HUNGARY: 2009 SPECIAL 301 REPORT POST

UNCLAS SECTION 01 OF 02 BUDAPEST 000155

SENSITIVE
SIPDIS

EEB/TPP/IPE FOR JENNIFER BOGER; COMMERCE FOR ITA/MAC/OIPR
SILVIA SAVICH, COMMERCE PASS USPTO; STATE PLEASE PASS TO
USTR FOR JENNIFER CHOE-GROVES

E.O. 12958: N/A
TAGS: ECON ETRD KIPR EU HU
SUBJECT: HUNGARY: 2009 SPECIAL 301 REPORT POST
RECOMMENDATIONS

REF: A. SECSTATE 08410

B. 08 BUDAPEST 00179


1. (SBU) SUMMARY AND RECOMMENDATION: Hungary continues to
make headway on its Special 301 initiatives, as well as IPR
regulatory enforcement more broadly. The National Board
Against Counterfeiting and Piracy (HENT) -- which acts as an
overarching structure for information sharing, police and
judicial training, public outreach and public-private
cooperation -- made strong progress this past year. While
legislation and enforcement efforts are aligned, the
continued leniency in the courts hinders progress.
Accordingly, Post recommends that Hungary remain on the Watch
List; however, we suggest that the report include a caveat
that the progress and positive actions of the HENT be noted
as a promising move toward eventual removal from the list.
END SUMMARY AND RECOMMENDATION.

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THE HENT IS UP AND RUNNING
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2. (SBU) Industry and government representatives alike were
enthused about the focus and progress of the HENT,
established in January 2008. Several sources stated that the
U.S. Embassy's efforts in raising IP protection awareness
lead to its establishment. As outlined in reftel B, the HENT
is a public-private partnership comprised of 20 permanent
members, 10 from government and 10 from industry. In a
meeting on February 12, Paulina Oros, from the office of the
New Order Project, presented Econoff with a copy of the
HENT's two-year strategy and explained its workings. The HENT
meets monthly, with the five sub-committees meeting bi-weekly
focused on statistics, information/education, pharmaceutical
and agricultural, internet services/illegal downloads, and
enforcement. The strategy is broken down into these five
areas detailing each initiative with a description, needed
funding, responsible individual, and a deadline.


3. (SBU) Collaborating with electronics store giants,
MediaMarkt and Saturn, the HENT launched a large-scale
consumer information campaign in late 2008. Warning of the
consequences of counterfeit and pirated goods, nearly 600,000
red leaflets were attached to merchandise in 23 outlets. An
additional 20,000 stickers were placed on electronic hardware
such as computers, DVD burners, and LCD monitors. The
campaign includes posters in customer service areas, check
out lanes, and bathrooms. In April, the campaign will add a
second partner, PhotoHall, a multimedia retail chain, with 75
outlets. So far, the GOH has covered the roughly $10,000
cost of the program.


4. (U) The information campaign was furthered on February 11,
when HENT added a new category at the Hungarian music awards
(Fonogram),giving an award for the most legally downloaded
album of the year.


5. (SBU) To further the concept of "Software as a Company
Asset" among accountants and CFOs, the tax authority
sponsored the first IP awareness seminar on February 27.
Members from the tax authority discussed software
inspections, while representatives from the National Standard
Board addressed compliance processes like ISO 19770 and
independent licensing specialists.

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IP INFRINGEMENT RIPPLE -- LOCAL INDUSTRY INPUT
-------------- --


6. (SBU) According to the Hungarian Patent Office (HPO),
Hungary's economy sustained losses of nearly $500 million due
to copyright infringement and piracy in the music, film and
software industries - a 50 percent decrease from what
industry officially reported in 2005.


