Counterfeit peddlers sitting pretty in Canada 11 December, 2006 By Dave Chappelle

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"Who feels sorry for Microsoft or Nike?" asked Lorne Lipkus of the Canadian Anti-counterfeiting Network (CACN).

"I don't. But I do feel sorry for those who've lost their jobs because of this activity. Businesses that used to have several dozen employees are now down to one dozen or fewer. A friend of mine no longer works for a major manufacturer, thanks to counterfeiters."

The goal of the CACN is to educate law enforcement and companies in detecting counterfeit goods, and in the action to take once those goods are discovered.

"Counterfeiters are crooks; they don't care about risks to those who use the fake drugs, or the health hazards their goods pose to the public," said Lipkus.

More importantly, counterfeiters adhere to no standards. They strive to match appearances, not quality or performance. Lipkus offered numerous examples, among them:

Plush toys stuffed with rat turds containing e-coli;

Electrical extension cords with telephone cable inside that melts and shorts when connected to AC outlets;

Batteries that explode or leak can cause severe burns;

Electrical circuit breakers installed in life support or critical care facilities;

Heart medication that can cause injury or death;

The piece of metal that was struck by the Concorde and caused a fatal fire was allegedly counterfeit, and had fallen off another aircraft.

Currently there are two ways to stop counterfeit goods One is private industry obtaining a court order compelling Customs to seize products coming into the country if they know what it is, when it's coming, and other important info that the brand owner almost never has. The information required is usually only available to Customs, and by Canadian law they are not allowed to release that info to the brand owner. It's best to get a federal court order that covers every court in the country. Provincial court orders are only good for one province.

The other is when a Customs officer who sees counterfeit goods refers it to a Regional Intelligence Officer of Customs, who detains the shipment until RCMP officers come and proceed with a criminal investigation.

"In my opinion, this law (Section 53) was written solely for Canada to comply with its international obligations to have a law that compels Customs to seize goods, without regard to whether it in fact could ever work," Lipkus said.

"To my knowledge, since 1996 there have been 10 or less instances of a brand owner having sufficient information to obtain a court order. We believe that current copyright laws were not designed for the proliferation of so many counterfeit goods in mind. Canada needs stronger laws. That's why it's important for individual companies to help."

Part of the enforcement problem is the high tolerance courts have for counterfeiting. Even when caught and convicted, penalties are small. A flea market vendor earning $5,000 in cash every weekend from selling knockoffs likely feels the risk is worth it. A small fine is simply a business expense.

"Depending on quality and location, a kilo of cocaine sells for $40,000; a kilo of fake viagra is worth $100,000," said Superintendent Ken Hansen, RCMP.

"The penalty is jail time versus a fine. It's very lucrative with very little risk."

In one case an entire container of underwear had to be counted for evidence, which required a team of eight officers working over several months. Once opened, underwear can't be put back into the package, because the packaging process includes shrinking. After all that work, the counterfeiter received a $5,000 fine.

"He was selling Calvin Klein, Nike, Tommy Hilfiger, and had sewing machines in the basement," said Lipkus.

"And even with all that evidence, and a prior civil court order for counterfeiting, the fine was only $5,000. To him it's a cost of doing business."

Another part of the problem is investigational enforcement.

"Warehousing is a tremendous investigational expense, especially when court cases take a year or longer," said Hansen.

"Batteries with high levels of mercury are very expensive to destroy."

When officials in British Columbia got serious about stopping counterfeiters, they soon ran out of not only warehouse space, but also people to investigate and prosecute. Eventually the counterfeiters figured out that larger containers wouldn't get stopped.

In the US, European Union, and elsewhere, companies file trademarks with Customs. When Customs officials recognize counterfeit goods they are seized or destroyed.

"In Canada you have to call two agencies to look at the problem," said Lipkus.

"And you'd better hope that the RCMP is at the office when the call comes in, because in my experience there have been numerous cases that the RCMP is unavailable during the time window necessary, and the goods are released even though the Customs officer knows they are counterfeit."

CACN members would like to see Customs granted greater powers to tax or seize counterfeit goods.

"If the real item costs $20 per unit, and a counterfeit one costs $4 per unit, then if Customs had the option of seizing the counterfeit or taxing it up to the cost of the original, that would help put a stop to this," said Lipkus.