My weekly Law Bytes column (Toronto Star version, Ottawa Citizen version, homepage version) focuses on the growing attention paid to counterfeiting and the use of misleading data as part of the debate. The RCMP has been the single most prominent source for claims about the impact of counterfeiting in Canada since its 2005 Economic Crime Report pegged the counterfeiting cost at between $10 to 30 billion dollars annually. The $30 billion figure has assumed a life of its own with groups lobbying for tougher anti-counterfeiting measures regularly raising it as evidence of the dire need for Canadian action. U.S. Ambassador to Canada David Wilkins cited the figure in a March 2007 speech critical of Canadian law, while the Canadian Anti-Counterfeiting Network, Canada's leading anti-counterfeiting lobby, reported in April that the "RCMP estimates that the cost to the Canadian economy from counterfeiting and piracy is in the billions."
Yet despite the reliance on this figure – the Industry Committee referenced it in its final report – a closer examination reveals that the RCMP data is fatally flawed. Responding to an Access to Information Act request for the sources behind the $30 billion claim, Canada's national police force last week admitted that the figures were based on "open source documents found on the Internet." In other words, the RCMP did not conduct any independent research on the scope or impact of counterfeiting in Canada, but rather merely searched for news stories on the Internet and then stood silent while lobby groups trumpeted the figure before Parliament.
A careful examination of the documents relied upon by the RCMP reveal two sources in particular that appear responsible for the $30 billion claim. First, a March 2005 CTV news story reported unsubstantiated claims by the International Anti-Counterfeiting Coalition, a global anti-counterfeiting lobby group made up predominantly of brand owners and law firms, that some of its members believe that 20 percent of the Canadian market is "pirate product." That 20 percent figure – raised without the support of any evidence whatsoever – appears to have been used by IACC to peg the cost of counterfeiting in Canada at $20 billion per year.
Second, a 2005 powerpoint presentation by Jayson Myers, then the Chief Economist for the Canadian Manufacturing and Exporters, included a single bullet point that "estimated direct losses in Canada between $20 billion and $30 billion annually." The source for this claim? According to Mr. Myers, it is simply 3 to 4 percent of the value of Canada's two-way trade.
Indeed, unsubstantiated and inflated counterfeiting numbers appear to be nothing new. The International Chamber of Commerce has long maintained that counterfeiting represents 5 to 7 percent of global trade (those figures were also raised before the Canadian House of Commons committees). However, a recent study by the independent U.S. Government Accountability Office found that of 287,000 randomly inspected shipments from 2000 to 2005, counterfeiting violations were only found in 0.06 percent – less than one tenth of one percent. Moreover, the GAO noted that despite increases in counterfeiting seizures, the value of those seizures in 2005 represented only 0.02 percent of the total value of imports of goods in product categories that are likely to involve intellectual property protection.
Similarly, this year the Organization for Economic Co-operation and Development (OECD), which counts most industrialized countries as members, issued a comprehensive report on counterfeiting that placed the global cost at $200 billion annually. That analysis, which makes suggestions that Canadian counterfeiting costs $30 billion each year even more implausible, was less than a third of what some business groups had previously claimed.
In fact, the OECD report concluded that while counterfeiting was an issue in all economies, it is most common in economies "where informal, open-air markets predominate." This suggests that far from being a hot-bed of counterfeiting, Canada is rarely the source of counterfeit products and it consumes far less than many other countries worldwide.
Before Ottawa embarks on further anti-counterfeiting legislative action, it first requires accurate, non-partisan data. Not only has such information been missing from the Canadian debate, but it is the RCMP that has astonishingly been a primary source of unreliable, unsubstantiated data. In doing so, it has undermined both its own credibility as well as that of the House of Commons committee counterfeiting reports.