Special 301 Report/2012/Section 1

by Office of the United States Trade Representative

SECTION I. DEVELOPMENTS IN INTELLECTUAL PROPERTY RIGHTS PROTECTION AND ENFORCEMENT

 

An important part of the mission of the United States Trade Representative (USTR) is to support and implement the Administration's commitment to aggressively protect American intellectual property overseas. Infringement of intellectual property rights (IPR) causes significant financial losses for rights holders and legitimate businesses around the world. It undermines key U.S. comparative advantages in innovation and creativity, to the detriment of American businesses and workers. In its most pernicious forms, it endangers the public. Some counterfeit products, such as automobile parts and medicines, pose significant risks to consumer health and safety. In addition, trade in counterfeit and pirated products often fuels cross-border organized criminal networks and hinders the sustainable economic development of many countries.

Because fostering innovation and creativity is essential to our prosperity, competitiveness, and the support of an estimated 40 million U.S. jobs that directly or indirectly rely on IPR-intensive industries, USTR works to protect American inventiveness and creativity with all the tools of U.S. trade policy, including this Report.

 

Positive Developments

The United States welcomes the following important steps by our trading partners in 2011 and early 2012:

• Malaysia – Malaysia passed copyright amendments that significantly strengthen its protection of copyrights and its enforcement against piracy. These amendments include provisions on: preventing the circumvention of technological protection measures; establishing a mechanism for cooperation by Internet service providers (ISPs) against piracy over the Internet; and prohibiting the unauthorized camcording of motion pictures in theaters. Malaysia also established mechanisms to facilitate rights holder assistance in IPR enforcement efforts. Further, in 2011, Malaysia promulgated regulations designed to provide protection against the unfair commercial use, as well as unauthorized disclosure, of test or other data generated to obtain marketing approval of pharmaceutical products. Nevertheless, concerns remain, including concerns regarding the implementation of Malaysia's pharmaceutical data protection regulations, and regarding border enforcement, in particular with respect to transshipment. However, in recognition of Malaysia's recent improved efforts with respect to IPR protection and enforcement, the United States has removed Malaysia from the Watch List. The United States will continue to work closely with Malaysia to ensure that progress is sustained and to address our remaining areas of concern, including through the Trans-Pacific Partnership negotiations.
• Spain – In recognition of Spain's recent efforts with respect to IPR protection and enforcement, the United States has removed Spain from the Watch List. The United States applauds Spain's adoption of regulations implementing the "Ley Sinde," a law to combat copyright piracy over the Internet. The United States will monitor the implementation of these measures and their overall effectiveness in addressing online piracy. The United States continues to have serious concerns with respect to criminal IPR enforcement, particularly the 2006 Prosecutor General Circular that appears to decriminalize peer-to-peer file sharing of infringing materials, and urges Spain to take steps to remedy this significant problem. The United States will work with Spain to address these and other issues.
• Israel – Israel enacted a law protecting against the unfair commercial use, as well as unauthorized disclosure, of test or other data generated to obtain marketing approval of pharmaceutical products.
• Philippines – The Philippines promulgated long-awaited specialized IPR procedural rules, which are designed to improve judicial efficiency in IPR cases.
• Russia – Russia enacted a law to establish a specialized IPR court by February 2013 and appropriately amended its Criminal Code to revise criminal thresholds for copyright piracy. In addition, the United States recognizes progress in connection with criminal proceedings against interfilm.ru, an infringing website in Russia, and the civil findings against vKontakte, Russia's largest social networking site, for copyright infringement. Russian law enforcement authorities led several significant actions against pirated optical disc distributors, including a seizure of two million optical discs – the largest known such seizure in Russia. As part of the 2011 Out-of-Cycle Review (OCR) of Notorious Markets, USTR removed the Savelovskiy Market from the Notorious Markets List as a result of the Savelovskiy Market's adoption and implementation of an action plan to stop the distribution of infringing goods.
• China – China has established a State Council-level leadership structure, headed by Vice Premier Wang Qishan, to lead and coordinate IPR enforcement across China. This leadership structure, which China established under the 2010-2011 Special IPR Campaign, and which China has now made into a permanent structure, is meant to enhance China's ability to address IPR infringement. In addition, China's leadership committed to increased political accountability, as the performance of provincial level officials will be measured based on enforcement of IPR in their regions.
• Korea and Colombia – On March 15, 2012, the United States-Korea Free Trade Agreement entered into force. On May 15, 2012, the United States-Colombia Trade Promotion Agreement will enter into force. Both Agreements include strong standards for the protection and enforcement of IPR.

The United States will continue to work with its trading partners to further enhance IPR protection and enforcement during the coming year.

