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Viewing cable 06LIMA699, PERU: SPECIAL 301 REVIEW

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Reference ID Created Released Classification Origin
06LIMA699 2006-02-22 15:54 2011-08-25 00:00 UNCLASSIFIED Embassy Lima
VZCZCXYZ0002
RR RUEHWEB

DE RUEHPE #0699/01 0531554
ZNR UUUUU ZZH
R 221554Z FEB 06
FM AMEMBASSY LIMA
TO RUEHC/SECSTATE WASHDC 8820
INFO RUEHBO/AMEMBASSY BOGOTA 3011
RUEHQT/AMEMBASSY QUITO 0042
RUEHLP/AMEMBASSY LA PAZ FEB SANTIAGO 0213
RUEHCV/AMEMBASSY CARACAS 9102
RUEHBU/AMEMBASSY BUENOS AIRES 2269
RUEHME/AMEMBASSY MEXICO 3281
RUEHBR/AMEMBASSY BRASILIA 6520
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEAFCC/FCC WASHDC
RHEHNSC/NSC WASHDC
UNCLAS LIMA 000699 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR WHA/AND, WHA/CEN, EB/IPE CLACROSSE AND AANDAMO 
COMMERCE FOR 4331/MAC/WH/MCAMERON 
DOC FOR JBOGER 
USPTO FOR JURBAN 
LOC FOR STEPP 
USTR FOR JCHOE-GROVES 
 
E.O. 12958: N/A 
TAGS: ECON ETRD KIPR PE
SUBJECT: PERU: SPECIAL 301 REVIEW 
 
REF: A) STATE 14937   B) 05 LIMA 1971  C)05 LIMA 3794 
 
1.  Summary.  Post recommends that Peru remain on USTR's 
Special 301 Watch List for 2006.  Peru continued to face 
high levels of copyright piracy in all sectors, including 
media, books, toys, apparel and other merchandise, in 2005, 
including a slight increase in optical disc piracy. 
Indecopi, the GOP's IPR administrative agency, conducted 
high-profile raids and continued its public awareness 
campaign.  Peru continues to face several problems, 
including the overall inadequacy of enforcement, inadequate 
border protections and the lack of deterrent sentences.  The 
GOP, in concluding Free Trade Agreement negotiations with 
the United States in December 2005, obligated itself to 
protecting proprietary test data for pharmaceutical and 
agrochemical products beginning in January 2007.  End 
Summary. 
 
Peru's International Obligations 
-------------------------------- 
 
2.  Peru is a member of the World Intellectual Property 
Organization (WIPO).  It is also a member of the Paris 
Convention, Berne Convention, Rome Convention, Geneva 
Phonograms Convention, Brussels Satellites Convention, 
Universal Copyright Convention, the WIPO Copyright Treaty 
(WCT) and the WIPO Performances and Phonograms Treaty 
(WPPT).  Peru's 1996 Copyright Law is generally consistent 
with the TRIPS Agreement.  Peru joined the WCT in July 2001 
and the WPPT in February 2002.  Although most of the 
provisions of these two WIPO treaties are included in Peru's 
1996 Copyright Law, officials at Indecopi, the IPR 
administrative agency, have acknowledged the need for 
additional legislation in order to clarify the rights of 
artists and producers.  The National Association of Music 
Publishers continues to criticize Indecopi's enforcement, 
claiming that its members are not receiving the royalties 
due to them.  Peru's 1996 Industrial Property Rights Law 
provides the framework for patent protection.  In 1997, 
based on an agreement reached with the U.S. Government, Peru 
addressed several inconsistencies with the WTO TRIPS 
Agreement provisions on patent protection and most-favored 
nation treatment for patents. 
 
Efforts to Rein in Piracy 
Enhances Coordination 
------------------------- 
 
3.  Indecopi continued its "Anti-Piracy Crusade," which 
began in 2002.  Indecopi's anti-piracy efforts in 2005, in 
collaboration with other government agencies as well as the 
private sector, focused on:  1) intensifying enforcement 
actions and 2) expanding the public awareness campaign.  In 
March and November, the Anti-Piracy Crusade organized "Anti- 
iracy Day" and "Movie Theater Day", in an effort to 
increase public awareness about intellectual property 
rights.  On both days, Peruvian movie theaters offered 
discounts on movie tickets prices, promoting increased 
attendance.  Moviegoers were encouraged to turn in pirated 
DVDs in exchange for discounts on food and future movie 
ticket sales.  On both days, the Anti-Piracy Crusade 
collected more than 80,000 pirated DVDs. 
 
