ID:27536
    Date:2005-02-23 16:43:00
    Origin:05MADRID696
    Source:Embassy Madrid
    Classification:UNCLASSIFIED
    Dunno:05MADRID7 05STATE23950
    Destination:This record is a partial extract of the original cable. The full text of the original cable is not available.


    
UNCLAS SECTION 01 OF 04 MADRID 000696 
 
SIPDIS 
 
DEPT FOR EB/IPC SWILSON/JURBAN DEPT PLEASE PASS TO USTR 
BPECK, DOC ESCWHARZ, USPTO DLASHLEY-JOHNSON 
 
E.O. 12958: N/A 
TAGS: ETRD, KIPR, SP, Other 
SUBJECT: SPECIAL 301 RECOMMENDATION 
 
REF: (A) STATE 23950 (B) MADRID 00007 (C) 2004 MADRID 
     04299 
 
1. Summary: Piracy in Spain continues to be a major problem. 
The new government is formulating, in concert with 
stakeholders, an integrated plan against piracy (ref B). 
Industry is skeptical but is working actively with the 
government to fix some legislative loopholes and to encourage 
more effective enforcement.  The GOS is willing to work with 
the USG on an IPR "roundtable".  Spanish law enforcement 
agencies are active in combatting IPR piracy, but, to date, 
law enforcement actions have not had a discernible impact on 
IPR piracy levels.  Local industry association 
representatives express greater frustration over piracy 
levels and some advocate Spanish inclusion on the 301 list. 
Our overall sense is that the Zapatero government is 
committed to fighting piracy.  Given the government's 
formation of an integrated anti-piracy plan, work with 
industry on legislative issues, willingness to work with the 
USG on an IPR "roundtable", and the newness of the government 
(the Zapatero government took office after the last Special 
301 determination), our recommendation is that Spain stay off 
the 301 watchlist this year. End Summary 
 
 
CHARGE MEETING WITH VICE PRESIDENT TERESA FERNANDEZ DE LA VEGA 
 
 
2. Charge emphasized the importance the U.S. attaches to 
effective IPR enforcement in a 2/22/05 meeting (septel) with 
Vice President Fernandez de la Vega who is, in effect, the 
Deputy Prime Minister of Spain.  De la Vega clearly 
understood our message and was familiar with the issues.  She 
said she had received a local industry federation the day 
before to talk about IPR matters and noted that it was a 
difficult task to work on because there was little public 
consciousness that IPR theft was wrong, let alone a crime. 
 
 
 
OVERALL IP CLIMATE 
 
 
3. MUSIC: The International Intellectual Property Alliance 
(IIPA) estimates piracy losses to be about USD 90 million in 
2004.  The Spanish Music Producers Association (PROMUSICAE) 
released a "White Book" on the music industry in Spain in 
early 2005, although most of the latest statistics contained 
in the white book are from 2003.  The association estimates 
that in 2003, 24% of the CDs sold in Spain were pirated. 
There is no indication that this percentage changed 
significantly in 2004, despite a greater volume of police 
confiscations.  Moreover, internet downloads probably 
increased in 2004.  Artists saw a reduction in royalties of 
37% between 2000 and 2003, and during the same period music 
producers cut employment by 20%.  This is the background 
prompting music industry executives to say that their 
industry is in "crisis".  PROMUSICAE says the future of the 
industry depends on developing new business models, 
technology and future legislation/enforcement.  In October, 
2004 iTunes opened for business in Spain, allowing consumers 
to purchase legal music online.  Cellphone companies have 
developed technologies allowing for the downloading (legal) 
of digital quality music.  So, there were some positive 
developments for the music industry in 2004.  But the 
combination of the EU's highest level of street piracy (which 
probably affects music the most of all the IP industries) and 
developed world levels of internet piracy has frustrated the 
music industry.  The government talks the talk.  In fact, 
Minister of Culture Carmen Calvo signed a prologue to the 
white paper in which she says that the "public administration 
must be the guarantor of Intellectual Property Rights".  But 
translating even fairly high levels of law enforcement 
activity into meaningful piracy level reductions remains a 
challenge. 
 
4. VIDEOGAMES: Pirated games remain readily available even 
though IIPA notes that "there were more police actions 
against retail outlets selling counterfeit and pirated goods 
in 2004". 
 
