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PP RUEHFL RUEHNP
DE RUEHRO #0548/01 0531428
ZNR UUUUU ZZH
P 221428Z FEB 06
FM AMEMBASSY ROME
TO RUEHC/SECSTATE WASHDC PRIORITY 3776
INFO RUCPDOC/USDOC WASHDC
RUCNMEU/EU INTEREST COLLECTIVE
RUEHMIL/AMCONSUL MILAN 6577
RUEHNP/AMCONSUL NAPLES 1129
RUEHFL/AMCONSUL FLORENCE 1071

UNCLAS SECTION 01 OF 05 ROME 000548 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EB/IPE CLACROSSE 
DEPT PLS PASS TO USTR JCHOE-GROVES 
DOC JBOGER 
DOC PLS PASS TO USPTO JURBAN AND LOC STEPP 
 
E.O. 12356: N/A 
TAGS: ETRD EINV KIPR IT
SUBJECT: YEAR 2006 SPECIAL 301, MISSION ITALY INPUT 
 
Refs: A) STATE 14937 
 
B) 05 ROME 2776 
C) 05 ROME 1900 
D) ROME 328 
E) 05 ROME 3881 
F) 05 ROME 1534 
G) 05 ROME 1569 
H) 05 ROME 4046 
 
Summary and Comment 
------------------- 
 
¶1. Mission Italy recommends that Italy remain on the 
301 Watch List for 2006.  Although Italy deserves 
credit for reductions in piracy rates and improved 
police action in 2005, industry losses, particularly 
for software, are still unacceptably high.  While some 
cities, such as Florence, have made significant 
progress in controlling illegal vendors of pirated and 
counterfeit products, many local officials are doing 
little to stop this brash street trade.  Parliament 
last year enacted a new euro 10,000 ($12,000) fine for 
the purchase of fake goods, but the fine is not often 
levied.  A recent poll shows that twenty percent of 
consumers here admit to purchasing fakes.  Though 
Mission outreach to Italian judges is paying 
dividends, Italy's court system continues to treat IPR 
crimes with leniency.  That said, Italy is on course 
to come off the 301 list eventually.  We hope that 
this year's 301 report will acknowledge improvements 
here, but still pull no punches in describing Italy's 
failure to maintain developed-world standards of IPR 
protection.  End summary and comment. 
 
Introduction 
------------ 
 
¶2. This message includes an overview of the IPR 
situation in Italy in 2005.  Answers to additional 
questions raised in ref A, including training, begin 
in paragraph 19. Embassy acknowledges with thanks the 
contributions of Congens Florence, Milan, and Naples. 
 
Italy Has Improved, But Should Stay on Watch List. 
--------------------------------------------- ----- 
 
¶3. Piracy rates, as reported by member associations of 
the International Intellectual Property Alliance 
(IIPA), fell for most copyright sectors in 2005: music 
piracy rates fell from 23 percent in 2004 to 20 
percent in 2005; business software, from 50 to 48 
percent; entertainment software, from 34 to 30 
percent; and books, from 23 to 20 percent.  The film 
industry was the only sector to report an increase in 
piracy rates in 2005, from 15 percent to 22 percent, 
though this reflects a new statistical methodology to 
measure Internet piracy more accurately.  We believe, 
in general, the extent and scope of Internet piracy in 
Italy is little understood, either by industry 
associations or GOI authorities. 
 
Piracy Still Too High, Especially for Software. 
--------------------------------------------- -- 
 
¶4. Despite improvements in 2005, Italy is still far 
behind other advanced, G-7 economies, particularly in 
the rate of software piracy.  Business software piracy 
will continue to be a challenge here as Italy's 
economy is dominated by small and medium enterprises, 
which can more easily copy software without detection. 
With Italian SMEs struggling to stay afloat in a 
stagnant economy, the temptation to save money by 
illegally copying software will remain strong. 
 
