The Canadian government’s deadline for written submissions to the consultation on the renegotiation of the North American Free Trade Agreement closes today (though the government just announced that it will continue to accept comments on its form after the deadline). My submission to the consultation is posted below. I focus on two chapters: intellectual property and the new e-commerce chapter.

The submission begins with three broad comments and recommendations including the need for trade transparency, recognizing the importance of IP and e-commerce (and therefore not easily giving on those issues for gains elsewhere), and the desirability of an explicit commitment to balance as an objective in the IP chapter.

The IP chapter comments also identify three strategic goals: creating a level playing field for innovation (including fair use, anti-circumvention exceptions, and IP abuse safeguards), compliance with international law, and the adoption of an equivalency guiding principle to allow countries to their own policies with similar objectives. The e-commerce chapter comments focus on the need to avoid provisions that undermine privacy and security (including data localization and data transfer rules), inclusion of higher level privacy protection requirements, and retaining the cultural exemption.

NAFTA Consultation Submission – July 18, 2017

I am a law professor at the University of Ottawa, where I hold the Canada Research Chair in Internet and E-commerce Law. My areas of specialty include digital policy and intellectual property. This response is submitted in my personal capacity reflecting my own views.

The focus of my submission is primarily on two chapters: the intellectual property chapter and the potential e-commerce chapter.

General Comments

Before addressing specific policy issues within those chapters, I offer three broader comments and policy recommendations on the NAFTA renegotiation with respect to IP and e-commerce.

i.    Trade Transparency

First, I would emphasize the importance of transparency and public participation throughout the negotiation process. The public backlash against the Trans Pacific Partnership and other recent trade deals points to a process that leaves many feeling excluded and terms that are presented publicly for the first time as final. The real opportunity for the Canadian government is not just to update NAFTA, but to challenge some of the longstanding assumptions about free trade agreements in order to foster greater public confidence in the outcome.

The lack of transparency associated with the TPP – trade talks took place entirely behind closed doors with little public consultation or review of proposed provisions – fostered a culture of mistrust that made it a hard sell around the world. As Canada moves ahead with NAFTA trade talks, there is a need to develop a more open and transparent approach that includes active consultations throughout the negotiation process and more open access to draft text and terms.

ii.    The Importance of IP and E-commerce

The Canadian government has emphasized the importance of intellectual property and e-commerce in a modern economy. Indeed, with national strategic initiatives on both IP and the digital economy, there are few issues that have a tigher link to creating an innovative, successful economy in the 21st century.  Given its importance, I urge the government to ensure that these issues are not lost amidst trade-offs over more conventional trade issues such as agriculture access or the forestry and automotive sectors. All are important sectors, but sacrificing Canadian opportunities in IP and e-commerce in return for benefits in other sectors may result in short-term political gain for longer-term economic pain.

In fact, trade agreements may be a poor place to negotiate these issues, which have traditionally fallen within the purview of international organizations that develop consensus based treaties with broad stakeholder participation. Canada has often done its best work within that multilateral environment. While modern trade deals will often include sections on economic regulation, including IP and e-commerce, requiring countries to meet global standards but shying away from dictating how to meet those standards provides an avenue to ensure an equal playing field consistent with international laws.

iii.    Inclusion of Balance as an Objective

The initial drafts of the TPP included objectives language within the IP chapter that was supportive of expanded objectives that emphasized balance, the public domain, and timely access to affordable medicines. Canada was supportive of this approach. NAFTA should include similar language on maintaining balance across all IP rights, the legitimate interests of users, promoting access to and preserving the public domain, ensuring that IP rights do not create barriers to legitimate trade, and facilitating access to affordable medicines.

The objectives provision may not carry the same weight as positive obligations in the treaty, but they are important, reflecting the goals of the negotiating parties and providing a lens through which all other provisions can be interpreted. Canada and many other countries wanted to ensure that the lens promoted maintaining a balance between rights holders and users on all IP provisions within the TPP. The government should support that approach in NAFTA.

