Thank you very much, Mr. Chairman and honourable members of the committee.
I'm delighted to be here today on behalf of the Canadian Chamber of Commerce. I'm also pleased to introduce my colleague. Lee Webster is a partner at Osler's, and also, importantly for us at the chamber, chair of our intellectual property committee.
As the organization speaking for Canadian business, the Canadian Chamber of Commerce is the most representative organization for business people in Canada.
We are speaking today on behalf of a network of 350 Chambers of Commerce and other business organizations representing more than 170 000 member companies.
The chamber is pleased to provide its input before this committee on the issue of counterfeiting and piracy. We've been working closely with the Canadian Anti-Counterfeiting Network, the Canadian Recording Industry Association, and other national organizations, such as the Retail Council of Canada, to offer tangible solutions to the problem.
As you'll hear shortly, the CACN will speak to the release of a comprehensive report that we at the Canadian chamber endorse.
Quite frankly, Canada is losing the war on counterfeit goods--that's our starting point. While counterfeiting used to consist mainly of knock-off T-shirts or watches or other luxury items, the low risk and high profit margin has allowed criminals, including organized crime, to become very active, counterfeiting everything from drugs, brake pads, and other car parts to electrical products and personal care products. Virtually no industry escapes this illegal activity, and the counterfeit activity poses serious health and safety risks due to the poor quality of the products and the potentially hazardous nature of fakes.
According to a report from Criminal Intelligence Service Canada, an organization chaired by the RCMP, no country is immune to counterfeit drugs. In fact, the World Health Organization has estimated that 10% of all medication available is counterfeit. While it is well documented that in developed nations the control and enforcement of drug supplies is far more difficult, we have 50% and over of counterfeit drugs in some regions like Asia in Africa, and Canada is certainly not immune from the problem.
The criminal element, unfortunately, does not care if counterfeit products are unsafe for consumers; they care only about turning a profit. Some counterfeit batteries imported into Canada have been found to contain mercury and have posed a threat to explode because they were not properly vented. Counterfeit shampoo contaminated with bacteria that could cause infection has been found in Canada and imported into the U.S. from here.
Counterfeiting and piracy continues to grow at an exponential rate, and it is relatively unchecked in Canada. The problem is worth, in our estimation, billions of dollars annually, and it's growing. The economic impact of the problem--and this is our real starting point on our discussion, Mr. Chair--is that lost revenue for companies and for the government as well is most significant.
In a knowledge-based economy, intellectual property is an essential element for promoting investments in R and D, innovation, international trade and investment, consumer protection, and overall economic growth. In the rapidly changing global economy, protecting IP is critical to ensuring a competitive Canada--that's our starting point.
Now it's my pleasure to turn it over to Lee Webster to get into some of our more specific recommendations.
Good morning, honourable members of the committee. As Mike mentioned, I am a partner with Osler. I practised in IP law for over 25 years. My role with the chamber is to provide them with some guidance on intellectual property issues.
Some may suggest that this is all about the entertainment industry trying to protect its intellectual property from being illegally copied. This is a very real concern; however, the issue is much larger. The entertainment industry's problems are simply one aspect of the broader problem of intellectual property theft.
Stealing the IP of another not only robs the rights holder of the economic benefits of those rights long recognized under our traditional civil laws, such as our patent, trademark, and copyright legislation, but it also lowers our country's reputation abroad, it deceives the consumer, and, frankly, now we're finding that it's putting consumers' health and safety at risk.
By now, we've all read about the unfortunate death this month of a woman in British Columbia who purchased drugs over the Internet. These drugs were found to be laced with filler, including, believe it or not, uranium and lead. I was a bit curious as to why uranium and lead were used as a filler, but I've learned that this is perhaps a means of garbage disposal for people who have lead and uranium to get rid of.
The prevention of the distribution of counterfeit goods is not simply a matter of protecting the legitimate rights of designers of high-end watches and handbags. As the chair of the IP committee of the chamber, I urge the government to take vigorous and meaningful action on this issue immediately. Our coalition has been pressing for action, and we're very encouraged that this committee and the industry committee are giving careful study to the problem of counterfeiting in Canada.
I should note that this issue has not escaped the notice of our principal trading partners. The U.S. Trade Representative has placed Canada on a special 301 watch list, an annual review of countries deemed lacking in their protection of intellectual property, for a twelfth consecutive year. The International Intellectual Property Alliance is now recommending that Canada be elevated on that list, to what is termed the “Priority Watch List”, for 2007. I urge you to read those reports.
The International Chamber of Commerce recently released a survey that ranked Canada as the 13th worst country among those surveyed for the protection of intellectual property. Believe it or not, we ranked lower than Nigeria, Bangladesh, Sri Lanka, and Bulgaria. According to the survey, Canada clearly has the weakest intellectual property environment in the G-8. I must say that as a Canadian and as a lawyer who has practised intellectual property law in this country for over 25 years, I am embarrassed to report these statistics.
Law enforcement agencies and prosecutors need better tools to provide them with the ability to effectively combat the importation, manufacture, distribution, and sale of counterfeit goods in this country. Among other matters, customs officials need to have new powers and the associated additional resources to search and seize suspected shipments of counterfeit goods.
