Identifier
Created
Classification
Origin
06BELGRADE275
2006-02-22 12:31:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Belgrade
Cable title:  

2006 SPECIAL 301 REVIEW: SERBIA AND MONTENEGRO

Tags:  ECON PREL SR MW KIPR 
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UNCLAS SECTION 01 OF 04 BELGRADE 000275 

SIPDIS

DEPT FOR EB/IPE-CLACROSSE
DEPT PLS PASS TO USTR JCHOE-GROVES, DOC-JBOGER,
USDOC PLS PASS TO SSAVICH AND USPTO-JURBAN AND LOC-STEPP

SENSITIVE

E.O. 12958: N/A
TAGS: ECON PREL SR MW KIPR
SUBJECT: 2006 SPECIAL 301 REVIEW: SERBIA AND MONTENEGRO

REF: A) STATE 14937 B) BELGRADE 8
C) 05 BELGRADE 741 D) 05 BELGRADE 643
E) 05 BELGRADE 403

SUMMARY
-------
UNCLAS SECTION 01 OF 04 BELGRADE 000275

SIPDIS

DEPT FOR EB/IPE-CLACROSSE
DEPT PLS PASS TO USTR JCHOE-GROVES, DOC-JBOGER,
USDOC PLS PASS TO SSAVICH AND USPTO-JURBAN AND LOC-STEPP

SENSITIVE

E.O. 12958: N/A
TAGS: ECON PREL SR MW KIPR
SUBJECT: 2006 SPECIAL 301 REVIEW: SERBIA AND MONTENEGRO

REF: A) STATE 14937 B) BELGRADE 8
C) 05 BELGRADE 741 D) 05 BELGRADE 643
E) 05 BELGRADE 403

SUMMARY
--------------

1. (SBU) While generally agreeing with the description of IPR
problems contained in the IIPA Special 301 submission, we do
not recommend that Serbia and Montenegro be placed on the
Watch List. The IPR environment in Serbia and Montenegro
(SAM),although not yet satisfactory, is certainly moving in
the right direction. As noted in Reftel B, significant
progress was made on the IPR Action Plan agreed upon by the
State Union and republic-level governments in April 2005. We
continue to see encouraging actions on the part of both
republics, as well as indications that further progress is
within reach. Recent meetings with officials in both
republics indicate that there is a readiness to discuss
another action plan to finish the legislative framework,
bolster enforcement efforts and cooperate with the private
sector in an anti-piracy campaign. Placing Serbia and
Montenegro on the Watch List after all of the progress made
on the IPR Action Plan (Reftel B) would risk undercutting the
political will for more progress. The Ambassador will be
holding senior-level consultations with government leaders in
coming days to test for receptiveness for real progress on
IPR issues. END SUMMARY.


2. (SBU) The IPR environment in Serbia and Montenegro (SAM)
is not yet where it needs to be to protect U.S. interests.
We generally agree with the description of IPR problems
contained in the International Intellectual Property Alliance
(IIPA) submission for the 2006 Special 301 review, although
some issues may be somewhat overstated.


3. (SBU) However, the momentum is in the right direction. We
see encouraging will and actions on the part of several
ministers and agencies responsible for different aspects of
IPR protection toward making necessary improvements. These
ministers have a fairly good track record of delivering on
commitments. Reftel B is a thorough assessment of the SAM's
progress on last year's action plan and illustrates that both
the State Union and republic-level governments have shown

commitment to strengthening the IPR environment. By our
assessment, of the eight target areas identified in the
action plan, we have seen substantial progress in five areas.

ITEMS REMAINING ON LAST YEAR'S ACTION PLAN
--------------

4. (U) Concerning the creation of an effective mechanism for
cross-checking applications to drug agencies for approval of
generic drugs with pharmaceutical patents already registered
(typically, by the research-oriented companies),no action
was taken by the State Union. However, this issue was raised
in recent EU Stabilization and Association Agreement (SAA)
talks with SAM, and it was determined that this was not
feasible due to the complexity of the patents. The EU does
not have such a cross-checking mechanism, and the U.S. Food
and Drug Administration (FDA) cross-checks for trademarks but
not patents.


5. (SBU) The draft Law on Special Rights for the Efficient
Protection of Intellectual Property was not enacted in Serbia
in 2005. However, it has been adopted by the government and
will be on the Parliament's agenda when it reconvenes in
March or April. This will be an important enforcement tool,
since it will make legal entities (companies) culpable for
IPR violations and provides for fines up to CSD 3 million
(approximately USD 41,000). Minister of International
Economic Relations Milan Parivodic told econoffs on February
13 that he would offer his assistance in making sure the law
was placed in a fast-track procedure on Parliament's agenda.


