Counterfeiting in the Canadian Market - Manitoba Chambers of ...

Counterfeitingin the Canadian Market:How do we stop it?June 2012

The Canadian IntellectualProperty Council (CIPC)• An arm of the Canadian Chamber of Commerce.• Presses for the adoption of stronger intellectual property rights (IPR) protection both in Canada andthroughout the world.• Lobbies the government to adopt the necessary legislation and provides the resources to combat therampant infringement of IPR in Canada.• Represents a broad spectrum of industries, all of which rely on IPR for their success.• Promotes a better understanding of the importance of IPR for continued economic prosperityand competitiveness.Canada lags in terms of the protection of IPR, a trend that has resulted in negative economic impacts andposes a threat to the health and safety of Canadian consumers. It is essential that the Canadian governmentadopt policies that will stimulate Canada’s knowledge-based economy, thereby facilitating job growth andpromoting innovation in these industries. Canada must provide a competitive IPR environment which willattract investment and allow Canadian businesses to grow and flourish. The adoption of stronger protectionfor IPR in Canada is also essential to protect Canadian consumers from the dangers of counterfeit goods.Every year that passes without the adoption of the proper legislation, more Canadians are exposed to harmfulcounterfeit products, which in some cases have been linked to organized crime, serious illness and death.The CIPC needs your support. To get involved with the fight for stronger IP rights in Canada,please contact:Chris Gray, Director, Canadian Intellectual Property Councilcgray@chamber.ca │613.238.4000 (251) | IPCouncil.ca

Executive SummaryIn 2009, the Canadian Intellectual Property Council(CIPC) released the report A Time for Change: Towarda New Era for Intellectual Property Rights in Canada.That report called for a four-pronged approach tothe creation of an effective regime for the protectionof intellectual property rights (IPR) in Canada. Thatapproach included legislative change and the creationof IPR institutions, an IP crime task force and aprogram of public education. In February 2012, theCanadian Chamber of Commerce released an initiativeidentifying the top 10 barriers to competitivenesswhere a lack of IP protection was identified as aproblem. While the first steps of legislative changehave been initiated in respect of Canada’s copyrightregime, the regimes for border enforcement,protection of trade-marked goods and the preventionof counterfeiting in Canada are languishing.Rights holders, on their own initiative and throughorganizations including the CIPC, have been proactivein educating consumers, police officers and thejudiciary, but such a response by rights holders cannotreplace coordinated government action. No progresshas been made on the creation of IPR institutions or anIP crime task force. Canada’s IPR regime continues tohave serious weaknesses that undermine the country’sinnovation capacity and economic prosperity.While our major trading partners have continuedto seek out and implement innovative solutions toaddress the challenges presented by counterfeit andpirated goods, Canada’s system is outdated anddoes not provide adequate protection to its citizens,particularly where health and safety issues areconcerned. The practices of professional counterfeitersare continuing to evolve as they implement newtechniques in order to evade the best efforts of rightsholders to prevent their activities.There has long been consensus among government,the business community and the general populationthat action is required to protect businesses andindividuals against the harm of counterfeit goods—but this consensus has not translated into action. ATime for Change explained in detail the importance ofintellectual property to the development of a strongand innovative digital economy. While Bill C-11 is astrong first step in amending the copyright regime inCanada, at the time of writing this report the bill hadnot been passed. For Canada to be a global leader inthe digital economy it must address the areas where itsIP regime continues to falter. In addition to swift actionto pass Bill C-11, there are five areas where urgentaction is required:• Amend Canadian law to ensure Canada is meetingthe minimum requirements of the internationalagreements to which it is a signatory, includingthe introduction of ex officio powers for customsofficials.• Amend Canadian law to overcome internalinconsistencies in its application, includingproviding effective civil and criminal sanctions forcounterfeiting and piracy.• Encourage enforcement officials to seek strongremedies in the case of IPR infringement andensure prosecutors exploit the full range ofremedies available to them including the proceedsof crime regime.• Develop a tactical response to the challenges ofcounterfeiting in the digital age—including astrategy to deal with small shipments of goodsordered online and a system for recordation ofrights.• The government of Canada needs to take aproactive stance in combatting counterfeitingand piracy. Its leadership is essential to thedevelopment of an effective enforcement regimeand the facilitation of stakeholder partnerships inthe country. Key areas for involvement includedeveloping an inter-agency IP council and an IPcrime task force.

The recommendations in this report focus on actionsthat can create tangible improvements in thesechallenging areas.Rights holders will continue to play an importantrole in proactively educating consumers about theidentification of counterfeit and pirated goods andthe risks that can be associated with them. They willcommence actions to protect their rights using the toolsavailable to them. However, the Canadian governmentmust take action to create an effective regime toaddress the problems created by lax IPR protectionin Canada and play a necessary role as a partner inenforcement to its international trading partners. AsCanada moves toward a knowledge economy andlooks to implement its strategy for a digital economy,a strong IPR regime is critical for Canadian businessesthat seek to fully participate in the global economy.

Table of ContentsIntroduction .................................................................................................................................................................................................. 5Extent of the Counterfeiting Problem ...................................................................................................................................... 7Measuring the Problem ............................................................................................................................................................................... 7Identifying Counterfeit Product ............................................................................................................................................................. 10Risks Posed by Counterfeit Product and Their Illicit Distribution ................................................................ 11Counterfeit Products Are a Threat to Consumer Safety ........................................................................................................... 11Counterfeit Products Damage Legitimate Business .................................................................................................................... 11Counterfeiting Means Lost Revenue for the Government ....................................................................................................... 12Revenue From Counterfeit Products Fund Organized Crime ............................................................................................... 13Canada’s Lax IP Regime Sends the Wrong Message to Our International Partners ................................................. 14Best Practices: International Trading Partner and Industry Action ................................................................ 15Empowered Border Officials .................................................................................................................................................................... 15Adapting to Small Shipments .................................................................................................................................................................. 17Creating Expert Knowledge ...................................................................................................................................................................... 18A System of Effective Remedies ............................................................................................................................................................. 19Seeking Innovative Solutions Through Cooperation and Partnership ............................................................................. 20Joint International Action .................................................................................................................................................................. 20Using Available Legal Tools ............................................................................................................................................................ 21Partnerships With Intermediaries ................................................................................................................................................. 23Technology Adaptation ...................................................................................................................................................................... 25Counterfeiting in the Canadian Market: Challenges and Recommendations ...................................... 26Weaknesses in Canada’s Legal Regime .............................................................................................................................................. 26Obligations Under International Agreements ....................................................................................................................... 26Inconsistencies in National Law .................................................................................................................................................... 27Exploit All Available Remedies ..................................................................................................................................................... 28Improving Canada’s Response to Online Infringement ........................................................................................................... 29Building a Proactive Government Response ................................................................................................................................... 29Summary of Recommendations .................................................................................................................................................... 31

IntroductionCounterfeit: Made in imitation so as to be passed offfraudulently or deceptively as genuine; not genuine;forged. 1Counterfeit Good: counterfeit trade-mark goodsshall mean any goods, including packaging, bearingwithout authorization a trade-mark which is identicalto the trade-mark validly registered in respect of suchgoods, or which cannot be distinguished in its essentialaspects from such a trade-mark, and which therebyinfringes the rights of the owner of the trade-mark inquestion under the law of the country of importation. 2Pirated Good: pirated copyright good shall mean anygoods of which copies are made without the consentof the right holder or person duly authorized by theright holder in the country of production and whichare made directly or indirectly from an article wherethe making of that copy would have constituted aninfringement of copyright or a related right under thelaw of the country of importation. 3Whether we adopt the definition of counterfeitprovided by dictionary.com or the definitions ofcounterfeit and pirated goods provided by the WorldTrade Organization (WTO) in the Agreement on TradeRelated Aspects of Intellectual Property Rights (TRIPS),one thing is markedly clear: the problem of counterfeitand pirated products infiltrating the traditional andonline marketplace continues at an unabated pace.For simplicity’s sake, in this paper we use the termcounterfeit to mean goods that infringe trade-markand/or copyright and which are made in imitationto be passed-off as copies of an authentic copyrightprotected or trade-marked good but which are notgenuine goods. These goods range from unauthorizedcopies of music and movies to fake medications andelectronic components.In 2007, two Canadian parliamentary committeesacknowledged the impacts of IPR infringement andunanimously called for rapid action. The StandingCommittee on Industry, Science and Technologyconcluded that Canada’s laws were inadequate toeffectively deal with counterfeiting and piracy andthat Canada’s enforcement regime lagged behindthose of other developed countries. 4 Despite thesecommittee reports, and their clear recommendationsrelated to increased powers for border officials,dedicated resources to address the problem and theneed for alignment of the civil and criminal regimes,virtually no changes have been made to Canadianlaw dealing with counterfeit goods. In 2011, on theoccasion of the signing of the Anti-CounterfeitingTrade Agreement (ACTA), the minister of InternationalTrade stated: “Counterfeit and pirated goods are anincreasingly global problem that requires a globallycoordinated solution. We all have an interest incombatting counterfeiting and piracy because theseactivities cost billions of dollars each year in revenueand trade losses, which translate into higher prices,lost income and lost jobs for people employed in arange of industries—from film and pharmaceuticalsto electronics.” 5 Though the CIPC is pleased that theIndustry Committee is once again studying IPR inCanada this spring, as compared to our internationalpartners, Canada has been hitting well below itsweight.Now is the time for action, and there is much work tobe done.While the CIPC acknowledges the positive step thathas been taken by the government in introducing BillC-11, at the time of writing this paper that Bill hadnot been passed. More must be done to protect IPR inCanada.1 http://dictionary.reference.com/browse/counterfeit?s=t2 TRIP S Article 51, Footnote 143 Ibid.4 Report of the Standing Committee on Industry, Science and Technology Counterfeiting and Piracy are Theft, June 2007. Available at:http://www.parl.gc.ca/HousePublications/Publication.aspx?DocId=3060548&File=5&Language=E&Mode=15 Minister Fast DFAIT Press Release September 30, 2011 http://www.international.gc.ca/media_commerce/comm/news-communiques/2011/280.aspx?lang=eng&view=dCounterfeiting in the Canadian Market | The Canadian Intellectual Property Council 5

This paper aims to build a common understanding ofthe challenges created by the counterfeiting problemto ensure that positive action can be taken as we moveforward. To do so, we begin by exploring the extent ofthe counterfeiting problem, the risks that it creates andthe impact that it has on many aspects of the Canadianeconomy.Our international trading partners have developedstrategies for effective and coordinated responses tocounterfeiting which can inform Canada’s response.From the requirements of the TRIPS agreement tonew specifications under ACTA, it is essential that themost current international views are considered whendetermining national best practices.When we look at these best practices, we see thateffective regimes are those which have taken all or acombination of the following actions:Effective regimes empower rights holders to work withenforcement officials nationally and internationallyto protect legitimate channels of commerce, keepdangerous products off the market and prevent fraudon consumers.In comparison, it becomes apparent that Canadadoes not have sufficient legal remedies and tools toeffectively address the counterfeiting problem. Notonly do rights holders have insufficient civil remediesbut border officials do not have ex officio powers,criminal remedies are lacking and there are no effectivetools to deal with counterfeit products in the onlineenvironment. Accordingly, we have devised a numberof recommendations that must be implemented inorder for Canada to have a world-class regime for theprotection of IPR and a system which takes reasonablemeasures to protect the health and safety of its citizensfrom the harm of counterfeit goods.1) Implementing a system of regulation thatencourages and facilitates properly empoweredcustoms officials to work with rights holders toeffectively police channels of commerce;2) Implementing processes and procedures to addressthe growing challenge of small shipments ofcounterfeit goods being ordered in online marketsand delivered through the post, including via mailand courier;3) Developing specialized enforcement arms in thepolice, prosecutors’ offices and judiciary so thatcases of counterfeit goods can be addressed withthe requisite level of knowledge and expertise;4) Providing rights holders sufficient legal toolsto provide adequate legal remedies againstprofessional counterfeiters; and5) Developing tools that foster open communicationbetween stakeholders and encourage participationof intermediaries in online commerce, includingpayment processors and ad brokers.6 Counterfeiting in the Canadian Market | The Canadian Intellectual Property Council