Chapter Specific Comments: Intellectual Property

The NAFTA intellectual property chapter promises to be among the most contentious renegotiation chapters. Canada has enacted major amendments to its IP laws in recent years, but the U.S. is likely to seek further reforms. To place the issue in context, over the past five years, Canada has added anti-circumvention laws similar to those found in the U.S., added stronger enforcement measures (including the “enabler” provision for websites that facilitate infringement), enacted anti-counterfeiting laws, extended the term of protection for sound recordings, and engaged in patent and trademark reforms. When added to earlier reforms such as anti-camcording rules and recent court decisions that addressed U.S. concerns about Canadian patent rules, Canada has acquiesced to many IP policy demands from the U.S.

As Canada heads toward another round of negotiation within the NAFTA, it should be recognized that Canada already meets its international IP obligations and has largely addressed previous U.S. demands regarding further reforms. At a broad level, the Canadian negotiating goal should be to retain an appropriate IP balance that fosters creativity and access, while ensuring that there is room for Canadian-specific policies that sit within the flexibilities of the international IP framework.  In fact, rather than simply “playing defence” to U.S. IP demands, Canada should pro-actively seek to ensure that Canadian IP priorities and policies are reflected in the agreement.

Ensuring that NAFTA’s IP provisions benefit Canadians can be best achieved through three strategic objectives: promoting a level playing field for innovation, mandating compliance with international law, and codifying that protections and safeguards need to be equivalent but not necessarily identical in structure within NAFTA countries. Each strategic objective is discussed further below.

i.    Level Playing Field for Innovation

Canada’s top IP policy objective should be to ensure that there is a level playing field for Canadian business across the North American market. This will require the addition of several provisions to the agreement.

a.    Fair Use/Flexible Fair Dealing

Led by the United States, several countries around the world, including Israel, South Korea, and Singapore, have established fair use provisions within their copyright laws. Fair use does not mean free use – rather, it means that there is a balance that allows certain uses of works without permission so long as the use is fair.  The Supreme Court of Canada has already ruled that Canada’s fair dealing provision must be interpreted in a broad and liberal manner. Yet the law currently includes a limited number of purposes (research, private study, criticism, news reporting education, parody, satire, and review) that renders many everyday activities illegal.

The availability of U.S. fair use represents a significant competitive advantage for U.S. businesses and creators. To ensure a level playing field for innovation, NAFTA IP chapter should require that all parties feature a fair use or fair use equivalent provision.

b.    Anti-Circumvention Legislation Exceptions

Canadian copyright law’s anti-circumvention provisions are among the most restrictive in the world and badly undermine the traditional copyright balance in the digital world creating unnecessary restrictions on innovation. Canadians can freely exercise their fair dealing rights in the analog world, but the 2012 reforms went far beyond the WIPO treaty requirements by creating unnecessary restrictions on fair dealing in the digital environment. This creates a “fair dealing gap”, where there is a gross mismatch between user rights in the analog world and the digital world. The fair dealing gap should be addressed by establishing a long overdue fair dealing exception for the digital lock rules.

While the Canadian exceptions were narrowly constructed and limited to a handful of circumstances, the U.S. has actually been expanding its digital lock exceptions. It recently introduced exceptions for innovative activities such as automotive security research, repairs, and maintenance, archiving and preserving video games, and for remixing videos from DVDs and Blu-Ray sources.

The imbalance in exceptions creates an uneven playing field for innovation and should be remedied within NAFTA. Canada has the power to introduce new digital lock exceptions, but has yet to do so. NAFTA should prescribe statutory minimums for anti-circumvention exceptions, including one for fair use/fair dealing.

c.    IP abuse and misuse

The NAFTA IP chapter should also address the abuse of intellectual property rights that may inhibit companies from innovating or discourage Canadians from taking advantage of the digital market. The benefits of an anti-IP abuse law could be used to touch on the three main branches on intellectual property: patents, trademarks, and copyright.

