(Don't) knock it off!
The prevalence of counterfeit goods in Canada reflects weak laws and almost non-existent criminal enforcement within the country, resulting in an appearance of very limited protection for the intellectual property rights of brand owners. As discussed in a recent post on the topic, Canada has once again been named to the "Priority" Watch List in the 2018 Special 301 Report on Intellectual Property Rights, put out by the Office of the United States Trade Representative (USTR). This downgrade is, in many respects, attributable to issues surrounding the country's lack of effective border enforcement efforts relating to counterfeit goods. Further, for the first time ever, a physical location in Canada - Pacific Mall in Toronto - was also named in USTR's 2017 "Notorious Markets" report.
Poor border enforcement mechanisms and counterfeit goods have had a substantial impact on fashion brand owners. The prevalence of such knock-offs, from high-end luxury handbags and watches to athletic and everyday apparel found throughout the country, inevitably dilutes the value of these brands. However, what is more alarming is that the quality of these goods is often substandard, and not just in the case of electronics - where poor wiring and other deficiencies have been known to pose fire hazards and cause electric shocks resulting in injury and even death - and pharmaceuticals. Sub-standard materials (e.g. containing oils that can cause rashes or without necessary UV protection) and fillings (e.g. containing high concentration of rat droppings) are also found in counterfeit luxury goods and apparel. This type of negligence is, of course, attributable to the counterfeit producer, as opposed to the actual brand owner; however, it would be reasonable for consumers to develop a negative impression after such an experience, which damages the image of a legitimate label.
The Courts' Reaction
Fortunately, Canadian courts have taken a stern stance on this issue. The landmark anti-counterfeiting Canadian decision of Louis Vuitton Malletier S.A. v. Singga Enterprises (Canada) Inc, 2011 FC 776 serves as a great example. In this case, Louis Vuitton and Burberry sued two enterprises for trademark and copyright infringement because the businesses were selling counterfeit products in relation to the two luxury brands, both in stores and online. The Federal Court awarded Louis Vuitton and Burberry $2.48 million in damages, which was, at the time, the highest amount by far awarded in a Canadian anti-counterfeiting case.
A few years after this decision, the Federal Court, once again, ruled in favour of Chanel in response to counterfeit products being sold in Markham, Ontario. In Chanel S. de R.L. v. Lam Chan Kee Company Ltd.,2016 FC 987, knock-off Chanel cellphone cases, wallets, earrings, necklaces, and hairclips were continuing to be sold at a retail store in Pacific Mall, despite numerous prior warnings from Chanel. The plaintiffs claimed that this infringed their trademark rights and they were awarded an injunction and damages as a result, including significant punitive and exemplary damages (well in excess of the damages award itself) specifically intended to deter such activity.
While the Canadian courts' apparent zero-tolerance approach to counterfeiting is certainly a step in the right direction for the Canada's fashion industry, there remains room for improvement in the country's efforts to combat counterfeiting at the border. Enhanced enforcement, both through legislative change and by supporting increased enforcement by the Canada Border Services Agency (CBSA), will significantly help in preventing such issues from escalating. Furthermore, it will provide an additional layer of protection for brands, since they will not have to engage in costly and adversarial legal battles. Currently, brands attempting to adequately address the problem must be relentless in trying to compensate for ineffective border control in relation to counterfeit products. Their only effective course of action is to hunt down local counterfeit sellers and take legal action against them.
In order to succeed in the fight against counterfeit products, all forces need to be utilized. This means that effective border controls need to be in place, and a mandate given to CBSA to prioritize anti-counterfeiting measures. Such adjustments would act as an initial barrier before the goods enter the country and brand owners are forced to chase after retailers with costly court proceedings. And if matters do, in fact, escalate to that level, Canadian courts will also need to continue to exhibit a tough stance on counterfeiting. Otherwise, with the significant risks of brand dilution and reputational harm at play, fashion labels may be reluctant to operate in Canada.
Courtesy: (Don't) knock it off!