VZCZCXRO8652
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHMO #0521/01 0630526
ZNR UUUUU ZZH
R 040526Z MAR 09
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 2209
INFO RHMFIUU/DEPT OF JUSTICE WASHINGTON DC
RUCNCIS/CIS COLLECTIVE
RUEHXD/MOSCOW POLITICAL COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 04 MOSCOW 000521 
 
SIPDIS 
 
STATE FOR EUR/RUS (TUMINARO), EEB/TPP/IPE (URBAN) 
STATE PLEASE PASS TO USTR SMCOY, JGROVES, KALVAREZ, PBURKHEAD 
USDOC 4231 JBROUGHER, MEDWARDS, JTHOMPSON 
USDOC PLEASE PASS TO USPTO 
DOJ FOR CCIPS 
 
E.O. 12958: N/A 
TAGS: ETRD KIPR ECON PGOV RS
SUBJECT: RUSSIA 2009 SPECIAL 301 IPR REVIEW 
 
REF: A. STATE 08410 
 ¶B. 08 MOSCOW 3060 
 
------- 
SUMMARY 
------- 
 
¶1. Consistent with U.S. industry recommendations, Embassy Moscow 
recommends that the USG maintain Russia's Priority Watch List status 
for the 2009 Special 301 IPR Report.  There has been slow but steady 
progress on some IPR legal and enforcement issues during the past 
year.  However, Russia has made insufficient progress in several key 
areas and much remains to be done. 
 
¶2.  On the positive side, Russia has made strong progress in 
combating software piracy, as recognized by the Business Software 
Alliance.  The music industry has welcomed Russia's joining two WIPO 
treaties regulating recordings and copyrights.  In addition, the 
Moscow City Government has recently banned DVD/CD kiosks in the 
public transport system and pedestrian spaces, eliminating one major 
nexus of retail trade in pirated videos and music. 
 
¶3. However, on the negative side, Russia is years behind in 
implementing the fundamental IPR legislative and regulatory 
commitments that it undertook in the November 2006 U.S.-Russia IPR 
Side Letter, signed as part of Russia's WTO accession process. 
Likewise, the IPR enforcement record has been inconsistent, and IPR 
criminal convictions declined in the past 12 months.  The GOR has 
neglected several other serious IPR issues, including growing piracy 
problems in Russia's regions, and corruption among law enforcement 
officials, some of whom reportedly benefit from the trade in pirated 
goods.  In addition, there is a clear lack of leadership on the 
Russian side to advance our bilateral IPR agenda.  END SUMMARY. 
 
--------------- 
Positive Trends 
--------------- 
 
¶4. In several areas, Russia made improvements in the IPR regulatory 
and enforcement environment in the last 12 months, thanks to a 
combination of USG engagement, rising GOR awareness of IPR issues, 
increasing  industry (both foreign and domestic) cooperation and 
lobbying, and rights holders' proactive efforts to protect their own 
intellectual property.  Following is a summary of the positive 
highlights from 2008. 
 
---------------------------------------- 
Protection for Film and Music Industries 
---------------------------------------- 
 
¶5. In 2008, the music industry welcomed Russia's announcement to 
join the WIPO Performance and Phonograms Treaty (WPPT) and the WIPO 
Copyright Treaty (WTC), thus fulfilling one of Russia's commitments 
in the U.S.-Russia IPR Side Letter.  The film industry has seen 
growth in sales of legitimate product, with 82 million legal DVDs 
sold in Russia in 2008, up from 67 million in 2007.  Despite the 
financial crisis, the Motion Picture Association of America (MPAA) 
remains optimistic about Russia as a significant growth market for 
theatrical film releases.  Box office sales in Russia topped $800 
million in 2008 and are expected to reach $1 billion by 2010. 
 
