OECD counterfeiting report misinterpreted to support myth of Canada as a low piracy country

November 24th, 2009 by Barry Sookman Leave a reply »

On November 20th, the OECD published a report titled Magnitude of counterfeiting and piracy of tangible products – November 2009 update. The report is an update to a previous major study on counterfeiting undertaken by the OECD in 2008. The report confirms what has been known for a long time: that counterfeiting and piracy of tangible goods is a major impediment to global trade that is getting worse. The report estimates that global trade in counterfeit and pirated tangible goods more than doubled in this decade to approximately 250 billion US dollars in 2007, up from just over USD 100 billion in 2001.

In a recent post based on the OECD study, OECD Confirms Canada Among Lowest Sources Of Counterfeiting,  Prof. Michael Geist asserts that statements about the piracy rates in Canada by the Canadian Chamber of Commerce and others are inflated and “exaggerated”. He claims that the “OECD data would suggest that counterfeiting in Canada is far lower” than these estimates and concludes that “Canada is a low piracy country despite persistent efforts to paint us as a piracy haven”.

Prof. Geist has opposed strengthening Canadian intellectual property laws to address problems associated with counterfeiting and piracy. To support his position, he has denounced statements that counterfeiting and piracy are a significant problem in Canada, contending that any such statements are exaggerated and unsupported. For example, in 2007, the Parliamentary Standing Committee on Public Safety and National Security conducted hearings to examine counterfeiting and piracy in Canada. Prof. Geist testified before the Committee on April 26, 2007, claiming that “the impact and severity of counterfeiting” was “uncertain”, that figures provided to the Committee were “wildly inflated”, that there was “limited economic impact in Canada from counterfeiting” and that Canada should not implement new laws to deal with counterfeiting and piracy.

In its report, the Committee firmly rejected Prof. Geist’s contentions and found that counterfeiting and piracy are significant problems for Canadians that require urgent action:

“Of all the witnesses heard by our Committee, only Professor Geist felt that there is likely to be limited economic impact in Canada from counterfeiting…In light of the evidence heard, there is no doubt that counterfeiting and piracy cause economic harm to intellectual property owners, private companies and Canadian governments. … [T]he representatives of industry and of law enforcement who testified to the Committee painted a rather alarming portrait of the situation in Canada. It is not only a disturbing phenomenon, but one that calls for solutions with some urgency.”  (pp 16, 17)

Against the recommendations of Prof. Geist, the Committee made fourteen recommendations including important recommendations for changes in Canadian laws to address counterfeiting and piracy.

Prof. Geist continues to denounce statements about the magnitude of counterfeiting and piracy in Canada, this time invoking the OECD report in support of his denunciations. However, his assertions are based on misinterpretations of the data.

Prof. Geist asserts in his blog that the amount of internationally traded black market goods calculated in the OECD report contradicts the figure calculated in the Canadian Chamber of Commerce report, A Time for Change: Toward a New Era for Intellectual Property Rights in Canada.  Prof. Geist does not dispute the OECD’s estimate that physical counterfeiting and piracy amount to approximately 250 billion US dollars in international trafficking each year. However, according to Prof Geist, when one applies Canada’s percentage of world trade (2.8%) to the OECD total of $250 billion, it is clear that the OECD report establishes that “counterfeiting in Canada” represents only $7 billion, or less than one-third of the Canadian Chamber’s estimate.

However, Prof. Geist either misunderstood or failed to consider or disclose that what was being measured in each case is fundamentally different. The OECD report measures only one aspect of counterfeiting and piracy – pirated and counterfeit goods traded internationally. The Canadian Chamber of Commerce report estimated that counterfeiting and piracy cost the Canadian economy $22 billion annually “in lost tax revenue, investment and innovation”. While clearly related, these are very different things, and one would expect that the actual costs to the economy of counterfeiting and piracy would be greater than the value of the counterfeit and pirated goods themselves.

