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Cablegate: Mission Input On 2008 Special 301 Review: Mexico

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ZNR UUUUU ZZH
P 221211Z FEB 08
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 0611
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUEHGV/USMISSION GENEVA PRIORITY 1015
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEAHLA/DEPT OF HOMELAND SECURITY PRIORITY
RHMFIUU/DEPT OF JUSTICE WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

UNCLAS SECTION 01 OF 05 MEXICO 000512

SIPDIS

SIPDIS

STATE FOR EEB/IPE JENNIFER BOGER
STATE PASS USTR FOR JENNIFERCHOE GROVES
COMMERCE FOR ITA/MAC/OIPR CASSIE PETERS

E.O. 12958: N/A
TAGS: KIPR ETRD ECON
SUBJECT: MISSION INPUT ON 2008 SPECIAL 301 REVIEW: MEXICO

REF: SECSTATE 9475

1. (U) Summary: Mission recommends that Mexico remain on the
Special 301 Watch List for 2008. In the first year of the
Calderon administration, there have been significant advances
in a number of areas of concern highlighted in last year's
report, with little or no progress on others. The advances
registered have not succeeded in rolling back the widespread
commercial piracy and counterfeiting that continue to plague
the Mexican market, but they do provide momentum to an
increasingly comprehensive approach to protecting
intellectual property rights (IPR) here that we believe will
bear concrete results over the medium and long-term. Embassy
and constituent posts will continue to monitor and encourage
Mexican efforts to strengthen enforcement and safeguard the
interests of right-holders. At the same time, we expect to
continue our robust cooperation with Mexico on IPR issues in
the multilateral and regional arenas, and see this
cooperation as exerting a positive influence on domestic IPR
protection. End summary.

Overall Assessment of IPR Climate
---------------------------------

2. (U) Mexico continues to suffer from rampant and largely
undeterred commercial IPR infringement that causes huge
losses to Mexican, U.S., and third country IP right-holders.
The federal government and a small number of state and
municipal governments have significantly ramped up their IPR
protection efforts and intra-governmental coordination this
past year, including enforcement actions. Cooperation
between government , but legislative loopholes, a cumbersome
judiciary process, continuing lack of cooperation from many
states and municipalities, and a widespread cultural
acceptance of illegal commerce continue to hinder effective
deterrence of piracy and counterfeiting. We believe that
inclusion of Mexico on the Watch List would clearly
demonstrate the serious ongoing nature of the problems it
faces, while not moving Mexico to the Priority Watch List
would demonstrate our cognizance of the impressive efforts
that Mexico is making to better protect IPR.

3. (U) On the international front, Mexico continues to play a
positive role. It has spoken up against attempts to
undermine intellectual property rights in global health fora,
was the first developing country to agree to being an initial
negotiating party to the Anti-Counterfeiting Trade Agreement,
and has actively pushed ahead the IPR Working Group under the
trilateral Security and Prosperity Partnership of North
America (SPP). President Bush and the leaders of Mexico and
Canada announced an SPP IPR Action Plan at their August 2007
meeting in Montebello, Canada. The plan has three broad
categories of activity: detection and deterrence; public
education and outreach; and measuring piracy. The three
governments are actively pursuing specific action items under
all three of these broad categories.

Scorecard on Areas of Concern from 2007
---------------------------------------

4. (U) In last year's report, we identified a number of areas
where we believed Mexico could take action to improve its
situation. Here is how we grade its performance in those
areas:

-- A bill to grant ex officio powers to law enforcement
officials to pursue IPR crimes passed the Senate in April
2007 but has not been voted on in the Chamber of Deputies. A
Mexican congressional delegation that visited Washington
February 11-13 predicted that the bill would be passed into
law before the current legislative session ends in April
2008. We will continue to lobby on behalf of this
legislation.

-- We have had success in including Mexican administrative
and penal judges in several training and exchange programs
over the past year. In November 2007, the Embassy, the
Mexican judiciary, and the Mexican Institute of Industrial
Property (IMPI - rough equivalent of U.S. PTO) jointly
organized a two-day seminar on trademarks. U.S. PTO arranged
for a U.S. federal district court judge, a PTO administrative
judge from the Trademark Trial and Appeal Board, and a U.S.

