Cablegate: Philippines: 2007 Special 301 Report

DE RUEHML #0552/01 0510750
O 200750Z FEB 07





E.O. 12958: N/A
SUBJECT: Philippines: 2007 Special 301 Report

REF: A) State 7944; B) 06 Manila 836

1. (SBU) Summary. Embassy recommends retaining the Philippines on
the Special 301 Watch List. The GRP continued to devote attention
to intellectual property protection during 2006, increasing its
enforcement actions, especially against optical disk piracy. While
the total number of seizures was lower than in 2005, the total value
of confiscated merchandise rose. A core of leaders on IPR issues
has emerged within the GRP, and President Arroyo spoke out on IPR
during the year. There are nonetheless issues that continue to
concern us, especially the lack of criminal convictions of IPR
violators and the need for further institutional entrenchment of IPR
enforcement agencies. Retention on the Special 301 Watch List will
signal our recognition of the GRP's progress and for the core of
leaders who have been responsible for it. Retention also will
maintain the leverage which has been responsible in some part for
this progress. End summary.

2. (U) This report is divided into three sections: Part I addresses
the GRP's progress on IPR protection, Part II addresses areas that
warrant GRP attention, and Part III sets out post's recommendation.

Part I: GRP Progress on IPR Protection
3. (SBU) In February, 2006, USTR lowered the Philippines from the
Special 301 Priority Watch List to the Watch List. At that time, a
Special 301 Action Plan was issued for the Philippines. Over the
course of the ensuing year, per that plan, the GRP has stepped up
its efforts to protect intellectual property rights, focusing upon
enforcement efforts and seizures of counterfeit goods, especially
optical media disks. The GRP has actively engaged the USG on IP
protection, meeting regularly with Embassy and USTR representatives,
seeking training opportunities with the USPTO and the International
Law Enforcement Academy in Bangkok, and signing a memorandum of
understanding with the USPTO in January 2007. Enforcement actions
against IPR violations has continued, and while there were fewer
seizures in 2006 than 2005, the total value of goods seized rose
indicating that authorities have become more adept in the selection
of targets for raids. While there remain serious deficiencies in
the IPR protection regime, the GRP has continued to take positive
steps over the past year to improve it.

A Core of Committed Leaders on IPR Emerges
4. (SBU) During 2006, it became more obvious that a critical mass of
leaders on IPR has emerged within the GRP. Among these officials,
we would highlight in particular Adrian Cristobal, the Director
General of the Intellectual Property Office, Peter Favila, the
Secretary of Trade and Industry, Eduardo Manzano, Chairman of the

Optical Media Board, Colonel Noel de los Reyes, Head of the Fraud
and Commercial Crimes Division of the Philippine National Police,
and Dennis Gonzalez, Chairman of the National Book Development
Board. These officials have worked hard to raise the profile of IPR
protection within the GRP, and they have been behind the increased
public attention that President Arroyo paid to intellectual property
issues this past year.

5. (U) President Arroyo herself has provided leadership on IPR. On
November 17, 2006, she issued an executive order to nine agencies,
directing them to take a variety of steps to promote IPR protection.
The most noteworthy point of the order was her instruction to
agencies to enforce civil and criminal liability against landlords,
such as mall owners, who lease space to establishments selling
pirated or counterfeit goods.

The Intellectual Property Office
6. (SBU) The Intellectual Property Office (IPO), by statute, is the
coordinating body for IPR enforcement in the Philippines. It has
functions equivalent to the USPTO, and also coordinates the
interagency National Committee on Intellectual Property Rights,
hosting its biweekly meetings. Its Director General, Adrian
Cristobal, reports to the President through the Secretary of Trade
and Industry. Under Cristobal, the IPO formulated a two-year
strategy to address IPR issues in the Philippines, whose early
successes helped lower the Philippines to the Watch List last year.
Most industry representatives praise Cristobal's efforts, describing
him as more dedicated and energetic than his predecessors.

7. (SBU) In addition to its coordinating role, the IPO also

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organizes campaigns to enhance the public profile of IPR protection.
Over 2006, it organized an average of one public lecture or
workshop per week, holding its events throughout the country. It
held events for government agencies, both national and local, for
private business, and conducted seminars at five universities.
Cristobal also hosted a weekly program on Manila radio station

8. (SBU) As the reporting period drew to a close, the IPO
successfully completed a two year project, launching an online
database of intellectual property cases that permits real-time
verification of the status of IP criminal cases. Six agencies have
contributed information to the database. The IPO also signed a
technical cooperation agreement with the United States Patent and
Trademark Office focused upon capacity-building for the examination
of patent applications.

