Canada: anti-counterfeiting driven by strong rights holder engagement

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).

Update on border enforcement

As of November 2021, 366 rights holders had registered with the IP border enforcement programme in Canada, although approximately 100 have not filed a renewal of their request for assistance (RFA). This represents an additional 40 rights holders who joined the programme in 2021. The Canada Border Services Agency (Customs) promotes the education of relevant stakeholders in supporting the RFA programme.

In 2021, for the third consecutive year, there was an increase in the number of detained shipments by Customs, including several containers of counterfeit merchandise destined for global distribution. Alberta, British Columbia, Ontario and Quebec remain the provinces with the largest number of detainments.

In most detainments, rights holders, on notice from Customs, delivered cease and desist letters, which resulted in out of-court settlements whereby the importer agreed to abandon the shipment and pay the cost of storage, transport and destruction. In the limited instances where litigation was commenced, actions were usually resolved almost immediately, resulting in settlements favourable to the right holder.

During 2021 there was an increase in container detainments destined for importers that attempted to evade enforcement efforts, making it more important for rights holders to conduct thorough investigations and online open-source searches to locate the importer and achieve a swift resolution without the need to incur storage and destruction fees. Many speculate that providing Customs with the authority to detain in-transit goods has resulted in an increase in the number of detentions.

Rights holders continue to lobby the government to increase the number of detentions across Canada, and the numbers are trending in the right direction.

Border measures

Canada’s IP border enforcement programme has been in place since 2015. IP rights holders can file an RFA document with Customs (valid for two years and renewable in two-year increments) and, in doing so, record their registered trademarks, copyrights and geographical indications with Customs. Customs has ex officio powers to detain suspected shipments of counterfeit products or pirated works.

If an RFA is filed (there is no government charge to file), Customs is empowered to detain suspected shipments of counterfeit products or pirated works pertaining to the recorded rights, and to share information with the right holder to give it an opportunity to pursue a civil remedy. Detention by Customs cannot exceed 10 working days (extendable for a further 10 working days (or five days for perishable goods) on request of the right holder).

If the goods are counterfeit or the works are pirated, and the importer does not agree to a settlement on the matter, the right holder must use the detention period to commence proceedings in court against the importer and seek an order for seizure and destruction of the counterfeit products or pirated works. The right holder is responsible for all applicable storage, handling and destruction charges of the detained goods. Customs has no authority to seize or destroy counterfeit products or pirated works on its own.

There is significant permitted disclosure by Customs to the right holder that includes providing a sample of the goods and information about the goods that could assist the right holder in pursuing a remedy. Limitations restrict the use of that information for any purpose other than to determine whether the import or export of the goods at issue is an infringement of the recorded rights, or to pursue civil proceedings in court or reach an out-of-court settlement.

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

The framework for how Customs deals with counterfeit trademark goods or pirated copyright works is set out in D-Memorandum (D-19-4-3). Paragraph 18 compels the right holder to respond to Customs within three business days of first contact by Customs and to state whether it intends to pursue a civil remedy. This creates a three-day pre-notice period and a subsequent 10-day notice regime (the former of which was not contemplated by the legislation). Within that three-day pre-notice period, and at the discretion of Customs, no information is provided about the owner, importer, exporter or consignee; only pictures and quantities of the suspect shipment are disclosed.

The legislation permits Customs to exercise discretion when contacting registered rights holders to initiate enquiries regarding the authenticity of goods at the border. In practice, Customs does not exercise that discretion unless the registered right holder has filed an RFA.

Customs has implemented a hotline known as the Border Watch Line (+1 888 502 9060) whereby interested persons can contact Customs and provide information on shipments of dangerous counterfeit goods or pirated works destined for Canada that represent a health, safety or security threat (see Customs Notice 17.2, published 13 September 2017).

Criminal prosecution

Product counterfeiting usually involves a violation of trademark or copyright.

The Trademarks Act incorporates offence provisions under Article 51.01.

The Copyright Act includes several offence provisions relating to the use of works that infringe copyright (Section 42(1)), as well as for the circumvention of technological protection measures (Section 42 (3.1)) and the infringement of rights management information (Section 42 (3.2)).

The Criminal Code outlines offences relating to forgery of a trademark; fraud; the passing off of goods as those of another; and the use, in association with goods, of a description that is false in a material respect regarding certain elements, such as quality, mode of manufacture and geographical origin.

Criminal prosecution in Canada requires 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 and the Trademarks Act both provide for penalties:

• upon conviction of indictment of a fine of up to C$1 million or imprisonment for up to five years, or both; and
• upon summary conviction of a fine of up to C$25,000 or imprisonment for a term of not more than six months, or both.

Criminal Code provisions on fraud, passing off or forgery involving a trademark include, upon conviction for an indictable offence, imprisonment for up to two years.

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 maintenance of a just, peaceful and safe society by imposing just penalties that have one or more of the following objectives:

• denouncing unlawful conduct;
• deterring the offender and other persons from committing offences;
• separating offenders from society where necessary;
• assisting in the rehabilitation of offenders;
• providing reparations for harm done to victims or the community; and
• promoting a sense of responsibility in offenders and acknowledgement of the harm done to victims and the community.

