SERBIA'S IPR ENFORCEMENT EFFORTS IMPROVE IN 2006

UNCLAS SECTION 01 OF 03 BELGRADE 000307 SIPDIS DEPT FOR EB/IPE-JBOGER DEPT PLS PASS TO USTR JCHOE-GROVES, DOC-CPETERS, USPTO-JURBAN AND LOC-STEPP USDOC FOR 4232/ITA/MAC/EUR/OEERIS/SSAVICH SIPDIS E.O. 12958: N/A TAGS: ECON ETRD PREL SR KIPR SUBJECT: SERBIA'S IPR ENFORCEMENT EFFORTS IMPROVE IN 2006 REF: A) STATE 7944 B) 06 BELGRADE 275 SUMMARY -------------- ¶1. The International Intellectual Property Alliance (IIPA), in its yearly Special 301 submission to USTR, elected not to recommend that Serbia be placed on the Special 301 Watch list. Embassy supports this decision. Serbian authorities responsible for intellectual property rights (IPR) enforcement demonstrated significantly improved results in ¶2006. Passage of legislation in July 2006 that establishes the enforcement powers and sets penal provisions was a key enabler for these gains. Numerous business people from various industries concerned with IPR protection all confirmed greater coordination with enforcement bodies and general satisfaction with the improved results. END SUMMARY. PROGRESS ON 2006 IPR ACTION PLAN -------------- ¶2. The Serbian government (GOS) agreed to the action plan proposed in reftel B in March 2006. One of the key items of the plan was passage of a new IPR enforcement law that provides powers for market inspection, tax inspectors, customs and police to act independently whenever pirated or counterfeit goods are found. The law, which was approved and entered into force in July 2006, also makes companies liable for criminal penalties. ¶3. Vera Despotovic, head of the department for Market Inspectors in the Ministry of Trade, Tourism and Services, told econoff that prior to the new law, market inspectors had limited enforcement powers with authority to investigate only upon the request of the rights holder. Now, market inspectors can act ex officio, i.e., independently, on suspicion of illicit activities. ¶4. Since May 30, 2006, market inspectors conducted 414 audits and confiscated 23,882 articles of various counterfeit goods. Only 28 of the 414 audits were conducted at the request of rights holders, indicating that inspectors were proactively searching for IPR violations. ¶5. In one request from the Anti-Piracy Association (APA) in Serbia, market inspectors were notified of the rental of pirated DVDs by a large video rental chain called Video Klub Zabac, in Novi Sad. It is one of the largest video rental outlets in Serbia, with 23 locations. Market inspectors seized some 2,000 pirated DVDs from the Novi Sad location. Charges have been filed against the video club owner, and the case is currently before the court. ¶6. Zoran Savic, Executive Director of Millennium Film and Video, one of the primary distributors of films to Serbian theaters and video clubs, told econoff that the environment is changing for the better due to market inspector activities. Video club owners with pirated DVDs, worried about the prospect of unannounced raids, now are calling Millennium to purchase legitimate DVDs while discarding pirated copies. Owners realize that if they are caught, criminal penalties will cost them three times more than purchasing legitimate titles. Savic also said that Millennium's sales increased 30 percent in 2006. ¶7. The IPR Unit at the Serbian Customs Administration also reported strong results in 2006 in comparison with 2004 and 2005: - The number of actions taken based on the requests of the right holders was 92 in 2006. This is six times greater than in 2004 (15) and 2.3 times greater than 2005. - The number of interruptions to customs procedures due to suspicion of IPR violations was 1,042 in 2006. This was 57 times greater than 2004 (18) and 3.3 times greater than 2005 (305). - The number of legal sentences by the commercial courts that included destruction of the goods due to IPR violations was 39 in 2006. This is 6.5 times greater than in 2005 (6). - The number of declarations made by importers, exporters, receivers or owners in which goods were acknowledged as counterfeit was 185 in 2006. This is 5.6 times greater than in 2005 (35). These declarations were not possible in 2004, since appropriate regulations were introduced only in 2005. - In 2006, Customs made 48 requests for information on rights BELGRADE 00000307 002 OF 003 holders to the Institute for Intellectual Property Rights when a shipment had been halted and Customs lacked the necessary information for verification. In 2005, Customs made only one such request. ¶8. In an effort to demonstrate its willingness and ability to effectively carry out its enforcement responsibilities, Customs conducted its first-ever destruction ceremony, involving 15,240 pairs of counterfeit sneakers (10,440 Nike and 4,800 Diesel),on December 28, 2006. The shoes were confiscated at Belgrade's airport in three separate shipments from China. The authorized Nike retailer in Serbia, Delta Sport, made a EUR 25,000 donation of shoes and Nike merchandise to a local charity, rather than consent to donating the fake merchandise. Milos Drobnjak, brand protection manager at Delta Sport, told econoff after the ceremony that cooperation with Customs and the market inspectors has never been better. ¶9. In another event to highlight the work of its market inspectors, the Ministry of Trade, Tourism and Services hosted a destruction ceremony on May 31, 2006, in which Minister Bojan Dimitrijevic himself threw confiscated CDs into a mill at a local factory. According to him, 437,456 CDs with music, films and computer software were seized and subsequently destroyed in the ceremony, while the byproduct was purchased and used by the owner of the factory. ¶10. Concerning use of illegitimate software on government computers, the GOS implemented a legalization campaign as a pre-condition to Microsoft's entry into Serbia in 2001. Since that time, Microsoft and the Business Software Alliance in Serbia report good cooperation with government entities on procurement and licensing issues. ¶11. Concerning protection of undisclosed test data of pharmaceutical products, Zoran Labudovic, country manager for Pfizer in Serbia, told econoff that Serbia has significantly improved protection. Before Pfizer opened its representative office in Belgrade in 1999, domestic companies simply ignored the data protection laws that were on