VZCZCXRO2457
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #0837/01 0512026
ZNR UUUUU ZZH
P 202026Z FEB 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 5420
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEAWJA/DEPT OF JUSTICE WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

UNCLAS SECTION 01 OF 03 MEXICO 000837 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/TPP/IPE/BOGER/WALLACE AND WHA/MEX/ROTH 
STATE PASS USTR FOR CHOE GROVES/MELLE/SHIGETOMI 
STATE PASS LIBRARY OF CONGRESS 
USDOC FOR ITA/MAC/OIPR/PETERS AND 4320/ITA/MAC/ONAFTA/WORD 
JUSTICE FOR CCIPS/MERRIAM/KOUAME 
 
E.O. 12958: N/A 
TAGS: KIPR ECON MX
SUBJECT: EMBASSY'S SPECIAL 301 RECOMMENDATION FOR MEXICO 
 
REF: A. A. SECSTATE 7944 
     ¶B. B. MEXICO 7001 
     ¶C. C. 06 MEXICO 969 
 
¶1. Summary: Embassy recommends that Mexico remain on the 
Special 301 Watch List for 2007.  Mexico's federal government 
has made greater efforts to combat piracy and counterfeiting 
over the past year, but serious obstacles to effective 
enforcement remain.  The new Calderon administration has 
declared its top priorities to be strengthening Mexico's rule 
of law and economic competitiveness.  If the president and 
his team are serious about these (Post believes they are), 
then taking action to improve protection of IPR provides the 
GOM an excellent opportunity to make progress on both fronts. 
 Post will monitor such progress, or the lack thereof, 
closely.  Cooperation with the U.S. and Canada via the 
Security and Prosperity Partnership and ongoing capacity 
building for GOM officials should help generate positive 
momentum.  End summary. 
 
Overall Assessment of IP Climate 
-------------------------------- 
 
¶2. As Post reported in reftel B, Mexico continues to suffer 
from rampant and largely undeterred commercial IPR 
infringement that causes huge losses to Mexican, U.S., and 
third-country IP rights-owners.  Dedicated federal IPR 
agencies have upgraded their efforts to enforce the law, and 
seizures of infringing goods continue to rise.  At the end of 
the day, however, it is still very hard to send someone to 
jail for piracy or counterfeiting, making effective 
deterrence difficult.  Obstacles include legislative 
loopholes, a cumbersome judiciary process, lack of effort by 
many state and municipal governments, and broad cultural 
acceptance of illegal commerce.  These systemic factors are 
temporarily exacerbated by three other factors: 1) the new 
Calderon government, which took office December 1, 2006, has 
not finished staffing the top positions responsible for IPR 
in various federal agencies; 2) the initiative to re-organize 
the federal law enforcement agencies has not yet been 
completed; and 3) the recent counter-narcotics campaigns that 
the GOM launched in various regions of the country have 
required huge surges of federal law enforcement personnel and 
resources, to some degree diverting the same from IPR 
enforcement.  Despite the slow start in staffing key 
positions, activity on the part of the GOM's dedicated IPR 
offices and agencies continues apace.  On the other hand, 
large-scale enforcement operations that require the support 
of federal police will be affected by the surge in 
counter-narcotics operations until the GOM feels it has 
achieved a certain comfort level in containing 
narco-violence.  That said, Post feels the new government is 
sending the right signals that IPR enforcement will get the 
attention and resources needed.  We will need to monitor GOM 
performance closely and follow up on both opportunities and 
ongoing problem areas. 
 
¶3. Taking action on the following fronts (all of which are 
possible this year) would help counteract the more systemic 
problems identified above: passing a pending amendment to 
give law enforcement officials ex oficio authority to go 
after infringers; continuing the training of judges to 
improve their understanding of the importance of IPR and the 
application of relevant Mexican laws; tapping into existing 
law enforcement resources and authorities that target 
organized crime; enlisting more cooperation from state and 
municipal authorities (the state of Mexico, the country's 
largest, is expected to sign an anti-piracy agreement with 
interested industry groups in spring 2007, mirroring the 
national agreement that was signed in 2006 with the federal 
government); fully implementing the GOM's commitments to 
protect and purchase legitimate medicines; ramping up public 
awareness of the value of strong IPR protection; and 
improving international coordination to stop cross-border 
flows of infringing products.  More broadly, Mexico is 
pursuing judiciary reforms that, if eventually enacted, would 
streamline and rationalize the legal process for all types of 
cases, IPR included. 
 