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

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 to its safety.

The prohibitions and powers in the act, including a right of recall, may be useful tools in the fight against counterfeit consumer products, provided that the consumer product poses a danger to human health or safety.

Civil enforcement

Civil remedies are the most commonly employed means of addressing counterfeiting issues. The framework for civil actions is primarily statutory – the Trademarks Act and the Copyright Act. While there are common law prohibitions against passing off 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 may include the following remedies:

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

Under the Trademarks Act, damages and accounting of profits are alternative remedies. Under the Copyright Act, damages and disgorgement of the infringer’s profits are both recoverable. The Copyright Act also 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 the 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 the subject merchandise pending the final outcome of the lawsuit.

An Anton Piller order (typically granted ex parte) instructs the party served to deliver 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 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 right holder, supervises the execution of Anton Piller orders and 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 usually attends to keep the peace and assure the party served that the process is legitimate.

Canadian courts have issued rolling Anton Piller orders in John Doe and Jane Doe actions in which the identities of the infringers are not yet ascertained. Following the execution of a rolling Anton Piller order, 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 those circumstances, the Federal Court has established minimum compensatory damage awards for trademark counterfeiting. Where no documents are delivered by the defendant to quantify sales, profits or damages, courts regularly award damages to successful litigants using a defined scale of damages, depending on the nature of the business (eg, itinerant vendor, fixed retail, and wholesaler or 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:

• prohibits circumvention of technological protection measures (Section 41.1);
• prohibits the manufacture, import and sale of technology, devices and services designed primarily for the purpose of breaking digital locks (Section 41.1);
• defines ‘infringement’ to include services that primarily enable acts of copyright infringement by means of the Internet or other digital networks; and
• sets statutory damages (C$500 to C$20,000 for commercial infringements and C$100 to C$5,000 for non-commercial infringements).

Proportionality and the infringer’s good or bad faith are two of four factors to be considered (Section 38.1).

Canada’s ‘notice and notice’ regime 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 or hosting services.

The United States–Mexico–Canada Agreement (USMCA) permits Canada to maintain the current ‘notice and notice’ regime and exempts it from the obligation to comply with the legal remedies or safe harbour provisions of the USMCA.

The Copyright Act enumerates 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 or streamed content nor 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 that addresses 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.

In addition, to remove counterfeit goods, rights holders submit takedown requests directly to the ISP, registrar, third-party marketplace or social media platform.

Counterfeits in the metaverse

The year 2021 will be remembered as the year that warmly welcomed a world including non-fungible tokens, blockchain technology and digital goods into the goods and services portfolios of numerous rights holders.

Unfortunately, as technology progressed, counterfeiters were quick to infringe intellectual property, especially in a world where digital currency provides the opportunity to remain anonymous. Unsurprisingly, rights holders had to remain vigilant to enforce their intellectual property in virtual worlds and environments, and remove downloadable virtual goods and services online.

Payment processing – the Canadian Anti-fraud Centre

The Canadian Anti-fraud Centre is jointly managed by the Royal Canadian Mounted Police, the Ontario Provincial Police and the Competition Bureau. One of its mandates is to prevent the illegal sale of online counterfeit goods.

Canadian victims that purchase counterfeit merchandise are encouraged to contact their credit card issuing bank and request a refund under their counterfeit protection policy. The chargebacks (ie, refunds to the victim) help to identify and close counterfeit merchant accounts at banks and payment processors worldwide.

In 2021 the centre received more than 6,100 complaints of cyber-related fraud and estimated that approximately C$1.8 million was recovered for victims from more than 4,200 merchant accounts.

Domain name dispute resolution

A right holder can file a complaint pursuant to the Canadian Internet Registration Authority’s Domain Name Dispute Resolution Policy (with either the Canadian International Internet Dispute Resolution Centre or Resolution Canada Inc) against the registrant of a domain name if:

• it 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. 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 the training of and cooperation with law enforcement and customs authorities.

The year 2022 and beyond

Many brands, associations and others involved in anti-counterfeiting in Canada are committed to meet with government representatives to urge and assist in taking steps to fund and mandate law enforcement, Customs and prosecutors to increase the effort to prevent counterfeiting and piracy from continuing to grow in Canada.

In addition, law firms and organisations, among others, initiated the return of the IPR Working Group, an informal group of government departments, national and international organisations and interested stakeholders that meets regularly to discuss and propose solutions to issues relating to counterfeiting and piracy matters in Canada.

Brands are ready to continue to educate, train and assist law enforcement, Customs and prosecutors. Rights holders who have filed RFAs with Customs are hoping for and are ready to assist in the detention of counterfeit or pirated shipments of products bearing unauthorised reproductions of their trademarks, geographical indicators and copyrights.

The steady increase in 2021 of Customs’ detainments of containers of counterfeit goods and pirated works destined for global distribution makes the IP border enforcement regime even more of a necessity for protecting IP rights in Canada.