Industry Committee on Nov. 20th, 2013

[The Chair, Conservative, David Sweet]

Good afternoon, ladies and gentlemen. Bonjour à toutes et à tous.

Welcome to the 5th meeting of the Standing Committee on Industry, Science and Technology. We're hearing testimony from witnesses regarding Bill C-8.

We have before us, from the Canadian Chamber of Commerce, Scott Smith, who is director, intellectual property and innovation policy, and Lorne Lipkus, partner, Kestenberg Siegal Lipkus LLP, Canadian Intellectual Property Council; from the Canadian Generic Pharmaceutical Association, Jim Keon, president; from Food and Consumer Products Canada, Carla Ventin, vice-president, federal government affairs; and from Eaton Industries (Canada), Vladimir Gagachev, manager, regulatory affairs, electrical sector.

Thank you very much, ladies and gentlemen, for being with us. I understand that the clerk has advised you of the time limits for your testimony.

I need to ask the Canadian Chamber of Commerce if it is just one person who will be giving testimony today or if you are sharing your time.

[Scott Smith, Director, Intellectual Property and Innovation Policy, Canadian Chamber of Commerce]

We'll be sharing our time. Thank you.

[The Chair, Conservative, David Sweet]

Would you like to go ahead then, Mr. Smith?

[Scott Smith]

I will indeed.

Thank you, Mr. Chairman and members of the committee, for the opportunity to address you today.

I am representing, as you mentioned, the Canadian Intellectual Property Council, which I'll refer to as CIPC. The CIPC is a special council of the Canadian Chamber, representing a broad cross-section of companies dedicated to improving the IPR regime in Canada.

With me is Mr. Lorne Lipkus. He is an intellectual property lawyer, an active member of CIPC, and a recognized expert in the fight against the proliferation of counterfeit goods in the Canadian marketplace.

I'd like to take a few minutes to talk to you about an overview of how important Bill C-8 is to the membership of CIPC and the Canadian Chamber. Lorne is here to provide you with some specific examples of how a few modifications to the bill could save significant time, effort, and money for taxpayers, enforcement agencies of the crown, and brand owners who are the victims of IPR crimes.

The Canadian Chamber, through the CIPC, has been strongly advocating for IPR regime change for the past five years. Many of our members have been doing so for much longer than that. A key component of this advocacy effort is marketplace integrity. Securing ex officio powers for the CBSA, the facilitation of information exchange between enforcement agencies and brand owners, and criminal enforcement provisions for the importation of trademark and copyright infringing materials are high on our list of needed measures. And all of these are hallmarks of Bill C-8.

Counterfeit goods, as you know, cost the Canadian economy billions of dollars. I did have a handout for you, but unfortunately I don't think I had enough English copies, so those will be distributed to you at a later time, but it gives you most of the stats that are of interest to you.

What I'd like to focus on is the fact that we are pleased to see the introduction of Bill C-8 in Parliament. In particular, we are pleased to see the addition of criminal offences in the Trade-marks Act, making it a crime in Canada to import, export, manufacture, or distribute counterfeit goods.

Without second-guessing the urgency of the need to move forward with this bill, there are a few suggestions that we have that might serve to aid the operational side of the legislation. First is the knowledge requirement provisions. We see those as being difficult to proceed with. A preferred approach might be “knowingly” or “should have known”. We look at counterfeiting as being all about money. It's willing buyers and willing sellers, and finding ways to curb the revenue flow for the perpetrators of counterfeit is the most effective deterrent.

A second effective deterrent would be education. We look at education as also being important for enforcement agencies to ensure they are familiar with the marks, the product IDs, etc., of all shipments. So clarity in the request for assistance provisions of Bill C-8 that facilitate the recording of information pertaining to the products of goods of a right-holder in a system that is accessible to CBSA would be very helpful.

One final comment before I pass this on to Lorne is about the exclusion of in-transit shipments. There is a potential threat to public safety if these products are allowed to continue to circulate in the marketplace; they may cause public safety problems.

I'd like to pass this on to Lorne now, who will speak about a simplified procedure that might save time and money. But in thinking about these options, I'd also like to suggest that the committee consider the benefits of operational monitoring, and by that I mean maintaining performance-based statistics leading to a statutory review in three years.

[Lorne Lipkus, Partner, Kestenberg Siegal Lipkus LLP, Canadian Intellectual Property Council, Canadian Chamber of Commerce]

Thank you for allowing me to testify before you today.

