USTR Issues "Special 301" Annual Report

On April 28, 2006, the Office of the U.S. Trade Representative released its "Special 301" annual report on the adequacy and effectiveness of intellectual property rights (IPR) protection provided by trading partners around the world. (Read the Executive Summary here.) The report identifies governments who need to take stronger actions to combat piracy and counterfeiting, for example, by cracking down on illegal optical disc production and Internet piracy, or stepping up border enforcement against trade in fake goods. This year's Special 301 Report places 48 countries on the Priority Watch List (PWL), Watch List (WL) or the Section 306 monitoring list.

Addressing weak IPR protection and enforcement, particularly in China and
Russia, continues to be one of the Administration’s top priorities. Although
this year’s Special 301 Report shows positive progress in many countries,
rampant counterfeiting and piracy problems continue to plague both China and
Russia, indicating a critical need for stronger intellectual property protection
in China and Russia.

Countries on the Priority Wtach List do not provide an adequate level of IPR protection or enforcement, or market access for persons relying on intellectual property protection. In addition to China and Russia, eleven countries are placed on the Priority Watch List in this year's report are: Argentina, Belize, Brazil, Egypt, India, Indonesia, Israel, Lebanon, Turkey, Ukraine, and Venezuela.

Thirty-four trading partners are placed on the lower level Watch List, meriting bilateral attention to address the underlying IPR problems. The Watch List countries are the Bahamas, Belarus, Bolivia, Bulgaria, Canada, Chile, Colombia, Costa Rica, Croatia, Dominican Republic, Ecuador, European Union, Guatemala, Hungary, Italy, Jamaica, Kuwait, Latvia, Lithuania, Malaysia, Mexico, Pakistan, Peru, the Philippines, Poland, the Republic of Korea, Romania, Saudi Arabia, Taiwan, Tajikistan, Thailand, Turkmenistan, Uzbekistan, and Vietnam.

Paraguay will continue to be subject to Section 306 monitoring because of previous bilateral agreements reached with the United States, and we will address specific problems raised in earlier reports.

This year’s Special 301 process points to the following virtual and physical markets as examples of marketplaces that have been the subject of enforcement action, or may merit further investigation for possible IPR infringements, or both.

Virtual Markets

www.allofmp3.com (Russia). Industry reports that allofmp3.com is the world’s largest server-based pirate music website. Allofmp3.com is currently under criminal investigation by Russian authorities. Efforts to shut down the site have so far been unsuccessful.

Baidu (China). Industry has identified Baidu as the largest of an estimated seven or more China-based "MP3 search engines" offering deep links to song files for downloads or streaming. Baidu has been the target of infringement actions. Notably, in September 2005 the People’s Court of Haidian District in Beijing reportedly
ordered Baidu to pay RMB 68,000 ($8,400) to a music company for unauthorized
downloads. Baidu has reportedly appealed.

Kuro (Taiwan). In September 2005, managers of Kuro, a peer-to-peer service, were found guilty along with a subscriber of criminal copyright infringement and sentenced to prison terms. In the 2005 Special 301 Report, the United States encouraged Taiwan to improve efforts toward effectively combating increasing levels of Internet piracy.

Physical Markets

Xiangyang Market (Shanghai, China). In early 2006, the Shanghai Municipal Government said it would close this market on grounds of rampant sale of counterfeit fashion and apparel products. More recently, authorities pushed the closure date back to June 30, 2006. The United States welcomes commitments to close Xiangyang Market, and will monitor their implementation. Authorities must remain alert to the possibility that vendors of infringing products may seek to migrate their operations to other Shanghai markets, or to the Internet.

Silk Street Market (Beijing, China). Industry has cited Beijing’s Silk Street Market as "perhaps the single biggest symbol of China’s IP enforcement problems." In 2005, authorities began to pressure the landlords of Silk Street Market and other major retail and wholesale markets in Beijing to improve IPR compliance. In contrast to Shanghai’s Xiangyang Market, however, authorities have not said they would close down the Silk Street Market. Trademark owners filed civil claims in mid-2005 against the landlord, Beijing Xiushui Haosen Clothing Co. Ltd. In December 2005, the Beijing No. 2 Intermediate Court’s IP Tribunal decided five cases in favor of the right holders, imposing liability on the landlords for failing to halt infringements; Beijing’s High Court recently upheld that decision.

Yiwu Wholesale Market (Yiwu, China). Yiwu Wholesale Market reportedly sells approximately 410,000 different items, mostly consisting of bulk sales of small consumer goods. Market officials recently estimated receiving approximately 400 complaints of IPR violations from buyers in 2005. Local officials have acknowledged certain problems and stressed their commitment to IPR enforcement.

Gorbushka, Rubin Trade Center, Tsaritsino, and Mitino (Moscow, Russia). In November 2005, a large Ministry of Interior operation reportedly resulted in police raids at numerous markets, including Gorbushka and Mitino. Industry previously reported that a closure of the Gorbushka market resulted in migration of vendors to the nearby Rubin Trade Center. Industry reports infringement problems at newer markets on the outskirts of Moscow, including Tsaritsinio and Mitino. A raid against the Tsaritsinio market in January 2005 reportedly resulted in the commencement of five criminal investigations.

Tri-Border Region (Paraguay, Argentina, and Brazil). The Tri-Border Region of Paraguay, Argentina, and Brazil has a longstanding reputation as a hotbed of piracy and counterfeiting of all kinds of products. The U.S. Government is funding a training project through which U.S. Department of Justice and U.S. Department of Homeland Security officials will train prosecutors, police, and customs officials from the Tri-Border Region to combat intellectual property crime.

Stand Center, "25 de Marco" Shopping Center, and Promocenters (Sao Paulo, Brazil). In late 2005, over 1,500 Brazilian police and other law enforcement personnel reportedly raided these huge, well-known markets. Acknowledging that the effect on sales of pirated and counterfeit products from such raids is temporary, local enforcement and fiscal officials have pledged continued actions.

Tepito, Plaza Meave, Eje Central, Lomas Verdes, and Pericoapa Bazaar (Mexico City), CAPFU (Puebla, Mexico), and San Juan de Dios (Guadalajara, Mexico). An estimated 50,000 vendors sell IPR products in Mexico’s ubiquitous, unregulated street markets. Past police raids on such markets have sometimes been met with violent resistance, requiring large contingents of security personnel. Video game right holders reported raids on Pericoapa Bazaar in May and December 2005, as well as a raid at Plaza Meave near Mexico City in December.