CYPRUS: 2009 SPECIAL 301 REVIEW

UNCLAS NICOSIA 000154

SENSITIVE

SIPDIS

DEPT FOR EEB/TPP/IPE (TMCGOWAN) AND EUR/SE
DEPT PLS PASS TO USTR (JGROVES)
DOC FOR ITA/MAC/OIPR (CPETERS)
DOC PLS PASS TO USPTO (JURBAN),AND LOC (STEPP)

E.O. 12958: N/A
TAGS: KIPR ECON ETRD AF NEA EUR EAP WHA SA CY
SUBJECT: CYPRUS: 2009 SPECIAL 301 REVIEW

REFS: (A) STATE 8410, (B) 08 NICOSIA 0126

(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 2009 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 2008, Cyprus made further progress combating
IPR abuses, despite problems facing the Cyprus Police in their
efforts to successfully prosecute IP pirates. The Police attribute
these problems to lack of cooperation from rights holders, stemming
from reduced funding. Post predicts a worsening of piracy during
2009, unless this situation is rectified soon. We are working with
both the private sector and local authorities to try and find a
solution to this problem.


2. (SBU) Post does not/not recommend including Cyprus on the watch
list. IPR legislation in the area controlled by Turkish Cypriots
remains antiquated with limited resources or interest in
enforcement. Post plans to hold its fourth international IPR
seminar in Cyprus in April 2009 (April 9 in the
government-controlled part, and April 10 in the area administered by
Turkish Cypriots). 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 2008, 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 is no indication of domestic, large-scale,
organized, mass-production piracy for the export market.


5. (SBU) Since 2007, 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 rate of software piracy in Cyprus is currently
estimated at 51 percent. While slightly above the EU average, this
figure represents a considerable improvement since 1994, when
software piracy was estimated at 77 percent. The most common form
of software piracy in Cyprus occurs through local PC retailers,
often loading new PCs with unauthorized software copies.


7. (SBU) The International Intellectual Property Alliance (IIPA)
had included Cyprus in its "special mention" category (one notch
below recommending inclusion on the watch list) in its 2006 Special
301 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. Since 2007, though, Cyprus has been off the
special mention list in the IIPA's Special 301 report.

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


8. (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 2008, the GOC signed an MOU with Microsoft
licensing Microsoft operating systems and productivity software for
all government PCs including those in schools.

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


9. (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 and the police.


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


10. (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. With only 20 percent
of Cypriot households utilizing broadband connections, downloading
pirated digital content will likely increase as broadband
penetration expands. In order to counteract the advances in digital
technology, more innovative approaches are required by the
rights-holders and the Cypriot authorities. During 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 running illegal betting games but
found that content distribution was via 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
nine servers as evidence. It is believed that this is only the tip
of the iceberg, with many other such operations still in existence.
The police plan to utilize a 2002 law regulating services to
prosecute these offenders.


11. (SBU) College textbook piracy has been dealt decisive blows
over the last few 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
stringent policies against textbook piracy.

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


12. (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 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.


13. (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, hired three additional staff
members during 2008 to help with its implementation. The Service
intends to use this new law to prosecute, among other offences,
trademark and copyright violations. 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.


14. (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.


15. (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 around USD 3,000 to three years and a fine of around
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.


16. (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
--------------


17. (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).


18. (SBU) 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. Additionally,
since Cyprus' EU accession on May 1, 2004, the Department of Customs
has shown increased interest in IPR enforcement due to legislative
changes providing it with enhanced enforcement tools. The Consumer
Protection Service continues to be the laggard domestically in IPR
enforcement, although the recent passage of the law on Unfair
Commercial Practices allows some optimism that it will take a more
active stance in the future (see para. 13 above).

Police Efforts Grinding to a Halt
--------------


19. (SBU) The Cyprus Police remain the key enforcer of anti-piracy
legislation. However, their efforts are increasingly frustrated by
a reduction in assistance and cooperation from rights holders.
Unless this situation is reversed quickly, the Embassy foresees a
risk that Police efforts will be significantly reduced in 2009. The
following letter from the Police to the Embassy (submitted under
cover of MFA Note Verbale Ref. No. 03.13.011, dated February 18,
2009) illustrates the problem:

Begin text of Police Letter:

The Cyprus Police have assumed fully its share of responsibility for
the protection of IPRs of all citizens in Cyprus, and not just those
of US nationals.

As you know, in November 2004, the Police Headquarters established
our office, now staffed by three officers, dealing exclusively with
implementing this legislation. Additionally, since 2008, IPRs have
been introduced in the Police Chief's four-year plan, meaning that
specific targets have now been set, and the whole process is being
monitored systematically to ensure accomplishment of these goals.

Under this framework, the police have conducted many raids, seized
material appearing to infringe on IPR laws, and initiated legal
proceedings, as per the attached annex.

