US embassy cable - 05ASUNCION1267

UNCLAS SECTION 01 OF 05 ASUNCION 001267 
 
SIPDIS 
 
STATE FOR WHA/BSC, WHA/EPSC, EB/TPP/IPE 
STATE PASS TO USTR FOR LYANG, MSULLIVAN 
USAID FOR AA/LAC ADOLFO FRANCO 
TREASURY FOR OSIA MAUREEN WAFER 
COMMERCE ITA SARAH COOK 
NSC FOR MIKE DEMPSEY AND SUE CRONIN 
SOUTHCOM FOR POLAD 
 
E.O. 12958: N/A 
TAGS: ECON, KIPR, PREL, PA 
SUBJECT: PARAGUAY IPR UPDATE: PATENT LAW MODIFICATIONS RAISE 
TRIPS CONCERNS AND OTHER ISSUES 
 
REF: Asuncion 027 
 
1.  Summary.  This cable provides a tour de horizon of a 
number of Intellectual Property issues in Paraguay. 
Modifications to Paraguay's patent law enacted in July could 
violate TRIPS, particularly relating to preliminary 
injunctions.  The Ministry of Industry and Commerce will 
seek USG guidance at the October 12-13 Joint Council on 
Trade and Investment on using language from a 2002 US- 
Argentine agreement on the same issue to modify the law to 
make it TRIPS compliant.  The MIC plans to introduce an 
amendment to the law with the new language.  Two other areas 
of concern in the law can be fixed with the implementing 
decree, according to the Director of Intellectual Property. 
 
2.  The cable also discusses the status of an audit of 
Paraguay's patent office that discovered about 160 wrongly 
issued patents and led to the dismissal of the office's 
director (see paras 15-17).  The MIC may also request USG 
guidance on the possible impact of TRIPS on extending rights 
of an old treaty allowing for patent revalidations to other 
TRIPS signatories (para 18).  The two US-trained patent 
examiners are finally working on the backlog of 
pharmaceutical product patent applications after a long 
delay caused by the audit (paras 19).  Obtaining uniform 
data protection rules in Paraguay will be difficult as three 
independent entities each have a role and separate governing 
legislation (para 20).  Increases in penalties for IPR 
infringement await the conclusion of work by a bicameral 
commission studying general penal code reform and changes to 
penalties for a number of crimes ranging from kidnapping to 
IPR (paras 21-24).  The Director of Intellectual Property is 
studying the possibility of creating an independent IPR 
Institute to handle patent and trademark adjudication with 
WIPO and the IDB (para 25).  End Summary. 
 
------------------------------------ 
PATENT LAW CHANGES WEAKEN PROTECTION 
------------------------------------ 
 
3.  On July 8, President Duarte signed into law a bill that 
modified Paraguay's patent law, which had come into effect 
on January 1, 2005 in accordance with Paraguay's TRIPS 
obligations.  The patent law, originally passed in 2000 with 
delayed effect to take advantage of the TRIPS grace period 
for developing countries, provides for the granting of 
pharmaceutical product patents.  Previously, only process 
patents could be granted legally.  The new modifications 
were proposed and supported by CIFARMA, the local 
association of drug producers and distributors, and tend to 
weaken the original patent law. 
 
4.  Prior to the promulgation of the law, the US, German and 
French embassies had delivered demarches to the GOP 
expressing concern over the changes.  Just before the law 
was signed by the President, Minister of Industry and 
Commerce Vera called our then acting Deputy Chief of Mission 
to notify us that the bill would become law, but also to say 
that the MIC would seek to implement the law in a way that 
was compliant with TRIPS. 
 
5.  Local patent attorneys see the modifications as designed 
to increase the ability of local producers and distributors 
to produce or sell infringing products for longer periods of 
time, and to complicate both the process of granting new 
patents and of protecting existing patents.  Proponents of 
the changes claimed that the modifications brought the 
patent law closer in line with developed country standards 
since they argued that the original law was more protective 
of patents than developed country laws.  They also argued 
that the modifications were needed to protect the public's 
access to reasonably priced medicines. 
 
