Industry Committee on May 2nd, 2007

[Daniel Drapeau]

Thanks very much.

I will not address the portion of the question dealing with how big a problem it is. The portion of the chain with which I deal is that I've a problem and I have to deal with it. I work on a full-time basis doing almost exclusively anti-counterfeiting work. Simply by my level of occupation, I think I can show you what kind of a problem this is. Beyond that, I cannot advance and give you figures.

However, in terms of

what needs to be done to tackle the problem or, at the very least, to control it, I have a few suggestions.

The first concerns border measures. Generally speaking, these products are not manufactured in Canada, but abroad. Therefore, customs play a crucial role. In that context, as I already said, there needs to be greater communication between rights holders and customs officials.

Second, concerning the legislative framework,

in Canada we have a very bizarre system. We have trademarks on one hand and copyright on the other. When they are each in their own domain, I can see why the two systems are not identical. But when you're dealing with counterfeits, they both should equally apply.

Here are some disparities between trademarks and copyrights. So everybody knows what we're talking about, a trademark is Lacoste, Chanel. Those are trademarks. A copyright is a work of art, a work of creation that is protected by copyright. For example, the alligator that you see on a Lacoste polo shirt is protected by copyright. It also happens to be a trademark.

The ideal situation, of course, is when you can cumulate both protections. However, if you only have one of the two protections, under copyright there's a good faith defence, so somebody can say he had no way of knowing and actually get out of it. Under trademarks there are no pre-set damages. Pre-set damages means that if somebody is proven to have violated the Copyright Act, the Copyright Act provides for damages that can be awarded by the court without proof of actual damage sustained by the right owner. You don't have that in trademarks. That's a very important limitation.

Furthermore, as I mentioned earlier, the RCMP and the Crown will not act on trademark matters, but they will on copyright matters. That disparity between the two laws, I think, is a major problem.

[The Chair, Conservative, James Rajotte]

Okay.

[Daniel Drapeau]

Can I add two points very briefly?

In terms of deterrents, there is civil deterrence. Increase the penalties. In terms of criminal deterrents, criminalize the process or criminalize the act. One point about camcorders is that if somebody is in a movie cinema and camcords, there may be a copyright law that's against it, but until you can get that guy's name, you can't institute an action against him. But if you criminalize that action of camcording, you can get a policeman to arrest that person and you can get an identification, which you cannot get civilly. Even under an Anton Piller order, somebody can refuse to identify himself.

Finally, in terms of effectiveness, when you do get a remedy and there's a shell company, as Monsieur Geist has mentioned, that's also part of increasing penalties. It's not only increasing the amount of penalties; it's increasing who pays the penalties, the personal liability of directors and officers of companies, and piercing the corporate veil in instances of counterfeiting.

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Carrie, please.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair.

Thank you very much, witnesses, for being here.

We've just completed a manufacturing study. We had the opportunity and privilege to travel across Canada. We didn't hear a lot of talk about Rolexes, but when we went to Quebec, we did talk to those in the textile industry. When we went to Windsor, we had a very good meeting with the auto manufacturers and auto parts manufacturers; in Oshawa, same thing.

I've been at trade shows where associations of plumbers and electricians have said, “My gosh, you've got to do something. These copies are so good, even we don't know the difference.”

My concern is, okay, these parts are out there. These counterfeits are out there. Where is the money going from the profits, but also, where are these parts? Where are these electrical circuit breakers that are faulty? Are they in hospitals? Are they in schools? I'm very concerned about this.

Mr. Geist brought up a good point, that other countries out there have stronger copyright and IP protection than Canada has. I want to play devil's advocate here, because it seems the Canadian government currently meets its international standards and works with the international enforcement community. Other than getting taken off the American list of bad guys, why should we do anything?

Mr. Drapeau, why should we go ahead? And what should we do?

[Daniel Drapeau]

You've raised a number of points here.

I don't know where all the counterfeit items are. I can tell you that I have a fairly substantial amount of them in my office; they're on the marketplace.

Why should we have stronger protection? Let's talk about other jurisdictions. For those of you who have been to Charles de Gaulle airport in Paris, there are actually signs in Charles de Gaulle saying that if you come in with a counterfeit handbag--never mind for importation or resale, for personal use--the customs officers are authorized to seize it.

I am not of the view that the problem is just as bad in other countries. First of all, one has to look at each country on its own. There are countries that have more population. There are countries that have a bigger marketplace. There are countries in which certain products are more in demand. I think it's very difficult to compare country by country. What I know is that in Canada we have a counterfeiting problem.

You've asked me, why should we be doing something on this? Is it only to get ourselves off the U.S. list? And for those who are not familiar with this, the United States has a list of countries that it considers to be not proactive enough on intellectual property. We are on the list.

