The Canadian intellectual property’s lead lobby group, the Canadian IP Council (itself a group within the Canadian Chamber of Commerce) released a new policy document yesterday that identifies its legislative priorities for the coming years. Anyone hoping that the SOPA protests, the European backlash against ACTA, and the imminent passage of Bill C-11 might moderate the lobby group demands will be sorely disappointed. Counterfeiting in the Canadian Market: How Do We Stop It? is the most extremist IP policy document ever released in Canada, calling for the implementation of ACTA, SOPA-style rules including website blocking and stopping search results from resolving, liability for advertisers and payment companies, massive surveillance at the border and through delivery channels including searching through individual packages without court oversight, and spending hundreds of millions of tax dollars on private enforcement.

This long post reviews the report, focusing on the case it makes for addressing counterfeiting concerns in Canada and on the resulting recommendations. The recommendations are divided into five main groups:

Introduce a Canadian SOPA ACTA Implementation New Search Powers Without Court Oversight The Criminalization of Intellectual Property Massive Increase in Public Spending Creating an IP Enforcement Subsidy

The report is the third from the same groups (Canadian Recording Industry Association, Motion Picture Association – Canada, software groups, and large pharmaceutical companies) in the past five years. In 2007, the Canadian Anti-Counterfeiting Network released A Roadmap For Change (endorsed by the Chamber) and in 2009, the IP Council issued A Time for Change . I covered the copyright policy laundering strategy that involves multiple reports with similar recommendations by related groups here

The Case for Canadian Counterfeiting: What the Report Says

The report unsurprisingly begins by trying to make the case that Canadian counterfeiting has become a major concern, relying heavily on European and U.S. numbers. There are some references to RCMP seizures, but the data is limited. Indeed, the report admits that “the lack of clear and credible data makes it difficult to drive policy makers to action and can compound the problem.”

The most credible number comes from the OECD, which has estimated global counterfeiting at $250 billion. This represents a huge decline from previous estimates as the Canadian share of this figure, based on 2% of world trade, would be $5 billion. That obviously isn’t insignificant, but it pales in comparison to the 2009 IP Council report which claimed the cost could be $22 billion. Last year, the IP Council suggested that the number could actually be $30 billion. Canadian counterfeiting data has long been the source of speculative numbers without evidence or reliable methodology. In 2007, I used RCMP Access to Information requests to reveal that prior estimates were based on nothing more than a single article found on the Internet. The RCMP and government officials no longer cite these unreliable figures.

In fact, the widespread use of unreliable counterfeiting claims has been repeatedly debunked. The CATO Institute did a nice job of taking U.S. claims to task earlier this year, while the world’s most comprehensive study on media piracy, Media Piracy in Emerging Economies thoroughly dismantles numerous piracy claims (the study was partially funded by Canada’s IDRC). Perhaps the most authoritative debunking comes the U.S. government, whose General Accounting Office conducted a comprehensive study into the claims and concluded that they could not “be substantiated or traced back to an underlying data source or methodology.”

The report also claims that there are significant links between counterfeiting and organized crime, citing a 2009 Rand Corporation study on the issue. Yet that study was also debunked by the IDRC funded report which noted:

Arguing that piracy is integral to such networks means ignoring the dramatic changes in the technology and organizational structure of the pirate market over the past decade. By necessity, evidentiary standards become very loose. Decades-old stories are recycled as proof of contemporary terrorist connections, anecdotes stand in as evidence of wider systemic linkages, and the threshold for what counts as organized crime is set very low. The RAND study, which reprises and builds on earlier IFPI and Interpol reporting, is constructed almost entirely around such practices. Prominent stories about IRA involvement in movie piracy and Hezbollah involvement in DVD and software piracy date, respectively, to the 1980s and 1990s. Street vendor networks in Mexico Cityâ€”a subject we treat at length in the Mexico chapterâ€” are mischaracterized as criminal gangs connected with the drug trade. Piracy in Russia is attributed to criminal mafias rather than to the chronically porous boundary between licit and illicit enterprise. The Pakistani criminal gang D-Company, far from â€œforging a clear pirate monopolyâ€ in Bollywood, in RAND’s words, plays a small and diminishing part in Indian DVD piracyâ€”its smuggling networks dwarfed by local production.

The report also points to a single death in 2007 reportedly due to the ingestion of counterfeit medicine. That is obviously a tragic and unacceptable incident, but the report might note that in the broader context, death due to legitimate prescription drugs are the fourth leading cause of death in Canada and the United States with tens of thousands of deaths in Canada every year due to the wrong drug, dosage errors, or adverse reactions. At the same time, Canadian Internet pharmacies serve millions of patients every year.

The report unsurprisingly cites criticism from the U.S. and Europe on Canadian practices. The U.S. placement of Canada on the Priority Watch list receives the usual mention, even though the placement on the list is the result of lobbying from the same groups who are behind this report. The Canadian government position on the U.S. complaints, as described to a House of Commons committee in 2007 (and repeated regularly in internal government documents), sees this for what it is:

In regard to the watch list, Canada does not recognize the 301 watch list process. It basically lacks reliable and objective analysis. It’s driven entirely by U.S. industry. We have repeatedly raised this issue of the lack of objective analysis in the 301 watch list process with our U.S. counterparts.

