Special 301 Report/2015/Section 2

by Office of the United States Trade Representative

SECTION II. COUNTRY REPORTS

PRIORITY WATCH LIST

East Asia and Pacific

CHINA

China remains on the Priority Watch List and subject to Section 306 monitoring in 2015.

China's leadership has acknowledged the critical role that IPR plays in spurring innovation and the need to improve China's protection and enforcement of IPR. Consistent with China's policy objectives, the country's judicial, legislative, administrative, and enforcement authorities continue to pursue wide-ranging legal reform efforts relating to the protection and enforcement of IPR in China. Individual rights holders report a greater ability to obtain relief, including temporary injunctive relief, against infringers in civil court actions. The United States also notes increased cooperation between U.S. and Chinese law enforcement agencies in an effort to stem cross-border flows of infringing products. The United States looks forward to strengthened cooperation, building on the increasing and positive cooperation between U.S. customs and investigative agencies and their Chinese counterparts, including the General Administration of China Customs (GACC) and the Ministry of Public Security (MPS).

Notwithstanding the generally positive effects of these reform efforts, several recent measures relating to ICT products, services, and technologies, have caused sharply adverse impacts on U.S. companies and raise serious concerns. Although one of the measures is in draft form and the other was recently suspended, the measures would impose certain trade-restrictive IPR-, R&D-, and encryption-related requirements on ICT products, services and technologies used in certain sectors of China's economy. The United States welcomes the recent suspension, but underscores that it is critical that China reconsider its approach to certain ICT issues and engage closely with governments and industry as it does so.

Independent of the new measures, a wide range of U.S. stakeholders in China continues to report serious obstacles to effective protection of IPR in all forms, including patents, copyrights, trademarks, trade secrets, and protection of pharmaceutical test data. As a result, sales of IPR-intensive goods and services in China remain disproportionately low when compared to sales in similar, or even less developed, markets that provide a stronger environment for IPR protection and market access. Despite laudable policy objectives and a welcome ongoing reform effort, foreign rights holders in China continue to face a complex and challenging IPR environment. Given the size of China's consumer marketplace and its global importance as a producer of a broad range of products, China's protection and enforcement of IPR continues to be a focus of U.S. trade policy.

The theft of trade secrets remains a particular concern. Such theft occurs inside and outside of China for the competitive advantage of Chinese state-owned and private companies. Conditions are unlikely to improve as long as those committing such theft, and those benefitting, continue to operate with relative impunity, often taking advantage of the theft in order to compete unfairly or to enter into business relationships that disadvantage their victims. The United States strongly urges the Chinese government to take serious steps to put an end to these activities and to deter any recurrence by rigorously investigating and prosecuting theft of trade secrets undertaken by cyber and conventional means.

Of longstanding concern are central, provincial, and local government measures and actions that appear to require or pressure rights holders to transfer IPR from foreign to domestic entities. Sometimes guided by government measures or policy statements intended to promote indigenous innovation and the development of strategic industries, government authorities may condition eligibility for certain benefits (e.g., certain subsidies and tax preferences) or deny or delay access to certain markets (e.g., government procurement or the ICT market) upon IPR being owned or developed in China, or licensed to a Chinese entity. The United States is concerned by the number of stakeholders reporting that Chinese government entities are using regulatory pressure to compel the licensing of important technologies or to dissuade the stakeholders from pursuing available legal avenues to enforce their IP. China has made commitments to the United States on certain of these matters, and the United States continues to press China to comply with those commitments.

Legal Reform

The United States generally welcomes China's ongoing legal reform efforts, despite serious reservations regarding certain recent legal changes. Since 2012, China has undertaken revisions to, and invited comments on, draft revisions to its existing laws on civil procedure, patents, copyrights, trademarks, drug administration, and scientific and technological achievements. In terms of procedure, effective January 1, 2013, China's amended Civil Procedure Law includes provisions that may help U.S. rights holders to obtain preliminary measures and other actions to enforce their rights in civil court actions. In early 2015, China's Supreme People's Court (SPC) invited comment on draft judicial Interpretations of the Supreme People's Court on Issues Related to the Application of Laws in Reviewing Act Preservation Cases of Disputes over Intellectual Property Right and Competition, which would provide additional guidance relative to provisions of the Civil Procedure Law. In addition to procedural reforms, on May 1, 2014, a revised Trademark Law and implementing regulations went into effect. China's State Council Legislative Affairs Office (SCLAO) is also reviewing and considering draft amendments to the Patent Law and Copyright Law. Very recent draft amendments to the Patent Law appear not to address concerns identified by the United States and industry, and the amendments may introduce new provisions of substantial additional concern. The United States welcomes the opportunity to comment and engage with China on this important subject matter before the law takes final form. The United States believes that copyright reform in China is an urgent matter, but cautions that SCLAO must take the time to study carefully international developments and copyright industry practices to ensure that the new law provides adequate and effective protection and enforcement, including with respect to online piracy. A careful revision of the Copyright Law aligned with international best practices would put China on a stronger footing for the economic growth of its domestic cultural industries.

In particular, the United States and China share the goal of increased sales of legitimate copyright goods in China. From the view of the United States, the best way to achieve growth in sales of legitimate Chinese works is to ensure that authors and copyright owners, both Chinese and foreign, can license their rights in a manner consistent with international copyright industry business practices and can effectively enforce their rights. The United States believes that the deterrence provided by strong criminal remedies is essential to supporting an environment where rights holders can earn adequate revenue from their creations. To this end, the United States also welcomes the planned revision of the Criminal Code and encourages China to strengthen the provisions criminalizing commercial-scale piracy. Efforts to amendment of the Anti-Unfair Competition Law (AUCL), unrevised since first entering into force in 1993, are proceeding at a slower pace. While applauding China's consideration of U.S. Government and private sector perspectives and experiences, the United States notes the need to move forward expeditiously with remaining revisions to China's IPR-related laws. The United States underscores the urgent need to update and amend the AUCL and related trade secret laws, regulations, and judicial interpretations. China is currently conducting a legislative study on a revised law on trade secrets.

In 2013 and 2014, China invited comment on various judicial interpretations, regulations, and departmental rules on a range of subjects including the remuneration of inventors, administrative and judicial enforcement of patents, and other matters that impact Chinese market access for U.S. entities that rely upon IPR protection, such as provisions involving the administration of online foreign films and television dramas. The United States applauds China's openness to receiving comments and looks forward to continued engagement as future drafts are developed and evaluated, and as drafts move through the SCLAO and the National People's Congress, as required. Additional legal reforms require action, including amending the Criminal Law and other relevant measures to correct continuing deficiencies in China's criminal IPR enforcement.

Judicial Reform

In late 2014, China set in motion a three-year pilot program to study the merits of specialized intellectual property courts, currently including courts in Beijing, Shanghai, and Guangzhou. Designated as intermediate courts in China's judicial system, the intellectual property courts will have original jurisdiction over civil "technical cases," or those involving patents, new plant varieties, integrated circuit layout designs, technical know-how, and computer software, as well as over determinations as to well-known trademarks. These courts will also hear appeals of administrative IPR decisions handed down by government authorities on IPR and unfair competition matters. The Beijing intellectual property court will have jurisdiction to hear appeals of patent and trademark validity determinations issued by the Patent Reexamination Board and Trademark Review and Adjudication Board. The new courts will likely provide a venue with greater IPR expertise and experience, but the success of the courts will be judged in large part by their impartial consideration of the facts and law, and their efficient operation.

National Leading Group

Following the completion of China's 2010-2011 Special IPR Campaign, the State Council established a permanent office of the national leading group on combating IPR infringement (Leading Group) to better coordinate and improve China's efforts to combat IPR infringement and the manufacture and sale of counterfeit and substandard goods. In 2014, the Leading Group continued to coordinate enforcement actions and undertake special campaigns, including concerning online markets and cross-border infringement cases. The United States encourages China to continue to work with foreign governments and rights holders to share information and demonstrate the constructive role the Leading Group can play to improve the protection and enforcement of IPR.

ICT Measures

Recent Chinese measures risk creating troubling barriers to the sale of ICT products, services, and technologies by non-Chinese firms. China's counterterror law, still in draft form, would appear to require telecommunications business operators and Internet service providers to, among other things, disclose critical proprietary intellectual property to regulators. Of more immediate impact are the efforts to govern the use of ICT products, services, and technologies by financial institutions operating in China. On December 26, 2014, China issued the Circular of the General Offices of China Banking Regulatory Commission (CBRC) and Ministry of Industry and Information Technology (MIIT) on Printing and Distributing the Guidelines for Promoting the Application of Secure and Controllable Information Technology in Banking Sector along with the Guidelines for Promoting the Application of Secure and Controllable Information Technology in Banking Sector, with an accompanying annexing classification catalogue. This measure was a follow-up to the September 3, 2014, Guidelines for Applying Secure and Controllable Information Technology to Enhance Banking Industry Cybersecurity and Informatization Development (referred to collectively as the "ICT rules for banks"), issued by CBRC, MIIT, the National Development and Reform Commission, and the Ministry of Science and Technology. The ICT rules for banks were not published in advance for public comment and were not published in their entirety in final form. These rules would regulate the use of ICT products, services, and technologies by financial institutions operating in China by requiring that an increasing percentage of these products, services and technologies be purchased from suppliers whose IPR is indigenously Chinese. In addition, the rules would require foreign firms to conduct ICT-related R&D in China and to divulge proprietary intellectual property as a condition for the sale of ICT products in China. On April 13, 2015, China issued an official notice to its banking sector, including to Chinese and foreign-owned banks, suspending its September 2014 ICT rules for banks. The United States welcomes this suspension and looks forward to receiving reports that conditions for U.S. ICT firms and market practices have returned to normal. The United States calls on China to engage with the United States and other governments and industry as it develops ICT policies in line with its international commitments and consistent with global standards and industry best practices. In discussions to follow, it is imperative to ensure that foreign and domestic IPR is treated the same and to ensure that product choice is decided by businesses independently and not as a pre-condition for market access.

Trade Secrets

Trade secret theft is a serious and growing problem in China. Misappropriation of a trade secret may arise in a variety of circumstances, including those involving departing employees, failed joint ventures, and cyber intrusion and hacking. Particularly troubling is misappropriation reportedly arising from the misuse of information submitted to government entities for purposes of complying with regulatory obligations. The misappropriation of trade secrets and their use by a competing enterprise can have a devastating impact on a company's business, making the company's recourse to adequate and effective legal remedies particularly important.

Under Chinese law, however, available remedies are difficult to obtain, given that civil, administrative, and criminal enforcement against misappropriation of trade secrets remains severely constrained. Enforcement obstacles include deficiencies in China's AUCL, constraints on gathering evidence for use in litigation, difficulties in meeting the criteria for establishing that information constitutes a trade secret, and criminal penalties that are not clearly deterrent. In addition, the AUCL's primary application is to "commercial undertakings" and not individual actors, and requires that a trade secret have "practical applicability," which may limit the scope of protection for early stage research. There are other important weaknesses in China's civil enforcement system, which relate to mechanisms for gathering evidence, and procedures for obtaining preliminary injunctions. Without changes to address these weaknesses, some of which are not specific to IPR but relate to China's civil process generally, effective enforcement against misappropriation of trade secrets in China will remain challenging.

The United States is encouraged by China's December 2013 Joint Commission on Commerce and Trade (JCCT) commitment to undertake an Action Program, which includes concrete actions to address enforcement, enhance public awareness, and require strict legal compliance with respect to trade secrets. The United States also welcomed China's December 2014 JCCT commitment to protect from improper disclosure trade secrets submitted to the government in administrative or regulatory proceedings. China also affirmed that it is conducting a legislative study of a new trade secrets law. The United States urges China to address past weaknesses in the law and to do so expeditiously. The United States continues to engage with China as it advances legal and regulatory reforms to better protect trade secrets.

Software Legalization by Government Entities, Online Copyright Piracy, and Other Concerns

Software Legalization

The United States continues to urge all levels of the Chinese government, as well as state-owned enterprises (SOEs), to use only legitimate, licensed copies of software. China reported that from 2011 to 2014, software legalization was completed at government offices of all levels. In 2014, inspection teams dispatched by the Inter-Ministerial Joint Conference on Promoting Use of Authorized Software Inspections identified problems among local governments, including the continued use of unauthorized software and incomplete implementation of software asset management tools. Despite China's attention to the concern, U.S. software companies have seen only a modest increase in sales to government agencies, and specific information about the procedures and tools used to ascertain budget or audit information remains unavailable.

