Is Canada a Counterfeiting Safe Haven?

A very savvy, stylish and respected fashion journalist recently posed an interesting question to CanadaFashionLaw:

Why is Canada a counterfeiting safe haven?”. 

Being a bit of a fashion geek, this question got my fashion legal “mojo” going.  Wearing my prudent lawyers’ hat, let’s just say…there’s room for improvement. 

Counterfeiting is big business in Canada.  In fact, studies indicate that the market value of counterfeiting is in the $20 to $30 billion range.  This is a shockingly significant amount.  Moreover, given the intrinsic clandestine nature of counterfeiters, these may be conservative estimates.  Some consumers may take the position:

So what? 
Louis Vuitton makes enough money from those Bloor street babes. 
What does it matter if I buy a knock-off? 

But this is narrow sighted.  The implications of counterfeiting goes well beyond the brand owners’ purse strings:

1.        There are health and safety risks with using counterfeit products.
2.         There is a loss of sales revenue throughout the fashion industry chain.  Not only do the brand owners lose out, the distributors, importers and retailers of legitimate product are also impacted.
3.         Less revenue throughout the fashion industry chain, means less jobs in the fashion industry.
4.         The government is also negatively impacted: less sales revenue equals less sale tax revenue.
5.         Counterfeiting is also largely associated with organized crime and even terrorists groups.
6.         In a bigger sense, counterfeiting also affects Canada’s reputation internationally.  Some countries or international brands may be less willing to trade with Canada, if they believe that counterfeiting is rampant in Canada.

Unfortunately, the last point is poignant for Canada.  The US Trade Representative issues an annual report examining its trade partners.  The US Trade Representative has consistently ranked Canada as a country to watch.  In fact, Canada is up there with other noteable counterfeiting hotspots countries, such as China. 
So why is America perturbed by Canada’s counterfeiting situation? 

Canada is not known as a great manufacturer of counterfeit product.
Canada is known as a great importer of counterfeit product.

Canada has a history of perceiving counterfeiting as a private civil matter: the negative effects of counterfeiting are constrained to the brand owner.  Therefore, it is up to the brand owner to act as its own police force.  But, as we have seen above, there are wide-reaching ramifications to counterfeiting.  

Although there are criminal sanctions possible for counterfeiting, the RCMP is oftentimes less involved in the combat against the importation of counterfeit goods.  There are limited financial resources and a lack of specialization in identifying counterfeit products and prosecuting against counterfeiters.  All in all, counterfeiting is a lesser priority for the RCMP.  And when the RCMP is involved, it targets the large scale importers, distributors and manufacturers.  

So it is largely up to the brand owner, in conjunction with the Canadian Border Services Agency (“CBSA”), to police the Canadian borders.  The CBSA processes the importation of goods into Canada.  You would think that this would be a key player in combating the importation of counterfeit goods into Canada.  Unfortunately, the CBSA is a bit of a sitting duck.  It is has not been given the unilateral right or authority to detain counterfeit product.  The process to block counterfeit goods from entering into Canada is somewhat involved:

  • The brand owner must obtain a court order allowing the CBSA to detain the goods for the brand owners’ inspection.  
  • In order to obtain a court order, the brand owner must compile significant evidence about the incoming shipment to Canada – not an easy task.
  • The court may require the brand owner to post security (basically a deposit with the court) for possible storage/handling charges relating to the detainment of the counterfeit goods.
  • Once the detention order is granted, the CBSA can intercept the shipment and hold the goods for inspection by the brand owner.
  • The brand owner must inspect the goods within 14 days and commence an additional legal action to determine the validity of the counterfeit products.

As you can imagine, this process is financially and administratively cumbersome for the brand owner.  
Compare this process with other countries that allow brand owners to proactively register their intellectual property with the border controls, who are allowed to unilaterally act upon this information, you can see that Canada’s border control system could use a little work.

I am not a doom and gloom kind of girl.  I do not think that Canada’s intellectual property law system is a failure; it works and it’s operable.  But, Canada’s border controls are running at half steam and, let's face it, everything could use a little “nip and tuck” once in a while.