VZCZCXRO5527
RR RUEHNZ
DE RUEHWL #0138/01 0440351
ZNR UUUUU ZZH
R 130351Z FEB 07
FM AMEMBASSY WELLINGTON
TO RUEHC/SECSTATE WASHDC 3864
INFO RUEHNZ/AMCONSUL AUCKLAND 1163
RUEHBY/AMEMBASSY CANBERRA 4728
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC 0107

UNCLAS SECTION 01 OF 06 WELLINGTON 000138 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/IPE - JENNIFER BOGER and EAP/ANP - DAN RICCI 
STATE PLEASE PASS TO USTR FOR JENNIFER CHOE GROVES 
STATE PLEASE PASS TO USPTO 
COMMERCE FOR CASSIE PETERS ITA/MAC/OIPR 
 
E.O. 12985:  N/A 
TAGS: KIPR ETRD ECON PREL NZ
SUBJECT:  GOVERNMENT OF NEW ZEALAND'S PUBLIC SUBMISSION FOR 2007 
SPECIAL 301 
 
REF:  STATE 07944 
 
¶1. On January 9, the United States Trade Representative submitted a 
Federal Register notice inviting public submission on the practices 
of U.S. trading partners to be reviewed under the Special 301 
provisions of the 1974 Trade Act (as amended in 1988).  On February 
12, the Government of New Zealand asked Embassy Wellington to submit 
New Zealand's formal response to Washington.  The text of the GNZ's 
submission begins at para 2.  Embassy Wellington will report septel 
on our own views on New Zealand's IPR enforcement. 
 
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Begin Information provided by Government of New Zealand 
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¶2. The following information is provided by the New Zealand 
Government to the US Trade Representative (USTR) in response to 
USTR's call for public submissions, published in the Federal 
Register on 9 January 2007, ahead of the annual interagency "Special 
301" review to designate countries/economies that inadequately 
protect or deny market access for US industries that rely on 
intellectual property (IP). 
 
Digital Copyright Bill 
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¶3. The Digital Copyright Bill (or, more accurately, the Copyright 
(New Technologies and Performers' Rights) Amendment Bill) was 
introduced to Parliament and referred to the Commerce Select 
Committee for consideration in December 2006.  A copy of the Bill is 
available at: 
 
http://www.parliament.nz/en-NZ/PB/Legislation 
/Bills/b/2/a/b2ad626160694aee9536fab3362d7d15 .htm. 
 
¶4. The Bill, if adopted, will amend the Copyright Act 1994 (the Act) 
to clarify the application of existing rights and exceptions in the 
digital environment and to take account of international 
developments.  The Bill also seeks to create a more 
technology-neutral framework for the Act. 
 
Patents Bill 
- - - - - - - 
 
¶5. The Patents Bill is now in the final stages of drafting and is 
expected to be introduced to Parliament later in 2007.  An exposure 
draft of the Patents Bill was made public in December 2004.  A copy 
can be accessed at: 
 
http://www.med.govt.nz/templates/Page____1315 .aspx 
 
Parallel Importation 
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¶6. Parallel importing has been previously raised in the USTR 
National Trade Estimate Report. 
 
"Parallel importing" allows retailers, wholesalers and other parties 
to obtain goods subject to IP rights directly from licensed or 
authorized overseas sources, rather than dealing with local 
suppliers, licensees or agents.  In doing so, parallel importing 
allows for competition between sources of the same or similar 
goods. 
 
¶7. Copyright is the IP right most commonly associated with parallel 
importation, as parallel importing generally focuses on the 
competitive supply of high demand consumer goods, which tend to be 
copyright products.  Imported goods are also subject to trade mark 
protection where trade marks are affixed to the product or 
packaging.  Patent protection can apply to the operation of a device 
(such as a CD player), and registered design protection can also be 
an issue in relation to visual design features added to a device. 
 
¶8. Parallel-imported goods are sometimes confused with pirated and 
counterfeit goods.  The association is not correct. Parallel imports 
are goods that are manufactured and put into circulation in another 
country either by, or with the consent of, the owner of the 
applicable IP rights.  In contrast, pirated and counterfeit goods 
are infringing goods produced without the consent of the owner of 
the IP right. 
 
