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GAO Study Contradicts Counterfeit Claims

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Thursday May 03, 2007
I appeared before the Standing Committee on Industry, Science and Technology on Wednesday to discuss counterfeiting (following on my appearance last week before the Standing Committee on Public Safety and National Security).  My opening remarks are posted below - they focused primarily on the need to obtain more accurate data (I cited the inconsistent data associated with camcording) and to separate the counterfeiting issue from copyright reform (I argued that the inclusion of issues such as ratification of the WIPO Internet treaties is hampering progress on the serious counterfeiting problems).

Interestingly, just after the hearing I was alerted to a new U.S. study [PDF] from the Government Accountability Office on U.S. border enforcement activities against counterfeiting.  The report is a must-read for people focused on this issue as it highlights two very important things.  First, notwithstanding the claims that Canada must dramatically reform the powers afforded to our border services to address counterfeiting, the GAO study demonstrates that even countries like the U.S. are struggling with this issue as it points to a lack of data and coordination within the U.S.

Second, the data contained in the GAO report suggests that the claims associated with counterfeiting are massively overstated.  The Industry Committee previously heard from witnesses who noted that there have claims that 5 to 7 percent of world trade involves counterfeit products (some even argue that is growing).  The GAO study points to the U.S. Compliance Measure Program, a statistical sampling program, that randomly selects shipments to check for their compliance with the law, including IP laws.  Of 287,000 inspected shipments from 2000 - 2005, IP violations were only found in 0.06 percent of shipments - less than one tenth of one percent.  This large random sample suggests that counterfeit products are actually only found in a tiny percentage of shipments.  Moreover, the GAO notes that despite increases in IP 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 IP protection.  In other words, the evidence from an independent, U.S. government sponsored agency points to a far different reality from that presented to the two parliamentary committees investigating counterfeiting.
Appearance before the Standing Committee on Industry, Science and Technology, May 2, 2007

Good afternoon.  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.  As I prefaced when I last came before you during your review of telecommunications reform, I appear before the committee today in a personal capacity representing only my own views.

I appeared last week before the Standing Committee on Public Safety and National Security on the counterfeiting issue.  Rather than simply repeat my remarks to that committee, I have provided this committee with a copy of my prepared comments and I believe the full transcript will be available shortly.

I do, however, want to very briefly reiterate four points that I made last week.

First, I recognize that this is 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.

Second, I believe that it is the public safety and security concerns that should be accorded the highest priority on the counterfeit file.  As a parent of three young children, I too find the stories of exploding batteries and counterfeit pharmaceuticals deeply concerning.  That said, I note 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. 

Third, while I appreciate the impatience with perceived inaction, it is important to reiterate that Canadian law has not left law enforcement powerless. Canada is compliant with its international copyright obligations. Moreover, 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.  Last week, those numbers were updated for this committee with more than 700 charges laid in 2005. With roughly two charges per day, this is a country that has laws to address counterfeiting and a law enforcement community committed to doing so.

Fourth, 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. Despite U.S. action, 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.

With this as background, I’d like to spend my last couple of minutes, focusing on two additional issues.

1. Inconsistent Data

I believe that this committee could make an enormous contribution in addressing the counterfeiting issue by calling for the collection of better, independent data.  As I am sure you know, the RCMP has acknowledged that there has been no comprehensive, independent study on counterfeiting.  While we know that only a tiny fraction of counterfeit goods are actually manufactured in Canada, that organized crime is involved in some though certainly not all counterfeiting, and 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 data that is available is often conflicting or unreliable.

Consider, for example, the issue of camcording in Canadian movie theatres and  the allegations that it contributes to DVD piracy. 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.  In fact, new reports this morning out of New York indicate that New York City alone is responsible for more than 40 percent of camcorder piracy.  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.

When combined with the fact that few, if any, Canadian movies are said to be affected and Canadian copyright law already addresses the issue - it is an infringement to camcord a movie and camcording a movie for the purposes of distribution brings with it the prospect of huge fines and jail time - the issue highlights the need to avoid knee-jerk legislative proposals by instead focusing on obtaining independent, reliable data. 

2. The Absence of a Connection Between the WIPO Internet Treaties and Counterfeiting

There has been in my view a surprising link made between counterfeiting and the fact that Canada has not yet ratified the WIPO Internet Treaties.  I think it is important to understand that there is no connection between the two.  Indeed, I believe that the inclusion of the WIPO Internet treaties within the debate has actually slowed progress on the counterfeiting front.  I say this for two reasons.

First, the heart of the WIPO Internet Treaties are anti-circumvention provisions that provide legal protections for technological protection measures.  These provisions do nothing to address counterfeit pharmaceuticals, counterfeit clothing, counterfeit handbags, counterfeit watches, or the dozens of other counterfeit targets.  Moreover, they do nothing to address counterfeit DVDs and CDs since the act of commercial counterfeiting is not addressed in the treaties.

Second, the WIPO Internet Treaties are extremely controversial.  In recent months, there has been public opposition from Canadian security companies, four Canadian privacy commissioners have voiced misgivings, consumers are deeply troubled by their potential impact, and many artists groups have themselves come out against ratification.  Indeed, even the U.S. architect of the treaties has admitted that the treaties have been a failure.  By including the Treaties within the counterfeiting issue, addressing counterfeiting becomes unnecessarily controversial.  The committee would do well to bifurcate this issue by clearly stating that the counterfeiting file should proceed independent from the WIPO Internet treaty issue and broader issues of copyright reform.

In conclusion, no one supports counterfeiting.  But I believe we should all support a reasoned, effective approach to the issue based on hard data and realistic goals and I fear that some of the possible Canadian reforms would do little to advance the battle against the real problems associated with counterfeiting in Canada.
Comments (3)add comment

Aaron Luchko said:

...
I think you mistypted a couple of the figures (was converting to probabilities?), you mention 0.006 percent and 0.002 percent, the actual figures from the report were 0.06 and 0.02 percent (still low but not quite as low).
May 04, 2007

Michael Geist said:

Typo corrected
Thanks Aaron.

MG
May 04, 2007

Donald J said:

Programmer
It's a pity this wasn't available before IPRED2 was agreed in Europe. IPRED2 is the European anti counterfeiting law that goes well beyond counterfeit goods and includes aiding abetting or inciting (inciting?!) commercial copyright infringement.

The justification for that extreme implementation was jobs. Claims that it would result in 200,000 or more European jobs. But if the number is not around 6% but 0.02%, then we're talking 666 jobs, even using the exaggerated way that number was estimated (if I pirated a Philips kettle that is made in China, with a fake Philips kettle made in China no job has been lost there, Philips have fewer sales staff, I have more sales staff, the goods are still made in China).

A more balanced implementation should have been chosen, with no secondary infringement and definitely no free speech issues (incitement? Are they nuts?).
May 07, 2007

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