Special 301 Report/2013/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 Office of the United States Trade Representative (USTR) is to support and implement the Administration's commitment to aggressively protect American intellectual property (IP) 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, IPR infringement endangers the public. Some counterfeit products, such as semiconductors, 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 U.S. 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 2012 and early 2013:

• Bahamas – The United States welcomes recent action by the Copyright Royalty Tribunal to pay royalties due to U.S. rights holders. These royalties had been collected under a now repealed provision of the 1998 Bahamian Copyright Law which until 2009 allowed the government-owned Cable Bahamas to retransmit and sell pay television programming of U.S. rights holders without their authorization. The United States notes, however, that royalties have yet to be paid to representatives of songwriters for the public performance of their works under this regime. The United States looks forward to such action in the near term.
• Brunei Darussalam – Brunei has been removed from the Watch List in 2013. Brunei has significantly increased its focus on IPR protection and enforcement in recent years, through substantial and meaningful enforcement efforts, including both civil and – for the first time – criminal actions. Brunei recently created its first patent office and enacted patent law amendments that significantly strengthen its patent regime. Brunei has also announced recently that it is taking steps to join the WIPO Internet Treaties. While concerns remain in some areas, including with respect to Brunei's implementation of data protection regulations and IPR border enforcement, particularly against transshipments, the United States is removing Brunei from the Watch List in recognition of the significant IPR legal reforms and commitments referenced above. The United States will continue to work closely with Brunei to ensure that progress is sustained and to address remaining areas of concern, including through the Trans-Pacific Partnership negotiations.
• Canada – Canada enacted the long-awaited Copyright Modernization Act in 2012, which, among other things, is designed to implement Canada's obligations under the WIPO Internet Treaties and address the challenges of copyright piracy in the digital age. In 2013, Canada also introduced a bill designed to strengthen IPR enforcement, including by providing ex officio authority to customs officials. In light of these important developoments, the United States is moving Canada from the Priority Watch List to the Watch List in this year's Special 301 Report.
• China – The Supreme People's Court of China issued a judicial interpretation (JI), effective January 1, 2013, on the liability of Internet intermediaries ("Rules of Supreme Court on Several Issues Concerning the Application of Law in Adjudication of Civil Disputes Related to Infringement of Right of Communication over Information Networks"). This JI builds on a Joint Commission Commerce and Trade (JCCT) commitment to make clear that those who facilitate online infringement will be held jointly liable for that conduct. The United States looks forward to appropriate implementation of this JI.
• Israel – Israel enacted a law improving its procedures for the publication of patent applications. Furthermore, in light of progress toward implementing the Memorandum of Understanding with the United States that was signed in 2010, the United States moved Israel from the Priority Watch List to the Watch List in September of 2012.
• Lao People's Democratic Republic – The Lao PDR became the 158th member of the World Trade Organization on February 2, 2013, and in connection with its accession, enacted a sweeping reform of its laws governing the protection and enforcement of IPR.
• Panama – On October 31, 2012, the United States-Panama Trade Promotion Agreement entered into force, providing for strong standards for the protection and enforcement of IPR.
• Philippines – The Philippines passed long-awaited legislation to implement the WIPO Internet Treaties and to provide ex officio authority for customs officials. While the United States hopes that additional clarifying provisions will be included in implementing regulations, the United States applauds these developments. Additional challenges remain with respect to addressing piracy over the Internet, in particular notorious online markets, and the need to strengthen IPR enforcement efforts. The United States looks forward to working with the Philippines in the coming year to address these issues and will review its Special 301 status if the Philippines continues to achieve progress in key areas.
• Russia – In December 2012, the United States and Russia developed an IPR Action Plan that addresses the areas of greatest mutual concern in IPR protection and enforcement. Russia also enacted a law to establish a specialized IPR court in 2013 and amended its Criminal Code to revise criminal thresholds for copyright piracy.
• Taiwan – In January 2013, Taiwan's Government passed amendments to the Trade Secret Act to increase deterrent penalties for trade secret misappropriation, including enhanced penalties to deter cross-border theft. Taiwan also launched a two-year pilot program to help create a more stable market for medicines, including innovative medicines, in Taiwan's health care system. The United States will engage closely with Taiwan in the implementation of its legal reforms and pilot program, and with respect to other legislation on IPR protection.
• Turkey – In 2012, the Turkish National Police State Security Department, with the approval of the Minister of the Interior, established specialized enforcement offices for IP crimes in 81 cities in Turkey.

