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07WELLINGTON138 2007-02-13 03:51:00 UNCLASSIFIED Embassy Wellington
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DE RUEHWL #0138/01 0440351
R 130351Z FEB 07




E.O. 12985: N/A

REF: STATE 07944

1. On January 9, the United States Trade Representative submitted a
Federal Register notice inviting public submission on the practices
of U.S. trading partners to be reviewed under the Special 301
provisions of the 1974 Trade Act (as amended in 1988). On February
12, the Government of New Zealand asked Embassy Wellington to submit
New Zealand's formal response to Washington. The text of the GNZ's
submission begins at para 2. Embassy Wellington will report septel
on our own views on New Zealand's IPR enforcement.

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Begin Information provided by Government of New Zealand
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2. The following information is provided by the New Zealand
Government to the US Trade Representative (USTR) in response to
USTR's call for public submissions, published in the Federal
Register on 9 January 2007, ahead of the annual interagency "Special
301" review to designate countries/economies that inadequately
protect or deny market access for US industries that rely on
intellectual property (IP).

Digital Copyright Bill
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3. The Digital Copyright Bill (or, more accurately, the Copyright
(New Technologies and Performers' Rights) Amendment Bill) was
introduced to Parliament and referred to the Commerce Select
Committee for consideration in December 2006. A copy of the Bill is
available at:
/Bills/b/2/a/b2ad626160694aee9536fab3362d7d15 .htm.

4. The Bill, if adopted, will amend the Copyright Act 1994 (the Act)
to clarify the application of existing rights and exceptions in the
digital environment and to take account of international
developments. The Bill also seeks to create a more
technology-neutral framework for the Act.

Patents Bill
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5. The Patents Bill is now in the final stages of drafting and is
expected to be introduced to Parliament later in 2007. An exposure
draft of the Patents Bill was made public in December 2004. A copy
can be accessed at: .aspx

Parallel Importation
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6. Parallel importing has been previously raised in the USTR
National Trade Estimate Report.

"Parallel importing" allows retailers, wholesalers and other parties
to obtain goods subject to IP rights directly from licensed or
authorized overseas sources, rather than dealing with local
suppliers, licensees or agents. In doing so, parallel importing
allows for competition between sources of the same or similar

7. Copyright is the IP right most commonly associated with parallel
importation, as parallel importing generally focuses on the
competitive supply of high demand consumer goods, which tend to be
copyright products. Imported goods are also subject to trade mark
protection where trade marks are affixed to the product or
packaging. Patent protection can apply to the operation of a device
(such as a CD player), and registered design protection can also be
an issue in relation to visual design features added to a device.

8. Parallel-imported goods are sometimes confused with pirated and
counterfeit goods. The association is not correct. Parallel imports
are goods that are manufactured and put into circulation in another
country either by, or with the consent of, the owner of the
applicable IP rights. In contrast, pirated and counterfeit goods
are infringing goods produced without the consent of the owner of
the IP right.

9. New Zealand allows parallel importation in certain defined
circumstances. The Copyright Act 1994 provides copyright owners

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with the exclusive right to "issue to the public", which means to
put copies of copyright works into circulation. Section 9(1) (d) of
the Copyright Act was inserted by the Copyright (Removal of the
Prohibition on Parallel Importing) Amendment Act 1998 to allow for
the parallel importing of non-infringing copies of a work into New
Zealand, by providing an exception to the right to issue copies to
the public .

10. The Trade Marks Act 2002 has also been amended (in 2003) to
state that a registered trade mark is not infringed by the use of
the trade mark (including in use for the purpose of advertising) in
relation to goods that have been put on the market anywhere in the
world under that trade mark by the owner or with his or her express
or implied consent. These amendments did not change the
applicability of other IP statutes, relating to patents and design
rights, to parallel imported goods.

11. In 2003, a partial ban on parallel importation of films
(including VHS, VCD and DVDs) was introduced. The Copyright
(Parallel Importation of Films and Onus of Proof) Amendment Act 2003
reintroduced this partial ban by amending provisions of the Act,
relating to infringement by importation. The ban is on parallel
imports of films other than for the importer's private and domestic
use, within nine months of the film first being made available to
public, whether in New Zealand or elsewhere. The provision contains
a five year sunset clause and will be reviewed by 2008 to see if the
ban continues to be justified in light of technological

12. The 2003 amendment also shifted the evidentiary onus of proof to
the defendant in civil proceedings concerning whether the imported
goods in question are infringing copies. These changes only apply
to sound recordings, films and computer programs. The amendment
also changed the requirement that a defendant in civil proceedings
must "know or has reason to believe" to a requirement that the
defendant "knows or ought reasonably to know". This more objective
test makes it easier for right holders to make their case.

