UNCLAS NICOSIA 000126

SIPDIS

DEPT FOR EB/IPE (JBOGER) AND EUR/SE

DEPT PLS PASS TO USTR (JGROVES)

DOC FOR ITA/MAC/OIPR (CPETERS)

DOC PLS PASS TO USPTO (JURBAN), AND LOC (STEPP)

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: KIPR ECON ETRD AF NEA EUR EAP WHA SA CY
SUBJECT: CYPRUS: 2008 SPECIAL 301 REVIEW

REFS: (A) STATE 9475, (B) 07 NICOSIA 0153

(U) This cable is sensitive but unclassified. Please treat
accordingly.


1. (SBU) Summary and Comment. Further to Ref A request, post
submits our input for USTR's 2008 Special 301 review of country IPR
practices. (Note: This report covers mainly the
government-controlled area of Cyprus. A separate section is devoted
to the area administered by Turkish Cypriots, where IPR piracy is
more widespread.) In 2007, Cyprus made further progress combating
IPR abuses, mainly due to better enforcement by the Police and
Customs. Cyprus also strengthened further its legislative framework
by adopting legislation to harmonize its legislation with the EU's
Directive 29/2005 on Unfair Commercial Practices. Earlier
legislative improvements allowing increased penalties for IPR
violations have also had the desired effect of discouraging piracy.
Nevertheless, counterfeit optical media (particularly DVD piracy
through rental shops,) remains a problem, while software piracy
remains prevalent.


2. (SBU) Post does not/not recommend including Cyprus on the watch
list. The overall IPR situation in the government-controlled has
improved slightly compared to previous years thanks to better
enforcement. IPR legislation in the area controlled Turkish Cypriots
remains antiquated with limited resources or interest in
enforcement. Post plans to hold its fourth international IPR seminar
in Cyprus (in the government-controlled part as well as in the area
administered by Turkish Cypriots) in November 2008. Post encourages
participation of USG IPR experts in this workshop.

End Summary and Comment.

Optical Media Piracy
--------------

3. (SBU) Cyprus' main IPR problem remains optical media piracy,
facilitated in part by advances in computer technology. Motion

picture piracy is estimated at 50 percent, and music piracy at 40
percent, although the figures are somewhat dated. Pirate optical
discs (CDs, VCDs, and DVDs) are no longer sold at kiosks, although
they are still used widely by DVD rental clubs.


4. (SBU) There are approximately 125 DVD rental shops on the
island. Only a small percentage of these rent exclusively
legitimate product (i.e., original, licensed region 2 disks). Many
carry both region 1 and region 2 disks. Multi-region players are
readily available. A smaller percentage of shops rent
illegally-duplicated disks, most of which have been locally burned
on DVD-/+R media. During 2007, the combination of more frequent
police raids and stricter fines by the courts has helped keep in
check the number of pirated products visibly on display at DVD
rental shops. There are no indications of domestic, large-scale,
organized, mass-production piracy for the export market.


5. (SBU) In December 2006, and after extensive consultations with
POVEK (the shop-keepers' union), the GOC implemented new regulations
concerning the kinds of items that can be sold by retail
establishments including kiosks. This new policy, although not
specifically directed against piracy, had an unexpectedly positive
impact against piracy as it prohibited kiosks from selling CDs and
DVDs, including even legitimate copies. Given the pervasive nature
of piracy through kiosks before this new policy, this measure has
significantly reduced the availability of pirated CDs and DVDs to
the public.

Software Piracy
--------------

6. (SBU) The International Intellectual Property Alliance (IIPA)
dropped Cyprus from its 2007 Special 301 report to the USTR. The
IIPA had included Cyprus in its "special mention" category (one
notch below recommending inclusion on the watch list) in its 2006
report, estimating that, in 2005, the rate of business software
piracy in Cyprus was 53 percent, causing losses of USD 5.9 million
to the industry. These figures reflect an improvement for Cyprus
over the long term, given that software piracy was estimated at 77
percent in 1994. However, the rate of software piracy in Cyprus
remains somewhat above the current EU average. The most common form
of software piracy in Cyprus occurs through local PC retailers,
often loading new PCs with unauthorized software copies. Software
piracy figures for 2007 are not yet available.