6. (U) Optical disc laws for Serbia and for Montenegro were
drafted but not passed in 2005. In Montenegro, the draft Law
on Optical Disks was delivered by the Ministry for Foreign
Economic Relations to the Ministry of Culture in late 2005.
The bill is expected to be adopted by the Government soon,
possibly by the end of February and no later than the end of
March 2006, and subsequently enacted by Parliament. The law
will regulate the production of optical disks, require the
registration of the business activity of reproducing optical
disks for commercial purposes, and provide for surveillance
of optical disk imports and exports as well as imports and
exports of polycarbonates and production equipment for the
production of optical disks.


7. (SBU) In Serbia, Minister Parivodic agreed on February 17
for his Ministry to be responsible for government adoption
and passage of the Law on Optical Disks. Special 301
considerations and WTO accession talks have prompted the
Ministry of International Economic Relations to be actively
engaged in strengthening the IPR environment in Serbia.


8. (U) Amendments to the Montenegrin Penal Code were provided
by the Ministry for Foreign Economic Relations to the
Ministry of Justice in late 2005. The amendments provide for
ex officio prosecution of IPR infringements, specify all acts
that constitute an IPR-related related offence, and increase
the penalties for conviction of IPR infringements. The bill
is expected to be adopted by the Government by the end of
March 2006, and subsequently enacted by Parliament.

IMMEDIATE RESULTS IN MONTENEGRO WITH NEW ENFORCEMENT LAW
-------------- --------------

9. (U) On January 1, 2006, the Government of Montenegro (GoM)
began active enforcement of its law regulating protection of
intellectual property rights, starting with a public notice
that such actions would commence. In the first month,
inspectors surveyed 82 retail and wholesale locations. Forty
closed, apparently to avoid inspection. In other cases,
merchants who had previously carried pirated goods had
disposed of such stock prior to inspection. In 29 locations,
inspectors reported trade in goods with no origin
("pirated"),and consequently seized over 6,700 DVD, CDs,
tapes, and records. Inspectors have requested prosecution of
13 cases and assessed mandatory fines in seven other cases.


10. (SBU) A local legitimate film distributor in Belgrade
told econoff on Feb 10 that Montenegro's enforcement efforts
are showing immediate dividends. Between November 1 and
December 15, 2005, Millennium Film and Video sold 148 DVDs
(approx. EUR 2,092) to two clubs in Podgorica. Sales
increased five times between December 16 and February 10,
2006, to 749 DVDs (approx. EUR 10,506) to nine clubs in
Podgorica. He attributes this success to the effective
enforcement and PR activities of the Montenegrin government.


11. (U) On February 1, 2006, Montenegrin Prime Minister Milo
Djukanovic together with Bill Gates signed a three-year
contract, providing software licenses to Montenegrin
educational and scientific institutions. In September 2005,
the GoM and Microsoft concluded a USD 2.36 million contract,
creating a strategic partnership between the GoM and
Microsoft for legalization of all the Microsoft software
being used by state institutions. By mid-March, Microsoft
and local governments in Montenegro will have completed the
licensing of software used by the municipalities.


12. (U) In January 2006, Microsoft's local business partner
introduced a public campaign of flyers and billboards, "Stop
Piracy," advising that licensing current software is "as easy
as 1, 2, 3: Count PCs, Order License, Done."


13. (U) In addition to the steps under the agreed Action
Plan, Montenegro's first society of composers and artists was
registered on January 9, 2006. Registration will allow for
the collection and distribution of royalties for use of
protected works.


14. (U) Compared to Montenegro's status a year ago (Reftel
E),it has made significant although not complete progress
towards our agreed goals in protecting intellectual property.
Government action has proceeded at an acceptable pace. Final
passage of the Law on Optical Discs and amendments to the
Penal Code by Parliament may be delayed, as political
attention is consumed by the central question of possible
independence of Montenegro from Serbia, which will likely be
decided by referendum in the second quarter of 2006.

ENFORCEMENT IMPROVED BUT PR WAS LACKING
--------------

15. (U) As mentioned in the IIPA submission, enforcement
improved in Serbia in 2005. Through numerous discussions
with the Business Software Alliance, they expressed
satisfaction with police efforts to raid facilities and
arrest street vendors. The number of guilty verdicts
rendered, though small, was a significant improvement from

2004.


16. (U) However, subsequent press releases, touting the
success of these enforcement activities, were not
forthcoming. The private sector was frustrated with the
unwillingness of ministries to permit the use of the results
in an effective anti-piracy campaign.


