Speech From the Throne 2013 – Will We Really Get Price Parity on Consumer Goods with the USA? IP Law is a Key Issue.

Yesterday’s  Speech from the Throne (#SFT13) contained two items that will require detailed consideration of amendments or clarifications of existing Canadian intellectual property law and amendments or clarifications to the anti-counterfeiting Bill C-56 from the previous session – or whatever it is numbered if and when it is resuscitated.

#SFT13 says:

·         “Our Government will ...Take further action to end geographic price discrimination against Canadians."
·         “And our Government will take additional action to protect Canadian consumers. Canadians are tired of hidden fees. They deserve to know the real cost of paying by debit or credit card. And they should not be charged more in Canada for identical goods that sell for less in the United States.”

Achieving these goals requires dealing with some extremely complex issues that have bedevilled courts and legislatures for decades. The elephant in the room is the issue of “parallel imports” or “grey market” goods – namely perfectly legitimate and authentic products that have been legally made and put on the market outside of Canada and which can be imported into Canada at a cheaper price than that demanded by the so-called “exclusive” distributor.  These good are by no means whatsoever “counterfeit” or “pirate” in any sense.

Despite the complexity of the “parallel imports” issue in terms of copyright law, some propositions are very simple.

Truly “free” trade cannot permit the imposition of “private tariffs” in the form of IP laws that permit geographic price discrimination or market segmentation. That would allow copyright law to become an unintended “instrument of trade control”, in the words of retired Justice Fish of the Supreme Court of Canada, and a very effective and unregulated “private tariff”.

Canada has explicit provisions in its Copyright Act regime that permit and encourage just such a regime for books. The situation for goods other than books is more complicated.

In 2007, the Supreme Court of Canada in the Kraft decision allowed a victory for the importer of “parallel import” or “grey market” Toblerone chocolate bars, largely based upon arguments that I made on behalf of the Retail Council of Canada. For a number of reasons, including the complexity of the decision and the issue itself, that victory has not been fully understood, even by some those importers who might benefit from it. Here’s an analysis I did for the Law Society of Upper Canada in 2008 that’s still useful.

Here is a summary of where the law now stands:

1. The sui generis book regime in the Copyright Act works well to keep out commercial scale importation of parallel imports and my much missed “remainder” fine art books, but is ineffective to stop personal importation by travellers and by Canadians who cross-border shop from the comfort of their own home or with their smart phone via electronic commerce in very large quantities.
2. Trade-marks law is ineffective to stop parallel imports.
3. In theory, copyright on elements of packaging and labelling can be used to exclude parallel imports if the copyright is assigned to a Canadian entity that is different than the foreign entity that made the packaging.
4. However, there’s a very good chance that such an assignment will trigger one or more of the following unintended and unfortunate consequences:

• Undesirable corporate and tax law consequences
• “Loss of distinctiveness” resulting in invalidity of trade-mark registrations
• Defence and Counterclaim allegations in any vigorously fought litigation relating to sham transactions, copyright misuse, abuse, and/or various Competition Act issues. (I have raised such allegations in a test case proceeding which then fizzled and never went forward).

Thus, copyright law – other than in respect of books – is essentially a toothless tiger when it comes to excluding legitimate parallel imports. But a lot of supposedly well-informed importers don’t get that, for the reasons stated above and for other reasons, which I won’t go into here.

Therefore, clarification of the law would be useful and maybe even essential. Even experienced IP lawyers have been baffled by it for decades. It is little wonder, then, that many of their clients and even the general counsel of their clients often don’t understand it. Maybe Parliament needs to make it sufficiently clear in simple terms so that even a copyright lawyer can understand it. I look forward to helping to find the appropriate language.

In the case of books, unless we want to keep an arguably anachronistic, anomalous and clearly protectionist regime that guarantees higher prices to Canadian consumers and higher profits to Canadian “exclusive distributors” but little else in terms of benefits to Canada, it is essential that the Copyright Act be amended. Otherwise, we are certain to continue have higher book prices overall in Canada than the USA, unless the current market forces of Amazon and others put Canadian exclusive distributors and some publishers out of business, which would not be a desirable result. As for the rest of Canadian copyright law, clarifying language seems necessary for the reasons stated above.

The anti-counterfeiting Bill C-56 – which may or may not get revived in the new session – has countless confusing references that deal with parallel imports.  While the intention seems benign, the result may not be. Much more scrutiny and simplification may be required to ensure consistency with the Speech from the Throne statements.

In any event, these Speech from the Throne items cannot be achieved without considerable attention to IP details.

No doubt, the lawyers and lobbyists who would like to preserve the “private tariff” of IP to prevent real free trade and to geographically segment the Canadian market for price discrimination purposes are already hard at work to thwart the Government’s intention and to recover from their failed attempt in the Kraft case to hijack copyright law for this purpose.

And last but not least, let’s hope that the #CETA and #TPP agendas don’t derail the perfectly laudable sentiments in #SFT13.

In that connection, beware of the predictable efforts from the US Government and lobbyists representing American interests who will take their frequent posture of “do as we say, not as we do”. The US Supreme Court recently clarified in the Kirtsaeng decision that copyright law cannot be used to stop the parallel importation of goods – indeed the case was about books – largely based upon a “parade of horribles” that would result had it ruled otherwise.

As I occasionally explicitly reiterate, the views expressed on this blog are solely my own.

HPK