Legal framework

Fighting counterfeiting in Canada involves the following legislation:

  • the Trademarks Act (RSC 1985, c T-13);
  • the Copyright Act (RSC 1985, c C-42, as amended); and
  • the Criminal Code (RSC 1985, c C-46).

On December 9 2014 the Combating Counterfeit Products Act received royal assent; it will come into force on a date to be fixed by order of the governor in council. The act amends the Trademarks Act, the Copyright Act, the Criminal Code and other acts as it relates to their treatment of the commercial trade in counterfeit goods and pirated works. Key amendments include the following:

  • The Canada Border Services Agency (CBSA) now has ex officio powers to detain suspected shipments of counterfeit products.
  • Rights holders can file a request for assistance that is valid for two years. This will likely include some form of a recordation system whereby rights holders can deposit copyrights and/or trademark particulars with border officials. This will enable the CBSA to provide those rights holders with samples of the counterfeit goods detained, as well as key information about the shipment of the counterfeit goods, thus enabling the rights holder to pursue a civil remedy in court against the importer seeking, among other relief, forfeiture and destruction.
  • Civil causes of action for the possession, import, export or manufacture of counterfeit goods have been added.
  • Civil causes of action for the manufacture, possession, import, export, sale or distribution of “any label or packaging, in any form” have been added.
  • Criminal offences have been added to the Trademarks Act, making it an offence to:
  • sell, offer for sale or distribute on a commercial scale any counterfeit goods;
  • manufacture, cause to be manufactured, possess, import, export or attempt to export any counterfeit goods for the purpose of sale or distribution on a commercial scale;
  • sell or advertise services in association with a trademark that is identical to, or cannot be distinguished in its essential aspects from, a registered trademark; and
  • manufacture, cause to be manufactured, possess, import, export or attempt to export any label or packaging, in any form, for the purpose of its sale or distribution on a commercial scale or for the purpose of the sale, distribution on a commercial scale or advertisement of goods or services in association with it.

The Combating Counterfeit Products Act expressly excludes from the ambit of prohibitions under the Trademarks Act and the Copyright Act in-transit shipments and personal use counterfeit commodities. It also does not provide for an administrative regime (commonly referred to as a simplified procedure).

Anti-counterfeiting Trade Agreement

Canada is a signatory to the Anti-counterfeiting Trade Agreement (ACTA). ACTA requires signatories to adopt and maintain procedures that will enable customs officials to detain, on their own initiative and without the need for a prior court order, suspected counterfeit and pirate goods. The Combating Counterfeit Products Act is responsive to ACTA.

Consumer Product Safety Act

The Consumer Product Safety Act prohibits the manufacture, import, sale or advertisement of consumer products that could pose an unreasonable danger to the health or safety of Canadians. Other prohibitions relate to the packaging, labelling or advertisement of a consumer product in a manner that is false, misleading or deceptive in respect of its safety. For example, the unauthorised use of certification marks is prohibited. The prohibitions and powers in the act may prove to be useful tools in the fight against counterfeit consumer products, provided that the consumer product poses a danger to human health or safety.

Border measures

Historically, CBSA officers lacked any legislative authority to exercise ex officio detention of prima facie counterfeit goods. Mechanisms in place were cumbersome and enforcement circuitous. If a CBSA officer identified suspected shipments of counterfeit goods in the exercise of traditional customs duties, he or she first determined whether any Customs Act violations were associated with the shipment. If so, charges could be laid under the Customs Act. If there were no Customs Act violations, but the goods appeared to be counterfeit, the CBSA could notify the Royal Canadian Mountain Police (RCMP), which could take steps to seize the shipment and either lay charges under the Copyright Act or the Criminal Code or obtain a voluntary surrender and destruction agreement from the importer.

One of the primary objectives of the new border enforcement regime contemplated by the Combating Counterfeit Products Act is to empower customs officers to detain goods that they suspect infringe copyright or trademark to assist rights holders and allow them to share information with rights holders that have filed a request for assistance in order to give those rights holders a reasonable opportunity to pursue a remedy in court.