the books of the former Yugoslavia. Pfizer sued a local pharmaceutical company for patent infringement, winning a favorable ruling. Labudovic said that the Ministry of Health and Human Services now recognizes the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and has put in place regulations that protect data exclusivity. He said that he is very pleased with the progress. AREAS OF IMPROVEMENT FOR 2007 -------------- ¶12. Passage of the draft Law on Optical Discs did not occur in 2006. This law would regulate the production of optical discs, require the registration of the business activity for reproducing optical discs for commercial purposes, and provide for surveillance of 1) optical disc imports and exports, 2) imports and exports of polycarbonates (material used in production of optical discs) and 3) production equipment. In spite of a GOS commitment to push this draft law through the government and parliamentary process, the draft law still awaits government approval; with a new government still under formation, it is unclear at this time when action will resume. When the new government is formed, Post will meet with the relevant ministry to push for the expeditious passage of this legislation. ¶13. Another action item requiring follow-through is engaging tax inspectors in upholding the new IPR enforcement law. In the past, tax authorities resisted industry requests to inquire about software licensing in their routine inspections of businesses and subsequently report IPR violations to appropriate state officials. However, the new IPR enforcement law explicitly gives tax inspectors such authority. ¶14. Since the new law went into force in July 2006, it is unclear whether or not tax inspectors are enforcing this law. Vesna Arsic, State Secretary at the Ministry of Finance, told econoff on February 16 that no letter of instruction for proper implementation was issued to tax inspectors after the law went into force. However, she did say that inspectors were inquiring about software licensing in their audits and had even reported a few violations to appropriate authorities. In the meantime, she has asked the tax administration to prepare a letter of instruction for all inspectors giving clear guidance on how to implement the law. ¶15. Members of the Business Software Alliance (BSA) in BELGRADE 00000307 003 OF 003 Serbia told econoff when that although the IPR situation is not perfect, they would not recommend Serbia's placement on the Watch List. In their view, such action now would be counterproductive, given the progress that has been made over the past few years. BSA members said that while they are pleased with the IIPA decision not to recommend Serbia for the Watch List, BSA will continue working with the government to strengthen enforcement efforts and public relations efforts. In January, the BSA created a quarterly newsletter for distribution to IPR enforcement agencies and business partners to raise awareness of the issue and highlight the results for the government. U.S. ASSISTANCE TO INTELLECTUAL PROPERTY OFFICE -------------- -- ¶16. The USG is providing USD 500,000 in technical assistance to Serbia's Intellectual Property Office (IPO) through a grant from the U.S. Trade and Development Agency. This project addresses issues that undermine Serbia's ability to encourage national innovation and participate fully in regional and global trade. Under the grant, assistance to the IPO will focus on building human capacity and improving processes, while helping to establish the IPO as a self- funded agency from fees for processing patents, trademarks, copyrights and related IPR applications. AMCHAM IPR COMMITTEE ORGANIZES TRAINING IN 2006 -------------- -- ¶17. The American Chamber of Commerce's IPR Committee remains engaged in IPR advocacy and has been an effective vehicle for training enforcement authorities. The following training was provided in 2006: -- Training for the inspectors of SerbiaQs Republic Market Inspectorate providing information on recognizing original and pirated and counterfeit products (April 18, 2006); -- Training for police officers, prosecutors and judges in Zrenjanin providing information on the new legislative framework provided by the Law on Special Authorities for the Protection of IPR and on recognizing original and pirated and counterfeit products; -- Conference on IPR protection (September 18-19) brought together over 100 representatives of the Ministry of the Interior, the Ministry of Finance, prosecutors and judges, tax and market inspectors, customs officials and representatives of the intellectual property Office to discuss practical implementation of the legislation and learn more about best practices for fighting IPR infringements. Ambassador Polt opened the event, and keynote speakers included Milan Parivodic, Minister of International Economic Relations, and Vlajko Senic, State Secretary at the Ministry for Trade, Tourism and Services. Speakers included the director of the intellectual property Office, lawyers and experts from the IPR Committee, as well as a special agent from the FBI and a senior police advisor from the US Department of Justice, who presented techniques and experiences in fighting cyber crime; -- Presentation on the role of tourist inspectors in protection of intellectual property rights at a conference organized in Kopaonik (September 21, 2006) by the Ministry for Trade, Tourism and Services. ¶18. Training efforts in 2007 will be focused on tax inspectors and judges. The Committee will also look for ways to assist the government in its establishment of high tech crimes offices in the Belgrade District Court and the Belgrade District Special Prosecutors Office. COMMENT -------------- ¶19. We have had excellent cooperation with the government and relevant enforcement authorities when it comes to work on the action plan and training assistance, although cooperation in public relations has been less enthusiastic. The private sector is generally pleased with these enforcement efforts, and this is reflected in the IIPA decision not to recommend placing Serbia on the watch list. We will continue working with the new government on enactment of the optical disc legislation and providing support in AmCham's training initiatives. We will also seek ways to better publicize the results of these efforts. POLT