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THE IP COALITION REPORT I: COPYRIGHT IN THE PHILIPPINES 2004 The IPC Philippine Report Series November 2004

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Page 1: IPCreport2004 - In the Philippines

THE IP COALITION REPORT I:COPYRIGHT IN THE PHILIPPINES 2004

The IPC Philippine Report Series

November 2004

Page 2: IPCreport2004 - In the Philippines

THE IP COALITION REPORT I: COPYRIGHT IN THE PHILIPPINES 2004

A Report Written Under a Study Grant from Microsoft Philippines toUpecon Foundation

In cooperation with the Intellectual Property Coalition of the Philippines

PREFACE

The intellectual property rights (IPR) concerns have been gaining popularity internationally, but intensive studies on IPR issues have not yet been fully developed in the Philippines. In response to this need for information, the

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Intellectual Property Coalition (IPC), in partnership with the UPECON Foundation, conducted this analysis on the protection of intellectual property rights in the country. The IPC is the leading federation of IP Rights Stakeholders and Organizations in the Philippines, and is composed of the following organizations, namely: COMPACT; Filipino Society of Composers, Authors, and Publishers (FILSCAP); Philippine Association of the Recording Industry Inc. (PARI); AVIDPHIL; Business Software Alliance; Asosasyon ng Musikong Pilipino Foundation; Philippine Entertainment Industry Foundation, Inc.; Brand Protection Association; KATHA; Movie Producers and Directors Association of the Philippines (MPDAP), Philippine Software Industry Association, Inc. (PSIA), Quezon City Chamber of Commerce and Industry, Inc., American Chamber of Commerce and Industry, and Microsoft, Inc.

The IPC Report focused on the issue of IPR protection in the country, specifically in the area of copyright. First, brief profiles of the copyright-based industries in the Philippines, namely the software, music/recording and video industries, were presented using statistical data from government and private agencies. Included in this section are the analyses of the effects of piracy on the economic performances of the identified industries.

The second part of the research, which is considered as the heart of the study, examined the state of IPR protection. An “Intellectual Property Rights Protection Model” was devised to serve as a framework for the analysis. The model identified three cornerstones of IPR protection, namely: 1) Policy and Regulation, 2) Enforcement and Adjudication, and 3) Public Information and Education Campaign. Under the Policy and Regulation section, the different IPR laws and regulations in the Philippines were determined, including the most recent ones that have been passed in the Philippine legislation. This section encompasses laws concerning copyright and patents, and other legislative measures regarding border controls and electronic commerce. Meanwhile, the different IPR enforcement activities, by both the government and private sectors, were presented under the section Enforcement and Adjudication. Here, the relationships between the piracy rates (software, music and video piracy rates) and the enforcement activities were analyzed. Lastly, the section on Public Information and Campaign identifies the various efforts of the government, IPR stakeholders, and private organizations, in educating and informing the public on IPR issues and concerns.

The paper also presented “Insights on the Intellectual Property Rights Protection” discussing the interrelationships between and among the legal, social, and economic aspects of the endeavor. The legal side involves the laws governing the IPR and the judicial processes involved in trying IPR cases. These are the de jure institutional arrangements wherein the government is the recognized main authority on the subject. The social side of IPR deals with the social attitudes and customs towards the legitimacy of the rights on intellectual property. In this section, it was stressed that in intellectual property rights, or any property rights issue for that matter, one vital concern is the acceptance of society that intellectual property is an asset in which rights can be allocated to. That it is an income stream that needs management, hence, the provision of the rights. It is significant, therefore, that this knowledge or thinking be ingrained in the value system or norms of the society. On the economics side, the demand and supply of intellectual property assets were discussed.

In general, the study determined the importance of intellectual property rights protection in the Philippines; and how the government, as well as the private sector, responded to the need for it.

Table of Contents

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BACKGROUND

Before discussing the issues covering the intellectual property rights protection, one must first understand the concept of property rights itself and the intricacies involved in the system of its implementation. A property right is the authority to undertake particular actions related to a specific field. It is an instrument of society; and derives its significance from the fact that this right helps man to form expectations that he can reasonably hold in his dealing with others. The said expectations find expression in the laws, customs, and traditions of a society. An owner of property rights holds the consent of his fellowmen to allow him to act in particular ways.

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As Schlager and Ostrom (1992) stated, there are two components vital to the understanding of property rights: one is the authority scheme and the other is the specific domain. For every right a person holds, rules exist that authorize or require particular actions in exercising that property right. The rules pertain to the instructions that create authorization. For property rights, there are two relevant rule structures, namely, the operational rules and collective-choice rules. Operational rules define who can participate in which situations, what participants may, must or must not do, and the reward and punishment scheme involved in the actions (Tang, 1991, as cited by Cuevas, 1994). On the other hand, collective choice rules specify who may participate in changing the operational rules and the level of agreement required for their change (Schlager and Ostrom, 1992).

Both the operational and collective choice rules form a system called institutional arrangements. Ostrom (1990) defined these to be the set of working rules that are used by society to determine: 1) who is entitled to make decisions in some arena, 2) what actions are permitted or constrained, 3) what aggregation rules will be used, 4) what processes will be followed, 5) what information must and must not be provided, and 6) what pay-offs will be given to individuals depending on their actions (as cited in Cuevas 1994). Accordingly, institutional arrangements of property are a public system of rules specifying permissible and forbidden actions in relation to ownership, use rights, responsibilities, and obligations of individuals and groups. They include mechanisms for defining and enforcing property rights; hence, they involve both the formal procedures and social customs and attitudes concerning the legitimacy and recognition of those rights (Feder and Feeny, 1991). Therefore, like the rules that comprise it, an institutional arrangement's main function is to define one individual vis-à-vis others, both within the group and with individuals outside the group (Bromley and Cernea, 1989).

Institutional arrangements are classified into two, the de jure and de facto arrangements - the former being the rules and regulations recognized and legitimized by the state, while the latter are arrangements that have evolved into norms that have been accepted and affirmed by the people in the community and society as laws. It is perceived that between the two, the de facto system has a stronger impact on society's behavior. A de facto arrangement is an established and stable phenomenon which everyone conforms to, and which everyone expects others to obey.

With this discussion, how do we now deal with the issues involving intellectual property rights?

