Last month I posted a very critical entry on a Public Safety and National Security Committee hearing on counterfeiting featuring the Chamber of Commerce, Canadian Anti-Counterfeiting Network, and the CRIA.  I concluded by stating that “the MPs on the committee were there to be educated about the issue and received one perspective.  The danger lies in only receiving a single perspective and then proceeding to deliver a report effectively crafted by the anti-counterfeiting lobby.  If the committee is serious about advancing the policy – rather than the view of a select lobby – it will expand the hearings to include further perspectives that extend beyond simple soundbites that ‘counterfeiting can kill.'”

To the great credit of the MPs on the committee, someone saw the posting and invited me to appear to discuss my perspective on counterfeiting.  I appeared yesterday morning and I thought that the 90 minute session (which also included Paul Hoffert and Bob Sotiriadis) resulted in an engaging discussion.  Several committee members acknowledged that I provided a different take on the issue, which enabled the debate to focus on the genuine health and safety risks as well as consideration of the effectiveness of current Canadian law.

The full transcript is available, but my prepared remarks are posted below.

Appearance before the Standing Committee on Public Safety & National Security, April 26, 2007

Good morning.  My name is Michael Geist.  I am a law professor at the University of Ottawa, Faculty of Law, where I hold the Canada Research Chair in Internet and E-commerce Law.  I am also a syndicated weekly columnist on law and technology issues for the Toronto Star and the Ottawa Citizen.  I served on National Task Force on Spam struck by the Minister of Industry in 2004 and on the board of directors of the Canadian Internet Registration Authority, which manages the dot-ca domain name space, from 2000 – 2006. I appear before the committee today in a personal capacity representing only my own views.

Let me begin by stating the obvious – counterfeiting is not a practice that anyone with any credibility supports.  At its worst, counterfeiting may pose a public safety issue.  Even viewed in the best possible light – when counterfeiting activities may be relatively harmless – it is not a practice to be condoned.

Of course, you know this already and do not need Committee hearings to determine that counterfeiting is not a good thing.  The issue, however, is not whether counterfeiting is good or bad – it is bad – but whether it is a particularly problematic issue in Canada that merits a strong legislative response.  I believe that depends on two things: (1) the state of counterfeiting in Canada; and (2) the state of Canadian anti-counterfeiting law.

On these two questions, I would submit that the situation is far less certain. Indeed, once we get past attention-getting props and dig into the details, I believe that it becomes clear that there is much we do not know.  Rather than doing a Donald Rumsfeld imitation by discussing known unknowns, allow me to discuss what we do know.

1. Different Definitions for Counterfeiting

We know that the counterfeiting has become a “catch-all” for a wide range of issues.  While no one would dispute that the sale of fake watches or clothing includes counterfeit products, the umbrella of counterfeiting has been used to capture far more.  This committee has heard claims that stuffed animals that do not contain a label confirming that it is made of new materials are counterfeit products.  Such products are really mislabeled or fail to meet safety standards, but not counterfeit.  Similarly, extension cords that fail to meet Canadian Standards Association standards are a safety concern, but not necessarily a counterfeit concern, unless the CSA logo is wrongly applied.

2. Public Safety Counterfeiting Issues Are Extremely Rare

We know that according to the RCMP, significant physical harm from counterfeiting is extremely rare.  In fact, the recent B.C. case allegedly involving fake pharmaceuticals that may have led to the death of a woman is the first such case on record in Canada.  By comparison, studies have found that thousands of Canadians die every year from bad drug interactions. Moreover, Project Sham, the most recent publicly available RCMP study on counterfeiting, acknowledged that there have been no documented Canadian cases of death or illness from counterfeit pharmaceuticals.

3. Counterfeiting Is Not Limited to Organized Crime

We know that while some advocates have been quick to characterize counterfeiting as strictly an organized crime issue, the RCMP study on the issue found otherwise.  For example, it noted that in the Northwest Region, “only a few cases could be classified as organized crime; for the most part, IP crime there involves people who are ‘trying to make a dollar.’”