Software legalization efforts have extended to China's SOE sector. Losses by software companies due to piracy at SOEs and other enterprises remain very high. To the extent that Chinese firms do not pay for the software that runs many of their operations, they reap a cost advantage relative to competitors who pay for legally acquired software. The United States remains committed to working with China to continue to address these challenges.

Online Piracy

Despite bilateral commitments to increase IPR enforcement, online piracy in China persists on a large scale. China has the largest Internet user base in the world, estimated at around 650 million, with nearly 560 million mobile web users. Despite national campaigns and the leadership of the Leading Group, widespread piracy affects industries involved in the distribution of legitimate music, motion pictures, books and journals, video games, and software. For example, industry reports that in 2013, the revenues from digital music sales in China were $65.4 million, compared to potential sales of over $1.2 billion if China's per capita spending were on par with that in Thailand, a country with a roughly equivalent per capita GDP and substantial piracy problems of its own. Effects are also seen in the share of film revenues made up by box office receipts. For U.S. films released in China, box office receipts make up over 90 percent of total revenues generated, compared to only 25-30 percent in the United States. This difference is partly due to the widespread piracy of motion pictures over the Internet and on optical discs. Reports indicate that unauthorized camcording of movies in theaters, one of the primary sources for online audiovisual infringements, remains a serious problem in China, especially in the South. Online piracy extends to unauthorized access to, or unauthorized copies of, scientific, technical, and medical publications as well.

While these very substantial problems continue, a range of enforcement actions by China are welcome and could have increasingly beneficial impacts if sustained and expanded. In 2014, China carried out the 10^th "Sword-Net" campaign focused on protecting digital copyright. Administrative authorities reportedly investigated 4,400 online piracy cases, issued substantial fines, made 66 referrals to criminal authorities, and took other actions against pirate websites. Chinese courts and agencies entered deterrent-level penalties against a number of large major online piracy services including those offered by QVOD, Baidu, SiluHD, HDstar, DY161, and FunShion. For instance, in June 2014, the Shenzhen Market Supervision Administration imposed a record $42 million fine against QVOD, a video streaming website, for making available pirated movies and TV shows to its subscribers. In addition, National Copyright Administration of China (NCAC) entered administrative penalties against Yyets and Shooter.cn. Another welcome development was China's first criminal conviction for illegal camcording.

Parties in China are also facilitating online infringement, in China and third countries, through media box piracy. Manufactured in China and exported abroad, media boxes can be preloaded with infringing content or links to content sources and plugged directly into televisions. They enable the user to stream and download infringing online music and audiovisual content. The vast majority of the infringing websites and apps to which media box users connect are reportedly located in China. The United States urges China to continue efforts to improve IPR protection and enforcement in this area.

Other Concerns

New regulations related to State Administration of Press, Publication, Radio, Film, and Television (SAPPRFT) review of foreign television content present a serious market access concern for the online distribution of imported films and television series. Legitimate video streaming websites such as those operated by Sohu, Tencent, and others represent an important gateway for U.S. and other foreign television content providers to reach consumers in China. The new regulations threaten legitimate commerce through the imposition of a number of onerous registration requirements, while doing little to curb infringing streaming sites. The United States urges China to suspend the new regulations and to further consider the potential impacts of these far-reaching regulatory changes.

Counterfeit Goods

Despite increased enforcement efforts, USTR's 2014 Notorious Markets List reported that many sources identify China as the source of counterfeit products sold illicitly in markets around the world. Counterfeit goods produced in China that are shipped to the United States include: food and beverages; apparel, footwear, and accessories; consumer electronics, computers and networking equipment; entertainment and business software; batteries; chemicals; appliances; pharmaceuticals; and auto parts. As described in Section I, the effects of these counterfeit goods go beyond lost sales volumes and harm to the reputations of U.S. trademark owners. Counterfeit pharmaceuticals potentially threaten the health of American consumers, and faulty or substandard goods that enter the supply chains of American manufacturers are dangerous as well. For example, higher defect and failure rates among counterfeit semiconductors may cause malfunctions in medical devices and vehicle safety and braking systems.

The United States and China have committed to strengthened cooperation on IPR border enforcement. In 2013, U.S. CBP and GACC conducted a successful joint customs IPR enforcement operation designed to interdict shipments of consumer electronics. However, during Fiscal Year 2014, products from China accounted for an estimated 63 percent of the total value^[1] of the IPR infringing products seized at U.S. ports. Products transshipped through, or designated as originating in, Hong Kong, many of which also were produced in China, accounted for 25 percent of the estimated total value of such seizures. The United States welcomes additional opportunities for enhanced bilateral engagement with China on IPR border enforcement issues. Such cooperation would include sharing best practices and customs-to-customs information exchange for use in risk management and enforcement actions, and conducting joint customs enforcement operations designed to deter and interdict shipments of counterfeit and pirated goods destined to the United States both as cargo and through international mail and international express carriers.

Although rights holders report increased enforcement activities, mostly but not exclusively on behalf of local brands, enforcement efforts have yet to slow the sale of counterfeit goods online. This is particularly concerning in light of the rapid growth of e-commerce in China and from China to overseas markets. Rights holders report that local Administrations for Industry and Commerce (AICs) typically confine their efforts to physical markets. While both the State Administration for Industry and Commerce (SAIC) and local AICs have called on online trading websites to improve procedures for removing listings of IPR-infringing goods, these measures have not significantly deterred repeat and large-scale offenders who quickly place new postings offering infringing goods soon after complying with takedown notices.

In a welcome development, the SAIC published a report on IPR infringement and other concerns at the online sales platform Taobao. The report indicated that only about a third of products offered at the site were authentic. The United States commends SAIC's commitment to address this concern and urges Taobao to promptly address concerns identified in the report, consistent with the recommendations in the 2014 Notorious Markets List.

In another welcome development, in July 2014 at the S&ED, China committed to develop regulatory amendments to assert better regulatory control over manufacturers of bulk chemicals that can be used as API in counterfeit drugs. China recognized the goal of fighting against the illegal manufacture, distribution, and export of counterfeit and substandard pharmaceutical products. The United States urges China to implement these reforms in short order.

In another positive note, over the past year, U.S. investigators and prosecutors have improved bilateral law enforcement cooperation with their Chinese counterparts on significant cross-border IPR cases. This has allowed U.S. authorities not only to prosecute and convict distributors of counterfeit goods in the United States, but to further investigations by exchanging information with Chinese authorities about the companies in China that manufacture or traffic in those goods. In one example last year, U.S. authorities convicted two individuals of trafficking in counterfeit airbags imported from China. As part of the U.S. investigation, U.S. authorities shared evidence with Chinese authorities regarding the entities and individuals supplying the U.S. defendants with the airbags and the Chinese opened their own investigation. Subsequently, Chinese police raided those sources, seizing counterfeit airbags and auto parts valued at about $200,000 and arresting four individuals. According to Chinese authorities, based on business financial records, the operation made hundreds of thousands of dollars selling counterfeit auto parts primarily through e-commerce sites to customers in the United States, Canada, and elsewhere. The United States looks forward to working with MPS, GACC, and other enforcement authorities in China to pursue additional coordinated actions against traffickers of counterfeit goods and to seize fake products.

IPR and Technology Transfer Requirements

In addition to challenges with IPR protection and enforcement, rights holders in China must also contend with government measures, policies and practices, such as the recently-suspended ICT measures discussed above, that are purportedly intended to hasten China's development into an innovative economy, but that also disadvantage foreign rights holders. The United States is concerned about reports that many of China's innovation-related policies and other industrial policies, such as strategic emerging industry policies, may have negative impacts on U.S. exports or U.S. investors and their investments or IPR. Chinese regulations, rules, and other measures frequently call for technology transfer and, in certain cases, appear to include criteria requiring that certain IPR is developed in China, or are owned by or licensed, in some cases exclusively, to a Chinese party. Such government intervention, including imposed conditions or incentives, may distort licensing and other private business arrangements, resulting in commercially suboptimal outcomes for the firms involved and for innovation.

Sustained U.S.-China engagement through the JCCT, the U.S.-China S&ED and high-level government engagement has resulted in important Chinese commitments, including now-President Xi Jinping's 2012 commitment "that technology transfer and technological cooperation shall be decided by businesses independently and will not be used by the Chinese government as a pre-condition for market access," and China's 2014 JCCT commitments that China must "treat intellectual property rights owned or developed in other countries the same as domestically owned or developed intellectual property rights," and that "enterprises are free to base technology transfer decisions on business and market considerations, and are free to independently negotiate and decide whether and under what circumstances to assign or license intellectual property rights to affiliated or unaffiliated enterprises." In addition, at the 2012 JCCT, China "reaffirmed that technology transfer and technology cooperation are the autonomous decisions of enterprises" and pledged further that "[i]f departmental or local documents contain language inconsistent with the above commitment, China will correct them in a timely manner." At the 2013 JCCT, China committed not to implement rules or finalize a draft catalogue containing indigenous innovation criteria for the procurement of vehicles for official use that are inconsistent with China's 2012 commitment. The United States looks forward to China's full implementation of its commitments, and the revision of measures as needed to ensure that they are consistent with such commitments, including with respect to ICT and elements of the High and New Technology Enterprise tax incentive, such as requirements that beneficiaries license core IPR exclusively to a party in China and make 60 percent of their global R&D expenditures in China.

Patent-Related and Other Policies

IPR and Technological Standards

The growing importance of IPR and technological standards in China heightens U.S. concerns regarding a range of Chinese government policies and practices. Whereas open, voluntary, and consensus-based standards best promote economic development, efficiency and innovation, standards development bodies in China reportedly often deny membership or participation rights to foreign parties based on opaque and exclusionary practices, and effectively prevent foreign parties from participating in the standard setting process. In some cases, a firm's ability to participate may be conditioned upon a requirement to act through a joint venture in which the firm only has a minority ownership stake, license IPR on concessional terms, or transfer technology against its will. Based on a limited number of investigations conducted to date, there is also growing concern that Chinese competition authorities may target for investigation those foreign firms that hold IPR that may be essential to the implementation of certain technological standards. Reports of intimidating and non-transparent investigative conduct contribute to these concerns.

In the related realm of national standards, the Standardization Administration of China (SAC) and the State Intellectual Property Organization (SIPO) published Regulatory Measures on National Standards Involving Patents (Interim) that went into effect on January 1, 2014. Relative to prior drafts, the Measures appear to address a number of U.S. Government and industry concerns. However, the United States continues to have serious concerns about potential requirements for entities not participating in the development of the standards to disclose relevant patents and make licensing commitments. The United States recognizes that there is a lack of clarity as to whether the positions of standards setting bodies regarding voluntary disclosure and voluntary licensing of essential patents have been incorporated appropriately into the positions of the anti-monopoly law enforcement authorities. In particular, the recently issued Regulation by the Administration for Industry and Commerce on the Prohibition of Conduct Eliminating or Restricting Competition by Abusing Intellectual Property Rights appears to retain provisions that may unnecessarily inhibit a patent holder's exercise of discretion in making licensing commitments for standards essential patents, despite U.S. requests that such language be stricken from the final regulation. The provisions appear in tension with China's recognition at the 2014 JCCT that IPR protection and enforcement is important for companies that voluntarily agree to incorporate patents protecting technologies into a standard, and that concerns may exist relating to the licensing requirements of standard essential patents that are subject to licensing agreements.

IPR Protection for Pharmaceutical Products

The United States has engaged intensively with China to address troubling obstacles to obtaining and maintaining patents on pharmaceutical innovations. Although SIPO guidelines governing the review of patent applications were once generally consistent with those of the United States and leading patent offices in other countries, a revised interpretation of the guidelines has severely restricted a patent applicant's ability to provide supplemental data in support of an application. As a result, China has, in some cases, denied pharmaceutical patent applications and invalidated existing patents, while the United States and other jurisdictions have consistently granted patent protection in similar cases. This problem was the subject of great attention during Vice President Biden's visit to Beijing in November 2013 and the annual meeting of the JCCT the following month. These engagements resulted in China's revision of the policy on data supplementation in late 2013, and a commitment to work with the United States to follow up on implementation, including the examination of individual cases. Industry generally reports progress as a result of the change, but implementation of the commitment has been inconsistent, resulting in patent invalidations that create uncertainty and potentially undermine incentives to innovate.

