VZCZCXRO1642
OO RUEHCHI RUEHDT RUEHHM
DE RUEHML #0552/01 0510750
ZNR UUUUU ZZH
O 200750Z FEB 07
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 5310
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUEAWJB/USDOJ WASHDC
RUEHZS/ASEAN COLLECTIVE

UNCLAS SECTION 01 OF 05 MANILA 000552 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/MTS, EAP/EP, AND EB/IFD 
DEPT FOR EB/IPC 
STATE PASS USTR FOR BWEISEL AND DKATZ 
STATE ALSO PASS USAID, OPIC, USDA 
TREASURY FOR OASIA 
USDOC FOR 4430/ITA/MAC 
USDOC PASS USPTO 
STATE ALSO PASS LOC 
 
E.O. 12958: N/A 
TAGS: KIPR ETRD ECON RP
SUBJECT:  Philippines: 2007 Special 301 Report 
 
REF:  A) State 7944; B) 06 Manila 836 
 
¶1. (SBU) Summary.  Embassy recommends retaining the Philippines on 
the Special 301 Watch List.  The GRP continued to devote attention 
to intellectual property protection during 2006, increasing its 
enforcement actions, especially against optical disk piracy.  While 
the total number of seizures was lower than in 2005, the total value 
of confiscated merchandise rose.  A core of leaders on IPR issues 
has emerged within the GRP, and President Arroyo spoke out on IPR 
during the year.  There are nonetheless issues that continue to 
concern us, especially the lack of criminal convictions of IPR 
violators and the need for further institutional entrenchment of IPR 
enforcement agencies.  Retention on the Special 301 Watch List will 
signal our recognition of the GRP's progress and for the core of 
leaders who have been responsible for it.  Retention also will 
maintain the leverage which has been responsible in some part for 
this progress.  End summary. 
 
¶2. (U) This report is divided into three sections:  Part I addresses 
the GRP's progress on IPR protection, Part II addresses areas that 
warrant GRP attention, and Part III sets out post's recommendation. 
 
Part I:  GRP Progress on IPR Protection 
-------------------- 
¶3. (SBU) In February, 2006, USTR lowered the Philippines from the 
Special 301 Priority Watch List to the Watch List.  At that time, a 
Special 301 Action Plan was issued for the Philippines.  Over the 
course of the ensuing year, per that plan, the GRP has stepped up 
its efforts to protect intellectual property rights, focusing upon 
enforcement efforts and seizures of counterfeit goods, especially 
optical media disks.  The GRP has actively engaged the USG on IP 
protection, meeting regularly with Embassy and USTR representatives, 
seeking training opportunities with the USPTO and the International 
Law Enforcement Academy in Bangkok, and signing a memorandum of 
understanding with the USPTO in January 2007.  Enforcement actions 
against IPR violations has continued, and while there were fewer 
seizures in 2006 than 2005, the total value of goods seized rose 
indicating that authorities have become more adept in the selection 
of targets for raids.   While there remain serious deficiencies in 
the IPR protection regime, the GRP has continued to take positive 
steps over the past year to improve it. 
 
A Core of Committed Leaders on IPR Emerges 
-------------------- 
¶4. (SBU) During 2006, it became more obvious that a critical mass of 
leaders on IPR has emerged within the GRP.  Among these officials, 
we would highlight in particular Adrian Cristobal, the Director 
General of the Intellectual Property Office, Peter Favila, the 
Secretary of Trade and Industry, Eduardo Manzano, Chairman of the 
 
SIPDIS 
Optical Media Board, Colonel Noel de los Reyes, Head of the Fraud 
and Commercial Crimes Division of the Philippine National Police, 
and Dennis Gonzalez, Chairman of the National Book Development 
Board.  These officials have worked hard to raise the profile of IPR 
protection within the GRP, and they have been behind the increased 
public attention that President Arroyo paid to intellectual property 
issues this past year. 
 