Extent of the Counterfeiting ProblemFrom cosmetics, shampoo, batteries and consumerelectronics to luxury goods, determined shopperscould stock their homes with nothing but counterfeitproducts. Counterfeiting has become so prolific thatvirtually no product is immune from the associatedrisk, and many consumers are not even aware that theyare buying counterfeit goods. 6For many years Canada and its international partnershave been developing strategies to deal withcounterfeiting in the physical world. How to protectcontent and how to enforce IPR online are questionsthat are still being answered. The Internet has createda multitude of new opportunities for all sectors ofsociety. Commerce has become digitized, givingconsumers and businesses of all sizes opportunitiesto connect like never before. It also has brought aboutan increase in fraudulent practices; vendors andconsumers are provided anonymity by the Internet andno significant penalties exist in Canada for those whotrade in counterfeit product online.Measuring the ProblemCounterfeiting is not a problem that impacts onlyluxury products or that is limited to large markets.The range of products that have been counterfeited isshocking and consumer goods, where counterfeits canpose significant health and safety risks, are increasinglybecoming part of this picture. Internationally, customsofficials intercept all kinds of consumer goods: in 2010the European Commission’s Taxation and CustomsUnion (TAXUD) reported that 14.5% of all counterfeitgoods detained in the EU were consumer products fordaily use that could be potentially dangerous to healthand safety. These goods included foods and beverages,medicines, electrical goods and toys. 7Counterfeit goods can be found in all markets. TheCounterfeit Intelligence Bureau reported seizuresof 50,000 cartons of fake cigarettes in Vancouver in2010. 8 The RCMP, working with the Canadian BorderServices Agency (CBSA), seized an estimated $25million in counterfeit goods destined for markets inthe Greater Toronto Area in the fall of 2011. 9 Thoughthese are incidents in large cities, the challenge ofcounterfeiting is compounded by the increasingnumber of small shipments that enter the Canadianand international markets through the post, includingcourier and mail. These can reach consumers fromGambo, Newfoundland to Chilliwack, BritishColumbia and are often acquired by consumers whobelieve that they are buying the legitimate product.David Aguilar, the acting commissioner of Customsand Border Protection in the United States noted,“Although these websites may have low prices,what they do not tell consumers is the true cost toour nation and consumers including lost jobs, stolenbusiness profits, threats to our national security,and a serious risk of injury to consumers. 10 Chinacontinues to be a major source of counterfeit products,with 85% of all articles seized in the European Unionin 2010 sourced there. 11 As the online marketplaceincreases, counterfeiters around the world are ableto reach a larger global market and are able to avoidconventional means of detection. In 2010, more than103 million products were detained at the EuropeanUnion’s external borders, and online sales caused6 The Anti-Counterfeiting Group The Dangers of Fakes available at www.a-cg.org7 European Commission – Taxation and Customs Union, Report on EU customs enforcement of intellectual property rights: Results at the EU border,2010 , p.2. Available at: http://ec.europa.eu/taxation_customs/resources/documents/customs/customs_controls/counterfeit_piracy/statistics/statistics_2010.pdf http://ec.europa.eu/taxation_customs/resources/documents/customs/customs_controls/counterfeit_piracy/statistics/statistics_2010.pdf8 http://www.icc-ccs.org/news?start=859 RCMP Press Release, Containers of Counterfeit Products Seized, October 28, 2011. Available at: http://www.newswire.ca/en/story/867425/containers-of-counterfeit-products-seized10 Consumer and Border Protection and Immigration and Customs Enforcement Press Release: Report on 2011 Counterfeit Seizures, January9, 2012. Available at: www.cbp-gov/xp/cgov/newsroom/news_releases/national01092012.xml11 Results at the EU Border 2010 a p. 2Counterfeiting in the Canadian Market | The Canadian Intellectual Property Council 7

a “spectacular increase” in detentions from postaltraffic where 60% of the goods seized were counterfeitmedicines. 12Though statistics on seizures by rights holders andcustoms officials can be impressive, these statistics areonly a small part of the story as they only relate to thecounterfeit goods that are identified and intercepted.The Joint Research Centre on Transnational Crimeeffectively articulated this statistical inadequacy whenit stated: “The illicit nature of trafficking in counterfeitgoods makes it very difficult to provide officialfigures like those available for the legal markets.Moreover, the dark number, i.e. the number of casesnot reported to police, also affects the reliability ofstatistics on counterfeiting. As a result, the figuresprovided by police forces, in terms of reported casesof counterfeiting, may underestimate the magnitudeof the phenomenon. Furthermore, statistics issuedby customs authorities on seizures of counterfeitgoods may offer only a proxy for, and a partialrepresentation of, the counterfeit industry becausethey refer only to seized articles, not to the entireamount of counterfeit products on the market.” 13 Evenwhen counterfeit goods are detected they may notbe intercepted or investigated. According to formerRCMP Superintendent Ken Hansen, former co-chairof INTERPOL’s Intellectual Property Crime ActionGroup, the RCMP can only investigate 25% of thegoods the CBSA’s Toronto office flags as being fake. 14RCMP intervention is essential in order for counterfeitgoods to be seized by authorities in Canada. TheRCMP has itself acknowledged that the number ofcases it has investigated is believed to be a fraction ofthe true IP crime situation in Canada. 15Traffickers are also improving techniques to avoiddetection. Many traffickers of counterfeit goods willadopt techniques known as “breaking bulk,” in whichgoods will be rerouted though many territories (oftenfree trade zones or domestic provinces) in their journeyfrom point of production to point of distribution. 16This practice allows traffickers to avoid revealing thetrue source of the goods and lessen the suspicion ofcustoms. 17 Traffickers also mix authentic and fakegoods in the same shipments or hide fake goods withina secret compartment of a container of legitimategoods, all to avoid detection and seizure. 18 Counterfeitproducts are also increasingly sent unbranded, withlabels sent in another shipment only to be placed onthe goods at their destination. 19 Counterfeiters aresophisticated criminals who are making significantreturns on their activities, to the detriment of legitimatebusinesses and consumers.Most of the counterfeit goods that are detected andintercepted in Canada and elsewhere tend to begoods that are shipped in large quantities. While itmay be relatively easy to detect a container load ofcounterfeit toys or cigarettes, it is virtually impossibleto detect a package coming through the postal servicethat contains 1,000 counterfeit OxyContin pills.Counterfeiters in the online market do not ship inbulk on cargo ships, but ship in small quantities toindividual consumers around the globe. Those atthe forefront of the battle against counterfeiting arebeginning to develop strategies to intercept smallshipments delivered through the postal service.However, this is an intensive process that requiresdedicated resources, the development of expertknowledge and a level of interagency cooperationthat has not yet been supported by the Canadiangovernment.12 ACTA in the EU, A practical Analysis, February, 2012. BASCAP/INTA13 Anti-Brand Counterfeiting in the EU: Report on International and National Existing Standards December, 2010. Available at: http://www.gacg.org/Content/Upload/Documents/Transcrime_Report%20Best%20Practices_Project%20FAKES.pdf14 Marlow, Iain, Dangerous fake goods crossing border, The Toronto Star, July 2, 2007. Available at: http://www.thestar.com/printarticle/23158315 RCMP Project Strider, August 2010 “A National Intellectual Property Crime Threat Assessment” p. 3. Available at: http://publications.gc.ca/collections/collection_2011/grc-rcmp/PS64-79-2010-eng.pdf16 Journal of Intellectual Property Law and Practice, 2010, Vol 5, No 5 p. 328.17 2011 USTR Special 301 Report p. 1018 European Commission, Unknown Label19 2011 USTR Special 301 Report, p. 10.8 Counterfeiting in the Canadian Market | The Canadian Intellectual Property Council

In 2009, the OECD completed a comprehensive paperwherein it tried to quantify the economic impact ofcounterfeit crime on a global scale. It accounted forthe fact that seizures do not reflect the full scope ofthe problem and for the fact that each counterfeitproduct does not represent a lost sale of the authenticgood. According to this study, the internationaltrade in counterfeit and pirated goods was valuedat USD 250 billion in 2007, 20 which, according to theInternational Monetary Fund, is an amount greaterthan the individual GDP of 148 countries. 21 This issimply a calculation of the value of tangible counterfeitgoods traded on the global market. It does not takeinto account the economic impact of lost tax revenuesin government coffers, the impact of intangible goods(e.g. digital copies), the cost of rebuilding a housewhen a counterfeit electrical cord causes a fire or thecost of human life taken by counterfeit medications.The lack of clear and credible data makes it difficultto drive policy makers to action and can compoundthe problem. Both the American and UK governmentshave acknowledged that there is a lack of clear andcredible data on the scope and scale of IP crime. TheUK IP Crime Strategy 2011 stated “the lack of clear andcredible data is a problem which needs to be urgentlyaddressed. The lack of a clear picture on the scope andscale of IP crime and its impact poses a real problemfor policy makers and for operations decision makerswho must decide how to prioritise IP crime alongsideother issues.” 22The most reliable data on the impact of counterfeitingand the prevalence of counterfeit goods is oftencollected by governments themselves. The challenge ofmeasuring the effect of counterfeiting in Canada is notonly impacted by the fact that it is impossible to painta picture that captures the full scale of counterfeiting;the Canadian system has no tools to track and reporton the instances of counterfeiting that are actuallydetected in the country. According to EuropeanCommission regulation 1891/2004, customs authoritiesin all EU member states are obliged to report statisticson customs seizures. This data should include thedescription and quantity of goods detained, their placeof origin, the means of transport used and the type ofIPR infringed. 23 To the contrary, the CBSA does nothave a mandate for reporting on IP crime at the border,and even if this information was maintained andwas accurate, the statistics would not account for theimpact of shipments that went undetected includingsmall shipments that are sent directly to the consumer.While recognizing that IP crime is difficult to detect,the RCMP in Project STRIDER – a National IntellectualProperty Crime Threat Assessment, 2005 to 2008 estimatedreported annual seizures at $63.6 million. 2420 OECD, Magnitude of Counterfeiting and Piracy of Tangible Products: An Update. November, 2009. Available at: http://www.oecd.org/dataoecd/57/27/44088872.pdf21 Nominal GDP list of countries for the year 2010. http://www.imf.org/external/pubs/ft/weo/2011/02/weodata/index.aspx22 “Prevention and Cure: The UK IP Crime Strategy 2011”, UK Intellectual Property Office, 2011. Available at: http://www.ipo.gov.uk/ipcrimestrategy2011.pdf23 Council Regulation (EC) No. 1891/200424 Royal Canadian Mounted Police, “Project STRIDER- a National Intellectual Property Crime Threat Assessment, 2005 to 2008”, Ottawa,Communications Canada, 2010. Available at http://publications.gc.ca/collections_2011/grc-rcmp/PS64-79-2010-eng.pdfCounterfeiting in the Canadian Market | The Canadian Intellectual Property Council 9