5. AUDIOVISUAL SECTOR: The IIPA estimates losses at USD 40 
million.  Pirated DVDs are readily available on the street, 
subway stations and in bars and restaurants.  An industry 
representative told EconOff that he has tried repeatedly to 
arrive at a deal with the bar and restaurant association, but 
the association will not return his calls. (Comment: Doing 
something about rampant sales of pirated audivisual and music 
products in bars and restaurants should be a priority.  This 
business is dominated by Chinese vendors who frequent even 
upper middle class establishments to ply their wares.)  The 
Spanish Federation for the Protection of Intellectual 
Property (FAP) is also particularly worried about internet 
piracy as the average time for downloading a movie declines 
to seven minutes with the latest ADSL connections. 
 
6. SOFTWARE: The Business Software Alliance (BSA) estimates 
the 2004 piracy level to be 44%, down from 49% in 2003 but 
nonetheless one of the highest levels in the EU.  Small 
companies, dealers and internet downloaders are the main 
software piracy perpetrators. 
 
7. TRADEMARK ISSUES: Embassy is not aware of outstanding 
trademark issues affecting U.S. firms.  Nike is still engaged 
in court battles with its former partner, but the 
specifically trademark-related aspect (i.e. who can use the 
trademark) of the company's decade-plus litigation is over. 
 
 
PHARMACEUTICAL PATENTS 
 
 
8. Spain's pharmaceutical patent problem is a legacy of its 
old process patent law which was in effect until October, 
1992.  From that point on, all pharmaceutical patents granted 
have been product patents.  Pharmaceutical companies complain 
that non-innovative producers are able to easily obtain 
permission to produce "legal copies" of their process 
patented drugs if they make minor changes in the production 
process.  Like other countries that have a recent history of 
process patents, this is a problem that only time will solve. 
 For the next seven years the legacy of the old patent system 
will continue to irk pharmaceutical companies, but until all 
process patents are expired, we do not anticipate a 
significant change in the situation. 
 
9. U.S. pharmaceutical companies operating in Spain recently 
assumed leadership positions the Spanish pharmaceutical 
association, Farmaindustria.  American companies in Spain are 
concerned about government tax and pricing policies affecting 
the industry that might have an especially deleterios effect 
on the R&D based industry.  In fact, these policies are the 
U.S. firms' principal concerns, rather than traditional 
clearly IPR and/or TRIPs-related commitments undertaken by 
the GOS. 
 
 
POLICE ENFORCEMENT EFFORTS 
 
 
10. In 2004, the National Police conducted 982 raids and 
1,304 arrests, up from 488 raids and 733 arrests in 2003. 
The Madrid Municipal Police confiscated 1.6 million items and 
conducted 390 raids in 2003.  The Municipal Police 
confiscated roughly 1.2 million items in 2004 and conducted 
256 raids in 2004, a downtick.  We do not currently have 
numbers for other law enforcement entitities.  The important 
thing to take away from these actually quite impressive 
levels of law enforcement activity though is that they do not 
have a signficant deterrent effect. This is probably because 
there were very few convictions resulting in meaningful jail 
sentences and/or fines.  Most arrestees are released after a 
few days and given a court hearing date months later.  For 
the pirates, police enforcement is really just a minor cost 
of doing business.  In theory, the tougher penal code 
(effective since October 1, 2004) gives the police the tools 
to go after pirates as they can do so ex oficio.  And judges 
have the option of stiffer sentencing.  But in practice, the 
courts lack of interest in IPR crimes complicate the effort 
to mount a meaningful enforcement campaign. 
 
 
EDUCATION EFFORTS 
 
 
11. In January, 2005, Minister of Culture Carmen Calvo 
participated in an event called "Days of Training for 
Professional Experts in the Study of Phonographic and 
Videographic material".  This was a major event receiving 
extensive press coverage and focussed on piracy.  In May, 
2004 Spain attended an Interpol and World Customs 
Organization (WCO) conference on counterfeiting. 
 
 
ANTI-PIRACY INITIATIVE 
 
 
12. The Minister of Culture announced on 12/29/04 the GOS's 
"Integrated Plan for the Reduction and Elimination of 
Activities Violating Intellectual Property".  The plan, which 
is still being finalized in consultation with industry, 
involves coordinating 11 different Ministries in an effort to 
reduce piracy.  Culture Ministry Under Secretary Antonio 
Hidalgo told visiting Commerce Assistant Secretary William H. 
Lash, III on 2/17/05 (septel) that the fact that the Culture 
Ministry had managed to corral 11 ministries into 
collaborating on fighting piracy showed that Zapatero himself 
was interested in the issue - otherwise most of the 
ministries would not be willing to participate.  The plan 
involves creating an Interadministrative Commission to 
coordinate IPR protection; describe piracy problem in all its 
aspects; conduct public education campaigns; 
regulatory/legislative reform; and law enforcement/judicial 
training.  (Comment: Some of this work is probably redundant, 
but nonetheless it is worthwhile noting that all the relevant 
industry sectors are cooperating with the government on this 
initiative.) 
 
