An analysis of Canada’s proposed Combating Counterfeit Products Act (Bill C-56)
March 25, 2013

Canada has been criticized internationally for many years for not having an effective regime for enforcing against counterfeit goods. The need for reform was expressly recognized by two Canadian parliamentary committees in 2007. The CCPA finally addresses the issue by proposing trademark prohibitions and offences, and new customs measures for detaining counterfeits.

In our opinion, debate on the proposed Combating Counterfeit Products Act (“CCPA”) should not concentrate on whether it is compliant with the Anti-Counterfeiting Trade Agreement (“ACTA”) or other international treaties, but instead whether it provides effective measures for addressing the problem of black market distribution of goods bearing counterfeit trademarks and pirated copyright works (collectively “counterfeits”) in Canada. There is little doubt that requirements under ACTA were a consideration in drafting the CCPA, and the border provisions appear to be modeled on the World Customs Organization's "Model for National Legislation to give Customs additional powers to implement the Agreement on Trade-Related Aspects of Intellectual Property Rights”. However, while the proposed measures may be technically compliant with Canada’s international obligations, the question remains of whether they will in fact provide effective tools for combating counterfeit products.

In addition, the CCPA amends the Trademarks Act (“TMA”) by adding and amending provisions that are not directly related to combating counterfeit products. For instance, the definition of “trademark” is broadened to cover non-traditional trademarks and proposed use certification marks, and divisional applications are added. Numerous changes are also made to the TMA to address current practice in the TMO and improve statutory language (including replacing “wares” with “goods”).

 
Prohibitions

The CCPA proposes the addition to the TMA of prohibitions that provide civil remedies against:

  • manufacture, possession, import or export of unauthorized goods; and
  • manufacture, possession, import, export, selling, or distributing “any label or packaging, in any form”,

that bears “a trademark that is identical to or confusing with a trademark registered for such goods” without consent of the owner of the trademark.

The addition of these prohibitions is important since Canadian legislation does not currently include clear prohibitions against possession, import or export of goods or dealing in labels or packaging bearing counterfeit trademarks.

However, the limitation to registered goods may be problematic under the Canadian use-based trademark system. Owners of trademarks may only register a trademark in Canada in respect of goods with which they have used the trademark in association. Further, Canada applies very strict rules requiring detailed statements of goods and services. Accordingly, it is not always possible for trademarks owners to include every good a mark is used in association with in all registrations, and counterfeit goods are regularly encountered that bear known brands and logos on goods that are not included in a trademark registration. Consideration should be given to amending the prohibition so that, like infringement, it will apply to any goods bearing confusing trademarks whether or not a registration includes the specific goods.

The CCPA also proposes amendments to the Copyright Act (“CA”) to expand the definition of infringement of copyright to cover export of pirated copies for specified commercial purposes. This addition was likely made to comply with ACTA, and it will be interesting to see, if the amendments are passed, whether they will be applied to the distribution of copyright works over the Internet.

 
Offences

With respect to criminal offences, trademark offences are at present only included in the Criminal Code of Canada. That fact has raised jurisdictional issues since the Criminal Code is generally prosecuted by provincial prosecutors while Copyright Act (“CA”) offences are generally prosecuted by federal prosecutors. Further, the trademark offence provisions are outdated and ineffective. For example, the offences require that a purchaser be unaware that the products being purchased are counterfeit for a distributor or retailer to have committed an offence (R. v. Ferjo, (2004) 58 CPR (3d) 223 (OCA)). Accordingly, the addition of criminal offences to the TMA is an important development.

The CCPA also proposes amendments to the criminal offence provisions in the Copyright Act to add possession and export of pirated copies for specified commercial purposes. This change fills a hole in the existing provisions that will make them more flexible and effective.

