Intellectual Property: U.S. Efforts Have Contributed to Strengthened Laws Overseas, but Challenges Remain
Published: 2004-09-08T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Although the U.S. government provides broad protection for intellectual property, intellectual property protection in parts of the world is inadequate. As a result, U.S. goods are subject to piracy and counterfeiting in many countries. A number of U.S. agencies are engaged in efforts to improve protection of U.S. intellectual property abroad. This report describes U.S agencies' efforts, the mechanisms used to coordinate these efforts, and the impact of these efforts and the challenges they face.
section_title: What GAO Found
paragraphs: U.S. agencies undertake policy initiatives, training and assistance activities, and law enforcement actions in an effort to improve protection of U.S. intellectual property abroad. Policy initiatives include assessing global intellectual property challenges and identifying countries with the most significant problems--an annual interagency process known as the "Special 301" review--and negotiating agreements that address intellectual property. In addition, many agencies engage in training and assistance activities, such as providing training for foreign officials. Finally, a small number of agencies carry out law enforcement actions, such as criminal investigations involving foreign parties and seizures of counterfeit merchandise. Agencies use several mechanisms to coordinate their efforts, although the mechanisms' usefulness varies. Formal interagency meetings--part of the U.S. government's annual Special 301 review--allow agencies to discuss intellectual property policy concerns and are seen by government and industry sources as rigorous and effective. In addition, a voluntary interagency training coordination group meets about once a month to discuss and coordinate training activities. However, the National Intellectual Property Law Enforcement Coordination Council, established to coordinate domestic and international intellectual property law enforcement, has struggled to find a clear mission, has undertaken few activities, and is generally viewed as having little impact. U.S. efforts have contributed to strengthened intellectual property legislation overseas, but enforcement in many countries remains weak. The Special 301 review is widely seen as effective, but the impact of actions such as diplomatic efforts and training activities can be hard to measure. U.S. industry has been supportive of U.S. actions. However, future U.S. efforts face significant challenges. For example, competing U.S. policy objectives take precedence over protecting intellectual property in certain regions. Further, other countries' domestic policy objectives can affect their "political will" to address U.S. concerns. Finally, many economic factors, as well as the involvement of organized crime, hinder U.S. and foreign governments' efforts to protect U.S. intellectual property abroad.

section_title: Letter
paragraphs: The United States dominates the creation and export of intellectual  property—creations of the mind. The U.S. government provides broad  protection for intellectual property through means such as copyrights,  patents, and trademarks. However, protection of intellectual property in  many parts of the world is inadequate, and as a result, U.S. goods are  subject to substantial counterfeiting and piracy in many countries. A recent  report by the Office of the U.S. Trade Representative (USTR) on the state of  intellectual property protection in foreign countries concluded that  counterfeiting has become a massive, sophisticated global business  involving the manufacture and sale of counterfeit versions of everything  from shampoos, razors, and batteries to cigarettes, alcoholic beverages,  and automobile parts, as well as medicine and health care products. The  report also gave special attention to the growing problem of piracy of  optical media goods (e.g., CDs, DVDs).
Numerous U.S. agencies are addressing such problems by seeking better  intellectual property protection overseas. To understand more fully how  U.S. agencies have performed in this regard, you asked us to identify and  review their activities. This report addresses (1) the specific efforts that  U.S. agencies have undertaken to pursue improved intellectual property  protection in other nations; (2) the impact, and industry views, of these  efforts; (3) the means used to coordinate these efforts; and (4) the  challenges that these efforts face in generating their intended impact.
To answer these questions, we analyzed key U.S. government intellectual  property reports and reviewed information from databases such as the  State Department’s intellectual property training database and the  Department of Homeland Security’s online database of intellectual  property goods seized. We found some limitations in these databases,  though the data were sufficiently reliable to provide broad information.  Further, despite our request, we were unable to obtain complete data on  use of a prominent trade preference program. We met with officials from  the Departments of State, Commerce, Justice, and Homeland Security as  well as USTR, the U.S. Patent and Trademark Office (USPTO), the Library  of Congress’s Copyright Office (a legislative branch office), the Federal  Bureau of Investigation (FBI), the U.S. Agency for International  Development (USAID), and the U.S. International Trade Commission  (USITC). We also met with officials from key intellectual property industry  groups and reviewed reports they had prepared. In addition, we attended a  private-sector intellectual property rights enforcement conference and a  U.S. government training session. We reviewed economic models used to  estimate trade damages due to intellectual property losses in Ukraine,  which has been subject to U.S. trade sanctions since 2002. We also traveled  to four countries where serious problems regarding the protection of  intellectual property have been reported—Brazil, China, Russia, and  Ukraine—and the U.S. government is taking measures to address these  problems. (See app. IV-VII for detailed information on these countries.)  We  met with U.S. embassy and foreign government officials as well as  representatives of U.S. companies and industry groups operating in those  countries. We collected and reviewed U.S. government and industry  documents in all four nations. We conducted our work from June 2003  through July 2004, in accordance with generally accepted government  auditing standards. (See app. I for more detailed information on our scope  and methodology.)
subsections: section_title: Background
paragraphs: Intellectual property is a category of intangible rights that protect  commercially valuable products of the human intellect, such as inventions;  literary and artistic works; and symbols, names, images, and designs used  in commerce. U.S. protection of intellectual property has a long history:   Article 1 of the U.S. Constitution grants the Congress the power “to  promote the Progress of Science and useful Arts, by securing for limited  Times to Authors and Inventors the exclusive Right to their respective  Writings and Discoveries.” Copyrights, patents, and trademarks are the  most common forms of protective rights for intellectual property.   Protection is granted by guaranteeing proprietors limited exclusive rights  to whatever economic reward the market may provide for their creations  and products. Ensuring the protection of IPR encourages the introduction  of innovative products and creative works to the public.
Intellectual property is an important component of the U.S. economy, and  the United States is an acknowledged global leader in the creation of  intellectual property. According to USTR, “Americans are the world’s  leading innovators, and our ideas and intellectual property are a key  ingredient to our competitiveness and prosperity.” However, industries  estimate annual losses stemming from violations of intellectual property rights overseas are substantial. Further, counterfeiting of products such as  pharmaceuticals and food items fuels public health and safety concerns.   USTR’s Special 301 annual reports on the adequacy and effectiveness of  intellectual property protection around the world demonstrate that, from a  U.S. perspective, intellectual property protection is weak in developed as  well as developing countries and that the willingness of countries to  address intellectual property issues varies greatly. U.S. laws have been  passed that address the need for strong intellectual property protection  overseas and provide remedies to be applied against countries that do not  provide adequate or effective protection. For example, the Omnibus Trade  and Competitiveness Act of 1988 allows the U.S. government to impose  trade sanctions against such countries.
Eight federal agencies, the FBI, and the USPTO undertake the primary U.S.  government activities to protect and enforce U.S. intellectual property  rights overseas. These agencies are the Departments of Commerce, State,  Justice, and Homeland Security; USTR; the Copyright Office; USAID; and  USITC. The U.S. government also participates in international  organizations that address intellectual property issues, such as the World  Trade Organization (WTO), the World Intellectual Property Organization  (WIPO), and the World Customs Organization (WCO).
section_title: U.S. Agencies Undertake Three Types of IPR Efforts
paragraphs: The efforts of multiple U.S. agencies to protect U.S. intellectual property  overseas fall into three general categories—policy initiatives, training and  technical assistance, and U.S. law enforcement actions. USTR leads most  U.S. policy activities, in particular the Special 301 review of intellectual  property protection abroad. Most agencies involved in efforts to protect  U.S. IPR overseas conduct training and technical assistance activities.  However, the number of agencies involved in U.S. law enforcement actions  is more limited, and the nature of these activities differs from other U.S.  government actions related to intellectual property protection.
subsections: section_title: USTR Leads Policy Efforts
paragraphs: U.S. policy initiatives to increase intellectual property protection around  the world are primarily led by USTR, in coordination with the Departments  of State and Commerce, USPTO, and the Copyright Office, among other  agencies. These efforts are wide ranging and include the annual Special 301  review of intellectual property protection abroad, use of trade preference  programs for developing countries, negotiation of agreements that address  intellectual property, and several other activities.
subsections: section_title: Special 301 Review Is Central U.S. Policy Effort
paragraphs: A centerpiece of policy activities is the annual Special 301 process.   “Special 301” refers to certain provisions of the Trade Act of 1974, as  amended, that require USTR to annually identify foreign countries that  deny adequate and effective protection of intellectual property rights or fair  and equitable market access for U.S. persons who rely on intellectual  property protection. USTR identifies these countries with substantial  assistance from industry and U.S. agencies and publishes the results of its  reviews in an annual report. Once a pool of such countries has been  determined, the USTR, in coordination with numerous agencies, is required  to decide which, if any, of these countries should be designated as a Priority Foreign Country (PFC). If a trading partner is identified as a PFC,  USTR must decide within 30 days whether to initiate an investigation of  those acts, policies, and practices that were the basis for identifying the  country as a PFC. Such an investigation can lead to actions such as  negotiating separate intellectual property understandings or agreements  between the United States and the PFC or implementing trade sanctions by  the U.S. government against the PFC if no satisfactory outcome is reached.  In its annual Special 301 report, USTR also lists countries with notable but  less serious intellectual property protection problems as, in order of  decreasing severity, “Priority Watch List” countries and “Watch List”  countries. Unlike PFCs, countries cited on these lists are not subject to  automatic consideration for investigation.
Between 1994 and 2004, the U.S. government designated three countries as  PFCs—China, Paraguay, and Ukraine—as a result of intellectual property  reviews (see table 1). China was initially designated as a PFC in 1994  owing to acute copyright piracy, trademark infringements, and poor  enforcement. Paraguay was designated as a PFC in 1998 owing to high  levels of piracy and counterfeiting resulting from an absence of effective  enforcement, its status as a major point of transshipment for pirated or  counterfeit products to other South American countries, and its inadequate  IPR laws. The U.S. government negotiated separate bilateral intellectual  property agreements with both countries to address these problems. These  agreements are subject to annual monitoring, with progress cited in each  year’s Special 301 report.
Ukraine, where optical media piracy was prevalent, was designated a PFC  in 2001. No mutual solution was found, and in January 2002, the U.S.  government imposed trade sanctions in the form of prohibitive tariffs (100  percent) aimed at stopping $75 million worth of certain imports from  Ukraine over time. These sanctions negatively affected Ukraine’s exports  to the United States. U.S. data show that overall imports from Ukraine  experienced a dramatic 70 percent decline from 2000 to 2003. U.S. trade  data also show that U.S. imports of the items facing punitive tariffs (with  one exception) declined by $57 million from 2000 to 2003. Since 2001,  Ukraine has remained the sole PFC and the sanctions have remained in  place. In early 2002, according to Department of State officials, Ukraine  passed an optical disc licensing law—a key U.S. factor in originally  designating Ukraine as a PFC. Further, the Ukrainian government  reportedly closed plants that were pirating optical media products.  However, the U.S. government remains concerned that the optical disc law  is inadequate.
Although it designated only three countries as PFCs between 1994 and  2004, the U.S. government has cited numerous countries—approximately  15 per year recently—on its Special 301 Priority Watch List. Of particular  note, the European Union has been placed on this list every year since  1994, while India and Argentina have been on the list for 10 and 9 years,  respectively, during that period.
By virtue of membership in the WTO, the United States and other countries  commit themselves not to take WTO-inconsistent unilateral action against  possible trade violations involving IPR protections covered by the WTO but  to instead seek recourse under the WTO’s dispute settlement system and its  rules and procedures. This may impact any U.S. government decision  regarding whether to retaliate against WTO members unilaterally with  sanctions under the Special 301 process when those countries’ IPR  problems are viewed as serious.
section_title: U.S. Policy Efforts Include Generalized System of Preferences and Other Trade Preference Programs
paragraphs: U.S. IPR policy efforts also include use of the Generalized System of  Preferences (GSP) and other trade preference programs administered by  USTR. The GSP is a unilateral program intended to promote development  through trade, rather than through traditional aid programs, by eliminating  tariffs on certain imports from eligible developing countries. The GSP was  originally authorized by the Trade Act of 1974; when it was reauthorized by  the Trade and Tariff Act of 1984, new “country practice” eligibility criteria  were added, including a requirement that beneficiary countries provide  adequate and effective IPR protection. Petitions to withdraw GSP benefits  from countries that do not meet this criterion can be filed as part of an  annual GSP review and are typically filed by industry interests. Petitions  are considered through an interagency process led by USTR, with input  from the Departments of State and Commerce, among others. In  administering the GSP program, USTR has led reviews of the IPR regimes  of numerous countries and has removed benefits from some beneficiary  countries because of IPR problems. Ukraine lost its GSP benefits in  August 2001 (approximately 6 months before the imposition of sanctions  that stemmed from Ukraine’s designation as a PFC under the Special 301  process) because of inadequate protection for optical media, and these  benefits have not been reinstated.
Adequate and effective IPR protection is required by other trade preference  programs, including the Andean Trade Preference Act (ATPA), which  provides benefits for Bolivia, Colombia, Ecuador, and Peru; the African  Growth and Opportunity Act (AGOA); and the Caribbean Basin Initiative  (CBI). USTR reviews IPR protection provided under these trade preference  programs, and, according to USTR officials, GSP, which includes numerous  developing countries, has been used more actively (in terms of reviews  and actual removal of benefits) than ATPA, CBI, and AGOA. In fact,  according to USTR officials, benefits have never been removed under ATPA  or AGOA owing to IPR concerns. However, USTR officials emphasized that  these programs and their provisions for intellectual property protection  have been used effectively nevertheless. For example, one USTR official  noted that in response to U.S. government concerns regarding whether  Colombia was meeting ATPA eligibility criteria, the Colombian government  implemented measures to, among other things, ensure the legitimate use  and licensing of software by government agencies. USTR also pointed out  that in Mauritius, an unresolved trademark counterfeiting concern for U.S.  industry was specifically raised with the government of Mauritius as a  follow-up to the annual review of the country’s eligibility for preferences  under AGOA. Following bilateral discussions, this counterfeiting concern  was addressed and resolved.
section_title: U.S. Government Engages in IPR-related Trade Negotiations
paragraphs: Since 1990, the U.S. government has negotiated 25 IPR-specific agreements  or understandings with foreign governments. USTR noted that USPTO and  other agencies are responsible for leading negotiating efforts for such  agreements (and the Copyright Office participates in negotiations as an  adviser). According to USTR officials, IPR-specific agreements are  sometimes negotiated in response to particular problems in certain  countries and are monitored when a relevant issue arises. USTR has also  negotiated an additional 23 bilateral trade agreements—primarily with  countries of the former Soviet Union or Eastern Europe—that contain IPR  provisions (see app. II for a listing of these agreements).