Identifying Counterfeit ProductsCounterfeit goods can be very convincing. A gooddose of common sense and a healthy skepticismtowards deals that appear too good to be true are oftennecessary to avoid becoming the victim of counterfeitproducts. In some cases even an educated consumercan be deceived by a good counterfeiter.Case Study: Proctor and GambleFor years, Proctor & Gamble (P&G) has been fightingagainst illicit counterfeit goods that could harm thehealth and safety of its consumers and compromiseits brand. In its product lines, counterfeiters havecreated convincing knock-offs of toothpaste, batteries,shampoo, razor blades, household cleaners andmany other products. The scale of the counterfeitingproblem hit home for P&G when at one point thecounterfeit version of a shampoo was so close to theauthentic product, that it was difficult for P&G’s ownproduct sales team to identify the counterfeit. 25 Withan increased awareness of the impact counterfeitingwas having on its brands, P&G introduced a fourstepbrand protection framework. First, it redesignedpackaging making its products harder to copy andfakes easier to detect. Then it increased its monitoringin global markets, improving its intelligence about theplacement and source of counterfeit products. Withthis knowledge, P&G implemented the third stepof its program by securing its supply chain with itsretail vendors. This step allowed P&G to ensure thatits distributors, and therefore consumers, were notdeceived into buying fake products. With its supplychain secure and measures taken to ensure counterfeitproducts did not reach its consumers, P&G moved tothe final phase of its framework, enforcement againstthe producers of the counterfeit products. 26Some may think that P&G goes to extremes to identifycounterfeit products and remove them from themarket, but with its customer care line receiving morethan 50 million calls per year related to counterfeitproduct, 27 its actions are necessary to ensure thatpotentially harmful counterfeits are removed fromthe market.25 Presentation by Erin O’Toole, former in-house counsel to Proctor & Gamble Canada, Toronto Intellectual Property Group,September 27, 2011.26 Miroslav Marinkovic, Proctor & Gamble Presentation, IPR Conference, Moscow, Oct 6-8, 2010, p. 13 (P&G Presentation)27 P&G Presentation p 1610 Counterfeiting in the Canadian Market | The Canadian Intellectual Property Council

Risks Posed by Counterfeit Product and TheirIllicit DistributionCounterfeit Products Are a Threat toPublic SafetyCounterfeiters do not invest in research and developmentor care about complying with safety regulations... They areconcerned only to make their counterfeits look enough likethe real thing to make them worth selling, either to peoplewho are innocently after a bargain, or to consumers whodeliberately choose to buy fake goods.- The Anti-Counterfeiting Group – The Dangers of FakesThe proliferation of counterfeit goods in the onlinemarketplace and in the conventional supply chainmeans that no one is immune to the hazard they pose.Counterfeit batteries have exploded in the desks ofpolice who have stored them, and the acid leakingfrom counterfeit batteries has caused burns to at leasteight Canadian children. 28 In 2007, a woman in BritishColumbia died after ingesting counterfeit medicinecontaining uranium and lead which she purchasedonline. 29 When harm occurs to an individual as a resultof the use of a counterfeit product, there is no way tohold the manufacturer of the counterfeit product toaccount.Counterfeit cigarettes are regularly found to be moreharmful than their legitimate counterparts, with onestudy finding counterfeit cigarettes that contained anaverage of 63% more tar and emitted 30% more carbondioxide when smoked. 30 Reports have also found thatdue to lax production controls counterfeit cigarettescan be laced with “a myriad of unwelcome ingredients,from sawdust and rat droppings to camel dung andexcessive levels of toxic chemicals. 31The consumer risks from counterfeits do not stop withproducts that would be easy to sell to unsuspectingconsumers. In November of 2011, reports emergedabout counterfeit parts in American militaryequipment sophisticated enough to deceive militarypurchasers and the technicians who installed themin military aircraft. Some of these parts could havecompromised diagnostic equipment, includingdisplays of engine status and fuel usage, on aircraftthat were deployed to Afghanistan. 32Counterfeit Products DamageLegitimate BusinessBrand owners frequently face an uphill battle whentrying to protect their consumers from the dangers ofcounterfeit products. Counterfeits are often cheaperthan legitimate goods and are of lesser quality,damaging the brand of the legitimate goods andcreating illegitimate competition in the marketplace.The presence of counterfeits in the market requirescompanies to undertake costly education campaigns,investigations and prosecutions. Consumer educationcannot end with encouragement to buy from alegitimate retailer; advice must be given on who thoselegitimate retailers are and how to identify counterfeitgoods. Yet, for many retailers, even their best effortsmay fall short; counterfeit products enter the marketand when a consumer is harmed by a counterfeitbattery or gets a chemical burn from counterfeitperfume, it is the legitimate brand name that isassociated with the incident and left with the negativepublic relations consequences.28 Dangerous Fake Goods Crossing the Border, July 2, 2007. Available at: http://www.thestar.com/news/article/231583--dangerous-fakegoods-crossing-border29 National Review of Counterfeit Medicine, BC Woman Killed by Fake Drugs Bought Online Vol 4 No 13 http://www.nationalreviewofmedicine.com/issue/2007/07_30/4_policy_politics_13.html30 Middlesborough, UK “:Warning Over Hidden Dangers of Fake Tobacco” Available at: http://www.middlesbrough.gov.uk/ccm/content/news/1middlesbrough-council-press-releases/2011/warning-over-hidden-dangers-of-fake-tobacco.en;jsessionid=68EB4796358DE1C47148F32BD55587DC31 The Independent “Counterfeit Cigarettes: Smoking Out the Bandits” October 3, 2011. Available at: http://www.independent.co.uk/news/uk/crime/counterfeit-cigarettes-smoking-out-the-bandits-2364611.html32 Tony Capaccio “China Counterfeit parts in US Miliary Boeing, LC Aircraft” Bloomberg Business Week, November 18, 2011. Available at:http://www.businessweek.com/news/2011-11-18/china-counterfeit-parts-in-u-s-military-boeing-l3-aircraft.htmlCounterfeiting in the Canadian Market | The Canadian Intellectual Property Council 11

Legitimate businesses dedicate time and resourcesto the fight against counterfeiting, educating theirconsumers, working with regulatory authorities,conducting their own investigations and engaging incostly litigation. In the absence of counterfeiting andpiracy, the money spent to fight this epidemic couldbe spent on research and development, infrastructureinvestment or additional staffing. It is crucial thatwe build a system of IPR protection in Canada thatallows companies like Canada Goose to rely on lawenforcement and the efficacy of the judicial system toprotect its brand.Case Study: Canada GooseCanada Goose is a proud Canadian company whichhas experienced first-hand the negative impacts ofcounterfeiting. While it has a comprehensive brandprotection program, its ability to protect its brandin Canada is limited by weak laws and a lack ofgovernment resources dedicated to the fight.Canada Goose is worried about the proliferation ofcounterfeit jackets, largely because they know thesegoods are a health risk and are dangerous to theconsumer. Kevin Spreekmeester, vice president ofglobal marketing, says that, unlike some who mayknowingly purchase counterfeit products, most of theconsumers buying counterfeit Canada Goose jacketsonline believe they are buying the real thing. Websitesselling the fake product provide genuine shoppingexperiences and charge high prices. Many onlinecustomers will simply click on one of the first sites theirInternet query returns, believing the online retailerto be a legitimate vendor. The product they receive isutterly substandard; the down in these jackets containunhealthy elements, including bacteria, mildew andchicken parts. Fake jackets have been trimmed witha variety of furs including German shepherd andrabbit, which do not protect the face from the cold. TheCanada Goose jackets are built to protect the wearerfrom the harshest extremes of the Canadian north,something counterfeits are unable to do.Canada Goose has taken a proactive approach to theproblem using a combination of consumer education,legal enforcement and markers of authenticityphysically present on the jackets. On its website, thecompany provides information for consumers aboutauthorized retailers, the problems associated withfake jackets and the identity of rogue websites that areknown to sell counterfeit product. The company hasdivided its enforcement practices between strategiesfor business-to-business (B2B) and business-toconsumer(B2C) platforms, both of which have beensuccessful. The company works with private firmsin North America and Europe to seize counterfeitversions of its product at borders and engage in civilenforcement measures against rogue websites.Counterfeiting Means Lost Revenue forthe GovernmentIllegitimate businesses that traffic in counterfeitgoods frequently do not comply with tax obligations,resulting in lost revenues for all levels of government.In April 2010, the CBSA and the RCMP in BritishColumbia seized a shipment containing over 50,000cartons of counterfeit cigarettes. 33 Based on the tax ratethen in effect in British Columbia, had these cigarettesbeen legitimate and sold through tax-paying channels,they would have generated over $1.8 million in taxrevenue. 34 This is a small but concrete example of theimpact that counterfeit goods have on tax revenues,and, ultimately, in this time of economic uncertainty,the level of service that governments are ableto provide.33 CBSA Press Release, “Largest counterfeit tobacco seizure in BC History” May 5, 2010. Available At: http://www.cbsa-asfc.gc.ca/media/prosecutions-poursuites/pac/2010-05-05-eng.html34 Tax rate obtained from Ministry of Finance Tax Bulleting TTA 005, Revised October 2010.12 Counterfeiting in the Canadian Market | The Canadian Intellectual Property Council