The proposed TMA provisions make it an offence to sell, offer for sale, distribute, manufacture, possess, import or export for the purpose of sale or distribution, any goods, labels or packaging, or to sell or advertise services, in association with a trademark with knowledge that the trademark “is identical to or cannot be distinguished in its essential aspects from, a trademark registered for such goods … [or] services …”

While “distinguished in its essential aspects” is a phrase used in a footnote to the World Trade Organization Trade Related Intellectual Property (“TRIPS”) agreement, the phrase has not been considered in Canadian jurisprudence and may raise difficult issues of construction. The provisions could be broadened to cover any “confusing” use. However, recognizing the need for certainty in criminal provisions, including the difficult issue of confusion as an element of the offence, would likely not be advisable. Using the language accepted in the TRIPS agreement may be a good alternative, despite the likelihood of initial construction issues.

Under the proposed new trademark offence provisions, the accused must also be proven to have knowledge that the owner of the trademark “has not consented” to the goods bearing the mark and that the sale, advertising or distribution infringes the owner’s rights under specific provisions of the TMA. The existing copyright offences require proof that the perpetrator “knowingly” reproduced or dealt in infringing copies of works.

Proving knowledge on the criminal standard “beyond reasonable doubt” has in the past proven problematic. As an extreme example, in R. v. Nasr, a pharmacist accused of selling counterfeit medications that may have contributed to the death of several people was acquitted due to the Judge finding that the Crown had not proven beyond reasonable doubt that the accused had the requisite knowledge to support a finding of guilt. It was not sufficiently proven that the accused knew he was selling counterfeits despite suspicious circumstances surrounding his purchase of the products and specific concerns raised by his customers.

Consideration could be given to clarifying the mens rea in the criminal offence provisions to, at the least, expressly cover willful blindness. Further, making the offence a strict liability offence could significantly assist in providing for effective enforcement and is something that should be considered. The bottom line is that if there is no change to the mens rea requirement then it is likely that the practice will continue of Canadian law enforcement officers often laying charges only if the perpetrator was previously put on notice.

Another issue is the fact that disposing of goods detained in conjunction with criminal enforcement has proven problematic in cases where prosecutions have not been pursued. An informal system of obtaining signed relinquishment documents from perpetrators has arisen, but where that is not possible, motions under s. 490 of the Criminal Code are required. Provision for cost-effective forfeiture and destruction should be considered, perhaps codifying a voluntary relinquishment and abandonment system.

There are also lingering jurisdictional issues. The proposed trademark and existing trademark and copyright offences provide for penalties including maximum five-year imprisonment. That may be contrasted with the penalty of 10-year imprisonment for fraud under the Criminal Code perpetrated on right holders by commercial dealings in counterfeits (R. v. Kirkwood (1983), 42 O.R. (2d) 65 (OCA); R. v. Bonamy, 2000 BCCA 308). The existing trademark offences in the Criminal Code are outdated, and fraud is viewed as a more serious crime and is currently preferred by provincial prosecutors. To make criminal enforcement against counterfeit products and services more effective, penalties for the offences should be equivalent to the penalty for fraud and steps should be taken to update the trademark offence provisions in the Criminal Code. In short, federal and provincial law enforcement and prosecutorial resources should have equivalent tools to enforce against counterfeits in order to avoid unnecessary jurisdictional complications.

Another possibility that could be considered is creation of a parallel regulatory offence providing for seizure and forfeiture of counterfeits on terms, possibly including the perpetrator paying for storage and destruction costs and the imposition of stipulated fines. The offence could impose strict liability (subject to due diligence) for offering counterfeits for sale and set dates for payment and court appearance through existing provincial court systems. Provision would be required for obtaining sufficient proof of the counterfeit nature of the products before laying charges or seizing goods, but the savings in government, accused and right holder resources by minimizing court proceedings would be significant. While one can debate whether a regulatory regime may lower the stigma attached to selling counterfeits, the current open sale of obvious counterfeits in notorious malls and flea markets across Canada obviously has a significant impact in that regard. An effective regulatory regime may be the best way to enforce against blatant sale of counterfeits at retail in the domestic market.

