11 May
2021

Procedures and strategies for anti-counterfeiting: Canada

Kestenberg Siegal Lipkus LLP

Legal framework

Fighting counterfeiting in Canada involves the followinglegislation:

  • the Trademarks Act (RSC 1985, c T-13);
  • the Copyright Act (RSC 1985, c C-42, as amended); and
  • the Criminal Code (RSC 1985, c C-46).

Update on border enforcement

As of November 2020, 326 rights holders had registered with the IP border enforcement programme in Canada, although approximately 100 have not filed a renewal of their request for assistance.

In 2020, for the second consecutive year, there was a significant increase in the number of detained shipments by the Canada Border Services Agency (Customs), including several containers of counterfeit merchandise destined for global distribution. Alberta, British Columbia, Ontario and Quebec remain the provinces with the largest number of detainments. In most detainments, rights holders on notice from Customs, delivered cease and desist letters, which resulted in out-of-court settlements, whereby the importer agreed to abandon the shipment and pay the cost of storage, transport and destruction. In those limited instances where litigation was commenced, actions were typically resolved almost immediately, resulting in settlements favourable to the rights holder.

During 2020 there was also an increase in detainments destined for importers that refused to acknowledge any involvement with the importation in question, making it difficult to determine the ‘true’ importer of such goods. In these circumstances the onus is on the rights holder to conduct thorough online open-source searches to locate the true importer and achieve a swift resolution.

Rights holders continue to lobby the government to increase the number of detentions across Canada, but the numbers are trending in the right direction.

Border measures

Canada’s IP border enforcement programme has been in place since 2015. IP rights holders can file a request for assistance document with Customs and, in doing so, record their registered trademarks, copyrights and geographical indications with Customs. A filed request for assistance document is valid for two years and is renewable in two-year increments. Customs has ex officio powers to detain suspected shipments of counterfeit products or pirated works.

If a request for assistance is filed (there is no government charge to file), Customs is empowered to detain suspected shipments of counterfeit products or pirated works pertaining to the recorded rights, and to share information with the rights holder to give it an opportunity to pursue a civil remedy. Detention by Customs cannot exceed 10 working days (subject to a further 10 working days (or five days for perishable goods) on request of the rights holder). If the goods are counterfeit or the works pirated, and the importer does not agree to a settlement of the matter, the rights holder must use this detention period to commence proceedings in court against the importer and seek an order for seizure and destruction of the counterfeit products or pirated works. The rights holder is responsible for all applicable storage, handling and destruction charges of the detained goods. Customs has no authority to seize or destroy counterfeit products or pirated works on its own.

There is significant permitted disclosure by Customs to the rights holder that includes providing a sample of the goods and information about the goods that could assist the rights holder in pursuing a remedy. Limitations restrict the use of that information for any purpose other than to determine whether the import or export of the goods at issue is an infringement of the recorded rights, or to pursue civil proceedings in court or for the purpose of reaching an out-of-court settlement.

If the rights holder commences proceedings, substantive remedies – both equitable and statutory – are available under the Trademarks Act and the Copyright Act, including declaratory relief, injunctive relief, mandatory relief (ie, forfeiture and destruction) damages and costs. Statutory damages are available but only under the Copyright Act.

The framework for how Customs deals with counterfeit trademark goods or pirated copyright works is set out in D-Memorandum (D-19-4-3). Paragraph 18 compels the rights holder to respond to Customs within three business days of first contact by Customs and to state whether it intends to pursue a civil remedy. This creates a three-day pre-notice period and a subsequent 10-day notice regime (the former of which was not contemplated by the legislation). Within that three-day pre-notice period, and at the discretion of Customs, no information is provided about the owner, importer, exporter and/or consignee, only pictures and quantities of the suspect shipment are disclosed.

Notwithstanding that the legislation permits Customs to exercise discretion when contacting registered rights holders to initiate enquiries regarding the authenticity of goods at the border, in practice, Customs does not exercise that discretion unless the registered rights holder has filed a request for assistance.

Customs has implemented a hotline known as the Border Watch Line (1 888 502 9060), whereby interested persons can contact Customs and provide information on shipments of dangerous counterfeit goods or pirated works destined for Canada that represent a health, safety or security threat (see Customs Notice 17.2, published 13 September 2017).

