence of misuse of copyright is not available in Canadian law, and additionally put forth submissions that in Euro-Excellence, a majority of the Supreme Court rejected the existence of the defence in Canada. The Federal Court ultimately rejected these arguments.

With respect to issue estoppel, the plaintiff argued the doctrine did not apply, both because the previous order from the first motion to strike did not expressly decide the question of the defence’s existence and because it was not a final decision (but rather interlocutory). The plaintiff submitted that it did not challenge the broader validity of the defence at the first motion because it felt it was more appropriate to raise the challenge at a later date, once the defendants had amended their defence to be within the Court’s jurisdiction. The Court found that the viability of the defence was implicitly determined from the earlier motion, as by giving the defendants an opportunity to amend their pleadings for misuse of copyright, the case management judge necessarily determined that the amendment was possible. The Court also rejected the plaintiff’s argument that it had the option of deferring the challenge until the defence was plead sufficiently, as the plaintiff was in a position to challenge the defence even if material facts were absent in the defences. The Court further determined the order was final even if it stemmed from an interlocutory matter, as it conclusively resolved the issues between the parties and because the order was not appealed.

For the doctrine of abuse of process, the Court upheld the case management judge’s findings that the doctrine applied either because the plaintiff was “litigating by instalments” (in respect of one defendant) and because the plaintiff was seeking to re-litigate the same issue contrary to the doctrine of judicial comity (in respect of the other defendant). The Court found that by not bringing forth arguments about the defence’s viability in the first instance, and because the cases are managed in tandem with the defendants having largely the same pleadings, it would indeed be an abuse of process contrary to the principles of judicial finality and judicial economy for the plaintiff to only now challenge the existence of the defence in both proceedings.

Finally, regarding the existence of the defence, the Court reviewed the Supreme Court’s reasons in Euro-Excellence and found that the majority did not definitively rule on whether the defence exists in Canada. The Court therefore concluded the case management judge was correct in not striking the defence, as while the defence is novel, it is also arguable. As noted in the reasons, this decision thus aligns with the decision of Justice Furlanetto in Millennium Funding FC, who also concluded that Euro-Excellence did not definitively rule against the viability of the defence, and that “the full merits and intricacies of the doctrine of [misuse of copyright] are beyond the scope of a motion to strike.”