Cablegate: Brazil: Special 301 Recommendation

DE RUEHBR #0294/01 0471902
P 161902Z FEB 07





E.O. 12958: N/A
SUBJECT: BRAZIL: Special 301 Recommendation

REF: A) State 7944; B) Brasilia 249; C) 05 Brasilia 2813;
D)Sao Paulo 71; E) 06 Brasilia 2606; F) 06 Brasilia 367; G) 05
Brasilia 573; H) Sao Paulo 1206

1. (U) Per reftel A, the following is Embassy Brasilia's input for
the Special 301 Review of Brazil.

2. (SBU) Summary: In 2006, Brazil continued to make significant
progress in improving protection of copyrights and intellectual
property. The potential for compulsory licensing - a key area of
concern in Post's 2006 Special 301 submission (reftel F) - has
ceased to be a major concern at this time. All of the U.S.
pharmaceutical companies that were previously faced with this threat
have either reached an accord with the GOB, or in the case of the
one remaining firm that hasn't (Merck), believe their situation is
relatively secure. End Summary.

3. (SBU) The December 2006 "Report on Activities" released by the
GOB National Council to Combat Piracy (CNCP) indicates that the
overall nine-month results of GOB interdiction efforts as of
September 30, 2006 surpassed those for the entire year of 2005.
Indeed, the GOB has significantly increased both its internal and
border enforcement efforts over the last year. The report set forth
the government's overall approach to combating IPR piracy, i.e.
enforcement, public education, and economic efforts. The report
also highlighted public outreach activities such as the "Pirate: I'm
Out!" initiative and the planned March 2007 "Brazil Against Piracy"
caravan across the country. The GOB and private industry have
continued educational outreach efforts, but many Brazilian consumers
exhibit a price-oriented approach to purchases, and attach no
particular stigma to pirated items.

4. (SBU) Notwithstanding efforts by the GOB to streamline patent
adjudication, Brazil continues to have a daunting patent backlog
(exact numbers will be difficult to obtain until Brazil's patent
agency, INPI, consolidates its data operations) and the
pharmaceutical industry has voiced concerns over the confidentiality
of undisclosed test and other data submitted to the Brazilian FDA
equivalent, ANVISA, as part of the patent approval process.
However, pharmaceutical companies have not been able to identify a
case in which data confidentiality has, in fact, been breached.

5. (SBU) Post recognizes that the GOB still has much ground to
cover. Still, it has made significant progress and gives every
indication that it will continue to improve its IPR protection
efforts. Therefore, Post recommends that Brazil's Special 301
Status be upgraded from Priority Watch List to Watch List. This
stance is consistent with International Intellectual Property
Alliance's (IIPA) recommendation that Brazil be accorded Watch List
Status and the views of the Motion Picture Association (MPA) and
companies like Nintendo. While PhRMA has called for Brazil to
remain on the Priority Watch List, other players within the industry
(like Gilead) have indicated that they favor an upgrade to Watch
List. From our perspective, moving Brazil to the Watch List will
bolster our engagement with Brazil on IPR, allowing us to better
push the U.S. public/private sector agenda of training, legislative
advances and heightened law enforcement. End Summary.

--------------------------------------------- ---
Enforcement, Educational and Economic Strategies
--------------------------------------------- ---

6. (U) Often, much of the problem with piracy interdiction in Brazil
is not the existing legislation, but the enforcement and proper
application - or lack thereof - of the statutes. Through its
enforcement efforts over the past year, the GOB has exhibited
increasing political will to deal with piracy, partly in recognition
of the damage contraband activities have done to the Brazilian
economy through the loss of government tax revenues. Tax evasion is
now frequently a concurrent charge during piracy and contraband

7. (U) The December "Report on Activities" released by the GOB
Ministry of Justice (MOJ) National Council to Combat Piracy (CNCP) -
a public-private undertaking that includes representatives of
various trade associations - indicates a substantial increase in GOB
piracy enforcement efforts. Although most of the data included for
2006 only covers the first three quarters of the year, the overall
results equal or surpass calendar year 2005. The GOB report
outlined its three-pronged approach to combating IPR crime:
enforcement, public education, and economic efforts. While efforts
in prior years focused heavily on public education, the GOB
currently appears to be pursuing the enforcement approach more

BRASILIA 00000294 002 OF 005

vigorously than the other two.

