FAVORABLE TRENDS IN FIGHTING IPR PIRACY IN SAO PAULO

UNCLAS SECTION 01 OF 04 SAO PAULO 001206

SIPDIS

SENSITIVE
SIPDIS

DEPT FOR WHA/BSC AND EB/TPP/IPE
STATE PASS TO USTR FOR SCRONIN
STATE PASS EXIMBANK
STATE PASS OPIC FOR MORONESE, RIVERA, MERVENNE
NSC FOR FEARS
USDOC FOR 4332/ITA/MAC/OLAC
USDOC FOR 3134/USFCS/OIO
USDOC ALSO PASS PTO/OLIA
TREASURY FOR OASIA, DAS LEE AND JHOEK
DOJ FOR CMERRIAM
AID/W FOR LAC/AA

E.O. 12958: N/A
TAGS: KIPR ETRD ECON KJUS BR
SUBJECT: FAVORABLE TRENDS IN FIGHTING IPR PIRACY IN SAO PAULO

REF: SAO PAULO 675

SENSITIVE BUT UNCLASSIFIED; PLEASE PROTECT ACCORDINGLY

Summary



1. (U) Econoff met recently with Marcio Vaz Guimaraes de Souza
Netto, the head of the Sao Paulo State Interagency Council to Combat
Piracy, to discuss recent activities of the organization and new
developments in the fight against piracy. The Council has been
reaching out to law enforcement in other states in an effort to
consolidate forces. It has also undertaken initiatives to educate
and sensitize the public to the problem. The divisions charged with
confiscating pirated goods have seized approximately USD 18 million
of merchandise as of September 2006, the result of nearly double the
number of operations since 2002. The city of Sao Paulo
significantly reinforced its own anti-piracy fight with the signing
of a new law that will cancel a business license should an
establishment or street vendor be found participating in the sale of
counterfeit goods. Those involved in the sale of pirated goods and
their customers are becoming more sophisticated, and the flood of
contraband coming across the border with Paraguay remains a major
concern. End Summary.

Background on the Council



2. (U) The Interagency Council to Combat Piracy of Sao Paulo State
(reftel) was created (at Post's urging) in January 2006 to present a
more unified and organized effort to combat piracy. According to
Souza, piracy today in Sao Paulo State is surpassing drug profits
and has become a sophisticated industry, with vendors specializing
in certain high end brands. Within the governmental structure, the
Council is part of the State's Department of Investigations on
Organized Crime. The Council is composed of officials from seven
state offices: Executive Office; Department of Justice; Department
of Labor; Department of Culture; Department of Finance; Department
of Science, Technology and Economic Development; Department of
Public Health; and, the State Attorney General's Office. Since
January 2006, when the Council was officially organized and
recognized by state law, it has coordinated its efforts with state
law enforcement agencies and its counterpart on the federal level,
the National Council to Combat Piracy (CNCP).

Council Coordinates with Other States



3. (U) Souza believes that it is now time for the Council to build
upon its present momentum and work with other anti-piracy groups.
In addition to the federal CNCP, there is an inter-institutional
committee in Rio Grande do Sul State, a regional group associated
with the federation of industries (FIRJAN) in Rio de Janeiro State,
and a recently formed group in Minas Gerais state. After the
governors of Brazil's southern states met in early June with U.S.
Secretary of Commerce Gutierrez to discuss IPR issues, the Sao Paulo

SIPDIS
Council convened a meeting on June 28 with Attorneys General from
the southern states of Sao Paulo, Rio Grande do Sul and Mato Grosso
do Sul to discuss joint initiatives in combating piracy.


4. (U) Souza further explained that the Council now takes a
three-pronged approach to the problem of piracy: education, law
enforcement and prevention. In coordination with the Entertainment

SAO PAULO 00001206 002 OF 004


Software Association (ESA) and the Brazilian Software Association
(ABES),the Council has organized a series of one-day anti-piracy
training seminars for public-sector workers in 11 cities from
October to December, with training beginning in January 2007 for
customs agents in ports in the states of Rio, Pernambuco, Rio Grande
do Sul, Parana, Sao Paulo, Amazonas, Ceara, and Para. Participants
will be trained on the recognition of fraudulent merchandise and
provide a complete review of existing laws and penalties. Working
with other state offices, the Council is involved in community
projects to educate the public and create a less accepting populace.
Examples are the Community Integration Centers (CICs) located
within the neighborhoods and the Workers Posts (Postos de
Atendimento ao Trabalhador - PAT),which are sponsored by the state
Labor Department and approach the problem of piracy as it affects
the local labor market.

Paraguay Effect on Piracy in Brazil



5. (U) Souza stated that although Sao Paulo does not border
Paraguay, the piracy industry along the border with Paraguay has
become a major problem for Sao Paulo State, with a large number of
goods coming into Brazil via this route. For example, according to
the Paraguayan Ministry of Industry and Commerce, 378 million blank
videotapes will be imported this year into Paraguay, yet only 3 - 5
million will actually be used in Paraguay. This implies that the
other 372 million will be used elsewhere, most probably for the
illegal tape industry in Brazil. There is usually a link between
piracy and organized crime, with drugs, arms and piracy co-existing
in the Tri-border region. The Council realizes that this is a
sensitive and very dangerous combination, requiring carefully
planned operations for the seizure of goods. Souza also stated that
the cost of these operations increases with the number of officers
involved and the time to investigate a case, which impacts on the
State's ability to carry out all investigations needed.

