SPECIAL 301 2008: BULGARIAN EFFORTS LOSE FOCUS

UNCLAS SECTION 01 OF 03 SOFIA 000086

STATE FOR USTR JCHOE-GROVES, FOR EB/IPE JURBAN; TMCGOWEN; AND EUR/CE
YEAGER
COMMERCE FOR SSAVICH
DOJ FOR CALEXANDRE

SIPDIS
SENSITIVE

E.O. 12958: N/A
TAGS: ECON KIPR ETRD BU
SUBJECT: SPECIAL 301 2008: BULGARIAN EFFORTS LOSE FOCUS

Ref: A. STATE: 08410, B. SOFIA: 0037, C: 08 SOFIA 0522


1. (SBU) SUMMARY: After two years off the Special 301 list,
Bulgarian IPR results were mixed in 2008. The formerly dynamic and
cooperative relationship between the Government and IPR industry
representatives soured, partially owing to personality-driven
issues. The once-model Intergovernmental IPR Council lost its
strategic vision when industry lost its official membership.
Internet piracy increased, while major internet piracy cases made no
headway in the courts. A late-2008 Supreme Administrative Court
decision severely restricted the ability of the police to
investigate internet piracy. Despite these setbacks, certain
individuals and institutions fought valiantly against IPR
violations. The Ministry of Interior's Cyber Crime Unit acted
boldly against pirate websites, seizing servers loaded with tens of
thousands of pirated works and shutting some sites down for good.
And the Ministry of Culture's copyright inspectors increased
inspections twelvefold over last year.


2. (SBU) Summary Continued: Given the overall loss of momentum on
IPR efforts, we agree with industry that USTR should consider
Bulgaria's placement on the Special 301 List. When announcing the
results of the 2009 Special 301 process, we recommend that our
message stress the need to reinstitute a constructive, working
relationship with IPR industry representatives. There are no quick
fixes for the inefficiency and non-transparency in Bulgaria's
judicial system, and no easy solutions to escalating internet
piracy. But a reinvigorated government-industry partnership could
find innovative ways to tackle these issues. In this election year
in Bulgaria, a Special 301 designation will have political overtones
and ramifications. Our message should avoid criticism of
individuals while commending progress where appropriate. End
Summary.

GOVERNMENT-INDUSTRY COOPERATION
--------------


3. (SBU) Once the shining star and backbone of Bulgaria's IPR
regime, relations between industry and government suffered in 2008.
In spring 2008, the new Deputy Minister of Culture in charge of
Bulgaria's once-model IPR Council restricted membership to
representatives of government entities and allowed industry/civil
sector participation only on a case-by-case basis. At the same
time, this deputy minister offered the Embassy an observer's seat at
the Council. Instead of participating during Council meetings,
industry representatives now meet separately in a "Consultative
Council" with the Deputy Minister, who then, in theory, raises
industry concerns at Council meetings.


4. (SBU) The Deputy Minister removed industry from the working
group because he believed council meetings had become unmanageable
and inefficient with multiple industry and rights holders'
participation. He argued that the Consultative Council would offer
rights holders more opportunity to discuss their concerns directly
with the Deputy Minister, who chairs the IPR Council. Industry
firmly disagrees. As a result, Bulgaria's IPR Council has lost
focus and dynamism, key governmental representatives often fail to
show up for meetings, and industry and the Ministry of Culture are
at loggerheads. Inviting industry back onto the IPR Council would
be a quick fix, but at issue is not just Council membership, but the
spirit of government-industry cooperation that has been lost. This
is largely a personality issue, with both sides carrying some amount
of blame. We have urged a quick resolution to the problem, but have
made little headway. As a result, Bulgaria's efforts in other IPR
areas have suffered.

