KAZAKHSTAN: SPECIAL 301 REVIEW FOR 2009

UNCLAS SECTION 01 OF 05 ASTANA 000481 SENSITIVE SIPDIS STATE FOR SCA/CEN, EB/TPP/IPE (MCGOWAN) STATE PLEASE PASS TO USTR FOR CHOE-GROVES COMMERCE FOR ITA/MAC/OIPR (PETERS) E.O. 12958: N/A TAGS: PGOV ECON ETRD KIPR KZ SUBJECT: KAZAKHSTAN: SPECIAL 301 REVIEW FOR 2009 REF: STATE 8410 ¶1. (U) Sensitive but unclassified. Not for public Internet. ¶2. (SBU) SUMMARY: Over the past year, the Government of Kazakhstan (GOK) has continued to demonstrate a commitment to the development and modernization of its IPR protection regime. The Government of Kazakhstan, and more specifically the IPR Committee of the Ministry of Justice, continues to move forward in addressing the concerns of the international community for the enhanced protection of IPR on the legislative, judicial, and enforcement fronts. The Government of Kazakhstan continues to work on legislation to further empower customs officials to seize counterfeit materials before they enter the country. In addition, the year 2008 witnessed the first criminal sentence for a convicted IPR violator. Proposed legislative changes expected to come to Parliament for ratification in 2009 should further improve the IPR environment. Post recommends continuing Kazakhstan's exclusion from the Special 301 Watch List. END SUMMARY. ENFORCEMENT INCREASES, BUT CRIMINAL SENTENCES LAG ¶3. (SBU) According to combined statistics released by the Ministry of Justice IPR Committee and the Procurator General, the following actions were taken in enforcement of IPR legislation in 2008: -- 991 criminal cases were initiated (compared to 658 in 2007); -- 707 inspections were conducted by the Ministry of Justice. As a result, 495 administrative cases were initiated -- including 477 cases for the violation of copyright and allied rights; 4 cases for the violation of rights on inventions, useful models, and industrial patterns; and 14 cases for the illegal use of trademark -- and 437 individuals were prosecuted administratively; -- 5,687,239 KZT (or $47,275.50) was collected in administrative fines (compared to 20,250,755 KZT or $168,335 in 2007); -- 200,972 counterfeit copies and products with illegal trademarks valued at 95,105,926 KZT ($790,572.90) were confiscated (compared to 132,369,884 KZT, or $1,100,331, worth in 2007); -- 24 manufacturers of counterfeit products and 4 warehouses for counterfeit products were uncovered; and -- 4 channels for importing counterfeit products were suppressed. ¶4. (SBU) According to the General Prosecutor's Office, 415 criminal cases were sent to the courts, of which 170 people were convicted under Article 184 of the Criminal Code, and one person under Article 184-1. (NOTE: Parts 1-3 of Article 184 represent, in order, increasing categories of severity in both the level of the offense and severity of punishment based on the amount of damage, scale of the offense, repetition of the violation, etc. END NOTE.) Penalties for those convicted of violations of Article 184 vary. They include fines ranging from 100 to 700 times the Monthly Calculation Unit (one Monthly Calculation Unit is currently set to 1,273 KZT, or $8.50),the confiscation of 5 to 10 months' wages, community service of 100 to 240 hours, or imprisonment from 2 to 5 years and the possible confiscation of property. ¶5. (SBU) According to private industry representatives, the actual number of raids conducted in 2008 was reduced by almost half in comparison to the previous year. Private industry representatives account for this in two ways. First, On February 1, 2008 the Government of Kazakhstan enacted a year-long moratorium on inspections of small and medium enterprises in an effort to ease administrative burdens on business in the wake of the global financial crisis. (NOTE: This moratorium has since been extended until July 1, 2009. END NOTE.) Second, private industry representatives believe that an increase in crime rates associated ASTANA 00000481 002 OF 005 with the deteriorating economic conditions have led to refocus of law enforcement efforts away from addressing piracy and toward addressing other crimes. FIRST INCARCERATION FOR IPR VIOLATIONS ¶6. (SBU) The first significant criminal sentence for IPR violations was delivered by the courts in 2008. Unlike previous cases where convicted violators were given suspended sentences, one vendor of counterfeit products was sentenced to two years imprisonment in East Kazakhstan oblast under Article 184 (parts 2 and 3) of the Criminal Code. This is considered by some public and private officials to be an extraordinary example of enforcement in Kazakhstan, as well as the CIS as a whole. However, the President the "Copyright and Related Rights Association," a Kazakhstani IPR NGO, maintains that the "big fish" in the piracy market remain at large. RULING PARTY ENDORSES IPR ENFORCEMENT ¶7. (SBU) In 2008, the ruling Nur Otan party lent its support to IPR protection. Zhas Otan, the youth wing of the Nur Otan, organized several Astana-based campaigns in connection with IPR protection, including anti-piracy round tables and public rallies. According to private industry representatives, the campaigns have significantly contributed to raising IPR awareness and clearing the streets of Astana of vendors of pirated audio and video products. NEW AND CONTINUED CHALLENGES ¶8. (SBU) Under the new Tax Code, which went in effect in January, copyright holders are not exempt from payment of duties when filing suit for copyright violations. Article 541 of the Tax Code grants such an exemption to authors, but not to affiliated rights holders. Some private sector representatives consider this to be inconsistent with international standards. As a practical matter, injured parties will lose a percentage of the estimated value of the damage inflicted by piracy whenever they file a legal claim. ¶9. (SBU) Outside of Kazakhstan's two largest cities (Almaty and Astana),the