AROADMAP FORCHANGE

REPORT ON COUNTERFEITING AND PIRACY IN CANADA:

The Canadian Anti-Counterfeiting Network

WearepleasedtopresentacomprehensivereportontheproblemofcounterfeitingandpiracyinCanadaentitled“ARoadMapforChange.”Thisreportisaground-breakingcompilationoftheextentoftheprobleminCanadathatofferspracticalandconcretesolutionsforkeydecisionmakers.

ThereporthasbeenendorsedbyTheCanadianChamberofCommerceandTheRetailCouncilofCanada.

OurcollectiveorganizationsareveryconcernedaboutweakintellectualpropertyprotectionandenforcementinCanada.Theexplosivegrowthofintellectualprop-ertycrimehasbeenillustratedveryclearlybyvariousstudiesandinformationfromavarietyofsourcesaswellasthemedia.Whilecounterfeitingusedtoconsistpri-marilyofknock-offt-shirtsandothernoveltyitems,thehighprofitabilityandlowrisk involvedhasallowedcriminals, includingorganizedcrimerings, tobecomeveryactive,counterfeitingvirtuallyeverythingincluding,forinstance,pharmaceut-icalproducts,electricalproducts,software,movies,food,wine,personalcareprod-ucts, automobile parts and luxury goods. The Canadian government must takeactionnowtoaddresstheproblemofcounterfeitingandpiracy.

Whileintellectualproperty(IP)crimecanlack,forsome,thesocialstigmaofmanyothercriminaloffences,thisillegalactivityisadrainontheeconomyandisrespon-sible for loss of employment, a reduction in tax revenues for governments, andposesseriousconsumerhealthandsafetyrisksduetothepoorqualityofproductsand sometimeshazardousnatureof the fakes.Virtuallyno industry escapes thisillegalactivity.

PressureontheCanadiangovernmentissteadilybeginningtomountfromCanadianandinternationalagenciesandbusinessassociationsurgingCanadatobegintoactonthisproblem.ParliamentaryCommitteesarebeginningtoexaminethescopeoftheproblem.Fromaninternationalperspective,theUnitedStateshasindicatedthatthisissueistheirtoptraderelatedissuewithCanada.

Legislativechangesandadditionalresourcesarerequiredtoadequatelyaddressthisproblem,preferablythroughtheimplementationofanomnibusbill.Effectivechan-gestoCanadianlegislationwillbringCanadainlinewithitsinternationaltradingpartners.ImplementingtherecommendationsoutlinedinARoadMapforChangewillshowtheworldthatCanadaisseriousaboutadequatelyprotectingitsknow-ledgebasedeconomy.CanadianindustryurgestheCanadiangovernmenttomakethisapriority.

March2007

REPORT ON COUNTERFEITING AND PIRACY IN CANADA:

A ROAD MAP FOR CHANGEI N D E X P A G E N O .

ExEcutivE Summary and rEcommEndationS..........................................................i

introduction.............................................................................................................................1

Part onE: THEPROBLEMOFCOUNTERFEITINGANDPIRACYINCANADA (i) TheNegativeEconomicImpact.....................................................................5 (ii) TheThreattoCanada’sHealthandSafety.....................................................7 (iii) LinkswithOrganizedCrime..........................................................................8 (iv) TheNegativeImpactonCanada’sReputation...............................................9 (v) Canada’sFailuretoLiveUptoItsInternationalCommitments....................9

Part tWo: THEPROBLEMSUNDERLYINGCANADA’SFAILED ENFORCEMENTSYSTEM (i) LackofPoliceandProsecutorialResourcesDedicatedto CounterfeitingandInsufficientCriminalPenalties......................................11 (ii) Counterfeit“Retailers”NotProsecuted......................................................15 (iii) ProceedsofCrimeLegislationExcludesCopyrightPiracy.........................16 (iv) CivilRemedies:AnInadequateSolution....................................................17 (v) OutdatedandIneffectiveIPCrimeLegislation...........................................19 (vi) LackofEffectiveAnti-CounterfeitingCivilRemedies...............................22 (vii) DisempoweredCustomsOfficials...............................................................23 (viii)TroublingEthics:TheCultureofPiracyinCanada....................................25 Part tHrEE:FUELINGINNOVATIONANDPROSPERITY–THENEED FORMARKETPLACEINTEGRITY (i) TheEconomicImportanceofIntellectualProperty....................................29 (ii) NurturingIntellectualProperty:TheImportanceofDemand.....................29 (iii) AdequateEnforcementofIntellectualPropertyRights: ANecessaryPre-conditiontoInnovationandProsperity.............................30 (iv) GlobalCompetition:StrongEnforcementofIPRightsis CriticalFuelintheRacetotheTop..............................................................32

Part Four:INTERNATIONALBESTPRACTICES (i) UnitedStates...............................................................................................39 (ii) UnitedKingdom..........................................................................................41 (iii) EuropeanUnion:IPBorderEnforcementMeasures..................................42 (iv) WorldCustomsOrganization:ModelLegislation......................................43

ExECUTIvE sUmmARY AND

RECOMMENDATIONS

InCanada,thepoliticalwilltoaddressthiscountry’sserious IP crime problem has failed to materializedespite overwhelming evidence of its harm toCanadian competitiveness and a mounting tide ofdomesticandinternationalcriticism.Keysectorsofthe Canadian economy have repeatedly urged thegovernment to take action. This report is anothersuch call. It sets out clear actions to strengthenCanada’sIPenforcementsystemtocreateanenviron-mentinwhichaninnovationeconomycanthrive.

Keyrecommendationsinclude:

increasing and improving the coordination ofgovernment resourcesdedicated to IP enforce-mentandeducation;creating an effective IP border enforcementregime;and,enacting legislation toaddress shortfalls in thecurrentlegislativeframework,includingthelackofadequatetrade-markenforcementprovisions.

Reform in this area is overdue and, according torecentpublicopinionresearch,willbepopularwithCanadians.TakingstronganddecisiveactionagainstIPcrimerepresentsatremendousopportunityforthefederalgovernment todemonstrate itscommitmenttocombatingcrimeandtoCanadianeconomicpros-perity,innovationandcompetitiveness.

The Problem of Counterfeiting and Piracy in Canada

Canadaisparticularlyvulnerabletothedelugeofcounter-feitgoodsbecauseitsIPenforcementsystemlagsbehindthoseofmanyothercountriesincludingtheU.S.andtheU.K.TheRCMPestimates that theannual cost to theCanadian economy from counterfeiting and piracyamountstobillionsofdollars.Thisresultsinsubstantialunemploymentandrevenuelossesintheprivatesector,along with significant tax losses. Numerous Canadianentrepreneurshaveseen theirbusinessescompromisedbythisblackmarketactivity,forcingclosures,depressingprofitsandunderminingtheirabilitytoraisecapital.

Law enforcement agencies around the world haveidentified a clear link between counterfeiting and

•

•

•

organizedcrime.TheRCMPhaspointedtoorgan-izedcrimeasa“primaryactor”incounterfeitingactivities in Canada, while Interpol has foundthattheprofitsfromsellingcounterfeitgoodsarebeing used to finance international criminalorganizations and global terrorism. In its 2006annual report, the Criminal Intelligence Serviceof Canada noted, “across the country, multiplecriminalgroupsare involved in themanufactur-ing, importation and distribution of counterfeitproducts.”

Someconsumersjustifythepurchaseofcounterfeitgoodsbysuggestingthatlegitimategoodsareover-priced.Thismindsetfocusesonwhoisnotreceivingmoney from their purchases – legitimate vendors,innovatorsandcreators–butignoresaltogetherthecriminalgangswhoaregettingthemoney.

Counterfeitproductsraiseserioushealthandsafetyconcerns, fromcounterfeitelectricalproductspre-sentingfirehazardstocounterfeitmedicinecausingillnessanddeath.Criminalsmanufacturinganddis-tributing counterfeit products cut corners, useunsafe components and ingredients, conduct nosafety testing, and have no reputation to protect.TheresultisaplethoraofhazardousknockoffsthatputCanadianconsumersatrisk.

Canada’slackofcommitmenttoaddressthefloodof counterfeit products has been sharply criti-cizedbyforeigngovernments,includingsomeofthis country’skey tradingpartners. In2006, theUnited States Trade Representative placedCanada on the Special 301 Watch List for thetwelfth consecutive year, and announced thatCanada would be subject to an unprecedentedout-of-cycle-review because of our continuingfailuretoimplementanadequateIPenforcementsystem.Non-governmentalorganizationsliketheInternational Anti-Counterfeiting Coalition andthe International Intellectual Property Alliancehave been similarly critical, naming Canada a“priority”counterfeitcountry.

ExECUTIvE SUMMARY

i

Asasignatorytointernationalagreements,includingtheWorldTradeOrganizationAgreementonTrade-Related Aspects of Intellectual Property Rights(TRIPS) and the North American Free TradeAgreement(NAFTA),Canadahascommittedtopro-videeffectivelegalprotectionagainstcounterfeitingandpiracy.Todate,bymanymeasures,Canadahasfailedtomeettheseobligations.

The Problems Underlying Canada’s Failed IP Enforcement System

ItiswidelyagreedthattheinadequateenforcementofIP rights in Canada is due to a large extent to theinsufficiencyofgovernmentresourcesbeingdevotedtotheproblem.TheRCMP,whichhasprimaryauthor-ity for enforcement against IP crime in Canada, isforcedtoeitherissue“awarning”toknowncounter-feitersorreferthemattertoanIPrightsholdertotakecivilaction.AsforprosecutorsinCanada,veryfewofthemhavesubstantiveknowledgeofIPcriminallawandnonehasbeentaskedexclusivelywithIPcrime.Asaresult,intherarecaseswherecounterfeitersareprosecuted, they typically end up paying minimalfines (usually less than$10,000)andservingno jailtime.Needlesstosay,nominalfinesdolittleornoth-ingtodetercounterfeitingandtheorganizedcriminalsengagedinit.Thiscontrastswiththesituationinmanyothercountrieswherespecializedpoliceandprosecu-torialresourcesarededicatedtoIPrightsenforcementandseverepenaltiesareimposed.

Despitetheirconcernovercounterfeiting,theRCMPand Department of Justice are encumbered by anenforcementpolicythatdoesnotaddresstrade-markcounterfeitingandthat,withrespecttocopyrightpir-acy,hasbeenovertakenbychangesinthewaymanycounterfeiters operate. The copyright enforcementpolicydrawsadistinctionbetweena“retailer”anda“commercial”pirate,andnotes,“infringementattheretail level isnotanenforcementpriority in itsownright.”However,today’scounterfeit“retailers”regu-larly operate on a significant commercial scale andmanufacture, label and sell counterfeit and piratedworksusing readilyavailableand inexpensivecom-puter equipment that allows them to, for instance,“burn”hugevolumesofpiratedcopieson-site,atmin-imalcost.Duetotheoutdatedpolicy,theRCMPrarelytargetscriminalcopyrightpiracybyretailers.Further,

counterfeitretailersthatdistributewellknownbrandedproductsbearingillegalreproductionsoftrade-marksareable toopenlysell theirblatantknockoffs to thegeneralpublicattheretaillevelduetothelackofafederaltrade-markenforcementpolicy.

TheProceedsofCrimeProgram(POCP)isdesignedtoremovetheincentivetoengageincriminalactiv-itiesby identifying, restrainingandforfeiting illicitwealthaccumulatedthroughcrime.Thisobjectiveisclearlyrelevanttopiracybecauseofthehighprofitmargins and lack of deterrent sanctions. However,theCopyrightActisoneofthefewpiecesoffederallegislation excluded from the POCP, apparentlybased on the faulty premise that the “benefits”obtainedthroughthiscriminalactivityarerealistic-allyaccessibletoIPrightsholders.Inpractice,thisisnotthecase.

For IP rights holders, civil remedies are usuallyineffectivebecausecounterfeitersarecriminalswhocarryouttheiractivitiesinwaysexplicitlydesignedtoavoidthejusticesystem.Counterfeitersareoftenimpossible to identify, properly serve or enforceorders against, and their profits are typically laun-dered.However,incertainsituations–forexample,where established corporations wilfully or negli-gently sell counterfeit products – specialized civilremedies may be an effective deterrent. But suchremediesarenotavailableinCanada,unliketheU.S.andothercountries.

Canada’s legislation lags in key areas of IP crime.Most significantly, there is a serious deficiency inrespectofcriminaltrade-markprovisions-specific-ally:offencesundertheCriminalCodeareoutdatedandineffectiveandtherearenocriminalprovisionsin the Trade-marksAct. In addition, there is inad-equate legislation to stop film piracy; ineffectivelawstocurtailsatellitesignaltheft;and,insufficientprovisions to address modern counterfeiting toolsandIPcircumventiondevices.

Thoughmost counterfeitgoods sold inCanadaareimported,thereisnoeffectivesystemtoenforceIPrightsattheborder.Unlikecustomsservicesinmost

ii

otherdevelopednations,theCanadaBorderServicesAgency (CBSA) does not have the independentauthoritytotarget,seizeordestroycounterfeitgoods.Asaresult,fewseizuresaremade.

Piracycanonlythriveinaculturewherecitizensviewtheacquisitionofcounterfeitgoodsasaccept-able,therebyopeningthewaytoconsumerdemandforthoseproducts.ThisappearstobethecaseinCanada – particularly among youth – whereresearchhasfoundthatstealingIPisincreasinglyregarded as morally acceptable. Efforts againstpiracy,tobesuccessful,shouldfocusnotonlyonreducingthesupplyofcounterfeitgoods,butalsoondemand.Increasingly,internationalinstitutionsandgovernments,concernedbythegrowingpro-liferationofcounterfeitgoodsworldwide,aretak-ingsuchsteps.

Fuelling Innovation and Prosperity – the Need For Marketplace Integrity

The rationale for IP protection extends far beyondprotectingindustriesandindividualsfromorganizedcrime. By providing a marketplace where invest-mentsincreativegoodsandserviceswillbeprofit-able, IP protection fosters innovation, job creationandeconomicprosperity. Indevelopednations likeCanada, where innovation has become a key eco-nomic driver, this has never been more important.Unfortunately, it appears that all levels of govern-ment inCanada lack a sophisticatedunderstandingoftheconnectionbetweeninnovationandIP.

Governmentscanplaytwocriticalrolesinassistingthegrowthofintellectualproperty:(1)promotingthesupplyofIP-basedgoodsbysupportingthedevelop-ment of a highly skilled workforce and fundingresearch and development; and, (2) promoting thedemand for IP-based goods by establishing theframework for a competitive marketplace. WhileCanadiangovernmentsatall levelsunderstand thatthe commercialization of IP-related products isimportant, they have failed to devote sufficientresourcestofosterdemand.

AsimplewaytoimprovethemarketplaceistoensureitsintegritybyprovidingrobustprotectionagainstIP

crime. Businesses will under-invest if they believethattheirreputationandcreationsaresubjecttotheft.Robustenforcementof,andwide-spreadrespectfor,IPrightsarenecessarypre-conditionsforinnovationand prosperity. Canada needs to improve bothenforcementandeducationaboutIPtobecomemoreinnovativeandcompetitive.

Governmentsallovertheworldrecognizethelinkbetween innovationandstrongIPprotection.Thisisreflectedininitiativestostrengthenenforcementin many countries including G-8 nations like theU.S.,theU.K.andJapan,andlessdevelopednationslikeBrazil,Kenya and Indonesia.Canadahasnottakenany such initiatives andunless this changessoon, rampant black market activity will increas-inglyundermineCanada’scapacitytoinnovateandprosper.

International Best Practices

Thefact thatCanada is farbehindotherdevelopednations in its anti-piracy efforts provides domesticpolicy-makerswith theopportunity tobenefit frominternational experience. Policies implemented inothercountriesofferaprovenroadmapforCanadatoreducethesupplyofanddemandforcounterfeitgoods.IPenforcementregimesintheU.S.andU.K.,regionalinitiativesinEurope,andtheWorldCustomsOrganizationmodellegislationdemonstratesomeofthemanyoptionsavailabletoCanadatodeterpiracyandnurtureaninnovativeeconomy.

Conclusion

Counterfeitinghasbecomea seriousproblem thatcosts the Canadian economy billions of dollars,depressing innovation, funding organized crime,risking the health and safety of consumers, anddamagingCanada’sinternationalreputation.Takingstronganddecisiveactiononthisissuerepresentsatremendous opportunity for the government todemonstrate itscommitment toeconomicprosper-ity, innovationandcompetitiveness.Inadditiontosupportingimprovedrelationswithourmajortrad-ingpartners,therecommendationsoutlinedinthisreport are in keeping with the government’s keypriorities of cracking down on criminals andstrengtheningCanada’sborders.

iii

RECOMMENDATIONS

resources dedicated to counterfeiting and insufficient criminal Penalties

R E C O M M E N D AT I O N S :1.1 Provide the RCMP and the Department of Justice with adequate financial and human resources to effectively address counterfeiting.

1.2Adequately fund an Intellectual Property Crime Task Force, composed of police officers, customs officers, and federal prosecutors, to guide and coordinate IP criminalenforcement.

1.3 Establish a reporting system to provide statisticsonandprecedentsfortheCanadian IPenforcementsystem.1.4 Immediately encourage prosecutors to seek moresignificantpenalties,includingjailtime.

counterfeit “retailers” not Prosecuted

R E C O M M E N D AT I O N :2.1 Revise the RCMP/Department of Justice Copyright Enforcement Policy to target copyright piracy and trade-mark counterfeitingattheretaillevel.

Proceeds of crime Legislation Excludes copyright Piracy

R E C O M M E N D AT I O N :3.1RemovetheCopyright Actfromthelistof indictableoffencesexcludedfromProceeds ofCrimelegislation.

outdated and ineffective iP crime Legislation

R E C O M M E N D AT I O N S :4.1 Enact legislation clearly defining trade- mark“counterfeiting”asaspecificcriminal offenceundertheTrade-marks Act.

4.2 Enactlegislationtomakethefastestgrowing source of commercial video piracy – camcordinginatheatre–anoffenceinthe Criminal Code.

4.3 Amend the Radiocommunication Act to address the new forms of signal theft, increase criminal penalties to facilitate effectiveenforcement,limitimportationof satellite receivinganddecoding tools, and strengthencivilremedies.

4.4 Enact criminal legislation clearly definingoffences for commercial circumventionactivities (including trafficking incircumvention devices) and treat thoseactivities as well as the commercialdistribution of pirated digital works as acriminal enforcement priority; enact civillegislationthatclearlymakespersonswhodistribute pirated works and persons whomanufactureand/ordistributecounterfeitingtools, such as mod chips, liable forcontributorycopyrightinfringement.

Lack of Effective anti-counterfeiting civil remedies

R E C O M M E N D AT I O N :5.1 Strengthencivilremediesforcounterfeiting. In particular, the civil legislation should provide for: (i) statutory damage awards, including minimum “floor level” damage awardsandheighteneddamageawardsfor willfulor repeatoffenders; (ii) specialized injunctions and seizure orders upon proof ofcounterfeitactivities;and(iii)summary enforcementproceedings.

iv

disempowered customs officials

R E C O M M E N D AT I O N S :6.1 Implement legislation clearly prohibiting theimportationofcounterfeitgoods.

6.2 ProvidetheCBSAwiththeexpressauthority to target, detain, seize, and destroy counterfeitgoodsonitsowninitiativeand to implement policies promoting the detectionofsuchgoods,suchasmandatory reporting of brand information with shipments.

6.3 Formalize intelligence sharing and investigative enforcement management through cooperation between the RCMP andCBSA.

6.4 Make provisions for the disclosure of informationandtheprovisionofsamplesto IP rights holders for the purposes of determining whether detained goods are counterfeitandenablingIPrightsholdersto exercisecivilremedies.

6.5 Introduce administrative fines for the importation or exportation of counterfeit goods.Thefinesshouldbesetsufficiently hightoactasaneffectivedeterrent.

6.6 Adopt a recordation system whereby IP rightsholdersmayrecordtheirrightswith CBSA and highlight “high-risk” products thatareknownorlikelycounterfeittargets.

troubling Ethics: the culture ofPiracy in canada

R E C O M M E N D AT I O N :7.1 Establish a federal Intellectual Property

Coordination Council consisting of seniorcivil servants and IP rights holders whosekey objectives would include: (i) creatingand implementing educational programs,with emphasis on Canadian youth, thatteach the rationale for and importance ofintellectual property; (ii) communicatingwithIPrightholderstoensurethattheirIPneeds are being met by the currentapplication of the laws; (iii) developingbroad-based marketplace frameworkpolicies that focus on sustaining andgrowingthecreationandexploitationofIPinCanada;(iv)ensuringthatallgovernmentdepartments recognize the importance ofIP in the creation and development ofstrategiesdesigned tomakeCanadamorecompetitiveandinnovative;and(v)creatingandimplementingspecializedenforcementeducational programs, e.g., educatingpolice, customs officers, prosecutors, andthejudiciary, toassist insophisticatedandefficientIPenforcementandadjudication.

v

PARTONE:THEPROBLEMOFCOUNTERFEITINGANDPIRACYINCANADA

INTRODUCTION

“

”

“

Canada has faced mounting domestic and inter-national criticism in recent years for its failure toupdate its intellectual property (IP) crime enforce-mentregimetocurtailthedelugeofcounterfeitandpirated goods entering the Canadian marketplace.*

CriticsofCanada’s inadequateenforcementsysteminclude IP rights holders,1 police officials,2 legalexperts,3 trading partners,4 non-governmental anti-counterfeiting groups,5 and Canadian news media.6

TheyhavevariouslydescribedCanada’sIPenforce-mentsystemas“inadequate,”a“failure,”“humiliat-ing,”and“embarrassing”andhavelabelledCanadaa“havenforpiratedandcounterfeitgoods”thatis“outof step with practice in the European Union, theUnitedStates,andothercountries.”

