AIT/T VIEWS ON SPECIAL 301 REVIEW 2006

UNCLAS SECTION 01 OF 07 TAIPEI 000562

SIPDIS

SIPDIS

STATE FOR EAP/RSP/TC AND EB/IPE LACROSSE, PASS USTR FOR
JCHOE-GROVES, WINTERS, WINELAND, AND STRATFORD, USDOC FOR
4431/ITA/MAC/AP/OPB/TAIWAN/MBMORGAN AND JBOGOR, DOC PASS
USPTO JURBAN AND LOC STEPP

E.O. 12958: N/A
TAGS: KIPR ECON ETRD TW
SUBJECT: AIT/T VIEWS ON SPECIAL 301 REVIEW 2006

REF: A. STATE 14937

B. 05 TAIPEI 4927

C. 05 TAIPEI 4549

D. 05 TAIPEI 4330

E. 05 TAIPEI 4059

F. 05 TAIPEI 3807

G. 05 TAIPEI 3777

H. 05 TAIPEI 3712

I. 05 TAIPEI 3307

J. 05 TAIPEI 2909

K. 05 TAIPEI 2143


1. Summary: The environment for Intellectual Property
protection in Taiwan continues to improve as key sectors of
society embrace the reality that Taiwan's economic prosperity
is increasingly dependent on innovation. Taiwan authorities
have continued effective enforcement actions targeted at
optical media piracy, counterfeit pharmaceuticals and fake
branded goods. Efforts to combat internet-related piracy
continue and show promise in spite of increasing use of the
internet to market infringing goods. Judicial decisions are
beginning to reflect a better understanding of intellectual
property law and Taiwan's Intellectual Property Office has
proven itself committed to providing training to law
enforcement officials and judges, lobby for needed
legislative action, and cooperate with industry to find
creative solutions to IPR problems where legislation is
lacking.


2. But Taiwan's IPR protection regime still has some large
holes that continue to provide opportunities for IP pirates.
Although Taiwan's Ministry of Economic Affairs is a strong
supporter of IPR protection, that dedication is not uniformly
in evidence throughout the government. Taiwan's Ministry of
Education (MOE) has not embraced government promises to
create a positive environment for intellectual property.
MOE's unwillingness to take any actions to address illegal
downloading and copying on university campuses fosters a
disregard for IP among Taiwan's future leaders and is cause
for serious concern. Taiwan's Department of Health has
displayed a similar unwillingness to take the lead in efforts
to clamp down on the flow of counterfeit pharmaceuticals into
Taiwan. The decision by the Ministry of the Interior to
transfer 18% of the IPR Police unit to other public security
duties suggests the Taiwan government is beginning to view
IPR protection as a lower priority. Finally, Taiwan's unique
political status makes needed cooperation with regional law
enforcement agencies to combat cross-border trade in
counterfeit goods extremely difficult. In view of the
continuing lack of response by some Taiwan government
agencies to the problems of intellectual property violations,
AIT/T recommends Taiwan remain on the Special 301 Watch List
for 2006. End Summary

==============================
Optical Media Piracy in Taiwan
==============================


3. Since 2003, Taiwan has made great progress in controlling
optical media piracy. The passage of the Optical Media Law
in 2001 required optical disk (OD) manufacturing plants to be
licensed and mandated the use of Source Identification (SID)
Codes, giving Taiwan law enforcement the legal framework to
crack down on counterfeiters. Creation of enforcement task
forces, including the Joint Optical Disk Enforcement (JODE)
Task Force and the Integrated Enforcement Task Force (IETF),
had a significant effect on manufacturing and retail sales of
pirated optical media. Trade associations report the number
of stalls in night markets, traditionally a primary channel
for counterfeit media, has fallen from over 300 to less than
50 island-wide, a number that has remained steady for the
past two years.


4. As Taiwan authorities have effectively shut down
counterfeiting activities in optical media plants and retail
markets, counterfeiters have moved to using DVD burners
installed in private residences. Counterfeiters reportedly
take orders by phone or internet, burn copies on demand and
use express mail services to make deliveries. Taiwan law

TAIPEI 00000562 002 OF 007


enforcement and trade associations believe that the number of
Chinese websites offering counterfeit media is growing and
note a rise in shipments of small quantities of counterfeit
optical media, primarily movies, from China. Local trade
associations in Taiwan believe the optical media piracy rate
is falling, albeit slowly for movies and software. The
International Federation of Phonographic Industries (IFPI)
reports a dramatic drop in counterfeit CDs from 36% to 26%,
but attributes this to the growing ease and popularity of
digital content downloading.

