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19 May 2003
On May 1 2003 the Office of the US Trade Representative (USTR) issued its Special 301 Report, listing the world’s worst countries for the protection of IP rights. For the third straight year Taiwan was listed on the Priority Watch List. While the report notes some positive steps taken by Taiwan’s government to bolster its IP enforcement capabilities - including expanding an inter-agency IP rights taskforce to 220 members, obtaining warehouses for the storage of seized counterfeit goods and manufacturing equipment, and amending the Copyright Law to strengthen its protections – the report notes that these steps have not yet produced results, and "piracy and counterfeiting levels remain unacceptably high". The problem has been particularly bad with regard to the protection of copyrights.
Scope of the Problem
In a February 12 2003 performance report the Taiwan Intellectual Property Office (TIPO) of the Ministry of Economic Affairs stated that approximately 80% of the IP prosecutions and 80% of the value of the infringing goods seized in Taiwan in 2002 involved cases of copyright infringement. The total value of goods seized in copyright infringement cases was estimated at US$230 million. While Taiwan's government claims these seizures as a success, foreign entities interpret the numbers differently.
According to a USTR report that served as a basis for this year's Special 301 Report, "minimal progress was made in strengthening [Taiwan's] IP rights protection regime during the past year". The USTR report was based in part on a report of the International Intellectual Property Alliance, which comprises various media and software associations, including the Business Software Alliance, the Recording Industry Association of America, the Interactive Digital Software Association and the Motion Picture Association of America. The International Intellectual Property Alliance report called Taiwan "one of the world's worst pirate havens" and estimated last year's losses to US companies from copyright infringement in Taiwan to be more than US$750 million.
The bulk of the problem comes from counterfeit optical media. The TIPO confesses in its performance report that, "due to the rapid development of technology, pirated optical disks have become the major source of copyright infringement in Taiwan". Industry groups estimate that more than half the movie, music and business software disks sold in Taiwan are fake. The Special 301 Report notes that “Taiwan is one of the largest sources of pirated optical media products in the world”.
The problems with copyright protection in Taiwan fall into four areas. Procedures
for investigating and prosecuting suspected infringement are too cumbersome
and slow. Enforcement has been ineffective. Penalties and provisions for confiscation
of equipment used to manufacture pirate goods are inadequate. In addition, Taiwan's
border control system for preventing the export and transshipment of infringing
products is ineffective.
Investigation and prosecution
The first hurdle IP owners face in Taiwan is that police may not raid the factory or warehouse of a suspected infringer without a search warrant signed by a judge. Due to Taiwan's burdensome requirements concerning power of attorney, signature, legalization and notarization of the complaint, a warrant generally cannot be obtained in less than a month, by which time the infringing goods are often gone. Unlike other countries, Taiwan's law requires an IP owner to grant to its attorneys a separate power of attorney for each suspected act of infringement rather than a general power of attorney covering all future infringements. The problem is compounded by Taiwan's requirement that the power of attorney must generally be signed by the IP owner's chief executive officer, before being notarized and legalized at the Taiwan representative's office.
Critics argue that requiring the chief executive officer's signature for every complaint of infringement violates the Trade-Related Intellectual Property Rights (TRIPS) agreement requirement that World Trade Organization members may not impose overly burdensome IP procedures. Additionally, the signature requirement has been criticized as violating the TRIPS national treatment requirements, as local companies generally do not require the chief executive officer's signature. For those reasons, it is expected that Taiwan will eventually abandon the chief executive officer signature requirement. Taiwan joined the World Trade Organization in January 2002 and has been steadily amending its laws to bring them into compliance.
Only after the IP owner's attorney has obtained the signed power of attorney may it submit a complaint for infringement to the police, who will then forward it to the prosecutor, who will forward it to the judge, who will hopefully grant a search warrant. Assuming the raid is successful, the owner may then proceed with a lawsuit against the infringer, but that process is equally frustrating. Taiwan's burdensome requirements concerning documentary formalities continue, and many feel that Taiwan's judges are reluctant to hear IP matters, with cases often dragging on for years. Further, Taiwan law provides for only minimal discovery procedures, so IP owners are often unable to obtain the information needed for a successful prosecution.
For these reasons, IP owners are often reluctant to initiate a private action for infringement. However, copyright infringement is not a public crime in Taiwan, so officials may not prosecute without a private complaint. Fortunately, this may change in the near future, as a draft amendment to the Copyright Act is being considered that would make copyright infringement a public crime and allow the government to prosecute suspected violations ex officio.
