CZECH REPUBLIC: POST INPUT 2009 SPECIAL 301 REVIEW

UNCLAS SECTION 01 OF 03 PRAGUE 000113

SENSITIVE
SIPDIS

DEPT FOR EUR/CE AND EEB/TPP/IPE - TMCGOWAN AND JURBAN
DEPT PLS PASS TO USTR - JGROVES

E.O. 12958: N/A
TAGS: KIPR ECON ETRD EZ
SUBJECT: CZECH REPUBLIC: POST INPUT 2009 SPECIAL 301 REVIEW

REF: A. SECSTATE 8410

B. NOV 24 PRAGUE DAILY

C. 08 PRAGUE 619

D. SEPT 23 PRAGUE DAILY

(U) This cable is sensitive but unclassified. Please protect
accordingly. Not for placement on the public internet.


1. (SBU) Over the past 12 month, Czech authorities have made
significant progress on combating IPR violations. Customs
and the Czech Trade Inspection Office (CTIO) have increased
raids on, and presence at, the roughly 50 markets that dot
the border with Germany and Austria. As a result, most
pirated goods are no longer openly displayed but hidden and
only available to select customers. In 2008, Customs and the
CTIO confiscated almost 5 million pirated items with an
estimated value of over 4 billion CZK (roughly USD 200
million). In January 2009, the parliament passed a new
criminal code, which, when it goes into effect January 1,
2010, will significantly increase penalties for IPR
violations. Problems, however, remain. Those arrested tend
to be low-level vendors, rather than middle-men or
organizers. Over 99 percent of those convicted receive only
suspended sentences. Non-traditional enforcement tools such
as the revocation of business licenses are rarely used.
Internet piracy is also becoming a growing concern, despite
significant police cooperation. Consequently, the Embassy
recommends that the Czech Republic be kept on the Special 301
Watch List but be removed from the list, even as early as
later this year, should the Czech authorities be able to
demonstrate an increase in criminal penalties and business
license revocations. End Summary.

Increased Raids at Border Markets Having a Visible Effect


2. (SBU) Czech Customs officials adopted a much more
organized approach in 2008 to combating IPR violations at the
roughly 50 markets that dot the Czech borders with Germany
and Austria. These markets are run by the large and
tight-knit Czech Vietnamese community and cater almost
exclusively to German and Austrian visitors. Since early
2008, Czech customs has targeted the markets for repeated
raids. This is in stark contrast to previous years, when
Customs symbolically visited only a few stalls and then left
the area, Customs is now inspecting the entire market and
leaving its people on site for several weeks.


3. (SBU) Customs also reported that it is reaching out to
market vendors to educate them on what items can be sold
legally and what constitutes IPR piracy. After raids,
written materials are often left behind warning both vendors
and consumers. The Czech Ministry of Culture has separately
participated and helped fund a number of IPR educational
programs for domestic Czech consumers and students, often in
cooperation with private stakeholders. At major Czech
cinemas, an anti-piracy spot is shown before every movie
screened. Czech authorities are also planning at least three
IPR conferences this spring, including one with French
government support and another addressing IPR educational
programs.


4. (U) According to Customs officials, in 2008, Customs
confiscated (and subsequently destroyed) 4,843,360
counterfeit items, worth a total of 3.9 billion Czech crowns
(CZK). The Czech Trade Inspection Office also confiscated an
additional 129,955 items worth a total of 176 million CZK.


5. (SBU) While RIAA is recommending that the Czech Republic
remain on the Special 301 Watch List and be elevated to the
Priority Watch List if the Czech authorities do not take
specific steps by the end of the year, the local IFPI
director Petra Zikovska (who represents RIAA, please protect)
told us bluntly that she disagrees with RIAA's report. She
noted that Czech authorities have made a "visible difference"
at the border markets. Unlike in the past, pirated goods are
no longer visibly displayed and vendors who offer pirated
goods are nervous and understand that what they are doing is
illegal. Zikovska who in the fall was worried that Custom's
increased raids may not be sustainable is now much less
concerned. She noted that while Customs may not have had as
many big flashy, publicized raids in the second half of 2008
as the first (as noted in the RIAA report),they continue to
cooperate with IFPI on 5 to 7 smaller raids a week. Zikovska
added that a Vietnamese owner of one of the market places is
even selling his market as it is no longer such a profitable
endeavor.


6. (SBU) Czech Anti Piracy Union head Marketa Prchalova, who

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represents MPAA among other organizations, also told us that
the increased activities of Czech Customs are having a
positive effect. She thought that the scale and scope of
items being sold at the outdoor markets is now much less, as
most pirated goods are no longer openly displayed. Our own
trips to several border markets in both August and November
confirmed that most pirated goods are hidden in locked
containers or are kept in sheds, cars or homes outside of the
market (thus requiring customs to get a warrant to seize the
goods). While pirated goods are still available, vendors are
visibly nervous and carefully vet potential customers. In
our experience, most pirated goods are generally offered only
to customers who ask and fit the profile of German-speaking
tourists.

Internet Piracy a Growing Problem; Police Cooperation
Excellent


7. (SBU) Anti Piracy Union head Prchalova told us she was
much more concerned with internet piracy than the outdoor
markets. While cooperation with the police is generally very
good, internet pirates are becoming much more sophisticated
and more adept at finding loop holes in current Czech
legislation. For instance, websites cannot be held legally
responsible for pirated content on other (often foreign)
sites linked to the website. IFPI's Zikovska agreed that
internet piracy is increasing but noted that her organization
is very pleased with the cooperation it is receiving from the
Czech authorities, especially the Police.