INTERNET PIRACY
--------------


5. (SBU) Internet piracy continues to grow and is now a bigger
problem than hard goods piracy. Local industry estimates that
almost all downloaded music and films are pirated. In 2008, the
police's Cyber Crime Unit continued to take strong action in
response. The Unit launched a total of 78 operations against large
pirate websites (particularly so-called "torrent trackers," which
account for most of illegal downloading),ISPs, and end users in
2008, compared with 80 operations in 2007. Specifically, the Cyber
Crime Unit seized more than 200 hard drives with illegal content,
and nearly double the amount of seized illegal content (music,
films, software, and other copyrighted works)-- 75 terabytes (TBs)
-- compared with 2007 (48 TBs). That is the equivalent of the
inventory of almost ten video rental stores -- an extremely
impressive achievement for a small police squad with few resources.
The most successful raid was against a local area network (LAN) in
the town of Dobrich (northeast Bulgaria) in January 2008, when
police seized 12 servers with 25 TBs of illegal content.

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Unfortunately, the prosecutor's office has not yet presented that
case to court, in part because of Bulgaria's onerous requirement
that every seized work be examined to determined if it is
infringing.

FURTHER ACTION AGAINST TORRENT TRACKERS
--------------


6. (SBU) The police Cyber Crime Unit continued to put pressure on
Bulgaria-hosted pirate websites. For example, in November 2008 the
police raided and shut down the notorious torrentvalley.com pirate
site, which was based in Bulgaria. That site -- which was free to
users and did not require any registration -- provided access to
5,000 torrent-trackers from all over the world, offering literally
millions of illegal files. In December 2008, the Unit ordered the
site p2pbg.com (with over 120,000 users) to stop offering access to
infringing works. In addition, police pressure has caused the
mastersTB.com tracker to disappear and the torrent-bg.org and
zarta.org sites to move in new, legal directions.

LITTLE PROGRESS ON SIGNIFICANT INTERNET PIRACY CASES
-------------- --------------

7. (SBU) Unfortunately, despite bold and successful police and
investigative action against the largest pirate sites in Bulgaria,
prosecutors have only presented one case to court. That case,
against arenabg.com, is particularly significant because the site is
the second largest pirate site in Bulgaria and one of the most
popular sites in Bulgaria (it is now hosted in the Netherlands.) In
addition, the arenabg.com prosecution is possibly the first criminal
court case in Eastern Europe against a torrent tracker.
Unfortunately, the judge assigned to the case has now returned it
twice to prosecutors, citing problems with the indictment. In
addition, little progress has been made on the two other torrent
tracker cases, (another against Arenabg.com and one against
zamunda.net.) Both are still in the investigative stage, with no
indictments filed.
OPTICAL MEDIA PIRACY
--------------


8. (SBU) As a result of the expansion of internet piracy, optical
media piracy continues to decline. Local recording industry
representatives estimate optical disc (OD) piracy was less than 30
percent in 2008, compared to 40-45 percent in 2007. Street sales of
pirated optical disks take place primarily in Bulgaria's summer and
winter resort areas. According to industry, home burning of
copyrighted materials on compact discs (CDs) and DVD-Rs is
widespread. In 2008, the Ministry of Economy conducted 18
inspections of seven OD plants, and found no illegal physical OD
output. Illegal movie content in 2008 was estimated at 50 percent,
compared to 60 percent in 2007. Electronic game piracy in 2008 was
estimated at between 70 and 80 percent (compared to 80 percent in
2007). The local movie industry reports that the number of pirated
movies played by cable operators has decreased to 30 percent in

2008.

BUSINESS SOFTWARE/COPYRIGHT INSPECTIONS
--------------


9. (SBU) The Business Software Alliance (BSA) states that the
percentage of software that is pirated rose to 70 percent in 2008,
up two percent from 2007 (68 percent). The local BSA office reports
estimated losses in 2008 to industry of USD 53 million, up 39
percent from 2007 (USD 38 million). Following an agreement with
Microsoft, the Bulgarian Government now buys business software
rather than paying subscription fees for its use. In 2008, the
Ministry of Culture conducted a total of 660 copyright inspections
in retail establishments, restaurants, cafes, and computer halls, a
twelvefold increase over last year.

