BRAZIL

Both the levels of piracy and estimated losses due to piracy of sound recordings, music, entertainment software and motion pictures increased in Brazil in 1998. Concurrently, several international piracy trends converged on Brazil. Pirated optical media product, primarily manufactured in southeast Asia, crossed the porous Brazilian borders, devastating the local markets. For example, the legitimate music and recording market was shaken for four months in a row in early 1998 when it suffered a 30% decline in sales, compared to the same period in 1997. Organized crime elements, both within Brazil and outside, exercised control over the production and distribution of infringing copyrighted products. The isolated efforts of Brazilian police, which did conduct a substantial number of raids, were to no avail. No dent was made in lowering piracy levels. Very few cases of criminal copyright infringement ever made it to the decision stage before a Brazilian judge. For example, the motion picture industry has obtained only one criminal conviction in the last two years, and this sentence was for community service. In response to all these trends, it is apparent that Brazil lacks an articulated strategy that coordinates the efforts of the police, prosecutors, judiciary, and other administrative authorities such as customs, tax officials, and local police authorities.

Brazil is the largest market in the Southern Hemisphere for almost every U.S. copyright industry sector. And it is in Brazil that our industries suffer the largest amount of losses due to copyright piracy in the entire hemisphere -- over $821 million in 1998, a tremendous increase from 1997, primarily due to the increase in CD piracy afflicting the music and recording industries. Over the years, the Brazilian government has made numerous promises to U.S. government officials to address the core problems of high piracy and inadequate enforcement. And yet, there has been little concrete action by Brazil to tackle this untenable situation. In fact, recent efforts to revise the procedures in criminal cases have resulted in more defendants in copyright infringement cases being released instead of serving their sentences. A proposal to rewrite the entire criminal code would decrease the level of criminal penalties for copyright infringement, clearly a step in the wrong direction. Already, most sentences are at levels which can hardly be considered deterrent; judges apply the minimal penalties, which usually result in the offenders receiving suspended sentences or probation. Meanwhile, as our industries continue to expand their local presence, increase their anti-piracy investigations and ignite public awareness campaigns, the scope of the problem only worsens.

Given the devastation to the legitimate Brazilian market for copyright products caused by piracy and the Brazilian government's failure to take any concrete measures which effectively deter copyright piracy, IIPA believes that the facts present a compelling case for Brazil to be placed on the Priority Watch List this year.

 

ESTIMATED TRADE LOSSES DUE TO PIRACY
(in millions of U.S. dollars)

and LEVELS OF PIRACY : 1995 - 1998
 

HISTORY

Bilateral discussions between Brazil and the U.S. on intellectual property have been ongoing for most of this decade. On April 30, 1993, the U.S. Trade Representative designated Brazil as a Priority Foreign Country. A Section 301 investigation on Brazil's intellectual property practices and the provision of fair and equitable market access commenced on May 28, 1993, and was extended through February 1994.

The Section 301 case concluded when the Brazilian Government committed to take certain concrete steps to improve its IPR regime, including the early implementation of TRIPS, improving protection for computer software, addressing certain tax issues affecting computer software, and improving copyright enforcement in general. As a result of this Diplomatic Agreement in February, 1994, Ambassador Kantor placed Brazil on the Special Mention list on April 30, 1994.

In 1995, USTR elevated Brazil to the Priority Watch List because it had not taken any substantial steps to meet the terms of the Agreement. In April 1996, Ambassador Barshefsky moved Brazil down to the Watch List because of its passage of a modern patent law. USTR noted at that time, however, that "the Administration looks to Brazil to fulfill its longstanding commitments to enact outstanding legislation on computer software and semi-conductor layout designs, and to introduce much-needed amendments to its copyright law." Much to the disappointment of IIPA and our members, there was no public mention of piracy or enforcement, despite private assurances that piracy and inadequate enforcement remained on the bilateral agenda.

Because the copyright and software legislation had not passed and enforcement remained poor, IIPA urged in 1997 that Brazil be elevated to the Priority Watch List. On April 30, 1997, Ambassador Barshefsky announced that her concerns were that "Brazil has not enacted modern intellectual property laws to protect computer software, copyright and integrated circuits," and therefore kept Brazil on the Watch List with an "out of cycle review." USTR kept Brazil on the Watch List after that review, noting with concern that Brazil has not enacted legislation to protect computer programs and copyright, but was encouraged by recent legislative developments, and "expect[s] that Brazil will make progress toward successfully resolving these issues before the April [1998] review."⁽³⁾ Meanwhile, the local recording industry, in high-level meetings, continued to warn Brazilian officials that the street vendors and "sacoleiros" would soon switch from selling pirate audiocassettes to selling pirated CD products. This warning became a reality in early 1998.