The United States continues to have concerns about the extent to which China provides effective protection against unfair commercial use of, as well as unauthorized disclosure of, and reliance on, undisclosed test or other data generated to obtain marketing approval for pharmaceutical products. China has undertaken commitments to ensure that no subsequent applicant may rely on the undisclosed test or other data submitted in support of an application for marketing approval of new pharmaceutical products for a period of at least six years from the date of marketing approval in China. However, there are reports that generic manufacturers have, in fact, been granted marketing approvals by the China Food and Drug Administration (CFDA) prior to the expiration of this period, and in some cases, even before the originator's product has been approved. The United States was encouraged by China's 2012 JCCT commitment to define "new chemical entity," a term that is central to the application of data protection in the marketing approval process, in a manner consistent with international R&D practice. Given that more than two years have passed since that time, the United States urges China to implement its commitment without delay.

The United States has engaged closely with China to increase efficiency in regulatory approval processes for pharmaceuticals and medical devices to accelerate patient access and incentives to innovate and market new products in China. The United States welcomed China's commitment at the 2014 JCCT to reform its authorization processes and to add personnel and funding. The United States continues to engage with China in support of its reform agenda.

The United States looks forward to continuing to work with China to resolve these and other issues.

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1. The value is based on the corresponding legitimate products' manufacturer's suggested retail price.

INDONESIA

Indonesia remains on the Priority Watch List in 2015. The United States welcomes the new Administration's recent focus on IPR, including with respect to Indonesia's copyright law and trademark legislation. The United States also applauds continued educational outreach to the Indonesian public to advance IPR awareness. Nevertheless, the United States remains concerned about gaps in Indonesia's laws relating to the protection and enforcement of IPR and urges Indonesia to address these issues.

The United States is concerned about rampant piracy and counterfeiting in Indonesia, particularly with respect to the lack of enforcement against dangerous products. In 2014, the Indonesian National Police (INP) only investigated 97 criminal IPR cases and the Attorney General's Office (AGO) only brought twelve IPR cases to trial. It is essential that Indonesia fully fund and support a robust IPR enforcement effort. The United States encourages Indonesia to address this problem through greater coordination between the National Inter-Ministerial IPR Task Force and Creative Economy Agency to create a specialized IPR unit under the INP to focus on investigating the Indonesian criminal syndicates behind counterfeiting and piracy, and initiate larger and more significant cases. Enforcement cooperation among relevant agencies is essential, including with the Directorate General for Intellectual Property (DGIP) and Badan Pengawas Obat dan Makanan, the regulatory agency that focuses on fake and substandard food and drug products. Further, the United States suggests increased coordination between the INP and the AGO so that specialized IPR inspectors and prosecutors can enhance the effectiveness and efficiency of their investigations. Finally, the United States encourages deterrent-level penalties for IPR infringement in physical markets and on the Internet.

The United States continues to encourage Indonesia to provide an effective system for protecting against the unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical and agricultural chemical products. The United States also remains concerned about market access barriers in Indonesia, including measures that appear to condition permissions to import medicines on at least some local manufacturing or technology transfer requirements. Other measures that could restrict market access relate to the importation of motion pictures. The United States remains concerned about the lack of clarity surrounding legal procedures under the Indonesian patent law in connection with the grant of compulsory licenses. The United States encourages Indonesia to provide for judicial or other independent review of any compulsory license authorizations. The United States welcomes increased engagement with the Government of Indonesia, including through the IPR Working Group of the United States-Indonesia Trade and Investment Framework, to substantively resolve these important issues.

THAILAND

Thailand remains on the Priority Watch List in 2015. The United States notes Thailand's stated desire to improve IPR protection and enforcement. At the same time, IPR enforcement does not seem to be a top priority for Thai law enforcement and poor coordination among government entities has seen limited improvement despite the launch of the National IPR Center of Enforcement in 2013. The United States urges Thailand to do more to address longstanding organizational challenges to enforcement and to prioritize IPR enforcement. The Thai government took several legislative steps in 2014, including an amendment to the Customs Act that provides Thai Customs officers with ex officio authority to suspend and seize illegal goods in transit, as well as copyright law amendments to address unauthorized camcording. Unfortunately, the Thai government in drafting several of the amendments failed to give weight to concerns expressed by foreign governments and industry on prior drafts of the law. As a result, the amendments omit a much-needed landlord liability provision, and do not provide adequate protections against the circumvention of technological protection measures and the unauthorized modification of rights management information, or address procedural obstacles to enforcement against illegal camcording. Another Copyright Act amendment, introducing an option for rights holders to obtain a court order to force online service providers to take down infringing content, has resulted in a lack of clarity in the operation of the notice-and-takedown procedures. Rights holders also express concerns regarding pending legislation imposing content quota restrictions and the unintended effects from data and cyber security laws. It will be critical for Thai authorities to engage closely with foreign governments and industry as this and other legislation takes shape. Other concerns include a backlog in pending patent applications, widespread use of unlicensed software in both the public and private sectors, growing Internet-based copyright piracy, rampant trademark counterfeiting, lengthy civil IPR proceedings and low civil damages, and extensive cable and satellite signal theft. The United States continues to encourage Thailand to provide an effective system for protecting against the unfair commercial use, as well as unauthorized disclosure, of test or other data generated to obtain marketing approval for pharmaceutical and agricultural chemical products. The United States urges Thailand to engage in a meaningful and transparent manner with all relevant stakeholders, including IPR owners, as it considers ways to address Thailand's public health challenges, while maintaining a patent system that promotes innovation. The United States looks forward to continuing to work with Thailand to address these and other issues.

 

South and Central Asia

INDIA

India remains on the Priority Watch List in 2015. The United States Government conducted an OCR of India in the autumn of 2014 to evaluate U.S.-India bilateral engagement on IPR areas of concern to the United States and U.S. stakeholders. In the course of the review, the United States concluded that the Government of India took steps that indicate that the Modi Administration is engaged and is examining key IPR issues. These steps include India's establishment of a domestic IPR-focused experts group, commitment to technical engagement on specific issues of concern, and the issuance of encouraging domestic policy pronouncements. India has continued its engagement with the United States on IPR issues of interest to both countries, including by establishing the High Level Working Group on Intellectual Property ("IPR Working Group"). The IPR Working Group, established by President Obama and Prime Minister Modi, operates under the auspices of the United States-India Trade Policy Forum, which exists to facilitate the enhancement of our overall bilateral trade relationship. In our bilateral dialogue, the United States is working with India to foster an environment that will enable India to achieve its important domestic policy goals of increasing investment and stimulating innovation through, not at the expense of, IPR protection and enforcement. Attention to our IPR priorities and action to resolve concerns through bilateral fora can benefit both the United States and India. Ultimately, however, recent positive developments on engagement should translate into substantive and measurable action.

In many areas, IPR protection and enforcement challenges continue, and there are serious questions regarding the future of the innovative climate in India, across multiple sectors and disciplines. A wide array of stakeholders in this year's Special 301 review process welcomed recognition by the Government of India of areas where reform is needed. However, some stakeholders also continue to underscore the challenges that rights holders face in India. The United States urges India to take specific actions to address the concerns raised, including by means of constructive bilateral engagement directly with the U.S. Government and stakeholders. The United States also urges India to reconsider how to meet its domestic policy objectives through fostering a climate that incentivizes innovation. The United States continues to encourage India to strengthen civil IPR enforcement by increasing judicial efficiency and reducing court backlogs through electronic case management, instituting fast-track procedures for certain IPR matters, training and instituting a system of using specialized judges, and other judicial reform measures. In addition, the United States supports India's enforcement-related efforts, including efforts to: initiate criminal investigations and launch raids at counterfeit goods markets; combat the manufacture, sale, and distribution of counterfeit medicines; initiate investigations and judicial actions against Internet-based piracy; and seek deterrent sentences against persons or entities engaging in copyright piracy and trademark counterfeiting.

Draft National IPR Policy

The Government of India has embarked on a thorough and holistic review of its IPR regime to "nurture the IP culture and address all facets of the IP system including legal, administrative and enforcement infrastructure, human resources, institutional support system and international dimensions." The stated outcome of this review is to produce a National IPR Policy, a first draft of which was presented by a body of government-selected experts (IPR Think Tank) for public comment in December 2014. The United States submitted comments to the Government of India on the First Draft of India's National IPR Policy in January 2015. The United States commends India for undertaking this task, and will continue to engage with India on this policy, noting, in particular, those areas identified by the IPR Think Tank as target issues for Indian policymakers: transparency and stakeholder consultation; coordination among national and state authorities; public awareness; legal and legislative reforms; administration; commercialization; and enforcement. The United States understands that the Government of India received many informative inputs following the publication of the First Draft of India's National IPR Policy. Thus, the United States requests that India solicit another round of inputs, and conduct another round of stakeholder consultations on the next iteration of this draft policy.^[1]

Copyright and Piracy

The United States continues to seek changes to India's copyright protection and enforcement regime that would protect both Indian and U.S. rights holders in the vibrant and promising Indian market. In particular, the United States urges India to: enact anti-camcording legislation; model its statutory license provisions relating to copyrighted works on the standards of the Berne Convention for the Protection of Literary and Artistic Works (Berne Convention); ensure that collecting societies are licensed promptly and able to operate effectively; and provide additional protections against signal theft, circumvention of technological protection measures, and online copyright piracy. This is an area of substantial common interest between the United States and India, as two countries with vibrant content producers.

The United States also notes its interest in engaging with the Government of India on its policy reforms and initiatives that aim to increase investment in the Indian market and enhance the policy environment supporting innovation, notably through the "Make in India" and "Digital India" campaigns. As noted in the 2014 Special 301 Report, while U.S. stakeholders eagerly anticipate India's growth in its Internet user base, projected to be, by the end of 2015, the second largest in the world with up to 370 million users, they also fear increased piracy as a negative corollary to this growth. This trend makes it all the more imperative that India incorporate into its legal system more effective measures to counter online piracy. The United States encourages the Government of India to adopt effective measures to counter online piracy, including appropriate notice-and-takedown procedures and other efficient mechanisms for rights holders to seek removal of infringing content from websites, consistent with international best practices. The United States also encourages the Government of India to undertake a review of its applicable statutory damages provisions for copyright piracy to ensure that they are appropriately calibrated to have a deterrent effect.

The high incidence of camcording in India underscores the importance of developing an effective legal framework to address this problem. India has one of the highest rates of video piracy in the world, according to a 2013 study conducted by the Motion Pictures Distributors Association of India (MPDA). This study found that incidents originating in India accounted for approximately half of all such incidents in the Asia-Pacific region in that year. Though the United States has welcomed past statements made by the Ministry of Information and Broadcasting about the desire to include specific anti-camcording provisions in the draft Cinematographic Bill, this bill has not yet been considered by the Indian Parliament. The United States notes that, in the First Draft of the National IPR Policy, the Government of India recognized the efforts of Indian state authorities in Tamil Nadu, Kerala, Andhra Pradesh, and Maharashtra to include video piracy as a legal offense. A positive next step would be the introduction of national anti-camcording legislation.

The United States notes some limited improvements with respect to copyright enforcement, including reports that enforcement officials cooperate with music industry rights holders in conducting complaint-based raids, and of an increase in use of judicial orders that have strengthened enforcement against pirated movies and music online. The United States encourages India to take additional steps to improve coordination with enforcement officials of Indian state governments. To strengthen engagement on these and other copyright issues, and to build upon the strengths of the vibrant Indian and U.S. copyright-intensive industries, including in movies, music, and software, the United States would welcome closer bilateral cooperation with India to address the challenges of copyright piracy of U.S. and Indian content globally, including, for example, through cooperation and exchanges at the technical level between copyright protection and enforcement experts in each government.

