Industry Committee on Oct. 30th, 2012

[The Chair, Conservative, David Sweet]

Good morning, ladies and gentlemen.

Welcome to the committee's 45th meeting.

This is the Standing Committee on Industry, Science and Technology. We are studying innovation and intellectual property.

Before us we have four witnesses: from the National Research Council, John McDougall, president; from the Canadian Anti-Counterfeiting Network, Wayne J. Edwards, chair, also the vice-president of Electro-Federation Canada; from the Eaton Yale Company, Vladimir Gagachev, manager, regulatory affairs, electrical sector; and from the Canadian Standards Association, Terry Hunter, manager, anti-counterfeiting and intellectual property enforcement.

It's my understanding that Mr. Gagachev will be here simply to respond to questions, etc. Everybody else will have six minutes for opening remarks.

[Wayne Edwards, Chair, Canadian Anti-Counterfeiting Network, and Vice-President, Electro-Federation Canada]

[Inaudible--Editor]...seven minutes.

[The Chair, Conservative, David Sweet]

Mr. Edwards, I give a little bit of grace on that—

[Voices]

Oh, oh!

[The Chair, Conservative, David Sweet]

—but you'll find only a modicum.

Going by the order on our agenda, the National Research Council will be first.

Mr. McDougall, you have six to seven minutes, please.

[John McDougall, President, National Research Council Canada]

Thank you, Mr. Chair.

I'm John McDougall, president of the National Research Council. Thank you for the invitation to appear. I look forward to the discussions today.

As you probably know, the National Research Council was established about 100 years ago, almost, in 1916. It was done so under an act of the Government of Canada. The purpose was really to support economic development in Canada through technology and innovation, in essence to help build Canada's industrial infrastructure and maintain our productivity and competitiveness.

At this point in time, the National Research Council operates with an aggregate budget of roughly $900 million, of which about $150 million comes from industrial and other government departmental sources. We're the largest organization of our kind in Canada, with facilities across the country, about 4,000 permanent staff, and 1,400 or 1,500 staff who would be classified as visiting workers.

Our business includes fee-for-service work, collaborative work, and consortia-based work. We also do some internal projects, and of course we have the very well-known industrial research assistance program that provides grants and other support to emerging enterprises to help them with their technology development.

I'm interested, obviously, in this discussion because IP really is what our business boils down to be. It's about knowledge and know-how. It's the core of what a research and development organization really does. We're trying to develop knowledge and know-how that effectively can be applied, but importantly, in our case, because we're a mission-oriented type of organization, explicitly for the benefit of Canada, and that means both social and economic.

IP, as you know, includes invention and know-how and in NRC's case it's that which is created at NRC. Under the law, employees are required to disclose all IP that derives from their work to NRC. NRC owns it and has the full authority to license, sell, or otherwise deal with that intellectual property.

As president, I'm delegated the authority from the Minister of Industry, under the Public Servants Inventions Act, for the administration and control of our inventions and patents, but disposition of intellectual property in the form of copyright actually requires an order in council under the Financial Administration Act.

When we're working with IP, our job, of course, is to extract the maximum value we can from it for the benefit of Canada—not for the benefit of NRC but for the benefit of Canada. Whether we're developing ourselves or co-developing with third parties, right from the beginning, we have to think about the strategic implications of the intellectual property that will arise. Our IP strategy is developed really on a program-by-program basis.

In our protection mode, we may choose to apply different forms of intellectual property. We may patent. We may simply end up with tacit knowledge and know-how, which is critically important. We may choose to operate with trade secrets so, in fact, we don't release it because that may be the better competitive strategy for Canada. Obviously, in our contractual arrangements, because we deal with many third parties, we have to build in the appropriate clauses and safeguards to enable us to protect.

When time comes to look at transfer, we may license. We may sell. We may, again, choose to retain because the benefits are more appropriate that way. But retention doesn't necessarily mean that we limit its application. It simply means that we maintain control, so that in fact it doesn't slip away from the benefit to Canada.

When we have agreements in place, we then have an obligation to administer them. We need good processes to make sure that we monitor, evaluate, update, collect what to do, and audit that people are reporting correctly. Where necessary, we also have to be willing to enforce our obligations.

So that's a backgrounder. I'm not trying to raise any particular issues at this time. I'm happy to deal with any that the committee may wish to raise.

Thank you very much for the opportunity.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. McDougall.

Now on to Mr. Edwards, for seven minutes.