17. (U) The Embassy participates in the AmCham IPR Working
Group that consists of representatives from the various
stakeholder industries. One of the main recommendations of
the group is for the government to appoint an agency and
spokesperson to cooperate with the private sector in its
anti-piracy campaign. Such a partnership between the
government of Serbia and the private sector would deliver a
clear message to the public that piracy will not be tolerated
in Serbia.

ADDITIONAL IPR AREAS OF IMPROVEMENT NOT IN IIPA REPORT
-------------- --------------

19. (U) Discussions with representatives from the
pharmaceutical industry indicate that there have been
improvements in the area of data exclusivity. On November 1,
2005, a new Regulation on the Licensing of Medicinal Products
went into force which provides for the protection of clinical
data in the licensing application process. Therefore,
generic companies cannot use clinical data from research-
oriented pharmaceutical companies for up to six years for
original products and up to 10 years for high tech products.
This regulation was welcomed by the industry, and we were
told that a generic license application was already denied
due to usage of protected clinical data.


20. (SBU) As a part of the WTO accession talks, Serbia has
agreed to begin drafting a law for the protection of
undisclosed trade secrets. According to Article 39 of TRIPS,
members must ensure effective protection against unfair
competition by establishing a regime which protects
undisclosed trade secrets from unfair commercial use.

TRAINING
--------------


21. (U) Serbia could benefit from further training in the
inspectorates (market and tourist) under the auspices of the
Ministry of Trade. A precondition for this training would the
passage of the Enforcement Law, which will provide powers for
them. Both the Serbian Customs Administration and the
Montenegrin Customs Administration with its line inspectors
could benefit from additional training in how to detect and
intercept export and especially import of counterfeit goods.

EXPECTED NEXT STEPS
--------------

22. (U) Based on input from the AmCham IPR working group, we
have drafted a proposed action plan for 2006. We see five
key action items that would further improve IPR protection
and address U.S. industry concerns:

- Ensure "fast-track" approval of new IPR Enforcement Law in
Serbia that will provide powers for market inspection, tax
inspectors and police to act whenever pirated or counterfeit
goods are found and make companies liable for criminal
penalties.

- Tax inspectors and police should have powers to act ex
officio in search for non-licensed software and other IPR
infringements during their regular controls, whether through
effective enforcement of the current Law on Tax
Administration or through an amendment to the IPR Enforcement
Law.

- In both Serbia and Montenegro prepare, approve and fast-
track in the parliamentary procedure the Law on Optical
Discs, in order to regulate commercial production and
duplication of optical discs, which is the medium commonly
used to infringe IPR.

- Appoint a government agency and spokesperson with the task
of cooperating with the private sector to effectively promote
the enforcement activities of the government by releasing
statistics of raids conducted, optical discs seized, etc.

- Passage of the amendments to the Penal Code in Montenegro
that will provide full criminal protection of IPRs.


23. (SBU) Some government officials have been receptive to
these action items in recent meetings, and we will urge the
GOS and GOM to move forward. Our approach is to secure an
agreed, time-bound, action plan for addressing these issues
as a work program for 2006. The Ambassador will be
conducting meetings with senior officials in Belgrade in the
coming days to test their receptiveness to implementing these
measures. We will continue to provide targeted assistance to
help the governments fulfill this action plan and to build
institutional capacity to combat and prosecute piracy.

Recommendation
--------------

24. (SBU) The Special 301 process is a useful tool to advance
our interests with respect to IPR protection. The IPR
environment in SAM is not currently satisfactory, but it is
steadily improving. The key question here is whether putting
SAM on the Watch List would prompt stronger government action
and bring us closer to our goals. However, the history of
our bilateral relations since the Milosevic period suggests
that putting SAM on the Watch List will be viewed as a
"sanction," no matter how we characterize it. Such a step
would also come during a time of political uncertainty
regarding the Montenegrin referendum for independence as well
as negotiations on the final status of Kosovo (and, possibly,
suspension of assistance for lack of ICTY cooperation).


25. (SBU) Both the State Union and republic-level governments
of Serbia and Montenegro took seriously our warning in 2005
that it risked placement on the Special 301 Watch List, and
the result has been effective actions to remedy shortfalls in
IPR protection. However, we fear that placing SaM on the
watch list now, when the two governments are focused on
staying off the list to provide a contrast to other
neighboring countries, like Bulgaria and Croatia, would
backfire. We are hoping for further progress on the basis of
our recent proposal a new action plan. To avoid any slowing
of the momentum that has been generated, we recommend against
placing the Serbia and Montenegro on the Watch List.

MOORE