This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS  ALMATY 000753 
 
SIPDIS 
 
 
DEPT FOR EB/IPE SWILSON, EUR/CACEN (JMUDGE) 
DEPT PLEASE PASS TO USTR JCHOE-GROVES, 
DOC JBOGER, 
USPTO JURBAN, 
LOC STEPP 
 
E.O. 12958: N/A 
TAGS: ETRD KIPR ECON KZ ECONOMIC
SUBJECT: KAZAKHSTAN: SPECIAL 301: 
 
REF: (A) STATE 023950 
 
     (B) 04 ALMATY 000591 (NOTAL) 
     (C) 04 ALMATY 001310 (NOTAL) 
     (D) 04 ALMATY 1434 (NOTAL) 
 
¶1. Summary:  Since the release of the 2004 Special 301 
report, the Government of Kazakhstan (GOK) has worked 
actively and with notable success to modernize and 
strengthen its IPR regime.  As WTO accession has increased 
in importance as a political goal, the GOK has fully 
accepted that a modern, functioning IPR regime is a 
prerequisite for participation in the global trading 
system.  In this reporting period the GOK ratified the WIPO 
Copyright and Performances and Phonograms Treaties, 
guaranteed protection to pre-existing works in its 
Copyright Law and dramatically ramped up its enforcement 
efforts.  Further legal changes, most notably amendments 
lowering the criminality threshold for IPR violations, are 
working their way through the Parliament.  While the 
situation is not yet ideal, it is clear that the GOK has 
responded decisively to the pressure of being on the Watch 
List.  The Embassy believes that the GOK's desire for WTO 
accession on a timetable coincident with or before Russia's 
will provide sufficient impetus to carry through further 
necessary improvements.  We believe that Watch List 
pressure has served its purpose.   Removal of Kazakhstan 
from the list will significantly assist the government in 
consolidating support in key constituencies for further 
reforms, as the country heads toward WTO accession.  We 
therefore recommend removing Kazakhstan from the Watch 
List.  End Summary. 
 
2004 - Significant Legal Changes With More to Come 
--------------------------------------------- ----- 
 
¶2. In this reporting period, Kazakhstan took several 
positive legal steps which, at the time of the last report 
(Reftel B), were initial proposals.  The U.S. Government 
urged Kazakhstan to ratify the WIPO Treaties on Copyrights 
and Performances and Phonograms, which it did (Reftel D.) 
The United States also urged Kazakhstan to explicitly 
extend protection to pre-existing works (retroactive 
protection), which Kazakhstan committed to do when it 
joined the Berne Convention as well as in its 1992 
bilateral trade agreement with the United States.  The GOK 
dropped its previous insistence that its automatic 
incorporation of treaties into domestic law sufficed and 
piloted this change through the Parliament, fulfilling its 
obligation.  The amendment, which was approved July 9, 
2004, extends protection to any material that has not 
become a part of the public domain in its country of 
origin.  The new provision extends the protection for a 
period of fifty years. 
 
¶3.  There remain a few areas in which further legal 
reform would enhance the GOK's effectiveness in 
enforcement and also more closely align the country's 
legislation with WTO norms.  USTR has pointed out certain 
areas of the Customs Code, in particular the apparent lack 
of ex officio authority for customs officials, which 
weakens enforcement against imports of counterfeit 
articles.  The GOK has not amended the Customs Code since 
it went into effect in 2003.  However, the GOK maintains 
that the subject authority is found elsewhere in 
Kazakhstani law and applies to the customs authorities. 
 
¶4.  Similarly, Kazakhstani law does not yet define clear 
procedures for civil ex parte search and seizure as 
required by the Agreement on Trade-Related Aspects of 
Intellectual Property Rights (TRIPS).  The GOK plans to 
amend the Copyright Law to remedy this.  However, it should 
be noted that a large portion of the searches for pirated 
material carried out by authorities are prompted by 
complaints made without the knowledge of the object of the 
search (often by means of calling a nationwide hotline), 
and thus, have the character of ex parte searches, although 
the procedure is not defined as such. 
 
¶5.  The most important legal change, however, will be the 
amendment of Article 184 of the Criminal Code to lower the 
threshold of severity for an offense to be treated as a 
criminal rather than administrative matter.  In October 
2004, the Ministry of Justice sent a draft law to 
Parliament (now under consideration by the lower house) 
that would: 
 
     --Dispense with the requirement that the prosecution 
       demonstrate that the victim of the violation 
       suffered "significant harm", or that the violation 
 
       was committed for the purpose of profit; 
 
     --Introduce a simple monetary-value threshold for 
       criminality using a multiple of the monthly 
       indicator. 
 