4.  Indecopi's copyright office conducted, jointly with the 
national police and SUNAT (Peru's tax and customs agency), 
more than 60 raids in 2005, with 13 occurring outside of 
Lima.  Indecopi and SUNAT confiscated more than $30 million 
in pirated and contraband goods and blank optical discs.  In 
July 2005, the Peruvian police, coordinating with one of 
Peru's special IPR prosecutors, successfully raided "El 
Hueco", a market known for selling pirated products in Lima, 
and confiscated 8 tons of contraband and pirated merchandise 
worth $300,000. 
 
5.  In September 2005, SUNAT and Indecopi signed a 
Memorandum of Understanding, enabling Indecopi to assign one 
officer to the Port of Callao.  This officer works closely 
with Customs to review incoming shipments.  In six months, 
Indecopi and SUNAT screened 51 containers and confiscated 
the contents of 18 containers that were illegally 
transporting contraband and pirated goods.   Private sector 
and Indecopi officials agree that this is a step in the 
right direction, although they believe that SUNAT, which 
assumed control of Peruvian customs operations in 2003, must 
become more involved in overall IPR enforcement.  Many 
customs officials have had little or no prior training on 
how to recognize counterfeit goods. 
 
6.  In October 2005, Post, the U.S. Patent and Trade Office, 
and U.S. Customs conducted an IPR training seminar for 
Customs and Indecopi officials.  U.S. Customs officials 
advised the Peruvian participants on obligations under TRIPs 
and best practices for finding and seizing contraband and 
pirated goods.  One issue highlighted by the conference was 
the need for Peru to meet its TRIPS obligations; many 
Customs officials were unaware of TRIPS and how the 
agreement affects how they do their job. 
 
High Rates of Optical Disc Piracy 
--------------------------------- 
 
7.  Despite Indecopi's efforts (detailed below), copyright 
piracy rates remained the same in 2005.  The audiovisual 
industry suffered from the piracy of optical discs, with an 
estimated piracy level of almost 75 percent, up from 65 
percent in 2003.  Jose Vega, General Manager of Blockbuster 
Peru, informed us that the motion picture industry lost an 
estimated $5 million in 2005 due to audiovisual piracy.  The 
large amount of imported blank optical discs, as well as the 
wide availability of DVD technology, helps account for this 
increase.  Peru also has one of the highest rates of musical 
piracy in the world.  According to the Anti-Piracy Crusade, 
98 percent of CDs in Peru are pirated.  Martin Moscoso, head 
of Indecopi's copyright office, and the Business Software 
Alliance noted that business software piracy levels remained 
the same since 2004, at approximately 54 percent. 
 
Formal Importation of Blank Discs 
Decreases But Contraband on the Rise 
------------------------------------ 
 
8.  Indecopi estimates that in 2005, approximately 100 
million blank optical discs were legally imported into Peru, 
a decrease of 10 million since 2004.  Indecopi approximates 
that of these 105 million discs, only 14 million were used 
for legal purposes.  Martin Moscoso, Director of Indecopi's 
Copyright Office, explained that, due to the high private 
copy levies (approximately 200-300 percent of costs) imposed 
by the Peruvian Artists Association in 2005, formal 
importers of blank optical discs chose to reduce imports in 
order to avoid paying such a high fee.  Moscoso also 
indicated that contraband of blank optical discs has 
increased, although official figures are unavailable. 
 
SUNAT Implements Registry 
------------------------- 
 
9.  In July 2004, the GOP passed a law requiring that SUNAT 
establish an import registry for all persons and companies 
importing blank optical discs and recording equipment.  With 
the registry, SUNAT would be able to monitor the frequency 
of optical disc importation and target those companies that 
cannot justify legal sales of these discs.  On September 25, 
2005, SUNAT published regulation 020-2005, which established 
the norms for the import registry.  Importers of blank 
optical discs must provide SUNAT with the number of units 
imported, the name of the commercial organization that will 
sell the discs, the commercial brand of the discs, the model 
information and format characteristics. 
10.  The registry went into effect on October 24, 2005. 
According to SUNAT officials, legitimate importers of blank 
optical discs have faced no difficulty in providing SUNAT 
with the necessary information.  However, importers that 
either use the discs for illicit means or sell them to 
illegitimate vendors have been more reluctant to provide 
SUNAT with the information.  SUNAT officials predict that 
the level of legal imports of blank optical discs will 
decrease in 2006, as more discs are smuggled across land 
borders.  SUNAT plans on improving its border protections to 
crack down on the contraband of blank discs. 
 
