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Cablegate: 2008 Special 301 Review: Remove Poland From Watch

VZCZCXRO3570
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHWR #0237/01 0521103
ZNR UUUUU ZZH
P 211103Z FEB 08
FM AMEMBASSY WARSAW
TO RUEHC/SECSTATE WASHDC PRIORITY 5994
INFO RUCNMEM/EU MEMBER STATES
RUEHKW/AMCONSUL KRAKOW 1995
RUEHBS/USEU BRUSSELS
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC

UNCLAS SECTION 01 OF 06 WARSAW 000237

SIPDIS

SENSITIVE
SIPDIS

STATE PASS TO USTR
USTR FOR WMOORE AND JCHOE GROVES
COMMERCE FOR 4232/ITA/MAC/EUR/OECA/MROGERS AND
ITA/MAC/OIPR/CPETERS
STATE FOR EUR/NCE AND EEB/TPP/IPE/JBOGER

E.O. 12958: N/A
TAGS: ETRD ECON KIPR PL
SUBJECT: 2008 SPECIAL 301 REVIEW: REMOVE POLAND FROM WATCH
LIST

REF: A. STATE 09475

B. 07 WARSAW 735
C. 07 WARSAW 2149
D. 07 WARSAW 0918
E. WARSAW 165
F. PARIS 156
G. 07 WARSAW 2212
H. WARSAW 99
I. 07 WARSAW 2231

WARSAW 00000237 001.2 OF 006


1. (SBU) Summary: Poland made notable progress in
protecting intellectual property rights (IPR) in 2007. The
Warsaw Stadium closed. Poland implemented the EU's
Enforcement Directive, closed a major legal loophole, called
for IPR education for all university students, and began
working to create specialized IPR courts. A more
professional customs service and Border Guard emerged as
Poland entered the Schengen Zone. Rights holders reported
excellent cooperation with local police. Government and
industry continued to struggle with internet piracy. The
innovative pharmaceuticals industry's market access problem
eased, as 33 new active substances were approved for
reimbursement by the National Health Service and new
legislation promising greater transparency was adopted.
Although problems remain, overall the IPR picture for 2007
was extremely positive. These advances justify removing
Poland from the Watch List (ref A). End summary.

------------------------------
Changing Background Conditions
------------------------------

2. (U) Poland's economy is growing rapidly. In 2007, gross
domestic product grew by 6.5 percent. Unemployment fell from
14.9 percent in December 2006 to 11.3 percent in December
2007, and average wages increased, year-on-year, by 8.9
percent. In the same period, the zloty appreciated 11
percent against the dollar, and 3 percent against the Euro.
In other words, more Poles are working, they are earning more
money, and that money is worth more.

3. (U) An increasing number of Poles are "wired."
Sixty-one percent of Polish households have a computer. Of
those, 3/4 have internet access. Close to three million
users have access to broadband (ref B). However, growth of
legitimate internet commerce is checked by the fact that
online stores usually require a credit card to make
purchases. Young Poles -- the main consumers of films and
music -- often do not have credit cards, which blocks them
from being able to pay to download MP3s legally.

4. (U) As an EU member, Poland has adopted EU legislation
and is subject to the discipline of infringement proceedings
commenced by Brussels. On December 21, 2007, Poland joined
the Schengen zone. As a result, Poland lifted controls on
its western border with Germany and the Czech Republic, but
beefed up controls on its eastern border, with Ukraine,
Belarus and Russia.

----------------------------------------
Notorious Markets: Warsaw Stadium Closed
----------------------------------------

5. (SBU) Poland's most "notorious market" -- the "crown" of
the Warsaw Stadium -- closed on October 1, 2007 (ref C).
Contacts in the film, music, software, liquor and tobacco
industries, the police, and the Border Guard, all identified
this as the most significant IPR development in Poland in
2007. While some of the Stadium's trade dispersed around the
city, this needs to be kept in perspective. EmbOffs have
noticed a vendor's table pop up here and there offering
pirated DVDs. These sightings of small-scale trading have
been haphazard; a buyer cannot be certain of being able to
find a given seller at a given location, or of the contents
of the seller's stock. This contrasts sharply with the huge
wholesale turnover that used to exist at the Stadium, where
hundreds of traders offered seemingly endless quantities of
pirated shoes, clothing, cigarettes, liquor, music and
software, and where virtually any bootleg film could be
"ordered" if it weren't already in a trader's stock (ref D).
Closure of the Stadium was a major advance. According to
Arkadiusz Olejnik, of the Polish Border Guards, in contrast

WARSAW 00000237 002.2 OF 006


to two years ago, Warsaw is no longer a distribution center
for pirated goods.