For example, leading technology companies have issued repeated warnings about patent trolling, which refers to instances when companies that had no involvement in the development of a patent seek payments from legitimate companies by relying on dubious patents. Patent trolls have a negative impact on economic growth and innovation with millions spent on unnecessary litigation.
Canadian companies have faced the daunting prospect of expensive U.S.-based patent litigation that can have a chilling effect on innovation and create barriers to market entry. NAFTA provisions against patent trolling and other IP abuses would benefit the full North American market by creating much needed safeguards against abusive patent behaviour.

ii.    Compliance with International Law

One of the chief concerns with past trade negotiations is the expectation that the U.S. requires other countries to mirror its IP laws, even if those laws extend far beyond international law requirements. A good example of this phenomenon involves anti-circumvention rules.  The U.S. has sought that other countries mirror the Digital Millennium Copyright Act, a statute that establishes requirements that extend far beyond those required by the WIPO Internet treaties. The U.S. objectives for the NAFTA negotiation speak of protection and enforcement rules that are “similar” to U.S. law.

The Canadian approach should be to require NAFTA parties to meet international law, but to retain the full flexibility found within those laws. For example, the term of copyright in Canada is presently life of the author plus an additional 50 years, a term compliant with the international standard set by the Berne Convention. From a policy perspective, the decision to maintain the international standard of life plus 50 years is consistent with the evidence that term extension creates harms by leaving Canadians with an additional 20 years of no new works entering the public domain with virtually no gains in terms of new creativity. In other words, in a policy world in which copyright strives to balance creativity and access, term extension restricts access but does not enhance creativity.

The negative effects of term extension has been confirmed by many economists, including in a study commissioned by then-Industry Canada, which concluded that extending the term simply does not create an additional incentive for new creativity. Moreover, studies in other countries that have extended term have concluded that it ultimately costs consumers as additional royalties are sent out of the country. Increased costs and reduced access hurts Canadian innovation without commensurate economic or cultural gains. Each NAFTA country has a different term of protection. Canada’s position within NAFTA negotiations should be to require all parties to comply with the Berne Convention standard of protection of life of the author plus 50 years, with the non-mandatory option for each party to exceed that term as they see fit.

iii.    Equivalent but not Identical

As the U.S. objectives for the NAFTA negotiations acknowledge, laws may be “similar” if not identical to achieve equivalent objectives. The establishment of an equivalency approach should be a guiding principle in the IP chapter to allow countries to adopt their own policies and regulations consistent with similar objectives.

For example, Canada’s 2012 digital copyright reforms featured an innovative “notice-and-notice” system designed to balance the interests of copyright holders, the legal obligations of Internet service providers (ISPs), and the privacy rights of Internet users. The law allows copyright owners to send infringement notices to ISPs, who must forward the notifications to their subscribers.  There have been problems with the system, but countries (including the U.S. in the TPP) acknowledged that it provides equivalent protection to that found in the U.S. notice-and-takedown system. Given the equivalency, a requirement for a notice-based safe harbour system should be drafted in a sufficiently broad manner to allow these equivalent but different approaches to co-exist.

The same approach should apply to damages and enforcement regimes. Both Canada and the U.S. have tough statutory damages provisions that far exceed those found in most countries. Moreover, Canadian law features a unique “enabler” provision that can be used to target websites that facilitate infringement. The NAFTA standard on enforcement should allow for differing approaches to damages and enforcement within the context of a consistent requirement for balance and effectiveness.

Chapter Specific Comments: E-commerce

The new e-commerce chapter offers the opportunity to update NAFTA to reflect an increasingly important aspect of modern cross-border commercial activity. While the starting point will likely be the TPP chapter, Canada’s negotiating objectives should differ from the TPP in several important ways.

