Industry Committee on Nov. 18th, 2013

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

Does anyone on the panel see a risk in authentic goods—alleged counterfeit goods, but perhaps authentic—being stopped unnecessarily and subsequently preventing Canadian manufacturing from continuing?

You gave the example of auto parts. There are shipments to come into Canada, but they're held. This can even be a non-tariff trade barrier. We've seen examples of this sort of thing where the parts are held at the other side of a border so that our manufacturing can't occur over here.

What measures would you suggest would counter that kind of activity?

[The Chair, Conservative, David Sweet]

Hold that thought, witnesses. If you're able to answer it in some other time segment, that would be great. We're over time in this segment. Keep that question in mind; it may be one that you wish to answer later.

Madam Sgro, you have seven minutes.

[Judy Sgro, Liberal, York West, ON]

Thank you very much, Mr. Chair.

Welcome to our guests. This issue just gets more and more interesting each time we have a meeting.

I've completely decided that I agree on the personal use. I can't understand why we're going to bring in a bill that would allow people to just a little bit be buying things that they shouldn't be buying. I think either we allow it or we don't. Clearly there's a huge issue of what's coming through the border. Certainly the whole issue of personal use is one that I hope we'll get to discuss further.

It seems like the rights holder, even with this bill, isn't getting the level of respect they should as the rights holder, as I see this going forward. At any rate, we'll have lots of work to do here as a committee, I think, on this issue.

The IP protections are very important, knowing how long it takes and the money and the investment it takes to get there. Can you tell me what the U.S. and Europe have done in the last year to try to deal with this issue? Clearly it's not just an issue for Canada.

That's for anyone on the panel who would happen to know that information.

[David Lipkus]

I don't have the numbers on what the Department of Homeland Security has done, but it's astounding the number of shipments seized at the borders in the United States—and certainly through the administrative regime in the European Union. I'm not going to speculate, but I would say that Canada is here—very little—and they seize a larger majority of counterfeit merchandise.

Let's be honest: Toronto, Vancouver, and Montreal are some of the biggest cities in North America, so anybody who thinks that counterfeiting isn't a huge issue in our country is sadly mistaken. I would like them to spend a day in my shoes and deal with the counterfeiters I deal with on a daily basis.

This legislation isn't about me. I've been trained by the rights holder how to identify counterfeit products. I know what to purchase. But my family, my wife, my son—they don't know. They do not see what we're up against, and it is dangerous. You're dealing with criminals who don't pay taxes, who do not participate in society as it's supposed to be done. That's what this is about.

I can't plead with you any more that the bill needs to do a little bit more to protect our Canadian citizens. That's what this is about.

[Martin Lavoie]

I made reference to the USTR watch-list. There are two countries in the G-8 on that list. They are Canada and Italy. There are two lists: there's the bad guys list, and the really bad guys list. Canada and Italy are on the bad guys list.

[Judy Sgro, Liberal, York West, ON]

That's great. We're on the bad list.

Back to the issue, the impact this could have on small business has to concern all of us. Mr. Lipkus, you know what's counterfeit and what isn't, but it's going to take years for our CBSA or RCMP officers to get up to that level of knowing. The impact this could have on small businesses could be considerable. It puts the onus back on them rather than on the EU. They know it's counterfeit. They just destroy it right away.

Why do we have to put the onus on the rights holders to pay for storage? Wouldn't our officers have the confidence to recognize counterfeit and simply secure and destroy it?

[David Lipkus]

It's an excellent question, and I would say no. The rights holders are able to identify whether an item is counterfeit. That's why, after an item is seized, the rights holder will be contacted and receive confirmation, whether it be by some form of affidavit, as it's currently done, or with a will-say statement, containing one to two reasons why the item is counterfeit.

With respect to small businesses, the way the legislation is drafted right now, when actions are issued in Canada, there's a federal court database of the legal proceedings that are taken by rights holders against counterfeiters selling counterfeit in our country. They're not after small businesses. The actions issued in our country are against recidivist infringers, and right now the penalties on these businesses are a slap on the wrist. The judgment and damage awards are very low. Oftentimes the costs, the legal fees of proceeding with litigation, outweigh the monetary amount of the judgment. That's what's happening. So I'm not worried.

Right now there's no element of knowledge. The fact that a counterfeiter, big or small business, didn't know the item was counterfeit is not an element that needs to be proven by the trademark owner.

[Judy Sgro, Liberal, York West, ON]

In the brief you sent to us, you raised some concerns about terminology, the word “distinctive” being one. Could you elaborate a bit on your concerns about the word “distinctive” and the implications of that in Bill C-8?

[David Lipkus]

Yes, I'm just going to review briefly.

[Judy Sgro, Liberal, York West, ON]

I don't have time for you to review it. I'm going on a brief that you submitted in August 2013.

Let me move on to something else. On the in-transit issue, what's your suggestion to deal with it? Have you suggested any amendments? You've talked about the administrative regime. That was definitely one change. The other was the cost factor.