Patents & Regulatory Data Protection

The United States continues to encourage India to promote an efficient, transparent, and predictable patent system that nurtures and incentivizes innovation. As leading economies with strong traditions of innovation, India and the United States can and should ensure supportive, enabling environments for innovators at all stages of the innovation lifecycle to achieve success and contribute significantly to economic growth. The United States commends India on actions taken in recent years to improve the operations of its Patent Office, which included digitizing records, upgrading online search and e-filing capabilities, and hiring additional patent examiners. The United States understands that, per the recommendation under the First Draft of India's National IPR Policy, India will continue to focus on patent administration issues that aim to increase human resource development, training, use of technology, and address other capacity issues. India's demonstrated commitment to address these issues will help promote efficiency, transparency, and predictability in patent administration in India, to the benefit of domestic and foreign innovators, and to India overall. The United States also welcomes April 2015 statements made by Prime Minister Modi recommending that India align its patent laws with international standards and encourages India expeditiously undertake this initiative.

With respect to patents, the United States continues to have serious concerns about the innovation climate for the biopharmaceutical and other sectors, such as agricultural chemical and green technology. Innovators in these sectors face serious challenges in securing and enforcing patents in India. This is not only detrimental to these commercial interests, but also to India's effort to address pressing domestic policy challenges, as it may discourage companies from entering the Indian market, or engaging in the kinds of voluntary and mutually agreed technology development and transfer that India is seeking domestically and in multilateral fora. The United States urges India to reject policies and practices that amount to barriers that will adversely affect not only American companies, but Indian companies as well. The United States encourages India to instead adopt policies that both address domestic challenges and support the cutting-edge innovation that can be critical to meeting legitimate domestic policy goals.

For example, a patent system should encourage the development of inventions that meet the well-established international criteria, enshrined in the TRIPS Agreement, of being new, involving an inventive step, and being capable of industrial application. Consistent with this, Section 2(j) of India's Patents Act sets forth the criteria for patentability. An "invention" under the Act is any product or process that is novel, has an inventive step, and is capable of industrial application. Section 3(d) of India's Patents Act states, in relevant part, that "the mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance" is not considered to be an "invention" under Indian law.^[2] As noted in the 2014 Special 301 Report, the Indian Supreme Court explained, in the case of patent applications for pharmaceuticals and other chemicals:

"The amended portion of section 3(d) clearly sets up a second tier of qualifying standards for chemical substances/pharmaceutical products in order to leave the door open for true and genuine inventions …. [O]n reading [section 2] with section 3(d) it would appear that the Act sets different standards for qualifying as 'inventions' things belonging to different classes, and for medicines and drugs and other chemical substances, the Act sets the invention threshold higher, by virtue of [section 3(d)]. … [I]n case of chemicals and especially pharmaceuticals if the product for which patent protection is claimed is a new form of a known substance with known efficacy, then the subject product must pass, in addition to clauses (j) and (ja) of section 2(1), the test of enhanced efficacy as provided in section 3(d) read with its explanation." ^[3]

The United States continues to have concerns that Section 3(d) of India's Patents Act, as interpreted, may have the effect of limiting the patentability of potentially beneficial innovations. Such innovations could include drugs with fewer side effects, decreased toxicity, improved delivery systems, or temperature or storage stability. In practice, India has already applied this standard to deny patent protections to potentially beneficial innovations, some of which enjoy patent protection in multiple other jurisdictions. In addition, the United States supports patent systems that incorporate efficient patent procedures and foster high-quality patents; as such, the United States urges India to improve and streamline its patent opposition procedures as it adopts and implements the Draft IPR Policy. Specifically, under India's patent regime, the same interested person may, at minimal cost, challenge a patent through both pre-grant and post-grant opposition proceedings on any of eleven enumerated grounds, including by citing the same grounds in both pre and post-grant challenges. As a result, applications can be tied up in costly challenge proceedings for years, all the while running the potential term of the patent, which begins from the application filing date. This has the ensuing effect of impeding an applicant's ability to make investments and conduct business in India.

Second, while emphasizing our continued commitment to the Doha Declaration on the TRIPS Agreement and Public Health, as discussed in the Intellectual Property and Health section of this Report (See Section I), the United States also continues to monitor India's application of its compulsory licensing law. The United States requests clarity from the Government of India regarding the compulsory license decision-making process as it affects U.S. stakeholders. Although the government has issued only one compulsory license under Section 84 of India's Patents Act, India has made clear in other policy statements that it views compulsory licensing as an important tool of industrial policy for green technologies, with the potential to be applied more regularly across economic sectors. Specifically, India has, in the past, promoted compulsory licensing in its National Manufacturing Policy as a mechanism available for government entities to effectuate technology transfer in the clean energy sector.

In the UNFCCC negotiations, India continues to identify patents as obstacles to the dissemination of climate change technologies, pressing for outcomes that would potentially undermine incentives for innovation, such as patent protection and competitiveness conditions that are critical parts of the response to climate change and other environmental challenges. Despite India's claims, there is significant empirical evidence demonstrating that green technology patents promote innovation and technology transfer. Supported by its patent system, India has become a leading global manufacturer in several green technology sectors, with Indian companies leading global R&D efforts in this sector. India need only create a truly enabling environment in its market, with the features of openness, predictability, consistency, and fairness, and the investment, technology transfer, and innovation on which India's further development depends, will follow.

The United States also notes with concern the continuing challenges involved with the enforcement of patent rights in India, including challenges that some patent holders reportedly face in securing injunctions against firms that manufacture patented inventions without authorization from the patent holder. In addition, when approving such marketing without authorization, Indian state governmental authorities reportedly do not have a mechanism to confirm whether the item to be manufactured is under patent. Recent cases such as Merck v. Glenmark and Cipla v. Roche illustrate this problem and underscore the need for greater regulatory coordination between officials in state and central governments.

Finally, the United States continues to urge India to provide an effective system for protecting against unfair commercial use, as well as the unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical and agricultural chemical products. Without these types of protections, companies in India reportedly are able to copy certain pharmaceutical products and seek immediate government approval for marketing based on the original developer's data. The United States notes the potential to address this issue as part of the First Draft of India's National IPR Policy, which describes protection of undisclosed information as an "important area of study and research for future policy development." The United States understands that the issue of agricultural chemical data protection may be considered by the Indian Parliament under the Pesticides (Amendment) Bill.

Trade Secrets

The United States continues to note its concern regarding trade secret protection in India, particularly the reported difficulty in obtaining remedies and damages. India appears to rely primarily upon contract law to provide trade secret protection. Although India's approach may address the theft of trade secrets where a contract has been breached, India's approach may be less effective in covering situations in which there is no contractual relationship, such as in cases of theft by a business competitor. Although Indian law does provide for some remedies, including injunctive relief, in practice, damages can be very difficult to obtain. Finally, because India's court system reportedly lacks sufficient procedural safeguards to protect trade secrets or other confidential information divulged through discovery in civil or criminal litigation, there is a risk that such information may be disclosed publicly in the course of judicial proceedings, deterring victims of trade secret theft from using the court system to enforce their rights. The United States notes positive statements in the First Draft of India's National IPR Policy that seek to address gaps in its legal framework with respect to adequately protecting trade secrets in India, and the United States welcomes the opportunity to work closely with India on this issue.

Trademarks and Counterfeiting

The United States continues to receive stakeholder complaints regarding significant delays associated with cancellation and opposition proceedings at the administrative level of the Trademark Registry. Trademark owners' ability to enforce their rights against subsequent applicants for, or users of, potentially-infringing marks is hindered further by delays in India's judicial processes.

In addition, the level of production, sale, distribution, importation, and exportation of counterfeit goods affecting India's market remains very troubling. (See Section I). The First Draft of India's National IPR Policy notes that the Government of India should have an interest in strongly combating copyright piracy and trademark counterfeiting, as these illicit activities harm consumers and legitimate producers in India. As described in Section I of this Report, U.S. consumers may be harmed by fraudulent and potentially dangerous counterfeit products, particularly medicines, originating in India. Producers face the risk of diminished profits and loss of reputation when consumers purchase fake products, and governments lose tax revenue and 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.

U.S. enforcement authorities continue to express concerns about counterfeit and pirated goods produced in India and shipped to the United States. Some of these products (e.g., counterfeit pharmaceuticals) pose serious risks to American consumers. The United States welcomes opportunities for enhanced bilateral engagement with India on IPR-related border enforcement issues. Such cooperation could include sharing best practices, customs-to-customs information exchange for use in risk management and enforcement actions, and conducting joint customs enforcement operations designed to deter and interdict shipments of IPR-infringing goods destined for the United States.

Localization Trends

The United States remains concerned about actions and policies in India that appear to favor local manufacturing or Indian IPR owners in a manner that distorts the competitive landscape needed to ensure the development of globally-successful and innovative industries. For example, under India's Drug Price Control Order (DPCO), the National Pharmaceutical Pricing Authority implemented pricing restrictions on 509 drug formulations, effective April 1, 2015. However, exemptions from those restrictions allow certain medicines that are manufactured in India and "developed using indigenous R&D," to be priced higher, providing an advantage to Indian companies. In addition, the Indian Intellectual Property Appellate Board's interpretation of Section 84 of India's Patents Act suggests that a patent could be subject to a compulsory license if the patented product is not manufactured in India. Further, despite a Central Drug Standard Control Organization Office Order on waiver of local clinical trial requirements, industry still faces inconsistent application of requirements for local clinical trial data for approval of new drugs. In the information and communications technology sector, U.S. industry cites in-country testing requirements and data- and server-localization requirements as inhibiting market access in India.

The United States continues to press India in our bilateral dialogues, including through the IPR Working Group, to address the concerns identified in this Report. The United States will prioritize the achievement of substantive and measurable results that benefit both the United States and India.

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1. India's Draft National IPR Policy, December 19, 2014, available at: http://dipp.nic.in/English/Schemes/Intellectual_Property_Rights/IPR_Policy_24December2014.pdf
2. Section 3(d) contains a further Explanation stating that "[f]or the purposes of this clause [3(d)], salts, esthers, ethers, polymorphs, metabolites, pure form, particle size, isomers, mixtures of isomers, complexes, combinations and other derivatives of known substance shall be considered to be the same substance, unless they differ significantly in properties with regard to efficacy."
3. Novartis AG v. Union of India & Others, Civ. App. Nos. 2706-2716 (Supreme Court, April 1, 2013), paragraphs 103, 104, and 192 (emphasis added).

PAKISTAN

Pakistan remains on the Priority Watch List in 2015 as there have not been significant improvements in its overall IPR protection. Most critically, Pakistan has not yet fully implemented key provisions of the Intellectual Property Organization of Pakistan Act of 2012 (IPO Act). In particular, Pakistan has yet to establish fully the specialized intellectual property tribunals provided for under the IPO Act. Pakistan should ensure that its enforcement officials can exercise ex officio authority without the need for a formal complaint by a rights holder and should provide for deterrent-level penalties for criminal IPR infringement. Due, in part, to a lack of effective enforcement, widespread counterfeiting and piracy of pharmaceuticals, printed materials, optical media, digital content, and software continue to present serious concerns for U.S. industry. Pakistan should also take the necessary steps to reform its copyright law to address the piracy challenges of the digital age and to reform its trademark legislation to meet international standards and to streamline the registration process. The United States continues to encourage Pakistan to provide an effective system for protecting against unfair commercial use, as well as the unauthorized disclosure of tests and other data generated to obtain marketing approval for pharmaceutical products.

The United States appreciates Pakistan's interest in improving its IPR environment as evidenced by meetings Pakistan has convened with business associations and private companies to discuss IPR concerns and to increase public awareness on the importance of IPR. The United States looks forward to working with Pakistan to address these and other issues, including with respect to the full implementation of the IPO Act.

 

Near East, including North Africa

ALGERIA

Algeria remains on the Priority Watch List in 2015. The United States welcomes Algeria's increased work on promoting awareness of the importance of intellectual property in Algeria as well as its ongoing efforts that seek to root out the use of unlicensed software in government computers. The United States notes, however, that despite these efforts, much more remains to be done in the area of enforcement against piracy and counterfeiting, particularly, enforcement of existing anti-piracy statutes, and the provision of judicial remedies in the event of patent infringement. The United States encourages Algeria to provide an effective system for protecting against unfair commercial use, as well as unauthorized disclosure of test or other data generated to obtain marketing approval for pharmaceutical products. Algeria's ban on a number of imported pharmaceutical products and medical devices in favor of local products is a trade matter of paramount concern in Algeria and the primary reason that Algeria remains on the Priority Watch List. The United States urges Algeria to remove this market access barrier, and looks forward to continuing its engagement with Algeria, including in the context of Algeria's efforts to accede to the WTO.

