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Cablegate: Recommendation to Remove Philippines From Special

This record is a partial extract of the original cable. The full text of the original cable is not available.





E.O. 12958: N/A

REF: A) MANILA 00832 B) MANILA 05068


1. (SBU) Summary. Embassy recommends removing the
Philippines from USTR's Special 301 Priority Watch List and
placing it on the Watch List. The GRP has responded to the
Special 301 out-of-cycle review by stepping up IPR
protection. While there is still much to be done, it is
important that the USG recognize recent progress in order to
maintain momentum on IPR initiatives. Over the last year;
the Optical Media Board has become fully operational and
begun to assert its authority; overall enforcement actions
and convictions, albeit from a small base, have increased;
the GRP created a specialized IPR court, and the
Intellectual Property Office has emerged as the lead agency
on IPR by developing a core strategy and implementing
several initiatives. Post further recommends that moving
the RP from the Priority Watch List to the Watch List be
done in tandem with a clear message to the GRP that without
continued progress we would move the Philippines back onto
the Priority Watch List in the following review. End

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2. (U) This report is divided into two sections: Part I
addresses the GRP's progress on IPR protection and Part II
sets out post's recommendation.


3. (SBU) Earlier this year, when Embassy recommended that
the RP remain on the Priority Watch List (PWL), we stated
that three conditions should be met before the RP would
merit removal from the PWL: 1) vigorous enforcement of the
Optical Media Act; 2) expeditious prosecution of IPR
violators for both new and pending cases, particularly
focusing on domestic, large-scale pirate producers; and, 3)
Congressional passage of the two pending copyright
amendments and their effective implementation. The GRP has
responded favorably to the out-of-cycle review (OCR) and has
made a concerted effort over the last year to improve IPR
protection. Although we have not seen as much progress as
initially anticipated, the GRP has taken important, positive
steps to improve its IPR protection regime.


4. (SBU) Congress in February 2005 approved implementing
rules and regulations for the Optical Media Act, which
officially established the Optical Media Board (OMB) as the
regulatory authority for the licensing of replicating
machines and equipment and the materials used for making
optical discs. Over the last ten months, the OMB has worked
to assert its authority and define its role. Although the
agency is now fully operational, it is, like many other
agencies in the cash-strapped GRP, inhibited by a general
lack of resources, funds, and trained staff. The OMB's
budget remained stable this year, but rapidly rising
overhead and other costs continue to squeeze out desired
programs. The OMB estimates that it would need nearly to
double its staff from 66 to 111 in order effectively to
implement its mandate. However, despite severe resource
constraints and major challenges ahead, the agency has
emerged as a major player with respect to IPR protection.
While the OMB has not yet achieved the level of "vigorous
enforcement" we set forth as a goal, it is on its way to
doing so.

5. (SBU) The OMB estimates that about 40 percent of pirated
optical media purchased in the RP is produced domestically,
while the other 60 percent is imported, mainly from China
and Malaysia. There are ten licensed production entities in
the RP, of which four appear to be entirely legitimate; six
appear to conduct both legitimate and illegitimate business.
Since February, the OMB conducted raids on thirteen
production lines and seized equipment, which involved three
different pirate operations. However, due to an appellate
court ruling that quashed a warrant needed to admit key
evidence, the court dismissed charges against the owners of
eight of these lines (involving pirated Sony Playstation
software). The OMB contends that these IPR violators were
well-connected and manipulated the judicial system.

6. (SBU) In June, the OMB started a campaign to remove
pirated optical media from shopping malls by focusing
initially on nine malls notorious for the sale of
counterfeit goods. One mall responded by confiscating
pirated optical media sold on the premises and turning them
over to the OMB. Other malls were the subject of several
OMB raids during the last half of the year. While pirated
optical media products are still widely available in the
Philippines, visiting officials from the US Trade
Representative's Office and the Department of Commerce as
well as Embassy Officers have noticed a decline recently in
the overall quantity available in most malls.

--------------------------------------------- ------------
--------------------------------------------- ------------

7. (SBU) The Intellectual Property Office (IPO) reports
that combined interagency enforcement actions resulted in
1,370 inspections, 869 search warrants, 26 alert/hold
orders, and seizure of 4.6 million pieces of pirated goods.
However, without aggressive prosecution, such actions remain
a weak deterrent. The courts convicted four individuals in
2005 for IPR violations, compared to one conviction in 2004.
These cases involved trademark infringement and carried
sentences ranging from six months to five years imprisonment
and 100,000 peso fines (USD 1,850).

8. (SBU) US rights holders usually do not pursue
convictions and instead choose to settle out of court
because it makes long-term business sense. The judicial
sector remains a serious weakness in the chain of
enforcement. Hence, formal prosecutions and convictions are
few. US companies may be less willing to pursue cases in
court when there is a good chance that the cases will be
drawn out, resource intensive, and disappointing. According
to the National Bureau of Investigation (NBI), RP law
requires rights owners to file a complaint before any action
can be taken. If they choose not to file, law enforcement
agencies cannot act. For example, while conducting raids
for other companies, NBI officials frequently encounter
infringed goods for rights holders such as Nike, but since
these companies do not file complaints, NBI has no authority
to act with respect to those goods, its officials stated.
The Intellectual Property Office (IPO) is coordinating a web-
based enforcement database, which IPO officials hope to have
operational by next June to enable the GRP to track such
cases where clear IPR violations exist and rights holders
choose not to take action. This will enable the GRP to keep
track of the total number of potential IPR cases, regardless
of whether a case is filed or not. Such statistics will be
useful in understanding how rights holders handle IPR
violations. This approach will help guide policy and
improve resource allocation.