In addition, the U.S. government, primarily USTR and USPTO (with input  from the Copyright Office) participated actively in negotiating the WTO’s  Agreement on Trade-Related Aspects of Intellectual Property (TRIPS),  which came into force in 1995 and broadly governs the multilateral  protection of IPR. TRIPS established new or improved standards of  protection in various areas of intellectual property and provides for  enforcement measures. Most of the U.S. government’s IPR-specific  bilateral agreements and understandings were signed prior to the  implementation of TRIPS or before the other country involved in each  agreement joined, or acceded to, the WTO and was thus bound by TRIPS  commitments. As a result, according to a USTR official, some U.S. bilateral  agreements have become less relevant since TRIPS was implemented.
One of USTR’s priorities in recent years has been negotiating free trade  agreements (FTAs). Since 2000, USTR has completed negotiations for FTAs  with Australia, Bahrain, Central America, Chile, Jordan, Morocco, and  Singapore. According to officials at USTR, these agreements offer  protection beyond that required in TRIPS, including, for example,  adherence to new WIPO Internet treaties, a longer minimum time period  for copyright protection, additional penalties for circumventing  technological measures controlling access to copyrighted materials,  transparent procedures for protection of trademarks, stronger protection  for well-known marks, patent protection for plants and animals, protection  against arbitrary revocation of patents, new provisions dealing with  domain name disputes, and increased enforcement measures. A formal  private sector advisory committee that advises the U.S. government on IPR  issues has provided feedback to the U.S. government on free-trade  agreement negotiations, including reports on the impact of free-trade  agreements on IPR industries in the United States.
section_title: U.S. Government Participates in International Organizations That Address IPR
paragraphs: The U.S. government is actively involved in the activities of the WTO,  WIPO, and WCO that address IPR issues. The U.S. government participates  in the WTO primarily through the efforts of the USTR offices in  Washington, D.C., and Geneva and participates in WIPO activities through  the Department of State’s Mission to the United Nations in Geneva and  through the Copyright Office and the USPTO. The Department of  Homeland Security (DHS) works with the WCO on border enforcement  issues.
The WTO, an international organization with 147 member states, is  involved with IPR primarily through its administration of TRIPS. In  addition to bringing formal TRIPS disputes to the WTO (discussed in the  following section on strengthened foreign IPR laws), the U.S. government  participates in the WTO’s TRIPS Council. The council, which is comprised  of all WTO members, is responsible for monitoring the operation of the  TRIPS agreement and can be used by members as a forum for mutual  consultation about TRIPS implementation. Recently the council has  addressed issues such as TRIPS and public health. A WTO IPR official  stated that the U.S. government is the most active “pro-IPR” delegate  during council activities. The U.S. government is also a major contributor  to reviews of WTO members’ overall country trade policies; these reviews  are intended to facilitate the smooth functioning of the multilateral trading  system by enhancing the transparency of members’ trade policies. All  WTO member countries are reviewed, and the frequency of each country’s  review varies according to its share of world trade. According to a USTR  official in Geneva, IPR is often a central topic of discussion during the trade  policy reviews, and the U.S. government poses questions regarding a  country’s compliance with TRIPS when relevant. The United States also  provides input as countries take steps to accede to the WTO, and,  according to the USTR official, IPR is always a primary issue during this  process. As of June 2004, 26 countries were working toward WTO  accession.
The Department of State, the Copyright Office, and USPTO actively  participate in the activities of WIPO, a specialized United Nations agency  with 180 member states that promotes the use and protection of  intellectual property. Of particular note, WIPO is responsible for the  creation of two “Internet treaties” that entered into force in 2002. In  addition, WIPO administers the 1970 Patent Cooperation Treaty (PCT),  which makes it possible to seek patent protection for an invention  simultaneously in each of a large number of countries by filing an  “international” patent application. According to a WIPO Vice Director  General, the State Department’s U.S. Mission in Geneva and USPTO work  closely with WIPO, and the U.S. government has actively participated in  WIPO activities and monitored the use of WIPO’s budget. The Copyright  Office also participates in various activities of the WIPO General Assembly  and WIPO committees and groups, including the WIPO Standing  Committee on Copyright and Related Rights. USPTO has participated in  WIPO efforts such as the negotiation of the Internet treaties (the Copyright  Office was also involved in this effort) and also conducts joint USPTO- WIPO training events.
In addition, DHS works with the WCO regarding IPR protection. DHS  participates in the WCO’s IPR Strategic Group, which was developed as a  joint venture with international business sponsors to help member customs  administrations to improve the efficiency and effectiveness of their IPR  border enforcement programs. The IPR Strategic Group meets quarterly to  coordinate its activities, discuss current issues on IPR border enforcement,  and advise member customs administrations regarding implementation of  border measures under TRIPS. Further, a DHS official emphasized that  DHS has been involved in drafting WCO model IPR legislation and strategic  plans geared towards global IPR protection and otherwise helping foreign  countries develop the tools necessary for effective border enforcement  programs.
section_title: U.S. Officials Undertake Diplomatic Efforts to Protect Intellectual Property
paragraphs: In countries where IPR problems persist, U.S. government officials  maintain a regular dialogue with foreign government representatives. In  addition to the bilateral discussions that are held as a result of the Special  301 process and other specific initiatives, U.S. officials address IPR as part  of regular bilateral relations. We also noted that U.S. government officials  at U.S. embassies overseas take the initiative, in coordination with U.S.  agencies in Washington, D.C., to pursue IPR with foreign officials. For  example, according to officials at the U.S. Embassy in Moscow, the  economic section holds interagency IPR coordination meetings and has  met regularly with the Russian ministry responsible for IPR issues to  discuss U.S. concerns. In Ukraine, State Department officials told us that  they communicate regularly with the Ukraine government as part of a  dialogue regarding the actions needed for the removal of Special 301  sanctions. U.S. embassies also undertake various public awareness  activities and campaigns aimed at increasing support for intellectual  property in the general public as well as among specific populations, such  as law enforcement personnel, in foreign countries. Further, staff from  the Departments of State and Commerce at U.S. embassies interact with  U.S. companies overseas and work to assist them with commercial  problems, including IPR concerns, and have at times raised specific  industry concerns with foreign officials. Finally, a Justice official told us  that during the past 2 years, Justice attorneys engaged high-level law  enforcement officials in China, Brazil, and Poland in an effort to bolster  coordination on cross-border IPR cases.
Diplomatic efforts addressing IPR have also included actions by senior U.S.  government officials. For example, a senior official at the Commerce  Department met in 2004 with the Brazilian minister responsible for  industrial property issues, such as patents and trademarks, to discuss  collaboration and technical assistance opportunities. In China, the U.S.  Ambassador places a great emphasis on IPR and has organized an  interagency task force that will work to implement an IPR Action Plan. In  addition, presidential-level communication regarding IPR has occurred  with some countries. For instance, according to Department of State  sources, the Presidents of the United States and Russia discussed IPR,  among other issues, when they met in September 2003. Further, USTR  officials told us that the Presidents of the United States and Paraguay had  IPR as an agenda item when they met in the fall of 2003.
section_title: Most Agencies Conduct IPR Training and Assistance Activities
paragraphs: Most of the agencies involved in efforts to promote or protect IPR overseas  engage in some training or technical assistance activities. Key activities to  develop and promote enhanced IPR protection in foreign countries are  undertaken by the Departments of Commerce, Homeland Security, Justice,  and State; the FBI; USPTO; the Copyright Office; and USAID. These  agencies also participate in an IPR Training Coordination Group.
Training events sponsored by U.S. agencies to promote the enforcement of  intellectual property rights have included enforcement programs for  foreign police and customs officials, workshops on legal reform, and joint  government-industry events. According to a State Department official, U.S.  government agencies, including USPTO, the Department of Commerce’s  Commercial Law Development Program, the Departments of Justice and  Homeland Security have conducted intellectual property training for a  number of countries concerning bilateral and multilateral intellectual  property commitments, including enforcement, during the past few years.  For example, intellectual property training has been conducted by a  number of agencies over the last year in Poland, China, Morocco, Italy,  Jordan, Turkey, and Mexico. We attended a joint USPTO-WIPO training  event in October 2003 in Washington, D.C., that covered U.S. and WTO  patent, copyright, and trademark laws and enforcement. About 35  participants from numerous countries, ranging from supreme court judges  to members of national police forces, attended the event. An official at the  State Department observed that the Special 301 report is an important  factor in determining training priorities. Other agency officials noted  additional factors determining training priorities, including embassy input,  cost, and requirements of trade and investment agreements. Although  regularly sponsored by a single agency, individual training events often  involve participants from other agencies and the private sector.
In addition to sponsoring seminars and short-term programs, agencies  sponsor longer-term programs for developing improved intellectual  property protection in other countries. For example, USAID funded two  multiyear programs, the first of which began in 1996, aimed at improving  the intellectual property regime in Egypt through public awareness  campaigns, training, and technical assistance in developing intellectual  property legislation and establishing a modern patent and trademark office.  USAID has also sponsored longer-term bilateral programs that are aimed at  promoting biotechnology and address relevant IPR issues such as plant  variety protection. Private sector officials in Brazil told us that they  believed the longer-term programs sponsored by USAID elsewhere would  be helpful in Brazil. In addition to USAID, other U.S. agencies that sponsor  training also provide other types of technical assistance in support of  intellectual property rights. For example, the Copyright Office and USPTO  revise and provide comments on proposed IPR legislation. Training and  technical assistance activities that focus more broadly on institution  building, biotechnology, organized crime, and other law enforcement issues  may also support improved intellectual property enforcement.
section_title: Select Agencies Engage in U.S. IPR Law Enforcement Efforts
paragraphs: A small number of agencies are involved in enforcing U.S. intellectual  property laws. Working in an environment where counterterrorism is the  central priority, the FBI and the Departments of Justice and Homeland  Security take actions that include engaging in multicountry investigations  involving intellectual property violations and seizing goods that violate  intellectual property rights at U.S. ports of entry. In addition, the USITC is  responsible for some enforcement activities involving patents and  trademarks.
subsections: section_title: U.S. Agencies Investigate IPR Violations
paragraphs: Although officials at the FBI, DHS, and Justice have emphasized that  counterterrorism is the overriding law enforcement priority, these agencies  nonetheless undertake IPR investigations that involve foreign connections.  For example, the Department of Justice has an office that directly  addresses international IPR problems. Justice has been involved with  international investigation and prosecution efforts and, according to a  Justice official, has become more aggressive in recent years. For example,  Justice and the FBI recently coordinated an undercover IPR investigation,  with the involvement of foreign law enforcement agencies. The  investigation focused on individuals and organizations, known as “warez”  release groups, that specialize in the Internet distribution of pirated  materials. In April 2004, these investigations resulted in 120 simultaneous  searches worldwide (80 in the United States) by law enforcement entities  from 10 foreign countries and the United States in an effort known as  “Operation Fastlink.”
Law enforcement officials told us that IPR-related investigations with an  international component can be instigated by, for example, industry  complaints to agency headquarters or field offices. Investigations are  pursued if criminal activity is suspected. U.S. officials noted that foreign  law enforcement action may be encouraged by the U.S. government if an  investigation results in evidence demonstrating that someone has violated  U.S. law and if evidence in furtherance of the crime is located overseas. A  Justice official added that international investigations are pursued when  there is reason to believe that foreign authorities will take action and that  additional impact, such as raising public awareness about IPR crimes, can  be achieved. Evidence can be developed through investigative cooperation  between U.S. and foreign law enforcement. In addition, the Justice official  emphasized that the department also supports prosecutorial efforts in  foreign countries. International cooperation between the United States and  other countries can be facilitated through Mutual Legal Assistance Treaties  (MLATs), which are designed to facilitate the exchange of information and  evidence for use in criminal investigations and prosecutions. MLATs  include the power to summon witnesses, compel production of documents  and other real evidence, issue search warrants, and serve process. A  Justice official emphasized that informal international cooperation can also  be extremely productive.
