January 18, 2001

TO: U.S.-RUSSA BUSINESIS COUNCIL
AMERICAN CHAMBER OF COMMERCE IN RUSSIA

FR: THE COALITION FOR INTELLECTUAL PROPERTY RIGHTS (CIPR)

RE: COMMENTS ON INTELLECTUAL PROPERTY RIGHTS ISSUES FOR USRBC/AMCHAM POLICY PAPER FOR BUSH-CHENEY ADMINISTRATION

The Coalition for Intellectual Property Rights (CIPR) respectfully submits the following comments for inclusion in the USRBC/Amcham policy paper for the Bush-Cheney Transition Team. Please do not hesitate to contact us for additional information at CIPR’s Washington DC (202-466-6210) or Moscow, Russia offices (7095) 745-8700 or by e-mail at .

Per your request, CIPR has organized its submission according to the following outline.

Input to Part 1: Overview of Commercial Issues

• Intellectual Property Rights Protection and Enforcement in Russia

• Current Situation

• Recent Progress

• Recommendations

Input to Part 3: Policy Recommendations for U.S. Government

• Recognize Improvements

• Advocate for Reform Legislation
• Utilize the WTO Accession Process to Advance IPR Protection and Enforcement
• Technical Assistance
• Support and Cooperate with Private Sector Organizations such as AmCham, USRBC and CIPR

INPUT TO PART 1: OVERVIEW OF COMMERCIAL ISSUES

Intellectual Property Rights Protection and Enforcement in Russia

Intellectual Property Rights (IPR) violations affect both foreign and Russian companies operating in the Russian market. Russian, American and other Western companies’ annual losses from IPR violations in the Russian market, together with losses to the Russian Government in unrealized investment as well as uncollected tax revenues and duties from counterfeit producers and traders, far exceed one billion dollars annually according to numerous sources. The Russian Government and the owners of intellectual property — whose reputations for quality and credibility with consumers are undermined by inadequate IPR enforcement—are not the only ones deeply affected by these deplorable conditions. The ultimate victims of IPR violations are Russian consumers, whose health and safety are often at risk from widely available substandard counterfeit products, including pharmaceuticals, food, alcohol, household products, software and many others.

President Vladimir Putin and The Russian Federation Government have recently demonstrated a greater willingness to address the need for stronger IPR protection and enforcement. However, IPR violations, including trademark and patent infringement, counterfeiting, copyright violations and piracy, remain epidemic in Russia. Corruption, ineffective enforcement, weak criminal penalties, and inadequate education and training of law enforcement and judicial officials are key impediments to better IPR protection and enforcement in Russia. Significant shortcomings remain in the country’s trademark and patent laws, especially provisions dealing with famous trademarks and geographical indications.

Russia’s failure to protect intellectual property rights is an obstacle to the country’s efforts to join the World Trade Organization. The Russian Government’s ability to implement tangible reforms in the IPR area will be a key determinant in its efforts to reform Russia’s economy and attract foreign and domestic investment. Moreover, by improving its IPR environment, the Russian Government has much to gain in terms of reducing related criminal activity, improving its reputation as a place to conduct business, increasing revenues for the state budget and better protecting consumer interests.

Current Situation

The highest priority facing the Russian government is to lend substance to its IPR enforcement capabilities by effecting dramatic improvements in the application of the laws that do exist, and by shoring up the laws themselves. Trademark infringements, the large presence of counterfeit consumer products, and software, audio and video piracy is still rampant throughout the Russian marketplace.

The Coalition for Intellectual Property Rights (CIPR) conducted a survey last year of 135 international companies doing business in Russia that confirmed that intellectual property rights protection was nearly on par with customs and tax problems as the most critical challenges facing foreign businesses operating in Russia. Trademark infringement and counterfeiting were cited as among the most serious IPR violations.