KUWAIT

Kuwait remains on the Priority Watch List in 2015, having been elevated from the Watch List in November 2014 as the result of an OCR. The 2014 Special 301 Report stated that if, by the time the OCR was completed, Kuwait did not introduce to the National Assembly legislation resulting in a copyright law consistent with international standards, and resume effective enforcement against copyright and trademark infringement, then Kuwait would be moved to the Priority Watch List. These developments did not occur, and Kuwait was moved to the Priority Watch List in November 2014. The United States commends the Government of Kuwait's enforcement efforts taken since the OCR announcement and encourages Kuwait to maintain these efforts. However, the United States awaits the introduction to Kuwait's National Assembly of long-overdue copyright legislation that is consistent with Kuwait's international commitments. The United States stands ready to work with Kuwait towards resolving these important issues.

 

Europe and Eurasia

RUSSIA

Russia remains on the Priority Watch List in 2015 as a result of continued and significant challenges to IPR protection and enforcement, notably in the areas of copyright infringement and trademark counterfeiting. In particular, the United States remains concerned over stakeholder reports that IPR enforcement continues to decline overall in 2014, following similar declines in the prior two years, including a reduction in resources for enforcement personnel.

Copyright infringement is a persistent problem in Russia, including, but not limited to, online piracy. Although Russia's antipiracy legislation continues to evolve, its impact is unclear, as is whether further, needed modifications will occur. Russia remains home to many sites facilitating online piracy, which damage both the market for legitimate content in Russia as well as in other countries. While Russian courts issued the first two criminal convictions for online piracy this year, both resulted in suspended sentences, undermining the deterrent effect of the convictions. Enforcement against copyright infringement that does not take place online is also a notably low priority for law enforcement, particularly in major cities. Enforcement actions combating end-user piracy have declined sharply, as have the overall number of raids, criminal charges, and convictions. The United States urges Russia to ensure that ongoing legislative and enforcement efforts will result in copyright enforcement mechanisms that are fair, effective, and transparent.

The lack of enforcement of trademarks has resulted in the continued problem of counterfeit goods in Russia. Stakeholders express concern that counterfeit goods continue to be manufactured, transshipped and sold in Russia, including counterfeit agricultural chemicals, electronics, information technology, auto parts, consumer goods, machinery, and other products. The smuggling of Chinese-origin counterfeit products also continued unabated over the Kazakhstan-China border and through Kyrgyzstan, continuing on into Russia. Counterfeit pharmaceuticals are also manufactured in Russia and made available through online pharmacies. However, the United States welcomes the fact that in 2014 Russia's State Duma adopted new legislation aimed at criminalizing pharmaceutical counterfeiting as well as the distribution of fake and adulterated medicines.

The United States also is concerned about Russia's implementation of the commitments it made in the WTO Working Party Report related to the protection against unauthorized disclosure of, or reliance on, undisclosed test or other data generated to obtain marketing approval for pharmaceutical products.

The United States urges Russia to develop a more comprehensive, transparent and effective legal framework and enforcement strategy to reduce IPR infringement, particularly the sale of counterfeit goods, and the piracy of copyright-protected content. Although the U.S. Government has curtailed bilateral engagement with Russia on a myriad of issues in response to Russia's actions in Ukraine, the United States continues to monitor Russia's progress on these and other matters through appropriate channels.

UKRAINE

Ukraine is on the Priority Watch List in 2015. Ukraine was designated a Priority Foreign Country (PFC) in the 2013 Special 301 Report. As described in that report, the three grounds for Ukraine's PFC designation were: (1) the unfair, nontransparent administration of the system for collecting societies, which are responsible for collecting and distributing royalties to U.S. and other rights holders; (2) widespread (and admitted) use of illegal software by the Ukrainian government agencies; and (3) failure to implement an effective means to combat the widespread online infringement of copyright and related rights in Ukraine, including the lack of transparent and predictable provisions on intermediary liability and liability for third parties that facilitate piracy, limitations on such liability for Internet Service Providers and enforcement of takedown notices for infringing online content. Following Ukraine's designation and pursuant to statute, the Office of the U.S. Trade Representative conducted an investigation under Section 301 of Ukraine's IPR acts, policies, and practices, which concluded in March 2014. The U.S. Trade Representative determined that while IPR problems persisted, no adverse actions would be taken against Ukraine because of the political situation in Ukraine at that time. (See Notice of Determination in Section 301 Investigation of Ukraine, 79 FR 14326 (March 13, 2014)). The 2014 Special 301 Report, published a few weeks later, reiterated the severe deficiencies in Ukraine's IPR protection and enforcement.

The three problems identified in the 2013 Special 301 Report have not been resolved. However, in contrast to the period of time leading up to the PFC designation, in the past year the Government of Ukraine has invested additional effort in tackling these problems, in conjunction with other economic reforms. With respect to improving the administration of collecting societies, there is active engagement on legislative reform. No legislation has been passed, however, and the government still accredits "rogue" collecting societies, i.e., societies which do not actually represent rights holders.

With respect to the use of unlicensed software by Ukrainian government agencies, the government reports that some agencies have transitioned to authorized software, but it has not institutionalized any mechanisms to ensure a uniform and permanent transition to use of authorized software.

With respect to improving the government's response to online infringement, Ukrainian officials have participated in law enforcement training, engaged in at least one enforcement action, and worked on draft legislation. However, the legislation has not yet been adopted and investigations and prosecutions remain sporadic. As highlighted in the 2014 Notorious Markets List, Ukraine continues to host some of the largest pirate sites in the world. The United States appreciates that the Ministry of Internal Affairs' Cybercrime Division and Economic Crimes Division have both been willing to work closely with the U.S. Department of Justice on online piracy and that Ukrainian enforcement personnel have participated in training and engagement on this issue, including a workshop on Combating Digital Piracy by the Commercial Law Development Program of the United States Department of Commerce.

The Government of Ukraine has stated that it seeks to improve these and other IPR-related deficiencies to advance its own agenda for economic improvement, particularly in promoting foreign direct investment, ensuring that legitimate Ukrainian creators and innovators can build successful businesses, and fulfilling its obligations under the EU-Ukraine Association Agreement. The United States welcomes Ukraine's recent outreach and ongoing engagement on these important issues and looks forward to these efforts resulting in tangible and lasting improvement, both in legislative reform and in practice.

 

Western Hemisphere

ARGENTINA

Argentina remains on the 2015 Priority Watch List, as it continues to present a number of very long-standing and well-known deficiencies in IPR protection and enforcement, and has become an extremely challenging market for IPR-intensive industries.

A major challenge in Argentina is the lack of effective IPR enforcement by the national government. Argentine police do not take ex officio actions, prosecutions stall, cases wallow in excessive formalities and, even if a criminal investigation reaches final judgment, infringers do not receive deterrent sentences. In terms of physical piracy, the Notorious Market La Salada is one of biggest open-air markets in Latin America offering counterfeit and pirated goods, and it continues to grow. Open twice a week, La Salada attracts over one million people a day who browse and buy literally millions of illegal goods each year. Recent efforts by the City of Buenos Aires to combat increasing lawlessness in the market received little assistance from the national government. In fact, Argentina has thousands of smaller markets known as "Saladitas" that offer pirated and counterfeit goods, and vendors can be seen on the streets of Buenos Aires and other big cities selling illicit works with impunity.

While optical disc copyright piracy is widespread, Internet piracy is a growing concern. Internet piracy rates approach 100 percent in several content areas. For example, Argentine-run Notorious Market cuevana.tv—offering pirated movies and TV shows—is the 75^th most popular website in the country, with an estimated 150,000 visitors each day. As a result, IPR enforcement in Argentina consists mainly of rights holders trying to convince cooperative Argentine online providers to agree to take down specific infringing works, and attempting to seek injunctions in civil cases. Criminal enforcement is nearly nonexistent.

Argentina does not provide adequate protection against the unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical or agricultural chemical products, nor does Argentina provide an appealing environment to patent owners in terms of pendency, scope and term of protection, or meaningful enforcement options. Rather than providing protection for pending patents, Argentina only provides patent protection from the date of the grant of the patent. There is a substantial backlog of patent applications which results in long delays in registering rights. Argentina rejects patent applications with claims for common pharmaceutical products. To be patentable, Argentina requires that processes for the manufacture of active compounds disclosed in a specification be reproducible and applicable on an industrial scale. It is unclear whether these restrictive guidelines also apply to biotechnology products. These restrictions limit the ability of companies investing in Argentina to protect their IPR, and are inconsistent with international practice.

Finally, rights holders complain of widespread use of unlicensed software by Argentine private enterprises and the government. The Argentine government's imposition of currency exchange restrictions and the prohibition on payment of dividends and royalties to foreign parties make it difficult for Argentine companies seeking proper software licenses to obtain the currency needed to pay for such licenses. This presents yet another significant market access barrier for IPR-intensive companies who consider investing in Argentina.

CHILE

Chile remains on the Priority Watch List in 2015. The United States continues to have serious concerns regarding longstanding IPR issues under the United States-Chile Free Trade Agreement. The United States continues to urge Chile to implement an effective system for addressing patent issues expeditiously in connection with applications to market pharmaceutical products. The United States also urges Chile to provide adequate protection against unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products. The United States continues to urge Chile to implement both protections against the unlawful circumvention of technological protection measures and protections for encrypted program-carrying satellite signals. Chile must also ensure that effective administrative and judicial procedures, as well as deterrent remedies, are made available to rights holders and satellite and cable service providers, including measures to address ongoing concerns with decoder boxes. Finally, the United States urges Chile to amend its Internet Service Provider liability regime to permit effective action against piracy over the Internet, and also urges Chile to improve protection for plant varieties. The United States looks forward to continuing to work with Chile to resolve these and other issues, including through the TPP negotiations.

ECUADOR

Ecuador is elevated from the Watch List to the Priority Watch List in 2015. This decision is based on Ecuador's 2014 repeal of its criminal IPR provisions. The United States urges Ecuador to complete its work in reversing the repeal, or to achieve this effect through other means. The current lack of criminal procedures and penalties invites transnational organized crime groups that engage in copyright piracy and trademark counterfeiting to view Ecuador as a safe haven. If Ecuador reinstates the repealed provisions or adopts new acceptable procedures and penalties by December 30, 2015, USTR will promptly conduct an OCR to determine whether to return Ecuador to the Watch List.

Ecuador is strongly encouraged to conduct an open, transparent, and inclusive process before advancing the draft knowledge and innovation economy law that, as currently drafted, would represent a departure from international practice and could threaten foreign investment in and further development of Ecuador's innovative and creative industries. Ecuador is also encouraged to bring patent maintenance fees back into alignment with international practice. With respect to the pharmaceutical and agricultural chemical industries, Ecuador does not adequately protect against the unfair commercial use, or the unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical and agricultural chemical products. Ecuador must also ensure that its implementation of recently-adopted Decree 522 regarding the use of registered trademarks on off-patent medications and generics does not prejudice the legitimate interests of affected trademark holders. Finally, the United States encourages Ecuador to provide clarification on its processes related to the compulsory licensing of pharmaceuticals.

VENEZUELA

Venezuela remains on the Priority Watch List in 2015, as there was no attempt to reverse the downward trajectory of Venezuela's IPR system in 2014. Following Venezuela's formal withdrawal from the Andean Community, the reinstatement of its 1955 Industrial Property Law in conjunction with provisions in Venezuela's 1999 constitution and international treaty obligations has created legal ambiguity and impeded the registration of patents for pharmaceutical products. Venezuela's Autonomous Intellectual Property Service (SAPI) has not issued a new patent since 2007. Venezuela also fails to provide an effective system for protecting against the unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products. IPR enforcement remains insufficient to address widespread counterfeiting and piracy, including online. Consistent with this deteriorating IPR picture, the World Economic Forum's 2014-2015 Competitiveness Report ranked Venezuela last for intellectual property protection of all 144 countries evaluated.