Taiwan's government named 2002 the IP Action Year and has proclaimed it a success. However, the government's own statistics tell a different story. According to the TIPO report, the total number of cases brought for infringement of all IP rights dropped from 5,270 in 2001 to 5,118 in 2002. The number of convictions dropped from 3,238 to 2,636. The number of suspects sentenced to imprisonment dropped from 1,916 to 1,498. For copyright infringement the value of infringing goods seized almost doubled, from about US$120 million to US$230 million; but the number of new copyright infringement cases dropped from 4,511 to 4,032, and the number of suspects dropped from 5,091 to 4,824.
Many feel the government's efforts in 2002 were not a success. In its Special 301 recommendations to the USTR, the International Anti-counterfeiting Coalition, an organization of 150 corporations with total revenues of over US$650 billion, noted that "the activities of Taiwan's enforcement authorities have had no impact in reducing pirate production and export", and theorized that perhaps the goal is to generate statistics rather than meaningful reductions in the rate of piracy. Even Taiwan's justice minister stated: "We are doing the best we can; but given the current size of the police force and the number of prosecutors that we have, it is difficult to launch an all-out effort against piracy."
Some claim that the problem lies in ineffective strategies of enforcement. The International Intellectual Property Alliance report claims that Taiwan's authorities conducted 242 inspections of optical media factories in 2002, but only 11 inspections at night when most pirate production is thought to occur. While counterfeit disks were seized in various raids, the replicating equipment was often left in place because authorities claim to lack sufficient warehouse space. According to the TIPO report, factory raids uncovered 16 instances of large-scale copyright infringement, but only eight sets of manufacturing equipment were seized. The government has highlighted its efforts to crack down on night-market vendors of counterfeit goods. However, these efforts are fairly ineffective, as vendors have taken to laying out pirate disks on a table with a bucket into which customers deposit the purchase money, or selling them through juvenile vendors who are too young to face prosecution.
Others claim the government's efforts are directed at the wrong parties. Night-market vendors are small fry; the seizure by customs authorities of a few tens of thousands of pirate CDs is a failure, not a success. It has been noted repeatedly that the global counterfeit IP industry is dominated by organized crime groups. On March 13 2003 US Deputy Assistant Attorney General John Malcolm testified before the House Subcommittee on Courts, the Internet and Intellectual Property that:
"Many, if not most, of the optical disk production facilities in Malaysia are owned and operated by organized crime syndicates, specifically very wealthy and powerful criminal gangs or triads from Taiwan that control a significant number of facilities not just in Malaysia but across Asia generally."
The International Intellectual Property Alliance also reports that "organized criminal syndicates continue to dominate piracy in Taiwan, particularly at the distributor level", and the Taiwan government has admitted the same. However, the government has failed to take any meaningful action to locate and prosecute the high-level operatives or to follow the money trail of those organized crime groups. Many feel that Taiwan must take those steps in order to effect a meaningful reduction in IP piracy.
Penalties and confiscations
Many complain that Taiwan's penalties for IP infringement are inadequate because the fines are too low, the prison sentences too short, and any sentence of six months or less can be 'bought out' to a fine. The justice minister concedes that 70% of CD counterfeiters prosecuted last year received a jail sentence of less than six months and many walked away with a small fine. While the statistics are too unreliable for meaningful analysis, the government claims that judges imposed longer prison sentences in 2002 than 2001, and the maximum fines for infringement may be increased through amendments to the Copyright Law that are awaiting enactment.
Criticism has also been levelled at penalties under the Optical Media Law. While that law allows for confiscation of equipment used for the manufacture of counterfeit goods, the law allows for such confiscation only if the equipment is used "exclusively for" illegal production. Much counterfeiting is suspected to occur at night, after legitimate production ceases. Therefore, the US Department of Commerce has demanded that the law be amended to allow for seizure of such equipment regardless of whether it is used for counterfeiting full time or part time. In addition, while the law requires that each optical disk be imprinted with a source identification code, it has been criticized for failing to authorize confiscation of stampers or masters with false, unauthorized or no source identification codes. According to the International Intellectual Property Alliance report, 99% of counterfeit music CDs in the market lack source identification codes. Taiwan's Legislative Yuan is reviewing a draft amendment to the Optical Media Law, and it is hoped that both of the above deficiencies will be remedied.
Border control system
It has been known for years that Taiwan is a major source of counterfeit video games and other copyright-infringing goods and components which are shipped to China, the United States and Latin America for further manufacture, sale and distribution. The USTR stated in 1998 that "Taiwan remains one of the top four sources of infringing goods that US customs seizes on importation, and is also a major source of such exports to Latin American markets". Not much has changed.