In February 1998, President Cardoso signed the long-fought-for amendments to both the Copyright Law and the Software Law. After acknowledging these legislative successes, IIPA recommended in 1998 that Brazil remain on the Watch List because IIPA and its members remained extremely concerned about inadequate enforcement and the rising losses due to high levels of copyright piracy.

On May 1, 1998, Ambassador Barshefsky removed Brazil from the Special 301 lists, in recognition of its legislative accomplishments. She also added, "However, Brazil must take further significant steps to combat piracy."⁽⁴⁾ A U.S. trade/IPR delegation traveled to Rio de Janeiro and Sao Paulo in July 1998 and discussed progress on various intellectual property issues, including copyright enforcement. IIPA also understands that there have been contacts made between U.S. and Brazilian justice and customs officials in the latter part of 1998. Recent U.S. Congressional delegations traveling to Brazil have also raised these copyright enforcement problems with senior Brazilian officials.

Brazil currently participates in the Generalized System of Preferences (GSP) program, a U.S. trade program which offers preferential trade benefits to eligible beneficiary countries. Part of the discretionary criteria of this program is that the country provide "adequate and effective means under its laws for foreign nations to secure, to exercise, and to enforce exclusive rights in intellectual property, including ... copyrights." In 1997, Brazil received $2.1 billion in preferential trade benefits under GSP, or 44% of its imports to the U.S. For the first 10 months of 1998, over $1.8 billion in GSP imports from Brazil entered the U.S., approximately 40% of total imports.

 

PIRACY AND ENFORCEMENT

The "further significant steps" to combat piracy outlined by Ambassador Barshefsky have not yet been taken by the Brazilian government. In fact, CD piracy, especially affecting the sound recording industry, has exploded over the past year. We are not aware of any substantial improvements over the past year within the Brazilian enforcement infrastructure which have reduced the levels of piracy within that country. Below is a summary of the types of enforcement deficiencies which the copyright industries continue to face in Brazil. Many of these area also violations of Brazil's bilateral commitments to the U.S., and/or of the TRIPS obligations which become effective for Brazil on January 1, 2000:

Failure to impose deterrent criminal penalties: A major problem has been the low penalties imposed in the few criminal copyright infringement cases which have been decided by the courts. This problem may be alleviated if the Penal Code is reformed to index penalties for inflation and if the courts actually impose deterrent levels of penalties in copyright cases. Regulations aimed at reducing the backlog of court cases further undermine and weaken deterrence. Courts usually suspend jail terms for first offenses, thus returning defendants to the streets to return to their illicit activities. During 1998, throughout the entire country, the courts issued only six judgments in criminal copyright infringement cases, five for the recording industry and one for the motion picture industry; all imposed the lowest penalties possible. In the single video piracy case, the judge imposed a sentence of community service, where the defendant was ordered to show films to poor children. In another case which is still in the preliminary stages, the prosecutor responsible for a video piracy case -- where the defendant was caught red-handed with 152 VCRs -- is threatening to drop the case for "lack of evidence."

Ineffective border measures. Because of the lack of coordination of the actions of the Brazilian customs and federal police, border controls are lax and must be tightened to stop the massive amounts of pirated and counterfeit product (including piratical CDs, audiocassettes, videocassettes and videogames) which enter Brazil from Paraguay, particularly at the cities of Foz do Iguazu, Corumba, Campos Grande and Maringa. Bolivia and Uruguay are also growing sources of counterfeit production for the Brazilian market. Brazil promised the U.S. years ago that it would work with the Paraguayan Government on border issues, but only recently have enforcement efforts been observed at the Brazilian border. Other ports of entry for infringing product include the main airports and the seaports such as Santos, Paranagua and Manaus. While coordination efforts may be underway, they have not resulted in any tangible improvements on-the-ground.

Ineffective seizures of infringing goods and materials: In some cases, police do not seize all the evidence (infringing goods and materials) found at a raid site. This situation could be improved if the Penal Code were amended to clearly provide such authority.

Delays in criminal cases: Industries report that court delays in criminal copyright infringement cases can take as long as two to three years in the courts of first instance. Not surprisingly, there is a tremendous backlog of cases in the Brazilian courts. In addition, the police often keep the case files in their offices for seven or eight months before sending them forward to the prosecutor's office to file the criminal case.

