Official Journal of the International Trademark Association

Kirkbi AG and Lego Canada Inc. v. Ritvik Holdings Inc.:

A Review of the Canadian Decisions By Robert H.C. MacFarlane and Christine M. Pallotta Lego v. Mega Bloks in the Supreme Court of Canada:

Ephemeral Rights in Toy Bricks By Bruce W. Stratton and Henry Lue

The LEGO Case: The Supreme Court of Canada Makes It Harder to Protect Product Shapes as Trademarks

By Richard S. Levy Dilution Through the Looking Glass: A Marketing Look at the

Trademark Dilution Revision Act of 2005 By Joel H. Steckel, Robert Klein and Shelley Schussheim

The Declaratory Judgment Response to a Cease and Desist Letter: “First-to-File” or “Procedural Fencing”? By D. Peter Harvey and Seth I. Appel

Who Owns the Mark? A Single Framework for Resolving Trademark Ownership Disputes

By Pamela S. Chestek Canadian Anti-Counterfeiting Laws & Practice: A Case for Change

By James J. Holloway Filer Beware: Medinol Standard Set Forth by the

United States Patent and Trademark Office By Karen P. Severson

Response to Survey Methodology Articles By Mike Rappeport

Vol. 96 May-June, 2006 No. 3

®

724 Vol. 96 TMR

CANADIAN ANTI-COUNTERFEITING LAWS & PRACTICE:

A CASE FOR CHANGE

By James J. Holloway∗

I. INTRODUCTION The International Anticounterfeiting Coalition (IACC)1

recently asked that Canada be identified as a Priority Foreign Country (along only with China) in its submission to the United States Trade Representative (USTR).2 In other words, this organization views the counterfeiting problem in Canada as a serious problem. While this request may have shocked many, those involved in combating counterfeiting in Canada were less surprised. As noted by the IACC, Canadian law affords relatively weak protection against counterfeiting, which is a multibillion-dollar problem in this country. This article will address: (1) the nature and magnitude of the problems caused by counterfeiting; (2) the effectiveness of the current legal measures available in Canada to respond to counterfeiting; and (3) suggested reforms designed to target the shortcomings in Canadian legislation. Ultimately, it is recommended that Canada do three things: First, it must allow for trade-mark rights to be recorded at the Canadian border; second, it must empower customs officials to inspect and seize infringing goods at the border; and third, it must fund more customs and police enforcement resources.

These suggestions are not particularly innovative as most stakeholders likely recognize the changes that are needed. The real mystery is why nothing has been done to date, despite increasingly loud calls for reform. Perhaps it is because many still mistakenly view counterfeiting as a victimless crime, the issue has

∗ Partner, Baker & McKenzie LLP, Toronto, Canada, Associate Member of the International Trademark Association. He received his LL.M. from Osgoode Hall Law School, his LL.B. from the University of Western Ontario Law School, and B.A. from McMaster University. Mr. Holloway’s practice is focused on IP and product liability law. He has written and spoken on numerous IP issues, such as Negotiating Strategic IP Alliances with Canadian Companies, Protecting Trademark Goodwill, The Consequences of Delay in Trademark Litigation and Effective Grey Market Strategies. 1. The International Anticounterfeiting Coalition (IACC) was formed in 1978 by a number of companies committed to addressing the substantial problems caused by counterfeiting. 2. IACC Submission to the USTR, February 10, 2006. See also IACC Submission to the USTR, February 11, 2005.

Vol. 96 TMR 725 never become a political priority, or it seems easier to let the rest of the global community deal with the problem. Whatever the cause, it is becoming increasingly clear that Canada needs to remedy the shortcomings in its legal system vis-à-vis counterfeiting, by addressing the problem, and protecting its credibility with rights-holders and within the international community.

II. BACKGROUND Counterfeiting, according to Black’s Law Dictionary, means “to

forge, copy or imitate (something) without a right to do so and with the purpose of deceiving or defrauding.”3 Counterfeit goods are those that purport to be something they are not, for the purpose of tricking consumers into buying them. While the words “counterfeiting” and “piracy” are often used interchangeably, there is a subtle yet important distinction.

The word “counterfeiting” refers to the representation of an imitation as a genuine article. Usually, this involves putting a well-known trade-mark on an imitation of a product to deceive consumers into thinking the article is genuine. By contrast, the word “piracy” refers to stealing, copying and selling the product itself. A pirated article, while genuine in origin, is not made or sold with the required authority. Often, piracy involves unauthorized reproductions of recorded works, such as movies, music or software programs.

Counterfeit goods also should not be confused with grey market goods, which refer to legitimate goods initially sold with authority in one jurisdiction and later imported into another jurisdiction without authority for resale. While many intellectual property rights holders object to grey marketing, the practices are often permissible within the international doctrine of exhaustion, which says that an intellectual property rights holder cannot take issue with the resale of product that it has already placed into commerce. In Canada, the local owner of a trade-mark usually cannot take issue with the resale in Canada of legitimate products that it originally sold elsewhere, even where another company has the exclusive right to sell those products in Canada.4 While the exhaustion doctrine varies by jurisdiction, the important point is that grey market goods are not counterfeit goods, even though in 3. Black’s Law Dictionary, 354 (7th ed. 1999). 4. There are exceptions to this general rule. In Canada, the leading grey market cases are Coca-Cola Ltd. et al. v. Pardhan et al. (1997), 77 C.P.R. (3d) 501, aff’d, 85 C.P.R. (3d) 489 (F.C.T.D.); Smith & Nephew, Inc. v. Glen Oak, Inc. (1996), 68 C.P.R. (3d) 153 (F.C.A.). In addition, copyright can be used in Canada in some circumstances to address grey market activities: Kraft Canada v. Euro Excellence, [2005] F.C.J. No. 2082 (F.C.A.).

726 Vol. 96 TMR some cases they may be materially different and may lead to some level of deception among consumers.

According to the International Chamber of Commerce, at least seven percent of global trade involves counterfeit goods and the worldwide market may be worth $350 billion annually.5 Others suggest that the global counterfeit market could be worth as much as $600 billion annually.6 The U.S. Chamber of Commerce estimates that counterfeiting costs U.S. companies alone over $250 billion per year and results in over 750,000 lost jobs.7 While less information is available in Canada (which is itself somewhat troubling), it is quite likely that the problem is comparable to that in the United States. According to the Canadian Manufacturers and Exporters Association and the Canadian Standards Association, the Canadian market for counterfeit products is somewhere between $20 to $30 billion per year.8 This estimate suggests that the Canadian problem is comparable to the U.S. problem, with an appropriate discount for population differentials.

In the automotive industry, estimates suggest that counterfeit parts may result in lost global sales of over $12 billion per year.9 In the United States alone, annual losses may be as high as $3 billion and may lead to as many as 200,000 lost jobs. In other parts of the world, entire vehicles (e.g., motorcycles) are counterfeited.10 According to the International Federation of Automotive Aftermarket Distributors (IFAAD), as many as 10 percent of replacement parts sold in Europe may be counterfeit. Given Canada’s substantial automotive parts manufacturing industry, it is quite likely that counterfeiting has had and will continue to have an impact there as well.

In the consumer electronics industry, counterfeiting has become an increasingly large problem, particularly as manufacturing of many products has moved to China. In addition, China has been building its own electronics industry, which has resulted in a higher level of technical proficiency and an improved 5. George W. Abbott, Jr. and Lee S. Sporn, Trademark Counterfeiting § 1.03[A][2] (2001). 6. This figure was cited in a Special Address by Shri Navin B. Chawla, Secretary, Consumer Affairs, Govt. of India, reported by the Federation of Indian Chambers of Commerce and Industry: www.ficci.com (Apr. 21, 2004). 7. U.S. Chamber of Commerce: http://www.uschamber.com/issues/index/counterfeiting/ default. 8. J. Myers, Canadian Manufacturers and Exporters Association and Canadian Standards Association Anticounterfeiting Conference (April 7, 2005). 9. Richard C. Noble, From Brakes to Plugs to Engines, Counterfeiters Produce, Push Parts, Flint J., Sept. 3, 1995; H.R. Rep. No. 104-556 (1996), reprinted in 1996 U.S.C.C.A.N. 1074, 1075. 10. See Tom Nash, Counterfeit Parts: A Poor Fit For Your Shop, Motor Magazine (Jan. 2004), at www.motor.com/MAGAZINE/Articles/012004_04.html.

Vol. 96 TMR 727 ability to produce higher quality counterfeit products. Currently, some reports estimate that 15 percent of worldwide electronic products are counterfeit, with higher percentages reported in some regions.11

In the luxury goods industry, which includes products such as high-end watches and handbags, counterfeiting costs billions of dollars annually in lost sales.12 While some counterfeiters have diversified and moved beyond this crowded counterfeit market,13 fake products continue to pose a major challenge for luxury goods manufacturers.14 In France alone, where many legitimate luxury goods are made, counterfeiting may result in as many as 38,000 lost jobs every year.15 In an effort to combat the problem, luxury goods manufacturers spend millions of dollars every year running anti-counterfeiting programs. Still, most markets remain flooded with fake luxury goods.

In the entertainment industry, piracy and counterfeiting have been a long-standing problem. Recently, the situation has been exacerbated by the emergence of technologies that facilitate quick and cheap reproduction.16 In 1995, the Motion Picture Association of America (MPAA) estimated that video piracy resulted in annual losses of almost $1 billion.17 In some countries, over 50 percent of videos sold are unauthorized or pirated copies.18 The International Federation of the Phonographic Industry (IFPI) estimates that global losses from music piracy are approximately $5 billion.19 By 2004, global sales of pirated music had reached $4.5 billion annually and over 40 percent of all CDs and cassettes sold were

11. These figures were discussed in a Special Address by Shri Navin B. Chawla, Secretary, Consumer Affairs, Govt. of India, reported by the Federation of Indian Chambers of Commerce and Industry: www.ficci.com (Apr. 21, 2004). 12. Bernard Arnault, Chairman of Louis Vuitton, quoted in December 3, 2004, edition of People’s Daily Online. 13. European Commission Symposium chaired by Pascal Lamy, European Commissioner, entitled, Market Access and Enforcement of Intellectual Property Rights: Customs’ Battle Against Counterfeiting and Piracy to Protect Intellectual Property (Nov. 28, 2000). 14. This market’s estimated worth is almost $70 billion annually and is soon expected to reach over $100 billion. 15. John Lawrenson, Fake Designer Goods Cost France Dearly, available at www.dw-world.de/dw/article/0,1564,1522689,00.html (Mar. 21, 2005). 16. The prevalence of piracy in the U.K. book publishing industry during the 15th century was the driving force behind the emergence of modern copyright law. 17. The cited MPAA statistics are from 1995: see Paul Paradise, Trademark Counterfeiting, Product Piracy and the Billion Dollar Threat to the US Economy 135 (Quorum Books 1999); in all likelihood, the problem has increased substantially. 18. Id. at 139. 19. Id. at 159-60.