(Note: The monthly indicator is not a "wage" as indicated 
by the International Intellectual Property Alliance (IIPA) 
in its Special 301 submission.  It is an amount used by the 
government to calculate, inter alia, fines, fees and 
transfer payments.  The current monthly indicator is 919 
tenge, or (130 tenge/USD) $7.07.  Alternatively, the court 
may garnish the salary or other revenues of a person 
convicted of a minor offense under Article 184 for one to 
five months.  End Note.) 
 
¶6.  If approved, the amendment to Article 184 of the 
Criminal Code will remove a major impediment to the 
prosecution of IPR offenders.  The main factor that will 
affect the force of the new provisions will be the size of 
the threshold.  The Embassy has received conflicting 
information, but the latest figure quoted by the Ministry 
of Justice is one hundred monthly indicators.  The 
amendment would thus mean that a person found in possession 
(for any purpose) of pirated material valued at more than 
roughly $700 would be treated as a criminal.  The amendment 
also increases the possible fines and jail terms. 
 
¶7.  Under the draft amendment, a person convicted for a 
violation involving items valued at more than 100 times the 
monthly index would be subject to fines of 500-700 monthly 
indicators, or five to ten months' salary, or 180-240 
hours' labor, or a jail sentence of up to two years. 
Repeat offenses, offenses involving a conspiracy, 
especially large offenses (i.e. 500 monthly indicators or 
more, the current lower bound of criminality) and offenses 
committed by officials would be punished by two to five 
years' deprivation of liberty.  Additionally, the proposed 
amendments would increase the fines applied under the 
Administrative Code as well.  The Embassy is following 
these developments closely and will report any new 
information septel. 
 
Additional Government Measures 
------------------------------ 
¶8.  In addition to the legislative efforts described above, 
the IPR Committee of the Ministry of Justice has continued 
to raise the profile of intellectual property and IPR 
protection issues.  It continued its public awareness 
campaign, "Intellect," sponsoring seminars, competitions 
and forum discussions in cooperation with international 
organizations that, according to GOK sources, involved more 
than 2000 people.  The IPR Committee also opened four new 
representative offices in the cities of Petropavlovsk, 
Shymkent, Uralsk and Ust-Kamenogorsk.  These offices are 
primarily intended to ease registration of patents.  It 
introduced a new Web site, www.intellkaz.kz, and began 
publishing a magazine.  According to GOK sources, over 300 
advertisements have been placed in the mass media, 
including TV and radio spots.  The IPR Committee has 
actively sought and been receptive to training and 
cooperation from rights holders and organizations such as 
Microsoft and the International Federation of the 
Phonographic Industry (IFPI) to raise the competence of 
enforcement personnel.  The GOK has had MOUs with the 
Business Software Alliance (BSA) and IFPI since October 
¶2003. 
 
¶9.  The Ministry of Justice also took steps to improve 
coordination with other agencies responsible for IPR 
enforcement.  The Ministry entered into MOUs with the 
Financial Police, the Customs Agency (now part of the 
Finance Ministry), the Procurator-General and the Ministry 
of Education and Science.  The Ministry of Justice notes 
that the MOUs not only affect the procedures for conducting 
inspections, but also serve to involve the other agencies 
in all aspects of IPR enforcement, training and awareness. 
 
The Enforcement Picture 
----------------------- 
 
¶10.  In Reftel B, the Embassy reported that the enforcement 
situation in Kazakhstan was inadequate but improving, and 
criticized the sluggish pace of improvement.  In this 
reporting period, the Embassy observed marked improvements 
in the quantity and quality of GOK enforcement efforts. 
Every 2004 metric for copyright enforcement shows dramatic 
improvement: 
 
Inspections: 1,365 in 2004, compared to 1,264 for 2001-2003 
combined; 
 
Seized Materials: 218,110 items seized in 2004, compared to 
165,423 in 2003 - an increase of 31.8%; 
 
(Note: This is a Ministry of Justice figure for all 
agencies for the entire year.  The IIPA report of seizure 
of only 140,000 items was based on a report from the 
Financial Police only.  End Note.) 
 
Fines: 6,659,341 tenge ($51,225) assessed in 2004 compared 
to 1,459,314 tenge ($11,225), a nearly five-fold increase. 
 
¶11.  Enforcement of foreign trademarks also improved 
markedly.  In 2002-2003, GOK authorities carried out only 
seven inspections nationwide for counterfeit products.  In 
2004, 195 inspections were carried out, 34,869 counterfeit 
items were confiscated, 848 people were punished under the 
administrative code, and fines were collected in the amount 
of 580,808 tenge ($4,467.75.)  Executives of trademark- 
holding companies in Kazakhstan such as Coca-Cola and 
Procter & Gamble have commented very favorably on the 
authorities' effectiveness in fighting fakes and describe 
the enforcement climate as greatly improved. The Embassy 
notes that Kazakhstan received no mention in the 
International Anti-Counterfeiting Coalition (IACC) 301 
submission. 
 