---------------------------- 
Possible violations of TRIPS 
---------------------------- 
 
6.  Based on concerns that the changes might conflict with 
Paraguay's obligations under TRIPS, post provided a 
translation of the draft bill to Washington agencies.  Based 
on an analysis by the US Patent and Trademark Office, post 
delivered talking points to Astrid Weiler, the Director of 
Intellectual Property at the Ministry of Industry and 
Commerce, expressing USG concerns that three sections of the 
bill might conflict with TRIPS. 
 
7.  An amendment to Article 25 of the original law now 
requires a "technical opinion" from the Ministry of Health 
and Social welfare as part of the examination of whether a 
pharmaceutical invention is patentable.  The demarche 
pointed out that requiring such a report as a precondition 
for patents in this specific field of technology but not 
others raises significant questions under TRIPS Article 
27.1, which requires that patents be made available without 
discrimination as to the field of technology. 
 
8.  An amendment to Article 48 of the original law appeared 
to assume that an applicant for a compulsory license would 
have received marketing approval before the compulsory 
license is issued, perhaps on the basis of having already 
marketed the goods.  This appears to justify and even 
encourage the sale of infringing goods before the compulsory 
license is issued.  The demarche argued that it would be 
appropriate to require a sanitary registration before the 
compulsory license applicant is permitted to sell the goods, 
but that it is inconsistent with patent protection to 
require a compulsory license applicant to infringe the 
patent as a condition of receiving a compulsory license. 
 
----------------------- 
PRELIMINARY INJUNCTIONS 
----------------------- 
 
9.  The worst potential violation of TRIPS occurs in the 
amendments to Article 81 of the law applicable to 
applications for preliminary injunctions with respect to the 
enforcement of pharmaceutical patents - but not other 
patents.  These raise similar concerns about discrimination 
against the enjoyment of patent rights in the pharmaceutical 
field of technology under Article 27.1 of the TRIPS 
Agreement. 
 
10.  More importantly, we expressed concern that these 
special rules will mean that preliminary injunctions are, 
effectively, unavailable.  Article 50 of the TRIPS 
Agreement, by contrast, requires that judicial authorities 
must have the authority to order such measures.  The changes 
to Article 81, which were patterned on a similar provision 
of Argentine law, permit provisional measures in the 
pharmaceutical area only if a court-designated expert 
renders an opinion on infringement and validity in 15 days. 
Not only is this an extremely short deadline, but it appears 
that the failure of the expert to meet this deadline - which 
is out of the control of the applicant -- means a denial of 
injunctions. 
 
11.  In addition, in order to obtain preliminary 
injunctions, the Ministry of Public Health and Social 
Welfare must submit a report on whether the harm to the 
applicant if the relief is denied is greater than the harm 
if the relief is granted.  The Ministry's failure to act in 
a very short time would seem to result in a denial of 
preliminary injunctions.  Furthermore, the "harm" of 
granting the injunction is not defined: it appears that the 
health authorities would, in effect, be deciding whether an 
injunction should be granted, not based on the balance of 
harm as between the applicant and the defendant, but rather 
on general health policy grounds. 
 
---------------------------------- 
MIC Response to Passage of the Law 
---------------------------------- 
 
12.  Econchief met with Astrid Weiler, the Director General 
of Intellectual Property, about the patent law and the MIC's 
strategy to address the problems.  Weiler said that, after 
Congressional passage of the modifications, the MIC was 
aware that there were problems with them, particularly the 
changes to Article 81, but the GOP feared that a veto would 
be overturned, which would then preclude any changes to the 
law for one year.  As a result, the MIC did not recommend a 
veto, and plans to submit its own bill to Congress with 
language to change Article 81. 
 