¶9. New Zealand allows parallel importation in certain defined 
circumstances.  The Copyright Act 1994 provides copyright owners 
 
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with the exclusive right to "issue to the public", which means to 
put copies of copyright works into circulation.  Section 9(1) (d) of 
the Copyright Act was inserted by the Copyright (Removal of the 
Prohibition on Parallel Importing) Amendment Act 1998 to allow for 
the parallel importing of non-infringing copies of a work into New 
Zealand, by providing an exception to the right to issue copies to 
the public . 
 
¶10. The Trade Marks Act 2002 has also been amended (in 2003) to 
state that a registered trade mark is not infringed by the use of 
the trade mark (including in use for the purpose of advertising) in 
relation to goods that have been put on the market anywhere in the 
world under that trade mark by the owner or with his or her express 
or implied consent.  These amendments did not change the 
applicability of other IP statutes, relating to patents and design 
rights, to parallel imported goods. 
 
¶11. In 2003, a partial ban on parallel importation of films 
(including VHS, VCD and DVDs) was introduced.  The Copyright 
(Parallel Importation of Films and Onus of Proof) Amendment Act 2003 
reintroduced this partial ban by amending provisions of the Act, 
relating to infringement by importation.  The ban is on parallel 
imports of films other than for the importer's private and domestic 
use, within nine months of the film first being made available to 
public, whether in New Zealand or elsewhere.  The provision contains 
a five year sunset clause and will be reviewed by 2008 to see if the 
ban continues to be justified in light of technological 
developments. 
 
¶12. The 2003 amendment also shifted the evidentiary onus of proof to 
the defendant in civil proceedings concerning whether the imported 
goods in question are infringing copies.  These changes only apply 
to sound recordings, films and computer programs.  The amendment 
also changed the requirement that a defendant in civil proceedings 
must "know or has reason to believe" to a requirement that the 
defendant "knows or ought reasonably to know".  This more objective 
test makes it easier for right holders to make their case. 
 
¶13. The 2003 amendment Act also clarified "rental rights" as they 
apply to computer programs, sound recordings and films.  This means 
that copyright owners have the exclusive right to authorize the 
rental of their works, including after they have been put into 
circulation.  As a result, video stores cannot rent out parallel 
imported DVDs and videos etc, without permission of the copyright 
owner. 
 
¶14. The World Trade Organization Agreement on the Trade-Related 
Aspects of Intellectual Property Rights ("TRIPS") and the Berne 
Convention for the Protection of Literary and Artistic Works ("the 
Berne Convention"), to which both New Zealand and the US are 
parties, do not constrain the parallel importation of legitimate 
copyright materials. 
 
Format shifting 
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¶15. "Format shifting" is also an issue that has been identified in 
the US National Trade Estimates Report. 
 
Format shifting is a copyright issue.  It simply refers to the 
practice of copying material from one format to another, for 
example, from CD to cassette tape or from CD to MP3 format. 
 
¶16. Following a review of the Copyright Act 1994 to assess its 
effectiveness in the digital environment, the Government approved a 
range of amendments to the Act.  In December 2005 Cabinet approved 
the Copyright (New Technologies and Performers' Rights) Amendment 
Bill ("the Digital Copyright Bill") for introduction. The Bill was 
introduced in Parliament in December 2006 and forwarded to 
Parliament's Commerce Select Committee for consideration. 
 
¶17. Among the amendments included in the Bill is an exception to 
allow the owner of a legitimate sound recording to make one copy in 
each format for his or her own private and domestic use.  This is 
known as the "format shifting" exception.  The exception will 
explicitly exclude making copies from borrowed or hired recordings, 
or for other people. 
 
¶18. The absence of an exception for format shifting also makes 
law-breakers out of otherwise law-abiding citizens, many of whom are 
unaware that format shifting their own CDs is against the law.  On 
the basis that users are unlikely to purchase the same work in more 
than one format, it was concluded that there was not sufficient 
evidence presented to suggest that copyright owners would suffer 
 
WELLINGTON 00000138  003 OF 006 
 
 
economic loss arising out of this exception. 
 