In2004,theNational Postreported:

The [U.S. Trade Representative] report placesCanada on a “Watch List” of countries the U.S.believescandomoretoprotectbothconsumersandintellectual property owners. Included on the listare countries such as Thailand, Vietnam, andGuatemala.…Yesterday’s report is just the latestblowtoacountrythathaslongbeencriticizedforitssoftstanceoncounterfeiting.Onceonlyfoundinfleamarkets, counterfeitgoodsarenowcommon-placeontheshelvesoflegitimateCanadianstores.Lastyear,aNational Postinvestigationuncoveredaflurryofhazardousfakeproducts,includingfaultyelectrical switches, toys made with contaminatedmaterial, and cosmetics laced with toxins. Thepotential earnings are so high, police say, thatorganized criminals and even terrorist networkshavejoinedtheracket.7

InSeptember2006,National Magazine,themonthlyperiodicaloftheCanadianBarAssociation,describedtheinadequacyoftheCanadianIPenforcementsys-

temunder theheading“EconomicNightmare”andconcludedthat:

Canada, in particular, has earned the unwelcomenotoriety for its failure to effectively combat theimport of counterfeit products, many of whichflowouttotheU.S.andelsewhere.…“Canadaisa cesspool,” says David Wotherspoon, a partnerwith Fasken Martineau Du Moulin LLP inVancouver who does a lot of anti-counterfeitingwork.“Forinstance,in2004,theAmericanborderauthorities seized approximately 30,000 inboundshipments of counterfeit goods. In Canada, thenumberwassix.8

Despite this mounting criticism and the fact thattheRoyalCanadianMountedPolice(RCMP)esti-matesthatCanadalosesbillionsper yearbecauseofcounterfeiting,successivefederalgovernmentshave failed to enact remedial legislation. TheproblemisparticularlyacuteintheDepartmentofIndustry,whereenforcementissuesandIPmarket-place framework policy (and in particular copy-rightandtrade-markissues)havefailedtoregisteras a priority.9 This can be contrasted with thesophisticated IP positions and policies of theAmerican and British governments. A Canadianfederal interdepartmental working group hasworked on the problem for a number of yearswithout resolution. In contrast, aided by clearpolitical direction, the UK Gowers Review ofIntellectualPropertydeliveredconclusiverecom-mendationswithinayear.10

InCanada,thepoliticalwilltoaddresstheIPcrimeproblemhasfailedtomaterializedespitethemount-ing tide of domestic and international criticism.Canadian industry representatives fromkeysectorsoftheCanadianeconomyhaverepeatedlyurgedthe

INTRODUCTION

*The terms “counterfeiting” and “piracy” are often used interchangeably, though technically “counterfeiting” refers to clear-cut unauthorized trade-mark infringement, while “pirating” refers to blatant unauthorized copyright infringement. Generally, however, both terms refer to the same thing: unauthorized knockoffs of legitimate products. In line with the common usage of many commentators, this report will use the terms interchangeably to refer to illegal knockoffs, except in cases where it is necessary to distinguish their technical meaning. In the very limited instances where technical definitions are necessary, the respective terms will be defined as “trade-mark counterfeiting” or “copyright piracy.”

”

Page �

governmenttotakeactiononthiscriticalproblemthatadversely impacts our country’s global competitive-ness.Thisreport isanothercall foraction.ItsetsoutclearobjectivestostrengthenCanada’sIPenforcementsystem–objectivesdirectlylinkedtothegovernment’sagendaofcrackingdownoncrimeandfosteringacom-petitive,knowledge-basedCanadianeconomy.11

the report is structured in four parts:

(1) PartOneoutlinestheeffectsofthecounterfeit-ing problem in Canada. This section underscoreshowthetheftofIP,anactivitydemonstrablylinkedtoorganizedcrime:(i)damageslegitimatebusiness;(ii) places the health and safety of Canadians atrisk;(iii)undercutsgovernmentrevenues;(iv)hasdamagedCanada’sinternationalreputation;and(v)hascausedCanadatobreachitsinternationaltreatyobligations.

(2) PartTwoexaminesthefoundationofthiscrisis,whichincludes:(i)insufficientpoliceandprosecu-torialresources;(ii)outdatedandinadequatepoli-ciesandlaws;(iii)disempoweredcustomsofficials;and(iv)anenvironmentthatpromotesacultureofpiracyinCanada.

(3) PartThreedemonstratesadirectcorrelationbetween a strong IP enforcement system and asuccessful,innovativeeconomy.Thissectiondis-cusses the government’s responsibility not onlytofosterthesupplyofIP-basedgoodsbyassist-inginthedevelopmentofahighlyskilledwork-force and the funding of both high-qualityresearch and development facilities, but also topromote thedemand for IP-basedgoodsbypro-viding the framework for a competitivemarket-place.Whileclearlyunderstandingthatthecom-mercialization of IP-related products is import-ant, governments at all levels have failed todevote sufficient and appropriately targetedresourcestofosterdemand.Asimpleandexpedi-entwaytoimproveourmarketplaceistoensureits integrity, which is best accomplished byaffordingrobustprotectionagainstIPcrimewiththe goal of putting the “bad guys” out ofbusiness.

(4) PartFourexaminesinternationalbestpractices,withparticularemphasisontheUnitedStatesandtheUnitedKingdom.

Specific recommendations are made in the report,which,ifimplemented,willconstituteastartingpointfromwhichCanadamaymovetore-enterthemain-streamoftheinternationalIPcommunity.Generally,Canadaneeds tocreateanenvironment inwhichaninnovation economycan thrive.As theGowersReview concludes: “The Intellectual Property (IP)systemprovidesanessentialframeworkbothtopro-mote and protect the innovation and creativity ofindustryandartists.”12TheReviewgoeson:“innova-tive ideas create value, whether they are improvedproducts, new brands or creative expressions.As aresult,IPrights–themeansbywhichtheseassetsareowned – have become a cornerstone of economicactivity.”13ThisisnolesstrueofCanada.

Inadditiontotheleadingeconomists,businesslead-ers,policyadvisors,andacademicswhobelievethatastrongIPsystemisacriticalprerequisitetoinnova-tion and prosperity, an Environics survey in 2006foundthat:

93%ofCanadianseitherstronglyagreeoragreethatthecreationofintellectualpropertyisessen-tial for Canada’s long-term economic growthandprosperity.

89%ofCanadianseitherstronglyagreeoragreethatpatent,copyright,andtrade-marklawsarerequiredtoprotectthosewhocreateintellectualpropertyforaperiodoftimesothattheycansellorcommercializetheirideas.14

ReforminthisareaisoverdueandwillbepopularwithCanadians.Sowhythedelay?Takingstronganddeci-sive action against IP crime represents a tremendousopportunityforthefederalgovernmenttodemonstrateits commitment to economic prosperity, innovation,andcompetitiveness.Canadadoesnotneed to inventsolutionsbutmerelytoimportandimproveuponbestpracticesfromaroundtheworld.Givenouremphasisoninnovation,whenitcomestoIPprotection,Canadashouldbeleadingtheway.

•

•

Page �

PARTONE:THEPROBLEMOFCOUNTERFEITINGANDPIRACYINCANADA

THE PROBLEm OF

COUNTERFEITINGANDPIRACYINCANADA

(i) the negative Economic impact

The black market by its very nature cannot bemeasured precisely. Experts who have studiedthe problem, however, have suggested that theflow of counterfeit goods is nearly 100 timeswhatitwas20yearsago.15TheWorld Intellectual PropertyOrganization (WIPO) hasreferred to counterfeiting as aglobal “epidemic.”16 Canada isparticularly vulnerable to thedeluge of counterfeit goodsbecause its IP enforcementsystemlagsbehindthoseof itspeers, including the UnitedStates, the United Kingdom,and France. The RCMPestimates that the cost to theCanadian economy fromcounterfeiting and piracy isin the billions.17 Some key indicators of theprobleminclude:

In2005, the loss to the software industryasaresultofpiracywasapproximately$736million.Thismeantataxlossof$345millionandalossofthousandsofsoftware-relatedjobs.18

Between2004and2005,counterfeitseizuresbythe Canadian Motion Picture DistributorsAssociation(CMPDA)jumpedby317percent.Inthesameyear, thenumberofpiratedDVDsseizedbytheCMPDAincreasedby960percent.Theannualconsumerspending loss inCanadadue to film piracy in 2005 was estimated atapproximately $270 million, while the loss oftaxrevenuesduetofilmpiracyinCanadain2005wasestimatedatapproximately$41million.19

Itisestimatedthat18percentofCanada’smovie-watchingpublicover10yearsofagewasengagedinsomeformoffilmpiracyin2005–withinapercentagepointofRussia,Mexico,andChina.20

Asaresultofthecombinedimpactofthephys-ical and online black markets, the Canadian

•

•

•

•

musicindustry’sretailsalesofpre-recordedCDsandcassettesdeclinedby48percent($637mil-lion)from1999to2006.21

Aggregate numbers, however, do not tell thewholestoryofhowcounterfeitershavedamaged

CanadianIPbusinesses.Behindthestatisticsisahuman face–numerousCanadianentrepreneurswho have seen their businesses compromisedbecauseoftheencroachmentoftheblackmarket.22Casesaboundofbusinessesbeingforcedtoclose;ofcounterfeit products depressing the profits of IPcreators, manufacturers, distributors, and retailers;andofthesystematicunderminingofentrepreneurs’abilitytoraisecapital.Forexample:

Robb Hoffmann, product marketing managerforAutodesk, an Ottawa-based software com-pany,hasstatedthatforeverysoftwareprogramhiscompanysells,fiveofitsprogramsarepir-ated. This widespread piracy has directly cutinto Autodesk’s ability to hire additionaldevelopersandenhancethesoftware.23

Bayly Communications Inc., a privately heldcompany in Ajax, Ontario, with about 30employees,isaleadingmanufacturerofnetworkaccess and transmission products for telecom-munications markets worldwide. In the fall of2002,thecompanyestimatedthat25percentofitsbusinesswaslostduetocounterfeitChinesecopies.Bayly,however,hasbeenunabletostem

•

•

PART ONE: THE PROBLEM OF COUNTERFEITING AND PIRACY IN CANADA

“It is anticipated that the counterfeiting of goods will become ‘the crime of the 21st century’. The number and type of goods being counterfeited continues to climb as new products constantly appear on the scene. … No part of Canada is immune from the effects of this type of criminality. The network can extend its tentacles into the furthest corners, capitalizing on its capability to strengthen through sheer volume with minimal overhead required.”

RCMP

Page �

”

“

the tide of counterfeit products because theChinese company that manufactures them haskeptitsidentityhidden.24

Art inMotion, a companybased inCoquitlam,BritishColumbia,witharound400employees,isaleadingfineartpublisherandwholesaleframerwho is one the world’s foremost publishers offine art reproductions. The company has con-stantlybattledpiratecopyingofitsartworkinter-nationally,takinglegalactionsinNorthAmerica,Asia and Europe and pursuing a strong civilenforcement policy. However, pirated productscontinuetoposeaprobleminCanadaandinter-nationally,adverselyimpactingthecompanyandthemanyfineartistsitrepresents.25

•

Stephen Ehrlick, President of Orange RecordLabel, a young independent record label inToronto,Ontario,commentedin2005onhisdif-ficulties attracting investors because of piracy:Privateinvestorsconsistentlyregurgitatedwhattheywerereadingin thenewspapers,basicallythatkidswerestealingmusicandhowisanewrecord company like ours going to make anymoney.Therewasn’tabankorventurecapitalistthat would touch us – despite a business planthatwaswarmlyreceived.Itwasbecausetheyconsidered the music industry to be the WildWest–nolaws,nomarshals,andmostimport-antlytothem,noprofits.�6

•

$525.0

450.0

375.0

300.0

225.0

150.0

75.0

0.0

1984

$5.5

$512.0

2005

Source: Tim Phillips, Knock Off: The Deadly Trade in Counterfeit Goods: The True Story of the World’s Fastest Growing Crime Wave, 2005

GLOBAL FLOW OFCOUNTERFEIT GOODS

(in billions)

Page 6

”

“

”

“

ARCMPstrategicintelligenceanalysisdescribedthenegative economic impact of counterfeiting inCanadabyconcludingthatlegitimateretailersstatetheysimplycannot:

compete with the unrealistic prices of counterfeitgoodsbeingofferedforsale. In thepast18months,therehasbeenanotableincreaseinthenumberofper-sonsandcompanieswhoarereportingoffences.Somecomplainantshaveclearlystated that theyaregoingoutofbusinessbecauseofIPRinfringements.28

Similarly, the University of Toronto’s Centre forInnovationLawandPolicyhostedaroundtablein2006atwhichCanadianIPbusinessesgraphicallyoutlinedtheproblemstheyfacegeneratingrevenueandaccess-ingcapitalduetotheproliferationofpiracy.29

CounterfeitingalsoimpairstheabilityofCanadiancompanies to export their products around theworld.For instance,Canadian icewineproducersestimate that legitimate sales have dropped bymorethan50percentinsomemarketsbecauseofcounterfeits:

[IcewinesalesinTaiwan]peakedaround1996thenplummeted. “All of a sudden, there was a hugeinflow of counterfeit icewines, and we sawlegitimatesalesdropbymorethan50percent,”saidBill Ross president of the Canadian VintnersAssociation. “Price pressure is tremendous, withlegitimateicewinesellingfor$75to$100abottleandcounterfeitsgoingfor$25.”It’shardtoknowhow much fake icewine is being sold, but theamount is estimated to be huge. …Canadianproducers speculate their sales would more thandoubleifsomethingcouldbedoneaboutfakes.30

Theforegoingarebutafewofthemanyexamplesofdirectandindirecteconomicdamagecausedbytheblackmarket.

(ii ) the threat to canada’s Health and Safety

Counterfeit products also raise serious health andsafety concerns. For example, more than 166 air-craft accidents have been attributed to counterfeit

plane parts worldwide.31 Counterfeit brakes havecaused a multitude of car accidents in NorthAmerica.32 Unsuspecting patients have takencounterfeit medicine.33 In 2003, theWorldHealthOrganizationestimatedthat8percentofthemedi-cinesoldworldwidewascounterfeit.34

The health and safety problem associated withcounterfeitgoodswasrecentlyhighlightedinacasewhere a Hamilton, Ontario pharmacist soldcounterfeit blood pressure medicine to unknowingconsumers.Asaresultof thefakedrugs, theChiefCoroner for Ontario made a number of formalrecommendations,includingthat(i)currentresourcesallocatedtotheeliminationofcounterfeitmedicationshould be reviewed; and (ii) existing statutes andregulationsregardingcounterfeitmedicationsshouldbereviewedtakingintoaccount“emergingtrendsincriminalmethodology”and“enforcementstrategiesthat have proven effective in other jurisdictions.”35Otherhealthandsafetyexamplesinclude:

In 2002, Canadian authorities seized over800,000 counterfeit batteries imported fromChina. The batteries contained mercury(despitepackagingrepresentingthat theydid

•

“Private investors consistently regurgitated what they were reading in the newspapers, basically that kids were stealing music and how is a new record company like ours going to make any money. There wasn’t a bank or venture capitalist that would touch us – despite a business plan that was warmly received. It was because they considered the music industry to be the Wild West – no laws, no marshals, and most importantly to them, no profits.”27

Stephen Ehrlick, President of Orange Record Label, Toronto, Ontario

Page �

”“

”

“

”“

“

”

not), raising environmental issues, and werenotproperlyvented,causingthemtoexplodeundersustainedloads.36

In 2003,U.S.Customs officials seized 17,000bottles of counterfeit shampoo imported fromCanada. The shampoo was contaminated withbacteria that could cause infection. HealthCanadaofficerssubsequentlyfoundandremovedthesamecounterfeitproductsfromdrugstoresinseveralCanadianprovinces.37

In 2005, the RCMP seized thousands ofcounterfeit extension cords bearing forgedUnderwriters Laboratories (UL) certificationmarkings.WhenULtestedtheknockoffcords,thecordsmeltedandcaughtfirewithinamatterofminutes.38

In2000,circuitbreakersbearingcounterfeit cer-tification marks and company trade-marks werefoundinahospitalpanelboardsupplyingpowertolife-supportequipmentinanintensivecareward.39

This list provides a few glaring examples of thehealthandsafety issues raisedbycounterfeitprod-ucts.40Theproblemarisesfromthefactthatcrimin-alsmanufacturinganddistributingcounterfeitprod-ucts are generally driven solely by the desire forprofit.Expensivecomponentsareminimizedorleftout,particularlywheretheywillnotaffecttheappear-ance of the product (such as copper in extensioncords, active ingredients in pharmaceuticals, andventingsystemsinbatteries).

(iii) Links with organized crime

Law enforcement agencies around the world haveidentifiedaclearlinkbetweenorganizedcrimeandcounterfeiting.41Forexample,Interpolhasfoundthattheprofitsfromsellingcounterfeitgoodsarebeing

•

•

•

usedtohelpfinanceinternationalcriminalorganiza-tionsandglobalterrorism:

CriminalactivityinconnectionwithIPcrimeknowsno boundaries and is being facilitated through theinvolvementoforganizedcrime.Extensiveevidenceis now available from both the public and privatesectors,whichdemonstratesthatorganizedcriminalsand terrorists are heavily involved inplanning andcommittingthesecrimes.42

At the2005SecurityandProsperityPartnershipof North America (SPP) meeting, the govern-mentsoftheUnitedStates,Canada,andMexicodeclaredthat:

Organized crime syndicates increasingly useglobal trading lanes to distribute and sellcounterfeit goods worldwide, costing NorthAmericanrightsholdersbillionsofdollarseachyear.43

TheRCMPalsohas expressly acknowledged thelink between organized crime and counterfeits.44Ina2005 report, theRCMPdeclared thatorgan-izedcrimewasa“primaryactor”incounterfeitingactivities in Canada.45 The Criminal IntelligenceServiceofCanada(CISC),madeupoftheRCMP,provincial police forces, and other governmentagencies, concluded this in its 2005 annualreport:

[Interpolhasfoundthat]IPRcrimeisdominatedbyorganized crime. It is clear… that the moresophisticated networks in Canada have organizedcrimeinvolvementatsomeorallpointsofthesupplychain,frommanufacturingtosales.46

In its 2006 annual report, CISC noted that the IPcrimewavewasworseninginCanada:

Recentyearshaveseenanincreaseinthediversityand number of dangerous counterfeit productsbeing brought into or illegally manufactured inCanada. These products are sold in a variety ofsalesvenues, sometimesextending to large retailchains. …Across the country, multiple criminalgroups are involved in the manufacturing,importation, and distribution of counterfeitproducts.47

“IPR crime is dominated by organized crime. It is clear… that the more sophisticated networks in Canada

have organized crime involvement at some or all points of the supply chain, from manufacturing to sales.”

CISC

Page �

”

”“

”“

”“

“

”

“

(iv) the negative impact on canada’s reputation

On April 28, 2006, the United States TradeRepresentative(USTR)placedCanadaontheSpecial301WatchListforthetwelfthconsecutiveyear.Italsoannounced that Canada would be subject to anunprecedented out-of-cycle-review as a result, inter alia,ofourcontinuingfailuretoimplementanadequateIPenforcementsystem.Indoingso,theUSTRstated:

[TheUnitedStates]callsonCanada to improve itsIPRenforcementsystemsothatitcantakeeffectiveaction against the trade in counterfeit and piratedproductswithinCanada,aswellascurbtheamountof infringing products transshipped and transitingthrough Canada. Canada’s weak border measurescontinuetobeaseriousconcernforIPowners.48

Speaking at the Ontario Economic Summit onOctober26,2006,theU.S.AmbassadortoCanadaindicatedthat,atthetimethedecisionwasmadetomaintain Canada on the Special 301Watch List,serious thought had been given to upgradingCanada’sstatus to thatofaPriorityCountry.Thiswouldhavebeena trulyexceptional step,and thefact that it was even under consideration under-scores thegravityof the situation.Becauseofourlax enforcement and inadequate laws, Canada hasthedubiousdistinctionofbeingnameda“priority”counterfeit country by a number of internationalnon-governmentalbodies,including:

TheInternationalFederationofthePhonographicIndustry (IFPI), which designated Canada a“PriorityCounterfeitCountry”becauseofoutdatedcopyrightlawsaswellas“inadequateenforcementresources and lax border controls allowing theinfiltrationofpiratedphysicalproducts.”49

TheInternationalAnti-CounterfeitingCoalition,which recommended to USTR that Canada benameda“PriorityCountry”becauseofCanada’s“inadequate coordination among enforcementbodies,”“poorcooperationamongtheauthoritiesandindustry,”and“gapsinrelevantlegislation.”50

TheInternationalIntellectualPropertyAlliance,whichdesignatedCanadaa“PriorityCounterfeitCountry,”inpartbecauseofCanada’s“serious

•

•

•

deficienciesinenforcementagainstpiracy.”51

The United States Congressional InternationalAnti-Piracy Caucus, which designated Canadaas a “Watch List Country” (along with China,Russia,Mexico,India,andMalaysia)becauseofitsfailuretoamenditscopyrightlawinaccord-ancewithitsWIPOobligationsandbecauseof“Canada’slaxbordermeasures[that]appeartopermittheimportationofpiratedproductsfromEastAsia,Pakistan,andRussia.”52

(v) canada’s Failure to Live up to its international commitments

Canada has signed various international agreementscommittingtoaffordeffectivelegalprotectionagainstcounterfeiting and piracy, the two most prominentbeing the World Trade Organization Agreement onTrade-RelatedAspectsofIntellectualPropertyRights(TRIPS) and the North American Free TradeAgreement (NAFTA).As a signatory to the TRIPSandNAFTAagreements,Canadaagreedtoensurethatitsenforcementprocedures:

…permit effective action against any act ofinfringementof intellectualpropertyrightscoveredby thisAgreement, including expeditious remediesto prevent infringement and remedies whichconstituteadeterrenttofurtherinfringements.53

Wefurtheragreedthatsuchenforcementproceduresshould:

…not be unnecessarily complicated or costly, or entailunreasonabletimelimitsorunwarranteddelays.54

Aswellastoprovide:

criminalproceduresandpenalties[are]tobeappliedatleastincasesofwillfultrade-markcounterfeitingorcopyrightpiracyonacommercialscale.55

And:

[proceduresfor]protectionofintellectualpropertyrightsattheborder.56

Aswillbediscussedindetailinthenextsection,Canadahaseffectivelyfailedtomeetanyoftheseobligations.57

•

Page �

THE PROBLEms UNDERLYING

CANADA’SFAILEDIPENFORCEMENTSYSTEM

”

“

”

“

”“

(i) Lack of Police and Prosecutorial resources dedicated to counterfeiting and insufficient criminal Penalties

There is broad consensus in Canada that there isinadequateenforcementofIPrightsatboththepoliceand prosecutorial levels. The reasons for this areevident: (i) inadequate police resources; (ii)inadequateprosecutorialresources;and(iii)lackoftrainingorexpertiseintheprosecutionofcriminalIPoffences.