USMCA – the impact on IP border enforcement

On 1 October 2018 the United States, Mexico and Canada announced a new trade agreement – the United States-Mexico-Canada Agreement (USMCA) – to replace the North American Free Trade Agreement. Article 20.J.6 states that each country’s competent authority will be given the authority to initiate border measures against suspected counterfeit goods and pirated works that are imported, destined for export, in transit or admitted into or exiting from a free trade zone or bonded warehouse. Competent authorities are defined in the USMCA to include the appropriate judicial, administrative or law enforcement authority. Under the pre-USMCA regime, Customs authority to detain suspected counterfeit goods or pirated works expressly excluded in-transit shipments.

The USMCA entered into force on 1 July 2020. The Trademarks Act and the Copyright Act were amended to repeal the exception for in-transit goods formerly found at Section 51.03(2)(d) of the Trademarks Act (Repealed, 2020, c. 1, Section 109) and Section 44.01 (2)(b) of the Copyright Act (Repealed 2020, c.1, Section 31). Goods shipped from one place outside Canada to another, in transit control or customs trans-shipment control in Canada, are now statutorily considered to have been imported for the purpose of the prohibition against the import and export of counterfeit goods and pirated works.

Criminal prosecution

Product counterfeiting typically involves a violation of trademark or copyright rights.

The Trademarks Act incorporates offence provisions into the act itself, as follows: “51.01(1) Every person commits an offence who sells or offers for sale, or distributes on a commercial scale any goods in association with a trademark if that sale or distribution is or would be contrary to section 19 or 20 and that person knows that; (a) The trademark is identical to or cannot be distinguished in its essential aspects from a trademark registered for such goods; and (b) The owner of that registered trademark has not consented to the sale, offering for sale or distribution of the goods in association with the trademark. The offence, on a substantially similar basis, extends to the manufacture, possession, import, export or attempted export of goods and labels on a commercial scale; and to the advertisement of service in association with a trademark, all without the owner’s consent.”

The Copyright Act also includes several offence provisions relating to use of works that infringe copyright (Section 42(1)), as well as for the circumvention of technological protection measures (Section 42 (3.1)) and the infringement of rights management information (Section 42 (3.2)). Section 42(1) states that every person commits an offence who knowingly:

  • makes for sale or rental an infringing copy of a work or other subject matter in which copyright subsists;
  • sells or rents out, or by way of trade exposes or offers for sale or rental, an infringing copy of a work or other subject matter in which copyright subsists;
  • distributes infringing copies of a work or other subject matter in which copyright subsists, either for the purpose of trade or to such an extent as to affect prejudicially the owner of the copyright;
  • by way of trade exhibits in public an infringing copy of a work or other subject matter in which copyright subsists;
  • possesses for sale, rental or distribution for the purpose of trade or exhibition in public by way of trade, an infringing copy of a work or other subject matter in which copyright subsists;
  • imports for sale or rental into Canada any infringing copy of a work or other subject matter in which copyright subsists; or
  • exports or attempts to export, for sale or rental, an infringing copy of a work or other subject matter in which copyright subsists.

The Criminal Code also contains offences relating to forgery of a trademark, fraud, passing off goods as those of another, and making use, in association with goods, of a description that is false in a material respect respecting certain enumerated items such as quality, mode of manufacture and geographical origin, among others.

Criminal prosecutions in Canada require proof, beyond reasonable doubt, of the act itself (actus reus) and subjective knowledge (mens rea) of the prohibited act to secure a conviction. Courts have found that mens rea can be proved by circumstantial evidence, such as prior civil lawsuits or judgments of infringement or possession of previously delivered cease and desist letters from rights holders.

The Copyright Act and the Trademarks Act both provide for penalties upon conviction of indictment to a fine of up to C$1 million, imprisonment for up to five years or both; and upon summary conviction to a fine of up to C$25,000 or imprisonment for a term of not more than six months, or both.

Criminal Code provisions on fraud, passing off or forgery involving a trademark include, upon conviction for indictable offence, imprisonment for up to two years.

Although imprisonment is an available punishment for copyright or trademark offences, courts and prosecutors rarely impose or recommend jail time. The fines imposed tend to be at the low end of the spectrum.