Lack of attention and coordination among enforcement agencies. There seems to be a general lack of interest in effective enforcement of the copyright law throughout the enforcement system, including judges, prosecutors and customs officials. While police efforts have been moderately successful at the raiding level, they too are becoming discouraged because the actions they take rarely reach conclusion in the courts. There is a lack of clear and direct instructions from the highest levels, requesting that the various enforcement authorities (such as Receita Federal, Itamarty, Policia Federal, Policia Civil, Alfandega) to act on their own initiative. While certain studies to examine the piracy problem may have been conducted internally to the Brazilian government, no centralized, comprehensive government plan exists to address piracy, to the best of our knowledge.

Furthermore, the level of police attention to piracy varies throughout the country. In some regions, certain industries achieve adequate cooperation with police officials. Prosecutorial attention to copyright offenses is inconsistent, especially in the provinces. Importantly, most of the enforcement efforts are commenced by investigations conducted by the copyright industries themselves, and are not the result of any major Brazilian government initiatives. The police, prosecutors and judges have demonstrated a lack of understanding of IPR issues in many instances.

Delays in civil cases: Civil cases can take up to a year to come to trial. However, most defendants appeal, and this process can take up to three years before a judgment is issued by the relevant superior court, with some notable exceptions.

High costs in civil cases: Judges continue to set high bonds in piracy cases brought by foreign plaintiffs as a condition to granting search and seizure orders. In one software piracy case, the judge set a bond of $55,000, which led to a decision to cancel this action. The high cost unreasonably deters right holders recourse to these procedures.

As detailed below, CD piracy exploded in Brazil in 1998, leading to dramatic increases in losses for U.S. recording companies, music publishers, film companies, book publishers, and publishers of entertainment software and business software. Part of the problem involves the international distribution of optical media product, emanating primarily from production facilities in southeast Asia. Such optical media distribution networks are under the control of organized criminal elements including Chinese, Taiwanese, Paraguayan, Bolivian, Panamanian and Brazilian nationals. Chinese and Korean groups control the pirate CD distribution in Sao Paulo. These groups are known to bribe the police in order to facilitate distribution. Another problem involves the organized crime element of Brazilian nationals who are involved in retail sales of pirated products within Brazil.
 

MOTION PICTURES

For the second year in a row, estimated trade losses due to motion picture piracy have risen significantly, and are now at $125 million for 1998. The estimated level of video piracy jumped from 30% in 1997 to 40% in 1998. Half of the pirated material in video clubs is copied back-to-back from the legitimate product which the clubs purchase, while the other half is purchased from clandestine duplication laboratories. Small duplication facilities, attached to or near these video clubs, maintain on the average three to six VCRs.

Excellent quality counterfeit videos, sold by clandestine duplication and distribution organizations, also are common throughout Brazil. These organizations use screening cassettes and laser discs released in the U.S. as masters for illegal duplication. Typically pirate video titles produced by these labs are on the market before or at the same time as the local theatrical release of the title. To counter the use of counterfeit security stamps by these organizations, the Brazilian Video Union (UBV) adopted a new security stamp in 1994. As of year-end 1998, UBV members will adopt a completely new and uniform labeling of the tapes, including security marks. According to the UBV, there are about 8,000 video outlets in Brazil, many of which are registered with the UBV, and some participating in the Video Legal program, by which they agree not to stock pirate videos and to allow inspection of their inventories.

Street markets in Brazil are filled with pirate video cassettes. Many of the illegal videos sold by street vendors in São Paulo and Rio de Janeiro come across the border from Paraguay. Street vendors now change locations frequently and display only a small part of their inventory, keeping the bulk of it concealed under tables, in vans parked nearby, and even in nearby apartments. It has been very difficult to get the police to take actions against street vendors of pirate videos.

Unauthorized public performance of motion pictures is a smaller piracy problem in Brazil. Small theaters in the interior of the country exhibit films using rented video cassettes; apartment buildings and hotels retransmit unauthorized material over closed circuit systems; and videos are shown to the public by clubs, associations and schools. In most cases, warning letters from the UBV have been sufficient to stop these practices. The new copyright legislation in 1998 clarified the prohibition against such exhibitions.

Enforcement efforts during 1998 did not match the pace achieved in 1997. During 1998, 38 laboratories were dismantled, and 326 VCRs were seized. The Motion Picture Association (MPA) initiated 1,643 investigations, conducted 1,827 raids and seized 243,581 pirate videos. MPA investigations uncovered three large duplication centers in the São Paulo area. In October 1998, MPA conducted its largest raid ever in Brazil on a video duplication center, which used a private residence as its front. This raid, run in conjunction with the UBV and the police in the City of Santo Andre, resulted in the seizure of 152 VCRs and fake security stickers. Much to the shock of MPA counsel, the prosecutor is now threatening to drop this case, citing "lack of evidence."