MEXICO 00000512 002 OF 005


PTO attorney-advisor to speak at this event, in which dozens
of Mexican administrative judges, IMPI officials, and private
sector attorneys participated. In December 2007, two Mexican
federal penal judges attended a workshop on inter-agency and
inter-sectorial coordination in combating piracy and
counterfeiting held in Monterrey, Mexico, where they
exchanged views on why criminal convictions are so hard to
obtain with U.S. and Mexican IPR prosecutors. Four Mexican
federal judges (both administrative and penal) are planning
to participate in a U.S. PTO Global IP Academy course for
judges scheduled for early March 2008. Perhaps the clearest
sign of growing judicial interest in IPR is the international
conference being organized by the Mexican judiciary in late
February 2008 in Cancun, Mexico. Judges, prosecutors,
right-holders, and IPR officials have been invited from
Canada, the United States, Europe, and Latin America to
participate in a three-day forum covering the whole range of
legal issues related to copyrights, trademarks, patents and
data protection, and enforcement. The President of Mexico's
Supreme Court, Mexico's Prosecutor General, the head of IMPI,
and a large number of Mexican federal administrative and
penal judges are expected to attend, as are two U.S. federal
district court judges and experts from the U.S. Copyright
Office, U.S. PTO, and the Department of Commerce. This surge
in judicial exchanges has not eliminated the serious
obstacles to effective administrative and penal IPR
enforcement posed by Mexico's justice system, but has created
unprecedented dialogue between Mexican judges, enforcement
officials, and right-holders. This dialogue is identifying
the key obstacles and helping to build political support to
eliminate them.

-- Regarding tapping into existing law enforcement resources
and authorities that target organized crime, the special IPR
unit in the Office of the Prosecutor General of the Republic
(PGR - rough equivalent of the Department of Justice) has
improved its intelligence targeting of pirating networks but
still has not made use of organized crime authorities to seek
stiffer penalties on commercial infringers.

-- The State of Mexico and the Municipality of Toluca signed
agreements with Mexico's federal government (PGR and IMPI are
both actively involved) and right-holders to cooperate in
combating piracy and promoting legitimate commerce in 2007.
Cooperation has improved drastically with those governments.
Private sector sources say that a number of other state and
municipal-level agreements will likely be signed in 2008,
including with the State of Morelos and the municipality of
Ciudad Juarez. The government of Mexico City has not signed
such an agreement, but has worked closely with federal law
enforcement officials in attacking all forms of illegal
commerce in the city center. The government of the State of
Jalisco entered into an agreement with IMPI and the Business
Software Alliance (BSA) to "Clean House," a program under
which IMPI and BSA will help ensure that all software being
used in state government offices is licensed. Most Mexican
states and cities remain relatively unengaged in the fight
against IPR infringement. But 2007 saw a sea change from
from zero prior involvement of states and cities to a
situation in which a number of very prominent sub-federal
governments are now actively committed to the protection of
IPR, with more poised to follow their lead, motivated at
least in part by the competition to attract high quality
foreign investment.

-- We have not heard from either industy or the GoM on
purchases of infringing medicines by state-run health
institutions. Patent linkage has been respected in 2007,
though a number of cases from 2006 in which the health
authorities granted registrations to generic versions of
patented drugs remain unresolved. Data protection will be
discussed below.

-- The Mission (CBP, ICE, and Economic Section), together
with the Department of Justice, organized two large-scale
capacity-building events for Mexican customs officials in the
past year, first at the Port of Veracruz in July 2007 and
more recently at the Port of Manzanillo in February 2008. In
both cases, PGR and IPMI officials, as well as private sector
experts, formed part of the faculty and stressed the
importance of stopping fakes at the port of entry and the
need for interagency cooperation to make this happen given

MEXICO 00000512 003 OF 005


Mexican Customs' inability to take action on its own.
Officials from other ports attended both trainings, which we
believe were very successful. For example, the Port of
Lazaro Cardenas, the second-largest on the Pacific Coast, had
never detained a shipment of IPR-infringing goods before
2007, but since the Veracruz training (attended by several
customs officers from Lazaro Cardenas), seven shipments have
been stopped and turned over to either the PGR or IMPI for
further enforcement action, including arrests.