¶5. (U) President Arroyo herself has provided leadership on IPR.  On 
November 17, 2006, she issued an executive order to nine agencies, 
directing them to take a variety of steps to promote IPR protection. 
 The most noteworthy point of the order was her instruction to 
agencies to enforce civil and criminal liability against landlords, 
such as mall owners, who lease space to establishments selling 
pirated or counterfeit goods. 
 
The Intellectual Property Office 
-------------------- 
¶6. (SBU) The Intellectual Property Office (IPO), by statute, is the 
coordinating body for IPR enforcement in the Philippines.  It has 
functions equivalent to the USPTO, and also coordinates the 
interagency National Committee on Intellectual Property Rights, 
hosting its biweekly meetings.  Its Director General, Adrian 
Cristobal, reports to the President through the Secretary of Trade 
and Industry.  Under Cristobal, the IPO formulated a two-year 
strategy to address IPR issues in the Philippines, whose early 
successes helped lower the Philippines to the Watch List last year. 
Most industry representatives praise Cristobal's efforts, describing 
him as more dedicated and energetic than his predecessors. 
 
¶7. (SBU) In addition to its coordinating role, the IPO also 
 
MANILA 00000552  002 OF 005 
 
 
organizes campaigns to enhance the public profile of IPR protection. 
 Over 2006, it organized an average of one public lecture or 
workshop per week, holding its events throughout the country.  It 
held events for government agencies, both national and local, for 
private business, and conducted seminars at five universities. 
Cristobal also hosted a weekly program on Manila radio station 
DZMM. 
 
¶8. (SBU) As the reporting period drew to a close, the IPO 
successfully completed a two year project, launching an online 
database of intellectual property cases that permits real-time 
verification of the status of IP criminal cases.  Six agencies have 
contributed information to the database.   The IPO also signed a 
technical cooperation agreement with the United States Patent and 
Trademark Office focused upon capacity-building for the examination 
of patent applications. 
 
The Optical Media Board 
-------------------- 
¶9. (SBU) The GRP created the Optical Media Board (OMB) in early 
2004, and over the past two years the OMB has asserted its role as 
the regulatory authority for the licensing of replicating machines 
and equipment and the materials used for making optical disks.  The 
OMB has been fully operational over the past year, and now carries 
out raids on a fairly continuous basis.  The chairman of the OMB, 
actor Eduardo Manzano, has leveraged his public persona into media 
attention for the OMB and its work.  Manzano appears frequently in 
the local media, both in interviews and in staged events such as the 
ceremonial destruction of thousands of seized pirated DVD's on the 
third anniversary of the OMB's founding in February 2007.  In 
December 2006, the Motion Picture Association of America (MPAA) 
presented Manzano with its inaugural ACE Award as the top copyright 
enforcer in the Asia/Pacific region. 
 
¶10. (SBU) The OMB estimates that a narrow majority of pirated 
optical media purchased in the Philippines is imported, mainly from 
China, Taiwan, and Malaysia.  Based on increased seizures of 
replicating machines, it believes that the fraction of pirated media 
produced in country is growing.  The OMB conducted raids on the 
basis of 88 search warrants in 2006, seizing over 1.6 million pieces 
with a value of about USD 4.3 million.  It carried out 942 other 
inspections over the course of the year. 
 
¶11. (SBU) Manzano's large public profile also makes him a lightning 
rod for criticism.  He is often accused of using the OMB as a tool 
for obtaining publicity either for his television projects or as a 
platform for seeking elected office, though he recently decided 
against running for any office in the 2007 midterm congressional 
elections.  Manzano participates personally in some OMB raids of 
stalls and stores selling pirated discs, which on two occasions this 
year led to his targets filing criminal complaints against him for 
assault.  More broadly, reflecting a general shortcoming of 
Philippine law enforcement that Post has been working to address, 
the OMB remains too personalized, which is less a criticism of 
Manzano than recognition that the OMB requires further institutional 
strengthening.  As we noted last year (ref B), the OMB remains 
understaffed by perhaps half and its budget is woefully inadequate, 
with Manzano reportedly paying some costs of undertaking raids out 
of his own pocket.  As a result, the bureau has had to concentrate 
its efforts on avoiding laying off staff rather than on hiring more 
agents.  Within its legal department, two of three positions remain 
vacant.  This has perhaps been behind its weak preparation of cases 
for prosecution, and its general difficulty in turning seizures into 
eventual convictions.  Only three OMB-initiated cases led to 
criminal convictions in 2006.  It also has had mixed success with 
its search warrants, many of which have been quashed on appeal, 
seemingly one result of its weak legal office. 
 
