Public Safety Committee on April 26th, 2007

[The Vice-Chair, Liberal, Roy Cullen]

Good morning and welcome to this meeting of the Standing Committee on Public Safety and National Security. This is meeting No. 40.

Pursuant to Standing Order 108(2), we are going to study the issue of counterfeit goods.

Our witnesses today are: Mr. Michael Geist, Canada Research Chair Internet and E-Commerce Law, University of Ottawa; Mr. Paul Hoffert, Chief Executive Officer of Noank Media, Faculty Fellow, Harvard Law School and Mr. Bob Sotiriadis, lawyer and partner, Léger Robic Richard.

I welcome all the witnesses and thank you for coming.

We're going to proceed first with Mr. Geist, followed by Mr. Hoffert and Mr. Sotiriadis.

Mr. Geist, you may take the floor.

[Professor Michael Geist, Canada Research Chair, Internet and E-commerce Law, University of Ottawa, As an Individual]

Good morning, and thank you very much for the invitation to come and speak.

I'm a law professor at the University of Ottawa, where I hold the Canada Research Chair in Internet and e-commerce law. I'm also a syndicated weekly columnist on law and technology issues for the Toronto Star and the Ottawa Citizen, and I served on the national task force looking at spam that the Minister of Industry struck in 2004. I appear today, though, before the committee in my personal capacity, and I represent only my own views.

Let me begin by stating the obvious: counterfeiting is not a practice that anyone with any credibility supports. At worst, counterfeiting may pose a public safety issue. Even when it's viewed in the best possible light, when counterfeiting activities may be relatively harmless, it is not a practice to be condoned.

But of course you don't need committee hearings to determine whether or not counterfeiting is good or bad: it's bad. It's whether or not it is particularly problematic in Canada such that the issue merits a strong legislative response. I believe that depends on two things: the state of counterfeiting in Canada and the state of anti-counterfeiting law in Canada. On these two questions, I would submit that the situation is far less certain. Once we get past attention-getting props and dig into the details, I believe it becomes clear that there is much that we do not know.

Rather than doing a Donald Rumsfeld imitation, where I talk about discussing the “known unknowns”, allow me instead to talk about what we do know. I'd like to point to eight issues in particular.

First off, we know there are different definitions for what constitutes counterfeiting. It seems to me that “counterfeiting” has become a catch-all for a wide range of issues. While no one would dispute that the sale of fake watches or handbags would be included within the counterfeiting definition, that umbrella has been used to capture far more. This committee has heard claims that stuffed animals that don't contain a label confirming that they're made of new materials are counterfeit products. Such products are merely mislabelled or fail to meet safety standards. But I'd argue that they are not counterfeit. Similarly, extension cords that fail to meet Canadian Standards Association's standards are a safety concern but not necessarily a counterfeit concern, unless they include a CSA logo that has been mistakenly or fraudulently applied.

Second, we know that public safety counterfeiting issues are relatively rare in Canada. We know that according to the RCMP, significant physical harm from counterfeiting is extremely rare, and indeed we know that from the RCMP's most recent report on counterfeiting, which is Project Sham, a report I obtained under the Access to Information Act and would be happy to share with the committee, if you don't already have a copy. In fact, there was a recent B.C. case that allegedly involved the sale of fake pharmaceuticals that may have led to a death of one woman. That is the first such case on record in Canada. By comparison, studies have found that thousands of Canadians die every year simply from bad drug interactions, where there's been a mistake in terms of how the pharmaceuticals have been dispensed. Project Sham, as I say, has acknowledged that there are no documented cases, until this point, of death or illness from counterfeit pharmaceuticals.

Third, it's important to note that counterfeiting is not limited to organized crime. While some advocates have been quick to characterize counterfeiting as strictly an organized crime issue, again the RCMP study found otherwise. For example, it noted that in the northwest region of Canada, only a few cases could be classified as “organized crime”, and that for the most part IP crime there involves people who are trying to make a dollar. This doesn't justify counterfeiting by any means, but it does suggest that claims that counterfeiting involves revenues that go to directly to organized crime may be greatly exaggerated.

