US embassy cable - 05LIMA870

UNCLAS SECTION 01 OF 03 LIMA 000870 
 
SIPDIS 
 
DEPT FOR WHA/AND, EB/IPE SWILSON 
COMMERCE FOR 4331/MAC/WH/MCAMERON 
DOC FOR J. BOGER 
USPTO FOR J. URBAN 
LOC FOR S. TEPP 
USTR FOR J. CHOE-GROVES 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, KIPR, PE 
SUBJECT: PERU: SPECIAL 301 REVIEW 
 
REF: A) State 23950   B) 04 Lima 1031   C) 04 Lima 1524 
 
1.  Summary.  Post recommends that Peru remain on USTR's 
Special 301 Watch List for 2005.  Peru continued to face 
high levels of copyright piracy, including a substantial 
increase in optical disc piracy affecting the audiovisual 
industry in 2004.  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 
and the lack of deterrent sentences.  The GOP did not take 
any significant steps to resolve the pharmaceutical 
industry's concern about a lack of protection for 
proprietary test data.  GOP trade officials indicated that 
the data protection issue should be resolved during the U.S.- 
Andean free trade negotiations in 2005.  End Summary. 
 
High Rates of Optical Disc Piracy 
--------------------------------- 
 
2.  Despite Indecopi's efforts, copyright piracy rates 
continued to climb in 2004.  The audiovisual industry 
suffered from a dramatic increase in pirated 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 2004 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 Indecopi estimated that business software piracy levels 
have decreased from 60 percent in 2003 to 56 percent in 
2004. 
 
Efforts to Rein in Piracy 
But More Coordination Needed 
---------------------------- 
 
3.  Indecopi continued its "Anti-Piracy Crusade," which 
began in 2002.  Indecopi's anti-piracy efforts in 2004, 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. 
Indecopi's copyright office conducted, jointly with the 
national police and SUNAT (Peru's tax and customs agency), 
37 raids in 2004 and confiscated over $20 million in pirated 
goods and blank optical discs.  In March 2004, the Peruvian 
police, coordinating with one of Peru's special IPR 
prosecutors, successfully uncovered and seized a shipment of 
750,000 blank optical discs valued at $400,000 (Ref C).  In 
December 2004, the national police raided a Lima shopping 
center where pirated goods are sold, confiscating over 
$500,000 in pirated DVDs and CDs. 
 
4.  Private sector and Indecopi officials note that although 
SUNAT has participated in several seizures of pirated goods, 
it needs to become more involved in overall IPR enforcement. 
SUNAT assumed control of Peruvian customs in 2003 and has 
worked with Indecopi on several raids.  The head of 
Indecopi's copyright office declared that SUNAT should take 
a more active role in coordinating and conducting raids, 
particularly at the ports.  Currently, SUNAT is more focused 
on facilitating shipments at ports by quickly clearing 
containers.  Many customs officials have had no prior 
training on how to recognize counterfeit goods. 
 
Harsher Punishments for 
Copyright Infringements 
----------------------- 
 
5.  Industry and Indecopi officials involved in the Anti- 
Piracy Crusade 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 IP cases pending before 
Peru's courts. 
 
GOP Mandates the Use of Legitimate Software 
------------------------------------------- 
 
6.  In 2003, the GOP passed a decree mandating that all 
government agencies use legally procured open-source 
software.  Unfortunately, this loosely written decree did 
not establish which GOP agency was to take the lead on 
implementation, nor did it designate penalties for 
violations of this decree.  GOP agencies have until March 
31, 2005 to erase all pirated software and install the 
legitimate versions.  Peru's Software Association held 
several educational sessions for Congressmen in 2004, 
emphasizing the importance of using legal software. 
Mario Camara, Deputy Director General of the Office of E- 
Commerce and Information, informed us February 16 that not 
all agencies have complied with the requirement.  With no 
agency designated as point of contact, it is difficult for 
the GOP to monitor progress.  Camera noted that his office 
would meet with each GOP agency's Systems Office next week 
to encourage them to comply with the decree.  Camera also 
warned that the lack of funding to purchase the new software 
might limit some agencies' ability to procure legal 
software. 
 
Higher Taxes and a New Import Registry 
-------------------------------------- 
 
7.  A new decree passed as part of Peru's tax reform in 
January 2004 requires importers of blank CDs to make valued 
added tax payments in advance, improving SUNAT's ability to 
trace subsequent purchases.  In November, SUNAT began 
imposing a higher tariff on all importers of blank optical 
discs ($1.30 per DVD and $0.25 per CD), in an effort to 
differentiate between legal and illegal importers. 
 
8.  In July, 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.  To date, SUNAT 
has not yet established this registry. 
 
Pharmaceutical Data Protection 
------------------------------ 
 
9.  The GOP did not take significant action in 2004 to 
improve the protection of confidential pharmaceutical data. 
The issue of data protection is increasingly sensitive, as 
local generic drug producers have high levels of political 
clout.  Trade officials continue to argue that the TRIPs 
Article 39.3 does not mandate any specific period of data 
exclusivity.  Peru, which is, along with Colombia and 
Ecuador, negotiating a free trade agreement with the United 
States, intends to resolve our data exclusivity concerns in 
the FTA process. 
 
Comment: Recommend No Change in Status 
--------------------------------------- 
 
10.  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 nor established clear 
administrative measures for government agencies to comply 
with those laws. 
 
STRUBLE