[Wayne Edwards]

Thank you very much, Mr. Chair, and honourable members of the committee.

In particular, thank you to Mr. Wallace, who was helpful in getting us here and spent some time with us over the summer.

We thank you for giving us the opportunity to speak with you today on behalf of the Canadian Anti-Counterfeiting Network and Electro-Federation Canada.

My name is Wayne Edwards, and I'm the vice-president of sustainability and electrical safety at Electro-Federation. I'm also the current chair of the Canadian Anti-Counterfeiting Network.

The Electro-Federation is a not-for-profit electrical industry association. In May 2005, the Canadian Anti-Counterfeiting Network, a coalition of individuals, companies, firms, and associations that have united to fight against product counterfeiting and copyright piracy in Canada and internationally, made a submission on modernization of the Trade-marks Act in regard to product counterfeiting.

During the second quarter of 2007, two parliamentary standing committees—public safety and security and also industry, science, and technology—both made certain recommendations to improve the anti-counterfeiting regime in Canada.

At this time, nothing has changed, and what is even more alarming is that counterfeiting has grown into a criminal activity that supports everything from organized crime to terrorism. Why is this? The current landscape and risk of getting caught is very low, while the profit margin is extremely high.

A large majority of consumers recognize that buying counterfeit goods is unethical, but they feel that it is essentially a victimless crime. Seldom do they feel any guilt. In the absence of obvious penalties against purchasers, or sometimes sellers, they perceive that counterfeiting is harmless. They also are generally unaware of both the economic impact and the dangers that might be present for their health.

But what about the cases where counterfeit products represent a serious threat to the health and safety of Canadians? Consider the potential of fake toothpaste or cosmetics or pharmaceuticals entering the marketplace and in some cases ending up on store shelves as legitimate products. It's one thing to buy a designer purse in the back alley at a discounted price, but it's quite something else to buy some cosmetics or toiletries that may cause you physical harm.

So the risk to health and personal possessions is the most powerful deterrent against the purchase of counterfeit goods. Consumers change their attitudes and their purchasing habits when they understand the risks and dangers to themselves, their families, and communities. Consumers also look for evidence that our government views this as a serious problem, with serious consequences and implications.

Fifteen years ago, one of our member companies, Eaton, discovered that their product, a moulded-case circuit breaker, was involved in a widespread counterfeiting scheme. Used, salvaged, and scrap breakers were being reclaimed, tampered with, relabelled, and sold as new products. Using private investigators, Eaton instigated litigation in Federal Court and won the case. However, 12 years later, we are still dealing with this problematic situation not only for Eaton but also for other manufacturers of those electrical products.

Not only are locals performing the dangerous tampering as described above, but also some Chinese and other Asian manufacturers promise on their websites to export knock-off circuit breaker products. Their websites show precisely that activity, and we are convinced that they have willing Canadian-based resellers of those products. So we need to be vigilant. There are buyers and there are sellers of these products. It's a two-way street.

Our colleagues have encouraged the participation of the RCMP and CBSA with commitments of their time and energy. There have been some successful prosecutions as a result, but we're only scratching the surface on this dangerous public safety problem.

These products find their way into our homes, office buildings, and even military and civilian aircraft.

I will share with you an example that is much closer to home for you here. Some three months ago, members of our association and member companies, who manufacture circuit breakers—the electrical devices that keep you safe in your home and your office, and prevent any short-circuit damage, which usually creates fires—were asked to provide training for the public works department maintenance staff on the perils of having counterfeit equipment in their system. After the training was complete, 64 unsafe breakers were found in the first 122 buildings that were investigated. There are still more opportunities for them to find circuit breakers in the other 5,000 offices and buildings that they are responsible for in the federal government. Some of these buildings are hospitals, so clearly we have some risks to personal health.

In September 2012, I attended the world conference on IP crime sponsored by Interpol and UL. Law enforcement, government officials, and safety standard-setting organizations from 60 countries met in Panama to focus on preventing and combatting IP crime across the world. Over 500 people attended. Notably absent was Canada, with only one official representative, an RCMP corporal. In contrast, Zambia had eight government delegates, China had six, and Russia had four. Obviously it wasn't very high on the Canadian government agenda.

On October 2, 2012, IP rights holder representatives from the Canadian Anti-Counterfeiting Network met with the Canada Border Services Agency at their training facility in Niagara Falls, and we conducted four separate product identification training sessions for border agents. This type of activity helps law enforcement in dealing with the issues at the border.

