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15 April 2013
Canada has been criticised internationally for many years for not having an effective regime for tackling counterfeit goods. The need for reform was expressly recognised by two Canadian parliamentary committees in 2007. The Combating Counterfeit Products Act (Bill C-56) finally addresses the issue by proposing trademark prohibitions and offences and new customs measures for detaining counterfeits.
Debate on the proposed act 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 in Canada. There is little doubt that ACTA requirements were a consideration in drafting the act, and the border provisions appear to be modelled on the World Customs Organisation's Model for National Legislation to give Customs additional powers to implement the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs).(1) However, while the proposed measures may be technically compliant with Canada's international obligations, the question remains whether they will in fact provide effective tools for combating counterfeit products.
In addition, the act amends the Trademarks Act by adding and amending provisions that are not directly related to combating counterfeit products. For example, the definition of 'trademark' has been broadened to cover non-traditional trademarks and proposed-use certification marks, and divisional applications have been added. Numerous changes have also been made to the Trademarks Act to address current practice in the Trademarks Office and improve statutory language (including replacing 'wares' with 'goods').
The act proposes adding to the Trademarks Act prohibitions that provide civil remedies against the manufacture, possession, import or export of unauthorised goods and distributing "any label or packaging, in any form" that bear "a trade-mark that is identical to or confusing with a trade-mark registered for such goods" without the rights holder's consent.
Addition of the prohibitions is important, since Canadian legislation does not currently include clear prohibitions against possession, import or export of goods or dealing with labels or packaging bearing counterfeit trademarks. However, the limitation to registered goods may be problematic under the Canadian use-based trademark system.
Specifically, rights holders can register a trademark in Canada only in respect of goods for which the trademark has been used. Further, Canada applies strict rules requiring detailed statements of goods and services. Accordingly, it is not always possible for rights holders to include every good that a mark is used in association with in all their registrations; 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, similar to infringement, it will apply to any goods bearing confusing trademarks, regardless of whether a registration includes the specific goods.
The act also proposes amendments to the Copyright Act to expand the definition of 'infringement of copyright' to cover export of pirated copies for specified commercial purposes. The additions were likely made to comply with ACTA; it will be interesting to see, if passed, whether they will apply to the distribution of copyrighted works over the Internet.
At present, trademark offences are included only in the Criminal Code. This raises jurisdictional issues, since the Criminal Code is generally prosecuted by provincial prosecutors, while Copyright Act offences are generally prosecuted by federal prosecutors. Further, the trademark offence provisions are outdated and ineffective. For example, the offences require a purchaser be unaware that the products being purchased are counterfeit for a distributor or retailer to commit an offence.(2) Accordingly, addition of criminal offences to the Trademarks Act is an important development.
The act also proposes amendments to the criminal offence provisions in the Copyright Act – the addition of possession and export of pirated copies for specified commercial purposes as offences. This change fills a hole in the existing provisions that will make them more flexible and effective.
The proposed Trademarks Act 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 trade-mark registered for such goods [or] services".
While the phrase "distinguished in its essential aspects" is used in a footnote to TRIPs, it 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, recognising the need for certainty in criminal provisions, including the difficult issue of confusion as an element of the offence, is inadvisable. Using the language accepted in TRIPs 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 rights holder "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 Trademarks Act. 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 previously proven problematic. As an extreme example, in R v Nasr(3) a pharmacist accused of selling counterfeit medications that may have contributed to the death of several people was acquitted due to the judge's finding that the crown had failed to prove beyond reasonable doubt that the accused had the requisite knowledge to support a finding of guilt. It was insufficiently proven that the accused knew that 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 (guilty state of mind) 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. The bottom line is that if there is no change to the mens rea requirement, it is likely that the typical practice of Canadian law enforcement officers - to lay charges only if the perpetrator was previously put on notice - will continue.
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 Section 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 a maximum of five years' imprisonment. That may be contrasted with the penalty of 10 years' imprisonment for fraud under the Criminal Code, which is perpetrated on right holders by commercial dealings in counterfeits.(4) The existing trademark offences in the Criminal Code are outdated; fraud is viewed as a more serious crime and is currently preferred by provincial prosecutors. In order to make criminal enforcement against counterfeit products and services more effective, penalties for such offences should be equivalent to those 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 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 savings in government, accused and rights holder resources by minimising court proceedings would be significant. While it can be debated whether a regulatory regime may lower the stigma attached to selling counterfeits, the existing 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 effectively against blatant sale of counterfeits at retail in the domestic market.
Nevertheless, the act 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 unacceptable. Amendments and additions to the act provisions could provide a more cost-effective regime for dealing with the problem.
Canada's existing border measures for dealing with counterfeit products consist of provisions in the Trademarks Act and Copyright Act that allow rights 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 goods are detained;(5) 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 rights holders. Joint operations with the Royal Canadian Mounted Police have facilitated detention, communication with rights holders for counterfeit confirmation and forfeiture or abandonment of some counterfeit goods, but the CBSA has no clear mandate or powers to detain counterfeit goods.
The act proposes to add specific prohibitions against:
The prohibitions are subject to exceptions for individuals possessing goods or works for personal use and goods transiting through Canada.