Financial Police Improve Enforcement... 
--------------------------------------- 
 
¶5. The Guardia di Finanza (the "GdF," the Finance 
Ministry's national police force with jurisdiction 
over financial crime) continues to improve its 
enforcement efforts.  According to GdF statistics, 
Italian financial police pursued roughly the same 
number of IPR cases in 2005 as they did in 2004, but 
with an increase in arrests, from 267 in 2004 to 323 
 
ROME 00000548  002 OF 005 
 
 
in 2005.  Seizures of CDs, DVDs, and audio tapes by 
the GdF increased from 2.9 to 3.4 million pieces, 
while software confiscations increased from 38 
thousand pieces in 2004 to 1.2 million pieces in 2005. 
(Note: All these 2005 GdF statistics cover only 
January-November, so final results for all of 2005 
should be higher.  End note.)  We believe the GdF 
leadership is committed to reducing IPR crime, and we 
have observed the GdF growing ever more sensitive to 
the growing links between IPR piracy/counterfeiting 
and organized crime. GdF leaders have told us they are 
concentrating resources on stopping fakes at points of 
entry, rather than combating street-level trade, where 
local authorities have primary responsibility. 
 
...But Commitment Uneven Among Local Officials. 
--------------------------------------------- -- 
 
¶6. The GdF's ability to turn the tide is limited, 
however, so long as IPR remains a low priority among 
some city leaders.  A high-level GdF commander 
recently complained to Congen Naples that IPR seizures 
in the Campania region (the base of the Camorra crime 
family where most counterfeit goods and illegal 
optical media are produced and imported) represents a 
"drop in the ocean" and that Naples city police, who 
should be on the front lines, play only a marginal 
role.  We believe Naples authorities are concerned 
that major crackdowns will lead to a public backlash, 
since large groups in the city, where unemployment is 
over twenty percent, depend on counterfeiting and 
piracy for their livelihoods.  Another GdF regional 
commander told Congen Florence that many local 
officials in north-central Italy are not doing enough 
to change public attitudes and that some, while 
recognizing the damage caused by IPR crime, see the 
war as unwinnable. 
 
The "China Threat" Sparks More Action on Trademarks. 
--------------------------------------------- ------- 
 
¶7. Much of the increase in GOI enforcement actions in 
2005 focused on trademarks and was a direct reaction 
to the growing threat posed by Chinese counterfeiting 
(ref B).  Italian authorities are increasingly 
conducting raids in Chinese immigrant communities.  In 
February 2006, GdF officers seized four million 
counterfeit items (toys, electrical appliances, and 
cosmetics) worth $12 million in a warehouse in Prato 
(a suburb of Florence) owned by a Chinese businessman. 
In December 2005 in Milan, the GdF seized 25 million 
counterfeit items and filed charges against 35 Chinese 
immigrants. In southern Italy, Calabria and Campania 
Customs Director Roberta De Robertis announced that 
twenty million counterfeit toys, textiles, watches, 
and leather apparel arriving from China were seized in 
¶2005. 
 
GOI Creates New IPR Czar. 
------------------------- 
 
¶8. In 2005, the GOI created a new position of "High 
Commissioner for the Fight Against Counterfeiting" 
within the industry ministry (ref C).  Roberto Cota, 
whom the GOI appointed to this post in October, has 
stated in the press that his priority will be 
trademark enforcement, namely protecting the "Made in 
Italy" label from foreign imitators.  (Comment:  While 
the creation of this post is a positive step and a 
sign of improving GOI commitment to IPR, we worry that 
this office may not have a sufficient budget or staff 
to have much impact.  Previous GOI attempts to 
coordinate IPR enforcement better have met with mixed 
reviews. End comment.) 
 
Street Vending Undiminished, Despite New Fine. 
--------------------------------------------- - 
 
¶9. In May 2005, as part of the same legislative 
package that created the IPR High Commissioner, the 
Italian parliament enacted a euro 10,000 fine 
($12,000) for the purchase of counterfeit items.  Just 
after passage of the new law, police issued fines 
(which they generally reduce by two-thirds to euro 
 
ROME 00000548  003 OF 005 
 
 
3,333) to a handful of tourists in Milan, Florence, 
and Rome.  However, the measure is now largely 
ignored.  One Rome street vendor of pirated music and 
film scoffed at the fine, and told Econoff that it had 
not made a dent in his business. 
 
¶10. Indeed, over the past year, Econoff has observed 
no perceptible change in the near-ubiquitous street 
vending in Rome.  Pirated music, film, and software, 
in addition to counterfeit designer merchandise, are 
still sold openly on Italian streets (almost always by 
illegal immigrants).  A stubborn idea persists among 
many city-level officials that the trade in fake goods 
provides a livelihood to immigrants who would 
otherwise engage in more serious criminal activity. 
Congen Milan has observed street vendors shift away 
from optical media in favor of fake luxury goods, 
though contacts there believe this is due to the 
increasing popularity of Internet downloading. 
Similarly, Congen Naples sources report a decrease in 
optical disk vending in Palermo, also likely because 
of the growing popularity of Internet piracy. 
 