Use/Procurement of Government Software
--------------

7. (SBU) The GOC is much more scrupulous than the private sector in
abiding by national and international copyright laws for government
software. The GOC Department of IT Services (under the Ministry of
Finance) issued in 1998 a circular to all government departments
expressly forbidding the use of pirated software on GOC machines,
subject to administrative action for violators and their
supervisors. In January, 2008 the GOC signed an MOU with Microsoft
licensing Microsoft operating system and productivity software for
all government PCs including those in schools.

Merchandise Piracy
--------------

8. (SBU) According to our sources in the field, merchandise piracy
has decreased significantly in recent years, largely thanks to
aggressive enforcement by the Department of Customs, as well as the
police.

Other Forms of Piracy
--------------

9. (SBU) Despite Cyprus' adoption of a recent EU directive against
online piracy, anecdotal evidence suggests Internet piracy is on the
rise, although still below U.S. or EU levels. Furthermore, advances
in digital technology are moving piracy onto a totally new level,
often requiring more innovative approaches by the authorities. In
February 2008, the police dismantled a ring offering illegal TV
satellite packages to 547 subscribers. The police came across this
new form of crime by chance, while investigating cases of illegal
electronic gambling. They were looking for servers transmitting
illegal betting games but found that the signal being emitted was
that of an illegal satellite TV. The man in charge of the ring
legally bought access cards from a satellite TV provider and then
shared the access code with his customers at a discount. The police
arrested this person and seized a total of nine servers as evidence.
It is believed that this is only the tip of the iceberg, with many
other such operations still in existence.


10. (SBU) On a different front, college textbook piracy has been
dealt decisive blows over the last couple of years, largely thanks
to a recent, high-profile law suit against a copy shop near the
University of Cyprus. The confiscation by the police of the shop's
copying machines, followed by the successful prosecution in court of
the offender sent out a strong message to others. Additionally, the
University of Cyprus and other tertiary education institutions have
adopted increasingly more stringent policies against textbook piracy
over the years.

Legislation
--------------

11. (U) Cyprus is fully compliant with TRIPS and has modern IPR
legislation, which it continues to upgrade, in line with EU
requirements. Currently, there are at least several different laws
covering IPR issues including a Copyright Law, a Trading Standards
Law, and legislation regarding customs and the obligations of
importers and the empowerment of the customs authorities. Other
minor laws are also used to enforce IPR protection.


12. (SBU) The existing array of local IPR legislation was
significantly reinforced with the addition of Law 103/2007, which
came into effect on December 12, 2007, bringing Cyprus in line with
EU Directive 29/2005 on Unfair Commercial Practices. This new law
provides stiff administrative penalties (up to Euros 250,000) for
traders exhibiting or offering for sale products that mislead
consumers. The Ministry of Commerce's Consumer Protection Service,
tasked with implementing this law, intends to use it to prosecute,
among others, trademark and copyright violators. Significantly, the
burden of proof in this legislation, unlike most other laws in
Cyprus, rests on the defendant (unless he or she can justify an
appeal to the Supreme Court), making enforcement relatively easy.
Another welcome innovation that came with this law was that the
House approved concurrently a request by the Consumer Protection
Service to hire three additional staff members during 2008 to help
implement the law.


13. (SBU) Other recent laws serving the same purpose included Law
133(I) of 2006, which came into effect on October 20, 2006,
concerning products violating IPR. This law helped Cyprus harmonize
fully with EU directives 2001/84 and 2004/48 by amending earlier
Cypriot legislation. These amendments provided steeper and
recurring fines for pirates and introduce a "name and shame" policy
for pirates in the Official Gazette. In short, these amendments
reinforce the rights of original creators of works of art.


14. (SBU) Important amendments to the copyright law were also
introduced in 2002, reinforcing the presumption of ownership,
particularly in software cases, and facilitating the admission of
pirated material as evidence by the court. The amendments also
increased maximum penalties for piracy: from two years imprisonment
and a fine of CYP 1,500 (USD 3,150) to three years and a fine of CYP
30,000 (or USD 63,000) or more, for second-time offenders.
Significantly, this increase in penalties allows the police to raid
businesses suspected of being engaged in piracy without having to
obtain a search warrant. Over the last two years, the courts have
been quite strict about piracy both in terms of definition and
penalties.