The policy behind an e-commerce chapter should be to facilitate modern, electronic commerce, with three strategic objectives guiding Canada’s position. First, Canada should be wary of provisions that undermine legitimate public policy interest, including privacy and security. This concern is particularly pronounced with respect to restrictions on data localization and data transfers, both identified by the USTR as issues of concern. Second, Canada should seek higher level privacy protections and e-commerce regulations in NAFTA. Third, Canada should preserve its longstanding approach to exempting culture from the ambit of the trade agreement.

i.    Concern with Provisions Undermining Privacy and Security

The restriction against local data storage – often called data localization – originates from Silicon Valley tech company frustration with a growing number of governments that want local data to remain within their jurisdiction. The reason for data localization requirements typically stem from mounting concerns over U.S. surveillance activities and the power granted to U.S. law enforcement under laws such as the USA Patriot Act.

The combined effect of these U.S. laws is that many users fear that once their information is stored in the U.S., it will be accessible to U.S. authorities without suitable privacy protections or oversight. Since U.S. law provides less privacy protection to foreigners, there is indeed limited legal recourse for Canadian data held in the U.S.  Provinces such as British Columbia and Nova Scotia have enacted laws to keep government information (such as health data) within the country.

In response to the mounting public concerns, leading technology companies such as Microsoft, Amazon, and Google have established or committed to establish Canadian-based computer server facilities that can offer localization of information. These moves follow on the federal government’s 2016 cloud computing strategy that prioritizes privacy and security concerns by mandating that certain data be stored in Canada. The Canadian government should resist efforts within NAFTA to limit the ability of federal or provincial governments to establish legitimate privacy and security safeguards through data localization requirements.

Limitations on data transfer restrictions, which mandate the free flow of information on networks across borders, raises similar concerns. Those rules are important to preserve online freedoms in countries that have a history of cracking down on Internet speech, but in the Canadian context, could restrict the ability to establish privacy safeguards. In fact, should the European Union mandate data transfer restrictions as many experts expect, Canada could find itself between a proverbial privacy rock and a hard place, with the EU requiring restrictions and NAFTA prohibiting them. While the U.S. is seeking a ban on data transfer restrictions, Canada should ensure that privacy and security laws will not be superceded by NAFTA restrictions.

ii.    Higher Level Privacy Protections

Privacy protections are a key aspect of e-commerce, providing consumers with assurances that their personal information will be appropriately safeguarded. A renegotiated NAFTA should include a high level privacy protection requirement. The starting point for privacy protection in most countries is a national privacy law modeled on the OECD privacy principles. Enforcement measures are frequently handled by privacy or data protection commissioners with some form of enforcement powers as well as additional rules on issues such as mandatory disclosure of security breaches. A privacy requirement that extends beyond voluntary undertakings is essential for Canadians to have the necessary assurances that their information is properly protected and to place Canadian companies on a level playing field with their NAFTA counterparts.

NAFTA should also include mandatory anti-spam legislation as a national requirement. The provisions could specify that the law provide for a binding unsubscribe mechanism and an opt-in consent requirement, consistent with the Canadian anti-spam law. Other e-commerce laws, including consumer protection requirements and electronic contracting provisions, would be suitable for inclusion in an e-commerce chapter.

iii.    Culture Exemption

While Canadian trade policy has long exempted cultural regulation from trade agreements, the TPP included notable exceptions. One involved restrictions on “discriminatory requirements on services suppliers or investors to make financial contributions for Canadian content development.” The USTR NAFTA priorities raises the prospect of bringing back a similar provision.

The exception may be limited to “discriminatory” requirements, but currently exempt providers (such as online video services) could argue that the imposition any Canadian content contribution payments would be discriminatory against them, because they do not enjoy many of the protections and benefits that go to the Canadian companies that make Cancon contributions as part of a regulatory quid pro quo. This would include development funding, production funding, and multiple windows for achieving Cancon requirements.

Assuming those services argue that any mandated Cancon contribution is discriminatory if they do not also receive the benefits accorded to established broadcasters or broadcast distributors, the NAFTA could effectively ban applying Cancon contributions to exempt entities. Cultural policy is always fraught with difficult policy choices, but those choices should be conducted through domestic processes, not dictated by trade agreements.