VZCZCXRO2949
RR RUEHAST
DE RUEHTA #0454/01 0520941
ZNR UUUUU ZZH
R 210941Z FEB 07
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC 8507
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHAST/USOFFICE ALMATY

UNCLAS SECTION 01 OF 03 ASTANA 000454 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN (O'MARA) AND EB/TPP/IBE (JBOGER) 
STATE PASS USTR FOR JCHOE-GROVES 
COMMERCE FOR ITA/MAC/OIPR (CPETERS) 
 
E.O. 12958: N/A 
TAGS: EFIN ECON ETRD KZ
 
SUBJECT: KAZAKHSTAN: SPECIAL 301 
 
REF: A. 06 ASTANA 009, B. STATE 7944 
 
¶1. (SBU) Summary: In 2006, Kazakhstan made further progress in its 
efforts to protect Intellectual Property Rights (IPR).  Legislation 
passed in November 2005, combined with stepped-up enforcement 
efforts, further tipped the economic scales against piracy. 
President Nazarbayev underscored the importance of IPR protection in 
his annual address to the nation, providing critical high-level 
impetus to IPR enforcement efforts.  In other positive developments, 
the civil courts emerged as an effective force in protecting IPR 
rights, and the IPR Commission has clearly embraced the need to 
grant ex officio status to customs officials.  Enforcement efforts 
have succeeded in eliminating storefront distributors of pirated 
materials; ironically, however, this success has spawned 
Kazakhstan's "next generation" enforcement concern: the 
proliferation of sidewalk vendors of pirated materials.  While 
Kazakhstan retains certain broad, institutional deficiencies in the 
IPR domain - including a puzzling lack of jail sentences to date for 
convicted IPR criminals -- the Government of Kazakhstan (GOK) has 
demonstrated its resolve to confront piracy, and has generated 
significant momentum in implementing reform.  For that reason, post 
recommends keeping Kazakhstan off the Special 301 Watchlist.  End 
summary. 
 
2006 - ENFORCEMENT GAINS MOMENTUM 
--------------------------------- 
 
¶2. (U) The past year served as a testing ground for the November 
2005 amendments (Ref A) that markedly toughened the penalties for 
IPR infringement and closed significant loopholes.  Several key 
indicators point toward the efficacy of this legislation in further 
improving the situation on the ground. 
 
¶3. (SBU) First, official statistics demonstrate an increasingly 
robust enforcement effort on the part of the authorities.  According 
to government data, in 2006: 
 
-- 2101 administrative inspections were conducted (compared to 1765 
in 2005 and 1697 in 2004); 
 
-- 121 million tenge ($975,806) worth of goods was administratively 
confiscated (compared to 72 million tenge in 2005 and 75 million in 
2004); 
 
-- 1729 persons were subject to administrative action (compared to 
1407 in 2005 and 1365 in 2004); 
 
-- 14,385,725 tenge ($116,013) was collected in administrative fines 
(compared to 10.5 million tenge in 2005, and 6.7 million in 2004); 
 
-- 268 criminal cases were initiated (compared to 92 in 2005 and 64 
in 2004). 
 
¶4. (SBU) Unfortunately, Post could not obtain aggregated 2006 data 
on criminal convictions.  (Both the IPR Commission and our private 
sector contacts suggest that the number of convictions likely 
trended upwards, roughly in parallel with the number of cases 
initiated.) Informally, the IPR Commission acknowledged the IIPA's 
point that few, if any, convictions have resulted in jail sentences. 
 Rather, the courts have to date preferred to either suspend 
sentences upon payment of compensation to the damaged parties, or 
oversee a reconciliation of the parties with a corresponding payment 
of damages.  (Comment: While the lack of jail sentences for IPR 
crimes remains something of a mystery -- and a cause for concern -- 
it may be that the courts view the small-scale of most pirating 
operations as insufficient to justify incarceration.  See para. 6. 
End comment.) 
 
¶5. (SBU) Ironically, there is reason to believe that official data 
may actually understate the government's success in combating 
piracy.  A prominent distributor of copyrighted material in 
Kazakhstan reports that, in at least one region, local authorities 
have been so effective in eradicating sales of pirated discs that 
their enforcement data (e.g. number of arrests) have begun to 
"suffer."  While this is clearly not the case in all of Kazakhstan's 
markets, it does suggest that, in the future, additional measures of 
the GOK's effectiveness in combating IPR crimes may be needed. 
 
