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Annual IPR Report Warns of Trade Secret Theft, Deteriorating Protections

Friday, April 29, 2016
Sandler, Travis & Rosenberg Trade Report

The Office of the U.S. Trade Representative released this week its annual Special 301 report on the adequacy and effectiveness of U.S. trading partners’ protection and enforcement of intellectual property rights. This year’s report reviews 73 trading partners and lists 34 of them as meriting particular concern.

According to USTR, this report identifies a wide range of concerns, including (a) the deterioration in IPR protection and enforcement in a number of trading partners; (b) reported inad­equacies in trade secret protection in China, India and elsewhere; (c) troubling indigenous innovation policies that may unfairly disadvantage U.S. right holders in markets abroad; (d) the continuing challenges of online copyright piracy; (e) measures that impede market access for U.S. products embodying IPR and U.S. entities that rely upon IPR protection; and (f) other ongoing, systemic IPR enforce­ment issues in many trading partners around the world.

Positive Developments. The report highlights the following achievements by U.S. trading partners in 2015.

- China continued to pursue a broad-ranging overhaul of its IPR-re­lated laws and regulations as well as a pilot study of specialized IPR courts.

- Honduras has taken actions to implement a detailed intellectual property work plan for 2016 focusing on strengthening criminal IPR enforcement, combating the unauthorized rebroadcast of cable and satellite transmissions, clarifying the scope of protections for geographical indications, and de­veloping a trademark recordation system to improve customs border enforcement.

- Costa Rica has committed to develop and implement a similar work plan.

- Paraguay signed a memorandum of understanding with the U.S. under which it committed to take specific steps to im­prove its IPR protection and enforcement environment.

- The an­ti-piracy framework under the Italian Communications Regulatory Authority had enforcement successes against offshore infringing torrent sites thanks to fast-track proce­dures and tools designed to address illegal linking sites and repeat infringers. Furthermore, the Italian Constitutional Court upheld the legitimacy of the AGCOM regulatory framework.

- Belarus is removed from the Watch List after showing over the past several years continued commitment to improve its laws on IPR protection and enforcement, in­cluding an ongoing upgrade of the National Center for Intellectual Property’s automated sys­tems and strengthened penalties for repeat infringers.

- Kenya allocated more resources to its Anti-Coun­terfeit Agency, including opening two new branch offices and hiring additional enforcement officers. Kenya also drafted updates to its copyright and trademark legislation that, among other things, would create legal incentives for Internet service providers to cooperate with copyright holders and create deterrent penalties for infringement.

Negative Trends. The report notes the following trends in counterfeiting and piracy.

- The manufacture and distribution of pharmaceutical products and active phar­maceutical ingredients bearing counterfeit trademarks is a growing problem that has important consequences for consumer health and safety.

- Even when criminal enterprises engaged in global trademark counterfeiting operations are investigated and prosecuted, the penalties imposed on them in many countries are low and do not deter further infringements.

- Online sales of pirated and counterfeit goods have the potential to surpass the volume of sales through traditional channels such as street vendors and other physical markets, but enforcement authorities face difficulties in responding to this trend.

- Many countries do not provide criminal penalties for trade secret theft sufficient to deter such behavior and some foreign countries’ practices and pol­icies put valuable trade secrets at risk of exposure, including evidentiary requirements in litigation and mandatory technology transfer.

- Right holders report an increasing variety of government measures, policies and practices that are touted as means to incentivize domestic indigenous innovation but that, in practice, can disadvantage foreign companies, such as by requiring them to give up their IPR as the price of market entry.

Priority Watch List. Trading partners on the PWL present the most significant concerns regarding insufficient IPR protection or enforcement or actions that otherwise limited market access for persons relying on IPR protection. Eleven countries – Algeria, Argentina, Chile, China, India, Indonesia, Kuwait, Russia, Thailand, Ukraine and Venezuela – are on the PWL this year and will be the subject of particularly intense bilateral engagement during the coming year. 

Pakistan and Ecuador were both upgraded from the PWL to the WL. Pakistan took significant steps to improve IPR protection and enforcement, including establishing specialized IPR courts, establishing a timeline to draft and implement amendments to IPR laws, improving border enforcement procedures, undertaking public awareness programs on IPR protection, and committing to regular action-oriented engagement with the U.S. government and stakeholders. Ecuador reinstated criminal procedures and penalties for commercial scale counterfeiting and piracy.

Watch List. Twenty-three trading partners are on the WL and merit bilateral attention to address underlying IPR problems: Barbados, Bolivia, Brazil, Bulgaria, Canada, Colombia, Costa Rica, Dominican Republic, Ecuador, Egypt, Greece, Guatemala, Jamaica, Lebanon, Mexico, Peru, Romania, Switzerland, Turkey, Turkmenistan, Uzbekistan and Vietnam. 

Tajikistan, Belarus and Trinidad & Tobago were removed from the WL for improvements to IPR enforcement, including in the areas of customs enforcement, criminal prosecutions and broadcast piracy, respectively.

USTR states that Switzerland was added to the WL this year because copyright holders have essentially been prevented from enforcing their rights against online infringers and Switzerland has become an increasingly popular host country for infringing websites.

Out-of-Cycle Reviews. OCRs focus on identified challenges in specific markets. Successful resolu­tion of these issues can lead to a positive change in a trading partner’s Special 301 status outside of the typical timeframe for the annual review, while failure to address these concerns or further deterioration within the specified timeframe can lead to an adverse change in status.

In 2016 USTR will conduct OCRs of the following countries.

- Colombia: to assess its commitment to the IPR provisions of the U.S.-Colombia Trade Promotion Agreement and monitor the implementation of its national development plan; USTR will determine in August and December whether to adjust Colombia’s Special 301 status

- Pakistan: to determine whether Pakistan ful­fills commitments made during the 2016 annual review cycle to continue to improve certain aspects of IPR protection and enforcement

- Spain: an OCR announced in 2013 focused on concrete steps taken by Spain to combat copyright piracy over the Internet will be continued; USTR welcomes the passage of amendments to legislation and the issuance of a revised attorney general’s circular and urges Spain to continue its work in this area, such as regarding the Intellectual Property Commission to ensure the adequacy of its resources, the implementation of its new legal authorities and the effectiveness of its operations and actions

- Tajikistan: removed from the Watch List this year in recognition of its efforts to improve IPR protection and enforcement, including providing ex officio authority to customs authorities, acceding to international treaties that contain obligations to strengthen IPR protection and enforcement, and adopting amendments to provide a system for protecting against the unfair commercial use and unauthorized disclosure of undisclosed test or other data gener­ated to obtain marketing approval for pharmaceutical and agricultural chemical products; an OCR announced in 2015 will remain open through this fall to reinforce these positive steps and USTR may reconsider Tajikistan’s Special 301 status if certain benchmarks are not met by then

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