13. The 2003 amendment Act also clarified "rental rights" as they
apply to computer programs, sound recordings and films. This means
that copyright owners have the exclusive right to authorize the
rental of their works, including after they have been put into
circulation. As a result, video stores cannot rent out parallel
imported DVDs and videos etc, without permission of the copyright

14. The World Trade Organization Agreement on the Trade-Related
Aspects of Intellectual Property Rights ("TRIPS") and the Berne
Convention for the Protection of Literary and Artistic Works ("the
Berne Convention"), to which both New Zealand and the US are
parties, do not constrain the parallel importation of legitimate
copyright materials.

Format shifting
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15. "Format shifting" is also an issue that has been identified in
the US National Trade Estimates Report.

Format shifting is a copyright issue. It simply refers to the
practice of copying material from one format to another, for
example, from CD to cassette tape or from CD to MP3 format.

16. Following a review of the Copyright Act 1994 to assess its
effectiveness in the digital environment, the Government approved a
range of amendments to the Act. In December 2005 Cabinet approved
the Copyright (New Technologies and Performers' Rights) Amendment
Bill ("the Digital Copyright Bill") for introduction. The Bill was
introduced in Parliament in December 2006 and forwarded to
Parliament's Commerce Select Committee for consideration.

17. Among the amendments included in the Bill is an exception to
allow the owner of a legitimate sound recording to make one copy in
each format for his or her own private and domestic use. This is
known as the "format shifting" exception. The exception will
explicitly exclude making copies from borrowed or hired recordings,
or for other people.

18. The absence of an exception for format shifting also makes
law-breakers out of otherwise law-abiding citizens, many of whom are
unaware that format shifting their own CDs is against the law. On
the basis that users are unlikely to purchase the same work in more
than one format, it was concluded that there was not sufficient
evidence presented to suggest that copyright owners would suffer

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economic loss arising out of this exception.

19. If adopted, this carefully drafted format shifting exception
would comply with the Berne Three-Step Test and New Zealand's TRIPS
obligations concerning copyright exceptions. Specifically:

Step 1 - Confined to certain special cases: The proposed exception
would be clearly and carefully defined in the Act. It would only
apply to a narrow range of activity.

Step 2 - Not conflicting with a normal exploitation of the work:
There is not a substitution effect at work when the owner of a sound
recording format shifts that work into another format, as that
consumer is unlikely to purchase the same work in multiple formats.
The exception would only apply to private and domestic format
shifting by a single person who owns the legitimately acquired sound
recording. The proposed exception is, therefore, confined to a
scope and degree that does not enter into economic competition with
the ways that right holders normally extract economic value from
their rights.

Step 3 - Not unreasonably prejudicing the legitimate interests of
the right holder: Prejudice to these legitimate interests caused by
an exception is not reasonable if it causes (or has the potential to
cause) an unreasonable loss of income. As noted above, there would
be no substitution of sale effect where narrow format shifting of
sound recordings is permitted, and thus there is no competition with
the original work.

20. New Zealand is aware that consumers in the US are able to format
shift music that they have legally purchased under the Audio Home
Recording Act 1992 ("the AHRA"). The AHRA provides immunity against
copyright infringement action, provided that the copying is
performed on a digital audio copying device as defined by the AHRA.
A levy of these devices is then returned to copyright owners and
creators. It also seems likely that the broad "fair use" provision
in section 107 of the US Copyright Act 1976 would allow consumers to
format or "space" shift music they own. The United States Court of
Appeals for the Ninth Circuit noted in Recording Industry
Association of American v Diamond Multimedia 180 f.3d 1072 (9th Cir.
1999) that space shifting "is paradigmatic non-commercial personal
use", which is consistent with copyright law.

21. In the absence of a broad fair use provision in New Zealand
legislation, a specific exception is required to allow New Zealand
consumers to engage in the same activity. The proposed New Zealand
exception is narrower than that covered by "fair use" in the US, and
it specifically limits copying to one copy per format, specifies
that the original sound recording must be legitimate and explicitly
excludes making copies from borrowed or hired recordings.

