BRAZIL: Special 301 Recommendation

UNCLAS SECTION 01 OF 05 BRASILIA 000294 SIPDIS SENSITIVE SIPDIS DEPT FOR EB/TPP/IPE JENNIFER BOGER DEPT PASS USTR FOR SUE CRONIN AND JENNIFER CHOE GROVES DEPT PASS USPTO USDOC FOR ITA/MAC/OIPR CASSIE PETERS USDOC FOR ITA/MAC/WH/OLAC/MCAMPOS E.O. 12958: N/A TAGS: KIPR ETRD ECON BR SUBJECT: BRAZIL: Special 301 Recommendation REF: A) State 7944; B) Brasilia 249; C) 05 Brasilia 2813; D)Sao Paulo 71; E) 06 Brasilia 2606; F) 06 Brasilia 367; G) 05 Brasilia 573; H) Sao Paulo 1206 ¶1. (U) Per reftel A, the following is Embassy Brasilia's input for the Special 301 Review of Brazil. ¶2. (SBU) Summary: In 2006, Brazil continued to make significant progress in improving protection of copyrights and intellectual property. The potential for compulsory licensing - a key area of concern in Post's 2006 Special 301 submission (reftel F) - has ceased to be a major concern at this time. All of the U.S. pharmaceutical companies that were previously faced with this threat have either reached an accord with the GOB, or in the case of the one remaining firm that hasn't (Merck),believe their situation is relatively secure. End Summary. ¶3. (SBU) The December 2006 "Report on Activities" released by the GOB National Council to Combat Piracy (CNCP) indicates that the overall nine-month results of GOB interdiction efforts as of September 30, 2006 surpassed those for the entire year of 2005. Indeed, the GOB has significantly increased both its internal and border enforcement efforts over the last year. The report set forth the government's overall approach to combating IPR piracy, i.e. enforcement, public education, and economic efforts. The report also highlighted public outreach activities such as the "Pirate: I'm Out!" initiative and the planned March 2007 "Brazil Against Piracy" caravan across the country. The GOB and private industry have continued educational outreach efforts, but many Brazilian consumers exhibit a price-oriented approach to purchases, and attach no particular stigma to pirated items. ¶4. (SBU) Notwithstanding efforts by the GOB to streamline patent adjudication, Brazil continues to have a daunting patent backlog (exact numbers will be difficult to obtain until Brazil's patent agency, INPI, consolidates its data operations) and the pharmaceutical industry has voiced concerns over the confidentiality of undisclosed test and other data submitted to the Brazilian FDA equivalent, ANVISA, as part of the patent approval process. However, pharmaceutical companies have not been able to identify a case in which data confidentiality has, in fact, been breached. ¶5. (SBU) Post recognizes that the GOB still has much ground to cover. Still, it has made significant progress and gives every indication that it will continue to improve its IPR protection efforts. Therefore, Post recommends that Brazil's Special 301 Status be upgraded from Priority Watch List to Watch List. This stance is consistent with International Intellectual Property Alliance's (IIPA) recommendation that Brazil be accorded Watch List Status and the views of the Motion Picture Association (MPA) and companies like Nintendo. While PhRMA has called for Brazil to remain on the Priority Watch List, other players within the industry (like Gilead) have indicated that they favor an upgrade to Watch List. From our perspective, moving Brazil to the Watch List will bolster our engagement with Brazil on IPR, allowing us to better push the U.S. public/private sector agenda of training, legislative advances and heightened law enforcement. End Summary. -------------- --- Enforcement, Educational and Economic Strategies -------------- --- ¶6. (U) Often, much of the problem with piracy interdiction in Brazil is not the existing legislation, but the enforcement and proper application - or lack thereof - of the statutes. Through its enforcement efforts over the past year, the GOB has exhibited increasing political will to deal with piracy, partly in recognition of the damage contraband activities have done to the Brazilian economy through the loss of government tax revenues. Tax evasion is now frequently a concurrent charge during piracy and contraband arrests. ¶7. (U) The December "Report on Activities" released by the GOB Ministry of Justice (MOJ) National Council to Combat Piracy (CNCP) - a public-private undertaking that includes representatives of various trade associations - indicates a substantial increase in GOB piracy enforcement efforts. Although most of the data included for 2006 only covers the first three quarters of the year, the overall results equal or surpass calendar year 2005. The GOB report outlined its three-pronged approach to combating IPR crime: enforcement, public education, and economic efforts. While efforts in prior years focused heavily on public education, the GOB currently appears to be pursuing the enforcement approach more BRASILIA 00000294 002 OF 005 vigorously than the other two. ¶8. (U) The CNCP