US embassy cable - 04COLOMBO1971

UNCLAS SECTION 01 OF 02 COLOMBO 001971 
 
SIPDIS 
 
DEPT PASS TO USTR 
 
E.O 12958: N/A 
TAGS: ECON, ETRD, KIPR, CE, ECONOMICS 
SUBJECT: SRI LANKA'S FIRST HIGH PROFILE IPR RAID 
 
1. Summary:  Sri Lankan Police recently raided a 
CD manufacturing plant operated by a Board of 
Investment approved company.  The plant produced 
music, movie and software discs, violating the 
intellectual property rights (IPR) of several US 
producers.  The investigation and prosecution 
will be a test case of Sri Lanka's ability and 
willingness to protect IPR.  The case will also 
be a learning experience for the IPR enforcement 
arm of the Sri Lankan police.  End Summary. 
 
Factory Found 
------------- 
2.  On October 9, 2004, Sri Lankan Police raided 
a previously unknown CD manufacturing plant, 
Optical Media Pvt Ltd.  The police had been 
investigating other criminal activity when they 
found the illicit disk printing operation.  The 
plant, owned and operated by Malaysian nationals, 
had been in operation since early 2004.  The 
police confiscated a large number of CDs, offset 
plates, stampers and also took into custody one 
Malaysian national.  According to information, 
approximately 10 Malaysians were involved with 
the plant, many leaving Sri Lanka following an 
August raid of a leading music store in Colombo. 
Ironically, Optical Media is a Board of 
Investment (BOI), the GSL's foreign investment 
promotion agency, approved company.  BOI had not 
monitored the operation and was not aware of the 
nature of the operation. 
 
3.  The plant produced CDs using polycarbonate 
resin (thus making it possible to calculate the 
number of CDs and DVDs pirated - something 
industry representatives have offered to do), and 
had counterfeited music, movie and software 
products.  The police have been informed that a 
truck removed approximately 175,000 disks and 
some stampers the night before the raid.  It is 
reliably understood the plant owners had close 
connections to owners of the music store that was 
previously raided.  Following the raid, the 
police also raided the main bazaar in Colombo and 
confiscated a large number of Optical Media 
products.  The news of the raids has spread to 
other counterfeit CD sellers.  Most of the shops 
have stopped displaying counterfeit copies of the 
Eagle brand produced by the plant.  The case has 
been now handed over to the Criminal 
Investigation Division (CID) of the Police. 
 
Embassy Role 
------------ 
4.  Soon after the raid, the Embassy began 
monitoring the case.  Ambassador wrote letters to 
the Police Chief and Minister of Trade, prompting 
the Inspector General of Police to order the 
transfer of investigations to CID's Commercial 
Crime Unit.  US Customs and the International 
Federation of the Phonographic Industry (IFPI) 
have trained this unit on IPR investigations. 
Econoff also wrote letters to the Solicitor 
General requesting his assistance in obtaining a 
full inventory of seized goods and to Police 
offering expert assistance through IFPI and 
Microsoft.  Econ staff also met with Police on 
several occasions and spoke to Government 
Director of IPR.  Post also facilitated IFPI and 
Microsoft visits to study the case, meet 
investigators and visit the raided factory.  IFPI 
has been advising the police regarding the 
investigation.  Post's public/private IPR Working 
Group, which includes many affected IP rights 
holders, has been a driving force in the 
coordination of Embassy and private participation 
in the case. 
 
Case and Problems 
----------------- 
5.  Problems:  This is the first big IPR case 
here and follows the enactment of a new 
comprehensive IPR law in 2003.  The case has 
revealed many problems in IPR enforcement.  These 
include: the police officers who raided the 
plant, obviously unfamiliar with IPR, failed to 
make a detailed inventory when handing over the 
confiscated goods to court custody.  The Police 
also lack equipment to test CDs in various stages 
of production, expertise in technology and 
English proficiency.  The raid also found offset 
plates, which police were slow in identifying as 
the master copies of the IP materials.  These 
events have delayed identification of seized 
goods.  The IP rights holders are now preparing 
the inventory with court permission.  In 
addition, the police still need to pursue other 
vital clues in the case.  The police need to 
check computers and other equipment lying in the 
plant for evidence.  They also need to ascertain 
import details of the polycarbonate and export 
details from the factory.  Further, they need to 
locate the 175,000 CDs and stampers that went 
missing from the plant on the eve of the raid. 
 
6.  Prosecution:   The case is currently being 
heard at a local magistrate court in a Colombo 
suburb, where the magistrate is not familiar with 
IPR law.  It is feared that the Magistrate will 
release the accused Malaysian in custody who is 
willing to plead guilty and be deported.  This 
has prompted a local representative of music and 
movie labels to obtain a restraining order from 
the Court of Appeal preventing the magistrate 
from concluding the case pending investigation. 
CID now needs to conclude the investigation and 
frame charges.  CID also hopes to request a 
transfer of the case to a higher court in 
Colombo. 
 
7.  Copyright holders:  The majority of the disks 
were movies from Warner, Paramount, Miramax, Fox 
and Universal.  The balance were music disks from 
Sony and Universal as well as some software 
belonging to Microsoft.  Local representatives 
are present in Colombo for Warner, Paramount, 
Miramax, Sony and Universal.  Fox and MGM are not 
represented in Colombo.  Post has written to MPA 
seeking assistance to locate Fox and MGM 
representatives in the area.  The police found 
several hundred Chinese Microsoft disks, which 
led officials to conclude these were for export 
to a Chinese speaking country.  IP rights holders 
hope to file cases separately. 
 
8.  Although the sale of counterfeit CDs and DVDs 
was common, until now there was no knowledge of 
counterfeit CD production facilities in Sri 
Lanka.  Local officials assumed disks on sale 
were being imported to Sri Lanka from other parts 
of Asia.  This assumption focused right holders 
and Post to push police and customs officers to 
investigate at points of entry and sale. 
 
9.  The large numbers of disks involved and the 
BOI status of the company are leading officials 
to conclude this enterprise was manufacturing 
illegal disks for export as well as local 
consumption.  Rights holders are supporting the 
forensic investigation of the crime scene as well 
as the ultimate destination(s) of the 
manufactured products. 
 
Action Plan 
----------- 
10. Post plans to monitor the progress of the 
case, assist U.S. rights holders and persuade 
local officials, where necessary, of the 
important and serious nature of this case for Sri 
Lankan IPR related business development.  Sri 
Lanka had six recent International Visitor 
program attendees return from an IPR program in 
September.  Post is using these IV graduates to 
provide advice on working within the Sri Lankan 
legal system to promote the importance of IPR and 
this case as a test to Sri Lanka's IPR 
legislation. 
LUNSTEAD