Philippines: 2007 Special 301 Report

UNCLAS SECTION 01 OF 05 MANILA 000552 SIPDIS SENSITIVE SIPDIS STATE FOR EAP/MTS, EAP/EP, AND EB/IFD DEPT FOR EB/IPC STATE PASS USTR FOR BWEISEL AND DKATZ STATE ALSO PASS USAID, OPIC, USDA TREASURY FOR OASIA USDOC FOR 4430/ITA/MAC USDOC PASS USPTO STATE ALSO PASS LOC E.O. 12958: N/A TAGS: KIPR ETRD ECON RP SUBJECT: Philippines: 2007 Special 301 Report REF: A) State 7944; B) 06 Manila 836 ¶1. (SBU) Summary. Embassy recommends retaining the Philippines on the Special 301 Watch List. The GRP continued to devote attention to intellectual property protection during 2006, increasing its enforcement actions, especially against optical disk piracy. While the total number of seizures was lower than in 2005, the total value of confiscated merchandise rose. A core of leaders on IPR issues has emerged within the GRP, and President Arroyo spoke out on IPR during the year. There are nonetheless issues that continue to concern us, especially the lack of criminal convictions of IPR violators and the need for further institutional entrenchment of IPR enforcement agencies. Retention on the Special 301 Watch List will signal our recognition of the GRP's progress and for the core of leaders who have been responsible for it. Retention also will maintain the leverage which has been responsible in some part for this progress. End summary. ¶2. (U) This report is divided into three sections: Part I addresses the GRP's progress on IPR protection, Part II addresses areas that warrant GRP attention, and Part III sets out post's recommendation. Part I: GRP Progress on IPR Protection -------------- ¶3. (SBU) In February, 2006, USTR lowered the Philippines from the Special 301 Priority Watch List to the Watch List. At that time, a Special 301 Action Plan was issued for the Philippines. Over the course of the ensuing year, per that plan, the GRP has stepped up its efforts to protect intellectual property rights, focusing upon enforcement efforts and seizures of counterfeit goods, especially optical media disks. The GRP has actively engaged the USG on IP protection, meeting regularly with Embassy and USTR representatives, seeking training opportunities with the USPTO and the International Law Enforcement Academy in Bangkok, and signing a memorandum of understanding with the USPTO in January 2007. Enforcement actions against IPR violations has continued, and while there were fewer seizures in 2006 than 2005, the total value of goods seized rose indicating that authorities have become more adept in the selection of targets for raids. While there remain serious deficiencies in the IPR protection regime, the GRP has continued to take positive steps over the past year to improve it. A Core of Committed Leaders on IPR Emerges -------------- ¶4. (SBU) During 2006, it became more obvious that a critical mass of leaders on IPR has emerged within the GRP. Among these officials, we would highlight in particular Adrian Cristobal, the Director General of the Intellectual Property Office, Peter Favila, the Secretary of Trade and Industry, Eduardo Manzano, Chairman of the SIPDIS Optical Media Board, Colonel Noel de los Reyes, Head of the Fraud and Commercial Crimes Division of the Philippine National Police, and Dennis Gonzalez, Chairman of the National Book Development Board. These officials have worked hard to raise the profile of IPR protection within the GRP, and they have been behind the increased public attention that President Arroyo paid to intellectual property issues this past year. ¶5. (U) President Arroyo herself has provided leadership on IPR. On November 17, 2006, she issued an executive order to nine agencies, directing them to take a variety of steps to promote IPR protection. The most noteworthy point of the order was her instruction to agencies to enforce civil and criminal liability against landlords, such as mall owners, who lease space to establishments selling pirated or counterfeit goods. The Intellectual Property Office -------------- ¶6. (SBU) The Intellectual Property Office (IPO),by statute, is the coordinating body for IPR enforcement in the Philippines. It has functions equivalent to the USPTO, and also coordinates the interagency National Committee on Intellectual Property Rights, hosting its biweekly meetings. Its Director General, Adrian Cristobal, reports to the President through the Secretary of Trade and Industry. Under Cristobal, the IPO formulated a two-year strategy to address IPR issues in the Philippines, whose early successes helped lower the Philippines to the Watch List last year. Most industry representatives praise Cristobal's efforts, describing him as more dedicated and energetic than his predecessors. ¶7. (SBU) In addition to its coordinating role, the IPO also MANILA 00000552 002 OF 005 organizes campaigns to enhance the public profile of IPR protection. Over 2006, it organized an average of one public lecture or workshop per week, holding its events throughout the country. It held events for government agencies, both national and local, for private business, and conducted seminars at five universities. Cristobal also hosted a weekly program on Manila radio station DZMM. ¶8. (SBU) As the reporting period drew to a close, the IPO successfully completed a two year project, launching