Public Safety Committee on March 29th, 2007

[Lorne Lipkus]

I was there two weeks ago. There were 27 businesses selling pirated DVDs. There were 15 other businesses selling counterfeit products that represented over 20 clients that I represented. That's what I was able to identify in one mall from being there for an hour and a half.

[Graham Henderson]

This affects Canadian businesses. Ubisoft is a major employer, I believe, in Mr. Duceppe's riding, and it's one of the top video game manufacturers in the world. You can take an Xbox up to the Pacific Mall and they'll hot-rod it for you. Right now, you can only play legitimate games on it, but you bring it in, leave it for half an hour, they'll open it up, they'll put in a modification chip that makes it possible to play pirated product and they'll sell all the games you want, all the Ubisoft games, whatever your want, for $5, whatever.

[Brian Isaac]

This is currently going on despite the fact that within the last two years there have been two raids on pirated entertainment software outlets, if you want to call them that, in the mall. The level of the penalties, and the fact that we're not doing enough about it is exemplified by one of those cases where it was one of the highest penalties ever awarded against a company. The charges against the individual were dropped, and the company was penalized, I think it was $76,000. On the second search warrant, less than a year later, the same individual was implicated. He was continuing to supply the counterfeit products to the stores.

[Lee Webster]

I should say you don't have to go to the Pacific Mall either. My fiancée is Iranian Canadian, and I was at her brother's house for Iranian new year last week. He asked if I wanted to take these home and take a look at them. I said I'm probably not the right guy to see this stuff, but he had a collection of DVDs he'd purchased from the local 7-11 type store in Brampton.

So I took them home and looked at them. Several of them didn't work on my machine. Most of them were camcorded. I guess one was a copy from some Academy of Motion Picture member's private copy he got for the Academy Awards, so somehow that had got out on the Internet.

You don't have to go shopping in Markham; you can find it anywhere, and people are buying this stuff.

[Lorne Lipkus]

I served court orders at the Rideau Centre.

[Doug Geralde]

To your point, though, there's a lot for the committee to look at. I would invite them down to the Canadian Standards Association, where we look at what the products are. We should also maybe go into a little bit more detail about what we're seeing in China and developing countries, what the factories are doing, and where the shipments are going. Maybe that can be of help to the committee.

We can talk about some of those experiences. They may be anecdotal, but they give you an insight into the breadth and the sophistication of both the distribution and the manufacturing that are going on, and it may assist you in some of the other action items.

[The Chair, Conservative, Garry Breitkreuz]

Your time really is up. Do you have a brief...?

[Rick Norlock, Conservative, Northumberland—Quinte West, ON]

Going to what Mr. Ménard said, dollars and cents make the world go around. In your estimation, would I be correct in saying that if legitimate manufacturers were the only vendors and there was not this proliferation of contraband goods, basically the government would increase the profits of legitimate manufacturers? We're not taxing the bad guys; in the long run, maybe the government would make more money and then could afford to spend some of it on public education. Would that be correct?

[Lorne Lipkus]

Absolutely. I've had legitimate businesses call me up and tell me, “Lorne, I'm closing my doors. I cannot compete.” I've said, “Call the police and complain. Call the government and complain.” The amount of money being made by counterfeiters and pirates is absolutely astronomical. It is huge dollars.

One location in the Vancouver area had a sign saying “cash only”. I saw tour buses pulling up, and 50 people would get out and come into this store that said “cash only”, which was selling purses. This person was on social assistance. I was there in the middle of the police raid. The person was on social assistance--“cash only”. How much money could have been made from that one business alone if the government had had legislation so that when the police went in, they would have been able to grab the assets and the bank accounts of that person?

[Graham Henderson]

The tax base absolutely is going to be impacted. I'll give you an excellent example: icewine. Icewine is now being counterfeited, and a great example was the Taiwanese marketplace. They were selling successfully into the Taiwanese marketplace; then, all of a sudden, counterfeit icewine showed up, and the market dropped in half. That directly affects the profitability of Canadian businesses and hence their taxpaying ability. It's jobs--jobs, jobs, jobs.

[The Chair, Conservative, Garry Breitkreuz]

That's very interesting.

There is no one on this side. Then our final--

[Sue Barnes, Liberal, London West, ON]

I'm open to giving up my time if any of you want to put anything else on the record, but I think you've done a great job today.

[The Chair, Conservative, Garry Breitkreuz]

Mr. Brown has indicated he has a comment or question.

Does anybody have a comment or question?

[Doug Geralde]

I only want to say that we appreciate the time, and if we can move forward...I think all of us and the associations feel that if there's anything else we can do, we want to help in any way we can.