728 Vol. 96 TMR illegally produced.20 There is no doubt that bootlegged music recordings are problematic in the Canadian market as well. Recently, the authorities seized 28,000 pirated CDs worth over $1 million.21 While 10 years ago most music piracy involved the unauthorized copying of cassettes and CDs, today the unauthorized downloading and copying of music via the Internet is emerging as the largest problem. As in many countries, the music industry is involved in litigation in Canada against those accused of illegally downloading music.22 In the cable and satellite broadcast industries, signal theft is an increasingly significant problem, which has also led to recent litigation in Canada.23 According to some estimates, satellite companies, movie studios, sports franchises and others lose over $1 billion annually due to piracy.24

In the software industry, piracy is rampant. According to a recent report by International Data Corporation (IDC), a well-known market research company, 36 percent of the software installed on computers worldwide in 2003 was pirated, representing losses of nearly $29 billion.25 This problem exists in Canada as well. For example, in 1999, the Royal Canadian Mounted Police (RCMP) and Microsoft seized $6 million in counterfeit software from businesses in Markham, Ontario, and Montreal, Quebec.26 In another case, the authorities learned that a company was pirating and selling substantial quantities of electronic nautical charts produced by Nautical Data International (NDI), which are used for ship navigation.27 In light of the relative ease with which software can be copied and distributed, there is no reason that without more effective enforcement, the problem would not continue to grow.

20. 2004 IFPI Commercial Piracy Report, June 2004. 21. See the RCMP website at http://www.rcmp.ca/crimint/copyright_piracy_e.htm# N_30_. 22. BMG Canada, Inc. et al. v. John Doe et al. (2004), 32 C.P.R. (4th) 64 (F.C.), aff’d, 39 C.P.R. (4th) 97 (F.C.A.). 23. In Bell ExpressVu v. Rex (2002), 18 C.P.R. (4th) 289 (S.C.C.), Canada’s Supreme Court held that the Radiocommunication Act protects both Canadian and foreign signals from unauthorized decoding. Thereafter, the federal government agreed to work with the broadcasting industry to stop the distribution of devices designed for the unauthorized decoding of satellite television programming. 24. David Lieberman, Millions of Pirates are Plundering Satellite TV, USA Today, Dec. 1, 2002, at www.usatoday.com/news/acorman. 25. This information was obtained from the Business Software Alliance website at www.bsa.org. 26. See RCMP website: http://www.rcmp.ca/crimint/copyright_piracy_e.htm. 27. Id.

Vol. 96 TMR 729

In the pharmaceutical industry, counterfeiting is also prevalent.28 According to some, the annual value of the worldwide counterfeit market in this industry may exceed U.S. $32 billion.29 In many cases, counterfeit drugs have no active ingredient or lack the efficacy of the legitimate product, which makes the problem particularly dangerous.30 The United States Food and Drug Administration (FDA) estimates that 10 percent of medicine sold in developed countries and 25 percent of medicine sold in underdeveloped countries are counterfeit.31 While it is quite likely that the presence of counterfeit pharmaceuticals is lower in developed countries, the problem has serious consequences wherever it exists. In Canada, there have recently been a number of high-profile seizures of counterfeit drugs.32 In one such seizure, the counterfeit drug was found to contain unapproved ingredients and impurities.

Counterfeiting is not a victimless crime: fake products create real health and safety risks.33 For example, counterfeit pharmaceutical products have caused serious injury and death.34

28. For a good analysis of the problem, see Paradise, supra note 17, at 175-99. 29. This information was disclosed during a Web Conference on Anti-Counterfeiting Drug Strategies featuring representatives of the World Health Organization (WHO) (Dec. 10, 2004). 30. Of the counterfeit drugs seized in some countries, 43 percent were found to have no active ingredient; 24 percent were of poor quality; 21 percent offered a low content of active ingredient; 7 percent contained the wrong ingredient; and 5 percent were in the wrong package. These figures were discussed in a Special Address by Shri Navin B. Chawla, Secretary, Consumer Affairs, Govt. of India, reported by the Federation of Indian Chambers of Commerce and Industry at www.ficci.com (Apr. 21, 2004). 31. This information was disclosed during a Web Conference on Anti-Counterfeiting Drug Strategies featuring representatives of the WHO (Dec. 10, 2004). A WHO survey found that 40 percent of reported counterfeit cases originated in developed countries whereas 60 percent of reported cases originated in underdeveloped countries: Substandard and Counterfeit Medicines, the World Health Organization, at http://www.who.int/ mediacentre/factsheets/fs275/en/. 32. In June 2005, for example, police in Hamilton, Ontario, Canada seized a quantity of fake NORVASC tablets (a well-known heart medication manufactured by Pfizer) in a local pharmacy. Earlier, Pfizer had faced a problem involving counterfeit LIPITOR tablets (an anti-cholesterol drug) introduced into the U.S. market via repackagers who mixed fake pills with authentic pills and distributed them via a secondary wholesale network to pharmacies. Ultimately, millions of LIPITOR tablets had to be recalled. In July 2005, police just outside of Toronto, Ontario, Canada seized a quantity of allegedly counterfeit VIAGRA pills, which the police believed had been imported from India. Evidently, this product was being sold both in Canada and elsewhere via Internet pharmacies. 33. Senator Orrin G. Hatch, Chairman, Senate Judiciary Committee, Press Conference (Aug. 9, 1995). 34. According to the Shenzhen Evening News (a government owned newspaper), almost 192,000 people died in China in 2001 because of fake drugs. See China’s Killer Headache: Fake Pharmaceuticals, The Washington Post, Aug. 30, 2002; see also Ridgely Ochs, Sounding Alarm on Counterfeit Drugs; FDA Investigating Recent of Fake Drug Cases, New York Newsday, June 12, 2002, at 6; House Report of the Committee on Energy and

730 Vol. 96 TMR In the airline and the automotive parts industry, counterfeit replacement parts have resulted in fatal accidents.35 For example, the sale of counterfeit brake pads (sometimes made of cardboard, compressed wood chips or grass) has led to fatal accidents, including one where a school bus overturned after its brake shoe linings (made of grass) burst into flames.36

In addition to health and safety concerns, counterfeit products cause other losses, particularly for the owners of legitimate brands. First, the legitimate brand owner will invariably lose sales revenue as a result of counterfeit products. In many cases, this will result in lower profits and lost jobs. Second, the sale of defective counterfeit products can create the risk of unwarranted product liability and warranty claims against the legitimate manufacturer. Third, inferior counterfeit products invariably damage the goodwill associated with well-known brands.37 Fourth, governments lose millions of dollars in tax revenue as a result of the sale of fake products by counterfeiters.38

In addition to the damage caused to consumers and brand owners, there is growing evidence that counterfeiting is closely associated with organized crime, and even the financing of terrorist organizations and activities.39 While some might be surprised by that connection, the lucrative counterfeit market is attractive to those who are willing to ignore the law, and the health and safety of others in furtherance of making a profit. Commerce, Subcommittee on Oversight and Investigations, Prescription Drug Diversion and Counterfeiting, July 10, 1985, at 23. 35. As many as 500,000 counterfeit parts may be mistakenly used on aircraft each year: see Billy Stern, Warning! Bogus Parts Have Turned Up in Commercial Jets. Where’s the FAA? Business Week, June 10, 1996, at 90. In a U.S. case, the court determined that the defendant sold counterfeit helicopter parts that caused several helicopters to crash resulting in injuries and death. S. Rep. No. 98-526, at 4 (1984), reprinted in 1984 U.S.C.C.A.N. 3627, 3630-31. In a 1989 Norwegian plane crash that killed 55 people, the cause appeared to be, in part, counterfeit parts: 55 Killed in Crash of Norwegian Plane, None Aboard Survive as Craft Plunges into Sea Near Denmark, L.A. Times, September 9, 1989, at 4 (cited and discussed in Robert W. Luedeman, Flying Underground: The Trade in Bootleg Aircraft Parts, 62 J. Air L. & Comm. 9396-100 (August/September 1996)). 36. See Tom Nash, Counterfeit Parts: A Poor Fit For Your Shop, Motor Magazine (January 2004), at www.motor.com/MAGAZINE/Articles/012004_04.html. 37. United States v. Petrosian, 126 F.3d 1232 (9th Cir. 1997). In this case, the counterfeiter was refilling COCA-COLA bottles with a substitute product. 38. In August 2004, Canadian customs officers and police intercepted a sea container of counterfeit cigarettes being smuggled into Canada representing half a million dollars in lost taxes, which would have been diverted directly into the pockets of organized crime. Even 10 years ago, it was believed that counterfeiting resulted in lost tax revenue in New York alone of approximately $350 million per year—Joseph Scott, He Is the Fashion Police, New York, Mar. 6, 1995, at 38. 39. On May 23, 2002, ABC News reported that, according to Michael G. Kessler of Kessler International Investigations, terrorist organizations were using counterfeiting activities to generate revenue to fund their objectives.

Vol. 96 TMR 731 Indeed, when one couples the possibility of high untaxed profits with the low risk of detection and the even lower risk of prosecution, it is not surprising that professional criminals become heavily engaged in counterfeiting.

III. THE SOURCES OF COUNTERFEIT GOODS IN CANADA

While counterfeit goods emanate from a variety of countries, it is widely accepted that China produces a disproportionate share of the world’s counterfeit goods.40 Certainly, much of the counterfeit products finding their way into the Canadian market originate in China. The reasons for China’s prominence in counterfeiting are complex and connected to historical, cultural and philosophical factors, which appear, in turn, to have dampened the effectiveness of intellectual property legislation in that country.41 For many years in China, reinforced by the 1949 Marxist revolution, the prevailing philosophy was that the rights of the collective superseded the rights of the individual. Other policies in the country favoured non-competitive socio-economic relationships and the sense that intellectual property was not necessarily private property.