report segments out efforts by enforcement agencies and provides an overall view of total seizures of pirated goods. Among the highlights, the GOB reports a 54 percent increase in the total value of goods confiscated during the first nine months of 2006 (approximately USD 283.1 million) versus the same period in 2005 (approximately USD 183 million). The CNCP report shows seizures over the first nine months of 2006, outstripping all of 2005 by over USD 3.1 million. However, CNCP could not provide consolidated information on arrests and convictions for piracy and contraband activities. (See reftel B for statistics and detailed information on GOB enforcement, educational, and economic strategies to combat piracy, including individual state enforcement actions.) ¶9. (SBU) Even with improved enforcement activity, the GOB faces significant challenges. Representatives of several intellectual property trade associations expressed satisfaction with improved GOB anti-piracy efforts, but told Sao Paulo EconOff that despite successful raids and seizures in downtown shopping malls, they have noticed that the raided stores are full of the same products the next day. They also believe that while the GOB has made significant efforts to restrain inflow of pirated smuggled products through Brazil's border with Paraguay and through several ports, there are still insufficient enforcement agents to police Brazil's lengthy coast, which smugglers use to bring in pirated and counterfeit products. -------------- -------------- Efforts against the Production, Import and Export of Counterfeit Goods -------------- -------------- ¶10. (U) Detailed information on raids on notorious marketplaces and the results of both federal and state efforts against the production, import and export of counterfeit goods is included in reftel B. -------------- Legislation -------------- --Federal Legislation ¶11. (U) While the GOB has yet to take steps to adopt the WIPO Copyright Treaty (WCT) or the WIPO Performers and Phonograms Treaty (WPPT),industry groups and GOB agencies have been seeking to strengthen existing anti-piracy legislation. The 2006 legislative session ended without action on three proposed amendments to federal anti-piracy legislation covering software, industrial property and intangible property. This legislation, endorsed by the International Intellectual Property Alliance (IIPA),would have stiffened criminal penalties for piracy, which already prescribe penalties ranging from two to four years, but allow for alternate forms of sentencing such as community service. A GOB interlocutor recently told EmbOffs that these amendments are effectively off the table. Instead, he said alternative draft legislation, developed by CNCP's Legislation Working Group, with input from a 2005 private sector forum, has been submitted for consideration by Brazil's slow moving legislative process. (Comment: GOB anti-piracy legislation is generally TRIPS compliant. End Comment.) ¶12. (U) This alternative legislation proposes a number of changes to the country's penal code and industrial property law. Most suggested changes are practical in nature, such as providing a rights-holder with additional time for initiating legal proceedings; providing law enforcement agencies with the authority to seize maritime and aviation craft, in addition to buses, used to transport pirated goods; clarification of procedures for seizing and destroying goods, as well as enabling law enforcement agencies the ability to retain only samples for use in litigation; introducing differentiation in penalties between individual offenders (such as street vendors) and those involved in a larger operation; holding owners of media responsible for advertisements that promote buying, renting, exporting or importing goods produced in violation of IPR laws; incorporating penalties for software copyright violation into the penal code; and stiffening penalties if pirated goods are imported (reftel C). --State Legislation ¶13. (U) The Federal District and the states of Sao Paulo, Mato Grosso, and Rio de Janeiro took steps in 2006 to strengthen BRASILIA 00000294 003 OF 005 anti-piracy legislation. In Sao Paulo, an enterprise can now be banned from conducting business for five years for selling pirated goods. The prohibition extends to any branch or other attempt to open a similar business in another name. Mato Grosso is reportedly considering similar legislation. In the Federal District, vendors of pirated goods can be fined up to approximately USD 25,000. In Rio de Janeiro, sellers of pirated goods can lose their business licenses. ¶14. (U) However, there are states with far weaker anti-piracy legislation. For example, in Rio Grande do Sul (reftel D),sale of pirated items is subject to a relatively minor fine and state code allows counterfeiters to retain their illicit goods after paying the fine. --A View from Local Trade Organizations ¶15. (SBU) Brazil-based representatives of