 
PROPOSED U.S.-SPAIN IPR ROUNDTABLE 
 
 
13. Commerce Department Assistant Secretary Lash and Deputy 
Assistant Secretary Eric Stewart conducted meetings with 
industry representatives, the Industry, Tourism and Trade 
Ministry, the Culture Ministry, and the National Policy on 
February 17.  Lash proposed the organization of a U.S. - 
Spain IPR Roundtable in Spain sometime in 2005.  All GOS 
interlocutors accepted in principle.  The Culture Ministry 
will probably take the lead for the GOS on this event. 
 
 
REGULATORY/LEGISLATIVE FIXES NEEDED 
 
 
14. Internet Service Providers (ISPs) are only obliged to 
take action against pirates if they have "effective 
knowledge" of piracy.  Spain's e-commerce law defines two 
ways for ISPs to have "effective knowledge".  A court order 
can provide such knowledge, but it is time consuming to get 
an order.  The Spanish e-commerce law also provides for the 
possibility of using an administrative mechanism, but content 
providers are not clear on how to avail themselves of this 
mechanism.  Culture Ministry officials told A/S Lash that 
they would work on clarifying the administrative route 
towards providing "effective knowledge" to internet 
providers.  They said this can be done through regulation, 
rather than legislatively.  This is of enormous practical 
interest to, for instance, the music industry.  In Spain, the 
most important ISP is Telefonica.  Industry complains that 
the current legal environment does not provide sufficient 
incentive for the telecoms giant to clamp down on pirates. 
Given that the current "killer application" (i.e. most sold) 
in the internet world is a program allowing for music 
downloads, industry frustration on this issue is mounting. 
 
15 The law transposing the EU Copyright Directive contains 
two serious weaknesses according to industry representatives. 
 First, it defines copying too narrowly.  The current draft 
says copying is fixing a work so that it can be communicated 
and copied.  Industry wants an and/or definition of copying. 
Industry also wants permitted copying for private use to be 
limited and for the copiers not to overcome 
anti-circumvention devices. 
 
 
ONGOING AREAS OF REVIEW 
 
 
16. OPTICAL MEDIA PIRACY REGULATIONS: Article 25 of Spain's 
IP legislation establishes a tax on optical manufacturing 
equipment; operators are required to apply for licenses. 
There is no legislation requiring that Source Identification 
Codes (SID) be used on locally manufactured CDs.  Despite 
this, however, 12 out of 13 Spanish compact disc 
manufacturers have signed SID accords with Philips and IFPI. 
 
 
17. USE/PROCUREMENT OF GOVERNMENT SOFTWARE: As previously 
reported, in 2000 the GOS published guidelines entitled "The 
Intellectual Property of Software Programs."  These 
guidelines are for government ministries and outline measure, 
recommendations and good practices for acquiring and using 
software.  The guidelines have been explained in workships 
and are widely available to Spanish government officials, 
including on the internet. 
 
18 TRIPS COMPLIANCE: The GOS counts itself in complete 
compliance with TRIPS since 1997. 
 
19. ENFORCEMENT: See para. 9 above. 
 
COMMENT 
 
 
20. The Spanish IPR piracy picture is an amalgam of Third 
World and First World.  Readily available pirated products on 
the street, in subway stations, bars, and restaurants 
resemble the Third World.  Internet levels of piracy approach 
the most advanced countries in the world.  Clearly, this 
government takes this issue seriously, but it will take 
sustained education, law enforcement, legislative and 
regulatory efforts to bring piracy levels down appreciably. 
On balance, we think this government should have another year 
off the watchlist to work on IPR piracy.  But no matter 
happens with respect to Spanish inclusion or non-inclusion, 
Embassy Madrid will urge the GOS to focus on the following 
actions. 
 
A. Appropriate-level participation in a U.S.-Spain IPR 
Roundtable. 
 
B. Creation of an effective administrative mechanism to 
compel ISPs to shut down pirates. 
 
C. Legislative fixes to the proposed law transposing the EU 
Copyright Directive. 
 
D. Work with bar/restaurant associations to keep pirates out 
of such establishments. 
   Work with subway authorities as well. 
 
Given many entertainment industry stars' open preference for 
the Socialist government (it is signficant, for instance, 
that Zapatero attended the Spanish equivalent of the Oscars), 
it is possible that this government will be especially 
sensitive to doing something for this sector.  We will need a 
year or so to see if this sensitivity translates into 
results. 
 
 
 
 
 
MANZANARES