After the failure of China’s cultural revolution, the government recognized the need to develop stronger intellectual property laws, which was a condition precedent to joining the international economic community. This led to legislative initiatives, and bilateral and multilateral agreements.42 While such developments were certainly positive, intellectual property rights abuses remained widespread. The continuing prevalence may have been due to the persistence of either cultural attitudes or the weakness of intellectual property laws. In 1991, again in 1995, and yet again in 1996, the U.S. Trade Representative (USTR) threatened to impose trade sanctions against China for turning a blind eye to intellectual property rights violations. Each 40. Graham J. Chynoweth, Reality Bites: How the Biting Reality of Piracy in China Is Working to Strengthen Its Copyright Laws, 2003 Duke L. & Tech. Rev. 0003. 41. Jessica Jiong Zhou, Trademark Law & Enforcement in China: A Transnational Perspective, 20 Wis. Int’l L.J. 415, 421 (2002); see also Yiping Yang, The 1990 Copyright Law of the People’s Republic of China, 11 UCLA Pac. Basin L.J. 260, 276 (1993). 42. Locally, China passed new trade-mark legislation in 1982, new patent legislation in 1984 and new copyright legislation in 1990. Globally, in 1980, China signed the Convention Establishing the World Intellectual Property Organization (WIPO). In 1985, China joined the Paris Convention for Protection of Industry Property. In 1989, China joined the Madrid Convention for the International Registration of Marks. In 1992, China signed the Berne Convention for the Protection of Literary and Artistic Works, the Geneva Phonograms Convention, and the Universal Copyright Convention. In 1994, China joined the Patent Cooperation Treaty.

732 Vol. 96 TMR time the threats were made, sanctions were averted by China’s promise to address the problem. However, the situation did not appreciably improve.

China’s failure to deal with counterfeiting was a leading impediment to gaining membership in the World Trade Organization (WTO).43 However, on December 11, 2001, China finally became a member, after taking steps to harmonize its intellectual property laws with its international obligations. On July 1, 2001, China passed new patent laws that offered greater protection and enforcement.44 On October 27, 2001, China passed new copyright laws that recognized additional protected works and expanded the remedies available for infringement.45 On December 3, 2001, China passed new trade-mark laws that granted greater registration rights and remedies.46 By most accounts, China did a relatively good job of overhauling its legal system to create stronger protection, at least on paper. China has been less successful in ensuring effective intellectual property protection and enforcement certainly remains a problem.47

Counterfeiting is known to be a significant enterprise in a number of other countries. In Russia, counterfeit manufacturing is a growing problem.48 In Poland, there is a well-recognized piracy and counterfeiting problem, with a wide variety of fake goods being

43. Other obstacles included trade barriers limiting foreign access to the Chinese market and alleged human rights violations. 44. Patent Law of the People’s Republic of China (adopted at the 4th Meeting of the Standing Committee of the Sixth National People’s Congress on March 12, 1984; amended in accordance with the Decision of the Standing Committee of the Seventh National People’s Congress on Amending the Patent Law of the People’s Republic of China at its 27th Meeting on September 4, 1992; amended again in accordance with the Decision of the Standing Committee of the Ninth National People’s Congress on Amending the Patent Law of the People’s Republic of China adopted at its 27th Meeting on August 25, 2000). 45. Copyright Law of the People’s Republic of China (adopted at the Fifteenth Session of the Standing Committee of the Seventh National People’s Congress on September 7, 1990, and revised in accordance with the Decision on the Amendment of the Copyright Law of the People’s Republic of China adopted at the 24th Session of the Standing Committee of the Ninth National People’s Congress on October 27, 2001). 46. Trademark Law of the People’s Republic of China (adopted at the 24th Session of the Standing Committee of the Fifth National People’s Congress on August 23, 1982, as amended according to the “Decision on the Revision of the Trademark Law of the People’s Republic of China” adopted at the 30th Session of the Standing Committee of the Seventh National People’s Congress on February 22, 1993, and the “Decision on the Revision of the Trademark Law of the People’s Republic of China” adopted at the 24th Session of the Standing Committee of the Ninth National People’s Congress on October 27, 2001). 47. See, e.g., the Office of the U.S. Trade Representative, 2003 Report to Congress, (Dec. 11, 2003); the Office of the U.S. Trade Representative, 2004 Report to Congress, (Dec. 11, 2004). 48. See, e.g., the statistics cited by the Coalition for Intellectual Property Rights (CIPR) at its website: http://www.cipr.org. See also Russia Has a Major Counterfeiting Problem, (Sept. 23, 2004), at www.Boston.com/business/articles/2004.

Vol. 96 TMR 733 manufactured in that country.49 According to one source, Turkey is becoming a leading source of a variety of counterfeit products.50 In the past, the USTR has identified Ukraine as a priority foreign country given the magnitude of counterfeiting in that country.51 In Mexico, counterfeiting and piracy are a growing problem, according to the U.S. Embassy.52 Also, Uruguay is known to be a source of counterfeit manufacturing.

In light of the extent and growth of this global problem, virtually all major countries have determined to take steps to address the situation by developing appropriate rules designed to ensure that: (a) counterfeit goods are kept out of the market, to the greatest extent possible, and (b) appropriate legal measures are in place to dissuade counterfeiting and to afford those damaged by such activities appropriate remedies. However, Canada’s reaction has been relatively weak compared to other developed countries. In particular, Canada has neither put in place appropriate measures to facilitate the detection of counterfeit goods at the border nor developed and implemented appropriate laws to deal with counterfeiting and the damage it causes.

IV. THE CANADIAN LEGAL REGIME This section discusses various legal options that are currently

available in Canada to address counterfeiting, with a view to highlighting the weaknesses in the legislation and the challenges associated with enforcing intellectual property rights thereunder. This section will review the border enforcement regime, and the criminal and civil laws in place to deal with counterfeiting. A subsequent section reviews the available remedies.

A. Customs Enforcement A key anti-counterfeiting goal is to prevent fake goods from

entering the market. In this regard, the border is always the first line of defense. In Canada, however, stopping inbound goods has proven very difficult because of weak border enforcement rules and procedures, which lag far behind international standards. In effect, 49. International Intellectual Property Alliance, October 30, 2002 letter to the USTR, re: Poland: request for public comments concerning identification of countries under Section 182 of the Trade Act of 1974, 67 Fed. Reg. 63186 (Oct. 10, 2002). 50. This information was taken from the website of a leading risk consulting firm, SDS International Risk Consultancy, at www.sdsint.com. 51. In its 2003 Special 301 annual review, the USTR took issue with the Ukraine’s persistent failure to take effective action against significant levels of optical media piracy and to implement intellectual property laws that provide adequate and effective protection. 52. Overview of Mexico’s IPR Environment (Mar. 2005). Embassy of the United States, Mexico at www.usembassy-mexico.gov/IPRtoolkit_overview.html.

734 Vol. 96 TMR unless the goods violate Canada’s Customs Act,53 or unless an intellectual property rights holder has proactively obtained a court order or police directive, customs officials are highly constrained. The Canadian Customs Act does not contain any specific provisions to empower border-crossing officials to act on their own initiative to prevent the entry of counterfeit products. Under Section 108(1) of the Customs Act, they may share information about suspect goods with police authorities.54 Also, under Section 489 of the Criminal Code,55 customs officers may seize goods at the border in furtherance of criminal investigations.56 In other words, customs officials and the police can theoretically work together. However, unlike in many countries, customs officials have no express authority to act ex officio.

While customs officials can act where the rights holder has obtained a prior court order, these measures have not proven particularly effective. While both the Trade-marks Act57 and the Copyright Act58 contain provisions ostensibly designed to facilitate the seizure of counterfeit goods at the border, the provisions are quite onerous.59 Intellectual property rights holders must: (a) first develop intelligence identifying the particulars of the offending product en route; (b) then apply to the courts for relief with appropriate evidence; (c) then post some form of security; and (d) thereafter institute proceedings to ultimately determine the propriety of the goods, absent a settlement. This time-consuming and expensive process is wholly ill-suited to achieving proactive results.

The current customs enforcement measures available in Canada fall short of compliance with Canada’s international obligations under various agreements, including the General Agreement on Tariffs and Trade (GATT), the Trade Related Aspects of Intellectual Property Rights Agreement (TRIPS) and the North American Free Trade Agreement (NAFTA). Under these treaties, Canada is obliged to put effective measures in place at the border to protect intellectual property rights, which necessarily 53. R.S.C. 1985, c. 1, as amended. 54. This legislation permits customs officials to communicate information they collect for customs purposes to other customs officers, persons legally entitled to the information and persons authorized by the Minister to receive the information (e.g., RCMP enforcement officers). 55. R.S.C. 1985, c. C-46, as amended. 56. This is done via the status of customs officials as “public officers” under s. 489(2) of the Criminal Code. 57. R.S.C. 1985, c. T-13 as amended. 58. R.S.C. 1985, c. C-42, as amended. 59. See Section 53 of the Trade-marks Act and Section 44 of the Copyright Act, discussed at IV.B., infra.

Vol. 96 TMR 735 include measures against counterfeiting. Because the current measures fall short of prevailing international standards and do not allow for meaningful proactive protection, they are, arguably, noncompliant.

In addition, Canadian customs measures fall far short of the Model Legislation being developed by the World Customs Organization (WCO), an organization to which Canada belongs. Under Article 9.01 of that draft Model Legislation:

Customs’ powers to act ex officio are a key feature of effective border enforcement regime. In the vast majority of cases Customs officers are the only ones to know when and which allegedly infringing goods are transported. Therefore unless Customs are empowered and obliged to act on their own to stop suspected shipments at the borders, the border measures will remain ineffective. TRIPs Agreement Article 58 introduces the possibility to give Customs ex officio powers, as such powers are an essential feature of effective border measures it is recommended that WCO Members States include a provision to that effect in the national laws. There is no doubt that the current Canadian customs regime

fails to recognize the importance of proactive customs authority.