8. (U) The CNCP report segments out efforts by enforcement agencies
and provides an overall view of total seizures of pirated goods.
Among the highlights, the GOB reports a 54 percent increase in the
total value of goods confiscated during the first nine months of
2006 (approximately USD 283.1 million) versus the same period in
2005 (approximately USD 183 million). The CNCP report shows
seizures over the first nine months of 2006, outstripping all of
2005 by over USD 3.1 million. However, CNCP could not provide
consolidated information on arrests and convictions for piracy and
contraband activities. (See reftel B for statistics and detailed
information on GOB enforcement, educational, and economic strategies
to combat piracy, including individual state enforcement actions.)

9. (SBU) Even with improved enforcement activity, the GOB faces
significant challenges. Representatives of several intellectual
property trade associations expressed satisfaction with improved GOB
anti-piracy efforts, but told Sao Paulo EconOff that despite
successful raids and seizures in downtown shopping malls, they have
noticed that the raided stores are full of the same products the
next day. They also believe that while the GOB has made significant
efforts to restrain inflow of pirated smuggled products through
Brazil's border with Paraguay and through several ports, there are
still insufficient enforcement agents to police Brazil's lengthy
coast, which smugglers use to bring in pirated and counterfeit

--------------------------------------------- -------
Efforts against the Production, Import and Export of Counterfeit
--------------------------------------------- -------

10. (U) Detailed information on raids on notorious marketplaces and
the results of both federal and state efforts against the
production, import and export of counterfeit goods is included in
reftel B.


--Federal Legislation

11. (U) While the GOB has yet to take steps to adopt the WIPO
Copyright Treaty (WCT) or the WIPO Performers and Phonograms Treaty
(WPPT), industry groups and GOB agencies have been seeking to
strengthen existing anti-piracy legislation. The 2006 legislative
session ended without action on three proposed amendments to federal
anti-piracy legislation covering software, industrial property and
intangible property. This legislation, endorsed by the
International Intellectual Property Alliance (IIPA), would have
stiffened criminal penalties for piracy, which already prescribe
penalties ranging from two to four years, but allow for alternate
forms of sentencing such as community service. A GOB interlocutor
recently told EmbOffs that these amendments are effectively off the
table. Instead, he said alternative draft legislation, developed by
CNCP's Legislation Working Group, with input from a 2005 private
sector forum, has been submitted for consideration by Brazil's slow
moving legislative process. (Comment: GOB anti-piracy legislation
is generally TRIPS compliant. End Comment.)

12. (U) This alternative legislation proposes a number of changes
to the country's penal code and industrial property law. Most
suggested changes are practical in nature, such as providing a
rights-holder with additional time for initiating legal proceedings;
providing law enforcement agencies with the authority to seize
maritime and aviation craft, in addition to buses, used to transport
pirated goods; clarification of procedures for seizing and
destroying goods, as well as enabling law enforcement agencies the
ability to retain only samples for use in litigation; introducing
differentiation in penalties between individual offenders (such as
street vendors) and those involved in a larger operation; holding
owners of media responsible for advertisements that promote buying,
renting, exporting or importing goods produced in violation of IPR
laws; incorporating penalties for software copyright violation into
the penal code; and stiffening penalties if pirated goods are
imported (reftel C).

--State Legislation

13. (U) The Federal District and the states of Sao Paulo, Mato
Grosso, and Rio de Janeiro took steps in 2006 to strengthen

BRASILIA 00000294 003 OF 005

anti-piracy legislation. In Sao Paulo, an enterprise can now be
banned from conducting business for five years for selling pirated
goods. The prohibition extends to any branch or other attempt to
open a similar business in another name. Mato Grosso is reportedly
considering similar legislation. In the Federal District, vendors
of pirated goods can be fined up to approximately USD 25,000. In Rio
de Janeiro, sellers of pirated goods can lose their business

14. (U) However, there are states with far weaker anti-piracy
legislation. For example, in Rio Grande do Sul (reftel D), sale of
pirated items is subject to a relatively minor fine and state code
allows counterfeiters to retain their illicit goods after paying the

--A View from Local Trade Organizations

15. (SBU) Brazil-based representatives of several major
intellectual property rights associations told Sao Paulo EconOff
that they feel there is a need for stronger legislation with higher
penalties. These association representatives pointed out that
although current penalties for vendors of pirated goods range from
two to four years in prison, violators are rarely incarcerated
because they are either first time offenders or are poor.