Regardingthefirstfactor,theRCMPisquiteexplicitthat it doesnothave sufficient resources tohandletheproblemofcounterfeiting:

Counterfeitersareclever,usesophisticatedtech-niques to evade detection, and are networkedinternationally.Theyreapsubstantialprofitfromtheir activities at the cost of rights holders,employers,legitimatebusinesses,andthegreaterCanadian economy. … Unfortunately, limited resources are available within the RCMP to fight these crimes.58

Asaresultoftheirlimitedresources,theRCMPdoesnotalwaysinitiateprosecutionsagainstcounterfeiters,evenwhenIPrightsholdersareabletodemonstrateprima facieevidenceofcounterfeitingactivities.AsarecentToronto Stararticlehighlighted:

…police say they don’t have enough resources tomakemuchofadentinpiracy.Laurenceand30other[RCMP]officersintheGTA,forexample,aretaskedwithenforcingsome200federalstatutes,ofwhichintellectualpropertyrightsisjustone.59

In many cases, the RCMP simply either issues“awarning” toknowncounterfeiters insteadofchargingthemorrefersthemattertoanIPrightsholder to take civil action. For example, in 2004,the Entertainment Software Association providedthe RCMP with detailed evidence concerning 12highpriority“pirateshops”inCanadathatweretheleading“hotspots”formanufacturing,distributing,and/orsellingpiratedvideogamesandgoods.Dueto its lack of financial resources and manpower,

however, the RCMP was only able to pursuecriminalactionsagainsttwoofthetargets.60

In the vast majority of cases where the RCMPlaunchesinvestigations,theyoccuronlyaftertheIPrights holder provides the evidentiarybasis for theprosecutions.AstheRCMPhasnotedinregardstotheeffortsofIPrightholdersacrossCanada:

The majority of investigations undertaken by theRCMP surface as a result of preliminary, oftensubstantial,investigationbythecopyright/trade-markholderorrepresentative.…Oftenlawenforcementisapproachedoncetherightsholder,orrepresentative,has purchased counterfeit goods, has evaluated theauthenticity of the goods, and has other supportingevidencetopursueacasecriminally.…PartnershipsbetweenlawenforcementandindustryareessentialtocombatcounterfeitingandpiracyinCanada.61

While lack of policeresources remains amajor issue, the moresignificant problemarguably lies with theinadequate resourcesdevotedtoprosecutingIP crime. The simplefactsarethatveryfewprosecutors have a substantive knowledge of IPcriminallawinCanadaandnoCanadianprosecutorsdedicate themselves exclusively to IP crime.ProsecutorsdonotseemtoknowwhattodowithIPcases,eitherpleadingthemoutorshelvingthem.Inthe rare cases where counterfeiters are prosecuted,theytypicallyenduppayingminimalfines(usuallylessthan$10,000)andservingnojailtime.62

Eveninthemostegregiouscases,finesaretypically$25,000orless.Forexample,inwhatwasthelargestcounterfeit seizure inCanadianhistoryat the time,police seized30,000 counterfeitCDs in 2001withthe help of the Canadian Recording IndustryAssociation. The legitimate market price for theknockoffCDswouldhavebeennearly$500,000.Yeteachofthethreeperpetratorswasfinedjust$25,000and none faced jail sentences.64 Similarly, when a

PART TWO: THE PROBLEMS UNDERLYING CANADA’S FAILED IP ENFORCEMENT SYSTEM

“[T]he criminal justice system does not treat copyright infringement as a serious criminal issue.”

RCMP

Page ��

large-scaleimporterofcounterfeitgoodswascaughtwith13trailerloadsoffakeshoesandclothing,theimporterwasfinedonly$3,000.65TheRCMP’sownpublicstatementonthiscaseacknowledges“thatthecriminal justice system does not treat copyrightinfringementasaseriouscriminalissue.”66Further,in2004,whentheRCMPseized$100,000worthof

counterfeit cassettes, CDs, DVDs, and VHS tapesfrom three vendors in Hamilton, only one vendorwasactuallycaught in theact (hewasusingaCDburnerat the time), andhe faceda totalmaximumfine of $10,000 for selling and reproducing thecounterfeit music.67 Finally, in 2006, in one of thelargestfinesforcounterfeitinginCanadianhistory,a

THE GRAvITY OF THE SITUATION CAN BE ILLUSTRATED BY THE FOLLOWING CASE STUDY.

OnDecember5,2006,theRCMPissuedapressbulletinunderthetitle“EconomicCrimeSectionStampsOutRepeatCounterfeitDVDOperation.”Thefactsareasfollows:

OnMarch13,2003,afterreceivingatipfromthe Canadian Motion Picture DistributorsAssociation, the Richmond, British ColumbiaRCMPexecutedasearchwarrantinrelationtoacriminalcounterfeitDVDretailoperationata Vancouver mall. The counterfeit “business”was operated by Mr. Lau, age 46, under thebusiness name “Hong Kong Ying YumCompany.”Hundredsof“in-stock”counterfeitDVDswere seized, andMr.LauwaschargedunderthecriminalprovisionsoftheCopyrightAct.Hereceiveda$6,000fine.

Threemonthslater,onJune23,2003,theRCMPexecuted another search warrant, at the samemall, against Mr. Lau for counterfeiting. ThistimeMr. Lau was operatingunder the businessname “Chinese Disc Company.” Once again,policeseizedhundredsofcounterfeitDVDscur-rently“instock”atthetimeandchargedMr.Lau.There isnoevidence,however, thatMr.Lauatthistimereceivedanyadditionalfinesorpenal-tiesforhissecondflagrantactofcounterfeitingatthesamemall.

Twoyearslater,onApril30,2005,onceagainatthe same mall, the RCMP executed a searchwarrantagainstMr.Lauforcounterfeiting.On

thisoccasion,Mr.Lauwasoperatinginthemallunderthebusinessname“ParamountComputerServicesCo.”ThistimetheRCMPsearchedMr.Lau’s storage facility and, perhaps notsurprisingly,found:(i)75,000blankDVDs;(ii)DVDburnerstomanufacturecounterfeitDVDs;and(iii)hundredsofcounterfeitDVDs.

More thanayear later,onNovember11,2006,Mr. Lau pled guilty to 83 counts of criminalcopyright infringement and received a $5,000fine(lessthantheoriginalfine,which,ofcourse,had done nothing to deter his counterfeitingactivities)andanordertoremaininhisresidencefrom11pmto7amfortwelvemonths.

Intermsoftheimpactofthecriminalpenalty,a spokesperson for theRCMPdeclared: “Yousimplycan’tsetupshopinthesamemallthreetimes and expect to get away with this.Criminals should take notice that our Unit…aggressively investigates and pursues chargesagainst anyone that engages in this criminalenterprise.”63

In Canada, criminals engaged in IP theft are,afteryearsof flouting the legalsystem,finallybroughttojustice,givenaslaponthewrist,andsenttobed.Thetravestyofjusticeisthatthereare somanymore criminals likeMr.Lauwhoareeithernotchargedorfacethesametypeofnominal penalties after repeatedly profitingfromtheircrimes.

Page ��

“

”

”

“

retailer was fined $67,000 after being caught sellingover a quarter-million dollars of piratedentertainment software. Even this amount, whichwasmuchhigherthanfinesinthevastmajorityofprevious IPcrimecases,was less than thecostofpaying the applicable taxes on the legitimateproducts. Not surprisingly, within the year, thecounterfeiter was caught again selling his piratedsoftware.68

Thedisproportionatelysmallfinesmetedoutdonoteven cover the cost of the investigation, seizure,storage,anddestructionof thecounterfeitmaterial.Moreover,theydonothingtoeitherstripthecriminalof the illegal activity’s proceeds or deter futurecriminalactivity.AstheRCMPnotes:

Counterfeiters have stated to police they will continue to sell counterfeit goods because the deterrents offer no incentive to stop. IPRrepresentativessuggestthatsome individuals maintain a “fine fund,” whichdemonstratestheyrealizetheywilllikelybefinedatsomepoint,buthavelittleintentionofstoppingtheiractivities.69

The fact that the current application of criminalpenaltiesiswhollyinsufficienttocurbcounterfeitinginCanadaisclearlydemonstratedbytheRCMP’sconclusion in its report on copyright piracy andtrade-markcounterfeiting:

Under the Copyright Act, indictable criminaloffencesarepunishablebyfinesupto$1millionorimprisonmentnotexceedingfiveyears,orboth.Sentencing is usually a fraction of this.Smallfinesreflect the perceived scope of the crime and, insomecases,adollaramountlawenforcementcanprove to the court the convicted individual canpay.Rarelyarecriminalfinesmorethan$25,000

and are usually less than $10,000. Recently, anindividualreceiveda$7,500fineandwassentencedtooneyear’shousearrestfollowedby12monthsprobation for possessing $1 million worth ofpiratedsoftwareandsellingthissoftwareovertheInternet. This is the stiffest sentence ever forselling pirated software in Canada. Minimal sentences and low fines offer little incentive for law enforcement to pursue this issue more vigorously, and every incentive for criminals to continue pirating copyrighted goods.70

Whatiswrongwiththispicture?IPrightsholdersareplacedinthepositionofmountingexpensivesurveillanceandevidentiarygatheringactivities.Police lay charges in only a select few circum-stances,anditisatthisstagethatthetruetravestybegins. Prosecutors generally appear to assignlow priority to IP cases brought to them by thepoliceandareoftenfacedwithdifficultyinprov-ingallelementsoftheoutdatedIPoffencescur-rentlyavailable.Accordingly,inthecaseswherechargesarelaid,prosecutorstypicallypleadthemoutforfinesthatareafractionofthenormintheUnitedStatesortheUnitedKingdom.ThepolicecanbeforgivenforapproachingIPcrimeinalessthan enthusiastic manner – why bother, whenyour cases eitherdonotgo to court or result inminimalfines?

“Minimal sentences and low fines offer little incentive for law enforcement to pursue this issue

more vigorously, and every incentive for criminals to continue pirating copyrighted goods.”

RCMP

CURRENT CRIMINAL FINES - A SMALL BUSINESS ExPENSE FOR PIRATES

Business Income Tax Revenue

(based on 31% rate) for 1 Million Dollars Worth of Legitimate

Goods Sold

1 Million Dollars Worth

of Pirated Goods Seized

Criminal Fine for 1 Million

Dollars Worth of Pirated Goods

Seized

Page �3

”

“

”

“

SomeCanadianjudgeshavegonesofarastoopenlyquestion the ineffective systemof pleabargainedminimal finescurrently inplace.Forexample, inthe caseofMr.Laudescribedpreviously, JusticeChen lamented the plea bargain before him andsharplycriticizedtheCrown’spropensityforonlyseekingnominalpenaltiesthatdolittletodetertheexponentialgrowthofcounterfeitinginCanada:

You[Mr.Lau]areveryfortunatethatyourcounselhasbeenabletosecureajointsubmission[betweentheCrownandtheDefence]withrespecttosenten-cingonyourbehalf.Had they not done so, I would have considered a much more serious penalty for you. …[T]his is a widespread practice. You gotcaught.But it is exactly that kind of situation that calls out for general deterrence. Some kind of mes-sage needs to be sent to the community that this is a serious offence. …Thisistheft.…[I]tisawide-spreadpracticeandbecauseof that, somepeopleperhapsmaynotlookatitasonewouldregardtheftofotheritems.Buttheconceptofintellectualprop-erty is a very important one in our society.Intellectualpropertyprotectscreativity.Itprotectsoriginal ideas and creates property out of thoseideas, enabling people who come up with thoseideastoberewardedforbeingabletooriginateandcreate.Thatconceptisveryimportanttotheevolu-tionandprogressofoursociety.Indeed,whatdif-ferentiatesaprogressivesocietyorasocietywithahigherstandardoflivingfromothersocietiesistheleveloforiginalthinking,creativity,inventiveness.Thereisasocietalinterestinvolvedherewhich,inmyview,isveryimportant.Inmyview,thiskindoftheftconstitutesaveryseriousoffence,moreser-ious than a theft of some other material item orpropertybecauseitstrikesattheheartofwhatdif-ferentiatesaprogressive,creativesocietyfromonethatisnot.

Inanotherexample,anindividualandacorpora-tionwerechargedwithoffensesarisingfromthesale of various counterfeit products, includinglampswhichwereafirehazardbearingcounter-feitULsafetystickers.Apleabargainwasstruckwhereby the charges were dropped against theindividual,whowastheownerofthecorporationand directly implicated in the counterfeitingactivities, and a fine was imposed against thecorporation (a repeatoffenderof counterfeitingactivities).Thejudgestated:

WhatIammostconcernedaboutisthecounter-feit…safetystickers.Thatisdespicablebecausewhatendsupinthepublic’shandsissomethingthatisfranklygoingtobedangerous,wearetalk-ingaboutelectricalappliancesthatcausefires…[whicharethendressed]upwithfalselabelsandfalse safety certificates. [This] causes me greatpause,suchpausethatifitwasanindividualwhopled guilty before me today my starting pointwould be a term of imprisonment in a federalpenitentiary, without a doubt. . . . [T]here is asavingofsignificantexpensetothetaxpayersofthis country [byhaving the fast trackpleabar-gain].Havingsaidthat,Iamstillleftwithaverybad taste inmymouth fromwhat Ihaveheardhere today. However, the joint submission isacceptable.IamboundtoacceptitunlessIfindittobetotallyunacceptable.

Thebadtasteinthejudge’smouthwasultimatelyproventobewarrantedsinceboththeindividualand corporation have, once again, been chargedwithoffensesarisingfromthesaleofcounterfeitlightsbearingtheULsafetymark.

Theopenquestionbeforeus is this:howdoweensurethatIPcrimesaretreatedseriously?71

R E C O M M E N D AT I O N S :

1.1 Provide the RCMP and the Department of Justice with adequate financial and human resourcestoeffectivelyaddresscounterfeiting.1.2 Adequately fund an Intellectual Property CrimeTaskForce,composedofpoliceofficers, customsofficers,andfederalprosecutors,toguide andcoordinateIPcriminalenforcement.

1.3 Establish a reporting system to provide statisticsonandprecedentsfortheCanadian IPenforcementsystem.1.4 Prosecutors should immediately be

encouragedtoseekmoresignificantpenalties,includingjailtime.

SOME CONCERNS OF CANADIAN JUDGES

Page �4

”

“

(ii) counterfeit “retailers” not Prosecuted

The RCMP and the Department of Justice have anofficialenforcementpolicydatingbackto1998thatpurportstodrawadistinctionbetweena“retailer”anda“commercial”pirate.Specifically,thepolicystates:

Cases selected for investigation and prosecutionshould, as a matter of priority, constitute copyrightpiracy on a commercial scale. For purposes of thispolicy, “copyright piracy on a commercial scale”means commercial infringement by a manufacturer,wholesaler,orimporter.Infringement at the retail level is not an enforcement priority in its own right, althoughitmayproveausefulmeansofgainingaccesstomoreseriousoffencesofcopyrightpiracy.72

Thepolicywasacreatureofitstime.Atimebeforecommercialscalepiracywaswithinthegraspof the common criminal. Thecopyright enforcement policydraws a distinction that simplydoesnotexisttodayinrespectofdigital piracy due to readilyavailableandinexpensivecom-puter equipment that allows

criminals to “burn” their own limitless supply ofpiratedcopies.So-called“retailers”regularlyoperateon a “commercial scale” using inexpensive produc-tionequipmenttoconstantlyreplenishtheirinventory.Yet the RCMP rarely targets this criminal activitybecauseofthecurrentpolicythatinvestigations“attheretaillevel”shouldbelefttotheprivatesector.

Today,spacesnolargerthanthebackroomofastripmallstorecanbeusedasalargescaleproductioncentreproducing thousands of counterfeit CDs/DVDs in aweek.Forexample,inAugust2006,Torontopoliceinvestigated a strip mall “retailer” selling pirated

DVDs and found a sophisticated manufacturinglaboratoryinthebasementcapableofproducing560DVDmoviesper hour.Duringtheoperation,policeseizedapproximately20,000piratedDVDsthatwere“instock”atthetime.73

InCanada’spermissiveenvironment,manycriminalretailers arenodoubtoperatingon the same scale.Yettheiractsarenotan“enforcementpriority.”Duetothe“commercial”versus“retail”distinctiondrawnbytheoutdatedRCMP/DepartmentofJusticepolicy,weareleftwithapolicythatallows“retail”stores to openly sell counterfeit CDs, DVDs, andvideogames“manufactured”onsite.Further,retail-ersofvariousothertypesofcounterfeitproductsareabletoopenlyofferblatantknockoffsforsaletothegeneralpublicinCanadaduetothefederalCopyrightEnforcementPolicy,thelackofafederalTrade-markEnforcementPolicyandthelackofanyprovincialIPcrime programs. The problem is exacerbated inrespect of trade-mark enforcement due to the factthat there is nooffense section in theTrade-marks Act and enforcement of the Criminal Code, whichcontains trade-mark offences, is generally left toprovincialauthorities.Thelackofretailenforcementaccountsforthespreadofknockoffsfromstreetcor-nersandfleamarketstobrickandmortarstores.TheopensaleofcounterfeitgoodsattheretaillevelfuelsIPcrimebymakingthesaleandpurchaseofknock-offsappeartobesociallyacceptableand,asdiscussedbelow,fuelsacultureofpiracy.

This isnotmeant to suggest that theRCMP isnotextremely concerned about the problem ofcounterfeiting.Tothecontrary,theRCMPhasbeenvociferously advocating the need to address thecounterfeitingcrisisforalongtime.Theunfortunatereality,however,isthattheRCMPsimplydoesnothavethenecessaryresourcestocombatcounterfeitinginlightofotherdemandsontheirtime.74

“Infringement at the retail level is not an

enforcement priority in its own right”

RCMP and Department of Justice, Copyright Enforcement Policy

R E C O M M E N D AT I O N :

2.1 Revise the RCMP/Department of Justice Copyright Enforcement Policy to target copyrightpiracyand trade-markcounter- feitingattheretaillevel.

Page ��

”

“

”

“”

“

(iii) Proceeds of crime Legislation Excludes copyright Piracy

The mandate of the Proceeds of Crime Program(POCP)istoremovecriminalincentivebyidentifying,restraining, and forfeiting illicit wealth accumulatedthroughcriminalactivities.75Thismandate isclearlyrelevanttopiracybecauseofthehighprofitmarginsand lack of deterrent sanctions.76 For example, theMotionPictureAssociationhasfoundthat:

Thereisabundantevidencethatintellectualpropertythefthasbecomeapreferredfundraisingactivityfororganizationsthatalsonumberamongtheirpastimesdrugtrafficking,prostitution,andpeopletrafficking.… For good reason. The piracy business returnsstellar profits. Markups on pirated goods average1150 percent, far exceeding differential profits onthosefromtheillegaldrugtrade.77

Aspreviouslynoted, theRCMPacknowledges thatthe current penalties are insufficient to act as adeterrent.Inarecentreport,theyillustratedthispointwiththefollowingexample:

WhenthePOCPwasfirstintroducedin1989,itwasrestrictedtoalimitedlistof40offenceshistoricallyrelatedto“organizedcrime.”In2001,however,theCriminal Code was amended so that POCPprovisions would apply to all indictable offencesunder the Criminal Code and every other federalAct, with only a few limited exceptions. TheCopyright Act was one of the few pieces oflegislationexcludedfromthePOCP.Theapparentrationale for this exclusion is outlined in thecorrespondingregulatoryimpactanalysis:

Under the Copyright Act, any benefit obtained by thecommissionofacopyrightoffenceshouldbereturnedtotheauthorswhosecopyrighthasbeenbreached,ratherthanforfeitedtotheCrownasproceedsofcrime.79

Thisanalysis,however,appearstobebasedonafaulty premise; specifically, that the “benefits”

obtainedthroughcriminalactivityarerealistically accessible to IP rightsholders.Victimsofpiracyhaveclearlyexpressed the belief that it is in theirbest interest for law enforcementofficials to have all existingenforcement mechanisms available toremoveillicitprofitfrompirates.Keyleaders of the copyright communityhavestressedthat:

…animportantcomponentofanyinitia-tive to improve enforcement is anamendment of the regulation thatexcludes the Copyright Act from thenationalProceedsofCrimeprogram.…Copyright piracy is a growing inter-national phenomenon generating hugelossesforlegitimateindustry,theecon-omy,andgovernment.Thelinkbetweenpiracyandorganizedcriminalactivityisnow well recognized by Interpol, the

RCMP,andgovernmentsaroundtheworld,includ-ingCanada.Theinterestsofthosewhoarethevic-timsofcopyrightcrimesareservedbyaneffectiveenforcementprogramthatensureslawenforcement

authorities have all ofthe tools available foreffective criminal jus-tice, including theProceedsofCrime.80

1200%

1000%

800%

600%

400%

200%

0%Coffee Cocaine Pirate DVDsHeroin

Source: Motion Picture Association - International, “Optical Disc Piracy v. Illegal Drug Trafficking, October 2005” pg. 3, Figure 1.1 Adapted from UK National Criminal Intelligence Service SU/Drug Project (2004)

Cocaine markup is Columbia to Spain/UK; Heroin markup is from Iran to UK, DVD markup is from Malaysia to UK

PRODUCT MARKUPSAND PROFIT MARGINS

Drugs Compared to Intellectual Property Crime: A Risk Analysis78

Page �6

”

“

The fix here is undeniably simple. All that isrequiredisfortheGovernorinCounciltoamendthe Regulations Excluding Certain Indictable Offences From The Definition Of Designated Offence, SOR/2002-63 and to remove theCopyright Act from the indictable offencesexcludedunders.462.3(1)oftheCriminal Code.Doing so would help remove the financialincentive to engage in piracy, send a positivemessage regarding IP crime enforcement inCanada, and be entirely consistent with themandateofthePOCP.

(iv) civil remedies: an inadequate Solution

IP rights holders are extensively engaged incombatingcounterfeitinginmanyways,includingbuilding theevidentiarybasis required forpolicetolaycriminalcharges.WithextensiveexperienceincombatingIPcrime,IPrightsholdersappreciatethat it is normally ineffective or impossible toadequatelyavailthemselvesofcivil,asopposedtocriminal,remedies.Civilremediesarenoteffectivebecausecounterfeitersare criminals.Theydonotrespectthelaw,andtheystrategicallyandtacticallycarryouttheircriminalactivitiesinwaysexplicitlydesigned to avoid the justice system, both civilandcriminal.

ForanIPrightsholdertoeffectivelyenforcehisorherrightscivilly,thelawpresupposesthatthecounterfeiterwillrespectthecourtanditsorders.This, of course, is true in the vast majority of

civil actions, where pit two fundamentally law-abidinglitigantssettletheirdisputes.Butitisnotthe case where an IP rights holder squares offagainstacriminal.

