The Perennial Issue of Parallel Imports and Border Enforcement:

Canada's Version of ACTA - Bill C-8

22nd Annual Fordham IP Conference

New York, New York

April 24 & 25, 2014

HOWARD KNOPF

Counsel

MACERA & JARZYNA, LLP

OTTAWA, CANADA

(views are personal and not necessarily those of my firm or clients)

What I will cover?

Bill C-8 is now pending before Canada’s Parliament. According to the Legislative Summary:

Canada has not explicitly indicated its intention to ratify ACTA by introducing Bill C-8...

However, when questioned on this issue by the Committee, the Honourable James Moore,

Minister of Industry, and his deputy minister stated that although the bill is intended to

respond to domestic pressures, it brings Canada in line with ACTA.

According to the IIPA, “Bill C-8 should be improved and then enacted as quickly as possible”.

There is, however, concern that Bill C-8 goes far beyond what is required in terms of anti-

counterfeiting, even as required by ACTA. This would be controversial enough, especially since

ACTA shows no sign of imminently or even ever coming into force. Moreover, there is reason to

believe that Bill C-8 could – whether inadvertently or otherwise – enable the use of copyright

and even trade-mark law to block parallel imports, which are legitimate by definition and which

have been legitimized by the Supreme Court of Canada.

Bill C-8: According to Official “Legislative Summary”:

• creates new civil causes of action with respect to activities that sustain sales of copies that infringe copyright and goods with counterfeited trade-marks;

• creates new criminal offences for trade-mark counterfeiting that are analogous to existing offences in the Copyright Act;

• creates new criminal offences prohibiting the possession or export of products that infringe copyright or of counterfeit trade-marked goods, packaging or labels;

• enacts new border enforcement measures enabling customs officers to detain goods that they suspect infringe copyright or trade-mark rights and allowing the officers to share information relating to the detained goods with rights owners who have filed a request for assistance, in order to give the rights owners an opportunity to pursue a remedy in court;

• exempts the importation and exportation of copies and goods by individuals for their personal use from the application of the border measures; and

• adds the offences set out in the Copyright Act and the Trade-marks Act to the list of offences set out in the Criminal Code5 for the investigation of which police may seek judicial authorization to use electronic surveillance.

(emphasis added)

Canada EU “CETA” Proposed Agreement 1.5 Canada–European Union Comprehensive Economic and Trade Agreement On 18 October 2013, following four years of negotiations, Canada and the EU announced that they had reached an agreement in principle on a Comprehensive Economic and Trade Agreement (CETA). A technical summary of the final negotiated outcomes of the Canada–EU CETA was tabled in the House of Commons on 29 October 2013.27 According to the technical summary, CETA reflects Canadian copyright legislation as updated by the 2012 Copyright Modernization Act, which brought the Canadian law into compliance with the WIPO Internet Treaties.28 As well, the Canadian government notes in its technical summary that while it did not take on any specific commitments regarding trade-marks and designs, CETA contains a general commitment to “make all reasonable efforts to comply with international agreements and standards to encourage more effective trade-mark and industrial design procedures.”29 Finally, the technical summary specifies that CETA includes provisions on civil remedies and border enforcement that are consistent with both Canadian legislation and the proposed Bill C-56, Bill C-8’s predecessor.30 In a fact sheet about the intellectual property rights in CETA published by the European Commission (EC), the EC specifies that one of the objectives of CETA is to strengthen intellectual property protection in Canada: “The EU wants to raise the level of protection and enforcement of intellectual property rights for its products in Canada to a comparable level to that of the EU.”31 With regard to any concerns about the relationship between CETA and ACTA, the fact sheet notes that the text currently being negotiated reflects the fact that ACTA has been rejected by the European Parliament.32 (emphasis added)

Some Issues with Bill C-8 Issues: 1. How will these provisions affect “parallel imports”? What is the policy and is the drafting consistent with the policy and internally within the bill?