--------------------------------------------- -----------
Notorious Markets: Uncertain Effect of Schengen Entry on
Border Bazaars
--------------------------------------------- -----------

6. (SBU) Poland continues to struggle with open-air bazaars
along the border with Germany. It is unclear what effect
Poland's entry into the Schengen zone will have on these
markets; conceivably the lifting of controls along the
western border eliminated their raison d'etre, since sellers
can now take pirated goods directly to the consumer in
Germany. Nevertheless, the Border Guards' Olejnik expects
the bazaars to continue to operate on the same scale in 2008
as in 2007. Both officials and the private sector took
measures in 2007 to reduce piracy in these bazaars. Most
notably, the police closed down an internet site that allowed
customers to download German subtitles for pirated DVDs.
Also, ProMarka, an association of trademark owners, conducted
information campaigns in the bazaars, aimed at raising
consumer awareness of counterfeit goods.

7. (SBU) Some contacts expressed concern that similar
open-air markets could spring up on Poland's eastern border.
However, Olejnik stated there is no evidence of that so far,
and he doubted it would happen, as inhabitants of the
relatively poor eastern border region still lack the
purchasing power to make such markets profitable.

----------------------------------
Enforcement: Legislation Improved
----------------------------------

8. (SBU) In 2007, Poland enacted two important changes to
IPR legislation:

-- Poland amended Articles 305 and 306 of the Industrial
Property Law to overturn a May 2005 Supreme Court decision
holding that the law's criminal penalties could only be
applied to the first importer/producer of a counterfeit good
(ref E). Closing this loophole clears the way to increased
infringement prosecutions.

-- Poland implemented the EU's Directive on the Enforcement
of Intellectual Property Rights (the Enforcement Directive).
Under prior Polish legislation, in some circumstances rights
holders could recover double (or, for intentional
infringement, triple) damages for copyright infringement.
When Poland implemented the Enforcement Directive, it kept
this provision. However, patent and trademarks are addressed
in a separate statute. Under that statute, only actual
damages can be recovered for trademark and patent
infringement. Some rights holders groups assert that the
level of damages should be the same (i.e., triple) for all
classes of intellectual property. However, double or triple
damages are not required by the EU. In other words, Polish
legislation implementing the Enforcement Directive gives all
the protection due under EU law to trademarks and patents,
and continues to give more protection than is required by the
EU to copyrights.

The Polish Minister of Culture, whose agency has the lead on
IPR issues within the Polish government, asked government
agencies and stakeholders in the private sector to identify
additional needed legislative changes. He plans to make
passing a new IPR bill a priority in the second half of 2008.

--------------------------------------------- -----------
Enforcement: Courts Still Backlogged, But Reform Effort
Underway
--------------------------------------------- -----------

9. (SBU) Polish courts remain congested. Contacts estimate
that the number of pending IPR cases has remained the same,
or increased slightly, since last year. The severity of the
backlog varies from place to place, and is worst in large
cities. In Warsaw, it may take three or four years to reach
a final judgment in a case. Cases may be prolonged, and
ultimately dismissed, because the rights holder deems the
value of the infringing goods too small to bother with, and

WARSAW 00000237 003.2 OF 006


declines to provide needed expert testimony. Despite
slow-moving courts, effective relief may still be available
to a rights holder. Counsel to the Business Software
Alliance (BSA) told EconOff the BSA rarely pursues civil
cases, because of the associated costs and delays. Instead,
the BSA relies on criminal proceedings, in which there is
little delay between filing a complaint and the police
closing down the target. He said such cases are most
frequently resolved by a settlement. While this precludes
imposition of "deterrent sentences," the fact that the
offender's business is shut down also has deterrent value.