Out of these investigations and raids, MPA reports that 235 criminal investigations were initiated in 1998. Of these 235 cases, 97 were suspended, 51 were dismissed, and one case was decided. Most of the 51 cases dismissals occurred either because the accused was found not to have the criminal intent to engage in copyright infringement or because the experts' reports were not conclusive enough to identify the seized tapes as piratical. The 97 cases were suspended under Law No. 9099, which provides for the suspension of sentences for first-time offenders. Of these cases, the maximum compensation awarded was R$4,654 (about US$2,580) for 179 pirate tapes (less than $15 per tape). These 1998 cases represent a sharp drop from the level of court actions which occurred in 1997 when MPA reported that 645 legal actions were initiated, resulting in 52 court decisions and 16 out-of-court settlements. The main reason is that criminal actions in the State of Bahia and Pernambuco were completely ignored by local prosecutors in 1998 and were entirely dropped.

In all of Brazil in 1998, only one judicial decision for copyright infringement involving audiovisual works was reached, and the sentence was community service. As a result, for the second year in a row, not one infringer of audiovisual works has received a sentence of imprisonment. Judges have been suspending the cases under Law No. 9099 and ordering compensation which varies from providing a few pounds of food for public distribution to a penalty of $20 per tape (or less) to be paid to the MPA member companies. This low level of penalties does not come close to meeting the TRIPS Article 61 standard of providing for deterrent "criminal procedures and penalties to be applied" in cases of commercial piracy.

Case backlogs constitute a serious enforcement problem, caused by burdensome substantive and procedural formalities in the law and a general lack of resources. Enforcement efforts sometimes fail due to the lack of sufficient skilled government agents to investigate violations and due to technical deficiencies in the handling and examination of evidence.
 

SOUND RECORDINGS AND MUSICAL COMPOSITIONS

Alarming increases in the levels of CD piracy in Brazil over the past year are threatening to destroy the world's sixth largest market for sound recordings and music. Brazil's audiocassette market has been completely lost to pirates for years, and 1998 showed no reversal in that pattern. Cassette piracy now accounts for 95% of the cassette market, with the legal industry selling 500,000 audiocassettes and the pirates selling approximately 60 million units in 1998. Estimated losses due to audiocassette piracy are $110 million. Audio CD piracy is also on the rise, blanketing about 30% of the Brazilian market and causing about $180 million in estimated trade losses. In all, the sound recording and music industries suffered $290 million in estimated losses due to piracy in Brazil in 1998.

The main reason for the rapid increase in CD piracy is the lack of action by the Brazilian government against distribution centers and against street vendors, who switched from selling pirate audiocassettes to pirate CDs (which have a higher profit margin than cassette piracy). In addition, the regional CD problem caused by neighboring Paraguay, and its links to southeast Asia, have not improved over the past year. Rising CD piracy has caused commercial sales of legitimate product in Brazil to fall 20% in 1998 compared to 1997. For four months in early 1998, the legal recording market sales dropped 30%, compared to the same period in 1997. This decline is stunning compared to industry forecasts for 20% positive sales growth for 1998 in Brazil.

For years, the pervasive audiocassette piracy has basically destroyed the legitimate Brazilian market. In the southern cities and in the interior, the pirate cassette market is still strong. It is important to note that almost 75% of this pirate product in Brazil affects Brazilian repertoire. The pirate market switched very rapidly from audiocassettes to CDs, as street vendors, flea markets and "sacoleiros" crossing from Paraguay into Brazil increasingly sold CD product. This phenomenon is obvious in major cities like Sâo Paulo, Salvador, Curitiba, Recife, Fortaleza, Rio de Janeiro, and even in Brasilia, where more and more street vendors now sell pirate CDs. In fact, industry and police anti-piracy efforts in Sâo Paulo have caused the street vendors to react and create new strategies to avoid raids. These vendors now are more mobile and carry small bags of CDs instead of setting up fixed stalls. In northeast Brazil, the pirate sales take place in established shops.

Pirate and bootleg cassettes and CDs enter Brazil from Paraguay via Foz de Iguazu, Corumba, Maringa and Punta Pora, and also through the ports of Santos, Paranagua, Recife and Salvador, as well as at the airports at Manaus, Rio de Janeiro, Sao Paulo and Foz de Igauzu. Paraguay acts as a bridge to deliver pirate CD product from Taiwan, Korea, Thailand, Singapore, and China, as well as from the U.S. and several European countries (Italy, Germany and France). About 15-20 million pirate CDs passed from Ciudad del Este and into Brazil during 1998. Brazilians take advantage of the lack of border controls and install manufacturing facilities across the border in Ciudad del Este, Paraguay. In September 1998 alone, 1.5 million CDs were confiscated in Paraguay, and it is believed that many of these were intended for distribution in Brazil. In another case, more than 5 million pirate CDs (containing both music and business and entertainment software CD-ROMs) were confiscated in Panama, where they were bound for Paraguay with the ultimate destination being Brazil.

