WRITTEN TESTIMONY

SUBMITTED BY
THE COALITION FOR INTELLECTUAL PROPERTY RIGHTS (CIPR)

TO

THE HOUSE JUDICIAL SUBCOMMITTTEE ON THE COURTS,
THE INTERNET AND INTELLECTUAL PROPERTY RIGHTS

The Coalition for Intellectual Property Rights (CIPR) is pleased to submit written testimony to the House Judiciary Subcommittee on the Courts, the Internet and Intellectual Property Rights on the state of intellectual property protection in Russia and our recommendations to the US Government and the American business community for taking a constructive approach to achieving a higher level of IPR protection in Russia.

CIPR is a private-public partnership founded in 1999 dedicated to IPR protection and reform in Russia and other countries that comprised the former Soviet Union. Through research, education, legislative initiatives, coalition building and legal, judicial and regulatory reforms, CIPR is working with governments and businesses in the former Soviet Union and Baltic States to establish transparent and non-discriminatory IPR regimes and to adhere to international IPR standards.

CIPR represents major U.S. and international companies and business and professional associations concerned with the protection and enforcement of all IP, especially trademarks.

CIPR is the only non-governmental organization officially accredited with the CIS Interstate Council on Industrial Property Protection, comprised of the directors general of the patent and trademark office of Russia and seven other countries of the Commonwealth of Independent States (CIS). CIPR is an official observer to the World Intellectual Property Organization (WIPO) and actively cooperates with the U.S. Government as well as the American Chamber of Commerce in Russia and other Chambers from countries of the former Soviet Union, the U.S.-Russia Business Council, International Trademark Association, World Customs Organization and Interpol.

Current State of the IPR Problem in Russia

The scale of the problem of intellectual property rights (IPR) violations in Russia still remains quite high, particularly in product counterfeiting and copyright piracy. The USTR’s recent decision to keep Russia on its "Special 301 Priority Watch List" and to hold an Out-of-Cycle Review later this year speaks to the degree of concern held by the U.S. Government about Russia’s progress to improve IPR protections.

Indeed, copyright piracy rates in Russia remain extraordinarily high. The staggering volume of pirated music, film, software products and financial losses suffered by the copyright sector in the Russian market should give pause to anyone concerned about IPR. However, trademark violations in the form of product counterfeiting of consumer goods, including food, beverages, clothing, medicines, auto parts, are also enormous in volume and should be of equal concern to the U.S. government.

The Russian government’s own data show how the problem of product counterfeits has reached epidemic levels. According to the Russian Agency for Patents and Trademarks (Rospatent), in 2004 the percentage of counterfeit goods in the marketplace was between 30 to 40 percent, with estimated sales of between $2.89 to $3.61 billion, and lost tax revenues as high as $1.8 billion. Many international and Russian experts feel the estimated losses in business profits and government revenues to be much higher.

The financial losses suffered by international and Russian product manufacturers and the consumers of fake goods are but one aspect of the problem. The physical harm, even death, suffered by consumers from ingesting counterfeit foods, medicines is the tragic human cost of the fake goods trade in Russia. According to the State Duma’s Education and Science Committee report, over 30,000 people die each year from fake vodka. The Russian government estimates that 3 to 5 percent of medicines are counterfeit. But industry groups, such as the Association of International Pharmaceutical Manufacturers (AIPM), estimate the level to be as high as 12 percent or more. Clearly, Russian consumers join American consumers as victims of the trade in fake goods.

Counterfeiters produce a wide range of fake consumer goods in Russia for the domestic market and for export to Europe and North America. According to AIPM, up to 70 percent of the fake medicines in the market are produced in Russia. Local manufacturing facilities produce film DVDs and music, software and entertainment game CDs, and a wide range of consumer goods. Russia is also an importer of fake goods produced in China and in other Asian nations, and is a major transit country for counterfeits bound for Europe and North America. Copyright piracy and product counterfeiting is highly profitable and has attracted the involvement of organized criminal groups in Russia and abroad.

The fight against the cross-border trafficking of fake goods could be supported by enacting an "ex officio" provision in the Customs Code, which would provide customs agents with the power to act on their own initiative and suspend the release of goods if they have evidence that intellectual property rights are being violated.

The infringement of previously registered trademarks through "bad faith" registrations of trademark is still a major problem and still needs to be addressed.

Russia’s law on geographic indications should also be revised. The recent WTO decision on geographic indications has clarified that registration of geographic indications must be refused if the geographic indication conflicts with a prior trademark right (first in time, first in right). No such refusal exists in the Russia's current law on geographic indications. The law should also be amended so that it is clear that registered geographic indications can only be used in the exact linguistic form as registered and that use of variations of the geographic indication would not be allowed. CIPR is advocating that the patent and trademark offices and the courts adhere to the WTO decision on geographic indications in cases that are brought within their jurisdictions.

Other protections needed for improved IPR include legislation to protect non-traditional trademarks (smells, sounds, etc.), to mandate destruction of all seized fake goods and their means of production, and stronger deterrents for counterfeiters in the form of financial penalties and prison time.

The scale of the problem with product counterfeiting, copyright piracy and trademark infringements is enormous and threatens Russia’s economic development, public morale and international prestige.