According to a study by Frontier Economics,counterfeiting and piracy cost G20 governments morethan €100 billion a year in lost tax revenues and place2.5 million legitimate jobs at risk. 35 Another reporthas stated that “In total, if counterfeiting and piracycontinue to grow at current trends, it could be worthup to 1.7 trillion by 2015.” 36 In its report Counterfeitingand Piracy are Theft, the Standing Committee onIndustry, Science and Technology acknowledgedthat “tax revenue losses can no longer be assumedto be insignificant.” 37 Despite this acknowledgmentby a unanimous government committee and its callto action, no concrete steps have been taken by theCanadian government to respond to the problem ofcounterfeiting and improve its revenue situation.Revenue From Counterfeit Products FundsOrganized CrimeBecause these IP rights are valuable, people try to makemoney from them without the owner’s permission, oftenin ways that are best described as organized crime.This damages both the economy and society. Availabledata suggest a strong link between IP crime and otherforms of criminal behaviour, with offenders convicted ofcounterfeiting and piracy also found to be engaged in illegalmoney-lending as well as benefits frauds and anti-socialbehaviour. There is also evidence of the involvement of someengaged in IP crime in drugs, human trafficking, seriousfiscal and non-fiscal fraud and associated money launderingoffences.- Prevention and Cure: The UK IP Crime Strategy 2011.As the penalties associated with the commission ofcounterfeit offences are generally low, engaging incounterfeit production and distribution is a lowriskventure for criminal enterprises. Criminalorganizations are able to take advantage of preexistingsupply channels and can use the profits madefrom counterfeiting to fund other aspects of theircriminal operations. The sophistication of professionalcounterfeiters cannot be underestimated.In 2009, the Rand Corporation produced a 150-pagereport on the links between organized crime andcounterfeiting and piracy. In addition to demonstratinghow the easy money made by criminal organizationswhich traffic in counterfeit and pirated goods canbe used to fund other criminal enterprises includinghuman trafficking and drugs, the report called ongovernments to take positive action to respond to thegrowing role of organized crime in counterfeiting andpiracy. Specifically, this report called on governmentsto expand the definition of organized crime “toinclude large-scale counterfeiting tied to other criminalactivity. Laws should be enacted to grant investigatorsgreater authority to sustain investigations, conductsurveillance and obtain search warrants.” 38The RCMP has also observed links between organizedcrime and IPR offences. “OC [organized crime] groupsuse IP crime as another undertaking within theircriminal activities, often combining IP crime withother illegal business ventures. Evidence shows thattransnational OC groups are actively involved in IPcrime, and that IP crime has been linked to moneylaundering, drug trafficking, firearms smuggling, aswell as other types of crime.” 39 In November 2011, aninitiative by the RCMP and the CBSA lead to the arrestof eight individuals in Ontario and British Columbia.35 Frontier Economics “Building a Digital Economy: The Importance of Saving Jobs in the EU’s Creative Industries” March 2010. Available At:http://www.iccwbo.org/bascap/index.html?id=3536036 ACTA in the EU: A Practical Analysis, at p. 7. BASCAP/INTA37 Counterfeiting and Piracy are Theft: Report of the Standing Committee on Industry Science and Technology, June, 2007, p.7. Available at:http://www.parl.gc.ca/content/hoc/Committee/391/INDU/Reports/RP3060548/391_INDU_Rpt08/391_INDU_Rpt08-e.pdf38 Treverton, Gregory F., et al., “Film Piracy, Organized Crime and Terrorism” Rand Corporation, 2009. Available at: http://www.rand.org/pubs/monographs/2009/RAND_MG742.pdf (Rand Report)39 Project Strider, p. 11Counterfeiting in the Canadian Market | The Canadian Intellectual Property Council 13

In addition to the seizure of more than half a millioncartons of counterfeit cigarettes, authorities seizedover 6,000 kilograms of P2P, a key ingredient in themanufacture of methamphetamine. 40Counterfeit products are regularly found in shipmentscontaining other types of illegal goods. In October2010, CBSA agents in Vancouver suspected that ashipment contained counterfeit goods, and followinglegal requirements in Canada, called the RCMP in toinvestigate. The RCMP found that the shipment didcontain counterfeit shoes but that it also containedP2P. 41 Given the many examples of links betweencounterfeiters and Canada’s drug trade, any belief thatcounterfeiting is a victimless crime is clearly misplaced.cooperation on IPR. The Canadian IPR system, itnotes, “features several shortcomings… the weakunderlying political will—resulting in both the poorimplementation of existing legislation and in itsconsistent failure of reform legislation being enacted—is indeed very worrying from a developed country.” 43Canada cannot reasonably expect to attract investmentfrom the world’s top innovators if it is perceived asoffering lax protection for IPR, a key commodity in theinnovation economy.Canada’s Lax IP Regime Sends the WrongMessage to Our International PartnersThe lack of enforcement of IPR sends the wrongmessage to Canada’s trading partners and foreigninvestors that Canada is a country that does notsufficiently respect IPR. Canada’s trading partnershave taken notice of its poor record and are eager forthe government to legislate more advanced measuresfor enforcing IPR. In its annual Special 301 Report,the Office of the United States Trade Representative(USTR) has repeatedly placed Canada on its PriorityWatch List of countries that offer the weakestprotections for IPR. The USTR sees the strengtheningof Canadian customs enforcement as a majorrequirement for the Canadian government. 42The European Union has also been critical of Canada’sstand on IPR enforcement, noting in the Strategyfor Enforcement of Intellectual Property Rights in ThirdCountries of the Directorate-General for External Tradethat Canada is a “priority country” for strengthening40 National Post, November 1, 2011 “Eight Arrested in Ontario and BC in Asian Smuggling Ring Bust” Available at: http://news.nationalpost.com/2011/11/01/eight-arrested-in-ontario-and-b-c-in-asian-smuggling-ring-bust/37 Counterfeiting and Piracy are Theft: Report of theStanding Committee on Industry Science and Technology, June, 2007, p.7. Available at: http://www.parl.gc.ca/content/hoc/Committee/391/INDU/Reports/RP3060548/391_INDU_Rpt08/391_INDU_Rpt08-e.pdf41 RCMP Combating Intellectual Property Crime, June 6, 201142 USTR 2012 Special 301 Report p. 25. Available at: http://www.ustr.gov/sites/default/files/2012%20Special%20301%20Report_0.pdf43 Commission Staff Working Document, IPR Enforcement Report 2009 p.10. Available at: http://trade.ec.europa.eu/doclib/docs/2009/october/tradoc_145204.pdf14 Counterfeiting in the Canadian Market | The Canadian Intellectual Property Council

Best Practices: International Trading Partner andIndustry ActionThe role of central government is to put the right legalframework in place, both domestically and throughinternational influence to support the agencies that are thefront line of action against IP crime. This includes workingto ensure that enforcement agencies have the right powersand skills they need to tackle IP crime and to deliver onprocesses that support better coordination and intelligenceled enforcement.- Prevention and Cure: The UK IP Crime Strategy, 2011Around the world, developed nations have madeit a priority to protect IPR and foster a businessenvironment where the digital economy can grow.From the information and models discussed below, itbecomes clear that the most efficient models are thosethat combine strong law enforcement and internationalcooperation and encourage the participation ofindustry and rights holders. Canada can learnfrom these examples and must move to implementinternational best practices in order to support amarketplace where IPR can be exploited to itsfull value.When international trends are examined, five themesemerge:1) Empowered customs officials are able to workwith rights holders to effectively police channels ofcommerce.2) Governments and law enforcement bodies areadapting their IPR enforcement techniques toaddress the growing challenge of small shipmentsof counterfeit and pirated goods ordered in onlinemarkets and delivered through postal services,including mail and courier.3) Creating knowledge and expertise at a coordinatedlevel is essential to effectively address cases ofcounterfeiting and piracy.4) Professional counterfeiters and pirates are notdeterred by ineffective civil remedies. Rightsholders must be given remedial tools that haveteeth.5) When stakeholders, including rights holders, lawenforcement and e-commerce intermediaries worktogether, innovative solutions to the problems ofcounterfeiting and piracy can be found.These themes can be seen in international treaties,the laws of specific jurisdictions and in practices thathave been adopted by police forces and responsibleintermediaries.Empowered Border OfficialsThe World Customs Organization (WCO) has beenan incredibly important actor in developing policyfor border enforcement of IPR. It has long advocated“model legislation” for countries and reports on bestpractices. According to the WCO model legislation onIP protection, “Customs’ powers to act ex officio are akey feature of effective border enforcement regimes. Inthe vast majority of cases, Customs officers are the onlyones to know when and which allegedly infringinggoods are transported. Therefore, unless Customsare empowered and obliged to act on their own tostop suspected shipments at the borders, the bordermeasures will remain ineffective. TRIPs AgreementArticle 58 introduces the possibility to give Customs exofficio powers; as such powers are an essential featureof effective border measures it is recommended thatWCO Members States include a provision to that effectin the national laws.” 44The need for border officials to have ex officio powerdoes not only exist as model legislation but has alsobeen adopted by many of Canada’s major tradingpartners. EU customs officials have the power to44 World Customs Organization Model Legislation http://www.aseansec.org/20534-Annex3.pdfCounterfeiting in the Canadian Market | The Canadian Intellectual Property Council 15

detain and seize goods on an ex officio basis. 45 In theevent of an ex officio seizure, the EU customs officialsmust notify the rights holder and have an applicationfor action submitted within three working days. 46However, because the EU has a comprehensive rightsregistration process that facilitates applications tocustoms officials, less than 5% of seizures arise from exofficio action. 47Some of Canada’s trading partners have takenadditional steps to ensure customs officials havereliable information about counterfeit products.They have developed registry systems that allowrights holders to provide identifying informationabout legitimate trade-marked product which is thenavailable to customs officials. This aids officials ineasily identifying counterfeit product and preventingthe import, export or transshipment of such product.For EU customs officers to be most efficient, rightsholders must furnish them with detailed informationabout the products. The European Commission (EC)strongly encourages cooperation with rights holders,as this facilitates the risk assessment capacities ofcustoms. If rights holders suspect that counterfeitcopies of their goods may transit through customs,they are encouraged to fill out two applications foraction, one national and one community wide, whichwill provide them with customs detention orders.These should include information about the goods, therights involved, the type of fraud suspected, as wellas information on the authentic goods. This processhas been very successful, with authorities reportingthat more than 18,000 applications for action weresubmitted by rights holders in 2010, 48 even though therights holder agrees to cover all of the cost associatedwith the process. 49 In order to ease the administrationof this process, customs authorities have published amanual for rights holders on how to lodge communityand/or national applications for action. 50The EC has also initiated COPIS, a new online databasefor both national and community applications foraction, set to begin in the second quarter of 2012. Thiswill make access to the application system easier forrights holders and customs officials. Developmentsin the EU include the proposal of new legislationthat would replace EC 1382/2003, extending IPRenforcement and streamlining the process for rightsholders. 51Similarly, in the United States, the Customs andBorder Patrol (CBP) works very closely with industry,on which it is dependent for information on possibleinstances of counterfeiting. A recordation applicationservice exists for rights holders, which then providesagents with specific information on goods, includingmarkers of authenticity of the genuine articles andtrends in counterfeiting of the product. In 2011 theCBP approved 2,087 of these applications, 52 which arepaid for by rights holders and last for one year. TheCBP has made the system easier for rights holdersuse with an “E-Recordation” system that allows forspeedier information-sharing between parties. 53 Thisinformation is stored in the CBP’s Intellectual PropertyRights Search (IPRS) database, to which agents acrossthe country have access. 5445 COUNCIL REGULATION (EC) No 1383/2003 of 22 July 2003 concerning customs action against goods suspected of infringing certainintellectual property rights and the measures to be taken against goods found to have infringed such rights Article 4. Available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2003:196:0007:0014:EN:PDF46 Results at the Border 2010 at p. 10.47 Ibid48 Results at the Border, p. 949 EC Regulation1383/2003 Article 650 Results at the Border, p. 951 Ibid., p. 252 2011 US Intellectual Property Enforcement Coordinator Annual Report on Intellectual Property Enforcement, p. 73. Available at:www.whitehouse.gov/sites/default/files/omb/IPEC/ipec_annual_2011_report.pdf53 US Customs and Border Protection Enforcement of Intellectual Property Rights, October 2009 p7. Available at: http://www.cbp.gov/linkhandler/cgov/trade/legal/informed_compliance_pubs/enforce_ipr.ctt/enforce_ipr.pdf54 Ibid, p. 1516 Counterfeiting in the Canadian Market | The Canadian Intellectual Property Council