The Optical Media Board
9. (SBU) The GRP created the Optical Media Board (OMB) in early
2004, and over the past two years the OMB has asserted its role as
the regulatory authority for the licensing of replicating machines
and equipment and the materials used for making optical disks. The
OMB has been fully operational over the past year, and now carries
out raids on a fairly continuous basis. The chairman of the OMB,
actor Eduardo Manzano, has leveraged his public persona into media
attention for the OMB and its work. Manzano appears frequently in
the local media, both in interviews and in staged events such as the
ceremonial destruction of thousands of seized pirated DVD's on the
third anniversary of the OMB's founding in February 2007. In
December 2006, the Motion Picture Association of America (MPAA)
presented Manzano with its inaugural ACE Award as the top copyright
enforcer in the Asia/Pacific region.

10. (SBU) The OMB estimates that a narrow majority of pirated
optical media purchased in the Philippines is imported, mainly from
China, Taiwan, and Malaysia. Based on increased seizures of
replicating machines, it believes that the fraction of pirated media
produced in country is growing. The OMB conducted raids on the
basis of 88 search warrants in 2006, seizing over 1.6 million pieces
with a value of about USD 4.3 million. It carried out 942 other
inspections over the course of the year.

11. (SBU) Manzano's large public profile also makes him a lightning
rod for criticism. He is often accused of using the OMB as a tool
for obtaining publicity either for his television projects or as a
platform for seeking elected office, though he recently decided
against running for any office in the 2007 midterm congressional
elections. Manzano participates personally in some OMB raids of
stalls and stores selling pirated discs, which on two occasions this
year led to his targets filing criminal complaints against him for
assault. More broadly, reflecting a general shortcoming of
Philippine law enforcement that Post has been working to address,
the OMB remains too personalized, which is less a criticism of
Manzano than recognition that the OMB requires further institutional
strengthening. As we noted last year (ref B), the OMB remains
understaffed by perhaps half and its budget is woefully inadequate,
with Manzano reportedly paying some costs of undertaking raids out
of his own pocket. As a result, the bureau has had to concentrate
its efforts on avoiding laying off staff rather than on hiring more
agents. Within its legal department, two of three positions remain
vacant. This has perhaps been behind its weak preparation of cases
for prosecution, and its general difficulty in turning seizures into
eventual convictions. Only three OMB-initiated cases led to
criminal convictions in 2006. It also has had mixed success with
its search warrants, many of which have been quashed on appeal,
seemingly one result of its weak legal office.

Philippine National Police and National Bureau of Investigation
12. (SBU) Within the Philippine National Police (PNP), intellectual
property cases come under the jurisdiction of the Fraud and
Commercial Crimes Division, led by Col. Noel delos Reyes. Delos
Reyes is one of the most enthusiastic defenders of IPR protection
within the GRP, and his unit is among the most active in terms of
seizures and arrests. In 2006, the Division served 281 search
warrants and made 46 arrests, with seizures in excess of USD 3
million. During the past year, the unit increased its emphasis on
combating book piracy, conducting several high-profile raids against
copy shops around the campus of the University of the Philippines,

MANILA 00000552 003 OF 005

confiscating photocopy equipment and books that were being copied
illegally. The PNP also stepped up enforcement of copyright among
internet cafes around the country, cracking down on the use of
illegally copied software on cybercafe machines, and on the use of
these machines to download copyrighted files illegally.

13. (SBU) The Intellectual Property Rights Division of the National
Bureau of Investigation (NBI), led by Jose Justo Yap, served 419
search warrants during the year and seized goods worth USD 6
million. NBI also contributed to the surge in raids against firms
using illegal copies of software, conducting high-profile raids in
both Metro Manila and Cebu. It also carried out a major raid in
December 2006 against Bright Future Technologies, a firm in Laguna
Province, southeast of Manila. In that raid, NBI seized seven
replicating machines and thousands of blank optical discs and
arrested 13 Chinese nationals.