The same could be said for this report.



The Case for Canadian Counterfeiting: What the Report Doesn’t Say

Just as important as what the report says, is what it doesn’t say. The report doesn’t mention that

the Business Software Alliance recently released its annual global software piracy report with new data that not only shows that Canada hit yet another all-time low but has the biggest percentage decline in the world over the past five years. For the past few years, the BSA report has repeatedly found that piracy is declining in Canada. In 2009, Canada was characterized as a “low piracy country”, in 2010 the industry noted that Canada’s piracy rate was at an all-time low, and last year it dropped further to another all-time low.The latest report says the Canadian piracy rate dropped further in 2011. In fact, over the past five years, the Canadian rate has dropped by 18% (from 33% to 27%), the sharpest decline in the world.

The report doesn’t mention that the Entertainment Software Association of Canada’s own data, as found in a commissioned a study last year on the major issues facing the industry, finds that piracy is not a major concern. The reference to copyright and piracy as a concern was so low – barely above concerns about an economic recession – that report did not discuss it further. Instead, it focused on the real risks to the video game industry, namely competitive issues, the need for talent (many in the industry recognize that focusing on education may be more important than copyright), and government support.

The report also doesn’t mention that Canada stands among the global leaders in digital music sales. As I noted earlier this week, according to the IFPI data, Canadians purchased 94.2 million single track downloads in 2011, making it the third largest market in the world (trailing only the U.S. and UK). The Canadian numbers represented a 39% increase in sales, far ahead of the U.S. (8% growth) and U.K. (10% growth). The data shows Canadians purchased more single track downloads than Germany or Japan, and more than double the sales in France, despite the fact that each of those countries has far larger populations. In fact, Canadian sales were larger than all the sales from Austria, Belgium, Croatia, Finland, France, Greece, Ireland, the Netherlands, Portugal, Spain, and Sweden combined.

The report neglects the broader international developments in this area. If you’re looking for references to the backlash against the Anti-Counterfeiting Trade Agreement by four European Parliament committees (and perhaps soon the full Parliament) you won’t find it here. You also won’t find references to the decision of the Dutch Parliament to reject ACTA, the announcement that Romania won’t ratify it, and Switzerland’s decision to place the agreement on hold. You will not find discussion of the backlash against SOPA that effectively killed the top legislative initiative of the copyright lobby earlier this year in the United States. There is no discussion of the Kenyan High Court’s ruling that country’s anti-counterfeiting statute is unconstitutional nor analysis of the criticism from the European Data Protection Supervisor or the United Nations Special Rapporteur on Freedom of Expression.

You also will not find references to what Canada has been doing in the area. For example, the Megaupload case is discussed but there is no disclosure that Canada participated in the case using existing law. There is also little discussion of the million dollar awards that Canadian courts have issued in IP enforcement cases in recent years.

The report contains virtually no discussion of Canadian companies that are implicated by counterfeiting in Canada. There is a case study of Canada Goose, but no evidence provided that it faces a serious counterfeiting problem in Canada. Further, most of the other major brands – luxury handbags and watches, brand name pharmaceuticals, movies and other copyright works – are rarely Canadian in origin. While this does not mean these products do not deserve protection (they do), the implications for Canadian companies is far less significant than the report suggests. Given the demands (discussed below) for millions in public tax dollars to fund enforcement initiatives, it is worth noting that the expenditures would largely involve Canadian tax dollars providing an enforcement subsidy to foreign companies.



Best Practices and Recommended Reforms

The second half of the report is devoted to “best practices” and the IP Council’s recommendations for Canadian law. I combine these two sections since they feed off each other with references to supposed best practices that later surface as recommendations for Canadian reform. I would have engaged in a deeper discussion of the supposed best practices, but there are two major shortcomings.

First, there are multiple references to practices that do not include a citation or identification of a particular country that has adopted the policy. For example, the report states:



Both legislative and non-legislative projects view the ISPs as crucial players for their ability to block websites from the users or simply not â€œresolveâ€ or complete the search query.

Is this a reference to the failed SOPA proposal or is there a country that has legislated that ISPs not resolve or complete search queries?

Second, there is virtually no evidence provided on the effectiveness of these measures. They are simply provided as a laundry list of extreme legislative initiatives that are designed to leave the reader with the impression that they are effective and should be matched in Canada.

As for the recommended reforms, they fall into five broad baskets:

1. Introduce a Canadian SOPA

SOPA may be dead in the U.S., but the IP lobby is anxious to revive it in Canada. SOPA targeted ISPs with website blocking as well as measures focused on payment intermediaries and online advertising networks. In addition to the quote above that even targets resolving search queries, the report states:



The existence of remedies that include blocking orders, domain seizure and contributory liability are useful tools to encourage the cooperation of intermediaries who do not wish to be involved in the illicit activity.

It adds that:

positive relationships between rights holders and these intermediaries, including online payment processors, search engines, Internet service providers, online advertisers, online retailers, web auction sites, web hosting providers, domain name system (DNS) registries and social media platforms, can provide the basis for cooperation in the prevention of counterfeit distribution. This relationship requires the support of government.