an online database of intellectual property cases that permits real-time verification of the status of IP criminal cases. Six agencies have contributed information to the database. The IPO also signed a technical cooperation agreement with the United States Patent and Trademark Office focused upon capacity-building for the examination of patent applications. The Optical Media Board -------------- ¶9. (SBU) The GRP created the Optical Media Board (OMB) in early 2004, and over the past two years the OMB has asserted its role as the regulatory authority for the licensing of replicating machines and equipment and the materials used for making optical disks. The OMB has been fully operational over the past year, and now carries out raids on a fairly continuous basis. The chairman of the OMB, actor Eduardo Manzano, has leveraged his public persona into media attention for the OMB and its work. Manzano appears frequently in the local media, both in interviews and in staged events such as the ceremonial destruction of thousands of seized pirated DVD's on the third anniversary of the OMB's founding in February 2007. In December 2006, the Motion Picture Association of America (MPAA) presented Manzano with its inaugural ACE Award as the top copyright enforcer in the Asia/Pacific region. ¶10. (SBU) The OMB estimates that a narrow majority of pirated optical media purchased in the Philippines is imported, mainly from China, Taiwan, and Malaysia. Based on increased seizures of replicating machines, it believes that the fraction of pirated media produced in country is growing. The OMB conducted raids on the basis of 88 search warrants in 2006, seizing over 1.6 million pieces with a value of about USD 4.3 million. It carried out 942 other inspections over the course of the year. ¶11. (SBU) Manzano's large public profile also makes him a lightning rod for criticism. He is often accused of using the OMB as a tool for obtaining publicity either for his television projects or as a platform for seeking elected office, though he recently decided against running for any office in the 2007 midterm congressional elections. Manzano participates personally in some OMB raids of stalls and stores selling pirated discs, which on two occasions this year led to his targets filing criminal complaints against him for assault. More broadly, reflecting a general shortcoming of Philippine law enforcement that Post has been working to address, the OMB remains too personalized, which is less a criticism of Manzano than recognition that the OMB requires further institutional strengthening. As we noted last year (ref B),the OMB remains understaffed by perhaps half and its budget is woefully inadequate, with Manzano reportedly paying some costs of undertaking raids out of his own pocket. As a result, the bureau has had to concentrate its efforts on avoiding laying off staff rather than on hiring more agents. Within its legal department, two of three positions remain vacant. This has perhaps been behind its weak preparation of cases for prosecution, and its general difficulty in turning seizures into eventual convictions. Only three OMB-initiated cases led to criminal convictions in 2006. It also has had mixed success with its search warrants, many of which have been quashed on appeal, seemingly one result of its weak legal office. Philippine National Police and National Bureau of Investigation -------------- ¶12. (SBU) Within the Philippine National Police (PNP),intellectual property cases come under the jurisdiction of the Fraud and Commercial Crimes Division, led by Col. Noel delos Reyes. Delos Reyes is one of the most enthusiastic defenders of IPR protection within the GRP, and his unit is among the most active in terms of seizures and arrests. In 2006, the Division served 281 search warrants and made 46 arrests, with seizures in excess of USD 3 million. During the past year, the unit increased its emphasis on combating book piracy, conducting several high-profile raids against copy shops around the campus of the University of the Philippines, MANILA 00000552 003 OF 005 confiscating photocopy equipment and books that were being copied illegally. The PNP also stepped up enforcement of copyright among internet cafes around the country, cracking down on the use of illegally copied software on cybercafe machines, and on the use of these machines to download copyrighted files illegally. ¶13. (SBU) The Intellectual Property Rights Division of the National Bureau of Investigation (NBI),led by Jose Justo Yap, served 419 search warrants during the year and seized goods worth USD 6 million. NBI also contributed to the surge in raids against firms using illegal copies of software, conducting high-profile raids in both Metro Manila and Cebu. It also carried out a major raid in December 2006 against Bright Future Technologies, a firm in Laguna Province, southeast of Manila. In that raid, NBI seized seven replicating machines and thousands of blank optical discs and arrested 13 Chinese nationals. Bureau of Customs -------------- ¶14. (SBU) While the Intellectual Property Unit at the Bureau of Customs remains a small ad-hoc group, the Bureau nonetheless had the lead in important seizures during the year. On March 16, it launched a 500-agent raid against