UNCLAS SECTION 01 OF 05 ASUNCION 001267

SIPDIS

STATE FOR WHA/BSC, WHA/EPSC, EB/TPP/IPE
STATE PASS TO USTR FOR LYANG, MSULLIVAN
USAID FOR AA/LAC ADOLFO FRANCO
TREASURY FOR OSIA MAUREEN WAFER
COMMERCE ITA SARAH COOK
NSC FOR MIKE DEMPSEY AND SUE CRONIN
SOUTHCOM FOR POLAD

E.O. 12958: N/A
TAGS: ECON KIPR PREL PA
SUBJECT: PARAGUAY IPR UPDATE: PATENT LAW MODIFICATIONS RAISE
TRIPS CONCERNS AND OTHER ISSUES

REF: Asuncion 027


1. Summary. This cable provides a tour de horizon of a
number of Intellectual Property issues in Paraguay.
Modifications to Paraguay's patent law enacted in July could
violate TRIPS, particularly relating to preliminary
injunctions. The Ministry of Industry and Commerce will
seek USG guidance at the October 12-13 Joint Council on
Trade and Investment on using language from a 2002 US-
Argentine agreement on the same issue to modify the law to
make it TRIPS compliant. The MIC plans to introduce an
amendment to the law with the new language. Two other areas
of concern in the law can be fixed with the implementing
decree, according to the Director of Intellectual Property.


2. The cable also discusses the status of an audit of
Paraguay's patent office that discovered about 160 wrongly
issued patents and led to the dismissal of the office's
director (see paras 15-17). The MIC may also request USG
guidance on the possible impact of TRIPS on extending rights
of an old treaty allowing for patent revalidations to other
TRIPS signatories (para 18). The two US-trained patent
examiners are finally working on the backlog of
pharmaceutical product patent applications after a long
delay caused by the audit (paras 19). Obtaining uniform
data protection rules in Paraguay will be difficult as three
independent entities each have a role and separate governing
legislation (para 20). Increases in penalties for IPR
infringement await the conclusion of work by a bicameral
commission studying general penal code reform and changes to
penalties for a number of crimes ranging from kidnapping to
IPR (paras 21-24). The Director of Intellectual Property is
studying the possibility of creating an independent IPR
Institute to handle patent and trademark adjudication with
WIPO and the IDB (para 25). End Summary.

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PATENT LAW CHANGES WEAKEN PROTECTION
--------------

3. On July 8, President Duarte signed into law a bill that
modified Paraguay's patent law, which had come into effect
on January 1, 2005 in accordance with Paraguay's TRIPS
obligations. The patent law, originally passed in 2000 with
delayed effect to take advantage of the TRIPS grace period
for developing countries, provides for the granting of
pharmaceutical product patents. Previously, only process
patents could be granted legally. The new modifications
were proposed and supported by CIFARMA, the local
association of drug producers and distributors, and tend to
weaken the original patent law.


4. Prior to the promulgation of the law, the US, German and
French embassies had delivered demarches to the GOP
expressing concern over the changes. Just before the law
was signed by the President, Minister of Industry and
Commerce Vera called our then acting Deputy Chief of Mission
to notify us that the bill would become law, but also to say
that the MIC would seek to implement the law in a way that
was compliant with TRIPS.


5. Local patent attorneys see the modifications as designed
to increase the ability of local producers and distributors
to produce or sell infringing products for longer periods of
time, and to complicate both the process of granting new
patents and of protecting existing patents. Proponents of
the changes claimed that the modifications brought the
patent law closer in line with developed country standards
since they argued that the original law was more protective
of patents than developed country laws. They also argued
that the modifications were needed to protect the public's
access to reasonably priced medicines.

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Possible violations of TRIPS
--------------


6. Based on concerns that the changes might conflict with
Paraguay's obligations under TRIPS, post provided a
translation of the draft bill to Washington agencies. Based
on an analysis by the US Patent and Trademark Office, post
delivered talking points to Astrid Weiler, the Director of
Intellectual Property at the Ministry of Industry and
Commerce, expressing USG concerns that three sections of the
bill might conflict with TRIPS.


7. An amendment to Article 25 of the original law now
requires a "technical opinion" from the Ministry of Health
and Social welfare as part of the examination of whether a
pharmaceutical invention is patentable. The demarche
pointed out that requiring such a report as a precondition
for patents in this specific field of technology but not
others raises significant questions under TRIPS Article
27.1, which requires that patents be made available without
discrimination as to the field of technology.


