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UNCLAS SECTION 01 OF 04 BELGRADE 000275 
 
SIPDIS 
 
DEPT FOR EB/IPE-CLACROSSE 
DEPT PLS PASS TO USTR JCHOE-GROVES, DOC-JBOGER, 
USDOC PLS PASS TO SSAVICH AND USPTO-JURBAN AND LOC-STEPP 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON PREL SR MW KIPR
SUBJECT: 2006 SPECIAL 301 REVIEW: SERBIA AND MONTENEGRO 
 
REF: A) STATE 14937        B) BELGRADE 8 
     C) 05 BELGRADE 741    D) 05 BELGRADE 643 
E) 05 BELGRADE 403 
 
SUMMARY 
------- 
¶1. (SBU) While generally agreeing with the description of IPR 
problems contained in the IIPA Special 301 submission, we do 
not recommend that Serbia and Montenegro be placed on the 
Watch List.  The IPR environment in Serbia and Montenegro 
(SAM), although not yet satisfactory, is certainly moving in 
the right direction.  As noted in Reftel B, significant 
progress was made on the IPR Action Plan agreed upon by the 
State Union and republic-level governments in April 2005.  We 
continue to see encouraging actions on the part of both 
republics, as well as indications that further progress is 
within reach.  Recent meetings with officials in both 
republics indicate that there is a readiness to discuss 
another action plan to finish the legislative framework, 
bolster enforcement efforts and cooperate with the private 
sector in an anti-piracy campaign.  Placing Serbia and 
Montenegro on the Watch List after all of the progress made 
on the IPR Action Plan (Reftel B) would risk undercutting the 
political will for more progress.  The Ambassador will be 
holding senior-level consultations with government leaders in 
coming days to test for receptiveness for real progress on 
IPR issues.  END SUMMARY. 
 
¶2. (SBU) The IPR environment in Serbia and Montenegro (SAM) 
is not yet where it needs to be to protect U.S. interests. 
We generally agree with the description of IPR problems 
contained in the International Intellectual Property Alliance 
(IIPA) submission for the 2006 Special 301 review, although 
some issues may be somewhat overstated. 
 
¶3. (SBU) However, the momentum is in the right direction.  We 
see encouraging will and actions on the part of several 
ministers and agencies responsible for different aspects of 
IPR protection toward making necessary improvements.  These 
ministers have a fairly good track record of delivering on 
commitments.  Reftel B is a thorough assessment of the SAM's 
progress on last year's action plan and illustrates that both 
the State Union and republic-level governments have shown 
commitment to strengthening the IPR environment.  By our 
assessment, of the eight target areas identified in the 
action plan, we have seen substantial progress in five areas. 
 
ITEMS REMAINING ON LAST YEAR'S ACTION PLAN 
------------------------------------------ 
¶4. (U) Concerning the creation of an effective mechanism for 
cross-checking applications to drug agencies for approval of 
generic drugs with pharmaceutical patents already registered 
(typically, by the research-oriented companies), no action 
was taken by the State Union.  However, this issue was raised 
in recent EU Stabilization and Association Agreement (SAA) 
talks with SAM, and it was determined that this was not 
feasible due to the complexity of the patents.  The EU does 
not have such a cross-checking mechanism, and the U.S. Food 
and Drug Administration (FDA) cross-checks for trademarks but 
not patents. 
 
¶5. (SBU) The draft Law on Special Rights for the Efficient 
Protection of Intellectual Property was not enacted in Serbia 
in 2005.  However, it has been adopted by the government and 
will be on the Parliament's agenda when it reconvenes in 
March or April.  This will be an important enforcement tool, 
since it will make legal entities (companies) culpable for 
IPR violations and provides for fines up to CSD 3 million 
(approximately USD 41,000).  Minister of International 
Economic Relations Milan Parivodic told econoffs on February 
13 that he would offer his assistance in making sure the law 
was placed in a fast-track procedure on Parliament's agenda. 
 
¶6. (U) Optical disc laws for Serbia and for Montenegro were 
drafted but not passed in 2005.  In Montenegro, the draft Law 
on Optical Disks was delivered by the Ministry for Foreign 
Economic Relations to the Ministry of Culture in late 2005. 
The bill is expected to be adopted by the Government soon, 
possibly by the end of February and no later than the end of 
March 2006, and subsequently enacted by Parliament.  The law 
will regulate the production of optical disks, require the 
registration of the business activity of reproducing optical 
disks for commercial purposes, and provide for surveillance 
of optical disk imports and exports as well as imports and 
exports of polycarbonates and production equipment for the 
production of optical disks. 
 
