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O 092321Z MAR 09
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3435
INFO RUEATRS/DEPT OF TREASURY WASHDC IMMEDIATE
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RUEHZU/APEC COLLECTIVE IMMEDIATE

UNCLAS SECTION 01 OF 05 MANILA 000505 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR EAP/MTS, EAP/EP, AND EB/IFD 
DEPARTMENT FOR EEB/TPP/MTA/IPC 
STATE PASS USTR FOR BWEISEL, RBAE AND KEHLERS 
STATE ALSO PASS USAID, OPIC, USDA 
BANGKOK FOR USPTO JENNIFER NESS 
TREASURY FOR OASIA 
USDOC FOR 4430/ITA/MAC 
USDOC PASS USPTO 
STATE ALSO PASS LOC 
 
E.O. 12958: N/A 
TAGS: ETRD KIPR ECON RP
SUBJECT:  Philippines: 2009 Special 301 Report 
 
REF:  A. State 8410; B. 08 Manila 2611; C. 08 Manila 2418 D. 08 
Manila 1975 
 
¶1. (SBU) Summary.  Embassy recommends retaining the Philippines on 
the Special 301 Watch List.  Improvements to intellectual property 
protection over the past year include an executive order creating 
intellectual property units in law enforcement agencies, increasing 
seizures by the Optical Media Board arising from a supplemental 
enforcement budget received mid-year, and increased seriousness 
about unauthorized camcording of films.  Several longstanding issues 
remain of concern and merit increased government attention in the 
coming year. Retaining the country on the Special 301 Watch List 
will signal our recognition of the country's work and reward those 
responsible for progress while maintaining the leverage that has 
been responsible in some part for this progress and will be crucial 
as we work for greater progress.  End summary. 
 
¶2. (U) This report is divided into three sections:  Part I covers 
the Philippine government's progress on IPR protection, Part II 
describes areas that warrant the government's attention, and Part 
III explains the thinking behind our recommendation. 
 
Part I:  GRP Progress on IPR Protection 
 
President Arroyo Creates IPR Divisions in Executive Agencies 
--------------------------------------------- ---------- 
 
¶3. (U) The most importance advance on intellectual property rights 
took place in June, when President Arroyo issued Executive Order 
736, institutionalizing permanent units to intensify the protection 
of intellectual property rights in law enforcement agencies under 
the National Committee on Intellectual Property Rights.  Members of 
the Committee include the Departments of Justice, Interior and Local 
Government, Bureau of Customs, National Telecommunications 
Commission, National Bureau of Investigation, Philippine National 
Police, Optical Media Board, National Book Development Board, and 
the Bureau of Food and Drugs. 
 
¶4. (SBU) Executive Order 736 converts the Intellectual Property Unit 
of the Bureau of Customs into a permanent administrative division, 
and creates similar units within the other members of the National 
Committee.  The establishment of a permanent IPR unit in the Bureau 
of Customs has been a long-standing recommendation of the USG, but 
the GRP did us one better by establishing these units in all the 
agencies involved with IPR.  We believe Executive Order 736 will 
raise the profile of intellectual property rights protection 
throughout the executive branch. 
 
Supreme Court Orders Development of New Rules for IPR Cases 
--------------------------------------------- ---- 
 
¶5.  (SBU) The Supreme Court Chief Justice has ordered the 
development of new rules to govern IPR cases.  Although he 
originally ordered that they be submitted in draft by the end of the 
first quarter of 2009, we expect (as always here) delay.  We 
understand that continuous trial, sampling of evidence, and 
dedicated, specialized courts are all under discussion.  Any of 
those ideas could make an important contribution to the weak follow 
through of IPR cases in the judiciary. 
 
Enforcement by the Optical Media Board Increasing 
--------------------------------------------- ---- 
 
¶6.  The sextupling of the enforcement budget of the Optical Media 
Board is increasing enforcement against pirates of movies, software 
and music.  The Optical Media Board has traditionally suffered from 
very low budgets.  Congress appropriated only PHP 1 million (about 
$20,000) for enforcement operations in 2008.  Acting on a request by 
Post and USTR, the office of the President provided an addition PHP 
5 million from funds under presidential discretion, which enabled 
the Board to conduct operations more aggressively beginning in 
December.  That end-of-the-year surge pushed seizures of optical 
disks to over 5.1 million in 2008 valued at $36 million, compared to 
4.7 million disks in 2007.  The OMB carried out 1,820 inspections 
over the course of 2008.  As the presidential decision came late in 
the year, the increased budget was not reflected in the 2009 budget, 
so supplementary funding will be needed again this year, but the OMB 
already has made a good start in enforcement for this year based on 
 
MANILA 00000505  002 OF 005 
 
 
that funding, which has not yet been completely expended. 
 
