TAIWAN SPECIAL 301 REVIEW: AIT SUBMISSION

UNCLAS SECTION 01 OF 04 TAIPEI 000712 SIPDIS STATE FOR EAP/RSP/TC, EB/IPE SWILSON, STATE PASS AIT/W, USTR FOR KI AND JCHOE-GROVES, DOC FOR JBOGER, USPTO FOR JURBAN AND LOC FOR STEPP E.O. 12958: N/A TAGS: KIPR TW IPR SUBJECT: TAIWAN SPECIAL 301 REVIEW: AIT SUBMISSION REF: A. 04 TAIPEI 3690 ¶B. 04 TAIPEI 3953 ¶C. 04 TAIPEI 4066 ¶D. TAIPEI 313 ¶E. TAIPEI 458 ¶F. TAIPEI 533 ¶G. STATE 23950 ¶H. STATE 30789 ¶1. Summary and recommendation: After an out-of-cycle review (OCR) in November 2004, Taiwan was removed from the Special 301 Priority Watch List in January 2005 and downgraded to the Watch List in recognition of improvements to the legal regime for protection of copyright and Taiwan's strengthening of enforcement capabilities. Additional concerns at that time included passage of amendments to relevant laws to protect pharmaceutical test data, effective actions against piracy of copyrighted works over the internet, continued strengthening of enforcement efforts so that piracy rates continue to fall, and replacement of the Export Monitoring System (EMS) with a system that is at least as effective. In the short time since the OCR, Taiwan authorities have managed to secure the passage of a bill to protect pharmaceutical data, conducted training for Taiwan Customs officials responsible for replacing the EMS, and continued their efforts to create a specialized intellectual property court. There is no question that the environment for intellectual property protection in Taiwan continues to improve. However, AIT believes it is premature to reconsider the recent decision to place Taiwan on the Special 301 Watch List. The recently passed DE law has yet to be implemented, it is still unclear whether Taiwan Customs will be able to effectively assume the duties of the EMS, judicial reforms are only beginning, and Taiwan authorities are still struggling to find ways to counter internet piracy. End Summary and recommendation. =========================================== Optical Media Enforcement Efforts in Taiwan =========================================== ¶2. Taiwan has made considerable improvements in the intellectual property protection regime over the past two years. As a major producer of blank Optical Disks (OD), Taiwan gained a reputation as a center of OD piracy. But the passage of the Optical Media Law in 2001 that required OD plants to be licensed and mandated the use of Source Identification (SID) codes gave the Taiwan authorities a legal framework to pursue counterfeiters. Creation of the Integrated Enforcement Task Force (IETF) in 2003 to join the Joint Optical Disk Enforcement (JODE) Task Force to crack down on both retail sale and manufacture of pirated optical media has had a significant effect on the availability of pirated product in the marketplace. According to Motion Picture Association investigators, the number of nightmarket outlets selling pirated materials in Taiwan has fallen from over 300 to less than 50 since the creation of the task forces. Raids and inspections continued at a brisk pace in 2004, with JODE on track to conduct over 1000 inspections of OD factories and IETF on track to conduct close to 4000 inspections of retail distribution centers. Both IETF and JODE reported fewer cases of piracy and fewer infringing materials seized compared to 2003. In response to U.S. criticism, the IETF, which had formerly been an ad hoc task force without a separate budget or personnel mechanism, formally became an arm of the National Police in November 2004, with the budget provided by the Ministry of Economic Affairs. ¶3. In addition, the National Police also conducted approximately 3000 raids and inspections directed at IP infringement from January to September 2004, had arrested more than 3000 suspects, and confiscated 1.6 million counterfeit CDs and DVDs. U.S. Customs seizures from Taiwan dropped from US$26.5 million in FY2002 to U.S.$610,000 in FY2003 and to just US$60,000 in the first half of FY2004. ¶4. As reflected in U.S Customs IPR Seizure statistics for 2004, counterfeit garment and branded goods trade remains a problem. Taiwan's National Police has been actively raiding and confiscating counterfeit goods and the Ministry of Justice has established regional warehouses to securely store siezed goods until they can be destroyed. A recent raid resulted in the seizure of 5000 high quality fake Abercrombie and Fitch branded garments worth aproximately US$250,000. =================================== Government Use of Licensed Software =================================== ¶5. Taiwan declared 2002 an IPR Action year and with