We'd like to make some recommendations for you to take away from the Canadian Anti-Counterfeiting Network. First, we propose you adopt a system whereby IP rights holders may record their rights with the Canada Border Services Agency and highlight high-risk products that are known or likely to be counterfeit. We recommend that you enact legislation that clearly defines trademark counterfeiting as a specific criminal offence. We recommend you provide the Canada Border Service Agency with the express authority to target, detain, seize, and destroy counterfeit goods on its own initiative—powers it does not have today—and implement policies promoting the searching out of such goods, such as mandatory reporting of brand information as part of shipments.

Some other conclusions that you might take away are that intellectual property theft is a very widespread problem that is growing and often conducted by organized crime. Industry needs to step up its programs across the globe and work with law enforcement in order to train and share best practices in the widest possible population. Educate, starting with the young, to change their perception that free downloads and purchasing pirated goods is acceptable behaviour. Educate on the perils of using unsafe and uncertified products, particularly electrical. We need partnerships with law enforcement, industry, government, and retail to make sure that people are able to focus on this issue. Law enforcement needs to prioritize IP theft as a serious crime worthy of its time and energy.

Thank you for your attention. We're prepared to answer questions in English or French.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Edwards.

Now on to Mr. Hunter, for seven minutes.

[Terry Hunter, Manager, Anti-Counterfeiting and Intellectual Property Enforcement, Canadian Standards Association]

Thank you.

Honourable committee members, thank you for this opportunity today to be here on behalf of the Canadian Standards Association, known as the CSA Group.

I've been working in intellectual property enforcement for over 15 years now. I've worked for companies such as the Canadian Recording Industry Association and Nike Canada, so I've worked for some companies with some big IP.

I'll give you some information about the CSA Group. We're the Canadian Standards Association. We're an organization that writes safety standards for Canada. We also certify products to meet those standards; these are products that everybody uses in their houses—industrial, commercial, and consumer products.

Intellectual property law and enforcement are very important to CSA Group. Its proprietary trademarks and certification marks are the most valuable assets of the CSA Group, because they're not just trademarks: they're certification marks. These certification marks actually identify to regulatory folks or consumers that these products are safe.

Numerous Canadian regulations require products to be certified by a certification body such as the CSA Group. These regulations have been put in place to protect the public. For example, certain electrical, gas, and plumbing products are required by regulation to be certified. Products bearing counterfeit certification marks have not been put through certification testing; samples have not been provided for them to be tested. Uncertified or counterfeit-certified products are unsafe in the market.

Based on our experience, a majority of our counterfeits that we're finding are not manufactured in Canada. They're being imported and, based on our statistics, mostly from southeast Asia. What we're recommending or hoping is that the government provide customs officials the express authority to target, detain, seize, and destroy counterfeit goods.

I'll give you an example of how many contacts I have had with CBSA in the three years I've been working for CSA. On a daily basis from U.S. Customs I get two to eight contacts a day verifying certification marks. I've been contacted by CBSA one time in three years. In a three-month period, U.S. Customs seized over $10-million worth of consumer electronic products in one port.

The statistics on counterfeit goods in Canada are based on RCMP reports. I can tell you today that most industries do not report their counterfeits to the RCMP. In most cases, these investigations are not conducted because any reports to RCMP are prioritized and, in some cases, are not dealt with.

I guess what I would like to advise in this situation is that we adopt a recordation system whereby IP rights holders may record their rights with CBSA. This may help us prevent dangerous goods from coming into Canada.

I'll give you some examples from the last short period of time. Mr. Edwards mentioned the circuit breakers that have been found in an intensive care unit in a hospital. I'll have an information package that you will get later, and there are photographs in there of an exploding circuit breaker being tested in regard to meeting standards. This is a residential circuit breaker that fails.

Counterfeit CSA Group marks have been found on thousands of medicine vials in the last year. What you can do right now as an importer is select whatever product you want from overseas and have a manufacturer put on any certification mark they want. Then they can import them into Canada. These products have never been tested. These are supposed to be child-resistant containers and they're supposed to be certified to meet minimum standards. We don't know if the materials in these products are safe or not. We know that they have not been tested; therefore, they're unsafe for the public. We took almost 100,000 of these off the market.

Also most recently, industrial and hobby welder units have been found in the greater Toronto area, with values in the hundreds of thousands of dollars, and these were unsafe as well. They were untested. They had issues of proximity, of loose wires inside. These were portable welding units. The welders themselves carry the units; when welding, they may get electrocuted and killed.

