KAZAKHSTAN: SPECIAL 301

UNCLAS SECTION 01 OF 03 ASTANA 000454

SIPDIS

SENSITIVE
SIPDIS

STATE FOR SCA/CEN (O'MARA) AND EB/TPP/IBE (JBOGER)
STATE PASS USTR FOR JCHOE-GROVES
COMMERCE FOR ITA/MAC/OIPR (CPETERS)

E.O. 12958: N/A
TAGS: EFIN ECON ETRD KZ

SUBJECT: KAZAKHSTAN: SPECIAL 301

REF: A. 06 ASTANA 009, B. STATE 7944


1. (SBU) Summary: In 2006, Kazakhstan made further progress in its
efforts to protect Intellectual Property Rights (IPR). Legislation
passed in November 2005, combined with stepped-up enforcement
efforts, further tipped the economic scales against piracy.
President Nazarbayev underscored the importance of IPR protection in
his annual address to the nation, providing critical high-level
impetus to IPR enforcement efforts. In other positive developments,
the civil courts emerged as an effective force in protecting IPR
rights, and the IPR Commission has clearly embraced the need to
grant ex officio status to customs officials. Enforcement efforts
have succeeded in eliminating storefront distributors of pirated
materials; ironically, however, this success has spawned
Kazakhstan's "next generation" enforcement concern: the
proliferation of sidewalk vendors of pirated materials. While
Kazakhstan retains certain broad, institutional deficiencies in the
IPR domain - including a puzzling lack of jail sentences to date for
convicted IPR criminals -- the Government of Kazakhstan (GOK) has
demonstrated its resolve to confront piracy, and has generated
significant momentum in implementing reform. For that reason, post
recommends keeping Kazakhstan off the Special 301 Watchlist. End
summary.

2006 - ENFORCEMENT GAINS MOMENTUM
--------------


2. (U) The past year served as a testing ground for the November
2005 amendments (Ref A) that markedly toughened the penalties for
IPR infringement and closed significant loopholes. Several key
indicators point toward the efficacy of this legislation in further
improving the situation on the ground.


3. (SBU) First, official statistics demonstrate an increasingly
robust enforcement effort on the part of the authorities. According
to government data, in 2006:

-- 2101 administrative inspections were conducted (compared to 1765
in 2005 and 1697 in 2004);

-- 121 million tenge ($975,806) worth of goods was administratively
confiscated (compared to 72 million tenge in 2005 and 75 million in
2004);

-- 1729 persons were subject to administrative action (compared to
1407 in 2005 and 1365 in 2004);

-- 14,385,725 tenge ($116,013) was collected in administrative fines
(compared to 10.5 million tenge in 2005, and 6.7 million in 2004);

-- 268 criminal cases were initiated (compared to 92 in 2005 and 64
in 2004).


4. (SBU) Unfortunately, Post could not obtain aggregated 2006 data
on criminal convictions. (Both the IPR Commission and our private
sector contacts suggest that the number of convictions likely
trended upwards, roughly in parallel with the number of cases
initiated.) Informally, the IPR Commission acknowledged the IIPA's
point that few, if any, convictions have resulted in jail sentences.
Rather, the courts have to date preferred to either suspend
sentences upon payment of compensation to the damaged parties, or
oversee a reconciliation of the parties with a corresponding payment
of damages. (Comment: While the lack of jail sentences for IPR
crimes remains something of a mystery -- and a cause for concern --
it may be that the courts view the small-scale of most pirating
operations as insufficient to justify incarceration. See para. 6.
End comment.)


5. (SBU) Ironically, there is reason to believe that official data
may actually understate the government's success in combating
piracy. A prominent distributor of copyrighted material in
Kazakhstan reports that, in at least one region, local authorities
have been so effective in eradicating sales of pirated discs that
their enforcement data (e.g. number of arrests) have begun to
"suffer." While this is clearly not the case in all of Kazakhstan's
markets, it does suggest that, in the future, additional measures of
the GOK's effectiveness in combating IPR crimes may be needed.


