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P 240450Z FEB 08
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC PRIORITY 8190
INFO RUEHOO/CHINA POSTS COLLECTIVE
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UNCLAS SECTION 01 OF 05 TAIPEI 000249 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PLEASE PASS TO AIT/W AND EAP/RSP/TC 
STATE PASS USTR/DAVID KATZ AND JARED RAGLAND 
USDOC FOR 4431/ITA/MAC/AP/OPB/TAIWAN 
USDOC ALSO FOR ITA/MAC/OIPR 
USDOC PASS TO USPTO GIN, BROWNING, AND LOC STEPP 
 
E.O. 12958: N/A 
TAGS: ECON ETRD KIPR TW
SUBJECT:  Taiwan IPR: 2008 301 Watch List Submission 
 
REFTEL: A) 2007 Taipei 2529, B) Taipei 8, C) 2007 Taipei 2442, D) 
 
2007 Taipei 2498, E) Taipei 49 
 
Overall Assessment 
------------------ 
 
¶1. (SBU) In 2007, Taiwan continued to take measures to reduce 
intellectual property right (IPR) infringement and strengthen its 
IPR regime.  AIT notes several positive developments over the past 
year, most importantly the June passage by the Legislative Yuan (LY) 
of a new law aimed at ending illegal file-sharing over peer-to-peer 
(P2P) platforms, which enabled officials to shut down some of the 
worst violators.  Pharmaceutical industry representatives praised 
Taiwan for increasing its efforts to combat counterfeit 
pharmaceuticals, and the Ministry of Education (MOE) worked to 
reduce IPR violations on Taiwan's college campuses with its Campus 
IP Action Plan.  In addition, the specialized IP Court remains on 
schedule to open in July of this year, though some rights-holder 
groups fear that there will not be enough judges or specialized 
prosecutors to cover the estimated caseload. 
 
¶2. (SBU) However, many problems remain.  While physical copying of 
optical-disk media continues to decline, digital piracy of music and 
movies is a growing problem, and the authorities failed to send to 
the 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.  Although the Business Software 
Alliance reported that Taiwan's software piracy rate has dipped 
slightly to 41 percent in 2007 from 43 percent the year before, some 
software companies' representatives believe that the actual rate is 
significantly higher. Rights-holders continue to criticize Taiwan 
Customs for not doing enough to prevent counterfeit drugs, CDs, and 
DVDs from entering Taiwan by mail.  Although the MOE's Campus IP 
Action Plan has led to some improvements in IP enforcement at 
Taiwan's universities, the Plan has been hampered by its voluntary 
nature, as well as the Ministry's reluctance to more actively engage 
with rights-holder groups. Finally, Taiwan's overly-broad use of 
compulsory licenses seems to violate its commitments under the 
Agreement on Trade-related Aspects of Intellectual Property Rights 
(TRIPS). 
 
¶3. (SBU) Overall, despite continued progress in IP enforcement, AIT 
does not believe that Taiwan has taken sufficient steps to merit 
removal from the Watch List.  In 2008, we will encourage Taiwan to 
demonstrate continued commitment to IPR enforcement by passing the 
ISP amendment, opening the long-awaited IP Court on schedule, and 
reducing digital piracy on university campuses.  End overall 
assessment. 
 
----------------------- 
Ongoing Areas of Review 
----------------------- 
 
Notorious Markets 
----------------- 
 
¶4. (SBU) Piracy in Taiwan's night markets has declined over the past 
decade, and there are no "notorious" physical markets.  In addition, 
in the wake of the June 2007 passage of the P2P bill, the 
authorities have successfully shut down and prosecuted the worst of 
the infringing P2P platforms.  Ironically, the infringing website of 
most concern to the Taiwan authorities is now GoFoxy dot net, which, 
although aimed at a Taiwanese market, is hosted in the United 
States. 
 
Optical Media 
------------- 
 
¶5. (SBU) According to the International Federation of the 
Phonographic Industry (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 of physical outlets for pirated CDs 
has also fallen to only 30 stores around Taiwan, versus 250 a decade 
ago, and other rights-holder groups agree that large-scale 
production and distribution of physically-pirated goods is 
declining.  According to police records, there were 227 
music-related physical piracy cases in Taiwan in 2006 and only about 
150 in 2007. Rights-holder groups believe that most domestic 
physical movie counterfeiting is now individuals burning counterfeit 
DVDs on home computers, with the majority of pirated DVDs coming 
from the PRC and other overseas mail-order sites that take orders 
over the Internet and deliver physical copies by mail. 
 
