I appeared yesterday before the House of Commons Standing Committee on Industry, Science and Technology for a hearing on Bill C-8, the anti-counterfeiting bill that has been placed on the legislative fast-track by the government.  The panel also featured representatives from the Canadian Anti-Counterfeiting Network, the Canadian Standards Association, and the Intellectual Property Institute of Canada. The hearing was cut short by a vote in the House of Commons, but there was still an opportunity for a ten minute opening presentation and to address a few questions from the committee members. My prepared remarks are posted below. Given time constraints and the comments of the other panel members, there were some adjustments (I omitted the first section on the scope of counterfeiting and noted that fellow panel members proposed the precise amendments I was discussing).

Appearance before the House of Commons Standing Committee on Industry, Science and Technology, November 6, 2013

Good afternoon.  My name is Michael Geist.  I am a law professor at the University of Ottawa, where I hold the Canada Research Chair in Internet and E-commerce Law. I have edited several books on Canadian copyright and appeared many times before committees on copyright and trade policy.  I appear today in a personal capacity representing only my own views.

I appreciate the opportunity to appear today to speak to you about Bill C-8. While the panel may disagree on certain elements of the legislation, I am sure that all agree that where harmful counterfeiting occurs – particularly involving health and safety – the law should provide all concerned with the legal tools necessary to address the problem. Indeed, we should not forget that the existing law in Canada is regularly used to conduct anti-counterfeiting raids and seizures, that border officials work with the RMCP and Health Canada on health and safety issues, and that the courts have awarded increasingly significant penalties in counterfeiting cases.

That said, context within a discussion on counterfeiting is important. It is easy to point to the obvious health and safety issues and conclude that any possible legal remedy should be adopted in response. Yet it is important to recognize that the scope of the problem remains the subject of considerable debate and that some proposed solutions may have unintended consequences that are themselves harmful and should be avoided. Moreover, given Minister Moore’s insistence that the bill is about protecting intellectual property on an international scale, the international context – the Anti-Counterfeiting Trade Agreement and the proposed trade agreement between the Canada and the EU – merits some discussion as well.

Given the need for context, I plan to focus on three issues in my opening remarks.  First, provide context on the scope of counterfeiting based on reports and data we have available. Second, highlight some potential unintended consequences in Bill C-8, particularly those that could arise from some proposals for amendment. Third, briefly discuss the international context of ACTA and CETA. I should add that I will not discuss the myriad of trademark reforms in the bill, but I think those are out-of-place in a counterfeiting bill.  If the intent was to introduce an omnibus-style intellectual property bill, it should also deal with live issues such as access for the blind which is the subject of a new international treaty and reform to the Copyright Board of Canada.

1.    The Scope of Counterfeiting

As I mentioned a moment ago, where counterfeiting raises health and safety concerns, no one would oppose measures to address it. Yet it should be noted that the data on counterfeiting has been regularly debunked as inaccurate and overstated. The U.S. General Accounting Office examined the issue in 2010 and concluded that the oft-quoted estimates are not reliable and cannot be substantiated to a data source. A year later, the Social Sciences Research Council released a major piracy report – funded by Canada’s IDRC – that found little evidence of organized crime involvement in piracy activities. In 2012, the CATO Institute posted another assessment of the common piracy claims, which it found were unsupportable.

Similar suspect data has been regularly used in Canada. For years, the RCMP cited figures of $30 billion in losses due to counterfeiting, but upon closer examination, the claims were found to be fatally flawed, based on little more than a single bullet point in a slide presentation from an industry group. The RCMP no longer cites the figure but some industry groups still do when lobbying for anti-counterfeiting legislation. Last week, Public Safety released an RFP for a study on the size of the Canadian market for counterfeit product, a long overdue effort to obtain more reliable data that might allow for a meaningful assessment of the problem and potential solutions.

Beyond the estimates, some impartial studies on actual seizures raise doubts about the scope of the problem. For example, the U.S. Government Accountability Office found that of 287,000 randomly inspected shipments from 2000 to 2005, counterfeiting violations were only found in 0.06 percent – less than one tenth of one percent. Moreover, the GAO noted that despite increases in counterfeiting seizures, the value of those seizures in 2005 represented only 0.02 percent of the total value of imports of goods in product categories that are likely to involve intellectual property protection. That is obviously a far cry from the 3 – 4% that is often used in counterfeiting estimates.

2.    Potential Unintended Consequences of C-8

Let me start by saying that the exception for individual travelers, the exclusion of patents and in-transit shipments, and the attempt to avoid application to grey market goods are positive policy choices designed to target the bad actors and to not allow border seizures to raise consumer costs. That said, there are some real concerns about potential unintended consequences. I’d like to briefly highlight four.