The fourth thing we know is that Canadian law has not left law enforcement powerless in dealing with this issue. I must say that to listen to some advocates, one would think that Canada is a lawless society when it comes to counterfeiting, but we know that is not the case. Canada is compliant with its current international copyright obligations. Moreover, claims that there is police inaction I think do a great disservice to law enforcement across the country, who are active in pursuing IP crime. Indeed, the RCMP has noted that between 2001 and 2004 it conducted more than 1,800 investigations and laid charges against 2,200 individuals and more than 100 companies. Indeed, just yesterday the industry committee heard from the RCMP that in 2005 the number of charges they laid nearly doubled over the prior year, with 700 charges, nearly two per day, being laid within the country. It should be noted that law enforcement action in this area raises public resource questions. I'm sure this is something that's obvious to you already, given that you focus on public safety and security. Any counterfeiting activity works primarily for the benefit of private parties. While some of that may be warranted in some circumstances, particularly health and safety issues, it unquestionably results in a shift away from other law enforcement priorities.

Fifth, we know there are no obvious legal solutions. While there are advocates for reform who suggest that there is an obvious blueprint for addressing counterfeiting in Canada, we know there is no silver bullet. Indeed, experience elsewhere—and this is a global issue, as you have heard repeatedly—illustrates that most anti-counterfeiting measures have been exceptionally unsuccessful. The proof is in the data.

Counterfeiting is widely viewed as a growing international phenomenon, even in those countries that have adopted tougher border measures or criminal penalties. It is easier to obtain counterfeit products in Manhattan than in Markham, home to the much discussed Pacific Mall. If anything, we know that many legal reforms will do no more than provide the illusion of addressing the counterfeiting issue.

Sixth, we know that the WIPO Internet treaties are not related to counterfeiting. There's been a surprising connection made between counterfeiting and the fact that Canada has not yet ratified the World Intellectual Property Organization’s Internet treaties. While there is considerable debate about the merits of these treaties, many analysts, including those who helped create those treaties, now have their doubts. There is no question that those treaties bear little relation to the counterfeit issue. No policy-maker should be fooled into thinking they are addressing counterfeiting by promoting treaty ratification.

Seventh, we know there is likely to be limited economic impact in Canada from counterfeiting. We know that the data on the economic impact of counterfeiting is very difficult to come by. The RCMP itself has acknowledged that there has been no comprehensive, independent study on the issue. That said, we know a number of things that suggest the economic impact in Canada may be fairly limited. First, the RCMP confirms in some of its studies that at least 90% of counterfeit products are produced outside the country, confirming that there are few counterfeit manufacturing operations within Canada.

Second, we know that counterfeit products and genuine products are not perfect substitutes. I think it's obvious that a person who purchases a $10 fake Rolex watch would not otherwise purchase, and does not expect to receive, the $5,000 genuine article. The same is true for the $20 Gucci handbag that sells for hundreds of dollars in stores. While there are rightly concerns about lost retail tax dollars, the impact on name-brand sales is negligible.

Finally, we know that data in this area is inconsistent. Not only is it difficult to obtain, but the data that is released is so often inconsistent that it loses much of its credibility. For example, earlier this year there were reports that Canada was responsible for 50% of camcorded movies later appearing on pirated DVDs. Over the weeks that followed, industry sources began to alter that number, with suggestions that the figure was actually 20%, 23%, 30%, or 40%. Such a broad range of possibilities suggests that the industry simply does not know what is taking place in the marketplace. Moreover, a closer examination of actual industry data indicates that many of these figures are wildly inflated, with the actual number likely closer to 3% of movies released by the Motion Picture Association of America.

So where does that leave us? Given the uncertainty about the impact and severity of counterfeiting, the lack of reliable data, the inconsistent definitions, and the ineffectiveness of legislation elsewhere, the starting point ought not to be knee-jerk legislation that is unlikely to work and may be a solution in search of a problem.

Instead, I believe this committee can play a crucial role in ensuring that Canada provides global leadership in addressing the harms associated with counterfeiting. Based on what we know, the starting point is not new laws, but independent, quality research that will allow legislators, law enforcement, business, and the general public to better understand what is and is not a problem and how our country can move beyond rhetoric to address the legitimate public safety concerns.

Thank you.

[The Vice-Chair, Liberal, Roy Cullen]

Thank you, Mr. Geist, for your testimony.

Having worked on the government side on this issue, many of the things you say run totally counter to everything I've ever known about the subject. But that's why you're here—so we can get a good balance of views.