the 168 Mall in Manila, notorious for selling pirated goods. Agents inspected over 700 stores and stalls, and seized illegally imported goods, many of which were also trademark-infringing, worth over USD 1.4 million. This represented the biggest raid against smugglers in the history of the Philippines. On January 24, 2007, Customs filed criminal charges against an importer and two customs officials after seizing three containers containing four DVD replicating machines being smuggled into the country. Overall, the IPU made 26 seizures worth close to USD 15 million in 2006, 55 percent of all GRP seizures. National Book Development Board -------------- ¶15. (SBU) Over the past two years, the GRP has increased the amount of attention it pays to copyright piracy. Generally, book piracy in the Philippines focuses on academic textbooks, and takes place on or near university campuses, especially the main campus of the University of the Philippines in Quezon City. The National Book Development Board (NBDB),a policy making body created by an act of the Philippine Congress, led efforts to monitor book sellers and copy shops, working with the Philippine Reproduction Rights Organization, the trade association of local book publishers. At the instigation of the NBDB, the PNP carried out a number of raids on Quezon City copy shops during the year. The Roxas Bill -------------- ¶16. (SBU) IPR discussions in the Philippines were dominated for much of the year by proposed legislation to loosen patent protection for pharmaceuticals and permit their parallel importation. The bill, sponsored by Senator "Mar" Roxas, has been of concern to IP stakeholders for a number of reasons, but concerned us primarily for its possible contradictions with the TRIPS agreement, particularly its initial provisions on data exclusivity and new use patents. Roxas and other proponents told the Embassy repeatedly that they never intended to undermine TRIPS with the pharmaceutical bill, and ultimately amended the bill in ways that addressed most, though not necessarily all, of our concerns. An amendment to the Senate version of the bill even introduced a clause that explicitly disallowed any benefits under the legislation that were not TRIPS-consistent. As of this submission, it is not clear whether the bill will pass in this Congress, though we would expect it to be reintroduced after the midterm elections if it does not pass. Nevertheless, we find the sensitivity to TRIPS among several prominent legislators broadly encouraging. Part II: Areas of Particular Concern -------------- ¶17. (SBU) Despite the progress that the GRP made in enhancing IPR protection during the year, there are still a number of areas that will merit attention over the coming year, and that warrant the continuation of the Philippines on the Special 301 Watch List. The most important areas of concern remain the institutionalization of IPR protection, and the inability of GRP authorities to translate raids and seizures into prosecutions and convictions of IPR infringers, a problem that plagues the entire Philippine legal system. MANILA 00000552 004 OF 005 The Department of Justice (DOJ) and Prosecutions -------------- ¶18. (SBU) The lack of prosecutions and convictions of IPR violators continued to be the biggest weakness in IPR protection this year. A year that saw 788 search warrants issued and USD 28 million in seizures produced only eight convictions, and even in those cases, the convicts are unlikely to face fines or jail time due to a lengthy appeals process during which they may remain free on bail. ¶19. (SBU) In late 2005, the Department of Justice reconstituted its Task Force on anti-Intellectual Property Piracy. Despite its name, the 10 prosecutors on the task force do not concentrate exclusively on IPR cases. Its chair told us that the prosecutors spend somewhere around 10% of their time on IPR. DOJ's backlog of unresolved IPR cases may soon reach 1,000 cases. One consequence of these problems in the courts is that many IPR complainants feel compelled to settle their cases out of court on terms favorable to violators. Adrian Cristobal went so far as to discourage prosecutors publicly from accepting such settlements in order to force more cases to trial. ¶20. (SBU) The inability of the Department of Justice to effectively prosecute IPR cases is just one aspect of a generally weak criminal justice system in the Philippines. System wide, only seven percent of all trials result in convictions. Procedural rules on appeals afford defendants many opportunities to delay the progress of cases, and judges across the system lack what one local attorney calls "a sense of judicial urgency." Progress on a host of issues that interest the USG are contingent on improvements in the judicial system, and significant USG resources are being invested in efforts to improve the judicial system, but an overhaul of the system is something that will likely take decades to accomplish. Institutionalization in the OMB and Customs -------------- ¶21. (SBU) The Optical Media Board and the Intellectual Property Unit of the Bureau of Customs remain relatively new entities, and both need to develop institutional capacity further. The needs of the OMB in this area have been detailed above in paragraph 11. The