Vital to this concern is the acceptance of society that intellectual property is an economic asset in which rights can be allocated to. That it is an income stream that needs management, hence, the provision of the rights. As an asset it is a good and/or service with “definite economic value, and with implications for trade and competition in the market.”1

This leads us to the importance of protecting intellectual property rights. Safeguarding the rights of scientists, artists, and other holders of IP encourages more intellectual property creations. This means more inventions, innovations, discoveries, and scientific discussions that will develop our indigenous science and technology (Optical Media Bill FAQ Primer). In addition, the creative geniuses of Filipinos in the fields of arts and music are also promoted to emerge and thrive. Therefore, by protecting the IPRs, we not only develop our economy though the economic revenues generated by the endeavors, but we also support the growth of our culture.

1 “Intellectual Property and Economic Growth with Special Attention to Copyright and Related Rights”. Lecture prepared by Dr. Mihaly Fiscor, Director, Center for Information Technology and Intellectual Property (CITIP), Budapest for the WIPO-ESCWA Arab Regional Conference on Recent Developments in the Field of Intellectual Property, Beirut, May 5 and 6, 2003.

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IPR protection also allows efficient and effective technology transfers. A country would only be willing to export its technology if it is confident that it will be able to receive the just economic rents. Numerous studies have concluded a direct relationship between IP protection and foreign direct investments.2 Hence, foreign investment decisions are also dependent in the state of IPR infringements in a country.

With the growing globalization and rapid development in the international distribution systems, intellectual property assets are of central importance in many industries. These industries dependent on intellectual property rights are also becoming significant contributors to the economies of many nations. To stress this point, the framework presented in Figure 1 shows that the various industries in the economy are inter-related through the institutional arrangements that govern the intellectual properties/resources of the players. As earlier defined, these institutional arrangements include the mechanisms for defining and enforcing property rights; that is, they include both the formal procedures and the social customs and attitudes concerning the legitimacy and recognition of those rights. Through these institutional arrangements, different industries in the economy are perceived to be major players in protecting and benefiting from intellectual property rights. These rights are the determining factors in claiming economic rents from their intellectual assets.

With the significance of IPR in industries, countries move to protect these rights. Such movements include the creation of international copyright treaties like the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), and the formation of international organizations like the World International Property Organization (WIPO) that advocate intellectual property rights (IPR) protection. In fact, the TRIPS agreement has taken a pivotal role in fighting piracy worldwide as it sets the minimum standards for IP protection among countries. Meanwhile, the WIPO has chartered the promotion of people's creativity and invention. It promotes the development of IP laws and administers international treaties in order to generate an environment conducive for intellectual property growth.3

2 Such studies include: 1) “The Role of Intellectual Property Rights in Encouraging Foreign Direct Investment and Technology Transfer” by Keith E. Maskus which was prepared for the Conference entitled: Public-Private Initiatives After TRIPS: Designing a Global Agenda, Brussels, July 16-19, 1997; 2) “Composition of Foreign Direct Investment and Protection of Intellectual Property Rights: Evidence from Transition Economies by Beata K. Smarzynska, World Bank, 2002; 3) “How Strongner Protection of Intellectual Property Rights Affects International Trade Flows by Carsten Fink and Carlos A. Primo Braga.3 For more information on the WIPO, visit www.wipo.org

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INTELLECTUAL PROPERTY

RIGHTS

Movie

Industry

Music Industry

Pharmaceutical

Industry

Chemical Industry

Manufacturing

Industry

Information Technology

Software Industry

Biotechnology

Industry

Literary/

Publishing Industry

Trademarks

Patents

Copyright

Licensing

Licensing Patents

Licensing Patents

Copyright

Copyright

Copyright

Licensing Patents

Figure 1. CONCEPTUAL FRAMEWORK: Industry Inter-relationship in the Economy

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The Philippines has long recognized the significance of IPR protection, especially with the country's relevant pool of talents in the fields of science, information technology, biotechnology, engineering, arts, and music. It has been a member of the Berne Convention (Literary and Artistic Works) since 1951; Paris Convention (Industrial Property), 1965; WIPO Convention, 1980; Rome Convention (Performers, Producers and Phonograms and Broadcasting Organizations), 1984; TRIPS Agreement, 1995; PCT (patents), 2001; WCT (WIPO Copyright Treaty), 2002; and the WPPT (WIPO Performances and Phonograms Treaty) in 2002.

However, even with these efforts, the state of IPR infringements in the country continues to be a serious concern. In fact, the Philippines has remained under the Priority Watch List of the U.S. Trade Representative (USTR) “2004 Special 301” Report4 on global intellectual property protection.

At present, among the rampant IPR infringements in the country are: 1) optical media piracy, 2) copyright and trademark violations of all types, 3) importation of counterfeit merchandise, 4) software piracy of all types, and 5) bootleg cable television. The aforementioned are the ones that have the immediate attention of the government and private sectors in the Philippines. Meanwhile, the affected industries of these IPR violations are: 1) Software and IT Services, 2) Music and Recording, 3) Movie and Video, 4) Literary and Publishing, and 5) Merchandising/Manufacturing Industries.

Hence, with the increasing significance of intellectual property assets and IPR protection in the economy of the Philippines, this paper presents an assessment of the IPR protection in the country. Specifically, the study:

profiles the IPR dependent businesses such as the business software, music and movie industries;

determines how piracy affects or influences the performance of the identified industries;

estimates the music and video piracy rates in the country;

identifies the efforts of both the government and private sectors in protecting intellectual property rights;

analyzes how the IPR protection endeavors influence the performance of the IPR based industries; and

assesses the effectiveness of the IPR protection efforts in lessening piracy in the country.

The output of the study provides a profile of three of the copyright dependent industries in the Philippines. This is a step towards organizing information in the IPR system. Indicators to monitor the sector, specifically the copyright aspect, were developed; therefore, producing concrete and quantifiable facts that may be used to assess the sector’s significance, growth, and economic contributions. Moreover, as this study evaluates the individual sector’s performance, information that will support the creation of laws and regulations for IPR protection, are made available.

Meanwhile, the assessment of the IPR protection activities, and their effects on the state of piracy in the country, provides useful information for evaluating present efforts and planning for future IPR protection endeavors.