Although investigations can result in international actions such as those  cited above, law enforcement officials from the FBI told us that they  cannot determine the number of past or present IPR cases with an  international component because they do not track or categorize cases  according to this factor. DHS officials emphasized that a key component of  their enforcement authority is a “border nexus.”  Investigations have an  international component established when counterfeit goods are brought  into the United States, and DHS officials noted that it is a rare exception  when DHS IPR investigations do not have an international component.  However, DHS does not track cases by a specific foreign connection. The  overall number of IPR-oriented investigations that have been pursued by  foreign authorities as a result of DHS efforts is unknown.
section_title: Department of Homeland Security Seizes Items Violating IPR
paragraphs: DHS seizures of goods that violated IPR totaled more than $90 million in  fiscal year 2003. While the types of imported products seized have varied  little from year to year (in recent years, products such as cigarettes,  wearing apparel, watches, and media products—CDs, DVDs, and tapes— have been key products), the value of seizures for some of these products  has varied greatly. For example, in fiscal year 1999, the value of seized  media products—for example, CDs, DVDs, and tapes—was, at nearly $40  million, notably higher than the value of any other product; by 2003, the  value of seized counterfeit cigarettes, at more than $40 million, was by far  the highest, while media products accounted for less than $10 million in  seizures. Seizures of IPR-infringing goods have involved imports primarily  from Asia. In fiscal year 2003, goods from China accounted for about two- thirds of the value of all IPR seizures, many of them shipments of  cigarettes. Other seized goods from Asia that year originated in Hong  Kong and Korea. DHS has highlighted particular recent seizures, such as an  estimated $500,000 in electrically heated coffee mugs bearing counterfeit  Underwriters Laboratories (UL) labels and an estimated $644,000 in pirated  video game CDs. A DHS official pointed out that providing protection  against IPR-infringing imported goods for some U.S. companies— entertainment companies in particular—can be difficult, because  companies often fail to record their trademarks and copyrights with DHS.
section_title: U.S. International Trade Commission Conducts Section 337 Investigations
paragraphs: The USITC investigates and adjudicates Section 337 cases, which involve  allegations of certain unfair practices in import trade, generally related to  patent or registered trademark infringement.  Although the cases must  involve merchandise originating overseas, both complainants and  respondents can be from any country as long as the complainant owns and  exploits an intellectual property right in the United States. U.S.  administrative law judges are responsible for hearing cases and issuing an  initial decision, which is then reviewed and issued, modified, or rejected by  the USITC. If a violation has occurred, remedies include directing DHS  officials to exclude infringing articles from entering the United States. The  USITC may issue cease-and-desist orders to the violating parties. Violations  of cease-and-desist orders can result in civil penalties. As of June 2004,  exclusion orders remained in effect for 51 concluded Section 337  investigations, excluding from U.S. entry goods such as certain  toothbrushes, memory chips, and video game accessories that were found  to violate a U.S. intellectual property right.
section_title: U.S. Efforts Have Contributed to Improved Foreign IPR Laws, but Enforcement Overseas Remains Weak; Industry Supports U.S. Efforts
paragraphs: U.S. efforts have contributed to strengthened foreign IPR laws and  international IPR obligations, and, while enforcement overseas remains  weak, U.S. industry groups are generally supportive of U.S. efforts. U.S.  actions are viewed as aggressive, and Special 301 is characterized as a  useful tool in encouraging improvements overseas. However, the specific  impact of many U.S. activities, such as diplomatic efforts or training and  technical assistance, can be difficult to measure. Further, despite the  progress that has been achieved, enforcement of IPR in many countries  remains weak and, as a result, has become a U.S. government priority.  Although U.S. industries recognize that problems remain, they  acknowledge the many actions taken by the U.S. government, and industry  representatives that we contacted in the United States and abroad were  generally supportive of the U.S. efforts to pursue intellectual property  protection overseas.
subsections: section_title: U.S. Efforts Have Contributed to Strengthened Foreign IPR Laws
paragraphs: Several representatives of major intellectual property industry associations  stated that the United States is the most aggressive promoter of intellectual  property rights in the world; an IPR official at the WTO concurred with this  assessment, as did foreign officials. The efforts of U.S. agencies have  contributed to the establishment of strengthened intellectual property  legislation in many foreign countries.
The United States has realized progress through bilateral efforts. For  example, the Special 301 review has been cited by industry as facilitating  the introduction or strengthening of IPR laws around the world over the  past 15 years. In the 2004 Special 301 report, USTR noted that Poland and  the Philippines had recently passed optical disc legislation aimed at  combating optical media piracy; the 2003 Special 301 report had cited both  countries for a lack of such legislation. Special 301 is cited by USTR and  industry as an effective tool in alerting a country that it has trade problems  with the United States, which is a key trading partner for numerous  nations. Industry and USTR officials pointed out that countries are eager to  avoid being publicly classified as problem nations. Further, according to  U.S. government officials, incremental “invisible” changes take place  behind the scenes as countries take actions to improve their standing on  the Special 301 listing prior to its publication. USTR notes that legislative  improvements have been widespread but also cites other  accomplishments, such as raids against pirates and counterfeiters in  Poland and Taiwan, resulting from U.S. attention and the Special 301  process.
However, Special 301 can have an alienating effect when countries believe  they have made substantial improvements in their IPR regimes but the  report are still cites them as key problem countries. According to some  officials we spoke with in Brazil and Ukraine, this happened in their  countries. For example, although Ukrainian government officials we spoke  with stated their desire to further respond to U.S. concerns, they expressed  the view that the sanctions have run their course. They also said that the  Ukrainian government cannot understand why Ukraine was targeted for  sanctions while other countries where U.S. industry losses are higher have  not been targeted. A USTR official responsible for IPR issues informed us  that Ukraine was sanctioned because of IPR problems that the U.S.  government views as serious.
Additional bilateral measures are cited as successful in encouraging new  improvements overseas in the framework for IPR protection. For example,  following a 1998 U.S. executive order directing U.S. government agencies  to ensure the legitimate use of software, USTR then addressed this issue  with foreign governments and has reportedly achieved progress in  addressing this violation of IPR. According to USTR, more than 20 foreign  governments have issued decrees mandating that government ministries  use only authorized software. As another example, the negotiation of FTAs  has been cited by government and IPR industry officials as a useful tool,  particularly as such agreements require IPR protections, including  protection for digital products, beyond what is required in TRIPS. However,  because most FTAs have been negotiated within the past 5 years, their long- term impact remains to be seen.
U.S. efforts through multilateral forums have also had positive effects. For  example, as a result of TRIPS obligations—which the U.S. government was  instrumental in negotiating—many developing countries have improved  their statutory systems for the protection of intellectual property. For  example, China revised its intellectual property laws and regulations to  meet its WTO TRIPS commitments. Further, in Ukraine and Russia,  government officials told us that improvements to their IPR legislation was  part of a movement to accede to the WTO. U.S. agencies have assisted  other developing countries in drafting TRIPS-compliant laws.
In addition, a WTO member country can bring disputes over TRIPS  compliance to the WTO through that organization’s dispute settlement  mechanism. The U.S. government has exercised this right and brought  more TRIPS cases to the WTO for resolution than any other WTO member.  Since 1996, the United States has brought a total of 12 TRIPS-related cases  against 11 countries and the European Community (EC) to the WTO (see  app. III for a listing of these cases). Of these cases, 8 were resolved before  going through the entire dispute settlement process by mutually agreed  solutions between the parties—the preferred outcome, according to a  USTR official. In nearly all of these cases, U.S. concerns were addressed via  changes in laws or regulations by the other party. Only 2 have resulted in  the issuance of a final decision, or panel report, both of which were  favorable rulings for the United States. In a case involving Argentina,  consultations between the countries are ongoing and the case has been  partially settled, and another case regarding an EC regulation protecting  geographical indications is currently in panel proceedings.
section_title: Impact of Many Activities Can Be Difficult to Measure
paragraphs: Despite the fact that persistent U.S. efforts have contributed to positive  developments, it can be difficult to precisely measure the impact of specific  U.S. activities such as policy efforts or training assistance programs. U.S.  activities are not conducted in isolation, but are part of the spectrum of  political considerations in a foreign country. Although regular efforts such  as the annual Special 301 review or diplomatic contact may create  incentives for countries to improve intellectual property protection, other  factors, such as countries’ own political interests, may contribute to or  hinder improvements. Therefore, it can be difficult to measure changes  resulting from U.S. efforts alone. For example, China revised its intellectual  property laws as a result of its accession to WTO. Although China had for  some time been under pressure from the United States to improve its  intellectual property protection, revisions to its intellectual property  legislation were also called for by its newly acquired WTO commitments.  Thus, it is nearly impossible to attribute any of these developments to  particular factors or to precisely measure the influence of individual  factors on China’s decision to reform. Further, officials at the U.S. Embassy  in Moscow have emphasized that the regular U.S. focus on IPR issues has  raised the profile of the issue with the Russian government—a positive  development. However, once again, it is difficult to determine the specific  current and future effects of this development on intellectual property  protection. Nonetheless, despite these limitations, several agency officials  we spoke with said that these activities are important and contribute to  incremental changes in IPR protection (such as legislative improvements to  Russia’s copyright law that were enacted in July 2004). A Commerce  official also noted that regular contacts by U.S. government officials with  their foreign counterparts have apparently helped some individual U.S.  companies seeking to defend patent or trademark rights overseas by  reminding foreign officials that their administrative proceedings for such  protection are under U.S. scrutiny.
Regarding training activities, officials at agencies that provide regular  training reported using post-training questionnaires by attendees to  evaluate the trainings, but several noted that beyond these efforts,  assessing the impact of trainings is challenging. An official at USPTO stated  that although he does not believe it is possible to quantify fully the impact  of USPTO training programs, accumulated anecdotal evidence from  embassies and the private sector has led the office to believe that the  activities are useful and have resulted in improvements in IPR  enforcement. USPTO recently began sending impact evaluation  questionnaires to training attendees 1 year after the training, to try to  gather more information on long-term impact. However, a low response  rate has thus far limited the effectiveness of this effort. Officials from the  Departments of State and Commerce also pointed out anecdotal evidence  that training and technical assistance activities are having a positive impact  on the protection of intellectual property overseas. Although some industry  officials raised criticisms or offered suggestions for improving training,  including using technology to offer more long-distance training and  encouraging greater USAID involvement in coordination efforts, many  were supportive of U.S. training efforts.
section_title: Enforcement Overseas Remains Weak
paragraphs: Despite improvements in intellectual property laws, the enforcement of  intellectual property rights remains weak in many countries, and U.S.  government and industry sources note that improving enforcement  overseas is now a key priority. USTR’s most recent Special 301 report states  that “although several countries have taken positive steps to improve their  IPR regimes, the lack of IPR protection and enforcement continues to be a  global problem.”  For example, although the Chinese government has  improved its statutory IPR regime, USTR remains concerned about  enforcement in that country. According to USTR, counterfeiting and piracy  remain rampant in China and increasing amounts of counterfeit and pirated  products are being exported from China. USTR’s 2004 Special 301 report  states that “ddressing weak IPR protection and enforcement in China is  one of the Administration’s top priorities.”  Further, Brazil has adopted  modern copyright legislation that appears to be generally consistent with  TRIPS, but it has not undertaken adequate enforcement actions, according  to USTR’s 2003 Special 301 Report. In addition, as noted above, although  Ukraine has shut down offending domestic optical media production  facilities, pirated products continue to pervade Ukraine, and, according to  USTR’s 2004 Special 301 Report, Ukraine is also a major trans-shipment  point and storage location for illegal optical media produced in Russia and  elsewhere as a result of weak border enforcement efforts (see fig. 1). An  industry official pointed out that addressing foreign enforcement problems  is a difficult issue for the U.S. government.
Although U.S. law enforcement does undertake international cooperative  activities to enforce intellectual property rights overseas, executing these  efforts can prove difficult. For example, according to DHS and Justice  officials, U.S. efforts to investigate IPR violations overseas are complicated  by a lack of jurisdiction as well as by the fact that U.S. officials must  convince foreign officials to take action. Further, a DHS official noted that  in some cases, activities defined as criminal in the United States are not  viewed as an infringement by other countries, and U.S. law enforcement  agencies can therefore do nothing. In particular, this official cited China as  a country that has not cooperated in investigating IPR violations. However,  according to DHS, recently the Chinese government assisted DHS in an  undercover IPR criminal investigation (targeting a major international  counterfeiting network that distributed counterfeit motion pictures  worldwide) that resulted in multiple arrests and seizures.
While less constrained than law enforcement, training and technical  assistance activities may also be unable to achieve the desired  improvements in IPR enforcement in some cases, even when considerable  U.S. assistance is provided. For example, despite USAID’s long-term  commitment to strengthening IPR protection in Egypt with training and  technical assistance programs, Egypt was elevated to the Priority Watch  List in the 2004 Special 301 report and IPR enforcement problems clearly  persist.
section_title: Industry Generally Supports U.S. Efforts, Despite Worsening Problems in Some Areas
paragraphs: Despite the weakness of IPR enforcement in many countries, industry  groups representing intellectual property concerns for U.S. industries we  contacted were generally supportive of U.S. government efforts to protect  U.S. intellectual property overseas. Numerous industry representatives in  the U.S. and overseas expressed satisfaction with a number of U.S.  activities as well as with their interactions and collaborations with U.S.  agencies and embassies in support of IPR. Industry representatives have  been particularly supportive of the Special 301 process, and many credited  it for IPR improvements worldwide. According to an official from a key  industry association, Special 301 “is a great statutory tool, it leads to strong  and effective interagency coordination, and it gets results.”  Industry  associations overseas and in the U.S. support the Special 301 process with  information based on their experiences in foreign countries. An  entertainment software industry official stated that the U.S. government  has “consistently demonstrated their strong and continuing commitment to  creators…pressing for the highest attainable standards of protection for  intellectual property rights….One especially valuable tool has been the  Special 301 review process.”  Other representatives have advocated  increased use of leverage provided by trade preference programs,  particularly the GSP program.
Industry association officials in the United States and private sector  officials in Brazil, Russia, and Ukraine also expressed support for U.S. IPR  training activities, despite limited evidence of long-term impact. Industry  associations regularly collaborate with U.S. agencies to sponsor and  participate in training events for foreign officials. A number of government  and law enforcement officials in our case study countries commented that  training and seminars sponsored by the U.S. government were valuable as  forums for learning about IPR. Others, including private sector officials,  commented on the importance of training as an opportunity for networking  with other officials and industry representatives concerned with IPR  enforcement. Nonetheless, some industry officials acknowledged that U.S.  actions cannot always overcome challenges presented by political and  economic factors in other countries.