When imposing penalties for copyright or trademark offences, courts apply statutory principles of sentencing. The fundamental purpose of sentencing is to contribute, along with crime prevention initiatives, to respect for the law and maintenance of a just, peaceful and safe society by imposing just penalties that have one or more of the following objectives:

  • to denounce unlawful conduct;
  • to deter the offender and other persons from committing offences;
  • to separate offenders from society where necessary;
  • to assist in rehabilitating offenders;
  • to provide reparations for harm done to victims or the community; and
  • to promote a sense of responsibility in offenders and acknowledgement of the harm done to victims and the community.

A sentence must be proportionate to the gravity of the offence and the degree of responsibility of the offender.

Consumer Product Safety Act

The Consumer Product Safety Act prohibits the manufacture, import, sale or advertisement of consumer products that could pose an unreasonable danger to the health or safety of Canadians. Other prohibitions relate to the packaging, labelling or advertisement of a consumer product in a manner that is false, misleading or deceptive in respect to its safety. The prohibitions and powers in the act, including a right of recall, may prove to be useful tools in the fight against counterfeit consumer products, provided that the consumer product poses a danger to human health or safety.

Civil enforcement

Civil remedies are the most commonly employed means to address counterfeiting issues. The framework for civil actions is primarily statutory – the Trademarks Act and the Copyright Act. While there are common law prohibitions against passing off registered or unregistered trademarks, Section 7 of the Trademarks Act embodies the substance of common law passing off and is most frequently used. Actions commenced for infringement under these statutes may be brought in a provincial court or in the Federal Court. The applicable statutes may include the following remedies:

  • injunctions;
  • preservation orders;
  • damages;
  • accounting of profits;
  • destruction of infringing goods;
  • punitive damages; and
  • recovery of a portion of legal costs.

Under the Trademarks Act, damages and accounting for profits are alternative remedies. Under the Copyright Act, damages and disgorgement of the infringer’s profits are both recoverable. It also provides the option of electing statutory damages per copyright infringed, while the Trademarks Act lacks statutory damage provisions.

The Federal Courts Rules expressly provide for the preservation of the subject matter of litigation. Typically, motions for preservation are brought on notice to the alleged infringer and, if successful, an order is issued requiring the alleged infringer to deliver up the subject merchandise pending the final outcome of the lawsuit.

An Anton Piller order (typically granted ex parte) instructs the party served to deliver up the goods alleged to be counterfeit for preservation pending determination of the lawsuit. While refusal potentially subjects a party to contempt of court proceedings, compliance is nevertheless voluntary and parties executing Anton Piller orders cannot breach the peace if the party served refuses to cooperate. An independent supervising solicitor, who does not represent the rights holder, supervises the execution of Anton Piller orders and must fully explain the terms of the order, supervise any permitted searches of the subject premises and ensure that any potential privileged documents are preserved in a manner that allows the party served to assert privilege before they are disclosed. Law enforcement typically attends to keep the peace and to assure the party served that the process is legitimate.

Canadian courts have issued rolling Anton Piller orders in John Doe and Jane Doe actions, in which the identities of the infringers are not yet ascertained. Following execution of a rolling Anton Piller order, the courts have an established mechanism for reviewing execution of the service and adding the party served as a named party defendant.

Civil remedies for trademark and copyright infringement have the potential for greater damages than have been awarded as fines in the criminal context. However, where counterfeiters fail to keep business records, ascertaining appropriate damages or quantification of profits is difficult. In such circumstances, the Federal Court has established minimum compensatory damage awards for trademark counterfeiting. Where no documents are delivered up by the defendant to quantify sales, profits and/or damages, the court regularly awards damages to successful litigants using a defined scale of damages, depending on the nature of the business (eg, itinerant vendor, fixed retail and wholesaler or importer). Minimum compensatory damages have been awarded on a ‘per instance of infringement’ basis or on a ‘per inventory turnover’ basis.