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 (TPP) Agreement: The Trans-Pacific Partnership is a key initiative through which the United States seeks to advance the multifaceted 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, in addition to Canada and Mexico, which joined negotiations in 2012. The United States also welcomes Japan's participation in the TPP negotiations once each of the current TPP countries successfully completes its respective domestic process for approving that participation. The TPP negotiations are being undertaken with this group of like-minded countries with the goal of creating a platform for integration across the region, including strong standards for the protection and enforcement of IPR in the 21st century.
• Transatlantic Trade and Investment Partnership (TTIP) Agreement: On February 13, 2013, the United States and the European Union announced that they will each initiate the internal procedures necessary to launch negotiations on the TTIP. On March 20, 2013, the USTR notified Congress of the President's intent to enter into negotiations for a trade agreement with the EU. The United States and the EU provide among the highest levels of IPR protection and among the most robust IPR enforcement in the world. Together, the United States and the EU have developed mechanisms, including the Transatlantic IPR Working Group, to successfully cooperate on IPR matters, including in third countries and international organizations. Through the TTIP Agreement, the United States is committed to promoting a high level of IPR protection and enforcement, and to sustaining and enhancing its work with the EU on IPR issues.
• 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 WTO Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS Council), and WTO's Dispute Settlement Body. In the past year, the United States sponsored discussions in the TRIPS Council on the positive role of IPR protection and enforcement in contributing to national innovation environments, including with respect to small and medium sized enterprises. These discussions, which involved contributions from a broad array of WTO Members, including developed, developing, and least-developed countries, addressed national IPR strategies to promote innovation, focusing in particular on the role IPR plays in driving critical financing, commercialization, and partnerships to bring ideas to market.
• 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.
• Anti-Counterfeiting Trade Agreement (ACTA): On October 5, 2012, Japan became the first signatory to ACTA to deposit its instrument of acceptance. The United States is working with Japan and other negotiating parties to bring the ACTA into force. The ACTA effort, launched in October 2007, brought together a number of countries prepared to embrace strong IPR enforcement through a new agreement calling for cooperation, strong enforcement practices, and a strong legal framework. ACTA signatories are Australia, Canada, Japan, South Korea, Mexico, Morocco, New Zealand, Singapore, and the United States. The European Union and 22 EU Member States signed the Agreement in January 2012, but it was not approved by the European Parliament. For signatories, the next step towards bringing the ACTA into force is to deposit instruments of ratification, acceptance, or approval. The ACTA will enter into force for those signatories thirty days following the deposit of the sixth such instrument. Consistent with the Administration's emphasis on IPR enforcement, the ACTA intensifies efforts against the global proliferation of commercial-scale counterfeiting and piracy in the 21st century. The ACTA includes innovative provisions to deepen international cooperation and to promote strong enforcement practices, and will ultimately help sustain American jobs in innovative and creative industries.
• Trade Preference Program Reviews: USTR, in coordination with other agencies, 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 and the Caribbean Basin Trade Partnership Act.
• Expanded International Cooperation: USTR, in coordination with other U.S. Government 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, in the G-8, and in the Asia Pacific Economic Cooperation (APEC), Organization for Economic Cooperation and Development (OECD) and other multilateral and regional fora.

 

Trade Secrets and Forced Technology Transfer

This year's Special 301 Report reflects increased emphasis on the need to protect trade secrets. 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, which results in significant costs to U.S. companies and threatens the economic security of the United States, appears to be escalating. If a company's trade secrets are stolen, its past investments in research and development, and its future profits, may be lost. Moreover, trade secret theft threatens national security and the U.S. economy, diminishes U.S. prospects around the globe, and puts American jobs at risk.

For these reasons, the United States is concerned by the apparent growth of trade secret theft, particularly in China. Thefts may arise in a variety of circumstances, including those involving departing employees, failed joint ventures, cyber intrusion and hacking, and misuse of information submitted to government entities for purposes of complying with regulatory obligations. In practice, remedies under Chinese law are difficult to obtain. The U.S. National Counterintelligence Executive has stated that "Chinese actors are the world's most active and persistent perpetrators of economic espionage." Public reports, such as a recent report published by the independent information security firm Mandiant have further indicated that actors affiliated with the Chinese military and Chinese Government have systematically infiltrated the computer systems of over one hundred U.S. companies and stolen hundreds of terabytes of data, including all forms of trade secrets, such as proprietary technology, manufacturing processes, and confidential business information.