Based on prevailing law currently applied in Cyprus, under which the
burden of proof rests with the prosecuting authorities, the
confiscated evidence must be examined by an expert/authorized
representative of the IP rights holder, who must then appear before
Court and testify that the confiscated articles are not authorized
reproductions, beyond any reasonable doubt.

It should be noted that the Police confiscate articles on suspicion
that they are unauthorized reproductions. These articles are then
presented to the Court, which issues a temporary restraining order
to hold the articles for 15-30 days, until the expert/authorized
representative of the rights holders has a chance to examine the
evidence. Upon its expiration, this order must be renewed, a
process that is both time-consuming for my staff, and also
attracting negative comments from the Court. There is also the risk
that the Court will refuse to renew restraining orders, regardless
of the expert's workload, because such renewal cannot take place
indefinitely since there is commercial property involved.

Regarding film piracy, the Cyprus Police cooperated until 2008 with
the Cyprus Federation Against Copyright Theft (CYFACT),an employee
of which examined digital discs/DVDs as to their authenticity.
During 2007, CYFACT informed us that, as of December 1, 2007, it
would not be in a position to continue offering the above-mentioned
assistance, since the Motion Picture Association (MPA) had cut its
funding. Senior executives of the Company for Protection of
Audiovisual Works (EPOE) in Greece (Ed. Note: also affiliated with
MPA) assured us that this would not create a problem, since they
were planning to set up a similar body in Cyprus to undertake this
task. Unfortunately, and despite all the assurances we have
received, (correspondence with EPOE attached) the establishment of
this office is still pending until today. In the event, evidence
examination continued by the same expert/representative during 2008
after his salary was paid by a certain Cypriot businessman. Since
the beginning of 2009, we have had a serious disruption of our
planned anti-piracy activities for 2009 due to the continuing
uncertainty as to whether or not EPOE will set up a similar company
in Cyprus, or whether or not they will appoint a local
expert/representative.

A similar situation exists regarding musical works. The
International Federation of the Phonographic Industry (IFPI) used to
employ one person in Cyprus until 2008. However, this person has
now resigned, after giving a six-month notice. Once again, since
the beginning of 2009, the appointment of a representative in Cyprus
is pending, creating operational difficulties for the Police in

2009.

Additionally, and with the exception of Microsoft, there is no
authorized representative of other software companies manufacturing
gambling software on digital discs.

Regarding computer software, up until June 2008, there was no
representative of rights holders in Cyprus. Finally, the Business
Software Alliance (BSA),hired a certain person to assist in this
effort. However, it has been established that this person lacks the
technical expertise to operate a computer if the computer requires
the use of a password. Specialized Police units can easily operate
these computers but they cannot retrieve the software's Serial Key,
since they lack the necessary authorization. The Police have
informed repeatedly BSA's legal advisor in Cyprus about this
problem, but without any progress to date.

Finally, in the IPR Workshop that took place on March 29, 2007 in
Nicosia, Ms. Wendy Copage, representative of publishing houses
abroad, complained about book piracy in our country. I personally
informed Ms. Copage then of the need to appoint a representative in
our country, who would examine evidence so we can prosecute
offenders. In September 2007, a representative was appointed and
the Police conducted three raids on Nicosia bookstores, initiating
legal proceedings against them. Unfortunately, the designated
representative was incredibly late in examining the evidence. His
last report was filed late in the evening on September 3, 2008 -

fully one year after the seizures, and after we informed him that we
would cancel six operations planned for early in the morning on
September 4, 2008, until he cleared pending cases. It took him
another four months (January 2009) to examine the 160 books we
seized during those six raids - to the point where the Court warned
us that this was the last time it would renew the restraining order
for the books.

Our office's action plan calls for filing charges against 345 cases
in 2009. The first month of this year has already passed and the
representatives of both film and music companies have not yet
appointed authorized experts/representatives on the island, and have
not even clarified their intentions. At the same time, BSA's
representative needs to upgrade his computer skills in order to meet
his job requirements. In all cases, measures will need to be taken
to ensure the timely examination of evidence and submission of
relevant reports to allow a timely processing of these cases before
justice.

In conclusion, I wish to reiterate that the Police have the will to
uphold IPR legislation in our country. At the same time, though,
for our effort to be successful, we must have cooperation from
rights holders with the prosecuting authorities. I invite your
assistance in helping to resolve these problems.

(Signed)
Nicos Chrysostomou
Inspector
Head of Office for Combating Intellectual Property Theft and Illegal
Gambling
Cyprus Police Headquarters

End text of Police Letter.


20. (SBU) The Embassy is trying to mediate between the police and
representatives of rights holders to resolve the situation. The
biggest issue appears to be the lack of funds because rights holder
organizations (e.g. MPA, IIPA) have excluded Cyprus (and now, we
understand, Greece) as countries to which they will provide
financial support.