 
TAIPEI 00000249  002 OF 005 
 
 
Digital Piracy 
-------------- 
 
¶6. (SBU) Digital piracy of music and movies, however, continues to 
grow and is now the number one concern for movie and music 
rights-holder groups. According to police statistics, Taiwan 
authorities prosecuted 165 music-related digital piracy cases in 
2006, which increased 60 percent in 2007 to 265 cases. According to 
local experts, the Internet movie piracy rate is lower than that for 
music downloads, but they believe that the movie downloading problem 
will worsen as broadband Internet service becomes cheaper and more 
widely available.  Rights-holder groups also assert that Taiwan's 
judiciary does not take the digital piracy problem as seriously as 
it does physical piracy, despite the fact that Internet violators 
have the potential to reach even more customers than traditional 
underground DVD factories. 
 
¶7. (SBU) There has been some good news in the fight against digital 
piracy in Taiwan, however.  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 unauthorized music 
content, with an 80 percent success rate in having the ISP remove 
the offending content.  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 
IFPI to raid and 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 (Ref B). 
 
¶8. (SBU) Taiwan continues to make progress on developing legislation 
that would limit an ISP's liability if the provider quickly removed 
IPR-infringing material, but no legislation has yet been passed into 
law.  In 2007, the Taiwan Intellectual Property Office (TIPO) 
proposed an amendment to the Copyright Law and sought comments from 
the United States--along with ISPs and rights-holder groups.  The 
current version incorporates many U.S. suggestions.  Although the 
bill was forwarded to the LY last year, the 2007 LY session ended 
before action was taken on the bill.  TIPO plans to re-introduce the 
proposed amendment during 2008's LY session. 
 
Software, Including Use and Procurement by Authorities 
------------------------ ----------------------------- 
 
¶9. (SBU) According to surveys done by the Business Software Alliance 
(BSA), 41 percent of member-company software used in Taiwan is 
unauthorized, down from 43 percent in 2006 and 2005.  The true 
picture of software piracy is likely worse, however.  Software 
makers have told AIT that that BSA's worldwide survey methodology 
undercounts the true level of unauthorized use by at least 10 
percentage points in Taiwan.  According to rights-holders, 
unauthorized use of 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.  However, rights-holders tell AIT that 
although BSA's numbers may underestimate the problem, the situation 
in Taiwan is slowly improving, and that its 41-percent piracy rate 
compares favorably with Singapore's 39 percent and Hong Kong's 53 
percent. 
 
TRIPS Compliance and Other IPR Issues 
------------------------------------- 
 
¶10. (SBU) Compulsory licensing is a practice whereby a company can 
request that the authorities grant the company a license to produce 
a patented product without the rights-holder's permission, and often 
at a below-market rate.  In 2004, TIPO granted the Taiwan company 
Gigastorage a compulsory license to use Philips patents to produce 
CD-Rs and CD-RWs.  On January 31, the EU released a Trade Barriers 
Regulation (TBR) investigation report on the Philips compulsory 
licensing case.  The EU investigators found that Taiwan violated its 
commitments under the TRIPS agreement, and recommended that the EU 
initiate WTO action if Taiwan does not revoke the original grants of 
compulsory licenses against Philips, as well as take concrete steps 
to change the laws on such licenses within two months of the release 
date of the report.  Although Gigstorage's compulsory license was 
withdrawn in September 2007, Philips has appealed Taiwan's original 
decision to issue the license, and expects that the Taipei High 
Administrative Court will hand down its ruling on this case in the 
first half of 2008 (ref C). 
 
¶11. (SBU) 2007 also saw an attempt by Taiwan to expand the potential 
 
TAIPEI 00000249  003 OF 005 
 
 
use of compulsory licensing.  After strong protests from business 
groups and trading partners, however, in October, the LY suspended 
debate on a proposed amendment to 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.  TIPO, the agency responsible for drafting amendments to the 
Act, has told AIT that it has no plans to re-introduce such a bill 
to the LY during the 2008 session. 
 