Search Warrants Holding Up 
-------------------------- 
 
¶7. (SBU) The OMB has improved the quality of its legal office 
resulting in warrants that survive challenge.  In the past, many of 
its search warrants were quashed on appeal.  This year, none of the 
eleven warrants it obtained were overturned.  The work of the Board 
is starting to show signs of being better integrated with that of 
the Philippine National Police and the National Bureau of 
Investigation.  The agencies have cooperated on raids outside Metro 
Manila, where the Board is not yet able to maintain large numbers of 
agents, and have cooperated on preparing cases for prosecutors to 
file. 
 
"Flicker Piracy" 
---------------- 
 
¶8. (U) The House of Representatives passed an Anti-Camcording Act 
(House Bill 5699) in 2008, but the Senate has not yet taken the 
counterpart bill up for debate.  Cinema chains have begun to take 
action on this issue as well.  The Shoe Mart chain of malls (the 
largest operator of cinemas in the country) stopped over 200 people 
who were attempting to record films, and other chains nationwide run 
announcements before films asking viewers to alert management if 
they see patrons use recording devices. "Flicker piracy" is a 
particular problem in the Philippines because movies are shown in 
English without subtitles, yielding raw footage that is easier for 
movie pirates to edit into illegal disks for sale worldwide.  The 
courts have never ruled clearly whether the Intellectual Property 
Code, as currently written, outlaws camcording.  In 2008 several 
municipalities in the Manila area passed ordinances banning 
camcording, but they impose fines much smaller than what the 
Anti-Camcording Act proposes. 
 
Enforcement by the Philippine National Police and National Bureau of 
Investigation 
--------------------------------------------- ---------- 
 
¶9. (U) Enforcement actions by the police and National Bureau of 
Investigation fell off in 2008.  In 2008, the Anti-Fraud and 
Commercial Crimes Division of the Philippine National Police 
conducted 29 operations, served 141 search warrants, made 14 
arrests, filed 6 cases, and made seizures worth more than $5.7 
million (vice 241 search warrants, 59 arrested, 28 cases filed, and 
$9 million in seizures in 2007).  Police carried out enforcement 
actions against internet cafes in Metro Manila, Cebu, and Davao City 
cracking down on the use of illegal software.  The Division has 
undergone several changes of leadership over the past 18 months, but 
it appears that the new division chief may serve a full tour of duty 
which should make the division more effective. 
 
¶10. (U) In response to Executive Order 736, the Director General of 
the National Police issued a Letter of Instruction establishing 
procedures for dealing with IPR cases.  Among new initiatives 
resulting from this letter, IPR officers will be designated in 
provinces and municipalities, the Commercial Crimes Division will 
coordinate all IPR cases, and the National Police Academy will 
develop a course on IPR for all new officers. 
 
¶11. (U) The Intellectual Property Rights Division of the National 
Bureau of Investigation served 207 search warrants (down from 310 in 
2007), filed charges against 270 individuals (versus 423 the year 
before) and seized goods worth more than $9 million during 2008, an 
increase from $6 million in 2007.  The Bureau, with 10 agents based 
in Metro Manila, conducted raids against retailers, call centers, 
internet cafes, construction and engineering design firms, as well 
as business establishments using unlicensed copies of computer 
software.  These high-profile raids were conducted in Luzon--Metro 
Manila, Valenzuela City, Batangas Province, Pangasinan Province; and 
Visayas--Iloilo, and Bacolod, and Cebu. 
 
Bureau of Customs Enforcement 
----------------------------- 
 
¶12. (SBU) The Intellectual Property Unit of the Bureau of Customs 
has been a small ad-hoc group, with no permanent personnel or 
 
MANILA 00000505  003 OF 005 
 
 
budget.  Executive Order 736 made the Unit a permanent division of 
Customs.  The Unit made important seizures of trademark-infringing 
goods from China and Malaysia during the year, including a wide 
variety of items.  It confiscated pirated DVDs, counterfeit cell 
phone accessories, bags, shoes and apparel, cigarettes, and 
automobile parts.  Overall, the Unit made 38 seizures worth about 
$16 million in 2008, compared to 34 seizures worth $22 million in 
¶2007. 
 