I've been involved in over 10,000 actions or enforcements against counterfeiters since 1985, and I've coordinated and conducted the training of thousands of customs officers and law enforcement officials across Canada for the identification of counterfeits and how to prosecute cases for over 18 years. I've been practising across the country.

I'm here to underscore the importance of having a simplified procedure to deal with what I strongly believe will be the majority, the vast majority, of counterfeit product shipments coming into Canada. A simplified procedure will reduce additional and unnecessary cost to customs, which means to taxpayers, to everyone in Canada.

Canada's court system has been moving, along with other court systems, towards a mediation process, not a litigation process. I believe if we move towards a simplified procedure, we will reduce the strain on our courts, which are presently quite busy.

I was very involved in the RCMP's Project O-Scorpion that you've heard about. I was very involved as I was in charge of anti-counterfeiting for the Olympics for VANOC, and I was quite familiar with the hockey jersey situation.

In respect of O-Scorpion, on the RCMP website they talk about having 49 seizures valued at $78 million over six months. Fantastic. It's depressing because the largest seizure total they had before then was $37 million, and since then it has dwindled to next to nothing.

Our office was involved in over a dozen of these cases, providing information to the RCMP to help them prosecute the cases for 23 rights holders and others that we assisted. In many cases, there were multiple brands on the shipment, as many as 39. Under a simplified procedure, many—and I underscore many—of the brands with small quantities of counterfeits on those shipments that would otherwise opt not to institute legal action under the current legislation would take part in a simplified procedure. That translates into more counterfeits being dealt with quickly, cost effectively, and destroyed at a cost to the brand owner, which, as I understand it, is what is intended by the legislation. There will be significant cost savings all around, especially to customs.

If a shipment has some brands filing actions and some not filing actions, it means that customs is going to have to incur additional cost to remove the goods from the brands that opt out.

I think we all agree that the legislation should, and in my respectful opinion must, encourage brands to take part in the process of removing these goods at their cost. The simplified procedure has worked very well. If you look at the statistics in the European Union, over 75% of the shipments that have been detained, resulting in destruction, were because of the simplified procedure. There was no court action required.

My question is, why should we even consider a court action if it's not required? Why do we need to hire more people in the courts to deal with these matters if it's unnecessary. I looked at the Federal Court, at their records, and the most number of copyright or trademark infringement matters they've deal with per year is 225.

If we look at O-Scorpion, with 49 different seizures involving all these multiple brands, that was approximately 250 brands. That's adding 250 additional court cases if the brands would go along with it. If we look at the VANOC situation, it's interesting—1,500 shipments. Not one person, when provided with evidence of the authenticity that these goods were counterfeit, disputed the authenticity.

Of the over 16,000 jerseys that were detained by a customs officer as being suspected of being counterfeit, not one of them was a grey market. Not one of them was authentic; every one of them was counterfeit. How many of the over 1,500 people agreed to a voluntary relinquishment without a court case, without dealing with it? Every one of them, because the evidence was given to them.

In many of the shipments involved in Project O-Scorpion, the brand didn't have a trademark registered in Canada. I think there will be increased cost to customs having to remove the goods from a shipment when the counterfeit is really from a company that has a common law right but not a registered trademark right.

In my opinion, anyone supporting or buying counterfeits is supporting a serious crime that is deserving of the attention this committee is giving the subject through these hearings. For that, I thank and applaud you, and more importantly, I urge you to consider some of the submissions that I think will save us all a lot of money.

Thank you.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Lipkus.

Before we go on to Mr. Keon, colleagues, I just want to bring something to your attention—and I will take responsibility. I apologize, because we are in a new session, we have a brand new clerk, we have an additional researcher who wasn't with us last time, and we have some members who were not here. We've operated with the understanding that the officials here who are up at the front are at your full disposal at any time until we call the meeting to order. Then, if you need one of the officials up here, please go through the chair for that. That way it's orderly; we don't have any disruption up here and the officials know exactly how to respond to members as well. Once we're in order, please just go through the chair for either researchers' or the clerk's expertise. Thank you very much.

Now on to Mr. Keon.

[Jim Keon, President, Canadian Generic Pharmaceutical Association]

Thank you, Mr. Chair and honourable members of the committee. On behalf of the Canadian Generic Pharmaceutical Association, let me say that we appreciate the opportunity for Canada's generic pharmaceutical industry to contribute to your study.