Detention by the CBSA cannot exceed 10 working days (or a further 10 working days upon the request of the rights holder), or more than five working days if the goods are perishable. The rights holder must use this detention period to commence proceedings in court against the importer and seek an order for destruction of the counterfeit merchandise. The rights holder is responsible for the storage and handling charges of any detained goods and, if applicable, the charges for destroying them. The CBSA has no authority to seize or destroy counterfeit merchandise on its own motion.

The scope of permitted disclosure by the CBSA to the rights holder is broad and includes providing the rights holder with a “sample of the goods” and “information about the goods that could assist them in pursuing a remedy”. Given the breadth of the disclosure, corresponding limitations restrict the use of that information for any purpose other than to determine whether the import or export of the goods is an infringement or to pursue civil proceedings in court or for the purpose of reaching an out-of-court settlement.

If the rights holder commences proceedings under the Combating Counterfeit Products Act, substantive remedies – both equitable and statutory – available under both the Trademarks Act and the Copyright Act include declaratory relief, injunctive relief, mandatory relief (ie, forfeiture, destruction) damages and costs. Statutory damages are available only under the Copyright Act.

Criminal prosecution

Product counterfeiting typically involves a violation of trademark rights or copyright. Before the proclamation of the Combating Counterfeit Products Act, only the Copyright Act contained criminal penalties for infringement.

The offence provision under the Copyright Act was expanded to include the possession for sale, rental, distribution or public exhibition for trade, as well as the import or export, of an infringing copy of a work or other subject matter in which copyright subsists.

Before the new act, criminal prosecutions for counterfeit trademarked products proceeded as Criminal Code offences, typically as fraud or passing off. This has now changed, as the act includes offences for trademark counterfeiting within the Trademarks Act.

The Combating Counterfeit Products Act has created a new offence provision in the Trademarks Act, which states:

51.01(1) Every person commits an offence who sells or offers for sale, or distributes on a commercial scale any goods in association with a trade-mark if that sale or distribution is or would be contrary to section 19 or 20 and that person knows that;

(a) The trademark is identical to or cannot be distinguished in its essential aspects from a trademark registered for such goods; and

(b) The owner of that registered trade-mark has not consented to the sale, offering for sale or distribution of the goods in association with the trademark.

The offence, on a substantially similar basis, extends to the manufacture, possession, import, export or attempted export of goods and labels on a commercial scale; and to the advertisement of service in association with a trademark, all without the owner’s consent.

Criminal prosecutions in Canada require proof, beyond reasonable doubt, of the act itself (actus reus) and subjective knowledge (mens rea) of the prohibited act to secure a conviction.

Courts have found that mens rea can be proved by circumstantial evidence, such as prior civil lawsuits or judgments of infringement or possession of previously delivered cease and desist letters from rights holders.

The Copyright Act provides for penalties for infringement (Section 42(1)), including fines of up to C$1 million, imprisonment for up to five years or both. Criminal Code provisions on fraud, passing off or forgery involving a trademark include fines of up to C$10,000 and/or imprisonment for up to two years.

The Combating Counterfeit Products Act provides that the sanctions for criminal trademark counterfeiting are consistent with those found in the Copyright Act.

Although imprisonment is an available punishment for copyright or trademark offences, courts and prosecutors rarely impose or recommend jail time. The fines imposed tend to be at the low end of the spectrum.

When imposing penalties for copyright or trademark offences, courts apply statutory principles of sentencing:

The fundamental purpose of sentencing is to contribute, along with crime prevention initiatives, to respect for the law and the maintenance of a just, peaceful and safe society by imposing just sanctions that have one or more of the following objectives:

(a) to denounce unlawful conduct;

(b) to deter the offender and other persons from committing offences;

(c) to separate offenders from society, where necessary;

(d) to assist in rehabilitating offenders;

(e) to provide reparations for harm done to victims or to the community; and

(f) to promote a sense of responsibility in offenders, and acknowledgment of the harm done to victims and to the community…

(g) A sentence must be proportionate to the gravity of the offence and the degree of responsibility of the offender.