¶7. (SBU) In Serbia, Minister Parivodic agreed on February 17 
for his Ministry to be responsible for government adoption 
and passage of the Law on Optical Disks.  Special 301 
considerations and WTO accession talks have prompted the 
Ministry of International Economic Relations to be actively 
engaged in strengthening the IPR environment in Serbia. 
 
¶8. (U) Amendments to the Montenegrin Penal Code were provided 
by the Ministry for Foreign Economic Relations to the 
Ministry of Justice in late 2005.  The amendments provide for 
ex officio prosecution of IPR infringements, specify all acts 
that constitute an IPR-related related offence, and increase 
the penalties for conviction of IPR infringements.  The bill 
is expected to be adopted by the Government by the end of 
March 2006, and subsequently enacted by Parliament. 
 
IMMEDIATE RESULTS IN MONTENEGRO WITH NEW ENFORCEMENT LAW 
--------------------------------------------- -------------- 
¶9. (U) On January 1, 2006, the Government of Montenegro (GoM) 
began active enforcement of its law regulating protection of 
intellectual property rights, starting with a public notice 
that such actions would commence.  In the first month, 
inspectors surveyed 82 retail and wholesale locations. Forty 
closed, apparently to avoid inspection.  In other cases, 
merchants who had previously carried pirated goods had 
disposed of such stock prior to inspection.  In 29 locations, 
inspectors reported trade in goods with no origin 
("pirated"), and consequently seized over 6,700 DVD, CDs, 
tapes, and records.  Inspectors have requested prosecution of 
13 cases and assessed mandatory fines in seven other cases. 
 
¶10. (SBU) A local legitimate film distributor in Belgrade 
told econoff on Feb 10 that Montenegro's enforcement efforts 
are showing immediate dividends.  Between November 1 and 
December 15, 2005, Millennium Film and Video sold 148 DVDs 
(approx. EUR 2,092) to two clubs in Podgorica.  Sales 
increased five times between December 16 and February 10, 
2006, to 749 DVDs (approx. EUR 10,506) to nine clubs in 
Podgorica.  He attributes this success to the effective 
enforcement and PR activities of the Montenegrin government. 
 
¶11. (U) On February 1, 2006, Montenegrin Prime Minister Milo 
Djukanovic together with Bill Gates signed a three-year 
contract, providing software licenses to Montenegrin 
educational and scientific institutions.  In September 2005, 
the GoM and Microsoft concluded a USD 2.36 million contract, 
creating a strategic partnership between the GoM and 
Microsoft for legalization of all the Microsoft software 
being used by state institutions.  By mid-March, Microsoft 
and local governments in Montenegro will have completed the 
licensing of software used by the municipalities. 
 
¶12. (U) In January 2006, Microsoft's local business partner 
introduced a public campaign of flyers and billboards, "Stop 
Piracy," advising that licensing current software is "as easy 
as 1, 2, 3: Count PCs, Order License, Done." 
 
¶13. (U) In addition to the steps under the agreed Action 
Plan, Montenegro's first society of composers and artists was 
registered on January 9, 2006.  Registration will allow for 
the collection and distribution of royalties for use of 
protected works. 
 
¶14. (U) Compared to Montenegro's status a year ago (Reftel 
E), it has made significant although not complete progress 
towards our agreed goals in protecting intellectual property. 
Government action has proceeded at an acceptable pace.  Final 
passage of the Law on Optical Discs and amendments to the 
Penal Code by Parliament may be delayed, as political 
attention is consumed by the central question of possible 
independence of Montenegro from Serbia, which will likely be 
decided by referendum in the second quarter of 2006. 
 
ENFORCEMENT IMPROVED BUT PR WAS LACKING 
--------------------------------------- 
¶15. (U) As mentioned in the IIPA submission, enforcement 
improved in Serbia in 2005.  Through numerous discussions 
with the Business Software Alliance, they expressed 
satisfaction with police efforts to raid facilities and 
arrest street vendors.  The number of guilty verdicts 
rendered, though small, was a significant improvement from 
¶2004. 
 
¶16. (U) However, subsequent press releases, touting the 
success of these enforcement activities, were not 
forthcoming.  The private sector was frustrated with the 
unwillingness of ministries to permit the use of the results 
in an effective anti-piracy campaign. 
 
¶17. (U) The Embassy participates in the AmCham IPR Working 
Group that consists of representatives from the various 
stakeholder industries.  One of the main recommendations of 
the group is for the government to appoint an agency and 
spokesperson to cooperate with the private sector in its 
anti-piracy campaign.  Such a partnership between the 
government of Serbia and the private sector would deliver a 
clear message to the public that piracy will not be tolerated 
in Serbia. 
 