Data Protection 
--------------- 
 
¶12. (U) Taiwan has three laws that cover data protection: the 
Personal Data Protection Law, the Trade Secrets Act, and the 
Integrated Circuit Layout Protection Act.  AIT has heard no 
complaints from industry about problems with data protection in 
Taiwan. 
 
¶13. (SBU) In February 2006 Taiwan implemented a new Pharmaceutical 
Law which provides pharmaceutical companies five years of data 
exclusivity for new drugs.  This coverage is limited to chemical 
entity products and does not cover new indications.  It also allows 
competitors to refer to the originators' data and submit generic 
filings three years after the originator gains market approval.  New 
products must be registered in Taiwan within three years of release 
in an advanced-country market.  Taiwan has not yet established a 
system of patent linkage in the regulatory procedures for approving 
generics.  The Department of Health has expressed some interest in 
setting up such a system and has studied the U.S. Orange Book 
system, but so far there are no plans to implement a U.S.-style 
patent linkage system (ref D). 
 
Production, Import and Export of Counterfeit Goods 
----------------------- -------------------------- 
 
¶14. (SBU) Most large-scale pirating of optical media, software, and 
clothing has shifted to other locations in Asia.  Since 2002, 
enforcement authorities have increased the frequency and 
effectiveness of raids against night markets and large-scale optical 
media factories, significantly reducing the number of pirated 
products for retail sale.  In response, over the past few years, IP 
pirates have shifted from large optical media plants to small, 
custom optical-media burning operations, often for home delivery and 
sale over the Internet, or have shifted production overseas. 
 
¶15.  (SBU) Trademark infringement, including fake cigarettes, 
clothing, handbags, watches, and footwear is also an area of concern 
in Taiwan, but official enforcement efforts remain robust. In 2007, 
police filed 2890 cases involving trademark infringement, up 38% 
from 2006, and arrested 3,279 suspects, up 37% from 2006. Taiwan 
Customs reported that the number of seizures of counterfeit branded 
goods increased from 241 in 2006 to 300 in 2007, and Taiwan Customs 
impounded 4,446,506 items in 2007, compared to 2,973,653 items in 
¶2006.  Counterfeit cigarettes accounted for most of these items, 
since each of about four million cigarettes each count as one item, 
but Customs also seized counterfeit cosmetics, leather goods, PC 
boards, medicines, and clothing.  In addition, Taiwan Customs seized 
7707 trademark-violating export goods. 
 
¶16. (SBU) Rights-holder groups have praised Taiwan's efforts over 
the past year against counterfeit pharmaceuticals (ref E).  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. 
 
Enforcement: Active Police, Slow Courts, Light Sentences 
--------------------------- ---------------------------- 
 
¶17. (SBU) Taiwan's Joint Optical Disk Enforcement (JODE) Task Force 
conducted 1008 inspections of optical disk manufacturers in 2007, 
and found no violations of Taiwan law.  The IPR Police conducted 
6582 raids, filed 18 percent more infringement cases in 2007 than in 
2006 and made 15 percent more arrests.  The IP Police's efforts show 
the increasingly digital nature of piracy in Taiwan.  Of the 2280 
infringement cases that the IP Police handled in 2007, 1791 were 
Internet infringement cases, with the rest retail and night-market 
cases. 
 
¶18.  (SBU) The National Police also continued to use regular units 
to investigate IPR infringement cases, and 2007 figures show an 
increase in the number of cases filed and suspects arrested.  Cases 
increased by 22% to 6,274 and arrests increased 25% to 7,119. 
Continuing a trend of the past several years, police seizures of 
 
TAIPEI 00000249  004 OF 005 
 
 
counterfeit optical media decreased compared to the same period in 
last year, which officials attribute to the growing popularity of 
downloading digital content from the Internet. Most successful 
IPR-related prosecutions, however, do not end in jail time for the 
violators.  In 2007, Taiwan courts handed down 2,434 sentences for 
IPR-related crimes, and 2069 were fines or short jail terms that are 
typically converted into fines. 
 