Thousands of Christmas lights were pulled from the retail shelves of a major national retailer last year. This is an annual thing, as they get imported every year.

These Christmas lights had counterfeit CSA labels on them. All the components had counterfeit CSA marks, were substandard, and wouldn't meet our standards. They were fortunately pulled off the shelves of our national retailer, with only six being sold, because of the intelligence we received from China.

CSA investigated 204 incidents of counterfeit use of our mark in 2011. Most of those situations, we dealt with ourselves. So industry is dealing with the crime themselves.

In conclusion, I guess the government can play a role in improving the system to combat counterfeiting. The proliferation of products bearing counterfeit CSA marks is placing the public at direct risk. Counterfeit goods can kill, especially when it comes to certification marks being counterfeited. These products are definitely unsafe and untested.

Thank you very much.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Hunter.

Thank you to all our witnesses for your testimony so far.

Now we'll go on to our first round of questions.

We'll begin with Mr. Wallace, for seven minutes.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chair.

My thanks to our guests for coming today.

The study this committee has undertaken is for IP protection. We've talked a lot about patents. But on the other side of it, which you've clearly highlighted today, a patent is only good if it's not being copied by somebody else and put in the marketplace.

Mr. Hunter, your numbers surprised me a little bit. You get more calls from U.S. Customs on their catching, detaining, and finding things they consider questionable. You're not getting a lot of response from the Canadian Border Services.

Is that because they are trained differently? Is that because they have different tools at their disposal? What do you think the difference is?

[Terry Hunter]

I provide training to both Canadian Customs and U.S. Customs on an ongoing basis. I believe the difference is they have a trademark recordal system. Where our trademarks are recorded with them, they will verify it. They also have more resources, merchandise inspectors. For example, they'll have someone who focuses on electronic goods, and a team that focuses on toys. It's product-specific.

[Mike Wallace, Conservative, Burlington, ON]

For that program, which I think was also mentioned by Wayne, there should be an opportunity for registration, in a sense, of your trademark or patent at the border so they can recognize that. That actually happens in the U.S., you're telling me.

Is the corporate world paying for that service, or is it done through taxes? If I'm ABC company and I'd like some protection, do I register with them? Do I pay? Is there a fee for that?

[Terry Hunter]

There is a small fee. It's just a registration fee, basically.

[Mike Wallace, Conservative, Burlington, ON]

Do they claim that covers the costs of that registration program?

[Terry Hunter]

I'm not sure how the cost works out. I understand that protecting intellectual property pays off for domestic industry.

[Mike Wallace, Conservative, Burlington, ON]

Mr. Edwards, do you want to add to that? Do you know how the process works?

[Wayne Edwards]

I'm not really sure. I'm glad that Terry had some comment on it. Your thought of how it gets paid for, that hadn't—

[Mike Wallace, Conservative, Burlington, ON]

It hadn't come across. I'm a finance guy, so I think about those things.

[Wayne Edwards]

In our organization, a lot of people have a lot of ideas, but to think it right through and see who's going to pay for them is another thing.

[Mike Wallace, Conservative, Burlington, ON]

Mr. Edwards, you're basically saying that the Criminal Code isn't good enough to prosecute somebody who's brought in counterfeit. Is the Criminal Code issue for those who actually manufacture the counterfeit items, for those who are importing it, for those who are buying it, or is it all three? Can you give me an idea of where you think we should be starting in our efforts?

[Wayne Edwards]

How would you like to handle that, Vladimir?

[Vladimir Gagachev, Manager, Regulatory Affairs, Electrical Sector, Eaton Yale Company]

Section 408 in the Criminal Code, passing off, is the one that's most used by the RCMP when they press charges by the crown. The problem with the passing-off section is that to be liable you have to be knowingly passing off counterfeits as original or genuine. If you claim ignorance, then that section doesn't catch you because you can say you didn't know it was a fake.

On the other hand, if the buyer knows it's a fake and the seller knows it's a fake, it's not passing off. It's perfectly fine because they're both dealing with the same information. That's only because counterfeit is not defined as a crime at all, so passing off cannot apply. The buyer knew he was buying a fake, so it's not passing off.

[Mike Wallace, Conservative, Burlington, ON]

If I'm an electrical company and I'm supplying breakers, and I know that this breaker is actually counterfeited, but I know that in advance and I know that the guy who is selling to me is from another country, and I know it's not an Eaton Yale product but it might say so on it, are there no penalties for that, because you both know that you're selling stuff that's been counterfeited?