 

Initiatives to Strengthen IPR Protection and Enforcement Internationally

The United States has worked to promote adequate and effective protection and enforcement of IPR through a variety of mechanisms, including the following:

• Trans-Pacific Partnership: The Trans-Pacific Partnership is a key initiative through which the United States seeks to advance the multi-faceted U.S. trade and investment interests in the Asia-Pacific region by negotiating an ambitious, 21st-century regional trade agreement along with Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam. The Trans-Pacific Partnership negotiations have begun with this initial group of like-minded countries with the goal of creating a platform for integration across the region. The Trans-Pacific Partnership will include strong standards for the protection and enforcement of IPR in the 21^st Century.
• Anti-Counterfeiting Trade Agreement (ACTA): Australia, Canada, the European Union (EU) and 22 of its Member States, Japan, Korea, Morocco, New Zealand, and Singapore, along with the United States, signed the ACTA, an important new tool to fight trademark counterfeiting and copyright piracy. The ACTA is the first IPR agreement to make clear that it will be implemented in a way that preserves freedom of expression, fair process, and privacy. The Agreement will also contribute to protecting the public against threats posed by unsafe counterfeit goods, such as toothpaste with diethylene glycol and auto parts of unknown quality. A number of signatories are now undertaking the necessary domestic processes in order to deposit instruments of acceptance. The United States looks forward to the remaining original negotiating parties signing the ACTA as well.
• World Trade Organization (WTO): The multilateral structure of WTO agreements provides opportunities for USTR to lead engagement with trading partners on IPR issues in several contexts, including through accession negotiations for prospective Members, the Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS Council), and WTO's Dispute Settlement Body.
• Bilateral and Regional Initiatives: The United States works with many trading partners to strengthen IPR protection and enforcement through the provisions of bilateral and regional agreements, including free trade agreements (FTAs). In addition, Trade and Investment Framework Agreements (TIFAs) between the United States and numerous trading partners around the world have facilitated discussions on enhancing IPR protection and enforcement.
• Trade Preference Program Reviews: USTR reviews IPR practices in connection with the implementation of trade preference programs, such as the Generalized System of Preferences (GSP) program, and regional programs including the Caribbean Basin Economic Recovery Act. USTR will continue to review IPR practices in Russia, Lebanon, and Uzbekistan under ongoing GSP reviews. In December 2011, USTR received new country practice petitions related to IPR in Ukraine and Indonesia.
• Expanded International Cooperation: USTR, in coordination with other agencies, looks forward to continuing engagement with trading partners in bilateral, regional, and multilateral fora to improve the global IPR environment. In addition to the work described above, the United States anticipates engaging with its trading partners in trade-related initiatives such as the U.S.-EU Summit, and in the Asia Pacific Economic Cooperation (APEC) forum, the Organization for Economic Cooperation and Development (OECD), and other multilateral and regional fora. As an example of an outcome of such engagement, in November 2011, APEC Ministers endorsed the APEC Effective Practices for Addressing Unauthorized Camcording, which will assist APEC economies to implement public awareness efforts, engage in cooperation with the private sector on capacity building, and adopt effective legal frameworks to address the challenges of unauthorized camcording in cinemas.

 

Best IPR Practices by Trading Partners

USTR is highlighting certain best practices by trading partners in the area of IPR protection and enforcement:

• In the 2011 Special 301 Report, USTR invited trading partners appearing on the Special 301 Priority Watch List or Watch List to work with the United States to develop mutually agreed-upon action plans, designed to lead to that trading partner's removal from the relevant list. Based on that initiative, USTR is working with several trading partners to develop action plans that would be designed to resolve the issues discussed in the Special 301 Report. USTR looks forward to continuing to work with these trading partners to finalize and implement these action plans.
• Stakeholders report that where foreign governments are open and transparent in bringing about legislative or regulatory change, and where such governments ensure that there is open dialogue between government officials and affected parties, it is easier for those stakeholders to comply with legislative or regulatory changes. For example, the United States commends the Czech Republic's continued efforts to inform stakeholders, as well as the United States Government, about recent developments in the protection and enforcement of IPR.
• Cooperation between different government agencies is another example of a best practice. For example, the United States notes positive reports regarding Russia's efforts to combat counterfeit medicines through a Memorandum of Understanding between the Ministry of Health and the Federal Service for Intellectual Property.
• Stakeholders have commended Hong Kong Customs officials for their effective enforcement against IPR infringement in marketplaces. Enforcement officials took a wide ranging set of actions that led to significant advances in limiting the availability of pirated and counterfeit products in Hong Kong marketplaces.
• Several trading partners have participated or supported participation in innovative mechanisms that enable government and private sector rights holders to voluntarily donate or license IPR on mutually-agreed terms and conditions. In these arrangements, parties use existing IPR to advance innovation and public policy goals. The United States was the first in the world to share patents with the Medicines Patent Pool, an independent foundation hosted by the World Health Organization, and hopes that additional public and private patent holders will explore voluntary licenses with the Medicines Patent Pool as one of many innovative ways to help improve the availability of medicines in developing countries. The patents that the United States shared were related to protease inhibitor HIV medicines, primarily used to treat drug-resistant HIV infection. In addition, the United States, Brazil and South Africa are providers in the WIPO Re:Search Consortium, a voluntary mechanism for making IPR and know-how available on mutually agreed-upon terms and conditions to the global health research community, in order to find cures or treatments for neglected tropical diseases, and for malaria and tuberculosis; other countries have joined as supporters.
• Finally, a significant best practice is the active participation of government officials in capacity building efforts and in training. As further explained below, the United States strongly encourages foreign governments to make training opportunities available to their officials, and it actively engages with its trading partners in capacity building efforts both in the United States and abroad.