============================================= =======
Enforcement Action by Police and Special Task Forces
============================================= =======


5. Taiwan law enforcement had a number of successes in 2005.
Taiwan's Joint Optical Disk Enforcement (JODE) Task Force
conducted 1193 inspections of optical disk manufacturers in
2005, up slightly from 2004. While no violations were found,
seven OD manufacturing plants did close. The IPR Police
conducted 5000 raids, filed 1428 cases and made 1593 arrests
for IPR infringement, compared to 1219 cases and 1052 arrests
in 2004. This improved result may reflect the change in late
2004 of the IPR Police from an ad-hoc task force to an
official arm of the National Police.


6. The National Police also used regular units to
investigate IPR infringement cases. 2005 figures show a
signicant increase in the number of cases filed and suspects
arrested. Cases increased by 10% to 4648 and arrests
increased 21% to 5245 in 2005. Trademark cases increased
dramatically, reflecting additional resources directed
towards investigation of sales of counterfeit branded and
luxury goods, primarily smuggled from China. National Police
seizures of counterfeit optical media decreased compared to
the same period in 2004. Officials attribute this drop to
the growing popularity of downloading digital content from
the internet.


7. Taiwan Customs reported the same number of seizures of
IPR-infringing imports in 2004 and 2005, but noted an
increase in seizures of copyright-infringing optical media.
Taiwan Customs also seized 11 incoming shipments and one
outbound shipment of counterfeit PC boards for Nintendo game
players. While changes in the copyright law in 2004 allowed
for ex officio inspections by Taiwan Customs, the law
requires rightsholders to verify within a short period that
the seized materials are counterfeit. The Motion Picture
Association has assigned personnel to Chiang Kai Shek
International Airport to verify the authenticity of suspect
parcels but Customs reports that some rightsholders are not
responsive to requests to verify suspect trademark
violations.

=====================================
Computer Software Piracy, No Progress
=====================================


8. The Business Software Association believes the software
piracy rate in Taiwan has remained consistent over the past
three years at 43%, in spite of some reports that suggest
that business software is increasingly being downloaded and
exchanged by P2P users. Anecdotal evidence suggests that
most servers offering cracked software are based in China.
Although the Taiwan government has made efforts to ensure the
use of only registered and legal software in government
offices, AIT is aware of cases where Taiwan government
offices are alleged to have purchased IP-infringing products
or allowed illegal downloading of copyrighted software. In
one instance, the Ministry of Defense purchased
copyright-infringing copies of software from an unlicensed
vendor. Another case alleges users under the Ministry of
Education illegally downloaded over 30,000 copies of its
software.

===========================================
Book Piracy Remains an Unquantified Problem
===========================================


TAIPEI 00000562 003 OF 007



9. Representatives of the Taiwan Book Publishers Association
(TBPA) believe the level of police cooperation in combating
book piracy is acceptable, but complain that judges are
reluctant to issue search warrants. TBPA alleges that some
on-campus copyshops are actively copying textbooks but do not
face sanctions from university administrators. Confusion
over the definition of "fair-use" reportedly encourages
professors and students to routinely copy all or large parts
of a copyrighted work. Police are reluctant to conduct
enforcement activities on campus after a 2002 raid on Cheng
Gong University in Tainan led to wide-spread student
protests. TBPA complains that the Ministry of Education has
been unwilling to establish a channel for dialogue on this
issue and has not taken effective steps to curb illegal
copying on campus.

=================================
Trademark Piracy a Growing Threat
=================================


10. As optical media piracy rates appear to be dropping,
investigations and seizures of counterfeit branded goods in
Taiwan is increasing. Police say this is because more
resources have been deployed to crack down on sale of
counterfeit bags and clothing. In 2005 police filed 2244
cases involving trademark infringement, up 21% from 2004, and
arrested 2627 sspects, up 20% from 2004. Taiwan Customs
reported that the number of seizures of counterfeit branded
goods fell from 208 in 2004 to 174 in 2005. However, Taiwan
Customs impounded 2,393,323 items in 2005, compared to just
63,264 items in 2004. Counterfeit cigarettes accounted for
most of these items, but substantial quantities of
counterfeit cosmetics, leather goods (including bags),PC
boards, medicines, and clothes were also seized. In
addition, Taiwan Customs made three seizures of export goods
totaling 700 items, including one shipment of counterfeit
Ford auto parts.