The Intellectual Property Office Efforts 
---------------------------------------- 
 
¶13. (U) Executive Order 737, signed in mid-2008, established the 
Intellectual Property Research and Training Institute within the 
Intellectual Property Office as the country's center of education, 
training and research on intellectual property, modeled on the 
Global Intellectual Property Academy of the U.S. Patent and 
Trademark Office.  In 2008, the Institute conducted 11 courses, with 
about 420 participants, including courses in patents and 
patentability, patent drafting, nanotechnology and biomedical 
engineering.  In January 2007, the Office signed a Memorandum of 
Understanding with the United States Patent and Trademark Office 
that aims to improve the intellectual property protection system 
through information sharing and capacity building.  The Office 
submitted a work plan under the memorandum in 2008, and the first 
major training event under the accord took place in March, 2009. 
 
Part II:  Areas for Improvement 
------------------------------- 
 
¶14. (SBU) Despite the accomplishments listed above, the IPR regime 
of the Philippines continues to be grossly inadequate.  It suffers 
from many of the weaknesses which afflict the Philippine government 
and economy more broadly, as well as some issues particular to IPR. 
Perhaps the most serious problem is the inefficient, ineffective, 
and sometimes corrupt judicial system.  Some issues in the legal 
regime for IPR also concern us.  Finally, there are several 
opportunities to take advantage of positive trends in the GRP regime 
which we want to highlight. 
 
Prosecution and Punishment 
-------------------------- 
 
¶15. (SBU) The lack of prosecutions and convictions of IPR violators 
continued to be the biggest weakness in IPR enforcement this year. A 
year that saw 562 search warrants issued and $73 million in seizures 
produced only three convictions, all in cases that were several 
years old. 
 
¶16. (SBU) Justice's backlog of unresolved IPR cases, which 
previously approached 1,000, fell dramatically this year to around 
180 cases, mostly due to the dismissal of dormant cases and others 
that were resolved out of court (the Philippine judicial system 
allows for out of court financial settlement between rights owners 
and pirates, and this is not uncommon).  Contacts in the Department 
of Justice have told us they worry that the number will simply 
expand again if systemic issues are not addressed in order for 
courts to bring cases to conclusion more quickly. 
 
¶17. (SBU) The failure of the Department of Justice to prosecute IPR 
cases to conclusion is just one aspect of a weak criminal justice 
system in the Philippines.  Only a small fraction of trials result 
in convictions.  Procedural rules on appeals afford defendants many 
opportunities to delay the progress of cases, and judges across the 
system do not press trials to speedy conclusions.  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 help the Philippines improve its judicial 
system. 
 
¶18. (SBU) As reported para 5, the Chief Justice of the Supreme Court 
has ordered that new rules be developed for IPR cases.  Post is 
following this initiative and offering suggestions with an eye to 
improving the system. 
 
The Legal Regime 
---------------- 
 
 
MANILA 00000505  004 OF 005 
 
 
¶19. (U) The Philippine Congress has yet to pass legislation amending 
the Intellectual Property Code to incorporate the provisions of the 
World Intellectual Property Organization Copyright Treaty and the 
Performances and Phonograms Treaty.  Bills have been introduced in 
both houses of congress to implement the Treaties but neither 
chamber has yet taken up the subject. 
 
¶20. (SBU) Legislation intended to reduce the prices of prescription 
drugs passed both the Senate and House in April, with President 
Arroyo signing it into law in July.  In November, the Intellectual 
Property Office and the Department of Health issued their respective 
implementing rules and regulations.  Although some objectionable IPR 
provisions of the draft legislation were removed before passage, the 
law includes limitations on the patentability of "new uses" for 
pharmaceuticals, international patent exhaustion and liberalized 
rules for compulsory licensing.  The legislation also includes 
several objectionable provisions unrelated to IPR protection, such 
as price controls, and other provisions which provoke the ire of the 
pharmaceutical companies, such as parallel imports. 
 
Cable Piracy 
------------ 
 
¶21. (SBU) The illegal retransmission of pay-television signals 
continues to be a problem in the Philippines, especially outside 
Manila.  The industry reports that its losses to piracy in the 
Philippines were up by 11% this year. In rural areas, some smaller 
regional companies take broadcast signals, often using illegal 
decoders, and redistribute them to customers without payment to 
rights-holders. 
 