 

Capacity Building Efforts

In addition to identifying concerns, this Report also highlights opportunities for the U.S. Government to work closely with trading partners to address those concerns. The U.S. Government collaborates with various trading partners on IPR-related training and capacity building around the world. Both domestically and abroad, bilaterally, and in regional groupings, the U.S. Government remains engaged in building stronger, more streamlined, and more effective systems for the protection and enforcement of IPR.

Although many trading partners have enacted IPR legislation, a lack of criminal prosecutions and deterrent sentencing has reduced the effectiveness of IPR enforcement in many regions. These problems result from several factors, including a lack of knowledge of IPR law on the part of judges and enforcement officials, and insufficient enforcement resources. The United States welcomes steps by a number of trading partners to educate their judiciary and enforcement officials on IPR matters. The United States will continue to work collaboratively with trading partners to address these issues.

The U.S. Patent and Trademark Office's (USPTO) Global Intellectual Property Academy (GIPA) offers programs in the United States and around the world to provide education, training and capacity building on IPR protection and enforcement. These programs are offered to patent, trademark, and copyright officials, judges and prosecutors, police and customs officials, foreign policy makers, and U.S. rights holders.

Other U.S. Government agencies bring foreign government and private sector representatives to the United States on study tours to meet with IPR professionals and to visit the institutions and businesses responsible for developing, protecting, and promoting IPR in the United States. One such program is the Department of State's International Visitors Leadership Program, which brings groups from around the world to cities across the United States to learn more about IPR and related trade and business issues. In addition, U.S. Government agencies, such as the Department of State and the Copyright Office, conduct conferences and training symposia in Washington, D.C..

Overseas, the U.S. Government is also active in partnering to provide training, technical assistance, capacity building, exchange of best practices, and other collaborative activities to improve IPR protection and enforcement. For example:

• In 2011, GIPA provided training to over 5,300 foreign IP officials from 138 countries, through 149 separate programs. Attendees included IPR policy makers, judges, prosecutors, customs officers, and examiners, and training topics covered the entire spectrum of IPR. Post-training surveys demonstrated that 79 percent of all attendees reported that they had taken some steps to implement positive policy change in their respective organizations.
• In addition, the USPTO's Office of Policy and External Affairs provides capacity building in countries around the world, and has concluded agreements with more than 40 national, regional, and international IPR organizations, such as the Caribbean Community (CARICOM), the Association of Southeast Asian Nations (ASEAN), the African Regional Intellectual Property Organization (ARIPO), the World Intellectual Property Organization (WIPO), the International Union for the Protection of New Varieties of Plants (UPOV), and Interpol, to partner on IPR training activities. These partnerships help ensure that capacity building and training efforts are demand-driven and meet the particular needs of each organization and trading partner.
• The Department of Commerce's International Trade Administration (ITA) collaborates with the private sector to develop programs to heighten the awareness of the dangers of counterfeit products and of the economic value of IPR to national economies. Additionally, ITA develops and shares small business tools to help domestic and foreign businesses understand IPR.
• In 2011, the Department of Homeland Security's (DHS) Bureau of Customs and Border Protection (CBP) conducted regional border training programs that focused on IPR enforcement in Morocco, El Salvador, Thailand and India. Also in 2011, the National IPR Coordination Center, in conjunction with Interpol, conducted training programs in 11 countries, and also conducted three advanced IPR training sessions at the U.S. International Law Enforcement Academies (ILEAs) in Thailand and El Salvador for participants from 22 countries.
• The Department of State provides training funds each year to U.S. Government agencies that provide IPR enforcement training and technical assistance to foreign governments. The agencies that provide such training include the U.S. Department of Justice (DOJ), USPTO, CBP and Immigration and Customs Enforcement (ICE). In 2011, the Department of State provided funds for 12 training programs for customs, police, and judicial officials from various trading partners including the Brazil, Colombia, India, Mexico, Philippines, Thailand, and Turkey, , as well as regional groups, such as ASEAN, and through regional trainings in East, West, and Central sub-Saharan Africa. The U.S. Government works collaboratively on many of these training programs with the private sector and with various international entities such as WIPO, and with regional organizations, such as the APEC Intellectual Property Experts Group.
• The Department of Commerce's Commercial Law Development Program (CLDP) provides training to foreign lawmakers, regulators, judges, and educators. CLDP currently works with more than 35 governments and has conducted cooperative programs in Central and Eastern Europe, the Commonwealth of Independent States (CIS), the Middle East, Africa, and Asia. For example, CLDP worked with the judiciary in Mali, Bosnia-Herzegovina, and Rwanda to improve the skills necessary to fairly, efficiently, and effectively adjudicate IPR cases. CLDP likewise organized interagency bilateral IPR enforcement programs in Ukraine and Pakistan, as well as on a regional level with Armenia, Georgia, Turkey, Kenya, and the East African Community member states.
• The DOJ's Criminal Division, funded by the Department of State, and in cooperation with other U.S. agencies provided IPR enforcement training to foreign officials. Topics covered in these programs included cooperation between law enforcement agencies, prosecution under economic and organized crime statutes, and the importance of reducing counterfeiting and piracy. Major ongoing initiatives included multiple programs in Mexico and three regional conferences in Africa.