10. (U) The Polish government hopes to address the problems
of congested courts, and often ill-prepared prosecutors and
judges, by establishing specialized IPR courts. The Ministry
of Justice has already begun drafting the needed legislation.
Currently, there is a dispute within the government
regarding how broad the jurisdiction of the specialized
courts should be, but a basic consensus in favor of
establishing such courts appears to have emerged (ref E).

---------------------------------------
Enforcement: Mixed Picture With Police
---------------------------------------

11. (SBU) Contacts distinguished between the performance of
local police and the national police headquarters. The
director of the unit responsible for IPR matters at the
national police headquarters told EconOff that the police
treat intellectual property violations "just like any other
economic crime," and that when the police receive a
complaint, they will investigate it. When asked about
internet piracy, he stated anyone can monitor the internet,
and -- if one finds a problem -- can file a complaint. The
same official later asserted that police headquarters has a
special internet unit to deal with online pedophiles as well
as IPR violations. However, he subsequently acknowledged,
the unit has no dedicated personnel. A single official in
the national headquarters works full time on IPR issues.
Nothing appears to have been done in the past year to
increase the national headquarters' technical ability to deal
with internet piracy. At a Polish inter-agency meeting on
January 30, 2008, other Polish government agencies interested
in IPR issues criticized the national police headquarters'
inaction. Industry contacts repeatedly described national
police headquarters as "doing absolutely nothing."

12. (SBU) Lack of IPR fervor in the national police
headquarters is disappointing, but in reality may be of
little consequence, as rights holders can -- and do -- work
directly with local police. Representatives of the liquor,
tobacco, film, music and software industries all reported
that they enjoy excellent working-level cooperation from
local police. They stated that, thanks to training offered
by rights holders groups, local police forces increasingly
include officers with IPR expertise. In addition, several
local police commands have established specialized "economic
crimes" units. Moreover, in Wroclaw, an IPR group has been
established that brings together the police, customs
officials and Border Guards. This model may be replicated in
other Polish cities.

13. (SBU) On another positive note, contacts report that
the customs service and Border Guards made significant
strides in the past year. The government of Jaroslaw
Kaczynski tried to root out corruption even at low levels,
leading to a large number of officials being dismissed. With
Poland's entry into the Schengen zone, the overall competence
and professionalism of the Border Guards has increased.
According to the Border Guards' Olejnik, at each stage of
their training, border guards receive instruction regarding
IPR. A handbook has been distributed in the training schools
and to each unit. He said that every local division of the
Border Guards has a person assigned to deal with IPR issues.

--------------------------
Optical Disks and Software
--------------------------

14. (SBU) In prior years, statistics on the number of seized
goods were used as a proxy to assess the scope of trade in
pirated goods. This approach has always had some problems.

WARSAW 00000237 004.2 OF 006


When a case is transferred from, say, customs officials to
the police, they may both record it, resulting in
double-counting. In cases where the rights holder declines
to press charges, a seizure may not be recorded, resulting in
under-counting. Furthermore, figures on number of
investigations can be distorted by a particularly large case.
The Border Guards' Olejnik noted that two years ago there
was a major seizure of goods on the border with Lithuania.
Thanks to that seizure, in that year that region appeared to
be a leader in IPR enforcement, but there has been little
activity there since. In 2007, Torun officials seized an
internet pirate's hard drive. Using data from the hard
drive, the Torun prosecutor commenced 2,000 cases against
end-users, causing a spike in statistics for the region. On
January 23, 2008, Polish Border Guards along Poland's western
border seized 66,000 CDs, DVDs, CD-Rs and DVD-Rs, as well as
108,000 inlay cards. The haul was 10 times larger than the
total for all seizures for that area in the prior year. The
case was an important one that took time to prepare.
Nevertheless, due to this one seizure, a simple year-on-year
comparison of the number of seized goods in 2008 with 2007
would lead to faulty conclusions regarding the degree of
enforcement activity.

15. (SBU) Changes in technology further reduce the
probative value of statistics on the number of seized goods.
As broadband internet access increased, illegal downloading
of music, films and software grew apace. There has been a
corresponding decline in trade in physical goods, like
pirated CDs and DVDs. A market shift toward MP3s and away
from CDs further reduced demand for CDs. As in prior years,
forensic studies indicate that 85 percent of seized "pressed"
discs were made in Russia. However, the number of "pressed"
disks in circulation has declined, as CD and DVD burners have
become commonplace. In 2006, the ratio of pressed to burned
disks was roughly 50-50. In 2007, burned disks predominated
by a ratio of 3-to-1. Also, according to FOTA, an
association of film producers, increases in disk capacity
mean losses per DVD have increased. A few years ago a seized
DVD contained one film; now a majority of those seized
contain three or four films.