The development of these kinds of tools, whichfacilitate coordinated efforts within departments andoutreach to stakeholders, are precisely the kind ofinitiatives that border officials should be empowered toundertake.More recently, the WCO has developed the InterfacePublic-Members (IPM) Database, which providescustoms agents with “real-time” information onproducts particularly at risk of being counterfeited,along with information on common transit routes,markers of authenticity and photos of genuine goods.The WCO encourages rights holders to register theirgoods in this database. One of the major advantagesof the IPM program is that it is free of charge andaccessible in the various languages of the WCOmember states. As of February 2011, 65 customsadministrations have enrolled, including Canada’s. 55Adapting to Small ShipmentsMechanisms to address online infringement and theshipment of small quantities of counterfeit goodscontinues to be a problem for customs officials.Though it is known that air freight (approx. 40%) andpostal service (approx. 24%) are the main means fortransport of counterfeit goods, in 2008 nearly 80% ofarticles detained at EU borders were transported bysea—the most convenient means of transporting largequantities of goods. 56 Despite this, a 90% increase inthe number of customs cases in the EU between 2009and 2010 is attributed to small shipments through thepostal service, where over 60% of items detained werecounterfeit medicines. 57 This increase in counterfeitproduct being delivered in small shipments is alsonoted by American authorities. In 2011, customsseizures decreased in value due to a high volume oflow-value packages intercepted, including a number ofmail and courier packages. The increase in number ofsmall shipments detained led to 24% more seizures in2011 than 2010. 58 Customs officials have acknowledgedthat “Over the past five years, the trade in counterfeitand pirated goods has shown a marked shift towardusing international mail and express courier servicesto transport this illegal merchandise,” with an 84%increase in the number of seizures at mail and courierfacilities since 2007. 59Clearly this mechanism of delivery of counterfeitproduct ordered online is a growing problem whichwill require continued attention. EU customs officialsexperienced an increase in the number of cases from43,572 in 2009 to 79,112 in 2010 and indicated thisincrease had a link to increased sales on the Internet. 60This trend has not escaped the notice of internationalmail handlers; the Universal Postal Union (UPU)passed a resolution urging its member countries toencourage their designated operators to “take allreasonable practical measures to support customs intheir role in identifying counterfeit and pirated items inthe postal network.” 6155 www.wco.org56 Joint Research Centre on Transnational Crime, p. 1157 Report on EU Customs, p. 258 Intellectual Property Rights: Fiscal Year 2011 Seizure Statistics, US Customs and Border Protection and US Immigration and CustomsEnforcement, Executive Summary.59 Ibid., p 1560 Results at the Border 2010, at p. 1161 Universal Postal Union, Work Done By Customs Group to Implement Resolution C 37/2008. Available at: www.upu.int/document/2011/an/cep_c_2_gd-2/d008b.pdfCounterfeiting in the Canadian Market | The Canadian Intellectual Property Council 17

Packages are not generally inspected unless they aredeemed suspicious, and a greater number of packagescontain small numbers of goods, but our internationalpartners have identified ways to simplify the process.These steps include simplification of national customsprograms to allow a suspected infringer to abandonthe goods on receiving notice that they are suspectedcounterfeits without the rights holder having to getinvolved. 62 Customs officials in various countriesare also working with international partners tocapture mail shipments of counterfeit goods as theycross the border. Through programs like OperationSafe Summer, the CBP has undertaken significantinternational outreach. In September 2010, Americanagencies worked with Mexican authorities to targetdangerous goods being shipped by mail and expresscourier. These products included automobile airbags,cell phones and rifle sights. 63The EU is currently implementing the EU CustomsAction Plan to Combat IPR Infringement 2009-2012,which deals in large part with the phenomena ofsmall consignments. This plan suggests “All memberStates should examine carefully the phenomenonof sales over the Internet and share best practices.Seminars and working groups will be organized inorder to conclude memoranda of understanding withInternet platforms and financial institutions involvedin online payments, to exchange information, andto share practices on monitoring and identifyingprofessional sellers of counterfeits.” 64 Progress in thisarea is essential in order to make inroads in combattinginfringement taking place over the Internet.The CBP uses a number of innovative techniquesto prevent counterfeit goods crossing the borders,most notably a computerized risk model whichprovides assessments of imports based on specifickey data. 65 The CBP also undertakes post-entry auditsof companies it considers at high risk of importingcounterfeit and pirated goods. 66 A program called“E-Allegations” is also in place which allows citizens toreport trade violations of IPR online. 67Creating Expert KnowledgeThe National Intellectual Property Rights CoordinationCenter is one of the U.S. government’s key weapons inthe fight against criminal counterfeiting and piracy.The expertise of its 19 member agencies is used to shareinformation and develop initiatives, coordinate enforcementactions, and conduct investigations related to intellectualproperty theft.- Fiscal Year 2011 Seizure StatisticsCoordinated action ensures targeted response,prevents duplication of effort, enables the creationof expert knowledge and ultimately results in costsavings related to the enforcement of IPR. OurAmerican and European counterparts have beendiligent in creating expert bodies to face the challengespresented by counterfeiting.In the United States, the CBP is the body responsiblefor customs control, working with many other partnersin investigating suspect goods. When investigationsinvolve possible IPR infringement, the CBP workswith Immigration and Customs Enforcement (ICE)and partners with the IPR Center. 68 The EuropeanUnion has undertaken the creation of an experts’ groupconcerning general policy measures relating to thefight against counterfeiting on the Internet and theexchange of best practices. 6962 Stopping Counterfeits: New UK Rules Introduced. Available at: http://www.harbottle.com/hnl/pages/article_view_hnl/4968.php63 2010 US IPEC Report p. 4264 Draft Council Resolution on EU Customs Action Plan to Combat IPR Infringement for the Years 2009-2012, at p 7. Available at:http://register.consilium.europa.eu/pdf/en/09/st05/st05947-re01.en09.pdf65 Report to the President and Congress on Intellectual Property, at p.88. Available at: http://counterfeiting.unicri.it/docs/US%20NIPLECC_Report_and_Appendices_Final.pdf66 Ibid. p. 8967 Customs and Border Protection Enforcement of Intellectual Property Rights, October, 2009, at p.5. Available at: http://www.cbp.gov/linkhandler/cgov/trade/priority_trade/ipr/legal/ipr_guide.ct/ipr_guide.pdf68 www.cbp.gov69 Results at the border 2010 p. 6.18 Counterfeiting in the Canadian Market | The Canadian Intellectual Property Council

Despite a recommendation in A Time for Change whichcalled on the Canadian government to establish aspecialized IP crime task force to guide, coordinate andlead anti-counterfeiting and anti-piracy enforcementefforts in Canada, no task force has been created. Thesuccess that can be met by creating such a specializedtask force is evidenced by the success in the UnitedStates under the guidance U.S. Intellectual PropertyEnforcement Coordinator Victoria Espinel. In her 2011Annual Report on IP Enforcement, she reported thatDepartment of Justice prosecutions resulted in higherpenalties as they were able to target more significantcases, with a 71% increase in convictions over fiscalyear 2010; Department of Homeland Security increasedseizures of counterfeit pharmaceuticals by almost200% and seizures of fake consumer safety andcritical technology merchandise by 44%; major creditcard companies and payment processors reachedvoluntary agreements to reduce the payments tocompanies selling counterfeit and pirated goodsonline; government agencies have increased efforts tode-conflict cases and ensure investigative resourcesare not duplicated or wasted —the number of deconflictedcases rose to 2,877 in 2011, a 429% increaseover 2010; and the concerted effort ensured a 5%increase in project spending was properly allocatedresulting in a 33% increase in seizures, arrests andinvestigations of counterfeiting and piracy over 2010. 70Expert knowledge cannot be created without aninvestment by rights holders. The UK IP Crime Strategyin 2011 stated “There must be a sufficient focuson operational activity that enforcement agenciesunderstand the importance of tackling IP crimeand prioritize it appropriately. That means not justhaving a sound evidence base but also presenting theevidence in a way that it can best inform enforcementbodies’ difficult decisions on prioritization andlevels of response, where there are other competing(or maybe linked) priorities such as firearms, illegalimmigration or drugs.” 71 Rights holders are wellpositioned to provide evidence to enforcement bodiesand support them in necessary forensic analysis. Thelink between IP crimes and other types of offences iswell documented and this information should guideenforcement officials in dedicating the necessaryresources to the fight against counterfeiting and piracy.A System of Effective RemediesRights holders and government officials have longacknowledged that remedies have to be sufficient todeter potential offenders. 72 Regimes that offer onlynominal fines and minimal sentencing do not provide asufficient deterrent for career IP criminals.Our international partners have implementedinnovative remedies in order to curb the impacts ofcounterfeiting and piracy. In other jurisdictions, courtsare able to order an intermediary to block access toa site that facilitates infringement 73 and have takenaction to seize the domain names of sites engagedin counterfeiting online. In Operation In Our Sites,the National IPR Coordination Center institutedenforcement actions that involve U.S. federal lawenforcement investigation cases and developingevidence to obtain seizure warrants from federaljudges. Pursuant to these orders the websites are seizedand redirected to display a seizure notice. 74 Courtoversight in these instances ensures that IP rights arebalanced against other legal rights and interests. As ofApril 2012, Operation In Our Sites has led to the seizureof 758 domain names accused of selling counterfeitgoods, and officials have used legislation to seize fundsfrom bank accounts associated with the operation ofthese illicit enterprises. 7570 2011 United States Intellectual Property Enforcement Coordinator Annual Report on Intellectual Property Enforcement. Available at:www.whitehouse.gov/sites/defaul/files/omb/IPEC/ipec_annual_2011_report.pdf71 Prevention and Cure: the UK IP Crime Strategy 2011, p. 8. Available at: www.ipo.gov.uk/ipcrimestrategy2011.pdf72 Safety Committee Report Recommendation 6.73 European Copyright Directive Article 8.374 National IPR Coordination Center Fact Sheet “Operation In Our Sites”. Available at http://www.iprcenter.gov/reports/fact-sheets/operation-in-our-sites/view75 Grant Gross, “ICE, DOJ Seize More Domain Names of Sites Accused of Selling Counterfeits” April 10, 2012. Available at:www.pcworld.com/printable/article/id.253522/printable.htmlCounterfeiting in the Canadian Market | The Canadian Intellectual Property Council 19