Industry support occurs in an environment where, despite improvements  such as strengthened foreign IPR legislation, the situation may be  worsening overall for some intellectual property sectors. For example,  according to copyright industry estimates, losses due to piracy grew  markedly in recent years. The entertainment and business software  sectors, for example, which are very supportive of USTR and other  agencies, face an environment where their optical media products are  increasingly easy to reproduce, and digitized products can be distributed  around the world quickly and easily via the Internet. According to an  intellectual property association representative, counterfeiting trademarks  has also become more pervasive in recent years. Counterfeiting affects  more than just luxury goods; it also affects various industrial goods.
section_title: Several Mechanisms Coordinate IPR Efforts, but Their Usefulness Varies
paragraphs: Several interagency mechanisms exist to coordinate overseas intellectual  property policy initiatives, development and assistance activities, and law  enforcement efforts, although these mechanisms’ level of activity and  usefulness varies. The mechanisms include interagency coordination on  trade (IPR) issues; the IPR Training Coordination Group, which maintains a  database of training activities; the National Intellectual Property Law  Enforcement Coordination Council; and the National IPR Coordination  Center. Apart from formal coordination bodies, regular, informal  communication and coordination regarding intellectual property issues  also occurs among policy agencies in the United States and in overseas  embassies and is viewed as important to the coordination process.
subsections: section_title: Formal Interagency Coordination Mechanism Viewed as Working Well
paragraphs: According to government and industry officials, an interagency trade policy  mechanism established by Congress has operated effectively in reviewing  IPR issues (see fig. 2). In 1962, the Congress established the mechanism to  assist USTR in developing policy on trade and trade-related investment,  and the annual Special 301 review is conducted with this tool. Three tiers  of committees constitute the principal mechanism for developing and  coordinating U.S. government positions on international trade, including  IPR. The Trade Policy Review Group (TPRG) and the Trade Policy Staff  Committee (TPSC), administered and chaired by USTR, are the subcabinet  interagency trade policy coordination groups that participate in trade  policy development. More than 80 working-level subcommittees are  responsible for providing specialized support for the TPSC.
One of the specialized subcommittees is central to conducting the annual  Special 301 review and determining the results of the review. During the  2004 review, which began early in the year, the Special 301 subcommittee  met formally seven times, according to a USTR official. The  subcommittee reviewed responses to a Federal Register request for  information about intellectual property problems around the world; it also  reviewed responses to a cable sent to every U.S. embassy soliciting specific  information on IPR issues. IPR industry associations provided lengthy,  detailed submissions to the U.S. government during the Special 301 review;  such submissions identify IPR problems in countries around the world and  are an important component in making a determination as to which  countries will be cited in the final report. After reaching its own decisions  on country placement, the subcommittee submitted its proposal to the  Trade Policy Staff Committee. The TPSC met twice and submitted its  recommendations to the TPRG for final approval. The TPRG reached a  final decision via e-mail, and the results of this decision were announced  with the publication of the Special 301 report on May 3, 2004. The entire  process for 2004 is considered typical of how the annual process is usually  conducted. In addition, this subcommittee can meet at other times to  address IPR issues as appropriate.
According to U.S. government and industry officials, this interagency  process is rigorous and effective. A USTR official stated that the Special  301 subcommittee is very active, and subcommittee leadership  demonstrates a willingness to revisit issues raised by other agencies and  reconsider positions. A Commerce official told us that the Special 301  review is one of the best tools for interagency coordination in the  government and that the review involves a “phenomenal” amount of  communication. A Copyright Office official noted that coordination during  the review is frequent and effective. A representative for copyright  industries also told us that the process works well and is a solid  interagency effort.
section_title: IPR Training Coordination Group Facilitates Collaboration, though Database Is Incomplete
paragraphs: The IPR Training Coordination Group, intended to inform its participants  about IPR training activities and facilitate collaboration, developed a  database to record and track training events, but we found that the  database was incomplete. This voluntary, working-level group comprises  representatives of U.S. agencies and industry associations involved in IPR  programs and training and technical assistance efforts overseas or for  foreign officials. Meetings are held approximately every 4 to 6 weeks and  are well attended by government and private sector representatives. The  State Department leads the group and supplies members with agendas and  meeting minutes. Training Coordination Group meetings in 2003 and 2004  have included discussions on training “best practices,” responding to  country requests for assistance, and improving IPR awareness among  embassy staff. According to several agency and private sector participants,  the group is a useful mechanism that keeps participants informed of the  IPR activities of other agencies or associations and provides a forum for  coordination.
Since it does not independently control budgetary resources, the group is  not responsible for sponsoring or evaluating specific U.S. government  training events. One agency official noted that, partly owing to the lack of  funding coordination, the training group serves more as a forum to inform  others regarding already-developed training plans than as a group to  actively coordinate training activities across agencies. Officials at the  Department of Commerce’s Commercial Law Development Program and  USPTO commented that available funds, more than actual country needs,  often determine what training they are able to offer. A private sector  official also voiced this concern, and several agency and industry officials  commented that more training opportunities were needed. A Justice  official also noted that if there were more active interagency consultations,  training could be better targeted to countries that need criminal  enforcement training.
The Training Coordination Group helped develop a public training  database, which it uses as a resource to identify planned activities and  track past efforts. However, although the database has improved in recent  years to include more training events and better information, it remains  incomplete. Officials from the Copyright Office and USPTO stated that the  database should contain records of all of their training efforts, but officials  from other agencies, including the Departments of Commerce, State, and  Justice, and the FBI, acknowledged that it might not record all the training  events they have conducted. Although the group’s meetings help to keep  the database updated by identifying upcoming training offered by members  that have not been entered into the database, training activities that are not  raised at the meeting or that are sponsored by embassies or an agency not  in attendance may be overlooked. In addition, USAID submits training  information only once per year at the conclusion of its own data-gathering  exercise. Since USAID is a major sponsor of training activities—in 2002,  according to the database, USAID sponsored or cosponsored nearly one- third of the total training events—the lack of timely information is notable.  Several members expressed frustration that USAID does not contribute to  the database regularly and inform the group about training occurring  through its missions. USAID officials noted that the decentralization of  their agency makes it difficult for them to address these concerns, because  individual missions plan and implement training and technical assistance  activities independently.
section_title: Council to Coordinate IPR Enforcement Has Had Little Impact
paragraphs: The National Intellectual Property Law Enforcement Coordination Council  (NIPLECC), created by the Congress in 1999 to coordinate domestic and  international intellectual property law enforcement among U.S. federal and  foreign entities, seems to have had little impact. NIPLECC consists of (1)  the Under Secretary of Commerce for Intellectual Property and Director of  the United States Patent and Trademark Office; (2) the Assistant Attorney  General, Criminal Division; (3) the Under Secretary of State for Economic  and Agricultural Affairs; (4) the Deputy United States Trade  Representative; (5) the Commissioner of Customs; and (6) the Under  Secretary of Commerce for International Trade. NIPLECC is also required  to consult with the Register of Copyrights on law enforcement matters  relating to copyright and related rights and matters. NIPLECC’s authorizing  legislation did not include the FBI as a member of NIPLECC, despite its  pivotal role in law enforcement. However, according to representatives of  the FBI, USPTO, and Justice, the FBI should be a member. NIPLECC,  which has no independent staff or budget, is cochaired by USPTO and  Justice. In the council’s nearly 4 years of existence, its primary output has  been three annual reports to the Congress, which are required by statute.
In its first year, according to the first annual report, NIPLECC met four  times to begin shaping its agenda. It also consulted with industry and  accepted written comments from the public related to what matters the  council should address and how it should structure council-industry  cooperation. It drafted a working paper detailing draft goals and proposed  activities for the council. Goals and activities identified in the first report  were “draft” only, because of the imminent change in administration.  Although left open for further consideration, the matters raised in this  report were not specifically addressed in any subsequent NIPLECC reports.
NIPLECC’s second annual report states that the council’s mission includes  “law enforcement liaison, training coordination, industry and other  outreach and increasing public awareness.” In particular, the report says,  the council “determined that efforts should focus on a campaign of public  awareness, at home and internationally, addressing the importance of  protecting intellectual property rights.”  However, other than a one-page  executive summary of NIPLECC’s basic mission, the body of the second  annual report consists entirely of individual agencies’ submissions on their  activities and details no activities undertaken by the council. NIPLECC met  twice in the year between the first and second reports.
The third annual report also states that “efforts should focus on a campaign  of public awareness, at home and internationally, addressing the  importance of intellectual property rights.” Although this is identical to  the language in the previous year’s report, there is little development of the  theme, and no evidence of actual progress over the course of the previous  year. Like the previous year’s report, other than a single-page executive  summary, the body of the report consists of individual agency submissions  detailing agency efforts, not the activities or intentions of the council. The  report does not provide any detail about how NIPLECC has, in its third  year, coordinated domestic and international intellectual property law  enforcement among federal and foreign entities.
Under its authorizing legislation, NIPLECC has a broad mandate.  According to interviews with industry officials and officials from NIPLECC  member agencies, and as evidenced by its own legislation and reports,  NIPLECC continues to struggle to define its purpose and has as yet had  little discernable impact. Indeed, officials from more than half of the  member agencies offered criticisms of the NIPLECC, remarking that it is  unfocused, ineffective, and “unwieldy.”  In official comments to the  council’s 2003 annual report, major IPR industry associations expressed a  sense that NIPLECC is not undertaking any independent activities or  effecting any impact. One industry association representative stated that  there is a need for law enforcement to be made more central to U.S. IPR  efforts and said that although he believes the council was created to deal  with this issue, it has “totally failed.”  The lack of communication regarding  enforcement results in part from complications such as concerns regarding  the sharing of sensitive law enforcement information and from the different  missions of the various agencies involved in intellectual property actions  overseas. According to an official from USPTO, NIPLECC is hampered  primarily by its lack of independent staff and funding. He noted, for  example, a proposed NIPLECC initiative for a domestic and international  public awareness campaign that has not been implemented owing to  insufficient funds. According to a USTR official, NIPLECC needs to define a  clear role in coordinating government policy. A Justice official stressed  that, when considering coordination, it is important to avoid creating an  additional layer of bureaucracy that may detract from efforts devoted to  each agency’s primary mission. This official also commented that while  NIPLECC’s stated purpose of enhancing interagency enforcement  coordination has not been achieved, the shortcomings of NIPLECC should  not suggest an absence of effective interagency coordination elsewhere.
Despite NIPLECC’s difficulties thus far, we heard some positive comments  regarding this group. For example, an official from USPTO noted that the  IPR training database web site resulted from NIPLECC efforts. Further, an  official from the State Department commented that NIPLECC has had  some “trickle-down” effects, such as helping to prioritize the funding and  development of the intellectual property database at the State Department.  Although NIPLECC principals meet infrequently and NIPLECC has  undertaken few concrete activities, this official noted that NIPLECC is the  only forum for bringing enforcement, policy, and foreign affairs agencies  together at a high level to discuss intellectual property issues. A USPTO  official stated that NIPLECC has potential, but needs to be “energized.”
section_title: National IPR Coordination Center Is Not Widely Used by Industry
paragraphs: The National IPR Coordination Center (the IPR Center) in Washington,  D.C., a joint effort between DHS and the FBI, began limited operations in  2000. According to a DHS official, the coordination between DHS, the FBI,  and industry and trade associations makes the IPR Center unique. The IPR  Center is intended to serve as a focal point for the collection of intelligence  involving copyright and trademark infringement, signal theft, and theft of  trade secrets. Center staff analyze intelligence that is collected through  industry referrals of complaints (allegations of IPR infringements) and, if  criminal activity is suspected, provide the information for use by FBI and  DHS field components. The FBI at the IPR Center holds quarterly meetings  with 11 priority industry groups to discuss pressing issues on violations  within the specific jurisdiction of the FBI. Since its creation, the IPR Center  has received 300 to 400 referrals, according to an IPR Center official. The  center is also involved in training and outreach activities. For example,  according to IPR Center staff, between May 2003 and April 2004, personnel  from the center participated in more than 16 IPR training seminars and  conducted 22 outreach events.
The IPR Center is not widely used by industry. An FBI official associated  with the IPR Center estimated that about 10 percent of all FBI industry  referrals come through the center rather than going directly to FBI field  offices. DHS officials noted that “industry is not knocking the door down”  and that the IPR Center is perceived as underutilized. An FBI official noted  that the IPR Center is functional but that it generally provides training,  outreach, and intelligence to the field rather than serving as a primary  clearinghouse for referral collection and review. The IPR Center got off to a  slow start partly because, according to an FBI official, after the events of  September 11, 2001, many IPR Center staff were reassigned, and the center  did not become operational until 2002. The IPR Center is authorized for 24  total staff (16 from DHS and 8 from the FBI); as of July 2004, 20 staff (13  DHS, 7 FBI) were “on board” at the center, according to an IPR Center  official. This official noted that the center’s use has been limited by the fact  that big companies have their own investigative resources, and not all small  companies are familiar with the IPR Center.
section_title: Informal Coordination Is Considered Important among Policy Agencies
paragraphs: In addition to the formal coordination efforts described, policy agency  officials noted the importance of informal but regular communication  among staff at the various agencies involved in the promotion or protection  of intellectual property overseas. Several officials at various policy- oriented agencies, such as USTR and the Department of Commerce, noted  that the intellectual property community was small and that all involved  were very familiar with the relevant policy officials at other agencies in  Washington, D.C. One U.S. government official said, “No one is shy about  picking up the phone.”  Further, State Department officials at U.S.  embassies also regularly communicate with Washington, D.C. agencies  regarding IPR matters and U.S. government actions. Agency officials noted  that this type of coordination is central to pursuing U.S. intellectual  property goals overseas.
Although communication between policy and law enforcement agencies  can occur through forums such as the NIPLECC, these agencies do not  share specific information about law enforcement activities systematically.  According to an FBI official, once a criminal investigation begins, case  information stays within the law enforcement agencies and is not shared. A  Justice official emphasized that criminal enforcement is fundamentally  different from the activities of policy agencies and that restrictions exist on  Justice’s ability to share investigation information, even with other U.S.  agencies. Law enforcement agencies share investigation information with  other agencies on an “as-needed” basis, and a USTR official said that there  is no systematic means for obtaining information on law enforcement cases  with international implications. An official at USPTO commented that  coordination between policy and law enforcement agencies should be  “tighter” and that both policy and law enforcement could benefit from  improved communication. For example, in helping other countries draft  IPR laws, policy officials could benefit from information on potential law  enforcement obstacles identified by law enforcement officials.