 

Trends in Trademark Counterfeiting and Copyright Piracy

The problem of counterfeiting and piracy continues to present local challenges even as it has evolved into a sophisticated global business involving the mass production and far-reaching sales of a vast array of fake goods, including items such as counterfeit medicines, health care products, food and beverages, automobile and airplane parts, toothpaste, shampoos, razors, electronics, batteries, chemicals, sporting goods, motion pictures, and music.

Legitimate producers constantly face illicit competition from trademark counterfeiting and copyright piracy operations that diminish their profits and risk harm to consumers who may purchase fraudulent, potentially dangerous products. Where there is rampant counterfeiting and piracy, governments may lose tax revenue, and may find it more difficult to attract investment. Those engaged in such illegal activity generally pay no taxes or duties, and often disregard basic standards for worker health and safety and product quality and performance. Industry reports trends in counterfeiting and piracy that include:

• Sustained growth in the piracy of copyrighted products in virtually all formats, as well as counterfeiting of trademarked goods. A reason for the rise in these criminal enterprises is that they offer enormous profits and little risk. Such enterprises require little up-front capital investment, and even when they are detected and prosecuted, the penalties imposed on them in many countries are very low and therefore offer little or no deterrence against further infringements. Instead, the penalties are viewed merely as a cost of doing business.
• Continued growth in the online sale of pirated and counterfeit hard goods that will soon surpass the volume of such goods sold by street vendors and in other physical markets. Enforcement authorities, unfortunately, face difficulties in responding to this trend. Online advertisements for the sale of illicit physical goods that are delivered through the mail or by hand are found in many places. For example, in China, although the largest Internet-based sales portals have responded to rights holders' complaints of counterfeit and pirated product listings, and even though major online sellers and distributors seem to be making efforts to ensure that the content available on their websites is legal, more than 75 percent of illicit sellers have reportedly re-listed the infringing goods.
• A surge in the use of legitimate courier services to deliver infringing goods, making it more difficult for enforcement officials to detect these goods.
• An increase in the practice of shipping of counterfeit products separately from labels and packaging in order 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 counterfeit and pirated product assemblers. There are reports of the transit of such labels through other countries as well, including Mexico and China.
• Growing challenges facing rights holders seeking to collect royalties that are legally owed for the public performance of their musical works in certain regions. This is a significant issue in the Caribbean region, including in the Bahamas, Barbados, Jamaica and Trinidad and Tobago. For example, in Trinidad and Tobago, there is ongoing litigation concerning the collection of unpaid performance royalties from cable system operators, a problem which occurs in Jamaica and in the Bahamas as well. In addition, a government owned broadcasting service in Barbados has reportedly refused to pay for a license to broadcast U.S. musical works on its network. Despite a ruling against this broadcasting service by the Barbados Supreme Court in 2007, U.S. composers have been unable to receive royalties because the government has not established a Copyright Tribunal to determine the appropriate compensation. The problem also persists in India and Vietnam, and in China where the public performance of musical works has been subject to a compulsory license since 2001, but no tariff was set until 2009 when it was ultimately set at the lowest rate in world.

Stronger and more effective criminal and border enforcement is required to stop the manufacture, import, export, transit, and distribution of pirated and counterfeit goods. Through bilateral consultations, FTAs, and international organizations, USTR is working to ensure that penalties have deterrent effects, and include significant monetary fines and meaningful sentences of imprisonment. Additionally, important elements of a deterrent enforcement system include requirements that pirated and counterfeit goods, as well as the materials and implements used for their production, are seized and destroyed.

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 trading partners such as Brazil, China, India, Indonesia, Lebanon, Peru, and Russia. The United States Government, through the United States Agency for International Development (USAID), and other agencies, supports programs in Sub-Saharan Africa and elsewhere that assist trading partners in protecting the public against counterfeit medicines introduced into their markets.

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. For instance, in China, domestic chemical manufacturers that produce API can avoid regulatory oversight by failing to declare that the bulk chemical is intended for use in pharmaceutical products. This contributes to China being a major source country for APIs used in counterfeit pharmaceutical products. Although China has taken some welcome steps, such as requiring manufacturers to register with the State Food and Drug Administration, more effective regulatory controls are needed.