New Regulations to Strengthen IPR Enforcement 
--------------------------------------------- 
 
11.  The GOP in 2005 passed several new regulations aimed at 
improving the IPR environment.  On October 28, SUNAT, 
coordinating closely with Indecopi and the private sector, 
issued a resolution modifying the January 2004 decree that 
required importers of blank CDS to make valued added tax 
payments in advance.  The new regulation seeks to improve 
SUNAT's ability to trace imports of blank discs and their 
subsequent purchases.  SUNAT now charges an advance VAT of 
$0.03 per CD and $0.06 per DVD.  Under the regulation, SUNAT 
is now able to audit importers' sales to determine the 
legitimacy of the sale and who are the largest consumers of 
blank optical discs.  If a company feels that it has paid 
too much in VAT, it must provide SUNAT with evidence of its 
sales.  SUNAT would then issue a credit for future VAT 
payments. 
 
12.  The Lima Municipality in October 2005 issued Order 717 
to improve the ability of police to raid local vendors of 
pirated products.  The regulation now enables the Municipal 
Government, working with the police, to revoke licenses for 
those vendors who sell pirated products.  The Anti-Piracy 
Crusade lauded the new regulation, but commented that the 
Lima Government has yet to enforce it.  Indecopi continues 
to work with the Lima Municipality, as well as several other 
municipal governments, to encourage the protection of 
intellectual property. 
 
Amendment to the Artists 
Protection Law Pending 
------------------------ 
 
13.  In July 2004, the Prime Minister approved a Supreme 
Decree establishing the Law of Artists, Interpreters and 
Music to protect the interests and rights of those involved 
in the creative arts, including performers and producers of 
musical recordings and motion pictures, from acts of piracy. 
The decree argued that blank optical media was being used 
for "private copies" and piracy of media and software, 
violating copyright laws.  Under the law, the Peruvian 
Artists Association can apply a levy of 200-300 percent on 
all blank optical discs, to be paid by the manufacturers of 
blank recording media. 
 
14.  The private sector, working with Indecopi, the Lima 
Chamber of Commerce, and the Peruvian Artists Association, 
sought to have the levy reduced to a more reasonable 20 
percent of the value.  A recommendation was passed to the 
Ministry of Trade in early January 2006 for action.  If the 
Ministry of Trade agrees with the recommendation, it will 
pass the document to the Prime Minister's office for a 
Supreme Decree. 
 
Still No Convictions of IPR Violators 
------------------------------------- 
 
15.  Industry and Indecopi officials agree that the GOP 
needs to improve IPR enforcement.  Both call for the 
establishment of specialized judges to handle IPR cases, as 
well as greater authority for the two special IPR 
prosecutors (who only have authority in Lima).  Currently, 
judges lack expertise in intellectual property matters and 
have avoided imposing harsh sentences on IPR violators.  In 
July 2004, the GOP passed Law No. 28289, the Law on the 
Fight Against Piracy, which increased the minimum penalty 
for piracy from a two-year to a four-year sentence, with a 
maximum sentence of eight years.  There have yet to be any 
convictions under the new law, although there are more than 
1,000 intellectual property cases pending before Peru's 
courts. 
 
16.  In mid-2005, Indecopi filed a lawsuit for piracy and 
money laundering against one of the main optical disc 
importers.  The case remains in the Judiciary, and the 
importer has filed a countersuit against the Indecopi 
officials for slander and wrongful prosecution.  Martin 
Moscoso lamented that the Peruvian Judicial system is 
inherently slow and corrupt -- this case could take several 
years to resolve. 
 
Deadline Extended for Legal Software Use 
---------------------------------------- 
 
17.  In 2003, the GOP passed a decree mandating that all 
government agencies use legally procured open-source 
software.  GOP agencies had until March 31, 2005 to erase 
all pirated software and install the legitimate versions. 
The E-Government Office in the Prime Minister's Office in 
late 2004 took the lead in implementing this project.  In 
mid-2005, Rafael Muente, the new Director of the E- 
Government Office, conducted an audit of the software used 
by GOP agencies.  He found that only 60 percent of GOP 
agencies were following the decree.  In November 2005, the 
GOP issued a regulation extending the deadline for 
installation of legal software to December 31, 2006. 
 