BORDER MEASURES
--------------


10. (SBU) In 2008, the Customs Office reported 1,733 seizures of
5,491,333 goods suspected of IPR violation, a five percent decline
over 2007 (1,823 seizures of 6,776,976 goods). Due to the tightened
border controls required by Bulgaria's 2007 accession to the EU,
Bulgarian customs authorities had registered a 600 percent increase
of seizures in 2007 over 2006.

PROSECUTIONS AND THE COURTS
--------------


11. (SBU) Our IPR industry contacts report continued cooperation
with the prosecutor's office. The Prosecution Service reports 352
new IP-related investigations in 2008, down seven percent from 2007
(380). On a positive note, 27 percent (129) more pre-trial cases

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made it to court in 2008 over 2007 (101). The number of indicted
persons was also higher in 2008 (141) over 2007 (111).


12. (SBU) The courts remained overwhelmingly ineffective, with the
number of convicted persons on copyright-related cases decreasing by
56 percent in 2008 (31) over 2007 (70). Nevertheless, the number
of persons convicted on all IPR-related offenses, including
industrial property violations (patent, trademark, etc.),in 2008
(86) edged up four percent over the number of persons convicted in
2007 (83). Unfortunately, court convictions carried only
administrative penalties, with little deterrent effect.

COURT DECISION, LEGISLATIVE "FIX" HAMPER ENFORCEMENT
-------------- --------------


13. (SBU) In late 2008, Bulgarian Supreme Administrative Court
dealt the IPR regime a severe blow when it struck down an article in
Ordinance 40 to the Act on Electronic Communication, legislation
passed to harmonize Bulgarian legislation with relevant EU
directives. This article guaranteed the right of the competent
directorate at the Ministry of Interior to access data stored by
Internet Service Providers on behalf of their customers -- an
essential tool for obtaining evidence in internet piracy cases. The
Court struck down the data access article as a violation of
constitutional rights to information privacy. Until the problem
identified by the Supreme Administrative Court is solved, the
Court's decision will hamper the ability of the police to
investigate internet piracy and other computer crimes. In February
2009, a legislative push to fill the vacuum created by the court
decision failed, and the Bulgarian Parliament enacted a "fix" that
will make it quite difficult for the police to investigate internet
piracy, as well as other types of computer crime such as child
pornography. The IPR industry plans to appeal the amended statute,
arguing that it violates EU law and other international
instruments.

EMBASSY EFFORTS
--------------


14. (SBU) The Embassy continued to highlight IPR in its Mission
Strategic and work plans. Outreach by the US Commercial Service and
the Departments of State, Justice, and Agriculture continued to
extend across government ranks from working level to Minister. In
March 2009, we will send eight enforcement officials (four
prosecutors and four police/investigators) on a Voluntary Visitors
Program in the United States, focused particularly on internet
piracy. In 2008, the U.S. Department of Justice Intellectual
Property Law Enforcement Coordinator for Eastern Europe (IPLEC) --
based in Embassy Sofia, but covering over 20 countries in the region
-- conducted extensive training and technical assistance in Bulgaria
on IPR enforcement. Specifically, the IPLEC gave eight
presentations in Bulgaria at six training conferences and meetings
on a variety of topics aimed at improving IPR enforcement, to a
total of over 500 police, investigating magistrates, prosecutors,
judges, other government officials, and industry representatives.

COMMENT
--------------


15. (SBU) With national elections scheduled for summer 2009, any
inclusion of Bulgaria on the Special 301 list will have political
implications. Critics of the Government will use the designation to
their advantage, while the government itself may try to deflect
criticism by claiming that the designation is simply the result of
personality differences between certain Bulgarian officials and
industry representatives. Our message to the Government and public
statements about USTR's decision should include specific
recommendations and acknowledge progress, where appropriate. Facing
an up-hill reelection battle, the current government will not greet
a possible 301 designation constructively and will not be in a
position to implement the report's recommendations in the near-term.


MCELDOWNEY