[The Chair, Conservative, Garry Breitkreuz]

I think we as a committee will consider your invitation to come down and take a look at some of this stuff. I presume we'll at least discuss making a report on this as well. I appreciate that. I think it's a very important issue, and not something we should leave after doing just a couple of studies.

Go ahead, Ms. Barnes.

[Sue Barnes, Liberal, London West, ON]

I think we could learn a lot more, but you've given us enough to do a report that just says we should get moving on this stuff, in my opinion.

[The Chair, Conservative, Garry Breitkreuz]

Yes. If we do go down there, we'd leave our cash here.

Go ahead, Mr. Brown.

[Gord Brown, Conservative, Leeds—Grenville, ON]

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

I learned a bit about copyright a few years ago. Testimony in the last couple of days has been a real eye-opener in learning about the public safety side of this, but I think the part that will hit Canadians the most is the economic side.

Maybe, Mr. Henderson, you could lead here. I'd like to know the impact on our economy in jobs, in GDP. There is also the impact on the treasuries of the federal government and the provincial governments. What kind of impact is this having on our economy?

[Graham Henderson]

It's hard to give an overarching number. I know the RCMP has reported that this is a billion-dollar business.

As to the effect on Canadians, we have lots and lots of anecdotal examples that we can give you. For example, the software industry estimated that losses from business software piracy exceeded $730 million in 2005. They felt that it wiped out 32,000 jobs and $345 million in taxes. One of the things they've experienced is a piracy rate in Canada of business software products that's running between 33% and 35%, whereas in the United States it's 21% or 22%. That's a huge difference.

We have the example of an Ottawa-based software company called Autodesk. He'll tell you that for every software program his company sells, five of them are pirated. This piracy, he says, has directly cut into Autodesk's ability to hire additional developers, and hence software.

Bayly Communications in Ajax, Ontario, has about 30 employees. It's a leading manufacturer of network access and transmission products for telecommunications markets worldwide. In the fall of 2002, it estimated that 25% of its business was lost due to counterfeit Chinese copies.

Art in Motion is a company based in Coquitlam, with about 400 employees. They are a leading fine art publisher. This company has constantly battled the copying of its artwork internationally, taking legal action in North America, Asia, and Europe.

The point is that this is affecting people across the country, in all ridings, and through the Canadian Anti-Counterfeiting Network, everybody is coming together. This economic case can be made. It's demonstrable. It's hard to say exactly what the full extent of it is, but you know it's going to be an enormous amount.

Doug, you wanted to comment.

[Doug Geralde]

As we said, it's an underground economy. It's difficult to put a handle on it, but among some of the things that we find, a major car company has said they sell everything from airbags to brake lights to brake linings, and so on, approximately $6 billion a year. They estimate that one-sixth of that is counterfeit.

The drug trade is an $80-billion-a-year business. The counterfeiting is $320 billion to $350 billion, so you're talking four times the amount. As was alluded to earlier, if you get caught with a pound of cocaine, you're going to go to jail. If you have six containers of cord sets—and six containers sounds like a lot, but it slides through because of what we talked about today—the profitability is identical, with no penalty.

Everybody is trying to get a handle on it, but they believe that right now it represents between 5% and 7% of all global trade, growing at 20% to 25% a year.

[Lee Webster]

Last night we tried to get some information from the International Chamber of Commerce. We got an e-mail that threw out some numbers at us, one being that the OECD is going to issue a report that has some members measuring cross-border traffic, and the number they've attached to that is a very big one, $176 billion U.S. in international counterfeit trade. That's just international, and that number doesn't include Internet trade or counterfeit products manufactured and sold within a country's border. They estimate that there's in the range of $120 billion in knock-off goods sold on the Internet. There's an organization called MarkMonitor.

Ford Motor Company has indicated that counterfeit auto parts are costing them in the range of about $1 billion a year in costs.

The final number that this fellow was able to give us was for the City of Los Angeles: they reported that counterfeiting cost the city $5.2 billion in sales in 2005. Those are big numbers.

[Graham Henderson]

There is a very interesting fact about this business. When you ask Canadians, if you were told that it was organized crime that was getting the proceeds, what would you do, fifty percent of them say they'd buy the legitimate product. So there's a direct translation. If you can stifle the flow of counterfeit product, you will encourage legitimate purchases.

[Gord Brown, Conservative, Leeds—Grenville, ON]

I'm probably running out of time here—

[The Chair, Conservative, Garry Breitkreuz]

Yes, you are running out of time.

[Gord Brown, Conservative, Leeds—Grenville, ON]

—but I remember the other day my friend Mr. Cullen asked a question about a case in Hamilton that involved counterfeit prescription drugs. Does anybody know what happened to that?