Informed and more recent reports from private sector sources indicate that Russia's IPR enforcement regime has improved somewhat, but overall it suffers from a lack of sustained political and bureaucratic will, financial and technical resources, and corruption. Civil and criminal penalties are highly inadequate. The country still does not have essential laws mandating the physical destruction of seized counterfeit (and contraband) products.

To address these issues, the U.S. Government (USG), as well as CIPR and other organizations such as AmCham, USRBC and the European Business Club (EBC), have worked closely with the American and European business communities and the Russian Government to find solutions for better IP protection and improved enforcement. The U.S. Government also has not hesitated to criticize the Russian Government on its failure to protect intellectual property rights. On May 1, 2000, the United States Trade Representative placed Russia on the Special 301 Priority Watch List for lack of adequate protection of intellectual property rights.

In June 2000, the Russian Government announced at an international CIPR conference, sponsored in part by the U.S. Patent and Trademark Office, that a package of legislative amendments to bring Russia's IPR laws into compliance with TRIPS would be submitted to the State Duma by the end of that year. A great deal of credit for the positive developments in Russia's IPR policy must be given to the Russian Agency for Patent and Trademarks (Rospatent), which has advocated continuously for bringing Russia's IPR legislative regime into compliance with the TRIPS Agreement. As of this writing, the Russian Government’s extensive amendments to the Trademark and Patent Laws are to be submitted momentarily to the State Duma. The Duma is expected to consider at least several key items in the government’s proposed IPR legislative package during its spring 2001 session.

Particular attention must be placed on reforming the judicial system, especially at the regional level. A number of factors hinder the legal process in Russia generally and specifically in the IPR arena. These factors include lack of specialized training for both attorneys and judges in intellectual property; poor compensation of judges; corruption and the absence of transparency in the judicial process; and, inconsistent treatment of cases among the regional, Moscow and federal courts.

Recent Progress

The Russian Government's latest package of legislative amendments and proposals, ready for submission to the State Duma, also include proposals for the Criminal, Criminal Procedure and Customs Codes, and demonstrates a sincere effort in support of IPR reform. The Russian Government has also adopted a "Plan of Action to Enhance the Fight Against IP Violations." The RF Government has already accomplished several important tasks under the Action Plan:

• The Action Plan places the Ministry of Justice as the lead coordinator for RF federal agencies to strengthen the Criminal and Civil Codes, and places the RF Ministry for Foreign Affairs as the coordinator for all IP activities related to the European Community and Russia.
• The Plan also establishes intellectual property offices in each of the seven super regions established throughout Russia by President Putin's redistricting plan.
• Also under the Plan, recommendations are being prepared to establish a special database on IPR violators and new procedures for investigating IP violations.

President Putin also established an inter-ministerial committee on intellectual property issues and The RF Ministry of Economic Development and Commerce and the RF Ministry of Interior are assigned to work with the international business community in identifying solutions to existing IPR problems.

In May 2000, the Ministry of Justice approved Rospatent's "Rules for the Recognition of Trademarks as Well-Known in the Russian Federation." This was a significant step in moving Russia closer to international standards of protection for well-known trademarks owned by domestic and international companies. But much remains to be done to refine these Rules, and their application, so that they will be in line with marketplace realities.

As noted, the State Duma will be considering major revisions to the Criminal Code and to the Civil Code that will increase penalties for violations of intellectual property rights. The international community has long criticized Russia for not having strong criminal and civil laws and penalties to deter IP violators and counterfeiters. Moreover, it is essential that laws be passed to require the physical destruction of seized counterfeit products.

Domestic business organizations, such as the Russian Chamber of Commerce and Industry and the Association of Russian Patent Attorneys, are now working closely with the international business community to raise awareness and to advocate for IPR reforms to government decision-makers. As a result, international companies are no longer the lone voice in advocating for better protection and enforcement.