The standards for remedies for infringement of IPRare provided in international treaties. The TRIPSagreement provides that ratifying countries “shallprovide for criminal procedures and penalties tobe applied at least in cases of wilful trade-markcounterfeiting of copyright piracy on a commercialscale.” 76 In order to clarify the application of thisobligation, the signatories to the ACTA have indicatedthat commercial scale activities include those “carriedout as commercial activities for direct or indirecteconomic or commercial advantage.” 77 The ACTAalso makes clear that the civil and criminal remediesthat are available in respect of tangible IPR shouldalso be available in the “digital environment” andfor infringement which takes place “over digitalnetworks.” 78 This essentially means that a criminalorganization that commits an online infringementshould be treated the same way as a group thatcommits an infringement across borders. 79The necessity of criminal remedies applying toonline infringements has been demonstrated in theMegaupload case commenced by the U.S. JusticeDepartment. In this case, the Justice Department hascharged two corporations and their owners/operatorswith racketeering, conspiracy, conspiracy to commitcopyright infringement, conspiracy to commit moneylaundering and criminal copyright infringement. Theactions, which are the substance of the case, took placein the online environment. 80 The Justice Departmenthas alleged that Megaupload generated over 175million USD in profits and caused over a half billionUSD in harm to copyright owners. 81 Use of proceedsof crime legislation has empowered the JusticeDepartment to seize and freeze many of the assets ofthe corporations and the individual defendants duringthe proceeding.Additionally, contributory liability systems have beenused in the United States to go after key suppliers ofmaterials who actively induce or aid in the distributionof counterfeit goods. The Supreme Court in the UnitedStates has held:[if a person] continues to supply its product to onewhom it knows or has reason to know is engagingin trade-mark infringement, the manufacturer ordistributor is contributorally responsible for any harmdone as a result of the deceit. 82International regimes that allow action involvingintermediaries have also provided innovative solutionsfor rights holders. Under these regimes intermediariesare not liable for infringement; rather they are subjectto injunctions, or blocking orders, that preventconsumers from accessing sites that offer infringingcontent. These provisions have been used in the EU toblock access to sites like The Pirate Bay, underminingthe illicit service’s access to its customers. Injunctionremedies involving third parties have now beenrecognized as an international standard. The ACTAcalls on signatories to provide civil remedies thatenable a court to order a third-party to the proceeding“to prevent goods that involve the infringement ofan intellectual property right from entering into thechannels of commerce.” 83Both legislative and non-legislative projects view theISPs as crucial players for their ability to block websitesfrom the users or simply not “resolve” or completethe search query. In some jurisdictions, ISPs musttake action in order to prevent access to infringingcopyright material in order to avoid secondary liabilityfor infringement. 84 Though such regimes do not extendto action respecting sites offering trade-mark infringing76 TRIPS Agreement, Article 61.77 ACTA, Article 23(1)78 ACTA, Article 27(1) and (2)79 ACTA in the European Union – A Practical Analysis, February 2012 BASCAP/INTA.80 Justice Department Press Release, Justice Department Charges Leaders of Mega Upload with Widespread Online Copyright Infringement, January19, 2012. Available at: www.stopfraud.gov/opa/pr/2012/january/12-crm-074.html81 Ibid.82 Inwood Labratories, Inc. v. Ives Labratories, Inc. (1982) 456 U.S. 844 at 85483 ACTA, Article 8.120 Counterfeiting in the Canadian Market | The Canadian Intellectual Property Council

wares, a principled approach to the protection ofIPR online indicates that such positive action byISPs could be an effective tool for addressing onlinecounterfeiting.The existence of remedies that include blockingorders, domain seizure and contributory liabilityare useful tools to encourage the cooperation ofintermediaries who do not wish to be involved in theillicit activity. A unanimous parliamentary committeehas recommended that the government of Canada“strengthen civil remedies for counterfeiting.” 85Despite the need for strong civil and criminal remediesto effectively deter professional criminals, thereare also calls for some flexibility in the system toensure appropriate remedies and mitigate the costsof enforcement. Best practices for the enforcement ofIPR have to be targeted in their approach and providespace for relief for those who are unwittingly engagedin infringing activities. Many systems provide relieffor infringing importers who disclose the infringementand surrender the goods. This procedure is alsocontemplated in the new EU regulations, whichhas a process for the destruction of goods in smallconsignments without the involvement of rightsholders. 86Further, enforcement resources should be targeted atgoods suspected of being part of large-scale, moneymakingoperations. International agreements haveacknowledged that goods found in personal luggagethat are of a non-commercial nature should nottypically be the subject of seizures or investigativeoperations unless it is proven to be part of a largerscaleoperation. 87Seeking Innovative Solutions ThroughCooperation and PartnershipThere are many examples of enforcement success thathas been obtained by virtue of cooperation amongnational customs agencies and between those agenciesand industry stakeholders. Large-scale cooperation isnecessary as counterfeiting is a global problem thatrequires a global response. Over the last three yearscounterfeit and pirated products have been seized in140 different countries worldwide. 88 Government hasa role to play in facilitating this cooperation as it mustcreate an environment where all stakeholders: rightsholders, enforcement officials and intermediaries, areaware of the importance of addressing the problemand have the tools and resources necessary to do so.Joint International ActionThere are many examples of international customsauthorities working in tandem to seize counterfeitproducts. Operation Pangea IV, coordinated byINTERPOL, was a week of targeted action in 81countries that involved police, customs, and nationalregulatory agencies, and was supported by ISPs,payment system providers and delivery services. 89According to INTERPOL’s secretary general, RonaldNoble, “The main objective of Operation PangeaIV was to harness collective action across differentsectors to assist authorities and stakeholders inINTERPOL’s 188 member countries to shut downillegal pharmaceutical websites and identify the moneyflow and sources behind these illicit pharmaceuticalproducts which represent such a threat to the public.”Through Operation Pangea IV almost 13,500 websiteswere shut down and authorities seized 2.4 millionpotentially harmful counterfeit medications worth anestimated 6.5 million USD. 9084 Digital Millennium Copyright Act85 Industry Committee Report, Recommendation 7.86 EC Proposal for a Regulation of the European parliament and of the Council concerning customs enforcement of intellectual propertyrights, p. 487 ACTA, Article 14.288 ACTA in the EU – A Practical Analysis, February 2012. BASCAP/INTA. At p. 8.89 INTERPOL Media Release, Global Operation Strikes at Online Supply of Illegal and Counterfeit Medicine Worldwide September 29, 2011.Available at: http://www.interpol.int/news-and-media/news-media-releases/2011/PR081Counterfeiting in the Canadian Market | The Canadian Intellectual Property Council 21

Pharmaceuticals are not the only target of coordinatedaction. Beginning in 2007, American and Europeanborder officials started working together on projects tocombat counterfeiting. Operation Infrastructure, thefirst joint project between the EU and the USCBP, ledto the seizure of 360,000 counterfeit integrated circuitsbearing over 40 distinct trade-marks. 91 In undertakingthis initiative, both government bodies acknowledgedthe global challenge of counterfeiting and piracy thatrequired cooperation between private industry andgovernment in order to stem the flow of fakes, promoteeconomic development and protect consumers. 92Using Available Legal ToolsOn occasion, the most effective tools for addressingthe problem of counterfeiting are not subject-specificlaws. As noted in the discussion of Megaupload, theU.S. Department of Justice was able to use proceedsof crime provisions in order to seize and freeze assetsof the corporations and individual defendants duringthe proceeding. Authorities in other jurisdictions haveused legal provisions related to money launderingin order to encourage positive action in the fightagainst counterfeiting.Case Study: City of London PolicePolice in London, UK were well aware of thechallenges counterfeiting and piracy presentedfor its local economy and were seeing connectionsbetween those offences and other crimes. Interested inaddressing tax evasion issues and removing revenuestreams from organized crime, the Economic CrimeDirectorate of the City of London Police (CoLP) lookedfor partnerships in crime prevention. The CoLP knewthat legitimate financial institutions were processingthe payments received by a number of illicit sites andthat this money was funding other criminal activities.In order to protect these legitimate businesses fromallegations of money laundering, the CoLP looked forpartnerships with these organizations in order to cutthe flow of money into criminal coffers. 93The CoLP reached out to the recording industry andkey payment processors. In short order, they hada process in place where police would receive a tipfrom rights holders, investigate the service alleged tobe infringing, and if the service is determined to beinfringing, they passed that information on to paymentprocessors who could then act to terminate service.Online transactions for the purchase of counterfeit andpirated goods all require an intermediary to processthe payment. Visa, Mastercard, American Express andPayPal are all trusted payment intermediaries, andby refusing to provide payment processing servicesto sites that are known to offer counterfeit or piratedgoods, they can effectively cut the life line to theseinfringers. Visa, MasterCard, PayPal, Phonepayplusand Paysafe Card Group were quick to join the CoLPinitiative. Other payment processors are seeing valuein the process with American Express recently joiningin the initiative. 94The CoLP continues to work with INTERPOL totake steps in other countries and confiscate assets.They have indicated that this project has had theadditional benefit of creating knowledge in their ownorganization, facilitating the exchange of skills andbuilding positive relationships with stakeholders intheir communities. 9590 Ibid.91 European Commission Press Release U.S. Customs and Border Protection and European Commission Announce First Joint Operation CombattingCounterfeit Goods February 22, 2008. Available at: http://ec.europa.eu/taxation_customs/resources/documents/common/whats_new/ec_us_joint_operation_en.pdf92 Ibid.93 Detective Inspector Richard Fisher and Jeremy Banks, E-Commerce Facilitating IP Crime: Maximizing Opportunities for Intervention, IP Expo,London, March 2012.94 IFPI Press Release, April 27, 2012.95 Detective Inspector Richard Fisher and Jeremy Banks, E-Commerce Facilitating IP Crime: Maximizing Opportunities for Intervention, IP Expo,London, March 2012.22 Counterfeiting in the Canadian Market | The Canadian Intellectual Property Council

Enforcement officials need to be willing to useinnovative tools to tackle the challenges presentedby counterfeiting and need to know that they will besupported with the necessary legal tools and resources.Rights holders are willing to support innovativeprogramming in order to address the challengesthey face.Partnerships With IntermediariesThere are a number of measures through which IPRcan be effectively enforced online, yet it is increasinglyoccurring through partnerships with “onlineintermediaries.” Typically, positive relationshipsbetween rights holders and these intermediaries,including online payment processors, search engines,Internet service providers, online advertisers, onlineretailers, web auction sites, web hosting providers,domain name system (DNS) registries and social mediaplatforms, can provide the basis for cooperation in theprevention of counterfeit distribution. This relationshiprequires the support of government.In the OECD’s Declaration for the Future of the InternetEconomy, the organization outlined eight goals, twoof which were to ensure respect for IPR and to ensurea trusted Internet-based environment which offersprotections to individuals. The OECD has stated thatgovernment cooperation with Internet intermediariesis key to protecting both consumers and IPR online. 96Payment processors have proven to be willingpartners in working with rights holders to preventthe infringement of rights online. As an example,VISA participated in Operation Pangea, using itsparticipation in the project as an opportunity to remindits clients that all of their transactions processed byVISA must be compliant with the laws in both thecountry of the seller and of the buyer. 97Many sites that offer counterfeit and pirated goodsderive a portion or all of their revenues fromadvertising. The banner and display ads that appearon these websites are frequently placed there by adbrokers who place online advertising in the view oftarget audiences for advertisers. Operators of sitesthat offer counterfeit goods also use these servicesto advertise their illegitimate products in associationwith legitimate goods. A two-pronged approach byowners of legitimate content is required to addressthis problem. First, advertisers of legitimate productsmust demand that online ad brokers not place theirads on websites that offer illegitimate goods and thatthese same brokers not place ads on their legitimatewebsites for illegitimate goods. Second, in order toavoid consumer confusion, action must be taken by adbrokers to limit the use of their services by operatorsof illegitimate websites. Online advertisers, alsoconcerned about the safety of their consumers, aretaking some positive action. Google has acknowledgedthat “Like all other Internet companies, we are fightinga war against a huge number of bad actors—fromwebsites selling counterfeit goods and fraudulenttickets to underground international operations tryingto spread malware and spyware.” 98Recently, two major industry associations, TheAssociation of National Advertisers and the AmericanAssociation of Advertising Agencies, implementedpolicies to discourage their members from placingadvertisements on rogue sites—sites that infringeIPR. In this process, the agencies recommendedthat companies include a clause in their advertisingcontracts that require advertisers to take “commerciallyreasonable measures” to prevent their ads fromappearing on rogue sites. 99 The groups indicated thatthey made this commitment because “we should notknowingly allow our businesses and brands to supplyfinancial lifeblood or lend a veneer of legitimacy to96 OECD, The Economic and Social Role of Internet Intermediaries, April 2010. Available at: www.oecd.org/dataoecd/49/44949023.pdf97 VISA Press Release, VISA supports global law enforcement action against rogue online pharmacies, October 14, 2010. Available at:http://www.visaeurope.com/en/newsroom/news/articles/2010/supporting_operation_pangea.aspx98 Google Official Blog Making Our Ads Better for Everyone March 14, 2012. Available at: http://googleblog.blogspot.ca/2012/03/making-ourads-better-for-everyone.html99 Brendan Sasso, Advertisers Pledge not to Support Rogue Sites, The Hill, May 3, 2012. Available at: http://thehill.com/blogs/hillicon-valley/technology/225249-advertisers-pledge-to-not-support-rogue-pirate-sitesCounterfeiting in the Canadian Market | The Canadian Intellectual Property Council 23