The bill is largely focused on the important objective of combatting counterfeit products. We've already heard some explanation of the importance of that. I will not address my comments to that issue; I would be happy to address questions about it later. I want to focus on one issue, a very specific issue, and that includes the part of Bill C-8 that is related to changes to the Trade-marks Act.

Before I do that, I'll just say a couple of words about our industry. We, the generic pharmaceutical industry, are operating the largest life sciences companies in Ontario, the largest in Quebec, and the largest in Manitoba. We are Canada's primary pharmaceutical manufacturers and exporters. We are among the top R and D spenders across all industrial sectors. Generic pharmaceutical companies employ directly more than 12,000 Canadians in highly skilled research, development, and manufacturing positions.

We are strong supporters of free and open trade, and we export our high-quality “Made in Canada” generics to more than 115 countries. We supply two out of three of all prescription medicines in Canada—two out of three are with generics—quality products at very good prices. That is our role and responsibility in the Canadian health care system.

The issue I wish to address today, as I mentioned at the outset, will focus on the aspects of the bill aimed at modernizing the Trade-marks Act. They are not really intended at all to deal with the issue of counterfeiting; they're just about modernizing the act.

Our primary concern with Bill C-8 is the change to the definition of what is considered “distinctive” under this act.

By way of background, the Canadian Generic Pharmaceutical Association and our member companies have invested tens of millions of dollars in litigation under the provisions of the current Trade-marks Act to develop decades of Canadian case law on this issue. The case law has determined that trademark applications for the size, shape, and colour of a medicine do not meet the requirement for “distinctiveness” under the current Trade-marks Act.

As a result, there are very few trademarks covering the size, shape, or colour of pharmaceutical products that are registered in Canada today. Very few of those trademark applications are ever granted; they are rejected as being not distinctive. Our Canadian pharmacy customers expect generic medicines to appear in similar size, shape, and colour to their brand-name equivalents. In addition to being beneficial for pharmacists, this is also of enormous benefit to patients, as it helps them adhere to their treatment regimens. Their blue water pill is their blue water pill, regardless of whether they are using a brand name or a generic medication.

So similar trade dress for pharmaceuticals is the situation we have today in Canada, and it has been the situation for several decades. The definition of what is “distinctive” under the Trade-marks Act, as it has been interpreted by the Trade-marks Opposition Board and the courts over the span of several decades, is at the heart of it all.

So why is Bill C-8 of concern to our industry?

Bill C-8 changes the definition of what is distinctive under the Trade-marks Act. In our view, it will create a great deal of uncertainty in the law. The International Trademark Association's submission agrees that legal uncertainty is created by the change in definition.

I'll ask for the committee's indulgence. I'm just going to read the two definitions. They can be found on the last page of our brief, for anybody who wants to follow along with our three-page brief.

The well-established definition in the current Trade-marks Act reads as follows:

“distinctive”, in relation to a trade-mark, means a trade-mark that actually distinguishes the wares or services in association with which it is used by its owner from the wares or services of others or is adapted so to distinguish them

The definition in Bill C-8 is different. It sounds different; it is different. This is in Bill C-8:

“distinctive”, in relation to a trade-mark, describes a trade-mark that actually distinguishes, or that is inherently capable of distinguishing, the goods or services of the trade-mark’s owner from those of others

Our concern is with regard to the current case law, which has become clear after decades of litigation around it. It establishes that a mark actually distinguishes something and has acquired that distinctiveness through use, and that a trademark is adapted to distinguish when it is inherently distinctive.

The new language introduces the phrase “is inherently capable of distinguishing”. It will introduce uncertainty. What does “inherently capable of distinguishing” mean? How will this be interpreted by the Canadian Intellectual Property Office, the Trade-marks Opposition Board, and the courts?

It is our understanding from officials...and we understand that Industry Canada officials and the minister made it clear when they were here that in drafting the language in Bill C-8 they had a legal opinion asserting that the new definition is clear under the law and does not create any substantive change in the law.

Industry Canada, the Canadian Intellectual Property Office, and Public Safety Canada have all advised CGPA and this committee that their sole intention is to modernize the language of the act. There was no intention to make a substantive change in the definition of “distinctiveness”. Again, they have clarified that to your committee. Neither was there any intention of altering pharmaceutical trade dress practices in Canada in any way.

This give us little comfort. We have consulted three different law firms who all raised concern that the new definition will create a great deal of uncertainty in the law around pharmaceutical trade dress. It will perhaps come as no surprise to members of this committee that the pharmaceutical industry is the most litigious industry in Canada. At the very least, the change in definition would cost the generic pharmaceutical industry millions of dollars in their efforts to maintain Canadian trade dress for pharmaceuticals and bring increased certainty in the law.