 

Piracy over the Internet and Digital Piracy

The increased availability of broadband Internet connections around the world is generating many benefits, from increased economic activity and new online business models to greater access to and exchange of information. However, this phenomenon has also made the Internet an extremely efficient vehicle for disseminating copyright-infringing products, replacing legitimate markets for rights holders.

Piracy over the Internet is a significant concern in many U.S. trading partners. Unauthorized retransmission of live sports telecasts over the Internet continues to be a growing problem for many trading partners, particularly China, and "linking sites" 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 mobile telephones, tablets, 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, apps, games, and scanned books also occurs. Recent developments include the creation of "hybrid" websites that offer counterfeit goods in addition to pirated copyrighted works, in an effort to create a "one-stop-shop" for users looking for cheap or free content or goods. The United States will work with its trading partners to combat these growing problems, and urges trading partners to adequately implement the WIPO Internet Treaties, which provide tools necessary for protecting copyrighted works in the digital environment.

To encourage strong action against piracy over the Internet, the United States will seek to work with the following trading partners to strengthen legal regimes and enhance enforcement: Argentina, Belarus, Brazil, Brunei Darussalam, Canada, Chile, China, Colombia, India, Italy, Mexico, Philippines, Romania, Russia, Spain, Switzerland, Thailand, Turkey, Ukraine, Venezuela, and Vietnam. In particular, the United States will encourage trading partners to implement the WIPO Internet Treaties, which will provide, among other things, protection against the circumvention of technological protection measures. Regarding Switzerland in particular, the United States has serious concerns regarding the inability of rights holders to secure legal redress involving copyright piracy over the Internet. The United States strongly encourages Switzerland to combat online piracy vigorously and to ensure that rights holders can protect their rights on the Internet. The United States also encourages trading partners to adopt appropriate measures where needed with respect to the unauthorized camcording of motion pictures in theaters. Material that is recorded in this manner is often distributed without authorization over the Internet. In addition, the United States will encourage trading partners to enhance enforcement efforts including, for example, through the following: strengthening enforcement against major channels of piracy over the Internet, including notorious markets; creating specialized enforcement units or undertaking special initiatives against piracy over the Internet; and undertaking training to strengthen capacity to fight piracy over the Internet.

Although piracy over the Internet is rapidly supplanting physical piracy in many markets around the world, the production of, and trade in, pirated optical discs remain major problems in many regions. In recent years, some trading partners, such as the Czech Republic, Poland, Romania, and Russia, have made progress toward implementing controls on optical media production. Other trading partners still need to adopt and implement legislation or improve existing measures to combat illegal optical disc production and distribution, including China, India, Paraguay, and Vietnam. The United States continues to urge those trading partners who face challenges of illegal optical disc production to pass effective legislation to counter this problem, and to enforce existing laws and regulations aggressively.

 

Trade Secrets and Forced Technology Transfer

Companies in a wide variety of industry sectors – including information and communication technologies, services, biopharmaceuticals, manufacturing, and environmental technologies – rely on the ability to protect their trade secrets and other proprietary information. Indeed, trade secrets are often among a company's core business assets, and a company's competitiveness may depend on its capacity to protect such assets.

The theft of trade secrets and other forms of economic espionage results in significant costs to U.S. companies, and threatens the economic security of the United States. If a company's trade secrets are stolen, its past investments in research and development, and its future profits, may be lost.

U.S. companies are experiencing an increase in the theft of their trade secrets outside of the U.S. The United States urges its trading partners to ensure that they have robust systems for protecting trade secrets, including deterrent penalties for criminal trade secret theft.

Another troubling trend involving trade secrets and other IPR is an increasing tendency of governments to adopt trade-distortive policies, which are sometimes designed to promote "indigenous innovation." These policies include:

• Requiring the transfer of technology as a condition for allowing access to a market, or for allowing a company to continue to do business in the market.
• Directing state-owned enterprises in innovative sectors to seek non-commercial terms from their foreign business partners, including with respect to the acquisition and licensing of IPR.
• Failing to effectively enforce IPR, including patents, trademarks, trade secrets, and copyrights, thereby allowing firms to gain competitive advantages from their misappropriation or infringement of another's IPR.
• Failing to take meaningful measures to prevent or deter cyber-espionage.
• Requiring use of, or providing preferences to, products or services in which IPR is either developed or owned locally, including with respect to government procurement.
• Manipulating the standards development process to create unfair advantages for domestic firms, including with respect to the terms on which IPR is licensed.
• Requiring unnecessary disclosure of confidential business information for regulatory approval, or failing to protect that information.

The United States urges its trading partners to reject such policies. Further, the United States urges that, in adopting innovation and other policies, trading partners take account of the increasingly cross-border nature of commercial research and development, and of the importance of voluntary and mutually agreed-upon commercial partnerships.