Philippine National Police and National Bureau of Investigation 
-------------------- 
¶12. (SBU) Within the Philippine National Police (PNP), intellectual 
property cases come under the jurisdiction of the Fraud and 
Commercial Crimes Division, led by Col. Noel delos Reyes.  Delos 
Reyes is one of the most enthusiastic defenders of IPR protection 
within the GRP, and his unit is among the most active in terms of 
seizures and arrests.  In 2006, the Division served 281 search 
warrants and made 46 arrests, with seizures in excess of USD 3 
million.  During the past year, the unit increased its emphasis on 
combating book piracy, conducting several high-profile raids against 
copy shops around the campus of the University of the Philippines, 
 
MANILA 00000552  003 OF 005 
 
 
confiscating photocopy equipment and books that were being copied 
illegally.  The PNP also stepped up enforcement of copyright among 
internet cafes around the country, cracking down on the use of 
illegally copied software on cybercafe machines, and on the use of 
these machines to download copyrighted files illegally. 
 
¶13. (SBU) The Intellectual Property Rights Division of the National 
Bureau of Investigation (NBI), led by Jose Justo Yap, served 419 
search warrants during the year and seized goods worth USD 6 
million.  NBI also contributed to the surge in raids against firms 
using illegal copies of software, conducting high-profile raids in 
both Metro Manila and Cebu.  It also carried out a major raid in 
December 2006 against Bright Future Technologies, a firm in Laguna 
Province, southeast of Manila.  In that raid, NBI seized seven 
replicating machines and thousands of blank optical discs and 
arrested 13 Chinese nationals. 
 
Bureau of Customs 
-------------------- 
¶14. (SBU) While the Intellectual Property Unit at the Bureau of 
Customs remains a small ad-hoc group, the Bureau nonetheless had the 
lead in important seizures during the year.  On March 16, it 
launched a 500-agent raid against the 168 Mall in Manila, notorious 
for selling pirated goods.  Agents inspected over 700 stores and 
stalls, and seized illegally imported goods, many of which were also 
trademark-infringing, worth over USD 1.4 million. This represented 
the biggest raid against smugglers in the history of the 
Philippines.  On January 24, 2007, Customs filed criminal charges 
against an importer and two customs officials after seizing three 
containers containing four DVD replicating machines being smuggled 
into the country. Overall, the IPU made 26 seizures worth close to 
USD 15 million in 2006, 55 percent of all GRP seizures. 
 
National Book Development Board 
-------------------- 
¶15. (SBU) Over the past two years, the GRP has increased the amount 
of attention it pays to copyright piracy.  Generally, book piracy in 
the Philippines focuses on academic textbooks, and takes place on or 
near university campuses, especially the main campus of the 
University of the Philippines in Quezon City.  The National Book 
Development Board (NBDB), a policy making body created by an act of 
the Philippine Congress, led efforts to monitor book sellers and 
copy shops, working with the Philippine Reproduction Rights 
Organization, the trade association of local book publishers.  At 
the instigation of the NBDB, the PNP carried out a number of raids 
on Quezon City copy shops during the year. 
 