In our view, this is an unintended consequence that is entirely avoidable. On behalf of CGPA, we would urge the members of the committee to table and adopt our proposal for a technical amendment to the definition of “distinctive”. This would not impact the anti-counterfeiting objective of Bill C-8 in any way. It would address the Government of Canada's goal of modernizing the act, as well as the concerns I have outlined to you this afternoon.

I am going to stop there.

I thank the chair and committee for the opportunity to appear and for considering our request.

I look forward to further discussion with you.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Keon.

Now, on to Ms. Ventin.

[Carla Ventin, Vice-President, Federal Government Affairs, Food and Consumer Products of Canada]

Food and Consumer Products of Canada welcomes the opportunity to contribute to the Standing Committee on Industry, Science and Technology's study of Bill C-8, the Combating Counterfeit Products Act.

FCPC is the largest national industry association in Canada, representing companies that manufacture and distribute food and consumer products. Our industry is the top employer in manufacturing in Canada, employing approximately 300,000 Canadians in 6,000 manufacturing facilities located in every region in Canada.

Our members represent a vast array of household products sold on grocery and drug store shelves across the country. I have distributed a handout that has some facts on our industry and that on the opposite side has a list of our member company logos.

We're very pleased that the government has taken action to address the growing presence of counterfeit products in the Canadian marketplace. Our industry's priority is the safety and integrity of our products, and we therefore welcome the introduction of Bill C-8.

We've become increasingly concerned with the growing presence of counterfeit and non-compliant products in Canada and have been raising awareness of this issue with the federal government for some time. Our primary concern is the impact on the health and safety of Canadians. We are also concerned about the negative impact on Canadian manufacturers, especially in terms of brand reputation.

FCPC is a proud member of Canadian Anti-Counterfeiting Network, which appeared before this committee on November 6 and which represents a coalition of individuals, companies, and associations that have united in the fight against product counterfeiting in Canada and abroad.

The provision of new authorities in Bill C-8 for border officers to detain suspect shipments and share this information with rights holders is a critical component of the bill. Importantly, the legislation allows for businesses to file a request for assistance with the government regarding suspect shipments. This new framework will, for the first time, allow border officers and rights holders to share information and work together. We fully support this collaborative approach.

As the government steps up its efforts at the border, additional resources will be required, and we would like to ensure that this requirement has been accounted for. The ability to enforce this legislation at the border will determine whether we succeed in decreasing the number of counterfeit products entering Canada.

We need to ensure that Bill C-8 strikes a reasonable and fair balance between law-abiding rights holders who play by the rules and those who profit at the expense and safety of others. Bill C-8 must deter this illegal activity while at the same time not place an unnecessary burden upon legitimate and law-abiding companies. There are a few areas in Bill C-8 in which we think this balance needs to be adjusted.

Our first concern deals with the financial burden and liability for charges.

Under proposed subsection 44.07(1) of the Copyright Act, the rights holder is responsible for costs associated with the storage, handling, and destruction of detained goods. We disagree that rights holders who play by the rules should pay for the costs associated with the illegal activity of others. Canadian manufacturers already face enormous challenges, and we oppose any new fees that unfairly burden law-abiding companies.

We fully support the Canadian Anti-Counterfeiting Network's recommendation to amend this provision so as to put primary responsibility for costs on the perpetrators of the crime instead of on the rights holders.

In the legislation, under the heading “OFFENCES AND PUNISHMENT”, we have concerns also about proposed subsection 51.01(1) of the Trade-marks Act, which outlines that a new trademark offence is limited to situations in which the perpetrators know not only that the goods are counterfeit but also that the acts of sale and distribution that they are undertaking would be contrary to the law.

Obtaining proof that counterfeiters knew they were selling illegal products and were also aware that their activity is illegal will be extremely challenging. We need to take into consideration that it is a reasonable requirement for a person conducting business to not only understand the laws of the country in which they operate but also to familiarize themselves with the products they are importing or selling. We therefore recommend a more pragmatic approach to the intent provision that would place more responsibility upon the perpetrator.

l'd also like to take this opportunity to provide comment on how the tools and authorities outlined in Bill C-8 could help our industry address a similar concern regarding an increase in non-compliant products entering Canada. While these products are not counterfeit, they originate from other parts of the world with different labels that do not comply with Canadian regulations. Some of these products also contain ingredients that are not approved for use in Canada or are not clearly identified or disclosed on the package.