Much else needs to be done. Our current IP laws are not up to the task of providing efficient and effective relief against counterfeit goods. We recommend that a thorough review of all our IP-related statutes, such as the Copyright Act and the Trade-marks Act, as well as IP-related provisions of other statutes such as the Criminal Code, be conducted. This is urgently needed so that both rights holders and the authorities have the tools they need to efficiently and effectively stop the flow of counterfeit goods.
Counterfeiters must be stopped. Canada's IP environment must be brought up to the standard of our international trading partners. Here is what the chamber believes needs to be addressed to adequately deal with this problem.
First, make counterfeiting and piracy a government-wide priority and act on appropriate reforms in a timely manner.
Second, provide core funding resources for the necessary reforms and their implementation. Among other things, this would enable authorities to search and seize suspected counterfeit goods at Canada's major ports and gateways. I was asked by a client two days ago to do this, and I had to respond to him that there is no means of doing so. It was very embarrassing.
Third, strengthen existing statutes such as the Criminal Code, Copyright Act, and Trade-marks Act, either individually or through an omnibus, dedicated anti-counterfeiting statute. Initiatives that should be taken in relation to this are amending the Criminal Code to properly define counterfeiting as a special criminal offence; making it a criminal offence to manufacture, reproduce, distribute, and/or import or offer for sale counterfeit products; and amending the Federal Court Act and any associated regulations and policies to provide for expedited civil proceedings for cases involving counterfeit products and IP infringement.
We suggest adding counterfeit and pirated goods to the proceeds of crime regime, making it possible for law enforcement officers to seize the illicit wealth of counterfeiters.
We suggest that Canada ratify the two outstanding WIPO, World Intellectual Property Organization, treaties that specifically deal with the enforcement of intellectual property rights over the Internet.
We also suggest making amendments to the Customs Act to allow for search and seizure of counterfeit and pirated goods and to provide customs and law enforcement agencies with the ability to share information with rights holders and licensees.
Finally, on public education, the word has to get out. The RCMP needs to have some effective material, particularly posters, but more needs to be done.
In conclusion, counterfeit products are being sold and distributed throughout Canada. They can harm us in many different way--in the most extreme cases, as we've seen in British Columbia. The chamber urges the government to look at this issue with the utmost gravity and act now.
Thank you for the opportunity to present the chamber's views. I'd be very happy to take any questions you might have in the question session.
Thank you, Mr. Chair and honourable members.
It's a pleasure to be able to address you this morning, and I appreciate this opportunity.
I am the director of corporate audits and investigations for CSA. It's a body for standards writing and certification testing, and the mark appears on products to indicate compliance to safety requirements for Canadian consumers and industry.
In addition to that role, I am the chair of the Canadian Anti-Counterfeiting Network.
As all of us today are here to tell you this is a growing problem and a concern that we think needs your attention, primarily from a health and safety standpoint, as well as an economic one.
I'd like to point out to you a couple of examples of the growing problem that we see as we do inspections around the world and look at products in the marketplace.
We also do investigations with respect to product failures, and I brought a couple of samples. There is a plethora of samples that we could talk about. I found counterfeiting to be in essentially every area of pharmaceuticals, automotive parts, electrical products, hockey helmets, which is a travesty for Canadians, and things of that nature.
Mr. Chair, if I could pass a couple of these samples around to the committee, they can take a look at them
In the first case, we have a power cord, and it's a three-conductor grounded receptacle providing safety if there's a shock. Unfortunately, to save on the copper, they only have two conductor cords, and it's essentially a sham. In addition, the surge protector switches are not certified or tested, and all pose a hazard. In this case, the hazard is that there's no grounding. I'll pass these around so you can see them.
The next one is an extension cord that has caught fire. These present both fire and shock hazards. If there is a melting of the insulation, then there will be a bare conductor. If you inadvertently grab the cord, you could be electrocuted. If it continues to smoulder under carpets or near combustibles by computers, you have a potential fire hazard.
The reason we're seeing these things is that in the manufacturing of the products, the number one commodity that seems to be in these developing countries at large for manufacturing is copper, so they save on the copper.
For the black insulation, you'll find the correct size of wire. The white insulation is what they're putting in, so they beef up insulation. The difference is a 26-gauge kind of telephone cable instead of what you need in the wire. The effect is that the resistance is much higher, causing overheating and a potential shock hazard.
These are only a couple of examples that could be passed around to let you know what we're doing.
We're also seeing that these problems are not isolated incidents. They are in fact orchestrated and organized. Some of the shipments are tied into organized crime, because they're coming in through the same circuitous routes as the drugs and they're often packaged with drugs. The counterfeiters are the same people, with the same networks. They're getting into our supply chains, and we have to put a stop to it.
My goal in investigations is to catch them at these stages and bring them to the appropriate parties so we can take corrective action and act swiftly. My worst fear is that I will have to investigate fatalities, and it's inevitable that we're going to have that with the counterfeits.
It's a huge problem, and I urge you to advance on the recommendations we have proposed here with CACN.