Increased Problems with Lack of 
Patent Protections for Pharmaceuticals 
-------------------------------------- 
 
18.  In 2005, three U.S. pharmaceutical companies complained 
that Indecopi was not adequately protecting patents.  In all 
three cases, the companies noted that they face unfair 
competition from local distributors selling foreign-made 
pirated copies of their best selling products.  While 
Indecopi initially issued a precautionary measure against 
the local producers, this measure, per Peruvian law, expires 
after 120 days.  In several cases, Indecopi ordered the U.S. 
companies to prove that the local distributors are selling 
pirated copies of their patented medicines, which is 
contrary to TRIPS obligations.  This process takes time and 
substantial funding, during which the company can still sell 
the pirated product on the market.  Even if Indecopi orders 
a local distributor to cease sales of the allegedly pirated 
product, the distributor can appeal the decision; during the 
appeals process, local producers can resume sales of the 
"pirated" product.  The companies estimate that they have 
lost more than $5 million in damages due to lost government 
procurement sales. 
 
Pharmaceutical Data Protection 
------------------------------ 
 
19.  The U.S. pharmaceutical and agrochemical industries 
also continue to be concerned about Peru's protection of 
confidential test data.  Peruvian government health 
 
SIPDIS 
authorities approved the commercialization of new drugs that 
were the bioequivalents of already approved drugs, thereby 
denying the originator companies the exclusive use of their 
data.  In effect, the Government of Peru allows the test 
data of registered drugs from some companies to be used by 
others seeking approval for their own pirate version of the 
same product.  U.S. companies also are concerned that the 
Peruvian government does not provide patent protection for 
second uses, which would allow a company with a patented 
compound for one use to subsequently patent a second use of 
that compound.  Although Peruvian law provides the means for 
effective trademark protection, counterfeiting of trademarks 
and imports of counterfeit merchandise remain widespread. 
 
20.  While Indecopi did not take significant action in 2005 
to improve the protection of confidential pharmaceutical 
data, the GOP did conclude negotiations on a bilateral free 
trade agreement with the United States.  In doing so, the 
GOP committed itself to protecting proprietary test data for 
pharmaceutical and agrochemicals for ten years.  The free 
trade agreement, once signed and ratified by the U.S. and 
Peruvian Congresses, is scheduled to go into effect on 
January 1, 2007. 
 
2006 Training Plans 
------------------- 
 
21.  In 2006, Post, working with the U.S. Patent and Trade 
Office and the Department of Homeland Security, plans on 
hosting several training classes in Peru for key IPR and law 
enforcement officials.  In February 2006, the International 
Law Enforcement Academy (ILEA) in Peru, with assistance from 
the U.S. Customs and Border Protection, hosted a training 
seminar for 50 officials from Peru, Brazil, Argentina and 
Paraguay.  During the seminar, officials learned new 
techniques for investigations and seizures, how to prepare a 
case report for pending prosecutions, and best practices 
from U.S. Customs. 
 
22.  Post in 2005 submitted to State/INL a request for 
funding for an IPR training seminar for Peru's special IPR 
prosecutors, police and judges.  To date, Post has not 
received an answer from State/INL on its proposal.  If money 
is not available from State/INL, Post will seek funding from 
alternate sources, such as the U.S. Patent and Trade Office 
and the private sector. 
 
23.  Post also plans on sending several Indecopi Officials 
to the United States for an international visitors IPR 
program.  Additionally, we would like to work with the U.S. 
Patent and Trade Office to host a conference on Peru's 
obligations under TRIPS and the U.S.-Peru Free Trade 
Agreement. 
 
Comment: Recommend No Change in Status 
-------------------------------------- 
 
24.  Post recommends that Peru remain on USTR's Special 301 
Watch List due to the continued high levels of piracy and 
copyright violations, as well as the continued lack of 
protection for pharmaceutical test data.  Despite increased 
focus and awareness of IPR problems, the GOP has not 
increased judicial enforcement of existing laws in order to 
create a meaningful deterrent or established clear 
administrative measures for government agencies to comply 
with those laws. 
 
ARELLANO