Canada: Canadian Anti-Counterfeiting Under The USMCA – What You See? We (Mostly) Already Got It

Last Updated: October 22 2018
Article by Karen F. MacDonald
Most Read Contributor in Canada, November 2018

The USMCA – aka NAFTA 2.0 – has a Chapter devoted to intellectual property, which has been the subject much consideration and debate since release of the text on October 1, 2018.  With some commentators lamenting that Canada "caved" to US demands and predicting that the IP provisions of the USMCA will stifle Canada's innovation economy, and others applauding the strengthening of IP rights that are seen as crucial to driving innovation, the impact of the agreement remains to be seen.

However, one notion appears to have emerged as the ink dries: when it comes to protection against counterfeit goods in Canada, with one notable exception (goods in transit), we can expect a whole lot of nothing.

The lobbying efforts of right holders, legal practitioners and association groups in Canada have in recent years been focused on 3 areas of improvement for Canadian legislation to aid in combatting the sale and distribution of counterfeit and pirated goods:

  • providing a "simplified procedure" at the border to allow the Canadian Border Services Agency (CBSA) to destroy counterfeit and pirated goods without requiring a judicial determination;
  • providing statutory damages for trademark infringement; and
  • allowing the CBSA to detain counterfeit and pirated goods in transit.

In a big win for IP right holders in the global fight against counterfeit and pirated goods, the USMCA clearly requires that the CBSA have the right to initiate border measures against counterfeit or pirated goods that are "in transit" – i.e. coming from outside of Canada, with a final destination other than Canada, but which pass through Canada within CBSA control.  Goods "in transit" are currently exempt from Canada's border detention provisions, and as Canada is a significant port of entry of goods coming from China and elsewhere in Asia, where most counterfeit goods originate, this exemption was seen as a significant shortfall in the current provisions.

A big win, but perhaps also one of the areas where the Canadian government can be said to have "caved" to US interest without properly protecting its own right holders and citizens: while the "in transit" detentions may prevent goods from getting into other countries, it would appear that no changes will be required that might assist IP right holders or protect the public from counterfeit goods in Canada.

A significant disappointment from the USMCA relates to statutory trademark damages, a concept that right holders and their lawyers have long been advocating for, given that actual trademark damages are traditionally very difficult and costly to attempt to calculate.  Establishing quantum of damages is particularly difficult when dealing with counterfeit goods, where records of the counterfeiting activities are almost always unavailable and damages flowing from depreciation of goodwill next to impossible to calculate.

While the text of the USMCA would appear on its surface to provide for statutory damages, called "pre-established damages", upon closer inspection, the text is broadly permissive and Canada is unlikely to need to make any changes to its existing legislation, because it is already in compliance.  The provisions provide for one or more of the following: (a) pre-established damages, which shall be available on the election of the right holder; or (b) additional damages.  A footnote to "additional damages" notes that this "may include exemplary or punitive damages".

As the Canadian civil legal system already allows for "additional damages" in the nature of exemplary and punitive damages (albeit in an entirely discretionary fashion), Canada is likely already in compliance with the provisions of the USMCA.  Initial discussions with Canadian governmental officials supports the expectation that no new damages schemes will be introduced in Canada as a result of this language.

Similarly, when it comes to detention of counterfeit and pirated goods at the border, the USMCA text is unlikely to result in any significant changes, other than with respect to goods in transit.

While the relevant provisions of the USMCA provide for ex officio initiation of border measures and that "competent authorities" may determine whether goods are infringing and order destruction of the same, Canada already has such procedures in place.  While not oft used, the prohibitions against importing counterfeit and pirated goods contained in the Trade-marks Act and Copyright Act already, when combined with section 101 of the Customs Act, give ex officio power to CBSA to detain counterfeit and pirated goods.  Indeed, provisions in both Acts provide for giving right holders information about such ex officio detained goods (as opposed to those detained under Canada's Request for Assistance regime) for the purposes of identifying if they are counterfeit or pirated.  Similarly, as the definition of "competent authority" is broad, including both judicial and law enforcement authorities, the Canadian system, which currently requires a judicial determination before destroying the goods, is already in compliance with these USMCA provisions.  Nothing in the USMCA would appear to require a simplified procedure whereby law enforcement would be allowed to make a determination that would lead to destruction of counterfeit or pirated goods without a judicial determination.  Preliminary discussions would again suggest that the Canadian government does not believe that any changes are necessary to the Canadian border regime based on the USMCA.

While disappointing that the USMCA text did not more strongly move Canada into a position to better combat counterfeit and pirated goods, the concept that stronger provisions are favoured nevertheless appears clear from the text.  Hope remains that Canada will eventually be persuaded to bring into force legislation that better protects the public and right holders from broad importation and distribution of counterfeit goods.

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