¶12.  Kazakhstan also tightened its criminal enforcement in 
this reporting period.  The GOK initiated 35 criminal cases 
under Article 184 of the Criminal Code (criminal 
misappropriation of copyright): 
 
16 investigations are complete; 
 
13 were referred to the courts; 
 
3 cases resulted in the charges being dropped; 
 
8 cases are temporarily suspended; 
 
11 cases are now at trial; 
 
3 people were convicted in 2004. 
 
Additionally, on February 23, 2005, the Financial Police 
announced the beginning of criminal proceedings in Almaty 
in a significant software piracy case.  The alleged 
violator was installing unlicensed Microsoft programs on 
computers he was selling.  The authorities value the 
confiscated materials at $5,380. 
 
¶13.  29 cases were brought under Article 199 of the 
Criminal Code (criminal misappropriation of trademark): 
 
19 investigations are complete; 
 
16 cases were referred to the courts; 
 
3 cases resulted in charges being dropped; 
 
3 cases are temporarily suspended; 
 
7 cases are now at trial; 
 
3 people were convicted in 2004. 
 
¶14.  We believe that this increased enforcement has made a 
difference in the market share of legal products in 
Kazakhstan.  IIPA, in its Special 301 submission, estimates 
that the market share of pirated audio and video cassettes 
and CDs in Kazakhstan is 68%, virtually unchanged from 
¶2003.  However, the largest retailer of licensed audio and 
video products in Kazakhstan estimated to an Embassy 
officer that he believed his market share to be about 50% 
and increasing. 
 
¶15.  Additionally, the Embassy has broad anecdotal evidence 
that it has become much more difficult to find pirated 
audio and video materials in Kazakhstan.  No longer is one 
likely to find pirated materials openly on sale in bazaars 
or stores.  One American reported that in Shymkent pirated 
video materials are now impossible to find.  On this basis, 
the Embassy finds it difficult to credit the IIPA report. 
 
¶16.  Clearly, further improvements are still necessary.  In 
a sense, Kazakhstan had nowhere to go but up, given the sad 
state of enforcement but a few years ago.  Enforcement is 
 
still constrained due to the fairly forgiving provisions of 
the current criminal law and the apparently lax sentencing 
pattern of the court system.  Pirated goods do still 
apparently hold a sizable share of the market. 
 
¶17.  However, the GOK has made marked improvement even 
under the current law and has demonstrated the will to make 
additional changes.  Also, while fines seem low, they 
should be evaluated in the context of the fact that per 
capita income in the richest parts of Kazakhstan is still 
only about $220.  Finally, better than 80% of the pirated 
material on the Kazakhstani market originates in Russia or 
China.  While customs enforcement and procedures could 
surely improve, the problem of pirate market share is not 
going to be fully solved until the situation in those 
countries improves dramatically. 
 
Specific Areas of Interest 
-------------------------- 
 
¶18.  Reftel A cites several specific areas of inquiry in 
the Special 301 process; comments on each are provided 
below. 
 
Optical Media Piracy 
-------------------- 
 
¶19.  There is only one large compact disc production plant 
in Kazakhstan.  Its capacity is estimated at 8 million 
compact discs of various types per year.  The plant has 
been assigned a SID code by IFPI and, as IIPA notes, 
provides exemplars of its product for use as forensic 
evidence.  As stated above, the vast majority of pirated 
optical media available in Kazakhstan originated in China 
and Russia.  IFPI's 2004 Commercial Piracy Report does not 
mention Kazakhstan. 
 
Government Procurement of Software 
---------------------------------- 
 
¶20.  According to local representatives of Microsoft, the 
Procurator-General has directed all GOK agencies in 2004 to 
ensure that all future purchases of software are from 
legitimate sources only.  Although Microsoft has not seen 
the letter, and a decree analogous to a U.S. Executive 
Order has not been issued, the company expressed general 
satisfaction with the GOK's efforts to legalize all 
procurement.  Additionally, Microsoft reported significant 
efforts on the part of state enterprises to legalize their 
procurement as well.  Microsoft cited KazakhTelecom and 
KazTemirZholy (state rail company) as being particularly 
proactive in this respect.  As the GOK looks forward to 
creating "electronic government" initiatives (and needs 
software company support to realize them), it appears even 
less likely that this will be a problem in the future. 
 
