KOREA SPECIAL 301 IPR REVIEW: EMBASSY RECOMMENDS

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TAGS: ETRD KIPR ECON PREL KS
E.O. 12958: N/A
SUBJECT: KOREA SPECIAL 301 IPR REVIEW: EMBASSY RECOMMENDS
RETAINING "WATCH LIST" STATUS FOR KOREA

REF: A) SEOUL 212

B) 05 SEOUL 5122
C) 05 SEOUL 4551
D) 05 SEOUL 3942
E) 05 SEOUL 3903
F) 05 SEOUL 3277
G) 05 SEOUL 2936
H) 05 SEOUL 2435
I) 05 SEOUL 1256
J) 05 SEOUL 932
K) 05 SEOUL 872

OVERVIEW
--------------


1. (SBU) Following Korea's removal from the Special 301
"Priority Watch List" in April 2005, the Korean government
continued to move forward in a number of areas to improve
the level of intellectual property rights (IPR) protection
in Korea. These measures included: introducing legislation
that will significantly enhance protection for sound
recordings transmitted over the Internet (both peer-to-peer
and web-casting); implementing regulations that restore the
ability of the Korea Media Rating Board to take necessary
steps to stop film piracy; increasing enforcement activities
by the Standing Inspection Team against institutions using
illegal software; establishment of the Copyright Protection
Center to better safeguard IPR both online and offline; and
a commitment to the continue the implementation of the "IPR
Master Plan" under the leadership of the Prime Minister's
Office, with the aim of providing overall policy guidance to
the government as it works to further improve IPR protection
in Korea.


2. (SBU) Korean recognition of the importance of IPR
protection has increased in recent years, and will likely
improve further as the amount and value of domestic Korean
IPR grows. Recent judicial decisions concerning piracy of
copyrighted materials, and the scope of liability in cases
involving illegal file-sharing and other IPR cases, are
providing useful precedents and helping to bring Korea's
legal system in line with international norms. While some
civil society groups continue to call for "fair use" and
demand "netizen" rights, general public sentiment towards
IPR violations is progressing toward acknowledgement of the
criminality of using IPR content without paying for it.


3. (SBU) Public and private interest in effective IPR
enforcement has been manifested through a series of
seminars, conferences and resolutions considering how to
actively enforce rightholders' claims. As Korea moves to
establish itself as a world leader in information technology
(IT) through innovations in both hardware and software, more
attention is being paid to the benefits that will accrue to
Korean rightholders through a comprehensive and vigorous
approach to IPR enforcement. Additionally, the Korean
government's pursuit of a U.S.-Korea Free Trade Agreement
should provide additional impetus this year toward further
enhancement of Korea's IPR regime.


4. (SBU) Despite this progress, the Embassy's view is that
Korea should be retained on the Special 301 "Watch List."
Korea's IPR protection regime continues to have important
gaps, and changes need to be made to Korean law to
strengthen protection of temporary copies, and allow for
technological protection measures, Internet Service Provider
(ISP) liability, ex parte relief, and coordination between
Korean health and IPR authorities to prevent marketing
approvals for patent-infringing products. In addition,
Korea still lacks full retroactive protection for pre-
existing copyrighted works, and its copyright terms need to
be extended. Finally, we remain concerned about
insufficient progress in fighting book piracy in
universities and street vendor sales of illegally copied
DVDs, and continue to cast a watchful eye to ensure no
erosion of protection for confidential pharmaceutical test
data. End Overview.

KOREAN IPR PROTECTION IN 2005
--------------


5. (U) In support of the above recommendation, this message
focuses primarily on new developments in Korean intellectual
property rights protection in 2005, while also outlining the
general state of affairs on IPR protection, including the
enforcement situation, and the identification of continuing
gaps in Korea's IPR protection regime. While not an
exhaustive review, we have addressed most salient issues.
The issues covered below are:

-- Copyright Law
-- Computer Program Protection Act
-- Copyright Treaties
-- Copyright-related Judicial Cases
-- Data Protection
-- Patent Protection
-- Enforcement Trends
-- Software Piracy
-- Optical Media Piracy
-- Counterfeit Goods
-- International Cooperation and Training
-- Korea's "IPR Master Plan"
-- Conclusion and Comment

COPYRIGHT LAW
--------------


6. (U) Because Korea has one of the highest levels of
broadband Internet penetration in the world, the United
States has urged the Korean government to develop an
effective response to the unique challenges posed by the
changing nature of digital copyright piracy. In particular,
we have sought improvements to Korean copyright law to stem
Internet-based copyright violations.