Asmanyacivilpractitionerwillattest,theindividualsbehindcounterfeitactivitiesareoftenimpossibletoidentify, properly serve, or enforce orders against.Corporate searches draw a blank, profits arelaundered,accountingrecordsarenon-existent,andday-to-day cash transactions are run by carefullychosen confederates.Although an IP rights holdermay be able to obtain a “John Doe” civil seizure(Anton Piller) order, the costs of execution remainhigh, and neither seizures nor civil penalties haveanydeterrenteffect.

Even in the rare cases where a civil order isenforced, civil remedies are designed to becompensatory in nature, not to act as a punitivedeterrent.Asageneralrule,inacivilaction,theIPrights holder is only entitled to the “accuratequantum”oflossesthatheorshecandemonstratewere caused by the counterfeit activities as the

FederalCourthasstated:

On the question of themeasure of damages, it hasbeen held that the defendantis liable for all loss actually sustainedbytheplaintiffthatis the natural and direct

consequence of the unlawful acts ofthedefendant,includinganylossoftradeactuallysufferedbytheplaintiff,eitherdirectlyfromtheactscomplainedofor properly attributable thereto, that constitute aninjury to the plaintiff’s reputation, business,goodwill, or trade. Speculative and unproven damages must be deleted from the calculation. …In cases where damages are understood to haveoccurred,butproofoftheamountofthedamagesislacking, nominal damages are sometimesawarded.81

In termsofdemonstratinganaccuratequantumofdamages, IP rights holders face a nearlyinsurmountable obstacle. Even if blatant IP theftcanbeproven,theIPrightsholderswillonlyreceivea monetary award in proportion to either thedamages he or she is able to demonstrate to the

“Civil remedies are not effective because counterfeiters are criminals. They do not respect the law, and they strategically and

tactically carry out their criminal activities in ways explicitly designed to avoid the justice system, both civil and criminal.”

R E C O M M E N D AT I O N :

3.1 RemovetheCopyrightActfromthelistof indictable offences excluded from ProceedsofCrimelegislation.

Page ��

”“

courtasaresultofthecounterfeitingactivityorthecounterfeiter’sprofits.* Counterfeitingis,however,a criminal enterprise that is clandestine in nature.Counterfeiters deliberatelydesign their operationstoavoidhighcivilawards(andtaxes)by:

notkeepingaccountingrecords;only having “in-stock”inventoriesthataresmalland completely “turnedover” on a weekly (ordaily)basis;andcreating a “revolvingdoor”ofbusinessfrontsto immunize the princi-pal counterfeiting oper-ators (and their profits)fromprosecution.82

AlineofFederalCourtcivilcounterfeit cases has estab-lished what amounts to a de facto “tariff” that is leviedagainstcounterfeiterswhodonotcontestthequantumofdamages:$3,000forfleamarketoperators,$6,000forbricks-and-mortarretailers,and$24,000forlarge-scalemanufacturersanddistributors.83Theseawardsaretoosmalltodetercounterfeiters,oftenarenotcol-lected,and,evenwhenissuedwithaninjunction,donotpreventrecidivism,albeitoftentakingadifferentowner’sIPthenexttime.Timeandagain,anIPrightsholder obtains a civil award against a counterfeiteronlytofindthatthenextweek(insomecasesthenextday) the counterfeiter is back in business sellingcounterfeitgoodsinthesamearea(oftenatthesame

••

•

store). Awards such as these constitute a perverseformof“licence”:payablenotinadvanceoftheillegalactivitybutonlylongafterthefactandonlyenforce-ableinrarecases. Contemptproceedingsareavailableto enforce a judgment, but such proceedings areexpensiveandtypicallyonlyproduceanominalfine,andtherightsholderreceivesnocompensation.

Compoundingtheproblem,civilactionsaregener-allyonlyeconomicallyfeasibleforlargercompan-ies. Undertaking a civil action against a counter-feiter isanexpensiveendeavourforSMEs,whichoftenoperateonrazor-thinmargins.AstheRCMPhasnoted:

While large corporations have the capability toinvestigatecopyrightviolations, smallercompaniesdo not have these resources. Law enforcement isoftenthe onlymeanssmallercompanieshavetopur-suecounterfeiters.84

* Under trade-mark law, there are no statutory damage awards. As such, the onus is on the owner of the legitimate product to prove an accurate quantum of the damages or profits. However, some IP rights holders, such as those in the software, movie, and music industries, may elect statutory damages under Section 3� of the Copyright Act as an alternative remedy. It should be emphasized, however, that most IP rights holders do not have copyright protection in regards to their legitimate products. For example, manufacturers of pharmaceutical, electronic, toy, clothing, automobile, airplane, and beauty supply products typically do not have any recourse to copyright remedies. More importantly, in Canada, statutory damages rarely been used (a handful of times) by copyright owners because copyright owners face the same problem trade-mark owners confront when they seek common law remedies. That is, Canadian courts have held that the civil statu-tory damage award (like its common law counterpart) must be proportionate to the damages suffered by the IP rights holder. As such, the copyright owner must demonstrate a quantum of statutory damages in correlation with the piracy activities. For example, even where the Federal Court found that a blatant digital pirate acted in a manner that was “totally unreasonable and reprehensible,” the Court still ordered the pirate to only pay less than one percent of the maximum statutory amount of $�0,000 per work because, in part, the IP rights holder was: (i) unable to demonstrate the damages caused by the pirate activities; and, (ii) therefore, a higher award would have been dis-proportionate to the harm. Telewizja Polstat S.A. v. Radiopol Inc., �006 F.C. ��4 (FCTD).

“[T]he most effective methods and procedures in the fight against infringement of IPRs are those involving criminal enforcement. … Large-scale, commercial counterfeiting and piracy operations have traditionally looked upon civil fines as merely the cost of doing business. However, when the threat, or especially the reality, of prison is introduced into the mix, the real enforcement starts to take shape.”

Kamil Idris, Director General of WIPO and a former member of the United Nations International Law Commission

Page ��

”

“

Without adequate police enforcement againstcriminal counterfeiters, the vast majority of smallentrepreneursaretrappedinaCatch-22:eithertheyinstitute a lawsuit against the counterfeiter (whichwouldcripplethemfinancially)ortheydon’t(whichcripplesthemfinancially).

Finally, it should be emphasized that manycounterfeiters diversify the risk of their illegalactivitybystealingfromawidevarietyofIPrightsholders.Indoingso,pirateretailersareabletoensurethat, in the rare cases when they are successfullysuedbyaspecificIPrightsholder,thecivildamageaward only affects a very small portion of their“business.” For instance, many “entertainmentpirates” steal simultaneously from different music,movie,andsoftwaregamecompaniessothat–quiteliterally–dozensofdifferentIPrightsholdershavetocoordinatetheircivilenforcementactionsinordertoclaimagainstapirate retailer’sentire“in-stock”inventory of illegal merchandise. Needless to say,thisrarelyhappensinpractice.

Consistent with our domestic reality, an internationalconsensushasdevelopedonthequestionoftherelativeefficacyofcivilversuscriminalenforcementofIPrights.Criminal enforcementof intellectual property rights isthe preferred method for curtailing counterfeiting andpiracy.AsKamilIdris,DirectorGeneralofWIPOandaformermemberoftheUnitedNationsInternationalLawCommission,hasconcluded,thereis:

…generalagreementthatthe most effective methods and procedures in the fight against infringement of IPRs are those involving criminal enforcement. Criminallawimposesdifferentstandardsofliabilitythataregenerallyharderfortheprosecutiontomeetthan in civil cases;however, criminalpenalties aremoreonerous.Large-scale, commercial counterfeit-ing and piracy operations have traditionally looked upon civil fines as merely the cost of doing business. However, when the threat, or especially the reality, of prison is introduced into the mix, the real enforce-ment starts to take shape.85

Likewise, the UK Department of Trade andIndustry, under the direction of its InnovationMinister,hasconcludedthatthegovernmentneedstosendstrongsignalstocurtailcounterfeitingandpiracy involving “lengthier sentences and higher

penalties”duetothefactthatIPrightsholdersaresimply “unable” to protect their IP rights usingcivilremediesandmustrelyon“governmentandenforcementagencies.”86

Similarly,inThe Enforcement of Intellectual Property Rights, “Criminalizing Counterfeiting and Piracy,”JusticeHarmsof theSupremeCourtofAppeal forSouth Africa quotes approvingly from the U.S.Department of Justice’s Attorneys Manual,Prosecuting Intellectual Property Crimes, whichhighlights a number of reasons for the criminalenforcementofcounterfeiting.87Atthemostgenerallevel,thesereasonsinclude:

(i) Counterfeiting is Theft –Acounterfeitershouldnomorebeabletostealacompany’sintellectualpropertythantheyshouldbeabletostealtangibleproperty.Infact,IPrightsholdersmayneedaddi-tionalprotectionbecausetheyoftencannotprotecttheir intellectual property through traditionalsecuritymeans.

(ii) Counterfeiting May Harm Non-Purchasers –Counterfeit products not only harm the IP rightsholderandtheimmediateconsumer,theyalsoharmnon-purchasing users. For example, counterfeit carbrakes,pharmaceuticals,electricalcords,andbatter-iescancauseseriousharmtonon-purchasers.

(iii) Counterfeiting Undermines the Integrity of Market Rules – Just like counterfeit money andforgery, counterfeit products undermine marketintegrityandweakenmoderncommercialsystems.

(v) outdated and ineffective iP crime Legislation

Inadditiontotheproblemsdiscussedabove,includ-ingoutdatedfederalpoliciesand the lackofpoliceand prosecutorial resources necessary to combatcounterfeiting,Canada’scriminallegislationclearlylagsinregardstokeyareasofIPcrime,including(i)ineffective criminal provisions against trade-markcounterfeiting; (ii) inadequate legislation to stop(camcording) film piracy; (iii) ineffective laws tocurtail satellite theft; and (iv) insufficient laws toaddress counterfeiting tools and circumventiondevices.

Page ��

The Lack of Effective Criminal Provisions Against Trade-mark Counterfeiting

Withrespecttotrade-markcounterfeiting,thecompletelackofeffectivecriminaloffencesmakesthesituationinCanadaextremelydifficultforbrandowners.Nocrim-inal provisions exist in the federal Trade-marks Act.

Instead,criminaltrade-markprovi-sionsare included in theCriminal Code.Asaresultofcriminalprovi-sionsnotbeinginthefederalTrade-marks Act, theRCMPand federalprosecutors generally leave theenforcementofcriminaltrade-markoffencestoprovincialenforcementauthorities. Further, courts haveconstruedtheprovisionspecificallydirected against the distribution ofcounterfeit trade-mark products(s. 408(a)) to require intent to selltheproductstopurchaserswhomis-

takenlybelievetheproductsarelegitimate.88Accordingly,theprovisionisineffectiveagainstdistributorsorretailersopenlysellingcounterfeitproducts,andpoliceareeitherforcedtobecreativeordonotlaychargesatall.

TheextentoftheproblemisexemplifiedbythefactthatfederalenforcementofficersoftenproceedunderoffencesintheCopyright Actincasesthatarereallytrade-markcounterfeitingcases.Forinstance,intheSanFranciscoGiftscase involving falseULsafetystickerson faultylights,aclear-cutcaseoftrade-markcounterfeiting,char-geswerebroughtundertheCopyright Actbasedoncopy-rightsinthelogosandpackaging.

Canada’s unsophisticated approach to enforcementagainsttrade-markcounterfeitingsignificantlycontrib-utes to the problems with criminal enforcement.EnactingexplicitprovisionsintheTrade-marks Act(orinafederalAnti-Counterfeiting Act)whichmakeitanoffence to commercially deal in counterfeit brandedproducts,whetherthroughimportation,distribution,orattheretaillevel-regardlessofwhetherthepurchaserknowstheproductsarecounterfeit-mustbeapriority.

Inadequate Laws to Stop (Camcording) Film Piracy in Canada“Camcording”inmovietheatres, thecritical“first”source in creating the supply of illegally copied

films, has grown exponentially over the last fewyears. The recordings are made using hand-heldcameras or other covert recording devices.“Professional”camcordingpiratesnowuseavarietyoftechniquestoobtainahigh-qualitycopy,includ-ingtheuseofdigitalcamerassosmalltheycanlit-erallyfitinthepalmofthehand.

Theanalysisofpiratedfilmsseizedthroughouttheworldrevealsthatmorethan90%ofillicitrecentlyreleasedmoviesonDVDscanbesourcedback totheatricalcamcording.89Despiteourrelativelysmallpopulation, Canada is now a primary source forunauthorizedcamcordingofnewlyreleasedmotionpictures,whicharethenusedworldwideinthepro-ductionofillegalopticaldiscs.Forensicwatermark-ingontheatricallyreleasedfilmsthatidentifiesthetheatreinwhichthemotionpicturewascamcordedsubstantiatesthisfact.

Since the first Canadian camcord was discov-ered in 2003, more than 190 films have beenidentifiedascamcordedfromover40differenttheatresinCanada.

Copies of these films have been downloadedfromover130differentInternetReleaseGroups(groups that specialize in the Internetdistribu-tionofpiratedmaterials)andfoundintheformofpirateddiscsinover45differentcountries.

In 2005, camcording sourced to Canadiantheatresaccountedforapproximately20%oftheworldwidetotalofcopiesidentifiedasoriginatingfromatheatricalcamcord.90

Camcordingpiratesareoftendirectlyassociatedwith“ReleaseGroups”whoareresponsiblefortheonlinedistribution of illegal copies of movies, computergames,andsoftwareovertheInternet.Theyarealsolinkedtolarge-scalereplicator labslocatedinChinaand elsewhere. The economic impact of these“Canadian”camcordsandthehighlyorganizedgroupsassociatedwithsupplyingtheblackmarketforpiratedDVDsisveryserious.Newlyreleasedfilmsappearinstreetmarkets around theworld andon the Internetjust days aftertheir domestic theatrical release.Whereaspiratedcopiesoffilmsmadein2003didnotappearuntil65-75daysafter their theatricalrelease,2006filmswereavailablewithinhours.91

•

•

•

The RCMP has formally stated that

the government needs to “review” the fact that there

is no “criminal enforcement in the Trade-marks Act.”

Page �0

Legislation to stop unauthorized camcording hasbeen introduced in theU.S. atboth the state andfederal levels. At the federal level, the Family Entertainment and Copyright Act (FECA) wasenactedin2005,makingcamcordinginatheatreafederal felonyandestablishingnewpenalties forpirating works that have not yet been releasedcommercially. First-time violators can be sen-tenceduptofiveyearsforthesecrimesandfinedupto$250,000.

Canada, however, has failed to enact specificlegislation to effectively deter camcording pir-ates.Theenforcementpolicyof theRCMPandthecurrent languageof thecriminalprovisionsoftheCopyright Act meanthatnorealisticwayexiststostopthiscriticalsourceofpiratedfilmsand to deter individuals from camcording.Neither the RCMP nor local police ordinarilytakeaction,evenwhentheycatchcamcordersintheact.The localpolice refuse tomonitor the-atres on the basis that “copyright” is a federalenforcement mandate, and the RCMP points tothe existingprovisionsof the Copyright Act asinadequateforthemtorespondunlessevidencesurfaces that the copy was being made withcommercialintent.

Withoutlawenforcement,theatreemployeeshavenoabilitytodetainthesuspect,getaname,ortakethecamera.Civilactionisnotanavailableoptionto enforce rights, as it is impossible to proceedcivilly against criminals who, when caught, willrefusetoprovidetheirname,address,orrecordingequipment. One of the last theatre owners whorecently sought assistance from law enforcementwastoldthattheonlyreasonpolicewouldattendatthetheatrewastoarresttheownerifhetriedtoeitherconfiscatetherecordingequipmentordetainthepersonoperatingthecamcorder.

Satellite Signal Theft

Satellite signal theft is a significant problem inCanada,onethathascontinuedtogrowinrecentyears, notwithstanding the Supreme Court ofCanada’sseminaldecisionin2002confirmingthatit isunlawfulunder theRadiocommunication Actto deal in devices used for unauthorized decryp-tionofencryptedsatelliteTVsignals.92

While estimates vary,93 broadcast industry statis-tics indicate that thecost to theCanadianbroad-casting system is a minimum of $240,000,000every year94 – money that would otherwise havegonetosupportCanadianprogramming,Canadianinfrastructure,andCanadianjobs.

TheRCMPdoestakesomeaction,incoordinationwithrightsholders,againstwhattheyhavetermeda“socialevil.”95Butthislevelofenforcementisnotenough. The current provisions of the Radiocom-munication Act areinadequatetocoverthespectrumofactivityassociatedwiththisformofcommercialpiracy,donotactasadeterrent,anddonotprovideadequateremedies.Forexample,recently,“free-to-air”receiversarebeingsoldtocustomers,whothenobtainsoftwarefromanothersource,allowingthemtomodifythesereceiverstodecodeencryptedsig-nals in contravention of the Radiocommunication Act. Providers of this software escape liability astheyarguethatsoftwareisnot“equipmentordevice,oranycomponentthereof”–thelanguageusedinthecurrentAct.

TheSupremeCourtdecisioninBell Express Vu v. Rex confirmed that it is immaterial whether theequipment or device being sold is to enable theillegal reception ofAmerican satellite signals orthepiratingofCanadiansatellitesignals.BothareprohibitedundertheRadiocommunication Act.Yetthe trafficking and dealing in these devices andequipment continues to grow in criminal oper-ationsacrossCanada.

Even when charges are laid against dealers inillegaldecodingequipment,theresultingpenaltiesareusuallynominalandpaleincomparisontothehugeprofitstheymake.OffencesundertheRadio- communication Act are punishable only on sum-mary conviction, and the maximum penalty israrely imposed.Inorder toovercomesuchshort-comings, legislativechangemustkeeppacewiththe technological developments associated withthisformofpiracy.

Curtailing IP Lock Picks: Counterfeiting Tools and Circumvention Devices

Canadahasbecomeahavenfortraffickersofcir-cumvention devices, that is, devices that bypass

Page ��

“

”

the technological measures that IP rights holdersuse to protect their products from piracy. Thesedevicesincludemodificationchips(“modchips”)that allow pirated optical discs to be played on“unlocked” video game systems. Circumventiondevicesarethelockpicksofthe21stcentury.

ArecentnewspaperarticlereportedhowcommonitwastopurchasemodchipsinaplethoraofpiratevideogameshopsinTorontoandhowthesemodchipswereacriticallinkintheproliferationofpir-atevideogamesinCanada:

BruceandI tookatripout tothePacificMall toget his PlayStation modded. He was excited thathe’d soon be able to play pirate games... Wetraipsed around to the various game stores, andBrucewouldaskthemquestionsaboutoptionsandprices.They’d sometimes have price lists postedwithdifferentmod-chips,preloadedpackagesandacatalogueofthebootleggamestheyhadtooffer.After the third or fourth place offered the exactsame price - $130 for the mod chip installationwith three games, $110 with no games - Brucestartedtogrumbleabouthonouramongthieves....I asked him what the mod chip actually does.“MostgamesarejustDVDs,right?Soyoushouldbe able to just copy them like you do CDs. Butthey’ve[thegamecompanies]got theseunrepro-ducablebadblocks...themodchipbypassesthisbad-block-checkingstep.96

Provisions outlawing IP circumvention devicesand services are ill defined inCanadiancriminallegislation, making it difficult to enforce againstthese “unlocking” activities. There is clearly aneedforupdatedlegislationtodealwithindivid-ualswhosellelectroniclockpicksthatallowindi-vidualstoaccessanddistributepiratedproducts.

Similarly, existing civil provisions dealing with“dies” for reproducing trade-marks and “plates”for reproducing copyrighted works are outdatedandineffectivetodealwithdigitaldistributionofpiratedproductsanddigitalreproductionofprod-uctlogosandlabels.

(vi) Lack of Effective anti-counterfeiting civil remedies

While in many instances traditional civil remediesarenotsuitabletocurbcounterfeiting,extraordinarycivilremediesmaybeeffectivetodetercounterfeit-ingincertainsituations.Forexample,whereestab-lished corporations willfully (or negligently) sellcounterfeitproducts,civiljudgmentsmaybemoreeffective in addressing the distribution ofknockoffs.

Anumberofjurisdictionshaveestablishedspecializedcivilanti-counterfeitinglegislation,suchthatcounter-feitersfacethethreatofheightenedcivilawards.TheUnitedStates,forexample,hasspecializedcivilrem-ediesavailablethatexpresslytargetcounterfeitactiv-ities.Theseinclude:

R E C O M M E N D AT I O N S :

4.1 Enact legislation clearly defining trade- mark“counterfeiting”asaspecificcriminal offenceundertheTrade-marks Act.4.2 Enactlegislationtomakethefastestgrowing source of commercial video piracy – camcording ina theatre–anoffence in the Criminal Code.4.3 Amend the Radiocommunication Act to address the new forms of signal theft, increase criminal penalties to facilitate effective enforcement, limit importation of satellite receiving and decoding tools, andstrengthencivilremedies.4.4 Enact criminal legislationclearlydefining offences for commercial circumvention activities (including trafficking in circum- ventiondevices)andtreatthoseactivitiesas well as the commercial distribution of pirated digital works as a criminal enforcementpriority;enactcivillegislation that clearly make persons who distribute piratedworksandpersonswhomanufacture and/ordistributecounterfeitingtools,such as mod chips, liable for contributory copyrightinfringement.

Page ��

Apresumptionthatthecommercialsuccessofacounterfeitproductisattributabletothereputa-tionofthelegitimateproductand,therefore,asalemadebythecounterfeiterispresumedtobeasalelosttotheownerofthelegitimateproductatthelegitimatemarketprice(e.g.,inassessingdamages,acounterfeitNIKEt-shirtsoldat$10ispresumed tobea lost saleof the legitimateNIKE t-shirt at the standard $30 marketprice).97

Highstatutorydamageawardsupto$1,000,000per counterfeit mark per type of counterfeitproductsoldwillfully98andupto$150,000percopyrightworkbeingwillfullyinfringed.99

Trebledamagesoraccountingofprofitswhenthetrade-markcounterfeitingactivityiswillfulandimitatesaregisteredtrade-mark.100

SpecializedcivilremediesintheU.S.havebeenmuchmore effective in addressing counterfeiting than inCanada.However,itisworthemphasizingthatintheU.S. (as elsewhere), it is recognized that aggressivecriminalenforcementistheprimarymethodtodetercounterfeiting and that, conversely, civil actions areusuallyill-equippedtocurtailtheblackmarket(forallthereasonsdiscussedpreviouslyinthisreport).