the cooperation of the Business Software Alliance (BSA) began a program to ensure that all government offices use licensed software. The Taiwan Intellectual Property Office believes, and BSA agrees, the number of government offices using unlicensed software is close to zero. BSA announced that the software piracy rate in Taiwan fell from 54 percent in 2002 to 43 percent in 2003, the second lowest rate in Asia after Japan. ======================================= Improving the Legal Environment for IPR ======================================= ¶6. In the past twelve months, Taiwan's Legislative Yuan has passed several pieces of legislation that substantially improved legal protections for intellectual property. Revisions in the Patent Law to simplify filing procedures took effect in July 2004. Amendments to the Pharmaceutical Law passed by the LY in March 2004 increased penalties for those engaged in the production or distribution of counterfeit drugs. In August 2004, the Copyright Law was amended to provide protection for technical anti-piracy measures, created minimum sentences for commercial piracy, and gave Taiwan Customs ex officio seizure authority. These amendments addressed most of the weaknesses of the previous law and were applauded by rightsholder groups. ¶7. In January 2005, Taiwan's LY passed additional amendments to the Pharmaceutical Law that will provide for five years of data protection for new drugs. Pharmaceutical companies must apply to register their drugs in Taiwan within three years of release in an advanced country market. Implementing regulations for the new law are currently being drafted by the Department of Health and the law will go into effect in August. This new law meets TRIPS requirements for data protection for pharmaceuticals and was welcomed by the international research pharmaceutical industry. ¶8. In a further sign of Taiwan's eagerness to be seen as taking steps to protect intellectual property, the Judicial Yuan (JY) has announced plans to establish an IPR Court. The scope of the court, whether criminal cases as well as administrative and civil cases should be heard, is currently under debate within the JY and legal community. While the initiative is praiseworthy, establishment of a functioning IPR Court, regardless of its scope, will take some time and is not likely to be completed before 2006. The Ministry of Justice expects that the JY will formally propose legislation leading to the establishment of the IPR Court in the current LY session. ¶9. Taiwan authorities have eagerly embraced opportunities for IPR related training. In September 2004, officials from the U.S. Department of Justice came to Taiwan to present a seminar to prosecutors and law enforcement on the FBI's CyberCrime Center. In December 2004, the TIPO, the MOJ, and Taiwan National Chengchi University invited Judge Randall Rader to come to Taiwan to provide training to Taiwan judges and prosecutors. In January 2005, the Institute for the Study and Development of Legal Systems presented a three-day seminar for judges and prosecutors on U.S. legal protections for intellectual property. In addition, TIPO provides training for all new judges on Taiwan's intellectual property law and enforcement practice. ================================== Concerns and Areas for Improvement ================================== ¶10. Taiwan has made great progress in protection of intellectual property over the past two years. The legal environment has been strengthened, enforcement actions are more frequent and are resulting in confiscation of counterfeit products and arrests, and training of judges and law enforcement officials continues. Nevertheless, there remain areas where significant improvements should be made. These include Taiwan's handling of internet-based piracy and improvements in the judicial system's ability to decide IPR related cases in an expeditious and fair manner. Taiwan's ability to control the manufacture and distribution of counterfeit pharmaceuticals has benefitted from changes in the law but is still constrained by unclear division of responsibilities and lack of resources. The recent abolition of the Export Monitoring System (EMS) and the assumption of these duties by Taiwan Customs has also been the source of some concern. =============== Internet Piracy =============== ¶11. Internet piracy continues to threaten the rights of copyright holders. Taiwan is home to two membership based Peer to Peer (P2P) file sharing companies, Kuro and EZPeer, that charge members monthly fees and exercise virtually no control over shared content. In practice, the vast majority of traded