Officials at the Department of State and USTR identified some formal and  informal ways that law enforcement information may be incorporated into  policy discussions and activities. They noted that enforcement agencies  such as Justice and DHS participate in the formal Special 301 review and  that officials at embassies or policy agencies consult and make use of the  publicly available DHS seizure data on IPR-violating products. For  example, a USTR official told us that USTR had raised seizures at U.S.  borders in bilateral discussions with the Chinese. Discussions addressed  time-series trends, both on an absolute and percentage basis, for the overall  seizure figures available from DHS. This official noted that the agency will  generally raise seizure figures with a foreign country if that country is a  major violator, has consistently remained near the top of the list of  violators, and/or has increasingly been the source of seized goods. In  addition, a Justice official noted that the department increasingly engages  in policy activities, such as the Special 301 annual review and the  negotiation of free trade agreements, as well as training efforts, to improve  coordination between policy and law enforcement agencies and to  strengthen international IPR enforcement.
section_title: U.S. Government Faces Challenges to Further Progress
paragraphs: The impact of U.S. activities is challenged by numerous factors. For  example, internally, competing U.S. policy objectives can affect how much  the U.S. government can accomplish. Beyond internal factors, the  willingness of a foreign country to cooperate in improving its IPR is  affected by that country’s domestic policy objectives and economic  interests, which may complement or conflict with U.S. objectives. In  addition, many economic factors, including low barriers to entering the  counterfeiting and piracy business and large price differences between  legitimate and fake goods as well as problems such as organized crime,  pose challenges to U.S. and foreign governments’ efforts, even in countries  where the political will for protecting intellectual property exists.
subsections: section_title: U.S. Government Faces Internal Constraints
paragraphs: Because intellectual property protection is one among many objectives that  the U.S. government pursues overseas, it is viewed in the context of  broader U.S. foreign policy interests where other objectives may receive a  higher priority at certain times in certain countries. Industry officials with  whom GAO met noted, for example, their belief that policy priorities  related to national security were limiting the extent to which the United  States undertook activities or applied diplomatic pressure related to IPR  issues in some countries. Officials at the Department of Justice and the FBI  also commented that counterterrorism, not IPR, is currently the key  priority for law enforcement. Further, although industry is supportive of  U.S. efforts, many industry representatives commented that U.S. agencies  need to increase the resources available to better address IPR issues  overseas.
section_title: Lack of Support in Foreign Countries Can Limit U.S. Efforts’ Impact
paragraphs: The impact of U.S. activities is affected by a country’s own domestic policy  objectives and economic interests, which may complement or conflict with  U.S. objectives. U.S. efforts are more likely to be effective in encouraging  government action or achieving impact in a foreign country if support for  intellectual property protection exists there. Groups in a foreign country  whose interests align with that of the United States can bolster U.S. efforts.  For example, combating music piracy in Brazil has gained political  attention and support because Brazil has a viable domestic music industry  and thus has domestic interests that have become victims of widespread  piracy. Further, according to a police official in Rio de Janeiro, efforts to  crack down on street vendors are motivated by the loss of tax revenues  from the informal economy. The unintended effect of these local Brazilian  efforts has been a crackdown on counterfeiting activities because the  informal economy is often involved in selling pirated and counterfeit goods  on the streets. Likewise, the Chinese government has been working with a  U.S. pharmaceutical company on medicines safety training to reduce the  amount of fake medicines produced in China (see fig. 3).
However, U.S. efforts are less likely to achieve impact if no such domestic  support exists in other nations. Although U.S. options such as removing  trade preference program benefits, considering trade sanctions, or visibly  publicizing weaknesses in foreign IPR protection can provide incentives for  increased protection of IPR, such policies may not be sufficient alone to  counter existing incentives in foreign countries. In addition, officials in  some countries view providing strong intellectual property protection as an  impediment to development. A Commission on Intellectual Property Rights  (established by the British government) report points out that strong IPR  can allow foreign firms selling to developing countries to drive out  domestic competition by obtaining patent protection and to service the  market through imports rather than domestic manufacture, or that strong  intellectual property protection increases the costs of essential medicines  and agricultural inputs, affecting poor people and farmers particularly  negatively. A lack of “political will” to enact IPR protections makes it  difficult for the U.S. government to achieve impact in locations where a  foreign government maintains such positions.
section_title: Economic Factors and Involvement of Organized Crime Pose Additional Challenges
paragraphs: Many economic factors complicate and challenge U.S. and foreign  governments’ efforts, even in countries where the political will for  protecting intellectual property exists. These factors include low barriers  to entering the counterfeiting and piracy business and potentially high  profits for producers. For example, one industry pointed out that it is much  more profitable to buy and resell software than to sell cocaine. In addition,  the low prices of fake products are attractive to consumers. The economic  incentives can be especially acute in countries where people have limited  income. Moreover, technological advances allowing for high-quality  inexpensive and accessible reproduction and distribution in some  industries have exacerbated the problem. Further, many government and  industry officials also believe the chance of getting caught for  counterfeiting and piracy, as well as the penalties even if caught, are too  low. For example, FBI officials pointed out that domestic enforcement of  intellectual property laws has been weak, and consequently the level of  deterrence has been inadequate. These officials said that criminal  prosecutions and serious financial penalties are necessary to deter  intellectual property violations.
The increasing involvement of organized crime in the production and  distribution of pirated products further complicates enforcement efforts.  Federal and foreign law enforcement officials have linked intellectual  property crime to national and transnational organized criminal operations.
According to the Secretary General of Interpol, intellectual property crime  is now dominated by criminal organizations, and law enforcement  authorities have identified some direct and some alleged links between  intellectual property crime and paramilitary and terrorist groups. Justice  Department officials noted that they are aware of the allegations linking  intellectual property crime and terrorist funding and that they are actively  exploring all potential avenues of terrorist financing, including through  intellectual property crime. However, to date, U.S. law enforcement has not  found solid evidence that intellectual property has been or is being pirated  in the United States by or for the benefit of terrorists. The involvement of  organized crime increases the sophistication of counterfeiting operations,  as well as the challenges and threats to law enforcement officials  confronting the violations. Moreover, according to officials in Brazil,  organized criminal activity surrounding intellectual property crime is  linked with official corruption, which can pose an additional obstacle to  U.S. and foreign efforts to promote enhanced enforcement.
Many of these challenges are evident in the optical media industry, which  includes music, movies, software, and games. Even in countries where  interests exist to protect domestic industries, such as the domestic music  industry in Brazil or the domestic movie industry in China, economic and  law enforcement challenges can be difficult to overcome. For example, the  cost of reproduction technology and copying digital media is low, making  piracy an attractive employment opportunity, especially in a country where  formal employment is hard to obtain. According to the Business Software  Alliance, a CD recorder is relatively inexpensive (less than $1,000). The  huge price differentials between pirated CDs and legitimate copies also  create incentives on the consumer side. For example, when we visited a  market in Brazil, we observed that the price for a legitimate DVD was  approximately ten times the price for a pirated DVD. Even if consumers are  willing to pay extra to purchase the legitimate product, they may not do so  if the price differences are too great for similar products. We found that  music companies have experimented with lowering the price of legitimate  CDs in Russia and Ukraine. A music industry representative in Ukraine  told us that this strategy is intended to make legitimate products really  affordable to consumers. However, whether this program is successful in  gaining market share and reducing sales of pirated CDs is unclear. During  our visit to a large Russian marketplace, a vendor encouraged us to  purchase a pirated CD despite the fact that she also had the same CD for  sale under the legitimate reduced-price program. Further, the potentially  high profit makes optical media piracy an attractive venture for organized  criminal groups. Industry and government officials have noted criminal  involvement in optical media piracy and the resulting law enforcement  challenges.
Recent technological advances have also exacerbated optical media piracy.  The mobility of the equipment makes it easy to transport it to another  location, further complicating enforcement efforts. Industry and  government officials described this phenomenon as the “whack-a-mole”  problem, noting that when progress is made in one country, piracy  operations often simply move to a neighboring location. According to a  Ukraine official, many production facilities moved to Russia after Ukraine  started closing down CD plants. These economic incentives and  technological developments have resulted in particularly high rates of  piracy in the optical media sector. Likewise, the Internet provides a means  to transmit and sell illegal software or music on a global scale. According to  an industry representative, the ability of Internet pirates to hide their  identities or operate from remote jurisdictions often makes it difficult for  IPR holders to find them and hold them accountable.
section_title: Conclusions
paragraphs: To seek improved protection of U.S. intellectual property in foreign  countries, U.S. agencies make use of a wide array of tools and  opportunities, ranging from routine discussions with foreign government  officials, to trade sanctions, to training and technical assistance, to  presidential-level dialogue. The U.S. government has demonstrated a  commitment to addressing IPR issues in foreign countries using multiple  agencies and U.S. embassies overseas. However, law enforcement actions  are more restricted than other U.S. activities, owing to factors such as a  lack of jurisdiction overseas to enforce U.S. law. U.S. agencies and industry  communicate regularly, and industry provides important support for  various agency activities.
Although the results of U.S. efforts to secure improved intellectual property  protection overseas often cannot be precisely identified, the U.S.  government is clearly and consistently engaged in this area and has had a  positive impact. Agency and industry officials have cited the Special 301  review most frequently as the U.S. government tool that has facilitated IPR  improvements overseas. The effects of U.S. actions are most evident in  strengthened foreign IPR legislation and new international obligations.  Industry clearly supports U.S. efforts, recognizing that they have  contributed to improvements such as strengthened IPR laws overseas. U.S.  efforts are now focused on enforcement, since effective enforcement is  often the weak link in intellectual property protection overseas and the  situation is deteriorating for some industries.
Several IPR coordination mechanisms exist, with the interagency  coordination that occurs during the Special 301 process standing out as the  most significant and active. Of note, the Training Coordination Group is a  completely voluntary effort and is generally cited as a positive  development. Further, the database created by this group is useful,  although it remains incomplete. Conversely, the mechanism for  coordinating intellectual property law enforcement, NIPLECC, has  accomplished little that is concrete. Currently, little compelling information  demonstrates a unique role for this group, bringing into question its  effectiveness. In addition, it does not include the FBI, a primary law  enforcement agency. Members, including NIPLECC leadership, have  repeatedly acknowledged that the group continues to struggle to find an  appropriate mission.
As agencies continue to pursue IPR improvements overseas, they will face  daunting challenges. These challenges include the need to create political  will overseas, recent technological advancements that facilitate the  production and distribution of counterfeit and pirated goods, and powerful  economic incentives for both producers and consumers, particularly in  developing countries. Further, as the U.S. government focuses increasingly  on enforcement, it will face different and complex factors, such as  organized crime, that may prove quite difficult to address.
section_title: Matter for Congressional Consideration
paragraphs: Because the authorizing legislation for the National Intellectual Property  Law Enforcement Coordination Council (NIPLECC) does not clearly define  the council’s mission, NIPLECC has struggled to establish its purpose and  unique role. If the Congress wishes to maintain NIPLECC and take action  to increase its effectiveness, the Congress may wish to consider reviewing  the council’s authority, operating structure, membership, and mission. Such  consideration could help the NIPLECC identify appropriate activities and  operate more effectively to coordinate intellectual property law  enforcement issues.
section_title: Agency Comments
paragraphs: We received technical comments from USTR, the Departments of State,  Justice, and Homeland Security, the Copyright Office, and USITC. We  incorporated these comments into the report as appropriate. We also  received formal comment letters from the Department of Commerce  (which includes comments from USPTO), the Department of Homeland  Security, and USAID. USAID raised concerns regarding our findings on the  agency’s contribution to an online IPR training database. No agency  disagreed with our overall findings and conclusions, though all suggested  several wording changes and/or additions to improve the report’s  completeness and accuracy. The FBI provided no comments on the draft  report.
As arranged with your offices, unless you publicly announce the contents  earlier, we plan no further distribution of this report until 30 days after the  date of this letter. At that time, we will send copies of this report to other  interested committees. We will also provide copies to the Secretaries of  State, Commerce, and Homeland Security; the Attorney General; the U.S.  Trade Representative; the Director of the Federal Bureau of Investigation;  the Director of the U.S. Patent and Trademark Office; the Register of  Copyrights; the Administrator of the U.S. Agency for International  Development; and the Chairman of the U.S. International Trade  Commission. We will make copies available to other interested parties  upon request.
If you or your staff have any questions regarding this report, please call me  at (202) 512-4128. Other GAO contacts and staff acknowledgments are  listed in appendix XI.
section_title: Objectives, Scope, and Methodology
paragraphs: The Chairmen of the House Committees on Government Reform,  International Relations, and Small Business requested that we review U.S.  government efforts to improve intellectual property protection overseas.  This report addresses (1) the specific efforts that U.S. agencies have  undertaken; (2) the impact, and industry views, of these actions; (3) the  means used to coordinate these efforts; and (4) the challenges that these  efforts face in generating their intended impact.
To describe agencies’ efforts, as well as the impact of these efforts, we  analyzed key U.S. government intellectual property reports, such as the  annual “Special 301” reports for the years 1994 through 2004, and reviewed  information available from databases such as the State Department’s  intellectual property training database and the Department of Homeland  Security’s online database of counterfeit goods seizures. To assess the  reliability of the online Department of Homeland Security seizure data  (www.cbp.gov/xp/cgov/import/commercial_enforcement/ipr/seizure/), we  interviewed the officials responsible for collecting the data and performed  reliability checks on the data. Although we found that the agency had  implemented a number of checks and controls to ensure the data’s  reliability, we also noted some limitations in the precision of the estimates.  However, we determined that the data were sufficiently reliable to provide  a broad indication of the major products seized and the main country from  which the seized imports originated. Our review of the reliability of the  State Department’s training database is described below as part of our  work to review agency coordination. While we requested a comprehensive  listing of countries assessed and GSP benefits removed due to IPR  problems, USTR was unable to provide us with such data because this  information is not regularly collected.