Inaddition,providingsummaryproceedingstomini-mizethecostofprosecution(anddefence)assistsincivilenforcement.Whilesuchproceedingsarecur-rentlyavailablewith respect to copyrightpiracy inCanada, they have not been significantly utilized.Nevertheless, providing summary proceedings fortrade-mark violations will supply IP rights holderswithanotherusefulciviltoolagainstcounterfeiting.

•

•

•

(vii) disempowered customs officials

Most counterfeit goods in the Canadian market areimported.101However,unlikecustomsauthoritiesinothermajorindustrializednations,theCanadaBorderServicesAgency (CBSA) does not seize or destroy counterfeitgoods.Instead,customsofficerswillonlydetain(foralimitedperiodof time)counterfeitgoods if: (i) theIPholderhasobtainedacourtorder;or(ii)theRCMP(orlocal police officers) agree to seize the goods.102Unfortunately,theinformationthatIPrightsholdersmustprovideinordertoobtainadetentionorderfromacourtisgenerallynotavailabletothemgiventheclandestinenatureofcounterfeitactivities.Further,expensivecourtproceedings are required both to obtain the order andultimatelytodeterminethelegalityoftheimportation.Inthecaseofcriminalenforcement,asalreadymentioned,theRCMPandlocalpoliceforceshavelimitedresourcestopursueIPcrimesandtostoreanddestroycounterfeitgoods.IftheRCMPorlocalpolicecannotrespondwhencustomsofficersdiscovercounterfeitgoods, thegoodswillsimplybereleased.Moreover,itisarguablynotanoffense to import products bearing counterfeit trade-marks unless there are provable copyrights associatedwiththeknockoffs.Duetothelackoflegalclarityinthisarea, it may only be an offence when counterfeits oftrade-mark products are actually sold in Canada. The practical result is that Canada has no effective system for enforcing IP rights at the border.

Thecurrentborderenforcementsystem,mannedbydis-empoweredcustomsofficerswithnomandatetostoptheflow of counterfeit goods into Canada, is wholly inad-equatetokeepoutcounterfeitproductsfromcountrieslikeChinaandRussia.AstheNational Posthasreported:

“Organized crime has been called the ‘dark side of globalization’, bearing in mind their facility in conducting operations of international proportion. This is particularly true of IP criminal operations since most illegal goods are being imported into Canada. When operations go international, the likelihood of organized crime involvement increases due to the size of the shipments, the sophistication and complexity of the operations and the monies required to fund them.”

RCMP

R E C O M M E N D AT I O N :

5.1 Strengthencivilremediesforcounterfeit-ing. In particular, the civil legislationshould provide for: (i) statutory damageawards, including minimum “floor level”damage awards and heightened damageawardsforwillfulorrepeatoffenders;(ii)specialized injunctions and seizureordersupon proof of counterfeit activities; and(iii)summaryenforcementproceedings.

Page �3

”

“

”

“[Recent newspaper articles] also revealed numer-ousloopholes,fromlaxbordercontrolstooutdatedlegislation,thatallowcounterfeiterstothrivewhilerobbing the legitimate economy of countless jobsandbillionsofdollars.…Ifapersondeclareswhatappears tobea loadof fakeCalvinKlein t-shirts,forexample,CustomsagentshavetocalltheRCMP.But if the Mounties are unable to take the call,Customshave little choicebut tousher thegoodsintoCanada.Theydonot evenhave tonotify thelegitimatecompaniesthataloadofbogusgoodshasjust infiltrated themarket.…Companiesdohaveoneofficialoptionattheirdisposal,butitisconsid-eredsucha laughableunrealisticprocess that it israrelyinvoked.Ifabrandownercanprovideajudgewiththeidentityofanimporter,thequantityoffakegoods,theestimateddateofarrivalinCanada,themodeof transportation,and, ifpossible, theserialnumber on the container, the company will begrantedacourtorderthatcompelsCustomstoseizetheincominggoods.103

In addition tonot seizingor destroying counterfeitgoods,theCBSAgenerallydoesnot:

keep statistics on the shipments of counterfeitgoodsthataredetected;take counterfeit products into considerationwhen the CBSA conducts risk assessments orwhenitallocatesresources;andhavediscretionaryfundsforstoringordestroy-ingcounterfeitgoods.

Evenworse,CanadiancustomsofficersinchargeofportsofentryacrossCanadarisklosingresourcesifthey pay too much attention to the problem ofcounterfeitproducts.104

Itisestimatedthat,since1994,only10to15deten-tionordershavebeenissuedbythecourtstorightsholders inCanada.While jointRCMP/CBSAoper-ationshaveresultedinmoreseizuresat theborder,the border enforcement system remains woefullyinadequate because of: (i) the lack of mandate oradministrative system for CBSA officers to seizecounterfeit goods; (ii) problems with Canada’s IPcrimelegislation(includingthefactthatitisnotanoffencetoimporttrade-markcounterfeitgoods);and,(iii) lack of enforcement resources to combat IPcrimeinCanada.

•

•

•

ThisisnottosuggestthatCanada’scustomsofficersare not anxious to do something about the flood ofcounterfeitgoods.Theyarenohappieraboutthedel-ugeof counterfeit goods than IP rightsholders.Buttheirhandsaretied.AsMichelProulx,aspokespersonfortheCBSA,explainedtotheNational Post:

…border agents do everything they can within therealmofcurrentlaws.“Wehavetofollowtherulesthewaytheyarewritten,”hesaidyesterday.“We’redoingour job. We’re intercepting it. We’re following theprotocol.Butifthingsdieoffattheendoftheline,youcan’treallyholdusaccountableforthat.”105

IncontrasttoCanada,theU.S.hasimplementedasys-temthatallowsIPrightsholderstorecordtheirtrade-marks and copyrights with customs authorities andencourages customs officers to actively monitor theimportationof infringinggoods (see the InternationalBestPracticessection).Notsurprisingly,theU.S.sys-temhasresultedintheseizureoftensofthousandsofcounterfeitshipmentsfrom1998to2005.106

R E C O M M E N D AT I O N S :

6.1 Implement legislation clearly prohibiting the importationofcounterfeitgoods.6.2 Provide the CBSA with the express authority to target,detain,seize,anddestroycounterfeit goods on its own initiative and to implement policies promoting the detection of such goods, such as mandatory reporting of brand informationwithshipments.6.3 Formalizeintelligencesharingandinvestigative enforcementmanagementthroughcooperation betweentheRCMPandCBSA.6.4 Makeprovisionsfor thedisclosureof inform- ation and the provision of samples to IP rightsholdersforthepurposesofdetermining whetherdetainedgoodsarecounterfeit,andenable IPrightsholderstoexercisecivilremedies.6.5 Introduceadministrativefinesfortheimportation or exportation of counterfeit goods.The fines should be set sufficiently high to act as an effectivedeterrent.6.6 Adopt a recordation system whereby IP rights holders may record their rights with CBSA and highlight “high-risk” products thatareknownorlikelycounterfeittargets.

Page �4

”

“(viii) troubling Ethics: the culture of Piracy in canada

Enforcing effective laws against counterfeitingand piracy is critical to an effective IP environ-ment. However, if citizens do not believe thatstealingintellectualpropertyiswrong–ifretailersopenly offer counterfeit goods for sale and con-sumers routinely violate IP rights without anysenseofshameorguilt– then, inaddition to thedamaging impact discussed above, the supply ofcreativity and innovation will be impaired.Individualsmustunderstandthatthetheftofintel-lectualpropertyisnotacceptable.107Inthisregard,social capital – a community’s normative sub-stratuminvolvingreciprocal respectand trust forallcommunitymembersandtheirrespectiveprop-erty–isincreasinglyseenasacriticaldeterminantof a well-functioning economy.108 Social capitalinvolvesthenon-legalinformal normsofsociety,how members of a community act when theybelieve the police aren’t watching them. As theDirectorGeneralofWIPOhasstated,theinformalrespectforintellectualpropertyrights(aswellas

their formal enforcement) is a critical part of aninnovativeculture:

BuildingpublicawarenessoftheroleofIPiskeytofosteringabroadunderstandingof,andrespectfor,itandthesystemthatpromotesandprotectsit.…Enforcementisamulti-layeredconcept.Itcan-notbeapproachedonlythroughpolice,Customs,andcourts.Withoutpoliticalwill,theappropriatelegislativeframework,andanIPculture,therecanbenoenforcement,andultimately,thecountryandtheeconomywillsuffer.109

While the majority of Canadians believe that IP isessentialforCanada’sprosperityandthatstronglawsare required to protect IP, piracy is increasinglybecoming morally acceptable in Canadian culture,particularly among youth (the 15–24 year-old agegroup). In recent years, numerous surveys of theCanadian population have come to a disconcertingconclusion: when Canadians are offered the “greatbargain”ofinexpensivepiratedgoods,asignificantportion,mostofthemyoung,believethatstealingIPisnotwrong.

Page ��

StatisticshighlightingCanada’scultureofpiracyarealarming:

ApollindicatedthatCanadiansdonotviewthepiracy of software, movies, and music as ser-iouslyaseitherstealingofficesuppliesorkeep-ingincorrectchangefromstoreclerks.110

SoftwarepiracyinCanadaissignificantlyhigher(over a third of the Canadian population hasstolensoftware)thanthoseofitsmajortradingpartners, including the United States and theUnitedKingdom.111

Approximately one third of Canadian gamers(34%) admit to having acquired a videogamethat was copied or pirated. This percentage is twicetheleveloftheUnitedStates(17%).112

Attackingpiratesdoesnotnecessarilyaddress theroot problem. Pirates can only thrive in a culturewhere citizens view the acquisition of counterfeitgoods as acceptable. In Canada, consumers oftenknowexactlywhat they aredoingwhen theybuycounterfeitgoods.Theyknowitistheft–butitisalsoagood“bargain.”

Alargesegmentofoursocietydisplaysaphenom-enallycavalierattitudetowardIPrights.Thissitu-ationwascapturedinarecentTorontonewspaperarticle in which the reporter describes taking ayoungteentothePacificMalltobuypiratedvideogames.Inthewordsoftheteen,piratedgamesare“morefun”and“findingways toget themratherthan justgoing toWalmart–becomesagame initself.” The reporter not only escorts the teenamongtheplethoraofpirateretailersatthemalltofind thebestpiratedgamesfor thebestpricebutactuallyreports on the entire process.Inthearti-cle’sconclusion,thereporternotesthatthecrim-inals should have “used a little more discretion”

•

•

•

becausearecentpoliceraidcurtailedsomeoftheirovert counterfeiting activities and then lamentsthatitwouldbe“awhile”beforeheandhischargewouldreturntothemall.113

In light of the foregoing, and in line with inter-national best practices as highlighted in the nextsection of this report, the government shoulddevelopcomprehensiveprogramswith industry tobuildawarenessoftheimportanceofIPamongthepublicandkeystakeholders.

R E C O M M E N D AT I O N :

7.1 Establish a federal Intellectual Property CoordinationCouncilconsistingofsenior civilservantsandIPrightsholderswhose keyobjectiveswouldinclude:(i)Creating and implementing educational programs, with emphasis on Canadian youth, that teach the rationale forand importanceof intellectual property; (ii) Communicating withIPrightholderstoensurethattheirIP needs are being met by the current applicationofthelaws;(iii) Developing broad-based marketplace framework policies that focus on sustaining and growingthecreationandexploitationofIP in Canada; (iv) Ensuring that all government departments recognize the importance of IP in the creation and development of strategies designed to make Canada more competitive and innovative; and (v) Creating and implementing specialized enforcement educational programs, e.g., educating police,customsofficers,prosecutors,and thejudiciarytoassistinsophisticatedand efficientIPenforcementandadjudication.

Page �6

FUELING INNOvATION AND PROsPERITY:

THENEEDFORMARKETPLACEINTEGRITY

(i) the Economic importance of intellectual Property

The rationale for IP protection extends far beyondcurbing criminal activity and protecting industriesandindividualsfrominjury.Byprovidingamarket-place where investments in innovations, creations,andgoodwillmayberecovered,IPprotectionfostersinnovationalongwithbroad-basedeconomicgrowth,job creation, and prosperity. In modern, developednationslikeCanada,whereservicesandinnovationhave become key economic drivers, this has neverbeenmoreimportant.

In2002,WIPOreportedthatintellectualpropertyrepresented 45 to 75 percent of the overall cor-poratevalueoftheFortune500’slargestcompan-ies.114Whileeverycompany is increasinglyreli-anton IP rights, thehighestgrowthareasof theglobal economy are IP-based industries. Forexample, the creative-copyright industries (e.g.,publishing, film, entertainment software) havebeenrapidlyexpandingbothintermsofrevenuegenerationandemployment.In2000,thecreativeindustries in the EU contributed more than 1.2trillion euros to theEUeconomyand employedapproximately5.2millionpeople.115Similarly,in2000, the creative industries in Canada wereexpandingattwicetherateoftheCanadianecon-omy overall, generating approximately $66 bil-lion in revenue, and represented the third mostimportant contributor to thecountry’s economicgrowth.116 The Gowers Review recently pre-sented similar conclusions regarding the UKeconomy.117

(ii) nurturing intellectual Property: the importance of demand

Atthemostgenerallevel,governmentplaystwocrit-ical roles in assisting the growth of intellectualproperty:

PromotingtheSupplyofIntellectualProperty–byfosteringthecreationofintangiblecommod-itiesbyartistsandinventors.

•

PromotingtheDemandforIntellectualProperty–byensuring that intangible commodities cancompeteinawell-functioningmarketplaceandbyassistingartists and inventors ingeneratingrevenuefromtheircreations.

In terms of generating revenues from IP, both thesupply and demand sides need to be properlycultivated.

Onthesupplyside, thefocusofgovernmentactiv-ities is usually on producing skilled workers andinvesting inhigh-qualityresearchanddevelopmentfacilities to support innovation. The federal andprovincialgovernmentshavedonerelativelywellinthisregard.Forinstance,Canadaisaworldleaderindigitalbroadbandinfrastructure,digitalwirelinenet-works,high-speedInternet,andresearchuniversities.118Ottawa’s flagship infrastructure program, the CanadaFoundationforInnovation(CFI),establishedin1997,hasa$3.7billionendowmentusedtosupportinfra-structure costs, such as funding basic researchfacilities.119 In termsof technicalworkers,Ontariohas more science and engineering graduates per capita thantheUnitedStates.120Likewise,Quebechasapoolof researchersequivalent to thatof theU.S.andOntario.121U.S.venturecapitalfirmshavestatedthattheyareattractedtoinvestinginCanadabecause, among other things, of its skilled work-forceandtechnologicalbase.122

Onthedemandside,thefocusisonthecommer-cializationofaconceptualproduct,thatis,foster-ingconsumerdemandforthepurchaseofIP-basedgoods. Both the federal and provincial govern-ments are spending far less on this side of theequation.Forexample,thefourOntarioCentresofExcellence established by the provincial govern-menttohelpresearcherstransferideasandproto-types from the drawing board to the store shelfhaveacombinedannualfundingofabout$30mil-lion, compared to about $2.4 billion invested inOntario’s R&D infrastructure.123 Similarly, thegovernmenthasdedicatedlimitedresourcestoIPeducationandproductmarketingprograms.Moregenerally, data from theWorld Economic Forum(WEF)suggests thatCanada trails farbehind the

•

PART THREE: FUELING INNOvATION AND PROSPERITY – THE NEED FOR MARKETPLACE INTEGRITY

Page ��

”

“

”

“

U.S. on the demand side of the innovation econ-omy,specificallyintermsof:

Intellectualpropertyprotection;Extentofbranding;Extentofmarketing;andLaws relating to information and communica-tiontechnology.124

Giventheforegoing,itisnotsurprisingthattheInstituteforCompetitiveness&Prosperityhas concluded thatCanada(andOntario)haveoveremphasizedthesupplysideandunderemphasizedthedemandside,whichhascreatedinefficientoutcomesand,tosomeextent,com-promisedCanada’sinnovativecapacity:

[Thereisan]overemphasisonthehardsciencesandtraditionalR&D.Ineffect,thepoliciesindicateabeliefthattherealchallengewehaveinOntarioandCanadais in having enough technical people, technologyspending, R&D tax incentives, and the like. Ourresearchindicatesthatthesefactorsareonlypartofthechallengeandas longas themodel in themindsofpolicymakerscontinuestobenarrowandincomplete,ourprovincewillmakelittleprogressoninnovationandcommercialization.…Ifwereallywanttosolvethe commercialization challenge, we must createhigher demand for innovation. To do this, we must look at the competitive pressures that face our leading companies and what can be done to encourage busi-nesses to be more competitive in the marketplace.125

Similarly, in Quebec’s 2005 Economic DevelopmentStrategy, the provincial government noted that theprovince’sinnovationstrengthsinclude:(i)state-of-the-artresearchinfrastructure;(ii)world-calibreresearch-ers, technical workers, and highly educated creativeindividuals;and(iii)competitiveR&Dtaxincentives.However,similar tootherprovinces’experiences, theQuebecgovernment found“challenges tobemet” inthecomingyearsinorderforQuebectobecomeafocalpointforglobalinnovation,fourofwhichwere:

(i) “Create in Quebec a genuine culture of innovation;”(ii) Preserveapooloftop-notchresearchers;(iii) “Encourage the private sector to engage more extensivelyinresearch;”and(iv)“Successfullymakethetransitionfromresearch toinnovation.”126

••••

(iii) the adequate Enforcement of intellectual Property rights: a necessary Pre-condition to innovation and Prosperity

AkeyelementinnurturingthecommercializationofIPistheintegrityofthemarketplaceforconceptualgoods. Competitiveness and prosperity are damp-enedbythepresenceofarobustblackmarket.TheabilityofanIPrightsholdertogeneraterevenuesisseriously impaired when counterfeiters are able tosell knockoff goods at substantially reduced pricesthatdonot cover the legitimateproduct’sdevelop-ment,marketing,anddistributioncosts.Businesseswill tend to under-invest if they believe that theirinvestment is subject to theft of their reputation,innovations,andcreations.

TheDirectorGeneralofWIPOhasexpressedthat:

ItiscommonknowledgethatinvestmentinR&Disquiteanexpensiveundertaking.Investorswillunder-invest in such activities if they are not assured ofreaping the lion’s shareof the resultingbenefits. ItcanbeconvincinglyarguedthatIPprotectionplaysacatalyticroleinstimulatingR&D.Furthermore,pro-tection of intellectual property has the potential tocontributepositivelytoacountry’seffortstoattractFDI, increaseforeign trade,andprovide theneces-saryconditionsfortransferoftechnology.127

InRussia,thesoftwareindustry(oneoftheprimecre-atorsofjobsandrevenuesinaninformationeconomy)

“[L]egitimate industries cannot “compete” with pirates and counterfeiters on the price of products, since illegal operators are saved the research, development, and marketing costs of the legitimate sector. Pirates and counterfeiters simply take a free ride on all the effort, creative work, and investment of others. These illegal activities lead to serious distortions in the marketplace.”

International Chamber of Commerce

Page 30

“

”“

employsamere8,000workers,comparedto640,000workersintheUnitedStates.Aprimaryreasonforthisis the rampantRussianblackmarket forpiratedsoft-ware.Asadirectresultoftheproliferationofknockoffs,Russiansoftwarefirmsareunableto“producesufficientreturns to justify investing in new products, or inresearchanddevelopmenttoimproveexistingones.”128Conversely,intheUnitedStates.AlanGreenspan,for-merChairmanoftheU.S.FederalReserve,hasstatedthattheU.S.continuestosupporttheprotectionofintel-lectualpropertybecause:

Thefractionofthetotaloutputof[theU.S.]economythatis essentially conceptual rather thanphysicalhasbeenrising.Thetrendhas,ofnecessity,shiftedtheassetvalua-tionfromphysicalpropertytointellectualpropertyandtothelegalrightsinherentinintellectualproperty.129

The WEF Global Competitiveness Report estab-lishedadirectcorrelationbetweentheprotectionofIPgoodsandnationalcompetitiveness.In2004,the20 countries with the most stringent intellectualpropertyprotectionwereclassedamongthetop27interms of growth and competitiveness. Conversely,the 20 countries perceived as having the weakestintellectualpropertyprotectionwererankedamongthebottom36.130

Numeroussurveyssupportthereport’sfindings.Inasurvey of 377 Brazilian firms by the BrazilianMinistryofIndustrialDevelopmentandCommerceandtheAmericanChamberofCommerce,80percentof the firms indicated they would invest more inR&D and human capital if better legal protectionwere available.132 Likewise, the InternationalChamber of Commerce and the Ifo Institute133 sur-veyed1,100corporateandacademiceconomistsandaskedwhethercounterfeitproductsandthetheftof

intellectual propertywere among the morepressing problems facingbusiness today. The pollfound that 83 percenteitheragreedor stronglyagreed.134Another study,conducted by EdwinMansfield, formerDirectoroftheUniversityofPennsylvania’sCenterfor Economics andTechnology,foundthatinter- jur isdict ionalinvestment and theamountandqualityoftechnologytransferbyGermany,Japan, and the United States seemed to be affectedsignificantlybytherecipientcountry’slevelofIPpro-tection.135Similarly,WIPOhasfoundthat,intheareaofventurecapitaldevelopment,unlessIPprotectionisperceivedtobeadequateinagivenjurisdiction,indi-vidualinventorsandsmallcompaniestendnottodis-close their innovations during venture partnershipnegotiationsforfearoflosingcontrolorownership.136Needlesstosay,thisunderminestheefficientalloca-tionofventurecapital,acriticaldrivingforcebehindthecommercializationofinnovativeproducts.

Giventhesefindings,itisnotsurprisingthatecono-mists for theWorldBankhaveconcluded that therobustenforcementofintellectualpropertyrightsisanecessary pre-conditionforinnovationandpros-perity. In summarizing recent economic data, theauthorsfind:

In an environment of weak protection, it is difficult also to foster attitudes of creativity, inventing, and risk taking. Rather, the economy stagnates in a

“It is common knowledge that investment in R&D is quite an expensive undertaking. Investors will under-invest in such activities if they are not assured of reaping the lion’s share of the resulting benefits. It can be convincingly argued that IP protection plays a catalytic role in stimulating R&D. Furthermore, protection of intellectual property has the potential to contribute positively to a country’s efforts to attract FDI, increase foreign trade, and provide the necessary conditions for transfer of technology.”131

Kamil Idris, Director General of WIPO

83% of corporate and academic economists agreed or strongly agreed that counterfeit products and the theft of intellectual property were among the more pressing problems facing businesses today.