Less Progress on Criminal Enforcement, License Revocations


8. (SBU) While Customs has been successful in disrupting
trade in pirated goods at the outdoor markets, Czech
authorities do not appear to have made significant progress
addressing the main concerns raised by USTR during a DVC in
September between Washington and the Czech intergovernmental
IPR task force. USTR's two main concerns were:

-- the lack of criminal enforcement; arrests are infrequent
and violators generally receive only suspended sentences; and

-- the failure to use creative measures available under Czech
law to combat IPR abuses such as revoking the business
licenses of offenders.


9. (SBU) According to IFPI's Zikovska, during the average
raid, the Vietnamese vendors run away as soon as their posted
lookouts see the Czech authorities approaching. Thus, there
is generally no one left to arrest. While the market
operators are required to keep records of the stall owners,
they are not held responsible for the accuracy of the
reports. In practice, most of the addresses are out of date
or false and it is very difficult for the authorities to
track down violators.


10. (SBU) Czech customs and police do not have any Vietnamese
agents and are not able to penetrate the tight-knit
community. Consequently, those arrested tend to be low level
vendors rather than organizers or kingpins. Czech judges
tend to view IPR crimes as not particularly serious and IPR
violators as not particularly dangerous. Thus judges are
reluctant to send IPR pirates to the already overcrowded
Czech jails or to impose significant fines. Thus, criminal
penalties remain low. Of those convicted, almost all receive
suspended sentences.


11. (SBU) According to official police statistics, in 2008,
274 people were prosecuted for trademark violations, 204 for
copyright violations and 11 for industrial property rights
violations (as compared to 220, 216 and 4 in 2007, and 229,
222, and 1 in 2006). Of the 489 people prosecuted, only 41
were repeat offenders. These statistics do not include
information on the number of convictions or the level of
penalties applied. These statistics also do not
differentiate between those arrested for crimes at the border
markets or elsewhere. (Note: The Ministry of Industry and
Trade has rejected our suggestion to create a database to
track the arrests and fines made at the border markets as too
expensive and bureaucratic. End note.) According to the
police, the statistics also do not include those arrested for
petty offenses or cases in which criminal charges are dropped
after the violators agree to provide financial compensation
to the rights holder (a practice that is common in internet
piracy cases).


12. (SBU) Czech officials are hopeful that the passage of the
new criminal code in January will convince judges to

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significantly increase the criminal penalties they apply.
The new code, which will go into effect January 1, 2010,
raises the maximum sentence allowed in IPR cases from two to
8 years imprisonment and significantly increases the maximum
fine. Under the old code, those caught manufacturing or
storing (but not selling) counterfeit items could only be
charged with petty offenses. As of 2010, these offenses will
now be regarded as serious crimes.


13. (SBU) Some Czech officials claim that while criminal
penalties are low, the confiscation of goods and level of
administrative penalties applied are making an impact and
having some deterrent effect. While the increased
confiscation of pirated goods may be having some deterrent
effect, we have yet to see documentation supporting the
contention that the level of administrative fines is now
significant. According to government statistics, Customs
reportedly levied fines of roughly 3 million CZK (roughly USD
150,000) in 2008. The CTIO did not have statistics on
administrative fines available. The head of the Prague
regional office told us he had fined one company the
equivalent of USD 10,000 for selling two pirated shirts
through the internet. This level, however, seems to be the
exception rather than the rule.


14. (SBU) We have also seen no evidence that the Czech
authorities have been using other more creative tools legally
available to them to combat IPR crimes. Several Czech
officials have told us that IPR violators are not having
their business licenses revoked. Customs told us it is
informing the appropriate office in each case, but that as
far as they are aware, no actions are being taken. Although
very difficult to get approved, Czech law allows the police
to confiscate property used in a crime or bought with funds
generated from a crime. We are not aware that this tool has
ever been used against IPR violators. The police also told
us that they were considering using money laundering laws as
another way to combat IPR offenses. We have not seen any
evidence, however, that this is yet occurring.

Post Recommendation:


15. (SBU) Since first being listed in January 2008, Czech
authorities have significantly increased the scope and
frequency of IPR raids and the amount of pirated goods
confiscated. The impact on the border markets is visible.
Most pirated goods are no longer publicly displayed and have
become harder to purchase. This is a significant achievement
and should be acknowledged. Czech authorities have made less
progress, however, meeting the concerns raised by USTR in
September. Criminal penalties remain light, although there
is some hope that these will increase once the new criminal
code takes affect. We will work with USPTO to organize a
seminar for Czech judges later this year. Czech authorities
also do not appear to be using all the tools available in
their arsenal such as revoking the business licenses of
offenders.


16. (SBU) Thus, post recommends that the Czech Republic be
kept on the Special 301 Watch List but that the report
acknowledge the significant increase in raids and
confiscations (while noting concerns about the lack of
criminal enforcement and the full use of available legal
tools). We believe that to not acknowledge Czech progress
would hurt the credibility of the report and lessen its
ability to affect change. We also recommend that the Czech
Republic be removed from the list, even as early as later
this year, should the Czech authorities be able to document
an increase in criminal penalties and business license
revocations.
Thompson-Jones