¶22. (SBU) Nevertheless, there were pockets of progress on cable 
piracy.  Philippine Justice Secretary Raul Gonzalez twice repudiated 
his 2007 ruling that commercial broadcasts were not covered by 
copyright laws, and reinstated criminal copyright infringement 
charges against Estrellita Tamano, owner of an alleged pirate cable 
company in Cotabato City.  The trial has not yet begun, and the 
Department of Justice continues to seek a change of venue to Manila. 
 Publicity from the Tamano case may have led several smaller 
companies to seek to settle accusations of signal piracy that the 
Cable and Satellite Broadcasting Association of Asia has made over 
the past several years, though settlements have not been reached, as 
yet. 
 
Notorious Markets 
----------------- 
 
¶23. (SBU) There remain many places in the Philippines where pirated 
and counterfeit merchandise is openly sold.  In Manila, the most 
notorious are in street stalls in the neighborhoods of Quiapo and 
Binondo.  Several shopping malls openly sell counterfeit goods, 
including Makati Cinema Square, 168 Mall, and Greenhills Shopping 
Center.  An Executive Order of November 17, 2006 establishes 
landlord liability for tenants who sell pirated merchandise, though 
no landlords have yet been prosecuted for intellectual property 
violations. 
 
Ongoing Initiatives 
------------------- 
 
¶24.  (U) The GRP has yet to issue implementing rules and regulations 
for the Executive Order establishing IPR units in most of the 
agencies.  While the National Police is out in front on this issue, 
it will be important to get these rules out and to provide budgets 
and, in some cases, hire personnel, to take advantage of the new 
institutions. 
 
¶25.  (SBU) For the past two years, Optical Media Board Chairman 
Manzano has campaigned for improvements to the Optical Media Act 
that enumerates the Board's powers.  The jurisdiction of the board 
should be expanded to include mobile device piracy, which is 
becoming a significant problem in the Philippines. 
 
Part III:  Post Recommends Retention on the Special 301 Watch List 
--------------------------------------------- ---------- 
 
¶28. (SBU) The Embassy and the GRP both recognize that the 
Philippines still has a long road to travel before its IPR regime 
 
MANILA 00000505  005 OF 005 
 
 
will meet international standards.  That said, our GRP interlocutors 
are working hard at improving the IPR regime of their country and 
have made real progress in dealing with long-term issues over the 
past year.  They have also had to fight hard in some cases to defend 
against interests which seek to degrade protection. 
 
¶29. (SBU) In deciding what action to take on Special 301 this year 
we believe it important that the interagency consider not only the 
progress to date, but the implications of this decision for the 
prospects for IPR protection in 2009.  In that regard, it is 
important to understand the role Philippine IPR champions have 
played over the past year. 
 
¶30.  (SBU) Adrian Cristobal, the Director General of the 
Intellectual Property Office, went to the President several times to 
advance IPR.  He got the new Intellectual Property Research and 
Training Institute established.  He got the Executive Order 
establishing IPR units signed by the President, accomplishing one of 
our goals (the establishment of an IPR unit in Customs), and going 
well beyond it by establishing such units in all the other related 
agencies.  Secretary of Trade Peter Favila interceded with the 
President to obtain extraordinary funding for the Optical Media 
Board allowing for the current ramp-up of operations there (again at 
our request, but at a level beyond what we had imagined possible). 
He intervened numerous times with the Secretary of Justice to obtain 
the decision reinstating the prosecution of politically 
well-connected cable pirates in Mindanao (para 22).  This was a 
complex and politically hot issue.  Eduardo Manzano continued his 
high-profile fight against disk piracy. 
 
¶31.  (SBU) We expect 2009 to be even more difficult than 2008.  With 
presidential elections in 2010, the focus will be on cozying up to 
domestic constituencies.  We have already seen what that means for 
IPR in the pharmaceutical pricing legislation.  We will need our 
allies, and we will need them to be motivated. 
 
¶32.  (SBU) USTR and the International Intellectual Property 
Alliance, or IIPA, have received letters from Eduardo Manzano 
protesting inaccuracies in IIPA's submission for Special 301.   The 
letters may be a bit humorous, a bit embarrassing, but they provide 
a demonstration of the personal "face" our interlocutors have 
invested in their efforts to improve IPR protection in the 
Philippines.  We believe that a downgrade of the Philippines back to 
the Priority Watch List would demoralize our interlocutors and make 
progress in 2009 much more difficult to achieve. 
 
¶33.  (U) Equally important, we believe that an objective assessment 
of the Philippine efforts must conclude that, while the country did 
stumble in some areas, it took three steps forward for its two steps 
back.  And the three steps forward were on long term initiatives, 
such as the institutionalization of IPR protections, which are 
crucial to resolving the serious, entrenched problems here. 
 
Kenney