The Office of the United States Trade Representative (“USTR”) publishes a report every few years called the Special 301 Report. In the report, the USTR reviews the global state of intellectual property rights (“IPR”) protection and enforcement and ranks countries of the world depending on how effectively the USTR believes a country’s laws allow for the protection and enforcement of IPRs. In 2011, the USTR put Canada on the “Priority Watch List” which is the lowest ranking and commented that “…The United States encourages Canada to provide for deterrent-level sentences to be imposed for IPR violations...”.
After the passage of the Copyright Modernization Act in 2012 (which amended the Copyright Act) and the introduction of the first Combating Counterfeit Products Act Bill in the Spring of 2013 (Bill C-56), the USTR downgraded Canada to the “Watch List” in the 2013 301 Special Report andstated “The United States supports Canada’s commitment to address the serious problem of pirated and counterfeit goods entering our highly integrated supply chains and urges Canada to expand the legislation to also provide authority for its customs officials to take action against goods in-transit…”.
The recent jurisprudence summarized below is strongly suggestive that Canada currently provides an increasingly high level of deterrence for IPR violations. But is it enough? Coupled with legislative changes to the Copyright Act in 2012 and likely further legislative changes (discussed below) on the horizon, it will be interesting to see where Canada ranks in the next Special 301 Report.
Very recently, the Newfoundland Court of Appeal sentenced a counterfeiter to two months in prison for selling counterfeit products. And not long before that, the Federal Court of Canada awarded Twentieth Century Fox Film Corporation punitive damages of $10 million against a defendant offering entire episodes of The Simpsons and Family Guy for viewing on-line.
In the recent criminal case of R. v. Strowbridge 2014 NLCA 4, the Newfoundland and Labrador Court of Appeal sentenced Mr. Strowbridge to a two month custodial sentence for selling counterfeit brand name razor blades, sports apparel bearing counterfeit insignia and counterfeit hair styling flat irons. Mr. Strowbridge was observed selling the items from a vehicle situated on the side of the road in Paradise, Newfoundland, and $500 worth of items were seized. The sentencing judge noted that Mr. Strowbridge had been previously observed by police selling similar counterfeit items on several occasions and he was warned by the police to discontinue. As well, a representative of the authorized distributor of the flat irons had observed Mr. Strowbridge selling counterfeit flat irons in 2009 and warned him to stop.
Mr. Strowbridge was sentenced for seven offences including: (i) selling copyrighted products in violation of section 42(1)(b) of the Copyright Act for which he received a sentence of 180 days and a fine of $5,000; and (ii) selling trade-marked goods without authority in violation of section 408 of the Criminal Code, for which he received 180 days imprisonment concurrent to his sentence for the Copyright Act violation. Mr. Strowbridge was also sentenced for two counts of fraud (unrelated to the IPR infringements) and breaches of prior probation orders.
Mr. Strowbridge appealed the sentences arguing that the length of imprisonment and fine for his IP related offences were disproportionate to his activities.
The Court of Appeal agreed and quashed the $5,000 fine and reduced the six month sentence to two months. The Court of Appeal, in reducing the sentence to two months, noted that there were no reported decisions in the province of Newfoundland in respect of the trade-mark and copyright offences and went on to review decisions from other jurisdictions including Ontario, British Columbia and New Brunswick. After reviewing the jurisprudence, the Court of Appeal noted that the sentences in similar cases did not often impose a custodial sentence even when the sales of counterfeits were much higher than those seized from Mr. Strowbridge and that the typical sentences included conditional sentences and/or imposition of fines. In coming to its conclusion, the Court of Appeal also took notice of the fact that the value of the goods seized was approximately $500 and that Mr. Strowbridge’s operation appeared to be “marginal and unsophisticated”. The Court of Appeal distinguished between Mr. Strowbridge’s operation and those of other offenders that import and/or manufacture counterfeit products in large quantities and which then sell the products in established commercial marketplaces rather than from the trunk of a car on the side of a highway.
The Court of Appeal reduced the sentence for the trade-mark and copyright offences to two months’ incarceration to be served consecutively to the sentences for fraud and breach of the probation orders.
The Court of Appeal also allowed Mr. Strowbridge’s appeal of the $5,000 fine on the basis that a fine is only appropriate if the offender can pay the fine (subsection 734(2) of the Criminal Code) and that Mr. Strowbridge did not have the resources to pay the fine. From the decision, it appears that if Mr. Strowbridge had the funds to pay the $5,000 fine, the fine would not have been quashed on appeal.
The decision is a useful reminder that criminal offences do exist for counterfeit activity and that Canadian courts are prepared to convict offenders. However, it appears that the majority of convictions result in a fine and/or conditional sentence, rather than a custodial sentence, which may reduce the overall level of deterrence for such offences. It is also unknown from the R. v. Strowbridge decisionto what extent the sentences for fraud and the breach of probation orders influenced the sentencing judge and the Court of Appeal in imprisoning Mr. Strowbridge.
While the Court of Appeal in R. v. Strowbridge was prepared to impose a custodial sentence, it is clear that the rate of convictions in Canada is low and disproportionate to the extent of counterfeiting activity in Canada. In this respect, it is relevant and noteworthy that the current Combating Counterfeit Products Act (BillC-8, which is almost identical to the earlier Bill C-56), which is currently at the Report Stage, includes provisions to amend the Trade-marks Act to introduce new criminal offences for dealing in or with counterfeit goods. The sanctions include fines of up to $1 million and custodial sentences of up to 5 years. The additional offences are likely to provide broader enforcement powers for law enforcement agencies. As a result, the criminal conviction rate may increase in the future. And the more severe punishments are likely to provide an extra level of deterrence.
Furthermore, the Combating Counterfeit Products Act as it currently stands will create a system to allow trade-mark and copyright owners to file a request to the Canadian Border Services Agency to detain commercial shipments suspected of containing counterfeit goods. The current absence of such a system in Canada was highlighted by the USTR in the 2013 301 Special Report.
It is also noteworthy to refer to the recent civil damages award from the Federal Court of Canada in the Twentieth Century Fox Film Corporation decision. In that case, Twentieth Century Fox Film Corporation asserted that the defendant, Mr. Hernandez, offered at least 700 entire episodes of The Simpsons and Family Guy for viewing on Mr. Hernandez’s websites. The Federal Court awarded Twentieth Century Fox $10 million in statutory damages, $500,000 in punitive and exemplary damages and $78,575 in costs (as well as interest). In addition to the monetary award, the Court issued an injunction restraining Mr. Hernandez from further infringing Twentieth Century Fox’ copyright in The Simpsons and Family Guy programs and ordered him to deliver up to Twentieth Century Fox all copies of the programs and related documents and materials in his possession. Further details regarding this case were reported in an earlier article.
In sum, these recent Court decisions and the efforts being made by the Canadian Federal Government to amend IPR legislation in Canada indicate that Canada is likely to become a more challenging jurisdiction for counterfeiting activities in the future.