INDUSTRY PROFILES

SOFTWARE INDUSTRY

The cumulative number of establishments in the Philippines registered with the SEC, as engaged in providing IT-related goods and services, grew by 61 percent between the 1996 and 1998. The number nearly doubled from 1,739 companies in1999 to 3,311 in 2002 (Table 1). These establishments are those in the business of providing hardware consultancy, software consultancy, software development, data processing and conversion, database activities, other computer-related activities, and the maintenance and repair of office, accounting and computing machinery. To better understand the establishment classifications, Table 2 presents the descriptions as provided by the 1994 Philippine Standard Industrial Classification (PSIC)5.

4 The Special 301 Report addresses significant concerns with respect to its trading partners, which includes the Philippines. The report notes that the United States will consider all options, including but not limited to initiation of dispute settlement consultations with countries that do not appear to have implemented fully their obligations under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement).

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The number of companies under the software consultancy and development classification grew by almost 300 percent in just three years, from 1999 to 2002. This showing indicates that the software and related IT services sub-sector is a thriving industry, and has attracted a substantial number of players in the business. Similarly, the establishments involved in other computer related services significantly expanded in number, from 65 in 1999 to 852 in 2002. Also, those companies undertaking database activities and data processing and conversion, climbed by 234 percent and 2 percent, respectively. However, the number of establishments under the hardware consultancy category has been cut by 74 percent.

Industry Description 1996 1997 1998 1999 2002Hardware Consultancy 143 37Software Consultancy 87 219Software Development 99 523Data Processing and Conversion 1,203 1,228Database Activities 120 401Other Computer Related Activities 65 852Maintenance and Repair of Office, Accounting and Computer Machinery

510 594 702 22 51

TOTAL 860 1,086 1,385 1,739 3,311

1999 and 2002 data source is the Securities and Exchange Commission, as cited by the Bureau of Trade and Promotions, Department of Trade and Industry

Notes: 1996-1998 data sources are the Annual Survey of Establishments 1996-1998

Table 1. Number of IT Establishments/Companies in the Philippines: 1996-1999 and 2002

350 492 683

New Investments and Employment

The Philippines has four investment promotion agencies (IPAs), which register new investments. These are the Philippine Export Zone Authority (PEZA), Board of Investments (BOI), Subic Bay Metropolitan Authority (SBMA), and the Clark Development Corporation (CDC). The succeeding discussion focuses only on new investments registered with the Bureau of Investments.

Table 3 presents the levels of new investments and the jobs these created in the IT Services industry, as reported by the Board of Investments (BOI). From 1998 to 2003, the Software and Related IT Services6 sub-sector accounted for an average of 52.3 percent of the total BOI registered new investments in the IT Services sector. Software and Related IT Services contributed most to the sector in both 1998 and 1999, with a 100 percent investment share each year, and the least in 2002, at 11.2 percent. The sub-sector registered growth rates of 53 percent, 34 percent, and 38 percent in 1999, 2000, and 2001, respectively. However, the level of new investments slid by 54.4% in 2002 and further declined by 28.5% in 2003.

5 The Philippines Standard Classification (PSIC) is a classification of all economic activities in the country. It was developed for use in the classification of establishments according to the type of economic activity they are engaged in. It is intended to serve as a framework in the collection, compilation, and analysis of data on economic activities to secure uniformity and comparability of statistics presented by various government and private agencies.6 This sub-sector includes software development, application and system software services, web designs, database

designs, and computer animation.

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The total new IT Services investments took a dive in 2002, at PhP5.40 billion, from the PhP10.96 billion figure registered in 2001. On the Call Centers and Related IT Communication Services category, only six projects were recorded in 2001. Though the number of projects rose to twelve (12) in 2002, the top investment value was only worth P481.66 million. This is relatively small compared to the biggest single investment in 2001, valued at PhP1.46 billion. However, the Other IT Services sub-sector experienced the steepest slide in the number of projects registered, from 19 in 2001 to only five (5) in 2002.7 The decline further continued in 2003, at P1.42 billion. Like in 2002, lower new investments were experienced in all the three sub-groups.

One of the factors that may have affected the investment decisions in 2002 was the poor performance of the whole ICT sector in 2001. A P7.97 billion loss was posted by the top 500 IT companies during the year, and the loss on sales was one centavo per peso. The loss performance of the industry continued in 2002, though at a lesser extent than in the previous year. As the Annual Sourcebook of the Philippine Information Technology Community reported (IT Resource Philippines, 2003):

Sales of nearly half of the top IT companies dwindled in 2002, while many of the firms took a turn for the worse as they ended the year with negative bottom lines. Both hardware and software spending remained weak as most users took a cautious cost cutting approach. Price competition among vendors continued to restrain revenue growth, while fluctuations in the peso-dollar rate resulted in huge foreign exchange losses for manufacturers and suppliers. Burdened by these unfavorable developments, the IT industry was again caught in a downward spiral in 2002.

The country’s top 500 IT companies registered an aggregate loss during the year of P7.25 billion. A third of the companies experienced excess in expenses over revenues, most of which were the telecommunications and networking, on-line services, and electronic industries.

Table 3 also shows that the total number of jobs created by the software industry in 2003

7 Table 1 data is on cumulative number of establishments. Accordingly the observed increase of establishments in 2002 may have occurred particularly in 2000 and to some extent 2001, and this is consistent with the observed rise in new IT investments in those years, respectively. Table 1 doesn’t have any information about the increase of the number of establishments between 2001 and 2002. It is possible that rise in number of establishments from 2001 and 2002 would have also declined compared to that in 1999 to 2000 and 2000 to 2001.

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was estimated by Board of Investments at 515 jobs. Another estimate using data from the four investment promotion agencies puts the new employment in the industry in 2003 at 2,775. Thus it would seem that the BOI’s estimate would only account for nearly 19 percent of the total jobs the industry created in 2003. Call centers created 8,079 jobs, of which BOI registered investments accounted for 3,629 jobs or 44.92%. The other IT services contributed 1,939, 1,824 of which were reported by the BOI. The total new employment generated by new investments in the software, call centers and other IT services summed up to 12,793, and of this, data from the BOI accounted for nearly 47%.

