Industry Committee on Nov. 18th, 2013

[Chris Charlton, NDP, Hamilton Mountain, ON]

Thank you very much, Chair, and thank you very much to all of the witnesses. I wish we had more than seven minutes to spend together here.

In particular I note, David and Martin, that you have quite different views on the exclusion of goods in transit. I'd love to see the two of you debate that a bit further. I'm going to move on to something else, but if either of you want to send the committee further details on your perspectives on that, I'd sure welcome them. Because it's the same disagreement we heard about earlier, when we had testimony from the Intellectual Property Institute of Canada and from Michael Geist. They took quite opposite positions as well.

Martin, you represent manufacturers, small, medium, and large. If a shipment is held up at the border on the suspicion that goods may be counterfeit, when your manufacturers are all dealing with just-in-time delivery for parts, if those goods aren't counterfeit, how will they recover from the lost time of the goods being held up? Are you concerned about the fact that whereas there's no liability for the government in any of this, and the bill's quite explicit about that, there's no way for your members to actually be compensated for their potential losses?

[Martin Lavoie]

Our membership is about 85% SMEs.

You're quite right about just-in-time delivery, especially in the automotive sector. If I understand this well, if legitimate components come to the border, they wouldn't be under detention if the IP owner doesn't notify the customs agents.

[Chris Charlton, NDP, Hamilton Mountain, ON]

It's not always clear when items at the border are counterfeit or not. Is that right?

[Martin Lavoie]

That’s right.

[Chris Charlton, NDP, Hamilton Mountain, ON]

In fact, there may be a period of detention where something turns out not to be, ultimately.

[Martin Lavoie]

Ultimately, that's right. At that point, the customs officer will contact the IP owner and will clarify that. Right?

There might be some losses associated with it if it's legitimate. But to go back to the balance, is that more costly than being the victim of counterfeiting?

[Chris Charlton, NDP, Hamilton Mountain, ON]

So you're comfortable with the clauses the way they are written now in the bill?

[Martin Lavoie]

That’s right.

[Chris Charlton, NDP, Hamilton Mountain, ON]

Okay. That’s super. Thanks.

Dale, I want to go back to your examples with respect to hockey sweaters and others. I came back from China late last night. In Shanghai, there's a place actually called the “Fake Market”. That's the name. All you buy there are fake goods. I looked at the hockey sweaters they had, and I looked at the label. I wanted to see what it actually said. Here in Canada, most things we buy say “Made in China”, so I was quite surprised that on the counterfeit hockey sweaters, it said “Made in Canada”.

I want to ask you about the balance that this bill tries to strike between items for personal use and those used for the sale, manufacture, or possession of counterfeit goods for people engaged in commercial activities.

First, are you satisfied that the distinction can be made reasonably well about what's for personal use and what's for resale? Second, if items are brought over for personal use, is that okay? Currently, those are exempt under the bill.

[Dale Ptycia]

First of all, to answer your question about the market, if it said “Made in Canada”, that's one of the signs we look for, because those jerseys are made in Indonesia through our licensing partner.

To clarify that, our on-ice, authentic jerseys that Team Canada will be wearing are made in Granby, Quebec, and only in Granby, Quebec. The price for those authentic jerseys is closer to $460, rather than the replica jerseys. We do have a made-in-Canada component for part of our program.

The distinguishing elements of personal use and commercial use or commercial redistribution is probably a moving line. To give a real-life example, the one element we came across here last week was a counterfeiter or importer openly advertising that he brought in 100 jerseys to resell in Canada. Is it one jersey for personal consumption or five jerseys, if you've got four or five nieces and nephews that you want to perhaps gift out? However, the real point here is that the supply chain coming that way is all counterfeit goods for us.

We have only one bona-fide licensing partner who deals with bona-fide retailers. It doesn't come through the Internet. We're not offering consumers the ability to buy individual jerseys from a manufacturer. These counterfeit manufacturers overseas openly say that they've got a manufacturing capacity from one unit to 500,000 units per week. They're not in our regular supply chain or bona-fide chain. Those are easy elements in the chain to say are not authorized supply.

We've got to be able to continue to educate our consumers and all Canadians that only bona-fide products can be bought at bona-fide retailers.

The ability of our customs officers and our border officials to work together—and I think they're all aware that this supply chain is a real, direct route of counterfeit goods.... But they don't currently have the power to stop and detain those. As in my earlier example, the RCMP officer at border integrity said, “I'm one person here. I can't deal with this. We need some help.” So we enlisted help. We hired people to help process those goods.

All those packages were detained under the Canada Post Corporation Act, not through the Customs Act, not through the Trade-marks Act, but by the Canada Post Corporation Act. That way, we were successful in using that vehicle to detain those 1,600-plus shipments from two dozen to 24 dozen to 50-dozen pieces at a time.

[Chris Charlton, NDP, Hamilton Mountain, ON]

I only have one more minute.

My question is for anyone. Are you comfortable that the CBSA has, first, the resources and, second, the training to take on the new responsibilities under this bill?