ADDITIONAL IPR AREAS OF IMPROVEMENT NOT IN IIPA REPORT 
--------------------------------------------- ----- 
¶19. (U) Discussions with representatives from the 
pharmaceutical industry indicate that there have been 
improvements in the area of data exclusivity.  On November 1, 
2005, a new Regulation on the Licensing of Medicinal Products 
went into force which provides for the protection of clinical 
data in the licensing application process.  Therefore, 
generic companies cannot use clinical data from research- 
oriented pharmaceutical companies for up to six years for 
original products and up to 10 years for high tech products. 
This regulation was welcomed by the industry, and we were 
told that a generic license application was already denied 
due to usage of protected clinical data. 
 
¶20. (SBU) As a part of the WTO accession talks, Serbia has 
agreed to begin drafting a law for the protection of 
undisclosed trade secrets.  According to Article 39 of TRIPS, 
members must ensure effective protection against unfair 
competition by establishing a regime which protects 
undisclosed trade secrets from unfair commercial use. 
 
TRAINING 
-------- 
 
¶21. (U) Serbia could benefit from further training in the 
inspectorates (market and tourist) under the auspices of the 
Ministry of Trade. A precondition for this training would the 
passage of the Enforcement Law, which will provide powers for 
them.  Both the Serbian Customs Administration and the 
Montenegrin Customs Administration with its line inspectors 
could benefit from additional training in how to detect and 
intercept export and especially import of counterfeit goods. 
 
EXPECTED NEXT STEPS 
------------------- 
¶22. (U) Based on input from the AmCham IPR working group, we 
have drafted a proposed action plan for 2006.  We see five 
key action items that would further improve IPR protection 
and address U.S. industry concerns: 
 
- Ensure "fast-track" approval of new IPR Enforcement Law in 
Serbia that will provide powers for market inspection, tax 
inspectors and police to act whenever pirated or counterfeit 
goods are found and make companies liable for criminal 
penalties. 
 
- Tax inspectors and police should have powers to act ex 
officio in search for non-licensed software and other IPR 
infringements during their regular controls, whether through 
effective enforcement of the current Law on Tax 
Administration or through an amendment to the IPR Enforcement 
Law. 
 
- In both Serbia and Montenegro prepare, approve and fast- 
track in the parliamentary procedure the Law on Optical 
Discs, in order to regulate commercial production and 
duplication of optical discs, which is the medium commonly 
used to infringe IPR. 
 
- Appoint a government agency and spokesperson with the task 
of cooperating with the private sector to effectively promote 
the enforcement activities of the government by releasing 
statistics of raids conducted, optical discs seized, etc. 
 
- Passage of the amendments to the Penal Code in Montenegro 
that will provide full criminal protection of IPRs. 
 
¶23. (SBU) Some government officials have been receptive to 
these action items in recent meetings, and we will urge the 
GOS and GOM to move forward.  Our approach is to secure an 
agreed, time-bound, action plan for addressing these issues 
as a work program for 2006.  The Ambassador will be 
conducting meetings with senior officials in Belgrade in the 
coming days to test their receptiveness to implementing these 
measures.  We will continue to provide targeted assistance to 
help the governments fulfill this action plan and to build 
institutional capacity to combat and prosecute piracy. 
 
Recommendation 
-------------- 
¶24. (SBU) The Special 301 process is a useful tool to advance 
our interests with respect to IPR protection.  The IPR 
environment in SAM is not currently satisfactory, but it is 
steadily improving.  The key question here is whether putting 
SAM on the Watch List would prompt stronger government action 
and bring us closer to our goals.  However, the history of 
our bilateral relations since the Milosevic period suggests 
that putting SAM on the Watch List will be viewed as a 
"sanction," no matter how we characterize it.  Such a step 
would also come during a time of political uncertainty 
regarding the Montenegrin referendum for independence as well 
as negotiations on the final status of Kosovo (and, possibly, 
suspension of assistance for lack of ICTY cooperation). 
 
¶25. (SBU) Both the State Union and republic-level governments 
of Serbia and Montenegro took seriously our warning in 2005 
that it risked placement on the Special 301 Watch List, and 
the result has been effective actions to remedy shortfalls in 
IPR protection.  However, we fear that placing SaM on the 
watch list now, when the two governments are focused on 
staying off the list to provide a contrast to other 
neighboring countries, like Bulgaria and Croatia, would 
backfire.  We are hoping for further progress on the basis of 
our recent proposal a new action plan.  To avoid any slowing 
of the momentum that has been generated, we recommend against 
placing the Serbia and Montenegro on the Watch List. 
 
MOORE