content consists of copyright protected material, especially music. Although the International Federation of Phonographic Industries (IFPI) filed civil and criminal suits against these two P2P companies in 2003, these cases have not been effective in discouraging internet piracy. Taiwan's legal process is slow and the ability of the court to enforce civil penalties is limited. Taiwan authorities are aware of the precedent these important cases could set and are becoming increasingly concerned about the problem of internet piracy. The Ministry of Education has taken steps to limit the size of file downloads on MOE controlled servers as a means of discouraging internet piracy on campus. But the Taiwan government has yet to articulate a coherent strategy to combat the wider problem of illegal downloads and file sharing of copyrighted materials. ================ Judicial Reforms ================ ¶12. Taiwan's Judicial Yuan (JY) is struggling with ways to improve its ability to protect intellectual property. The proposed establishment of the IPR Court is both a positive step and an illustration of the problems that the JY must resolve to create a more effective system of protecting intellectual property. At present, trademark, copyright, and patent cases all have access to different legal remedies. When possible, criminal cases are preferred by rightsholders. While some members of the judiciary believe this illustrates the muscular nature of Taiwan's legal regime for copyright protection, in reality it betrays the weakness of Taiwan's civil courts. Rightsholders are forced to rely on criminal cases to protect their rights, even in relatively minor instances of copyright violation because civil penalties are not effective deterrents. This is an expensive and inefficient use of Taiwan's limited resources and has contributed to the slow pace of legal proceedings in IP related cases. Although Taiwan's judiciary regularly expresses its commitment to IP protection, inexperienced judges and heavy caseloads further exacerbate efforts to reach fair and speedy judgments. ======================================== Dealing with Counterfeit Pharmaceuticals ======================================== ¶13. According to industry surveys of pharmacies in Taiwan, as much as half of some popular lifestyle pharmaceuticals sold in Taiwan could be counterfeit. Expensive medications for heart problems are also a target for counterfeiters. Passage of amendments to the pharmaceutical law in early 2004 substantially increased penalties for manufacture, distribution and sale of counterfeit pharmaceutical products. These changes, combined with a concerted effort by the Ministry of Justice to focus enforcement efforts on pharmaceutical counterfeiting, were intended to improve protections for both legitimate manufacturers and consumers. Industry surveys are not complete, but the lack of clear lines of responsibility for enforcement are certain to be a barrier to sustained enforcement efforts. The Department of Health, not TIPO, is charged with preventing the manufacture and sale of counterfeit pharmaceuticals. However, the DOH does not appear to have made this a priority. Taipei City health officials have done a better job of regulating and inspecting pharmacies in the city. As a result, the incidence of counterfeits in Taipei is reportedly lower than other parts of Taiwan. But the prevelence of counterfeit pharmaceuticals island-wide remains a cause for concern. ================================== The Export Monitoring System (EMS) ================================== ¶14. The abolishment of the EMS at the end of 2004 has led some rightsholders groups to express concerns that Taiwan is abandoning efforts to protect electronic game cartridges and other computer hardware from counterfeiting. Taiwan authorities have been eager to abandon the EMS for some time, noting that only one case of counterfeit product had been discovered by EMS since 2001 and suggesting that EMS's US$1 million budget could be channeled to other uses including additional personnel for the IETF or development of the National Police Cybercrime unit. Taiwan Customs has assumed responsibility for inspection and has organized several training sessions in various locations around the island. Nevertheless, industry remains wary of Taiwan Customs willingness and ability to maintain EMS's standard of IP protection. This concern is exacerbated by the Customs decision to return some EMS inspection equipment to the Entertainment Software Association. AIT will continue to monitor the performance of Taiwan Customs in handling this new responsibility. PAAL