The BOI figures show that the Software and Related IT Services sub-sector has generally created more jobs per million investment than the other IT categories from 1998-2001 (Table 4). In 2000, a million peso investment in Software translated into four (4) employees, while only about one was registered in each of the other categories. The following year, three (3) jobs were provided per million peso investment in the Software and Related IT Services classification, while two people were employed in the Call Center and Related Communication Services sub-sector. On the other hand, it took three (3) million worth of investments to generate an employment in the Other IT Services category.

In 2002 and 2003 respectively, the Call Center and Related IT Communication Services and Other IT Services sub-sectors generated the most employment for every million investment.

It has been pointed out that call centers operate at least two to three shifts a day.8 A million peso investments can support about four workstations, each manned by a one person. Given this, the estimates of jobs per million peso investments in Table 4 for the call centers would seem to understate the actual number of jobs that may be created by the new investments. If the additional work shifts are considered, these estimates may be adjusted upwards by a factor of 2 to 2.5. This adjustment would seem to be corroborated by information that in 2003 about twenty thousand graduates in Metro Manila took jobs in the various call centers of the country.

The Philippine Information and Communication Technology (ICT) sector received a total of PhP34.1 billion new investments in 2003. These investments were registered in the four major IPAs, namely, the Philippine Export Zone Authority (PEZA), Board of Investments (BOI), Subic Bay Metropolitan Authority (SBMA), and the Clark Development Corporation (CDC). Of this value, 68.0 percent came from the manufacturing sub-sector; 19.4 percent, from the IT Services9; 8.6 percent from the Services; 4.0 percent, from Telecommunications; and a minimal 0.02 percent from Trade.

The IT Services sub-sector recorded a PhP6.6 billion approved new investments during the year (Table 5). The largest amount of new investments was from the Other IT Services10, at PhP2.6 billion, or 39.2 percent. This is followed closely by the figures from the Call Center and Related Communications Services category, with a 38.2 percent share, and the Software and Related IT Services, at 22.6 percent.

The bulk of new investments in the Software and Related IT Services classification, 70.4 percent, were made by foreigners. This percentage share is more than enough to dictate the investment performance of the category. Of the PhP1.5 billion new investments in 2003, only PhP442.8 million were local. At least two million local investments were registered per million foreign investments during the year.8 The source of information is Ms. Emma Teodoro, Philippine Software Industry Association.9 Software and Related IT Services investments are accounted in the IT Services Classification 10 Other IT Services Subsector includes Data Processing and Conversion, Medical Transcription Services, Business Process Outsourcing and the like.

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Foreign investments also had the lion’s share, 92.1 percent, in the new investments in Call Center and Related Communication Services. Conversely, the local investments made up majority, 85.4 percent, of the investments in the Other IT Services group.

IT Human Capital

Through the years, the IT industry has been attracting people, as evidenced by the increasing number of students that engaged in the IT related discipline. During the Academic Year 1994-1995, the number of students that enrolled in Mathematics and Information Technology was 5.2 percent, or 97,853, of the total number of tertiary students that enrolled during the year. In School Year 2000-2001, the figure increased to 218,675, or 8.3 percent of the total (Table 6).

On the other hand, the number of graduates under the discipline reached 28,231 in 2001 from 21,338 in 1995. This composed 7.3 percent of the new graduates during the year.

In addition, enrollment in higher IT and Related Programs had been climbing from AY 1998-1999 to 2001-2002 (Figure 2). The students analyzed had registered in either of the following disciplines: Computer Science, Computer Technology, Information and Computer Science, Computer Applications, Information Management, and Information Technology. A greater part of the graduate students enrolled in the Master’s Level during AY 1998-2002, while twelve people registered in the Doctorate program during the AY 2001-2002.

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The total number of enrollees reached 2,579 in AY 2001-2002, a 228.54 percent rise from the 785 figure posted in AY 1998-1999.

According to the Bureau of Exports and Trade Promotions (BETP), the Philippines has over 567,802 IT labor force as of 2002, 99% of which are college graduates. They are described as professionals “proficient in working on mainframes, minicomputers, and microcomputers11”, and who are also known for their “technical and business skills for ICT projects.12”

The Philippines also pride itself with high performing I.T. professionals with excellent industry track record13.

The credibility and expertise of our IT professionals are recognized worldwide as proven by the satisfied customers in the fields of advertising, banking, communication, defense, education, finance, government, health, insurance, manufacturing, mining, public utility, realty, science and research, shipping stocks, and trading. Manila is recognized as a major outsourcing center for companies in the U.S., Japan, and Europe (Information Technology Service Profile, www.tradelinephil.dti.gov.ph/betp).

The country ranked 8th among 47 countries in the Knowledge Jobs14 category of the 2000 Global New Economy Index 15 (GNEI). Ranking in this category is determined by the performance of a country based on the following factors: qualified engineers16, availability of IT skills17, availability of senior management18, and higher education enrollment (see Table 7).

According to the analysis made by the Rubin Systems Inc., the Philippines is “a global leader in the Knowledge Jobs category, with an impressive pool of engineers, workers skilled in information technology, and competent managers.” Moreover, “the nation performed well in education, an important component of the Knowledge Jobs category. Education helps create and cultivate the knowledge workers of the next generation, and a good education system is an invaluable asset in the knowledge based New Economy.”

In 2003, the Philippines ranked 12th in same category of the Global Information Technology Economy Index19 (GITEI). This index ranks 48 nations based on the results of a composite index comprising 33 factors organized into the same categories that of the GNEI, with the addition of the Visionary Government Category. The Knowledge Jobs category in

11 BETP Information Technology Services Profile at www.tradelinephil.dti.gov.ph/betp12 “Filipino IT Workers Rank High in Survey”. Philippine Daily Inquirer, June 1, 2002.13 BETP Information Technology Services Profile at www.tradelinephil.dti.gov.ph/betp14 Knowledge jobs and information based jobs are related to information, communications and/or engineering, with an increasing need for qualified senior management. 15The factors that comprise the GNEI are organized into the following categories: Knowledge Jobs, Globalization, Economic Dynamism and Competition, Transformation to a Digital Economy, and Technological Innovation Capacity. For more information, visit www.forecastcenter.com/public/guest/GNEI.htm16 The availability of engineers in a country’s labor market.17 The availability of qualified information technology workers in a country’s labor market.18 The availability of competent senior managers in a country’s labor market.19 The 2003 GITEI measures the technological, sophistical and global integration of 48 nations based upon the following six indicators: Knowledge Jobs, Globalization, Enterprise Dynamism and Competition, Transformation to a Digital Economy, Technological Innovation Capacity, and Visionary Government. The overall GITEI ranking is based upon a weighted value of a nation’s combined scores in each indicator. It is also considered to represent an important measure of the economic strength, technological capabilities, and the ability and commitment of the national leadership to promote technological advancement and global economic engagement for each of the 48 countries under consideration.