The United States notes in this context that strong IPR protection can provide incentives for the voluntary transfer of critical green goods and services, and can promote economic growth and create jobs, particularly in developing and least-developed countries that need these benefits most. IPR protection is essential to facilitate access to and transfer of today's environmental technologies, and to promote tomorrow's innovation. Without IPR, many of the technologies on which we rely today and will rely upon in the future would not have been developed. Without such technologies, inventors and consumers alike would be deprived of critical advances with respect to key environmental challenges, including the mitigation of, and adaptation to, climate change. In addition, firms are likely be reluctant to enter into technology transfer arrangements in countries with weak IPR enforcement regimes. Intellectual property rights are thus a key driver of private sector investment. The United States continues to work internationally to ensure robust IPR protection and enforcement, which gives inventors and creators the confidence to invest in the production, adoption and delivery of green technology goods and services without fear of misappropriation, or outright theft, of their IPR.

 

Trademarks and Domain Name Disputes

A growing area of concern for trademark holders is the protection of their trademarks against unauthorized uses under country code top level domain name (ccTLD) extensions. U.S. rights holders risk losing valuable Internet traffic because of such uses. A related and growing concern is that ccTLDs lack transparent and predictable uniform domain name dispute resolution policies (UDRPs). Effective UDRPs should assist in the quick and efficient resolution of these disputes.

The United States encourages its trading partners to provide procedures that allow for the protection of trademarks used in domain names, and to ensure that dispute resolution procedures are available to effectively enforce against the misuse of trademarks.

 

Government Use of Software

Under Executive Order 13103 issued in September 1998, U.S. Government agencies maintain procedures to ensure that they use only authorized business software. Pursuant to the same directive, USTR has undertaken an initiative to work with other governments, particularly in countries that are modernizing their software systems or where concerns have been raised, to stop governmental use of illegal software. Considerable progress has been made under this initiative, leading to numerous trading partners mandating that only authorized, legitimate software may be used by their government bodies. Further work on this issue remains with certain trading partners, such as China, India, Pakistan, Paraguay, Peru, Tajikistan, and Ukraine and Vietnam. The United States looks forward to these trading partners' adoption of effective and transparent procedures to ensure legitimate governmental use of software.

 

Intellectual Property and Health Policy

Numerous comments in the 2012 Special 301 review highlighted important concerns arising at the intersection of IPR policy and health policy. The 2001 WTO Doha Declaration on the TRIPS Agreement and Public Health recognized the gravity of the public health problems afflicting many developing and least-developed countries, especially those resulting from HIV/AIDS, tuberculosis, malaria, and other epidemics. As affirmed in the Doha Declaration on TRIPS and Public Health, the United States respects a trading partner's right to protect public health and, in particular, to promote access to medicines for all, and supports the vital role of the patent system in promoting the development and creation of new and innovative lifesaving medicines. The assessments set forth in this Report are based on various critical factors, including, where relevant, the Doha Declaration on TRIPS and Public Health.

Consistent with these views, the United States respects its trading partners' rights to grant compulsory licenses in a manner consistent with the provisions of the TRIPS Agreement, and encourages its trading partners to consider ways to address their public health challenges while maintaining IPR systems that promote investment, research, and innovation.

The United States is firmly of the view that international obligations such as those in the TRIPS Agreement have sufficient flexibility to allow trading partners to address the serious public health problems that they may face. The United States strongly supports the WTO TRIPS/health solution concluded in August 2003, in which members are permitted, in accordance with specified procedures, to issue compulsory licenses to export pharmaceutical products to countries that cannot produce drugs for themselves. The General Council adopted a Decision in December 2005 that incorporated this solution into an amendment to the TRIPS Agreement, and later that month the United States became the first WTO member to formally accept this amendment. The United States hopes that at least two-thirds of the WTO membership accept this amendment by the December 31, 2013 deadline, at which point the amendment will go into effect for those accepting members. The August 2003 waiver will remain in place and available until the amendment takes effect.

The United States will work to ensure that the provisions of its bilateral and regional trade agreements, as well as U.S. engagement in international organizations, including the United Nations and related institutions such as WIPO and the World Health Organization, are consistent with U.S. Government policies concerning IPR and health policy and do not impede its trading partners from taking necessary measures necessary to protect public health. Accordingly, USTR will continue its close cooperation with relevant agencies to ensure that public health challenges are addressed and IPR protection and enforcement are supported as mechanisms to promote research and innovation.

To further this cooperation, USTR has convened a new subcommittee of the interagency Trade Policy Staff Committee, called "Trade Enhancing Access to Medicines" (TEAM), which is intended to further facilitate communication and collaboration toward this shared objective. With the understanding that trade policy tools can impact only some of the relevant issues, the subcommittee is designed to investigate how to best deploy the tools of trade policy to further the Administration's objective of promoting trade in, reducing obstacles to, and enhancing access to both innovative and generic medicines. The subcommittee is currently composed of representatives of diverse offices within the United States Government, including, those from: the Office of the Global AIDS Coordinator, International Health and Biodefense, USAID, and the Bureau for Economic Affairs, within the Department of State; the Office of Global Affairs, and the Food and Drug Administration, within the Department of Health and Human Services; the Department of Commerce; the Department of the Treasury; and several government officials with relevant expertise.