An interesting result from the major raids and seizures of CD product in Paraguay and Panama is that the Brazilian pirate market was temporarily without new releases. These new releases could be found at stores which use CD-R technology to create custom-made CDs. The threat of CD-R-based piracy is now a reality. Paraguay's Ciudad del Este has already built a CD-R duplication network as an alternative means to produce pirated optical media product.

One career criminal in the southern Brazilian town of Maringá was arrested after a raid was run on his facility, which had the capability of producing nearly 30 million audiocassettes annually. Three million counterfeit cassettes and 20,000 CD-Rs (CD-recordable) were seized. This raid in Maringá was completed only after the recording industry requested the help and support of President Cardoso; the President himself instructed the Director of Federal Police and the Minister of Justice to take action. After his instructions were issued and the raids took place, no further action on the part of the prosecutors regarding this action has occurred.

Recording industry representatives have coordinated actions with Brazilian customs authorities at the São Paulo International Airport-Cumbica. In one case conducted in late 1998, 80,000 pirate CDs were found in suitcases on a commercial flight; however, the suspect left the airport without being stopped. This case appears to remain under investigation. Another seizure of pirate CDs, apparently manufactured in South Korea, occurred in early 1998. The importing Brazilian company no longer exists, but investigation continues. Since the commencement of the recording industry's program (discussed below), industry has identified and seized 10 million pirate and counterfeit CDs in several operations, most of which have taken place outside Brazil.

The local recording anti-piracy association, APDIF do Brasil, has been very active, working primarily in the states of São Paulo, Parana, Minas Gerais, Mato Grosso do Sul, Goias, Bahia and Rio de Janeiro. During 1998, APDIF brought 680 actions, which resulted in the seizures of 1,815,230 pirate audiocassettes, 1,036,898 pirate audio CDs, and over 3 million blank audiocassette tapes. In 1998, the recording industry filed more than 530 complaints with the police, and this resulted in approximately 680 raids. Indictments resulted in 280 cases. However, despite all this activity, only five judgments were rendered in criminal cases, all of which involved the lowest penalties possible.

One improvement over the past year is that Brazilian police started to cooperate in more actions to actions against street vendors. Unfortunately, even if police do take action, the cases often get bogged down with the prosecutors, who are unwilling to bring cases against street vendors, with few exceptions. And finally, the courts do not issue deterrent sentences, often just suspended sentences or public service.

Members of the international record industry met with a receptive President Cardoso in October 1997 to discuss the piracy problems in Brazil. Senior members of the Brazilian recording industry and top Brazilian artists turned again to President Cardoso in September 1998. That same month, the recording industry launched a multi-million dollar campaign to improve public awareness about piracy and the need to purchase only legitimate product.

In response to piracy, the recording industry has introduced a hologram seal of authenticity for placement on all legitimate CDs. The hologram has been counterfeited; nearly 100,000 counterfeits were found during a 1997 raid in Maringa. In December 1998, the Brazilian government issued a Decree to establish an official, numbered stamp to be affixed to IPR goods, including sound recordings, videos and books. The recording industry remains concerned that if this stamp is not proper implemented, it could in fact be used against the recording industry by spawning an entirely new counterfeit stamp industry.
 

COMPUTER PROGRAMS: BUSINESS APPLICATIONS

The Business Software Alliance (BSA) reports that preliminary estimates for trade losses due to business software piracy in Brazil are $283.2 million in 1998, with an estimated 59% level of piracy. This decline in both losses and piracy levels from the prior year are the results of a very active industry enforcement campaign, backed by extensive press coverage, and the passage of the 1998 Law which increased civil penalties to 3,000 times the retail value of the pirated software and authorizes prison sentences of up to two years. BSA continues to focus its anti-piracy activities in the following states: Minas Gerais, Paraná, Rio de Janeiro, Rio Grande do Sul, Santa Catarina, São Paulo and the Federal District of Brasilia. However, BSA also brought its first actions in the north of Brazil, in the states of Bahia, Ceará, and Pernambuco.

In a striking example of successful civil litigation against corporate end-users of business software products, BSA and ABES (the Brazilian Association of Software Companies) announced on September 3, 1998, that they had obtained their largest civil judgement ever in a copyright infringement case in Brazil. A civil court in Rio de Janeiro awarded R$76 million (about US$42.2 million) in damages to BSA members against an advertising agency, Artplan Comunicaçâo S/A), for using illegal software. The judge in the Artplan case calculated the award by multiplying the retail value of the illegal software discovered by 500. Artplan was not in a financial position to pay the award, and filed an appeal to the decision. The BSA settled this case in late 1998.