¶19. If adopted, this carefully drafted format shifting exception 
would comply with the Berne Three-Step Test and New Zealand's TRIPS 
obligations concerning copyright exceptions.  Specifically: 
 
Step 1 - Confined to certain special cases: The proposed exception 
would be clearly and carefully defined in the Act.  It would only 
apply to a narrow range of activity. 
 
Step 2 - Not conflicting with a normal exploitation of the work: 
There is not a substitution effect at work when the owner of a sound 
recording format shifts that work into another format, as that 
consumer is unlikely to purchase the same work in multiple formats. 
The exception would only apply to private and domestic format 
shifting by a single person who owns the legitimately acquired sound 
recording.  The proposed exception is, therefore, confined to a 
scope and degree that does not enter into economic competition with 
the ways that right holders normally extract economic value from 
their rights. 
 
Step 3 - Not unreasonably prejudicing the legitimate interests of 
the right holder: Prejudice to these legitimate interests caused by 
an exception is not reasonable if it causes (or has the potential to 
cause) an unreasonable loss of income.  As noted above, there would 
be no substitution of sale effect where narrow format shifting of 
sound recordings is permitted, and thus there is no competition with 
the original work. 
 
¶20. New Zealand is aware that consumers in the US are able to format 
shift music that they have legally purchased under the Audio Home 
Recording Act 1992 ("the AHRA").  The AHRA provides immunity against 
copyright infringement action, provided that the copying is 
performed on a digital audio copying device as defined by the AHRA. 
A levy of these devices is then returned to copyright owners and 
creators.  It also seems likely that the broad "fair use" provision 
in section 107 of the US Copyright Act 1976 would allow consumers to 
format or "space" shift music they own.  The United States Court of 
Appeals for the Ninth Circuit noted in Recording Industry 
Association of American v Diamond Multimedia 180 f.3d 1072 (9th Cir. 
1999) that space shifting "is paradigmatic non-commercial personal 
use", which is consistent with copyright law. 
 
¶21. In the absence of a broad fair use provision in New Zealand 
legislation, a specific exception is required to allow New Zealand 
consumers to engage in the same activity.  The proposed New Zealand 
exception is narrower than that covered by "fair use" in the US, and 
it specifically limits copying to one copy per format, specifies 
that the original sound recording must be legitimate and explicitly 
excludes making copies from borrowed or hired recordings. 
 
¶22. New Zealand's Ministry of Economic Development and the Associate 
Minister of Commerce, the Hon Judith Tizard, who has portfolio 
responsibility for intellectual property, have been engaged in an 
on-going dialogue with the New Zealand music industry.  The 
Government was flexible on the drafting of the proposed exception 
and added a sunset clause and a condition that the exception would 
be overridden by any license provision so as to address industry 
concerns. 
 
Time shifting 
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¶23. Time shifting has arisen in the US Trade Estimates report. Time 
shifting generally refers to recording a program to watch it at a 
later time. The Copyright Act currently provides an exception in 
section 84 for time shifting of broadcasts or cable programs for 
private and domestic use and solely for the purpose of watching or 
listening at a more convenient time.  The Government has decided 
that, in line with the policy of technological neutrality, this 
section should be amended to cover all communication works, except 
those available on demand (as a convenient time is always available 
on demand).  This is consistent with the decision to replace 
broadcasts and cable program services with a technology-neutral 
category of communication work, which will provide copyright 
protection for a wider range of transmission or delivery 
technologies. 
 
¶24. Time shifting exceptions are common.  New Zealand considers that 
the revised technology neutral exception will meet the requirements 
of the Berne three-step test. 
The US music industry has expressed concern that the time shifting 
exception would "eliminate the ability of right holders to develop 
new approaches to meeting consumer demand for electronically 
 
WELLINGTON 00000138  004 OF 006 
 
 
delivered materials and reduce access and choice for New Zealand 
consumers to these materials." 
 
