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. SOFIA 00000086 002 OF 003 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 SOFIA 00000086 003 OF 003 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