CHILE: POST RECOMMENDS SPECIAL 301 PRIORITY WATCH

UNCLAS SANTIAGO 000380 SIPDIS SIPDIS DEPT FOR EB/IPE CLACROSSE COMMERCE FOR SMCDOWELL STATE PASS TO USTR FOR MARY SULLIVAN AND KAREN HAUDA NSC FOR SUE CRONIN E.O. 12958: N/A TAGS: ETRD KIPR PREL CI SUBJECT: CHILE: POST RECOMMENDS SPECIAL 301 PRIORITY WATCH LIST ¶1. (SBU) Summary: Post recommends that Chile be placed on the Special 301 Priority Watch List. Despite its obligations under the U.S.-Chile Free Trade Agreement, which entered into force two years ago, Chile has yet to improve substantially its IPR protection. Chile did pass new IPR-related legislation in December 2004. The new law was intended to fulfill Chile's TRIPS and FTA commitments related to patents. To date, Chile has issued only partial implementing regulations, which themselves raise new questions. As a result, there has been little progress in IPR protection. Most problematic, Chile continues effectively to violate patent rights by granting government approval for generic copies of patented pharmaceuticals. Additionally, Chile has used exclusive company data as the basis for approving these generic copies. In other areas, an anti-piracy bill remains under legislative consideration, while overall copyright enforcement remains inadequate. End Summary. Data Protection and New IPR Legislation -------------- ¶2. (SBU) Despite the passage of legislation in December 2004 to bring Chile's legal framework for patents, trademarks and industrial designs into compliance with its WTO/TRIPS and FTA requirements, the lack of real progress is very clear. It took the Government of Chile (GOC) a full year until December 2005 to begin issuing even partial implementing regulations. The regulations issued in December 2005 cover data exclusivity. These new regulations impose a number of burdensome procedures that are now required for a company to maintain its data exclusivity rights. Through the introduction of these new procedures and formalities, Chile in effect can deny full data exclusivity protection in ways neither the TRIPS Agreement nor the FTA authorizes. ¶3. (SBU) International pharmaceutical companies continue to cite repeated violations of exclusive company test data in the Chilean drug approval process. The GOC, through its Institute of Public Health, has approved seven generic copies of four patented innovative products based on test and other data submitted to the GOC in connection with the original approval of these products. Pharmaceutical Patent Violations ) No Linkage -------------- ¶4. (SBU) The new December 2004 patent law does not offer any solution to the main problem of patent rights in Chile ) the granting of official approval for generic drug copies in direct violation of existing patents. There continues to be no link between the decision-making of the Institute of Public Health (ISP in Spanish) in granting sanitary approval, and the existence of valid patents, which in theory should protect innovative pharmaceutical products. The GOC plays semantics by arguing that the ISP's issuance of sanitary approval does not violate the FTA's provision, which bars Chile from granting marketing approval in violation of a patent holder's rights, because the ISP does not literally grant "marketing approval." But the fact is, once a product receives sanitary approval, it can be legally sold in Chile. This failure to link the sanitary approval process to existing, valid patent rights has meant that pirated copies of some 20 patented medicines have been granted official GOC access to the Chilean market in recent years. ¶5. (SBU) The FTA specifies in Article 17.10.2 that parties "shall not grant marketing approval to any third party prior to the expiration of the patent term." The GOC's official position is that sanitary approval is not marketing approval. However, there is no entity in the Chilean Government which issues marketing approval and the concept itself does not legally exist in the GOC approval process for any product. In essence, the ISP's granting of sanitary approval is official GOC approval to allow a pharmaceutical product to come to market. ¶6. (SBU) The GOC maintains that patent rights must be upheld by court rulings, rather than by executive branch decisions on the part of either the ISP or the patent office. It is possible that Chile's new patent regulations might expedite the issuance of civil injunctions to stop the marketing of unauthorized copies. However, it is too early to tell how or even if this procedure will work. What is clear is that the GOC intends to put the administrative and financial burden wholly on the original patent holder to defend its patent rights in Chile. The capacity of the Chilean court system and its judges to serve as effective enforcers of patent rights remains questionable at best. Inadequate Copyright Anti-Piracy Efforts -------------- ¶7. (SBU) On the streets of Chile's major cities and at informal flea markets, the Chilean police are relatively aggressive in arresting sellers of pirated optical media. However, these efforts have little long-term impact as punishment is minimal, with most IPR violators not even paying fines and criminal penalties suspended. The police rarely investigate the manufacturing and distribution of pirated materials. As a consequence, U.S. content industries report that piracy in Chile continues to cost U.S. companies significant revenue and market share in music, movies and software. ¶8. (SBU) An anti-piracy bill introduced in early 2004 remains in the Chilean Congress pending further review. Most local and international industry observers consider the bill's civil and criminal penalties too low to serve as an effective deterrent. On another front, the GOC has also been slow in seeking to obtain legitimate copies of computer software for use by all government ministries, as required by the U.S.-Chile FTA. President Lagos issued an executive order in 2003 instructing government offices to procure only licensed software, but there has been no formal follow-up. The weak anti-piracy bill combined with the GOC's half-hearted attempt to police its own use of pirated software does not speak well of the Chilean Government's commitment to copyright protection. Recommendation: Place Chile on the Priority Watch List -------------- -------------- ¶9. (SBU) Chilean policy decisions and actions continue to fall short of official rhetoric and formal trade agreement commitments on IPR. The few legislative and regulatory moves the GOC has initiated do not appear to be improvements. While the GOC provides assurances it understands USG concerns on patents and copyrights and claims it is moving to address them, progress on the ground has been minimal over the past several years. Consequently, Post recommends Chile be placed on the Priority Watch List. This could be an important sanction for a country that prides itself on the rule of law and on adherence to its international commitments. KELLY