22. New Zealand's Ministry of Economic Development and the Associate
Minister of Commerce, the Hon Judith Tizard, who has portfolio
responsibility for intellectual property, have been engaged in an
on-going dialogue with the New Zealand music industry. The
Government was flexible on the drafting of the proposed exception
and added a sunset clause and a condition that the exception would
be overridden by any license provision so as to address industry

Time shifting
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23. Time shifting has arisen in the US Trade Estimates report. Time
shifting generally refers to recording a program to watch it at a
later time. The Copyright Act currently provides an exception in
section 84 for time shifting of broadcasts or cable programs for
private and domestic use and solely for the purpose of watching or
listening at a more convenient time. The Government has decided
that, in line with the policy of technological neutrality, this
section should be amended to cover all communication works, except
those available on demand (as a convenient time is always available
on demand). This is consistent with the decision to replace
broadcasts and cable program services with a technology-neutral
category of communication work, which will provide copyright
protection for a wider range of transmission or delivery

24. Time shifting exceptions are common. New Zealand considers that
the revised technology neutral exception will meet the requirements
of the Berne three-step test.
The US music industry has expressed concern that the time shifting
exception would "eliminate the ability of right holders to develop
new approaches to meeting consumer demand for electronically

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delivered materials and reduce access and choice for New Zealand
consumers to these materials."

25. Given the narrow scope of the time shifting exception, and the
clear rationale for it, it will not apply any differently in the
digital world than in the analogue world. Copying music from
Internet stream casts, for example, to build up a home music
collection will not be authorized by the exception any more than was
taping music from the radio for the same purposes.

26. The proposed New Zealand exception explicitly relates only to
watching or listening at a more convenient time. It does not allow
home users to build up a collection or "library" of films or music
for ongoing and repeated use. Equally, the provision that time
shifting does not apply to material available "on demand" clearly
delineates the scope and rationale of the exception. Where the
exception does not apply, copying without the copyright owner's
permission will continue to constitute infringement.

27. The expansion of copyright protection for activity such as "web
casting", as part of the proposed technology-neutral category of
communication works, is consistent with the US position on this
issue in debate at the World Intellectual Property Organization
(WIPO) regarding the rights of broadcasters.

Technological protection measures
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28. Technological protections measures ("TPMs") include devices,
mechanisms or systems designed to guard against or restrict the use
of material stored in digital format. Copyright owners are
increasingly using TPMs as a practical means to protect their
copyright and develop new business models (such as pay-per-view).
TPMs may prevent access to or use of a work and may, therefore,
inhibit the exercise of "permitted acts" allowed by the Act.

29. The Digital Copyright Bill proposes changes to provisions in the
Copyright Act concerning TPMs. Section 226 of the Act currently
allows copyright owners to take action against persons who supply or
manufacture devices, means or information specifically designed to
circumvent "copy-protection" and intended to be used to make
infringing copies of copyright works. The Bill extends this
protection so that copyright owners would have the ability to take
action in respect of all the copyright owner's exclusive rights, not
just copying, in recognition of the increasing importance of rights
of communication and the necessary incentives for the provision of
online and digital services.

Copyright versus "access" control
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30. An issue that arises is whether copyright legislation should
protect both "copy" and "access" control. The focus of the New
Zealand TPM provisions will continue to be on "copy" control, and
thereby link circumvention to copyright infringement. Copyright
owners would not, for example, be able to take action in respect of
circumvention devices, means or information where the purpose of the
circumvention (and the provision of the device, means or
information) is to enable a user to exercise a permitted act, or to
view or execute a legitimate non-infringing copy of a work.

31. In other words, New Zealand will not be providing protection
against infringement of TPMs that are just about access control
(i.e. preventing access to copyright works) where no copyright
infringement has occurred. The rationale for this is that "access"
is not one of the exclusive rights provided to copyright owners in
copyright legislation. The protection for TPMs that are just access
controls goes beyond the traditional scope of copyright protection
and would override the ability of users of copyright material to
exercise legitimate and longstanding permitted acts.

"Act" versus "means" of circumvention
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32. As noted above, the right of action provided to copyright owners
is in relation to provision of devices or means specifically
designed or adapted to circumvent copy-protection, and in relation
to the publication of information intended to enable or assist
persons to circumvent copy-protection. The "act" of circumvention
is not itself prohibited.