BSA brought 89 actions in Brazil in 1998, a significant increase from the 56 actions brought in 1997. Of this number, 55 civil search and seizure actions were brought against (mostly large) end-users, and 34 criminal police actions were brought against resellers and counterfeiters. BSA did not obtain any criminal judgments against software pirates in 1998; it did, however, conclude 29 settlement agreements with end-users.⁽⁵⁾ In addition, over 5,600 calls were made to the BSA anti-piracy hotline, which resulted in around 730 leads for action to be taken.

Like the other copyright industries, the business software industry reports that criminal enforcement against copyright infringement in Brazil needs improvement. Rightsholders may initiate criminal actions with either federal or state police officials to obtain search orders based on proof of copyright infringement. The federal police and judiciary are not considered to be effective for copyright enforcement. Federal police officials have jurisdiction over the types of crimes that are generally viewed as producing large-scale corruption (such as border controls and drug-trafficking). The federal judiciary is considered to be highly politicized, with judges often making decisions based on political rather than appropriate legal considerations. State court judges are generally viewed as less corrupt and not politicized (particularly in São Paulo and certain other states), making state criminal actions the more desirable route. However, state police are poorly paid, which can lead to corruption. Judicial proceedings in Brazil move slowly, with trial courts often taking more than three years to reach judgment. On a positive note, BSA has worked closely in São Paulo with DECON, the state consumer affairs police, which brought actions against a number of computer resellers who were selling computers with illegal software pre-installed. In all actions undertaken by DECON, the owner of the enterprise was arrested. BSA will be seeking to work with DECON (or its equivalent) in other states in Brazil in 1999.

High bonds continue to be set by judges in piracy cases brought by foreign plaintiffs as a condition to granting search and seizure orders. For example, a judge set a bond of R$60,000 (about US$33,500) in a BSA case against a private university in São Paulo, and in another case in Rio de Janeiro a judge set a bond of R$100,000 (about US$55,600), which resulted in BSA canceling the action. BSA believes that excessive bonds of this nature violate TRIPS Articles 41 and 50.3 as they deter recourse to civil procedures. In addition, judges still refuse to release the bonds (even upon presentation of initial evidence of pirated software) until a settlement agreement has been reached with the copyright infringer, or the case has been resolved at trial. Consequently, the more civil search and seizure actions brought by BSA, the more funds are tied up in bonds, some of which may not be returned for up to three years (i.e. until the resolution of the case at trial).

In addition to high bonds, judges are imposing very high experts' fees in civil cases (up to R$30,000 per case, or US$16,700) for what generally amounts to two or three experts doing a day's work. It may be the case that certain judges receive a portion of these fees, thereby creating an incentive to impose high fees. The escalating costs of experts' fees coupled with having to meet high bond requirements place an increasingly heavy burden on the BSA's resources, which may lead to a reduction in the number of cases that the BSA is able to bring in 1999. In addition such measures are clearly a detriment to enforcing rights in violation of TRIPS Article 41.

Finally, BSA urges the Brazilian government to consider stronger efforts to support government legalization of software in its public ministries and agencies.
 

COMPUTER PROGRAMS: ENTERTAINMENT SOFTWARE

Estimated trade losses due to piracy of entertainment software (including videogame CDs and cartridges, personal computer CDs and multimedia products) in 1998 are $103.2 million, with a 89% level of piracy, both increases from the losses and levels reported in 1997.

The biggest problem in the Brazilian market is the lack of border controls and the high level of piracy of PlayStation software. The vast majority of illegal software for all platforms is made in Asia (Hong Kong, Macau, the People's Republic of China, Taiwan, Thailand, Malaysia or Singapore) and is shipped to Paraguay. From there, the product crosses the border into Brazil. Piracy has adversely affected sales of interactive entertainment software on all platforms.

Retail piracy continues to be a major problem, with stores having large quantities of counterfeit videogame cartridges for sale. Pirated videogames in cartridge format, produced in Southeast Asia, enter the Brazilian market, often via Paraguay, where they were assembled. Pirate CD-ROMs containing interactive entertainment software products are often mixed in with other shipments of optical media from southeast Asia. As mentioned above in the recording industry section, the large shipments seized in Panama (bound for Paraguay and in turn Brazil) also contained videogame programs. Parallel imports from Asia also enter Brazil, thus harming the ability of copyright owners and their licensees to distribute locally.
 