I want to turn now to Mr. Hoffert. Do you have any opening comments?

[Paul Hoffert, Chief Executive Officer of Noank Media, Faculty Fellow, Harvard Law School, As an Individual]

Yes, I do. Thank you.

I'm a former chairman of the Ontario Arts Council and former president of the Academy of Canadian Cinema and Television, and currently I have faculty positions in the Harvard Law School and at York University.

This morning I'd like to discuss some threats and dangers of counterfeiting and piracy from perhaps a perspective different from the one this committee has heard in the past. To begin, perhaps it's helpful to look at these issues as being in three particular categories. Category one, I would suggest, is the sale of physical goods in physical stores, what we hear about a lot with the Gucci watches and handbags and plush toys and that sort of thing.

The second category, which the committee has also heard some testimony about, is the sale of physical goods, but in this regard, instead of being bounded territorily into the country of Canada by physical borders, so perhaps coming from outside the country, we have goods that are purchased on the Internet—everything from prescription drugs to movies or CDs and the same handbags—essentially, the same goods you could get in a physical store, but also probably augmented by goods that would not pass muster with the physical examination in a store, where the consumer has the opportunity to look the goods over and perhaps, as was suggested, look for a tag that says 100% original material and that sort of thing.

The third category, about which I ask the indulgence of the committee, and which may or may not be central to your purview, is the sale of intellectual property goods online directly, in the form of files, whether it's software, or music, or educational courses that may be branded with trademarks, such as McGill University or any other institution.

There are three large implications of those three categories of counterfeiting and piracy, in my view. In one situation, and in many cases, we have citizens who are duped, are fooled. They basically have product substitution; they think they're getting one thing and in fact they're getting another. They pay for one thing, and they think they're getting another thing. I think we would all agree that that's not a good outcome.

The second outcome, which hasn't been dealt with, and which I would suggest to the committee is at least as harmful, is the encouragement of citizens to break the law. In this case, to use the example that was just given, a Gucci watch is purchased for $10. I think it would perhaps strain our belief that a consumer would buy a Gucci watch for $10 and be duped into believing he's getting the real thing. That consumer understands that full well because of, in some cases, the absurdly unreasonably low price. Another case of this is the wilful circumvention of protections that have been put on products—as happens when a consumer goes to a shop and says, here's my game machine, remove the protection, or here's my cell phone, remove the protection, or something like that. We are encouraging a culture and a society that have a kind of disregard for law in general.

The third outcome, which has been discussed, and on which I won't dwell, though I think it's quite important, is that companies and individuals who invest in creating businesses and intellectual property lose money because they can't sustain a business model that's viable, because others are poaching their business at unfair low prices through counterfeiting.

I suggest that insufficient action by government has some rather severe consequences, one of which is that, in general, innovation is stifled, because if we don't have a society in which people are rewarded for the investments they make in innovation through normal business practices, then there's less incentive for them to make those investments.

Secondly—and I would suggest to the committee that this comes under the heading of what I would suggest is the broad health and safety not just of individual citizens but of our culture, our government, and our ability to receive good government and live in the kind of society Canadians believe they are entitled to—there is a general breakdown of a sense of law and order, whereby we begin to accept that if you get a good deal at somebody else's expense, it's okay; that it's okay if the government does not provide a framework for commerce, a framework for entertainment, and a framework for getting information that's secure and reliable.

In that regard, I would ask that the committee indulge me for a moment. I just returned from China, where I have a business that I've been getting going for the last nine months or so. I've had a chance to see first-hand in another jurisdiction what I believe has some relevance for potential outcomes of government inaction on counterfeiting and piracy.

I'm sure the members of this committee are familiar, at least from the press, with the almost 100% non-compliance in countries such as China with any intellectual property, trademark, or other regimes that would prevent counterfeiting and piracy. I've had first-hand knowledge, speaking to companies in China—Chinese companies, not just foreign companies—who are unable to sustain business models because of the counterfeit and pirated goods that are available there.

In fact, the outcome of what has been a general government disregard for counterfeiting and piracy is that in the realm of counterfeit goods, there are now levels. The Chinese words are “daoban” or “zhaoban”. One is legal and one is counterfeit.