2. What are the consequences of customs officers getting more immediate and short term power than we now give to judges? 3. What does “reasonable grounds” mean, when see through the eyes of a customs officer? 4. If the Supreme Courts of Canada and the USA struggle with the difference between legitimate parallel imports and pirated goods, how are customs officers supposed to make these decisions on the spot and accurately? 5. What protection will there be for the privacy of importers? 6. What redress will there be for importers whose goods have been wrongfully seized? 7. Why does the bill deal with a “communication signal”? 8. Will the personal baggage exception be sufficient to prevent overly zealous and intrusive border searches of laptops, smart phones, etc. to ensure that "the number of copies, indicate that the copies are intended only for their personal use"? After all, it could be argued that such a determination cannot be made without a search in the first place.

9. Is it really a good idea to extend police wiretap powers to routine copyright and trade-mark “offences”? What will the civil libertarians and the SCC say? For a hint – see:

R. v. TELUS Communications Co., 2013 SCC 16 (March 27, 2013) which cites (Society of Composers, Authors and Music Publishers of Canada v. Canadian Assn. of Internet Providers, 2004 SCC 45 (CanLII), 2004 SCC 45, [2004] 2 S.C.R. 427, at paras. 100-101).

About ACTA?

• Is ACTA going anywhere? • Even in the USA? • Is ACTA a good idea for Canada? • Even if so, does this bill go farther than

necessary? • What are the unforeseen effects of this bill

resulting from non-transparent policy objectives, if any, and problematic drafting, if any?

• Could the bill, through its substantive provisions or through overly zealous enforcement or in other ways, affect trade in legitimate goods?

What are Parallel Imports?

Parallel imports are good that have been legally made and put on the market that are being imported into a country contrary to the wishes of the “exclusive” distributor for that territory.

AKA doctrine of:

• Exhaustion (international)

• First sale (domestic)

In Canada, the leading case is Euro-Excellence Inc. v. Kraft Canada Inc., 2007 SCC 37

Kraft, cont’d:

The question for the Supreme Court of Canada was:

Can copyright law be used to “thwart” the importation and distribution of genuine consumer goods not themselves protected by copyright and which are legally manufactured and packaged abroad (“parallel imports”) on the basis of a “strategy” to arrange for an exclusive license in certain artistic elements of the packaging for such goods to be given to a Canadian entity?

S. 27(2)(e) as it read at the time: It is an infringement of copyright for any person to . . . import . . .a copy of a work . . . that the person knows . . . would infringe copyright if it had been made in Canada by the person who made it.

The Hypothetical Maker Issue

Even before the 1997 Canadian copyright law amendments, it was clear that the correct interpretation of Canadian law was that the hypothetical maker was the “actual maker.” The leading 1980 UK case of CBS UK Ltd. v. Charmdale Record Distributors Ltd., which was not brought to the attention of the Courts below, was generally considered to be applicable in Canada and stood for three important propositions, namely, that:

• The hypothetical maker is the “actual” maker; • If the actual maker is the copyright owner, it cannot infringe its own

copyright; and, • The only remedy, if any, of the exclusive licensee, lies not against

third parties in copyright law, but in contract against the licensor.

Sir Hugh Laddie on Charmdale

The parallel imports were records which had been manufactured in America by an American company which owned both the American and British copyrights. It also owned a subsidiary company to which it had granted an exclusive licence to exploit that British copyright. The question was whether the defendant parallel importers infringed copyright. It was common ground that no question of licence arose. It was held that they did not infringe. For, if the American company had itself made these records in England instead of doing so in America, such making would not have been in infringement of copyright since a company cannot infringe its own copyright: ‘In assuming the making in the UK the legislature was concerned only to change the geographical location and nothing more.’ (emphasis added) Sir Hugh Laddie et al, The Modern Law of Copyrights and Designs, 3rd ed. (Butterworths: London 2000), (hereinafter “Laddie 2000”), Vol, II, §32.23 p. 1551, RCC B of A, Book II, Tab 33.