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. USTR will monitor developments in this area. For example, a notable positive development was Taiwan's amendment of its Trade Secrets Act, effective in February 2013, to increase criminal and civil penalties for corporate IP theft, including enhanced sanctions of up to 10 years imprisonment for trade secrets stolen and transferred to other countries. The United States welcomes Taiwan's positive action on this important issue.

On February 20, 2013, the U.S. Intellectual Property Enforcement Coordinator issued the Administration Strategy on Mitigating the Theft of U.S. Trade Secrets. The Strategy highlights U.S. efforts to combat the theft of trade secrets that could be used by foreign governments or companies to gain an unfair economic advantage by harming U.S. innovation and creativity, including:

• Focusing diplomatic efforts to protect trade secrets overseas, which include sustained and coordinated engagement with trading partners, the use of trade policy tools (including through the use of the Special 301 Report), cooperation, and training, among others;
• Promoting voluntary best practices by private industry to protect trade secrets, including information security, physical security, and human resources policies;
• Enhancing domestic law enforcement operations, especially through the activities of the Department of Justice, Federal Bureau of Investigations, Department of Defense, and the National IPR Coordination Center;
• Improving domestic legislation to protect against trade secret theft, as exemplified by the Theft of Trade Secrets Clarification Act of 2012, which clarified provisions in the Economic Espionage Act with respect to the theft of trade secret source code, and the Foreign and Economic Espionage Penalty Enhancement Act of 2012, which increased criminal penalties for economic espionage; and
• Conducting public awareness campaigns and stakeholder outreach to encourage all stakeholders to be aware of the dangers of trade secret theft.

The threat of trade secret theft is not the only way that foreign actors may seek to undermine U.S. commercial advantages. In addition to protecting against theft of trade secrets, the United States continues to urge trading partners to reject trade-distortive policies, which are sometimes designed to promote "indigenous innovation" by forcing U.S. companies to hand over valuable commercial information. 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 intrusions.
• 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 such information.

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.

IPR protection is essential to facilitate access to and transfer of today's technologies, and to promote tomorrow's innovation. Without IPR incentives, many of the technologies on which we rely today and will rely upon in the future would not have been developed. For example, in the field of environmental technologies, 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. 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 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 goods and services without fear of misappropriation, or outright theft, of their IPR.

 

Best IPR Practices by Trading Partners

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

• USTR continues to encourage trading partners to work with the United States to develop mutually agreed-upon action plans to advance the protection and enforcement of IPR. USTR welcomes the action plan with Russia announced in December 2012, and is working with several trading partners to develop action plans to address 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 continue to report that a foreign government's transparency in developing legislative or regulatory changes and procedures, as well as its meaningful engagement with them, make it is easier for those stakeholders to comply with legislative or regulatory changes.
• Cooperation among different government agencies is another example of a best practice. Several countries including the United States, have introduced IPR enforcement coordination mechanisms to enhance interagency cooperation. The United States encourages further such efforts internationally.
• 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 government in the world to share its patents with the Medicines Patent Pool, an independent foundation hosted by the World Health Organization (WHO), 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 medicines, primarily used to treat drug-resistant HIV infections. 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 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. 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) Office of Policy and External Affairs' 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 U.S. Copyright Office, conduct conferences and training symposia in Washington, D.C. In March 2012, for example, the Copyright Office, with co-sponsorship from WIPO, hosted an international training symposium for representatives from 17 developing countries and countries in transition on emerging issues in copyright and related rights.