7. (U) In 2005, the Korean government prepared and submitted
several very important amendments to the Copyright Act. The
proposed amendments would significantly enhance protection
for sound recordings transmitted over the Internet, either
through peer-to-peer transmission or via web-casting, by
giving rightholders, performers, and phonogram producers
significantly enhanced rights to control the transmission or
broadcast of their phonograms. The amendments would also
limit public performances of copyrighted works and eliminate
the complaint requirement in certain cases.


8. (U) Unfortunately, while the necessary legislation for
these amendments was introduced and underwent preliminary
deliberation at the Committee level in Korea's National
Assembly in late 2005, as of this report, the legislation
has not yet been enacted into law. Korean and foreign
copyright protection groups have testified at informal and
formal hearings in support of the legislation, and the USG
has also submitted formal comments in support of the
legislation. On the other side, "user rights" groups have
sought to water down or stall the legislation. We will
continue to monitor progress and encourage the Korean
National Assembly to take action on these important
amendments.


9. (U) Beyond the pending improved legislation, the United
States continues to discuss further improvements to the
Copyright Act with the Korean government. Currently, Korean
law does not extend the reproduction right to cover copies
made in the temporary memory of a computer, a significant
and still growing manner for use of copyrighted works. The
United States continues to urge Korea that to strengthen
both the Copyright Act and Computer Program Protection Act
by revising the laws to clarify that the copyright owner has
the exclusive right to make copies, temporary or permanent,
of a work or phonogram. We are also still concerned about
limitations on the use of technological protection measures
(TPM's) that manage access to a work, and we seek further
clarification on Internet Service Provider liability. The
current Copyright Act amendments still leave unclear the
scope of the underlying liability of service providers and
the limitations on and exceptions from that liability.


10. (U) The U.S. Government has also told the Korean
government that the private copy exceptions of the Copyright
Act generally should not be applicable to the Internet
environment, which by its very nature extends far beyond

private home use. Concerning library exceptions under
Korea's Copyright Act, the U.S. Government believes that a
notice period of at least 30 days should be given to
rightholders prior to the unauthorized digitization of their
works, to minimize any negative effects. Under the current
law, library exceptions still apply only to literary works
and not to broadcasts, performances and sound recordings.
The U.S. Government has also urged Korea to delete the
reciprocity limitations relating to database protection in
the Copyright Act, as it discourages the introduction of
databases from countries without such legislation, including
the United States.


11. (U) Korea currently provides copyright protection for
the life of the author plus 50 years. In line with
international trends, the United States is urging Korea to
extend the term of copyright protection for works and sound
recordings to the life of the author plus 70 years or 95
years from date of first publication where the author is a
legal entity.

COMPUTER PROGRAM PROTECTION ACT
--------------


12. (U) Improvement of Korea's Computer Program Protection
Act (CPPA) to meet current challenges, as well as to comply
with new global norms, continues incrementally. Proposed
amendments to the CPPA would increase the power of the
Program Mediation and Deliberation Council (PDMC) and
increase penalties for assorted violations of Korean IPR-
related laws. Those amendments were introduced and
underwent preliminary deliberation in Korea's National
Assembly in late 2005. However, as of this report, the
legislation has not yet been enacted into law. While
supporting the amendments, the USG has suggested additional
improvements to the CPPA.


13. (U) Concerning software streaming programs -- computer
programs permitting the "streaming" of software from a
single server to multiple work stations -- no progress was
made in 2005 in clarifying the PDMC's mistaken
interpretation of the CPPA which included the inappropriate
normative statement that software developers "should" offers
users a license permitting streaming of their programs (Ref
F).