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this index slightly differs with that of the GNEI, with the inclusion of the Science degrees20 and University education21

factors in the formula.

These results show that the Philippines has a comparative advantage with regards to the quality of IT professionals in the country. With the increasing number of people engaging in Math and Information Technology Courses, and the relatively high ranking of Filipino IT professionals internationally, the sector shows its potential employment significance to the country.

Meanwhile, the Software and Related IT Services industry has employed an estimated22 52,110 people in 2002 (Figure 3). This approximation includes employment of establishments engaged in software design and development, systems integration, and IT services such as animation and graphics, CAD/engineering services, and the like. This figure is a 19.17 percent climb from the estimated number in 1999, of 43,727.

Moreover, this 2002 employment composed 9.18 percent of the total IT labor force (567,802) estimated by the BETP during the year.

Software Piracy

Trends in Piracy

Software piracy in the Philippines had been declining for the five consecutive years, 1996 to 2000, based on data in Table 8. Indeed, the Philippines recorded the largest rate decline among the countries in the Asia/Pacific region in 1999-2000. For reasons that are explained below, piracy has been rising at least for the period from 2001 to 2003.

According to the Business Software Alliance (BSA), the decline in piracy rate in 1997-1998 was primarily attributed to the enactment of the new copyright law23 and the improved awareness on IPR in the country among the members of the judiciary (Computerworld, 1999)24. The intensified enforcement of the law and improving Intellectual Property protection also contributed to this decreasing trend. From 8,944 firms being monitored by government agencies for IP Code Violations in 1998, the number increased to 14,876 in 2000. However, the number dropped by 1,192 from 13,684 in 2001, the year when the piracy rate in the country started to increase.

20 Percent of total bachelor’s degrees awarded in science and engineering.21 Does/not meet the needs of a competitive economy.22 Estimates were based on the regression analysis with sales/revenues as the independent variable used to project the level of employment. Detailed employment estimation methodology is presented in the Appendix.23 Intellectual Property Code of the Philippines in 199824 Ramos, G., “Piracy talk With Philippines’, October 28, 1999. Posted in www.cw.com.hk

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Effects on Investments

Based on BSA and BOI data, there is an apparent high negative25 correlation26, of -0.87162, between the levels of piracy and new investments in software development in the Philippines. Level of new investments quadrupled in 2000, when the piracy rate posted a 7 percentage point decline in 1999. Similarly, investments in 2001 climbed by 38.2% when piracy rate dropped by 9 percentage points in 2000. On the other hand, the investment level decreased in 2002, when the Philippines posted a higher piracy rate in 2001, of 63%, from its 61% rate in 2000. It further declined by 28.5% in 2003 as the rate of piracy further rose to 68% in 2002 (Figure 4).27

25 As the software piracy rate in the country declines, the level of new investments in the software sector rises, and vise-versa.26 Correlation is an analysis tool that is used to determine whether two ranges of data move together; 1) whether large values of one set are associated with large values of the other (positive correlation), 2) or whether small values of one set are associated with large values of the other (negative correlation), or 3) whether values in both sets are unrelated (correlation near zero). A perfect direct relationship produces a correlation co-efficient of +1.00; a perfect inverse relationship produces an r of -1.00. A co-efficient of 0 means there is no relationship at all between the two variables.27 Release of the piracy rate estimates has a one year lag. Current year's investment decisions will be based on previous year's piracy estimates.

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Similarly, the level of new employment in the software sector rose as the software piracy rate dropped, although at a decreasing rate. In 1999, it climbed by 117.3%; 2000, 89.7%; and 2001, 0.3%. Meanwhile, the number of new hiring was cut by more than half in 2002, when piracy rate climbed to 63% in 2001 from 61% in 2000. Likewise, a drop in 2003, of 65.2%, in new employment was registered when piracy rate further rose to 68% in 2002.

The same reaction to the piracy rates was observed for the total28 IT services new investment and employment levels during the years analyzed. From 1997-2000, when the piracy rates were decreasing, total levels of new IT investments and employment continued to increase. The reverse occurred in 2002-2003 when the piracy rates rose to 63% and 68% in 2001 and 2002, respectively. This means that the whole IT industry, and not only the software development and service sub-sector, is affected by the infringement in software copyright. However, correlation analysis showed that the intensity of the influence of piracy rates on the level of investments is greater in the software sub-sector, at -0.81726, compared to its effect on the whole IT industry where the correlation value is lower at negative 0.5224.

The said observations are consistent with the study29 conducted on the software sector in Mexico, which stated that:

Looking across numerous countries, we find that as software piracy rates decline, IT investment increases. Every 10 percent decline in the software piracy rate, e.g. from 70 percent to 63 percent, increases the IT investment share of GDP 13.4 percent, e.g. from 2 percent to 2.26 percent… Even modest success in providing stronger protection of IPR can have a sizeable impact on IT investment and GDP.

The importance of effective IPR protection as a determinant to foreign direct investments is highlighted in a recent study by Correa.30 The study examined the investment and IPR chapters of several bilateral investment treaties (BITs). The author observed that these agreements have provisions that even go beyond international standards such as those in the WTO’s TRIPS agreement. They incorporate the "national treatment" principle without the exceptions provided for under international treaties. Interestingly, the "most favored nation" clauses in BITs contribute to a global elevation of IPR protection standards. These bilateral treaties are setting the standards for the highest protection of IPR. They highlight how sensitive investors are to the protection of IPRs. Indeed, if negotiations on investment were initiated in the framework of the WTO, for instance, pressure to replicate the highest levels of investment protection for IPRs, as currently found in the bilateral treaties, can be expected, the study observed.