¶25. Given the narrow scope of the time shifting exception, and the 
clear rationale for it, it will not apply any differently in the 
digital world than in the analogue world.  Copying music from 
Internet stream casts, for example, to build up a home music 
collection will not be authorized by the exception any more than was 
taping music from the radio for the same purposes. 
 
¶26. The proposed New Zealand exception explicitly relates only to 
watching or listening at a more convenient time.  It does not allow 
home users to build up a collection or "library" of films or music 
for ongoing and repeated use.  Equally, the provision that time 
shifting does not apply to material available "on demand" clearly 
delineates the scope and rationale of the exception.  Where the 
exception does not apply, copying without the copyright owner's 
permission will continue to constitute infringement. 
 
¶27. The expansion of copyright protection for activity such as "web 
casting", as part of the proposed technology-neutral category of 
communication works, is consistent with the US position on this 
issue in debate at the World Intellectual Property Organization 
(WIPO) regarding the rights of broadcasters. 
 
Technological protection measures 
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¶28. Technological protections measures ("TPMs") include devices, 
mechanisms or systems designed to guard against or restrict the use 
of material stored in digital format.  Copyright owners are 
increasingly using TPMs as a practical means to protect their 
copyright and develop new business models (such as pay-per-view). 
TPMs may prevent access to or use of a work and may, therefore, 
inhibit the exercise of "permitted acts" allowed by the Act. 
 
¶29. The Digital Copyright Bill proposes changes to provisions in the 
Copyright Act concerning TPMs.  Section 226 of the Act currently 
allows copyright owners to take action against persons who supply or 
manufacture devices, means or information specifically designed to 
circumvent "copy-protection" and intended to be used to make 
infringing copies of copyright works.  The Bill extends this 
protection so that copyright owners would have the ability to take 
action in respect of all the copyright owner's exclusive rights, not 
just copying, in recognition of the increasing importance of rights 
of communication and the necessary incentives for the provision of 
online and digital services. 
 
Copyright versus "access" control 
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¶30. An issue that arises is whether copyright legislation should 
protect both "copy" and "access" control.  The focus of the New 
Zealand TPM provisions will continue to be on "copy" control, and 
thereby link circumvention to copyright infringement.  Copyright 
owners would not, for example, be able to take action in respect of 
circumvention devices, means or information where the purpose of the 
circumvention (and the provision of the device, means or 
information) is to enable a user to exercise a permitted act, or to 
view or execute a legitimate non-infringing copy of a work. 
 
¶31. In other words, New Zealand will not be providing protection 
against infringement of TPMs that are just about access control 
(i.e. preventing access to copyright works) where no copyright 
infringement has occurred.  The rationale for this is that "access" 
is not one of the exclusive rights provided to copyright owners in 
copyright legislation.  The protection for TPMs that are just access 
controls goes beyond the traditional scope of copyright protection 
and would override the ability of users of copyright material to 
exercise legitimate and longstanding permitted acts. 
 
"Act" versus "means" of circumvention 
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¶32. As noted above, the right of action provided to copyright owners 
is in relation to provision of devices or means specifically 
designed or adapted to circumvent copy-protection, and in relation 
to the publication of information intended to enable or assist 
persons to circumvent copy-protection.  The "act" of circumvention 
is not itself prohibited. 
 
¶33. The rationale is that consultation in the development of digital 
copyright policy indicated that extension of liability to the act of 
circumvention itself would only be beneficial in terms of addressing 
 
WELLINGTON 00000138  005 OF 006 
 
 
copyright infringement where circumvention occurs on a commercial 
scale.  Anecdotal evidence suggests that circumvention does not 
occur on such a scale in New Zealand.  Targeting actual 
circumvention would not generate additional incentives for the 
creation of works, which is the ultimate policy goal of the Act. 
 
¶34. In addition, a prohibition against the actual act of 
circumvention would potentially catch a range of innocent or 
unintended activity.  As such, it would need to be accompanied by a 
range of exceptions for certain behavior (e.g. circumvention to 
exercise permitted acts, computer security research).  This approach 
inevitably ties the Act to current circumstances and will not 
necessarily capture all relevant behavior. 
 