IP Protections in Russia

While serious IPR issues remain in Russia, it is also important to note that the Russian Government has made tangible progress over the past several years in improving IPR protection. Russia has enacted legislative initiatives to bring its laws on trademarks, patents and other related laws up to international standards. In early 2004, Russian President Vladimir Putin signed into law the Federal Law "On Changes to the Russian Federation Law on Copyrights and Related Rights," bringing Russia nearly into compliance with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).

• The Russian State Duma accepted recommendations from IP rights owners, including CIPR, on a proposed national program "Civil and Criminal Mechanisms to Protect the Consumer Market against Counterfeits and Fake Goods," including legislative amendments, public education on counterfeits and greater cooperation between government and the private sector. CIPR anticipates several legislative initiatives to emerge from the package of IPR recommendations in 2005, including amendments for "first in time, first in right," "ex officio" customs search authority, destruction of seized fake goods and the means of production and stronger penalties for counterfeiters, including prison time.


• Enforcement actions against counterfeiters by law enforcement authorities have increased. For example, CIPR, representing the trademark holders, worked closely with the Ministry of Internal Affairs on three separate enforcement actions, including two public destruction events of millions of seized fake cigarettes and the public announcement of a raid on a counterfeit factory in Southern Russia that resulted in the seizure of fake products, production equipment and arrest of several suspects.


• The Federal Service for the Protection of Intellectual Property, Patents and Trademarks, under the direction of Boris Simonov, has created an IP Working Group comprised of representatives from IP rights holders groups, including CIPR, to provide input on IP policy issues.


• Russian IPR holders are increasingly recognizing the importance of protecting their trademarks, patents and copyrights, and are urging the government to take action.

While enforcement actions against counterfeiters by law enforcement authorities have increased and notable improvements have been made, Russia’s greatest IP challenge continues be the enforcement of IPR on a systemic and regular basis. Russia’s courts and law enforcement establishment have not been able to have a noticeable impact on the fake goods trade in Russia. CIPR is working with the courts and law enforcement community, and encourages the U.S. Government to continue providing IP education and trainings to improve capabilities in enforcing IP laws.

High-level political will is vital to keeping IPR policy a top priority of the Russian government. Unfortunately, IPR policy and legislative initiatives were put on hold for much of 2004 due to the government’s reorganization. CIPR believes the government’s focus on IPR is returning as Russia’s candidacy for WTO membership is given serious consideration by the U.S. Government. The U.S. government should continue to press ahead on key IPR matters during the U.S.-Russia Bilateral discussions.

CIPR encourages the U.S. Government to continue to work with the Federal Service for the Protection of Intellectual Property, Patents and Trademarks, who is playing a key role in the development of IP policy, and the Ministry of Economic Development and Trade, which is leading Russia’s WTO negotiation team. CIPR also supports the U.S. Embassy’s efforts to build relationships with law enforcement authorities, such as the Ministry of Internal Affairs, Customs Committee, Ministry of Justice and Russian Supreme Court.

Recommendations

The development of an international standard IPR regime of laws and effective enforcement practices will only be realized by the active involvement and commitment of all Russian and international private and public sector stakeholders. The U.S. Government has played an important and constructive role in this process. Going forward, CIPR respectfully submits the following recommendations to the Subcommittee for its consideration. These include:

• Continue the constructive encouragement with the Federal Service for the Protection of Intellectual Property, Patents and Trademarks, and other regulators and law enforcement authorities.


• Encourage official government support for draft legislation emanating from the proposed national program "Civil and Criminal Mechanisms to Protect the Consumer Market against Counterfeits and Fake Goods" in 2005.


• Underscore the importance of high level "political will" to supporting the efforts of IP regulators, policymakers and law enforcement authorities to improving the levels of protection for IPR holders and consumers.


• Expand cooperation and involvement with Russian IPR holders and consumer organizations, which are also key IPR stakeholders.


• Encourage greater cooperation by all U.S. stakeholders including companies, the US Embassy, American Chamber of Commerce in Russia, U.S. Chamber of Commerce, International Intellectual Property Alliance and others to interface and develop alliances with Russian companies, the Federal Service for Intellectual Property, Patents and Trademarks and other key government officials, the Russian Chamber of Commerce, consumer organizations, and IP groups. This cooperation would work to address IP issues and to identify common agendas, approaches and real results. CIPR organizes such a broad-based working group in Moscow.

In conclusion, Russia’s legislative improvements and incremental steps towards more effective enforcement should be recognized and encouraged. However, product counterfeiting, copyright piracy, trademark infringements and other IP violations remain a major problem nationwide. Political will is essential for the Russian Government to improve enforcement. This must be done, not for the sake of only international trademark and copyright holders, but even more important, for Russian rights holders.

The US Government, working with U.S. companies, trade associations and others should continue to be an active participant in the joints efforts to improve IP laws and enforcement practices by Russian consumer groups, domestic and international business organizations and public-private partnerships, such as CIPR, in cooperation with Russian government policy-makers, regulators and law enforcement officials. A sustained, day-to-day effort by all international and Russian IPR stakeholders based on a common purpose to protect IPR is the surest path to progress.

Thank you,

Tom Thomson
Vice President
Coalition for Intellectual Property Rights (CIPR)
2000 L Street, NW, Suite 835
Washington, DC 20036
www.cipr.org