The Current State of Copyright Law in Canada on Parallel Importation

Theoretically, the owner of copyright in a logo in Canada – if a different entity than the party that manufactured the product abroad – can arguably block the importation of parallel imports bearing that logo. But there are numerous risks involved in such a strategy including:

• Loss of distinctiveness for trade-mark purposes

• Tax consequences

• Attack as a sham transaction

• Attack as IP misuse/abuse

Also, note comments of one of the four judges who concurred in the “hypothetical maker” reasoning: “Without so deciding, I express grave doubt whether the law governing the protection of intellectual property rights in Canada can be transformed in this way into an instrument of trade control not contemplated by theCopyright Act. (para. 56)

And of three judges who concurred in the result but for different reasons:

Economic consequences of unauthorized importation of consumer goods are not, generally speaking, the types of legitimate economic interests protected by the copyright in a work which is merely incidental to the sale or distribution of the consumer good to which it is attached. The effects of such importation do not meet the requirement of prejudice which is embedded in para. (b), which informs all of s. 27(2). (para. 90)

Trade-marks Law Ineffective to Stop Parallel Imports in Canada

• Consumers Distributing Co. v. Seiko, [1984] 1 S.C.R. 583

• Coca-Cola Ltd. et al. v. Pardhan et al. (1999) 85 C.P.R. (3d) 489 Affirming 77 C.P.R. (3d) 501 (FCA)

Competition Law Issues?

• Competition Bureau has not specifically shown interest in parallel imports issue and seems unconcerned – see recent draft enforcement guidelines – comments due by June 2, 2014

• Also, see Havana House Cigar & Tobacco Merchants Ltd./Maison de la Havane Marchands de Cigare & Tabac Ltée v. Worldwide Tobacco Distribution Inc. 2008 CarswellNat 5658, 73 C.P.R. (4th) 131, 176 A.C.W.S. (3d) 942 and earlier law re whether assignment for purpose of preventing importation can amounts to misuse or “unclean hands” can stand as a pleading. Spoiler alert – yes.

CONCERN THAT BILL C-8 WILL AFFECT PARALLEL IMPORTS

Prof. Jeremy De Beer (U of Ottawa) at Industry Committee November 18, 2014: Finally, I note that this aspect of Bill C-8 appears to make Canadian law inconsistent with the law concerning parallel imports in the United States, particularly following a decision of the United States Supreme Court, which I can speak to more in questions if you're interested. I admit that it was not easy for me, or a number of other IP experts whom I consulted, to understand the intricacies of this bill's provisions affecting parallel imports. The provisions are technical and complex, and they interact with the provisions of the existing legislation with effects that may not be immediately apparent. So my recommendation is that the committee carefully review all of the provisions to ensure that parallel imports of genuine articles from abroad are allowed so that the government can live up to its promise to protect Canadians from geographic price discrimination. (emphasis added)

GOVERNMENT SAYS IT DOES NOT INTEND TO CURTAIL PARALLEL IMPORTS

Industry Committee: December 2, 2013 Mr. Paul Halucha (Director General, Marketplace Framework Policy Branch, Department of Industry): Thank you. I'll start off by reminding the committee that parallel importation is the act of importing legitimate copies into Canada against the wishes of a copyright owner, authorized importer, or distributor, and which originate from the source having some relationship to the rights holder. So parallel imports are by definition not pirated copies, not counterfeit copies, and Bill C-8 clearly exempts parallel imports from the application of the new border measures. I would point out that proposed paragraph 44.01(1)(a) does this by requiring the copies to have been made without the consent of the owner of the copyright in the country with which they were made. In short, the legislation as it exists already has a clear exemption for parallel imports. They are not included, and having a second amendment would effectively do the same thing as has already been done in the legislation. (emphasis added)

A Good Question…

Ms. Hélène LeBlanc: I would like to ask a brief question. Is it easy for customs officers to identify parallel imports? When the merchandise arrives, is it clearly marked? Based on the documents presented, is it easy for them to recognize that they are parallel imports and, therefore, legal? Ms. Megan Imrie: The powers the legislation currently gives us when it comes to forgeries is limited. We've already discussed this. To determine whether they really are parallel imports, the importers and copyright holders must be consulted. We are going to work with our external partners to establish an RFA rights holder system. Discussions with importers and copyright holders will help determine if the imports are parallel imports. [English] HPK – If our SCC splits several ways on parallel imports, how is a border guard with supposed to make an informed judgment regarding millions of dollars worth of goods at a time?