We met with officials from the Departments of State, Commerce, Justice,  and Homeland Security; the Office of the U.S. Trade Representative  (USTR); the U.S. Patent and Trademark Office (USPTO); the Copyright  Office; the Federal Bureau of Investigation (FBI); the U.S. International  Trade Commission (USITC); and the U.S. Agency for International  Development (USAID). We also met with officials from the following  industry groups that address intellectual property issues:  the International  Intellectual Property Alliance, the International AntiCounterfeiting  Coalition, the Motion Picture Association of America, the Recording  Industry Association of America, the Entertainment Software Association,  the Association of American Publishers, the Software and Information  Industry Association, the International Trademark Association, the  Pharmaceutical Research and Manufacturers of America, and the National  Association of Manufacturers. We reviewed reports and testimonies that  such groups had prepared. In addition, we attended a private sector  intellectual property rights enforcement conference and a U.S. government  training session sponsored by USPTO and the World International Property  Organization (WIPO). We met with officials from the World Trade  Organization (WTO) and WIPO in Geneva, Switzerland, to discuss their  interactions with U.S. agency officials.
We reviewed literature modeling trade damages due to intellectual property  violations and, in particular, examined the models used to estimate such  losses in Ukraine, which has been subject to U.S. trade sanctions since  2002. We met with officials to discuss the methodologies and processes  employed in the Ukraine sanction case. To identify the impact of trade  sanctions against Ukraine, we studied the U.S. overall imports from  Ukraine as well as imports of commodities on the sanction list from  Ukraine from 2000 to 2003.
Finally, to verify information provided to us by industry and agency  officials and obtain detailed examples of U.S. government actions overseas  and the results of those actions, we traveled to four countries where  serious IPR problems have been identified—Brazil, China, Russia, and  Ukraine—and where the U.S. government has taken measures to address  these problems. We met with U.S. embassy and foreign government  officials and with U.S. companies and industry groups operating in those  countries. To choose the case study countries, we evaluated countries  according to a number of criteria that we established, including the extent  of U.S. government involvement; the economic significance of the country  and seriousness of the intellectual property problem; the coverage of key  intellectual property areas (patent, copyright, and trademark) and  industries (e.g., optical media, pharmaceuticals); and agency and industry  association recommendations. We collected and reviewed U.S. government  and industry documents in these countries.
To describe and assess the coordination mechanisms for U.S. efforts to  address intellectual property rights (IPR) overseas, we identified formal  coordination efforts (mandated by law, created by executive decision, or  occurring and documented on a regular basis) and reviewed documents  describing agency participation, mission, and activities. We interviewed  officials from agencies participating in the Special 301 subcommittee of the  Trade Policy Staff Committee, the National Intellectual Property Law  Enforcement Coordination Council, the IPR Training Coordination Group,  and the IPR Center. While USTR did provide GAO with a list of agencies  that participated in Special 301 subcommittee meetings during the 2004  review, USTR officials requested that we not cite this information in our  report on the grounds that this information is sensitive. USTR asked that  we instead list all the agencies that are invited to participate in the TPSC  process, though agency officials acknowledged that, based upon their own  priorities, not all agencies actually participate. We also met with officials  from intellectual property industry groups who participate in the IPR  Training Coordination Group and who are familiar with the other agency  coordination efforts. We attended a meeting of the IPR Training  Coordination Group to witness its operations, and we visited the IPR  Center. To further examine the coordination of agency training efforts, we  conducted a data reliability assessment of the IPR Training Database  (www.training.ipr.gov) to determine whether it contained an accurate and  complete record of past and planned training events. To assess the  completeness and reliability of the training data in the database, we spoke  with officials at the Department of State about the management of the  database and with officials at the agencies about the entering of the data in  the database. We also conducted basic tests of the data’s reliability,  including checking to see whether agencies input information related to  training events in the database and information appeared accurate. We  assessed the reliability of these data to determine how useful they are to  the agencies that provide IPR training, not because we wanted to include  them in this report. As noted on pages 34 and 35, we determined that these  data had some problems of timeliness and completeness, which limited  their usefulness. Finally, we compared the data with documents containing  similar information, provided by some of the agencies, to check the data’s  consistency. To identify other forms of coordination, we spoke with U.S.  agency officials about informal coordination and communication apart  from the formal coordination bodies cited above.
To identify the challenges that agencies’ activities face in generating their  intended impact, we spoke with private sector and embassy personnel in  the case study countries about political and economic circumstances  relevant to intellectual property protection and the impact of these  circumstances on U.S. activities. We also spoke with law enforcement  personnel at the Departments of Justice and Homeland Security, the FBI,  and foreign law enforcement agencies in Washington, D.C., and our case  study countries about the challenges they face in combating intellectual  property crime overseas. We visited markets in our case study countries  where counterfeit and pirated merchandise is sold to compare local prices  for legitimate and counterfeit products and to confirm (at times with  industry experts present) that counterfeit goods are widely and easily  available. We reviewed embassy cables, agency and industry reports, and  congressional testimony provided by agency, industry, and overseas law  enforcement officials documenting obstacles to progress in IPR protection  around the world. We reviewed studies and gathered information at our  interviews on the arguments for and against IPR protection in developing  countries.
In addition to the general discussion, we chose the optical media sector to  illustrate the challenges facing antipiracy efforts. To identify the  challenges, we interviewed industry representatives from the optical media  sector both in the United States and overseas regarding their experiences  in fighting piracy. We reviewed Special 301 reports and industry  submissions to study the optical media piracy levels over the years. In  Brazil, Russia, and Ukraine, we recorded the prices of legal and illegal  music CDs, movies, and software at local markets.
We used U.S. overall imports and import of the products on the sanction list  from Ukraine. The source of the overall import data is the U.S. Bureau of  the Census, and the source of the import data of the products on the  sanction list is the Trade Policy Information System (TPIS), a Web site  operated by the Department of Commerce. In order to assess the reliability  of the overall import data, we (1) reviewed “U.S. Merchandise Trade  Statistics: A Quality Profile” by the Bureau of the Census and (2) discussed  the data with the Chief Statistician at GAO. We determined the data to be  sufficiently reliable for our purpose, which was to track the changes in U.S.  overall imports from Ukraine from 2000 through 2003. In order to assess  the reliability of the data from TPIS, we did internal checks on the data and  checked the data against a Bureau of the Census publication. We  determined the data to be sufficiently reliable for our purpose, which was  to track changes in U.S. imports from Ukraine of the goods on the sanction  list.
We conducted our work in Washington, D.C.; Geneva, Switzerland; Brasilia,  Rio de Janeiro, and Sao Paolo, Brazil; Beijing, China; Moscow, Russia; and  Kiev, Ukraine, from June 2003 through July 2004, in accordance with  generally accepted government auditing standards.
section_title: Trade Agreements Negotiated Since 1990 That Address IPR, and the WTO Membership Status for Countries Involved
subsections: section_title: Czech Republic Trade Relations Agreement
paragraphs: Turkmenistan Agreement on Trade Relations North American FTA (Mexico and Canada)
section_title: WTO TRIPS Dispute Settlement Cases Brought by the U.S. Government
paragraphs: Since the implementation of the WTO Agreement on Trade-Related Aspects  of Intellectual Property (TRIPS) in 1996, the United States has brought a  total of 12 TRIPS-related cases against 11 countries and the European  Community (EC) to the WTO through that organization’s dispute  settlement mechanism (see below). Of these, 8 cases were resolved by  mutually agreed solutions. In nearly all of these cases, U.S. concerns were  addressed via changes in laws or regulations by the other party. Only 2  (involving Canada and India) have resulted in the issuance of a panel  report, both of which were favorable rulings for the United States.   Consultations are ongoing in one additional case, against Argentina, and  this case has been partially settled. One case, involving an EC regulation  protecting geographical indications, has gone beyond consultations and is  in WTO dispute settlement panel proceedings.  1. Argentina: pharmaceutical patents       — Brought by U.S., DS171 and DS196  Case originally brought by the United States in May 1999. Consultations  ongoing, although 8 of 10 originally disputed issues have been resolved. 2. Brazil: “local working” of patents and compulsory licensing      — Brought by U.S., DS199  Case originally brought by the United States in June 2000. Settled  between the parties in July 2001. Brazil agreed to hold talks with the  United States prior to using the disputed article against a U.S. company. 3. Canada: term of patent protection      — Brought by U.S., DS170  Case originally brought by the United States in May 1999. Panel report  issued in May 2000 decided for the United States, (WT/DS170/R) later  upheld by Appellate Body report. According to USTR, Canada  announced implementation of a revised patent law on July 24, 2001. 4. Denmark: enforcement, provisional measures, civil proceedings      — Brought by U.S., DS83  Case originally brought by United States in May 1997. Settled between  the parties in June 2001. In March 2001, Denmark passed legislation  granting the relevant judicial authorities the authority to order  provisional measures in the context of civil proceedings involving the  enforcement of intellectual property rights. 5. EC: trademarks and geographical indications      — Brought by U.S., DS174  Case originally brought by U.S. in June 1999. WTO panel proceedings  are ongoing. 6. Greece and EC: motion pictures, TV, enforcement      — Brought by U.S., DS124 and DS125  Case originally brought by the United States in May 1998. Greece  passed a law in October 1998 that provided an additional enforcement  remedy for copyright holders whose rights were infringed upon by TV  stations in Greece. Based on the implementation of this law, the case  was settled between the parties in March 2001.
7.
India: patents, “mailbox,” exclusive marketing      — Brought by EC, DS79      — Brought by U.S., DS50  Case originally brought by the United States in July 1996. Panel report  issued in September 1997 decided for the United States (WT/DS50/R).
8.
Ireland and EC: copyright and neighbouring rights      — Brought by U.S., DS82 and DS115  Case originally brought by the United States in May 1997. Settled  between the parties in November 2000. Ireland passed a law and  amended its copyright law in ways that satisfied U.S. concerns.
9.
Japan: sound recordings intellectual property protection      — Brought by EC DS42      — Brought by U.S., DS28  Case originally brought by the United States in February 1996. Settled  between the parties in January 1997. Japan passed amendments to its  copyright law that satisfied U.S. concerns. 10. Pakistan: patents, “mailbox,” exclusive marketing      — Brought by U.S., DS36  Case originally brought by the United States in May 1996. Settled  between the parties in February 1997. Pakistan issued rulings with  respect to the filing and recognition of patents that satisfied U.S.  concerns. 11. Portugal: term of patent protection      — Brought by U.S., DS37  Case originally brought by the United States in May 1996. Settled  between the parties in October 1996. Portugal issued a law addressing  terms of patent protection in a way that satisfied U.S. concerns. 12. Sweden: enforcement, provisional measures, civil proceedings      — Brought by U.S., DS86  Case originally brought by the United States in June 1997. Settled  between the parties in December 1998. In November 1998, Sweden  passed legislation granting the relevant judicial authorities the  authority to order provisional measures in the context of civil  proceedings involving the enforcement of intellectual property rights.
section_title: Country Case Study: Brazil
subsections: section_title: The State of IPR in Brazil
paragraphs: Brazil is generally credited with having adequate laws to protect  intellectual property, but the enforcement of these laws remains a problem.  Officials we interviewed in Brazil identified several reasons for the weak  enforcement, including insufficient and poorly trained police and a  judiciary hampered by a lack of resources, inefficiencies and, in some  cases, corruption. Most broadly, they cited the weak economy and lack of  formal sector employment as reasons for the widespread sale and  consumption of counterfeit goods. One Brazilian official commented that  the current intellectual property protection system has generated large  price gaps between legitimate and illegitimate products, making it very  difficult to combat illegitimate products. However, private sector officials  also pointed to high tax rates on certain goods as a reason for  counterfeiting. Regardless, the sale of counterfeit merchandise abounds.  One market in Sao Paulo that we visited covered many city blocks and was  saturated with counterfeit products. For example, we identified counterfeit  U.S. products such as Nike shoes, Calvin Klein perfume, and DVDs of  varying quality. The market not only sold counterfeit products to the  individual consumer, but many vendors also served as “counterfeit  wholesalers” who offered even cheaper prices for purchasing counterfeit  sunglasses in bulk, for example. According to industry representatives, this  market also has ties to organized crime.
Private and public sector officials identified two significant challenges to  Brazil’s improving its intellectual property protection: establishing better  border protection, particularly from Paraguay—a major source of  counterfeit goods—and a better-functioning National Industrial Property  Institute (INPI). The acting president of INPI acknowledged that, owing to  insufficient personnel, money, and space, INPI is not functioning well and  has an extremely long backlog of patent and trademark applications. Two  private sector representatives commented that U.S. assistance to INPI  could be very valuable. It can currently take as long as 9 years to get a  patent approved. Patent problems have been exacerbated by an ongoing  conflict between INPI and the Ministry of Health over the authority to grant  pharmaceutical patents. A pharmaceutical industry association report  claims that the current system, which requires the Ministry of Health to  approve all pharmaceutical patents, is in violation of TRIPS.
section_title: U.S. Government Actions to Address Brazil’s IPR Problems
paragraphs: The U.S. government has been involved in various activities to promote  better enforcement of intellectual property rights in Brazil. Brazil has been  cited on the Special 301 Priority Watch List since 2002 and is currently  undergoing a review to determine whether it should remain eligible for  Generalized System of Preferences (GSP) benefits. In recent years,  Brazilian officials have participated in training offered by USPTO in  Washington, D.C., and have studied intellectual property issues in depth in  the United States as participants in U.S.-sponsored programs. The  Departments of State, Justice, and Homeland Security have also sponsored  or participated in training events or seminars on different intellectual  property issues. The Department of State’s public affairs division has also  worked on public awareness events and seminars.