Like counterfeit products, non-compliant products are a health and safety concern, especially to Canadians with allergies. The presence of these products also has a negative impact on Canadian manufacturers who take the time to comply with Canadian rules and regulations regarding both product formulations and labelling.

To address this concern, we suggest that companies be allowed to use the request for assistance to flag to border officials not only counterfeit products but also non-compliant products. We'd be interested in discussing in more detail how we can rely on the new tools and authorities in Bill C-8 to prevent these products from entering Canada.

Finally, we would also be interested in learning how Bill C-8 will apply to the selling of counterfeit products on the Internet. We need to be prepared for the different and changing ways that illegal products are entering Canada.

The safety and integrity of our products will remain a priority for our industry, and we look forward to continuing to work with the government and to discussing partnering in areas like training to help equip border officials with the information they require for implementation.

Thank you.

[The Chair, Conservative, David Sweet]

Thank you very much, Ms. Ventin.

Now we go on to Mr. Gagachev.

[Vladimir V. Gagachev, Manager, Regulatory Affairs, Electrical Sector, Eaton Industries (Canada) Company]

Thank you, Mr. Chair.

Honourable members, thank you for the opportunity to appear before you today.

My name is Vladimir Gagachev. I am a professional electrical engineer employed by Eaton Industries (Canada) Company, the Canadian operations of Eaton Corporation, based in Burlington, Ontario.

We manufacture electrical equipment and systems that range from 120 volts to 46,000 volts. My company employs about 1,200 Canadians in manufacturing facilities located in most Canadian provinces and in sales and field services offices in each major city across Canada.

The whole electrical industry in Canada and across all of North America faces grave challenges from reconditioners who place counterfeit labels on electrical products and from product counterfeiters, both domestic and foreign. While this unlawful activity impacts our businesses, there is a far more serious impact and danger to our citizens here in Canada. Unsafe and dangerous electrical products are being installed in facilities that cannot only cause significant property damage but also have life-threatening effects. Electrical shocks and fire hazards can result when an electrical product does not perform as a consumer expects from reading the label on the product. This consumer can be a trained electrician relying on the information contained in labels on the product. Consequently, counterfeit labels and/or products with false labelling can lead innocent users to believe, albeit incorrectly, that they are dealing with a safe product.

Canadian manufacturers of electrical products, represented by Electro-Federation Canada, recognize the seriousness of grave issues with both domestic relabelling, which is outright counterfeiting, and international product counterfeiters. Please allow me to explain.

About 16 years ago we found an electrical product reconditioner selling unauthorized circuit breaker products. Using private investigators we purchased some of these breakers. Subsequent laboratory analysis concluded that the investigators purchased used circuit breakers being passed off as new. These breakers were likely salvaged from demolition sites in questionable circumstances, tampered with and relabelled to change the electrical ratings of the breaker, which is extremely serious and dangerous. The new labels also included trademarks of certification organizations, such as the Canadian Standards Association and the Underwriters Laboratories, along with the original equipment manufacturer’s counterfeited labels.

Subsequent litigation in the Federal Court of Canada with one such counterfeiter has had no impact on this counterfeiting activity in Canada. Over the past 15 years, examples of these dangerous electrical devices have been found in the intensive care unit of a hospital, a grocery store, and even in schools. This problem, like cancer, is appearing to grow and spread, threatening the electrical safety integrity of our country.

We have been involved with our industry’s attempts to stop this activity for the past 13 years. It still continues, and we need your help by bringing Bill C-8 into law.

About 11 years ago, the Royal Canadian Mounted Police agreed to act on a formal complaint logged by Eaton. That complaint was based upon a discovery of a counterfeit-labelled moulded-case circuit breaker, MCCB for short, supplying power to the intensive care unit of a Quebec City hospital. Other investigations and seizures found similar cases of counterfeit and tampered circuit breakers in hospitals. These investigations culminated in search and seizure operations against three suspected businesses, with charges being laid in two instances. The charges brought were forgery and passing off under the Criminal Code, for lack of better provisions in the Trade-marks Act.

In the cases where charges were laid, the perpetrators pleaded guilty. In the first case, the defendant was fined $76,000. In the second case, a fine of $40,000 was assessed, along with an unconditional discharge. The third case was not prosecuted because the crown did not believe there was sufficient evidence to bring charges.

