Procedures and strategies for anti-counterfeiting: Canada

Legal framework

Fighting counterfeiting in Canada involves the following legislation:

• 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).

CETA

On October 30 2016 Canada and the European Union signed the Comprehensive Economic and Trade Agreement (CETA) and Bill C-30 (the domestic implementation legislation) was introduced the following day. Ratification is expected in the near future.

CETA brings significant changes to Canada’s trademark and patent laws. Noteworthy are changes relating to the protection of geographical indications. They will be expanded from wines and spirits to include agricultural products and food. They will not be able to be used (as a trademark or otherwise) if the product is not produced under the rules of or do not originate from that region. Use of a protected geographical indication on any products that are in the same category as the geographical indication will be prohibited and will be unregisterable. Requests for assistance and importation and exportation prohibitions will be available for protected geographical indications.

Update on border enforcement

Although no official statistics have been released, since the border enforcement regime came into force on January 1 2015, fewer than 200 rights holders have filed their rights with Customs and only approximately 50 shipments have been detained. Unfortunately, several of these shipments were very small quantities of counterfeit merchandise, making it cost prohibitive for the rights holder to sue the importer or take other potential enforcement steps.

Trans-Pacific Partnership Agreement: in-transit information sharing

In January 2017 the United States withdrew from the Trans-Pacific Partnership (TPP) Agreement. In the circumstances, Canada’s soft commitment to notify the United States if it identifies goods suspected of infringing copyrights or trademarks destined for signatory countries – which was to commence on entry into force of the TPP Agreement – may never come to fruition. In a letter from the Canadian government to the US government, Canada expressed a commitment to notify the United States when it identifies goods that, if destined for the United States, would be suspected of infringing copyright or trademarks (one of the options in the TPP Agreement).

Border measures

Customs has ex officio powers to detain suspected shipments of counterfeit products. Rights holders can file a request for assistance that is valid for two years. Rights holders can deposit copyright or trademark particulars with Customs. This will enable Customs to provide them with notice and enable rights holders to pursue a civil remedy in court.

If a request for assistance is filed, Customs is empowered to detain goods suspected to infringe copyrights or trademarks, and share information with rights holders to give them an opportunity to pursue a remedy in court. Detention by Customs cannot exceed 10 working days (subject to a further 10 working days (five four perishable goods) upon request of the rights holder). If the goods are counterfeit, 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 merchandise. The rights holder is responsible for any applicable storage, handling and destruction charges of any detained goods. Customs has no authority to seize or destroy counterfeit merchandise on its own. Permitted disclosure by Customs to the rights holder includes providing a “sample of the goods” and “information about the goods that could assist them 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 is an infringement 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, destruction) damages and costs. Statutory damages are available only under the Copyright Act.

The framework for how Customs deals with counterfeit trademark goods or pirated copyright goods is set out in the D- Memorandum (D-19-4-3). Paragraph 18 thereof compels the rights holder to respond to Customs within three business days of first contact by Customs and state whether it intends to pursue a remedy. This creates a three-day pre-notice 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 inquiries as to 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.

Enforcement in practice

The first two test cases involving this legislation resulted in forfeiture and the destruction of the counterfeit merchandise at the importer’s expense. One was resolved within 20 days (10-day detention plus a 10-day approved extension) and the rights holder was not required to sue the importer as contemplated by the legislation. The importer in that case agreed to facilitate the pick-up and destruction of the counterfeit merchandise by the rights holder’s agent, from Customs at the importer’s own expense, a position that was negotiated by counsel for the rights holder and the importer. In the context of those negotiations, previous imports of similar counterfeit goods already in the country were identified and subsumed within the resolution detailed above.

In the second test case, the rights holder and the importer were unable to resolve the matter within the detention period and the rights holder sued the importer in the Federal Court. A resolution was reached requiring the importer to pay the costs of the bonded storage, bonded cartage and destruction witnessed by Customs. The process was expensive because the goods were ‘pre-declared’ and only the importer (short of a court order) could authorise how the goods could or would be dealt with. The shipment included branded goods, believed to infringe the rights of other rights holders, which had not filed a request for assistance. Accordingly, rights holders that had not filed a request for assistance were not contacted by Customs and their goods were segregated and released to the importer once it paid the duty.

In addition to the abovementioned case, an action has been commenced against an importer of allegedly counterfeit phone packaging, stickers, labels and manufacturing equipment that were presumably to be used to assemble counterfeit products in Canada, thus highlighting to Customs that components and packaging used to manufacture or assemble counterfeit goods are being imported and vigilance in inspection and detention is critical to combat this.

Criminal prosecution

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

The Combating Counterfeit Products Act has created a new offence provision in the Trademarks Act, which states:

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.

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 provides for penalties for infringement (Section 42(1)), including fines of up to C$1 million, imprisonment for up to five years or both. Criminal Code provisions on fraud, passing off or forgery involving a trademark include fines of up to C$10,000 and/or 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 the maintenance of a just, peaceful and safe society by imposing just sanctions that have one or more of the following objectives:

(a) to denounce unlawful conduct;

(b) to deter the offender and other persons from committing offences;

(c) to separate offenders from society, where necessary;

(d) to assist in rehabilitating offenders;

(e) to provide reparations for harm done to victims or to the community; and

(f) to promote a sense of responsibility in offenders, and acknowledgment of the harm done to victims and to the community…

(g) 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 of its safety. For example, the unauthorised use of certification marks is prohibited. The prohibitions and powers in the act 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 the passing off of 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 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.