The quality of the counterfeit goods that have been accepted by the general population as okay has differentiated into tiers. You can buy a DVD of a movie on the street for about 70¢ or 80¢, but the quality of that movie is going to be pretty poor on the DVD, because somebody perhaps went to the back of a theatre with a video camera and basically just shot the movie. But if you pay more, you can get the same movie. And consumers are willing to pay more for differentiated levels of counterfeit. They'll pay more to get a movie that has Chinese subtitles and a better quality.

There are companies that are establishing brands that have value as counterfeit brands, based on the fact that they have different levels of quality for the intellectual properties they steal.

The question is, what's wrong with this? What's the impact?

In my view, there are some serious impacts that are pretty obvious in countries like China. The greatest one would be what I suggest is the overwhelming evidence throughout the world, and particularly in China, that this has led to a copycat economy, one that is not innovative. One does not go to China to design new and innovative stuff; one goes to China to get cheap knock-offs.

This is a problem for the Chinese, and it's one of the reasons they're interested in this issue and are trying hard, I believe, to begin to address it. It's one of the reasons for the government to address piracy and to address counterfeit. They simply realize that they can't disregard it if they are going to become a country that can innovate and have successful indigenous industries that will be able to thrive in a business world.

Those are my opening remarks.

[The Vice-Chair, Liberal, Roy Cullen]

Okay. Thank you very much.

Mr. Sotiriadis, would you please take the floor?

[Bob Sotiriadis, Lawyer and Partner, Léger Robic Richard, L.L.P., As an Individual]

I'm a lawyer, a partner, in what's called an intellectual property boutique, which is a fancy way of saying that our law firm does almost only intellectual property law. It's an old firm. We've been working for rights owners since 1892.

I don't come here representing any association or interest group. Because of my conditioning, I'm predisposed to helping people who are IP owners. I do believe, with respect to the arguments of Mr. Geist, many of which are well founded and should be taken into consideration, that what it all boils down to is fairness.

We have a legal system. There are laws in place, and it's logical, in any event, to have an infrastructure that supports the laws you have in place. If you have speed limits on the highways, you have to finance police to make sure people aren't going over the speed limit.

The fairness aspect is that it's simply not fair. Maybe the Mafia isn't behind counterfeiting. Maybe there aren't that many batteries that explode each year. The fact is, there are honest people who pay the full price for something. There are honest people who try to create new things, who go through the rigmarole and the cost of creating them and who pay taxes and so on, and there are people who do not.

Those are my introductory comments.

What do I know? I don't represent the film producers of Canada or any of these groups. Our firm has represented luxury product makers, and so on. Just to give you an idea of the type of infringement or counterfeiting you get, it's not just luxury goods. Recently, we had occasion to seize counterfeit tractors, believe it or not—big tractors; big, two-ton tractors. One of our young lawyers went to a port in the Montreal area in her high heels and her business suit, actually went up to the containers, and seized these tractors.

The nature of the seizures is getting even more complicated and dangerous. We went to a hotel in Montreal recently. I don't know if you've heard of it. It's a classic. I think it's Ruby Foo’s on Decarie. People were selling Louis Vuitton. Mr. Hoffert referred to different levels of counterfeit and acceptability. Well, it's at the point where now you can get a fine quality Louis Vuitton rip-off openly. Fine, prim, and proper people go to a hotel room, there's a bouncer in the hallway with dark sunglasses on, and when we show up, of course, everyone just scrams. It's as if it was a bust for a drug deal.

It's not just at flea markets and things like that.

In Canada now, the degree or the lack of fairness and the lack of seriousness that your previous witnesses have testified to—Mr. Webster and those representing interest groups—is not all exaggerated.

I've been practising IP law for over 20 years. I'm a past chair of the IP executive of the Canadian Bar Association. When I was on the executive and when I was chair, one of the things we did each year was meet with the Department of Justice, with Mr. Becker, in fact, who has already testified. This was in the late 1990s. At the time, there were some modifications to the Copyright Act going on. Some of you might be familiar with that. We were always told that IP was not a priority right now and don't count on us to finance helping you find counterfeiters. They didn't want the RCMP spending too much money on that. They had other things to do.

It's not their fault, and it's not up to Mr. Becker and his colleagues to decide what's to be done. It's the government's role, I believe, to pass legislation to provide those powers. That's the backdrop of what I've seen in Canada.

What I'll try to do in my testimony for the next ten minutes is share my experience with you. If I can be helpful afterwards in answering questions, maybe it will help, as well.