I will be happy to take any questions, give any other details, or expand on any other investigations you'd like in the question period or at any time.
Thank you very much for the opportunity to speak to you.
I'll turn it over to Brian Isaac.
Good morning, Mr. Chairman and honourable members.
I'm Brian Isaac. I'm another IP lawyer. I'm a partner with Smart & Biggar. I've been practising in the field for about 20 years. I'm also the chairman of the legislation committee of the Canadian Anti-Counterfeiting Network, CACN, and I'm sitting on a number of other anti-counterfeiting—if I can use that term—committees: the CBA, Intellectual Property Institute of Canada, the International Trademark Association, etc.
There's no question that it's widely accepted and acknowledged, including by Canadian government officials who have been studying the issue, that Canada's IP crime enforcement policies and legislation are outdated and ineffective. The bottom line is that despite recognition of the need to reform and the fact that many of our peers have done so, we have not updated our laws to address the explosion in the variety and volume of counterfeit and pirated products arising from globalization, international outsourcing with the related technology transfer, and advances in digital and other technologies that facilitate people making copies of anything and everything.
Some of the problems have already been identified by Mr. Webster and my friends at the Canadian chamber. There is no effective border enforcement, and I, like Mr. Webster, have had many calls where I have to tell people that we can write to the RCMP, but there's no border system in Canada, unlike the case with most other developed countries. We have no effective trademark offences—including the offences that are in the Criminal Code; they have too many problems.
We have insufficient resources applied to combating the problems. We have insufficient dedicated personnel with experience in prosecution of counterfeiters, including within the ranks of the federal prosecutors. We have insufficient civil procedures and remedies to facilitate enforcement by rights holders.
It's an interesting point that some people seem to think that rights holders should bear the brunt of enforcing against piracy and counterfeiting. But you have to recognize that civil proceedings are not effective against criminals. That's been shown time and again, and I've experienced it time and again. Civil remedies are generally not effective against criminals because they arrange their affairs to avoid any significant civil penalties.
The bottom line is that the rights holders are victims, and they operate on business principles. I don't want to put it too strongly, but I would say it is naive to expect that we're going to have rights holders making an effective sole stand against this problem, when the business doctrines dictate against throwing good money after bad losses by pursuing expensive litigation against counterfeiters and pirates with little hope of any significant award—or of collecting an award, even if you do get an award, because of the way criminals arrange their affairs.
The problems with civil enforcement combined with the RCMP policy of leaving enforcement against retailers to rights holders has resulted in an environment in Canada where there is open sale of counterfeit and pirated products at retail. It is not only in flea markets, but also in bricks-and-mortar stores, including sale of pirated digital products that are manufactured by the retailers in house, and all kinds of other counterfeit consumer goods that are imported from China and elsewhere.
But the criminal side is not doing much better at addressing this problem. The penalties that are imposed in the few cases that are prosecuted are too low to be a real deterrent, as a result of plea bargains and problems in actually obtaining convictions flowing from the inadequacy of the offence provisions, particularly on the trademark side.
The situation is such that there is little risk of being caught, little risk of being charged if you are caught, and even if you are charged, there is little chance of receiving a penalty that is other than a minor cost of doing business.
Removing profitability is further unlikely because of the exclusion of copyright offences from proceeds of crime legislation and the fact that trademark offences are so weak that the RCMP and federal prosecutors prefer to proceed under the Copyright Act, and often refuse to proceed under the Trade-marks Act, even in clear cases of trademark counterfeiting.
I have a number of examples, but I'm going to skip over them and get to the bottom line.
The fact is that Canada has gone from a situation, when I first started in the IP field, of being a leading, sophisticated IP country to a market where effective enforcement is—arguably correctly—viewed as a lost cause by many of our international and national rights owners.
We need to reform our laws, and there's no question except when and how. The answers are straightforward, in my opinion. Now is the time, and we have to take the sophisticated approach, with Public Safety and Industry Canada taking the lead to effect the laws. Public Safety should be looking at the resource side, with Industry Canada looking at the IP legislation, which they are primarily the custodians on.
With that, I'll pass it over to Mr. Lipkus.
Thank you, Mr. Chairman and honourable members.
I thank you for having given me the opportunity to speak to the committee about counterfeiting and piracy.
I have been a lawyer since 1981. I'm a partner in a law firm, and since 1999 I have practised exclusively in anti-counterfeiting enforcement across Canada. My life is spent dealing with several hundred counterfeiting cases per year on behalf of over 75 different brand owners, manufacturers. In doing so, it is rare that I am not able to find counterfeit products in a particular area of Canada. That's what I hope to explain here today. On a constant and continual basis I have found, and I'm still finding, counterfeit products at virtually every major shopping centre or mall across Canada.
I have found counterfeits in numerous--I'm talking about hundreds--retail locations per year across Canada. I have been involved in the raids of manufacturing facilities in Canada, manufacturing counterfeit apparel, including counterfeit cellular batteries being manufactured in Canada. I was in a distribution facility that was importing hundreds of thousands of dollars of counterfeit ink-jet cartridges separate and distinct from the packaging, and the distribution facility was putting these together. We've recently seized large quantities of counterfeit Bluetooth headsets, the kinds that many of us are wearing for our cellular phones. The importer was importing the headsets separate from the packaging.