Another firm, sued by Eaton in 2000 in civil court with a favourable judgment, has been charged by the crown in new criminal proceedings. The trial has been set for early 2014 in a Montreal court.

Eaton's manager for codes and standards at that time, Brian Savaria, professional engineer, appeared as a witness before this standing committee and testified on these very issues on April 30, 2007.

However, this problem continues. Are you sure your electrical system will function as it was intended? As long as Canada has electrical retailers selling suspect reconditioned products from unauthorized sources, how do we know they have not been tampered with? We cannot possibly check them all. We do check the ones that look suspicious, but with the state-of-the art copying technologies nowadays there should be serious concern about this issue.

During the course of 2011, 2012, and 2013, Eaton, Schneider Electric, and Siemens helped Public Works and Government Services Canada in the inspection of electrical panels in thousands of buildings across the country. A large number of counterfeit-labelled moulded-case circuit breakers were identified and designated for removal from panels in federal buildings and airports. I believe the number approached almost 150. A couple of representative examples have been submitted with this testimony. They should be in your package. If this is the situation with the largest landlord in Canada, then, by extension, it will be similar to any other commercial or industrial property, etc., in the country.

The international counterfeiting problem that was referred to earlier is equally serious, in that Asian copies of circuit breakers are being made and widely distributed at trade fairs and on the Internet. There are many Chinese websites purportedly offering genuine circuit breaker products. Your information package also includes a photograph example of what happens when an electrical circuit breaker fails. In this case, it shows a Chinese residential breaker seized by U.S. Customs failing the Underwriters Laboratories standard test. As you can see, the results are catastrophic.

I shall now play you a quick video—it's only 11 seconds—of a mining circuit breaker.

[Video Presentation]

I shall spare you the technical details of what just happened. I'll just say, imagine this happening in a mine where methane and whatnot gases are present

The Canadian Electrical Code defines “circuit breaker” as “a device designed to open and close a circuit by non-automatic means and to open the circuit automatically on a predetermined overcurrent without damage to itself when properly applied within its ratings.” Circuit breakers are absolutely essential devices in the modern world and are one of the most important safety mechanisms in homes and other buildings. Whenever electrical wiring in a building has too much current flowing through it, these devices interrupt the power until somebody can attend to the problem.

Without circuit breakers, or the alternative fuses, electrification would be impractical because of the potential for fires and other mayhem resulting from simple wiring problems and equipment failures. Counterfeit circuit breakers can potentially explode, cause fires, as you saw, or false trip. If that circuit breaker is on life support equipment in a hospital, the false trip would shut the equipment down and could kill the patient. In an airport control tower, a false trip can also be catastrophic. One of the examples in your package contains four counterfeit circuit breakers from the L.B. Pearson International Airport.

The spectre of substandard, defective, and counterfeit circuit breakers and domestically labelled circuit breakers with false information and settings entering into Canadian homes, stores, public buildings, schools, and hospitals poses a serious threat to a safe electrical infrastructure. It is a truly frightening situation that must be addressed. The Canadian electrical safety community has been on guard, and for many years it has been alerted to the potential hazards these products can cause.

Consumers are also looking for evidence that government views this as a serious problem that has consequences. I do like to think that I testify before you today, not only as a corporate employee but also as a father, a neighbour, a citizen. But of course the most credible spokespeople against counterfeit products would be the victims thereof, people whose health has suffered.

Thank you.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Gagachev.

We'll move to our first round of questioning, a seven-minute round.

Mr. McColeman, for seven minutes.

[Phil McColeman, Conservative, Brant, ON]

Thank you, Chair. And thank you to the witnesses for being here.

As a quick observation, I think across the board you all see the benefit of this legislation coming into existence. I appreciate all of your suggestions as to some of the things you might like to see.

Mr. Gagachev, the video you played, plus your testimony, indicates that these counterfeit goods could have catastrophic effects on public safety and health.

Right now in the construction process, how are these being found? In practical terms today, how do inspectors know? Do they know? When do you find out during the process? I know there's an electrical inspection process. Is there random testing? What is the protocol right now?

[Vladimir V. Gagachev]

There is no protocol. My understanding is that the federal buildings that were inspected, which is the only comprehensive study in the country that we went through for a single landlord.... My understanding is that the Electrical Safety Authority, for example, in Ontario, does not inspect federal buildings; it has provincial jurisdiction. I'm not sure how federal buildings get inspected.

