Evidence of meeting #57 for Industry, Science and Technology in the 39th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was product.
A recording is available from Parliament.
Conservative
Colin Carrie Conservative Oshawa, ON
Thank you very much, Mr. Chair. So many questions, so little time.
Mr. Savaria, when these electrical devices and breakers are installed, what happens to the counterfeit goods? You mentioned you could catch somebody, and he may have installed them in hospitals, schools, Parliament buildings--who knows? Who's libel for these things? Insurance? Are costs going up? Is there any evidence of increased claims because of this counterfeiting?
Manager, Codes and Standards, Eaton Electrical Canadian Operations
That's a complicated question.
Typically these devices sit silent until there's an electrical problem. Thank God we don't have short circuits and overloads that frequently. When those conditions occur, these devices are expected to function as they were designed and clear the fault. When these devices are tampered with, the probability of them not operating correctly is many times greater. If the fault meets the device, then we have a potential catastrophe—fire and potential loss of life.
Who is responsible? Everyone. Typically, when there's a catastrophe everyone ends up in front of the judge. The results of a fire don't leave much evidence. That's why we hire an army of lawyers to help protect us.
Conservative
Colin Carrie Conservative Oshawa, ON
Certain people come in and say, “Everybody's exaggerating. Counterfeit isn't all that bad.” I wonder if there's evidence of increased claims. Mr. Geralde said they're growing by 25% a year in Canada. What are we basing these numbers on? Do you people have some ideas?
Director, Corporate Audits and Investigations and Chair of the Canadian Anti-Counterfeiting Network, CSA International
With respect to the numbers there, we received some of that from Interpol through ICC. I will agree that it is hard to determine the numbers. From my experience, and I've been doing investigations for CSA for about 30 years, it's only in the last five years that I've really seen growth in the counterfeiting. That's not to say it hasn't happened; it's that we weren't looking for it. We've been looking at it for a relatively short period of time.
In a lot of cases, even when talking to manufacturers, we've told them to be on the lookout for this. Many times, it's just considered to be bad quality control, or somebody serviced it. And now we're realizing that it could very well be counterfeit.
It's a little difficult to get that. It's just that as you see the proliferation of counterfeits, and even when I go to China and talk with the government people there, they know it's growing, and it's hard to control in that area. Just like the wire, we know the techniques they're using are not going to be safe. So they will eventually lead to problems.
Conservative
Colin Carrie Conservative Oshawa, ON
I was just wondering if there was any hard evidence, for example, like increased claims for fires and things along those lines, that we'd be able to track. Are you aware of anything like that?
Director, Corporate Audits and Investigations and Chair of the Canadian Anti-Counterfeiting Network, CSA International
Right now, the fire marshals put out fires, and they are not broken down for counterfeiting at this point. We've advised them to start looking at that aspect and have helped them with those investigations. I don't think there's anything conclusive at this point, but I'll ask the other associations to see if I can get something back to you.
Conservative
Colin Carrie Conservative Oshawa, ON
Madam Parr, you mentioned video games. You didn't get to go through your whole presentation, but I kind of popped ahead. My kids love video games, so they're always....
One of the statements in there is this:
Today, pirated video games sold at retail stores in Canada are prevalent. In fact, industry research conducted in 2005 identified that an alarming 20% to 30% of retail specialty stores visited in Toronto and Vancouver were selling pirate products.
Are these legitimate stores selling pirated goods?
Executive Director, Entertainment Software Association of Canada
Yes, we actually had our private investigators visit a number of specialty retail stores that sort of sell exclusively entertainment software products--often they also sell DVDs--in different malls and places like that across the country. And we found, in fact, that 20% to 30% were selling pirated product.
In some cases, they have catalogues. You can just go in and say I want X, Y, and Z games, and they burn them while you wait. In other cases, you can go in and buy them right off the shelf. They're imported cartridges or imported game consuls that have been modified, and things like that.
