US embassy cable - 05ROME629

UNCLAS  ROME 000629 
 
SIPDIS 
 
 
STATE FOR EB/IPE WILSON, URBAN 
STATE PASS USTR FOR BPECK, JSANFORD 
COMMERCE PASS USPTO DLASHLEY, JOHNSON 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, IT, KIPR 
SUBJECT: SPECIAL 301 REVIEW, MISSION ITALY INPUT 
 
REF: A. SECSTATE 24592 
     B. 04 ROME 2009 
     C. 04 ROME 2240 
     D. 04 ROME 4585 
 
1. Summary:  Embassy Rome recommends that Italy remain on the 
301 Watch List for 2005.  Piracy rates, though showing some 
improvement in 2004, continue to be among the worst in 
Western Europe.  Industry losses remain unacceptably high, 
wide-spread street vending of pirated and counterfeit goods 
continues.  On the positive side, Italian law enforcement 
officials, especially the financial police, stepped up raids 
and crackdowns last year.  Mission Italy continues to focus 
its outreach efforts on Italian judges, who generally remain 
reluctant to impose jail sentences, even in cases of 
egregious IPR theft.  In May, Italy's parliament passed a new 
law criminalizing unauthorized Internet file sharing, though 
Italy's Internet service providers are leading a campaign to 
water down this new statute.  End Summary. 
 
Piracy Rates: Some Improvement, But Still High. 
--------------------------------------------- -- 
 
2. Copyright piracy levels, as reported by industry 
associations, fell or remained stable in most sectors in 
2004.  The music industry saw a slight increase in piracy 
rates from 22 percent in 2003 to 23 percent in 2004.  The 
publishing industry reported no change in piracy rates at 23 
percent.  Software showed a significant drop in 2004 with the 
piracy rate for entertainment software falling 13 percentage 
points to 34 percent. Business software piracy, according to 
the report by the International Intellectual Property 
Alliance (IIPA), fell 2 percentage points to 47 percent with 
losses to U.S. software firms falling from $642 million to 
$567 million.  (Note: A local representative of the Business 
Software Alliance noted that the IIPA report only includes 
losses to American companies and that losses to all BSA 
member companies are much higher, over $1 billion per year. 
Nevertheless, he said, BSA members report piracy rates in 
Italy as either staying stable or falling slightly in 2004. 
End note.) 
 
3. Motion picture piracy decreased to fifteen percent in 2004 
from 20 percent in 2003, yet industry losses actually 
increased from $140 million to $160 million.  The head of the 
Federazione Anti-Pirateria Audiovisiva (FAPAV), a Milan-based 
anti-piracy group funded by the movie industry, attributes 
this improved piracy rate to strong growth of legitimate DVD 
sales rather than a reduction in the market for pirated 
movies.  Still, according to FAPAV, the movie industry did 
witness a real decrease in on-air television and pay-TV 
piracy in Italy in 2004. 
 
Enforcement Also Improving, but Still Uneven. 
--------------------------------------------- 
 
4. IPR enforcement, though still insufficient, improved 
noticeably in 2004.  Of particular note is an over four-fold 
increase in the reported number of pirated DVDs seized by 
police, nearly 913,000 in 2004 versus 202,000 in 2003. 
Italy's financial police, the Guardia di Finanza (GDF), is by 
far the most active law enforcement body with respect to IPR. 
 The GDF conducted several successful operations in 2004, 
including "Operation Copyright," which involved 250 officers 
and resulted in the seizure of 50,000 illegal DVDs and CDs in 
the Rome area.   In Tuscany last October, the GDF conducted 
mass raids that resulted in the seizure of 35,000 counterfeit 
leather goods imported from China.  In November, a GDF 
crackdown in Brescia netted illegal CDs, DVDs, and clothing 
worth Euro 900,000 ($1.1 million).  Also in 2004, the GDF 
signed an agreement with Confindustria, Italy's main business 
association, to improve information sharing on pirating and 
counterfeiting.  Post will continue to encourage such efforts 
and is hopeful that raids will increase in scope in 2005. 
 
5. Mission Italy continues to observe wide variations in IPR 
enforcement between regions.  Congen Milan reports that an 
agreement signed between the GDF, police, and the Milan 
municipal government resulted in a significant drop in street 
vending of pirated and counterfeit goods.  An Italian music 
industry contact told Econoff that overall street-level 
enforcement improved in 2004, though the situation continues 
to vary from town to town. 
 
Street Vending Unabated in Many Areas. 
 
-------------------------------------- 
 
6. The continuing problem of street vending of pirated and 
counterfeit merchandise deserves special mention.  Occasional 
crackdowns aside, street vending goes unchallenged on a 
day-to-day basis in most major cities (though the situation 
tends to be better in northern municipalities, such as 
Milan).   Vendors of pirated CDs, DVDs, and software 
frequently display their goods outside Rome's supermarkets 
and in and around licensed street markets.  On a given 
weekend in Naples, vendors of optical media, watches, and 
handbags are lined up side-by-side along the main shopping 
streets.  Such sales are also common in tourist areas. 
During an October 2004 trip to Venice, Econoff observed 
peddlers of fake handbags in such numbers that they 
significantly impeded the normal flow of pedestrian traffic. 
 Congen Naples' police contacts have remarked that there is 
popular opposition to crackdowns against street vendors, who 
are typically poor immigrants.  Several Naples officials have 
commented that it is better that these immigrants sell fake 
goods than engage in more serious crime.  The freedom with 
which street vendors operate adds to the already 
too-prevalent public attitude that IPR theft is not a "real 
crime."  The ready availability of pirated and counterfeit 
products on Italian sidewalks sends a much more powerful 
message than the GOI's public education campaigns exhorting 
citizens to respect IPR. 
 