8. An amendment to Article 48 of the original law appeared
to assume that an applicant for a compulsory license would
have received marketing approval before the compulsory
license is issued, perhaps on the basis of having already
marketed the goods. This appears to justify and even
encourage the sale of infringing goods before the compulsory
license is issued. The demarche argued that it would be
appropriate to require a sanitary registration before the
compulsory license applicant is permitted to sell the goods,
but that it is inconsistent with patent protection to
require a compulsory license applicant to infringe the
patent as a condition of receiving a compulsory license.

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PRELIMINARY INJUNCTIONS
--------------


9. The worst potential violation of TRIPS occurs in the
amendments to Article 81 of the law applicable to
applications for preliminary injunctions with respect to the
enforcement of pharmaceutical patents - but not other
patents. These raise similar concerns about discrimination
against the enjoyment of patent rights in the pharmaceutical
field of technology under Article 27.1 of the TRIPS
Agreement.


10. More importantly, we expressed concern that these
special rules will mean that preliminary injunctions are,
effectively, unavailable. Article 50 of the TRIPS
Agreement, by contrast, requires that judicial authorities
must have the authority to order such measures. The changes
to Article 81, which were patterned on a similar provision
of Argentine law, permit provisional measures in the
pharmaceutical area only if a court-designated expert
renders an opinion on infringement and validity in 15 days.
Not only is this an extremely short deadline, but it appears
that the failure of the expert to meet this deadline - which
is out of the control of the applicant -- means a denial of
injunctions.


11. In addition, in order to obtain preliminary
injunctions, the Ministry of Public Health and Social
Welfare must submit a report on whether the harm to the
applicant if the relief is denied is greater than the harm
if the relief is granted. The Ministry's failure to act in
a very short time would seem to result in a denial of
preliminary injunctions. Furthermore, the "harm" of
granting the injunction is not defined: it appears that the
health authorities would, in effect, be deciding whether an
injunction should be granted, not based on the balance of
harm as between the applicant and the defendant, but rather
on general health policy grounds.

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MIC Response to Passage of the Law
--------------


12. Econchief met with Astrid Weiler, the Director General
of Intellectual Property, about the patent law and the MIC's
strategy to address the problems. Weiler said that, after
Congressional passage of the modifications, the MIC was
aware that there were problems with them, particularly the
changes to Article 81, but the GOP feared that a veto would
be overturned, which would then preclude any changes to the
law for one year. As a result, the MIC did not recommend a
veto, and plans to submit its own bill to Congress with
language to change Article 81.


13. The MIC seeks USG opinion on plans to use language from
a 2002 agreement between the US and Argentina on the
protection of patents and test data. The document was
published on June 20, 2002 by the WTO, with document symbol
WT/DS171/3, and the proposed language is found in section
six of the document, which is about preliminary injunctions.
Before submitting to Congress the proposed fix of the patent
law, the MIC seeks USG assurance that the language agreed to
with Argentina would be TRIPS compliant. Astrid Weiler
plans to raise this issue during the October 12-13 Joint
Council on Trade and Investment (JCTI) in Asuncion.


14. The MIC plans to address in the implementing decree the
other concerns we raised with the GOP. The change to
Article 25, which requires a technical opinion from the
Ministry of Health, will not affect the granting of patents.
The implementing decree will make clear that the opinion "no
es vinculante" - it is not binding. According to Weiler,
the change to Article 48 does not require that the recipient
of a compulsory license infringe the patent beforehand.
Rather, it grants first preference for a compulsory license
to an existing producer in those cases where the production
was already occurring before patent rights in Paraguay were
established. The MIC will seek the USG's opinion on the
language in the implementing decree as well, to avoid future
disagreements in the WTO.

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PATENT OFFICE AUDIT -- PRESSURE TO ANNUL SOME PATENTS
-------------- --------------


15. As discussed in reftel, in late December 2004, the MIC
issued a decree announcing that pharmaceutical product
patents issued before January 1, 2005 were wrongly issued.
The MIC has clarified to Econchief that only judicial action
can nullify a patent, and thus the decree had no legal
effect. About the same time the new patent law came into
effect, and based on a complaint by the local pharmaceutical
association (CIPHARMA), then Minister of Industry and
Commerce Bergen ordered an audit of the patent office. The
audit involved the two US- and Argentine-trained patent
examiners, and ended in June. A principal objective was to
identify pharmaceutical product patents issued before
January 1, 2005, the date on which the issuance of such
patents became legal in Paraguay.


16. The audit, which has not been released publicly, found
159 wrongly issued patents: 139 issued as revalidations of
patents issued in other countries, and 20 issued after
examinations. The MIC claims, and it would appear rightly
so, that local attorneys and even the firms applying for the
patents should have known that product patents issued before
January 1, 2005 could be questioned. The audit resulted in
the dismissal of the director of the patent office.