The Roxas Bill 
-------------------- 
¶16. (SBU) IPR discussions in the Philippines were dominated for much 
of the year by proposed legislation to loosen patent protection for 
pharmaceuticals and permit their parallel importation.  The bill, 
sponsored by Senator "Mar" Roxas, has been of concern to IP 
stakeholders for a number of reasons, but concerned us primarily for 
its possible contradictions with the TRIPS agreement, particularly 
its initial provisions on data exclusivity and new use patents. 
Roxas and other proponents told the Embassy repeatedly that they 
never intended to undermine TRIPS with the pharmaceutical bill, and 
ultimately amended the bill in ways that addressed most, though not 
necessarily all, of our concerns.  An amendment to the Senate 
version of the bill even introduced a clause that explicitly 
disallowed any benefits under the legislation that were not 
TRIPS-consistent.  As of this submission, it is not clear whether 
the bill will pass in this Congress, though we would expect it to be 
reintroduced after the midterm elections if it does not pass. 
Nevertheless, we find the sensitivity to TRIPS among several 
prominent legislators broadly encouraging. 
 
Part II:  Areas of Particular Concern 
-------------------- 
¶17. (SBU) Despite the progress that the GRP made in enhancing IPR 
protection during the year, there are still a number of areas that 
will merit attention over the coming year, and that warrant the 
continuation of the Philippines on the Special 301 Watch List.  The 
most important areas of concern remain the institutionalization of 
IPR protection, and the inability of GRP authorities to translate 
raids and seizures into prosecutions and convictions of IPR 
infringers, a problem that plagues the entire Philippine legal 
system. 
 
 
MANILA 00000552  004 OF 005 
 
 
The Department of Justice (DOJ) and Prosecutions 
-------------------- 
¶18. (SBU) The lack of prosecutions and convictions of IPR violators 
continued to be the biggest weakness in IPR protection this year.  A 
year that saw 788 search warrants issued and USD 28 million in 
seizures produced only eight convictions, and even in those cases, 
the convicts are unlikely to face fines or jail time due to a 
lengthy appeals process during which they may remain free on bail. 
 
¶19. (SBU) In late 2005, the Department of Justice reconstituted its 
Task Force on anti-Intellectual Property Piracy.  Despite its name, 
the 10 prosecutors on the task force do not concentrate exclusively 
on IPR cases.  Its chair told us that the prosecutors spend 
somewhere around 10% of their time on IPR.  DOJ's backlog of 
unresolved IPR cases may soon reach 1,000 cases.  One consequence of 
these problems in the courts is that many IPR complainants feel 
compelled to settle their cases out of court on terms favorable to 
violators.  Adrian Cristobal went so far as to discourage 
prosecutors publicly from accepting such settlements in order to 
force more cases to trial. 
 
¶20. (SBU) The inability of the Department of Justice to effectively 
prosecute IPR cases is just one aspect of a generally weak criminal 
justice system in the Philippines.  System wide, only seven percent 
of all trials result in convictions.  Procedural rules on appeals 
afford defendants many opportunities to delay the progress of cases, 
and judges across the system lack what one local attorney calls "a 
sense of judicial urgency."  Progress on a host of issues that 
interest the USG are contingent on improvements in the judicial 
system, and significant USG resources are being invested in efforts 
to improve the judicial system, but an overhaul of the system is 
something that will likely take decades to accomplish. 
 
Institutionalization in the OMB and Customs 
-------------------- 
¶21. (SBU) The Optical Media Board and the Intellectual Property Unit 
of the Bureau of Customs remain relatively new entities, and both 
need to develop institutional capacity further.  The needs of the 
OMB in this area have been detailed above in paragraph 11.  The IPU 
at Customs continues to be a small, ad-hoc group, with only seven 
full-time officers.  It lacks its own computer setup, and does not 
have access to the Bureau of Customs' databases of incoming 
shipments.  It requires improvements in these areas to be effective, 
in addition to an adequate budget.  A restructuring plan for 
Customs, which would address many of these weaknesses has been drawn 
up and submitted to the Department of Finance for approval. 
 
¶22. (SBU) The work of the OMB must also be integrated better with 
that of the PNP and NBI.  The Optical Media Act of 2004 gives OMB 
the lead in all matters involving pirated optical discs, but in 
practice, large raids and seizures typically require the assistance 
of PNP or NBI officers.  There continue to be squabbles among the 
agencies over leadership of operations against optical disc piracy, 
and in particular, the agencies still experience difficulty in 
sharing information.  All sides must overcome institutional distrust 
and jealousy, where OMB does not want to share information out of 
fear of leaks and corruption within the PNP and NBI, and the latter 
agencies must come to terms with the operational lead that OMB has 
by law within its jurisdiction.  One example of the lack of 
cooperation was that a month-long December 2006 pilot project 
between OMB and the PNP deputizing PNP officers for optical disk 
seizures did not produce a single raid. 
 
