Can Online Counterfeiting Laws Work?

by David Wotherspoon and Nicole Melanson

Counterfeiting is commonly viewed as a harmless infraction, a smart way to get the luxury look one craves at a fraction of the price. In truth, counterfeiting is one of the fastest growing economic crimes in modern times, accelerated by advances in Internet technology. What was once a cottage industry has become a highly sophisticated network of organized crime with the capacity to threaten the very fabric of national economies, endanger safety and frequently kill.

Recent statistics suggest two in five Canadians admit purchasing counterfeit goods. Goods often counterfeited include: software, media, apparel, industrial and household devices, food, toys, cosmetics and pharmaceuticals. The prevalence of counterfeit goods available online is staggering. Estimates show a record $119 billion in imitation goods were sold over the Internet in 2007. This surge is due to three main features of the Internet marketplace: the profitable exchange of goods without prominent marketing, illicit business activity is largely untraceable, and even if traced, is fraught with jurisdictional obstacles to enforcement.

Canada acknowledges that counterfeiting presents public health and safety concerns, and has made international commitments to combat this bane. Our laws provide some protection for intellectual property rights in the context of counterfeit goods. Criminal sanctions with potentially severe penalties for copyright and trade-mark infringements exist. However, prosecution and enforcement remain ineffective due to lack of resources and training.

The civil remedies available under the Trade-marks and Copyright Acts depend entirely on the diligence of the rights’ holders. Remedies for successful litigants include damages, a share of the profits, injunctions, or surrender of the infringing goods. However, online counterfeiters are difficult to sue as they frequently operate overseas and often have little or no respect for the law or legal proceedings. Further, civil remedies are typically only pursued by large companies as they are often prohibitively expensive. These practical problems generally are compounded in the online environment. The people behind online counterfeit operations are often impossible to identify, litigate or enforce against. Internet anonymity has therefore spawned a recent litigation trend with brand owners targeting online sales platforms like eBay. Unfortunately, Canadian jurisprudence lacks clear rulings in this area.

A more promising solution to the online sale of counterfeit goods may be an Internet-based adjudication process similar to international and national domain name dispute resolution procedures, such as the Canadian Domain Name Resolution Policy. The rules of this process might be adapted to address online counterfeit sales. Thus, online IP infringement may effectively be targeted at the domain name system. Domain name registration agreements could be amended to submit to online dispute resolution in the event of complainants that registrants use sites for the sale of counterfeit goods. The dispute resolution process proposed would not supplant the civil remedies in the context of online counterfeits, but be complimentary. One remedy could be the cancellation or transfer of the domain name to the complainant to avoid further abuse of the domain by the registrant. Even though this proposal may only provide partial or temporary relief as the goods may still be sold elsewhere on or offline, the ability to quickly halt online sales would provide a first line attack on the counterfeit market.

This article was published in the October 2008 issue of BarTalk. © 2008 The Canadian Bar Association. All rights reserved.