The foregoing being said, the CCPA offence provisions are a clear improvement over existing offences against dealing in counterfeit products in Canada. Further, enacting the improved offence provisions should send a strong message to counterfeiters and consumers of counterfeits that dealing in counterfeits is a crime and is not acceptable. While amendments and additions to the CCPA provisions could provide a more cost-effective regime for dealing with the problem, it is hoped that the provisions outlined above will be passed during the present parliamentary session.

 
Trademark and copyright border measures

Canada’s existing border measures for dealing with counterfeit products consist of provisions in the TMA and CA that allow right holders to seek court orders for detention of counterfeit products by the Canada Border Services Agency (“CBSA”). However, detailed information regarding shipments in question may be required by the CBSA before product is detained and the provisions have not been used more than a handful of times despite being around for years.

The CBSA currently has no ex officio power to detain counterfeit goods and is precluded by the Customs Act from providing customs information or samples to right holders. Joint forces operations with the RCMP have facilitated detention, communication with right holders for to confirm counterfeit, and forfeiture or abandonment of some goods, but the CBSA has no clear mandate or powers to detain counterfeit goods.

The CCPA proposes to add specific prohibitions against:

  • import or export of unauthorized goods bearing trademarks identical to or having all essential elements of a trademark registered for such goods to the TMA; and
  • import or export of copies of works made without consent of the owner of copyright in the country where they were made to the CA.

The prohibitions are subject to exceptions for individuals possessing goods or works for personal use and goods transiting through Canada.

The CCPA also provides right holders with the ability to make “a request for assistance in pursuing remedies under” the TMA or CA (“Request for Assistance”). It is not clear what scope or cost to right holders is contemplated for Requests for Assistance since details will be settled through regulations. However, it is specified that Requests for Assistance will be valid for two years such that it would appear to contemplate a right recordal system, as opposed to a system for seeking assistance in respect of particular counterfeits. There is broad discretion given to the Minister to set requirements for acceptance of requests and an express ability to require right holders to post security. It is hoped that the regulations will provide a cost-effective process pursuant to which right holders will provide information, including confidential anti-counterfeiting information, facilitating effective monitoring and enforcement against counterfeits.

The prohibitions provide the CBSA with ex officio power to detain suspected counterfeit goods under a general power in the Customs Act to detain goods prohibited under any act of parliament. The CCPA further proposes provisions that provide the CBSA with the ability to forward samples and information about goods detained under the prohibitions to right holders. However, any information so provided is only for the purpose of considering breach of the prohibition and should not directly or indirectly identify any person unless a Request for Assistance from a right holder has been accepted.

If a Request for Assistance has been accepted, additional information may be provided to the right holder. However, detention of the goods or copies under the prohibitions become subject to the right holder commencing court proceedings within 10 working days of provision of information or samples by the CBSA (extendable by 10 days, or limited to a total of five days if the goods are perishable).

If a Request for Assistance has not been accepted, the right holder may not use information received “other than to give information to the customs officer about whether the importation or exportation of the goods is prohibited.” That must be contrasted with the proposed language barring use of information where a Request for Assistance has been accepted, namely “for any purpose other than to pursue remedies under this Act.

The proposed provisions raise some concerns. First, the apparent bar against right holders using information provided by the CBSA to commence proceedings if no Request for Assistance has been accepted is problematic. A right holder should not be required to seek approval via a Request for Assistance in order to be able to attempt to prevent the manufacture, import and distribution of prohibited or infringing goods through civil court proceedings in Canada or elsewhere, including seeking identity or other information through available procedures, regardless of how the rights infringement came to light.

Second, while the proposed provisions do provide for ex officio detention by the CBSA, which is long overdue, no ex officio powers or procedures are provided for seizure, forfeiture or disposition of counterfeits. Accordingly, where there is no accepted Request for Assistance, it appears that, pursuant to s. 102 of the Customs Act, the importers of goods detained will be able to choose to abandon or export them.