The Combating Counterfeit Products Act amended the Trademarks Act to expand the rights conferred by registration to include the right to preclude others from manufacturing, possessing, importing, exporting or attempting to export any goods, labels or packaging for the purpose of their sale or distribution if:

• they are identical or confusingly similar to a trademark registered for such goods;
• the owner of that registered trademark has not consented to have the goods, labels or packaging bear the trademark; and
• the sale or distribution of the goods would be contrary to the Trademarks Act.

Under the Trademarks Act, damages and accounting for profits are alternative remedies. Under the Copyright Act, both damages and disgorgement of the infringer’s profits are 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) orders 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 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/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 (itinerant vendor, fixed retail and wholesaler/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:

• prohibitscircumvention 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).

On January 2 2015 Canada adopted a ‘notice and notice’ regime which 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. Although Canada is a signatory to the TPP Agreement, given the recent political uncertainty associated with the United States’ ratification of the TPP Agreement, the establishment of a notice and takedown regime is uncertain. The Copyright Act 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.

Canadian Anti-fraud Centre

The Canadian Anti-fraud Centre (CAFC) is jointly managed by the Royal Canadian Mounted Police, the Ontario Provincial Police and the Competition Bureau, and its mandate includes the sale of online counterfeit goods. The CAFC works with payment processors to cancel the counterfeiter’s merchant account(s), negating the counterfeiter’s ability to process payments, rendering the websites useless. Canadian victims that purchase counterfeit merchandise are encouraged by many rights holders to contact their payment processor and the CAFC in an effort to thwart the illegal sale of counterfeit merchandise in Canada. In 2016 the CAFC received over 18,000 complaints of cyber-related fraud and estimated over $37 million in losses.

Separately, there continues to be an increase in Canadian Internet Registration Authority (CIRA) domain name dispute resolution policy proceedings, as counterfeiters are hijacking domain names with Canadian extensions in bad faith. A rights holder can file a complaint pursuant to the CIRA Domain Name Dispute Resolution Policy (with either Resolution Canada Inc or the British Columbia International Commercial Arbitration Centre) against the registrant of a domain name if:

• 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. However, significant lobbying efforts increased this year to remind the Canadian government of the evolution of digital technology and the need for strong cybersecurity. Although two parliamentary committees have recommended that an IP crime taskforce be established as part of legislative reform, such legislation has not yet been enacted. Accordingly, 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.

Kestenberg Siegal Lipkus LLP

65 Granby Street

Toronto ON M5B 1H8

Canada

Tel +1 416 597 0000

Fax +1 416 597 6567

Web www.ksllaw.com

Lorne M Lipkus

Founding partner

[email protected]

Lorne M Lipkus is a founding partner at Kestenberg Siegal Lipkus LLP, practising IP litigation with a focus on anti-counterfeiting enforcement, both civilly and criminally, throughout Canada. He deals with all aspects of border enforcement, conducts anti-counterfeiting training sessions, conferences, workshops and lectures across Canada, and is widely quoted by numerous media outlets on anti-counterfeiting matters. Mr Lipkus chairs committees at the Canadian Anti-counterfeiting Network (CACN) and the Canadian Intellectual Property Council, is a member (and sub-committee chair) of the International Anti-counterfeiting Coalition (IACC), the Intellectual Property Institute of Canada (IPIC), the International Trademark Association (INTA) and the Law Society of Upper Canada, and is former chair of the Anti-counterfeiting and Trade Offences Committee of the Canadian Bar Association.

Georgina Starkman Danzig

Partner

[email protected]

Georgina Starkman Danzig is a partner at Kestenberg Siegal Lipkus LLP. She practises IP litigation with a focus on anti-counterfeiting enforcement both civilly and criminally, throughout Canada. She has extensive experience in extraordinary remedies and coordinating anti-counterfeiting programmes, including civil and criminal seizures. She deals with all aspects of border enforcement and conducts anti-counterfeiting training sessions, conferences, workshops and lectures. Ms Starkman Danzig is the chair of the Anti-counterfeiting and Trade Offences Committee of the Canadian Bar Association. She is also a member of CACN, IPIC, INTA and the Law Society of Upper Canada. She obtained an LLB in 1988 and a JD in 1990, and was called to the Ontario Bar in 1990.

David S Lipkus

Partner

[email protected]

David S Lipkus is a partner at Kestenberg Siegal Lipkus LLP, practising civil and commercial litigation with a focus on IP brand protection and insurance defence litigation. He is a regular speaker at conferences dealing with a variety of subject matter and has lectured to lawyers, paralegals, law enforcement and other professionals. Mr Lipkus is an active member in the legal community. He chairs the Social Networking – Internet Committee of the IACC, is former chair of the Canada sub-committee of the INTA Anti-counterfeiting Committee (2014/2015 term), and is a member of the Domain Names and Trademarks on the Internet Committee of IPIC, the Law Society of Upper Canada and the Ontario Bar Association. He was called to the New York Bar in 2009 and the Ontario Bar in 2010.