SRI LANKA'S FIRST HIGH PROFILE IPR RAID

UNCLAS SECTION 01 OF 02 COLOMBO 001971

SIPDIS

DEPT PASS TO USTR

E.O 12958: N/A
TAGS: ECON ETRD KIPR CE ECONOMICS
SUBJECT: SRI LANKA'S FIRST HIGH PROFILE IPR RAID


1. Summary: Sri Lankan Police recently raided a
CD manufacturing plant operated by a Board of
Investment approved company. The plant produced
music, movie and software discs, violating the
intellectual property rights (IPR) of several US
producers. The investigation and prosecution
will be a test case of Sri Lanka's ability and
willingness to protect IPR. The case will also
be a learning experience for the IPR enforcement
arm of the Sri Lankan police. End Summary.

Factory Found
--------------

2. On October 9, 2004, Sri Lankan Police raided
a previously unknown CD manufacturing plant,
Optical Media Pvt Ltd. The police had been
investigating other criminal activity when they
found the illicit disk printing operation. The
plant, owned and operated by Malaysian nationals,
had been in operation since early 2004. The
police confiscated a large number of CDs, offset
plates, stampers and also took into custody one
Malaysian national. According to information,
approximately 10 Malaysians were involved with
the plant, many leaving Sri Lanka following an
August raid of a leading music store in Colombo.
Ironically, Optical Media is a Board of
Investment (BOI),the GSL's foreign investment
promotion agency, approved company. BOI had not
monitored the operation and was not aware of the
nature of the operation.


3. The plant produced CDs using polycarbonate
resin (thus making it possible to calculate the
number of CDs and DVDs pirated - something
industry representatives have offered to do),and
had counterfeited music, movie and software
products. The police have been informed that a
truck removed approximately 175,000 disks and
some stampers the night before the raid. It is
reliably understood the plant owners had close
connections to owners of the music store that was
previously raided. Following the raid, the
police also raided the main bazaar in Colombo and
confiscated a large number of Optical Media
products. The news of the raids has spread to
other counterfeit CD sellers. Most of the shops
have stopped displaying counterfeit copies of the
Eagle brand produced by the plant. The case has
been now handed over to the Criminal
Investigation Division (CID) of the Police.

Embassy Role
--------------

4. Soon after the raid, the Embassy began
monitoring the case. Ambassador wrote letters to
the Police Chief and Minister of Trade, prompting
the Inspector General of Police to order the
transfer of investigations to CID's Commercial
Crime Unit. US Customs and the International
Federation of the Phonographic Industry (IFPI)
have trained this unit on IPR investigations.
Econoff also wrote letters to the Solicitor
General requesting his assistance in obtaining a
full inventory of seized goods and to Police
offering expert assistance through IFPI and
Microsoft. Econ staff also met with Police on
several occasions and spoke to Government
Director of IPR. Post also facilitated IFPI and
Microsoft visits to study the case, meet
investigators and visit the raided factory. IFPI
has been advising the police regarding the
investigation. Post's public/private IPR Working
Group, which includes many affected IP rights
holders, has been a driving force in the
coordination of Embassy and private participation
in the case.

Case and Problems
--------------

5. Problems: This is the first big IPR case
here and follows the enactment of a new
comprehensive IPR law in 2003. The case has
revealed many problems in IPR enforcement. These
include: the police officers who raided the
plant, obviously unfamiliar with IPR, failed to
make a detailed inventory when handing over the
confiscated goods to court custody. The Police
also lack equipment to test CDs in various stages
of production, expertise in technology and
English proficiency. The raid also found offset
plates, which police were slow in identifying as
the master copies of the IP materials. These
events have delayed identification of seized
goods. The IP rights holders are now preparing
the inventory with court permission. In
addition, the police still need to pursue other
vital clues in the case. The police need to
check computers and other equipment lying in the
plant for evidence. They also need to ascertain
import details of the polycarbonate and export
details from the factory. Further, they need to
locate the 175,000 CDs and stampers that went
missing from the plant on the eve of the raid.


6. Prosecution: The case is currently being
heard at a local magistrate court in a Colombo
suburb, where the magistrate is not familiar with
IPR law. It is feared that the Magistrate will
release the accused Malaysian in custody who is
willing to plead guilty and be deported. This
has prompted a local representative of music and
movie labels to obtain a restraining order from
the Court of Appeal preventing the magistrate
from concluding the case pending investigation.
CID now needs to conclude the investigation and
frame charges. CID also hopes to request a
transfer of the case to a higher court in
Colombo.


7. Copyright holders: The majority of the disks
were movies from Warner, Paramount, Miramax, Fox
and Universal. The balance were music disks from
Sony and Universal as well as some software
belonging to Microsoft. Local representatives
are present in Colombo for Warner, Paramount,
Miramax, Sony and Universal. Fox and MGM are not
represented in Colombo. Post has written to MPA
seeking assistance to locate Fox and MGM
representatives in the area. The police found
several hundred Chinese Microsoft disks, which
led officials to conclude these were for export
to a Chinese speaking country. IP rights holders
hope to file cases separately.


8. Although the sale of counterfeit CDs and DVDs
was common, until now there was no knowledge of
counterfeit CD production facilities in Sri
Lanka. Local officials assumed disks on sale
were being imported to Sri Lanka from other parts
of Asia. This assumption focused right holders
and Post to push police and customs officers to
investigate at points of entry and sale.


9. The large numbers of disks involved and the
BOI status of the company are leading officials
to conclude this enterprise was manufacturing
illegal disks for export as well as local
consumption. Rights holders are supporting the
forensic investigation of the crime scene as well
as the ultimate destination(s) of the
manufactured products.

Action Plan
--------------

10. Post plans to monitor the progress of the
case, assist U.S. rights holders and persuade
local officials, where necessary, of the
important and serious nature of this case for Sri
Lankan IPR related business development. Sri
Lanka had six recent International Visitor
program attendees return from an IPR program in
September. Post is using these IV graduates to
provide advice on working within the Sri Lankan
legal system to promote the importance of IPR and
this case as a test to Sri Lanka's IPR
legislation.
LUNSTEAD