COPYRIGHT TREATIES
--------------


14. (U) Korea has ratified the WIPO Copyright Treaty (WCT),
and has committed to ratifying the WIPO Performances and
Phonograms Treaty (WPPT) after the prerequisite legislation
has been submitted and approved.

COPYRIGHT-RELATED JUDICIAL CASES
--------------


15. (U) Complaints were filed throughout 2005 by a variety
of groups concerned with illegal sharing of files,
principally music. We are encouraged by a number of cases
concluded in 2005 that seem to provide the precedent for
increased legal protection for rightholders.


16. (U) Following a long series of appeals, in 2005 Soribada
III, which was Korea's most infamous peer-to-peer (P2P)
service provider, was ordered to shut down by Korea's
highest court, effectively ending the appeals process. A
final decision on Soribada's proposal to modify its service
to comply with the court's order and Korean laws is expected
soon. Prosecutors also ordered Daum and Naver, two of
Korea's largest Internet portals, to cooperate in efforts to
shut down blogs and other sites that share copyrighted
files.


17. (U) Bugs Music, a major P2P provider, also agreed to
stop providing files for free following a lengthy court
battle. Local rightholders sued to prevent Bugs Music from
continuing its service, and the settlement included Bugs
Music switching to a fee-based service and the transfer of
60 percent of the shares, as well as management rights, to a
domestic music industry group.


DATA PROTECTION
--------------


18. (U) At USG prompting, the Korea Food and Drug
Administration (KFDA) officially reconfirmed on March 31,
2005 that different versions of original drugs undergoing
post-marketing surveillance (PMS) in Korea are subject to
Korea's data protection regulations. This means that
manufacturers have to supply a full portfolio of clinical
data in order to obtain market approval if they intend to
market their drug while the original drug is still under
PMS, thus ensuring the continued honoring of commitments
related to data protection required by Article 39.3 of the
WTO TRIPS Agreement.

PATENT PROTECTION
--------------


19. (U) Patent protection in Korea is generally solid, as
long as patent rights are clearly established. The Korean
Intellectual Property Office (KIPO) has amended relevant
rules to address U.S. concerns regarding restrictions on
patent term extension for certain pharmaceutical,
agrochemical and animal health products.


20. (U) However, an issue of continuing concern has been the
lack of coordination between the Korea Intellectual Property
Organization (KIPO) and the Korea Food and Drug
Administration (KFDA),which can result in the granting of
marketing approval for products that may infringe on
existing patents.


21. (U) Also on the patent front, U.S. firms have pointed to
Korean courts' apparent unwillingness to provide injunctive
relief in cases where KIPO or a lower court has established
that a rightholder's patent has been infringed upon, if the
case remains under appeal at the Patent Court or a higher
court. This allows the infringing products to remain on the
market until a final determination has been made. Korea's
Patent Court apparently lacks the legal authority to grant
injunctive relief. Although the Korean civil courts have
the authority to issue injunctive relief in patent cases, in
practice such relief remains rare, since the civil courts
tend to defer to the Patent Court.

ENFORCEMENT TRENDS
--------------


22. (U) The establishment of Korea's Copyright Protection
Center (CPC) in 2005, to conduct both online and off-line
copyright investigations, was a welcome move and we have
urged the Korean government to make effective use of the
CPC's investigative capabilities and to make its services
available to all rightholders, Korean and international.
The CPC has been receptive and generally internationalist in
approach. From its inception in April 2005 until year's
end, CPC investigated nearly 37,000 online users, and
brought criminal complaints against 802. These
investigations resulted in the deletion of almost 13 million
illegal files, the vast majority being music.


23. (U) Among its most prominent cases, the CPC abetted the
useful judicial precedents noted above by filing a criminal
complaint against Soribada III, a renowned peer-to-peer
service provider, and against five individuals for
maintaining illegal files on one of Soribada's chat sites.
CPC also filed criminal complaints against individuals for
illegally uploading music to be shared on Internet "cafes"
and "blogs." Additionally, CPC filed charges against the
operator of one such "cafe" for facilitating the illegal
sharing of files through his Internet site.