¶4. In addition to Mexico's domestic efforts to move ahead on 
these fronts, the GOM is working closely with the U.S. and 
Canadian governments in the IPR working group organized under 
the trilateral Security and Prosperity Partnership.  The 
working group is focused on cooperation in three key areas: 
 
MEXICO 00000837  002 OF 003 
 
 
detecting and deterring trade in pirated and counterfeit 
goods; public awareness and outreach to our business 
communities; and measuring piracy and counterfeiting.  IPR 
officials from the three countries have finalized an action 
strategy that will be presented to ministers for their 
approval in late February 2007.  Bilaterally, the Embassy 
continues to take full advantage of capacity building 
opportunities like the U.S. Patent and Trademark Office's 
Global Intellectual Property Academy Training Program to 
expose Mexican IPR officials and judges to best international 
practices for protecting IPR. 
 
Specific Areas of Concern 
------------------------- 
 
¶5. This section adopts the format for specific areas of 
concern that was used in reftel A. 
 
¶A. Notorious Markets: Informal markets throughout Mexico 
feature vendors blatantly selling pirated audio-visual 
materials and counterfeit name-brand goods.  In Mexico City, 
Tepito remains the main warehousing and distribution center 
for infringing products, and hosts scores of retail stalls to 
boot.  Other markets of particularly ill repute include the 
Plaza Meave, the Eje Central, Lomas Verdes, and the Pericoapa 
Bazaar in Mexico City, San Juan de Dios in Guadalajara, 
Simitrio-La Cuchilla, San Martin Texmelucan, Emiliano Zapata, 
and Independence in Puebla, and Pulgas Mitras and La Ranita 
in Monterrey.  Though authorities do conduct raids in these 
markets, they frequently do so at night to avoid the violent 
confrontations that daylight raids can provoke.  The Mexico 
City legislature passed a bill in 2005 that would have given 
city officials the power to close down any business 
establishment engaged in the fake goods trade, but the 
then-mayor (who received substantial political support from 
the capital's numerous informal street vendors) vetoed the 
bill in 2006.  Business groups intend to press for its 
re-introduction this year.  On a more positive note, on 
February 14, 2007, Mexico City police expropriated a number 
of buildings in Tepito that had been used for selling illegal 
drugs and pirated merchandise, vowing to convert them into a 
public school.  There could be legal challenges to this 
unique tactic. 
 
¶B. Optical Media Piracy: Piracy of movies, music, games and 
business software is rampant in Mexico.  According to the 
International Intellectual Property Alliance (IIPA), the 
music, gaming and business software industries lost an 
estimated USD 1 billion to piracy in 2006.  The movie 
industry, whose 2006 numbers are not yet available, reported 
losses of another USD 483 billion in 2005, with more than six 
times the number of pirated DVDs sold as legitimate ones. 
Mexico imports around 800 million blank media units per year, 
the vast majority of which are used to create pirated optical 
discs. 
 
¶C. Use/Procurement of Government Software: The government of 
Mexico (GOM) generally purchases and uses legitimate 
software. 
 
¶D. TRIPS Compliance, FTA Implementation, and Other IP-Related 
Issues: As reported in Post's 2006 Special 301 recommendation 
(reftel C), in 2005 Mexico published implementing regulations 
to bring its 2003 copyright law amendment into force.  GOM 
claims that these regulations bring Mexico into compliance 
with its TRIPS and NAFTA obligations appear well-founded. 
 