Civil enforcement

Civil remedies are the most commonly employed means to address counterfeiting issues. The framework for civil actions is primarily statutory – the Trademarks Act and the Copyright Act. While there are common law prohibitions against the passing off of registered or unregistered trademarks, Section 7 of the Trademarks Act embodies the substance of common law passing off and is most frequently used. Actions commenced for infringement under these statutes may be brought in a provincial court or in the Federal Court. The applicable statutes include the following remedies:

  • injunctions;
  • preservation orders;
  • damages;
  • accounts of profits;
  • destruction of infringing goods;
  • punitive damages; and
  • recovery of a portion of legal costs.

The Combating Counterfeit Products Act has amended the Trademarks Act to expand the rights conferred by registration to include the right to preclude others from manufacturing, possessing, importing, exporting or attempting to export any goods, labels or packaging for the purpose of their sale or distribution if:

  • they are identical or confusingly similar to a trademark registered for such goods;
  • the owner of that registered trademark has not consented to have the goods, labels or packaging bear the trademark; and
  • the sale or distribution of the goods would be contrary to the Trademarks Act.

Under the Trademarks Act, damages and accounts of profits are alternative remedies. Under the Copyright Act, both damages and disgorgement of the infringer’s profits are recoverable. The Copyright Act provides the option of electing statutory damages per copyright infringed, while the Trademarks Act lacks statutory damage provisions.

The Federal Courts Rules expressly provide for preservation of the subject matter of litigation. Typically, motions for preservation are brought on notice to the alleged infringer and, if successful, an order is issued requiring the alleged infringer to deliver up the subject merchandise pending the final outcome of the lawsuit.

Anton Piller orders have been described as civil search and seizure orders; however, that description is not entirely accurate. An Anton Piller order (typically granted ex parte) requires the party served to deliver up the goods alleged to be counterfeit for preservation pending determination of the lawsuit. While refusal potentially subjects a party to contempt of court proceedings, compliance is nevertheless voluntary and parties executing Anton Piller orders cannot breach the peace if the party served refuses to cooperate. An independent supervising solicitor, who does not represent the rights holder, supervises execution of Anton Piller orders. The independent supervising solicitor must fully explain the terms of the order, supervise any permitted searches of the subject premises and ensure that any potential privileged documents are preserved in a manner that allows the party served to assert privilege before they are disclosed. Law enforcement typically attends to keep the peace and to assure the party served that the process is legitimate.

Canadian courts have issued rolling Anton Piller orders in John Doe/Jane Doe actions, in which the identities of the infringers are not yet ascertained. Following execution of a rolling Anton Piller order, the courts have an established mechanism for reviewing execution of the service and adding the party served as a named party defendant.

Civil remedies for trademark and copyright infringement have the potential for greater damages than have been awarded as fines in the criminal context; however, where counterfeiters fail to keep business records, ascertaining appropriate damages or quantification of profits is difficult. In such circumstances, the Federal Court has established minimum compensatory damage awards for trademark counterfeiting. Where no documents are delivered up by the defendants to quantify sales, profits and/or damages, the court regularly awards damages to successful litigants using a defined scale of damages, depending on the nature of the business (itinerant vendor, fixed retail or wholesaler/importer). Minimum compensatory damages have been awarded on a per instance of infringement basis or on a per inventory turnover basis.

Anti-counterfeiting online

The Copyright Act was amended on November 7 2012 to address copyright issues more effectively in an ever-changing and fast-paced digital economy.