Anti-counterfeiting online

The Copyright Act:

  • prohibits circumvention of technological protection measures (Section 41.1);
  • prohibits the manufacture, import and sale of technologies, devices and services designed primarily for the purpose of breaking digital locks (Section 41.1);
  • defines ‘infringement’ to include services which primarily enable acts of copyright infringement by means of the Internet or other digital networks (enumerating the factors to consider); and
  • sets statutory damages (C$500 to C$20,000 for commercial infringements and C$100 to C$5,000 for non-commercial infringements).

Proportionality and the infringer’s good or bad faith are two of four enumerated factors to be considered (Section 38.1).

Canada’s ‘notice and notice’ regime does not require internet service providers (ISPs) to take an affirmative step to remove a copyrighted work. ISPs and search engines will be exempt from liability when they act strictly as true intermediaries in communication, caching and/or hosting services. The text of the USMCA permits Canada to maintain the current ‘notice and notice’ regime and exempts Canada from the obligation to comply with the legal remedies or safe harbour provisions of the USMCA.

The Copyright Act also enumerates exceptions to infringement in respect of the following categories of non-commercial activity:

  • Format shift – copying content from one device to another. This provision does not apply to content protected by a digital lock or other technological protection measures (Section 29.22).
  • Time shift – recording television, radio and internet broadcasts and listening to or watching them later. This provision does not apply to on-demand, streamed content or content protected by a digital lock or other technological protection measures (Section 29.23).
  • Mash-up – incorporating legally acquired copyrighted content into user-generated work. This provision is applicable only in the event that the mash-up is not a substitute for the original material, has not been created for commercial gain and does not have a substantial negative impact on the markets for the copyrighted work or creator’s reputation. An example is posting a combination of a Jay-Z rap with a Beatles song on a social networking website, provided that the user-generated work is not subject to the exceptions listed above (Section 29.21).

Apart from the Copyright Act, Canada has no specific legislation addressing the online sale of counterfeit goods. Instead, traditional methods are used. For example, copyright owners alleging infringement against unidentified BitTorrent users have advanced motions to compel third-party discovery of the ISP, requesting the handover of subscriber information.

In additional, rights holders submit takedown requests directly to the ISP, registrar, third-party marketplace or social media platform in an effort to remove the counterfeit goods.

Payment processing – the Canadian Anti-fraud Centre

The Canadian Anti-fraud Centre is jointly managed by the Royal Canadian Mounted Police, the Ontario Provincial Police and the Competition Bureau, and one of its mandates includes the illegal sale of online counterfeit goods. Canadian victims that purchase counterfeit merchandise are encouraged to contact their credit-card issuing bank and request a refund under their counterfeit protection policy. The chargebacks (ie, refunds to the victim) help to identify and close counterfeit merchant accounts at banks and payment processors worldwide. In 2020 the centre received more than 7,400 complaints of cyber-related fraud and estimated approximately C$2.5 million recovered for victims.

Domain name dispute resolution

In addition, a rights holder can file a complaint pursuant to the Canadian Internet Registration Authority Domain Name Dispute Resolution Policy (with either Canadian International Internet Dispute Resolution Centre or Resolution Canada Inc) against the registrant of a domain nameif:

  • the rights holder can prove its rights in the trademark;
  • the registrant has no legitimate interest in the domain name; and
  • the domain name was registered in bad faith.

Preventive measures/strategies

Canada has no national IP law enforcement coordination body. The primary responsibility for battling counterfeit products lies with rights holders, which must take steps to protect and enforce their rights through comprehensive licensing arrangements, diligent civil enforcement and training of and cooperation with law enforcement and customs authorities.

2021 and beyond

Many brands, associations and others involved in anti-counterfeiting in Canada are committed to meet with Canada’s government representatives to urge and assist in taking steps to fund and mandate law enforcement, Customs and prosecutors to increase the effort to prevent counterfeiting and piracy from continuing to grow in Canada.

Brands stand ready to continue to educate, train and assist law enforcement, Customs and prosecutors in doing so. Rights holders who have filed their requests for assistance with Customs are hoping for and are ready to assist in the detention of counterfeit or pirated shipments of products bearing unauthorised reproductions of their trademarks, geographical indicators and/or copyrights.

The increase in 2020 of Customs detainments of containers of counterfeit goods and pirated works destined for global distribution makes the IP border enforcement regime even more of a necessity for protecting IP rights in Canada.

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Georgina Starkman Danzig

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David S Lipkus

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