 

Supporting Pharmaceutical and Medical Device Innovation through Improved Market Access

Among other mechanisms to support pharmaceutical and medical device innovation, USTR has sought to reduce market access barriers that U.S. pharmaceutical and medical device companies face in many countries, and to facilitate both affordable health care today and the innovation that assures improved health care tomorrow. For example, this year's Special 301 Report highlights concerns regarding market access barriers affecting pharmaceutical products in Algeria and Indonesia.

Even where a trading partner's IPR regime demonstrates a commitment to strong IPR protection, other types of measures have the potential to affect market access in the pharmaceutical and medical device sector. For example, government practices including unreasonable regulatory approval delays and potentially unfair reimbursement policies can discourage the development of new drugs and other medical products. The criteria, rationale, and operation of such measures are often nontransparent or not fully disclosed to patients or to pharmaceutical and medical device companies seeking to market their products. USTR encourages trading partners to provide appropriate mechanisms for transparency, procedural and due process protections, and opportunities for public engagement in the context of their relevant health care systems.

U.S. industry has expressed concerns regarding the policies of several industrialized trading partners, including Finland, Germany, Greece, Japan, Korea, New Zealand, Poland, Turkey and Taiwan, on issues related to innovation in the pharmaceutical sector and other aspects of health care goods and services. Examples include:

• With respect to Poland, U.S. industry is concerned about healthcare reform legislation introduced in 2010 that would alter Poland's pricing, reimbursement, and clinical trials policies. Industry continues to express concern about the pharmaceutical industry's general lack of ability to meet with the Ministry of Health to provide their perspectives on policy initiatives.
• With respect to New Zealand, U.S. industry has expressed serious concerns about the policies and operation of New Zealand's Pharmaceutical Management Agency (PhARMAC). Industry continues to express concerns regarding, among other things, the lack of transparency, fairness, and predictability of the PhARMAC pricing and reimbursement regime, as well as the negative aspects of the overall climate for innovative medicines in New Zealand.
• With respect to Turkey, U.S. industry expresses concern regarding the lack of fairness and the slow pace of pharmaceutical manufacturing inspections.

The United States is seeking to establish or continue dialogues with relevant trading partners to address these and other sectoral concerns, and encourage a common understanding on questions related to innovation in the pharmaceutical and medical device sectors. For example, the United States-Korea Free Trade Agreement will improve access to innovative medical products and ensure the transparent, predictable, and non-discriminatory pricing and reimbursement of innovative and generic pharmaceutical products, and medical devices. The United States is also continuing its engagement with China to promote fair and transparent policies in this sector.

The United States shares policy goals and concerns related to health care with other countries, including challenges surrounding aging populations and rising health care costs. The United States also shares the objective of continued improvement in the health and quality of life of its citizens, and the objective of delivering care in the most efficient and responsive way possible. The United States looks forward to engaging with these trading partners to address specific concerns related to reimbursements, regulatory policies, and transparency.

 

Implementation of the WTO TRIPS Agreement

The TRIPS Agreement, one of the most significant achievements of the Uruguay Round, requires all WTO members to provide certain minimum standards of IPR protection and enforcement. The TRIPS Agreement is the first broadly-subscribed multilateral IPR agreement that is subject to mandatory dispute settlement provisions.

Developed country members were required to implement the TRIPS Agreement fully as of January 1, 1996. Developing countries were given a transition period for many obligations until January 1, 2000, and in some cases, until January 1, 2005. Nevertheless, certain members are still in the process of finalizing implementing legislation, and many are still engaged in establishing adequate and effective IPR enforcement mechanisms.

Recognizing the particular challenges faced by least-developed countries (LDCs), in 2005 the United States worked closely with them and other WTO members to extend the implementation date for these countries from January 2006 to July 2013. The LDC members in turn pledged to preserve the progress that some have already made toward TRIPS Agreement implementation. Additionally, the LDC members have until 2016 to implement their TRIPS Agreement obligations for patent and data protection for pharmaceutical products, as proposed by the United States at the Doha Ministerial Conference of the WTO.

In December 2011, WTO Ministers decided to invite the TRIPS Council to give full consideration to a duly motivated request from LDC members for an extension of the TRIPS Agreement transition period. The U.S. supports this decision and looks forward to continuing to work with LDCs and other WTO members in this regard.