Bureau of Customs
14. (SBU) While the Intellectual Property Unit at the Bureau of
Customs remains a small ad-hoc group, the Bureau nonetheless had the
lead in important seizures during the year. On March 16, it
launched a 500-agent raid against the 168 Mall in Manila, notorious
for selling pirated goods. Agents inspected over 700 stores and
stalls, and seized illegally imported goods, many of which were also
trademark-infringing, worth over USD 1.4 million. This represented
the biggest raid against smugglers in the history of the
Philippines. On January 24, 2007, Customs filed criminal charges
against an importer and two customs officials after seizing three
containers containing four DVD replicating machines being smuggled
into the country. Overall, the IPU made 26 seizures worth close to
USD 15 million in 2006, 55 percent of all GRP seizures.

National Book Development Board
15. (SBU) Over the past two years, the GRP has increased the amount
of attention it pays to copyright piracy. Generally, book piracy in
the Philippines focuses on academic textbooks, and takes place on or
near university campuses, especially the main campus of the
University of the Philippines in Quezon City. The National Book
Development Board (NBDB), a policy making body created by an act of
the Philippine Congress, led efforts to monitor book sellers and
copy shops, working with the Philippine Reproduction Rights
Organization, the trade association of local book publishers. At
the instigation of the NBDB, the PNP carried out a number of raids
on Quezon City copy shops during the year.

The Roxas Bill
16. (SBU) IPR discussions in the Philippines were dominated for much
of the year by proposed legislation to loosen patent protection for
pharmaceuticals and permit their parallel importation. The bill,
sponsored by Senator "Mar" Roxas, has been of concern to IP
stakeholders for a number of reasons, but concerned us primarily for
its possible contradictions with the TRIPS agreement, particularly
its initial provisions on data exclusivity and new use patents.
Roxas and other proponents told the Embassy repeatedly that they
never intended to undermine TRIPS with the pharmaceutical bill, and
ultimately amended the bill in ways that addressed most, though not
necessarily all, of our concerns. An amendment to the Senate
version of the bill even introduced a clause that explicitly
disallowed any benefits under the legislation that were not
TRIPS-consistent. As of this submission, it is not clear whether
the bill will pass in this Congress, though we would expect it to be
reintroduced after the midterm elections if it does not pass.
Nevertheless, we find the sensitivity to TRIPS among several
prominent legislators broadly encouraging.

Part II: Areas of Particular Concern
17. (SBU) Despite the progress that the GRP made in enhancing IPR
protection during the year, there are still a number of areas that
will merit attention over the coming year, and that warrant the
continuation of the Philippines on the Special 301 Watch List. The
most important areas of concern remain the institutionalization of
IPR protection, and the inability of GRP authorities to translate
raids and seizures into prosecutions and convictions of IPR
infringers, a problem that plagues the entire Philippine legal

MANILA 00000552 004 OF 005

The Department of Justice (DOJ) and Prosecutions
18. (SBU) The lack of prosecutions and convictions of IPR violators
continued to be the biggest weakness in IPR protection this year. A
year that saw 788 search warrants issued and USD 28 million in
seizures produced only eight convictions, and even in those cases,
the convicts are unlikely to face fines or jail time due to a
lengthy appeals process during which they may remain free on bail.

19. (SBU) In late 2005, the Department of Justice reconstituted its
Task Force on anti-Intellectual Property Piracy. Despite its name,
the 10 prosecutors on the task force do not concentrate exclusively
on IPR cases. Its chair told us that the prosecutors spend
somewhere around 10% of their time on IPR. DOJ's backlog of
unresolved IPR cases may soon reach 1,000 cases. One consequence of
these problems in the courts is that many IPR complainants feel
compelled to settle their cases out of court on terms favorable to
violators. Adrian Cristobal went so far as to discourage
prosecutors publicly from accepting such settlements in order to
force more cases to trial.

20. (SBU) The inability of the Department of Justice to effectively
prosecute IPR cases is just one aspect of a generally weak criminal
justice system in the Philippines. System wide, only seven percent
of all trials result in convictions. Procedural rules on appeals
afford defendants many opportunities to delay the progress of cases,
and judges across the system lack what one local attorney calls "a
sense of judicial urgency." Progress on a host of issues that
interest the USG are contingent on improvements in the judicial
system, and significant USG resources are being invested in efforts
to improve the judicial system, but an overhaul of the system is
something that will likely take decades to accomplish.