Patents, Trademarks and Data Protection

16. (SBU) U.S. companies continue to complain of lengthy delays and
burdensome documentation requirements for the approval of drug
patents. The Ministry of Health's regulatory agency, ANVISA, must
approve product registrations for imported pharmaceuticals and
medical devices before they can be considered by Brazil's patent
agency, the National Institute of Industrial Property (INPI).
ANVISA approval currently takes three to six months for new versions
of existing products and can take over six months for products new
to the market. Some international medical device companies have
expressed concern that legislation passed in October 2006 (reftel
E), requiring them to submit economic information as part of the
medical device registration process, could require disclosure of
proprietary production cost data. ANVISA has made it clear to
EmbOffs that it does not plan to request confidential data of this

17. (SBU) The potential for compulsory licensing - a key area of
concern in Post's 2006 Special 301 submission (reftel F) - has
ceased to be a major concern at this time. All of the U.S.
pharmaceutical companies that were previously faced with this threat
have either reached an accord with the GOB, or in the case of the
one remaining firm that hasn't (Merck), believe their situation is
relatively secure. A representative of one of the pharmaceutical
companies that settled with the GOB, Gilead, said the company
recommends Brazil be upgraded to Watch List status. In contrast, a
Merck representative told us that his firm prefers retaining Brazil
on the Priority Watch list.

18. (U) Although INPI has taken steps to increase its processing
capacity - such as hiring new employees, employing new technology
and expanding its facilities - patent and trademark delays are still
a considerable problem. The PhRMA 2007 Special 301 submission notes
that the number of patent examiners has increased from 105 to 350,
going from 30 to 90 in the pharmaceutical field alone. INPI has
also incorporated new technology into its approval process.
Nevertheless, INPI estimates the number of pending patents has
increased to 140,000 (versus 130,000 last year as noted in reftel
F), although INPI is not sure that this figure is accurate - it
could be lower or higher - given uncertainties created by the
upgrading of its internal data center.

19. (U) In December, INPI announced its plans to join the Madrid
Agreement Concerning the International Registration of Mark ("Madrid
Protocol"). Rightsholders who seek trademark protection in Brazil
would then be able to take advantage of this streamlined
international trademark registration system, making Brazil the first
country in South America where this system is available. Trademark
approvals in Brazil have risen from 17,329 in 2003 to 111,996 in
2006. With the introduction of an electronic trademark application
system (E-Marcas) in 2006, INPI plans to process trademark
registrations in less than one year by the end of 2007.

20. (U) A U.S. Patent and Trademark Office (USPTO) IPR Attache was
assigned to ConGen Sao Paulo in October 2006 and continues to

BRASILIA 00000294 004 OF 005

interface with INPI. Under the US-Brazil Commercial Dialogue, USPTO
and INPI meet bi-monthly and plan to continue their ongoing dialogue
on technical cooperation on patent and trademark examination
practices and operations. Most recently, USPTO IPR Attache met with
INPI's Coordinator for International Cooperation to discuss upcoming
training opportunities. INPI has expressed particular interest in
integrated circuits as Brazil has adopted a provisional legislative
measure which will allow for IPR protection of them.

21. (U) Although the Brazilian Law on Industrial Property currently
prohibits disclosure and use of undisclosed test data,
pharmaceutical industry representatives continue to voice concern
over the potential for release of confidential data submitted to
ANVISA as part of the drug patent approval process. A
representative of Brazil's multinational pharmaceutical industry
association, Interfarma (which also includes representatives of U.S.
companies), told Sao Paulo EconOff that the association's efforts to
get Congress to pass a law specifically addressing data protection
have been unsuccessful and he has concerns about protection of
undisclosed data from competitors during the patent pending process.
However, Interfarma has not brought to our attention any cases in
which data confidentiality has, in fact, been breached.

