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Cablegate: 2008 Special 301 Recommendation: Keep Venezuela

VZCZCXYZ0007
RR RUEHWEB

DE RUEHCV #0232/01 0532127
ZNR UUUUU ZZH
R 222127Z FEB 08
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC 0650
INFO RUEHBO/AMEMBASSY BOGOTA 7695
RUEHLP/AMEMBASSY LA PAZ FEB LIMA 0959
RUEHQT/AMEMBASSY QUITO 2774
RUCPDOC/DEPT OF COMMERCE

UNCLAS CARACAS 000232

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EB/IPE JBOGER
DEPT PLS PASS TO USTR JCHOE-GROVES
DOC PLS PASS TO USPTO CPETERS

E.O. 12958: N/A
TAGS: KIPR VE
SUBJECT: 2008 SPECIAL 301 RECOMMENDATION: KEEP VENEZUELA
ON PRIORITY WATCH LIST

REF: A. STATE 9475
B. 07 CARACAS 366
C. 06 CARACAS 486

1. (SBU) Summary: The BRV's protection and enforcement of IPR
continues to deteriorate. The market for legitimate music CDs is
eclipsed by piracy, with piracy rates for CDs, DVDs, and business
software hovering above 80 percent. SAPI, the agency that oversees
IPR enforcement and issues patents, has not issued a single patent
since 2004. Based on the BRV's antipathy to IPR, weak enforcement,
and possible legal changes to further strip away IPR protections,
Post recommends that Venezuela remain on the Special 301 Priority
Watch List for 2008. End Summary.

---------------------------
The Pharmaceutical Industry
---------------------------

2. (SBU) The international pharmaceutical industry continues to see
a weakening of IPR protection in Venezuela. Despite Venezuela
having the highest per-capita pharmaceutical consumption in Latin
America, and being the third largest market in the region, SAPI, the
Autonomous Intellectual Property Service (the country's primary IPR
authority) has not issued a patent to an imported pharmaceutical
product since 2003, and has not issued a patent in any sector since
2004. According to a local IPR contact, SAPI received 2,958 patent
applications in 2007 (over 50 percent of these were from the
pharmaceutical industry), of which zero were approved. (Note: SAPI
approved 26 designs. End Note.) Since 2002, the BRV has failed to
protect pharmaceutical testing and other confidential data for
product submissions that have not yet received patent protection.
The BRV also does not provide a linkage between patent and sanitary
registrations. As a result, counterfeiters can receive sanitary
registration approval in the absence of a patent -- equivalent to
marketing approval for a counterfeit product. Eduardo Saman, the
Director of SAPI and the newly appointed Director of the National
Institute for the Defense of the Consumer (INDECU), has argued that
trademarks and patents impeding the fabrication of generic medicines
or the reproduction of technology should be considered monopolies.
Monopolies are prohibited under the Venezuelan constitution.

---------------------------
Recorded Media and Software
---------------------------

3. (SBU) The market for legitimate CDs and DVDs continues to
decline. According to a Post IPR contact, in 2007 there were
approximately 1.9 million music CDs sold in Venezuela and 90 million
"virgin" discs imported, ten million more disks than in 2006. This
would indicate that Venezuela is not solely a distribution source,
but may be a production center for counterfeit products. Industry
experts estimated the piracy rate for music CDs at 88 percent in
2007. The number of street vendors selling pirated DVDs and CDs on
the highway during rush hour has also visibly increased over the
last year. One local report estimated losses due to pirated CDs at
USD 50.6 million. The

4. (U) National Film Law, passed in August 2005, requires
distributors to copy in Venezuela a percentage of the movies they
plan on distributing locally and to register all films. Industry
sources fear that this could lead to unauthorized releases of
confidential information and contribute to piracy. They estimate

SIPDIS
that 92 percent of movies purchased in Venezuela were produced
illegally, and estimate losses of approximately USD 41.3 million.

5. (SBU) The piracy rate for business software in 2007 was 86
percent, according to the Business Software Alliance. U.S. software
companies have repeatedly come under attack from the BRV as
exemplars of what President Chavez referred to as the "neo-liberal"
trap of IPR. In 2004, the BRV passed legislation that mandated the
use of open source software throughout the public sector. While not
a violation of IPR in and of itself, the software industry has
concerns about a lack of transparency in its implementation and
favoritism shown to certain vendors.

--------------------------------------------
Tenuous Legal Protection of IPR in Venezuela
--------------------------------------------

6. (SBU) The legal framework in Venezuela for Intellectual Property
Rights has become more ambiguous since the BRV withdrew from the CAN
(Andean Community) in April 2006. Venezuelan law had incorporated
over 650 legal decisions from the Andean Community into domestic

law, including Decision 486, a pronouncement on protection of
intellectual property rights. The most recent domestic intellectual
property legislation in Venezuela dates from 1955 and does not
provide for patent protection. Venezuelan courts have, de facto,
continued to apply Decision 486, though they have offered no
assurances that they will continue to do so.