International Chamber of Commerce

Page 3�

”

”

“

“

mode favouring copying and counterfeiting. …[Inadequate IP enforcement] deters the entry ofnew firms, which would not undertake thesignificantcostsofinvestinginqualitymaintenanceand reputation without such protection. Itdiminishes the prospects of exploiting scaleeconomies,particularlytotheextentthatprotectionvaries across regional markets. It prevents entryintoexportmarketsofreputationproducts.Instead,weak protection favours the production of low-quality goods in small production runs andimitative activities. Although this strategy mayyield short-run profits, it becomes a significantrestrictionongrowthover time.Moreover,weakprotection forces legitimate firms to producerelatively low-quality products to be competitivewith infringers.…Creationofnewfilms,music,and software is expensive and little worth theinvestmentbylocalentrepreneursiftheirproductswillbecopied.Accordingly,lower-qualitycopiesmaybewidelyandcheaplyavailable,butsociety’slong-run cultural and economic development isstunted.137

The International Chamber of Commerce (ICC)comestoasimilarconclusion,findingthat:

legitimate industriescannot“compete”withpiratesand counterfeiters on the price of products, sinceillegal operators are saved the research, develop-ment, andmarketing costs of the legitimate sector.Piratesandcounterfeiterssimplytakeafreerideonalltheeffort,creativework,andinvestmentofothers.Theseillegalactivitiesleadtoseriousdistortionsinthemarketplace.138

After citing numerous studies in support of thisconclusion,theICCthenmakesanumberofspe-cificrecommendations.Inparticular,governmentsneedtotakeactionagainstcounterfeitingandpir-acyby:

Takingproactivemeasurestostrengthenenforce-mentofexistinglawstoensure,attheverymin-imum,existingsanctionsareeffectivelyapplied;

Clearly designating the bodies responsible forintellectualpropertyenforcementandallocatingsufficient financial and human resources toallowthemtobeeffective;and

•

•

Educating local communities, businesses, andthepubliconthepotentialbenefitsoftheintel-lectualpropertysystem.139

WIPOhasrecommendedanumberofareasinwhichgovernments are critical in fostering creativity andinnovation,twoofwhichare:

Ensuringthatpolice,prosecutors,andjudges,aswell as other public agencies and institutions,are“sensitive”tothevalueofintellectualprop-ertyrightsandthattheseagenciesareproperlysupported by the government to “encouragecreativityandinnovation;”and

Assistingintheeducationofthepublicregard-ingthe“benefitsofpurchasinglegitimategoodsand services,” thereby boosting local know-ledge-based“industriesandeconomies.”140

Canada clearly needs to improve its domestic IPenforcementandeducationtoadvancethecompeti-tiveness of our innovators, creators, and industrygenerally.

(iv) Global competition: Strong Enforcement of iP rights is critical Fuel for the race to the top

As the preceding section highlights, numerousacademics, policy advisors, economists, andinternational organizations have concluded thatadequate enforcement of IP rights is a criticalelement in cultivating an innovative socio-economy. In terms of global competitiveness,strongIPenforcementiskey.TheformerExecutiveDirector of the World Bank, Moises Naim, haswritten:Thebattleoverintellectualpropertyhasbecomeanimportantinternationalconflict.Thecountrieswheremostintellectualpropertyownersreside–and where brand value generates the most rev-enue – argue that guaranteeing these ownershiprights is an indispensable requirement for thecontinuous progress of human kind. Withoutguaranteeingownershiprights–andincome–tothecreatorsofnew,valuableideas,theincentivesfor inventorswill disappear and innovationwill

•

•

•

Page 3�

”

”

“

dwindle.It’salogicalargument,andevencoun-tries that are short of inventors, patent holders,and corporations that own major brands under-standtheprinciple.141

Canada’speershaveexpresslyrecognizedthattheircapacity for innovation is inextricably linked to astrong IP enforcement system. In the last decade,countries including the United Kingdom and theUnited States have shifted additional focus andresources to protecting conceptual products andhave sought to strategically improve their IPenforcementsystems.

Forexample, intheU.S., theNationalIntellectualProperty Law Enforcement Coordination Council(NIPLECC), consistingofmembersof the JusticeDepartment, the Department of State, theDepartmentofHomelandSecurity,theOfficeoftheUnited States Trade Representative, and theDepartmentofCommerce,aswellasIPrightshold-ers, oversees a coordinated enforcement strategy.The importance of IP enforcement in promotingeconomicprosperitywashighlightedinNIPLECC’srecentreporttothePresident:

ThetheftofAmericanintellectualpropertystrikesat the heart of one of our greatest comparativeadvantages–ourinnovativecapacity.Throughthe

appliedtalentsofAmericaninventors,researchers,entrepreneurs, artists, and workers, we havedeveloped the most dynamic and sophisticatedeconomy theworldhas ever seen.Theworld is amuch better place due to these efforts. We havedeliveredlife-savingdrugsandproductsthatmakepeoplemoreproductive.Wehavedevelopedentirelynewindustriesandsetloosetheimaginativepowersof entrepreneurs everywhere. And, we set trendsand market best-of-class products to nearly everycountryintheworld.…Atthesametime,thetaskof protecting intellectual property has never beenmorechallenging.…Technologyhasmadeiteasier

to manufacture and distrib-ute counterfeit and piratedproducts–creatingaglobalillicitmarketcompetingwithgenuine products – and hascomplicated the ability todetectandtakeactionagainstviolators. High profits andlow risk have attractedorganizedcriminalnetworks.Andpublicawarenessoftheissues and consequencesbehind intellectual propertytheftoftenlagsbehind.…A thriving, diversified, and competitive economy must protect its intellectual prop-erty rights.143

NIPLECC has coordinatedvarious government depart-mentsandagenciesto:

Establish concrete objectives and priorities tocoordinateIPeducation,training,andcapacity-buildingactivities;

Strengthen laws and penalties related to intel-lectualpropertyrights;and

Ensure that IP-based industries, especiallySMEswithin these industries, have thebestIPprotectionresourcesandassistanceavail-able. In this regard, it ensures that enforce-menteffortsandactivitiesarewellcoordin-ated with IP industry activities and theirpriorities.

•

•

•

“The battle over intellectual property has become an important international conflict. The countries where

most intellectual property owners reside – and where brand value generates the most revenue – argue that

guaranteeing these ownership rights is an indispensable requirement for the continuous progress of human kind.

Without guaranteeing ownership rights – and income – to the creators of new, valuable ideas, the incentives for

inventors will disappear and innovation will dwindle. It’s a logical argument, and even countries that are short of

inventors, patent holders, and corporations that own major brands understand the principle.”142

Moises Naim, former Executive Director of the World Bank

Page 33

“

”

VeryseniorcivilservantsareattachedtotheNIPLECCasthechartonthispageillustrates.

IntheUnitedKingdom,thegovernmenthassimilarlyestablished the Intellectual Property Crime Group(IPCG)undertheauspicesoftheInnovationMinister,LordSainsburyofTurville.TheIPCGwasinitiatedbytheDepartmentforTradeandIndustrybecauseofproductivity and competitiveness concerns.As theInnovationMinisterhighlighted ina recentspeech,theestablishmentofan integratedgovernment taskforceactingasthestrategicheartofIPenforcementandeducationwasviewedasacriticaledificeunder-lyingprosperity:

IP rights are the means by which creators andinnovators have the incentive to produce. Theproblem is that IP crime can undermine or evencompletelynegatetheseincentives.…[A]strongsystemof rightsandstrong institutionsareofnouseifthereisnotapropersystemofenforcement.… The production of counterfeit goods is not asmall, one-man-band operation, but an illegal

large-scalemanufacturingprocess.Andthecrim-inalsarenotcontenttostopatthis.Wehaveevi-dence to show that they are also involved withillegal people trafficking and the sale of illegaldrugs. Many people may feel they are getting abargain when they buy a fake football shirt fortheir children. What they should realize is thattheir hard-earned cash may be used to fund thesaleofillegaldrugstotheirchildrenattheschoolgates. Profits from the sale of counterfeit goodsarealsobeingusedtofundotherillegalactivities.…Weneedtobemoreimaginativetofindingsolu-tions to IPcrime.What isalsoquiteclear is thatwewillonlyachieveourgoal throughcollabora-tion between enforcement agencies, governmentdepartments, and industry. … In a knowledgeeconomy, Intellectual Property Rights are ofincreasing importance to Government. There is,however, little wrong with our system ofIntellectual Property Rights. But there is a needformuchbetterenforcement,andtheGovernmentisdeterminedtodramaticallyreduceIPcrimeandprotecttherightsofIPrightsholders.144

N a t i o n a l I n t e l l e c t u a l L a w E n f o r c e m e n t C o o r d i n a t i o n C o u n c i l

Page 34

TheIPCGhasimplementedanumberofkeyinitiativesintheUK,including:

Establishing a Customs Intellectual PropertyIntelligenceUnittogatheranddisseminateintel-ligence about incoming consignments ofcounterfeitgoodsinallrelevantports,airports,andpostaldepots;

Assistingthecoordinationandstrategyofpoliceraidsoncounterfeithotspots;

Educating the public on the harm caused bycounterfeitproducts;and

Gathering evidence and preparing policyreportsregardingtheidentificationofcounter-feittrends,theassessmentofthemagnitudeofthe harm caused by counterfeit goods, andimprovingIPknowledgeandidentifyingintel-ligencegaps.

TheIPCGhasestablishedseveralpriorities,including:

Ensuring that IP rights are “translated intoeffectiveenforcementontheground;”

Building on “recent initiatives to convince thepublic that counterfeiting and piracy is not avictimlesscrime;”and

Better coordinating the efforts of industry, govern-ment,andlawenforcement.146

•

•

•

•

•

•

•

The fact thatCanada’s competitorshavegreatlyincreased their IP enforcement activities is notsurprising given the proliferation of counterfeitactivities over the past several years. The com-binationoftechnologicaladvancesandglobaliza-tion have made it much easier and cheaper toillegallyreproduceanddisseminateknockoffs.InCanada, the factors driving the production andconsumptionofcounterfeitgoodshavecreateda“perfect storm” situation, whereby a number ofeconomic drivers are reinforcing each other tospur the growth of the IP black market. ThesedriversincludeprofitabilityofIPcrime,availableand readily concealed piracy and counterfeitingtools, deteriorating societal values, and the lowriskofadverseconsequences.All thesocio-eco-nomicfactorspointtotheconclusionthatunlessthings change soon, especially with respect toadequately funded enforcement and educationpolicies, theblackmarketwillcontinue togrowandactasasignificantdragonCanada’scapacitytoinnovateandprosper.

“IP rights are the means by which creators and innovators have the incentive to produce. The problem is that IP crime can undermine or even completely negate these incentives. … [A] strong system of rights and strong institutions are of no use if there is not a proper system of enforcement.”

UK Innovation Minister, Lord Sainsbury of Turville

Page 3�

PIRATA: TO FORA! (PIRATES OUT!) A CASE STUDY REGARDING THE BRAzILIAN

TURNAROUND

According to the Union of Brazilian IRSAuditors, Brazil was plagued by a 28 billiondollarblackmarketattheturnofthe21stcen-tury. To combat this rising tide of counterfeitgoods, the Brazilian government created theNationalAnti-Piracy Council (CNCP), housedin theFederalMinistryof Justice.CNCPgaveequalweighttopublicandprivatesectorrepre-sentativesfromthefollowingbodies:

The CNCP established a National Plan forCombating Piracy, culminating in a 99 pointplan with short, medium and long termobjectives.

AspartoftheCNCPactionplan,threekeyinitia-tiveswerelaunched:

(1)Enforcementtaskforcesspecificallytarget-ing counterfeiters – In 2005, 350 police oper-ationswerelaunchedand250arrestsweremadeagainstcounterfeiters.Intheraids,tensofmil-lionsofdollarsworthofcounterfeitmerchandisewere seized, including CDs, DVDs, clothing,liquor,andcigarettes.Tocitethepositiveeffecton the music industry alone, between JanuaryandNovemberof2005,over26millionpiratedCDswereseized.

(2) An education campaign aimed at informingconsumers of the negative economic and socialconsequencesofpiracy–Inadditiontotheenforce-mentcampaign,theBraziliangovernmentimple-mentedanextensiveeducationalcampaignunder-scoring thenegativeeffectsof theblackmarket.Key factsandstatisticswerehighlighted tocon-sumers.Forexample,statisticsshowedthatnearly2millionjobswerelosttoBrazilianworkerseach

yearbecauseofpiracy.Another significantthemeintheeducationalcampaign was the linkbetween piracy andcriminal organizations.Forexample,inacam-paign launched inMarch 2006, the com-mercial showed a

counterfeiter shouting, “buy this pirated productforalotlessandasatokentakeviolence,evasion,drugtrafficking,crime…allforfree!”

(3)Enhancedborderenforcement–Thegovern-ment invested significant resources in shuttingdown the importation/exportationof counterfeitgoods,particularlyatkeyBrazilianportsofentry.Theresultsweredramatic.Inoneoperation,204millioncounterfeitedsurgicalgloves,thatcontra-venedhealth and safety standards,were seized.Similarly,in2005,33millioncounterfeitDVDsandCDswereseizedatBrazil’sborders.

As a result of these three initiatives, and theongoingco-operationbetweenhighlevelgovern-mentofficialsandkeyIPstakeholders,counter-feitinghasbeensignificantlycurbedinBrazilinaveryshorttime.146

Page 36

INTERNATIONAL

BESTPRACTICES

PART FOUR: INTERNATIONAL BEST PRACTICES

(i) united States

TheUnitedStateshasoneofthemosteffectiveIPRenforcementsystemsintheworld.TheDepartmentof Justice, Federal Bureau of Investigation (FBI),and the U.S. Customs Service (currently CustomsandBorderProtection,orCBP)havemadecounter-feitingandpiracya“lawenforcementpriority.”147

Congress instituted a tri-partite integrated enforce-mentsystemdesignedtoeffectivelycontrolandlimitcounterfeiting:

Strong Border Enforcement–Customsofficersareauthorized to seizeanddestroycounterfeitgoodsaswellasfinecounterfeitimporters.

Deterrent Criminal Penalties and Civil Remedies – Criminal penalties and civil remedies thatmakecounterfeitingunprofitable.

Active and Sufficiently Funded Law Enforcement–Lawenforcementagencies,theDepartmentofJustice, and other federal agencies receiveadequateresourcesallowingthemtoprosecutecounterfeiterstothefullextentofthelaw.

Strong Border Enforcement

ManyofthecounterfeitproductsinNorthAmericaare manufactured abroad and imported throughsophisticated international criminal supply chains.Consequently, theUnitedStateshasplaced agreatdealofemphasisonenhancedborderenforcement.In the process of protecting its borders from illicittrade,CBPhasestablished:(i)arecordationsystem;(ii) a policy of mandatory seizure, forfeiture, anddestructionofcounterfeits;(iii)finesfortheimporta-tionofcounterfeitgoods;and(iv)anIPrightsholderdisclosuresystem.

Resultsinclude:

From1998to2004,U.S.customsofficersseizedmore than $600 million worth of counterfeitgoods.148

•

•

•

•

From 2002 to 2005, U.S. customs officerscharged more than 500 individuals with IPviolations.149

From1998to2005,U.S.customsofficersseizedmorethan37,000counterfeitshipments.

Recordation System

IntheU.S.,IPrightsholdersareabletorecordtheirregisteredtrade-marksorregisteredcopyrightswithCBP.OncetheseIPrightsarerecorded,customsoffi-cersactivelymonitorimportsinordertopreventtheimportationofcounterfeitorpiratedgoods.IPownersmayalsoprovideinformationtoassistcustomsoffi-cers indetectingand identifyingcounterfeitorpir-atedgoods,suchasthenamesofsuspectedimportersaswellastheprima faciesignsofparticulartypesofcounterfeitandpiratedgoods.150

Seizure, Forfeiture, and Destruction

Wherearegisteredtrade-markisrecordedwithCBP,customsofficers are authorized todetain and seizethe counterfeit merchandise and notify the trade-mark owner.151 Absent written consent from thetrade-markowner,thecounterfeitgoodsareforfeited.Afterforfeiture, thenormalprocedure is todestroythecounterfeitgoods.152

Likewise, customs officers are also authorized topreventtheimportationofpiratedworksifthecopy-right is recorded.153 Specifically, if a copyright isrecorded with CBP and the customs officer deter-minesthattheimportedgoodisclearlypirated,theofficial will seize the imported good and instituteforfeiture proceedings.154 Goods determined to bepiratedaredestroyed.155

WhilethepolicyofCBPistofocusitsenforcementeffortsonrecordedtrade-marksandcopyrights,cus-tomsofficers arealsoauthorized todetainor seizecounterfeitorpiratedgoodsevenwherethecorres-pondingtrade-marksorcopyrightsarenotrecordedwith CBP. In other words, customs officers in theUnitedStatesmayalsotakeex officioactionwithoutaspecificrecordationofIPrights.

•

•

Page 3�

Fines

When trade-mark counterfeit goods are seized,customsofficersmayimposeacivilfineonanypersonwhodirectedorassistedwiththeimport-ationoftheunlawfulgoods.156Forthefirstseiz-ure, the fine cannot bemore than thedomesticvalueof thelegitimateproduct.Forsubsequentviolations, the fine may be up to twice thatamount.157

Disclosure of Information and Provision of Samples

Incircumstanceswherecounterfeitgoodsareseized,CBPmayprovideasampletotheIPrightsholderfortesting purposes, and must disclose the followinginformation:

Dateofimportation;Portofentry;Descriptionofmerchandise;Quantity;Nameandaddressofmanufacturer;Nameandaddressofexporter;Nameandaddressofimporter;andCountryoforigin.158

More limited information,aswellassamples,mayalsobeprovidedwhengoodsaredetainedandbeforetheyareseized.

By providing such information to the IP rightsholder,CBPisabletoverifytheillegalnatureoftheproduct and red-flag possible safety hazards.Conversely, the IP rights holder is provided withinformation regarding the source and quantity ofthe counterfeit goods.Armed with such informa-tion,theIPrightsholderisabletomorefullyassesstheproblem,allocateproperresources,andconsiderinitiating a civil action in either the U.S. or thecountryoforigin.

deterrent criminal Penalties and civil remedies

In order to stem the tide of counterfeit and pir-ated goods flooding the U.S. market, Congressenacted an integrated system of criminal penal-tiesforthesegoods,ofwhichthetwomostprom-inent pillars are: (i) criminal infringement of

••••••••

copyrightpiracyandtrade-markcounterfeiting;159and (ii) trafficking in trade-mark counterfeitgoods and services.160 The U.S. federal govern-ment has also established significant civil rem-ediesforcounterfeitingandpiracy.

Stipulated Criminal Penalties for Trade-mark Counterfeiting and Copyright Piracy

While Canada has criminal penalties for copyrightinfringement and fraudulent trade-mark use, in thevast majority of cases, Canadian prosecutors havenotsought,andadjudicatorshavenotgranted,suffi-cient penalties to deter pirates and counterfeitersfromthehighlyprofitablebusinessofsellingknock-offs.Havingfacedasimilarproblemin theUnitedStates, Congress established Federal SentencingGuidelines.161

Trafficking in Counterfeit Goods and Services

UnlikeCanada,whichhasoutdatedandineffectivecriminal penalties for trade-mark counterfeiting,theU.S.Congresshas expresslymade trade-markcounterfeitingafederalcrimewithhighmaximumfinesandlongjailterms.162Inparticular,thepenal-tiesinclude:

FirstOffence–Anindividualmaybefinedupto$2,000,000,or imprisonedup to10years,orboth;andapersonotherthananindividual(e.g., a corporation) may be fined up to$5,000,000.SecondOffence–Anindividualmaybefinedupto$5,000,000,orimprisonedupto20years,orboth;andapersonotherthananindividualmaybefinedupto$15,000,000.163

In terms of criminal trade-mark counterfeiting, ithasbeenheldbythecourtsthatacounterfeitgooddoesnothavetodeceivetheimmediatepurchaser.Instead, it is sufficient if a third-partyobserver isconfused after the transaction took place.164 Forexample,inoneU.S.case,despitetheargumentbyacounterfeiterthatthepublicknewhewassellingfake ROLEX watches, the United States Court ofAppeals for theEighthCircuit affirmed a convic-tionoffourconcurrentthree-yeartermsofimprison-ment forknowinglysellingcounterfeitwatches toanundercoveragent.165

•

•

Page 40

“

Forfeiture of Illegal Gains

In1996, theU.S.Congressmade the trafficking intrade-mark counterfeit goods a “predicate act,”thereby triggering the Racketeer Influenced andCorruptOrganizationsAct(RICO).Thisallowslawenforcement officials to seize any non-monetaryassetsofcounterfeiters,suchasbuildings,vehicles,andequipment.166

Civil Remedies

Inadditiontostatutorydamagesforcopyrightinfringe-ment,theU.S.governmenthasenactedstatutorydam-agesintrade-markcounterfeitingcases.AnIPrightsholdermayelectstatutorydamagesincircumstanceswheredamagesoraccountingofprofitsaredifficulttoprove.Ifthetrade-markcounterfeitingisnotwillful,statutorydamagesrangefrom$500 to$100,000percounterfeitmarkpergoodorservice.167Iftheconductis willful, damages may be up to $1,000,000 percounterfeitmarkpergoodorservice.168

Aswellasstatutorydamages, IPrightsholdersareabletoseektrebledamagesincircumstanceswherethetrade-markcounterfeiteractedwillfully.169

active and Sufficiently Funded Law Enforcement

In 2004, the U.S. government implemented theinter-agency initiative STOP (Strategy TargetingOrganizedPiracy),undertheauspicesofNIPLECC.AspartoftheSTOPinitiative,theU.S.federalgov-ernmenthasspecificallyallocatedprosecutors,cus-toms officers, and law enforcement agents to: (i)focusentirelyonthecriminalprosecutionsofintel-lectual property rights; and (ii) guide, coordinate,andassisttheeffortsofotherlawenforcementoffi-cersinattackingIPcrime.170

UnderSTOP,theDepartmentofJusticehasahighlyspecializedteamof35attorneysdevotedexclusivelytocomputercrimeandintellectualpropertyoffences.Theseprosecutors charged350defendants in 2005forIPcrimes.171

ExamplesofrecentU.S.sentencesinclude:

A repeat offender who was caught secretlyrecordinganumberofmotionpicturesatprivate

•

screeningstomakepiratedDVDsandwhofledcustodywhenarrestedwas sentenced to sevenyearsinfederalprison.172

In“OperationEndZone,”enforcementofficersseizedmorethan$5millionworthofcounterfeitNFL goods in the days leading up to theSuperbowl.173

MarkKolowich,leaderofoneofthelargestInternetcounterfeit pharmaceutical networks, was sen-tencedinfederalcourttooverfouryearsinjail.174

17individualswerechargedforparticipatinginan international counterfeiting operation thatwas believed to have smuggled roughly $400millionworthofcounterfeithandbags,luggage,andapparelintotheU.S.Intheinvestigation,12bank accounts used by the counterfeiters werefrozenandtheassetsseized.175

AspartoftheSTOPinitiativeandpursuanttofederallegislation,theU.S.AttorneyGeneral’sofficemustsubmit a substantive annual report on its efforts tocontrolandlimitcounterfeitgoods.Specifically,thereportmustinclude:

Thenumberofopeninvestigations;ThenumberofcasesreferredbyCBP;Thenumberofcasesreferredbyotheragenciesorsources;andThenumberandoutcome,includingsettlements,sentences,recoveries,andpenalties,ofallpros-ecutionsinvolvingcounterfeitgoods.176

(ii) united Kingdom

LiketheUnitedStates,theUnitedKingdomhasbecomeincreasingly dependent on intellectual property as acriticalelementofitseconomicprosperity.Atthesametime,organizedcrimeintheUK(asintherestoftheworld) has increased counterfeiting and piracy oper-ations.LordSainsbury,theUKMinisterforInnovation,hasdescribedthisconvergenceasfollows:

Inthepastfewyearswehavewitnessedasignificantshift from traditional manufacturing economicstowards knowledge economies based on creativityandinnovation.Asaresult,businesseswithcreative,

•

•

•

•••

•

Page 4�

”

technical, and intellectual products, processes, andservices have placed even more emphasis on thevalueofIP.UnfortunatelywearenottheonlyonestohaverecognizedtheincreasedvalueofIPintoday’sworld. Historically, crime has always followed theeconomyandastheknowledge-basedeconomypro-videsmoreopportunities,thatiswherethecriminalelementshavemoved.177

TheUKhasstartedtodevotesubstantiallymoreresour-cestothe“growingandthreateningillegalactivity”ofIPcrime.178WhileIPrightsholdersintheUKrecognizethatmoreworkneedstobedone,theBritishgovern-menthasimplementedanumberofpositivestepsyettobetakeninCanada,including:creatinganintegratedIPcrimetaskforceanddatacollectionsystem;and,imple-menting the European IP border enforcement system(discussedinthenextsection).