Italy's Judiciary Slowly Coming Around. 
--------------------------------------- 
 
7. Italy's fiercely independent judiciary remains a major 
obstacle to better IPR enforcement.  As a group, Italian 
judges have been reluctant to impose meaningful criminal 
penalties for IPR crime.  We note that in 2004 only nine 
people received jail sentences of over one year for IPR 
theft, a strikingly low number given the scale of the problem 
and the connections to Italian organized crime groups.  Some 
justices continue to cite the economic hardship of defendants 
as justification for light and/or suspended sentences.  Such 
slap-on-the-wrist punishments, in turn, discourage police and 
prosecutors from aggressively pursuing IPR cases.  In an 
indicative anecdote, reported by Congen Florence, a judge 
implied that Florence police officials, by conducting an 
anti-piracy/counterfeiting crackdown, were merely pandering 
to the interests of the city's rich downtown merchants. 
 
8. Mission Italy notes, however, that such attitudes are not 
universal within Italy's judiciary.  Many judges do recognize 
the wider economic damage caused by piracy as well as the 
connections between the trade in pirated/counterfeit goods 
and organized crime.  Embassy Rome, in cooperation with 
industry groups, continues to host regular workshops and 
other outreach efforts aimed at sensitizing Italian judges to 
IPR issues.  Congen Naples is also sponsoring IPR seminars 
specifically aimed at judges and prosecutors in the south, 
where most production of pirated CDs, DVDs and software takes 
place.  While a growing number of judges "get it" in terms of 
IPR, obtaining a system-wide increase in penalties will take 
time.  Even then, verdicts and sentences handed down in IPR 
cases will continue to differ very much depending on the 
individual judges presiding. 
 
Italy Passes First Internet Piracy Law. 
--------------------------------------- 
 
9. The so-called Urbani Law (named after Italy's minister of 
culture--refs B,C), which was passed by Italy's parliament in 
May 2004, represents a commendable effort to address the 
growing problem of Internet piracy.  The law criminalizes the 
exchanging of copyrighted works regardless of whether such 
file sharing is done for cash profit or simply for "gain," 
i.e. downloading music, film, or software to avoid having to 
purchase a legitimate copy.  Music and film industry groups 
believe the introduction of the concept of "for gain" piracy 
is a significant improvement in Italy's legal IPR framework. 
Criminalization of "for gain" piracy is essential if Italy is 
to create a deterrent to on-line piracy, since most Internet 
file sharing involves swapping copyrighted works for free. 
The law appears to have dampened the amount of illegal file 
sharing in Italy, and FAPAV reports that on-line piracy of 
films decreased in 2004. 
 
Backlash from Italian ISPs 
-------------------------- 
 
10. Italy's Internet Service Providers (ISPs), however, 
oppose the Urbani Law and are spearheading a campaign to roll 
back the criminal provisions to decriminalize "personal use" 
downloading of copyrighted works.  Embassy believes Italian 
ISPs are concerned both with their own liability for illegal 
file sharing conducted on their networks, as well as the 
Urbani Law's potential to reduce demand for broad-band 
Internet access.  (Broad-band access remains significantly 
more expensive in Italy than in the United States.)  Music 
and film industry groups have warned that the revisions, 
which appear likely to pass in 2005, could make Italy a legal 
safe haven for unauthorized file sharing.  Copyright industry 
groups are already planning a campaign to reintroduce the 
criminalization of "for gain" Internet piracy, perhaps with 
an amendment to Italy's main copyright law. 
 
The Virtual Sticker 
------------------- 
 
11.  Another difficulty with the Urbani Law is the 
introduction of regulatory requirements strongly opposed by 
BSA (ref D).  In its present form, the Urbani Law requires 
copyrighted Internet files to contain a "virtual sticker," a 
code that certifies payment of royalties.  The law also 
imposes private copy levies on some computer hardware (e.g., 
CD/DVD burners) used to reproduce copyrighted works.  The BSA 
claims these levies would raise the cost of selling software 
in Italy.  BSA believes these provisions subject rights 
holders to costly administrative burdens to obtain 
protections that should be extended automatically to 
copyrighted material. 
 
Pharmaceuticals 
--------------- 
 
12. Embassy notes PhRMA's recommendation that Italy be 
upgraded to the Priority Watch List.  We agree that price 
ceilings imposed by the GOI within its national health system 
disproportionately impact drug developers and reduce rewards 
for innovation.  At the same time, pharmaceutical industry 
contacts tell us that the problem of counterfeit drugs in 
Italy is very limited.  New regulations requiring the 
bar-coding of every vial of medicine should further reduce 
the ability of fake medicines to enter Italy's market. 
Mission intends to continue to work with the pharmaceutical 
industry to address the inequities of Italy's pricing regime, 
but we do not believe upgrading Italy to priority watch list 
status is justified. 
 
Comment 
------- 
 
13. Piracy rates in Italy remain much too high compared to 
other G-7 countries.  Easy street-level access to pirated and 
counterfeit goods remains the norm in this, the world's 
sixth-largest market economy.  Italy should stay on the 301 
Watch List in 2005, yet Italy also deserves recognition for 
some significant improvements in 2004, particularly the drop 
in piracy rates and the GDF's enforcement efforts.  While 
there is always the possibility of backsliding, Italy is 
moving in the right direction and could become a candidate 
for removal from the Watch List, possibly as early as 2007 or 
2008, if current trends continue.  End comment. 
 
Congens Milan, Naples, and Florence contributed to this 
report. 
 
SEMBLER 
 
 
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	2005ROME00629 - Classification: UNCLASSIFIED