Since the end of November 2006, I have worked on in excess of 50 different files involving counterfeit headsets across Canada. I would not want to put a headset near my brain that hasn't been tested properly. Who knows what's inside? I'm aware that there are a large number of counterfeiters or pirates who are dealing only in cash, and I have every confidence that they are not reporting their income to the Canada Revenue Agency.
Counterfeiters are becoming more clever. There are dozens of businesses I have dealt with in Canada, in Vancouver and surrounding area, in Toronto, and in Montreal in which at the back of what looks like a legitimate store they sell the counterfeit. There is more counterfeit in the back than there is in the front. On many occasions per year the RCMP, through the CBSA, have informed me that they have identified a shipment of counterfeit products, but they're letting it go through into Canada even though they know the goods are counterfeit. No seizure, no charges, no particulars are sent to the rights holder for them to follow up. If we're lucky, we'll find it in the stores before someone gets hurt.
On many occasions per year I've been advised by police or crown prosecutors that even though they've identified the counterfeit product, they are not proceeding with charges. The goods are protected by trademark law and not copyright, and they don't feel they can proceed. Very often shipments are brought into Canada broken down and then exported to other countries, primarily the United States. We've raided a number of websites with physical locations in Canada delivering product around the world.
The RCMP very often refuse to deal with cases because there is no health and safety component. There is no link to organized crime. Sometimes they'll open up an investigation file, but nothing is done. Until there's an investigation, how is the brand owner supposed to know who was involved in organized crime? I can tell you that I've been personally involved in over a dozen cases in which I've worked on the case and someone in local police or the RCMP has said, “Be careful, this involves organized crime”--whatever that means.
I've seen counterfeiters in retail locations with signs that say “cash only”. Our investigators try to give them a credit card, try to give them a debit card. They say no. We ask for a receipt and they say no. This happened as recently as last week to me personally.
I conduct training sessions and have done so for law enforcement across Canada for over 11 years. Representatives of the Canada Revenue Agency regularly attend the conferences I host, and they say, give me these cases. They must want the cases because they're successful with them. They won't tell us, but I have to assume that they like these cases because counterfeiters are dealing in cash. Why aren't there more crown prosecutors coming to these conferences?
Legitimate businesses regularly provide me and others with tips saying there are counterfeit products over here. They are frustrated because legitimate businesses that have to pay the proper taxes and abide by Canada's rules cannot compete with counterfeiters. They just cannot do it.
Everyone expects that counterfeits will be in the flea markets. We've come to expect that. And believe you me, they are there, in large quantities.
But the RCMP basically do not want to go to flea markets. Local police, basically, do not want to go to flea markets. What has happened is we have very clever crooks, counterfeiters. They realize that's the case, and there are numerous flea markets across Canada that have more product on display and available for sale than most distribution or warehousing facilities in Canada.
There are even mainstream department stores that I've been involved with that have been caught purchasing counterfeit products. It's not just something that is for flea markets.
Counterfeiters do not specialize in a particular commodity. They mix a shipment of drugs stuffed in luxury purses. They mix it with counterfeit cigarettes, with apparel. A container comes in and it's a mix of things. They specialize only in greed, not in commodities.
When people ask me where to find counterfeits in Canada, I have a very simple answer: everywhere. When they ask me what we are doing about it, I say not enough.
But I do thank you for the opportunity to speak before you, and I welcome the opportunity to answer any questions you may have.
Mr. Chair, honourable members, my name is Graham Henderson. I'm on the steering committee with the Canadian Anti-Counterfeiting Network. I'm also the president of the Canadian Recording Industry Association.
I would like to summarize the documents that the CACN has provided to the clerk for circulation.
You should have in front of you a colour printout that surveys the vast array of counterfeit and pirated products that are available in Canada.
You should also have a case study that involves a DVD pirate film in Vancouver, which exemplifies the enforcement problems we have in Canada.
You'll find a press release that the Canadian Anti-Counterfeiting Network released, announcing the recent Pollara poll, which showed just how pervasive the counterfeit market is in Canada. Together with that are the actual questions that were asked of Canadians.
Finally, you will have the Canadian Anti-Counterfeiting Network's executive summary of the document we are currently preparing. I'll come back to it in a minute. It includes a list of recommendations. I think it's a long-form, colour.... I don't actually have a copy of what was provided, but you are being shown one as I speak.
You've been afforded a very brief glimpse into an enormous problem. It now falls to me to examine the solutions. They are not complicated and they need not be expensive. Other countries have already figured this out; road maps exist. In many respects, we are far behind our trading partners and can look to the intellectual property enforcement policies of Europe, Japan, the United States, and even developing nations. We can also look to the model legislation that is promulgated by the World Customs Organization, of which Canada is a member.
Exactly what do we need to do?
In the limited time that is available to me today, it would be difficult for me to cover all of the recommendations that are provided in that long, colour document, so I'm going to touch on a few.