Third, the proposed sections dealing with detention where there is an accepted Request for Assistance include subsection (2), which directs that an officer shall not detain the goods for more than 10 working days “for the purpose of enforcing” the prohibitions unless notice of court proceedings by a right holder under an accepted Request for Assistance is received. While the context implies that subsection (2) should not apply if a Request for Assistance has not been accepted, broad language is used that would appear to cover all detentions under the prohibitions. The applicability of the subsection should be clarified.

Fourth, once a Request for Assistance has been accepted, the discretion of customs officers to detain counterfeit goods under the trademark and copyright prohibitions is removed and the right holder must provide notice of court proceedings or the goods may no longer be detained. This fact may be a disincentive for right holders to seek acceptance of Requests for Assistance. While there is reference to abandonment under the unclaimed goods provisions of the Customs Act, no other procedures are specified for seizure, forfeiture or disposition under the prohibition if no court proceedings are commenced, such that it would appear the intent is to release the products to the importer or owner. Litigation is expensive in Canada, and court orders obtained through court proceedings brought by right holders should not be the only way to effect forfeiture and destruction of confirmed counterfeit goods detained by the CBSA. At a minimum, provision should be made for a procedure whereby products may be destroyed without court order if the importer and owners of the detained goods do not contest a proposed destruction notice as contemplated in article 11(2) of the WCO model law.

Fifth, a right holder whose Request for Assistance has been accepted is subject to liability for costs of storage and destruction of the detained goods or copies pursuant to a complicated scheme that appears to target the right holder before the importer or owner of the counterfeit goods. Further, an express provision is included to allow a court to:

“require the owner of the relevant registered trademark to furnish security … to cover duties … storage and handling charges, and any other amount that may become chargeable against the goods; and … to answer any damages that may by reason of the detention be sustained by the owner, importer or consignee of the goods.”

It should be recognized that right holders, like governments and the public, are victims of crime. Importers, exporters and purchasers of counterfeit goods generally know they are dealing in counterfeits and may be part of criminal organizations. Consideration should be given to amending the provisions to arrive at a better distribution of costs and responsibilities for combating counterfeits at the border. Many right holders are willing to contribute, and it is unlikely there would be objection to posting reasonable security or paying recordal fees to assist in covering costs of effective border enforcement against counterfeits. However, liability should also be imposed on those trying to profit by dealing in counterfeits – the importers and owners.

It makes sense to stop counterfeits at the border before they are distributed in domestic markets. While rights should ultimately be tested in the courts, it should not be incumbent on right holders to address every detention through court proceedings. At the least, provisions for voluntary relinquishment by importers or owners of the counterfeits should be provided for, whether or not there is an accepted Request for Assistance. Further, excluding goods being transshipped through Canada and providing importers of counterfeits with the option of export may result in Canada becoming a target for transshipment into the North American market and is not consistent with a desire to effectively combat counterfeit products. Amendment to remove the transshipment exception and provide for forfeiture and destruction where no Request for Assistance has been accepted should be considered.

The bottom line is that, while the border measures may or may not be TRIPS and ACTA compliant, it is not clear that they will provide effective border enforcement against counterfeit products. The provisions as currently drafted raise the specter of identified counterfeit products being released into the market, including in circumstances where right holders would be precluded from taking steps to prevent same because they were provided information by the CBSA. Further, while the broad discretion provided to the Minister may be beneficial if appropriate regulations and sufficient resources are provided, it does raise concerns in light of past experience. Effective border measures are clearly an important weapon in the battle against counterfeits, and the CCPA provides some tools to assist. However, clarifying and amending the proposed provisions could significantly increase their effectiveness.

 
TMA amendments

The CCPA amendments include a number of substantive changes to the TMA relating to the trademark application process that are entirely unrelated to border measures or counterfeiting. While it is not clear why these amendments are being proposed at this time, the majority of them have been generally welcomed by the Canadian trademark profession. Some of the key amendments are summarized below.