vast majority of pirated media available originates in Russia and China. Russia -- with its many railway links to northern Kazakhstan -- presents a particular challenge for Kazakhstani authorities. As noted by the IIPA, customs officials continue to lack the ex officio authority required to seize counterfeit materials at the borders when such materials are discovered. ¶10. (SBU) According to private industry representatives, 2008 has witnessed an increase in the availability and sales, particularly in Almaty and Astana, of domestically produced counterfeit CDs and DVDs. This is largely due to the increasing availability of pirating technology and the willingness of small-time media pirates to engage the police in the "cat and mouse" game of street sales. Industry representatives assert that local police charged with enforcing the prohibition of street sales are often unmotivated and indifferent to the presence of such vendors, if not directly paid to ignore them. ¶11. (SBU) According to the Fifth Annual Business Software Association (BSA) and IDC Global Software Piracy Study, the software piracy rate in Kazakhstan was approximately 70% in 2007. Local software industry experts believe that internet piracy has also became widespread in Kazakhstan over the last several years. In addition to widespread file-sharing technologies, such as the open-source application BitTorrent, that facilitate the direct distribution of pirated audio and video over the internet, private industry representatives from Almaty have noted the launch of several internet delivery services there. According to these sources, customers can order pirated movies over the internet and have them delivered just as they might a pizza to their front door. These operations have reportedly proven very difficult to physically locate. ASTANA 00000481 003 OF 005 ¶12. (SBU) The pursuit of rulings against IPR violators in civil courts remains problematic because of legal norms carried over from Soviet times. According to the Prosecutor General's office and private industry representatives, this is particularly so when licensed copyright holders attempt to sue vendors of pirated material for damages. Under current IPR legislation, plaintiffs are subject to an unnecessarily heavy burden of proof, whereby they are required to demonstrate a direct contractual link to the artist or author whose pirated material is being illegally sold. (NOTE: An example would be a direct contract between a performer and record store. END NOTE.) If a licensed copyright holder or distributor can not substantiate this direct linkage, they can not, in the eyes of the court, demonstrate financial damages caused by illegal sales. In addition, civil claims must also be brought in a court in the region where the infringement is alleged to have occurred. Regional courts tend to lack regular exposure to -- and knowledge of -- this relatively new and complex area of law, which has historically inhibited the successful prosecution of violations. OPTICAL MEDIA PROTECTION ¶13. (SBU) Currently only one plant producing optical discs specializing in films and music remains operational in Kazakhstan. The plant has source identification codes (SIDs) issued by the IFPI (International Federation of the Phonographic Industry) and, as the International Intellectual Property Alliance (IIPA) notes, provides samples of its products for use as forensic evidence. SOFTWARE INDUSTRY ENGAGEMENT ¶14. (SBU) According to local Microsoft representatives, all newly procured government computers have licensed software. Recognized for its successes in defense of IPR in Russia, Microsoft representatives did express hope that its intensifying partnership with the Government of Kazakhstan will improve IPR preventative and enforcement capacity, particularly in the field of internet-based piracy. ¶15. (SBU) Despite positive relations developing between Microsoft and the Government of Kazakhstan, Microsoft representatives continue to recommend that Kazakhstan be placed on the Special 301 Watch List. Findings from Microsoft-funded research indicated that levels of privately used pirated (or unlicensed) software remains extremely high. According to their current estimations, approximately 90 percent of privately owned PCs in Kazakhstan use illegally obtained software. (NOTE: In 2008, Microsoft sold only 2,000 software licenses in Kazakhstan. Microsoft data also indicate that the overwhelming majority of respondents believe piracy rates would decrease if the prices of commercially available software were to be lowered. END NOTE.) SCHEDULED AND ENACTED IPR LEGISLATIVE IMPROVEMENTS ¶16. (SBU) During the reporting period, Kazakhstan continued to pursue legislative changes that strengthen the government's hand in protecting intellectual property rights. The legal basis for preventing and prosecuting IPR violations remains the "Law on Amending Legislative Acts of the Republic of Kazakhstan on the Issues of Intellectual Property", which entered into force on November 26, 2005. This law amended the country's Criminal Code, Criminal Procedure Code, Civil Code, Administrative Code, and the Copyright Law as they pertain to the protection of intellectual property. Amendments to the Patent Law were ratified in 2007, significantly simplifying the patent system (as compared with the old Soviet two-stage system) and bringing it into closer conformity with international standards. ¶17. (SBU) In June 2008, the Government of Kazakhstan amended laws concerning domestic (internal) trade with the aim of preventing the illegal distribution of pirated audiovisual products and software in ASTANA 00000481 004 OF 005 "spontaneous markets," meaning sales on the streets, in bazaars, and at unlicensed kiosks. According to the amendments, audiovisual products may only be sold in stores. Members of the Ministry of Justice's IPR Committee are confident that this