To remedy the lack of police and prosecutorial resources that are dedicated to counterfeiting and insufficient criminal penalties, we must first provide the RCMP and the Department of Justice with adequate financial and human resources to effectively address counterfeiting; second, we must adequately fund an intellectual property crime task force, composed of police officers, customs officers, and federal prosecutors, to guide and coordinate intellectual property criminal enforcement. These types of task forces exist in diverse places around the globe. Brazil is a good example.
To update outdated and ineffective intellectual property crime legislation, we need to enact legislation that clearly defines trademark counterfeiting as a specific criminal offence under the Trade-marks Act. That's easy.
To empower customs officials, what we need to do is first implement legislation that clearly prohibits the importation of counterfeit goods. Second, we must provide the Canada Border Services Agency with the express authority to detain, target, seize, and destroy counterfeit goods on their own initiative. This power exists, again, in countries around the world.
Finally, to help elevate the status of intellectual property in this country, to make us a more prosperous and competitive nation, we need to follow the lead of other nations and establish federal and provincial intellectual property coordination councils at the ministerial level.
You heard yesterday from a series of officials only about how complex the solutions are. We believe they are not that difficult.
Five months ago, the CACN began preparing a pioneering study that examines, one, the economic impact of counterfeiting; two, the legislative and regulatory weaknesses that give rise to the problem; three, the intimate link between successful, innovative economies and a robust protection of intellectual property; and four, a detailed survey of international best practices.
This 50-page document, which I have with me today, is in the process of being translated. It is only just completed, and unfortunately we're not therefore in a position to table it for you today. We will provide it to you as soon as it is ready.
I raise this because it took not years for us to do this, but months. There is very little disagreement, we believe, about what needs to be done--except, it might appear, among the officials. We do not have to reinvent the wheel; we do not have to invent the wheel; we merely--and some might say dismayingly, because it's an indicator of how sadly we lag behind the rest of the world--need to import it.
In that regard, I'm going to end with something that we, as a group, witnessed at the global congress on combatting counterfeiting and piracy, which took place in Geneva in January of this year. The attorney general for Kenya appeared and spoke passionately, calling for assistance and capacity-building in his nation's fight against piracy. He talked about how it affected local entrepreneurs. He acknowledged the negative effect on foreign investment. He cited the loss of $85 million in taxes. Looking out among the audience, he noted that for developed nations, this was a drop in the bucket, but for him, he said, it meant education, water, and health services.
He then talked about how Kenya began reforming its laws in 1999, consulting stakeholders, judicial officers, and so forth to ensure that Kenya's laws conformed to a maximum standard. Seven different pieces of legislation were passed. Despite all this, the attorney general noted that there was still a lack of coordination and capacity, so Kenya went further. They decided to have a piece of comprehensive legislation, and Kenya is in the process of passing a comprehensive anti-counterfeiting bill. This is the approach taken by many nations, and it is the approach that the CACN recommends for Canada. Kenya is showing us the way it can be done.
You've been told that it's complicated and difficult; we are here to say that it is not. What is lacking is the political willpower, and we are hoping you will supply us with that willpower.
Thank you, Mr. Chair, and thank you to all the presenters. I have a particular welcome to Mr. Geralde from the Canadian Standards Association, which is in my riding.
I must say, I wasn't aware of the seriousness of this problem until the Canadian Standards Association briefed me on it and I was introduced to the Canadian Anti-Counterfeiting Network. It is a very serious problem. I'm not able to brief entirely as to where we were under our government, but I can tell you that before the last election we were getting very close to some solutions. I agree with Mr. Henderson that it isn't that complicated. We know what the solutions are; many of them, and perhaps all of them, are outlined here in your summary of recommendations.
I think the challenge is that there are so many departments involved, and it's become a rudderless project. Under our government the Minister of Public Safety took charge of it. We were trying to bring the departments together, but that added to the complexity. I think, too, we often look for the perfect mousetrap when we don't have a mousetrap at all. There were also some interim measures--for example, with respect to the sharing of information to rights holders--that could have been pursued. There were some privacy issues, but they were not insurmountable, and they aren't insurmountable, at least as an interim step. There were also interim solutions with respect to bringing forward quickly some sanctions in the Criminal Code, or to bringing in some law that simply said, as Mr. Henderson pointed out, making counterfeit goods is against the law and illegal, and setting out the sanctions and the fines that are necessary.
I think the government needs to bring forward a package. I think it also has to do with priorities. We know the government asserts that it is committed to fighting crime, and here we have this kind of criminality going on with organized crime very much involved, as you've all pointed out, and the government is proposing to spend close to a billion dollars over a number of years arming our border guards. Think how far a billion dollars would go in dealing with counterfeit goods and pirated goods. We should be ashamed as a G-8 country as to where we are.
I'm going to put the question to Mr. Geralde and maybe to Mr. Murphy. Do you think arming the border guards will help in dealing with the fight against counterfeit goods and pirated goods, recognizing--as Mr. Lipkus pointed out--that counterfeit goods are being manufactured right here in Canada, but that a heck of a lot of counterfeit goods and pirated goods are coming across our border?
Thank you for the question.
I think it's a really important one, for the reasons we've outlined already, when you look at a problem like this that has an economy-wide impact. I think that's what we've been learning, and this has been a learning process for a lot of us in the business community.