¶E. Data and Patent Protection: Mexican law does not provide 
any clear rules that either define or mandate data 
protection.  The pharmaceutical industry is working on draft 
legislation to submit to the GOM, but this will likely be 
delayed while the industry fights to defeat a recently 
introduced bill to reduce patent protection from 20 to 10 
years.  The 2003 presidential decree mandating a product 
patent link remains in effect, though enforcement by the 
Mexican drug regulatory agency is patchy.  The Mexican Social 
Security Institute and the Social Security Institute for 
Government Workers, two of the largest consumers of 
pharmaceutical products in Mexico, have yet to fully 
implement their 2003 pledge to purchase only legitimate 
medicinal products. 
 
¶F. Production, Import and Export of Counterfeit Goods: 
Regarding production, as mentioned in para B above, a huge 
 
MEXICO 00000837  003 OF 003 
 
 
volume of blank optical discs enters Mexico each year, the 
vast majority of which is used to burn pirate copies of 
movies, music, and software.  Industry groups have 
recommended that the GOM create a new tariff line for these 
items to facilitate tracking them after they are released 
into the market.  GOM authorities complain about their 
growing triangulation problem.  This refers to the export of 
counterfeit goods from places like China to the U.S., where 
the labels are switched to show U.S. origin.  The goods then 
enter Mexico under NAFTA's duty-free treatment, where they 
end up being sold to consumers.  IP-owners that want Mexican 
Customs to hold shipments of infringing products have to 
first obtain an order from PGR (the Office of the Prosecutor 
General of the Republic, rough equivalent of the U.S. 
Department of Justice) or IMPI (Mexican Institute of 
Industrial Property, rough equivalent of the U.S. Patent and 
Trademark Office) that directs customs officials to detain 
the merchandise.  Companies requesting such actions generally 
report positive outcomes.  However, U.S. industry has sought 
increased cooperation and communication between PGR, IMPI, 
and Mexican Customs to make the process more user-friendly. 
 
¶G. Enforcement: As reported in reftels, the number of raids, 
arrests, and seizures made by GOM law enforcement authorities 
related to piracy and counterfeiting continue to rise, 
demonstrating that efforts are being made at the federal 
level to enforce IP rights.  And as detailed below, there 
have been successes in specific areas.  However, officials 
are quick to acknowledge that the legal limitations they work 
under make it difficult to inflict real pain on criminals 
(i.e., incarceration or serious monetary fines).  According 
to PGR, only four persons were criminally convicted in 2006 
under Mexican IPR laws.  Regarding administrative procedures, 
IMPI has had success in fining or even shutting down 
infringing businesses, but those willing to file for 
injunctions can stave off penalties for months or even years. 
 Much of this is due to outdated, conflicting, or tortuous 
legislation.  As mentioned in para 3 above, broader judicial 
reform would be helpful, but there are also specific bills 
that could make a difference if passed.  In addition to the 
one granting the police ex oficio authority to go after 
pirates and counterfeiters, there are other useful bills that 
would, for example, criminalize video recording in movie 
theaters and address the sale or use of anti-circumvention 
devices.  At the tactical level, industry groups continue to 
urge the GOM to make better use of its intelligence gathering 
assets to target the criminal bosses further up the food 
chain from the easily replaced street vendors.  On this 
front, IMPI recently announced the establishment of a new 
office with approximately 40 officers dedicated to 
investigation and intelligence.  Since 2004, PGR has had the 
ability to prosecute copyright piracy under Mexico's much 
stronger organized crime legislation.  To date, there have 
been no IPR-related organized crime convictions, though in 
September 2006 PGR apprehended eight gang leaders involved in 
commercial copyright infringement.  It remains to be seen if 
these arrests will result in prison sentences.  PGR has also 
been actively investigating cases of counterfeit drugs under 
a 2006 presidential decree that made it a felony offense to 
trade in tampered medicines. 
 
¶H. Treaties: Mexico has ratified both of the WIPO "Internet 
Treaties" -- the Copyright Treaty and the Performance and 
Phonograms Treaty.  Legislative amendments aimed at bringing 
Mexico into compliance with various provisions of these two 
treaties regarding technological protection measures and 
rights management remain pending in the Congress. 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity 
GARZA