fundamentally illicit business models that threaten thejobs of millions of Americans in the creative industriesand, ultimately, our national economic welfare.” 100The role of government in facilitating thesepartnerships cannot be understated. In 2011, theEuropean Commission brokered a memorandumof understanding between rights holders andintermediaries that established “a code of practice inthe fight against the sale of counterfeit goods over theInternet and to enhance the collaboration between thesignatories including and in addition to notice andtakedown procedures.” 101 In doing so, the EuropeanCommission acknowledged that the existence of theMOU should impact the behaviour of organizations,including those who were not signatories. Underthe MOU Internet platforms committed to creatingproactive and preventative measures to protecttheir clients from the harms of infringing goods andindicated they were committed to voluntary noticeand takedown and would introduce policies to dealwith repeat infringers. 102 There are a vast numberof industry signatories including Adidas, Amazon,Burberry, eBay, Microsoft, PriceMinister, Unilever, theMotion Picture Association and Proctor and Gamble. 103Such government brokered MOUs give rights holdersand intermediaries the opportunity to work together toidentify strategies that meet the business needs of bothbusiness groups and protect the interests of consumers.Online retailers can also be important players in thefight against the sale of counterfeit and pirated goods.These refer to online retailers of third-party goodsand include auction sites and B2B retailers. 104 Onlineretailers and auction sites are in a position to developand enforce internal policies on the goods appearingon their platforms and thus can prevent counterfeitgoods from ever entering the marketplace. Fortunately,a number of online retailers and auction sites havevoluntarily developed policies on the selling ofcounterfeits and are beginning to enforce violations oftheir policies. PriceMinister, the leading French auctionsite, has voluntarily developed an anti-counterfeitingpolicy aimed at protecting customers. AlthoughPriceMinister has taken a consistent stand in the fightagainst piracy, its 2009 signing of a memorandumof understanding with the French minister of theEconomy to fight counterfeiting on the Internet hascertainly influenced its activity. 105100 Ibid.101 Memorandum of Understanding on the sale of counterfeit goods over the Internet, May 4, 2011. Available at: http://ec.europa.eu/internal_market/iprenforcement/docs/memorandum_04052011_en.pdf102 Ibid.103 Ibid.104 The Economic and Social Role of Internet Intermediaries, p. 12.105 Counterfeit Goods on the Web: PriceMinister Leads the Way in Europe, February, 2010. Available at: http://www.prlog.org/10524036-counterfeit-goods-on-the-web-priceminister-leads-the-way-in-europe.html24 Counterfeiting in the Canadian Market | The Canadian Intellectual Property Council

Technology AdaptationFor rights holders, the challenges of cyber-squattingby would-be infringers is an ongoing and increasingproblem. Domain names can be registered by anyindividual. Frequently, sites that offer counterfeitgoods use common misspellings of trade-marks fortheir sites in order to confuse or mislead the ultimateconsumer and trade on the goodwill of the legitimatemark. The Internet Corporation for Assigned Namesand Numbers (ICANN) has instituted a formal processthrough its Uniform Dispute Resolution Policy(UDRP) through which legitimate rights holderscan re-claim domain names which are being used toconfuse or mislead the consumer and which offercounterfeit goods.ICANN has also created a regime that allows for theregistration of new top-level generic domain names.Under this new system new domains could includecorporate names or brand identifiers. Commentatorsare concerned that “the potential for brand abuse willexpand significantly, resulting in increased defensivedomain registrations” and cause brand owners toproactively defend their brands during the registrationprocess. 106 However, individuals who register newtop-level domains will need to operate a domainname registry and absorb all of the costs associatedtherewith. These costs will be prohibitive to manysmaller brands. For those brands that are able to absorbthe costs of registration of new top-level domains,unauthorized sales and channel non-compliance willbe more difficult as the brand owner could controlwho could use the domain. 107 The net impact of thesechanges on the prevalence of piracy and counterfeitingonline remains to be seen, however, it is clear thatthese revisions will put an increased burden on brandowners to take proactive action to protect theirIP online.106 MarkMonitor, Evaluating New Top Level Domains: Opportunity or Threat. Available at: https://www.markmonitor.com/download/wp/wp-gTLD.pdf107 Ibid.Counterfeiting in the Canadian Market | The Canadian Intellectual Property Council 25

Counterfeiting in the Canadian Market:Challenges and RecommendationsCounterfeiting causes serious economic and social damage tocountries, in particular by discouraging inward investment.Manufacturers, distributors and entrepreneurs are lookingfor a fair trading environment in which their products ortrade-marks will receive adequate protection against unfaircompetition. International companies are tending to reducethe number of their manufacturing and distribution sites,with the result that they are extremely selective about whichcountries they eventually invest in. The amount of troubleStates go to in order to create a fair trading environment forthese markets is therefore a crucial factor.- World Customs Organization –The WCO and theprotection of Intellectual Property Rights 108Canada is conspicuously missing from the discussionof international best practices related to counterfeitgoods. Canada is lagging far behind its internationalpartners in finding innovative solutions to theproblems presented by counterfeiting, and thegovernment has not acted to foster partnershipsbetween rights holders and intermediaries. As earlyas 2006, Canadian rights holders were actively callingon government to make changes to the law to preventthe flow of counterfeit goods in Canada and the useof Canada as a transshipment point. 109 These calls areongoing. Canada must act quickly to establisha reputation as a protector of innovative IPR inorder to forge a permanent leadership role in theknowledge economy.Weaknesses in Canada’s Legal RegimeObligations Under International AgreementsCanada, an important player on the global stage, isalso a signatory country and participant in manyinternational trade agreements on IP. Through itsparticipation in the WTO, the World IntellectualProperty Organization (WIPO), the Paris Conventionand the North American Free Trade Agreement(NAFTA), among other agreements, it agrees to abideby certain standards, including those on enforcementof IPR. Canadian law has not kept pace with itsobligations under these international agreements.Articles 9 and 10 of the Paris Convention for theProtection of Industrial Property require customsofficials to seize and hold any goods entering thecountry that bear false trade-marks. Border officialsin Canada do not have the necessary powers in thisregard. NAFTA also requires Canada to implementminimum standards for the protection of IPR, whichhave not been adequately implemented. Specifically,article 1714 requires that each country introduce“expeditious remedies to prevent infringements.” 110In the absence of summary proceedings for cases oftrade-mark infringement, one must question whetherCanada’s legal regime meets this obligation.The TRIPS agreement is another example ofcommitments Canada has made to enforce intellectualproperty rights. Article 41 of this agreementemphasizes that “members shall ensure that108 World Customs Organization, Enforcement and Compliance –IPR. Available at http://www.wcoomd.org/home_orioverviewboxes_valelearningoncustomsvaluation_epipr.htm109 Canadian Manufacturers and Exporters, Position Paper – Intellectual Property Rights in Canada and Abroad, June, 2006. Available at:http://www.cme-mec.ca/pdf/CME_IPR0606.pdf110 NAFTA, Article 1714, http://www.nafta-alena.gc.ca/en/view.aspx?x=299&mtpiID=ALL#A171426 Counterfeiting in the Canadian Market | The Canadian Intellectual Property Council

enforcement procedures … are available under theirlaws as to permit effective action against any act ofinfringement of intellectual property rights.” 111 In theabsence of laws for contributory liability for suppliersin the counterfeiting chain and the absence of summaryproceedings for cases of trade-mark infringement, onemust question if the remedies available in Canada aretruly effective. Article 58 further outlines proceduresfor ex officio powers of customs officials, which havenot yet been implemented.It is clear that borders can be used effectively byrights holders to enforce their IP rights. In Canada theeffectiveness of border enforcement is significantlyimpaired by the inability of border officials to seize andhold counterfeit products at their own initiative. Unlessthe RCMP becomes involved and provides specificinformation about a shipment, CBSA agents are unableto act when encountering commercial shipments ofcounterfeit goods. What Canada needs at its bordersis legislation that adequately addresses the realities ofIPR theft and empowers our law enforcement officialsto protect legitimate channels of trade. To achieve this,the Canadian government must grant CBSA agentsex officio authority to search detain, seize and destroycounterfeit and pirated goods.Canada recently signed the ACTA, the preamble to thisagreement acknowledging that “The proliferation ofcounterfeit and pirated goods, as well as services thatdistribute infringing material, undermines legitimatetrade and sustainable development of the worldeconomy, causes significant financial losses for rightsholders and for legitimate businesses, and, in somecases, provides a source of revenue for organizedcrime and otherwise poses risks to the public.” 112This agreement introduces numerous provisions thatwill require amendments to Canadian law, includingprovisions which require the introduction of ex officiopowers for border officials in order for this country tokeep up with international best practices.Recommendation 1Amend Canadian law to ensure Canada is meetingthe minimum requirements of the internationalagreements to which it is a signatory. In addition toimplementing the revisions contemplated in Bill C-11,specific amendments that are required include:1) Clarify the Trade-marks Act to ensure that trademarkowners have the right to expeditious legalprocess in respect of counterfeiting activities2) Introduce ex officio powers for border officials thatgive these officials the ability to detain, seize anddestroy counterfeit products outside the normalchannels of commerce.3) Amend Canadian law to introduce the abilityto obtain injunctions against third-partyintermediaries as suggested by Article 8.1 ofACTA.4) Introduce provisions of Canadian law toensure that those who induce, jointly act withor materially aid and abet another person incommitting an infringement of copyright or trademarkare also infringing the law.Inconsistencies in National LawIn addition to these changes to the law that arerequired by international commitments, there areinternal inconsistencies and shortcomings in Canadianlaw that are a barrier to effective enforcement of IPR.As we have seen from case law, litigation is a costlyand lengthy affair. In the recent case Louis VuittonMalletier S.A. v. Singga Enterprises (Canada) Inc., theplaintiffs demonstrated that the defendants knowinglyand wilfully manufactured, imported, advertisedand sold counterfeit articles. Their operation wasconducted on a large scale over an extended periodof time, confused consumers and caused harm to thebrands involved because of the inferior quality of the111 TRIPS, Article 41112 ACTA, Preamble.Counterfeiting in the Canadian Market | The Canadian Intellectual Property Council 27