The United States participates actively in the WTO TRIPS Council's scheduled reviews of WTO members' implementation of the TRIPS Agreement and also uses the WTO's Trade Policy Review mechanism to pose questions and seek constructive engagement on issues related to TRIPS Agreement implementation. Furthermore, the United States continues to work with other WTO members to encourage a discussion within the WTO TRIPS Council on implementation of the enforcement-related provisions of the TRIPS Agreement. The United States hopes that the TRIPS Council can generate a useful sharing of experiences related to IPR enforcement to ensure effective implementation of enforcement obligations.

 

WTO Dispute Settlement

The United States will continue pursuing the resolution of WTO-related disputes announced in previous Special 301 reviews and determinations. The most efficient and preferred manner of resolving concerns is through bilateral dialogue. Where these efforts are unsuccessful, the United States will not hesitate to use the dispute settlement procedures, as appropriate.

In April 2007, the United States requested WTO dispute settlement consultations with China over deficiencies in China's legal regime for protecting and enforcing copyrights and trademarks on a wide range of products. After those consultations failed to resolve the matter, the United States requested the establishment of a WTO panel. A WTO panel was established to examine this matter on September 25, 2007. On March 20, 2009, the WTO Dispute Settlement Body (DSB) adopted a panel report finding in favor of the United States that found (1) China's denial of copyright protection to works that do not meet China's content review standards is impermissible under the TRIPS Agreement; and (2) China's Customs rules cannot allow seized counterfeit goods to be publicly auctioned after only removing the infringing mark. With respect to the third claim concerning China's thresholds for criminal prosecution and conviction of counterfeiting and piracy, while the United States prevailed on the interpretation of the important legal standards in Article 61 of the TRIPS Agreement, including the finding that criminal enforcement measures must reflect and respond to the realities of the commercial marketplace, the panel found that it needed additional evidence before it could uphold the overall U.S. claim that China's criminal thresholds are too high. On April 15, 2009, China notified the DSB that China intended to implement the recommendations and rulings of the DSB in this dispute, and stated it would need a reasonable period of time for implementation. On June 29, 2009, the United States and China notified the DSB that they had agreed on a one-year period of time for implementation, to end on March 20, 2010. On March 19, 2010, China announced that it had completed all the necessary domestic legislative procedures to implement the DSB recommendations and rulings. The United States continues to monitor China's implementation of the DSB recommendations and rulings in this dispute.

In addition, the United States requested WTO dispute settlement consultations with China concerning certain other Chinese measures affecting distribution and market access for publications, movies, and music, and audio-visual home entertainment (e.g. DVDs, Blu-ray discs, etc. "AVHE") products. The U.S. claims challenged China's prohibition on foreign companies' importation of all products at issue; China's prohibitions and discriminatory requirements imposed on foreign distributors of publications, music, and AVHE products within China; and China's imposition of more burdensome requirements on the distribution of imported publications, movies, and music vis-à-vis their domestic counterparts. A WTO panel was established to examine this matter on November 27, 2007. On August 12, 2009, the panel found in favor of the United States on the vast majority of its claims. China subsequently appealed certain of the panel's findings. On December 21, 2009, the WTO Appellate Body rejected each of China's claims on appeal and sustained the panel's findings in those respects. On January 19, 2010, the DSB adopted the panel and Appellate Body reports. China committed to bring all relevant measures into compliance with the DSB recommendations by March 19, 2011. China subsequently revised or revoked several measures relating to reading materials, AVHE products, and sound recordings. China did not issue any measures relating to theatrical films, but instead proposed bilateral discussions. The United States and China reached agreement in February 2012 on the terms of a Memorandum of Understanding that provides significantly increased market access for imported films and improved compensation for foreign film producers. The United States continues to review and monitor the steps that China has taken toward compliance in this matter.

Following the 1999 Special 301 review, the United States initiated dispute settlement consultations concerning the EU regulation on food-related GIs, which appeared to discriminate against foreign products and persons, notably by requiring that EU trading partners adopt an "EU-style" system of GI protection, and appeared to provide insufficient protections to trademark owners. On April 20, 2005, the DSB adopted a panel report finding in favor of the United States that the EU GI regulation is inconsistent with the EU's obligations under the TRIPS Agreement and the General Agreement on Tariffs and Trade 1994. On March 31, 2006, the EU published a revised GI Regulation that is intended to comply with the DSB recommendations and rulings. There remain some concerns, however, with respect to this revised GI Regulation, which the United States has asked the EU to address, and the United States intends to continue monitoring this situation. The United States is also working intensively through bilateral and multilateral fora to advance U.S. market access interests, and to ensure that the trade initiatives of other countries, including with respect to GIs, do not undercut our market access.

 

Interagency Trade Enforcement Center

In his State of the Union address on January 24, 2012, President Obama announced the creation of the Interagency Trade Enforcement Center (ITEC). Thereafter, on February 28, 2012, the President issued an Executive Order that established the ITEC. The ITEC will serve as the primary forum within the federal government for USTR and other agencies to coordinate enforcement of obligations under international trade agreements, which can include the identification of unfair trade practices and barriers that involve IPR.