============================================= =====
Pharmaceutical Piracy Wide-Spread, DOH Not Engaged
============================================= =====


11. A targeted effort by Taiwan's Ministry of Justice in
2005 led to a number of seizures of counterfeit
pharmaceuticals island-wide. A few examples: In May, police
arrested a nurse's aide in Taoyuan and charged her with
selling counterfeit weight-loss drugs over the internet. The
accused reported she bought the counterfeit Reductil from
someone she had met on-line and received shipments of
counterfeit drugs from Vietnam. In December 2005, Taiwan's
IPR Police busted a ring selling counterfeit pharmaceuticals
on the internet, arresting two and seizing 5000 counterfeit
pills of Reductil, Viagra, Cialis, and other drugs. After
several months of investigation, four police units raided a
warehouse in the Taipei suburb of Xizhi, seizing 550,000
counterfeit pills of Reductil, Stillnox, Viagra, Cialis,
Zantac, Tamiflu, and others. Police estimated the street
value of the seizure as over USD 9 million. Two people were
arrested. Large quantities of high-quality packaging
materials, instruction pamphlets and labels were also found.
The quality of the counterfeit products was extremely high.
Police believe the drugs were smuggled from China in bulk,
then packaged and distributed to pharmacies, medicine shops,
and night market vendors all over Taiwan.


12. The majority of counterfeit pharmaceutical products
appear to be smuggled into Taiwan, usually from China, before
being packaged and distributed locally. However, according
to a statement from one of the defendants in the large case
above, they had recently begun importing chemicals from China
with an eye to producing some counterfeit drugs in Taiwan.
Packaging is reportedly produced in Taiwan and has become so
sophisticated that industry representatives are sometimes
unable to determine the fakes from a visual inspection.


13. The Taiwan Department of Health (DOH) has not made
efforts to stop counterfeiting of pharmaceutical products a
priority. DOH has no enforcement arm and relies on the
Ministry of Justice to lead anti-counterfeiting efforts. In

TAIPEI 00000562 004 OF 007


2003, DOH established an interagency committee that meets
biannually to share information and provide training on
recognizing counterfeit pharmaceuticals. DOH has made no
effort to cooperate with TIPO to take action against
counterfeit pharmaceuticals, nor does it play any official
role in pharmacy accreditation. DOH is focused on consumer
safety and because there have been no reports of adverse
reactions from counterfeit pharmaceuticals, combating
counterfeits is not a priority for DOH.

===========================
Changes in IPR Laws in 2006
===========================


14. Taiwan's Legislative Yuan passed amendments in 2005 that
would allow trademark registrations to claim multiple
priority rights. This gives TIPO the legal basis to
recognize trademark registration from other countries and set
priority dates based on the first trademark registration.
Taiwan also passed legislation to establish a patent attorney
system and provide for specialized patent attorney licensing.
In addition, TIPO began negotiations with Internet Service
Providers (ISPs) and digital content providers to devise an
ISP Code of Conduct for intellectual property protection.
While not legally binding, the proposed Code of Conduct would
spell out agreed upon measures that ISPs and content
providers could take when intellectual property infringing
items are offered for sale or trade over the internet. ISPs
have been reluctant to agree to specific measures, although
negotiations continue. Property rights associations are
considering whether to propose the amendment of appropriate
laws as a means to encourage ISPs to reach a negotiated Code.



15. On January 1, 2006, Taiwan's Ministry of Foreign Affairs
officially abolished its Anti-counterfeiting Committee. The
committee was established in 1981, but its duties had been
assumed by TIPO after the creation of that body in 1999.
Since that time, the ACC had become a liaison body within
TIPO without permanent staff or budget. After extensive
consultation with rightsholders groups and interested parties
(including the U.S. Department of State) TIPO officially
disbanded the ACC. The extensive consultations demonstrate
the willingness of TIPO officials to engage local and
international stakeholders and are a positive indication of
Taiwan's willingness to work with the international community
on IP protection.

======================================
P2P Cases - One Step Back, Two Forward
======================================


16. In 2005, Taiwan's Courts issued two conflicting rulings
in cases brought against Peer to Peer (P2P) service
providers. In June, EZPeer was found not guilty of copyright
violations after the Shilin District Court found that EZPeer
did not illegally reproduce or transmit copyrighted
materials. The Court ruled that Taiwan law did not prohibit
the use of P2P services, but implied that users could be
liable for copyright violations. Recording industry
association IFPI has appealed the decision. In September,
the Taipei District Court found Kuro and its management
guilty of copyright violations, fining the company USD 93,000
and sentencing three senior managers to up to three years in
prison. A Kuro user was also sentenced for downloading 900
copyrighted songs from Kuro and sentenced to four months
(commutable to a fine of approximately USD 1500.) The Taipei
Court found Kuro's advertisements and web banners encouraged
users to violate copyrights. The Court was also influenced
by Kuro's staff admitting to uploading thousands of songs to
the Kuro server at the direction of Kuro management. Kuro
has appealed this ruling.