Conservative
Colin Carrie Conservative Oshawa, ON
Current Canadian law provides for sentencing of up to five years and fines of up to $1 million for persons convicted of copyright infringement. However, quite often, these people get small fines and a slap on the wrist and no jail time. Why would the result be any different if we introduced legislation providing even stronger criminal penalties?
Executive Director, Entertainment Software Association of Canada
Certainly, I think Parliament's expression of its desire that this crime be taken very seriously would be very helpful. Having some clarity in legislation, particularly around stuff like circumvention devices, would also. I've talked about that a couple of times. Basically, to be able to play a pirated video game on your Xbox or PlayStation or Nintendo, you have to install a chip, and those chips are not illegal in Canada. You can manufacture them, you can sell them. They're only illegal if you use them to circumvent.
So under current law, we're really only able to go after the kid in their parents' basement. We can't go after the organized crime syndicates that are manufacturing this stuff and shipping it around the world.
Conservative
The Chair Conservative James Rajotte
I'm sorry, Mr. Carrie, your time is up.
We're going now to Mr. Masse, who's the expert on video games. He routinely plays them on the plane, as I found out one day.
NDP
Brian Masse NDP Windsor West, ON
Yes, PS3, Xbox, PS2--I have them all. I still lose to 14-year-olds, though. That's the problem.
I'd like to carry on with where Mr. Carrie was going with regard to that. We spent a lot of time, actually, back in 2002 to 2004 looking at satellite piracy and that issue. Some of it could actually have been a fix and was actually fixed by the industry itself. Some of the products were very deficient in terms of protection of their own property.
As to what Mr. Carrie was leading us towards, I think an important aspect of the law is that you can go after kids, but you can't go after the organized crime element. If that did happen, do you think it would improve your situation? And how fast would the changes, if they were to be positive, happen for the industry itself?
Executive Director, Entertainment Software Association of Canada
I'll answer it in two parts.
I think it would be extremely helpful for our industry in terms of even the civil actions we take on a regular basis.
I think what would especially have an impact would be to couple those legislative changes with additional resources for the RCMP. We are finding that the RCMP is very willing to undertake cases, but they don't have the manpower to go after as many targets as the ones that exist. If we were able to couple those two things together, I think we'd see tremendous results.
But our industry certainly welcomes any change. It's having a huge impact on our bottom line and on our ability to be innovative and create jobs. We would welcome any change, and we would work very closely with the government and law enforcement.
NDP
Brian Masse NDP Windsor West, ON
It's an interesting parallel when we talk about it because it was the same thing for satellites. It seems to be that it's rearing itself in this industry in the same way.
I would like to know this. We've focused on other countries so far, with what they're doing in flooding us, but I'll open this to the panel. One of the things we have to look at is a credibility check. What about Canadian companies that might be doing that type of thing and they're also exporting to other countries? Is there growth in that industry as well, from your perspective?
To really quickly follow up on that, I'm looking at the breakers here, the products and such. You can maybe add to this in your answer as well.
For example, when they find an actual product in a brand store, they go to the brand store. Does anybody have any insight in terms of where the system is failing in going to that shelf and tracking it to the very source of production, whether it be in Canada or outside Canada? For example, if you find an electrical cord at a particular big-name brand store and chase it down to the actual location, what happens to put pressure on the store to cease and desist not only bringing in the product from that supplier but for other products as well?
Director, Corporate Audits and Investigations and Chair of the Canadian Anti-Counterfeiting Network, CSA International
I'll take a stab at the last part.
First, it's very difficult to trace back. In my experience, going back to China, they'll set up shops, and their whole goal is to mix counterfeit products into the distribution network. We're training and working with the major retailers to identify counterfeits and trace them back, but a lot of the time it goes back to trading companies and some of the factories. There are factories that produce counterfeits on a midnight shift, and there are factories down the road. A lot of mixing and matching goes on. Then there are legitimate counterfeiters who get into problems such as with the breakers.
When you have a Katrina disaster, Red River floods, and all those areas where they have a need for a big supply of products, with the just-in-time manufacturing and the lack of holding stock, it's perfect for counterfeits.