When we're talking about buildings that are under the jurisdiction of the authority having jurisdiction—the general term of the inspectors—it depends on their sharp eye and the amount of time invested in their training to be able to spot a counterfeit. They're getting better and better.

In the case that was mentioned that's actually in the Superior Court in Montreal right now, we had to bring a label designer back from retirement to spot the minute differences, the nuances in the label. They were getting that good.

So it's getting more and more difficult. I mentioned that in my testimony. With the copying techniques nowadays, it's getting increasingly difficult. We therefore need counterfeiting defined as a crime to begin with.

[Phil McColeman, Conservative, Brant, ON]

Okay.

I'll move on to Ms. Ventin and ask you about your comments regarding adjusting the balance within the legislation, “adjusting the balance” meaning costing less to the rights holders, more to the perpetrators.

Can you elaborate on that, as to how you see that would function in a legal context?

[Carla Ventin]

Sure.

The concern about cost has to do with proposed subsection 44.07(1). Our concern here is that currently, as stated in the legislation, the rights holders would be responsible for the cost of the storage, handling, and destruction of the suspect goods. We're concerned about that, but we'd also be interested in how exactly that would work, because we have been getting some different details on this. We do think that rights holders who do play by the rules should not be paying for the cost of those who are breaking the rules. So any kind of clarification on that.... That was our read on it in our discussions with officials.

[Phil McColeman, Conservative, Brant, ON]

Now I'll move on to Mr. Lipkus.

Your comments regarding a simplified procedure—I wrote that down. What is a simplified procedure? Could you put a little more description into what you mean by “a simplified procedure”? You said something that doesn't go to court, obviously, but what actually is, in practical terms, a simplified procedure?

[Lorne Lipkus]

Quite simply, customs suspects at the first stage that a product is counterfeit. They then contact the brand owner, because customs isn't the party that is going to determine definitively that it's counterfeit; they suspect it's counterfeit. So they contact the expert for that product; they contact the brand owner. They either send pictures or the product and they ask them to verify whether the product is counterfeit.

They way they verify that it's counterfeit now is that we provide either an affidavit or something in writing giving some of the reasons as to why it's counterfeit.

Under the simplified procedure, the next step would be that this information is then given to the importer. Now the importer has the onus. The importer has to say, “I've looked at this evidence you have that it's counterfeit, and I have my own evidence and I disagree with you.” Well, you can't then have a simplified procedure.

But in 77% of the cases in the EU, when confronted with that evidence, the importer said okay and agreed to allow the goods to be destroyed—or did nothing, in which case the simplified procedure said you didn't take the next step and dispute it; therefore, the goods can be destroyed.

In summary, if there's a determination that it's suspected of being counterfeit and the rights holder says it is counterfeit, the importer is given an opportunity to contest that position. If the importer doesn't contest it, the goods are destroyed. No action is instituted; no court is involved. It's simple, cheap: customs takes a shipment, gets it destroyed, and under the present legislation sends the bill to the rights holders.

[Phil McColeman, Conservative, Brant, ON]

In your presentation you said, and you just said again, that customs sends the bill to the rights holders. What is your view of legislation that would send the bill to the perpetrators? In practical terms, do you think that money could be collected?

[Lorne Lipkus]

The answer is yes, in many cases, and no, in many cases.

I keep hearing that counterfeiters can't be caught, and it's true, many of them can't be. We have collected hundreds of thousands of dollars from counterfeiters every year for the past several years, so some of them can be found. The problem is that too many of them can't be found. When you have a criminal who is importing product and gives fake information, the chances are that you're not going to be able to collect your money. If it's someone who has given proper information, then you have the ability to go after them.

But that underscores my answer to your first question. If we have to institute an action and don't even have proper information, then we've instituted an action against a Jane Doe or John Doe or J. Doe company whom we don't know, and we've had to spend all that money for nothing.

In a perfect world, and in any world, I would prefer that the importer, who is the one who ordered the goods, be the one responsible for it, and that in any event they be, under the legislation, the primary person responsible for paying.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Lipkus. I have to cut you off there; we're over time.

Thank you, Mr. McColeman.

We go on to Madam Charlton.

[Chris Charlton, NDP, Hamilton Mountain, ON]

Thank you very much to all of the witnesses.

I'd like to bring Mr. Keon into the conversation today.

First of all, I want to thank you for addressing the trademark side of the legislation. I don't think we've had enough conversation about that side. I really welcome the way you've made quite clear why this piece is so important.