My testimony has not mentioned this for the specific reason that I think we need to be strong on anti-counterfeiting not because some other country is telling us to; we need to be strong for our own values. We don't want to live in a society where it's okay to cheat, it's okay to lie, it's okay to sell things that are fake. That's not the way I was raised, and I'm sure that's not the way the majority of the people around this table were raised.

It is your job, as legislators, to make sure that you preserve the integrity of that culture. I don't know how you develop a culture in a country, but that is probably one aspect of it.

[Colin Carrie, Conservative, Oshawa, ON]

For the benefit of the committee, could each of you give us your definition of counterfeit and its impact on the Canadian economy? I know that might be a long answer, but if you could keep it really short, we could get all of you in.

So give us your definition of counterfeit and its impact on the Canadian economy, as briefly as possible.

[The Chair, Conservative, James Rajotte]

Why don't we start with Mr. Erdle.

[Michael Erdle]

Certainly.

From our perspective, a counterfeit is a product that intentionally deceives, that intentionally has trademarks and other markings of another product, that is a copy, an out-and-out copy. That's our definition of counterfeit.

There are some grey areas. There are the Sony electronic products where Sony is spelled “Sonny”. Is that a counterfeit or not? I think it is. I mean, it's still intended to deceive.

[Colin Carrie, Conservative, Oshawa, ON]

What would you say the impact is to the Canadian economy?

[Michael Erdle]

It's impossible to say in dollar terms, but the impact is on the integrity of the marketplace. There are laws enforced against false advertising, deceptive trade practices, and the like. This is simply one element of that, and the laws need to deal with it. People are deceived.

[Colin Carrie, Conservative, Oshawa, ON]

I hate to cut you off, but I was hoping we could get to everyone on that.

[The Chair, Conservative, James Rajotte]

Mr. Geist.

[Prof. Michael Geist]

I too would focus on unauthorized copies that involve clear deception, particularly where we're talking about public health and safety. I'd note that while you may have seen, as you toured the country, fake auto parts and the like, the RCMP's own data suggests that the top sources for counterfeiting are actually watches, handbags, and items of that nature. According to our own law enforcement, that's where the largest source is. Of course, we've heard about Lacoste and others.

In terms of the impact—and I'm sounding a bit like a broken record—the reality is that we don't know. We hear a lot of stock horror stories. I think most people can appreciate that a great deal of that kind of copying is not a perfect substitute. The person who buys the fake in a flea market knows full well that they're buying the fake in the flea market, and don't think they're getting a $2,000 handbag for ten bucks.

[Colin Carrie, Conservative, Oshawa, ON]

It's actually putting Canadian businesses out of business.

[The Chair, Conservative, James Rajotte]

Do you want to get the entire panel?

[Colin Carrie, Conservative, Oshawa, ON]

I would if I could, quickly.

[Daniel Drapeau]

Counterfeiting, pursuant to our acts as they are currently drafted for trademarks, is the reproduction of a trademark on wares that are covered by a trademark registration. I would extend that to wares in the same category. If I have a registration for a shirt and somebody reproduces my trademark on a baseball cap, I would consider that counterfeit. For copyright, it is the reproduction of the work that is protected by copyright.

Incidentally, Mr. Geist mentions unauthorized copies, and there is a very important distinction to make regarding the issue of grey goods. There will be a decision coming down from the Supreme Court some time this year on the Euro-Excellence case. This is a case dealing with Toblerone chocolate and based on which we will know whether grey goods, which are legitimate but are imported into Canada in violation of the rights of the local distributor, constitute a violation of copyright or not.

When you're dealing with something that is unauthorized, you have to be careful, because some unauthorized can be counterfeit and some unauthorized can just be grey goods. My definition of counterfeit excludes grey goods.

What's the impact on the Canadian economy? Somebody may very well be right in saying we don't know the full impact. The reason for that is that it's illegal. People who operate in illegalities don't keep detailed records. I know; that's what I'm confronted with on a daily basis. That's my first answer.

Instead of asking what the impact of counterfeiting is on the Canadian economy, why don't we ask what the social benefit of counterfeiting is?

Contrary to what I've read in some minutes of the security committee, I can assure you that counterfeiting does not promote innovation. It is not fair competition; it's unfair competition. You should not link counterfeiting with two innovative products that are going head to head in the marketplace or two companies that are really trying to outdo each other to come up with a new idea. That's not it. You have one innovator who is coming up with something new, and you have somebody else riding on his coattails.

[The Chair, Conservative, James Rajotte]

I'm sorry, we're really going over time with everyone here.

We'll go to Mr. Masse.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

Thank you for appearing here today.

I apologize in advance as I have to leave after this, but I might come back again. I'll get the blues later on and follow up.

I have a couple of questions to all three of you.

