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
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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
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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
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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
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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