15. (SBU) Similarly, tougher laws on indecent publications have
also helped the police crack down on pirated pornographic material
(videos and DVD's) available through kiosks etc. Since pirates of
pornographic material are also frequently pirating other movies and
CDs, the crackdown on the pornography industry has also led to
significant seizures of pirated non-pornographic optical discs and
videos.

Enforcement
--------------

16. (SBU) Three different GOC agencies share responsibility for IPR
enforcement on Cyprus: the Police, Department of Customs and the
Consumer Protection Service (CPS) of the Ministry of Commerce and
Industry. Each of the three agencies uses one or several of the
laws described above, trying to tackle IPR enforcement from its own
perspective. Cooperation among these three agencies is still less
than perfect, although it has improved considerably in recent years,
with active help from the Embassy (mainly through workshops and
seminars).


17. (SBU) In general, the Police spearhead the GOC's anti-piracy
efforts and their periodic market sweeps for pirated products have
effectively reduced the amount and incidence of illegal material.
Similarly, Customs has shown a renewed interest in enforcement since
May 1, 2004 due to legislative changes providing Customs with
enhanced enforcement tools. The Consumer Protection Service, until
recently a laggard in IPR enforcement, now promises to take a more
active stance following the recent approval of the law on Unfair
Commercial Practices (see above).

Police Lead the Pack Against Piracy
--------------

18. (SBU) The police have made good use of the evidence law, passed
in February 2004. This law grants Cypriot judges discretionary
authority to admit hearsay and electronic reproductions as evidence
in trials. These changes facilitate prosecution of IPR cases by the
Police. Active press coverage of greater police involvement and
increased prosecutions has also somewhat helped deter new parties
from entering the pirated goods market.


19. (SBU) In November 2004, the Police formed a dedicated unit
specializing in IPR enforcement. With help from this unit, the
police stepped up the number of raids on suspected pirates to 188 in
2007, from 114 in 2006. The total number of seizures from these
raids (mostly DVDs and CDs) also rose to 188,516 in 2006 from 77,763
items in 2006. Retailers now appear more reluctant to display
pirated products in kiosks or elsewhere in the marketplace.

Customs Cracks Down on Imported Pirated Merchandise
-------------- --------------

20. (SBU) The Department of Customs has also been more successful
in combating IPR piracy in recent years. Cyprus' EU accession has
allowed the Department of Customs to divert resources from its
traditional work at Cypriot ports of entry (which has diminished
considerably, since most trade is conducted within the EU) to new
areas such as better IPR enforcement.


21. (SBU) Customs has also made good use of legislation adopted in
2002 granting it enhanced authority to detain (for up to three days)
goods or products suspected of being counterfeit until the true
identity of the IPR holder is established. Detentions by Customs of
counterfeit goods have risen significantly following this increased
authority. Customs also credits U.S.-provided non-proliferation
training and equipment with improving Customs ability to interdict
counterfeit goods. Customs now audits retail shops to identify
imported counterfeit merchandise that has slipped though the port of
entry. Customs then traces the supply chain back to the importer
for possible action. Customs also uses this information to improve
its screening system. To overcome weaknesses in the evidence law
that often prevented Customs from pursuing a case within the
three-day detention period, Customs arranged with the Ministry of
Commerce to seize the counterfeit goods under its administrative
detention authority. This innovative approach has prevented the
release of the goods into retail channels.


22. (SBU) In 2007, Customs conducted dozens of raids, seizing
thousands of pirated merchandize. The total value of these seizures
reached USD 155,868, compared with USD 696,370 in 2006. (In 2006,
about 60 percent of the seizures in terms of value comprised
counterfeit cigarettes, seized in just two raids. In 2007, there
were no significant cigarette seizures.) Seizure items included
mainly cheap imitations of well-known brands of merchandise (e.g.
clothing, towels, shoes, bags, wallets, perfumes, and sunglasses)
and smaller quantities of pirated optical and audio material. Most
of the seized goods originated from the Far East (Hong Kong and
China), while smaller numbers came from Lebanon, Greece, Russia, and
the United States.

High Hopes for Consumer Protection Service
--------------

23. (SBU) Armed with both the new law described above (Unfair
Commercial Practices law) and a new Director (appointed in 2006),
the Ministry of Commerce's Consumer Protection Service promises to
pull its weight in the fight against piracy. Post will follow up
with the Service to ensure it stays on track to hire the additional
staff and implement the new law.