You talked about its being essential that the size, shape, and colour be readily identifiable for generic pharma companies as well as for pharmacists, but I have to tell you, I'm thinking about my parents. I'm thinking that if a drug that my dad is taking suddenly can be replaced by a generic, he might be terribly confused, if the colour, shape, or size changed. I'm comforted by the fact that you're doing everything you can to make it easy, particularly for seniors and other patients, to continue their treatment successfully.

I want to ask you, though, about this notion of distinctiveness. We've had a bit of conversation about it in the committee before. When we asked the minister, he responded that the change to that particular definition....

I'll quote the minister:

The technical explanation from my department is that the new language of the definition aligns with the agreements on Trade-Related Aspects of Intellectual Property Rights...as well as with the case law of the Trade-marks Opposition Board decisions.

I took it from your testimony (a) that it actually doesn't align with the Trade-marks Opposition Board decisions, but (b), I don't recall your talking about the trade-related aspects of intellectual property rights. I wonder if you could expand on that for me a little bit.

[Jim Keon]

Yes. Thank you very much.

I agree with your point that similar size, shape, and colour of generic medicines—similar trade dress—is important for patients, particularly seniors, who often are taking many medications. If they are switched from one manufacturer to another, it's much easier to maintain their regimen if the product looks the same. That is the basic reason that the medicines look similar.

With regard to the trade-related aspects of the intellectual property agreement—the TRIPS agreement, which is a specialized intellectual property agreement under the World Trade Organization, and Canada is a member of that—the first thing I would say is that this agreement has been in place since 1995, and no one in the courts or before the courts has ever suggested that Canada's current definition is not consistent with the TRIPS agreement. That's the first thing: our current definition of “distinctiveness” is consistent with TRIPS, and no one has said that it's not.

The Industry Canada witnesses said that the new language was taken from the TRIPS agreement. It's our view that the two sections they pulled out are actually slightly different and that the wording is contrary to what they had intended.

We're suggesting very minor changes to modernize the definition of “distinctiveness” such that it would continue with the essential implication of today's language, that there has to be actual demonstration that the product is distinguishable. That is consistent with TRIPS and that is what we're proposing.

I don't see any conflict with the TRIPS agreement. In fact, I think the modernization attempt in this case is simply introducing uncertainty into a highly litigious industry and is going to create a lot of litigation and perhaps a change in the law that is unintended. As we've been told, it is not the intent to change the substantive law here.

[Chris Charlton, NDP, Hamilton Mountain, ON]

I certainly am very sympathetic to making sure that we don't inadvertently change something that has been successful, and I haven't heard any other witnesses suggest that it's imperative that we change the definition of “distinctive”, except for ministry officials, who said they were changing it in an effort to modernize. But again, as you rightly point out, it may not be necessary at all.

I wonder whether any other witnesses feel strongly about the definition of “distinctive”. Is there an alternative view at the table?

No? Okay, that's terrific.

I just want to ask one other question. Another witness at our committee addressed in-transit shipments and questioned whether they should be excluded from this bill. That witness specifically referred to the experience with in-transit seizures in Europe, revealing that generic pharmaceuticals were often targeted.

There are two examples that I'm aware of. During 2008 and 2009, Doctors Without Borders found that at least 19 shipments of generic medicines from India to other countries were impounded while in transit in Europe. This included a Dutch seizure of AIDS drugs en route from India to a Clinton Foundation project in Nigeria.

I'm wondering about two things. First of all, why is it, do you think, that pharmaceuticals are often targeted? Second, would you agree that we should continue to exclude in-transit shipments here in Canada for precisely the reason that you're worried about, that pharmaceuticals would perhaps be targeted more often than other goods?

[Jim Keon]

Bill C-8 does not include in-transit goods as part of the “in scope” activities the Canadian Border Services Agency would be looking at. We think this is appropriate; we're not in favour of expanding those powers beyond the scope of the current bill.

Pharmaceuticals trade around the world. Many companies, brand name and generic, buy inputs from around the world, manufacture in one location, and package and distribute in others. In some cases, trademarks law and patent law can be different. If the product is not coming into Canada for sale in Canada, then asking the Canadian Border Services to interpret the product according to Canadian law is inappropriate, and has led in the past, as you indicated—in Europe in particular—to seizure of legitimate products, delays of those products, extra costs, and uncertainty, and in some cases has resulted in companies changing the way they distribute products. I don't think that's the intent here.

We support Bill C-8 in that regard and would not recommend any change.