What I Would Have Said to the Committee if Allowed to Appear

1. The numerous references apparently intended not to interfere with the free flow of parallel imports are inconsistent and present potentially serious drafting problems that require further study. The bill should propose appropriate declaratory language for both the Copyright Act and Trade-marks Act that makes is absolutely clear that, with the exception of the sui generis book importation scheme now found in s. 27.1 of the Copyright Act, neither of these acts shall in any restrict the importation, distribution or sale of any product, whether tangible or digital, that has been manufactured or first put on the market anywhere in the world with authorization 2. It would be mistaken and harmful to criminalize routine copyright and trade-mark infringement activity and there is no need to add additional criminal sanctions, much less wiretap enablement provisions or any provisions that would authorize the warrantless search of travelers to determine whether they have infringing items in their baggage or on their electronic devices. Past experience shows the potential for abuse of such provisions both by the state and by the private sector. See R. v. Laurier Office Mart Inc., 1995 CanLII 7322 (ON SC) 3. The Bill should contain no provisions that are not essential for the purpose of combatting counterfeit or pirated products. In particular, such provisions as those that would fundamentally change the definition of trade-mark and would allow an examiner to be able to block a registration on the basis that “the trade-mark is not distinctive” should be removed from the Bill. Such changes to the Trade-marks Act would upset a careful balance and practices that have worked well since 1954, and are totally inessential and irrelevant to the purpose of combatting counterfeiting. 4. The Committee should resist expected attempts to have Bill deal with transshipment (aka “in-transit shipments”). Customs officers cannot possibly be expected to understand enough about international law to decide what shipments should or should not go forward. There is ample evidence of harmful interference with legitimate shipments of drugs that were mistakenly interfered with even in such a “liberal” jurisdictions as The Netherlands. See New EU Customs Regulation Might Allow Wrongful Seizures Of Generic Drugs In Transit, NGOs Say, Intellectual Property Watch, October 17, 2013 http://bit.ly/HAqqDe ; ACTA: Risks of Third Party Enforcement for Access to Medicines American University College of Law, 10-01-2010 http://digitalcommons.wcl.american.edu/cgi/viewcontent.cgi?article=1001&context=research

The Provisions in C-8 That Touch on Parallel Imports

Proposed s. 42(5) of Copyright Act:

(5) For the purposes of this section, a copy of

a work or other subject-matter is not infringing

if the copy was made with the consent of the

owner of the copyright in the country where the

copy was made.

Note:

Does “made” refer to

“with the consent” or

“in the country”

Re: “owner” - Is this the “owner” of the Canadian copyright or the owner of the copyright “in the

country where the copy was made”

So – consider:

What if we are speaking of the Canadian owner of copyright, suppose that such an owner

in the logo for a brand of shoe, chocolate bar, or whatever arranges to get the product

“made” in Bangladesh, where there may be no clear copyright owner or the copyright

owner may be another party, related or unrelated. So, it was made without consent of the

Canadian copyright owner in that country. It would thus seem to be infringing. This is

going to be a common situation.

Note that the principle of national treatment (Berne Convention, Article 5) applies to

authors and not owners.

If the section does NOT refer to the Canadian owner and is meant to refer to the

copyright owner in Bangledesh, who might that be? There will be countless situations

where things are not as clear as with Kraft chocolate bars.