B. Criminal Investigation and Prosecution While most counterfeiting activities are addressed in Canada

through civil proceedings, some counterfeiting activities do constitute criminal conduct. While it is encouraging to believe that those engaged in counterfeiting are theoretically subject to prosecution and imprisonment, in reality, there have been relatively few criminal prosecutions in this area. Moreover, even successful prosecutions have seldom led to penalties sufficiently substantial to create a meaningful deterrent to others. The relevant statutory provisions are briefly discussed below.

Canada’s Criminal Code contains provisions that criminalize certain counterfeiting activities. Under the relevant Sections 407 through 414, counterfeiters can be prosecuted for, among other things, intentionally using someone else’s trade-mark with the intention to deceive or defraud. As these are criminal offences, proof of the relevant intent is a condition precedent to conviction and the burden of proof is much higher than in civil cases. In the event of a conviction, the counterfeiter may be imprisoned for up to two years. Historically, there have not been many prosecutions or convictions under these provisions. However, these provisions have more recently been relied upon in cases involving allegedly counterfeit pharmaceutical products. In July 2005, for example, a Canadian pharmacist and two pharmacies that he operated were charged under these provisions after police seized a quantity of

736 Vol. 96 TMR allegedly counterfeit VIAGRA pills. The pharmacist was allegedly selling counterfeit product through his local pharmacies and over the Internet. The charges included criminal passing off under Section 408(a) and fraud under Section 380(1)(a).

While Canada’s Criminal Code does not contain criminal provisions dealing with copyright counterfeit, the Copyright Act has its own provisions that render certain counterfeiting activities criminal.60 Anyone who, among other things, knowingly makes or sells an infringing copy of a protected work, or knowingly imports into Canada for sale or distribution an infringing copy of a protected work, may be guilty of an offence and liable to conviction. The penalties upon conviction can include a fine of up to $1 million and imprisonment for a period of up to five years. To convict someone for criminal copyright activities, it is necessary to show that he or she acted with knowledge of the copyright and with the intent to deceive or defraud. However, proving this intent is not easy. For example, in a prosecution relating to someone who had sold counterfeit NIKE, TOMMY HILFIGER and OAKLEY products, the accused was acquitted because the Crown could not prove beyond a reasonable doubt that the accused knew he was selling counterfeit goods.61

In particularly egregious situations, counterfeiting may constitute fraud under the Criminal Code.62 In one case, the defendant was charged with criminal fraud as a result of the unlawful sale of counterfeit copies of videotapes in which another party owned the copyright. In that case, the defendant was aware of the illicit origins of the counterfeit videotapes he was selling and had actively sought to deceive buyers. This, in the court’s view, could amount to both criminal copyright infringement and criminal fraud.63

From a criminal perspective, the justice system has not historically treated counterfeiting crimes in a serious manner. For those crimes that have been prosecuted, the penalties imposed have been relatively minor. For example, in 1997 a counterfeiter was charged with importing counterfeit clothing and athletic products, including NIKE and FILA running shoes. In this case, the authorities had seized 13 truck trailers full of counterfeit products. In the ensuing criminal proceedings, the defendant received only a $3,000 fine. In a subsequent case involving the importation of substantial quantities of counterfeit and pirated

60. See Section 42 of the Copyright Act. 61. R. v. Farrell (2002), 19 C.P.R. (4th) 538 (N.B.C.Q.B.). 62. Regina v. Leahy (1988), 21 C.P.R. (3d) 422 (O.P.C.); R. v. Olan, Hudson & Hartnett (1978), 86 D.L.R. (3d) 212, 41 C.C.C. (2d) 145, [1978] 2 S.C.R. 1175. 63. Regina v. Kirkwood (1983), 73 C.P.R. (2d) 114 (O.C.A.).

Vol. 96 TMR 737 CDs, DVDs and videos, the accused were ultimately fined just $25,000 each and sentenced to two years probation. In August 2003, a British Columbia man was fined just $5,000 and given 18 months probation for selling pirated videogames. These levels of sentences are not sufficient to create meaningful deterrents.

While there is no doubt that certain counterfeiting activities can constitute criminal conduct under Canadian law, in reality the police will usually only investigate larger scale activities, where the target is a manufacturer, wholesaler or importer, or where a significant consumer safety issue has arisen. The police will usually not investigate smaller, “street-level” counterfeiters.64 While the police are willing to assist intellectual property rights holders, they lack the necessary resources.

In addition to insufficient resources, a lack of prosecutorial experience may have created an impediment to criminal counterfeiting prosecutions. As there have been relatively few criminal counterfeiting cases, there are relatively few prosecutors with expertise in prosecuting these crimes, which can involve specialized issues. Furthermore, because responsibility for prosecution is divided among provincial and federal prosecutors, there is no centralized body of prosecutors with the necessary focus and resources to prosecute these crimes.

Despite the impediments created by limited police or prosecutorial resources, there are steps that the intellectual property rights holder may take to assist authorities in pursuing counterfeiters. First, an effort should be made to report all counterfeiting activities, regardless of whether it will lead to an ultimate investigation or prosecution. This enables authorities to build a database of participants in the counterfeit market and may lead to later prosecutions against those repeatedly identified. It is also possible that such reporting may assist a parallel police investigation. Second, the intellectual property rights holder should pursue civil proceedings, which may lead to the initiation of a criminal investigation, particularly where the civil case is well developed. Third, given that criminal proceedings may follow the civil case, proper care should be taken in the handling of evidence used in any civil investigation or related proceeding. As a matter of ongoing due diligence, the intellectual property rights holder should also be developing relationships with experienced legal counsel and private investigators in anticipation of both civil and criminal actions.

The next subsection outlines the main civil claims that arise in counterfeiting situations and the typical remedies that are

64. See, for example, the RCMP’s enforcement guidelines dealing with counterfeiting investigations at its website: http://www.rcmp.ca/crimint/copyright_piracy_e.htm.

738 Vol. 96 TMR available to the aggrieved intellectual property rights holder in such cases.

C. Civil Trade-Mark Claims Many counterfeiting situations involve trade-mark

infringement. In counterfeiting cases, the offender often puts a well-known trade-mark on a cheap replica of a high-end product (watches, handbags, clothing, electronics, etc.) with a view to deceiving consumers into believing that the product is genuine.

Under Section 19 of Canada’s Trade-Marks Act, a trade-mark owner has the exclusive right to use its registered trade-mark in Canada with the registered wares/services. In other words, no one else can use the registered mark with similar products and sell them in Canada. Section 19 often applies in counterfeiting cases as well because the counterfeiter has put the exact trade-mark on its own product without authority. By doing so, it has infringed the trade-mark.65

Under Section 20 of the Trade-Marks Act, a trade-mark owner’s rights are said to be infringed by anyone who, without authority, sells, distributes or advertises wares or services in association with a confusingly similar trade-mark or trade-name. In these cases, the trade-marks do not have to be identical. Thus, Section 20 expands the rights conferred on the trade-mark owner under Section 19.66 Theoretically, this section could apply where the counterfeiter puts a deceptively similar trade-mark on the counterfeit product. In these “knock-off” situations, the counterfeiter is hoping that the consumer does not recognize the slight distinction between the legitimate brand and the deceptively similar one that it has used.

Section 7(b) of the Trade-Marks Act prevents anyone from directing public attention to its wares, services and business in such a way as to cause or to be likely to cause confusion in Canada between those wares, services and business, and those of another.67 In many counterfeit cases, claims could arise under Section 7(b) because the counterfeiter is doing exactly what that section is intended to preclude: causing confusion by pretending its products are someone else’s. Unlike Sections 19 and 20, Section 7(b) does not require that the trade-mark be registered. Section 7(b) is essentially a codification of the common law tort of passing

65. Gianni Versace S.p.A. et al. v. 1154979 Ontario Ltd. et al. (2003), 28 C.P.R. (4th) 217 (F.C.C.). 66. Mr. Submarine v. Amandista Investments Ltd. (1987), 19 C.P.R. (3d) 3 (F.C.A.); NHL v. Pepsi-Cola Canada (1992), 42 C.P.R. (3d) 390 (B.C.S.C.). 67. Asbjorn Horgard A/S v. Gibbs/Nortac Industries Ltd. et al. (1987), 14 C.P.R. (3d) 314 (F.C.A.).

Vol. 96 TMR 739 off, which is also designed to prevent someone from pretending or suggesting that his/her goods are someone else’s.68 In one counterfeiting case, the owner of the LOUIS VUITTON mark was successful in preventing a Korean company from selling counterfeit handbags under this section and received compensation based on the counterfeiter’s profits.69 In another case, the owner of the HERMÈS brand relied on a passing off claim to restrain a company from selling cheap imitations of its well-known handbags.70

Counterfeiting can also give rise to a claim under Section 22 of the Trade-marks Act, which protects trade-mark goodwill. In circumstances where someone else adopts and uses a registered trade-mark without authority in a manner that is likely to depreciate the goodwill (e.g., the value of the reputation) associated with a trade-mark, a claim can be brought under Section 22. Where a counterfeiter places someone else’s registered trade-mark on an inferior product, it is quite likely that a Section 22 claim could be successfully advanced. For example, in a case involving the sale of various counterfeit television programs and related merchandise, the court agreed that the sale of inferior counterfeit products would damage the plaintiffs’ reputation and diminish the value of the goodwill associated with their intellectual property.71

Civil counterfeiting cases involving trade-marks give rise to a range of remedies, including damages, profits, entitlement to legal costs, and injunctive relief. In addition to these remedies, the Trade-Marks Act contains a handful of remedial detention provisions of some utility in counterfeiting situations.72 Under Section 53, a trade-mark owner can seek interim custody of potentially infringing goods that have been imported into Canada by bringing an application, along with supporting evidence, showing that its registered trade-mark or its trade name have been applied to goods that are to be distributed in Canada in a manner that will violate its rights.73 Very often, the courts will

68. Reckitt & Colman Products Ltd. v. Borden Inc., [1990] 1 All E.R. 873 (H.L.); Perry v. Truefitt (1842), 6 Beav. 66, 49 E.R. 749; Singer Manufacturing Co. v. Loog (1880), 18 Ch. D. 395 (C.A.); aff’d, 8 App. Cas. 15 (H.L.). 69. Louis Vuitton, S.A. v. Endo (1991), 36 C.P.R. (3d) 524 (F.C.T.D.). 70. Hermès Canada v. Park (2004), 37 C.P.R. (4th) 244 (B.C.S.C.). 71. Viacom Ha! Holding Co. et al. v. Jane Doe et al.; Nintendo of America, Inc. et al. v. Jane Doe et al.; Walt Disney Co. et al. v. Jane Doe et al.; Time Warner Entertainment Co., L.P. v. Jane Doe et al. (2000), 6 C.P.R. (4th) 36 (F.C.T.D.) (2000), 6 C.P.R. (4th) 36 (F.C.T.D.). 72. Many of these sections resulted from changes required by the North American Free Trade Agreement. 73. There is no requirement to give notice to the alleged offender.