Non-traditional marks. Until approximately one year ago, the Trademarks Office took the position that a trademark was limited to something visible. After a battle with one applicant that extended over more than a decade, the Trademarks Office relented and agreed that a trademark could extend to sounds but nothing more.

Under the proposed amendments, the definition of a “trademark” will no longer be limited. A “trademark” will be defined by the non-limiting language “includes” and will list a very broad range of possibilities extending to colour per se, sound, scent and texture, among others. In our view, this is a welcome change since a trademark registration should be able to extend to anything that may function as an indicator of source regardless of its characteristics.

As a result of this proposed amendment, a number of consequential changes have been introduced. For example, for such non-traditional marks it may now be necessary to provide evidence of distinctiveness as of the Canadian filing date in order to obtain a registration.

Proposed-use certification marks. A certification mark guarantees that the associated goods/services satisfy certain standards.

Under the current TMA, proposed-use certification mark applications are prohibited. It is unclear what would justify such prohibition, and there in fact does not seem to be a sound reason to exclude proposed-use certification marks under the current scheme. The prohibition is certainly not explicitly set out in the current TMA. In fact, the most likely explanation seems to be “that the exclusion of proposed-use certification marks was an inadvertent consequence of the drafting language of the Trademarks Act” (Alexander J. Stack, “Certification Marks in Canada” (2000) 17 CIPR 1).

Under the proposed amendments, proposed-use certification marks will be permitted.

Associated marks. Under the current TMA, all confusing trademark applications and registrations must be owned by the same owner and are considered “associated marks.” Associated marks are all cross-referenced to each other at the Trademarks Office, and it is prohibited to transfer one of the associated marks without transferring all of them.

Under the existing scheme, the Trademarks Office protects the public interest by preventing confusing marks from being owned by different entities, and it protects trademark owners against themselves by preventing them from diluting or destroying the distinctiveness of their own marks by transferring a confusing mark to a separate legal entity.

Under the proposed amendments, the Trademarks Office will no longer play this paternalistic role and the concept of associated marks will be abolished. In other words, if a company is the owner of two confusing trademark registrations, under the proposed amendments the company may transfer one such registration to a different legal entity.

Since one of the roles of the Trademarks Office is to protect the public against confusion in the marketplace, it is our opinion that further consideration of this proposed amendment may be required.

Divisional applications. Under the current TMA, divisional applications are not permitted.

Under the proposed amendments, it will be possible to divide applications. This will be useful and welcome both during prosecution and after allowance.

During prosecution, if a registration is cited or if a descriptiveness objection is raised, for example, this might render only certain goods/services in the application problematic. In that case, it will be possible to file a divisional application listing only the non-problematic goods/services. The divisional application can then proceed without objection.

After allowance, a proposed-use application can only proceed to registration once a declaration of use is filed. With the CCPA amendment, if the applicant is currently using its mark for certain goods/services then it can obtain a registration for those goods/services and file a divisional application for the remaining goods/services at a later date.

Correcting errors. Currently, once a registration issues the Trademarks Office cannot correct any errors, even those of its own making.

Under the proposed amendments, the Trademarks Office will be able to correct any “obvious” errors within six months of registration.

Definitions. To be consistent with the rest of the world, the proposed amendments replace the current term “wares” with the more universal term “goods.” However, since we Canadians still like to be different, the amendments do not change our unique spelling of the term “trademark.”

 
Conclusion

The CCPA is an important bill that should be passed. However, significant improvements could be made, in particular to the proposed border measures. We hope that there will be robust debate, appropriate amendment, and passage of the bill into law during the current session of parliament.

Brian P. Isaac, Toronto
Philip Lapin, Ottawa

 
The preceding is intended as a timely update on Canadian intellectual property and technology law. The content is informational only and does not constitute legal or professional advice. To obtain such advice, please communicate with our offices directly.

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