-- The Mexican Congress is expected to act on a major
initiative to overhaul the entire Mexican penal justice
system early this year that will more fully empower police
and prosecutors and streamline the judicial process while
strengthening the civil rights of the accused. If passed
into law in its present form, this could significantly
improve all forms of criminal enforcement in Mexico.

Specific Areas of Concern

5. (U) This section adopts the format for specific areas of
concern used in reftel.

A. Notorious Markets: Informal markets throughout Mexico
feature vendors blatantly selling pirated audio-visual
materials and counterfeit name-brand goods. In Mexico City,
Tepito remains the main warehousing and distribution center
for infringing products, and hosts scores of retail stalls to
boot. Other markets of particularly ill repute include the
Plaza Meave, the Eje Central, Lomas Verdes, and the Pericoapa
Bazaar in Mexico City, San Juan de Dios in Guadalajara,
Simitrio-La Cuchilla in Puebla, and the Pulgas of Monterrey.
Authorities do conduct raids in these markets, but usually at
night to avoid violent confrontations that daylight raids can
provoke. Some media reports indicate that the elevated pace
of government raids, confiscations, and seizures of real
estate in Tepito might be forcing some illegal vendors to
migrate to La Cuchilla market in Puebla, but Tepito still
remains the principal nexus of Mexico's black market.

B. Optical Media Piracy: Piracy of movies, music, video games
and business software is rampant in Mexico. According to the
International Intellectual Property Alliance (IIPA), U.S.
copyright industries (not including the film industry)
suffered losses to piracy of more than $1.2 billion in 2007.
MPAA estimates that its member companies lost $483 million
last year in Mexico, and other film companies (foreign and
domestic) another $100-200 million. Mexico continues to
import hundreds of millions of blank optical media units in
excess of its legitimate demand.

C. Use/Procurement of Government Software: The federal
government generally purchases and uses legitimate software.
As noted in para 4 above, in 2007 the Business Software
Alliance (BSA), IMPI, and the government of the State of
Jalisco launched an initiative to "Clean House" by ensuring
that all software used in state government offices was
licensed. Mission Mexico is working with IMPI and BSA to get
other state and city governments to agree to participate in
"Cleaning House" programs.

D. TRIPS Implementation, NAFTA Implementation and Other
IP-Related Issues: As reported last year, Mexican law is
largely in compliance with TRIPS and NAFTA obligations, with
data protection (see below) standing out as a possible
exception. With regard to implementation of its own laws, an
argument could be made that the application of deterrent
penalties as required under TRIPS Article 61 and NAFTA 1717
are the exception rather than the rule.

E. Data Protection: Neither Mexican law nor the relevant
health regulations provide clear rules that either define or
mandate data protection. Mexican officials argue that NAFTA
1711 (Trade Secrets) is self-executing, thus obviating the
need for further legislative or regulatory action. Over the
course of the past year, the Mission, working with the
research-and-development pharmaceutical industry and
colleagues from the European Commission's Mission in Mexico,
has pressed Mexican health, trade, and IPR officials to
consider including clear and NAFTA-consistent data protection
rules in amendments to Mexico's food and drug regulations.
Mexican officials have requested that industry first

MEXICO 00000512 004 OF 005


demonstrate the current system is not working by presenting
cases in which test data used for drug registration has
subsequently been used by unauthorized third parties within
the five-year term of data protection provided by NAFTA. We
are waiting for industry representatives to provide concrete
examples to this effect.