In just one US case in 2001, authorities discovered hundreds of thousands of counterfeit business software disks that were smuggled from Taiwan to California (a Taiwanese woman who was arrested in connection with the operation was sentenced by a US federal court in November 2002 to nine years in prison for her role). The International Anti-counterfeiting Coalition noted in its 2003 report that "although Taiwan has been a major exporter of infringing goods for many years, it has not taken the issue seriously and, therefore, does not have an effective border control system".
The US deputy assistant attorney general concurs. In his March 2003 testimony he stated that organized crime groups from Taiwan and other countries control much of the distribution of optical disks into Latin America, and there is ample evidence that Taiwanese triad members import massive amounts of counterfeit software and other pirate products into the United States. As Malcolm explains, the importance of international cooperation cannot be overstated. Taiwan's premier announced in February 2003 that Taiwan's customs authorities will step up inspections of exported goods and will increase communications with foreign customs and other authorities, and legislation is pending to implement these changes. If enacted, they will be steps in the right direction.
While the Taiwan Anti-piracy Coalition and other industry groups have characterized the efforts taken by Taiwan’s government to fight copyright infringement in 2002 as thoroughly inadequate, the actions which the government did take should nonetheless be acknowledged.
Taiwan's government reported initiating 4,032 actions against 4,824 suspects for copyright infringement in 2002, seizing counterfeit movies, games, software and music worth US$230 million. These figures will presumably increase in the future as in January 2003 the government created an anti-piracy task force of 220 officers for the purpose of investigating suspected manufacturers, intermediaries and vendors of counterfeit IP goods and assisting with their prosecution.
Premier Yu Shyi-kun held press conferences in February and March 2003, in which he affirmed that the government considers the protection of IP rights to be a high priority, in part because Taiwan hopes to enter into free trade agreements with the United States, Japan and other countries, and he understands that such action is a prerequisite. Consequently, Yu announced an assortment of measures that he expects the government to take, including the following:
Following the premier's speeches, the authorities went into a frenzy of raids and IP rights enforcement, seizing counterfeit optical media valued at just over US$26 million in the first three weeks of March alone (at that pace authorities would recover US$450 million in fake goods in a year). These efforts included one raid of a warehouse that yielded 200,000 pirated computer games with a value of US$11.5 million.
Pursuant to Yu's instructions, on March 5 2003 the Executive Yuan passed draft Guidelines for a Taskforce Against Export of Pirated Optical Disks. Under the guidelines:
The guidelines will now be forwarded to the Legislative Yuan for three readings, and if they pass those they are expected to be passed during the current legislative session, which should end in late May.
Also in March, the Executive Yuan passed draft amendments to the Copyright Law which were sent to the Legislative Yuan for approval. If approved in their present form, the draft amendments will do the following:
Notwithstanding the claims made by Taiwan's government, 2002 was not a good year for copyright protection and enforcement in Taiwan. However, if the government follows through on the premier's edicts and the pending legislation is enacted in its present form, Taiwan will have taken steps in the right direction. Copyright infringement will be a public crime and authorities will have the right to initiate legal actions ex officio, with the assistance of the new anti-piracy task force. Increased rewards will lead to more tip-offs regarding counterfeit manufacturing facilities; increased border inspection will lead to greater detection of attempted exports; and increased penalties will lead to greater deterrence of IP piracy. Amendment of the Optical Media Law to allow for confiscation of all equipment used in the manufacture of pirate goods will slow down the production of counterfeit goods. However, all is mere conjecture at this point. The proposed amendments to the Copyright Law and Optical Media Law are being reviewed by the Legislative Yuan and their fates remain uncertain. The effectiveness of the anti-piracy task force and heightened customs inspections remain to be seen. Whether the burdensome power of attorney and other documentary requirements of IP litigation will be relaxed remains unknown. Perhaps most important is the question of whether Taiwan's government has the resources, know-how and determination to locate and prosecute the high-level operatives in the organized crime groups that are driving the lucrative global industry of IP piracy. The government answers all of those in the affirmative, and given Taiwan's recent entrance into the World Trade Organization and its desire to enter into free trade agreements, there may be reason to believe that this time it is correct.
For further information on this topic please contact Arthur Shay or Christopher M Neumeyer at Shay & Partners by telephone (+886 2 8773 3600) or by fax (+886 2 8773 3611) or by email (Arthur@elitelaw.com or firstname.lastname@example.org).
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