(iii) European union: iPr Border Enforcement measures

AftertheratificationoftheTRIPS,theEUtookstepsto overhaul existing European border enforcementsystems through the adoption of three regulations,culminating in Regulation 1383/2003 (CounterfeitGoods Regulation).180 The Counterfeit GoodsRegulation establishes the framework for a borderenforcement system, with implementation varyingfromcountrytocountrydependingonnationallawsandpolicies.

Under the Counterfeit Goods Regulation, IP rightsholdersmayfileanapplicationtorecordtheirIPrights,includingtrade-marksandcopyrights,withthecustomsauthoritiesofsomeorallofthememberstates.InthecaseoftheUK,forexample,IPrightsarerecordedwithadedicatedIPUnitwithinHerMajesty’sRevenueandCustoms (HMRC).As under the U.S. system, whenrecordingtheirIPrights,rightsholdersareencouragedtoprovideinformationtoassistcustomsofficersinthedetectionofcounterfeitandpiratedgoods.

Customsofficerswill intercept counterfeit andpir-ated goods based on either an IP rights holder’srecordation or on their own initiative (exercisingtheirex officioauthority).181

InthecaseofrecordedIPrights,ifacustomsofficersuspects that a shipment contains counterfeit orpir-atedgoods,heorshemustsuspendthereleaseofthegoods until a substantive decision by a competentauthorityhasbeenmadeconcerningtheirlegitimacy(unlesstheIPrightsholderelectsnottoproceedinanenforcement action).182 If the goods are ultimatelydeterminedtobecounterfeitorpirated,theyareseizedanddestroyed.Theregulationalsoprovidesasimpli-fiedprocedurewherebygoodsmaybeabandonedfordestruction under customs control without the needforasubstantivedecision,providedthatcertaincondi-tionsaresatisfied.183

Asnoted,thepreciseproceduresvaryfromcountrytocountry.IntheUK,forexample,oncegoodsaredetained,rightsholdersareaskedtogiveHMRCawrittenopinionwithinaspecifiedtimelimit(usually10 business days) as to whether the goods arecounterfeitorpiratedandthereasonstheyarecon-sidered infringing.Oncecustomsofficersaresatis-fiedthatthegoodsareinfringing,basedonthiswrit-ten opinion from the rights holder, they will seizethem.Thedeclarant(orholder)ofthegoodsthenhastherighttoappealagainsttheseizure,inwhichcaseHMRCmayseektheassistanceoftherightsholdertosupportitsseizureaction.184

Intermsofex officiopowers,evenifnospecificIPrecordationapplicationcoversthesuspectedcounter-feitorpiratedgoods,customsofficersmaydetainthegoods to allow the IP rights holder to submit anapplicationwithinaprescribedperiodoftime.185 Inthisregard,somemembersoftheEUrelyheavilyon

Integrated IP Crime Task Force and Data Collection System

In2004,theUKgovernmentestablishedtheIPCrimeGrouptoprovideastrategicandtacticalfocal point for combating counterfeiting andotherIPcrimes.AmongIPCGinitiativesisthecentralized IP Crime intelligence database(Tellpat),whichcollectsinformationfromtheIPindustryandlawenforcementagenciesconcern-ing IP crime and criminal activities. Tellpat,which already has hundreds of thousands ofentries, has significantly assisted enforcementofficialsandIPrightsholdersascertainprofilesof counterfeiters and detect trends of counter-feiting“hotspots.”179

Page 4�

”

“

”

“

ex officioseizurestostoptheillicittradeofcounter-feitandpiratedgoods.Forexample,in2003,private-sectorrepresentativesinBelgiumstatedthatover90percent of the actions carried out by BelgiumCustomsofficerswereinitiatedex officio.186

Thecurrentregulationalsodefinesthequalityandquantity of information that customs authoritiesmayprovidetorightsholders.Forexample,whengoodsaredetained,customsofficersmustadvisethe rightsholderand thedeclarant (orholder)ofthegoodsof theactualorestimatedquantityandthe actual or supposed nature of the goods. Forpurposesofdeterminingwhethergoodsareinfrin-ging, they are also required, subject to nationalprivacy laws, to inform the IP rights holder, onrequest,ofthenameandaddress(ifknown)oftheconsigneeandconsignerofthegoods,thedeclar-ant (or holder) of the goods, and the origin andprovenanceofthegoods.187

As a result of the improved legal framework andpolicy, approximately 95 million counterfeit itemswereinterceptedattheexternalbordersoftheEUin2001,a900percentincreasefrom1998.188In2004,103millioncounterfeititemswereseized.189

(iv) World customs organization: model Legislation

Recognizingtheimportantrolethatcustomsauthoritiescanplayinfightingcounterfeitingandpiracy,theWorldCustomsOrganization(WCO)developedmodellegis-lationtoassistgovernmentswiththeimplementationofTRIPS provisions concerning border enforcementmeasures(the“WCOModelLegislation”).190

Interestingly,theWCOModelLegislationnotesthatin some countries, applications for border seizuresaredealtwithbythecourts(asiscurrentlythecaseinCanada).Itgoesontostate:

However, practical experience has shown thatauthorising customs to deal with this taskensuresthattheapplicationsareprocessedinafairandeffectivemannerwithoutunnecessarilyburden-ingthecourts.Naturallythedecisionsbythecustomsshouldbesubjecttoajudicialreviewbyadministra-tiveorcivilcourts.191

The WCO Model Legislation also recommends acustomsrecordationsystemandex officiopowersforcustomsofficerssimilartothesystemsthatcurrentlyexistinboththeUnitedStatesandtheEU.192

Specifically,inrelationtoex officiopowersofcus-tomsauthorities,theWCOhasstipulatedthat:

Customs’ powers to act ex officio are a key feature of an effective border enforcement regime. In thevastmajorityofcasesCustomsofficersaretheonlyonestoknowwhenandwhichallegedlyinfringinggoodsare transported. Therefore unless Customs are empowered and obliged to act on their own to stop suspected shipments at the borders, the border meas-ures will remain ineffective.194

Inadditiontoex officiopowersforcustomsofficersanda customs IP recordation system,other criticalelementsoftheWCOModelLegislationinclude:

Prohibitingcounterfeitandpiratedgoodsfrombeing imported, exported, or moved intransit;195

Prohibiting circumvention devices or “protec-tiondefeatingdevices”;and196

Asageneralrule,ensuringthatcounterfeitgoodsare destroyed and not released into themarketplace.197

Giventhat theWCOrepresents169membercoun-tries(including Canada)thatcollectivelyconduct98percentofallinternationaltrade,theWCO’sofficialpronouncementsonbestcustomspracticesarecon-sideredhighlyinfluentialintheglobalcommunity.

•

•

•

“Customs’ powers to act ex officio are a key feature of an effective border enforcement regime … unless Customs are empowered

and obliged to act on their own to stop suspected shipments at the borders, the

border measures will remain ineffective.”193

World Customs Organization

Page 43

1. The Canadian Motion Picture Distributors Association,Beyond Borders: An Agenda to Combat Film Piracy inCanada(BeyondBorders),2006.

2. Royal Canadian Mounted Police, “Intellectual PropertyCrimeinCanada–HazardousandCostly,”RCMPFeatureFocus2005EconomicCrimeCanada(RCMP Report: IPR Crime – Hazardous and Costly),at<http://www.rcmp-grc.gc.ca/economic_crime/ip_e.htm>andAssessmentofcommer-cialscalecriminalcopyrightpiracyandtrade-markcounterfeit-inginCanada(RCMPCounterfeitAssessment),2000,<http://www.rcmp-grc.gc.ca/crimint/copyright_piracy_e.htm>.

3. BrianIsaacandCarolOsmond,CanadianAnti-CounterfeitingNetwork(CACN),TheNeedforLegalReforminCanadatoAddressIntellectualPropertyCrime(CACNReport),2006.

4. United States Trade Representative, Watch List Report,April 2006, at <http://www.ustr.gov/assets/Document_Library/Reports_Publications/2006/2006_Special_301_Review/asset_upload_file190_9339.pdf>.

5. International Federation of the Phonographic Industry,Piracy Report 2006, at <http://www.ifpi.org/site-content/library/piracy-report2006.pdf>.

6. See,respectively:TheGlobeandMail,“U.S.putsCanadaonpiracywatchlist:movesparkedbyindustrycomplaintsabout counterfeit goods, customs regime,” May 2, 2005;NationalMagazine,“FakingIt,”September2006;NationalPost,“Anti-counterfeitgroupasksU.S.tocensureCanada,”February17,2004.

7. National Post, “Canada fails to combat counterfeits,”May4,2004.

8. NationalMagazine,“FakingIt,”September2006.9. RCMPReport: IPRCrime–HazardousandCostly,supra.

Forexample,inresponseto(yetanother)scathingcritiquein2005fromtheUnitedStatesTradeRepresentative,thefed-eral government’s only public declaration – from SusanBincoletto, acting director-general of Industry Canada’smarketplace frameworkpolicybranch–was that ithad to“digest”and“review”thecriticism.Itisunclearwhatsteps,ifany,weretaken.TheGlobeandMail,“U.S.putsCanadaonpiracywatchlist:movesparkedbyindustrycomplaintsaboutcounterfeitgoods,customsregime,”May2,2005.

10. The Gowers Review (Gowers Review), <http://www.hm-treasury.gov.uk/independent_reviews/gowers_review_intel-lectual_property/gowersreview_index.cfm>.

11. See the Department of Industry website at <http://www.ic.gc.ca/cmb/welcomeic.nsf/ICPages/Department>.

12. GowersReview,supra.13. Id.

14. EnvironicsResearchGroup,2006Poll,unpublished.15. Tim Phillips, Knockoff: The Deadly Trade in Counterfeit

Goods:TheTrueStoryoftheWorld’sFastestGrowingCrimeWave,2005,p.3.

16. World Intellectual Property Organization, “BackgroundReading Material on Intellectual Property 176” (1988),quotedinJ.ThomasMcCarthy,McCarthyonTrade-marksand Unfair Competition, 2006, pp. 25–27. More recently,WIPOhasstatedthatthecounterfeiting“problemisescalat-ing…[andthe]scaleandnatureoftheproblemdemandsacoordinated approach to enforcement measures at thenational,regional,andinternationallevels.”WIPO,“RecentChallengesforEnforcementofIntellectualPropertyRights,”WIPO Magazine,April 2006, at <http://www.wipo.int/wipo_magazine/en/2006/02/article_0003.html>.

17. RCMPReport:IPRCrime–HazardousandCostly),supra.18. Id.19. BeyondBorders,supra,pp.4–5,2006.Statisticstakenfroman

internationalstudyonthescopeandeffectsoffilmpiracy.ThestudywascommissionedbytheMotionPictureAssociationofAmericaandconductedbyL.E.K.ConsultingLLC.

20. Id.,p.4.21. The Canadian Recording Industry Association, Press

Release,March2,2006.22. See,forexample,NationalPost,“Karaokebarcrackdown:

RCMP charges 3GTAmen under CopyrightAct,” July27, 2006, quoting Lorne Lipkus, an anti-counterfeitinglawyer,onthenegativeeffectofpiratedmusiconlegitim-atekaraokebars:

“Soyouhavesomeonewho’sinabartryingtocompetehonestly.He’spayingalltheapplicablefeesandlicensesand taxes and he’s doing everything above board butpeoplearen’tgoingtohimbecauseitcostsmore…”Mr.Lipkus says he has watched countless businessessqueezed out by illegitimate establishments. “You askpeoplethataretryingtocompetelegitimatelyandItellyou,ifthey’rereallyhonest,theyarehappyashellsee-inginthepaperthattheseguyshavebeenbusted.”

23. ITbusiness.ca,“CanadafacesIPshortfallinthefaceofpir-acy:panel–UofT,Microsoft,andotherscallfortougherpenaltiestoprotectrights,”April10,2006.

24. CACNReport,supra,p.10.25. Id.26. Keynote Address, Canadian Music Week, “Band of

Brothers,”March3,2005.27. Keynote Address, Canadian Music Week, “Band of

Brothers,”March3,2005.

ENDNOTES

Page 4�

28. RCMP,“AStrategicIntelligenceAssessmentofIntellectualPropertyCrimeinCanada,”December15,2004.

29. ITbusiness.ca, “Canada faces IP shortfall in the face ofpiracy,”supra.

30. WineBusinessMonthly,“CounterfeitIcewinePutstheChillonCanadianSales,”February15,2005.

31. BusinessWeek,“Boguspartshaveturnedupincommercialjets,”June10,1996.

32. J.Rakoff&I.Wolff,CommercialCounterfeitingandtheProposedTrade-markCounterfeitingAct, 20Am.Crim.L.Rev.145at152(1982).Alsosee,NationalMagazine,“FakingIt,”September2006,p.21,quotingJohnCotter,anIPexpertinCanada,whostatesthatpeoplearoundtheworld are selling counterfeit brake pads made out ofsawdust.

33. U.S.NewsandWorldReport,“Counterfeitgoods threatenfirms,consumers,andnationalsecurity,”July14,2003;Seealso: Commercial Counterfeiting and the ProposedTrade-mark Counterfeiting Act, supra, p.152. Newsweek, “AReally Nasty Business,” Nov. 5, 1990; The Wall StreetJournal,“FakeDrugSitesKeepaStepAhead,”August10,2004; U.S. News & World Report, “Fake Drugs, RealWorries,”September20,2004.

34. U.S. News and World Report, “Counterfeit goodsthreatenfirms,consumers,andnationalsecurity,”supra.Seealso,BusinessWeek,“Theglobalcounterfeitbusi-ness is out of control, targeting everything from com-puter chips to life-saving medicines,” Feb. 7, 2005,reporting that the World Health Organization believesthatupto10percentofmedicinessoldworldwidewerecounterfeit.TheWorldHealthOrganization’sDeclarationofRome,Feb.18,2006,stated:

1. Counterfeitingmedicines,includingtheentirerangeofactivitiesfrommanufacturingtoprovidingthemtopatients,isavileandseriouscriminaloffencethatputshumanlivesat riskandundermines thecredibilityofhealthsystems.

2.Becauseofitsdirectimpactonhealth,counterfeitingmedicines should be combated and punishedaccordingly.

35. The Hamilton Spectator, “Fake drugs nightmare comes tohaunt Canada,” Sept. 17, 2005. Also see, <http://ogov.newswire.ca/ontario/GPOE/2006/01/09/c0820.html?lmatch=&lang=_e.html>. In 2005, Canadian lawenforcement reported a large increase in the amount ofcounterfeitpharmaceuticalsthattheyseized.CACNReport,supra,p.12.

36. National Law Center for Inter-American Free Trade,TransshipmentandOtherThreats to theEnforcementofIntellectual Property Rights in Canada and Mexico,

Canada (Threats to the Enforcement of IP Rights inCanada),2003,p.69.ItshouldbenotedthattheNationalLawCenter’sThreatstotheEnforcementofIPRightsinCanada was prepared for the United States CustomsService“inlargepartduetoconcernsthatcounterfeitandpirated goods from outside North America are beingtransshippedtotheU.S.throughterritoriesofitsNAFTApartners,”p.1.

37. HealthCanada,“ContaminatedCounterfeitTIGIBedHeadMoistureManiacShampoo,”March6,2003,<http://www.hc-sc.gc.ca/ahc-asc/media/advisories-avis/2003/2003_10_e.html>.

38. RoyalCanadianMountedPolice,NewsRelease,March30,2005,<http://www.rcmp-grc.gc.ca/on/press/2005/2005_mar

_30_e.htm>.39. MannyGratz,CSAInternationalWhitePaper,TheThreatof

Counterfeit ProductApproval Marks WarrantsAggressiveDetection and Enforcement Action, March 2006, <http://www.csa-international.org/retailers_specifiers/counterfeit_

marks/counterfeit_marks_white_paper_e.pdf>.40. For other examples, see: W-Five, Deadly Fakes – The

BusinessofCounterfeitProducts,Orig.AirTime,Sunday,March3,2002.

41. See Interpolwebsite, inparticular the Interpol IntellectualPropertyCrimeActionGroupwebpages, at<http://www.interpol.int/Public/FinancialCrime/IntellectualProperty/Publications/IIPCAG.pdf>.Seealso,UnionDesFabricants,CounterfeitingandOrganisedCrime,2003,whichdiscusses,indetail,theconnectionbetweencounterfeitingandterror-ism,moneylaundering,drugtrafficking,armstrafficking,andillegal immigration, at <http://www.interpol.int/Public/

FinancialCrime/IntellectualProperty/PublicationsIIPCAG.pdf>.See also, more generally, Interpol webpages on IP crime:<http://www.interpol.int/Public/FinancialCrime/Intellectual

Property/Publications/Default.asp>.42. The NewYork Times, “Fake Goods Support Terrorism,

InterpolOfficeistoTestify,”July16,2003.43. SecurityandProsperityPartnershipofNorthAmerica,“Reportto

Leaders June 2005,” 2005, p.9, at <http://www.fac-aec.gc.ca/spp/spp-en.pdf>.

44. See, for example: Royal Canadian Mounted Police,“Intellectual Property Crime in Canada – Hazardous andCostly,” RCMP Feature Focus 2005 EconomicCrimeCanada,<http://www.rcmp-grc.gc.ca/economic_crime/ip_e.htm>. Royal Canadian Mounted Police, News Release,March30,2005,<http://www.rcmp-grc.gc.ca/on/press/2005/

2005_mar_30_e.htm>.45. RCMPReport:IPRCrime–HazardousandCostly,supra.46. Criminal Intelligence Service of Canada, 2005 Annual

Report on Organized Crime in Canada, 2005, p.25, at<http://www.cisc.gc.ca/annual_reports/annual_report2005/

Page 46

document/annual_report_2005_e.pdf>.47. Criminal Intelligence Service of Canada, 2006 Annual

Report on Organized Crime in Canada, 2006, p.17, at<http://www.cisc.gc.ca/annual_reports/annual_report2006

/document/annual_report_2006_e.pdf>.48. United States Trade Representative Watch List Report,

April2006,<http://www.ustr.gov/assets/Document_Library/Reports_Publications/2006/2006_Special_301_Review/asset_upload_file190_9339.pdf>.

49. International Federation of the Phonographic Industry,Piracy Report 2006, at <http://www.ifpi.org/site-content/library/piracy-report2006.pdf>.

50. TheInternationalAnticounterfeitingCoalition,2006USTR301 Special Report, at <http://www.iacc.org/resources/2006_USTR_Special_301.pdf>.

51. International IntellectualPropertyAlliance, 2006 Special301Report:Canada,at<http://www.iipa.com/rbc/2006/2006SPEC301CANADA.pdf>.

52. TheCongressional InternationalAnti-PiracyCaucus,2006Country Watch List, at <http://www.riaa.com/News/news-letter/pdf/IAPC_2006_watch_list_final.pdf>. See also thereport by Jayson Myers, Senior Vice President & ChiefEconomist of the Canadian Manufacturers & Exporters,Counterfeiting: Economic Impacts, April 2005, <http://www.cacn.ca/PDF/4-JMyers-CME.pdf>.

53. Article41(1)oftheTRIPSAgreement.54. Article 41(2) of the TRIPS Agreement. In this regard,

Canada’sobligationsunderNAFTAarenearlyidentical.Byratifying NAFTA, Canada agreed that its domestic laws“permiteffectiveactionagainstanyactof infringementofintellectualpropertyrightscoveredbythisChapter,includ-ingexpeditiousremediestopreventinfringementsandrem-edies to deter further infringements” and ensured that itsenforcementprocedures“arenotunnecessarilycomplicatedor costly, and do not entail unreasonable time limits orunwarranteddelays”(emphasisadded).Articles1714(1)and1714(2)oftheNAFTAAgreement.

55. Article 61 of the TRIPSAgreement; 1717 of the NAFTAAgreement.

56. 51ff of the TRIPS Agreement; 1718 of the NAFTAAgreement.

57. The U.S. Trade Representative stated in 2005 that: “U.S.intellectual property owners are increasingly concernedaboutCanada’s laxanddeterioratingbordermeasures andgeneral enforcement that appear tobenon-compliantwithTRIPSrequirements.”

58. RoyalCanadianMountedPolice,Assessmentofcommercialscalecriminalcopyrightpiracyandtrade-markcounterfeit-inginCanada(RCMPCounterfeitAssessment),2000,p.2,<http://www.rcmp-grc.gc.ca/crimint/copyright_piracy_e.htm>.