21. (SBU) Despite the mounting problems, last year the police
turned in another year of excellent results in fighting piracy.
During 2008, the Police conducted 477 operations to check various
establishments (compared to 305 operations in 2007). Of these, the
Police filed charges against 336 cases (compared to 188 cases in
2007),broken down as follows: 192 for unauthorized copies of
digital discs, 138 for unauthorized software, and 6 for unauthorized
book copies. During these raids, the Police seized 185,859 items as
evidence (against 188,516 items in 2007). The material seized in
2008 includes 1,374 personal computers with software suspected to be
unauthorized -- an unprecedented number for Cyprus.

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


22. (SBU) Cyprus' accession to the EU in May 2004 has allowed the
Department of Customs to divert resources from its traditional
revenue-collection work at Cypriot ports of entry to new areas such
as better IPR enforcement. Customs has 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. Customs also
credits U.S.-provided non-proliferation training and equipment with
improving Customs ability to interdict counterfeit goods. In an
innovative approach, Customs now audits retail shops to identify
imported counterfeit merchandise that has slipped through the port
of entry. Customs then traces the supply chain back to the importer
for possible action and also uses this information to improve its
screening system. Furthermore, to overcome weaknesses in the
evidence law that often prevented Customs from pursuing a case
within the three-day detention period, Customs cooperates with the
Ministry of Commerce to seize the counterfeit goods under its
administrative detention authority.


23. (SBU) In 2008, Customs conducted dozens of raids, seizing
thousands of counterfeit products. During last year, the total
value of these seizures reached USD 254,310, compared with USD
155,868 in 2007. Seized 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
--------------


24. (SBU) During 2008, the Ministry of Commerce's Consumer
Protection Service hired an additional three persons to help with
the implementation of the Unfair Commercial Practices law, passed
the year before (see legislation). The Embassy remains hopeful that
the Consumer Protection Service will gradually become more actively
involved in the fight against IPR piracy.

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


25. (SBU) It is difficult to measure the actual impact of piracy
and counterfeit goods on legitimate businesses but, overall, the
trends in the legitimate market seem reassuring. For example, in
the cinema business, total cinema ticket sales have gone from to
801,000 in 2006, to 849,000 in 2007, to around 1 million in 2008.
About six new theater screens came on line in 2007, mostly in
multi-screen complexes, although several smaller theaters were
shuttered. 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
--------------


26. (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. The Embassy has sponsored a
series of IPR workshops in the north (the last two being in March
2007 and November 2005) with support from the Turkish Cypriot
Chamber of Commerce. However, these efforts have so far 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.


27. (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 has
reportedly decreased in recent years due to protests by cinema
owners.


28. (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
merchandise 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.


29. (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.

"Green Line" Concerns
--------------


30. (SBU) The semi-porosity of the "Green Line," the UN-patrolled
buffer zone dividing the two parts of the island, is another concern
from an IPR perspective. We believe a good portion of the illegal
activity currently taking place in Cyprus, from narcotics to human
trafficking, involves this sensitive area. A recent development
potentially compounds the problem: on June 16, 2008 the European
Council amended the "Green Line Regulation" to further facilitate
inter-community trade on the island. Under this amendment, the
total maximum value of goods contained in the personal luggage of
persons crossing the Line is increased from Euros 135 (USD 198) to
Euros 260 (USD 382) so as to encourage the economic development of
the Turkish Cypriot community. Goods up to this amount can now be
transported free of customs, excise duties and taxes across the Line
into the government-controlled areas of the Republic of Cyprus.
Given the slack Customs checks across the divide, there is increased
risk of more counterfeit products filtering from north to south.

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

31. (SBU) Post does not/not recommend listing Cyprus (the
government-controlled area) in this year's Special 301 review. We
do recommend, however, that US rights holders (particularly, the
MPA, IFPI, and BSA) increase (or, rather, reinstate) funding for
their representatives in Cyprus. The amounts involved are trivial -
an annual budget of USD 40,000 for the salary of one expert would
take care of the problem for the film and music industries.


32. (SBU) In the northern part of the island, IPR piracy is much
worse. However, 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.


33. (SBU) Post continues to advocate better education and
awareness. In this vein, Post will again organize two separate IPR
workshops in both parts of the island on April 9 in the south, and
April 10 in the north. We have already secured the participation of
USDOJ's Matthew Lamberti, Intellectual Property Law Enforcement
Coordinator for Eastern Europe, out of Sofia, Bulgaria (among other
speakers) but would welcome additional speakers as appropriate. It
would be particularly useful if we could obtain an expert speaker on
EU IPR law for the event in the north on April 10.


34. (SBU) 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.

URBANCIC