We have lots of issues to deal with, but there are clearly three components here to get at, and enforcement is one of them. The legislative gap is clearly something that has to be addressed. On the educational component, quite frankly, I think having hearings like this is part of that educational component and very useful.
Enforcement at the border has a significant shortcoming for us here today. You've heard about some of the kinds of evidence out there today on the practical reality of what's going on and what we can or cannot do. You heard from the agencies earlier this week. It's pretty clear we don't measure up in that regard.
Enforcement has to be one of the key priorities. If enforcement is part of the solution here, and we think it is, it's going to need resources. You're going to need legislative change to allow the CBSA people to do their jobs, and you're going to then need the resource part of it taken care of as well.
I agree with the premise of your question, and I think it's one of a couple of things that are the most important to address.
To piggyback on that perspective, I don't think there's only one area we have to focus on. There are a number of them.
As you alluded to earlier, this is a financial issue for organized crime and counterfeiters. In international law enforcement areas, one of the more effective tools is proceeds of crime, and I think it was one of the things we were working on. If you can go after that and get proceeds of crime, it's an effective tool in drug enforcement, as opposed to a fine. If we have one particular fine, it's the cost of doing business.
These people aren't paying taxes. They're not paying legitimate wages. They're not paying any brand-owner development costs. They are making so much money on this, and you're not trapping them. You really have to go after it at the heart.
Certainly, we need resources to do enforcement at all levels. In these investigations, the faster you can get the information and find the tracing, the better it is. It's the most important information. If law enforcement can't share what they have with us or with the brand holders, the trail will go cold before they can effectively do it.
These are salient points that are needed for all of us to work together.
Maybe I'll throw it back to you, but I wanted to comment that you didn't actually answer my question, and I appreciate it.
I'm not trying to be cute and get you into the mix of the army and the border guards, but I think we have the answer. The RCMP has said it won't really be much of a deterrent for any type of interdiction.
I think you're right about the resources. For the Canada Border Services Agency, there is some reluctance because it's going to take resources to search and seize material. Where do they store them? What resources do they have to do it? The RCMP also has resource issues there. I'm saddened that it's what's slowing down the process.
We're making other priorities more important, such as arming the border guards, when we've been told by the president of the Canada Border Services Agency that officials will be rightly asked not to take out guns.
Mr. Henderson, what kind of deterrent is that going to be for pirated and counterfeit goods at the border?
If I could, I'll just comment on that.
There are a number of those issues that are happening. That's quite common in the case of batteries, where they bring them into the country, and it's also a way for them to get around the systems and the checks we have. So if you don't finalize the packaging and the markings in the country where we're doing inspections, or where they're shipping out of, they have some problems.
So certainly the tentacles of this problem are now entrenched in all of the other areas and the organized distribution network. We're seeing activities on that front as well. There are domestic issues. There are problems that we have within our own country. That certainly has an impact on the safety for other citizens in other countries, and over a period of time it's going to have an impact on our trade.
In the U.S. they talk about sanctions, and other countries will also talk about sanctions. So if you refer to France and the issues there.... If we don't step up to the plate and if not lead, at least be at the level they are, we're going to have increasingly more difficulties. Even in China—we'll speak next month, or in May—their legitimate manufacturers are now screaming at the Chinese to get a handle on this and try to get a hold on the problem, because it's impacting their sale in the global marketplace. Liability issues are on the way, and I think the number one issue for any manufacturer or anybody in any business is safety.
So all of those impinge on our trade, our reputation. Take a look at the most recent, the dog food issue. We have contaminants at different levels that we wouldn't have in North America getting in there. It can ultimately cause a company its total liability. If we lose confidence in the safety system that we've worked so hard to develop, it all comes crashing down, and it comes crashing down quickly. The impacts are beyond imagination.
I want to give you an example here.
I'm chair of the education and training committee of the Canadian Anti-Counterfeiting Network, and I've been going to a public school for four years now. An elementary school teacher invited me four years ago to come in and tell her class what I did for a living. She told them I was the “protector of toys”.
So I speak to kids who are six, seven, and eight years old, and I must tell you that in the entire practice of law, nothing I've done has given me more satisfaction than speaking to those kids. You know what? They get it.
For instance, I stood up there, showed them a plush toy, which they call a “stuffie”, and said, “This one for sure has no pieces of metal inside. It has a tag. According to our law, it must be made of new material.”
I asked them—22 children in a circle, four years in a row—“What does it have to have inside?”
“New material only.”
“I can't hear you.”
“New material only!”
One night, after one 30-minute session, these delicious, delightful children went home and spoke to their parents, and we got a call from one of the parents. Her six-year-old daughter had gone into her room, looked at all of her stuffies--she had dozens of them--and found all the ones that she thought were counterfeit. She put them out in the hallway, closed the door, and called her mother.
The mother called to ask me, first of all, what I could possibly have said. We asked her to describe the toys, and every toy she described did not have a tag. It did not say “new material”. Some of them just said “Made in China”. We told her they were all counterfeit.
