US Trade Representative Issues Annual Report on Global IP Rights

Ambassador Ron Kirk,
US Trade Representative

Earlier today the Office of the United States Trade Representative released its annual Special 301 Report on the adequacy and effectiveness of U.S. trading partners’ protection of intellectual property rights. The Report is an annual review of the global state of intellectual property rights (IPR) protection and enforcement, conducted by the Office of the United States Trade Representative (USTR) pursuant to Section 182 of the Trade Act of 1974, as amended by the Omnibus Trade and Competitiveness Act of 1988 and the Uruguay Round Agreements Act (enacted in 1994).  For 2010 the US Trade Representative reviewed 77 trading partners for this year’s Special 301 Report, and placed 41 countries on either the Priority Watch List, Watch List, or the Section 306 monitoring list.

“Intellectual property theft in overseas markets is an export killer for American businesses and a job killer for American workers here at home. USTR’s Special 301 report is important because it serves as the foundation for a year-round process used to secure meaningful reforms that bolsters our exports and supports American jobs in IPR-intensive industries,” said Ambassador Ron Kirk. “I am pleased that this year’s Special 301 Report will highlight several successes in the fight against intellectual property theft. The Czech Republic, Hungary, and Poland have taken significant steps to clamp down on piracy and counterfeiting and will be removed from the Watch List.”

The Priority Watch List for 2010 names the following countries:China, Russia, Algeria, Argentina, Canada, Chile, India, Indonesia, Pakistan, Thailand and Venezuela.

The Watch List for 2010 names the following countries: Bolivia, Brazil, Brunei, Colombia, Costa Rica, Dominican Republic, Ecuador, Egypt, Finland, Greece, Guatemala, Italy, Jamaica, Kuwait, Lebanon, Malaysia, Mexico, Norway, Peru, Philippines, Romania, Spain, Tajikistan, Turkey, Turkmenistan, Ukraine, Uzbekistan and Vietnam.

The Section 306 Monitoring List names only Paraguay. The report cites turnover in personnel and limited resources as contributing to unfavorable enforcement trends in Paraguay, as well as longstanding problems with porous borders, ineffective prosecutions of IPR infringers, and a lack of deterrent sentences. Disappointing enforcement results are said to contrast with progress made in the area of public awareness and the adoption of a new penal code that increased penalties for IPR offenses.

Last year Israel was placed on the Priority Watch List, but this year they are listed as “Status Pending.” As a result of a Special 301 Out-of-Cycle Review, the United States and Israel reached an understanding on several longstanding issues concerning Israel’s IPR regime for pharmaceutical products, whereby Israel will provide enhanced protections more consistent with other developed nations. Israel has committed to strengthen its laws on protection of pharmaceutical test data and patent term extension, and to publish patent applications before they are granted. Additionally, Israel confirmed that it has taken steps to expedite approvals of new pharmaceutical drugs by the Ministry of Health. As a result of Israel’s commitment to move forward on legislation to amend its IPR laws, once the appropriate legislation is submitted to the Knesset, Israel will be moved from the Special 301 Priority Watch List to the Watch List. When that legislation is fully implemented (through passage by the Knesset of the agreed-upon amendments to Israeli law), Israel will be moved off the Special 301 list altogether.

The country receiving the most attention in the 301 Report was China, followed closely by Russia.  With respect to China, the 301 Report explains that there is reason for optimism given “many positive steps the Chinese government took in 2009,” but the conclusion was that “the overall level of IPR theft in China remains unacceptable.”  The 301 Report goes on to say:

China’s IPR enforcement regime remains largely ineffective and non-deterrent. Widespread IPR infringement continues to affect products, brands and technologies from a wide range of industries, including movies, music, publishing, entertainment software, apparel, athletic footwear, textile fabrics and floor coverings, consumer goods, chemicals, electrical equipment, and information technology, among many others.  The share of IPR-infringing product seizures at the U.S. border that were of Chinese origin was 79 percent in 2009, a small decrease from 81 percent in 2008.

The U.S. copyright industries report severe losses due to piracy in China.  Trade in pirated optical discs continues to thrive, supplied by both licensed and unlicensed factories as well as by smugglers.  These pirated optical discs are exported to markets across the region, impacting legitimate sales outside of China as well.  Small retail shops continue to be the major commercial outlets for pirated movies and music.  The theft of software, books and journals also remain key concerns.  Business software theft by enterprises is particularly troubling as it not only results in lost revenues to software companies but also lowers the business costs of offending enterprises, and may give these firms an unfair advantage against their law-abiding competitors.

“We are seriously concerned about China’s implementation of ‘indigenous innovation’ policies that may unfairly disadvantage U.S. IPR holders. Procurement preferences and other measures favoring ‘indigenous innovation’ could severely restrict market access for American technology and products,” said Ambassador Kirk. “Creating an environment that nurtures innovation and entrepreneurship is a worthy goal, but China must maintain a level playing field.”