============================================= ==========
Data Protection Approved, Still Waiting for Regulations
============================================= ==========


17. Amendments to Taiwan's Pharmaceutical Law in January
2005 provided pharmaceutical companies with five years of

TAIPEI 00000562 005 OF 007


data protection for new drugs. New products must be
registered in Taiwan within three years of release in an
advanced country market (A10 countries.) Implementing
regulations have been drafted and circulated widely among
innovative pharmaceutical companies and generic producers.
While these regulations have not yet been officially adopted,
DOH officials have assured manufacturers that products
registered after the February 2005 promulgation of the law
will be able to benefit from the data protection provisions.
DOH expects the regulations to be officially adopted no later
than June 2006.

=====================
2005 Training Efforts
=====================


18. TIPO and Taiwan Customs organized training sessions for
judges, prosecutors and enforcement officials throughout the
year, often in cooperation with rightsholders. Nintendo held
three training sessions for approximately 60 Taiwan Customs
officials in March and August 2005 to explain how to identify
counterfeit Nintendo hardware and game cartridges. TIPO
conducts regular training sessions for prosecutors and new
judges on IPR regulations and laws. Additional workshops for
50 judges and patent examiners on Identifying Patent
Infringements took place in August 2005 and 157 police took
part in seminars on Inspection and Prevention of
Counterfeiting on the Internet in September. Also in
September 2005, AIT and TIPO hosted a seminar attended by 88
judges, prosecutors and law enforcement personnel on
Combating Internet Piracy. Speakers included representatives
from industry associations (MPA, BSA, IFPI, and PhRMA),the
U.S. Department of Justice, the U.S. Patent and Trademark
Office, The Bronx District Attorney's Office, TIPO and the
IPR Police. TIPO regularly sends its staff to training
sessions conducted by the USPTO in Washington.


19. A regional IPR Seminar held in Hong Kong in September
2005 illustrated the difficulty Taiwan law enforcement has in
interacting with regional counterparts. AmConGen Hong Kong
originally invited law enforcement representatives from
across East Asia to participate in a seminar designed to
improve regional efforts to combat internet piracy. However,
Hong Kong authorities subsequently refused visa requests for
Taiwan experts and made it known that Taiwan invitees with
valid visas would be refused entry. Hong Kong's refusal to
issue visas was presumably in response to PRC concerns about
Taiwan participation in this regional cooperative event.
Taiwan is not eligible to join WIPO and is not a signatory to
the WIPO Copyright Treaty or the WIPO Performances and
Phonograms Treaty.

========================
IPR Court Coming in 2007
========================


20. After much discussion by legal experts and the Judicial
Yuan, an IP Court Planning Committee was established in
September 2005. The Committee agreed to include both
criminal and civil IPR cases in the mandate of the IP Court.
However, current draft legislation would require district
courts to handle first instance criminal cases involving
copyright violations. Under this proposal, the IP Court
would hear criminal copyright cases only on appeal. An IP
Court Organic Act and an IP Cases Trial Act have been
proposed to Taiwan's Legislative Yuan and TIPO expects these
bills to be considered in the current legislative session.
Training for prospective IP Court judges will begin in March
2005, with the first session of training expected to conclude
in July 2005. Subsequent training sessions for IP Court
judges will be scheduled after July.

=========================
Areas of Concern for 2006
=========================


21. Over the past three years, TIPO has proven itself to be
a reliable partner in efforts to combat intellectual property
violations. AIT has worked closely with TIPO leadership to

TAIPEI 00000562 006 OF 007


conduct effective training for legal officials, lobby for
needed changes in IPR law and regulation, and exchange views
with rightsholders and law enforcement officials. TIPO
officials have been in the forefront of efforts to meet new
challenges to IP protection as the internet increasingly
abets counterfeiters. However, TIPO's influence over other
government bodies is limited and not all sectors of Taiwan's
government or society are fully supportive of efforts to
combat intellectual property violations.

================================
MOE Needs to Take Responsibility
================================


22. The Ministry of Education (MOE) has been particularly
reluctant to embrace protection of intellectual property.
Rightholders believe IPR infringement on MOE-administered
Internet Service Provider TANet is rampant. TBPA believes
illegal copying of textbooks at on-campus copyshops is also
pervasive. A cultural sympathy in Taiwan for students likely
contributes to MOE's decision to "turn a blind eye" to this
illegal behavior. However, as a government agency, MOE has
the responsibility to abide by laws prohibiting illegal
downloading or copying of copyrighted material. MOE has not
taken steps to do so and has been unwilling to meet with
rightsholders groups or with TIPO to discuss steps that can
be taken to address these problems.