The act also provides rights holders with the ability to make "a request for assistance in pursuing remedies under" the Trademarks Act or Copyright Act ('requst for assitance'). It is unclear what scope or cost to rights 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 rights holders to post security. Hopefully, the regulations will provide a cost-effective process pursuant to which rights 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 act further proposes provisions that provide the CBSA with the ability to forward samples and information about goods detained under the prohibitions to rights holders. However, information provided is only for the purpose of considering breach of the prohibition and should not directly or indirectly identify any party unless a request for assistance from a rights holder has been accepted.
If a request for assistance has been accepted, additional information may be provided to the rights holder. However, detention of the goods or copies under the prohibitions becomes subject to the rights 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 rights 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". This 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 rights holders using information provided by the CBSA to commence proceedings if no request for assistance has been accepted is problematic. A rights holder should not be required to seek approval of an request for assistance in order to be able to try and prevent 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 they became aware of the infringement of their rights.
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 disposal of counterfeits. Accordingly, where there is no accepted request for assistance, it appears that, pursuant to Section 102 of the Customs Act, 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 rights holder under an accepted request for assistance is received. While the context implies that Subsection 2 should not apply if there has not been a request for assistance accepted, broad language is used that would appear to cover all detentions under the prohibitions. The applicability of the subsection should be clarified.
Fourth, the fact that 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 rights holder must provide notice of court proceedings or the goods may no longer be detained under the prohibitions, may be a disincentive for rights holders to seek acceptance of request for assistances. While there is reference to abandonment under the unclaimed goods provisions of the Customs Act, no other procedures are specified for seizure, forfeiture or disposal 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 the least, 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 World Customs Organisation model law.
Fifth, a rights 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 rights 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 trade-mark 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."
Rights holders, like governments and the public, are victims of crime. Importers, exporters and purchasers of counterfeit goods generally know that they are dealing in counterfeits and may be part of criminal organisations. 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 rights 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 – 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 should be provided for voluntary relinquishment of the counterfeits by importers or owners, 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 inconsistent with a desire to combat counterfeit products effectively. 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 unclear whether they will provide effective border enforcement against counterfeit products. The provisions as currently drafted raise the specter of identified counterfeit products being released onto the market, including in circumstances where rights holders would be precluded from taking steps to prevent the 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 act provides some tools to assist. However, clarifying and amending the proposed provisions could significantly increase their effectiveness.
The Combating Counterfeit Products Act amendments include a number of substantive changes to the Trademarks Act relating to the trademark application process, which are entirely unrelated to border measures or counterfeiting. While it is unclear why these amendments are being proposed at this time, the majority of these amendments have been generally welcomed by the Canadian trademark profession. Some of the key amendments are summarised below.
Until 2012 the Trademarks Office took the position that a trademark was limited to something visible. After a battle with one applicant extending 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 broad range of possibilities extending to colour per se, sound, scent and texture, among others. 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 or services satisfy certain standards. Under the existing act, proposed-use certification mark applications are prohibited. It is unclear what would justify the prohibition of proposed-use certification mark applications. In fact, there does not seem to be a sound reason to exclude proposed-use certification marks under the current scheme of the Trademarks Act. The prohibition is certainly not explicitly set out in the existing act. 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 Trade-marks Act".(6)
Under the proposed amendments, proposed-use certification marks will be permitted.
Under the existing act, all confusing trademark applications and registrations must be owned by the same owner and are considered to be 'associated marks'. Associated marks are all cross-referenced to each other at the Trademarks Office. It is prohibited to transfer one associated mark without transferring all of the associated marks.
Under this scheme, the Trademarks Office protects public interest and protects rights holders against themselves. The Trademarks Office protects the public interest by preventing confusing marks from being owned by different entities. The Trademarks Office protects rights holders against themselves by preventing owners 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 owns two confusing trademark registrations, under the proposed amendments, it may transfer one 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, further consideration of this proposed amendment may be required.
Under the existing act, divisional applications are not permitted. Under the proposed amendments, it will be possible to divide applications. This will be useful both during prosecution and after allowance. For example, if a registration is cited or if a descriptiveness objection is raised during prosecution, this might render only certain goods or services in the application problematic. In such a case, it will be possible to file a divisional application listing only the non-problematic goods or services. The divisional application can then proceed without objection.
After allowance, a proposed-use application can proceed to registration only once a declaration of use is filed. Under the proposed amendments, if the applicant is currently using its mark for certain goods or services, it can obtain a registration for those goods or services, and file a divisional application for the remaining goods or services.
Currently, once a registration issues, the Trademarks Office cannot correct any errors – even errors of its own making. Under the proposed amendments, within six months of registration, the Trademarks Office may correct any 'obvious' errors.
To align with the international community, the proposed amendments replace the current term 'wares' with the more universal term 'goods'. However, the amendments do not change Canada's unique spelling of 'trade-mark'.
The Combating Counterfeit Products Act is an important bill that should be passed. However, significant improvements could be made, in particular to the proposed border measures. It remains to be seen whether there will be robust debate, appropriate amendment and passage of the bill into law during the current session of Parliament.
For further information please contact Brian P Isaac at Smart & Biggar/Fetherstonhaugh's Toronto office by telephone (+1 416 593 5514), fax (+1 416 591 1690) or email (firstname.lastname@example.org). Alternatively, please contact Philip Lapin at Smart & Biggar/Fetherstonhaugh's Ottawa office by telephone (+1 613 232 2486), fax (+1 613 232 8440) or email (email@example.com).
(1) Available at www.tafa-r.org.tw/forum/20110816/20110816WCOModelLawfinal.pdf.
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