--Roadblock to Biotech Product Approvals

22. (U) Despite the March 2005 approval of Brazil's Biosafety Law,
which regulates biotechnology crops and stem cell research (reftel
G), approval of biotech products is a slow process. Currently, two
thirds of the 27 member National Technical Commission of Biosafety
(CTNBio) board must approve introduction of new biotech products in
Brazil. Environmentalists and anti-biotech groups have a strong
influence on key members of the board, who are essentially
boycotting commercial approvals of new biotech products, including
requests for imports of biotech products (such as U.S. genetically
modified corn), effectively vetoing new product approvals. The GOB
is attempting to unblock the approval process with new legislation
reducing the number of CTNBio board members required for approval to
a simple majority. The provisional measure is now in the Senate for
consideration and, if approved, will be forwarded to President
Lula's office for signature.

USG and Industry Provided Training

23. (U) The past year has seen a growth in momentum of USG and
industry-provided training in Brazil. During CY 2006, the USG
partnered with the Brazilian Association for the Defense of
Intellectual Property (ADEPI) to conduct a series of INL-funded
copyright piracy seminars for Brazilian federal and state law
enforcement officials in Brasilia, Porto Alegre, Belo Horizonte and
Recife. Additional 2006 seminars built upon these efforts and
included as sponsors the U.S. Chamber of Commerce, Sao Paulo State
Federation of Industries, CNCP, Minas Gerais State Federation of
Industries and private industry representatives. Held in major
cities and ports around the country, these seminars targeted various
audiences including port customs officials, judges, prosecutors,
state law enforcement officials, college students and teachers.
Information on upcoming USG and industry training programs is
included in reftel B.

24. (U) The CNCP report also notes GOB partnerships with a wide
range of Brazilian industry associations to provide anti-piracy
training to public officials. In 2006, in-country training
collaborators included the Brazilian Association of Software
Companies (ABES), the Entertainment Software Association (ESA),
Association for the Protection of Phonographic Intellectual Rights,
ADEPI, Sao Paulo State Federation of Industries, and the Rio de
Janeiro Delegation for Repression of Crimes against Intangible
Property. Last October, the President of CNCP received the Motion
Picture Association of America's first anti-piracy award for his
contributions to the reduction of piracy and for raising public and
government awareness of the problem.

Anti-Piracy Committees

25. (U) Sao Paulo, Brazil's most populous state, began the year
with the creation of the Inter-Agency Committee to Combat Piracy.
This group, which coordinates its efforts with the CNCP, is composed
of the Governor, his Chief of Staff, the Attorney General, six State
Secretaries (Justice; Finance; Public Security; Labor; Culture; and


BRASILIA 00000294 005 OF 005

Science, Technology, and Economic Development), and members of their
staffs. Sao Paulo joins the states of Rio de Janeiro and Rio Grande
do Sul, which already have established state anti-piracy committees,
and the state of Minas Gerais, which formed a similar committee in
2006 (reftel H).

Consumer Perception

26. (U) A U.S. Chamber of Commerce/Brazil-U.S. Business Council
commissioned poll released in December 2006, found that price is the
determining factor in the Brazilian consumer's purchasing decisions.
The survey also found that the purchase of pirated goods increased
in the 25-39 year old age group and with those over 50. The report
acknowledges increased GOB efforts to combat piracy, but the results
do not show a major movement in consumer behavior away from
purchasing pirated goods.

27. (U) The poll also noted a 17 percent growth overall in
commercial piracy in the cities of Rio de Janeiro, Belo Horizonte
and Recife, including a 45 percent increase in pirated items in the
clothing, tennis and toy sectors. By contrast, in Sao Paulo city,
the country's largest and a key focal point of increased GOB
anti-piracy efforts, the survey found a 14 percent reduction in the
sale of pirated goods.

28. (SBU) Comment: While there is much yet to be accomplished,
particularly in the area of public consciousness and patent
processing, the GOB and key states have clearly made significant
progress in their fight against piracy in 2006. In cooperation with
the GOB, private industry is playing a larger role in anti-piracy
efforts. Through its actions, INPI has recognized the patent and
trademark backlog problem and is taking steps to remediate it as
well as the agency's statistical reporting system. All this
warrants, in our view, upgrading Brazil from Priority Watch List to
Watch List. End Comment.


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