Industry Committee on April 30th, 2007

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Mr. Chair.

Thank you all for coming out.

Counterfeiting is theft, it's harmful, and it destroys market rules.

Quickly, to Mr. Geralde, when the perpetrators are brought to justice, what is the attitude of the courts? Are they taking this seriously?

[Doug Geralde]

I'm not a lawyer, so--

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Neither am I, and that's why I had bit of difficulty with whom to ask.

[Doug Geralde]

It doesn't seem to be on the high end of priorities, certainly not the penalties. Anything that's a fine for that seems to be just the cost of doing business.

Perhaps Mr. MacInnis would add more.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Mr. MacInnis.

[Warren MacInnis]

When I started this 10 years ago, essentially I was laughed out of court; in a lot of cases the prosecutors wouldn't even look at these cases. It's changed somewhat, but still, within the judiciary, I don't know if it's a lack of education or if they don't want to take the problem seriously.

First of all, there's law enforcement; you have a problem getting the products seized. You need the resources to do it. It's a whole chain. But you have to find a prosecutor willing to take the case, and once they're willing to prosecute it, you have to get it in before the courts.

For them, if they're going to take it seriously and actually take it to the extreme, the Copyright Act has all these great sentences, but they're never applied as far as the severity of it is concerned. In dealing with the trademark legislation, there are no criminal sanctions under the Trade-marks Act. Anytime you deal with certification marks, they're all under trademark legislation, and there's nothing there that can deal with it. You have to go to the Criminal Code, and those sections were never set up to deal with this. Then you're going back and forth, to the Department of Justice, to criminal prosecutions, you're trying to Crown-shop, and you're trying to get it before the courts. At the end of the day, this may take two years, and the sentences, essentially, up to this point, except for a few rare occasions, are a joke.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Mr. Halickman, on job loss, money, what's it costing? Give us your opinion as to the effect in our marketplace today.

[Michael Halickman]

In the entire market of the clothing industry?

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Yes.

[Michael Halickman]

Take our company, for instance. If we're losing 1% or 2%, and we're just one small player, that's a couple of million dollars a year just for me. I'm medium-sized, and there are many others. There are millions and millions of dollars lost to this.

As Mr. MacInnis was saying, for the people who are doing it to them it's a parking ticket. To put it in simple terms, it's like getting a parking ticket. We threaten them, we take them...they pay $1,000 or even $50,000, they don't care; they're doing it the next day. There's zero fear.

[Warren MacInnis]

There's no disincentive.

You have to look at the different levels of criminality. Of course, there are smaller operations that are doing it because other people are doing it and it's accepted. If they get a knock on the door from the police, they're going to give it up. But the ones we have the biggest problem with are the hard-core criminals, where time and time again you go after the same people, take them back to the same court system, and they just get an increase in fine.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I was going to say, just listening to this, that there are going to be some who set up shop in their own garage, but there's a level of sophistication here that would point to a high level of organized crime.

What about nations? Are we seeing nations involved in this too? I don't want to specifically mention anybody, but are there nations jumping on the bandwagon and taking advantage of our lax...?

[Doug Geralde]

My experience is that it involves primarily developing countries where they don't have an infrastructure for intellectual property rights and there's a big demand for hard currency. That's certainly where we see it proliferating, and in the globalization of manufacturing and distribution, certainly that's one.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I don't want to name names, but I will. Are nations like China turning a blind eye?

[Doug Geralde]

Certainly, and we saw it counterfeiting with the watches and things like that in Taiwan in the 1970s on a smaller scale. The big concern with China is its size and the potential volume for this activity. In addition to that, from a counterfeiting perspective, it's coming on at the perfect time, as you can do scanning now of any labels, any marking, any material, and make them look identical on the outside. There's sophistication for that, as well as the organized crime element for the distribution and getting things in. All of these things are issues that we have to look at, and certainly those countries that you mentioned, like China, are at the top of the list.