 

WATCH LIST

East Asia and Pacific

Vietnam
Vietnam remains on the Watch List in 2015. Online piracy and sales of counterfeit goods over the Internet are common, and, as more Vietnamese obtain broadband and purchase smartphones, the United States expects that conditions will continue to worsen unless the Government of Vietnam takes action. Counterfeit goods—including high-quality knockoffs—remain widely available in physical markets, and while still limited, manufacturing of counterfeit goods is emerging as an issue. In addition, book piracy, software piracy, and cable and satellite signal theft persist. Enforcement continues to be a challenge for Vietnam. Capacity constraints remain due, in part, to a lack of resources and IPR expertise. Vietnam continues to rely heavily on administrative enforcement actions, which have failed to deter counterfeiting and piracy. While there are laws in place for IPR crimes, Vietnam has yet to draft the implementing guidelines to the 2009 amendments to the 1999 Criminal Code, which would allow law enforcement agencies and courts to levy deterrent criminal penalties against IPR violators. Vietnam's system for protecting against the unfair commercial use, as well as unauthorized disclosure of undisclosed test or other data generated to obtain marketing approval for pharmaceutical products also needs clarifications. The Government of Vietnam is in the process of drafting or revising circulars in a number of IPR-related areas, including on guidelines for interagency cooperation on enforcement issues, as well as criminal code reform, and various agencies continue to engage in public awareness campaigns. Meanwhile, various other impediments to doing business have complicated efforts by foreign companies to sell legitimate products in the Vietnam's market. The United States looks forward to continuing to work with Vietnam to address these and other issues, including in the TPP negotiations.

 

South and Central Asia

Tajikistan
Tajikistan remains on the Watch List in 2015, with an OCR to evaluate the possibility of removing Tajikistan from the Special 301 Watch List. During its WTO accession process, the Government of Tajikistan committed to providing ex officio authority to its enforcement agencies. However, the existing legislation does not establish conditions for the customs authorities to act ex officio, or for public officials to be held liable when acting in bad faith. The United States encourages Tajikistan to address this deficiency and amend its laws to comport fully with the commitments it made on this issue during the WTO accession process. The United States continues to recommend that Tajikistan increase prosecutions of criminal IPR infringement, enforce laws against widespread optical disc piracy, and address a report alleging endemic government use of unlicensed software. An industry survey from 2007-08 estimated that up to 90 percent of software operating on the government's computers is unlicensed. The United States notes that the Government of Tajikistan also developed its 2014-2020 National Strategy for the Development of Intellectual Property, but has not allocated money to implement it. The OCR will evaluate whether Tajikistan adopts a presidential-level decree, law, or regulation mandating government use of licensed software and implements its WTO accession-related commitment to provide ex officio enforcement authority for enforcement officials. The United States stands ready to assist through enhanced engagement or technical assistance, if requested.

Turkmenistan
Turkmenistan remains on the Watch List in 2015. The United States will conduct an OCR in 2015 to evaluate the possibility of removing Turkmenistan from the Special 301 Watch List as noted below. In 2012, Turkmenistan adopted a Law on Copyright and Allied Rights and amended its Civil Code to enhance IPR protection. However, Turkmenistan reportedly has yet to provide for effective administrative, civil or criminal procedures or penalties for enforcement of these rights. The United States urges Turkmenistan to provide these enforcement procedures, including ex officio authority for its customs officials. In addition, the United States continues to strongly encourage Turkmenistan to join the Berne Convention and other international IPR treaties. The United States is also concerned about reports of widespread usage of unlicensed software on government computers. The United States seeks an affirmative response from the Government of Turkmenistan mandating that government agencies use only licensed software and comply with international agreements regarding copyright protection as a signal of Turkmenistan's commitment to protect and enforce IPR. The OCR will evaluate whether Turkmenistan addresses existing gaps in its IPR legal framework, including by joining the Berne Convention, and issuing a presidential-level decree, law, or regulation mandating government use of licensed software. The United States stands ready to assist through enhanced engagement or technical assistance, if requested.

Uzbekistan
Uzbekistan remains on the Watch List in 2015. While Uzbekistan made some progress towards better IPR protection in past years, there was little progress last year. The United States urges the Uzbek Parliament to take several critical legislative steps to address longstanding deficiencies in IPR protection: (1) approve Uzbekistan joining the Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication of their Phonographs (Geneva Phonograms Convention); (2) approve Uzbekistan's accession to the WIPO Internet Treaties; and (3) take legislative action to provide adequate copyright protection for foreign sound recordings. Additionally, Uzbekistan should provide additional resources to the Agency for Intellectual Property and other enforcement agencies in addition to granting ex officio authority to customs and criminal law enforcement officials in order to initiate investigations and enforcement actions, including at the border. Uzbekistan also lacks deterrent-level penalties for IPR infringement. The United States will continue to engage with Uzbekistan on these matters.

 

Near East

Egypt
Egypt remains on the Watch List in 2015. Although Egypt continues to improve its border and customs controls, continuing IPR enforcement challenges remain, including the failure to issue deterrent-level sentences for IPR violations and the need for additional training for enforcement officials. Egypt has not issued regulations to clarify border procedures for the destruction of counterfeit and pirated products and to provide customs officials with the authority to take ex officio action. Egypt is continuing to upgrade its trademark database system for use in detecting and preventing the import, export, and transshipment of counterfeit goods. However, rights holders have expressed concerns about the registration of trademarks filed in bad faith. The United States urges Egypt to clarify its protection against the unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval of pharmaceutical products. The United States appreciates Egypt's recent engagement on many of these and other IPR issues and stands ready to work with Egypt to improve its IPR regime.

Lebanon
Lebanon remains on the Watch List in 2015. The United States encourages Lebanon to continue its progress on pending IPR legislative reforms, including with respect to new draft laws (concerning trademark, geographical indications, and industrial designs) as well as amendments to Lebanon's copyright and patent laws. The United States notes that the enactment of revisions in 2015 to the copyright law would pave the way for ratification of the two WIPO Internet Treaties. The United States also encourages ratification and implementation of the latest acts of several IPR framework treaties, including the Paris Convention for the Protection of Industrial Property, the Berne Convention for the Protection of Literary and Artistic Works, the Nice Agreement, and the Madrid Agreement on False or Deceptive Indications of Source on Goods. In addition, the United States encourages Lebanon to ratify and implement the Singapore Treaty on the Law of Trademarks, and join the Patent Cooperation Treaty and the Madrid Protocol. The United States continues to stress the importance of Lebanon providing its Cyber Crime and Intellectual Property Rights Bureau and Customs with ex officio enforcement authority and its enforcement authorities with adequate resources to carry out their enforcement functions. The United States welcomes the continued efforts of the Ministry of Economy and Trade's Intellectual Property Protection Office to bolster its administration and enforcement capacity for intellectual property rights protection, and urges the commitment of additional resources to support its work. Intellectual property enforcement through the Lebanese judiciary remains weak. The United States urges imposition of deterrent-level penalties for infringers. The United States looks forward to continuing to work with Lebanon to address these and other issues.

 

Europe and Eurasia

Belarus
Belarus remains on the Watch List in 2015. Levels of piracy and counterfeiting remain high in Belarus, and enforcement is weak. Despite passing laws in 2014 to make it easier for notaries to collect and preserve evidence of online IPR infringement for later court proceedings and to provide legal protection for plant varieties, Belarus' criminal law, criminal procedure, civil, and administrative codes—as well as its copyright and customs laws—remain inadequate to deal with IPR infringement. For example, copyright infringement is not a violation of criminal law in Belarus unless it occurs within a year after imposition of an administrative penalty for the same offense or is associated with the receipt of "large-scale" income. Similarly, trademark counterfeiting is not a criminal offense unless it happens within a year after imposition of an administrative penalty for the same offense. Moreover, Belarusian law does not explicitly give police officers ex officio authority to initiate IPR criminal cases or provide customs officials ex officio power to seize counterfeit and pirated goods and begin their own investigations. In 2014, Belarus also failed to follow through on plans to expand administrative liability for traffickers in counterfeit goods and to increase minimum administrative penalties for IPR infringement. The United States recognizes Belarus' participation in two recent INTERPOL-organized law enforcement operations targeting counterfeit goods—Operation Black Poseidon III and Operation Opson IV—and urges Belarus to participate in more joint enforcement exercises with its neighbors and other countries. Last year, Belarus signed the Treaty establishing the Eurasian Economic Union (EAEU), which includes Part XXIII "Intellectual Property" and Annex 26 on protecting IPR. Given the free movement of goods within the EAEU, the United States looks forward to seeing how Belarus will implement the Treaty through related measures, at both the EAEU and national levels as well as through additional enforcement. The United States appreciates its discussions with Belarus on IPR issues and looks forward to further cooperation on them.

Bulgaria
Bulgaria is on the Watch List in 2015. Despite some incremental progress on IPR protection and enforcement, the United States continues to have serious concerns regarding Bulgaria's actions to enforce its IPR laws and to significantly reduce Internet piracy. Bulgaria's Cybercrime Division has done outstanding work on IPR enforcement over the years, but its effectiveness was drastically reduced after the Division was transferred to the State Agency for National Security in October 2013. The United States understands that the current government plans to return the Division to the Ministry of Interior, and urges that this be done as soon as possible. The United States also encourages Bulgaria to devote the necessary resources to improving the prosecution of IPR cases. The United States supports the Prosecutor General's 2012 appointment of a new management team to the Supreme Cassation Prosecutor's Office and introduction of standard practices for investigating and prosecuting IPR crimes. The United States encourages the Prosecutor General to establish specialized IPR prosecutorial units in Sofia and other large cities, appoint a sufficient number of lawyers to these units, provide detailed guidance and training, and closely monitor and analyze their work. The United States also encourages Bulgaria to take steps to improve the efficiency of its judicial system in dealing with IPR cases and providing deterrent sentences. IPR cases often persist for years, and deterrent-level sentencing remains rare. For example, in the first nine months of 2014, Bulgarian courts resolved around 100 IPR cases, but in the 30 instances where judges imposed prison sentences, each of those sentences was suspended. Internet piracy remains rampant as well. In addition, Bulgaria is one of the few European countries that refuses to use "sampling" in IPR cases. As a result, if the police seize multiple servers loaded with many gigabytes of infringing material, experts at the Copyright Office must examine each work and prepare a detailed report. Prosecutors must include every infringing work that police seized in the indictment, and judges must examine every work individually. This unnecessarily delays and complicates every large Internet piracy case. As Bulgaria continues efforts to draft a new Criminal Code, the United States urges the Council for Intellectual Protection and the Prosecutor General to address Internet piracy to resolve the numerous enforcement difficulties in this area. In addition, the United States remains concerned that administrative enforcement actions are sporadic and ineffective, especially with regard to Internet piracy. For example, in 2013, the Ministry of Culture conducted 743 checks for copyright infringement on the Internet, but carried out only 13 in 2014, and only issued three penalties. The United States recognizes that the two biggest Bulgarian collecting societies have licensing agreements in place with radio and TV broadcasters, but recommends that the government also work to ensure compliance by cable operators and that it take action to address unlawful fee collection by smaller rogue societies. The United States looks forward to continuing to work with Bulgaria to address these and other issues.

Greece
Greece remains on the Watch List in 2015. In 2014, Greece continued to make progress in IPR protection and enforcement. Notably, with respect to trademark protection and combating trade in counterfeit goods, the Hellenic Police and Greek Customs Authority increased seizures and investigations. Moreover, last year Greece passed a law authorizing authorities to impose criminal as well as administrative sanctions on individuals caught trafficking in counterfeit goods. The United States encourages Greek officials to use this new authority to better fight the street sales of counterfeit and pirated goods present in Greece's largest cities and tourist areas. Recent changes to the Greek Code of Civil Procedure have improved the efficiency and timeliness of civil infringement suits. While the Government of Greece has made progress, several issues remain to be addressed. The United States urges Greece to enact official storage time limits for goods detained at Greek ports and to ensure the timely destruction of these goods, as well as to consider joining most EU member states in adopting a policy that allows for the inspection and detention of counterfeit goods in transit. And while Greece remains vigilant against counterfeit pharmaceuticals entering its market, market access issues remain for the innovative pharmaceutical industry. In addition, the government has not followed through on efforts to address public- and private-sector use of unlicensed software. The United States encourages Greece to implement an official software registry system for government software end users and also continue and expand upon the outstanding 2012-2013 work of the Tax Police (SDOE) to audit, raid, and fine businesses for using unlicensed software. Internet piracy also remains a significant problem. The United States encourages Greece to bolster its system for combating piracy over the Internet including by strengthening its legal regime and enhancing enforcement. The United States also supports current efforts of rights holders to work with ISPs and others to adopt voluntary measures to reduce Internet piracy. Finally, the United States encourages Greece to continue to implement the 2009 IPR Action Plan to address priority issues, and continues to urge Greece to address persistent problems with criminal enforcement delays and judges' reluctance to impose deterrent sentences and penalties on large-scale infringers. The United States looks forward to continuing to work with Greece to address these and other issues.

