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UNCLAS SECTION 01 OF 04 TAIPEI 000049 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PLEASE PASS TO AIT/W AND EAP/RSP/TC 
 
STATE PASS USTR/DAVID KATZ AND JARED RAGLAND 
 
USDOC FOR 4430/ITA/MAC 
 
E.O. 12958: N/A 
TAGS: ECON ETRD KIPR TW
SUBJECT:  2007 IPR Wrap-up: Overall Progress, Some Trouble Spots 
 
REFTEL: A) 2007 Taipei 2529, B) Taipei 0008, C) 2007 Taipei 2442, D) 
2007 Taipei 2005 
 
Summary 
------- 
 
¶1. (SBU) Taiwan had mixed results combating IPR violations and 
strengthening its IPR regime in 2007.  A new law aimed at ending 
illegal file-sharing over peer-to-peer (P2P) platforms helped 
officials shut down some of the worst violators, authorities 
increased efforts to combat counterfeit pharmaceuticals, and the 
Ministry of Education (MOE) worked to reduce IPR violations on 
Taiwan's college campuses.  Digital piracy of music, movies, and 
software, however, continues to be a major problem, made worse by 
the authorities' failure to send to the Legislative Yuan (LY) an 
amendment to the Copyright Law that would limit an Internet service 
provider's (ISP) liability if the ISP quickly removed IPR-infringing 
material.  Rights-holders also criticized Taiwan Customs for not 
doing enough to prevent counterfeit drugs, CDs, and DVDs from 
entering Taiwan by mail.  In 2008, we continue to encourage Taiwan 
to demonstrate continued commitment to IPR enforcement by passing 
the long-awaited ISP amendment and reducing digital piracy on 
university campuses. End summary. 
 
P2P Law Getting Results 
----------------------- 
 
¶2. (SBU) In June 2007, Taiwan passed legislation providing a legal 
basis for prosecuting online peer-to-peer platforms whose service 
allows for the exchange of IPR-infringing materials.  In September 
2007, law enforcement agencies worked with the International 
Federation of the 
Phonographic Industry (IFPI) to raid and then shut down the two 
largest P2P service providers in Taiwan: Kupeer and Hip2p (Ref A). 
Most Taiwan colleges have also begun to enforce maximum daily 
download limits in order to restrict student use of P2P platforms on 
school computers, though administrators tell econoff that they are 
reluctant to completely ban the use of P2P software due to cases 
where students have a legitimate need (Ref B). 
 
ISP Amendment Still Pending 
--------------------------- 
 
¶3. (SBU) In 2007, the Taiwan Intellectual Property Office (TIPO) 
proposed an amendment to the Copyright Law that would limit an ISP's 
liability if the provider quickly removed IPR-infringing material. 
TIPO ensured that the United States--along with ISPs and 
rights-holder groups such as IFPI, BSA, and MPA--had opportunities 
to comment on the draft law, and the final version incorporated many 
U.S. suggestions.  However, the 2007 LY session ended before the 
amendment could pass a third reading and become law.  TIPO plans to 
re-introduce the proposed amendment during 2008's LY session. 
 
Plan to Ease Compulsory Licensing Dropped 
----------------------------------------- 
 
¶4. (SBU) Responding in part to U.S. concerns, Taiwan has halted an 
effort to expand the use of compulsory licensing, a practice whereby 
one company can request that the authorities force a rights-holder 
to grant the company a license for its patented product, often at a 
below-market rate.  In October, the LY suspended debate on a 
proposed amendment to Article 76 of the Patent Act that would have 
allowed Taiwan authorities a broader use of compulsory licensing for 
pharmaceuticals and other patented products for domestic use and 
export (Ref C).  Margaret Chen, TIPO's Secretary General, told 
econoff on January 2 that TIPO does not support such an amendment, 
and since the bill's sponsor in the LY will not be re-elected, the 
language he proposed this session to give the Taiwan authorities a 
broad mandate to grant compulsory licenses is less likely find its 
way into any subsequent versions of a Patent Act amendment. 
 
¶5. (SBU) In a separate positive development, in a widely-watched 
test case on the use of compulsory licenses in Taiwan, the Dutch 
company Philips reached a financial settlement with the Taiwan 
company Gigastorage for the company's past production of CD-Rs and 
CD-RWs under such a license (Ref C). In May 2007, after the EU 
initiated a Trade Barriers Regulation (TBR) investigation of the 
case, Gigastorage requested that TIPO nullify its original license 
approval, and the company stopped production of CD-Rs and CD-RWs in 
Taiwan in September 2007.  Philips Taiwan would not reveal the size 
of the settlement to AIT, but told us that it is a "substantial sum" 
to be paid in stages, though Philips raised the possibility that 
Gigastorage may evade payments after the first installment. 
 