24. (U) During the same period, the CPC also looked into
3,452 cases of possible offline copyright violations --
covering music, video, publications, and games. Of those
investigations, approximately 2,900 resulted in seizure or
administrative action, and 546 were referred for criminal
complaints. In the offline arena, music-related cases made
up the largest group -- both in terms of number of cases,
and in seizures.



25. (U) According to ROKG data on the level of fines and
jail sentences imposed on infringers, there is an
accelerating rate of investigations, trials and convictions
in many areas. For instance, during the first three
quarters of 2005 (latest data available),fines were issued
in 17,015 cases of IPR violations. Jail sentences were
issued in 780 cases, with 103 cases resulting in
imprisonment. The United States continues to urge Korea to
further strengthen penalties for IPR violations in order to
increase their deterrent effect against piracy.


26. (U) Korean authorities from a variety of agencies and
authorities worked together to increase the level of IPR
awareness on university campuses before conducting intensive
enforcement campaigns coinciding with the opening of the
school year in September 2005. During this enforcement
campaign, more than 110 copy-shops were investigated, with
more than 5,500 seizures of illegally copied publications.
While the number of facilities investigated and the number
of publications seized was more than double that of the
previous year, the overwhelming majority of the seizures
were copies of Korean publications.


27. (U) In January 2006, the Seoul Central District
Prosecutor's office declined to prosecute more than 13,000
individuals accused of illegal file sharing by a copyright
enforcement NGO (Ref A),even as it clarified that it would
pursue charges against individuals involved in online
copyright infringement for commercial gain. While the
Prosecutor's explanation for its decision did not
specifically establish thresholds for prosecution, the
Embassy is concerned that the prosecutors unintentionally
sent a mixed message to the public, especially young users
of popular Internet file-sharing services.

SOFTWARE PIRACY
--------------


28. (U) Korea has made significant progress towards
decreasing the rate of software piracy in recent years. The
Standing Inspection Team (SIT) of the Ministry of
Information and Communication continues to conduct raids on
commercial firms and other institutions suspected of using
illegal software. The total number of raids conducted by
the SIT in 2005 was 2,537, according to Korean authorities.
Of those inspected, some 1,556 were found to be using
pirated software.


29. (U) Despite these efforts, Korea's software piracy rate
in 2005 was estimated to be 46 percent by the Business
Software Alliance (Ref B) -- the same piracy rate as in
2004, but reflecting a slight decline in estimated losses
from USD 276 million in 2004 to USD 258 million in 2005.
The Seoul office of the Alliance reports that it has enjoyed
good cooperation in enforcement actions with Korean
authorities, including the Standing Inspection Team.

OPTICAL MEDIA PIRACY
--------------


30. (U) While pirated audio-visual DVD's, sold on the street
by informal vendors, may not be as significant a problem as
in other countries, concerns remain about ineffective
enforcement efforts. The Korean government has not
routinely conducted enforcement actions against retail-level
operations, in order to focus their efforts on locating
large caches of pirated material, or large-scale copying
facilities. In 2005, the Korean police did conduct a
targeted campaign for a certain time against pirated goods
sold at the Yongsan Electronics Market, the most notorious
outlet, and this raid appeared to have some limited impact
on the trade. We will continue to urge the Korean
government to be more proactive at all levels of
enforcement, large and small, in order to reinforce public
perceptions of the criminality of copyright violations.

COUNTERFEIT GOODS
--------------


31. (U) The Korea Customs Service kicked off a special

border enforcement initiative in February 2006 to focus on
intercepting counterfeit items -- especially garments and
high-end consumer goods, as well as pharmaceuticals and
automotive parts. This three month program consists of
nearly 100 inspection teams working with rightholders and
counterparts in KIPO and a number of international chambers
of commerce. This effort follows two similar initiatives in
2005, which resulted in 63 convictions and seizures worth
USD 23 million. By country, Korean firms are concerned most
about counterfeit auto parts, Europeans about fashionable
consumer goods, and both American and European firms suffer
from counterfeit pharmaceuticals. Many counterfeits appear
to be imported from China or Southeast Asia. Adequate
protection of trademarks also continues to be a problem of
concern in Korea.