So the child got it, and the mother was incensed: why did she, as the mother who was there to protect her child, not know that it had to have new material only? She didn't know it. But it's the law.
So I think we can educate, and I think we can have the government come up with an education program. People will stop buying when they realize the health and safety issues, the link to organized crime, and the fact that these factories--for example, plants making ink-jet cartridges and purses--have three- and four-year-old children mixing chemicals in foreign countries.
That's child labour, and I'm not talking one year less than what they should be; I'm talking many years less. We can't condone that.
I was just going to say that it's a constant cat-and-mouse game. In the case I showed you of the thin wire, the counterfeiters have already figured out that this is what we're now looking at, that this is what we're educating the public and retailers to look for. What they're now doing is they're putting in the same amount of copper, but then they're mixing in aluminum and steel. Now, that won't give you the characteristics you're expecting, but.... And then they're going to tin it to make it look like the proper size. So they're not stupid.
They also capitalize on issues like the floods in Manitoba, or Katrina cases. They know that with just-in-time manufacturing, you're not going to produce enough of that product, since you don't have the ability to do so. They will flood the market with counterfeits. It's also at a time when your infrastructure is down and you're trying to get things up and running. So we're expecting to see fires and problems down the road with those products.
In addition to that, without quality control, as we've seen with toys and other areas, there is the use of heavy metals, and PCBs in the oil for transformers. All the things we thought we had cleaned up with our developed-country requirements, purging them from the system, are now coming back into our marketplace and posing hazards. They can be everything from children's pyjamas that are no longer flame-retardant to the PCBs to the stuffing.
So it impacts on areas that you don't normally have...and I think we can educate consumers, once they start to see it, if we have the teeth in legislation and law enforcement understands it. We have to attack it in many areas, through a number of avenues.
First of all, the testimony from all of you was very, very helpful this morning, and I appreciate the time you've given and your expertise over many years.
I see in the press release from the Canadian Anti-Counterfeiting Network the link between intellectual property and innovation, productivity, and the economic sustainability of our country. I think it's a crime that we're not addressing this as much as some of the other crime issues. This current government seems to have put this one on the back burner to do other things.
This is about the future of our country. And I want somebody to talk about that.
I have a very short question here. In France, were those effective ads paid for by the Government of France or were they paid for by industry, or jointly?
I understand the issue that you have raised but you are probably aware that, at the next election, the most important request from Canadians will be that their taxes be reduced. However, you are now asking us to spend more.
I agree that we should spend more. I believe that seizure of the proceeds of crime, as it is done in drug cases, could be some sort of compensation. However, governments are so organized that the money would go to Finance and the Treasury Board and not necessarily to the department having the responsibility to deal it with counterfeiting.
Furthermore, in this kind of activity, the profits from intellectual work can vary considerably. You represent people who probably did a lot of work to obtain a patent and who are therefore entitled to the benefits flowing from that but you also represent other people who earn fortunes, literally, from the patents they obtain.
Do you not believe that responsibility should be shared? I agree that the implementation of the Aact is the responsibility of the government, like legal action and the seizure of goods. However, I also believe that industry should share an important part of the costs of awareness campaigns because it is in its interest to change people's attitudes.
I would like to know how you are organized. Why do you not start huge advertising campaigns to explain that purchasing counterfeit goods is a crime and that counterfeiting is stealing? Similar campaigns have been launched to tell people that drinking and driving is a crime and they have produced results.
What are you ready to do to change attitudes? How much money are you ready to invest? Are you so organized that the cost of such campaigns could be shared between the people in industry who earn enormous profits with their patents?
First off, I agree, and I'm as compassionate when I'm talking to the public as I am when I'm talking to you, as I am to manufacturers and rights holders. So I agree that everybody has a contribution.
We are trying to educate, as Mr. Lipkus says. CACN is a consortium of all interested parties, everything from legal firms to manufacturers to testing agencies. Individually, I think they are trying to educate within the system, with retailers, to the public, and we've gone into that area. I think legitimate industries have also done that. It's not cohesive, but everybody is trying to educate.
There is a problem with individual companies trying to educate, because the tendency for the public is that if they say there's a problem with a Gucci bag, then people just stay away from Gucci bags totally. It might be a bad example, but it could be that this power bar is a problem and they'll just stay away from the whole manufacturer. So most of the effective education comes when you are associations and you talk about them in general areas.
But there is a lot of activity that CACN has done in educating law enforcement and doing public safety. We've worked with government and at CSA to educate on counterfeiting. A majority of the time I'm spending now in the day-to-day work in the investigations has to do with education and training, at all parts, and everybody needs it. Although you think you've been doing it effectively, every time you bump into people they're not aware that it's an issue.
So I agree with you totally. Everybody has to be part of it. Actually, a lot of people are. We're not linked together properly in a cohesive manner, just as we're not linked together cohesively in our efforts and bringing all these things together. So it's certainly an area that needs it.
Mr. Chair, I'll try to refrain from getting into condescending and sanctimonious arguments across the table, except to say this. I think we owe it to the people we serve and we owe it to these gentlemen to keep the politics between ourselves in the House. Let's work on this committee to try to get a report that addresses the very subject matter that you're here today to speak about.