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 2012, GIPA provided training to 9,217 foreign IPR officials from 130 countries, through 140 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 69 percent of all attendees reported that they had taken some steps to implement positive policy change in their respective organizations.
• GIPA also has produced seven free distance-learning modules, available on its website in multiple languages (English, Spanish, French, Arabic, and Russian). There have been over 32,000 hits on those modules since being placed on our site in early 2010.
• 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 Association of Southeast Asian Nations (ASEAN), the African Regional Intellectual Property Organization (ARIPO), WIPO, and the International Union for the Protection of New Varieties of Plants (UPOV), 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 2012, the Immigration and Customs Enforcement (ICE) Homeland Security Investigations (HSI), through the National IPR Coordination Center (IPR Center) and in conjunction with INTERPOL, conducted training programs in Ecuador, Panama, India, South Korea, and Taiwan. ICE-HSI trained officials from Chile, Ecuador, El Salvador, Guatemala, Mexico, Nicaragua, Panama, Paraguay, Peru, and Uruguay, as well as police from India, South Korea, and Taiwan. The IPR Center also conducted Advanced ILEA trainings in El Salvador, Hungary, and Peru for participants from 19 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 ICE. In 2012, the Department of State provided funds for 15 training programs for customs, police, and judicial officials from various trading partners including Bangladesh, Brazil, Cambodia, Mexico, Paraguay, and Ukraine, as well as regional trainings in the Balkans and Eastern Europe, and in 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.
• IPR protection is a main focus of the government-to-government technical assistance provided by the Commerce Department's Commercial Law Development Program (CLDP). CLDP programs address enforcement and adjudication of disputes, as well as IPR protection and its impact on the economy, IPR law compliance with the WTO Agreement on Trade-Related Aspects of Intellectual Property (TRIPS), IPR curricula in law schools, and public awareness campaigns. In 2012, CLDP supported capacity building in innovation and technology transfer in Armenia, Georgia, Egypt, Iraq, and Pakistan, as well as in patent examination in Iraq and copyright management in Georgia. CLDP worked with the judiciary in Bosnia-Herzegovina, Georgia, Mali, and Ukraine to improve the skills to effectively adjudicate IPR cases and conducted interagency coordination programs in Ukraine and in Kenya with the East African Community (EAC).
• 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 regional events in Africa.

The United States reports annually to the WTO on its IPR capacity building efforts, including most recently in October 2012 (see "Technical Cooperation Activities: Information from Members – United States", IP/C/W/582/Add.6).

 

Trends in Trademark Counterfeiting and Copyright Piracy

The problems of trademark counterfeiting and copyright piracy continue on a global scale, involving the mass production and far-reaching sales of a vast array of fake goods, including counterfeit semiconductors, medicines, health care products, food and beverages, automobile parts, such as air bags, aircraft parts, apparel and footwear, toothpaste, shampoos, razors, electronics, batteries, chemicals, sporting goods, motion pictures, and music.

Consumers, legitimate producers, and governments are all harmed by rampant trademark counterfeiting and copyright piracy. Consumers may be harmed by fraudulent and potentially dangerous products including fake medicines, auto and airplane parts, as well as through fake semiconductors that may cause critical equipment to fail. Producers face the risk of diminished profits and loss of reputation when consumers who may purchase fake products and governments may lose tax revenue and may find it more difficult to attract investment. Infringers 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. The involvement of criminal enterprises continues to rise, often because piracy and counterfeiting 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 express mail shipments or by small consignments are found in many places.
• A continued increase 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 Canada reportedly sell fake certificates of authenticity for illicit software programs. There are also reports of the importation of packaging, labels, and other components separate from the infringing good into Vietnam for assembly and further distribution.
• The emergence of Media Box piracy, whereby "boxes," often with capability to play high definition content, are loaded with large quantities of pirated works. These boxes may be sold with preloaded content, but can later have new content uploaded for a relatively low fee. Boxes may be purchased online, with the user's chosen content, and delivered via postal service, or may have online capabilities allowing consumers to download infringing content from the Internet or through downloadable apps. This problem has been reported in China, Indonesia, Malaysia, Taiwan, Thailand, and Vietnam.

The United States continues to urge stronger and more effective criminal and border enforcement to stop the manufacture, import, export, transit, and distribution of pirated and counterfeit goods. USTR engages extensively with its trading partners through bilateral consultations, FTAs, and international organizations, 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 U.S. 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, the 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 have avoided regulatory oversight by failing to declare that a 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 websites that link to infringing content are exacerbating the problem. In addition, piracy using new technologies, such as media boxes, 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, U.S. industry reports the emergence of pirate servers, or "grey shards," whereby players of cloud-based entertainment software access these unauthorized servers to play copyrighted video games that are made available through hacked software and/or circumvention of the rights holders' technological protection measures.

Also of concern is the distribution over the Internet of software that allows for the circumvention of technological protection measures used by rights holders to protect their content. A particularly troubling example is that of SlySoft, a company headquartered and operating in Antigua, which developed and sells a program called "Any DVD HD" enabling the user to defeat the encryption technology embedded in Blu-ray Discs that prevents unauthorized reproduction and distribution. Antigua's Copyright Act makes it illegal to manufacture or import for sale or rental any such circumvention device. The consortium of electronic manufacturers, software companies, and motion picture studios that developed these technological protection measures has worked with the criminal enforcement authorities in Antigua for over 5 years to enforce this statute and have this case prosecuted. However this case has proceeded very slowly.