¶6. (SBU) Although the compulsory license has been withdrawn, Philips 
 
TAIPEI 00000049  002 OF 004 
 
 
has appealed Taiwan's original decision to issue a compulsory 
license to Gigastorage, and expects that the Taipei High 
Administrative Court will hand down its ruling on this case in the 
first half of 2008. Philips is continuing its appeal because the 
company wants legal vindication that the original decision to grant 
a compulsory license was wrong (Ref C). 
 
Physical Music and Movie Piracy Down... 
--------------------------------------- 
 
¶7. (SBU) According to IFPI, which represents the international 
recording industry in Taiwan, as legitimate CD sales in Taiwan have 
dropped by half since 2004, the percentage of pirated copies has 
fallen from 36 percent of all copies sold to 22 percent (Ref A). 
IFPI estimates that the number for physical outlets for pirated CDs 
has also fallen to only 30 stores around Taiwan, versus 250 a decade 
ago. According to police records, there were 227 music-related 
physical piracy cases in Taiwan in 2006 and only about 150 in 2007. 
 
 
¶8. (SBU) Spencer Yang, the head of the Taiwan Federation Against 
Copyright Theft (TFACT, formerly known as the Motion Picture 
Association - Taiwan), recently told econoff that, although TFACT 
did not have enough money to do a piracy survey this year, they 
believe that Taiwan's physical piracy rate for DVDs has continued to 
decline as the IP Police have gradually shut down most of the 
island's illegal DVD "factories."  According to Yang, most domestic 
counterfeiting is now individuals burning counterfeit DVDs on home 
computers. Yang said that the majority of fake DVDs now come from 
PRC and other overseas mail-order sites that take orders over the 
Internet and deliver physical copies by mail. 
 
...Overall Digital Piracy Up 
---------------------------- 
 
¶9. (SBU) Digital piracy of music and movies, however, continues to 
grow and is now number one on both TFACT's and IFPI's list of 
concerns. IFPI's Lee could not estimate the overall rate for 
Internet music piracy, but recently noted to econoff that the police 
prosecuted 165 music-related digital cases in 2006, but had already 
reached 200 as of August 2007, and that raids on unauthorized sites 
doubled in 2007.  In 2006 and 2007, IFPI members sent more than 2500 
"Cease and Desist" letters asking major Internet service providers 
(ISPs) and auction sites to remove or take down unauthorized music 
content, with an 80 percent success rate in having the ISP remove 
the offending content. 
 
¶10. (SBU) TFACT's Yang believes that the Internet movie piracy rate 
is lower than that for music downloads, but that the movie 
downloading problem will worsen as broadband Internet service 
becomes cheaper and more widely available.  Yang also told econoff 
that Taiwan's judiciary does not take the digital piracy problem 
seriously enough, and complained that judges give light sentences to 
operators of P2P platforms and other websites that offer free movie 
downloads for profit or to attract visitor traffic, despite the fact 
that Internet violators have the potential to reach even more 
customers than traditional underground DVD factories.  Yang also 
said that Taiwan's judicial process is very slow, citing TFACT's 
case against the Ezpeer P2P site that has dragged on since 2005. 
TFACT also has two other cases that it raised with the courts in 
November 2006 and are still under investigation by the prosecutor's 
office. 
 
Software Piracy Worse Than We Think? 
------------------------------------ 
 
¶11. (SBU) Digital piracy is not restricted to just music and movies. 
 According to surveys done by the Business Software Alliance (BSA), 
41 percent of member-company software used in Taiwan is 
unauthorized.  The true picture of software piracy is likely worse, 
however.  During a December 27 meeting, BSA's Taiwan office head 
told econoff that BSA's worldwide survey methodology undercounts the 
true level of unauthorized use by at least 10 percentage points in 
Taiwan.  According to BSA Taiwan, unauthorized use of member 
software--including illegal copies, expired licenses, and 
under-reporting of licensed users--is common not only in the 
business community, but also on university campuses and within 
official agencies. 
 
¶12. (SBU) Ronald Patston, Vice President of Asia Pacific Operations 
for Applied Wave Research, which sells computer-aided design 
software for the production of electronics, recently told econoff 
that roughly 70 percent of Applied's software use in Taiwan is 
unauthorized. Patston believes that the piracy rate for his 
company--which is not a member of BSA--likely reflects the true 
 
TAIPEI 00000049  003 OF 004 
 
 
overall rate of software piracy in Taiwan. 
 