At the last meeting we had on this subject a couple of days ago, I admitted that I was a new parliamentarian and was quite open to hearing from the various government departments on the challenges they have in meeting the need to do something about what I see as a public safety problem that endangers the lives and the well-being of Canadians. It is our responsibility here to listen to you, to take your suggestions, and to try to formulate a report that will get the job done.
That having been said, I would just like a comment from you as to what you think the stages should be, in a reasonable amount of time, perhaps starting with Mr. Webster. If you think this committee would benefit by perhaps a visit to one of these markets just to get a hands-on training session, and perhaps Mr. Lipkus could assist us in that....
The first thing I'd like to say is that this is a worldwide issue. Since I've been involved with it, I can tell you in the past two to three years it's been focused on significantly by other countries. A good example of that is the recent conference in Geneva. Last year 300 people were there; this year it was 1,200. It's a big issue everywhere, and we have to address that.
I'm hearing, at least in my view, a little bit of an overemphasis on government support for this. This is not solely an initiative that government has to spend a lot of money on. The individual rights holders are also asking for the tools they can use to efficiently and effectively stop this practice. In our recommendations we've suggested many things that can give the rights holder the ability to go out and effectively stop this practice.
It's not government funding; it's really a team thing that has to be done. Civil rights holders have to work together with the government on this. This is not just getting government money and throwing it against huge ad campaigns; ad campaigns are part of it. We have to work together to make the system work more efficiently and effectively. Although public safety is a very important part, it's not just that. It's the whole innovation and information economy. Public safety is part of it, but it's a bigger issue.
I don't think I'm responding to your question accurately, but....
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.
Yes. In fact, that was one of the examples I was going to give, but I ran out of time. I'm always too long.
This is the case where a pharmacist was selling what turned out to be counterfeit blood pressure medication that has been linked by a coroner.... I don't think he could prove beyond a reasonable doubt, but he couldn't discount that it actually caused four deaths. There were eleven suspicious deaths that were involved in that scenario.
The matter went to trial, and the decision came down last month, and in fact the pharmacist was acquitted. The judge found that the prosecutor had not proven beyond a reasonable doubt the requisite mens rea. The bottom line of what the judge said was, “You didn't prove that he knew that it was counterfeit.” These were charges brought under the trademark provisions of the Criminal Code, which have almost a double onus on trying to prove the mens rea, making it such that you have to prove fraud.
That's an example, I think, of a bad decision, because the evidence put forward established that the story, on which the judge found there was a reasonable doubt, was in essence that the pharmacist had bought the products out the back of a white van from a guy who had identified himself as a distributor. Not only that, but the customers of the pharmacist had come back and said, “These don't look like our regular pills. Is there a problem?” He had assured them there wasn't.
The guy is free right now.
I just want to be very clear that I got mine in first, but Ms. Barnes has a similar one. We have been discussing this. Our procedure doesn't allow us to do a joint motion, but that was certainly our intent. We both feel strongly that this is a joint effort, and one that we should be pursuing.
Mr. Chair, perhaps for those who have not noticed what has gone on in the last few days, the Globe and Mail, in a series of articles, has raised a case in British Columbia affecting the witness protection program, the act, and the conduct really of the RCMP with regard to this specific case, which, in addition to the notoriety, can arguably be said to have put into question the manner in which the witness protection program has been used. The article basically set out a case of an individual who had manipulated the RCMP into believing that he in fact was an informant. They moved him up from an informant to a paid agent, and then they put him into the witness protection program, in spite of the fact that at the time he went into the witness protection program, or shortly thereafter, it became obvious that he had grossly misled the RCMP.
That alone would have given us a great deal of concern. What subsequently happened is this individual, while in the witness protection program, committed at least one murder and perhaps more. That part of it is not clear at this point. It really does call into question how the program is being used.
There was a second case a year or two ago, or maybe longer, in the province of Quebec. This involved an informant in the biker wars that went on there. It was a similar situation, where the individual, after being placed in the witness protection program, again under a shadow, I'll say, committed some violent crimes.
The motion basically is that as a committee we need to take a look at this, with regard to whether the act is being abused, but also--perhaps in terms of our role, more importantly--whether there are amendments that are required to the act in order to allow for its use more properly than what these two cases would seem to indicate.
I am moving the motion that we conduct a review of the act and the role of the RCMP.
Mr. Chair, my colleague and I have actually started to develop a witness protection list, so our suggestion is—we read the press—the RCMP, which is obvious, the Department of Justice, and anyone within the Department of Public Safety.
There is an academic at the University of Ottawa, Thomas Gabor, who is a criminologist. He has written a paper that talks about witness protection programs in other countries besides Canada.
Since I have the floor, may I also ask members to submit, again through Louise Hayes, your clerk, any witnesses you think should be heard from? As an example, there is a lawyer, Barry Swadron, who has represented a number of people who have been in the witness protection program and who have been very unhappy with it. He's someone we'll have on our witness list.
Your difficulty, of course, will be if you want to hear from some of those who have been protected. That's a serious problem, and I'm not sure into how much detail the RCMP will be able to go, because of the nature of the program and the protections with which it's surrounded.