7. (SBU) In a meeting on February 11, Andras Kalman, from the
local audiovisual association (ASVA),told Econoff that the
Motion Picture Association (MPA) canceled the contract for
legal representation on IP matters with ASVA that same day.
He believed it was because of Hungary's small market. "It
could be that the damage isn't worth the focus," he said.
MPA representative confirmed that "the move was strictly an
economic decision," suggesting a comfort level with the local
enforcement authorities to protect their own film markets as
well as MPA's. Mr. Kalman echoed both praise for the HENT
and frustration with judicial leniency. He recommended

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Hungary remain on the watch list.


8. (SBU) On February 18, Sandor Simonkovics, from the
Business Software Alliance (BSA) of Hungary, told Econoff
that he expects the software piracy rate to remain unchanged
from last year at 42 percent. Though it was a banner year --
BSA trained 500 tax inspectors on software licensing, the GOH
included IPR clauses in employee contracts, BSA and the GOH
stood up a hotline for tax inspectors and accountants, the
Tax Authority is integrating software inspections into their
general inspection processes, and GOH and BSA subcontractors
now must certify to the legal use of software -- BSA
attributes the continued willingness to use pirated software
to the economic problems cause by the recent crisis. Adding
injury, the GOH decided to re-compete 30 percent of its
software contract for public schools with Microsoft.
According to Microsoft, the GOH has not yet solicited bids
for the 30 percent, but no longer pays the licensing fees to
Microsoft. Additionally, smaller electronics stores continue
to sell personal computers without software, while clerks
offer their "installation services" for a fee.


9. (SBU) On February 18, Andras Vajda, the local PhARMA
representative, told Econoff that Hungarian laws on
pharmaceutical patent protection is aligned with EU standards
and industry needs. However, he explained that judges are
focused on protecting national interests, to include earlier
introduction of less expensive drugs (generics) for the
State-funded health care program. He did not recommend
Hungary be placed on the Priority Watch list as their
struggle with the GOH is based less on patent protection and
more on tax structures. (COMMENT: Post notes that this
statement from Hungary-based PhARMA rep differs from the
PhARMA assessment submitted in Washington, which continues to
call for Hungary's elevation to the Priority Watch List. END
COMMENT.)

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ALL CARROTS AND NO STICKS
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10. (SBU) Sources agreed that Hungarian regulations and laws
on IP are harmonized with the EU directive. Enforcement is
carried out by a specialized, internet-savvy unit in the
police and customs departments, while IP cases are heard in a
special court in Budapest. However, all sources declared
that the leniency of the courts mocks positive enforcement
efforts. Although, the HPO statistics showed that nearly
28,668 IP investigations were opened in 2008 -- with 75
percent brought to trial -- they failed to reveal the actual
fines or jail time. Enforcement relies on goodwill and soft
measures, seriously lacking hard consequences. Poised to
protect the rights of the individual, the current political
climate deadens any strong measures. Court cases show great
forgiveness specifically with software and pharmaceutical IP
infringements. This leniency emboldens the public. The HPO
explained that external training, offered by NGOs, the U.S.
Patent Office, and ILEA, is more effective than internal
debates.


11. (SBU) Last December, Parliament voted down an amendment
to the copyright act, which clarified that the private
copying exception does not extend to copying from illegal
sources. The vote was not based on the grounds that they
support internet piracy but rather they argued that the legal
language was too vague and placed responsibility on the
user's awareness of illegal sources. The HPO and the MOJ
view the attempted amendment as "simply a clarification to
the copyright act," and both believe internet piracy is
covered under the basic law. Additionally, the IT
association lobbied against the amendment, seeing it as a
first step of stopping the free flow of information on the
internet. It is unlikely the amendment will be proposed
again this year.


12. (SBU) COMMENT: While the GOH has made good progress with
the HENT and plans to continue down this path, Post
recommends that Hungary remain on the Watch List in 2009. We
believe it is important to encourage continued progress in
the strengthening of Hungary's IP environment. We will
continue to support external training of the judiciary and
work closely with the HPO and MOG as well as a broad array of
interested industries to offer assistance as appropriate.
END COMMENT.
Foley