2007 SPECIAL 301 RECOMMENDATION: KEEP VENEZUELA

UNCLAS SECTION 01 OF 02 CARACAS 000366

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EB/IPE CLACROSSE, DEPT PLS PASS TO USTR
JCHOE-GROVES, DOC JBOGER, DOC PLS PASS TO USPTO JURBAN AND
LOC STEPP

E.O. 12958: N/A
TAGS: KIPR VE
SUBJECT: 2007 SPECIAL 301 RECOMMENDATION: KEEP VENEZUELA
ON PRIORITY WATCH LIST

REF: A. STATE 7944


B. 06 CARACAS 486

C. 05 CARACAS 596


1. Summary: (SBU) The BRV's protection and enforcement of
IPR continues to deteriorate. The market for legitimate
music CDs is eclipsed by piracy, with piracy rates for CDs,
DVDs, and business software hovering around 80 percent.
SAPI, the agency that oversees IPR enforcement and issues
patents, has not issued a single patent since 2004.
Venezuela's customs and tax agency, SENIAT, has achieved some
success in its anti-piracy campaigns and seizure of
contraband, but overall enforcement of IPR legislation
remains ineffective. The implementation of proposed legal
changes would further weaken IPR protection. Based on the
BRV's antipathy to IPR, weak enforcement and possible legal
changes to further strip away IPR protection, Post recommends
that Venezuela remain on the Special 301 Priority Watch List
for 2007. End Summary.

--------------
The Pharmaceutical Industry
--------------

2. (SBU) The international pharmaceutical industry continues
to see a weakening of IPR protection in Venezuela. Despite
Venezuela having the highest per-capita pharmaceutical
consumption in Latin America, and being the third largest
market in the region, SAPI, the Autonomous Intellectual
Property Service (the country's primary IPR authority),has
not issued a patent to an imported pharmaceutical product
since 2003, and has not issued a patent in any sector since

2004. SAPI has continued to receive an average of over 500
patent application submissions per year. Since 2002, the BRV
has failed to protect pharmaceutical testing and other
confidential data for product submissions that have not yet

SIPDIS
received patent protection. The BRV does not provide linkage
between patent and sanitary registration. Counterfeiters can
receive sanitary registration approval in the absence of a
patent -- equivalent to marketing approval for a counterfeit
product.


3. (SBU) The legal framework in Venezuela for pharmaceutical
protection is ambiguous after the BRV withdrew from the CAN
(Andean Community) in April 2006. Venezuelan law had
incorporated over 650 legal decisions from the Andean
Community into domestic law, including Decision 486, a
pronouncement on protection of intellectual property rights.
The most recent domestic intellectual property legislation in
Venezuela dates from 1955 and does not provide for patent
protection. Venezuelan courts have, de facto, continued to
apply Decision 486, though they have offered no assurances
that they will continue to do so.

--------------
Recorded Media and Software
--------------

4. (SBU) The market for legitimate CDs and DVDs continues to
decline. According to a Post IPR source, there are
approximately 1.8 million music CDs sold annually in
Venezuela and 80 million virgin discs imported. This would
indicate that Venezuela is not solely a distribution source,
but a mass production center for counterfeit products.
Industry estimates the piracy rate for music CDs at 85
percent, a two percent increase from 2005. The National Film
Law, passed in August 2005, requires mandatory registration
of all films, which could lead to unauthorized releases of
confidential information and contribute to piracy.

SIPDIS


5. (SBU) The piracy rate for business software in 2006 is 84
percent, according to International Intellectual Property
Alliance statistics -- a 6 percent increase from 2005. U.S.
software companies have repeatedly come under attack from the
BRV as exemplars of what President Chavez referred to as the
"neo-liberal" trap of IPR. In 2004, the BRV passed
legislation that mandates the use of open source software
throughout the public sector. While not necessarily a
violation of IPR in and of itself, the software industry has
concerns about a lack of transparency in its implementation
and favoritism shown to certain vendors.

--------------
IPR Enforcement
--------------

6. (SBU) IPR enforcement in Venezuela continues to be weak.
Enforcement problems derive for the most part from a lengthy
legal process, unprepared judges, as well as lack of

CARACAS 00000366 002 OF 002


resources for investigation and prosecution. A single
special prosecutor is responsible for IPR issues.
Consequently, investigations are severely backlogged. Under
current Venezuelan law, most IPR enforcement actions can only
take place as a result of a complaint by the rights holder.
In addition, the complainant is responsible for the cost of
storage of allegedly illicit goods during the investigation
and trial. A loophole in the law only permits actions
against copyright violators operating at a fixed location,
effectively barring prosecution of street vendors.


7. (SBU) SENIAT remains the one bright spot in a dismal
landscape of respect for IPR with noteworthy efforts to fight
piracy in conjunction with its "zero tax evasion" mission.
SENIAT proposed an Anti-Piracy Law in 2006. We do not expect
this proposal to be signed into law. In February 2007,
SENIAT reportedly destroyed 450,000 pirated CDs and 280,000
pirated DVDs. SENIAT superintendent Jose Gregorio Vielma
Mora has called on the BRV to provide the legislative
framework to protect author's rights, adding that enforcement
efforts to stamp out counterfeiting requires enhanced
cooperation of SENIAT, local police, and the national guard.
Coordinated efforts, to date, have been minimal.

--------------
Legal Changes on the Horizon
--------------

8. (SBU) Proposed legal changes, if implemented, would
result in further weakening of the IPR regime in Venezuela.
The National Assembly has delegated to President Chavez, for
a period of 18 months, the power to issue decrees carrying
the force of law. Both the pharmaceutical and recording
industries expressed their concern to us over potential abuse
of this power to push through legislation that would further
weaken the IPR regime. In particular, there is concern that
Chavez may sign into law a controversial copyright bill
dating from 2004, which apparently was no longer on the
legislative agenda. The bill would violate a reported 31 of
Venezuela's bilateral and multilateral IPR treaty obligations
including the Bern Convention and TRIPs. It would reduce the
protection period for copyrights from 60 to 50 years and
would allow the BRV to expropriate artistic rights for the
public sector. Venezuela has not yet ratified the WIPO
Copyright Treaty or the WIPO Performances and Phonograms
Treaty.

--------------
Comment
--------------

9. (SBU) Venezuela continues to be an unfriendly environment
for intellectual property rights. Pirated and counterfeit
products abound, and piracy rates are climbing. Despite
SENIAT's efforts, overall enforcement remains weak. The BRV
has dedicated few resources to investigating and prosecuting
IPR crimes. The legal regime for IPR protection is in a
state of uncertainty after Venezuela's withdrawal from the
CAN. IPR protection will likely deteriorate in the upcoming
year as Chavez may push through controversial copyright
legislation that would further undermine IPR protection and
violate Venezuela's treaty obligations. Post recommends
keeping Venezuela on the Special 301 Priority Watch List for

2007.

BROWNFIELD