Sep 202014
Reference ID Created Released Classification Origin
2009-03-09 23:21
2011-08-30 01:44
Embassy Manila

DE RUEHML #0505/01 0682321
O 092321Z MAR 09




E.O. 12958: N/A
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

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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

“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
——————————————— ———-

¶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

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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

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

¶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

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¶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

¶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

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

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

¶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

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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.




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