several major intellectual property rights associations told Sao Paulo EconOff that they feel there is a need for stronger legislation with higher penalties. These association representatives pointed out that although current penalties for vendors of pirated goods range from two to four years in prison, violators are rarely incarcerated because they are either first time offenders or are poor. -------------- Patents, Trademarks and Data Protection -------------- ¶16. (SBU) U.S. companies continue to complain of lengthy delays and burdensome documentation requirements for the approval of drug patents. The Ministry of Health's regulatory agency, ANVISA, must approve product registrations for imported pharmaceuticals and medical devices before they can be considered by Brazil's patent agency, the National Institute of Industrial Property (INPI). ANVISA approval currently takes three to six months for new versions of existing products and can take over six months for products new to the market. Some international medical device companies have expressed concern that legislation passed in October 2006 (reftel E),requiring them to submit economic information as part of the medical device registration process, could require disclosure of proprietary production cost data. ANVISA has made it clear to EmbOffs that it does not plan to request confidential data of this nature. ¶17. (SBU) The potential for compulsory licensing - a key area of concern in Post's 2006 Special 301 submission (reftel F) - has ceased to be a major concern at this time. All of the U.S. pharmaceutical companies that were previously faced with this threat have either reached an accord with the GOB, or in the case of the one remaining firm that hasn't (Merck),believe their situation is relatively secure. A representative of one of the pharmaceutical companies that settled with the GOB, Gilead, said the company recommends Brazil be upgraded to Watch List status. In contrast, a Merck representative told us that his firm prefers retaining Brazil on the Priority Watch list. ¶18. (U) Although INPI has taken steps to increase its processing capacity - such as hiring new employees, employing new technology and expanding its facilities - patent and trademark delays are still a considerable problem. The PhRMA 2007 Special 301 submission notes that the number of patent examiners has increased from 105 to 350, going from 30 to 90 in the pharmaceutical field alone. INPI has also incorporated new technology into its approval process. Nevertheless, INPI estimates the number of pending patents has increased to 140,000 (versus 130,000 last year as noted in reftel F),although INPI is not sure that this figure is accurate - it could be lower or higher - given uncertainties created by the upgrading of its internal data center. ¶19. (U) In December, INPI announced its plans to join the Madrid Agreement Concerning the International Registration of Mark ("Madrid Protocol"). Rightsholders who seek trademark protection in Brazil would then be able to take advantage of this streamlined international trademark registration system, making Brazil the first country in South America where this system is available. Trademark approvals in Brazil have risen from 17,329 in 2003 to 111,996 in ¶2006. With the introduction of an electronic trademark application system (E-Marcas) in 2006, INPI plans to process trademark registrations in less than one year by the end of 2007. ¶20. (U) A U.S. Patent and Trademark Office (USPTO) IPR Attache was assigned to ConGen Sao Paulo in October 2006 and continues to BRASILIA 00000294 004 OF 005 interface with INPI. Under the US-Brazil Commercial Dialogue, USPTO and INPI meet bi-monthly and plan to continue their ongoing dialogue on technical cooperation on patent and trademark examination practices and operations. Most recently, USPTO IPR Attache met with INPI's Coordinator for International Cooperation to discuss upcoming training opportunities. INPI has expressed particular interest in integrated circuits as Brazil has adopted a provisional legislative measure which will allow for IPR protection of them. ¶21. (U) Although the Brazilian Law on Industrial Property currently prohibits disclosure and use of undisclosed test data, pharmaceutical industry representatives continue to voice concern over the potential for release of confidential data submitted to ANVISA as part of the drug patent approval process. A representative of Brazil's multinational pharmaceutical industry association, Interfarma (which also includes representatives of U.S. companies),told Sao Paulo EconOff that the association's efforts to get Congress to pass a law specifically addressing data protection have been unsuccessful and he has concerns about protection of undisclosed data from competitors during the patent pending process. However, Interfarma has not brought to our attention any cases in which data confidentiality has, in fact, been breached. --Roadblock to