¶11. Florence is the only major Italian city to make 
sustained headway against street vending thanks to a 
decision among local law enforcement officials to 
prioritize IPR crime.   Both Florence and Milan 
conducted successful Christmas-time crackdowns on 
street vendors, although these actions targeted 
trademark goods rather than optical disks. 
 
Twenty Percent of Italians Admit Buying Fakes. 
--------------------------------------------- - 
 
¶12. Italian consumers remain very blase in their 
attitudes toward IPR theft.  An opinion poll released 
in November 2005, cosponsored by the GdF, revealed 
that twenty percent of Italian consumers admit to 
purchasing pirated/counterfeit items either often or 
sometimes.  The majority of these transactions, 60 
percent according to the poll, takes place at illegal 
street stalls.  While the Prime Minister's office 
launched a national anti-piracy advertising campaign 
in 2005, such messages are overwhelmed by the much 
stronger message sent by the armies of street vendors 
the average Italian sees day-after-day. 
 
Italy Is TRIPS Compliant On Paper... 
------------------------------------ 
 
¶13. While the continuing failure of Italian courts to 
adequately punish IPR crime (discussed below), coupled 
with costly and slow civil process, raises concerns 
about Italy's TRIPS compliance in practice, Italy's 
IPR legal regime is compliant with the TRIPS 
agreement. 
 
...Though 2005 Legal Reforms Raises IPR Concerns. 
--------------------------------------------- ---- 
 
¶14. In November 2005, Italy's Parliament passed a 
judicial reform law (the "ex-Cirielli" bill) to speed 
the notoriously slow pace of criminal trials by 
restricting the statute of limitations for most crimes 
(refs D,E).  Industry groups believe the reform will 
exacerbate the existing problem of IPR defendants 
stalling criminal trials until the statue of 
limitation runs out and the case is dismissed.  The 
GOI, however, strongly denies "ex-Cirielli" will 
negatively impact IPR prosecutions and claims that, by 
increasing penalties for repeat offenders, the reform 
actually creates a greater deterrent against career 
IPR thieves.  It will be several years before the true 
effect of "ex-Cirielli" is fully understood. 
 
Internet Piracy Law Weakened. 
----------------------------- 
 
¶15. A second major legal change in 2005 was 
Parliament's revision of the "Urbani Law," Italy's 
Internet piracy statute enacted in 2004 (ref F).  The 
original law outlined potential prison sentences for 
Internet piracy regardless of whether uploading was 
done for monetary gain.  Under pressure from internet 
 
ROME 00000548  004 OF 005 
 
 
service providers, however, Paliament revised the 
Urbani Law to apply prison sentences only to 
commercial, for-profit on-line piracy.  Sharing 
copyrighted works for free technically remains a 
criminal offense, but it no longer carries the threat 
of jail time and those caught can avoid a conviction 
by paying a fine. 
 
Attempts to Streamline Civil Cases 
---------------------------------- 
 
¶16. Also in 2005, the GOI implemented new procedures 
designed to speed civil IPR cases.  The new measures 
permit lawyers to conduct more preliminary case work 
in civil trials previously performed by (over-worked) 
judges.  Even with this change, Italy desperately 
needs to streamline the civil court system more as 
rights holders find private lawsuits against 
infringers too costly and slow to be of much use. 
 
The Judge: Often a Pirate's Best Friend 
--------------------------------------- 
 
¶17. While industry associations and GOI officials 
credit Mission Italy's outreach efforts (particularly 
our annual IPR retreats for Italian judges, ref G) 
with improving awareness of IPR crime among the 
judiciary, as a whole Italian judges continue to treat 
IPR crime with frustrating leniency.  According to 
IIPA statistics, the number of defendants who received 
jail time (rather than a suspended sentence) decreased 
slightly from 48 in 2004 to 44 in 2005.  Two recent 
cases illustrate the difficulties we continue to face: 
 
--In August 2005, a judge in Bolzano ruled that the 
sale of a counterfeit good does not constitute fraud 
because the low price makes it obvious to the consumer 
that the item is not real.  Italian judges continue to 
occasionally raise this argument when acquitting 
counterfeiters, even though the argument negates the 
right of companies to control the use of their 
trademarks.  The GOI has strongly denounced such 
decisions. 
 