BOOKS

Photocopying of English language study materials and individual lessons and chapters from textbooks, as well as entire books, continue to be the major forms of book piracy in Brazil. Photocopying on university campuses remains rampant, despite the combined efforts over the years of local publishers and the Camara Brasileira do Livro (the local publishers association) to address this problem. More unauthorized photocopying occurs in the northeastern states of Brazil, compared to São Paulo, Rio de Janeiro, Minas Gerais and Porto Alegre. Imported educational materials are commonly photocopied, due in part to their high price. In disturbing news, some of the largest universities are now discussing legitimizing the photocopying which goes on in their libraries. Imported books and journals for the computer market are also widely photocopied.

Estimated trade losses due to piracy declined over the past year, to $20 million in 1998. This decline was not due to any reduction in piracy problems, but was rather represents a reflection on the financial situation related to the devaluation of the Real.

A R$50 million (about US$27,800) government grant for purchases of multiple copies of texts for undergraduate students was slated to be disbursed in 1998, and industry hoped that this disbursement may help reduce piracy. Half of the funds were released in the latter part of 1998, and the rest remains undisbursed. With the current financial crisis, the remaining funds may be reduced. A new Reproduction Rights Organization (the first RRO in Latin America) has been successful in convincing the Ministry of Education and the President to agree that government and educational institutions should pay for photocopies. The process of signing agreements with universities is always a long one; so far contracts have only been signed with a dozen smaller institutions, and no payments are made until a contract is signed.

COPYRIGHT LAW, CRIMINAL LAW AND
NON-TARIFF MARKET ACCESS BARRIERS

Under its 1994 agreement with the U.S., Brazil promised to enact legislation on computer software and to pass amendments to its copyright law by making "best efforts" to accomplish this by January 1, 1995. These bills were finally enacted by early 1998.

While TRIPS is incorporated into Brazil's domestic law, Brazil claims the status of a developing country entitled to take transition under TRIPS. On January 1, 2000, Brazil is obligated to be in full compliance with its TRIPS substantive and enforcement obligations. Interestingly, a patent case in 1997 held that the TRIPS Agreement was self-executing under Brazilian law, and no transitional period applied.⁽⁶⁾
 

SOFTWARE BILL AMENDMENTS OF 1998

In early February, Brazil finally passed software legislation vitally important to both the U.S. and the Brazilian software industries. The Software Bill (PL 200/96) passed both Houses, and was signed in its entirety, without amendment, by President Cardoso on February 19, 1998. It entered into effect on February 20, 1998.

The enactment into law of this Software Bill was a positive step towards Brazil's compliance with its TRIPS obligations. The amendments to the Software Law accomplished several critical points for the software industry including: protecting computer programs as "literary works"; increasing the term of protection for computer programs from 25 years to 50 years; in the absence of license contract, requiring the user of a software program to present an invoice for a software program to prove legitimate use; making a separate fiscal or tax crime, which will be prosecuted by the state as a matter separate from the author's rights crime; and lessening the application by judges of judicial secrecy in software infringement cases. However, two onerous provisions remain which will require the publisher of a computer program to indicate the period of technical validity of the program and to indemnify users for any damages caused if the computer program is withdrawn from the market during the stated validity period.
 

COPYRIGHT ACT AMENDMENTS OF 1998

Also on February 19, 1998, the copyright industries were pleased that President Cardoso signed into law amendments to the 1973 Copyright Law (Law No. 9.610). These amendments entered into effect on June 20, 1998.

WIPO TREATIES

Legislation for Brazil's ratification of the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty are being discussed within an inter-governmental committee. USTR should continue to urge ratification of these two treaties. The private sector is cognizant that Brazil may hold off on swift ratification in order to increase its negotiating leverage in the Free Trade Area of the Americas (FTAA) process. IIPA and its members hope that the Brazilian government will consider leading by example, and ratify both treaties soon.

PROPOSALS TO REVISE THE CRIMINAL CODE

The Brazilian penal code was amended in 1993. Unfortunately, those amendments failed to include procedural provisions which would have permitted the police to seize all infringing copies (instead of just the amount of product necessary for evidentiary purposes) and implements used for reproduction which are found during an anti-piracy raid. The legislation should be amended to provide this authority, which TRIPS (Article 61) requires to be available.

The levels of fines in the 1993 amendments have been overwhelmed by inflation. In addition, the fine levels in these amendments should have been tied to the indexing system in the general provisions of the Brazilian penal code. The Brazilian Government promised to make best efforts by June 1994 to pass legislation to ensure that the range of higher penalties available under the indexing system in the general provisions of the Penal Code applied to copyright infringement. This has not been achieved.

