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.