Romania
Romania remains on the Watch List in 2015. Despite numerous improvements in IPR protection and enforcement in Romania, some systemic concerns remain. For example, the 2010 transfer of copyright jurisdiction from the tribunal courts to first-instance, or lower level, courts has had a negative effect on enforcement, and has made training and capacity building for prosecutors and judges more difficult. In addition, the requirement established in 2005 that police identify every computer and digital media device in order to obtain a search warrant for a specific location, and then acquire additional warrants for each of these devices, could be significantly streamlined in order to encourage the investigation and prosecution of Internet piracy cases, while maintaining a fair process. Additionally, because of ambiguity regarding who can conduct computer searches under the new Criminal Procedure Code, the United States encourages the Government of Romania to clarify that police certified as experts can conduct such searches. Moreover, since the 2012 Data Retention Law was found unconstitutional by the Romanian court in 2014, following the European Court of Justice (ECJ) decision striking down the EU Data Retention Directive, there has been no legal basis to retain or preserve electronic data for investigations and prosecutions. Police and prosecutors maintain good cooperation with rights holders. For example, in 2014 the police and software industry launched a national campaign against unlicensed software, sending out more than 30,000 letters to companies and holding public awareness events attended by over 800 businesses. The Romanian National Customs Authority also has done impressive work, more than doubling the number of counterfeit goods it seized in 2014 from the previous year. However, the United States encourages Romania to do more with respect to IPR enforcement. For instance, the government should fully staff and fund the IPR Coordination Department in the General Prosecutor's Office (GPO), and encourage its efforts to investigate and prosecute significant IPR cases around the country as well as to coordinate government IPR enforcement efforts through the inter-ministerial Intellectual Property Working Group. Romania's specialized police and prosecutors should continue and expand their recent efforts to focus on longer-term, higher-priority IPR crimes, rather than opening criminal investigations of minor violations that are then typically dismissed subsequently for lack of "social harm." Because larger IPR cases often involve related crimes such as fraud, tax evasion, and money laundering, prosecutors should consider bringing multiple charges, rather than limiting themselves to copyright and trademark infringement. In fact, Romanian prosecutors only indict a small fraction of criminal IPR cases filed, and obtain relatively few convictions or sentences. In 2014, for example, the GPO filed new 7,310 IPR cases, but obtained only 60 indictments. While industry has had some success with respect to its own initiatives to address online piracy in Romania, and the GPO took over numerous Internet piracy investigations, there have very few recent successful prosecutions involving significant pirate sites. The United States looks forward to continuing to work with Romania to address these and other issues.

Turkey
Turkey remains on the Watch List in 2015. Turkey made little to no progress on IPR issues in 2014, and enforcement of existing IPR laws, particularly by the judiciary, remains weak. U.S. rights holders continue to raise serious concerns regarding the export from, and transshipment through, Turkey of counterfeit and pirated products. In each of the last three years, a significant and increasing amount of counterfeit goods shipped to the United States from Turkey was interdicted at the U.S. border. In addition, Turkey remains one of the leading points of entry for counterfeit products into the EU, ranking fourth in the number of items seized and third in terms of the value of infringing goods. Turkey appears as one of the three most prominent sources of counterfeit goods in a number of categories, including cosmetics and fragrances, a category in which Turkey was the country of provenance for a full majority (51.25 percent) of the goods seized at EU borders. Given Turkey's prominent role as a source and transshipment point of counterfeit goods, the government must make fundamental improvements in the country's IPR and enforcement regimes, including enhancing Turkey's border control measures. Currently, the Government of Turkey does not have an effective mechanism for ensuring the use of licensed software. The most recent available data indicate that the rate of unlicensed software use in Turkey is 60 percent, representing a commercial value of unlicensed software of $504 million. Stakeholders report, however, that enforcement against unauthorized use of software by enterprises was slightly improved in 2014, but noted that the system could be further improved by encouraging judges to issue deterrent sentences and damage awards in criminal and civil cases, respectively. Turkey currently shows little inclination to act on many promised IPR legislative reforms that have been discussed for the past several years. Legislation would be appropriate to improve several deficiencies in the system: the copyright law should be amended to provide an effective mechanism to address piracy in the digital environment, including full implementation of the WIPO Internet Treaties; royalty collecting societies should be required to have fair and transparent procedures; and police should be given the ex officio authority they currently lack, which impedes them from acting on obvious infringement cases. The United States continues to encourage Turkey to clarify how it protects against the unfair commercial use, as well as unauthorized disclosure, of test and other data generated to obtain marketing approval for pharmaceutical products. The United States is also concerned that Turkey appears to shorten the term of data protection if the patent term ends first. The United States urges Turkey to be consistent with its own legislation on its regulatory approval timeline (currently 210 days for pharmaceuticals approved by any EU member state) and, in particular, to eliminate regulatory delays that stem from nontransparent procedures or practices. Finally, as mentioned above in Section I, U.S. industry continues to express significant concerns regarding the lack of efficiency, transparency, and fairness in the pharmaceutical manufacturing inspection process.

 

Western Hemisphere

North America

Canada
Canada remains on the Watch List in 2015, as a number of IPR and related issues remain. Regarding Canada's implementation of its 2012 Copyright Modernization Act, provisions aimed at addressing copyright piracy over the Internet came into force in January 2015, and Canada completed its ratification of the WIPO Internet Treaties in August 2014. The United States continues to urge Canada to fully implement its WIPO Internet Treaties commitments and to continue to address the challenges of copyright piracy in the digital age. Regarding border enforcement issues, the Combating Counterfeit Products Act became law in December 2014. The new law provides authority to Canadian customs officials to detain pirated and counterfeit goods being imported and exported at the border. The United States is disappointed that the new law does not apply to pirated and counterfeit goods in customs transit control or customs transshipment control in Canada. The United States urges Canada to provide its customs officials with full ex officio authority to improve its ability to address the serious problem of pirated and counterfeit goods entering our highly integrated supply chains. With respect to pharmaceuticals, the United States continues to have serious concerns about the availability of rights of appeal in Canada's administrative process for reviewing regulatory approval of pharmaceutical products. The United States also continues to have serious concerns about the lack of clarity and the impact of the heightened utility requirements for patents that Canadian courts have applied recently. In these cases, courts have invalidated several valuable patents held by U.S. pharmaceutical companies on utility grounds, by interpreting the "promise" of the patent and finding that insufficient information was provided in the application to substantiate that promise. These recent decisions, which have affected products that have been in the market and benefiting patients for years, have led to uncertainty for patent holders and applicants, including with respect to how to effectively meet this standard. This unpredictability also undermines incentives for investments in the pharmaceutical sector. The United States closely monitors developments on these issues and looks forward to continuing to work with Canada to address these and other IPR issues, including through the TPP negotiations.

Mexico
Mexico remains on the Watch List in 2015. Positive developments in Mexico in 2014 included progress in law enforcement operations, including at the Notorious Markets Tepito and San Juan de Dios, and the seizure and destruction of pirated and counterfeit goods as well as materials and implements used for their production. However, serious concerns remain, particularly with respect to the widespread availability of pirated and counterfeit goods in Mexico and increased Internet piracy made possible, in part, by higher broadband penetration. To combat these high levels of IPR infringements, Mexico needs to improve coordination among federal and sub-federal officials, devote additional resources to enforcement, bring more IPR-related prosecutions, and impose deterrent penalties against infringers. The United States continues to urge Mexico to enact legislation to strengthen its copyright regime, including by fully implementing the WIPO Internet Treaties and providing stronger protection against the unauthorized camcording of motion pictures in theaters. Prior to 2011, Mexican customs authorities and the Attorney General's Office worked jointly to intercept and prosecute transshipments of counterfeit and pirated goods. Following a shift in policy, however, Mexican authorities now only take action against transshipments of suspected infringing goods if there is evidence of "intent for commercial gain" in Mexican territory, which is very difficult to prove. The United States strongly urges Mexico to provide its customs officials with ex officio authority and to revert to the previous policy that allowed for the interception of potentially dangerous goods bearing counterfeit trademarks in transit to the United States and other countries. The United States looks forward to continuing to work with Mexico to address these and other issues, including through the TPP negotiations.

 

Central America and the Caribbean

Costa Rica
Costa Rica remains on the Watch List in 2015, although there is growing concern that several promised reforms have yet to yield tangible results. In 2010, the Government of Costa Rica announced a plan to ensure that the government would use only licensed software, but inaction and a series of postponements followed until January of 2015, when the Government of Costa Rica issued a decree requiring government institutions to report in writing the status of their software licenses by June 30, 2015. It is critical that the government both complete scheduled audits and close the unlicensed software gap in the coming year. In 2011, the United States applauded an announcement that the Government of Costa Rica would create a specialized IPR prosecution unit; however, four years later, the government appears not to have followed through with that effort. Nevertheless, a newly appointed Economic Crimes Prosecutor has reportedly instilled new purpose into IPR enforcement efforts, although the number of cases initiated has fallen slightly. It also remains unclear whether the Government of Costa Rica has committed the necessary resources to effectuate lasting improvements. To better evaluate the effectiveness of IPR prosecutions in Costa Rica, the government should provide detailed information, by type of IPR involved, on the number of cases that are opened, that result in charges, that are resolved, and any resulting sentences. In addition, the Ministry of Justice should call more meetings of the inter-institutional commission on IPR. Other concerns focus on various laws and regulations. Costa Rican law still allows online service providers 45 days to forward infringement notices to subscribers. However, action at such a glacial pace may be of little help to rights holders, given the speed at which infringing content can be posted to and downloaded, streamed, or shared through the Internet, as well as the fact that content may be of relatively short-term interest to the public. Pharmaceutical patent holders report various concerns, including poorly defined exceptions to Costa Rica's data exclusivity regime. Further, certain rulings on applications to register GIs present serious market access concerns, as administrative determinations at both the initial and review levels appeared to reject evidence vital in determining whether elements of a compound GI are generic. It is critical that Costa Rican authorities consider all relevant facts and arguments and provide clear notice to the public as to generic terms, including any that are elements of a compound GI. Moreover, while giving rise to optimism in last year's report, Costa Rica's new electronic trademark database is reportedly unsearchable, resulting in the need for time-consuming paper searches. In addition, the government has acknowledged that its customs procedures could be improved significantly; for example, Costa Rica should create a formal customs recordal system for trademarks to give customs officers the technical and contact information they need to make full use of their ex officio authority to detain and examine goods and should speed up resolution of customs cases. The United States urges Costa Rica to develop clear plans to tackle longstanding problems and to demonstrate tangible progress in implementing those plans prior to the next Special 301 Report.