17. The local industry has complained about the delay in
the release of the results, as they are eager to seek
annulment of the patents. The law firms representing the
multi-nationals have also complained, as they'd like to know
if any of their clients' patents are affected. The MIC,
though, is reluctant to mistakenly list any patents as
wrongly issued. Even with a decree announcing the results,
though, it would take judicial action to annul the patents.

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TRIPS AND PATENT REVALIDATIONS
--------------


18. The legality of patents previously issued as
revalidations (issuing based on studies conducted in other
countries) concerns the MIC as well, and Weiler intends to
seek the informal opinion of some WTO experts at a meeting
to be held in Cuba later in October. Paraguay is a
signatory to an 1889 treaty between four South American
countries establishing that each will honor (and revalidate)
patents issued in the others. Under one legal viewpoint,
patents issued in Paraguay as revalidations of patents
issued in countries not party to that treaty (e.g., the US)
are not legally valid. The MIC wonders if, since Paraguay
did not cite the treaty when it signed TRIPS, the benefits
of revalidation then extended to all other signatories of
TRIPS. If so, then revalidated patents (of which there are
thousands, of all types) would have been issued legally.
Weiler may request an opinion on this issue during the JCTI
in Asuncion.

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PATENT EXAMINERS WORKING THROUGH BACKLOG
--------------


19. After the six-month delay imposed by the audit of the
patent office, the two MIC patent examiners who received
training from the USPTO in January are back at the job of
working through the GOP's backlog of pharmaceutical product
patents. They have been contacting applicants to determine
if applications have been abandoned or not. They began with
applications dating back to 1995, and have progressed to
applications submitted in 1998.

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DATA PROTECTION IN PARAGUAY
--------------


20. Econchief met with Weiler to discuss the status of data
protection rules in Paraguay. Currently, three entities
with separate governing laws receive data:
SENAVE, which regulates agrichemicals, SENACSA, which
regulates animal health including vaccines, and Vigilancia
Sanitaria, which is part of the Ministry of Health and
regulates pharmaceuticals. The MIC does not have
jurisdiction over those entities, and each would have to
issue its own resolution to change the treatment of data.
The MIC has considered asking for assistance from WIPO to
educate the entities about the importance of data
protection. Reaching consensus and implementing uniform
data protection in Paraguay will be difficult to achieve
quickly.

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STATUS OF INCREASING PENALTIES FOR IPR VIOLATIONS
-------------- --------------


21. Post has flagged on numerous occasions our concern that
penalties for IPR violations need to be raised to become an
effective deterrent, as the GOP committed to in the
Memorandum of Understanding on Intellectual Property Rights.
Trademark and copyright violations are covered by two
separate laws, each of which needs to be modified.
Presently, provisions of the penal code, when applied to the
penalties included in the laws, prevent judges from imposing
jail time. They can only issue fines, which violators
simply consider a cost of doing business.


22. A bicameral Congressional Commission is currently
studying the reform of the penal code, the penal process
code, and modifications to a number of laws, generally with
respect to increasing sentences. A wide range of crimes are
under review, including murder, kidnapping and IPR crimes.
The Commission is supposed to finish its work by December,
although delays are quite possible. The Commission is
supposed to ensure that laws are not modified piecemeal,
resulting in inconsistent penalties (e.g., more jail time
for theft than for murder). Its existence makes it very
difficult to advance any individual modifications.


23. The MIC has made known to key members of the Commission
that it seeks and supports higher penalties for trademark
and copyright infringement, and Vice Minister of Industry
Raul Cano told Econchief that there is broad agreement on
that point. Details matter, though. For example, the
average of the minimum and maximum sentences must be at
least five years to preclude abbreviated proceedings, common
today, that avoid oral trials and tend to encourage
corruption and light sentences.


24. The MIC is proposing a range of sentences from two
years to eight years with fines ranging from 100 to 1000
minimum salaries (one minimum monthly salary is currently
about US$180). The MIC would also like the Commission to
add a provision barring those sentenced to five years or
more from conducting business for up to ten years.
Increased sentences for IPR infringement appear to be on
hold for the time being while the Commission deliberates.

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PLANS FOR AN IPR INSTITUTE
--------------


25. On October 10, representatives from the Inter-American
Development Bank (IDB) will meet with Weiler to discuss a
$500,000 loan to help create an IPR Institute, which Weiler
envisions as an independent entity that would be fully fee-
funded, similar to the USPTO. Weiler has been working with
WIPO on a draft law to create the institute. The MIC's
patent and trademark offices currently bring in about
USD280,000 each year, but the revenues go to the MIC's
general account, and the IPR offices have an annual budget
of only about USD33,000. Starved for funds, it has been
impossible to provide adequate resources and training to
develop and retain qualified staff. The problems of the
patent office described above can be attributed, in part, to
the lack of professional staff.

KEANE