Officials from industry associations representing American companies, as  well as officials from individual companies we met with, stated that they  are generally satisfied with U.S. efforts to promote the protection of IPR in  Brazil. Many had regular contact with embassy personnel to discuss  intellectual property issues, and several had collaborated with U.S.  agencies to develop and present seminars or training events in Brazil that  they believed were useful tools for promoting IPR. The private sector  officials we spoke with made some suggestions for improving U.S.- sponsored assistance, including consulting with the private sector earlier  to identify appropriate candidates for training. However, private and public  sector officials commented regularly on the usefulness of training activities  provided by the United States, and many expressed a desire for more of  these services. In particular, several officials expressed a hope that the  United States would provide training and technical assistance to INPI. In  February 2004, a senior Department of Commerce official discussed  collaboration and technical assistance matters with a Brazilian minister,  and USPTO staff recently traveled to Brazil to provide training at INPI.
Overall, the direct impact of U.S. efforts was difficult to determine, but U.S.  involvement regarding IPR in Brazil was widely recognized. Several  industry and Brazilian officials we spoke with were familiar with the  Special 301 report; many in the private sector had contributed to it via  different mechanisms. One industry official commented that the Special  301 process is helpful in convincing the Brazilian authorities of the  importance of intellectual property protection. Others were less certain  about whether the report had any impact. A Brazilian minister stated that  the United States is the biggest proponent of IPR, although he did not  believe that any particular U.S. program had had a direct impact on  Brazilian intellectual property laws or enforcement. Others, however,  believed that pressure from the U.S. government lent more credibility to  the private sector’s efforts and may have contributed to changes in  Brazilian intellectual property laws.
section_title: Changes in Brazil’s IPR Protection
paragraphs: Most private sector officials we spoke with agreed that the government’s  interest in combating intellectual property crime has recently increased.  They noted that developments have included the work of the Congressional  Investigative Commission on Piracy (CPI) in the Brazilian Congress and  newly formed special police groups to combat piracy. In addition, President  Lula signed a law last year amending the penal code with respect to  copyright violations; minimum sentences were increased to 2 years and  now include a fine and provide for the seizure and destruction of  counterfeit goods. However, these increased sanctions do not apply to  software violations. According to an official with the Brazilian special  police, the Brazilian government was moved to prosecute piracy more  vigorously because government officials realized that the growing informal  economy was resulting in the loss of tax revenue and jobs. However, a  Brazilian state prosecutor and the CPI cited corruption and the  involvement of organized crime in intellectual property violations as  challenges to enforcement efforts.
section_title: Country Case Study: China
subsections: section_title: The State of IPR in China
paragraphs: China’s protection of IPR has improved in recent years but remains an  ongoing concern for the U.S. government and the business community.  Upon accession to the WTO in December 2001, China was obligated to  adhere to the terms of the Agreement on Trade-Related Aspects of  Intellectual Property (TRIPS). According to the U.S. Trade Representative’s  (USTR) 2003 review of China’s compliance with its WTO commitments, IPR  enforcement was ineffective, and IPR infringement continued to be a  serious problem in China. USTR reported that lack of coordination among  Chinese government ministries and agencies, local protectionism and  corruption, high thresholds for criminal prosecution, lack of training, and  weak punishments hampered enforcement of IPR.
Piracy rates in China continue to be excessively high and affect products  from a wide range of industries. According to a 2003 report by China’s State  Council’s Development Research Center, the market value of counterfeit  goods in China is between $19 billion and $24 billion. Various U.S.  copyright holders also reported that estimated U.S. losses due to the piracy  of copyrighted materials have continued to exceed $1.8 billion annually.  Pirated products in China include films, music, publishing, software,  pharmaceuticals, chemicals, information technology, consumer goods,  electric equipment, automotive parts, and industrial products, among many  others. According to the International Intellectual Property Alliance, a  coalition of U.S. trade associations, piracy levels for optical discs are at 90  percent and higher, almost completely dominating China’s local market.  Furthermore, a U.S. trade association reported that the pharmaceutical  industry not only loses roughly 10 to 15 percent of annual revenue in China  to counterfeit products, but counterfeit pharmaceutical products also pose  serious health risks.
section_title: U.S. Government Actions to Address China’s IPR Problems
paragraphs: Since the first annual Special 301 review in 1989, USTR has initiated several  Special 301 investigations on China’s IPR protection. However, since the  conclusion of a bilateral IPR agreement with China in 1996, China has not  been subject to a Special 301 investigation but has instead been subject to  monitoring under Section 306. In 2004, USTR reviewed China’s  implementation under Section 306 and announced that China would be  subject to an out-of-cycle review in 2005. In addition to addressing China’s  IPR protection through these statutory mechanisms, the U.S. government  has been involved in various efforts to protect IPR in China. The U.S.  government’s activities in China are part of an interagency effort involving  several agencies, including USTR, State, Commerce, Justice, Homeland  Security, USPTO, and the Copyright Office. In 2003, U.S. interagency  actions in China to protect IPR included (1) engaging the Chinese  government at various levels on IPR issues; (2) providing training and  technical assistance for Chinese ministries, agencies, and other  government entities on various aspects of IPR protection; and (3) providing  outreach and assistance to U.S. businesses. Most private sector  representatives we met with in China said that they are generally satisfied  with the U.S. government’s efforts in China but noted areas for potential  improvement.
In 2003, U.S. government engagement with China on IPR issues ranged  from high-level consultations with Chinese ministries to letters, demarches,  and informal meetings between staff-level U.S. officials and their  counterparts in the Chinese government. U.S. officials noted that during  various visits to China in 2003, the Secretaries of Commerce and Treasury  and the U.S. Trade Representative, as well as several subcabinet level  officials, urged their Chinese counterparts to develop greater IPR  protection. U.S. officials said that these efforts were part of an overall  strategy to ensure that IPR protection was receiving attention at the highest  levels of China’s government. U.S. officials also noted that the U.S.  Ambassador to China has placed significant emphasis on IPR protection. In  2002 and 2003, the U.S. government held an Ambassador’s Roundtable on  IPR in China that brought together representatives from key U.S. and  Chinese agencies, as well as U.S. and Chinese private sector  representatives. U.S. officials said that China Vice Premier Wu’s  involvement in the 2003 roundtable was an indication that IPR was  receiving attention at high levels of China’s government. One U.S. official  stated that addressing pervasive systemic problems in China, such as lack  of IPR protection, is “nearly impossible unless it stays on the radar at the  highest levels” of the Chinese government.
A second key component of U.S. government efforts to ensure greater  protection of IPR in China involved providing numerous training programs  and technical assistance to Chinese ministries and agencies. U.S.  government outreach and capacity-building efforts included sponsoring  speakers, seminars, and training on specific technical aspects of IPR  protection to raise the profile and increase technical expertise among  Chinese officials. The U.S. government targeted other programs to address  the lack of criminalization of IPR violations in China. For example, an  interagency U.S. government team (Justice, DHS, and Commerce)  conducted a three-city capacity-building seminar in October 2003 on  criminalization and enforcement. The program was cosponsored by the  Chinese Procuratorate, the Chinese government’s prosecutorial arm. U.S.  government officials noted that the program was unique because the  seminar brought together officials from Chinese criminal enforcement  agencies, including customs officials, criminal investigators, and  prosecutors, as well as officials from administrative enforcement agencies.  In March 2004, the Copyright Office hosted a week-long program for a  delegation of Chinese copyright officials that provided technical assistance  and training on copyright-related issues, including the enforcement of  copyright laws, as well as outreach and relationship-building.
The U.S. government has also provided outreach regarding IPR protection  to U.S. businesses in China, and Commerce has played a lead role in this  effort. For example, in late 2002, Commerce established a Trade  Facilitation Office in Beijing to, among other things, provide outreach,  advocacy, and assistance to U.S. businesses on market access issues,  including IPR protection. Additionally, Foreign Commercial Service  officers in China work with U.S. firms to identify and resolve cases of IPR  infringement. Commerce officials indicated that increasing private sector  awareness and involvement in IPR issues are essential to furthering IPR  protection in China.
GAO’s 2004 analysis of selected companies’ views on China’s  implementation of its WTO commitments reported that respondents  ranked IPR protection as one of the three most important areas of China’s  WTO commitments but that most respondents thought China had  implemented IPR reforms only to some or little extent. In general, other  industry association and individual company representatives whom we  interviewed in China were satisfied with the range of U.S. government  efforts to protect IPR in China. Several industry representatives noted that  they had regular contact with officials from various U.S. agencies in China  and that the staff assigned to IPR issues were generally responsive to their  firm’s or industry’s needs.  Private sector representatives stated that the  U.S. government’s capacity-building efforts were one of the most effective  ways to promote IPR protection in China. Some representatives noted that  Chinese government entities are generally very receptive to these types of  training and information-sharing programs. However, some private sector  representatives also said that the U.S. agencies could better target the  programs to the appropriate Chinese audiences and follow up more to  ensure that China implements the knowledge and practices disseminated  through the training programs. Most private sector representatives we met  with also said that the U.S. government efforts in China were generally well  coordinated, but they indicated that they were not always able to  determine which U.S. agency was leading the effort on a specific issue.
section_title: Changes in China’s IPR Protection
paragraphs: Although Chinese laws are now, in principle, largely compliant with the  strict letter of the TRIPS agreement, U.S. government and other industry  groups note that there are significant gaps in the law and enforcement  policies that pose serious questions regarding China’s satisfaction of the  TRIPS standards of effective and deterrent enforcement. In 2003, USTR  found that China’s compliance with the TRIPS agreement had been largely  satisfactory, although some improvements still needed to be made. Before  its accession to the WTO, China had completed amendments to its patent  law, trademark law, and copyright law, along with regulations for the patent  law. Within several months after its accession, China issued regulations for  the trademark law and copyright law. China also issued various sets of  implementing rules, and it issued regulations and implementing rules  covering specific subject areas, such as integrated circuits, computer  software, and pharmaceuticals.
China has taken some steps in administrative, criminal, and civil  enforcement against IPR violators. According to USTR’s review, the central  government promotes periodic anticounterfeiting and antipiracy  campaigns as part of its administrative enforcement, and these campaigns  result in a high number of seizures of infringing materials. However, USTR  notes that the campaigns are largely ineffective; because cases brought by  the administrative authorities usually result in extremely low fines,  criminal enforcement has virtually no deterrent effect on infringers. China’s  authorities have pursued criminal prosecutions in a small number of cases,  but the Chinese government lacks the transparency needed to determine  the penalties imposed on infringers. Last, China has seen an increased use  of civil actions being brought for monetary damages or injunctive relief.  This suggests an increasing sophistication on the part of China’s IPR  courts, as China continues to make efforts to upgrade its judicial system.
However, U.S. companies complain that the courts do not always enforce  China’s IPR laws and regulations consistently and fairly.
Despite the overall lack of IPR enforcement in China, IPR protection is  receiving attention at high levels of the Chinese government. Notably, in  October 2003, the government created an IPR Leading Group, headed by a  vice premier, to address IPR protection in China. Several U.S. government  officials and private sector representatives told us that high-level  involvement by Vice Premier Wu would be critical to the success of future  developments in IPR protection in China. In April 2004, the United States  pressed IPR issues with China during a formal, cabinet-level consultative  forum with China called the Joint Commission of Commerce and Trade  (JCCT). In describing the results of the April 2004 JCCT meeting, USTR  reported that China had agreed to undertake a number of near-term actions  to address IPR protection. China’s action plan included increasing penalties  for IPR infringement and launching a public awareness campaign on IPR  protection. Additionally, China and the United States agreed to form an IPR  working group under the JCCT to monitor China’s progress in  implementing its action plan.
section_title: Country Case Study: Russia
subsections: section_title: The State of IPR in Russia
paragraphs: Although the Russian government has demonstrated a growing recognition  of the seriousness of IPR problems in the country and has taken some  actions, serious problems persist. Counterfeiting and piracy are common  (see fig. 4). For example, a Microsoft official told us that approximately 80  percent of business software is estimated as pirated in Russia, and that the  Russian government is a “huge” user of pirated software. Further, the  pharmaceutical industry estimates that up to 12 percent of drugs on the  market in Russia are counterfeit. Of particular note to the U.S. government,  piracy of optical media (e.g., CDs, DVDs, etc.) in Russia is rampant.  According to an official from the Russian Anti-Piracy Organization, as  much as 95 percent of optical media products produced in Russia are  pirated. U.S. concern focuses on the production of pirated U.S. optical  media products by some or all of the 30 optical media production facilities  in Russia, 17 of which are located on Russian government-owned former  defense sites where it has been difficult for inspection officials to gain  access (though, according to an embassy official, access has recently  improved). According to a U.S. embassy official, Russian demand for  optical media products is estimated at 18 million units per year, but Russian  production is estimated to be 300 million units. U.S. Embassy and private  sector officials believe that the excess pirated products are exported to  other countries. Industry estimates losses of over $1 billion annually as a  result of this illegal activity.
Russia has made many improvements to its IPR legislation, but the U.S.  government maintains that more changes are needed. For example, the  2004 Special 301 report states that the Russian government is still working  to amend its laws on protection of undisclosed information—in particular,  protection for undisclosed test data submitted to obtain marketing  approval for pharmaceuticals and agricultural chemicals. Further, U.S.  industry and Russian officials view Russia’s IPR enforcement as inadequate  and cite this as the largest deterrent to effective IPR protection in Russia.  For example, the 2004 Special 301 report emphasizes that border  enforcement is considered weak and that Russian courts do not have the  authority in criminal cases to order forfeiture and destruction of machinery  and materials used to make pirated and counterfeit products. Further, one  Russian law enforcement official told us that since IPR crimes are not  viewed as posing much of a social threat, IPR enforcement is “pushed to  the background” by Russian prosecutors.
section_title: U.S. Government Actions to Address Russia’s IPR Problems
paragraphs: The U.S. government has taken several actions in Washington, D.C., and  Moscow to address its concerns over Russia’s failure to fully protect IPR.  Russia has been placed on USTR’s Special 301 Priority Watch List for the  past 8 years (1997 through 2004). Further, a review of Russia’s eligibility  under the Generalized System of Preferences (GSP) is underway owing to  concerns over serious IPR problems in the country.