--A Rome judge in February 2005 declared a defendant 
not guilty of selling 125 pirated audio cassettes 
because, as an illegal immigrant with no way of 
working in the regular economy, the man had no other 
means with which to support himself.  "Economic 
necessity" is another concept Italian judges still 
cite. 
 
¶18. Although the judiciary continues to be the major 
obstacle to better enforcement, there is a significant 
and growing number of judges who "get it" on IPR, and 
who are educating their peers about the heavy 
involvement of organized crime.   Furthermore, much of 
the problem with IPR enforcement here is closely tied 
to larger deficiencies in Italy's slow and over- 
burdened criminal justice system. 
 
--------------------------------------- 
Additional Responses to Ref A Questions 
--------------------------------------- 
 
Optical Media Controls 
---------------------- 
 
¶19. The GOI's royalty collection agency, SIAE, 
encourages optical disk producers to use source 
identification codes, but this suggestion is not 
mandated by law.  The music industry has lobbied (so 
far unsuccessfully) for inserting greater controls on 
optical media production equipment and inputs into 
Italy's Copyright Law. 
 
Use and Procurement of Government Software 
------------------------------------------ 
 
¶20. The GOI does not have formal regulations or codes- 
of-conduct, only guidelines, covering software 
procurement by government agencies.  National 
government offices have, by and large, legalized their 
software, though the use of unlicensed software 
 
ROME 00000548  005 OF 005 
 
 
remains a problem in some regional or local-level 
governments. 
 
Geographic Indicators, Folklore, Genetic Resources 
--------------------------------------------- ----- 
 
¶21. Embassy is aware of no new legislation covering 
geographic indicators, folklore expression, or genetic 
resources. 
 
Pharmaceuticals 
--------------- 
 
¶22.  Mission notes the concerns expressed by PhRMA 
with the GOI's use of spending ceilings to control 
drug prices.  We will continue to urge the GOI to 
adopt more transparent, fair and equitable 
regulations, but we do not agree with PhRMA's 
suggestion that the USG place Italy on the Priority 
Watch List.  Pharmaceutical patents are, overall, 
better protected in Italy than copyrights or 
trademarks.  Italy's distribution system is well 
controlled, and we have not heard of cases of 
counterfeit pharmaceuticals in 2005.  Nor have we 
heard complaints about inadequate protection of test 
data. 
 
WIPO Treaties 
------------- 
 
¶23. Italy has signed, but not yet ratified, both the 
WIPO Copyright Treaty and the Performances and 
Phonograms Treaty.  Embassy will continue to push for 
ratification, though given the April general elections 
and subsequent formation of a new government, we do 
not expect action in 2006. 
 
Training 
-------- 
 
¶24. Italian law enforcement agencies are enthusiastic 
participants in USG-sponsored training programs, but a 
worsening budget situation limited their participation 
in Washington-based programs in 2005.  Italy was 
unable to send a participant to USPTO's recent IPR 
Enforcement Academy due to funding shortfalls, though 
the Italian Patent office did send an official to the 
USPTO's Visiting Scholars program. 
 
¶25. We see a special need for more training of Italian 
customs officials and the GdF on border/port 
interdiction and intelligence sharing.  Similarly, the 
Italian Postal Police (who have jurisdiction over on- 
line crimes) would benefit from technical training 
programs and best-practices exchanges on Internet 
piracy.  Given ongoing budget problems, such programs 
would need to take place in Italy to ensure adequate 
GOI participation. 
 
¶26. Mission Italy will sponsor several training 
initiatives in 2006.  The Embassy and Congen Florence 
hosted a conference in October 2005 for GOI officials 
on IPR public education techniques (ref H).  The DOJ 
and USPTO participated in the Florence session, and we 
hope to host a follow-up meeting in 2006 or 2007. 
Embassy Rome's DHS/ICE attache will conduct an IPR 
training seminar for GdF officials in May 2006.  The 
Embassy will host its fourth annual IPR retreat for 
Italian judges May 22-24 in Montecatini, Italy. 
ConGen Milan nominates officials from GDF or Postal 
Police every year for IPR-related State Department 
International Visitor Programs. 
 
Spogli