9. (SBU) Those cases that do move forward to prosecution do
not seem to be earning many convictions. The IPO reports
that there were 1,560 IPR cases as of October 2005, 510 of
which have been disposed of, with 1,050 still pending.
Earlier in December, the Supreme Court announced the
formation of a specialized task force on anti-intellectual
property piracy. Citing an insufficient caseload to justify
an exclusive IPR court, the IPO and the Supreme Court agreed
that it made more sense to create an international trade
court, modeled on the Thai system, that would deal both with
IPR and with other international trade issues such as money
laundering. The new task force consists of three judges and
seven prosecutors and will undergo specialized IPR training
in coordination with the IPO. One judge and one lawyer will
be sent to Bangkok to study the Thai system; other training
initiatives are in the planning stages. IPO's Director
General Adrian Cristobal underscored to EconOffs that this
specialized IPR court will be the focal point of
strengthened enforcement, but that IPO and the new court
need time to demonstrate results.

10. (SBU) According to the Embassy ICE Attache, the number
of raids, arrests, and convictions has increased, but the
overall enforcement effort has not resulted in a significant
deterrent effect to IPR violations. ICE nonetheless agrees
with the concept of finding ways to recognize and reward the
efforts underway to improve the IPR protection. ICE's
perspective is that concrete enforcement results such as
continuous significant criminal convictions could be and
should be improved considerably, a goal shared by Mission's
Law Enforcement Working Group and its Economic Policy Group,
both of which concur with the recommendation in paras 15-18.


11. (SBU) Congress has not passed pending copyright
legislation, which is needed fully to implement the WIPO
internet treaties (WIPO Copyright Treaty and the WIPO
Performances and Phonograms Treaty), which the Philippines
signed in July 2002. The Committee on Trade and Industry
held hearings on House bills 322 and 3308 but did not vote
before Congress recessed on December 14. No corresponding
legislation has yet been submitted in the Senate. Political
turbulence over recent months has complicated the
Congressional agenda and interfered with numerous
legislative initiatives of interest to the USG including
those on IPR.


12. (SBU) The IPO deserves credit for the effort it has put
forth over the past year. After assuming office in February
2005, Director General (DG) Cristobal formulated and
implemented a comprehensive strategy to address IPR issues
in the Philippines. Industry representatives have said that
DG Cristobal has done more in the last year than his
predecessors have done in the last five. The general
consensus, though not unanimous, in the foreign and domestic
business communities is that he has done a credible job and
made significant progress. DG Cristobal has made a personal
commitment to improve the IPR situation and to get the
country removed from the PWL. He admits that there is still
much to be done.

13. (SBU) Over the last year, the IPO emerged as the lead
agency on IPR and substantially strengthened interagency
coordination. The IPO has now established an active IPR
Secretariat, housed in its office, and hosts a biweekly

interagency meeting for agencies including OMB, the NBI, the
Department of Justice, the Philippine National Police, and
others. This restructuring appears to have greatly enhanced
interagency communication and coordination.

14. (SBU) The IPO also started a public awareness and
education campaign. It conducted over 50 seminars around
the country, included IPR segments in weekly radio programs,
made regular press releases on IPR issues, worked with the
Department of Education to incorporate an IPR module in the
basic civics curriculum, formed and trained a network of IP
teachers within the university education system, and
expanded its public website. The IPO has also worked with
industry to create special enforcement campaigns within the
software and cable industries, which resulted in seizure of
$350,000 worth of illegal software and cases filed again
illegal cable operators in September and October.

Part II: Post's Recommendation:

15. (SBU) Embassy recommends removing the Philippines from
the PWL and placing it on the Watch List (WL). The
Philippines has responded favorably to the out-of-cycle
review and has stepped up efforts over the last year to
improve IPR protection. Embassy initially recommended the
OCR in order to energize the GRP; this strategy appears to
have succeeded. We are at a critical point where there is a
fine line between simply maintaining pressure versus a
strategy of maintaining that pressure while recognizing
achievement. Some in the GRP are beginning to resign
themselves to thinking that the country will be on the PWL
indefinitely. GRP officials are sensitive to the country's
Special 301 status and some, include DG Cristobal, have made
a personal commitment to get the RP off the PWL. If we keep
the Philippines on the PWL, we run the risk of numbing the
GRP to the impact of being on the list and losing momentum
on IPR initiatives. Taking the Philippines off the PWL
will officially recognize positive efforts and provide an
incentive to maintain progress.

16. (SBU) While the GRP did not produce all of the tangible
results we had sought, the GRP has taken significant,
positive steps in the right direction over the past year.
From a strictly technical reading of the definition of a PWL
country, the Philippines should probably remain on the list
in that there is still not an adequate level of IPR
protection or enforcement and market access for persons
relying on intellectual property protection remains
constrained. However, it is important to recognize the
significant progress the GRP has made as a means to leverage
our bargaining power and recognizing expanded GRP actions on
IPR issues.

17. (SBU) Should the USTR decide to delist the Philippines
from the PWL, we would need to send a clear message to the
GRP that this action is not a signal to relax efforts; we
recognize progress but expect to see the momentum continue.
Specifically, we should also call for: 1) increased
enforcement; prosecution, and convictions; 2) continuing
decline in availability of optical media and pirated cable;
3) decline in availability of trademark infringed goods; 4)
increased resources to the OMB and other IPR agencies such
as the IPR Enforcement Unit at the Bureau of Customs; 5)
Congressional passage of the copyright laws and
implementation; and 6) no passage of future legislation that
would weaken IP protection.

18. (SBU) If the Philippines is unable to maintain its
forward momentum on IPR, Embassy would have no hesitation
about recommending that it be placed back on the PWL, even
as soon as the next review. In the meantime, we are at a
critical point where removal from the PWL would do much to
validate the progress already made, maintain momentum and
encourage further positive initiatives.


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