First, as you know, the bill vests enormous power in the hands of customs officials. Customs officials are not copyright and trademark experts, yet they may now be forced to assess infringement cases including determining whether any copyright exceptions apply. The bill opens the door to detention of works if created without consent of the copyright owner and if they infringe copyright. Yet there many works that are made without consent of the owner but rely upon exceptions such as fair dealing. Those may result in disputes over whether the works infringe, which is an issue best left to the courts. With this bill, customs officials will now make the determination and send the works to the copyright owner to consider whether they think it infringes copyright.

While there have been claims that these powers are consistent with international standards, the reality is that there are a number of countries – including allies such as Australia and Mexico – that do not have the ex-officio powers envisioned by this bill in their law. Using the courts for oversight is still viewed as a workable, legitimate approach to dealing with counterfeiting – this committee heard on Monday how the CBSA works with the RCMP and Health Canada on safety and security concerns. To vest this power in non-expert customs officials could lead to unintended consequences.

The committee may hear from some groups that want the legislation to go even further – including cost shifting enforcement to the public, and ignoring the costs borne by small businesses that import goods that could get caught up in the seizures.  Moreover, some may call for even more expansive powers for customs officials, including destruction or forfeiture of goods without court oversight.  These proposals are enormously problematic and would alter any attempt at balance in the bill by removing important safeguards, shifting private enforcement costs to the public, and raising consumer costs.  Further, detention of goods can be used to harm Canadian businesses who could find their goods detained by competitors. The absence of a misuse provision in the bill is particularly notable in this regard.

Second, the bill does include an exception for personal travelers. However, the bill is oddly drafted by speaking of “works” rather than “goods” – both ACTA and the TPP focus on physical goods – which could also cover iPod and laptop searches. In fact, if the exception were removed, this could lead to escalated searches of iPods, smartphones, and other electronic devices.

Third, there are some groups that may argue for expanded penalties. The bill already moves copyright and trademark into the world of criminal provisions in a manner that extends far beyond conventional IP law. Further, some may call for the inclusion of statutory damages for trademark infringement. With respect to trademarks, statutory damages are unnecessary.  Rights holders frequently cite the specific value of their goods and the harm associated with counterfeiting. If these claims are accurate, demonstrating that value for the purposes of damage awards should not be difficult. Moreover, other countries have experienced problems with statutory damages for trademarks.  For example, Taiwan reformed its trademark statutory damages provisions when courts began awarding disproportionate awards.  In the U.S., statutory damages for trademark has led to trademark trolls engaging in litigation designed primarily to obtain costly settlements against small businesses that can ill-afford to fight in court.

Fourth, during debates over the prior Bill C-56, some opposition MPs raised the prospect of also targeting in-transit shipments. The bill wisely does not do this and such a reform would be a mistake. The seizure of generic pharmaceuticals in transit would pose a threat to international trade, development and public welfare. Experience with such seizures in the European Union led in 2010 to India and Brazil filing complaints with the World Trade Organization highlighting several instances of consignments of generic medicines transiting via the EU being detained because they were suspected of infringing IP rights.  For example, during 2008 and 2009, Doctors Without Borders found at least 19 shipments of generic medicines from India to other countries were impounded while in transit in Europe. In one instance, German customs authorities wrongfully seized a drug shipment of “Amoxicillin” on the suspicion that it infringed the brand name “Amoxil” – the cargo was detained for four weeks while further investigation took place, eventually revealing that there was no trademark infringement. In another instance, the Dutch customs authorities seized a shipment of an AIDS drug while it was en route (via Europe) from India to a Clinton Foundation project in Nigeria.

In 2011, the Court of the European Justice ruled against in-transit seizures on the grounds that there was no infringement in the EU. A similar approach is appropriate here and attempts to extend C-8 to in-transit shipments should be rejected.

3.    International Context

Notwithstanding claims that this legislation is responding to domestic concerns, much of the pressure comes from outside the country. Ms. Sgro asked about the Anti-Counterfeiting Trade Agreement in Monday. In fact, the United States has not yet ratified ACTA. The only country to have ratified is Japan. With the vast majority of signatories now having rejected ACTA – the entire European Union along with Switzerland is out – there is some doubt that ACTA will ever take effect.  Even if it does, it now stands as damaged goods and a far cry from a relevant international standard. ACTA elicited an enormous public backlash and Canada would do well to move on.

Perhaps more relevant is CETA, which apparently contains border provisions consistent with Bill C-8.  The problem is that the government has not released the CETA text so there is no way of knowing precisely what is required under that treaty and whether there is room for changes to Bill C-8. The bill may be consistent with CETA, but without the text we can’t know if alterations to the bill might still fall within the treaty requirements.

There is also the possibility – some say likelihood – of border measures provisions in the Trans Pacific Partnership, which is still under negotiation.

The net effect of the international pressures is that Canada would do well to pause on this bill until the international treaties are concluded and our obligations are better understood.

I’ll stop there and welcome your questions.