Mr. Geist mentioned accumulating data. I think that's a good suggestion, because we have seen a lot of this come across before without knowing specifics. We have examples and a whole series of things. In your opinion, how would we go about collecting and building that good strong database and then a model for that, not only for the short term but also for the long term, with regards to this issue?

[Prof. Michael Geist]

I think it's important to distinguish between different types of issues, because depending on the type of product, there may be different ways to try to obtain the data. For example, in the camcording area there are these wild numbers that, if true, mean the total's going to amount to about 500% of all global camcording being attributed to a series of places. The numbers just don't add up.

One independent study on camcording that was conducted by AT&T Labs Inc. several years ago found that 80% of all pirated DVDs are actually sourced internally. They're in screener jobs that the industry itself has somehow lost; someone inside has released it out, and then it gets released onto the Internet and elsewhere, so in fact camcording was a tiny fraction of the overall sources. They did that by going online and actually taking a look, because you can tell the difference between a screener copy and a camcorded version.

In some areas I think there is the prospect of doing some fairly good data if we get some independent researchers on the job. In other areas—say, counterfeit pharmaceuticals and the like—I'd suggest we could engage in some pretty good sampling, both for some of the online pharmaceutical industries as well as even some offline pharmaceutical companies. We could try to obtain a sample. Presumably some forms of pharmaceuticals are more likely to be counterfeited than others, so we can probably get a pretty good sense and on that basis look at overall pay and the like.

But none of that has happened to date. All we deal with are these horror stories that unquestionably attract our attention.

In many respects it's not about whether there's a social benefit to counterfeiting. Let's be clear: I don't think there is a social benefit to counterfeiting here, but when you have people coming before you to say we ought to throw lots more resources into law enforcement or into border enforcement, it means taking resources away from something else. I think we need to be pretty darn sure we have a serious enough problem to merit the allocation of those public resources for essentially the private benefit, in many instances, of the companies that are being affected by having their clothes knocked off.

[Brian Masse, NDP, Windsor West, ON]

Is there anybody else?

[Michael Erdle]

I think one of the benefits of devoting more resources to this is in collecting the information Professor Geist says we need. I agree that more information would be good; I don't agree that we should just sit on our hands because we don't have absolutely definitive data.

On the camcording front, I understand that all films released today now have watermarks. The source of the copies can be identified, so I think that data ought to be readily available. Probably the Canadian Motion Picture Distributors Association already has some of it. They're not independent and have a vested interest, but I'm sure they have the data, and if they can back it up, that's where we should look.

Other industries have data as well. The automotive industry certainly has data. The aerospace industry has information, and it would be very useful to have it.

But I don't think that should be a reason for taking no other action. We need to go ahead and take action.

[Daniel Drapeau]

I will give you a very simple way. Go to the Federal Court of Canada and get the registrar to pull out for you all the John Doe orders that have been rendered by the Federal Court. A John Doe order is an order that's rendered by the Federal Court of Canada. It orders infringers to deliver up counterfeit goods.

Incidentally, it's a uniquely Canadian remedy, one for which we're known. It originated in the U.K. in a decision rendered by the House of Lords, but it was imported into Canada. Our uniqueness is that John Doe orders are applicable across the country. In no other common law jurisdictions do you have one order that can be applicable in a whole country; usually it's limited territorially.

You go to the Federal Court and you get a list of all the John Doe orders that have been granted by the Federal Court. The first one was granted in 1982. That's quite some time ago. Then, under each of those orders, you look at how many counterfeit items were seized every year. I'm telling you already that it's a very daunting task. I've been in charge of John Doe orders in my firm, Ogilvy Renault, since 1997, and I keep that sort of record. In 1982 I wasn't even in law school yet.

That would be a way for you to know the extent of the counterfeits that were caught—caught—on the market for a given period.

It will be a very lengthy process. You are only going to get the tip of the iceberg. When you seize a counterfeiter, usually he hides the bulk of his stock; you only get a fraction of it. So whatever amount you get, multiply it by a factor that I cannot quantify, but which I can say would be substantial.

[Brian Masse, NDP, Windsor West, ON]

I have one other quick question.

We had testimony in Windsor about auto parts being replicated. In fact, the tool-and-die mould industry was actually losing some of its mould designs through the big three and others—actually the big five—taking those designs and shopping them in China and other places. That's a real problem. It's a loss of jobs. We're losing a lot of jobs as it is right now, and this is significant.

There are also issues such as, for example, the electrical cord one that we had, and a number of other examples. Speaking as a young parent myself, if you have somebody actually hurt or injured from that....

I'm curious to know your position. Who do you believe is responsible for that? Do you believe it's the retailers? Do they have some element of responsibility to make sure the product they have on their shelf was done through proper accounting procedures and that they've not bought it knowing...? Second to that, would you follow it back towards the manufacturer as well?

In your opinion, who is responsible if there's death or injury from a product? Where does the buck stop?