16. (SBU) Statistics gathered by the recording industry
association, ZPAV, indicate that from 2006 to 2007: (i) the
number of seized cassettes fell by 98 percent, which ZPAV
attributed to the fact that cassette tapes are essentially a
dead technology; (ii) the number of seized foreign CDs fell
by 17 percent (from 52,413 to 43,750), and the number of
seized Polish CDs decreased 12 percent (from 13,455 to
11,786); (iii) the number of seized DVDs decreased 44 percent
(from 12,659 to 7,156); (iv) the number of seized CD-RWs
decreased 66 percent (from 129 to 44); and (v) the number of
seized CD-Rs increased 8 percent (from 119,874 to 129,883).
The overall value of seizures dropped by 23 percent.
Contacts in the film and recording industries assert the
decline in seized goods is a result of police conducting
fewer raids. However, the changes in technology and the
market discussed above undoubtedly were also major factors.

17. (SBU) Post knows of no reliable means to assess the
relative contribution of each factor to the overall decline
in seizures. It seems safe to say, however, that internet
piracy is on the rise and is the primary concern of media
rights holders. Unfortunately, as one contact privately
admitted, "no one really has a good idea about how to control
the problem." Some contacts point to the recommendations of
the French Olivennes Commission Report on digital piracy as
indicating the way forward (see ref F), but others worry
efforts to adopt the Olivennes proposals in Poland would open
the door to legislation substantially restricting rights
holders' ability to incorporate digital rights management
technologies into their products. Discussion of how to adapt
to the proliferation of peer-to-peer technologies is at an
early stage, and rights holders seem to be floundering as
they search for an effective response. The Minister of
Culture's plan to push for new IPR legislation in the second
half of 2008 could provide a vehicle for new measures to
limit internet piracy. The Ministry is soliciting proposals
from rights holders groups.

18. (SBU) In prior years, the music and film industry was
concerned by excess production capacity in optical

WARSAW 00000237 005.2 OF 006


disk-pressing facilities in Poland. This is no longer an
issue. Contacts report the excess capacity has been fully
absorbed by the new Europe-wide trend of distributing CDs and
DVDs as free inserts in newspapers.

--------------------------------------------- ----------
Pharmaceuticals: Major Progress on Market Access Issues
--------------------------------------------- ----------

19. (SBU) Contacts in the research pharmaceuticals industry
uniformly identify access to the list of drugs eligible for
reimbursement from the National Health Service as their top
priority. In 2007 there was a major breakthrough: 33 new
active substances were added to the list (ref G). As a
result, those companies whose products were added to the list
expect substantial increases to their revenues in 2008 and
2009 (ref H). A Ministry-industry dialogue, commenced under
USG auspices, contributed to the breakthrough.

20. (SBU) In addition, on September 29 new legislation went
into effect revising the process for adding drugs to the
reimbursement list. The legislation set a 180-day limit for
making a decision on whether to add a drug, required the
Ministry of Health to provide a reasoned basis for decisions,
and allowed decisions not to include a drug on the
reimbursement list to be appealed to an administrative court
(ref G). If implemented properly, the law should lead to a
significant improvement in the timeliness and transparency of
the process for adding drugs to the reimbursement list. Some
contacts in the industry note that deadlines existed in
Polish law in the past, and were frequently ignored. They
doubt the Polish government will abide by the terms of the
new law. Such worries are understandable in light of the
industry's troubled history here, but at this time post has
no concrete information indicating the Polish government will
fail to comply with the terms of the legislation. Poland is
under pressure to modify its methods because of an EU case
challenging Poland's past lack of criteria for making
reimbursement decisions, failure to respect deadlines,
failure to justify decisions and failure to provide appeal
rights. That case is at the stage of a "reasoned opinion."