Key amendments include:

  • prohibiting circumvention of technological protection measures (Section 41.1) – these block users from performing certain actions with copyrighted works and allow copyright owners and creators to protect their work; their removal is now subject to civil and criminal penalties;
  • prohibiting the manufacture, import and sale of technologies, devices and services designed primarily for the purpose of breaking digital locks (Section 41.1);
  • expanding the definition of ‘infringement’ to include services which primarily enable acts of copyright infringement by means of the Internet or other digital networks, and enumerating the factors to consider in establishing this infringement (Sections 27(2.3) and (2.4)) (eg, illegal peer-to-peer file sharing sites used to download copyrighted works); and
  • setting statutory damages of between C$500 and C$20,000 for commercial infringements and between C$100 and C$5,000 for non-commercial infringements. Proportionality and the infringer’s good or bad faith are two of four enumerated factors to be considered (Section 38.1).

On January 2 2015 Canada adopted a ‘notice and notice’ regime which does not require internet service providers (ISPs) to take an affirmative step to remove a copyrighted work. ISPs and search engines will be exempt from liability when they act strictly as true intermediaries in communication, caching and/or hosting services. The government is consulting with industry regarding implementation of the notice and notice provisions.

The amendments also enumerate exceptions to infringement in respect of the following categories of non-commercial activity:

  • Format shift – copying content from one device to another. This provision does not apply to content protected by a digital lock or other technological protection measures (Section 29.22).
  • Time shift – recording television, radio and internet broadcasts and listening to or watching them later. This provision does not apply to on-demand/streamed content or content protected by a digital lock or other technological protection measures (Section 29.23).
  • Mash-up – incorporating legally acquired copyrighted content into user-generated work. This provision is applicable only in the event that the mash-up is not a substitute for the original material, has not been created for commercial gain and does not have a substantial negative impact on the markets for the copyrighted work or creator’s reputation. An example is posting a combination of a Jay-Z rap with a Beatles song on a social networking website, provided that the user-generated work is not subject to the exceptions listed above (Section 29.21).

Apart from the Copyright Act, Canada has no specific legislation addressing the online sale of counterfeit goods. Instead, traditional methods are used. For example, copyright owners alleging infringement against unidentified BitTorrent users have advanced motions to compel third-party discovery of the ISP, requesting the handover of subscriber information.

Canadians also have recourse to the services of the Canadian Anti-fraud Centre (CAFC). The CAFC is jointly managed by the RCMP, the Ontario Provincial Police and the Competition Bureau, and its mandate comprises mass-marketing fraud, including the sale of online counterfeit goods. The CAFC works with payment processors to cancel the counterfeiter’s merchant account(s), thus negating the counterfeiter’s ability to process payments and rendering the websites that use those accounts useless. Many payment processors have a zero-tolerance policy for fraud, including counterfeiting. Canadian victims that purchase counterfeit merchandise are encouraged by many rights holders to contact their payment processor and the CAFC in an effort to thwart the illegal sale of counterfeit merchandise in Canada.

Separately, there has been a tremendous increase in Canadian Internet Registration Authority (CIRA) domain name dispute resolution policy proceedings, as counterfeiters are hijacking domain names with Canadian extensions in bad faith. A rights holder can file a complaint pursuant to the CIRA Domain Name Dispute Resolution Policy (with either Resolution Canada Inc or British Columbia International Commercial Arbitration Centre) against the registrant of a domain name if:

  • the rights holder can prove its rights in the trademark;
  • the registrant has no legitimate interest in the domain name; and
  • the domain name was registered in bad faith.

Preventive measures/strategies

Canada has no national IP law enforcement coordination body. Although two parliamentary committees have recommended that an IP crime taskforce be established as part of legislative reform, such legislation has not yet been enacted. Accordingly, the primary responsibility for battling counterfeit products lies with rights holders, which must take steps to protect and enforce their rights through comprehensive licensing arrangements, diligent civil enforcement and training of and cooperation with law enforcement and customs authorities.

Lorne M Lipkus

Georgina Starkman Danzig

David S Lipkus

This article first appeared in World Trademark Review. For further information please visit www.worldtrademarkreview.com.