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Viewing cable 05MANILA5838, RECOMMENDATION TO REMOVE PHILIPPINES FROM SPECIAL

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Reference ID Created Released Classification Origin
05MANILA5838 2005-12-15 07:50 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Manila
This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 04 MANILA 005838 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EAP/MTS, EAP/EP, EB/IFD 
STATE PASS USTR FOR BWEISEL, DKATZ 
STATE PASS USAID, OPIC, USDA 
TREASURY FOR OASIA 
USDOC FOR 4430/ITA/MAC/DBISBEE 
USDOC PASS USPTO FOR PFOWLER 
 
E.O. 12958: N/A 
TAGS: ECON ETRD KIPR RP
SUBJECT:  RECOMMENDATION TO REMOVE PHILIPPINES FROM SPECIAL 
301 PRIORITY WATCH LIST 
 
REF: A)  MANILA 00832    B)  MANILA 05068 
 
SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION - 
PROTECT ACCORDINGLY 
 
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 
Summary. 
 
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. 
 
--------------------------------------- 
PART I:  GRP PROGRESS ON IPR PROTECTION 
--------------------------------------- 
 
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. 
 
------------------------------------- 
OPTICAL MEDIA BOARD FULLY OPERATIONAL 
------------------------------------- 
 
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. 
 
--------------------------------------------- ------------ 
INCREASED ENFORCEMENT ACTIONS, NEW COURTS, BUT NO JUSTICE 
--------------------------------------------- ------------ 
 
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. 
 
---------------------------------------- 
COPYRIGHT LAWS STILL PENDING IN CONGRESS 
---------------------------------------- 
 
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. 
 
------------------------------------------- 
INTELLECTUAL PROPERTY OFFICE TAKES THE LEAD 
------------------------------------------- 
 
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 
 
SIPDIS 
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: 
------------------------------------------ 
DELISTING WILL ADVANCE US INTERESTS ON IPR 
------------------------------------------ 
 
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. 
 
JONES