Impact of Piracy
--------------

24. (SBU) It is difficult to measure the actual impact of piracy
and counterfeit goods on legitimate businesses but, at least, the
trends in the legitimate market seem reassuring. For example, in
the cinema business, the following numbers tell the story: total
cinema ticket sales have gone from 840,000 in 2005, to 801,000 in
2006, to 849,000 in 2007. About six new theater screens came on
line in 2007, mostly in multi-screen complexes, although several
smaller theaters were forced to shut down. There are now 34 modern
cinema screens on the island, compared to 40-45 in 2002 (although
only 12 existed in 1992). Of the 34 screens, 22 belong to the same
operator. In other words, cinema attendance has been growing
slowly, and we have witnessed considerable consolidation in the
cinema business, with multi-screen complexes on the rise elbowing
small theaters out of the market. Similarly, licensed goods
merchandisers are reporting steadily increasing sales of their
merchandise over the last two years as a result of the effective
interdiction of counterfeit goods by Customs.

Area Administered by Turkish Cypriots
--------------

25. (SBU) The IPR situation in the area of Cyprus administered by
Turkish Cypriots (i.e., the self-declared "Turkish Republic of
Northern Cyprus," which is only recognized by Turkey) is, in
general, far worse than in the government-controlled area. IPR
legislation is antiquated (for example, the basic copyright law is
based on the 1911 Imperial Copyright Law, without any amendments
whatsoever in recent years) and the authorities have shown little or
no initiative in combating piracy. In November 2005 and March 2007,
the Embassy sponsored IPR workshops in the north with support from
the Turkish Cypriot Chamber of Commerce. Unfortunately, these
efforts have failed to produce the desired result. After the 2005
workshop, The Turkish Cypriot authorities committed to drafting
modern, EU-compatible, IPR-related legislation, and Turkish
officials were invited to stage an IPR training program. The
Turkish Cypriot authorities, however, have identified the adoption
of other needed legislation (e.g. on money laundering and casinos)
as greater priorities, and little progress has been made on new IPR
laws to date.


26. (SBU) DVD and audio media piracy is almost universal (often
victimizing Turkish artists). Most pirated CD and DVD copies are
imported from Turkey - although some shops openly burn CDs and DVDs
on demand. Merchandise piracy is also rife. Counterfeit apparel,
shoes, and luggage are freely available. Software piracy is
estimated at over 90 percent and even the "government" uses pirated
software. College textbook piracy is also the norm in north
Cyprus' thriving tertiary education community. Finally, several
local television stations continue broadcasting recent television
and movie releases without permission, although the problem
reportedly decreased during 2007 due to protests by cinema owners.


27. (SBU) Although dated, a law concerning counterfeit products
(dubbed the "Passing Off" legislation, based on the Civil Wrongs Law
under British Common Law) has been used in recent years to prosecute
merchandize pirates in the area administered by Turkish Cypriots.
Such cases include counterfeit cigarettes, tea, and beer. The law
prevents pirates from using similar-sounding names or identical
logos to promote their products.


28. (SBU) There have been no recent court cases involving optical
media. Post is aware of only one case to date involving optical
media piracy being brought to court. This was several years ago
when the legitimate IPR holders for the movie "Titanic" obtained an
injunction forbidding local TV stations to broadcast the movie prior
to its release on the big screen, using another law concerning
publications. The pirates "mistake" in this case (which they have
not repeated since) was that they advertised the release several
months ahead.

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

29. (SBU) Post does not/not recommend listing Cyprus (the
government-controlled area) in this year's Special 301 review. We
did not list Cyprus in 2006 and in 2007 IPR enforcement improved.
We are also unaware of any international professional associations
recommending Cyprus' listing. Admittedly, IPR piracy in the
northern part of the island is much worse but, given current
political realities, it would be very hard to list this part of
Cyprus (not recognized by the USG) under the Special 301 review as a
separate entity.


30. (SBU) Post continues to advocate better education and
awareness. In this vein, Post plans to organize, once again,
separate IPR workshops in both parts of the island in November 2008.
Post also welcomes increased training opportunities for GOC IPR
officials, whether in the United States or in Cyprus. Experience
has shown that the GOC will not take advantage of training
opportunities unless fully funded by outside sources. End comment.


SCHLICHER