21. (SBU) While major progress was made on the industry's
top issue, several other matters of lesser commercial
importance require comment. First, Polish legislation still
only provides six years of data protection for products
registered in Poland. However, Poland does extend the
European "8 2 1" term of protection to all products
registered at the EU level. Since, as a practical matter,
all new products are in fact registered at the EU level, the
lesser degree of protection for Polish-registered products is
of little commercial significance. Post has seen no new
evidence of specific IPR violations related to data
exclusivity with American firms, and no U.S. pharmaceutical
firm reported a new case of patent infringement to post
during the past year.

22. (SBU) In 2007, the Ministry of Health began to rely on
Health Technology Assessments (HTAs) for innovative products.
Some companies are concerned that the assessment process
could be used as a pretext to keep innovative products out of
the reimbursement system. However, contacts also report that
the HTA process is used in other EU countries, including
France and the UK, and that the agency conducting the HTAs is
staffed by competent professionals using recognized
methodologies. While abuse of the process is possible, post
is aware of no concrete cases where the HTA process was in
fact abused to erect a barrier to market access for
innovative drugs in Poland.

23. (SBU) On July 1, 2006, the Polish government instituted
a 13 percent across-the-board price cut on all imported
pharmaceutical products. The Polish government contended
that it cut prices in response to exchange rate changes, as
allowed under Polish regulations. In response to allegations
that the price cut violated national treatment obligations,
in November 2007 the Polish government reduced the price it
pays domestic producers for drugs manufactured using imported
inputs. The European Commission is investigating the price
reduction, and contacts are confident that Poland will
eventually be found to have violated EU rules. In the
meantime, contacts advise, the costs associated with the

WARSAW 00000237 006.2 OF 006


price reduction long since have been absorbed or written off.

24. (SBU) Another pending EU case concerns the accelerated
registration on the eve of EU accession in 2004 of the
so-called "ghost list" of generic products with incomplete
dossiers. The pharmaceuticals industry has expressed concern
that a similar approach could be used by the Ministry of
Health in 2008 to issue conditional re-registrations for
older generics when the transitional period allowed for
upgrading of old dossiers comes to an end. Contacts at the
Ministry of Health informed EconOff they are unaware of any
such plans.

---------
Education
---------

25. (SBU) The Polish Ministry of Science and Higher
Education issued a higher education guideline calling for all
Polish university students to receive instruction in IPR,
effective October 1, 2007 (ref I). To our knowledge, this is
the first time such a step has been taken anywhere in the
world. The President of the Polish Patent Office personally
championed the measure. Although the guideline is not
binding, Polish universities report they are moving to
implement it. The private sector is also working to increase
IPR awareness. For example, Michal Siciarek, chairman of the
AmCham's Intellectual Property Committee, told EconOff that
AmCham members plan to teach an IPR course at Warsaw
University. Working with the Ministry of Culture, the AmCham
also sponsored an IPR-related poster contest. Similarly,
ProMarka, an association of trademark owners, commissioned a
survey of public attitudes towards counterfeits, and launched
a public awareness campaign.

26. (SBU) Training for government officials is also
increasingly available and used. Rights groups, such as
ZPAV, participate regularly in police training and law
enforcement conferences. ZPAV and FOTA collaborated on a
handbook for handling IPR cases (including a protocol for
dealing with internet piracy) that was distributed to all
police commands and prosecutors offices. Under a "twinning"
program supported by the EU's "Transition Facility 2004," 14
training sessions, in which 248 Border Guards participated,
were organized by the Polish border guards, Ministry of
Finance, and Ministry of Culture. In 2008, officials from
the Polish Ministry of Culture will take part in courses
offered by the U.S. Patent and Trademark Office.

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

27. (SBU) In 2007, Poland improved its IPR legislation,
closed the most notorious market for counterfeits in eastern
Europe, improved control of its eastern border, and called
for IPR education for all university students. Poland broke
the logjam on adding innovative pharmaceuticals to the
reimbursement list, and adopted legislation promising a more
transparent process. A bill is being drafted to create
specialized IPR courts, and the government is open to
industry proposals to address internet piracy. Weak spots
remain, but overall these developments indicate a government
with a broad and deepening commitment to IPR. In light of
the excellent progress made in 2007, Poland should be removed
from the Watch List.
CURTIN

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