goods. 113 Despite this wilful and malicious activity bythe defendants, the plaintiffs had to seek a remedyunder the civil system when criminal remedies couldhave provided a more effective deterrent effect.International best practices, reflected in the ACTA,acknowledge that countries are required to introducecriminal remedies for instances of wilful copyrightand trade-mark infringement. While Louis Vuittonwas able to seek statutory damages for copyrightinfringement, no such damages were available fortrade-mark infringement and the plaintiffs had toadduce significant evidence as to the quantum ofdamages and the circulation of stock by the defendantsin order to support the significant damages award thatwas ultimately made.Unlike the Copyright Act, the Trade-marks Act doesnot contain any criminal remedies. In order forcounterfeiters to be criminally prosecuted for theiractions, this prosecution takes place under the fraud orpossession of property obtained by crime provisionsof the Criminal Code. The Criminal Code should clearlystate that trade-mark counterfeiting is a criminaloffence. The Trade-marks Act should also be amendedto make it clear that importing, exporting andtransshipping counterfeit goods are criminal offences.When considering Canadian law on counterfeiting,the Standing Committee on Industry Science andTechnology noted that there were disparities in thecivil remedies in the Trade-marks Act and the CopyrightAct. One disparity noted was the fact that trade-marklaw does not contain any statutory damages as areavailable under copyright law. 114Furthermore, under the Customs Act it is not illegal toimport counterfeit goods. The Customs Act must bemodified to clearly state that the import and export ofcounterfeit and pirated goods is a criminal offence, inrespect of which border officials can take independentaction. In order for this to be effective, the definitionsof counterfeit and pirated goods should be taken fromthe Trade-mark Acts and Copyright Act respectively.Recommendation 2Amend Canadian law to overcome internalinconsistencies in its applications. Specific amendmentsthat are required include:1) Introduce criminal provisions for wilful trademarkinfringement to make the Trade-marks Actconsistent with the Copyright Act and internationalbest practices.2) Introduce civil remedies for trade-markinfringement to make the Trade-marks Actconsistent with the Copyright Act.3) Introduce provisions to make it illegal to importcounterfeit goods under the Customs Act.4) Introduce provisions in the Criminal Code thatmake wilful trade-mark counterfeiting acriminal offence.Exploit All Available RemediesThough the law in Canada has been amended toensure that the proceeds of crime regime applies toCopyright Act offences, these remedies are not regularlyexercised by enforcement officials and the penaltiesthat are imposed for counterfeiting and piracy serve asnothing more than a slap on the wrist for professionalcounterfeiters. Action must be taken to encourageenforcement officials to seek strong remedies and useall tools available to them when doing so.Recommendation 3The government must encourage enforcementofficials to seek strong remedies in the case of IPRinfringements and ensure prosecutors exploit the fullrange of remedies available to them, including theproceeds of crime regime.113 2011 FC 776114 Report of the Standing Committee on Industry, Science and Technology, Counterfeiting and Piracy are Theft, June 200728 Counterfeiting in the Canadian Market | The Canadian Intellectual Property Council

Improving Canada’s Response toOnline InfringementDistribution of counterfeit product is now regularlyconducted on the Internet. There is no mechanism inCanada to address online distribution of counterfeitproducts. Although enforcement on the Internet is stillrelatively new, it is essential that Canada develop aworking model that protects consumers and businessesin the digital age.Due to the limited remedies available to rightsholders, it becomes nearly impossible and incrediblycost prohibitive to use existing legal tools to respondto the increasing problem of counterfeit productsbeing delivered through the post in small shipments.Under the current law, rights holders are able to stopshipments at the border if they obtain a court orderinstructing the CBSA to do so. While it is challengingto gather the data necessary to obtain such an order inrespect of large shipments, it is virtually impossible fora rights holder to know if these small shipments arecoming in and it is entirely cost prohibitive to engagein the civil process required to stop the shipment whendealing with so many small shipments.Best practices seen in other countries have evolvedto include systems for recording rights. Underthese systems rights holders typically pay a fee toregister their rights for a specific period of time.This information gives customs officials identifyinginformation about goods that are at a high risk ofbeing counterfeited. Systems like this, that providefor increased cooperation and information sharingbetween border officials, law enforcement and rightsholders, are lacking in Canada. Other countries havealso instituted dedicated enforcement initiativesfocusing on the postal service. Canada has nottaken such an active step and continues to beseen as a transshipment point for commercialscale counterfeiters.Canada lacks programs that have been establishedin our major trading partners that dedicate specificresources to combating IP crime. Dedicated resourcesare essential to developing expertise in identifyingcounterfeit goods, prosecuting IP offences andbuilding international relationships. In order forsuch a program to be taken seriously, it needs to besupported at the very highest level of government. Inorder to determine the policy, level of funding andprogramming objectives of such a program, guidanceshould be taken from international best practices.Recommendation 4Canada needs to develop a tactical response tothe challenges of counterfeiting in the digital age.Specifically, the government should:1) Identify new remedies and approaches that canaddress the challenge of small shipments ofcounterfeit goods that do not require the rightsholder to obtain a court order to suspend each andevery shipment.2) Develop a system for recordation of rights. Sucha system will ensure that border officials have theinformation they need to effectively exercise exofficio powers.3) Develop a team of properly funded and dedicatedenforcement professionals in order to effectivelyface the challenges presented by counterfeiting inthe digital age. In the absence of such a team, it willbe impossible to respond to the challenges of smallshipments of counterfeit product delivered online,and Canada will not be effectively positioned topartner with our international counterparts intackling multinational operations.Building a Proactive Government ResponseIn addition to the increase in the tax base that wouldbe generated by driving more legitimate trade, thereare many other benefits that would be created in theCanadian economy by taking a proactive stance inrespect of counterfeiting and piracy. As has been seenin other jurisdictions, strong laws for the protection ofIPR lead to increased investment and result in moreservice offerings for consumers.To date, Canada has seen the spin-off benefit ofgovernment action in other jurisdictions. The Cityof London Police have driven proactive action bypayment processors; memoranda of understandingfacilitated by the European Commission havefacilitated cooperation between rights holders andonline service providers; and the U.S. government’scalls for increased cooperation have led toorganizations like Google taking proactive stepsto limit the advertising of counterfeit goods on itsservices. The Canadian government needs to havea mandate of engagement to encourage multistakeholdercooperation.Counterfeiting in the Canadian Market | The Canadian Intellectual Property Council 29

Coordinated action can, and has, taken place inCanada. The Canadian Anti-Fraud Centre workswith Canadian brand owners, including CanadaGoose, to liaise with payment processors in obtaininginformation to identify their consumers who are sellingcounterfeit products online. The goal of this project isto cut off the access of unauthorized websites sellingcounterfeit and pirated goods from their primarymethods of payment: credit cards, wire transfers anddirect account transfer. This program has enabledrights holders to provide tips to the Canadian Anti-Fraud Centre, and if a site is found to be infringing,a rights holder can then work with the financialinstitution, with the goal of terminating the illicitmerchant’s account. In this particular case, the Anti-Fraud Centre had indicated that it had suspendedor was in the process of suspending 157 accounts,predominantly in Asia. 115Such programs need to be formalized and rolled out ona larger scale.Recommendation 5The government of Canada needs to take a proactivestance in combatting counterfeiting and piracy. Itsleadership is essential to the development of aneffective enforcement regime and facilitation ofstakeholder partnerships in the country. Specificallythe government should:1) Create an interagency intellectual propertycouncil consisting of senior officials fromvarious government departments, including theDepartment of Justice and the RCMP, with themandate to develop public education programs,initiatives for law enforcement and policy.2) Establish a specialized IP crime task force toguide and lead anti-counterfeiting and anti-piracyenforcement efforts in Canada.3) Proactively engage in facilitating discussion,toward a memorandum of understanding, betweenrights holders and intermediaries in Canada, witha view to creating simple private remedies tocombat counterfeiting and piracy.115 Canada Goose Targets Counterfeit knock-offs. Available at: http://www.thespec.com/news/business/article/675951--canada-goosetargets-counterfeit-knockoffs30 Counterfeiting in the Canadian Market | The Canadian Intellectual Property Council

Summary of Recommendations:Recommendation 1Amend Canadian law to ensure Canada is meetingthe minimum requirements of the internationalagreements to which it is a signatory. Amendmentsinclude:1. Clarify the Trade-marks Act to ensure that trademarkowners have the right to expeditious legalprocess in respect of counterfeiting activities.2. Introduce ex officio powers for border officials thatgive these officials the ability to detain, seize anddestroy counterfeit products outside the normalchannels of commerce.3. Amend Canadian law to introduce the abilityto obtain injunctions against third-partyintermediaries as suggested by Article 8.1 of theAnti-Counterfeiting Trade Agreement.4. Introduce legal provisions to ensure that those whoinduce, jointly act with, or materially aid and abetanother person in committing an infringement ofcopyright or trade-mark are liable for their actions.Recommendation 2Amend Canadian law to overcome internalinconsistencies in its applications. Specific amendmentsthat are required include:1. Introduce criminal provisions for wilful trademarkinfringement to make the Trade-marks Actconsistent with the Copyright Act and internationalbest practices.2. Introduce civil remedies for trade-markinfringement to make the Trade-mark Act consistentwith the Copyright Act.3. Introduce provisions to make it illegal to importcounterfeit goods under the Customs Act.4. Introduce provisions in the Criminal Code thatmake wilful trade-mark counterfeiting a criminaloffence.Recommendation 3The government must encourage officials to seekstrong remedies in the case of IPR infringement andensure prosecutors exploit the full range of remediesavailable to them including the proceeds of crimeregime.Recommendation 4Canada needs to develop a tactical response to thechallenges of counterfeiting in the digital age.Specifically, the government should:1. Identify new remedies and approaches that canaddress the challenge of small shipments ofcounterfeit goods that do not require the rightsholder to obtain a court order to suspend each andevery shipment.2. Develop a system for recordation of rights. Sucha system will ensure border officials have theinformation they need to effectively exercise exofficio powers.3. Develop a team of properly funded and dedicatedenforcement professionals in order to effectivelyface the challenges presented by counterfeiting inthe digital age. In the absence of such a team, it willbe impossible to respond to the challenges of smallshipments of counterfeit product ordered online,and Canada will not be effectively positioned topartner with our international counterparts intackling multinational operations.Recommendation 5The government of Canada needs to take a proactivestance in combatting counterfeiting and piracy.Specifically, the government should:1. Create an interagency intellectual propertycouncil consisting of senior officials fromvarious government departments, including theDepartment of Justice and the Royal CanadianCounterfeiting in the Canadian Market | The Canadian Intellectual Property Council 31

Mounted Police (RCMP), with the mandate todevelop public education programs, initiatives forlaw enforcement and policy.2. Establish a specialized IP crime task force toguide and lead anti-counterfeiting and anti-piracyenforcement efforts in Canada.3. Proactively engage in facilitating discussion,toward a memorandum of understanding, betweenrights holders and intermediaries in Canada, witha view to creating simple, private remedies tocombat counterfeiting and piracy.32 Counterfeiting in the Canadian Market | The Canadian Intellectual Property Council

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