Recent Trends in Piracy



6. (U) Pirated goods have a more sophisticated clientele today, and
many dealers are specializing in certain brand names, such as Louis
Vuitton. According to Brazilian law, in order to have piracy
charges brought against an individual, the company must have a
representative located here in Brazil who is willing to participate
in the legal process. Unfortunately, two of the most popular
pirated brands in Brazil, Polo Sport and Ralph Lauren, do not have
representatives here. This results in seized merchandise being
stockpiled for later destruction, with no criminal charges brought
against the individuals involved. Compounding this issue are
several brand name representatives who desire only that the pirated
goods be seized from the point of sale and have no interest in
prosecuting the illegal merchandisers. On the pharmaceutical side,
Souza is seeing more incidence of fake medications in the Brazilian
pirated market, which poses serious public safety issues since the
medication is prepared without monitoring to ensure compliance with
sanitary regulations.


7. (U) The investigative and law enforcement arms for combating
piracy are organized under the Department of Investigations of
Organized Crime (DEIC). Within the DEIC there is the Division of
Investigations (DIG) which houses four offices with a total of 36
investigative teams working in the following areas: Material
Property, Falsification, Fraud, and Electronic Property. As of

SAO PAULO 00001206 003 OF 004


September 2006, these teams were responsible for USD 18 million for
the seizure of pirated goods in Sao Paulo State for this calendar
year. In dollar value, the top seven pirated items are: purses (3.8
million),watches (2.8 million),clothing (2.5 million),tennis
shoes (2 million),toys (1.3 million),blank DVDs (1.3 million),and
musical CDs (1 million).

Recent State Legislation on Combating Piracy



8. (U) Assisting with the law enforcement process are two recent
state laws (No.12.279 and 12.294) which allow for the cancellation
of the license of any commercial establishment that acquires,
stocks, or exports contraband or fake products. Another recent law
(No. 11/929/05) allows for the cancellation of licenses of gas
stations involved in the sale of illegal gasoline products. This
new legislation has been responsible for the closing of 248 gas
stations and 6 gasoline distributorships. Souza stated, however,
that more legislative changes are needed. Under existing law, it
takes approximately eight months for cases to wind through the legal
process. In order for an individual to be charged, each individual
item seized must be listed by the officer, and all items must be
warehoused for the trial. Legislation has been introduced to allow
the investigator to list confiscated property by weight, rather than
individual itemization, thus eliminating this time consuming
procedure. Under this proposed bill, items would not need to be
warehoused, but could be destroyed, especially products that may
post potential health concerns. Search warrants require the
presence of a federal district attorney when police enter the
property.

Recent Anti-Piracy Law Passed by the City of Sao Paulo



9. (U) The city of Sao Paulo has also recently passed new and
harder-hitting legislation. Decree No. 47.801, signed by the mayor
on October 29, permits law enforcement authorities to cancel
licenses of both shops and street vendors found selling pirated,
illegally imported, or counterfeit goods. This law was developed in
response to the rising demands of the audio, video, fashion, toy,
shoe, and perfume industries. According to the Association for the
Defense of Intellectual Property (Adepi),the audiovisual sector in
Brazil had losses of USD 198 million last year due to piracy.
Previously, police would conduct raids and seize pirated goods that
were found, but the business would continue to operate. It would
quickly absorb its losses, restock, and continue to sell. This
facilitated the creation of "contraband mafias," according to
leading daily newspaper "O Estado de Sao Paulo." Galeria Page, a
downtown shopping mall with many shops of pirated goods, has
remained in business for over 40 years despite numerous seizures of
goods. The new law gives authorities the power to cancel the
offender's license, thereby shutting down the business.


10. (U) According to Decree 47.801, those who have already had
their licenses withheld under federal or state law and are charged
under the municipal law will not be able to renew their licenses for
10 years, and this will apply to all partners in the business. The
challenge for the city is in the numbers: 6,000 street vendors and
30,000 establishments in Sao Paulo, and only 600 inspectors to
enforce this law. This is a daunting task considering that these
600 workers already have the responsibility of enforcing present
laws. Many observers have expressed concern that this new law,
instead of taking a bite out of illegal commerce, will probably

SAO PAULO 00001206 004 OF 004


increase corruption, as more of these public workers will find an
opportunity to be paid off and allow these illegal businesses
operating freedom.

Favorable Trends in IPR coordination and Legislation



11. (SBU) Comment: The Interagency Council to Combat Piracy in Sao
Paulo State has made positive steps in the past year to confront the
issue of piracy. The Council considers piracy to be a global issue
affecting all countries. A recent national survey sponsored by
Fecomercio in Rio de Janeiro reported that 42% of those surveyed had
bought pirated goods this year, which in raw numbers would mean
approximately 78 million Brazilians. Of those surveyed, 66% are
aware of the negative consequences generated by illegal commerce,
70% associate it with organized crime, and 79% believe that these
sales hurt formal commerce, in addition to manufacturers and
artists. This survey highlights the extent of the problem, the
urgent need to continue efforts to educate the public, and the
necessity for stronger governmental and legal intervention. Recent
state legislation has enhanced the government's ability to deter
piracy activity, and future legislation is being introduced that
would make searching, processing, and itemizing of seized goods
easier. In addition, the city of Sao Paulo has now come forth with
stronger legislation to combat piracy, adding much needed muscle to
law enforcement efforts. While Souza stressed that interest in
combating piracy remains strong and the Council is active, much
remains to be done to educate a highly accepting public that is
still unaware of or unconcerned about the real damage done by piracy
to the economy and the labor market. We look forward to working
with Governor-elect Jose Serra, who has been a strong advocate in
fighting IPR piracy while Mayor of Sao Paulo, as well as with
current Mayor Gilberto Kassab, in expanding our cooperation on IPR
issues. End Comment.


12. (U) This cable was cleared by Embassy Brasilia.

McMullen