Re: Copyright:

P. 1 of Bill:

3. Section 27 of the Act is amended by adding the following after subsection (2.1): (2.11) It is an infringement of copyright for any person, for the purpose of doing anything referred to in paragraphs (2)(a) to (c), to export or attempt to export a copy — of a work, sound recording or fixation of a performer’s performance or of a communication signal — that the person knows or should have known was made without the consent of the owner of the copyright in the country where the copy was made Note that this is essentially a negative statement of the CURRENT definition of “infringing” with a “knowledge” component. Does this refer to copies trasnsshiped through Canada, or made in Canada? If the copies are made abroad, and imported into Canada, how is a Canadian trader supposed to know the situation between two foreign countries, particularly in complex situations in involving non-coterminous duration situations?

[NOTE THAT THIS IS a negative formulation of the phrasing taken from the definition of

“infringing” in s. 2, namely:

The definition includes a copy that is imported in the circumstances set out in paragraph 27(2)(e) and section 27.1 but does not otherwise include a copy made with the consent of the owner of the copyright in the country where the copy was made;

p. 3 of Bill:

(7) Subsection 42(5) of the Act is

replaced

by the following:

(5) For the purposes of this section, a copy

of

a work or other subject-matter is not

infringing

if the copy was made with the consent of

the

owner of the copyright in the country where

the

copy was made.

[See comment above.]

p. 4 of Bill

Prohibition

44.01 (1) Copies of a work or other subject

matter

in which copyright subsists shall not be

imported or exported if

(a) they were made without the consent of

the owner of the copyright in the country

where they were made; and [See

comments above] (b) they infringe copyright or, if they were

not made in Canada, they would infringe

copyright had they been made in Canada

by

the person who made them.

[This carries forward current language but the

previous subsection suffers from previously

noted ambiguities.]

p. 11 of Bill re Copyright s. 44.11 40 Importation of certain copyright works prohibited Power of court Who may apply Order of court

j Prohibition Resulting from Notice 44.11 Copies made outside Canada of any work in which copyright subsists that if made in Canada [By whom? What about “hypothetical maker” issue?

] would infringe copyright and as to

which the owner of the copyright [Copyright in what country? The exporting country or Canada?] gives notice in writing to the Canada Border Services Agency that the owner desires that the copies not be imported into Canada, shall not be so imported and are deemed to be included in tariff item No. 9897.00.00 in the List of Tariff Provisions set out in the schedule to the Customs Tariff, with section 136 of that Act applying accordingly. j Court-ordered Detention 44.12 (1) A court may make an order described in subsection (3) if the court is satisfied that (a) copies of the work are about to be imported into Canada, or have been imported into Canada but have not been released; (b) the copies were either (i) made without the consent of the person who is owner of the copyright in the country where they were made, or

[This is yet another variation of the above wording. And why is it necessarily wrong under Canadian law for a Canadian copyright owner to get copies manufactured abroad for shipment back to Canada, when that owner may not have any rights in the country of manufacture?] (ii) made elsewhere than in a country to which this Act extends; and (c) the copies would infringe copyright if they were made in Canada by the importer and the importer knows or should have known this.

Re: Trade-Marks The phrase “the owner of that registered trade-mark has not consented to” appears eight times in the bill in the context of importation, etc. This suggests that the owner of a Canadian trade-mark can forbid parallel imports. E.g. on p. 19: 19.1 (1) A person shall not manufacture, cause to be manufactured, possess, import, export or attempt to export any goods, for the purpose of their sale or distribution, if (a) the goods, or their labels or packaging, bear a trade-mark that is identical to or confusing with a trade-mark registered for such goods; (b) the owner of that registered trade-mark has not consented to having the goods, labels or packaging bear the trade-mark; and (c) the sale or distribution of the goods would be contrary to this Act. p. 37 of Bill re TM PROHIBITION

51.03 (1) Goods shall not be imported or exported if the goods or their labels or packaging bear — without the consent of the owner of a registered trade-mark for such goods — a trade-mark that is identical to, or that cannot be distinguished in its essential aspects from, that registered trade-mark. (2) Subsection (1) does not apply if (a) the trade-mark was applied with the consent of the owner of the trade-mark in the country where it was applied; (b) the sale or distribution of the goods or, in the case where the trade-mark is on the goods’ labels or packaging, of the goods in association with the labels or packaging would not be contrary to this Act; (c) the goods are imported or exported by an individual in their possession or baggage and the circumstances, including the number of goods, indicate that the goods are intended only for their personal use; or (d) the goods, while being shipped from one place outside Canada to another, are in customs transit control or customs transhipment control in Canada.