We're asking them to add a lot more responsibility. There have been significant budget cuts to the CBSA. If we want this to work, the enforcement piece has to be there.

Would any of you like to comment on that?

[David Lipkus]

I'll just comment briefly, as we are short of time.

I can tell you that clients of our firm provide free training to law enforcement on how to identify the difference between authentic and counterfeit goods—and that will certainly include the CBSA once they have the authority to seize those products.

Am I worried about the resources? Of course I'm worried about the resources. Our firm last year opened 600 files related to businesses in Canada selling counterfeit merchandise. The problem is huge and the impact on our market is huge, and I think that we should dedicate as many resources as possible to dealing with this issue.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Lipkus.

Now we go to Madam Gallant for seven minutes.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Thank you, Mr. Chairman, and through you to our witnesses.

Mr. Lavoie, you mentioned that the actual victims of this crime must pay the overhead. Are you suggesting that the Canada Border Service agents be the decision-makers on whether or not a shipment is authentic?

[Martin Lavoie]

They certainly must have a say. There have been witnesses who have said that in some other countries, when there's strong evidence that goods are counterfeit, they should just be destroyed without necessarily waiting for court action.

My point was more to say that it seems that the importer of these goods, the one responsible for contacting a manufacturer in China and bringing the goods over to Canada in a container, should be the one to do the due diligence, to explain what has been done to make sure that the goods were legit, for example. The way the bill is drafted now, I'm just wondering, if the importer says that he didn't know or is not aware, what is going to happen. Do we just let those items go onto the market?

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

So for the witnesses who do not agree with the present proposal to go through the courts in determining whether or not a shipment is authentic and what the damages are, if any, what process would you recommend instead?

I'd like to hear from each witness.

[David Lipkus]

Sure, I'm happy to discuss that. Thank you. I think that's an excellent question.

In the hypothetical example, which accounts for 70% of the cases in Europe, the importer, after receiving a notice of seizure, does not respond to customs. When there's confirmation from the rights holder that the good is counterfeit, that's where you get the administrative regime. After there is confirmation, for what purpose do we require the rights holder to go to court to get a judge to say the item is counterfeit when the rights holders confirm it's counterfeit? That system works in those jurisdictions. Certainly, if there is an issue between an importer and a rights holder on whether the goods are counterfeit, okay, then that's a battle to be decided between the two. But this bill does not include parallel imports or “grey market goods”, the trademark term for that issue. We're talking about counterfeits and the counterfeits in Canada can be really good. It can be hard to distinguish between the real and the fake, but there are covert and overt technologies built into these items by the rights holders to determine whether the items are real or not.

When we're getting calls now from RCMP officials seizing counterfeit goods, we provide one or two reasons why the items are counterfeit, why they weren't manufactured by the rights holder. That's what this is about, not about articles that went from one country to another country and into Canada at a lower price. That's legitimate. That's the grey market. That's real. That's not what is encompassed in this bill. We're talking about counterfeits and that's what needs to be stopped at the border.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Mr. Lipkus, what stronger measures at the border do you suggest, aside from changing the punitive damages to statutory damages? What are other examples of measures?

[David Lipkus]

That's an excellent question. I believe that statutory damages are an excellent deterrent.

There was a great question before about whether we should be exempting items for personal use. We should be excluding all counterfeits in our country. Take just a simple example of a counterfeit battery that's being brought into our country. That battery, when you look at it side by side with a non-counterfeit battery, looks identical on the outside: the weight is the same, the name of the brand is the same. But when you remove the plastic shell from that battery, it doesn't have any protective fan or circuitry built into it to protect the consumer. So when that counterfeit battery gets put into a digital camera or any other electronic device, it can explode. That's the harm of counterfeiting that we're dealing with in Canada and that's what should be stopped, all counterfeits on all levels, and I think statutory damages will help address that. I think the administrative regime, which is not currently in the bill, will greatly assist and alleviate a lot of the burden on the government and the CBSA.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Let's switch over now to counterfeits in transit. How often do Canada Border Service agents actually encounter counterfeit goods in transit? Is this a normal occurrence?

[David Lipkus]

I don't have the numbers on that to tell you today, but I can tell you that there was a very recent shipment of counterfeits found in the United States. Thankfully, in the context of that investigation, the records of that business were identified and reviewed by the Department of Homeland Security. There were more than ten business customers related to that U.S. entity with respect to counterfeit car parts that were destined for Canada.

That's the issue we're up against.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

You mentioned how the Europeans had this administrative process. But they have the Schengen agreement. We don't have that sort of agreement in place between Canada and the United States.

Are you suggesting a common border?

[David Lipkus]

I'm not familiar—

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

In Europe, when you first go into Europe, if they're part of this agreement, you don't have to show your passport afterwards. So they have these border agreements in place.

Are you suggesting that sort of border agreement between Canada and the United States and other countries so that we have this common agreement?

[David Lipkus]

Absolutely I believe there should be agreements between border officials. If a good's in transit, and customs sees it, and it's destined for another jurisdiction, I absolutely think they should be contacted. The counterfeits at that level should be removed from the marketplace.