¶6. Companies that have set up their own manufacturing operations in 
Russia, rather than solely importing their merchandise, report 
success from cooperating with the Russian police to fend off 
counterfeiters.  For several years, however, MPAA members have 
reported that even some licensed Russian optical disc plants run 
their production line at night to make unauthorized copies, which 
are then sold illegally.  To root out this problem, some U.S. movies 
studios, including Disney, have moved in 2008 and 2009 to end their 
licensing agreements with Russian optical disc manufacturers, and 
instead are establishing their own facilities within Russia to 
maintain a higher level of control. 
 
--------------------------------- 
Some Positive Enforcement Actions 
--------------------------------- 
 
¶7. While Russia's enforcement efforts are still very spotty (see 
below), in December 2008, a Moscow regional court sentenced 7 
people, including the plant director, to 3-6 years in prison. This 
was the first time that a Russian court ever imposed a prison 
sentence on a plant director. While prosecution and conviction of 
commercial scale pirates is very inconsistent, enforcement of a 2008 
 
MOSCOW 00000521  002 OF 004 
 
 
ban on cam-cording in movie theaters has contributed to a decrease 
in the availability of pirated DVDs.  In addition, in 2009, the City 
of Moscow took a major step to curb piracy by banning all sales of 
DVDs and CDs in Metro stations as of February 1 and in pedestrian 
underpasses as of March 1, 2009. 
 
----------------------------- 
Protection for IT and Hi-Tech 
----------------------------- 
 
¶8.  The estimated software piracy rate in Russia dropped the most 
out of 108 countries examined by the Business Software Alliance 
(BSA) in May 2008.  The BSA attributed the decrease in piracy in 
Russia to software legalization programs, government engagement, 
user education and enhanced enforcement. For high tech companies, 
one of the prime reasons for investing in the Russian market has 
been an improved IPR environment for software, along with the high 
quality and creativity of Russian programmers.  Rights holders' 
collaboration with police is key to protecting against counterfeit 
software.  During the last year, Microsoft alone brought over 1,500 
cases to the attention of the Ministry of Internal Affairs (MVD) for 
investigation. 
 
------------ 
IPR Training 
------------ 
 
¶9.  The GOR displayed an increased willingness to participate in 
USG, EU and industry sponsored IPR training programs over the last 
12 months. Russian authorities, noting that a fully functioning 
economy requires attention to IPR, have also expressed greater 
interest in exchanges with technical experts.  Russian 
administrative and judicial review bodies are beginning to become 
active in protecting IPR, and the number of judges with relevant 
expertise, though still small, is expanding.  In 2008, the USG 
collaborated with the EU on an IPR educational seminar for 150 
federal judges.  In 2009, the U.S. Patent and Trademark Office 
(USPTO) plans to sign a Memorandum of Understanding with the Russian 
Federal Service for Intellectual Property, Patents, and Trademarks 
(Rospatent) for cooperation on training and information sharing on 
technical IPR issues.  From the industry side, Microsoft has led the 
effort to educate law enforcement officials and has conducted 
regional programs to train 1,200 Russian police officers and 
investigators. 
 
--------------- 
Negative Trends 
--------------- 
 
¶10. Despite the positive trends noted above, Russia's efforts in IPR 
regulation and enforcement have lagged on several fronts. Russia 
needs to complete legislation to bring Russia's legal and regulatory 
framework into conformity with international standards. Russia's 
inconsistent enforcement record, failure to curb piracy at notorious 
markets, lack of political leadership on IPR issues, and growing 
piracy problems in the regions, are all telltale signs of the 
endemic IPR problem. 
 
-------------------------------------- 
Legislative Reform behind Schedule 
-------------------------------------- 
 
¶11. In January 2008, Part IV of the Russian Civil Code was enacted, 
and replaced most of Russia's previous civil IPR legislation with a 
single code.  While Part IV improves some aspects of IPR protection 
(e.g., in the area of geographical indications and trademarks), it 
still contains some provisions that are inconsistent with the WTO 
TRIPS Agreement and other international agreements.  The GOR is 
slowly beginning to make good on promises it made in the U.S.-Russia 
IPR side letter to reform Part IV and make it consistent with 
international IPR standards.  The State Duma (Russia's parliament) 
passed the first and second readings of needed amendments to Part IV 
in late 2008 and early 2009, but no date has been scheduled for the 
third and final reading of these amendments. 
 