I'm also very much involved in the International Bar Association, which is a worldwide association of lawyers. I'm vice-chair, right now, of the IP section. Invariably, every year we have panels on counterfeiting and how to stop counterfeiting, and so on—and I'll be frank, as Canadian lawyers, we do go hide our heads in the sand. We're very embarrassed. We are lacking those simple recourses and little things that a lot of other jurisdictions have.

I take issue with the suggestion that the United States does a better job in enforcing because they themselves, as a government, have IP. The fact is, I think it's more like Mr. Hoffert mentioned: either you're a leading country and you're a value-added country, or you're a country that is developing. I think Canadians like to think of themselves in the first category.

So it is true. We lack a lot of very simple, easy to implement measures that I don't believe can lead to abuse.

I admit there are abuses in the seizure system we have in place. We are entitled, in certain circumstances, to apply in Canada for an Anton Piller order, which basically is a sweep. You're allowed to walk into a business without prior notice and seize infringing goods, packaging, and accounting records. You can even get a gag order to stop them from telling their cousin up the street that you're coming there next, and so on. There have been some abuses, but there are ways of controlling them.

I've pleaded one of the rare criminal cases involving counterfeiting. It concerned watch boxes that contained grey goods. I wasn't particularly envious of the resources of my colleague at the Crown. I felt sorry for him. He was an excellent, experienced lawyer who probably, with a good briefing from an experienced IP counsel, could have done a much better job.

We, of course, on defence, the private sector, have all the money, articling students, and binders, and everything, and the crown prosecutors are sitting there with 50 cases on their desk. This is of interest to them. And of course you have the private sector party who's pushing them, with Seiko, a big watchmaker at the time, and they were very upset.

I've read in the testimony about people complaining about the lack of training of the crown prosecutors, the lack of resources. I can tell you it's true. I've seen it first-hand. I'm not saying they would have won, but it would have certainly helped and it would have made things a lot more balanced.

I've also authored articles on the criminal provisions in the Copyright Act and the Trade-marks Act concerning IP. Again, my experience is to the effect that having some provisions in the Criminal Code, some in the Copyright Act, some in the Trade-marks Act, and all kinds of confusion in your testimony in the last while about piracy and counterfeiting, and so on—someone is going to have to teach the legislators, crown attorneys, and so on, what we're talking about.

Call it counterfeiting, or call it whatever you like. We have a Copyright Act that states there are certain things only a copyright owner is allowed to do. If you're doing one of those things and you're not the copyright owner, then you're not allowed to do them. It's not that complicated. For trademarks, it's the same thing.

Again, in regard to open counterfeiting, in the last year or so I had the occasion to carry out an Anton Piller order on the premises of a DVD replicator who got the glass master to make a DVD from a U.S. company, made DVDs of hundreds of movies, including one movie—well, I had two cases, actually, but one was concerning a very famous X-movie from the seventies, Behind the Green Door. This fellow was sitting in his premises, openly copying this film. These films, these DVDs, have copyright notices all over them, trademark notices all over them. We had to seize and close down his replicating facilities. We traced more replicating into Ontario.

We got another case for other makers of these types of movies in California as well. I tell you, in that case we actually traced—

The problem is that the Americans are coming to say, “You have to close these people down in Canada. They're making them there, but they're selling them in the States.” By the way, it costs about a dollar to make. We found the counterfeit version of the film in Toronto, in a video store, for $65. That's not fair. Normally, this DVD in the States is sold wholesale for $10 to $15 U.S., and I guess it retails for $20 to $25 U.S. We found it at some $60 in Toronto, being made in Montreal for about 80¢.

It's a lot more present than we think. This wasn't underground or organized crime; this is just people who think it's okay.

It's so expensive to sue them, and the damages you can get are so low. It's extremely frustrating, and again, it gives us a bad name.

Now, is the fact that Canadian lawyers are embarrassed vis-à-vis their American colleagues a reason to completely change legislation? No. I understand that. That's not the reason. But is it fair? I think that's the question to ask.

I personally believe, and again, it's just Bob Sotiriadis speaking, that our tolerance and lackadaisical attitude in everyday things like luxury goods have created an environment in which now, yes, we do have these batteries and we do have these stuffed toys, and so on.