¶6. (SBU) Available evidence points to the "miniaturization" of 
pirated product distribution in Kazakhstan.  Distributors of pirated 
DVDs, CDs, etc., have increasingly been pushed to the margins of the 
marketplace, as enforcement efforts have succeeded in shutting down 
large, fixed distribution points.  In the words of a well-informed 
private sector observer, Kazakhstan's piracy problem now consists of 
"micro-sellers" -- "mom-and-pop" operations which function with a 
single computer or VCR, and sell their products out of a box on 
 
ASTANA 00000454  002 OF 003 
 
 
major city streets, ready to shift locations or abandon their goods 
altogether upon the approach of law enforcement. 
 
¶7. (SBU) Clearly, the problem of "micro-sellers" is far from 
insignificant.  Too small, nimble, and ephemeral to constitute good 
targets for government bodies traditionally responsible for IPR 
enforcement (the Justice Ministry's IPR Committee, the General 
Procuracy, and the Financial Police), these operators seem to have 
developed, at least to some extent, successful "cat and mouse" 
strategies for dealing with local police.  Making the regular police 
a more effective actor in controlling "micro-pirates" may require 
time and broader institutional changes. 
 
PROTECTING IPR THE CIVIL WAY 
---------------------------- 
 
¶8. (SBU) Key private sector observers inform Post that civil 
litigation is emerging as a highly effective tool in IPR protection. 
 Civil courts are increasingly willing to rule in favor of the 
plaintiff-licensee in civil disputes with alleged infringers, and 
are becoming a substantial deterrent to trade in pirated goods.  A 
related weakness, however, can be identified -- law enforcement 
officials often fail to inform the aggrieved party (i.e. the 
copyright holder or licensee) of administrative actions against 
pirates, thus denying the licensee an opportunity to open a parallel 
civil claim against the defendant. 
 
REMAINING GAPS - REAL AND ILLUSORY 
---------------------------------- 
 
¶9. (SBU) A key outstanding issue for Kazakhstan is the granting of 
ex officio powers to customs officials.  This is particularly 
important for Kazakhstan, given the fact that the market for 
"pirated" goods is dominated by imports.  (An industry source 
estimated that 80% of the  counterfeit goods in Kazakhstan cross 
into the country from Russia.)  The country's extremely long and 
porous border with Russia poses a tremendous challenge.  In 
addressing the ex officio issue, Kazakhstani officials have 
repeatedly expressed concern that granting additional powers may add 
to the institutional corruption of the customs authorities.  Given 
the endemic corruption known to exist in customs structures, Post 
has little reason to question the genuineness and legitimacy of 
these concerns.  The customs ex officio issue has featured 
prominently in Kazakhstan's bilateral WTO accession negotiations 
with the U.S.  In post's view, the IPR Commission, at least, has 
fully accepted the necessity of granting ex officio powers; delays 
in passing the necessary legislation appear to be driven by concerns 
over funding the necessary training programs, and efforts to develop 
mechanisms to minimize the opportunities for abuse of the authority. 
  A draft law incorporating ex officio powers (reportedly consistent 
with TRIPS) is currently being reviewed by the Prime Minister's 
office. 
 
¶10. (SBU) The IPR Committee raised a parallel argument in regard to 
the IIPA's suggestion that the ex officio authority of the police be 
extended to the administrative arena.  This, the GOK officials said, 
would also exacerbate corruption by opening a door for the police to 
accept bribes in return for downgrading charges from criminal to 
administrative.  Granting ex officio powers to the police in 
pursuing administrative-level violations may certainly prove a 
useful tool in combating the "micro-sellers" discussed above. 
Still, it is useful to consider that, given the corruption-prone 
reality of many of Kazakhstan's post-Soviet institutions, extending 
the police powers may lead to unintended consequences.  As in the 
case of granting ex officio powers to customs officials, the 
solution may lie in combining the grant of new powers with 
appropriate safety mechanisms or institutional reforms - a process 
which, realistically, may take time. 
 
¶11. (SBU) GOK officials have told Post that they view the 
introduction of civil ex parte searches as unnecessary and 
irrelevant to the situation in Kazakhstan.  The reason, they 
explain, lies in the nature of Kazakhstan's legal process, wherein 
all civil cases based on property issues must be based on claims 
from damaged parties.  Notably, private sector industry 
representatives also told Post that they did not see the potential 
benefit of such provisions in Kazakhstan. 
 