Biotech Product Approvals ¶22. (U) Despite the March 2005 approval of Brazil's Biosafety Law, which regulates biotechnology crops and stem cell research (reftel G),approval of biotech products is a slow process. Currently, two thirds of the 27 member National Technical Commission of Biosafety (CTNBio) board must approve introduction of new biotech products in Brazil. Environmentalists and anti-biotech groups have a strong influence on key members of the board, who are essentially boycotting commercial approvals of new biotech products, including requests for imports of biotech products (such as U.S. genetically modified corn),effectively vetoing new product approvals. The GOB is attempting to unblock the approval process with new legislation reducing the number of CTNBio board members required for approval to a simple majority. The provisional measure is now in the Senate for consideration and, if approved, will be forwarded to President Lula's office for signature. -------------- USG and Industry Provided Training -------------- ¶23. (U) The past year has seen a growth in momentum of USG and industry-provided training in Brazil. During CY 2006, the USG partnered with the Brazilian Association for the Defense of Intellectual Property (ADEPI) to conduct a series of INL-funded copyright piracy seminars for Brazilian federal and state law enforcement officials in Brasilia, Porto Alegre, Belo Horizonte and Recife. Additional 2006 seminars built upon these efforts and included as sponsors the U.S. Chamber of Commerce, Sao Paulo State Federation of Industries, CNCP, Minas Gerais State Federation of Industries and private industry representatives. Held in major cities and ports around the country, these seminars targeted various audiences including port customs officials, judges, prosecutors, state law enforcement officials, college students and teachers. Information on upcoming USG and industry training programs is included in reftel B. ¶24. (U) The CNCP report also notes GOB partnerships with a wide range of Brazilian industry associations to provide anti-piracy training to public officials. In 2006, in-country training collaborators included the Brazilian Association of Software Companies (ABES),the Entertainment Software Association (ESA), Association for the Protection of Phonographic Intellectual Rights, ADEPI, Sao Paulo State Federation of Industries, and the Rio de Janeiro Delegation for Repression of Crimes against Intangible Property. Last October, the President of CNCP received the Motion Picture Association of America's first anti-piracy award for his contributions to the reduction of piracy and for raising public and government awareness of the problem. -------------- Anti-Piracy Committees -------------- ¶25. (U) Sao Paulo, Brazil's most populous state, began the year with the creation of the Inter-Agency Committee to Combat Piracy. This group, which coordinates its efforts with the CNCP, is composed of the Governor, his Chief of Staff, the Attorney General, six State Secretaries (Justice; Finance; Public Security; Labor; Culture; and SIPDIS BRASILIA 00000294 005 OF 005 Science, Technology, and Economic Development),and members of their staffs. Sao Paulo joins the states of Rio de Janeiro and Rio Grande do Sul, which already have established state anti-piracy committees, and the state of Minas Gerais, which formed a similar committee in 2006 (reftel H). -------------- Consumer Perception -------------- ¶26. (U) A U.S. Chamber of Commerce/Brazil-U.S. Business Council commissioned poll released in December 2006, found that price is the determining factor in the Brazilian consumer's purchasing decisions. The survey also found that the purchase of pirated goods increased in the 25-39 year old age group and with those over 50. The report acknowledges increased GOB efforts to combat piracy, but the results do not show a major movement in consumer behavior away from purchasing pirated goods. ¶27. (U) The poll also noted a 17 percent growth overall in commercial piracy in the cities of Rio de Janeiro, Belo Horizonte and Recife, including a 45 percent increase in pirated items in the clothing, tennis and toy sectors. By contrast, in Sao Paulo city, the country's largest and a key focal point of increased GOB anti-piracy efforts, the survey found a 14 percent reduction in the sale of pirated goods. ¶28. (SBU) Comment: While there is much yet to be accomplished, particularly in the area of public consciousness and patent processing, the GOB and key states have clearly made significant progress in their fight against piracy in 2006. In cooperation with the GOB, private industry is playing a larger role in anti-piracy efforts. Through its actions, INPI has recognized the patent and trademark backlog problem and is taking steps to remediate it as well as the agency's statistical reporting system. All this warrants, in our view, upgrading Brazil from Priority Watch List to Watch List. End Comment. Sobel