WIPO Internet Treaties 
-------------------- 
¶23. (SBU) The Philippine Congress has yet to pass legislation 
amending the Intellectual Property Code to incorporate the 
provisions of the WIPO Copyright Treaty and the WIPO Performances 
and Phonograms Treaty.  Bills to do this were introduced in both the 
House and Senate.  While the IPO lobbied for the bills to some 
degree, none of the bills emerged from committee, and the bills will 
expire in 2007 when the 13th Congress adjourns after election of a 
new Congress. 
 
Cable Piracy 
-------------------- 
¶24. (SBU) The illegal retransmission of pay-TV signals continues to 
be a problem in the Philippines, especially outside Manila.  Within 
Manila itself, the largest cable company is legitimate and pays for 
its content, though it experiences problems with residences tapping 
 
MANILA 00000552  005 OF 005 
 
 
into its network illegally.  In rural areas, some smaller regional 
companies take broadcast signals, often using illegal decoders, and 
redistribute them to customers without payment to rights-holders. 
The National Telecommunications Commission renews the licenses of 
these companies without regard to whether they engage in signal 
theft.  DOJ has not acted on the criminal complaints of the Cable 
and Satellite Broadcasting Association of Asia (CASBAA); however, 
IPO recently reported to CASBAA that DOJ will report 94 pending 
cases for prosecution. 
 
The Regions 
-------------------- 
¶25. (SBU) GRP actions against counterfeit and pirated goods in Metro 
Manila seem to have forced the sellers of such merchandise to become 
more discreet, moving pirated goods from the front of stores to the 
back, to stalls away from main streets, or to illicit vendors 
walking the halls of some malls.  While this is a sign of success in 
Manila, the same level of success does not seem to have been reached 
in at least some other parts of the country.  Our informal market 
checks indicate that illegal copies are more openly available in 
Cebu, for example, than in Manila. 
 
Notorious Markets 
-------------------- 
¶26. (SBU) There remain several centers in Manila in which pirated 
and counterfeit merchandise is routinely traded.  The most prominent 
"notorious market" is located in street stalls in the neighborhood 
of Quiapo.  The neighborhood of Binondo is also problematic, and was 
the target of 16 raids during 2006.  Several shopping malls also may 
qualify as notorious markets, including Makati Cinema Square, 168 
Mall, Greenhills Shopping Center, and the fourth floor of the 
Market! Market! Mall in Fort Bonifacio.  The Executive Order of 
November 17 establishes landlord civil and criminal liability for 
tenants who sell pirated merchandise. 
 
Part III:  Post Recommends Retention on the Special 301 Watch List 
-------------------- 
¶27. (SBU) The Embassy recommends retaining the Philippines on the 
Special 301 Watch List for this year.  Years of pressure and 
inclusion in the 301 process have finally focused GRP attention on 
the importance of IPR protection, and over the past few years the 
government has begun to take serious action as documented above. 
GRP officials are sensitive to the country's 301 status, and the 
lowering to the Watch List last year sent the message that the 
attention to IPR protection and engagement with us on the issue 
produced concrete results.  If the Philippines were to be raised 
back to the Priority Watch List, we believe it would undermine those 
in the GRP who are working so hard to promote IP protection, and 
would lead them to conclude that the Philippines will not be able to 
get itself off the PWL permanently.  We believe that, far from 
increasing GRP efforts to combat IPR violations, elevation to the 
PWL could both reduce the prestige and influence of our allies and 
discourage them, resulting in less effort and poorer results.  We 
also believe our continued engagement and their sustained efforts 
will bring about more rapid progress in 2007 than we have seen in 
¶2006. 
 
Kenney