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Cablegate: Ipr Situation at Czech Border Markets

VZCZCXRO1214
OO RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHPG #0244/01 0681326
ZNR UUUUU ZZH
O 091326Z MAR 07
FM AMEMBASSY PRAGUE
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8722
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 03 PRAGUE 000244

SIPDIS

SIPDIS
SENSITIVE

STATE FOR EUR/NCE EFICHTE AND EB/IPE JBOGER
STATE PASS USTR FOR JCHOE-GROVES AND WMOORE
COMMERCE FOR 4232/ITA/MAC/MROGERS
COMMERCE PASS USPTO
STATE PASS LIBRARY OF CONGRESS

E.O. 12958: N/A
TAGS: KIPR ETRD ECON EZ
SUBJECT: IPR SITUATION AT CZECH BORDER MARKETS

REF: A. PRAGUE 160

B. STATE 7944

1. (SBU) SUMMARY AND COMMENT: Czech authorities are aware of
current industry complaints regarding IPR violations in the
Czech Republic, particularly at the open air markets near the
Austrian and German borders. The Czech government has
introduced new legislation and strengthened existing
legislation to address the issue and has given new competency
to the 6,000 armed inspectors of the Customs Directorate.
However, the sheer size of some of these markets and the
degree of lawlessness speak to the need for reinvigorated
efforts, particularly the need for close coordination with
local police. Post continues to support Ref A recommendation
that the Czech Republic remain off of the Special 301 Watch
List given the positive trend in legislation and enforcement.
Post believes the Czech government must be engaged at the
highest levels and given the opportunity to address the
situation more aggressively. The Ambassador plans to raise
this issue in upcoming meetings with the Trade Minister and
Prime Minister. END SUMMARY AND COMMENT.

2. (U) Despite the increasing number of raids and seizures
and the stronger IPR legislation, closing the border markets
has proven problematic. Markets are often located in small,
economically depressed areas blighted by structural changes
in the economy that have created high unemployment (20% vs.
national average 7.7%) and few jobs. Tens of thousands of the
estimated 250,000 to 350,000 Vietnamese living in the Czech
Republic are earning a living at these open markets, often
the only source of employment for people with limited Czech
language skills. For these reasons, despite strengthening
legislation and greater enforcement efforts at the national
level, local authorities have been hesitant to shut the
markets down, but not doing so has often given way to an air
of lawlessness that has made it possible for well-organized
crime syndicates to develop. Customs officials admit that the
markets have also increased street prostitution and drugs in
these communities.

-------------------------
Strengthening Legislation
-------------------------

3. (U) Since Czech accession to the EU in 2004, a number of
IPR laws have come into force that have strengthened the hand
of enforcement and court proceedings. The strengthening
trend is a result of lessons learned by local enforcement
officials in the uphill battle to combat piracy in the Czech
Republic:

2007 (expected):
-- Law on Consumer Protection and Customs Enforcement amended
to strengthen the provision for registering vendors (vice
stall owner who may live overseas).
-- New criminal code that will increase fines and punishment
for IPR violations.
-- Copyright Act expected to be amended again for further
accordance with EU law

2006:
-- New Law on Consumer Protection and Customs Enforcement
gives 6,000 customs officials a new mandate to fight piracy
(versus previous mandate for only 300 Czech Trade Inspection
officials)
-- law on civil procedure, Copyright Act amended again for
further accordance with EU law

2005:
-- Copyright Act amended in accordance with EU law

----------------------
Enforcement Statistics
----------------------

4. (U) The Customs Office statistics indicate that over 300
open air markets exist in the Czech Republic. Most of these
are legitimate markets, selling items such as garden gnomes,
plants, fertilizers, and Asian groceries. Customs has
identified 13 markets of "serious concern" and have focused
their enforcement efforts on them. Czech Trade Inspection
officials provided the following seizure statistics:

2006:
Total Pirated Articles = 998,000

PRAGUE 00000244 002.2 OF 003


% DVDs and CDs = 83%

2005:
Total Pirated Articles = 666,000
% DVDs and CDs = 51%

2004:
Total Pirated Articles = 970,000
% DVDs and CDs = 48%

According to officials, part of the increase in DVD and CD
seizures is a result of greater focus on this type of piracy
as well as 'big-box' wholesalers like Tesco driving out the
open-air markets' textile business. The Usti nad Labem and
Pilsen regions, where Cheb is located, accounted for over 80%
of the seizures in 2006. According to raid statistics from
the Customs Directorate, the Cheb Asia Dragon Market was
raided 42 times from January to October 2006, and the
similarly sized 500 stall market Dragoun, located less than
10 kilometers from Asia Dragon and the second largest in the
country, was raided 58 times from January to October 2006.

5. (U) In May 2006, the Customs Directorate received full
authority to fight IPR violations along side Czech Trade
Inspection. Customs officials provided seizure data covering
the period from May to December 2006:

2006:
Total IPR raids = 11,687
Total Pirated Articles = 1,600,000
% DVDs and CDs = 20%

Taken together, the Customs Directorate and the Czech Trade
Inspection seized nearly 2,600,000 pirated articles in 2006,
of which 44% were seized DVDs and CDs.

6. (U) Econoffs met with local and Brussels-based
representatives of the recording industry's anti-piracy lobby
group International Federation of the Phonographic Industry
(IFPI) March 6 to discuss IFPI's recommendation that the CR
be placed on the Priority Watch List. The focus of the
discussion was the problem of open air markets, especially
those close to the German and Austrian borders. IFPI Europe
Deputy Director Stefan Krawczyk said there are 53 open air
markets in the CR, of which 15 are considered "major." He
reiterated reasons from their Special 301 submission,
including significant increases in domestic production of
pirated CDs, the establishment of brick and mortar
"permanent" pirate shops, and inadequate action by local
police. He also said that there were some improvements in
anti-piracy legislation and that anti-piracy enforcement
competence going from the Czech Trade Inspection to the
Customs Office was a good thing since their experience with
customs was generally quite good. They lamented the slow
nature of the court system.

---------------------
Embassy Visit to Cheb
---------------------

7. (U) Accompanied by three IFPI representatives, Econoff
visited the open air Asia Dragon Market in Cheb on March 7,
2007. The Asia Dragon, located approximately two hours west
of Prague, has been cited by industry groups as one of the
largest outdoor piracy markets in Europe. Econoff saw
approximately 500 stalls spread over two or three football
fields; according to Customs' statistics, this is the largest
open air market in the Czech Republic. The 30%-40% of vendors
open for business were selling low quality shirts, sweaters,
bags, and watches with designer names, all of which appeared
to be counterfeit. Approximately 5%-10% of the stalls had DVD
and CD displays, again, all of which appeared to be
counterfeit. Reviewing the full variety of goods for sale was
impossible since many of the vendors closed their stalls as
we approached. Mr. Krawczyk appeared the night before on a
televised news broadcast regarding the border markets and
piracy, and vendors may have recognized him as they often
distribute amongst themselves photographs of inspectors,
undercover cops, and anti-piracy advocates.

8. (U) At one stall, Econoff and Mr. Krawczyk asked to listen
to a music CD on display, inquired about pricing, and then
attempted to walk away. At this point, the Vietnamese seller
grabbed the arm of Econoff and tried dragging him back to the
stall while offering a deal on two CDs. Econoff resisted

PRAGUE 00000244 003.2 OF 003


saying he was not interested, whereby he was pushed and
kicked out of the store. A second Vietnamese seller
approached Econoff and tried to jump-kick Econoff in the
stomach, but was blocked. The assault ended when one of the
IFPI representatives screamed "stop." There were no local
authorities on the scene and no one else seemed to notice
what had happened. IFPI reports that their inspectors have
similarly been assaulted for collecting data on the number of
stalls and pirated goods for sale.
MUNTER

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