[The Vice-Chair, Liberal, Roy Cullen]

Could I ask you, sir, to wrap it up?

[Bob Sotiriadis]

My wrap-up is that there are very simple measures that can be taken, such as making a registration system in customs so that rights owners can register there and customs officials would be allowed to communicate information; creating easier recourses; perhaps making an anti-counterfeiting statute and putting all the criminal infractions in it; and making Anton Pillar orders clearly obtainable under very specific conditions.

I have more but I can throw them in when you're asking me questions. Perhaps someone would like to ask me a question about what my suggestions are.

[The Vice-Chair, Liberal, Roy Cullen]

Okay. I'm sure everybody heard that, and there might be one who will take that on.

Thank you, Mr. Sotiriadis, for your testimony.

Now we'll go to the first round of seven minutes each.

Mr. Wappel.

[Tom Wappel, Liberal, Scarborough Southwest, ON]

Thank you.

Thank you, gentlemen, for appearing today.

I'm not a regular member of this committee, but I note that this is our third meeting on this subject matter.

Just sitting here and listening, I think that whenever the committee begins its deliberations we should have in front of us the eight points the professor made. The chairman made some comments about how startling it was in contrast to the evidence that has previously been heard. But I think the professor has made some very interesting observations from what I would characterize as an objective point of view, being a professor of law, as opposed to someone acting on behalf of clients or who has produced some intellectual property upon which he's going to be making a profit. And there's nothing wrong with that. I'm very interested in, and was surprised to hear, the professor's testimony.

Let me just play the devil's advocate here. I wonder if there's a difference between a person who buys a $10 fake Rolex, clearly knowing it's a fake Rolex—No one in the world would expect to purchase a Rolex watch for $10. That's one side of it.

On the other side of it, we have the example that Mr. Sotiriadis gave us, where a fake product, I presume, is being sold as a real product for $65. Surely that is fraud and there is some section under the Criminal Code that would deal with someone who is passing off a fake product as a real product and thereby ripping off a consumer, on the one hand, as opposed to, on the other hand, a consumer who knows perfectly well that he's purchasing something that is not the real item.

I'm asking both Professor Geist and Mr. Sotiriadis if there is something the Criminal Code already covers with respect to those people who are trying to charge real prices for fake goods—let's put it that way. Let's start with that.

Professor.

[Prof. Michael Geist]

The example that Mr. Sotiriadis gave focused on someone burning these DVDs and then selling them at huge commercial profit. It seems to me that's a pretty clear case of where the Copyright Act's criminal provisions would well apply, where someone is making a copy without authorization with the intent to distribute. If you have someone who is able to make multiple copies of this thing for 80¢ apiece and sell them for many times over that, with no authorization to have made those copies, that person faces significant potential fines as well as jail time.

So we do have provisions already within the Copyright Act that would address precisely that kind of behaviour.

[Bob Sotiriadis]

That's correct. The provisions are there. The enforcement, however, in criminal court is very difficult and arduous.

Usually the problem isn't really there. If you're lucky enough to find the DVD and then lucky enough—We had to take the DVD, send it to California, locate the original glass master maker, and trace it back to Montreal and so on. That's fine.

The tricky thing is the importing. Right now, importing a counterfeit is not something that is prohibited as such. Our customs agency can't do much about it. What I'm saying is that at that level it's drying up the demand by putting in something that's not expensive to operate, a registration system. If my clients want to block entry, they should have to have some sort of registration system with customs. That's it.

I don't know what else to say. Yes, it's—

[Tom Wappel, Liberal, Scarborough Southwest, ON]

Can I stop you there, because I only have a certain amount of time?

If you had to do what you had to do in order to verify this, how can you expect border agents to make a decision instantaneously when something happens to be in front of them, if it takes that much effort for a private company to determine that there was this fraud? I have a problem with—

[Bob Sotiriadis]

I don't know.

[Tom Wappel, Liberal, Scarborough Southwest, ON]

Exactly. I have a problem with throwing this kind of burden on a customs agent to make a decision at an instantaneous level.

[Bob Sotiriadis]

It's done in other countries. There are plenty of models to choose from. That's the legislator's role, to try to figure out a system that answers some questions. I don't expect any legislation to solve all the problems you've been hearing about for the last two weeks. But that is one of the easier ones. It has been done in other countries with a relative degree of success.