Recommendations

The U.S. should focus on the following principles to help improve the protection of the trademarks and patents and to reduce counterfeit throughout the Russian Federation:

• Encourage Russia to meet and honor its international treaty obligations, including the Paris Convention, and to adopt and enforce legislation to achieve TRIPS compliance.
• Urge the Russian Duma to adopt pending legislation that protects internationally recognized famous and well-known marks and protects previously protected trademark rights from being cancelled or forced to coexist with later filed geographic indications. Urge the Duma to support pending amendments that significantly increase criminal and civil penalties for IPR violators.

• Keep the provisions of IPR in the Civil Code broad enough to address changing market realities and avoid detailed provisions that will create legal ambiguities and difficulties for the courts to render decisions in IPR cases.

• The USG should continue to provide funding for technical assistance programs to train law enforcement, judicial and customs officials. Additionally, the Russian Government should be encouraged to direct additional budget resources to improve its IPR protection and enforcement capabilities.

• Efforts by the Russian Government to bring greater transparency and accountability to the court system, particularly at the regional level, and to strengthen Criminal Code penalties for IPR violations to deter initial and repeat offenders, should be strongly supported.

• Help the Russian Government increase public awareness about the health threats caused by IPR violations; consumer pressure can play an important role in discouraging retailers and wholesalers from trading counterfeit goods.

• Promote cooperation and educational exchanges between Russian regulators and law enforcement officials and international organizations and governments, such as the WTO, WCO, WIPO, EU and U.S. Government to promote a better understanding among Russian officials and the general public about the detrimental effects of IPR violations on the Russian economy.

INPUT TO PART 3: POLICY RECOMMENDATIONS FOR U.S. GOVERNMENT

Recognize Improvements – There have been improvements in the IPR regime, which should be duly recognized by U.S. Government policymakers. The political will to address IPR problems now appears to exist at the senior level of the Russian government but this relatively new awareness and public commitments must be constantly reinforced at every appropriate opportunity.

Advocate for Reform Legislation – The Russian government’s package of legislative amendments and proposals set for submission to the State Duma, would bring Russia into compliance with the TRIPS Agreement. These initiatives deserve U.S. support. Programs that provide a mechanism for communication between the U.S. Congress and the Russian State Duma, such as the Library of Congress’ Russian Leadership Program or the Duma-Congress Study Group, can assist in facilitating the adoption of the proposed amendments to the IP legislation. The Russian private sector should also be encouraged through dialogue with the international private sector to support its passage. The United States can and should also work closely with the G-8 and the European Union in advocating this position.

Utilize the WTO Accession Process to Advance IPR Protection and Enforcement – The Putin Government is eager to join the WTO despite periodic statements by senior government officials downplaying the importance of membership. U.S. officials can use the forums offered by the accession process to advocate that Russia must comply with its international obligations, not only in legislation but also in enforcement, to protect the intellectual property rights of foreign investors and domestic companies. Coordinated efforts in this regard with the G-8, EU and other WTO member countries could have a significant influence on expediting the Russian Federation’s compliance with essential TRIPS requirements and standards.

Technical Assistance – Demonstrate a commitment to improved enforcement by continuing to offer U.S. technical assistance, especially through the U.S. Patent and Trademark Office, Department of Justice and U.S. Customs. Examples of appropriate and cost-effective technical assistance needed from the U.S. include training for Russian judges and court officials; and, training and technology transfers for RF customs and other law enforcement officials. Financial support for proven public-private partnerships that bring the international and Russian business communities into the process of hands-on IP reform and education in Russia are also needed.

Support and Cooperate with Private Sector Organizations such as AmCham, USRBC and CIPR – These organizations serve as the U.S. Government’s most direct and consistent link to companies with long-term interests and credibility in the Russian market. In addition to technical assistance and “moral support” for private sector initiatives, the new Bush Administration should identify and make known all of the key individuals in the Departments of State and Commerce, U.S. Patent and Trademark Office, USTR and NSC with responsibility for IP issues in the Russian Federation. Ongoing coordination of activities undertaken by these agencies both with the private sector and with their Western government counterparts is strongly encouraged.