INTERNATIONAL COOPERATION AND TRAINING
--------------


32. (U) Following up on an April 2005 meeting between Korean
government officials and a Strategy Targeting Organized
Piracy (STOP!) delegation, Korean customs, patent and other
officials have continued to discuss best practices and
enhanced efforts to fight the trade in counterfeited goods.
Since then, USG and Korean officials have continued that
dialogue in the customs, patent and enforcement areas.
Korean customs practices follow TRIPS requirements in cases
of suspect goods and the Korean Customs Service (KCS)
conducts inspections and raids using specially-trained IPR
task force teams.


33. (U) The generally high level of technical expertise in
Korea has allowed USG training to focus on trademark
adjudication, and judicial and administrative processes --
especially related to copyrights and patents. USG-funded
training took place on several occasions in 2005, both in
Seoul and in Washington, including a special State
Department-funded IPR Enforcement Workshop in Seoul which
was heavily attended by IPR-related judges and prosecutors.

KOREA's "IPR MASTER PLAN"
--------------


34. (U) The Korean government has reaffirmed its commitment
to the "IPR Master Plan," originally issued in early 2005,
and has assured us that the Plan will continue to evolve to
address new concerns as they arise. (Ref I) The Master
Plan, which is maintained and monitored by the Prime
Minister's Office, may serve as a useful way to ensure USG
concerns on IPR issues are recognized and remain on the
Korean government's agenda as priorities.


35. (U) In addition to the items already on the Master Plan
-- see last year's submission for a full listing -- we have
asked the Korean government to also include and consider
many of our other concerns, such as the following:

-- Renunciation of Program Deliberation and Mediation
Committee (PDMC) statement on software licensing;
-- Providing all rights under the Copyright Act on a
national treatment basis;
-- Codifying doctrines of secondary liability for copyright
infringement;
-- Providing for ex parte remedies;
-- Strengthening of technological protection measure
provisions;
-- Narrowing of library exceptions;
-- Avoiding over-broad exemptions for distance learning;
-- Extension of copyright terms;
-- Maintaining an efficient and fair system of ratings for
foreign works and sound recordings;
-- Effective enforcement actions, including enforcement
against textbook piracy, DVD piracy, and end-user software
piracy;
-- Application of sentencing guidelines to ensure deterrent
sentences;
-- Harmonization of the Copyright Act and Computer Program
Protection Act;
-- Continued cooperation on the STOP! Initiative;
-- Continued cooperation on the APEC Anti-counterfeiting and
Piracy Initiative.


CONCLUSION AND COMMENT
--------------


36. (SBU) Korea's planned future growth is centered on its
acknowledged strengths in IT, and the country's stated
desire to serve as a regional leader in investment and
exports. This, coupled with an increasing need to protect
Korean IPR, provides us reason to believe Korea will
continue to be a cooperative partner in protecting American
IPR and rightholders. The overall IPR environment in Korea
is improving and there are signs that it will get better.
The year 2005 was particularly encouraging on the
enforcement front. While this is good news, there are still
a number of areas in both the legislative and enforcement
arenas where protections should be increased. Therefore, we
recommend Korea remain on the Special 301 Watch List for

2006.


37. (SBU) As a final point, the Embassy notes that in its
2006 Special 301 submission, the International Intellectual
Property Association (IIPA) suggests an out-of-cycle review
for Korea, particularly to assess progress on book and music
piracy during 2006. While we agree that it is imperative
that we signal to Korea how important it is for the National
Assembly to pass the pending Copyright Act amendments as
soon as possible, the Embassy believes that an out-of-cycle
review is unnecessary for both tactical and practical
reasons. Tactically, this year's Free Trade Agreement talks
already provide strong leverage to pursue additional changes
to Korean IPR law in 2006. In practical terms, any out-of-
cycle review could merely end up duplicating the effort to
negotiate the IPR Chapter of the FTA, since the out-of-cycle
review and FTA negotiations could end up taking place at the
same time.

VERSHBOW