The OECD report also expressly does “not include domestically produced and consumed products, or non-tangible pirated digital products”, while the Canadian Chamber expressly included counterfeiting and piracy in “both in the real world of physical products and in the virtual world of the Internet” in its estimates of the costs of counterfeiting and piracy to the Canadian economy. Indeed, in its original report, the OECD itself noted that “if these items were added, the total magnitude could well be several hundred billion dollars higher”.

Prof. Geist then asserts that Canada’s low ranking in the “General trade-related index of counterfeiting and piracy of economies” (page 5) demonstrates that “Canada is a low piracy country despite persistent efforts to paint us as a piracy haven.” What Prof. Geist fails to disclose or apparently consider is what the OECD index measures. The OECD index is based on a survey of national customs authorities who provided “information on interceptions of infringements, recorded at any time during the period 1999 to 2005”.  In other words, the international ranking is based on seizures by customs officials.

What makes this so significant is that one of the major reasons Canada has such a high incidence of counterfeit and pirate goods and a low rate of seizures is precisely because Canadian border officials do not have the power, that all of our major trading partners have, to seize counterfeit and pirate goods at the border. The Canadian Border Services Agency (CBSA) has publicly stated (at that the same hearing attended by Prof. Geist), that counterfeit goods “cannot be targeted or detained by the CBSA under the authority of the Customs Act” because “there is no legislation that specifically identifies counterfeit goods as prohibited”. It is hardly surprising that relatively few counterfeit seizures are made in Canada since CBSA does not have the independent authority to seize such goods.

Canada’s inability to effectively seize counterfeit and pirated goods at its borders is widely acknowledged as one of the major criticisms of its enforcement mechanisms, a fact supported by the RCMP (again at the same hearing that Prof. Geist testified at):

[F]rom our experiences with this crime [of counterfeiting and piracy], I’m comfortable stating that the impact is in the billions of dollars, and it is growing. … While CBSA is willing to help, and their assistance is appreciated, we recognize that they do not have the necessary authority at the ports of entry to stop such goods…as counterfeit goods are not illegal under the Customs Act. There is also a major issue with resources. Other than small joint RCMP-CBSA project teams in Montreal and Toronto, there are no dedicated investigational teams for IPR crime.

The porous nature of our borders and the need to upgrade our border controls to world standards to reduce counterfeiting and piracy in Canada, and transhipments to our trading partners, has also been noted by two parliamentary committees, three Canadian trade associations, and our major trading partners. Parliamentary Standing Committee on Public Safety and National Security (page 14), Parliamentary Standing Committee on Industry, Science and Technology (page 15), Ontario Chamber of commerce (page 5-6), Canadian Chamber of Commerce (page 18), U.S. Trade Representative ( Section 301 report, page 21),  U.S. Congressional Anti-Piracy Caucus (page 2-3), European Union (Joint Study, p87-88), and  Canadian Anti-Counterfeiting Network (CACN) (page 38).

What is astonishing is that the RCMP, two Parliamentary committees, three Canadian industry organisations ( the Canadian Chamber, Ontario Chamber and CACN), and Canada’s leading trading partners (the U.S. and EU) have all concluded that Canada has a significant counterfeiting and piracy problem pointing to our lack of border controls as a major contributor to that problem. Yet, Prof. Geist, who cites none of these studies or reports, concludes that there is a low level of counterfeiting and piracy in Canada using data that actually evidences our failure to put in place proper measures needed to combat counterfeiting and piracy in the first place. This is basically the equivalent of preventing police from conducting investigations and then citing the inevitable decrease in the number of investigations as evidence of a low crime rate.

Anti-copyright advocates often argue that there is no need to reform intellectual property laws, or to engage in negotiations over new trade agreements such as ACTA, by denying that counterfeiting or piracy is a problem. These summary denials are a convenient argument in the propaganda war against copyright reform. What is troubling, however, is the disingenuous use of statistics in support of this cause.  It is particularly disturbing coming from Prof. Geist, who holds a Canada Research Chair in Internet and E-commerce Law. Prof. Geist’s blogs and RSS feeds present only one ill-documented side of a story to a wide audience that may not have the complete background to accurately assess the merit of his claims.

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