F. Production, Import and Export of Counterfeit Goods: As
mentioned in sub-paragraph B above, a huge volume of blank
optical discs enters Mexico each year, the vast majority of
which is used to burn pirated copies of movies, music, or
software. The GoM has created more refined tariff lines to
better differentiate and track these incoming shipments.
Industry and government experts suspect that a large
percentage of the imported discs enter Mexico without paying
the appropriate import tariffs due to either
mis-classification (i.e., declaring higher-value DVDs to be
lower-value CDs) or claiming a false country of origin (i.e.,
claiming to be U.S. products that owe no tariffs due to NAFTA
when in fact they are products of Asian countries). Mission
Mexico (led by CBP and ICE) is working with its GoM
counterparts to train customs officials to distinguish among
the various types of optical discs and to coordinate efforts
to combat contraband trade that falsely claims U.S. origin to
avoid paying Mexican tariffs. With regard to the import of
pirated or counterfeit goods, customs officials can hold
suspect shipments for a very limited time (usually 48 hours)
on their own authority. After that they need to receive an
order from either PGR or IMPI to seize the merchandise in
question. PGR and IMPI, in turn, would need to obtain a
formal complaint from the aggrieved right-holder before
issuing such an order. As mentioned in para 4 above, Mission
trainings of Mexican customs officials have led to better
coordination among Mexican customs, PGR, IMPI, and
right-holders, though greater latitude for customs to act on
its own authority would be helpful.

G. Enforcement: The number of raids, arrests, indictments,
and convictions of pirates and counterfeiters rose from 2006
to 2007, reflecting the efforts of PGR and IMPI to strengthen
enforcement. Criminal indictments by PGR's specialized IPR
unit went from 158 to 166 in that period. Even so, only five
persons were convicted in penal courts in 2007 -- better than
the two convicted in 2006 (last year we mistakenly reported
four convictions) but still far too few to deter this sort of
criminal behavior. On seizures, PGR actually saw its total
quantity of confiscated articles drop, but argues that it
began to concentrate more on quality than quantity last year,
pointing out that the almost 8,000 disc burners and sixteen
buildings seized in 2007 were record highs that translated
into significant economic blows against commercial-scale
infringers. PGR has yet to utilize its authority to apply
much tougher organized crime penalties on pirates. This
issue was raised at the 2007 Senior Law Enforcement Plenary
between PGR, the Department of Justice, and other U.S. law
enforcement agencies. Likewise, IMPI has stepped up its
administrative enforcement actions but also remains hampered
by low maximum fines it can impose and a legal process that
allows infringers to file repeated injunctions that stave off
penalties for months or even years. A number of legislative
reforms that would promote more effective criminal and
administrative enforcement include: ex officio authority for
law enforcement; removing IMPI's administrative enforcement
regime from under the jurisdiction of the Federal Law of
Administrative Procedures (which slows down the
administrative enforcement process); increasing maximum
penalties; outlawing cam-corders in theaters; and outlawing
all trade in devices for circumventing technological
protection measures.

H. Treaties: Mexico's National Copyright Institute (INDAUTOR)
is conducting a review of whether Mexican law is in
compliance with the WIPO Internet Treaties it has ratified.
INDAUTOR has not set a timeline for completion of its review.


I. Internet Piracy: The Internet is fast becoming a major
threat to owners of intellectual property rights in Mexico.
PGR's specialized IPR unit has issued one indictment against
a man who was selling infringing movies via the Internet, and
has requested training from Department of Justice cyber-crime
experts to refine its ability to detect and prosecute this

MEXICO 00000512 005 OF 005


kind of piracy. IMPI has made over 500 inspection visits to
cyber-cafes suspected of abetting Internet piracy in
conjunction with the Mexican music industry to warn owners of
potential legal liability and to provide mechanisms for
blocking access to problem sites. The industry has begun to
file civil suits against Internet users who have been
egregious downloaders or uploaders of songs last year -- the
results of these legal actions remain to be seen. Mexican
law does not mandate ISP responsibility, but a number of
industry groups are lobbying the Mexican Congress to pass
legislation to address this gap. Three Mexican legislators
who visited Washington in February 2008 expressed great
interest in the way the U.S. Digital Millenium Copyright Act
handles this issue.


Visit Mexico City's Classified Web Site at
http://www.state.sgov.gov/p/wha/mexicocity and the North American
Partnership Blog at http://www.intelink.gov/communities/state/nap /
GARZA

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