33. The rationale is that consultation in the development of digital
copyright policy indicated that extension of liability to the act of
circumvention itself would only be beneficial in terms of addressing

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copyright infringement where circumvention occurs on a commercial
scale. Anecdotal evidence suggests that circumvention does not
occur on such a scale in New Zealand. Targeting actual
circumvention would not generate additional incentives for the
creation of works, which is the ultimate policy goal of the Act.

34. In addition, a prohibition against the actual act of
circumvention would potentially catch a range of innocent or
unintended activity. As such, it would need to be accompanied by a
range of exceptions for certain behavior (e.g. circumvention to
exercise permitted acts, computer security research). This approach
inevitably ties the Act to current circumstances and will not
necessarily capture all relevant behavior.

35. The Bill also contains new provisions to enable the actual
exercise of permitted acts where TPMs have been applied. Initially
the onus would be on copyright owners, upon application from users,
to take voluntary steps to allow the effective exercise of permitted
acts. Where owners failed to take voluntary steps the Act would
allow the provision or manufacture of circumvention devices, means
or information, on receipt of a declaration from a library, archive
or educational establishment that circumvention is required for the
purposes of exercising a permitted act.

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36. The Bill will introduce a criminal offence as a deterrent, in
addition to civil remedies in respect of the provision of
circumvention devices, means and information. Criminal offences
would operate where there has been large scale commercial dealing in
circumvention devices, means and information. Such offences would
be punishable on conviction by a fine not exceeding NZ$150,000
and/or imprisonment for a term of not more than five years
(consistent with existing offence provisions).

37. The focus on copyright infringement rather than "access control"
is considered to be consistent with international standards,
including the WIPO Copyright Treaty ("WCT") and the WIPO Phonograms
and Performers Treaty ("WPPT") that New Zealand is not a party to.
Articles 11 and 18 of these treaties respectively require parties to
provide adequate legal protection and effective legal remedies
against the circumvention of effective TPMs that are used by
copyright authors and owners in connection with the exercise of
their rights under those treaties or the Berne Convention.

38. The WCP and WPPT do not specify whether a copy or access control
approach should be taken. The New Zealand approach is consistent
with that taken by a number of countries who are parties to the WIPO
Internet Treaties, as noted in WIPO's survey of implementation of
those agreements.

Extension of Copyright Term
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39. Copyright term refers to the length of time that copyright
owners enjoy exclusive rights. At the expiry of the copyright term
a work enters the "public domain" and it can be exploited by anyone
without the risk of copyright infringement. New Zealand wants to
maintain the TRIPS-consistent term for copyright protection. New
Zealand considers that an extension of the copyright term would
provide little increase in the incentive to create, and would be
likely to have a detrimental effect on creativity that builds upon
existing works, and added transactional and tracing costs in
identifying and locating copyright owners.

Patent term for pharmaceuticals
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40. In New Zealand, the patent term is 20 years from the date of
filing of the application, with no provision for extension. This is
consistent with the minimum standards required by the TRIPS
Agreement. In 2003, the New Zealand Government considered whether
the patent term for pharmaceuticals should be extended in New
Zealand. The views of interested parties including the
pharmaceutical companies were sought. After considering all the
issues, the Government decided that the patent term should not be
extended. It was considered there was insufficient evidence that
the benefits, mainly in the form of increased investment in New
Zealand, would offset the costs in the form of increased costs of
patented pharmaceuticals. Extending the patent term would delay the
entry to the market of generic pharmaceuticals.

41. In 2002 the Patents Act 1953 was amended to introduce a "spring

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boarding" provision. This allows generic pharmaceutical
manufacturers to make use of patented pharmaceuticals for the
purposes of obtaining regulatory approval. This allows generic
pharmaceuticals to enter the market shortly after patent expiry.
The US has a similar provision (the so-called "Bolar" exemption).

Other Patent Issues
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42. New Zealand would want to continue to avail itself of the
various exclusions and exceptions relating to patentability
contained in the TRIPS Agreement. These include exceptions and
flexibilities relating to public health, morality and public order,
and life forms. The Patents Bill, expected to be introduced later
in 2007, specifically incorporates some of these exceptions to
address Maori and Treaty of Waitangi issues concerning life forms
and traditional knowledge.