To develop these remedies and relationships, the report features three recommendations:

Amend Canadian law to introduce the ability to obtain injunctions against third-party intermediaries as suggested by Article 8.1 of ACTA. Introduce provisions of Canadian law to ensure that those who induce, jointly act with or materially aid and abet another person in committing an infringement of copyright or trade- mark are also infringing the law. Proactively engage in facilitating discussion, toward a memorandum of understanding, between rights holders and intermediaries in Canada, with a view to creating simple private remedies to combat counterfeiting and piracy.

If adopted, these recommendations would fundamentally reshape copyright law and the Internet in Canada. The vision is to create new liability for ISPs, block access to websites, and target a myriad of intermediaries. This is an Internet where websites are inaccessible to Canadians, search queries don’t resolve, and individual online purchases are searched, all with the full cooperation of ISPs, search engines, and social networks. Even the U.S. discarded many of these proposals with the defeat of SOPA, but this report recommends that Canada implement the rejected provisions.

2. ACTA Implementation

Despite the fact that ACTA has become widely discredited and is on the verge of being rejected by the European Parliament, the report recommends major changes under Canadian law in order to comply with the agreement:



This agreement introduces numerous provisions that will require amendments to Canadian law, including provisions which require the introduction of ex officio powers for border officials in order for this country to keep up with international best practices.

While ACTA raises numerous concerns (discussed in my report for the European Parliament’s INTA Committee), many provisions are optional rather than mandatory. The IP lobby report is demanding changes that extend beyond those required by ACTA.

3. New Search Powers Without Court Oversight

One of the most disturbing aspects of the report is its insistence on a massive expansion of search powers without court oversight. The Canadian Chamber of Commerce has argued for improving efficiencies at the border, yet now it wants to slow things down by increasing inspections, including small packages containing individual purchases. For example, the report expresses concern that Canadians can acquire counterfeit products through small shipments. It notes:

Mechanisms to address online infringement and the shipment of small quantities of counterfeit goods continues to be a problem for customs officials.

The IP lobby therefore wants new provisions to increase powers to conduct border searches of goods and intercepting small packages without a court order. Proposed reforms include:

Introduce ex officio powers for border officials that give these officials the ability to detain, seize and destroy counterfeit products outside the normal channels of commerce. Identify new remedies and approaches that can address the challenge of small shipments of counterfeit goods that do not require the rights holder to obtain a court order to suspend each and every shipment. Develop a system for recordation of rights. Such a system will ensure that border officials have the information they need to effectively exercise ex officio powers.

The core of these proposals envision widespread searches and seizures without court oversight. Border guards would be empowered to increase their search activities and rights holders could provide more information on their products so that customs officials would be encouraged search and seize products in small packages without court oversight or review.



4. The Criminalization of Intellectual Property

The report calls for multiple legislative reforms that would add new criminal provisions to Canada’s intellectual property laws. These include:



Introduce criminal provisions for wilful trade- mark infringement to make the Trade-marks Act consistent with the Copyright Act and international best practices. Introduce provisions to make it illegal to import counterfeit goods under the Customs Act. Introduce provisions in the Criminal Code that make wilful trade-mark counterfeiting a criminal offence.

These proposals are incredibly broad. For example, making it illegal to import counterfeit goods (without at least carve outs for de minimis amounts or importation without knowledge or intent) could be applied to individuals, resulting in long wait times at borders and the potential for criminal liability to individual travellers. Further, as noted below, the costs of enforcing criminal provisions will be borne by the public.

5. Massive Increase in Public Spending Creating an IP Enforcement Subsidy

The report has several recommendations that would require the government to spend millions of dollars enforcing private rights. The criminalization of intellectual property discussed above is designed to increase public enforcement of private rights. Unlike the current system, which typically requires rights holders to assert their rights through civil litigation (an approach that has recently yielded million dollar awards), the move toward criminal provisions would require government prosecutors to act on behalf on rights holders. This represents a huge enforcement subsidy. Moreover, the report recommends:



The government must encourage enforcement officials to seek strong remedies in the case of IPR infringements and ensure prosecutors exploit the full range of remedies available to them, including the proceeds of crime regime. Develop a team of properly funded and dedicated enforcement professionals in order to effectively face the challenges presented by counterfeiting in the digital age. In the absence of such a team, it will be impossible to respond to the challenges of small shipments of counterfeit product delivered online, and Canada will not be effectively positioned to partner with our international counterparts in tackling multinational operations.

Create an interagency intellectual property council consisting of senior officials from various government departments, including the Department of Justice and the RCMP, with the mandate to develop public education programs, initiatives for law enforcement and policy. Establish a specialized IP crime task force to guide and lead anti-counterfeiting and anti-piracy enforcement efforts in Canada.

The creation of new agencies, task forces, enforcement teams, and education programs are all part of a systemic effort to shift costs to the public. Far more evidence on the likely effectiveness is needed before government should consider diverting millions from health care and education programs toward IP enforcement for predominantly foreign rights holders.