With respect to Russia, the 301 Report explains that there has been “some progress over the past several years” significant concern remains regarding Russia’s failuar to implement the November 2006 Bilateral Agreement on Protection and Enforcement of Intellectual Property Rights.  The 301 Report goes on to say:

In the IPR Bilateral Agreement, Russia committed to fight optical disc and Internet piracy, enact legislation to protect against unfair commercial use of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products, deter piracy and counterfeiting through enhanced criminal penalties, strengthen border enforcement, and conform its laws to international IPR norms.  Russia’s continued delays in fully implementing this Agreement are particularly troubling, since, with respect to several of the obligations, the IPR Bilateral Agreement established an agreed-upon deadline of June 1, 2007.

There were several significant and positive developments in this year’s Special 301 Report, among these are:

• Czech Republic – The Czech Republic is being removed from the Special 301 Watch List because of significant progress made over the past two years to control effectively its border markets. Moreover, a new criminal code raising the maximum penalties for IPR related crimes from 2 to 8 years imprisonment and criminalizing the manufacture and storage of counterfeit items came into effect January 1, 2010. The United States will continue to monitor whether the new law results in the imposition of deterrent penalties.
• Hungary – Hungary is being removed from the Special 301 Watch List in recognition of the significant improvements on enforcement and other actions taken during the past year. Hungary has taken proactive steps to address the growing threat of Internet piracy, and its customs and police officials have developed their ability to effectively identify infringing products. Through effective and consistent enforcement actions, Hungary has closed its notorious Verseny street market, which was home to an array of illegitimate products. Furthermore, Hungary has taken effective measures to protect IPR, including numerous public awareness-raising campaigns, and training and educational seminars for police, prosecutors, and judges. The United States will continue to monitor Hungary’s progress to ensure that IPR protection and enforcement improvements are ongoing.
• Poland – Poland is being removed from the Special 301 Watch list in recognition of a significant reduction in the availability of pirated and counterfeit goods at border markets, increased and improved enforcement efforts, and strong cooperation between rights holders and enforcement officials. The government has also taken initial steps to address Internet piracy concerns. The United States will continue to monitor Poland’s progress to ensure that IPR protection and enforcement improvements are ongoing.

With respect to specific hot topic areas reviewed, here is what the USTR 301 Report says.

Trends in Counterfeiting & Piracy

A growth in the online sale of physical pirated and counterfeit products that is rapid and that is matching the volumes associated with street vendors and physical markets. Legal and investigative institutions face difficulties in responding to this trend. Online advertisements for sale of illegitimate physical goods that are delivered through the mail or by hand are found in many countries including China, Romania, and Ukraine. For example, in China, although the largest Internet-based sales portals have responded to rights holders’ complaints of counterfeit and pirated product listings, more than 75 percent of illicit sellers have reportedly re-listed the infringing goods.

Another notable trend involves shipping counterfeit products separately from labels and packaging to evade enforcement efforts. For example, infringers in Russia reportedly import unbranded products, package these products with unauthorized packaging materials bearing the rights holders’ trademarks, and subsequently export the products to various countries. Infringers in countries such as Paraguay reportedly facilitate these illegal activities by exporting label and packaging components to these counterfeit and pirated product assemblers.

Counterfeit Pharmaceuticals

The manufacture and distribution of pharmaceutical products bearing counterfeit trademarks is a growing problem that has important consequences for consumer health and safety. Such trademark counterfeiting is one dimension of the larger problem of substandard medicines. The United States notes its particular concern with the proliferation of the manufacture, sale, and distribution of counterfeit pharmaceuticals in countries such as Brazil, China, India, Indonesia, and Russia.

In many cases, bulk active pharmaceutical ingredients (API) that are used to manufacture pharmaceuticals that bear counterfeit trademarks are not made according to good manufacturing practices. Hence, these products may contain sub-standard and potentially hazardous materials.

Internet & Digital Piracy

Internet piracy is a significant concern with respect to a number of trading partners, including Brazil, Canada, China, India, Italy, Russia, Spain and Ukraine. Unauthorized retransmission of live sports telecasts over the Internet continues to be a growing concern in many countries, particularly China, and “linking sites,” many reportedly based in the Netherlands, are exacerbating the problem. In addition, piracy using new technologies is an emerging problem internationally. U.S. copyright industries also report growing problems with piracy using cellular telephones, palm devices, flash drives, and other mobile technologies. In some countries, these devices are being pre-loaded with illegal content before they are sold. In addition to piracy of music and films using these new technologies, piracy of ring tones, games, and scanned books also occurs.