740 Vol. 96 TMR insist that the trade-mark owner post security as a condition precedent to granting an interim order. However, this section only applies when the goods have already been imported. Also, an order under Section 53 results in only a temporary seizure of the offending goods. The trade-mark owner must thereafter start formal proceedings within a limited period to determine the legality of the defendant’s activities. In the ensuing lawsuit, if the court finds that the defendant’s activities violate the Trade-marks Act, it may grant more permanent relief, including an order prohibiting the future importation of the products in question.

Under Section 53.1 of the Trade-marks Act, a trade-mark owner can seek an order granting interim custody of goods that have yet to be imported into Canada by bringing an application on notice to the Minister of National Revenue (the “Minister”) demonstrating that infringing products bearing its trade-mark are about to be imported into Canada or released into Canada.74 In response, the court may direct the Minister to detain these suspect products and to notify the trade-mark owner and the owner/importer of the wares that they have been detained. Again, the court will usually require the trade-mark owner to post security as a condition precedent to granting such an interim seizure order. The court will require the trade-mark owner to commence an action within a stipulated period for a final determination as to the legitimacy of the products, and will usually allow the parties to inspect the detained goods to substantiate or refute the trade-mark owner’s claim. Where the court agrees that the seized goods infringe the trade-mark owner’s rights, it may make any order that it sees fit, including an order that the wares be destroyed or exported, or that they be surrendered to the trade-mark owner. Except in exceptional circumstances, the court will not allow the counterfeit goods to be released in an unaltered state. Where the trade-mark owner fails to commence an action within the permitted time, the Minister will typically release the goods.

While the cited provisions of the Trade-marks Act give trade-mark owners some means by which to address counterfeiting situations, these measures are inadequate because they can be reactive, cumbersome, time-consuming and expensive. Unlike in other jurisdictions, such as the United States and in many European countries, relief is only available through reactive court proceedings: there is little a trade-mark owner can do proactively to prevent the importation of the counterfeit product. Also, practically speaking, the trade-mark owner will often lack the

74. Again, there is no specific requirement to notify the offender of the original application.

Vol. 96 TMR 741 market experience necessary to facilitate a Section 53.1 seizure until after the product has entered the country.

D. Civil Copyright Claims Copyright law protects an owner’s right to reproduce an

original work in any material form. In Canada, copyright can subsist in virtually every material form of original literary, dramatic, musical and artistic expression, provided that the author meets certain requirements. Copyright usually exists for the life of the author plus an additional 50 years, which is less than in some other countries. While a copyright owner can register his or her interest in a work, doing so is not a prerequisite to acquiring or enforcing copyright, as is the case in some other jurisdictions.

Civil copyright infringement involves copying a protected work without permission. So-called primary infringement involves copying, whereas secondary infringement usually involves the unauthorized distribution of an infringing copy.75 In one case, a defendant was held liable for copying and selling copies of a poster of Farah Fawcett-Majors without authority. While consumers were getting an actual poster of that celebrity (as opposed to an impostor), the copies were reproduced without the required permission. In that case, the court held that the counterfeit posters were the result of a clear, deliberate and calculated act of piracy, and awarded the copyright owner an injunction as well as substantial damages.76

A copyright owner may be able to sue for infringement not only where there has been unauthorized copying of the product itself, but also for unauthorized copying of a peripheral or collateral work that is distributed in association with a product that is not protected by copyright, such as a warranty card, an information tag, product instructions, instruction manual, etc. In some trademark counterfeiting cases, these options are overlooked.

Under Section 64 of the Copyright Act, it is not an infringement of copyright or moral rights to reproduce or copy

75. Under Section 27(2) of the Copyright Act:

[It] is an infringement of copyright for any person to (a) sell or rent out, (b) distribute to such an extent as to affect prejudicially the owner of the copyright, (c) by way of trade distribute, expose or offer for sale or rental or exhibit in public, or (d) possess for the purpose of doing anything referred to in paragraphs (a) to (c), or (e) import into Canada for the purpose of doing anything referred to in paragraphs (a) to (c), a copy of a work, sound recording or fixation of a performer’s performance or of a communication signal that the person knows or should have known infringes copyright or would infringe copyright if it had been made in Canada by the person who made it. [Emphasis added.]

76. Pro Arts, Inc. v. Campus Crafts Holdings Ltd. et al. (1980), 50 C.P.R. (2d) 230 (O.H.C.J.).

742 Vol. 96 TMR certain designs that are applied to a useful article that is reproduced in a quantity of more than 50, except in limited circumstances.77 Under Section 64.1 of the Copyright Act, it is not an infringement of copyright or moral rights to apply to a useful article any features dictated solely by a utilitarian function of the article or to reproduce in any material form features of an article that are dictated solely by its utilitarian functions.78 These sections may limit the application of copyright law in counterfeiting situations involving products such as watches, jewelry, vases, or other functional products. However, these works may be protected under the Industrial Design Act, discussed at IV.E., below.

As in trade-mark cases, an array of remedies is available to the aggrieved intellectual property rights holder in copyright infringement cases. In addition, the Copyright Act contains customs detention provisions. Under Section 44, a court may order the seizure and detention of goods where a judge is satisfied that: (a) copies of a work are about to be imported into Canada, or have been imported into Canada but have yet to be released; and (b) copies of the work were made without the consent of the person who owned the copyright in the country where they were made, or the copies were made elsewhere than in a country to which the Copyright Act extends, but the copies would infringe copyright if they were made in Canada by the importer and the importer knows or should have known of this.79

Under Section 44.1, a court may order the seizure of a work in response to an application by the copyright owner or its exclusive licensee for such an order. Very often the court will require that the party seeking the order furnish security to cover duties, storage, handling charges, and any damages that the importer may incur by reason of the seizure order. This application can be brought with or without notice to the importer, although the Minister must be given notice. Thereafter, the Minister will notify the applicant and the importer as to what has occurred and why. After receiving notice, the copyright owner or licensee is obligated to initiate proceedings to have the issue of infringement determined by a court. The Minister will typically give the applicant and the importer an opportunity to inspect the detained works for the purpose of substantiating or refuting the claims

77. This rule and certain of the exceptions noted apply based in part on when the work was created. 78. For these purposes, a “useful article” is one that has a utilitarian function, and a “utilitarian function” is one that does something other than merely serving as a substrate or carrier for an artistic or literary work. 79. There are specific provisions dealing with the importation of books that broaden the circumstances in which a customs detention order can be sought and obtained. Section 44.2.

Vol. 96 TMR 743 advanced.80 In the event that proceedings do not follow, the goods will invariably be released.

Where the court ultimately finds in favour of the copyright owner or licensee, it may make any order that it considers just and appropriate in the circumstances, including an order that the works be destroyed or delivered up to the copyright owner or licensee. Where the copyright owner or licensee fails to commence an action within the permitted time (e.g., usually 14 days), unless the court has ordered otherwise, the Minister will typically release the goods.

While these remedies are ostensibly designed to assist copyright owners in dealing with counterfeiting situations, the available relief is of limited utility because it is largely reactive. As with the trade-mark remedies discussed earlier (at IV.C., above), the copyright remedies provide intellectual property rights holders with virtually no proactive ability to take steps to protect themselves in advance against counterfeit or pirated product.

E. Industrial Design Claims Canadian copyright law does not protect designs applied to

certain useful articles. However, the unique appearance of such products may be protected under the Industrial Design Act.81 This legislation defines a design as the features of shape, configuration, pattern or ornament that, in a finished article, appeal to and are judged solely by the eye. In order to obtain protection, the design’s owner must apply to register it within one year after the publication of the design. Once the design is registered, it can be protected for a maximum period of ten years. During that time, only the owner is entitled to make, import for the purpose of trade or business, or sell, rent, or offer or expose for sale or rent, any article in respect of which the design is registered and to which the design or a very similar design has been applied.

Like most intellectual property statutes, one of the key objectives of the Industrial Design Act is to protect the public against being deceived into thinking that an infringing article is, in fact, genuine (i.e., it emanates from the owner of the design).82 Thus, this legislation may be relied on in counterfeiting situations where, for example, the counterfeiter is selling a product like a wristwatch whose design is protected by an industrial design registration. Those engaged in manufacturing and selling “useful” consumer products with unique design characteristics would be 80. Section 44.4 contains comparable provisions regarding works, such as sound recordings, performer’s performance and communication signals. 81. R.S.C. 1985, c. I-9. 82. Mainetti S.P.A. v. E.R.A. Display Co. Ltd. (1984), 80 C.P.R. (2d) 206 (F.C.T.D.).

744 Vol. 96 TMR well-advised to consider protecting their products under this legislation. Unfortunately, while the legislation operates to preclude the importation of offending products (i.e., products reproducing the protected design), it contains no border detention provisions.

F. Patent Claims A Canadian patent can cover any new and useful art, process,

machine, manufacture or composition of matter, or any new and useful improvement in any art, process, machine, manufacture or composition of matter. Generally, patentable subject-matter involves a product, a process or an apparatus that has a technical and commercial objective or application.83 While the Patent Act does not specifically define infringement, it is said to occur where someone without authority does that which only the patentee is entitled to do or “interferes with the full enjoyment of the monopoly granted.”84 For counterfeit goods, this could include the unauthorized manufacture, importation, sale or use of a product in Canada, such as a drug, that embodies the subject matter of the patented invention. Where goods incorporating the subject matter of a Canadian patent are imported from elsewhere, this will usually infringe the Canadian patent unless its owner has approved the importation. While patent laws are not frequently used in counterfeiting situations, they may be applicable and are worth considering.