IPU at Customs continues to be a small, ad-hoc group, with only seven full-time officers. It lacks its own computer setup, and does not have access to the Bureau of Customs' databases of incoming shipments. It requires improvements in these areas to be effective, in addition to an adequate budget. A restructuring plan for Customs, which would address many of these weaknesses has been drawn up and submitted to the Department of Finance for approval. ¶22. (SBU) The work of the OMB must also be integrated better with that of the PNP and NBI. The Optical Media Act of 2004 gives OMB the lead in all matters involving pirated optical discs, but in practice, large raids and seizures typically require the assistance of PNP or NBI officers. There continue to be squabbles among the agencies over leadership of operations against optical disc piracy, and in particular, the agencies still experience difficulty in sharing information. All sides must overcome institutional distrust and jealousy, where OMB does not want to share information out of fear of leaks and corruption within the PNP and NBI, and the latter agencies must come to terms with the operational lead that OMB has by law within its jurisdiction. One example of the lack of cooperation was that a month-long December 2006 pilot project between OMB and the PNP deputizing PNP officers for optical disk seizures did not produce a single raid. WIPO Internet Treaties -------------- ¶23. (SBU) The Philippine Congress has yet to pass legislation amending the Intellectual Property Code to incorporate the provisions of the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. Bills to do this were introduced in both the House and Senate. While the IPO lobbied for the bills to some degree, none of the bills emerged from committee, and the bills will expire in 2007 when the 13th Congress adjourns after election of a new Congress. Cable Piracy -------------- ¶24. (SBU) The illegal retransmission of pay-TV signals continues to be a problem in the Philippines, especially outside Manila. Within Manila itself, the largest cable company is legitimate and pays for its content, though it experiences problems with residences tapping MANILA 00000552 005 OF 005 into its network illegally. In rural areas, some smaller regional companies take broadcast signals, often using illegal decoders, and redistribute them to customers without payment to rights-holders. The National Telecommunications Commission renews the licenses of these companies without regard to whether they engage in signal theft. DOJ has not acted on the criminal complaints of the Cable and Satellite Broadcasting Association of Asia (CASBAA); however, IPO recently reported to CASBAA that DOJ will report 94 pending cases for prosecution. The Regions -------------- ¶25. (SBU) GRP actions against counterfeit and pirated goods in Metro Manila seem to have forced the sellers of such merchandise to become more discreet, moving pirated goods from the front of stores to the back, to stalls away from main streets, or to illicit vendors walking the halls of some malls. While this is a sign of success in Manila, the same level of success does not seem to have been reached in at least some other parts of the country. Our informal market checks indicate that illegal copies are more openly available in Cebu, for example, than in Manila. Notorious Markets -------------- ¶26. (SBU) There remain several centers in Manila in which pirated and counterfeit merchandise is routinely traded. The most prominent "notorious market" is located in street stalls in the neighborhood of Quiapo. The neighborhood of Binondo is also problematic, and was the target of 16 raids during 2006. Several shopping malls also may qualify as notorious markets, including Makati Cinema Square, 168 Mall, Greenhills Shopping Center, and the fourth floor of the Market! Market! Mall in Fort Bonifacio. The Executive Order of November 17 establishes landlord civil and criminal liability for tenants who sell pirated merchandise. Part III: Post Recommends Retention on the Special 301 Watch List -------------- ¶27. (SBU) The Embassy recommends retaining the Philippines on the Special 301 Watch List for this year. Years of pressure and inclusion in the 301 process have finally focused GRP attention on the importance of IPR protection, and over the past few years the government has begun to take serious action as documented above. GRP officials are sensitive to the country's 301 status, and the lowering to the Watch List last year sent the message that the attention to IPR protection and engagement with us on the issue produced concrete results. If the Philippines were to be raised back to the Priority Watch List, we believe it would undermine those in the GRP who are working so hard to promote IP protection, and would lead them to conclude that the Philippines will not be able to get itself off the PWL permanently. We believe that, far from increasing GRP efforts to combat IPR violations, elevation to the PWL could both reduce the prestige and influence of our allies and discourage them, resulting in less effort and poorer results. We also believe our continued engagement and their sustained efforts will bring about more rapid progress in 2007 than we have seen in ¶2006. Kenney