============================================= ======
Improve Cooperation in Battle on Counterfeit Pharma
============================================= ======


23. The Department of Health is also reluctant to take
concrete measures to address what by most estimates is a
serious counterfeit pharmaceutical problem in Taiwan.
Despite the considerable efforts of Taiwan law enforcement
officials, industry estimates that as much as 25% of
pharmaceuticals sold in Taiwan are counterfeit or illegal
parallel imports, a figure DOH accepts. For popular
"lifestyle" drugs, counterfeits could be as high as 40% of
the market. Recent police raids suggest counterfeiters are
now targeting public fears of Avian Flu to distribute
counterfeit Tamiflu. DOH has biannual meetings with law
enforcement and pharmaceutical associations but sees
counterfeiting as a public health issue, rather than an IPR
issue. DOH has refused to include TIPO in its biannual
counterfeiting working group meetings. The absence of
confirmed cases of adverse reactions to counterfeit drugs
leads DOH to make this problem a low priority. Although
penalties for manufacture, distribution or sale of
counterfeit drugs were increased by amendments to the
pharmaceutical law in 2004, DOH was unable to provide any
examples of cases where pharmacists had been arrested or lost
licenses for selling counterfeit products. DOH has only a
limited role in issuing pharmaceutical licenses and has no
power to audit or revoke licenses once issued.

======================
Fully Staff IPR Police
======================


24. The legal establishment of the IPR Police in 2004 was a
victory for rightsholders and a large factor in Taiwan's
removal from the Special 301 Priority Watch List in 2005.
The force was established at 220 persons and the view at the
time was that the size of the force could grow as additional
funding became available. Instead, budget cuts and
reassignment of personnel to "public security" efforts have
cut the size of the IPR Police from 220 to 180 officers. The
IPR Police is not the only special police unit to lose staff,
the Environment and Forestry Units have reportedly been
eliminated. But the reduction in staff sends the wrong
message to rightsholders and IPR infringers. In addition,
the IPR Police face shortages in internet expertise and the
latest computer equipment. In spite of these shortcomings,
the IPR Police has done exceptional work in 2005. Fully
staffed, trained and equipped, this unit could do even more.

=============================================

TAIPEI 00000562 007 OF 007


Opportunities for Regional Cooperation Needed
=============================================


25. Taiwan's unique political status can make opportunities
for cooperation with international counterparts rare.
Although Taiwan officials have participated in regional
meetings under the auspices of APEC or as NGO members, direct
communication that could usefully address cross-border IP
infringement is difficult. As Taiwan's law enforcement
efforts to crack down on production of counterfeit products
have been more successful, manufacturers have moved
off-shore, often to China. This creates a structural
difficulty for Taiwan officials who have limited
communication with their counterparts across the Strait.
Efforts to facilitate that communication have had little
success. Taiwan Customs reports they have virtually no
communications with their counterparts from China and Hong
Kong Customs officials recently refused to meet with Taiwan
Customs officials. As more and more counterfeit products are
exported and smuggled out of China, the inability of Taiwan
to participate in regional information sharing networks will
make combating IP piracy in Taiwan increasingly difficult.


============================================
Future Training Opportunities and Objectives
============================================


26. As Taiwan moves to tackle the problems posed by internet
piracy, U.S.-sponsored training that addresses internet
investigations and prosecutions and includes experienced U.S.
prosecutors as speakers would be particularly welcome.
Taiwan is also in the process of establishing an IPR Court.
Seminars by U.S. judges with experience in hearing IPR cases
would be helpful as Taiwan trains its own judges for duty on
this new Court. Efforts to assist Taiwan to build regional
information sharing networks among law enforcement officials
are badly needed to assist Taiwan to combat an increasing
torrent of counterfeit goods coming from China and other
countries. Initiatives directed towards Ministry of
Education and Department of Health officials would also be
useful in creating a better understanding of the importance
of IPR protection in education and health. Finally, advance
notice of USPTO and other training opportunities would be
helpful in ensuring maximum Taiwan participation at these
events. Currently, announcements of training opportunities
are made a few months in advance, this does not provide
sufficient time for some nominees to seek approval and obtain
funding. Earlier notifacation of yearly training programs
would facilitate greater Taiwan attendance at these important
events.
KEEGAN