V. INJUNCTIVE REMEDIES As noted above, there are legal options available to the

intellectual property rights holder faced with a counterfeiting situation. However, virtually all of these options involve court proceedings. This section discusses two of the key remedies often sought in such proceedings. While the aggrieved intellectual property rights holder can also seek damages or lost profits in any ultimate trial or settlement, a discussion of these types of remedies is beyond the scope of this paper.

A. Injunctions An injunction is an equitable remedy that directs someone to

stop doing something.85 As the intellectual property rights owner’s

83. Robert Barrigar, Canadian Patent Act Annotated § 2:90 (Canada Law Book, 1997). 84. Lishman v. Erom Roche, Inc. (1996), 68 C.P.R. (3d) 72 (F.C.T.D.), aff’d, 71 C.P.R. (3d) 146 (F.C.A.). 85. Halsbury’s Laws of England, Vol. 21, 343 (3d ed. 1994).

Vol. 96 TMR 745 main goal in a counterfeiting situation is to stop the activity, an interlocutory or pre-trial injunction is the best remedy. Under Canadian law, an intellectual property rights owner can obtain an interlocutory injunction by showing that: (i) its claim raises a serious issue to be tried, (ii) damages will not provide adequate compensation for the harm it will suffer, and (iii) the balance of convenience favours granting an injunction.86

First, an intellectual property rights holder seeking an interlocutory injunction must show that it has a tenable claim. This is reasonable because it would be unfair to restrain an alleged counterfeiter on the basis of a frivolous claim. While the test says that the intellectual property rights holder must show that its claim raises “a serious issue to be tried,” this really means that it must only show that its claim is not frivolous.87 Practically speaking, the court will not assess the merits of the intellectual property rights holder’s complaint in any great detail.88

Second, the intellectual property rights holder seeking an interlocutory injunction must show that damages after trial will not afford adequate relief. In other words, it must show that its damages are “irreparable.” Usually, irreparable harm refers to damages that cannot be quantified, cured or paid.89 A few years ago, proving irreparable harm was relatively easy because the court would presume that the infringement of an intellectual property right caused such harm.90 However, Canadian courts have abandoned that presumptive approach in intellectual property cases.91 Currently, the intellectual property rights holder must show compelling evidence that it will suffer irreparable harm in order to obtain an injunction.92 While proving irreparable harm

86. RJR-Macdonald, Inc. v. Canada (1994), 54 C.P.R. (3d) 114 (S.C.C.). 87. Id. at 132-33. 88. Id.; however, the court may engage in a more detailed assessment of the merits where it appears that the injunction will dispose of the litigation: see, e.g., Coca-Cola Ltd. v. Fisher Trading Co. (1998), 25 C.P.R. (3d) 200, 206 (F.C.T.D.) per Teitelbaum J.; Caterpillar, Inc. v. Chaussures Mario Moda, Inc. (1995), 62 C.P.R. (3d) 338, 342 (F.C.T.D.). 89. Where the counterfeiter lacks the resources to satisfy any damages that would ultimately flow from a finding of liability, the court will usually lean in favour of granting an injunction. 90. Horn Abbot Ltd. v. Thurston Hayes Developments Ltd. (1997), 77 C.P.R. (3d) 10 (F.C.T.D.); Jercity Franchises Ltd. v. Foord (1990), 34 C.P.R. (3d) 289 (F.C.T.D.); H.J. Heinz Co. of Canada Ltd. v. Edan Foods Sales, Inc. (1991), 35 C.P.R. (3d) 213 (F.C.T.D.); Coca-Cola Ltd. v. Fisher Trading Co. (1988), 25 C.P.R. (3d) 200 (F.C.T.D.); Joseph E. Seagram & Sons Ltd. v. Andres Wines Ltd. (1987), 16 C.P.R. (3d) 481 (F.C.T.D.); Interlego AG et al. v. Irwin Toy Ltd. et al. (1985), 3 C.P.R. (3d) 476 (F.C.T.D.). 91. Nature Co. v. Sci-Tech (1992), 41 C.P.R. (3d) 359, rev’g (1991) 40 C.P.R. (3d) 184 (F.C.T.D.); Centre Ice Ltd. v. National Hockey League (1994), 53 C.P.R. (3d) 34 (F.C.A.). 92. Syntex, Inc. v. Novopharm Ltd. (1990), 26 C.P.R. (3d) 481 (F.C.T.D.) supplementary reasons at 27 C.P.R. (3d) 350; rev’d (1991) 36 C.P.R. (3d) 129 (F.C.A.); Centre Ice Ltd. v.

746 Vol. 96 TMR is always challenging, it is easier in counterfeiting cases, particularly where the defendant is using the plaintiff’s trade-mark in association with an inferior product such that the brand’s goodwill is at risk.93 While in some cases the courts have said that there is no need to prove irreparable harm in cases of blatant copying,94 some intellectual property rights holders have failed to obtain injunctions to prevent counterfeiting because they have failed to show irreparable harm.95 Still, the prevailing approach is that the sort of damage associated with counterfeiting will constitute serious and irreparable harm. 96

Third, the intellectual property rights holder seeking an interlocutory injunction must show a favorable balance of convenience. In this analysis, the court compares the impact of the defendant’s conduct on the plaintiff against the effect of an injunction on the defendant, with a view to determining which party will suffer the greater harm by an adverse result on the injunction application.97 This is a flexible exercise: there is no rigid test as to what the court can or should consider. In almost every counterfeiting case, the balance of convenience will favour the intellectual property rights owner.

Finally, an intellectual property rights holder must, as a condition precedent to obtaining an interlocutory injunction, agree to pay for whatever damages an unwarranted pre-trial injunction may cause the defendant. This undertaking must be adequate in the sense that the plaintiff must have the necessary assets.98

Where injunctive relief is granted and the impugned activities continue, as sometimes happens in counterfeiting cases, the intellectual property rights holder can ask a judge to hold the non-compliant counterfeiter in contempt of court.99 However, a finding of contempt must be on the basis of proof beyond a reasonable National Hockey League (1994), 53 C.P.R. (3d) 34 (F.C.A.), rev’g (1994) 53 C.P.R. (3d) 34 (F.C.T.D.). 93. Northern Lights Expeditions Ltd. v. Spirit Wind Expeditions Ltd. (2001), 15 C.P.R. (4th) 134 (B.C.S.C.). 94. Gianni Versace S.p.A. et al. v. 1154979 Ontario Ltd. et al. (2003), 28 C.P.R. (4th) 217 (F.C.A.); Jeffrey Rogers Knitwear Productions Ltd. et al. v. R. D. International Style Collections Ltd. (1985), 6 C.P.R. (3d) 409 (F.C.T.D.). 95. Castlemore Marketing, Inc. v. Intercontinental Trade and Finance Corp. (1996), 65 C.P.R. (3d) 334 (F.C.T.D.). 96. Hermès Canada v. Park (2004), 37 C.P.R. (4th) 244 (B.C.S.C.). 97. Manitoba (A.G.) v. Metropolitan Stores (MTS) Ltd. (1987), 38 D.L.R. (4th) 321, 324 (S.C.C.); Turbo Resources Ltd. v. Petro Canada Inc. (1988), 22 C.P.R. (3d) 481 (F.C.T.D.), aff’d (1989), 24 C.P.R. (3d) 1 (F.C.A.). 98. Gonzalez v. Mark Anthony Group, Inc. (1992), 44 C.P.R. (3d) 234 (B.C.S.C.). 99. Nintendo of America, Inc. v. 798824 Ontario, Inc. (1991), 34 C.P.R. (3d) 559 (F.C.T.D.); Nintendo of America, Inc. v. 798824 Ontario, Inc. (1991), 39 C.P.R. (3d) 201 (F.C.T.D.).

Vol. 96 TMR 747 doubt, and it will invariably involve additional time and expense. In the event of a finding of contempt, the presiding judge can impose a fine and even a sentence of incarceration.

B. Anton Pillar Orders In many counterfeiting cases, the intellectual property rights

holder is concerned about the defendant’s integrity and believes that, if it sues and serves notice of its claim, the counterfeiter will destroy the evidence and disappear, thus rendering the lawsuit pointless. In these situations, the usual approach is to seek an Anton Pillar order (i.e., a civil search warrant) to enable counsel to arrive unannounced and to identify and seize evidence of the counterfeiter’s activities.100 At the same time, counsel typically seeks an interim injunction seeking to restrain the suspected counterfeiter’s activities.

There are two types of Anton Pillar orders. In the first, the identity of the defendant(s) is known and the plaintiff can adduce evidence of particular acts of infringement. In order to obtain such an order, the intellectual property rights holder must show that: (i) there is a strong prima facie case; (ii) the damage it will suffer is serious; and (iii) there is evidence that the target has incriminating documents or things and there is a real possibility of destruction of same prior to an application being made on notice.101 For some judges, it is insufficient to demonstrate flagrant infringement or that persons engaged in such activities will, by their nature, conceal evidence if not seized from them by surprise. For these judges, the applicant must show a real likelihood that, if the defendant(s) is/are properly served and the case proceeds in the ordinary course, evidence would be destroyed.102 However, this approach has been criticized as too stringent. The prevailing wisdom is that, in satisfying this test, it is sufficient to show that the defendant has demonstrated a propensity for being dishonest.103

In considering the requirement of proving the possibility of imminent destruction of evidence, the courts have recognized that it is often impossible to produce direct proof that a defendant will destroy material. Generally, they will infer a risk of destruction

100. Nike Canada Ltd. et al. v. Jane Doe et al. (1999), 1 C.P.R. (4th) 289 (F.C.T.D.). 101. Anton Piller K.G. v. Manufacturing Processes Ltd., [1976] 1 All. E.R. 779 (C.A.); Bardeau Ltd. et al. v. Crown Food Serv. Equip. Ltd. et al. (1982), 36 O.R. (2d) 356; Robert J. Sharpe, Injunctions and Specific Performance, 2-65-2-66 (Canada Law Book 1983). 102. Nintendo of America, Inc. v. Coinex Video Games, Inc. et al.; see order dated December 9, 1982—court file No. T-9207-82, unreported. 103. Nintendo of America, Inc. v. Coinex Video Games Inc. et al. (1982), 69 C.P.R. (2d) 122 (F.C.A.).