13.  The MIC seeks USG opinion on plans to use language from 
a 2002 agreement between the US and Argentina on the 
protection of patents and test data.  The document was 
published on June 20, 2002 by the WTO, with document symbol 
WT/DS171/3, and the proposed language is found in section 
six of the document, which is about preliminary injunctions. 
Before submitting to Congress the proposed fix of the patent 
law, the MIC seeks USG assurance that the language agreed to 
with Argentina would be TRIPS compliant.  Astrid Weiler 
plans to raise this issue during the October 12-13 Joint 
Council on Trade and Investment (JCTI) in Asuncion. 
 
14.  The MIC plans to address in the implementing decree the 
other concerns we raised with the GOP.  The change to 
Article 25, which requires a technical opinion from the 
Ministry of Health, will not affect the granting of patents. 
The implementing decree will make clear that the opinion "no 
es vinculante" - it is not binding.  According to Weiler, 
the change to Article 48 does not require that the recipient 
of a compulsory license infringe the patent beforehand. 
Rather, it grants first preference for a compulsory license 
to an existing producer in those cases where the production 
was already occurring before patent rights in Paraguay were 
established.  The MIC will seek the USG's opinion on the 
language in the implementing decree as well, to avoid future 
disagreements in the WTO. 
 
--------------------------------------------- -------- 
PATENT OFFICE AUDIT -- PRESSURE TO ANNUL SOME PATENTS 
--------------------------------------------- -------- 
 
15.  As discussed in reftel, in late December 2004, the MIC 
issued a decree announcing that pharmaceutical product 
patents issued before January 1, 2005 were wrongly issued. 
The MIC has clarified to Econchief that only judicial action 
can nullify a patent, and thus the decree had no legal 
effect.  About the same time the new patent law came into 
effect, and based on a complaint by the local pharmaceutical 
association (CIPHARMA), then Minister of Industry and 
Commerce Bergen ordered an audit of the patent office.  The 
audit involved the two US- and Argentine-trained patent 
examiners, and ended in June.  A principal objective was to 
identify pharmaceutical product patents issued before 
January 1, 2005, the date on which the issuance of such 
patents became legal in Paraguay. 
 
16.  The audit, which has not been released publicly, found 
159 wrongly issued patents: 139 issued as revalidations of 
patents issued in other countries, and 20 issued after 
examinations.  The MIC claims, and it would appear rightly 
so, that local attorneys and even the firms applying for the 
patents should have known that product patents issued before 
January 1, 2005 could be questioned.  The audit resulted in 
the dismissal of the director of the patent office. 
 
17.  The local industry has complained about the delay in 
the release of the results, as they are eager to seek 
annulment of the patents.  The law firms representing the 
multi-nationals have also complained, as they'd like to know 
if any of their clients' patents are affected.  The MIC, 
though, is reluctant to mistakenly list any patents as 
wrongly issued.  Even with a decree announcing the results, 
though, it would take judicial action to annul the patents. 
 
------------------------------ 
TRIPS AND PATENT REVALIDATIONS 
------------------------------ 
 
18.  The legality of patents previously issued as 
revalidations (issuing based on studies conducted in other 
countries) concerns the MIC as well, and Weiler intends to 
seek the informal opinion of some WTO experts at a meeting 
to be held in Cuba later in October.  Paraguay is a 
signatory to an 1889 treaty between four South American 
countries establishing that each will honor (and revalidate) 
patents issued in the others.  Under one legal viewpoint, 
patents issued in Paraguay as revalidations of patents 
issued in countries not party to that treaty (e.g., the US) 
are not legally valid.  The MIC wonders if, since Paraguay 
did not cite the treaty when it signed TRIPS, the benefits 
of revalidation then extended to all other signatories of 
TRIPS.  If so, then revalidated patents (of which there are 
thousands, of all types) would have been issued legally. 
Weiler may request an opinion on this issue during the JCTI 
in Asuncion. 
 