¶12. The GOR also has not yet passed an amendment granting ex-officio 
authority to customs officials to temporarily seize suspected 
counterfeit goods, despite a commitment in the IPR Side Letter to 
pass such legislation by June 2007.  After going through a first 
Duma reading in late 2008, the ex-officio amendment has stalled in 
the Duma, reportedly over concerns of possible abuse of power by 
customs officers. 
 
 
MOSCOW 00000521  003 OF 004 
 
 
¶13. As for the Law on Medicines, the GOR has not yet even submitted 
to the Duma draft legislation to protect pharmaceutical and chemical 
test data. 
 
¶14. Likewise, Russia committed in November 2006 that by June 2007 it 
would establish a clear structure for the operation and 
accreditation of legitimate societies to collect royalties on behalf 
of music producers.  Unfortunately, a GOR tender to accredit the 
collecting societies was postponed in 2008 and has not yet been 
rescheduled. 
 
---------------------------- 
Enforcement Record is Spotty 
---------------------------- 
 
¶15.  Russia's record of enforcement of IPR crimes has been very 
inconsistent.  The frequency of raids and rights holders' 
cooperation with police increased over the past 12 months.  However, 
in some cases, seized production lines and equipment used for IPR 
infringing activities ended up back in circulation, allowing pirates 
to continue their illegal activities either in another location or 
under a different corporate umbrella.  The GOR has not yet shared 
2008 official statistics on IPR enforcement with the Embassy, but 
the Russian Anti-Piracy Organization (RAPO) told us that 6,885 
criminal cases were initiated in 2008 under on Article 146 of the 
Criminal code (which provides for the punishment of IPR crimes). 
Some 4,858 cases were sent to court and 3,482 cases led to some type 
of penalty, conviction or fine. The Russian Ministry of the Interior 
(MVD) reported a total of 4,088 criminal convictions in 2007, 7,423 
in 2006, and 2,924 in 2005. 
 
--------------------------------------- 
Illegal Downloading Remains Problematic 
--------------------------------------- 
 
¶16. Online piracy and downloading of illegal music and other media 
remains an acute problem in Russia.  Several Russian-based websites 
illegally offer songs, films and software for download, despite the 
fact that the GOR closed down 101 illegal websites offering pirated 
material in 2008, according to the MVD's Computer Crimes Unit.  The 
U.S. copyright industry acknowledges that this MVD Unit is slowly 
beginning to take an interest in pursuing meaningful criminal cases 
against internet pirates. 
 
¶17. Our software industry contacts are dismayed by a new regulation 
with regard to the operational activities of police, which mandates 
that the police can no longer independently conduct raids on offices 
suspected of using pirated software, and may only raid offices if 
they receive sufficient evidence from rights holders.  While the 
rule may have been intended to reduce police corruption, the lack of 
independent authority for the police to conduct raids will likely 
prove to be a hindrance to IPR enforcement efforts. 
 
¶18. In addition, Russian law enforcement organs have not been 
transparent in regard to which unit of law enforcement within the 
MVD or Federal Security Services (FSB) has primary responsibility 
for policing web-based crimes.  However, it is clear that Internet 
piracy is low on the priority list for Russian law enforcement 
organs among the broad panoply of on-line crimes such as child 
pornography, money laundering, financial scams, and organized crime 
activities. 
 