748 Vol. 96 TMR when it is shown that the defendant has been acting dishonestly, such as where the defendant has knowingly violated the applicant’s rights.104

With respect to the requirement of proving serious harm, this does not mean that the intellectual property rights holder must show that damages would be an inadequate remedy at trial, which could limit the availability of the relief. Rather, the moving party must show that it will suffer real damage without the order. Often, the plaintiff will point to the fact that it cannot control the quality of the products being used with its brand to satisfy this requirement.105 Also, the plaintiff might allege that the damage to the goodwill associated with its brand constitutes serious harm.106 Finally, the plaintiff may argue that its inability to prove its case at trial, should the infringing material be unavailable, constitutes serious harm.107

In the second type of Anton Pillar order, the identity of the defendants is unknown and thus little specific information is available. In these cases, which are launched against anonymous defendants, the plaintiff will have to show that it is suffering serious harm because of someone’s sale of counterfeit merchandise. These are generally referred to as “rolling” Anton Pillar orders and are often used to address counterfeiting involving street vendors, flea markets, etc. After these orders are obtained, they are served on counterfeiters as they are discovered and their goods are seized as evidence. While the seized property is held as evidence, the practical effect of the seizure is often to stop the vendor’s business while the legal proceedings unfold.

There are stringent evidentiary requirements associated with obtaining such an order.108 Because the order is viewed as an extraordinary and intrusive remedy, the evidence will be carefully scrutinized. The party filing the evidence must be as candid as possible in its description of the evidence.109 The requirement for “full and frank disclosure” applies to virtually all applications where relief is sought without giving the adverse party an opportunity to respond. While this obligation is limited to that which is relevant to the matters at hand, the intellectual property rights holder should appreciate that a failure to disclose relevant

104. Capitanescu et al. v. Universal Weld Overlays, Inc. et al. (1996), 71 C.P.R. (3d) 37 (A.C.Q.B.). 105. Viacom Ha! Holding v. Jane Doe (2000), 6 C.P.R. (4th) 36 (F.C.T.D.). 106. Culinar Foods v. Mario Food Prods. (1987), 2 F.C. 53 (F.C.T.D.). 107. Capitanescu et al. v. Universal Weld Overlays, Inc. et al. (1996), 71 C.P.R. (3d) 37 (A.C.Q.B.). 108. Club Monaco, Inc. v. Woody World Discounts (1999), 2 C.P.R. (4th) 436 (F.C.T.D.). 109. Fila Canada v. Jane Doe (1996), 68 C.P.R. (3d) 1.

Vol. 96 TMR 749 facts, particularly where they are not helpful, can jeopardize the ultimate viability and survival of any order obtained. Typically, the plaintiff will have to file an affidavit from someone with personal knowledge of the issues at hand demonstrating: (i) a number of actual instances of counterfeiting; (ii) some proof that the merchandise at issue is counterfeit; (iii) damage to the plaintiff’s goodwill (e.g., general statements about the effect of counterfeiting on the value of the plaintiff’s intellectual property); and (iv) if a national order is sought, evidence of a widespread problem.

As noted earlier, these rolling orders are served on counterfeiters as they are discovered. After a search discloses evidence of counterfeiting, the plaintiff will formally add these counterfeiters as named defendants, and seek an injunction and an award of costs. The parties served with these orders rarely appear in court to challenge the case against them; rather, the plaintiff usually obtains its judgment in default or by consent. The good prospects for success are offset by the regrettable investment of time and money to obtain such orders. Moreover, the courts have imposed responsibilities on the parties who are awarded such orders to ensure that they are not abused.110 The conduct of the party executing the orders is reviewed by the court after the fact. Prior to this review and approval hearing, the plaintiff is required to prepare a detailed list of the seized goods and to serve the list on the person from whom they were seized. In addition, that list must be produced at the review motion.111 The defendants seldom attend these review hearings; however, where the plaintiff has failed to comply with its responsibilities, the presiding judge may reject its request for further relief against a known defendant and may even vacate the previous orders granted.

In order to ensure that defendants are properly protected by these extraordinary orders, some judges will require that the plaintiff retain independent counsel to act as a supervising solicitor or amicus curiae, chosen by the court, to monitor the execution of these orders.112 In addition, some judges have

110. Nike Canada Ltd. et al. v. Jane Doe et al., Fila Canada, Inc. v. Jane Doe et al., Walt Disney Co. (Canada) Ltd. et al. v. Jane Doe et al., Time Warner Entertainment Co., L.P. v. Jane Doe et al., GTFM, Inc. et al. v. John Doe et al., Viacom Ha! Holding Co. et al. v. Jane Doe et al., Ragdoll Productions (UK) Ltd. et al. v. Jane Doe et al., Adidas-Salomon AG et al. v. Jane Doe et al., Nintendo of America, Inc. et al. v. Jane Doe et al. (1999), 1 C.P.R. (4th) 289, 293 (F.C.T.D.). 111. It is at this approval motion that plaintiff’s counsel will seek to formally add those who have been served with the rolling Anton Pillar order as defendants and to continue any injunctive relief earlier obtained. In addition, the plaintiffs will usually seek and obtain an order for some compensation for its legal costs associated with all proceedings to date. 112. Nike Canada Ltd. et al. v. Jane Doe et al., Fila Canada, Inc. v. Jane Doe et al., Walt Disney Co. (Canada) Ltd. et al. v. Jane Doe et al., Time Warner Entertainment Co., L.P. v.

750 Vol. 96 TMR expressed concern with the practice of joining or coordinating the execution of civil Anton Pillar orders with parallel criminal investigations and proceedings.113 The party seeking the Anton Pillar order should appreciate that, if it later turns out that its case was unfounded and that a search was unwarranted, it could be held responsible for damages and costs. 114

In summary, the options available to intellectual property rights holders faced with counterfeiting activities in Canada are largely reactive, involve substantial legal expenses in most cases, and are woefully inadequate. In 2005, the Intellectual Property Section of the Canadian Bar Association (CBA) prepared a submission to the authorities identifying many of the inadequacies in Canada’s legal system regarding counterfeiting and calling for reform.115 As discussed below, the international community has joined in the vocal criticism of Canadian law as it applies to counterfeiting and is likewise demanding reform.

VI. HOW WEAK IS THE CANADIAN REGIME? THE IACC’S 2005 AND 2006 SUBMISSIONS TO THE

UNITED STATES TRADE REPRESENTATIVE Section 182 of the United States Trade Act of 1974116 allows

the USTR to identify foreign countries that violate U.S. intellectual property rights. Under this section, the USTR may initiate a Section 301 investigation of countries that fail to provide adequate protection to intellectual property rights. The USTR can negotiate the end of violations or recommend retaliatory measures. As a matter of practice, the IACC makes regular submissions to the USTR regarding the need to take action in specific countries where counterfeiting is a significant problem and/or where anti-counterfeiting measures are considered particularly weak.

In 2005, the IACC made a submission to the USTR,117 requesting that Canada be named a Priority Foreign Country along with China (the only two countries selected for this dubious Jane Doe et al., GTFM, Inc. et al. v. John Doe et al., Viacom Ha! Holding Co. et al. v. Jane Doe et al., Ragdoll Productions (UK) Ltd. et al. v. Jane Doe et al., Adidas-Salomon AG et al. v. Jane Doe et al., Nintendo of America Inc. et al. v. Jane Doe et al. (1999), 1 C.P.R. (4th) 289, 293 (F.C.T.D.). 113. Id. 114. Club Monaco, Inc. v. Woody World Discounts (1999), 2 C.P.R. (4th) 436 (F.C.T.D.); Havana House Cigar & Tobacco Merchants Ltd. et al. v. Jane Doe et al. (2000), 9 C.P.R. (4th) 1 (F.C.T.D.), aff’d 17 C.P.R. (4th) 414 (F.C.A.). 115. Submission on Modernization of Trade-marks Act: Product Counterfeiting, Canadian Bar Association, Intellectual Property Section, July 2005. 116. 19 U.S.C. § 2411. 117. IACC Submission to the USTR, February 11, 2005.

Vol. 96 TMR 751 distinction). Its submission reflected growing frustration with the legal status quo in Canada. In particular, the IACC expressed a high level of disappointment with the absence of any meaningful border enforcement measures in Canada. The IACC concluded that, with the exception of efforts by the RCMP, there was no visible movement by the Canadian government to initiate any meaningful steps to implement an effective IP enforcement system to address counterfeiting activities. The IACC stated:

Indeed, the level of right holder frustration has risen to the point where some IACC members believe that the ability of obtaining enforcement assistance in China is much better than any chance of meaningful enforcement in Canada.118

While in 2005 the USTR chose to leave Canada on the watch list rather than elevate it to priority status, the weak Canadian situation has clearly become visible internationally.

In February 2006, the IACC again asked the USTR to name Canada as a Priority Foreign Country along with China.119 Once again, it expressed disappointment with the absence of any apparent movement to address Canada’s relatively weak border enforcement measures and noted that these issues need to be higher on the overall political agenda. At the time of this writing, it is unclear whether the USTR will accept the IACC’s recommendations.

The lack of effective border enforcement compares poorly with the situation in many countries. In light of the relative ease with which counterfeit goods can enter Canada, it is plausible that the country has become a gateway for counterfeit product ultimately destined for the large U.S. market. The two countries share the world’s longest undefended border, which exceeds 6000 kilometers. There are approximately 140 official border crossings between the two countries, some of which are comprised of significant inspection stations, while others are no bigger than the average size home and maintain only part-time hours. At least some counterfeiters have taken note of the opportunities. In June 2000, the RCMP seized a shipment of 12,000 pairs of counterfeit OAKLEY sunglasses from a Toronto-based company.120 The company was apparently set up to import counterfeit products into Canada from China, then to export the merchandise to New York City.

The IACC has also noted that, in addition to the weakness of anti-counterfeiting laws in Canada and the inadequate authority accorded to border officials, police organizations like the RCMP 118. Id. at 8. 119. IACC Submission to the USTR, February 10, 2006. 120. RCMP website: http://www.rcmp.ca/crimint/copyright_piracy_e.htm.

752 Vol. 96 TMR lack the manpower to investigate or pursue many suspected counterfeiters—even where intellectual property rights holders have persuasive evidence of a violation. It is clear from the 2005 and 2006 IACC submissions that this organization believes that the Canadian government lacks the will either to design effective legislation or to support existing laws with sufficient resources.