measure will reduce the spread of counterfeit products. ¶18. (SBU) Proposed amendments to the Copyright Law, Law on Licensing, and Customs Code are currently being evaluated separately by independent experts and members of Parliament. Proposed amendments to the Copyright Law have been praised by private industry representatives in as much as they directly address the weaknesses hindering copyright enforcement in civil courts (see para 7 above). According to private industry sources, the proposed amendments will relieve IPR holders of the heavy burden of proof and facilitate more effective law enforcement. In accordance with WIPO requirements, the draft amendments also detail the use of technical means for the protection of copyrights, and specifically prohibit the removal of any types of technical or coded copyright protection technologies. All digital media designated for commercial sale whose technical copyright protection has been deliberately tampered with will by default be considered counterfeit and its owners will be subject to prosecution. Representatives from the Ministry of Justice's IPR Committee expressed confidence that this will greatly enhance IPR protection in Kazakhstan. Finally, changes to the Copyright Law would also improve governance of Kazakhstani copyright associations, forcing increased transparency and accountability in the registration of licenses and collection of associated royalties and fees. According to the Chairman of the IPR Committee, the amendments to the Copyright Law are expected to be approved by Parliament by July 2009. ¶19. (SBU) The IPR Committee believes that the proposed amendments to the Licensing Law stipulating mandatory licensing for the commercial reproduction of any copyright protected audio and visual recordings meet WTO requirements. These amendments are expected to come before Parliament by the end of 2009. ¶20. (SBU) Amendments to the Customs Code granting ex officio authority to customs agents are expected to be considered by Parliament in 2009. These amendments will grant customs agents the authority to more readily seize counterfeit goods at the border, which has long been recommended by the International Intellectual Property Alliance (IIPA.) IIPA REPORTING AND CONCERNS ADDRESSED ¶21. (SBU) Over the last several years, IIPA reporting has consistently reiterated several concerns regarding the development and efficacy of IPR protective measures in Kazakhstan. They have also, however, continued to report several significant inaccuracies. ¶22. (SBU) The IIPA report states that "only the Ministry of Justice (Copyright Office) and not the police can bring charges for [administrative violations]" and recommends "that the existing police authority be broadened to include administrative violations as well." Article 620 of the Administrative Violations Code specifically provides such powers to the police. ¶23. (SBU) The IIPA's assertion that the 2004 statutes only provide for a 50-year term of copyright protection is inaccurate, as the November 2005 amendments specifically provide for the extension of copyright protection to 70 years, in keeping with international standards. ¶24. (SBU) The IIPA repeats another error from its previous reports, overstating the minimum damages threshold for criminal prosecution. IIPA misinterprets what it calls "the key amendment" in the November 2005 legislation. i.e., the change to Article 184 of the Criminal Code, which repealed the undefined "huge damage" threshold for criminal cases and replaced it with a threshold of 100 Monthly ASTANA 00000481 005 OF 005 Calculation Units (MCU's). The IIPA again incorrectly reported that damages must exceed 100 times the government-set monthly wage. In fact, there is a large difference between an MCU and the monthly wage: one MCU currently equals 1,273 tenge, or $8.50, and the monthly wage in 2008 was 60,734 tenge (about $504.85) -- which means that the threshold for prosecution is just $850.00 (100 MCUs) in damages, not, as the IIPA believes, $50,485 (100 times the monthly wage). ¶25. (SBU) The IIPA cites Kazakhstan's need to establish a legal basis for the confiscation and destruction of equipment used in the criminal manufacture of pirated goods. The IPR Committee continues to assure post that a combination of statutes in the Criminal Code and the Criminal Procedure Code constitutes an adequate provision for the confiscation of such equipment. Moreover, the IPR Committee has stated that such confiscations are routinely carried out and do not require a court order. A court order is necessary only to destroy such equipment -- a procedural requirement which the IPR Committee defends as necessary to preserve potentially material evidence. It should also be noted that the abovementioned proposed amendments to the Copyright Law will require judges, in the event of a conviction, to make a ruling regarding the named piracy equipment. This provision is expected to increase occasions in which confiscated equipment will be destroyed. ¶26. (SBU) The IPR Committee of the Ministry of Justice is the authorized government agency for IPR protection. In contrast to what was stated in the IIPA report, the Ministry of Culture and Information has no role regarding this issue. However, the Ministry of Internal Affairs, General Prosecutor's Office, and the Financial Police are all partner organizations in the enforcement of IPR legislation. ¶27. (SBU) COMMENT: Kazakhstan's continued progress on and commitment to IPR protection merits its continued exclusion from the Special 301 Watch List. At this stage, acknowledging Kazakhstan's significant achievements while stressing to the Government of Kazakhstan that they must continue to enhance their IPR efforts is a better approach to facilitate further U.S.-Kazakhstani IPR cooperation and achieve results on the grounds than returning Kazakhstan to Watch List status. END COMMENT. HOAGLAND