The U.S. government has actively raised IPR issues with the Russian  government, including at the highest levels. According to the Department  of State, at a United States–Russia summit in September 2003, President  Bush raised IPR concerns with Russian President Putin. Further, in  Moscow, the U.S. Ambassador to Russia considers IPR an embassy priority  and has sent letters to Russian government officials and published articles  in the Russian press that outline U.S. government concerns.
Many agencies resident in the U.S. Embassy in Moscow are engaged in IPR  issues. The Department of State’s Economic Section is the Embassy office  with primary responsibility for IPR issues. This office collaborates closely  with USTR and holds interagency embassy meetings to coordinate on IPR  efforts. In addition to interagency communication through these meetings,  each agency is also engaged in separate efforts. For example, the Economic  Section has met regularly with Russian government officials to discuss IPR  issues. Justice has held two training events on IPR criminal law  enforcement in 2004, and has two more events planned for this year, while  the Embassy’s Public Affairs Office is involved with IPR enforcement  exchange and training grants. Further, the Department of Commerce’s  Foreign Commercial Service works with U.S. companies on IPR issues and  sponsored a 2003 seminar on pharmaceutical issues, including IPR-related  topics. According to a Justice official, U.S. law enforcement agencies are  making efforts to build relationships with their Russian counterparts.
Industry representatives whom we interviewed in Moscow expressed  support for U.S. government efforts to improve intellectual property  protection, particularly the U.S. Ambassador’s efforts to increase the  visibility of IPR problems. An official from one IPR association in Moscow  noted, with respect to USTR’s efforts in Russia, “No other country in the  world is so protective of its copyright industries.”  Industry representatives  noted that the U.S. government has played an important role in realizing  IPR improvements in Russia, although the Russian government is also  clearly motivated to strengthen intellectual property protections as part of  its preparation for joining the World Trade Organization. Further, U.S.
Embassy staff believe that they have been successful in ensuring that IPR is  now firmly on the “radar screen” of the Russian government.
section_title: Changes in Russia’s IPR Protection
paragraphs: According to U.S. sources, numerous IPR laws have been enacted. For  example, the Department of State has noted that the Russian government  has passed new laws on patents, trademarks, industrial designs, and  integrated circuits and has amended its copyright law. Further, U.S. and  Russian sources note that Russia has improved its customs and criminal  codes. Moreover, in 2002, the Russian government established a high-level  commission, chaired by the prime minister, specifically to address  intellectual property problems (although, despite a recognized desire to  address IPR enforcement, the commission has reportedly not  accomplished a great deal in terms of concrete achievements).
In addition to these promising improvements, there have been some signs  that enforcement is improving, if slowly. For example, the Russian  government issued a decree banning the sale of audio and video products  by Russian street vendors, and the U.S. Embassy has reported that  subsequently several kiosks known to sell pirated goods were closed.  Industry associations have reported that law enforcement agencies are  generally willing to cooperate on joint raids, and in 2003 several large  seizures were made as a result of such raids. Further, in February 2004 the  Russian Anti-Piracy Organization reported that police raids involving  optical media products took place almost daily all over Russia and were  covered widely on national TV channels. In addition, according to the U.S.  Embassy, the consumer products industry reports progress in reducing the  amount of counterfeit consumer goods on the Russian market, and one  major U.S. producer even claims that it has virtually eliminated  counterfeiting of all its consumer goods lines. Finally, according to a U.S.  Embassy official, the first prison sentence was handed down during the  summer of 2004 for an IPR violator who had been manufacturing and  distributing pirated DVDs.
U.S. and Russian officials have identified several problems that the Russian  government faces in implementing effective IPR protection in the future.  Issues identified include:  (1) the price of legitimate products is too high for  the majority of Russians, who have very modest incomes; (2) Russian  citizens and government officials are still learning about the concept of  private IPR—a Russian Ministry of Press official pointed out that until the  dissolution of the Soviet Union, all creations belonged to the state, and the  general public and the government didn’t understand the concept of private  IPR; and (3) corruption and organized crime make the effective  enforcement of IPR laws difficult.
section_title: Country Case Study: Ukraine
subsections: section_title: The State of IPR in Ukraine
paragraphs: Ukraine has been the subject of intense industry and U.S. government  concern since 1998 owing primarily to the establishment of pirate optical  media plants that produced music, video discs, and software for the  Ukraine market and for export to other countries. This followed the  crackdown on pirate plants in Bulgaria in 1998 that resulted in many of  these manufacturers relocating to Ukraine. Regarding Ukraine, USTR cites  U.S. music industry losses of $210 million in revenues in 1999, while the  Motion Picture Association reported losses of $40 million.  The  international recording industry association estimated that the production  capacity of optical media material was around 70 million units per year and  the demand within Ukraine for legitimate CD was fewer than 1 million units  in 2000. Further the audio and video consumer market in Ukraine has  consisted overwhelmingly of pirated media. For example, in 2000, the  international recording industry association estimated that 95 percent of  products on the market were pirated. Further, USTR and industry cite  significant counterfeiting of name brand products, pharmaceuticals, and  agricultural chemicals.
By 2004, IPR in Ukraine has shown improvement in several areas, although  the digital media sold in the consumer retail market remain predominantly  pirated. The production of such digital media in local plants has ended  however, according to U.S. government and industry officials in Kiev.  Further, U.S. officials noted Ukraine’s accession to key WIPO conventions  and improvements in intellectual property law that represents progress in  fulfilling TRIPS requirements as part of Ukraine’s WTO accession process.
Remaining areas of concern regarding U.S. IPR are inadequacies in the  existing optical media licensing law and the fact that Ukraine remains a key  transit country for pirated products. Other areas of concern are the  prevalence of pirated digital media products in the consumer retail  markets, lack of law enforcement actions, and the use of illegal software by  government agencies (although this situation has also improved). U.S.  industry and government now seek certain amendments to intellectual  property laws and better enforcement efforts, including border controls to  prevent counterfeit and pirated products from entering the Ukrainian  domestic retail market.
section_title: U.S. Government Actions to Address Ukraine’s IPR problems
paragraphs: The U.S. government has undertaken concerted action in Washington and  Kiev to address its concerns regarding the state of intellectual property  protection in Ukraine. With the emergence of serious music and audio- visual piracy, Ukraine was placed on USTR’s Special 301 Watch list in 1998.  Ukraine was elevated to USTR’s Special 301 Priority Watch list for 2 years,  in 1999 and 2000. In June 2000, during President Clinton’s state visit to Kiev,  he and President Kuchma endorsed a U.S.-Ukrainian joint action plan to  combat optical media piracy. However, slow and insufficient response by  Ukraine led to its designation as a Priority Foreign Country in 2001 and to  the imposition of punitive economic sanctions (100 percent duties) against  Ukrainian exports to the United States valued at $75 million in 2002. The  Priority Foreign Country designation remains in place. The sanctions affect  a number of Ukrainian exports, including metal products, footwear, and  chemicals. In addition, a U.S. government review of Ukraine’s eligibility for  preferential tariffs under the GSP program was undertaken, and Ukraine’s  benefits under this program were suspended in August 2001. GSP benefits  have not been reinstated.
In Kiev, intellectual property issues remain a priority for the U.S. Embassy,  including the U.S. Ambassador. A State Department economic officer has  been assigned responsibility as the focal point for such issues and has been  supported in this role by the actions of other U.S. agencies. The  Commercial Law Center, funded by USAID, and the Commercial Law  Development Program of the U.S. Department of Commerce have provided  technical advice to Ukraine as it crafted intellectual property laws. A U.S.  private sector association reported that it had worked closely with USAID  on projects related to commercial law development. Ukrainian legislative  officials reported that training opportunities and technical assistance  provided by the United States had facilitated the creation of IP legislation.  Training is also focused on enforcement, including training of a Ukrainian  judicial official by USPTO in Washington, D.C., during 2003. The State  Department has trained police and plans further police training in Ukraine  during 2004. Further, Department of Commerce officials maintain contact  with U.S. firms and collect information on intellectual property issues for  State and USTR.
section_title: Changes in Ukraine’s IPR Protection
paragraphs: Ukraine has made improvements in its legal regime for IPR protection.  According to Ukrainian officials, Ukraine passed a new criminal code with  criminal liability for IPR violations, as well as a new copyright law.  Ukrainian officials report that the laws are now TRIPS compliant. U.S.  government documents show that Ukraine implemented an optical disk  law in 2002, although it was deemed “unsatisfactory,” and sanctions remain  in place based on Ukraine’s failure to enact and enforce adequate optical  disk media licensing legislation.
In addition, Ukraine has pursued enforcement measures to combat  counterfeiting, although enforcement overall is still considered weak.  USTR reported that administrative and legal pressure by the Ukrainian  government led to the closure of all but one of the major pirate CD plants.  Some pirate plants moved to neighboring countries. According to U.S. and  private sector officials in Kiev, remaining optical plants have switched to  legitimate production. However, pirated optical media are still prevalent in  Ukraine, imported from Russia and elsewhere, with little effort to remove  them from the market. In a visit to the Petrovska Market in Kiev, we found a  well-organized series of buildings where vendors sold movies, music,  software, and computer games from open-air stands. The price for a pirated  music CD was $1.50, compared to legitimate CDs that were sold for almost  $20 in a music store located near the market.
According to USTR, Ukraine is a major trans-shipment point and storage  location for illegal optical media produced in Russia and elsewhere. A  Ukrainian law enforcement official reported that the number of IPR crimes  detected has risen from 115 in 2001 to 374 in 2003. He noted that to date,  judges have been reluctant to impose jail time, but had used fines that are  small compared to the economic damages. A U.S. government official also  reported that the fines are too small to be an effective deterrent.
While one U.S. company told us about the lack of Ukrainian government  actions regarding specific IPR enforcement issues, a large U.S. consumers  goods company told us that consumer protection officials and tax police  had worked with it to reduce counterfeit levels of one product line from  approximately 40 percent in 1999 to close to zero percent 16 months later.  The company provided 11 laboratory vans as well as personnel that could  accompany police to open markets and run on-the-spot tests of products.
section_title: Comments from the Department of Commerce
paragraphs: The following are GAO’s comments on the Department of Commerce’s  letter dated August 20, 2004.
subsections: section_title: GAO’s Comments
paragraphs: 1. We have reviewed the report to ensure that the term “counterfeiting” is  used to refer to commercial-scale trademark-related infringements of a  good or product and the term “piracy” is used to refer to commercial- scale infringements of copyright-protected works. 2. While we do not discuss “advocacy” separately in this report, this type  of effort has been addressed in the policy initiatives section of the  report, specifically in the discussion entitled “U.S. Officials Undertake  Diplomatic Efforts to Protect Intellectual Property” (see p. 18). We note  that U.S. government officials overseas, including officials from the  Department of Commerce, work with U.S. companies and foreign  governments to address specific IPR problems. We have also included a  particular example involving Department of Commerce efforts to  resolve problematic issues related to proposed Mexican legislation that  involved the pharmaceutical industry. We have also added another  reference to advocacy efforts on page 27. 3. We chose to emphasize IPR-specific agreements, bilateral trade  agreements, and free trade agreements in our report (discussion  entitled “U.S. Government Engages in IPR-Related Trade Negotiations”)  because USTR officials consistently cited these agreements as central  components of their IPR efforts. However, we do note the negotiation  of trade and investment framework agreements in footnote 24 of the  report. 4. The efforts of the Department of Commerce’s International Trade  Administration (ITA) are cited in our report. The report does not  specifically list the ITA, as we intentionally kept the discussion for all  government entities at the “departmental” level (with a few exceptions  for entities that have distinct responsibilities, such as the FBI and  USPTO) without mentioning the numerous bureaus and offices  involved for each department. This approach was adopted to keep the  report as clear as possible for the reader. While the report does not  specifically attribute Commerce’s IPR efforts to ITA, several examples  of Commerce’s efforts that are listed in the report are, in fact, ITA  activities. For example, in addition to the activities cited in point 2  above, Commerce (meaning ITA) is also mentioned as a participant in  annual GSP and Special 301 reviews (see pp. 12 and 32), and as a  participant in IPR efforts in the report’s China, Russia, and Ukraine  appendixes. Further, we have specified that Commerce (meaning ITA),  along with USTR, is the administrator for the private sector trade  advisory committee system (p. 15).
section_title: Comments from the Department of Homeland Security
paragraphs: The following are GAO’s comments on the Department of Homeland  Security’s letter dated August 24, 2004.
subsections: section_title: GAO’s Comments
paragraphs: 1. We have added a paragraph citing the Department of Homeland  Security’s work with the World Customs Organization (see p. 17). 2. We added language on p. 22 of the report that notes that a key  component of DHS authority is a “border nexus.”
section_title: Comments from the U.S. Agency for International Development
paragraphs: The following are GAO’s comments on the U.S. Agency for International  Development’s letter dated August 19, 2004.
subsections: section_title: GAO’s Comments
paragraphs: 1. We agree with USAID’s point that IPR protection and enforcement are  not the primary responsibility of the agency. USAID and the other 9 U.S.  government entities mentioned in the report have broader missions.  Rather, we state that USAID and the other U.S. government entities  undertake the primary U.S. government activities to improve the  protection and enforcement of U.S. intellectual property overseas. 2. As we noted in the report, the decentralized structure of USAID,  whereby individual country missions plan and implement training,  makes it difficult for Washington-based officials to contribute timely  information to the public training database or to inform the Training  Coordination Group about USAID’s training efforts. Further, several  members of the Training Coordination Group are frustrated with the  extent of USAID's information sharing. 3. As we note in the report, USAID submits information annually  following the conclusion of its own data-gathering exercise. However,  this data-gathering exercise, which contributes to the USAID trade  capacity building database, does not provide information needed by the  Training Coordination Group, such as dates of training or contact  information, that would improve coordination.
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: In addition to those named above, Sharla Draemel, Ming Chen, Martin de  Alteriis, Matt Helm, Ernie Jackson, Victoria Lin, and Reid Lowe made key  contributions to this report.
section_title: GAO’s Mission
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