¶12. (SBU) The IIPA's assertion that the 2004 statutes only provide 
for a 50-year term of copyright protection is inaccurate, as  the 
November 2005 amendments specifically provide for the extension of 
copyright protection to 70 years, in keeping with international 
standards (Ref A).  The IIPA repeats another error from its 2006 
report, overstating the minimum damages threshold for criminal 
prosecution (currently about $9) by a factor of 35. 
 
 
ASTANA 00000454  003 OF 003 
 
 
¶13. (SBU) The IIPA also cites Kazakhstan's need to establish a legal 
basis for the confiscation and destruction of equipment used in the 
criminal manufacture of pirated goods.  The IPR Committee has 
repeatedly assured post that a combination of statutes in the 
Criminal Code and the Criminal Procedure Code constitutes an 
adequate provision for the confiscation of such equipment. 
Moreover, the IPR Committee has stated, such confiscations are 
routinely carried out and do not require a court order.  A court 
order is necessary only to destroy such equipment -- a procedural 
requirement which the IPR Committee defends as necessary to preserve 
potentially material evidence. 
 
¶14. (SBU) The IPR Committee recently told Post that the GOK plans to 
draft amendments implementing WIPO digital treaties this year; 
following public and parliamentary debate, enactment would likely 
occur in early 2008.  A regulatory scheme for the production and 
distribution of optical disc material and equipment is slated for 
development in 2008.  There remains a strong consensus among both 
government and industry observers that no large manufacturers of 
pirated discs operate in Kazakhstan. 
 
EVIDENCE OF STRONG POLITICAL WILL 
--------------------------------- 
 
¶15. (SBU) The past year witnessed a remarkable political impetus in 
favor of IPR protection in Kazakhstan.  In his annual address to the 
nation on March 1, President Nazarbayev explicitly mentioned IPR. 
Most notably, he linked the need to protect IPR to the development 
of a domestic high-tech industry and the diversification of 
Kazakhstan's economy away from the extractive sector -- both 
cornerstones of Kazakhstan's current economic policy.  This was, by 
some accounts, a breakthrough in presenting IPR protection as a 
policy driven by Kazakhstan's national interests.  In conversation 
with Econoff, a leading distributor of copyrighted materials 
credited Nazarbayev's speech for spurring law enforcement agencies 
to increase their anti-piracy efforts, as well as for discouraging 
potential Russian criminal syndicates from attempting to enter the 
Kazakhstani market. 
 
¶16. (SBU) Political support for IPR protection takes a variety of 
forms.  A "Patent Palace" will be constructed in Astana by 2009; it 
will house all government agencies involved in IPR issues, including 
the IPR Committee and the National Intellectual Property Institute. 
GOK officials often cast effective IPR protection as a precondition 
for the development of a flourishing Kazakh (or Kazakhstani) 
culture. Furthermore, much attention is currently being devoted to 
reforming Kazakhstan's patent system.  A draft law modernizing the 
framework and bringing it closer to Western norms was passed by 
Parliament in February 2007, and awaits the President's signature. 
 
¶17. (SBU) In 2006, Kazakhstani IPR officials, their hand 
strengthened by Kazakhstan's removal from the Special 301 Watchlist, 
welcomed opportunities to cooperate with the USG.  Officials from 
the IPR Committee, the General Procuracy, the Financial Police, and 
the Patent Institute participated in training programs organized by 
the USPTO and the Department of Justice.  GOK IPR experts 
constructively engaged their USG counterparts during bilateral WTO 
accession talks, and remain willing and open Embassy interlocutors. 
 
 
COMMENT AND RECOMMENDATION 
-------------------------- 
 
¶18. (SBU) Keeping Kazakhstan off the Special 301 Watchlist remains 
the best tool for encouraging continued progress on IPR protection. 
While much remains to be done, the past year has seen steady 
improvement on the enforcement, legislative, and institutional 
fronts.  Crucially, the political climate for fostering IPR 
protection is positive.  An appropriate acknowledgement of 
Kazakhstan's efforts -- keeping Kazakhstan off of the Special 301 
Watchlist -- will help preserve the current momentum and create the 
best climate for ongoing U.S.-Kazakhstani cooperation in this area. 
 
MILAS