ACTA, “Ex Officio” Enforcement, and Parallel Imports

In the latest ACTA leaked text, it’s disappointing to see that Canada is endorsing the following proposal on “ex officio” border enforcement, This refers to the giving of power to border officials to detain suspect goods on their own initiative on the basis of suspected IP infringement, without the need of a prior court order.

Here’s the text that Canada supports (see draft Article 2.7):

[Aus/Can/Sing: 1. Each Party shall provide that its customs authorities may act upon their own initiative, to suspend the release of or detain suspected counterfeit trademark goods or suspected pirated copyright goods with respect to imported goods including suspected counterfeit trademark goods or suspected pirated copyright goods admitted to, withdrawn from, or located in free trade zones. Each Party may provide its customs authorities the same authority as the foregoing provision of this Article in respect of exported and in-transit goods that are suspected counterfeit trademark goods or suspected pirated copyright goods.]

This is very unwise for many reasons:

• A judgment call about whether a particular product is “legal” or not is very often far from clear. For example, running shoes or handbags may be made “illegally” on the same assembly lines as the “real” product “after hours” and be identical in all physical respects to the “real” product. How is the border official supposed to make the determination as to whether the goods are “legal” or not?

• In the case of parallel imports (which by definition are perfectly legitimate and neither fake nor counterfeit), the factual and legal issues are extremely complex. The US Supreme Court is about to hear a case about whether perfectly legitimate Omega watches with a small copyrighted logo engraved on the back can be imported into the US by Costco. Some of the smartest lawyers and judges in the USA are bitterly divided over how this case should turn out. In Canada, we had the Kraft case involving Toblerone chocolate bars, which resulted in a victory for the parallel importer and a complex judgment from a very divided Supreme Court of Canada (I was counsel for the Retail Council of Canada, whose intervener’s arguments prevailed in the result). There was, of course, immediate speculation about how to get around the judgment but the subsequent court cases of which I am aware have settled or, in the case in which I was involved, fizzled.

• If the best lawyers and judges have to struggle intellectually about whether perfectly legitimate parallel import goods can be legally imported, are we ready to allow border guards with no legal education, and with no prior judicial oversight to make this initial determination and potentially tie up millions of dollars worth of merchandise for great lengths of time, forcing the importer to go to court to get the goods released?

• Border officials will inevitably be “educated” and provided with information about suspect shipments by those who may have a vested interest in keeping out parallel imports and may even have an interest in causing serious inconvenience to a legitimate competitor.

• The recent wrongful seizure of generic aids medicine in the Netherlands was vivid proof that empowering border officials to make difficult IP decisions can lead to serious and even potentially fatal consequences.

• Somebody should pay for the economic losses resulting from wrongful seizures. Who will that be?

• What remedies will there be for abuse or misuse of the “ex officio” system by competitors?

• What if the result of a wrongful seizure of medicine results in harm to health and safety?

• The empowering of “ex officio” action is simply not necessary in Canada. Justice Roger Hughes of the Canadian Federal Court (who had decades of successful experience in IP enforcement before his elevation to the bench) eloquently made this point at the 2008 Fordham Conference. He said that those seeking such a change should “stop whining” and just “roll up their sleeves” in order to use the current system, . The current system of obtaining a court order works perfectly well, he said, if only IP owners would do the necessary paper work. He regularly signs these orders when the proper documentation is presented.

• There is no reliable evidence that Canada has serious problems with the importation or transshipment of counterfeit or pirated goods. Those who claim to have “evidence” of such problems are often those who are opposed to the pro-competitive effect of perfectly legitimate parallel imports.

• As the late Sir Hugh Laddie and others have repeatedly pointed out, one of the most convenient places in the world to easily buy cheap counterfeit goods is the streets of New York. There is no such flagrant activity on Canadian streets.

Nobody supports or defends fake counterfeit or pirated goods. By definition, parallel imports are neither of these - though they are and probably forever will be viewed as controversial by those who oppose real free trade and vigorous competition.

However, one does not need to set up a system that will predictably catch lots of dolphins in the net and do little to stop shark activity, of which there is much talk and little evidence in any case.

Once again, we need to question why Canada would push for a policy that will very likely harm Canadians by fixing something that isn’t broken and has long worked perfectly well.

HK