With the observed reaction of the IT market to the levels of software piracy, a framework on the relationship between intellectual property protection and investment decisions is thus formulated (Figure 5).

The framework shows that the creation of IPR laws is a tool by which the Intellectual Properties of economic agents are protected from infringements. Condition or extent of IPR protection31, in turn, provides economic entities with information regarding the probabilities of return or forecasts of their activities.

One of the major concerns of IT investors is the rate by which their investments are protected. IPR protection builds the investors' confidence on the country's market and the government's dedication and capabilities toward the cause. Economic decisions, such as the levels of IT demand and investments are affected by speculations that arise from forecasting the psychology of the market. A low market confidence can lead to lower capital inflows and labor demand. Therefore, the primary agenda for IPR protection in IT is the building of investor confidence in the Philippine IT market.

28 Includes all three subsectors namely: Software Development and Service, Call Center and Related Communication Services, and Other IT Services. Includes all three subsectors namely: Software Development and Service, Call Center and Related Communication Services, and Other IT Services.29 “The Critical Role of the Software Industry in Economic Growth: Focus: Mexico” by Sallstrom and Damuth, 2003.30

Correa, C. “Bilateral Investment Agreements: Agents of New global Standards for the Protection of Intellectual Property Rights?” August 2004 in http://www.grain.org/briefings/?id=186. 31 IPR protection in this framework is reflected by the level of software piracy in the country, as estimated by the Business Software Alliance. The higher the piracy rate, the less is the perceived IPR protection in the IT industry.

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MUSIC INDUSTRY

At present, there are 38 record companies in the Philippines giving livelihood to more than 15,000 people - from the composers, singers, musical arrangers, musicians, to the record bar girls, technicians, and recording studio personnel (Philippine Association of the Recording Industry Inc., PARI).

These record companies comprise the Philippine Association of the Record Industry, Inc. (PARI), a non-profit, non-stock, and purely private industry organization formed in 1972. For more than 30 years, PARI has 1) promoted and developed a legitimate and viable music industry, 2) endorsed and improved the Filipino music to world class status for it to be able to penetrate the world market, 3) protected copyright owners against unauthorized use, reproduction, and sale of music and sound recordings, and 4) maintained musical sound recording as a medium that provides wholesome entertainment and positive values to the public (Position Paper of PARI on the OMB32, 2002).

32 Optical Media Bill, House Bill 5225 and Senate Bill 2586

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The Philippine music industry has provided employment to Filipino talents, and has also contributed to the local economy through the taxes (VAT) remitted to the government. From 1994-2003, hundred millions of pesos, in the form of value added tax (VAT), were collected from the record sales of the industry. The highest estimated tax collection was registered in 2000, at P212 million, while the lowest was in 1990, at P45 million. Estimated tax payment from the music industry has also been increasing from 1990 to 1998 (Table 9).

Based on the data collected from PARI, the Philippine music market has generally been dominated by the foreign records/albums. As presented in Table 10, the share of local sales has been declining since 1995. In 2000, however, this market share expanded to 42.7%, but not enough to overtake the sale of foreign albums.

Music Piracy

The declining sales share of the local records has generally been attributed to piracy. According to the Music Piracy Situationer prepared by PARI (2002), “the Philippine music industry was a thriving industry before the vicious tentacles of music piracy choked it to near collapse.”

PARI also said that piracy in the Philippines “has been a problem since twenty years ago, when vinyl album and then cassettes were pirated” (Position paper on OMB, 2002). Music IPR infringement was in the form of cassette piracy that was contained or limited to sidewalks, public markets or door-to-door selling. However, due to optical media technology, duplication capabilities of IPR violators have increased a hundred-fold (Optical Media Bill FAQ Primer).

In 1997, pirate CDs from China, and bootlegs from the United Kingdom and Germany started flowing in the Philippines (IIPA Special 301 Recommendation, 1997). During the succeeding years, public markets, major steers, and malls in the country were flooded with pirate CDs (Music Piracy – A Situationer, April 2002, by PARI).

Recent developments showed that the country no longer just imports pirated CD products but manufactures them as well, as pirate CD plants started to emerge all over the Philippines. This resulted to the existence of rampant CD piracy; and sale of these illegal products has extended to legitimate malls and popular flea markets, in addition to the vending stalls in the streets.

Until recently, the vast majority of pirate optical media products were smuggled or otherwise imported into the country from abroad. This is no longer the case. There are believed to be at least eighteen active production lines for optical media products in the Philippines, more than twice as many a year ago, and perhaps many more than that ... The recording industry estimates that at least half of the pirate music CDs circulating in the Philippines are locally manufactured; the rest are imported from Malaysia, Taiwan, Indonesia and Hong Kong (IIPA 2001 Special 301 Report: Philippines).

With these changes, it is assumed that cassette piracy in the Philippines is being substituted by CD piracy during the latter years of 1990s up to the present. IIPA reported that in 1999, “45% of all music CDs sold in the Philippines are pirate, in contrast to the piracy rate of 13% for the cassette format” (IIPA 2000 Special 201 Report: Philippines). This has also been consistent with the rising preference of the public in buying CDs as opposed to cassette tapes. Further, with the optical media technology, replication of music records in CDs has become so easy and less costly than the illegal reproduction using the cassette medium.

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An investigation on the medium used by consumers in listening to music was conducted to determine whether there is an increasing preference for music in CD format. The sales figure of music appliances compatible for CD playing was the factor used in this analysis. It was observed that the sales, of the set of appliance mentioned, have been improving through the years, creating a more favorable market for the CD records. According to the National Statistical Coordination Board (NSCB) statistics33, the share of this music component to the overall audio appliance sales rose from 23.0% in 1996 to 57.7% in 2003.

How serious is the music piracy in the Philippines? Based on Figure 6, music piracy rate has been increasing from 1997 until 2003. This trend is observed in the Intellectual Property Coalition34 (IPC) Music Piracy Estimates. From 14.1% piracy rate in 1997, it climbed to 29% in 2001, and further rose to 40%35 in 2003. Meanwhile, the music piracy rate estimates by the International Intellectual Property Alliance36 (IIPA) were pegged at 20% from 1997-2000. However, the figure shot up to 33% in 2001, further climbed to 40% in 2002, and settled to that level in 2003.