This does not justify counterfeiting, yet it does suggest that claims that counterfeiting revenues go directly to organized crime are greatly exaggerated.

4. Canadian Law Has Not Left Law Enforcement Powerless

To listen to some advocates, one would think that Canada is a lawless society when it comes to counterfeiting.  We know that this is not the case.  First, Canada is compliant with international copyright obligations.

Second, claims of police inaction do a great disservice to law enforcement across the country who are active in pursuing IP crime.  Indeed, the RCMP notes that between 2001-2004, it conducted more than 1,800 investigations and laid charges against 2,200 individuals and more than 100 companies.  With more than one investigation per day, this is a country has laws to address counterfeiting and a law enforcement community committed to doing so.

Third, it should be noted that law enforcement action in this area raises public resource questions.  Anti-counterfeiting activity works primarily for the benefit of private parties.  While that may be warranted in some circumstances, it unquestionably results in a shift away from other law enforcement priorities.

5. No Obvious Legal Solutions

While advocates for reform argue that there is an obvious blueprint for addressing counterfeiting in Canada, we know that there is no silver bullet.  Indeed, the experience elsewhere illustrates that most anti-counterfeiting measures have been exceptionally unsuccessful.  The proof is in the data – counterfeiting is widely viewed as a growing international phenomenon, even in those countries that have adopted tougher border measures or criminal penalties.  Indeed, it is easier to obtain counterfeit products in Manhattan than it is in Markham, home to the much-discussed Pacific Mall. If anything, we know that many legal reforms will do no more than provide the illusion of addressing the counterfeiting issue.

6. WIPO Internet Treaties Not Related to Counterfeiting

We know that there has been a surprising connection made between counterfeiting and the fact that Canada has not yet ratified the World Intellectual Property Organization’s Internet Treaties.  While there is considerable debate about the merits of these treaties – many analysts, including those who helped create the treaties, have their doubts – there is no question that the Treaties bear little relation to the counterfeit issue.  Indeed, no policy maker should be fooled into thinking that they are addressing counterfeiting by promoting treaty ratification.

7. Limited Economic Impact on Canada

We know that data on the economic impact of counterfeiting is very difficult to come by – in fact, the RCMP acknowledges that there has been no comprehensive, independent study on the issue.  That said, we know a number of things that suggest that the economic impact in Canada may be fairly limited.  First, the RCMP confirms that at least 90 percent of counterfeit products are produced outside the country, confirming that there are few counterfeit manufacturing operations in Canada.

Second, we know that counterfeit and genuine products are not perfect substitutes.  It is obvious that a person purchasing a $10 fake Rolex watch would not otherwise purchase the $5000 genuine article.  The same is true for the $20 fake Gucci handbag that sells for hundreds of dollars in the stores.  While there are concerns about some lost retail tax dollars, the impact on name brand sales is negligible.

8. Data Often Inconsistent

We know that not only is data difficult to obtain, but the data that is released is often so inconsistent as to lose its credibility.  For example, earlier this year there were reports that Canada was responsible for 50 percent of camcorded movies that later appear on pirated DVDs.  Over the weeks that followed, industry sources began altering that number, with suggestions that the figure was actually 20 percent, 23 percent, 30 percent, or 40 percent.  Such a broad range of possibilities suggests that the industry simply does not know.  Moreover, a closer examination of actual industry data indicates that all of these figures are wildly inflated, with the actual number closer to 3 percent of MPAA released movies.

Where does this leave us?

I believe that given the uncertainty about the impact and severity of counterfeiting, the lack of reliable data, the inconsistent definitions, and the ineffectiveness of legislation elsewhere, the starting point ought not to be knee-jerk legislation that is unlikely to work and may be a solution in search of a problem.

Instead, I believe this committee can play a crucial role in ensuring that Canada provides global leadership in addressing the harms associated with counterfeiting.  Based on what we know, the starting point is not new laws, but rather independent, quality research that will allow legislators, law enforcement, business, and the general public to better understand what is and is not a problem and how our country can move beyond rhetoric to address the legitimate public safety concerns.