----------------------------------- 
Notorious Markets for Pirated Goods 
----------------------------------- 
 
¶19.  Pirated goods remain widely available to consumers at several 
of Russia's leading electronics markets, despite some progress by 
the Russian authorities in Moscow and St. Petersburg in curbing the 
volume of pirated goods sales at some of them (Ref B).  In Moscow, 
pirated discs are still available, but less overtly displayed than 
in previous years, at the upscale Gorbushka consumer electronics 
market.  Pirated goods are more widely and openly available at the 
working class Savelovskiy electronics market in Moscow. 
 
¶20.  In St. Petersburg, repeated police raids have dramatically 
reduced the level of piracy sales at the Yunona market, but RAPO 
estimates that sales of pirated material still account for 60% of 
all optical disc sales in the city.  Having been pushed out of big 
shops in downtown St. Petersburg and from the Yunona market, the 
pirates now channel their products through smaller open-air markets. 
The area around the Lesnaya metro station is particularly well-known 
for its high sales volume of pirated discs. 
 
MOSCOW 00000521  004 OF 004 
 
 
 
¶21.  Both Moscow and St. Petersburg saw considerable growth last 
year in the number of mobile pirate sellers.  These vendors usually 
have small folding tables, which they put up near metro stations, in 
underground passages and even in yards in residential areas.  Other 
mobile sellers troll the subway systems offering discs to 
passengers.  While these traders have been selling various kinds of 
consumer goods and print materials for quite some time, it was only 
recently that they began to offer counterfeit optical discs. 
 
-------------------------- 
Serious Corruption Problem 
-------------------------- 
 
¶22. Corruption is widely acknowledged by the Russian authorities as 
one of the most serious challenges to the country's economic 
development.  In the area of IPR, rights holders and industry 
associations have told us that local law enforcement units, 
including individual police precincts, are likely involved in some 
selling of pirated goods, taking kickbacks and bribes from pirates 
to turn a blind eye to enforcement, or in some cases, reintroducing 
seized pirated goods into the stream of commerce through 
distribution channels that are protected by local police units. 
 
-------------------------------- 
Lack of Political IPR Leadership 
-------------------------------- 
 
¶23. The political leadership on IPR remains unclear, which makes it 
difficult to advance our bilateral IPR agenda.  Since President 
Medvedev assumed office in May 2008, no senior Russian official has 
shown significant interest in IPR regulatory and enforcement 
questions.  Coordination among the various ministries and agencies 
with IPR responsibilities is spotty.  Many GOR officials view IPR as 
purely a WTO issue.  Since Russia was not able to complete WTO 
accession talks during 2008, the urgency to improve Russia's legal 
and enforcement IPR framework has decreased. 
 
¶24. The general lack of interest is compounded by the fact that the 
current Minister of Culture, appointed shortly after Medvedev's 
inauguration, has not made any efforts to address IPR issues and has 
not designated a Russian co-chair for the U.S.-Russia IPR Working 
Group, which has consequently languished.  While the IPR Side Letter 
stated that the Working Group was supposed to meet quarterly, it has 
not met in a year, largely due to the lack of leadership and 
interest on the Russian side. 
 
---------------------------------- 
Growing Piracy in Russia's Regions 
---------------------------------- 
 
¶25. Rights holders and anti-piracy organizations tell us that 
Russia's regions are becoming "hotbeds" for pirated goods. 
RusBrand, a brand-protection association whose members include both 
Russian and foreign consumer goods manufacturers, reported to us 
that in some rural areas, counterfeits may be the only goods 
available.  Similarly, optical disc piracy is moving out of Russia's 
largest cities, where police tend to be savvier about IPR crimes, to 
regions where there is less police presence and smaller disc 
"burning" operations can be easily established.  Russia's law 
enforcement organs have not yet developed an effective strategy for 
dealing with these regional shifts in piracy production and sales. 
 
---------- 
CONCLUSION 
---------- 
 
¶26. Post recommends maintaining Russia's Priority Watch List status 
as we continue to press for implementation of Russia's IPR Side 
Letter commitments and keep the pressure on the GOR to increase its 
focus on IPR protection and enforcement. 
 
BEYRLE