¶19. (SBU) Rights-holder groups continue to complain about the slow 
pace of Taiwan's judicial process.  According to Spencer Yang, 
Executive Director of the Taiwan Foundation Against Copyright Theft 
(TFACT), TFACT's case against the Ezpeer P2P site has dragged on 
since 2005, and the Foundation also has two other cases that it 
raised with the courts in November 2006 and are still under 
investigation by the prosecutor's office. The specialized IP Court 
may help with this process, and we expect the court will start 
hearing cases in July 2008.  Rights-holder groups, however, 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. 
 
¶20. (SBU) Industry contacts believe that Taiwan Customs is the 
weakest link in Taiwan's overall efforts against imported pirated 
goods.  According to rights-holder groups, the most popular way to 
smuggle counterfeit drugs and optical disks into Taiwan is by 
mail-order from Thailand or China. Rights-holder groups, however, 
complain that Customs is not willing to spend time seizing smaller 
quantities of counterfeits or doing follow-up investigations. 
Although most pirated 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 due to the large amount of 
paperwork each case requires, as well as a lack of manpower 
dedicated to follow-up investigations (ref E). 
 
¶21. (SBU) Taiwan Customs conducts border inspection on both imports 
and exports for pirated goods.  In 2007, Taiwan Customs seized three 
export and 300 import shipments with trademark infringements and 77 
import shipments with copyright infringements.  Of the 77 import 
copyright infringement cases, most infringements were related to 
counterfeit Nintendo games.   While changes to the copyright law in 
2004 allowed for ex officio inspections by Taiwan Customs, the law 
requires rights holders to verify within a short period that the 
seized materials are counterfeit.  TFACT routinely sends personnel 
to Taoyuan International Airport to verify the authenticity of 
suspect parcels, but Customs reports that some rights holders are 
not responsive to requests to verify suspect trademark violations. 
 
¶22. (SBU) In 2007, the Taiwan Ministry of Education (MOE) made 
reducing campus intellectual property rights (IPR) violations a 
priority, and their efforts are may be 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), as well as the increasing 
use of cheaper, Chinese-language texts. Rights-holder groups, 
however, have told AIT that the action plan results are tentative at 
best and that digital piracy is rampant on Taiwan's university 
campuses.  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. 
 
¶23. (SBU) Rights-holder groups have also complained that--due to a 
loophole in Taiwan's Copyright Law--clearly counterfeit goods seized 
during investigations are often returned to defendants if the 
investigation does not end in an indictment.  In late January, 
however, TIPO completed a draft amendment to the Copyright Law and 
sent the draft to the Ministry of Justice (MOJ) for comment. TIPO 
recently told econoff that if the MOJ and TIPO can quickly agree on 
the draft's language, TIPO will send the amendment to the EY for 
approval this spring, which could mean that the amendment would be 
taken up by the LY by mid-year. In the meantime, TIPO's Deputy 
Director General, Margaret Wang, recently told us that TIPO is 
working with the MOJ and Judicial Yuan (JY) to find a way to 
mitigate this problem until the law can be changed. 
 
Treaties 
-------- 
 
¶24. (U) Taiwan is not a member of the UN and is therefore not a 
 
TAIPEI 00000249  005 OF 005 
 
 
signatory to the 1996 WIPO Copyright Treaty (WCT) or the WIPO 
Performances and Phonograms Treaty (WPPT). 
 
Comment 
------- 
 
¶25.  (SBU) Taiwan has made significant progress in addressing the 
outstanding IPR problems identified in last year's report.  We 
believe that the Taiwan authorities firmly support an effective IPR 
policy, but have thus far not been able to ensure complete 
implementation of that support.  Specifically, Taiwan has prepared 
viable legislation on Internet service provider (ISP) liability, but 
has not yet submitted it to the legislature.  Although Taiwan has 
laid the groundwork for the long-planned Intellectual Property (IP) 
Court, the Court is not yet up and running.  If the U.S. makes these 
two issues a priority, however, we are optimistic that we can help 
facilitate substantial progress over the next six months.  At the 
same time, we want to ensure that Taiwan maintains its current 
efforts under the IP Action Plan to reduce piracy on campuses. 
With these three major goals in mind, therefore, we believe that if 
Taiwan continues its campus anti-piracy efforts, passes ISP 
liability legislation, and opens the IP Court in July as scheduled, 
Taiwan should benefit from an out-of-cycle review with the goal of 
recognizing sustained progress on IP through removal from the Watch 
List.