MOVIE/VIDEO INDUSTRY

Aside from providing the country international recognition, the movie industry is also significant to the local economy. In 2000, it was estimated that the film business employed 130,000 people, 65.4% of which are in the film making and theatrical sub sector, 19.2% in video distribution, and 15.4% engaged in cable services provision. During the same year, it was estimated that the annual payroll expended in the business was PhP9.72 billion, while the industry's estimated total tax contribution amounted to PhP3.5 billion (Sazon, Eduardo D. 2000)37.

33 Economic Indicators Publication (December Issues 1997, 1998, 1999, 2000, 2001, 2002, 2003)34 The Intellectual Property Coalition is an organization in the Philippines composed by private IP stake-holders.35 2003 piracy rate was an estimate by PARI.36 The International Intellectual Property Alliance (IIPA) is a private sector coalition that represents the U.S. copyright based industries that calculate piracy levels in various countries.37 Eduardo D. Sazon is the Executive Director of the Association of Video Distributors of the Philippines (AVIDPHIL) , a national trade association devoted to the promotion and advancement of the nation’s video industry. He is also the Vice-Chairman of the Intellectual Property Coalition.

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The government has been perceived to be one of the sectors that benefit most from the development and expansion of the film making business. It receives 30% amusement tax, 10% VAT, and 10% withholding tax from the theatrical proceeds, in addition to the 30% amusement tax and 10% VAT on video distribution. Furthermore, a 10% VAT is also paid by cable service providers.

According to the report of the Film Ratings Board on the Local Film Industry (undated), the estimated amusement taxes collected from Filipino films shown in Metro Manila have been decreasing. From P215 million worth of taxes in 1997, the collection declined by 16.7% in 1998. The government income slightly climbed, by 2.2% in 1999, but the value again dropped by 9.3% the following year. By 2001, only P147 million tax income was collected (Table 11).

This decreasing tax collection trend may primarily be attributed to the dwindling number of local films produced in recent years. As presented in Figure 7, the production of local films has been slashed by more than 50% from 1997-2003.

Several factors may explain the declining trend in the local movie production. One is the high cost of film production and the low turn-overs. In 1997, the average cost of producing a movie was P9 million. Of the local movies produced in that year, only 10% made money, 41% broke even, while 70% did not fare well in the market. It is said that in order to break even, “ a P9 million movie must gross 342% of production costs, or P30,802,139. For every additional peso earned, only P0.21 goes back to the producer for distribution and operation cost” (Sazon, Eduardo D., 2000). Hence, film production has not been very lucrative for investors.

Video Piracy

Another reason for the decline in movie production is the widespread occurrence of video piracy in the country. Like in the recording industry, piracy is a threat to the movie/film business. With the improvements in image copying, IPR infringement has become a relatively easy task. Without the burden of the fixed costs, pirating entails minimal or only the marginal costs of production.

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Video piracy in the Philippines exhibited a decreasing trend since 1998 up to the present (Figure 8). The highest decline was registered in 2000-2001, at 10.6 percentage points, while the lowest drop was recorded at 1.2 percentage points, in 1999-2000. The IPC38 estimates cover piracy of movies through the video cassette and optical disc media. Note that video piracy rates started to drop the year the Intellectual Property Code of the Philippines was enacted, which was in 1998. However, extensive investigation of this association will be developed in later sections of the paper.

The IIPA39 estimated that the motion picture piracy in the country has been constant at 65% for four consecutive years,

from 1996-1999. It climbed to 70% in 2000, and further rose by 10.0 percentage points the following year. The 2002 estimates remained at 80%, while the 2003 rate climbed to 89%.40 These estimates cover the entire motion picture business, including video, television and cable, and public performance.

The proliferation of piracy in the Philippines was encouraged by the change in the Filipinos' movie watching preference during the early 90's. As substitutes, movie theater watching has slowly been replaced by home video viewing. According to the National Statistics Office (1994 Functional Literacy, Education and Mass Media Survey, FLEMMS), exposure of the public to movie theaters has decreased by 4.6% in 1994 from the 1989 figures. In contrast, video tape exposure increased by 2.4% during the same period. This placed video tape (7th position) ahead of movies (8th) in the 1994 ranking of the mass media forms that Filipinos patronize.

As home video watching became popular, so did the unit sales of appliances for video viewing. From Table 12 it can be observed that in 1997 and 1998, VHS unit sales increased by 15.6% and 1.5%, respectively. However, it dropped slightly, by 3.2% in 1999, as the VCD player was introduced in the market. The declining trend in the VHS volume sales continued until 2001, as the VCD player sales prospered. But due to the fast development in technology, a new medium of video viewing was presented to the market in 2002, which is the DVD player. Unit sales of the DVD player reached 41,900 during the year. As expected, VCD player unit sales started to drop during the same year, from 38 The Intellectual Property Coalition is an organization in the Philippines composed by private IP stake-holders.39 The International Intellectual Property Alliance (IIPA) is a private sector coalition that represents the U.S. copyright based industries that calculate piracy levels in various countries.40

The two piracy estimates are not comparable for in the IPC figures only cover piracy in video, while the IIPA estimates the piracy in the entire motion picture business, including video, television and cable, and public performance.

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238,500 in 2001 to 194,300 in 2002, and will be expected to lose popularity as the DVD player gains an audience. The pattern of movie video medium is also expected to follow this trend as the preference of movie watchers change from video cassette tape, to VCD, and eventually to DVD. This hypothesis is supported by the 2003 figures, wherein VHS unit sales dropped to 1,150 and VCD to 93,400. Conversely, DVD unit sales shot up to120,800 during the said year.

Due to the apparent shift from movie watching to home viewing, one would expect that video distribution will thrive as a business. However, according to the statistics provided by VIVA Video Inc., the number of registered video establishments was affected by piracy as they started to dwindle in 1994. From the 6,402 figure, it declined by 45.3% to 3,500 in 1998.

It is evident that video piracy does not only affect film production, but the industry as a whole. It affects the theatre revenues, the video manufacturing and distribution business, and the actual movie production.