[Tom Wappel, Liberal, Scarborough Southwest, ON]

If the law is there, and if the law provides for substantial penalties, and if the Crown is either not prosecuting the law or the judges aren't giving the substantial penalties—? The law is already there. We already experience this in many other aspects of maximum sentences not being given for whatever crime you want to pick, and yet the law provides for a maximum sentence. Any particular judge or crown prosecutor will not seek the maximum sentence, so the people come back here saying, change the law. Well, what's the point if the judges and the crown prosecutors aren't even using the law that is already there?

In my remaining time, Mr. Hoffert's point, however, is a good one, and that is I think this general breakdown of respect for the rule of law. I find it difficult how we as legislators can deal with that. Way back in the early nineties, when we were dealing with the GST, one of the arguments about the GST was that it was going to create an underground economy of people dealing with cash and costing the federal government billions of dollars. In fact, this indeed occurred, and to my personal knowledge, it still happens. If you pay cash for something, you don't pay the GST or the PST and they don't charge it.

That, to me, is a breakdown in respect for the rule of law. What the legislators can do about it, I'm not sure. It's the same with how we expect people to include all of their tips and all of their cash earnings in their declarations for income tax purposes. We know they don't.

So, Mr. Hoffert, what suggestions would you have for us to bring back a respect for the rule of law?

[Paul Hoffert]

I'm glad you mentioned that. I think the underlying issue with the other half of your example, which is the $10 watch, is that by not taking action, by implicitly accepting that this is okay—I don't know if that was inherent in your question or not, but if one assumes that inaction could lead to that, we are encouraging individuals in our society to take the view that if there is what they might personally consider a victimless crime, what's the harm? They're saying, what am I doing wrong? For something that costs a lot of money, I'm getting a good deal. I'm a smart guy. I'm a smart buyer.

[Tom Wappel, Liberal, Scarborough Southwest, ON]

But you're not. You're getting a fake watch. You're not getting a good deal. You're getting a $10 watch. It just looks like a $10,000 watch.

[Paul Hoffert]

I won't deal with that. There are many books being written that say that the $10 watch might be in many ways close to the quality of the other. It's not the issue.

[Tom Wappel, Liberal, Scarborough Southwest, ON]

Sometimes it's true.

[Paul Hoffert]

Sometimes it could be true, but here's the issue. Are those citizens going to be more likely, in April of each year, to cheat on their income tax because they think it's a victimless crime? So my view is there are larger issues at stake here other than just who loses money and who makes money. It's not just a matter of, okay, there's probably some poor manufacturer in a third world country and why can't I let him make some money instead of this big fat cat who makes Gucci watches? Underlying this is law and order and the ability to have a civil society—and that's my view.

[The Vice-Chair, Liberal, Roy Cullen]

Thank you very much, Mr. Wappel.

Now, Monsieur Crête.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you, Mr. Chairman.

Thank you for your testimony. You probably know that today is the World Intellectual Property Day. The subject of this meeting is then very timely.

I have four short questions. First, has there been a significant change since globalization? Has the opening of markets changed the counterfeit market?

Second, is there a jurisdiction which is doing better than other countries in the fight against counterfeiting and that we could use as a model?

Third, if we do not change anything, what might be the consequences? Could you give us some more details?

My fourth question is to Mr. Sotiriadis in particular, but the others can also answer. Could you summarize the action plan that you would like to put in place, if you were the minister, to deal with that issue?

[Bob Sotiriadis]

I think that we should establish a registration system. Products and trademarks should be watched by customs officers. Furthermore, they should create an offence for possessing counterfeit products for resale purposes. Furthermore, the legislation should provide for higher penalties for counterfeiting and not for simple product imitation or classic counterfeits.

There should also be a higher fine for a second offence. Someone in Montreal has been twice the object of a seizure and an order from the court. He was copying books from McGill University. He was condemned twice for contempt of court and finally he did some jail time. He was not particularly fearful. He operates a business in downtown Montreal.

Furthermore, in counterfeit cases, summary enforcement tools that will require as little procedure as possible even if we have to put in place safeguard systems such as high bonds, protections for defendants, responsibilities for the lawyer doing the seizure, etc.

I can only answer one other question. The model country is France.

I am not an expert on globalization. As concerns its consequences, I do not think that I have the necessary qualifications to answer that question.