[David Lipkus]

I believe the language that's been expressed in the bill should be removed completely. At that point the bill would be silent on goods in transit. This way, if an item is seized that is counterfeit and dangerous, like electrical cords or a liquid with toxins in it, we wouldn't just release it from our country and possibly have it re-enter the market.

[Judy Sgro, Liberal, York West, ON]

Exactly.

Mr. de Beer, you had a comment earlier on something I had asked.

[Prof. Jeremy de Beer]

I was just going to respond to your question about the capacity of the CBSA to deal with this. I am deeply worried about their capacity in terms of skills, human resources training, and cost.

The bill, particularly in respect of the copyright-related amendments, involves a lot of grey areas. There's a provision that prohibitions don't apply where there's a limitation or an exception.

These are very difficult judgments to make. I'm quite worried about putting the responsibility on our front-line border service agents to make these difficult decisions. If they're going to be expected to do this, there are going to be costs associated with it that I'm very worried about.

I see carving out the—

[The Chair, Conservative, David Sweet]

Thank you, Mr. de Beer. I'm sorry, but we're way over. I gave you a bit of latitude there, but we're quite over on the time.

We're going to the second round now.

Mr. McColeman.

[Phil McColeman, Conservative, Brant, ON]

Thank you, Mr. Chair, and thank you to our witnesses.

Mr. de Beer, I want to pick up there and have you continue along the line of questioning you were on because I know you were cut off there. What are the alternatives, in your opinion—you used the words “I'm quite worried”—to not empowering border officials?

[Prof. Jeremy de Beer]

No, I think border officials should be empowered in the way that they are in this bill. But the personal use exception and in-transit exception are important exceptions to make the whole system workable, manageable, and cost-effective. It's not possible to do everything within the resource allocations in the training parameters that our agents are provided with. So the system in the bill as it is creates a very pragmatic, workable starting point, and I would encourage us just to leave it there.

In response to the Hon. Mike Lake's question earlier, I actually think those exceptions are some of the most important parts in the bill.

[Phil McColeman, Conservative, Brant, ON]

Okay.

We've had the minister here. You've probably maybe even reviewed some of the prior testimony. He has assured us before we go ahead with this bill that the resources exist within the current budgets to be able to handle those things. Of course, the opposition is going to criticize us by saying that we don't have those resources in place. He assures us that we do. If they're properly trained, if they have the skills.... Obviously, there are industry associations here who also lend resources to make sure they are properly trained because it's in their best interests to do that. Then it is proper to move forward in the way the bill contemplates.

[Prof. Jeremy de Beer]

I think that's right, but if you start changing the scope of the bill and adding additional responsibilities, like searching personal luggage or dealing with in-transit shipments, that's going to have cost implications and administrative implications, which I don't think have been fully explored.

[Phil McColeman, Conservative, Brant, ON]

Okay. I want to stick with you and some further questioning here.

You mentioned parallel imports and you spent quite a bit of time, actually, explaining those to us. Thank you for that.

Now, I believe we had an example from Hockey Canada of what parallel exports are, which is a territorial licensing agreement between the trademark holder and someone in an area that can't be serviced by that trademark holder for whatever reason, or decides.... And the goods are, as you said, sold at a lower cost, maybe in this case, in that market that was mentioned by one of the opposition members in their question. Is that an example? I'm trying to draw that parallel. Did you connect those?

[Prof. Jeremy de Beer]

I'm not sure about the particular territorial licensing arrangements in that example, but I do know it's very common for Canadian businesses, particularly small and medium-sized enterprises and large businesses like Costco, to engage in parallel importation to offer consumers more choices, to promote pricing parity with other jurisdictions. I think the trademark aspects of this bill deal with that fairly well, but I'm very worried about the copyright language in the copyright section. I couldn't understand that this bill will assure us that parallel imports will be permitted, in respect to the copyright provisions, in particular.

[Phil McColeman, Conservative, Brant, ON]

In terms of the actual protection of parallel imports, that being the case, you brought up some concerns. Is there a simple administrative way to make sure that when goods arrive and they're in this category of parallel imports, border officials and the people who are screening these goods can quickly identify that a licensing agreement is in place, or, through the supply chain, whoever the retailer is, can confirm that these are parallel imports and that a genuine relationship exists?

[Prof. Jeremy de Beer]

Yes, there may be. I can undertake to provide some further analysis of that issue. I didn't have time to look at that before my testimony today, but I'd gladly undertake that. I notice there's an exception in proposed subsection 51.03(2) for the trademarks provisions. The trademarks provisions don't apply if the trademark was affixed with the trademark owner's permission outside of Canada. But there's a lack of a parallel or similar provision for the copyright sections.

[Phil McColeman, Conservative, Brant, ON]

I'd like that information from you because I think it's important. I agree with you that we need to protect that category of goods, if they are legitimate, so that they can continue to come into the market, and for the protection of consumers, as you explained.

[Prof. Jeremy de Beer]

And to be clear...not to avoid health and safety standards, or to avoid duties or taxes, all of those must be complied with.

[Phil McColeman, Conservative, Brant, ON]

I understand.