[Warren MacInnis]

There are a lot of people within Canada who have connections to other countries that are either family related or through organized crime, whether they're involved with factories, whether it be family members, or connections, or partners back in different countries. For instance, this cord appeared throughout North America. A lot of times they'll do penetration tests through different ports. If they can't get it through San Francisco, they'll move to Seattle. If they can't get it through Seattle, they'll move to Vancouver or over to Montreal. This is a complex network in a lot of cases, where hundreds of thousands of these things are being manufactured--and ordered through the distribution centre. It's not somebody out of their garage or basement organizing this.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Van Kesteren.

We'll go to Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

First, Ms. Parr, I'm curious to know how downloads affect your industry.

As you know, Mr. Chair, one of the reasons we're here is that Dan McTeague has brought this issue up numerous times with regard to recording and the effect on Canadian jobs.

So in terms of the future of your industry, I'm curious about downloads and the effect on jobs. It's not just the hard replication done in the factory; it can be done in other ways.

[Danielle LaBossiere Parr]

Yes, absolutely. Thank you for that question.

Certainly hard-goods piracy is a huge problem for us now. Downloading is going to become an even greater problem for us in the future. We have been a little bit saved from a lot of the downloading problems--or we were until fairly recently--because of the massive size of video game files.

Today, as bandwidth continues to expand, we see a lot of piracy through Internet downloads. Among any changes that the government introduces to the Copyright Act, we'd very much like to see notice and takedown to really try to prevent the proliferation of Internet downloads. But again, talking about mod chips, even if you download a game, you still need a mod chip to be able to play it on your console.

So that's something that helps in either case.

[Brian Masse, NDP, Windsor West, ON]

That's where you say a lot of the organized crime comes into play as well.

[Danielle LaBossiere Parr]

Yes, absolutely.

[Brian Masse, NDP, Windsor West, ON]

Mr. MacInnis, you were bringing up some really good points about distribution and chasing down where it came from. I'm a little bit concerned, though, about the culpability and the responsibility of the retail supply chain we have and whether we're doing enough there.

I'll use the example of circuit breakers. And I'm not saying they have them, but let's say they're in a Wal-Mart. If a person walked in, bought that, and had a problem with it, shouldn't the retailer have some culpability there? I mean, this is a multinational conglomerate company that's making a lot of money, and for the safety of our own selves, I have a hard time believing we should just say, well, too bad, sorry I bought it. That might be the real situation, obviously, but there should be some checking.

What happens at the next stage? Is there follow-up to make sure they don't purchase from that supplier any more, or else, following that chain, to make sure the supplier identifies where they got it from and never purchases from there again?

I agree that there has to be greater commitment--it's obvious from the hearings we've had already--from government policies and supports in the field, but shouldn't there be some expectations on retailers? If you were in a food service industry, you couldn't serve rancid meat. You couldn't have practices that produced that type of atmosphere that would poison people without repercussions. Do we need to do more to the retailers and put expectations on them?

My concern is that the people who are playing by the rules, who are stocking their shelves with the proper things, are going to be penalized as well by this. They're actually going to have increased prices and lose customers. It becomes a race to the bottom if we don't have tough penalties on retailers.

[Warren MacInnis]

Retailers have been penalized and charged criminally. I mean, if they're caught with this particular type of product and then they resell it and resell it, they're charged. With the national chains, when I was in the RCMP, we did go after that.

I think a big part of it is education of retailers, the distributors, and manufacturers. The retailers, the large legitimate ones, have just over the last few years come on board. With organizations like CACN and other international organizations, it's not a hidden epidemic any more. People realize it, so they're a little more careful.

It costs a legitimate retailer huge if they get caught with a counterfeit product. They have to recall it. They have to destroy it. They may face potential lawsuits with the public relations nightmare that would follow. So large retailers want to be part of the solution, not part of the problem. But if they continue to turn a blind eye, I would totally agree that they have to face a penalty, as any other type of criminal would.

[Brian Masse, NDP, Windsor West, ON]

Would the staff, the suppliers, or the management be part of this and have to face any criminal charges, similar to the Westray mine bill we had here, where it was changed?

[Warren MacInnis]

If it's a director of a corporation or something, and it can be proved in a criminal court that they were negligent or wilfully blind or had a guilty mind and knew what they were doing, then certainly they will be prosecuted, and hopefully convicted.