It's very difficult to actually trace it back, and the sources dry up quickly. Law enforcement is used along with private industries to try to correlate it, but it's an expensive and a difficult task to zero in on.
Manager, Codes and Standards, Eaton Electrical Canadian Operations
As a matter of interest, four of my six samples here have counterfeit labels. They're all domestic recycled materials.
You asked what we're doing about the problem. I'd like to tell you about our U.K. adventures.
My colleague in the U.K. is the chairman of the U.K. industry associations anti-counterfeiting task force. He visits China twice a year in conjunction with the Canton trade fair and, with the Chinese officials, conducts raids, seizures, and smashing of moulds. It goes on and on. Of course, I read his reports and discussed his trips with him. This isn't coming to an end anytime soon.
Conservative
Manager, Criminal Law Enforcement, Underwriters Laboratories Inc.
You have to look at it from different perspectives.
Over the years, I've dealt with a large number of retailers in Canada who have been caught with counterfeit products of varying types, including hazardous goods. For the most part, the larger legitimate retailers don't want to sell the stuff. They want to compete on a level playing field, and they'll do what they can to get it off the shelf and to give the information. But they're buying from importers or distributors that are trying to deal in margins of pennies, and it's a really competitive area.
From the other perspective, you're looking at a lot of video game retailers and stuff. They're just counterfeiters and they don't care. All they sell is counterfeit product.
There are different levels of business and different perspectives. It's a multifaceted thing and there's no one quick fix to any of this. Although the copyright legislation with the penalties is effective, it's not being meted out by the courts or the prosecutors aren't seeking it.
Conservative
Liberal
Scott Brison Liberal Kings—Hants, NS
Thank you.
The first question is about the need for multilateral action, for Canada to act as part of an international community to effect change in this area. There was an article in the Wall Street Journal the week before last on auto manufacturing in China. A company that was manufacturing cars under licence for General Motors, that was producing Buicks, started a couple of years ago to produce their own cars, in fact using the intellectual property from General Motors to produce cars in China that are very similar to the Buicks they were producing previously but for about $6,000 or $7,000 less. This is one example. So it's gone from fake Rolex watches being sold in front of Tiffany's in New York to the car industry. It's massive in terms of its potential impact.
If we accept that it has to be dealt with multilaterally...and if you look in North America, we have huge trading power with the NAFTA countries, particularly with the American market, and the desire for the emerging markets to have access to it. There is currently being negotiated a North American security and economic partnership between the three governments. Should we be negotiating, as part of that, stronger approaches on the protection of intellectual property? Should we be making our representations at the WTO? The WTO membership means that you're going to enforce these measures more rigorously in your domestic markets. If you want access to the North American market, you need to enforce copyright protection and intellectual property protection in your own country. And also, put this hand in hand with a regulatory harmonization such that, regardless of where products are manufactured--for instance, on the electrical side--we move towards global harmonization of the rules on these items and other ones.
My point is that the Canadian market in and of itself represents a certain level of leverage that we could be using. But if you add in the U.S. market, we have very significant leverage that we could be exercising on these countries. Right now, the Chinese auto industry is looking at the U.S. market a few years down the road, but it's going to become more important to them in time.
Would you support that kind of initiative: once again, the government working with NAFTA, the North American security and economic partnership, to develop one approach within North America, basically to say to any country in the world producing anything that if you want to sell legitimate products here in North America, you have to enforce and stop producing knock-offs and trying to sell them here?
Manager, Codes and Standards, Eaton Electrical Canadian Operations
In the NACC, the U.S. chose regulatory matters as their subject. I understand that one of our colleagues from the U.S. electrical industry raised counterfeiting as an issue that they're trying to deal with. At least that's my understanding.
By the way, I took a run at the Canadian Council for Chief Executives last year, based on that Maclean's magazine article on the new NAFTA, believing just what you said, that there was room at NACC negotiations to potentially solve this problem.
Liberal