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 effective 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, Chile, China, Colombia, India, Indonesia, Italy, Mexico, Philippines, Romania, Russia, Spain, Switzerland, Taiwan, 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.

The United States continues to have serious concerns regarding the inability of rights holders to secure legal redress in Switzerland in cases involving copyright piracy over the Internet. The United States strongly encourages Switzerland to demonstrate its commitment to copyright protection and to combating online piracy vigorously, including by taking steps to ensure that rights holders can protect their rights. The United States will be closely monitoring the results of the current AGUR12 ("Arbeitsgruppe Urheberrecht 2012," or "Working Group on Copyright 2012") process as well as the Swiss Ministry of Economy (SECO)-led roundtable process.

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 encourages trading partners to enhance enforcement efforts including 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 regarding illegal optical disc production to pass effective legislation to counter this problem, and to enforce existing laws and regulations aggressively.

 

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 face significant trademark infringement, as well as losing valuable Internet traffic because of such uses. A related and growing concern is that certain 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, Costa Rica, India, Pakistan, Paraguay, Peru, Tajikistan, Turkey, Ukraine, and Vietnam. The United States urges trading partners to adopt and implement effective and transparent procedures to ensure legitimate governmental use of software.

 

Intellectual Property and Health Policy

Numerous comments in the 2013 Special 301 review highlighted important concerns arising at the intersection of IPR policy and health policy.

IP plays an important role in providing the incentives necessary for the development and marketing of new medicines. An effective, transparent, and predictable IP system is necessary for both manufacturers of innovative medicines and manufacturers of generic medicines.

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.

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. Consistent with this view, 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 innovation.

The United States also strongly supports WTO General Council Decision on the Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health (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 WHO, 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 one of various mechanisms to promote research and innovation.

 

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.

Various measures have the potential to affect market access in the pharmaceutical and medical device sector. For example, taxes or tariffs may be levied on medicines and the increased expense associated with those levies is then passed directly to healthcare institutions and patients. Discriminatory and non-transparent regulatory regimes, unnecessarily burdensome customs requirements, and other trade barriers also hinder market access. For example, this year's Special 301 Report highlights concerns regarding market access barriers affecting pharmaceutical products in Algeria and Indonesia.

In this respect, the United States notes that, according to a October 2012 WTO report entitled "More Trade for Better Health?, International Trade and Tariffs on Health Products", India maintains the highest tariffs on medicines, inputs to medicines and medical devices among the WTO members identified in the report. These tariffs, combined with burdensome internal charges and regulatory challenges facing pharmaceuticals and medical devices, can hinder the Indian government's efforts to promote increased access to healthcare products.

Moreover, government practices including unreasonable regulatory approval delays and unfairness that may arise from non-transparent 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 developed trading partners, including Finland, Germany, Greece, Hungary, Italy, Korea, New Zealand, Poland, Portugal, Romania, Spain, 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 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 continues to express significant 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. 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 on the concerns noted above.

 

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 country Members 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 country (LDC) Members, 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 invited the TRIPS Council to give full consideration to a request from LDC Members for an extension of the TRIPS Agreement transition period. The United States looks forward to continuing to work on a mutually agreeable solution with LDC and other WTO Members on these issues, including at the June 2013 meeting of the WTO TRIPS Council.

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.

 

WTO Dispute Settlement

The United States continues to monitor the resolution of disputes announced in previous Special 301 reviews. 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 WTO dispute settlement procedures, as appropriate.

In April 2007, the United States initiated dispute settlement procedures relating to deficiencies in China's legal regime for protecting and enforcing copyrights and trademarks on a wide range of products. In March 2009, the WTO Dispute Settlement Body (DSB) adopted a panel report that had found, in favor of the United States, that (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 a 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 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 market access and distribution for imported publications, movies, and music, and audio-visual home entertainment products (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. On January 19, 2010, the DSB adopted panel and Appellate Body reports that found in favor of the United States on the vast majority of its claims. China committed to bring all relevant measures into compliance with the DSB recommendations by March 19, 2011, and subsequently revised or revoked several measures relating to publications, AVHE products, and music. 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 significantly 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) to take a "whole-of-government" approach to monitoring and enforcing Americans' trade rights around the world. Thereafter, on February 28, 2012, the President issued an Executive Order that established the ITEC. The ITEC uses expertise from across the federal government to assist in asserting U.S. trade rights obtained through various international trade agreements and serves as the primary forum within the federal government for agencies to coordinate enforcement of obligations under international trade agreements, including the identification of unfair trade practices and barriers that involve IPR.