In its reports, the IACC has asked the USTR to compel evidence of Canada’s efforts to improve its enforcement system, including: (i) the adoption of policies to recognize intellectual property protection and enforcement as a priority; (ii) the implementation of an effective border enforcement system that eliminates the need to obtain prior court orders, and that gives customs the authority to provide product samples to intellectual property rights holders for inspection and to compel disclosure of information regarding importers, exporters, country of origin, etc.; (iii) the adoption of an enforcement system that provides for ex officio actions; (iv) the enactment of clear provisions that provide for the seizure, forfeiture and destruction of counterfeit goods, wherever located; (v) the issuance of guidelines and policies to enable government and law enforcement to exchange information regarding suspect goods and shipments; (vi) increased anti-counterfeiting resources for the authorities, including customs and the RCMP; and (vii) the development of judicial and administrative penalties to better deter counterfeiting and piracy.

The IACC makes a compelling case for change, which should stimulate discussion and government action. In addition, government action may be required to ensure that Canada’s laws comply with its international obligation to implement adequate border protection.121 While Canada purported to comply with its obligations to strengthen its borders by means of amendments to existing legislation (e.g., see the discussion earlier on the border detention provisions contained in the Trade-marks Act and the Copyright Act at IV.C. and IV.D., above), it is quite clear that many view these changes as inadequate and ineffective. Certainly, the current legislative framework does not give border authorities the broad powers that exist elsewhere, as discussed below.

VII. BETTER BORDER ENFORCEMENT AND LEGAL TOOLS AVAILABLE ELSEWHERE

Many jurisdictions have developed border enforcement measures that allow intellectual property rights holders to arrange for custom seizures without first obtaining civil court orders.

121. For example, see the 1994 North American Free Trade Agreement (NAFTA) and similar international agreements.

Vol. 96 TMR 753 Proactive border measures facilitate the timely, efficient enforcement of rights. Selected countries are reviewed below.

A. The United States The U.S. Bureau of Customs and Border Protection (BCBP)122

can deny entry to products that appear to infringe recorded intellectual property rights. To engage the BCBP, the intellectual property rights holder needs only to record its rights by sending: (i) a copy of its certificate of registration; (ii) a list of foreign authorized manufacturers and licensees;123 and (iii) an official fee of $190 per class of goods covered, per the standard international classification. The BCBP enters this information into a database and monitors inbound goods for possible counterfeiting. Where goods appear to infringe a recorded right, the BCBP seizes them and issues a notice to the importer and the intellectual property rights owner. It should be noted that there is no need for the intellectual property rights holder to first appear in court. The importer can then initiate proceedings to recover the captured product; if this measure fails, the goods will be destroyed or entry will be refused.124 In practice, the importer bears the onus of showing that its goods are authentic or otherwise non-infringing. Consequently, it would not be surprising to find that those who try to import counterfeit goods are disinclined to initiate proceedings to recover suspect goods.

The advantages of the U.S. system over that of Canada are obvious. Under this system, for a small fee, the intellectual property rights holder can engage customs officials to monitor the U.S. border for suspected counterfeit goods. Moreover, U.S. authorities have a great deal of power in terms of both seizing and destroying counterfeit goods. After seizure, the importer has the obligation to start proceedings to recover the suspect goods. The intellectual property rights owner gets a key partner in combating counterfeiting at a relatively low cost.

In addition to the BCBP regime, intellectual property rights holders in the U.S. can launch anti-counterfeiting proceedings against foreign companies before the United States International Trade Commission (USITC). To commence such an action, the complainant must either own or be an exclusive licensee of the

122. Formerly known as the U.S. Customs Service. 123. This information enables the BCBP to determine whether goods bearing a recorded trade-mark are legitimate grey market goods produced by or with the authorization of the trade-mark owner. 124. In the United States, intellectual property rights holders will typically and proactively educate customs officials about their trade-marks and products in order to assist them in identifying and seizing counterfeit goods.

754 Vol. 96 TMR intellectual property right at issue. While these proceedings are somewhat complex, they can be useful in addressing more significant counterfeiting than mere border-crossing of obviously counterfeit goods. Moreover, the proceedings are typically quicker than civil litigation because they are supposed to be completed expeditiously. The USITC can impose remedies that include the issuance of exclusion orders barring the entry of the respondent’s goods.

B. The United Kingdom In the United Kingdom, the owner of a registered trade-mark

can also record its rights at the border and thus engage officials in detecting counterfeit goods. The trade-mark owner is required to submit proof of ownership and additional information, including: (i) details of any known differences between legitimate and counterfeit goods; (ii) particulars of any known counterfeiting activities; (iii) contact information for a person to inspect the product in the event of a seizure; (iv) a written undertaking to pay the costs incurred by customs in keeping goods under its control; (v) a written undertaking to be responsible for any liability towards an alleged infringer if seized goods are later found not to be non-infringing; and (vi) a letter of authority appointing counsel to act in relation to any action that customs may take. Under this system, because the identification of counterfeit products is of paramount importance, great efforts are made to train customs officials to spot suspicious goods, such as by identifying known sources of counterfeit products and explaining any typical indicators of counterfeit goods.

C. Germany In Germany, similar measures are available to facilitate the

seizure of counterfeit goods without prior resort to the courts. Under this system, the trade-mark owner submits a recordal application along with: (i) proof of its registered trade-mark; (ii) a description of the genuine goods and means of identification; (iii) identification of the usual channels of trade, including companies involved in making or importing genuine goods; (iv) images or a description of infringing goods, along with information regarding those involved in related activities; and (v) the name of a contact person for German Customs to contact in the event of a seizure to assess the seized goods and/or to provide instructions. In the event of a seizure, there are various options and remedies available to the intellectual property rights holder, including the right to have the goods destroyed.

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D. China In China, intellectual property rights holders can register

their rights with the General Customs Administration of China and empower the authorities to detain or inspect goods that are to be exported from or being imported into China. As in most countries, this involves providing certain information and proof of ownership of the relevant right, as described above. In the event that customs officials become aware of an infringing shipment, they will contact the intellectual property rights holder while seizing and preserving the cargo pending further action.

In summary to this section, the foregoing discussion demonstrates that many countries have meaningful border enforcement tools available to combat counterfeiting whereby goods can be inspected and seized without prior recourse to the courts. These measures differ significantly from those in Canada, where the intellectual property rights holder must gather intelligence, develop its evidence, initiate legal proceedings, post security, and, hopefully, obtain a court order prior to customs having the ability to seize counterfeit goods. Moreover, intellectual property rights holders in Canada must ultimately pursue legal proceedings through to a judgment on the merits absent an earlier settlement or a default judgment.

VIII. CONCLUSION: WHAT NEEDS TO BE DONE IN CANADA

Counterfeiting is a growing problem that creates serious risks and has a detrimental effect on many industries. Historically, companies doing business in Canada have sought to address counterfeiting by means of the traditional civil remedies, which are expensive, time-consuming and cumbersome. More recently, such companies, finding traditional remedies ill-suited to prevention, are focusing their energy on internal anti-counterfeiting programs, with a view to more proactive management of the problem. At least in part, this is because the law is ill-suited to prevent counterfeiting activities. Whereas most Canadians view their legal systems and processes as relatively sophisticated, the country’s counterfeiting laws fall far short of the standards in the global community. This needs to change.

There is no mystery to the solution: Canada needs to look outward. It needs to adopt border enforcement measures that allow intellectual property rights holders to record their rights at the border and to engage the proactive assistance of customs to prevent the entry of counterfeit goods into the Canadian market, without the need for first seeking court approval. Furthermore, customs officials need to be able to run this program with some independence and must be empowered to seize and inspect

756 Vol. 96 TMR products that appear to infringe recorded intellectual property rights.

To engage customs, Canadian intellectual property owners should be required only to file a copy of their registered intellectual property certificate and a fee. As part of this process, they should be able to train customs officials to spot counterfeit goods by disclosing the regular source of legitimate goods and any known or suspect sources of counterfeit goods. Where customs officials spot suspect goods, they should be empowered to seize these goods then and there for a limited period. Next, they should be required to notify the intellectual property rights owner, who should be allowed to inspect the goods to ascertain whether they are counterfeit. If they are not counterfeit, the goods should be released. If they appear to be counterfeit, customs officials should notify the RCMP and the importer, who should have a 30-day period to demonstrate that the goods are, in fact, genuine. In the event of a dispute, there could be recourse in the courts through a new summary procedure to determine entitlement. As a condition precedent, both parties should be required to post a bond or security. In the event that the goods are not genuine, they should be refused entry and either turned over to the RCMP or destroyed. In this scenario, the intellectual property rights owner should be entitled to look to the importer’s security for its costs of these summary proceedings. In the event that the goods are genuine, the importer should likewise be entitled to look to the intellectual property rights owner’s security for its costs and any losses incurred. These potential cost consequences should pose a sufficient disincentive to any abuse of the proposed system.

How can stakeholders trigger the needed changes? First, they must continue to pursue counterfeiters so that politicians are aware of the existence and extent of the problem. Second, stakeholders must support and participate in the lobbying activities of organizations like the IACC. In Canada, stakeholders should support the Canadian Anti-Counterfeiting Network (CACN), which is committed to educating the public about counterfeiting and lobbying for meaningful legislative reform and more anti-counterfeiting resources.125 It is only through these efforts that counterfeiting will ultimately find its way onto the Canadian political agenda.

125. The CACN is a coalition of individuals, businesses and associations committed to fighting counterfeiting and piracy. Presently, its membership includes the Retail Council of Canada, the Canadian Association of Importers and Exporters, the Canadian Manufacturers and Exporters, the Canadian Standards Association (CSA), the Canadian Motion Picture Distributors Association, the Canadian Recording Industry Association, various individual companies, law firms working in the area, and others.

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Unless Canada revamps its border enforcement rules and procedures to allow for proactive customs seizures and detention, Canada will continue to lag behind other developed countries and, arguably, remain non-compliant with its various treaty and convention obligations, including the obligation to provide effective border enforcement of intellectual property rights. Unless better anti-counterfeiting measures are available, the IACC and others will continue to be vocal critics.