¶35. The Bill also contains new provisions to enable the actual 
exercise of permitted acts where TPMs have been applied.  Initially 
the onus would be on copyright owners, upon application from users, 
to take voluntary steps to allow the effective exercise of permitted 
acts.  Where owners failed to take voluntary steps the Act would 
allow the provision or manufacture of circumvention devices, means 
or information, on receipt of a declaration from a library, archive 
or educational establishment that circumvention is required for the 
purposes of exercising a permitted act. 
 
Remedies 
- - - - - 
 
¶36. The Bill will introduce a criminal offence as a deterrent, in 
addition to civil remedies in respect of the provision of 
circumvention devices, means and information.  Criminal offences 
would operate where there has been large scale commercial dealing in 
circumvention devices, means and information.  Such offences would 
be punishable on conviction by a fine not exceeding NZ$150,000 
and/or imprisonment for a term of not more than five years 
(consistent with existing offence provisions). 
 
¶37. The focus on copyright infringement rather than "access control" 
is considered to be consistent with international standards, 
including the WIPO Copyright Treaty ("WCT") and the WIPO Phonograms 
and Performers Treaty ("WPPT") that New Zealand is not a party to. 
Articles 11 and 18 of these treaties respectively require parties to 
provide adequate legal protection and effective legal remedies 
against the circumvention of effective TPMs that are used by 
copyright authors and owners in connection with the exercise of 
their rights under those treaties or the Berne Convention. 
 
¶38. The WCP and WPPT do not specify whether a copy or access control 
approach should be taken.  The New Zealand approach is consistent 
with that taken by a number of countries who are parties to the WIPO 
Internet Treaties, as noted in WIPO's survey of implementation of 
those agreements. 
 
Extension of Copyright Term 
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¶39. Copyright term refers to the length of time that copyright 
owners enjoy exclusive rights.  At the expiry of the copyright term 
a work enters the "public domain" and it can be exploited by anyone 
without the risk of copyright infringement. New Zealand wants to 
maintain the TRIPS-consistent term for copyright protection.  New 
Zealand considers that an extension of the copyright term would 
provide little increase in the incentive to create, and would be 
likely to have a detrimental effect on creativity that builds upon 
existing works, and added transactional and tracing costs in 
identifying and locating copyright owners. 
 
Patent term for pharmaceuticals 
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¶40. In New Zealand, the patent term is 20 years from the date of 
filing of the application, with no provision for extension.  This is 
consistent with the minimum standards required by the TRIPS 
Agreement. In 2003, the New Zealand Government considered whether 
the patent term for pharmaceuticals should be extended in New 
Zealand.  The views of interested parties including the 
pharmaceutical companies were sought.  After considering all the 
issues, the Government decided that the patent term should not be 
extended.  It was considered there was insufficient evidence that 
the benefits, mainly in the form of increased investment in New 
Zealand, would offset the costs in the form of increased costs of 
patented pharmaceuticals.  Extending the patent term would delay the 
entry to the market of generic pharmaceuticals. 
 
¶41. In 2002 the Patents Act 1953 was amended to introduce a "spring 
 
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boarding" provision.  This allows generic pharmaceutical 
manufacturers to make use of patented pharmaceuticals for the 
purposes of obtaining regulatory approval.  This allows generic 
pharmaceuticals to enter the market shortly after patent expiry. 
The US has a similar provision (the so-called "Bolar" exemption). 
 
Other Patent Issues 
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¶42. New Zealand would want to continue to avail itself of the 
various exclusions and exceptions relating to patentability 
contained in the TRIPS Agreement.  These include exceptions and 
flexibilities relating to public health, morality and public order, 
and life forms.  The Patents Bill, expected to be introduced later 
in 2007, specifically incorporates some of these exceptions to 
address Maori and Treaty of Waitangi issues concerning life forms 
and traditional knowledge. 
 
McCormick