---------------------------------------- 
PATENT EXAMINERS WORKING THROUGH BACKLOG 
---------------------------------------- 
 
19.  After the six-month delay imposed by the audit of the 
patent office, the two MIC patent examiners who received 
training from the USPTO in January are back at the job of 
working through the GOP's backlog of pharmaceutical product 
patents.  They have been contacting applicants to determine 
if applications have been abandoned or not.  They began with 
applications dating back to 1995, and have progressed to 
applications submitted in 1998. 
 
--------------------------- 
DATA PROTECTION IN PARAGUAY 
--------------------------- 
 
20.  Econchief met with Weiler to discuss the status of data 
protection rules in Paraguay.  Currently, three entities 
with separate governing laws receive data: 
SENAVE, which regulates agrichemicals, SENACSA, which 
regulates animal health including vaccines, and Vigilancia 
Sanitaria, which is part of the Ministry of Health and 
regulates pharmaceuticals.  The MIC does not have 
jurisdiction over those entities, and each would have to 
issue its own resolution to change the treatment of data. 
The MIC has considered asking for assistance from WIPO to 
educate the entities about the importance of data 
protection.  Reaching consensus and implementing uniform 
data protection in Paraguay will be difficult to achieve 
quickly. 
 
--------------------------------------------- ---- 
STATUS OF INCREASING PENALTIES FOR IPR VIOLATIONS 
--------------------------------------------- ---- 
 
21.  Post has flagged on numerous occasions our concern that 
penalties for IPR violations need to be raised to become an 
effective deterrent, as the GOP committed to in the 
Memorandum of Understanding on Intellectual Property Rights. 
Trademark and copyright violations are covered by two 
separate laws, each of which needs to be modified. 
Presently, provisions of the penal code, when applied to the 
penalties included in the laws, prevent judges from imposing 
jail time.  They can only issue fines, which violators 
simply consider a cost of doing business. 
 
22.  A bicameral Congressional Commission is currently 
studying the reform of the penal code, the penal process 
code, and modifications to a number of laws, generally with 
respect to increasing sentences.  A wide range of crimes are 
under review, including murder, kidnapping and IPR crimes. 
The Commission is supposed to finish its work by December, 
although delays are quite possible.  The Commission is 
supposed to ensure that laws are not modified piecemeal, 
resulting in inconsistent penalties (e.g., more jail time 
for theft than for murder).  Its existence makes it very 
difficult to advance any individual modifications. 
 
23.  The MIC has made known to key members of the Commission 
that it seeks and supports higher penalties for trademark 
and copyright infringement, and Vice Minister of Industry 
Raul Cano told Econchief that there is broad agreement on 
that point.  Details matter, though.  For example, the 
average of the minimum and maximum sentences must be at 
least five years to preclude abbreviated proceedings, common 
today, that avoid oral trials and tend to encourage 
corruption and light sentences. 
 
24.  The MIC is proposing a range of sentences from two 
years to eight years with fines ranging from 100 to 1000 
minimum salaries (one minimum monthly salary is currently 
about US$180).  The MIC would also like the Commission to 
add a provision barring those sentenced to five years or 
more from conducting business for up to ten years. 
Increased sentences for IPR infringement appear to be on 
hold for the time being while the Commission deliberates. 
 
-------------------------- 
PLANS FOR AN IPR INSTITUTE 
-------------------------- 
 
25.  On October 10, representatives from the Inter-American 
Development Bank (IDB) will meet with Weiler to discuss a 
$500,000 loan to help create an IPR Institute, which Weiler 
envisions as an independent entity that would be fully fee- 
funded, similar to the USPTO.  Weiler has been working with 
WIPO on a draft law to create the institute.  The MIC's 
patent and trademark offices currently bring in about 
USD280,000 each year, but the revenues go to the MIC's 
general account, and the IPR offices have an annual budget 
of only about USD33,000.  Starved for funds, it has been 
impossible to provide adequate resources and training to 
develop and retain qualified staff.  The problems of the 
patent office described above can be attributed, in part, to 
the lack of professional staff. 
 
KEANE