7. (SBU) Numerous Post contacts have said that a new copyright law
is expected to be decreed via the "enabling law." In January 2007,
the National Assembly delegated to President Chavez, for a period of
18 months, the power to issue decrees carrying the force of law.
Both the pharmaceutical and recording industries expressed their
concern to us over potential abuse of this power to push through
legislation that would further weaken the IPR regime. In
particular, there is concern that Chavez may sign into law a
controversial copyright bill dating from 2004. The bill would
violate many of Venezuela's bilateral and multilateral IPR treaty
obligations including the Bern Convention and TRIPs. It would
reduce the protection period for copyrights from 60 to 50 years and
would allow the BRV to appropriate artistic rights for the public
sector. In 2007 the second-Vice President of National Assembly
presented a different but similar version of this bill to the Andean
Parliament. Venezuela has also not deposited the instruments of
ratification for the WIPO Copyright Treaty or the WIPO Performances
and Phonograms Treaty, and we are told has not sent an official
delegation to WIPO committee meetings since 2004.

--------------------------------------------- --
Government of Venezuela's Open Hostility to IPR
--------------------------------------------- --

8. (SBU) In 2007, the BRV attempted to remove significant IPR
protections from the Venezuelan constitution as part of President
Chavez failed December 2 constitutional reform package. Eduardo
Saman, the director of SAPI and INDECU, drafted the proposed changes
to article 98 that would have notably deleted any mention of abiding
by established IPR law and international treaties and also would
have removed the term intellectual property rights from the
constitution, referring only to copyrights. This measure was
co-sponsored by cooperatives representing distributors of pirated CD
and DVDs. Despite the rejection of President Chavez' reform
package, Saman has continued to issue anti-IPR statements and has
said that he was trying to decriminalize the pirating of all works.


------------------
Other IPR BARRIERS
------------------

9. (SBU) The BRV's foreign currency controls have been another
barrier to IPR in Venezuela. The Currency Exchange Administration
(CADIVI) has been blocking access to foreign exchange for companies
attempting to pay royalties, patent license fees, and franchise
fees. As indicated in a June 2007 CADIVI resolution, 100 foreign
currency requests to pay licensing fees from 2005 were allowed to
expire due to improper paperwork, something IPR contacts deny.
While CADIVI does not deny these currency requests, not acting on
them prevents businesses from complying with IPR laws.

---------------
IPR Enforcement
---------------

10. (SBU) IPR enforcement in Venezuela continues to be weak.
Enforcement problems derive for the most part from a lack of
political will, lengthy legal processes, unprepared judges, and a
lack of resources for investigation and prosecution. A single
special prosecutor who has one assistant is responsible for IPR
issues in Venezuela. Consequently, investigations are severely
backlogged. Under current Venezuelan law, IPR enforcement actions
can only take place as a result of a complaint by the rights holder.
In addition, the complainant is responsible for the cost of storage
of allegedly illicit goods during the investigation and trial.
Trials can go on for years and storage costs are very high, making
it unfeasible that someone will complete the legal process. A
loophole in the law only permits actions against copyright violators
operating at a fixed location, effectively barring prosecution of
street vendors.

11. (SBU) SENIAT, the customs and tax enforcement agency, has been
the one bright spot for IPR enforcement with noteworthy efforts to
fight piracy in conjunction with its "zero tax evasion" and "zero
contraband" missions. In February 2007, SENIAT reportedly destroyed

450,000 pirated CDs and 280,000 pirated DVDs. Vielma Mora, the
former superintendent of SENIAT, claimed to have invested USD
32.5-37.2 million to fight piracy in 2007. To avoid possible
political fallout, SENIAT has sent employees outside Venezuela to
receive IPR enforcement training. However, on February 1, Vielma
Mora, the BRV's lone IPR advocate, was fired. Two weeks after this
announcement, Post's contact at SENIAT declined to speak with us on
SENIAT's IPR enforcement plans, saying she had to wait for new
guidelines before sharing any information. The Venezuelan copyright
and trademark enforcement branch of the police (COMANPI) also
attempts to provide copyright enforcement support with a small staff
of permanent investigators. Local IPR contacts have said that
COMANPI, an agency known for its lack of personnel, limited budget,
and inadequate storage facilities for seized goods, no longer has a
functioning headquarters.

-------
Comment
-------

12. (SBU) Venezuela continues to have an unfriendly environment for
protecting intellectual property rights. Pirated and counterfeit
products abound, and piracy rates are climbing. Overall enforcement
remains weak and high ranking officials publicly express their
disdain for IPR protection. The BRV has dedicated few resources to
investigating and prosecuting IPR crimes. The legal regime for IPR
protection is in a state of uncertainty after Venezuela's withdrawal
from the CAN, and IPR protection will likely deteriorate in the
upcoming year if Chavez pushes through controversial copyright
legislation that would further undermine IPR protection and violate
Venezuela's treaty obligations. Post recommends keeping Venezuela
on the Special 301 Priority Watch List for 2008.

Duddy

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