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

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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.

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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

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"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

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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