6. (SBU) Available evidence points to the "miniaturization" of
pirated product distribution in Kazakhstan. Distributors of pirated
DVDs, CDs, etc., have increasingly been pushed to the margins of the
marketplace, as enforcement efforts have succeeded in shutting down
large, fixed distribution points. In the words of a well-informed
private sector observer, Kazakhstan's piracy problem now consists of
"micro-sellers" -- "mom-and-pop" operations which function with a
single computer or VCR, and sell their products out of a box on

ASTANA 00000454 002 OF 003


major city streets, ready to shift locations or abandon their goods
altogether upon the approach of law enforcement.


7. (SBU) Clearly, the problem of "micro-sellers" is far from
insignificant. Too small, nimble, and ephemeral to constitute good
targets for government bodies traditionally responsible for IPR
enforcement (the Justice Ministry's IPR Committee, the General
Procuracy, and the Financial Police),these operators seem to have
developed, at least to some extent, successful "cat and mouse"
strategies for dealing with local police. Making the regular police
a more effective actor in controlling "micro-pirates" may require
time and broader institutional changes.

PROTECTING IPR THE CIVIL WAY
--------------


8. (SBU) Key private sector observers inform Post that civil
litigation is emerging as a highly effective tool in IPR protection.
Civil courts are increasingly willing to rule in favor of the
plaintiff-licensee in civil disputes with alleged infringers, and
are becoming a substantial deterrent to trade in pirated goods. A
related weakness, however, can be identified -- law enforcement
officials often fail to inform the aggrieved party (i.e. the
copyright holder or licensee) of administrative actions against
pirates, thus denying the licensee an opportunity to open a parallel
civil claim against the defendant.

REMAINING GAPS - REAL AND ILLUSORY
--------------


9. (SBU) A key outstanding issue for Kazakhstan is the granting of
ex officio powers to customs officials. This is particularly
important for Kazakhstan, given the fact that the market for
"pirated" goods is dominated by imports. (An industry source
estimated that 80% of the counterfeit goods in Kazakhstan cross
into the country from Russia.) The country's extremely long and
porous border with Russia poses a tremendous challenge. In
addressing the ex officio issue, Kazakhstani officials have
repeatedly expressed concern that granting additional powers may add
to the institutional corruption of the customs authorities. Given
the endemic corruption known to exist in customs structures, Post
has little reason to question the genuineness and legitimacy of
these concerns. The customs ex officio issue has featured
prominently in Kazakhstan's bilateral WTO accession negotiations
with the U.S. In post's view, the IPR Commission, at least, has
fully accepted the necessity of granting ex officio powers; delays
in passing the necessary legislation appear to be driven by concerns
over funding the necessary training programs, and efforts to develop
mechanisms to minimize the opportunities for abuse of the authority.
A draft law incorporating ex officio powers (reportedly consistent
with TRIPS) is currently being reviewed by the Prime Minister's
office.


10. (SBU) The IPR Committee raised a parallel argument in regard to
the IIPA's suggestion that the ex officio authority of the police be
extended to the administrative arena. This, the GOK officials said,
would also exacerbate corruption by opening a door for the police to
accept bribes in return for downgrading charges from criminal to
administrative. Granting ex officio powers to the police in
pursuing administrative-level violations may certainly prove a
useful tool in combating the "micro-sellers" discussed above.
Still, it is useful to consider that, given the corruption-prone
reality of many of Kazakhstan's post-Soviet institutions, extending
the police powers may lead to unintended consequences. As in the
case of granting ex officio powers to customs officials, the
solution may lie in combining the grant of new powers with
appropriate safety mechanisms or institutional reforms - a process
which, realistically, may take time.


11. (SBU) GOK officials have told Post that they view the
introduction of civil ex parte searches as unnecessary and
irrelevant to the situation in Kazakhstan. The reason, they
explain, lies in the nature of Kazakhstan's legal process, wherein
all civil cases based on property issues must be based on claims
from damaged parties. Notably, private sector industry
representatives also told Post that they did not see the potential
benefit of such provisions in Kazakhstan.