Institutionalization in the OMB and Customs
21. (SBU) The Optical Media Board and the Intellectual Property Unit
of the Bureau of Customs remain relatively new entities, and both
need to develop institutional capacity further. The needs of the
OMB in this area have been detailed above in paragraph 11. The IPU
at Customs continues to be a small, ad-hoc group, with only seven
full-time officers. It lacks its own computer setup, and does not
have access to the Bureau of Customs' databases of incoming
shipments. It requires improvements in these areas to be effective,
in addition to an adequate budget. A restructuring plan for
Customs, which would address many of these weaknesses has been drawn
up and submitted to the Department of Finance for approval.

22. (SBU) The work of the OMB must also be integrated better with
that of the PNP and NBI. The Optical Media Act of 2004 gives OMB
the lead in all matters involving pirated optical discs, but in
practice, large raids and seizures typically require the assistance
of PNP or NBI officers. There continue to be squabbles among the
agencies over leadership of operations against optical disc piracy,
and in particular, the agencies still experience difficulty in
sharing information. All sides must overcome institutional distrust
and jealousy, where OMB does not want to share information out of
fear of leaks and corruption within the PNP and NBI, and the latter
agencies must come to terms with the operational lead that OMB has
by law within its jurisdiction. One example of the lack of
cooperation was that a month-long December 2006 pilot project
between OMB and the PNP deputizing PNP officers for optical disk
seizures did not produce a single raid.

WIPO Internet Treaties
23. (SBU) The Philippine Congress has yet to pass legislation
amending the Intellectual Property Code to incorporate the
provisions of the WIPO Copyright Treaty and the WIPO Performances
and Phonograms Treaty. Bills to do this were introduced in both the
House and Senate. While the IPO lobbied for the bills to some
degree, none of the bills emerged from committee, and the bills will
expire in 2007 when the 13th Congress adjourns after election of a
new Congress.

Cable Piracy
24. (SBU) The illegal retransmission of pay-TV signals continues to
be a problem in the Philippines, especially outside Manila. Within
Manila itself, the largest cable company is legitimate and pays for
its content, though it experiences problems with residences tapping

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into its network illegally. In rural areas, some smaller regional
companies take broadcast signals, often using illegal decoders, and
redistribute them to customers without payment to rights-holders.
The National Telecommunications Commission renews the licenses of
these companies without regard to whether they engage in signal
theft. DOJ has not acted on the criminal complaints of the Cable
and Satellite Broadcasting Association of Asia (CASBAA); however,
IPO recently reported to CASBAA that DOJ will report 94 pending
cases for prosecution.

The Regions
25. (SBU) GRP actions against counterfeit and pirated goods in Metro
Manila seem to have forced the sellers of such merchandise to become
more discreet, moving pirated goods from the front of stores to the
back, to stalls away from main streets, or to illicit vendors
walking the halls of some malls. While this is a sign of success in
Manila, the same level of success does not seem to have been reached
in at least some other parts of the country. Our informal market
checks indicate that illegal copies are more openly available in
Cebu, for example, than in Manila.

Notorious Markets
26. (SBU) There remain several centers in Manila in which pirated
and counterfeit merchandise is routinely traded. The most prominent
"notorious market" is located in street stalls in the neighborhood
of Quiapo. The neighborhood of Binondo is also problematic, and was
the target of 16 raids during 2006. Several shopping malls also may
qualify as notorious markets, including Makati Cinema Square, 168
Mall, Greenhills Shopping Center, and the fourth floor of the
Market! Market! Mall in Fort Bonifacio. The Executive Order of
November 17 establishes landlord civil and criminal liability for
tenants who sell pirated merchandise.

Part III: Post Recommends Retention on the Special 301 Watch List
27. (SBU) The Embassy recommends retaining the Philippines on the
Special 301 Watch List for this year. Years of pressure and
inclusion in the 301 process have finally focused GRP attention on
the importance of IPR protection, and over the past few years the
government has begun to take serious action as documented above.
GRP officials are sensitive to the country's 301 status, and the
lowering to the Watch List last year sent the message that the
attention to IPR protection and engagement with us on the issue
produced concrete results. If the Philippines were to be raised
back to the Priority Watch List, we believe it would undermine those
in the GRP who are working so hard to promote IP protection, and
would lead them to conclude that the Philippines will not be able to
get itself off the PWL permanently. We believe that, far from
increasing GRP efforts to combat IPR violations, elevation to the
PWL could both reduce the prestige and influence of our allies and
discourage them, resulting in less effort and poorer results. We
also believe our continued engagement and their sustained efforts
will bring about more rapid progress in 2007 than we have seen in


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