Good Progress Against Counterfeit Drugs 
-------------------------------------- 
 
¶13. (SBU) Don Shruhan, the Singapore-based director of Pfizer's 
regional anti-counterfeiting office, praised Taiwan's efforts over 
the past year against counterfeit pharmaceuticals.  Shruhan recently 
told econoff that in the quality of its police investigations, 
number of prosecutions, and severity of judicial sentences, Taiwan 
has become not just better than regional competitors such as 
Malaysia and Korea, but comparable to more advanced countries such 
as Japan and New Zealand.  As a result, Shruhan said, recent 
island-wide test buys of the often-counterfeited Pfizer drug Viagra 
found that only 18 percent of Viagra sold by Taiwan pharmacies was 
fake, down from an astounding 60 percent in 2006. The  International 
Research-based Pharmaceutical Manufacturers' Association (IRPMA), 
the original-drug manufacturers' industry group in Taiwan, remains 
concerned about counterfeit drugs, but in its 2008 Policy Priority 
Paper, IRPMA ranks the issue far below other IPR issues such as 
patent linkage and data exclusivity. 
 
Customs: The Weakest Link 
-------------------------- 
 
¶14. (SBU) Pfizer's Shruhan told econoff that Customs is the weakest 
link in Taiwan's relatively good efforts against pharmaceutical 
piracy.  According to Shruhan, the most popular way to smuggle 
counterfeit drugs into Taiwan is by mail-order from Thailand or 
China, and he said that Customs is not willing to spend time seizing 
smaller quantities of counterfeits or doing follow-up 
investigations.  In addition, Customs has refused repeated offers of 
free training from Pfizer to help Customs identify counterfeit 
drugs, and, according to Shruhan, does not seem interested in 
improving their anti-counterfeiting efforts. 
 
¶15. (SBU) TFACT's Yang echoed Pfizer's complaints, telling econoff 
recently that although most fake CDs and DVDs now come into Taiwan 
by air parcel in packs of five or less, Customs officers have little 
interest in intercepting such packages.  He attributes this to 
Customs Officers wanting to avoid the large amount of paper work 
required for even relatively small seizures, as well as a lack of 
manpower dedicated to follow-up investigations.  Every year, TFACT 
holds four training sessions for Customs--once each in Taipei, 
Keelung, Taichung, and Kaohsiung--in how to identify fake CDs and 
DVDs, but Customs still allows small packages of fakes to drip into 
Taiwan daily. 
 
IP Court To Open in July 2008 
----------------------------- 
 
¶16. (SBU) The long-awaited specialized IP Court is still just that: 
long-awaited.  We expect the court, originally scheduled to open in 
March 2007, will start hearing cases in July 2008.  BSA and other 
rights-holder groups, while encouraged by the court's establishment, 
are pessimistic that the IP Court will be able to improve 
IPR-related prosecutions since it will only have about 10 
specialized IP judges and the same number of prosecutors. 
Currently, the Taipei District Court alone has 12 judges who hear IP 
cases as part of their normal caseload.  TFACT's Yang told econoff 
that, in addition to being too few, the IP Court's judges will not 
have adequate training needed to improve the handling and speed of 
IP cases. 
 
Campus Action Plan Sparks Some Progress 
--------------------------------------- 
 
¶17. (SBU) In 2007, the Taiwan Ministry of Education (MOE) made 
reducing campus intellectual property rights (IPR) violations a 
priority, and their efforts are creating some positive results. 
Although the Campus IP Action Plan that the MOE released end-October 
was watered-down by university complaints, many schools have stepped 
up enforcement efforts in response to the Plan's incentives. 
Textbook copying and other physical piracy appear to have continued 
their decade-long decline due to heightened enforcement and 
increased understanding of Taiwan's IPR laws by students and copy 
shop employees (Ref B). Digital piracy on Taiwan's university 
campuses, however, is increasing, and software companies complain 
that the MOE and universities are not doing enough to combat 
unauthorized software use on campuses, and also that the MOE has not 
held promised meetings with rights-holder groups. 
 
Comment 
------- 
 
 
TAIPEI 00000049  004 OF 004 
 
 
¶18. (SBU) Although Taiwan authorities did not open the long-awaited 
IP Court and failed to send an Internet service provider (ISP) law 
to the LY in 2007, Taiwan stepped up enforcement against illegal P2P 
file-sharing, counterfeit pharmaceuticals, and textbook copying and 
illegal music downloads on college campuses.  Trouble spots 
remain--including less-than-effective customs enforcement as well as 
digital music, movie, and software piracy--and we will press Taiwan 
over the coming year to pass the long-awaited ISP amendment and keep 
pressure on universities to get digital piracy under control.  End 
comment.