12. (SBU) The IIPA's assertion that the 2004 statutes only provide
for a 50-year term of copyright protection is inaccurate, as the
November 2005 amendments specifically provide for the extension of
copyright protection to 70 years, in keeping with international
standards (Ref A). The IIPA repeats another error from its 2006
report, overstating the minimum damages threshold for criminal
prosecution (currently about $9) by a factor of 35.


ASTANA 00000454 003 OF 003



13. (SBU) The IIPA also cites Kazakhstan's need to establish a legal
basis for the confiscation and destruction of equipment used in the
criminal manufacture of pirated goods. The IPR Committee has
repeatedly assured post that a combination of statutes in the
Criminal Code and the Criminal Procedure Code constitutes an
adequate provision for the confiscation of such equipment.
Moreover, the IPR Committee has stated, such confiscations are
routinely carried out and do not require a court order. A court
order is necessary only to destroy such equipment -- a procedural
requirement which the IPR Committee defends as necessary to preserve
potentially material evidence.


14. (SBU) The IPR Committee recently told Post that the GOK plans to
draft amendments implementing WIPO digital treaties this year;
following public and parliamentary debate, enactment would likely
occur in early 2008. A regulatory scheme for the production and
distribution of optical disc material and equipment is slated for
development in 2008. There remains a strong consensus among both
government and industry observers that no large manufacturers of
pirated discs operate in Kazakhstan.

EVIDENCE OF STRONG POLITICAL WILL
--------------


15. (SBU) The past year witnessed a remarkable political impetus in
favor of IPR protection in Kazakhstan. In his annual address to the
nation on March 1, President Nazarbayev explicitly mentioned IPR.
Most notably, he linked the need to protect IPR to the development
of a domestic high-tech industry and the diversification of
Kazakhstan's economy away from the extractive sector -- both
cornerstones of Kazakhstan's current economic policy. This was, by
some accounts, a breakthrough in presenting IPR protection as a
policy driven by Kazakhstan's national interests. In conversation
with Econoff, a leading distributor of copyrighted materials
credited Nazarbayev's speech for spurring law enforcement agencies
to increase their anti-piracy efforts, as well as for discouraging
potential Russian criminal syndicates from attempting to enter the
Kazakhstani market.


16. (SBU) Political support for IPR protection takes a variety of
forms. A "Patent Palace" will be constructed in Astana by 2009; it
will house all government agencies involved in IPR issues, including
the IPR Committee and the National Intellectual Property Institute.
GOK officials often cast effective IPR protection as a precondition
for the development of a flourishing Kazakh (or Kazakhstani)
culture. Furthermore, much attention is currently being devoted to
reforming Kazakhstan's patent system. A draft law modernizing the
framework and bringing it closer to Western norms was passed by
Parliament in February 2007, and awaits the President's signature.


17. (SBU) In 2006, Kazakhstani IPR officials, their hand
strengthened by Kazakhstan's removal from the Special 301 Watchlist,
welcomed opportunities to cooperate with the USG. Officials from
the IPR Committee, the General Procuracy, the Financial Police, and
the Patent Institute participated in training programs organized by
the USPTO and the Department of Justice. GOK IPR experts
constructively engaged their USG counterparts during bilateral WTO
accession talks, and remain willing and open Embassy interlocutors.


COMMENT AND RECOMMENDATION
--------------


18. (SBU) Keeping Kazakhstan off the Special 301 Watchlist remains
the best tool for encouraging continued progress on IPR protection.
While much remains to be done, the past year has seen steady
improvement on the enforcement, legislative, and institutional
fronts. Crucially, the political climate for fostering IPR
protection is positive. An appropriate acknowledgement of
Kazakhstan's efforts -- keeping Kazakhstan off of the Special 301
Watchlist -- will help preserve the current momentum and create the
best climate for ongoing U.S.-Kazakhstani cooperation in this area.

MILAS