Presently there are two amendments pending to the current Brazilian Penal Code. The first is Bill No. 2.681/96, which has strong copyright industry support. This bill would amend Article 184 of the Penal Code to include unauthorized rental of a work or sound recording for profit and add provisions permitting the destruction of seized materials by Brazilian authorities.

The second proposal, Portaria 232/98 proposed by the Ministry of Justice, reflects a substantial revision of the entire penal code. The concern here is that this proposal would lower the level of criminal penalties and remove the authority of the police to initiate searches and seizures on their own initiative (ex officio), and instead would make them available only upon judicial warrants. The copyright industries oppose this proposal.
 

CRIMINAL PROCEDURE REGULATION

A Criminal Procedure regulation was issued in 1995 to alleviate serious court overcrowding. Law 9099-95 provides for the suspension of proceedings against first time offenders. When the regulations first went into effect, the copyright industries were hopeful that it could have a positive impact on piracy, because it requires the defendant to pay damages as a condition to granting the suspension, and the accused remains on probation for a period of two years. As the courts have begun issuing these suspensions, there is growing concern that these regulations are not supporting the creation of a system which has expeditious and deterrent penalties. As detailed above, most copyright cases are cycled through this system. Many offenders receive suspended sentences or very low fines, community service, or no sentences at all. This lenience clearly is not providing a deterrence to piracy.
 

IPR COURTS

The Industrial Property Law (Law No. 9279 which entered into effect in May 1997) authorized the judiciary to create specialized IPR courts. The copyright industries and other interested parties are working with appropriate judicial officials to prepare for the formation of these courts, which should significantly improve intellectual property rights enforcement. Our reports indicate that these courts are restricted to industrial property matters. IIPA and our members continue to recommend that courts also be established to handle copyright infringement cases.

NON-TARIFF BARRIERS: LOCAL PRINTING OBLIGATIONS FOR FILMS AND TV PROGRAMMING

Article 21 of Brazilian law 8.401/92 establishes a 100% local printing obligation for films and television programming. Importation of color prints for the theatrical and television markets is prohibited. All such prints must be produced locally, regardless of price or quality of work. There are only two printing laboratories in Brazil, which cannot supply the growing demand for prints in Brazil due to the increasing construction of multiplex theaters. In order to supply the Brazilian market with the number of prints required and to increase competition and promote modernization of printing labs in Brazil, Brazil should allow the importation of prints manufactured abroad.

This provision violates Article XI of the General Agreement on Tariffs and Trade, which prohibits quantitative restrictions on imports. It also is inconsistent with Brazil's obligations under the treaty of Asunción, which created Mercosur and establishes the free circulation of goods and services within the member countries of Mercosur. Brazil should take immediate steps to bring its practices into conformity with its international trade obligations.
 

NON-TARIFF BARRIERS: REMITTANCES AND COMPUTER SOFTWARE

Brazil has eliminated most of the non-tariff barriers that afflicted the computer software industry. At last report, the Central Bank is still requiring (per Circular No. 2685 of May 1996) that an agreement duly registered with the Ministry of Science and Technology (including the registration certificate) be presented to the financial institution conducting the currency exchange operation as a prerequisite to remitting overseas payments. In addition, the Brazilian entity seeking to make the remittance must also present an import license, an invoice from the (foreign) supplier, and an invoice that the Brazilian entity has issued to the purchaser of the program.

The progress shown by major copyright reforms in Brazil in 1998 has been greatly overshadowed by the government's inability to improve copyright enforcement and to stop the increasing levels of piracy, which are causing more economic harm to a nation already under financial stress. The financial crisis afflicting Brazil should not be used as an excuse to delay or inhibit the necessary attention and efforts to improve enforcement of its existing laws at all levels -- criminal penalties, border enforcement, judicial resolution of cases, civil procedures, and other provisional remedies. Given the extreme nature of these problems, Brazil should be placed on the Special 301 Priority Watch List this year.

FOOTNOTES

1. As reported in IIPA's 1998 Special 301 submission, RIAA's estimated losses in 1997 were due to audiocassette piracy only. For 1998, the Recording Industry Association of America (RIAA) reports that audiocassette piracy blankets 95% of the market, causing $110 million in estimated losses. Piracy of music CDs in Brazil afflicts 30% of the market, amounting to $180 million in estimated losses.

2. 1998 business applications statistics are preliminary. In IIPA's 1998 Special 301 submission, BSA indicated that its 1997 estimates of $299.0 million and 61% were preliminary, and in mid-1998, BSA revised and finalized the 1997 estimates at $315.7 million and 62%.

3. Press Release, Office of the U.S. Trade Representative, January 16, 1998.

Copyright 1999