59. TorontoStar,“It’saSteal,”May14,2006.60. Interview with Danielle Parr, Executive Director of the

EntertainmentSoftwareAssociation,November30,2006.61. RCMPCounterfeitAssessment,supra,p.7,2000.62. RCMPCounterfeitAssessment,supra,p.16,2000.63. RCMPPressRelease,“EconomicCrimeSectionStampsOut

RepeatCounterfeitDVDOperation”,December5,2006.64. NationalPost,“Fightingthewaronpiracy:Policeteamupwith

therecordingindustrytobustbootleggers,”May12,2003.65. RCMPCounterfeitAssessment,supra,p.14.Thecounterfeit

importeralsoreceiveda$100,000civilfineasaresultofaprivateactionfromtherightsholder,buteventhisamountwasfarlessthantheprofitthatwouldhavebeengeneratedfromthecounterfeitgoodsandnoevidenceexiststhattheIPrightsholderwasabletocollectthecivilaward.

66. Id,p.15.67. National Post, “RCMP seizes $100k in bootlegged CDs,

DVDs:MusicConferenceRaided,”July9,2004.68. Interview with Danielle Parr, Executive Director of the

EntertainmentSoftwareAssociation,November30,2006.69. RCMPCounterfeitAssessment,supra,p.16.70. RCMPCounterfeitAssessment,supra,p.16.71. Reginav.ChuiLau,48082-1-48984-2C,UnreportedDecision,

atparas.5,3,November16,2006.R.v.SanFranciscoGiftsLtd.,[2004]A.J.No.1608atparas.86to88.AlsoseeRCMPReportat<http://www.rcmp-grc.gc.ca/ab/news/2006/Edmonton_C&E_SanFrancisco_Jun27-06.htm>.

72. RoyalCanadianMountedPoliceandDepartmentofJustice,CopyrightEnforcementPolicy,May25,1998.

73. TorontoPoliceService,NewsRelease,August28,2006.74. As the International Anticounterfeiting Coalition (IACC)

describedthesituationinCanada,thepolicearehamstrungbyagovernment“unwillingtodoanythingpositive”aboutenforcement.TheGlobeandMail,“U.S.putsCanadaonpiracywatchlist,”May2,2005.

75. See, Royal Canadian Mounted Police, Proceeds of Crime, at<http://www.rcmp-grc.gc.ca/poc/proceeds_e.htm>.

76. In this regard, it should be noted that Parliament in theUnited Kingdom has expressly targeted the profits ofcounterfeitersintheirProceedsofCrimeAct2002.Likewise,in theUnitedStates,pursuant to theRacketeer InfluencedandCorruptOrganizationsAct,thepropertyandequipmentofcounterfeitersmaybeseizediftheyarefoundtobetraf-fickingincounterfeitgoods.SeePartIVofthisreport.

77. Motion Picture Association, Anti-Piracy Fact Sheet: Asia-PacificRegion,at<http://www.mpaa.org/AsiaPacificPiracyFactSheet.pdf>.AlsoseeMotionPictureAssociation,OpticalDiscPiracyv.IllegalDrugTrafficking,October2005.

78. RCMPReport:IPRCrime–HazardousandCostly,supra.79. SeeBeyondBorders,supra,p.17.

Page 4�

80. Joint Letter to Douglas George, “IPR Enforcement andProceeds of Crime,” September 7, 2006, on behalf of theNationalExecutiveDirectorofACTRA, thePresidentandCEO of the Canadian Film and Television ProductionAssociation, thePresidentof theCanadianMotionPictureDistributors Association, the Executive Director of theCanadian Music Publishers Association, the ExecutiveDirectoroftheCanadianPublishers’Council,thePresidentof the Canadian Recording Industry Association, theNationalExecutiveDirector&CEOoftheDirectorsGuildof Canada, the Executive Director of the EntertainmentSoftwareAssociationofCanada,andtheExecutiveDirectoroftheMusicIndustriesAssociationofCanada.

81. RagdollProductions(UK)Ltd.V.JaneDoesetal.,[2003]2F.C.120atparas.40,42(FCTD).Inpart,quotingfromFox’sCanadianLawofTrade-marksandUnfairCompetition.

82. For example, see the case of Mr. Chiu Lau, a well knowncounterfeiterinBC,whousedarevolvingdoorofcorporateentitiesto,inpart,shieldhimselffromliability.RCMPMediaRelations Website, “Economic Crime Section Stamps OutRepeatCounterfeitDVDOperation,”December5,2006.

83. RagdollProductions(UK)Ltd.V.JaneDoesetal.,[2003]2F.C.120atpara.35.

84. RCMPCounterfeitAssessment,supra,p.2.85. Kamil Idris, World Intellectual Property Organization,

IntellectualProperty:APowerToolforEconomicGrowth,2005,p.318.

86. UKDepartmentofTradeandIndustry,CounterOffensive:AnIPCrimeStrategy,2004.Priortospecificanti-counter-feiting legislation in the United States, U.S. intellectualpropertyexpertsfoundthat,“traditionalcivilremediesprovelargely ineffective against counterfeiters”. McCarthy onTrade-marks,supra,pp.25–27.

87. Louis Harms, The Enforcement of Intellectual PropertyRights,2005,pp.266–267.

88. r.v.Ferjo,(1994),58CPR(3d)223(Ont.C.A.).89. BeyondBorders,supra,p.23.90. Interview with Wendy Noss, General Counsel for The

Canadian Motion Picture Distributors Association,December4,2006.Usingdifferentmethodology,TwentiethCenturyFoxestimatesthatasmuchas50%oftheworld’spiratedmoviescomefromcamcordinginCanada.See,VitoPiliueci, “50% movie piracy from Canada: Hollywood”,CanWestNewsService,Jan.25,2007.

91. Id.92. BellExpressVuLimitedPartnershipv.RichardRexetal.,

2002SCC42.93. The Ministry of Culture and Communications in Québec

(MCCQ)recentlyestimated thatup to7%ofallhomes inMontreal are pirating satellite signals. CRTC Filing at

<http://support.crtc.gc.ca/applicant/docs.aspx?pn_ph_no=2006-5&call_id=42300&lang=E&defaultName=Minist%c3%a8re%20de%20la%20Culture%20er%20des%20

Communications>.94. InJune2006,theBureauofBroadcastMeasurement(BBM)

surveyed35,000Canadianhomestodeterminetheirprimarymethod of receiving television signals. At that time,2,996,000Canadianhomesreceivedtheirtelevisionserviceby means of direct-to-home (DTH) satellite receiver. Inaddition, Decima Research’s quarterly Digital DomainreportasofMarch2006confirmedthatBellExpressVuandStar Choice had 2,600,000 legitimate subscribers betweenthem.Accordingly, at that time there were approximately400,000CanadianhomesreceivingDTHsignalsthatarenotlegitimatecustomersofeitherofCanada’stwolicensedDTHproviders.Withregardtothefinancialimpactontheindustry,themostconservativeestimateof$240,000,000isderivedbyusing$50astheaveragemonthlyvalueofaDTHsubscriptionmultipliedbythose400,000illegalsatelliteusers.

95. See RCMP News Release, Theft of Telecommunication:Five Men from the Laurentian Region Charged,Oct. 11, 2006, <http://www.rcmp-grc.gc.ca/qc/comm/archives/2006/oct06/061011_e.htm>.

96. Eye Weekly, “Pleasure Circuit: Pirates of the Pacific”,May26,2005.

97. SeeFordMotorCo.v.KuanTongIndustrialCo.,(1987)697F.Supp.1108at1109(N.Dis.C.Cal.).

98. 15U.S.C.§1117(c)(2).99. 17U.S.C.§504(c)(2).100. 15U.S.C.§1117(b).101. Criminal Intelligence Service Canada has highlighted the

Asia-Pacific region as the primary source of counterfeitgoodsinCanada:

[T]hemoresophisticated[counterfeit]networksandoper-ations in Canada have organized crime involvement atsomeorallpointsofthesupplychainfrommanufacturingtosales….Asiacontinuestobetheprimarysourcecontin-ent for counterfeit goods sold throughout the world.Approximately80percentofthecounterfeitgoodsforsaleinCanada,on thestreetsbyvendors,at fleamarkets,oreveninretailchainstores,originatefromabroad,primarilytheAsia-Pacificregion….ThereareindicationsthatCanadafunctionsasaconduitforforeign-manufacturedcounterfeitgoodsdestinedfortheU.S.market.

CriminalIntelligenceServiceCanada,2005AnnualReportonOrganizedCrimeinCanada,2005,p.26.

102. InanattempttoimproveborderenforcementofIPrights,theRCMPnegotiatedaprotocolwiththeCBSAwherebyitwasagreed that customs officers had the authority to seizecounterfeitgoods in their capacityaspeaceofficersunder

Page 4�

section489(2)oftheCriminal Code,evenwherenocustomsor excise offences had occurred. The protocol stipulates,however, that theCBSAwillonly takeactionwhen ithasclearintelligenceinformationfromtheRCMP(orotherfed-eralgovernmentdepartmentsorlocalpolice)thattherehasbeen a criminal offence and a clear indication that policeintend to prosecute the offending importer. CACN Paper,supra,p.31.Asaresult,inpractice,customsofficerssimplydetainsuspectedcounterfeitgoodsandturnthemovertotheRCMPorlocalpolicetocarryouttheseizure.Inthisway,CBSA avoids responsibility for storing or destroying theseizedgoods.

103. NationalPost,“Anti-counterfeitgroupasksU.S.tocensureCanada,”Feb.17,2004.

104. CACNReport,supra,p.32.105. National Post, “Canada fails to combat counterfeits,”

May4,2004.106. James Holloway, Canadian Anti-counterfeiting Laws and

Practice:ACaseforChange,2005,p.25.107. Forexample,inanelementaryschoolprograminVirginia,

eight-year-oldsareaskedtopaintapicturebutnotputtheirnameon thepictureas theynormallywoulddo.After thelesson,picturesarerandomlystuckontheschoolwallandallthekidsareallowedtochoosethepicturetheywant,writetheirnameonit,andclaimownershiptothepicture.Aftertheroomisquicklyfilledwithupsetchildren,theeducatoremphasizes to them that this iswhat theyaredoingwhentheystealsomeone’sartisticcreation.TimPhillips,Knockoff:TheDeadlyTradeinCounterfeitGoods,2005.

108. As noted in the Canadian Journal of Learning andTechnology,socialcapitalisanintrinsicgoodthatcanfostereconomicefficienciesforanumberofreasons:

Socialcapitalcanhelppreservesocialnormsinthecom-munity and reduce delinquent or selfish behaviour. …Firms benefit from social capital because it facilitatescooperation and coordination, which minimizes trans-actioncosts,suchasnegotiationandenforcement,imper-fectinformation,andlayersofunnecessarybureaucracy.Reciprocal, interdependent relationships reinforce com-pliance,whichhelpsfirmsminimizefinancialrisks.….Inthecorporatesector,socialcapitalcanprovideacom-petitiveedgebecauseefficiencygainsintimeandinfor-mationallowmoreresourcestobedevotedtoproducingandmarketingbetterproductsatahighervolume.

BenDaniel,etal.,“SocialCapitalinVirtualLearningCommunitiesandDistributedCommunitiesofPractice,”CanadianJournalofLearningandTechnology,Vol.29(3),Fall2003.

109. Kamil Idris, World Intellectual Property Organization,IntellectualProperty:APowerToolforEconomicGrowth,2005,pp.9,330.

110. CanadianAllianceAgainstSoftwareTheft,“CAASTSurveyShowsDoubleStandardsContinuetoPlaguePersonalandCorporateEthics”,September14,2006.

111. Id.112. NeilsonInteractiveEntertainmentStudy,December2005.113. Eye Weekly, “Pleasure Circuit: Pirates of the Pacific,”

May26,2005.114. Tim Phillips, Knockoff: The Deadly Trade in Counterfeit

Goods,2005,p.11.115. Turku School of Economics and BusinessAdministration,

prepared for European Commission, Directorate General,InternalMarket,TheContributionofCopyrightandRelatedRightstotheEuropeanEconomy,October20,2003.

116. Intellectual Property Policy Directorate, Industry Canadaand Copyright Policy Branch, Canadian Heritage, AFrameworkforCopyrightReform,June22,2001.

117. The Gowers Review, <http://www.hm-treasury.gov.uk/independent_reviews/gowers_review_intellectual_prop-erty/gowersreview_index.cfm>,p.3.

118. Telecommunications Policy Review Panel, Final Report,2006.In2006,NewsweekrankedtheUniversityofTorontoasthe18thbestuniversityworldwide,9thamongpublicuni-versities, and among the top five universities outside theUnitedStates.

119. Institute for Competitiveness & Prosperity (ICP),Reinventing innovation and commercialization policy inOntario (Reinventing Innovation), Working Paper 6,October2004,p.22.

120. Id, p.30. It shouldbenoted thatOntariodoesnothave asmany workers with advanced graduate degrees in scienceandengineering,p.31.

121. QuebecDepartmentofEconomicDevelopment,Innovationand Export Trade, Quebec Innovation System ScorecardSummary,2005,p.7.

122. ICP, Rebalancing priorities for Canada’s prosperity,March2006,p.24.

123. ICP,ReinventingInnovation,supra,p.24.124. ICP,RealizingCanada’sProsperityPotential,January2005,

pp.28–29.125. ICP,ReinventingInnovation,supra,pp.5,10.126. Quebec Department of Economic Development,

Innovation and Export Trade, The Quebec Advantage:The Quebec Government’s Economic DevelopmentStrategy,2005,p.38.

127. Kamil Idris, Director General,World Intellectual PropertyOrganization, Intellectual Property: A Power Tool forEconomicGrowth,2005,p.39.

128. The McKinsey Quarterly, No. 1, 2000. Highlighted in D.Hopkins,etal.,CounterfeitingExposed,2003,p.181.

Page 4�

129. InternationalChamberofCommerce,IntellectualProperty:Source of innovation, creativity, growth and progress,2005,p.11.

130. World Economic Forum, Global CompetitivenessReport, 2004–2005, 2005. Study highlighted in theInternational Chamber of Commerce, IntellectualProperty: Source of innovation, creativity, growth andprogress,2005.

131. Kamil Idris, Director General,World Intellectual PropertyOrganization, Intellectual Property: A Power Tool forEconomicGrowth,2005,p.39.

132. RobertSherwood,IntellectualPropertyRightsandEconomicDevelopment, 1990. Highlighted in Keith Maskus, et al.,Intellectual Property and Development: Lessons fromRecentEconomicResearch,2005,p.300.

133. The Ifo Institute is an economic research group and aca-demic think tank based in Munich Germany; see: <http://www.cesifo-group.de/portal/page?_pageid=36,1&_dad=portal&_schema=PORTAL>.

134. International Chamber of Commerce, IntellectualProperty: Source of innovation, creativity, growth andprogress,2005,p.17.

135. EdwinMansfield, “IntellectualPropertyProtection,DirectInvestment,andTechnologyTransfer:Germany,Japan,andthe United States,” International Finance CorporationDiscussionPaper,No.27,1995.

136. Kamil Idris, Director General,World Intellectual PropertyOrganization, Intellectual Property: A Power Tool forEconomicGrowth,2005,p.45.

137. KeithMaskus,etal.,IntellectualPropertyandDevelopment:Lessons from Recent Economic Research, 2005,pp.299–300.

138. International Chamber of Commerce, IntellectualProperty: Source of innovation, creativity, growth andprogress,2005,p.15.

139. Id.,pp.19–20.140. Kamil Idris, World Intellectual Property Organization,

IntellectualProperty:APowerToolforEconomicGrowth,2005,pp.338–339.

141. Moises Naim, Illicit: How Smugglers, Traffickers, andCopycats are Hijacking the Global Economy, 2005,pp.116–117.

142. Moises Naim, Illicit: How Smugglers, Traffickers, andCopycats are Hijacking the Global Economy, 2005,pp.116–117.

143. The National Intellectual Property Law EnforcementCoordinationCouncil,ReporttothePresidentandCongresson Coordination of Intellectual Property Enforcement andProtection,Sept.2006,pp.1,ix,1.

144. Lord Sainsbury of Turville, Speech, Intellectual PropertyCrimeCongress,July5,2005.

145. The United Kingdom Patent Office, National IntellectualProperty(IP)EnforcementReport2005,2005.AlsoseetheUnitedKingdom,DepartmentofTradeandIndustry,CounterOffensive:AnIPCrimeStrategy,2004.

146. WIPO Magazine, “Country Focus – Combating Piracy:BrazilFightsBack”,Issue5,2006;IsabelFranco,“Strivingfor Legality” at <http://www.ipfrontline.com/depts/article.asp?id=13202&deptid=6>.

147. Eric H. Holder, Jr., Deputy Attorney General, U.S.Department of Justice, Press Conference Announcing theIntellectual Property Rights Initiative (July 23, 1999) at<http://www.cybercrime.gov/dagipini.htm>.

148. U.S. Immigration and Customs Enforcement, Fact Sheet,“ICE Intellectual Property Rights (IPR) Investigations”(U.S.CustomsIPFactSheet),October2005.

149. USCustomsIPFactSheet,supra.150. Theprocedures to record trade-marksandcopyrightswith

U.S.Customsisregulated,respectively,by19CFR§133.1etseq.and19CFR§133.31etseq.Inordertoberecordedwith CBP, trade-marks must first be registered with theU.S.PatentandTrade-marksOffice.Copyrightworksmustbe registered with the U.S. Copyrights Office unless thatwork is entitled toprotectionunder theBerneConventionfortheProtectionofLiteraryandArtisticWorks.

151. A“counterfeitmark”isdefinedinthelegislationas“aspuri-ous mark, which is identical with, or substantially indistin-guishablefrom,aregisteredmark.”15U.S.C.§1127and19C.F.R.§133.21.

152. IftheCustomsofficialshavetheconsentofthetrade-markowner and the merchandise is not unsafe or hazardous tohealth, the secretary may obliterate the trade-mark anddeliveritto,orauctionitfor,acharity.19U.S.C.§1526(e).Alsosee,19C.F.R.§§133.21and133.52.

153. 17U.S.C.§§601–603.Infringingcopiesorphonorecordsare“piratical”articles,i.e.,copiesorphonorecordswhichareunlawfullymade(i.e.,withouttheauthorizationofthecopyrightowner),see19C.F.R.§133.42(a).

154. 19C.F.R.§162,171.155. 17USC§603(c)and19C.F.R.133.52(b).Evengoodsthat

arenotcounterfeitorpiraticalperse,but infringea trade-mark or copyright owner’s rights, may be seized and for-feitedbyU.S.customs.Customsofficersmay,ontheirowninitiative,seizeandforfeitany“merchandiseorpackagingin which copyright, trade-mark, or trade name protectionviolationsareinvolved.”See,19C.F.R.§162.23(b)(3).

156. 19U.S.C.§1526(f).

Page �0

157. 19C.F.R.§133.27.Manyoftheenhancedborderenforce-mentprovisions,includingfinesandmandatorydestructionofcounterfeitmaterials,arearesultoftheAnticounterfeitingAct of 1996, Pub. L. 104-153, 110 Stat. 1386, whichamendedtheTariffAct.

158. In regards to disclosure procedures, see: 19 C.F.R. §§133.21(c) and (d); 133.24(b); 133.42(d) and (e); and133.43(b)and(c).

159. 18U.S.C.§2319.160. 18U.S.C.§2320.161. 18U.S.C.Appendix§2B5.3,CommentaryBackground.162. 18USC§2320(a).163. Id.164. See,forexample,UnitedStatesv.Gantos,817F.2d41

(8thCir1987).165. Id.166. SeeSections3and13of theAnticounterfeitingConsumer

ProtectionActof1996.167. 15U.S.C.§1117(c)(1).See,forexample,NikeInc.v.Variety

Wholesalers,Inc.,274F.Supp.2d1352at1374(S.D.Ga.2003)(IPrightsholderabletoelect$900,000instatutorydamages for the counterfeit infringement of 9 registeredtrade-marks).

168. 15U.S.C.§1117(c)(2).Othercountries,suchasBrazilandIsrael,havealsolegislatedstatutorydamageawards.

169. 15U.S.C.§1117(a)and(b).IntheUnitedStates,beingwill-fullyblindconstituteswillfulness,e.g.,LouisVuittonS.A.v.Lee,875F.2d584,10U.S.P.Q.2d1935(7thCir.1989).

170. NIPLECC,STOPReport,supra,p.113.171. STOPReport,p.122.172. UnitedStatesAttorney’sOffice,NewsRelease,“Hollywood

MoviePirateSentencedto7YearsinPrisonforCopyrightInfringementandEscape,”December1,2006.

173. USCustomsIPFactSheet,supra.174. Id.

175. Id.176. 18U.S.C.§2320(f).177. United Kingdom Patent Office, National Intellectual

Property [IP] Enforcement Report 2005 (UK EnforcementReport),2005,supra,p.5.

178. UKEnforcementReport,supra,p.5.179. UKEnforcementReport,pp.6-7.180. Seealsotheearliercouncilregulations:CouncilRegulation

3295/94andCouncilRegulation241/1999.181. CounterfeitGoodsRegulation,Art.5.182. Id.183. CounterfeitGoodsRegulation,Art.11.184. See http://customs.hmrc.gov.uk/channelsPortalWebApp/

channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageImport_ShowContent&id=HMCE_CL_000244&propertyType=document.

185. CounterfeitGoodsRegulation,Art.4.186. TransshipmentandOtherThreats:Canada,supra,p.33.187. CounterfeitGoodsRegulation,Art.9.188. TransshipmentandOtherThreats:Canada,supra,p.2.189. FinancialPost,“EuropeanCommissiontorecommendsanc-

tionsagainstcounterfeiters,”April26,2006.190. WCOModelLegislation,NoteonArticle9(9.01).191. ThecurrentversionoftheWCOModelLegislation,updated

in 2001, is available at http://www.wcoipr.org/wcoipr/Menu_ModelLegislation.htm.

192. WCOModelLegislation,NoteonArticle1(1.01).193. Imbuingcustomsofficerswithexofficiopowersisoutlined

inArt.9oftheWCOModelLegislation.Establishingacen-tralized recordation system is outlined inArt. 1. See alsoNoteonArticle1,specifically,1.04.

194. WCOModelLegislation,NoteonArticle9(9.01).195. WCOModelLegislation,Art.9.196. WCOModelLegislation,Art.9.197. WCOModelLegislation,Art.11andseetheNoteonArticle11.

Page ��

AROADMAP FORCHANGE