EMBASSY CARACAS COMMENTS ON 2004 SPECIAL 301 REVIEW

UNCLAS CARACAS 000627 SIPDIS STATE FOR EB/IPC - WILSON; ALSO FOR WHA/EPSC, WHA/AND STATE PASS TO USTR - BPECK, STATE PASS TO USPTO - JURBAN/DLASHLEY-JOHNSON STATE PASS TO LIBRARY OF CONGRESS - STEPP COMMERCE FOR KSCHLEGELMILCH E.O. 12958: N/A TAGS: KIPR ECON VE SUBJECT: EMBASSY CARACAS COMMENTS ON 2004 SPECIAL 301 REVIEW REF: A. CARACAS 00555 ¶B. CARACAS 03354 This cable is sensitive but unclassified. Please handle accordingly. -------------- SUMMARY -------------- ¶1. (SBU) The GOV continues to show signs of slippage in its commitment to the protection of intellectual property rights. In 2003 the government persisted in its policy of approving domestic copies of internationally patented pharmaceutical products for sale in Venezuela. Venezuela's anti-trust agency ruled that this practice did not constitute an act of unfair competition. The GOV also maintained its refusal to issue second use patents to international pharmaceuticals in ¶2003. Industry contacts say the National Assembly is debating proposed changes to the new Industrial Property Law which would worsen the legal framework for protection of intellectual property. Piracy and contraband have grown increasingly problematic, while government efforts toward deterrence and prosecution remain minimal. Venezuela's ongoing political and economic troubles have resulted in a large informal sector including ever-increasing numbers of vendors who sell illicit products on the street. Based on the GOV's demonstrated lack of willingness to take action against piracy and its continued lack of adequate IPR protection, we recommend that Venezuela remain on the special 301 watch list this year. -------------- -------------- NO CHANGE ON DATA EXCLUSIVITY AND SECOND USE PATENTS -------------- -------------- ¶2. (SBU) Venezuela has ratified many of the relevant international treaties for TRIPS compliance, however, the GOV continues to pursue policies which demonstrate a lack of commitment to international standards on IPR protection. The Venezuelan government still allows data on internationally patented drugs, most of which require lengthy and expensive development, to be used by domestic companies seeking approval for their own versions of the same product. Venezuela's food and drug regulatory agency (INH) began approving the commercialization of these copies in February ¶2002. In July 2003 the Venezuelan anti-trust agency (PROCOMPETENCIA) ruled on one of the many cases alleging unfair competition brought by international pharmaceutical companies against domestic companies selling bioequivalents of their products. PROCOMPETENCIA ruled that trading replicas of anti-allergy drug Allegra in the Venezuelan market did not constitute an act of unfair competition. ¶3. (SBU) PROCOMPETENCIA's president explained the ruling as the inevitable result of a conflict between domestic health legislation which mandates data revelation as part of the regulatory process and existing legislation on IPR protection which does not specifically protect test data. At least three other cases brought by international pharmaceutical companies are pending. The Association of Foreign Pharmaceutical Companies (CAVEME) is one of the entities, which has proposed explicitly including five year test data protection in the new Industrial Property Law which is currently being debated by the National Assembly. According to CAVEME, government officials including the president of Venezuela's Patent and Copyright Office (SAPI) have indicated their opposition to this proposal. GOV officials have said the five year rule would be detrimental to national health concerns. International pharmaceutical contacts tell us the length of protection afforded to data within the system is so short that legitimate new products may enter the market after illicit copies do. ¶4. (SBU) The GOV maintained its policy of refusing to issue second-use patents on the basis that they do not qualify as inventions. According to SAPI officials, only four patents for new pharmaceutical products were issued in 2003. This appears to be the result of new politically driven policy at SAPI. Several long-serving SAPI officials, including the head of the patent division, were fired in the final months of 2003 for what, they claim, are political reasons. Industry contacts tell us these officials have been replaced by political appointees with much less experience in the sector. We are told by a Ministry of Production and Commerce counterpart that Venezuela is unlikely to ratify or implement the two internet treaties; the WIPO Copyright Treat and the WIPO Performances and Phonograms Treaty because of opposition from the president of SAPI. -------------- PIRACY GETTING WORSE -------------- ¶5. (SBU) Piracy and contraband trade remain significant problems for Venezuela, which has still not moved aggressively to implement an effective law enforcement regime. The commission created by President Chavez in 2002 to address the problem did not generate viable recommendations or solutions, despite GOV concern about losses due to tax evasion on contraband. According to Venezuela's association of authors and artists, 80 percent of the optical media and 50 percent of the computer software currently sold in Venezuela is pirated. Piracy of compact discs and DVDs worsened as the economic downturn in 2003 forced more Venezuelans to seek work in the informal sector, mainly as street vendors. In response to concerns raised by the legitimate optical media industry, the GOV insisted on finding a solution which included street vendor participation. When private industry representatives proposed making street vendors part of their supply chain by allowing them to market legitimate products, government representatives counter-proposed the creation of street vendor cooperatives which would produce as well as distribute product. More than 50 percent of working Venezuelans are employed in the informal sector, amaking it unlikely the GOV will take any effective action against piracy which would deprive these a number of these citizens of their livelihood in a potential election year. -------------- LAW ENFORCEMENT STILL A PROBLEM -------------- ¶6. (SBU) The issue of enforcement of intellectual property rights remains problematic in Venezuela, due to a lack of political will and severe budgetary constraints. The entire staff of the National Copyright and Trademark Protection Police (COMANPI) was rotated to another unit in March, 2003. The new team of seven inspectors for the entire country is new to the field of IPR enforcement. It continues to operate with extremely limited resources and only one special prosecutor with jurisdiction over criminal IP violations. Complicating their job is the fact that COMANPI has no jurisdiction within Venezuelan ports and must coordinate their actions with Venezuela's Customs and Tax Service (SENIAT). In addition, the special prosecutor's workload remains split between intellectual property cases and human rights violations, which often take priority. As a result the prosecutor's office is extremely slow to process charges of criminal IP violations even when successful raids were carreid out by the police and infringing goods are available as evidence. Most cases of trademark infringement continue to be settled out of court. -------------- COMMENT -------------- ¶7. (SBU) The ongoing political confrontation between the GOV and its opposition remains a significant factor in the government's commitment (or lack thereof) to implementing adequate IP protection. As part of his strategy to maintain control, Chavez has placed ideologically motivated supporters in key positions throughout the government, including in SAPI. As a result, we are unlikely to see any softening in Venezuela's position with regard to second-use patents and data exclusivity. The GOV will most likely avoid taking any action against piracy which could have negative impact on the growing number of low-income informal sector workers who depend on illicit sales for their livelihood. Accordingly, we recommend that Venezuela's current status on the special 301 watch list be maintained. SHAPIRO NNNN 2004CARACA00627 - UNCLASSIFIED