TRIPS Compliance 
---------------- 
 
¶21.  Kazakhstan corrected its primary TRIPS-related 
deficiency, protection of pre-existing works, in 2004 (see 
paragraph 2, above.)  The outstanding issues related to 
TRIPS compliance in Kazakhstan that are known to the 
Embassy are related to civil ex parte search procedures and 
the extension of ex officio authority to customs and law 
enforcement bodies to initiate IPR cases.  As noted in 
paragraphs 3 and 4, above, the GOK maintains that its 
present law is fully TRIPS-compliant, with apparently 
missing authorities expressed elsewhere. 
 
International Agreements and National Law 
----------------------------------------- 
 
¶22.  For reference, Kazakhstan is a party to the following 
international agreements: 
 
--1994 Treaty on Trademark Laws; 
--1968 Locarno Agreement on Establishment of International 
Classification of Industrial Models; 
--1971 Strasbourg Agreement on International Patent 
Classification; 
--1957 Nice Agreement on International Classification of 
Goods and Services for Trademark Registration; 
--1977 Budapest Agreement on International Recognition of 
Microorganisms Deposits for the Purpose of Patent 
Procedures; 
--1999 Agreement on Measures to Prevent and Suppression of 
the Use of False Trademarks and Geographic Names; 
--1998 Agreement on Cooperation on Suppression of Offenses 
 
in the Field of Intellectual Property, and 
--1999 Agreement on Mutual Protection of Inter-State 
Secrets in the Area of Legal Protection of Inventions. 
 
SIPDIS 
 
Kazakhstan ratified the WIPO Treaties on Copyrights and 
Performances and Phonograms in 2004. 
 
¶23.  For reference the following basic IPR laws were 
adopted in Kazakhstan from 1996-2001: 
 
--The Law on Copyright and Adjacent Rights (1996) (Note: 
This law protects software programs as literary works and 
databases as compilations.  End Note.); 
--The Patent Law (1999); 
--The Law on Trademarks, Service Marks and Names of Places 
of Product Origin (1999); 
--The Law on Protection of Selective Achievements (1999), 
and 
--The Law on Legal Protection of the Topology of Integrated 
Circuits (2001). 
 
Comment and Recommendation 
-------------------------- 
 
¶24.  In 2004, we had little difficulty recommending that 
Kazakhstan remain in Watch List status.  The quantity of 
seized material and number of enforcement actions had 
actually fallen in 2003 relative to 2002.  The GOK had 
still not yet ratified basic international agreements and 
was delinquent in a significant bilateral obligation 
(protection of pre-existing works.) 
 
¶25.  This reporting period has seen remarkable progress in 
all areas, particularly enforcement, driven by the pressure 
of the Special 301 Watch List and the GOK's own desire not 
to fall behind Russia in the WTO accession process.  While 
the situation is not yet perfect, we believe that 
Kazakhstan has turned a corner on IPR, especially with 
regard to enforcement.  It is difficult to see what further 
improvements retention on the Watch List will engender; in 
fact it could have the opposite effect if Kazakhstan 
perceives that its efforts have gone unrecognized. 
Kazakhstani officials argue that the country has come a 
long way, particularly in comparison to Azerbaijan, Georgia 
and Estonia - all of which have higher piracy rates than 
Kazakhstan and none of which were recommended for the Watch 
List by IIPA.  Based on the improvements noted in 2004, the 
upcoming improvement to the Criminal Code and the 
diminishing benefits of continuation, we recommend removing 
Kazakhstan from the Watch List.  We would not object to 
conditioning removal on passage of strict Criminal Code 
amendments. 
 
¶26. Broader U.S. interests will also be served by removing 
Kazakhstan from the Watch List.  We note that once the 
Criminal Code amendments discussed in paragraphs 5-7 above 
are adopted, the main legal issues that will remain are 
those of ex parte searches and ex officio authorities, both 
of which can be addressed as TRIPS questions in the 
framework of already active negotiations.  The Embassy 
believes that WTO accession itself will be a sufficient 
lever to bring about needed changes in these areas. 
However, it should also be noted that while the GOK is sure 
of its political decision to pursue WTO accession, it still 
needs to attract key political and business constituencies 
to a consensus that accession is in fact a good idea. 
 
¶27.  Success on Special 301 will provide a needed boost to 
those in the GOK who are promoting WTO-compliant reforms. 
We also believe that removing Kazakhstan from the Watch 
List will send an important message to other countries, 
particularly Russia and Ukraine, about the objectivity and 
fairness of the Special 301 process and of U.S. positions 
regarding IPR generally. 
 
Ordway 
 
 
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