PERU: SPECIAL 301 REVIEW

UNCLAS SECTION 01 OF 03 LIMA 000870

SIPDIS

DEPT FOR WHA/AND, EB/IPE SWILSON
COMMERCE FOR 4331/MAC/WH/MCAMERON
DOC FOR J. BOGER
USPTO FOR J. URBAN
LOC FOR S. TEPP
USTR FOR J. CHOE-GROVES

E.O. 12958: N/A
TAGS: ECON ETRD KIPR PE
SUBJECT: PERU: SPECIAL 301 REVIEW

REF: A) State 23950 B) 04 Lima 1031 C) 04 Lima 1524


1. Summary. Post recommends that Peru remain on USTR's
Special 301 Watch List for 2005. Peru continued to face
high levels of copyright piracy, including a substantial
increase in optical disc piracy affecting the audiovisual
industry in 2004. Indecopi, the GOP's IPR administrative
agency, conducted high-profile raids and continued its
public awareness campaign. Peru continues to face several
problems, including the overall inadequacy of enforcement
and the lack of deterrent sentences. The GOP did not take
any significant steps to resolve the pharmaceutical
industry's concern about a lack of protection for
proprietary test data. GOP trade officials indicated that
the data protection issue should be resolved during the U.S.-
Andean free trade negotiations in 2005. End Summary.

High Rates of Optical Disc Piracy
--------------


2. Despite Indecopi's efforts, copyright piracy rates
continued to climb in 2004. The audiovisual industry
suffered from a dramatic increase in pirated optical discs,
with an estimated piracy level of almost 75 percent, up from
65 percent in 2003. Jose Vega, General Manager of
Blockbuster Peru, informed us that the motion picture
industry lost an estimated $5 million in 2004 due to
audiovisual piracy. The large amount of imported blank
optical discs, as well as the wide availability of DVD
technology, helps account for this increase. Peru also has
one of the highest rates of musical piracy in the world.
According to the Anti-Piracy Crusade, 98 percent of CDs in
Peru are pirated. Martin Moscoso, head of Indecopi's
copyright office, and the Business Software Alliance noted
that Indecopi estimated that business software piracy levels
have decreased from 60 percent in 2003 to 56 percent in

2004.

Efforts to Rein in Piracy
But More Coordination Needed
--------------


3. Indecopi continued its "Anti-Piracy Crusade," which
began in 2002. Indecopi's anti-piracy efforts in 2004, in
collaboration with other government agencies as well as the
private sector, focused on: 1) intensifying enforcement
actions and 2) expanding the public awareness campaign.
Indecopi's copyright office conducted, jointly with the
national police and SUNAT (Peru's tax and customs agency),
37 raids in 2004 and confiscated over $20 million in pirated
goods and blank optical discs. In March 2004, the Peruvian
police, coordinating with one of Peru's special IPR
prosecutors, successfully uncovered and seized a shipment of
750,000 blank optical discs valued at $400,000 (Ref C). In
December 2004, the national police raided a Lima shopping
center where pirated goods are sold, confiscating over
$500,000 in pirated DVDs and CDs.


4. Private sector and Indecopi officials note that although
SUNAT has participated in several seizures of pirated goods,
it needs to become more involved in overall IPR enforcement.
SUNAT assumed control of Peruvian customs in 2003 and has
worked with Indecopi on several raids. The head of
Indecopi's copyright office declared that SUNAT should take
a more active role in coordinating and conducting raids,
particularly at the ports. Currently, SUNAT is more focused
on facilitating shipments at ports by quickly clearing
containers. Many customs officials have had no prior
training on how to recognize counterfeit goods.

Harsher Punishments for
Copyright Infringements
--------------


5. Industry and Indecopi officials involved in the Anti-
Piracy Crusade agree that the GOP needs to improve IPR
enforcement. Both call for the establishment of specialized
judges to handle IPR cases, as well as greater authority for
the two special IPR prosecutors (who only have authority in
Lima). Currently, judges lack expertise in intellectual
property matters and have avoided imposing harsh sentences
on IPR violators. In July 2004, the GOP passed Law No.
28289, the Law on the Fight Against Piracy, which increased
the minimum penalty for piracy from a two-year to a four-
year sentence, with a maximum sentence of eight years.
There have yet to be any convictions under the new law,
although there are more than 1,000 IP cases pending before
Peru's courts.

GOP Mandates the Use of Legitimate Software
--------------


6. In 2003, the GOP passed a decree mandating that all
government agencies use legally procured open-source
software. Unfortunately, this loosely written decree did
not establish which GOP agency was to take the lead on
implementation, nor did it designate penalties for
violations of this decree. GOP agencies have until March
31, 2005 to erase all pirated software and install the
legitimate versions. Peru's Software Association held
several educational sessions for Congressmen in 2004,
emphasizing the importance of using legal software.
Mario Camara, Deputy Director General of the Office of E-
Commerce and Information, informed us February 16 that not
all agencies have complied with the requirement. With no
agency designated as point of contact, it is difficult for
the GOP to monitor progress. Camera noted that his office
would meet with each GOP agency's Systems Office next week
to encourage them to comply with the decree. Camera also
warned that the lack of funding to purchase the new software
might limit some agencies' ability to procure legal
software.

Higher Taxes and a New Import Registry
--------------


7. A new decree passed as part of Peru's tax reform in
January 2004 requires importers of blank CDs to make valued
added tax payments in advance, improving SUNAT's ability to
trace subsequent purchases. In November, SUNAT began
imposing a higher tariff on all importers of blank optical
discs ($1.30 per DVD and $0.25 per CD),in an effort to
differentiate between legal and illegal importers.


8. In July, the GOP passed a law requiring that SUNAT
establish an import registry for all persons and companies
importing blank optical discs and recording equipment. With
the registry, SUNAT would be able to monitor the frequency
of optical disc importation and target those companies that
cannot justify legal sales of these discs. To date, SUNAT
has not yet established this registry.

Pharmaceutical Data Protection
--------------


9. The GOP did not take significant action in 2004 to
improve the protection of confidential pharmaceutical data.
The issue of data protection is increasingly sensitive, as
local generic drug producers have high levels of political
clout. Trade officials continue to argue that the TRIPs
Article 39.3 does not mandate any specific period of data
exclusivity. Peru, which is, along with Colombia and
Ecuador, negotiating a free trade agreement with the United
States, intends to resolve our data exclusivity concerns in
the FTA process.

Comment: Recommend No Change in Status
--------------


10. Post recommends that Peru remain on USTR's Special 301
Watch List due to the continued high levels of piracy and
copyright violations, as well as the continued lack of
protection for pharmaceutical test data. Despite increased
focus and awareness of IPR problems, the GOP has not
increased judicial enforcement of existing laws in order to
create a meaningful deterrent nor established clear
administrative measures for government agencies to comply
with those laws.

STRUBLE