The Possible Politics of Bill C-8

• “301” Reports • The Keystone XL Pipeline • 'We are disappointed that politics continue to delay a

decision on Keystone XL.'- Statement for Prime Minister's Office

• The (“Scotty”) Greenwood effect

Other Fronts

• Canada – Bill S-4 and privacy implications

• Canada – Omnibus Bill C-31 and other major changes to trade-marks law supposedly driven by Madrid Protocol

• TPP – and international exasperation with “do as we say, not as we do” e.g. parallel imports

• The rest of the world has read Kirtsaeng v. John Wiley & Sons, 133 S. Ct. 1351

TPP on Parallel Imports – the Latest Leak Article QQ.G.3: {Copyright and Related Rights}

[US/AU/PE/NZ/SG/CL/MX propose; VN/MY/BN/JP oppose: Each Party shall provide to authors, [NZ/MX oppose:

performers,] and producers of phonograms the right to authorize or prohibit the importation[133] into that

Party's territory of copies134 of the work [PE oppose: [NZ/MX: oppose: performance,] or phonogram] made

without authorization, PE/AU/NZ/CA/SG/CL/MX/JP oppose: or made outside that Party's territory with the

authorization of the author, performer, or producer of the phonogram.[135] ]] [136]

133 [NZ propose: For the purpose of this paragraph importation may exclude importation for private or domestic

use.]

134 *PE/NZ propose: The expressions “copies” in this paragraph refers exclusively to fixed copies that can be put

into circulation as tangible copies]. [Negotiators' Note: US can support the concept subject to final drafting.]

[JP propose: A Party may comply with its obligations under this paragraph by legislating in the Party's law

that such importation, for the purpose of distribution, is deemed to be infringement.] Negotiator's Note: With

this footnote, Japan can withdraw its opposition in the first line of QQ.G.3.

135 [US: With respect to copies of works and phonograms that have been placed on the market by the relevant

right holder, the obligations described in Article [QQ.G.3] apply only to books, journals, sheet music, sound

recordings, computer programs, and audio and visual works (i.e., categories of products in which the value of

the copyrighted material represents substantially all of the value of the product). Notwithstanding the

foregoing, each Party may provide the protection described in Article [QQ.G.3] to a broader range of goods.]

136 [Negotiator's Note: The US is considering the relationship between this provision and other proposals

regarding the exhaustion of IP rights, as well as other TPP countries' legal regimes.]

One Suggestion for a USA Fix: Where a copyrighted work is incorporated in an accessory to an article, the copyright embodied in the accessory is not infringed by a person who imports the article into the U.S. or by the domestic distribution of the imported article with the accessory without the consent of the copyright owner, provided that the accessory is a non-infringing accessory. For purposes of this section, “accessory”, in relation to an article, means one or more of the following: (a) A label affixed to, displayed on, incorporated into the surface of, or accompanying, the article; (b) The packaging or container in which the article is packaged or contained; (c) A label affixed to, displayed on, incorporated into the surface of, or accompanying, the packaging or container in which the article is packaged or contained; (d) A written instruction, warranty or other information provided with the article; (e) A phonorecord embodying an instructional sound recording provided with the article; (f) A copy of an instructional audiovisual work provided with the article; or (g) Any other feature of the article, its packaging or its container, or any accompanying object, that contributes an insubstantial part of the value of the combination, apart from the trademark value of the feature. Calboli & LaFrance Singapore Journal of Legal Studies [2013] 253–277

Conclusion