Dominican Republic
The Dominican Republic remains on the Watch List in 2015. While there has been some positive enforcement action over the past year to promote public safety against threats from potentially unsafe products, substantial IPR concerns remain, including the widespread availability of pirated and counterfeit products, satellite signal piracy, and a longstanding patent application backlog. In an encouraging development in 2014, the Government of the Dominican Republic created in the Public Ministry an office responsible for prosecuting makers and sellers of counterfeit drugs and food products and is working with the National Police to execute raids, close illegitimate pharmacies and food retailers, and make arrests. In other areas, however, IPR enforcement has not improved. One Embassy contact estimated that only 10 of 150 cable providers operating in the Dominican Republic are licensed to provide cable services, yet the Government of the Dominican Republic has not taken enforcement actions. Although the Dominican patent office (ONAPI) granted more patents in 2014 than in 2013, the large backlog of pending patent applications continues to grow, standing at 1,379 pending applications as of June 2014. ONAPI is in the process of digitizing patents and creating an online application and retrieval system, but these efforts will take several years to complete. The United States Patent and Trademark Office continues to offer technical assistance to complete this modernization effort. The large patent application backlog underscores the need for patent term adjustment for unreasonable administrative delays, however applications for adjustment continue to be denied at the administrative level. Additionally, the United States urges the Government of the Dominican Republic to increase transparency and predictability in protecting undisclosed test or other data generated to obtain marketing approval for pharmaceutical products against unfair commercial use and unauthorized disclosure by issuing regulations governing the process. The United States looks forward to continuing to work with the Dominican Republic to address these and other issues.

Guatemala
Guatemala remains on the Watch List in 2015, as a number of problems persist. Rulings in Guatemala on applications to register geographical indications appear sound and well-reasoned for compound GI names. However, due to a ruling by administrative authorities in April 2014 on GI protection for single name cheeses, concerns arose that new U.S. exporters may not be able to export certain types of cheeses and other products to Guatemala. The United States continues to engage with the Ministry of Economy and the Intellectual Property Registry on this important issue. Despite a generally sound IPR legal framework, enforcement activities in Guatemala remain ineffective due to resource constraints and lack of coordination among law enforcement agencies. Pirated and counterfeit goods continue to be widely available, and Guatemala has become a source of counterfeit pharmaceutical products. Trademark squatting is a significant concern, impacting the ability of legitimate business to use their marks, as administrative remedies are inadequate and relief through the courts is slow and expensive. Government use of unlicensed software is another serious problem that remains largely unaddressed. The United States continues to work with Guatemala to improve IPR protection and enforcement issues.

Barbados
Barbados remains on the Watch List in 2015. The United States continues to have concerns about the interception and retransmission of U.S. cable programming by local cable operators in Barbados and throughout the Caribbean region without the consent of, and without adequately compensating, U.S. rights holders. The United States also has continuing concerns about the refusal of Barbadian TV and radio broadcasters and cable and satellite operators to pay for public performances of music. (See Section I). The United States urges the Government of Barbados to take all administrative actions necessary, without undue delay, to ensure that all composers and songwriters receive the royalties they are owed for the public performance of their musical works. In one case, the local PRO won a case before the Supreme Court regarding the appropriate tariff to be paid for broadcasts of its members' music, and six years after that decision the PRO still has not received its monies because the requisite hearing at the administrative level has not yet been conducted. In addition, the United States urges the Government of Barbados to adopt modern copyright legislation that protects works in both physical and online environments and to take steps to prevent the unauthorized and uncompensated retransmission of copyrighted musical and audiovisual content. The United States looks forward to working with Barbados to resolve these issues.

Jamaica
Jamaica remains on the Watch List in 2015. The United States is watching the progress of proposed amendments to the Broadcasting and Radio Re-diffusion Act that would appear to permit advertising from local entities on the channels of foreign cable operators with the permission of content providers, which may lead to regulatory challenges and be difficult to enforce. In the area of copyright, Jamaica is one of several Caribbean countries with deficiencies related to protection and enforcement. (See Section I). For several years, Jamaica has been identified by rights holders as one of the region's most problematic markets with respect to the unlicensed and uncompensated cablecasting and broadcasting of copyrighted music. Jamaica maintains a statutory licensing regime for the retransmission of copyrighted television programming but has not consistently enforced the payment of statutory royalties to rights holders. Jamaica has, however, taken some steps to ensure that its regulatory agencies are monitoring broadcasting entities. The United States also continues to encourage Jamaica to adopt the long-awaited Patent and Designs Act, which has been under review for nearly a decade, and notes the recent developments with respect to copyright law amendments. The United States looks forward to working with Jamaica to address these issues.

Trinidad and Tobago
Trinidad and Tobago remains on the Watch List in 2015. The United States continues to urge the Government of Trinidad and Tobago to enforce the copyright provisions of its cable license agreements against cable operators who refuse to negotiate with the Copyright Music Organization of Trinidad and Tobago (COTT), the local performing rights organization, for compensation for public performance of music, including for music written by American composers. In one case involving a cable operator, the judicial authorities have not completed the appeal hearing nor assessed royalties owed to COTT four years after the court decision in COTT's favor. The United States urges the Government of Trinidad and Tobago to take all necessary actions to ensure that the terms of such licenses be fulfilled or that those licenses be terminated. These issues affect not only American artists but Caribbean artists as well. The United States looks forward to working with Trinidad and Tobago to address these issues.

 

South America

Bolivia
Bolivia remains on the Watch List in 2015. While Bolivia's legal framework addresses IPR, the lack of adequate enforcement has been a consistent problem. Stakeholders report that prosecutors rarely file criminal charges, civil suits face long delays, and customs authorities lack personnel and budgetary resources. Video, music, and software piracy rates are among the highest in Latin America, and rampant counterfeiting persists. On a positive note, governmental institutions reportedly have increased their acquisition of legal software, leading to a slight decline in overall software piracy rates. Additionally, the Servicio Nacional de Propriedad Intelectual (SENAPI), Bolivia's IPR agency, has undertaken public awareness efforts, which have resulted in a significant increase in copyright, trademark, and patent registrations by Bolivians. Despite these positive developments, there were no reports of concrete enforcement operations against counterfeit goods in 2014. The United States encourages Bolivia to take the necessary steps to improve its poor enforcement of IPR, including by improving coordination among Bolivian enforcement authorities and with the authorities of its neighboring countries.

Brazil
Brazil remains on the Watch List in 2015. Brazil continued to improve its domestic IPR regime in 2014, working to expand IPR awareness and enforcement. This is evident, for example, in the work of the National Council on Combating Piracy and Intellectual Property Crime (CNCP), whose "Piracy-Free City" program provided training in eleven cities to help consumers identify counterfeit goods associated with the 2014 World Cup. CNCP also conducted several anti-piracy operations to target the importation of counterfeit goods. Brazilian customs and other enforcement authorities cooperated constructively with U.S. law enforcement agencies to target counterfeit goods entering the Brazilian market. Despite these very positive developments, significant concerns remain with respect to the high levels of counterfeiting and piracy in Brazil, including Internet piracy. Increased emphasis on enforcement at the tri-border region, as well as stronger deterrent penalties, are needed to make sustained progress on these IPR concerns. The National Industrial Property Institute (INPI) has taken steps to address a backlog of pending patent and trademark applications, including hiring new examiners; however, long delays still exist and additional examiners are needed. Concerns also persist with respect to Brazil's inadequate protection against unfair commercial use of undisclosed test and other data generated to obtain marketing approval for pharmaceutical and agricultural chemical products. The National Sanitary Regulatory Agency's (ANVISA) duplicative review of pharmaceutical patent applications for patentability requirements still lacks transparency and delays patent registration for innovative medicines. The United States remains concerned about multiple lawsuits filed by INPI seeking to invalidate or shorten the term of certain "mailbox" patents for pharmaceutical and agricultural chemical products. Strong IPR protection, available to both domestic and foreign rights holders alike, provides a critical incentive for businesses to invest in future innovation in Brazil. The United States looks forward to engaging constructively with Brazil in support of its work to build a strong IPR environment and to address remaining concerns.

Colombia
Colombia remains on the Watch List in 2015. In 2014, the Government of Colombia made progress on implementing the United States-Colombia Trade Promotion Agreement (CTPA), including by establishing patent term adjustment for unreasonable patent office delays and pre-established damages for trademark infringement. It also appears that Colombia has, thus far, implemented its geographical indications obligations to the EU in a manner that also is consistent with CTPA obligations. Colombia also reduced patent application backlogs and continued to train judges and law enforcement officials on IPR. However, improvements are still needed with respect to implementation of significant IPR-related commitments made under the CTPA, including commitments to address the challenges of copyright piracy in the digital age. Online piracy, particularly via mobile devices, has grown significantly in Colombia in the last few years; Columbia is currently the third biggest smartphone market in Latin America, with over one-third of Colombians owning one, and more than two-thirds of Colombians having access to the Internet. Colombian law enforcement authorities with relevant jurisdiction, including the National Police and the specialized national-level IPR unit in the Attorney General's Office, have yet to engage in meaningful and sustained investigations and prosecutions against the operators of significant large pirate websites and mobile applications based in Colombia. And, despite dedicating more resources toward enforcement in 2014, the government has also not been able to reduce significantly the large number of pirate and counterfeit hard goods being sold at Bogota's San Andresitos markets, on the street, and at other distribution hubs around the country. Besides tackling online and mobile piracy, the United States urges Colombia to focus enforcement efforts on disrupting organized trafficking in illicit goods, including in the border and free trade zone areas. The United States looks forward to continuing constructive engagement with Colombia on these and other matters.

Paraguay
Paraguay remains on the Watch List in 2015. In addition, the United States continues to monitor Paraguay under Section 306. In 2014, promising negotiations occurred with the Cartes Administration to renew the bilateral IPR MOU that expired in April 2012. The United States encourages Paraguay to conclude the MOU by June 30, 2015. If this occurs, USTR will recommend an OCR to consider whether to remove Paraguay from the Watch List. Currently, USTR is identifying alternative options for enhanced engagement under the statute in the event that an MOU does not successfully conclude by the end of June. The United States recognizes that, even without the MOU, Paraguay has continued to take positive steps toward strengthening IPR. In 2014, for example, Paraguayan authorities, especially the National Directorate of Intellectual Property (DINAPI), took additional aggressive enforcement actions, including conducting raids and seizing merchandise from vendors and interdicting cargo at the international airport in Ciudad del Este. Authorities are beginning to work together to investigate cases and pursue legal actions, indicating a recognition by Paraguayan officials of the need for interagency coordination in order to have a significant impact on the availability of counterfeit and pirated merchandise in the marketplace. DINAPI has also continued its outreach to the public, signed inter-institutional cooperative agreements to improve IPR protection and enforcement, and has stepped up enforcement operations, including at the border. Nevertheless, Paraguay remains a major transshipment point for counterfeit and pirated goods, and the re-export trade on the black market is reportedly a source of significant foreign currency for the country. The United States encourages Paraguay to further improve enforcement efforts within and at Paraguay's borders, including focusing on large-scale trafficking in counterfeit and pirated goods, reportedly by regional organized crime groups, in the Tri-Border Area and strengthening law enforcement cooperation with Brazil and Argentina. Paraguay also must find some way to address challenges in the prosecution and adjudication of IPR cases, as IPR violators are seldom charged and rarely receive deterrent sentences. In addition, many of the factors that resulted in Paraguay's designation as a Priority Foreign Country in 1998 remain. While DINAPI has begun issuing patents, ending a nearly nine year drought, Paraguay still does not adequately protect against the unfair commercial use, or the unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for pharmaceutical and agricultural chemical products. Paraguay also has yet to issue a government software legalization decree, although the United States understands that progress is underway to address the underlying concerns. While Paraguay's efforts over the past two years certainly merit acknowledgement, significant challenges remain, including many that could be addressed through a renewed MOU. The United States looks forward to working constructively with Paraguay to address enforcement and other IPR challenges, and to successfully conclude the MOU.

Peru
Peru remains on the Watch List in 2015. While Peru made some progress in 2014 to promote IPR and raise public awareness, including on counterfeit medicines, the United States remains concerned about the widespread availability of counterfeit and pirated products in Peru. The United States continues to urge Peru to devote additional resources for IPR enforcement, improve coordination among enforcement agencies, enhance its border controls, and build the technical IPR-related capacity of its law enforcement officials, prosecutors, and judges. The United States also encourages Peru to coordinate enforcement and pursue prosecutions under the law that criminalizes the sale of counterfeit medicines. In addition, the United States urges Peru to ensure that it implements its obligations under the United States-Peru Trade Promotion Agreement (PTPA) regarding the prevention of government use of unlicensed software, and its obligations under PTPA and other agreements to combat piracy over the Internet. Peru also needs to clarify its protections for biotechnologically-derived pharmaceutical products. The United States looks forward to continuing to work with Peru to address these and other issues, including through the TPP negotiations.