INTELLECTUAL PROPERTY RIGHTS PROTECTED

Rampant intellectual property infringements affect both the domestic and international economies. Due to piracy, there is a transfer of revenues from the legitimate businesses to the free-riders (IPR violators). Piracy also results in government losses, in the form of taxes.

Piracy and other IPR violations are economic issues that affect both the private and government sectors. The protection of intellectual property, therefore, lies not only in the hands of the government, but also of the private entities. The importance of the cooperation between the two is presented in Figure 9, in the Total IP Protection Model this paper conceptualized.

As shown in the model, there are three cornerstones of IPR protection, namely: 1) Policy and Regulation, 2) Public Information and Education Campaign, and 3) Enforcement and Adjudication41. In addressing these issues, the government

should mobilize all its branches, with an emphasis on the legislative and executive branches. The legislative branch of the government is responsible for the placement of adequate laws and regulations for the safeguard of intellectual property rights. Meanwhile, the law enforcement agencies, and IPR concerned government agencies, have the duty to implement the said rules.

However, government efforts will not be effective without the support of the individual stakeholders and other private sector entities, especially those belonging to the industries affected by IPR infringements. Thus, on the side of the private sector, the individual IP stake-holders and the IP related organizations must actively take part in the endeavor. And to involve the whole society in the cause, the above mentioned sectors must cooperate in informing and educating the public regarding IPR protection.

41 Identified cornerstones of IPR protection during the Anti-Piracy Action Planning Workshop in 2001. The main product of the workshop was the Strategic Action Plan to Strengthen Public Awareness and Enforcement of IPRs which was presented to Executive Secretary Alberto Romulo.

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Intellectual Property Rights Related Organizations (NGOs) (Private Sector)

II ndividual IP Stakeholders (Private Sector)

Intellectual Property Office (IPO) (Government)

Law Enforcement Agencies ( Government)

Legislative Bra nch/Offices (Government)

POLICY AND REGULATION

ENFORCEMENT AND

ADJUDICATION

PUBLIC INFORMATION

AND EDUCATION CAMPAIGN

Total

IP R

Protection

Figure 9. INTELLECTUAL PROPERTY RIGHTS PROTECTION MODEL

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Policy and RegulationThe Philippine government has been protecting intellectual property rights since 1947, when the first laws on the protection IPR were enacted42. Such laws include:

Republic Act No. 165 otherwise known as “An Act Creating a Patent Office, Prescribing its Powers and Duties, Regulating the Issuance of Patents and Appropriating Funds Therefore”

Republic Act No. 166 otherwise known as “An Act to Provide for the Registration and Protection of Trademarks, Trade Names and Service Marks, Defining Unfair Competition and False Marking and Providing Remedies Against the Same, and for other Purposes”

IPR promotion and protection have also been made a state policy as the 1973 Constitution provides that

The exclusive rights to inventions, writings and artistic creations shall be secured to inventors, authors, and artists for a limited period.

The 1987 Constitution, meanwhile, explicitly mandates that the State shall protect intellectual property43.

The major turning point in the protection of IPR in the Philippines is the passing and signing into law of the Intellectual Property Code of the Philippines (Republic Act 8293) in 1997. The IP Code repealed the old IP and IP-related laws such as the Republic Act 165 (Patents Law); Republic Act 166 (Trademarks Law); Presidential Decree 49 (Copyright/Related Rights Law); Presidential Decree 285 (Textbook reprinting Law); and Articles 188 and 189 of the Revised Penal Code (on unlawful competition/infringement). Consequent to this was the establishment of the Intellectual Property Office that would administer and implement the State policies declared in the Act. The significant changes in the IPR protection in the country, as a result of the implementation of the IP Code, are presented in Table 13.

42 “Intellectual Property Rights in the Philippines: Brief Background”. Chan Robles Virtual Law Library.43 Ibid.

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The IP code was later followed by the attempt to combat internet piracy through the Electronic Commerce (E-Commerce) Act, Republic Act No. 8792, in June 2000. The law provides specific provisions to fight copyright piracy in the internet. As stated in Section 33 (b) of the E-Commerce Act:

Piracy or the unauthorized copying, reproduction, dissemination, distribution, importation, use, removal, alteration, substitution, modification, storage, uploading, downloading, communication, making available to the public, or broadcasting of protected material, electronic signature or copyrighted works including legally protected sound recordings or phonograms or information material on protected works, through the use of telecommunications networks, such as, but not limited to, the internet, in a manner that infringes intellectual property rights shall be punished by a minimum fine of One hundred thousand pesos (P100,000.00) and a maximum commensurate to the damage incurred and a mandatory imprisonment of six (6) months to three (3) years.

In another legislative effort to protect IPR, the Senate and House of Representatives passed in 2001 the Republic Act 9150 - "An Act Providing for the Protection of Lay-out Designs (Topographies) of Integrated Circuits, Amending for the Purpose Certain Sections of Republic Act No. 8293, Otherwise Known as the Intellectual Property Code of the Philippines and for other Purposes". The law took effect on August 31 of the same year. Moreover, the Patent

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Cooperation Treaty (PCT) was ratified by the Senate and was implemented, also in 2001. The PCT is a “treaty for rationalization and cooperation among contracting states with regard to the filing, searching and examination of patent applications and the dissemination of the technical information.”44

Intellectual property rights encompass a broad range of concern that includes invention and innovation in the field of science. Hence, in June of 2002, to protect the plant breeder’s rights, Congress passed the Republic Act No. 9168, the Plant Variety Act. This is an Act that aims to protect the exclusive rights of plant breeders with respect to their new plant variety. This plant breeder’s right is an “exclusive right that enables the holder of the right to prohibit others from exploiting or using the protected plant variety without any permission or license from the rights holder.” 45 The agency that will manage the implementation of the law is the National Plant Variety Protection Board (NPVPB).

On the judicial aspect of IPR protection, the Philippine Supreme Court passed the A.M.46 No. 02-1-06-SC. It is a Resolution on the Proposed Rule on Search and Seizure in Civil Actions for the Infringement of Intellectual Property Rights that took effect on February 15, 2002. With this Rule, the copyright holder may apply ex parte for the issuance of a search warrant to an alleged infringing defendant, wherein a delay is likely to cause harm to the IPR holder or where there is enough risk of the evidence being destroyed.

In another effort to combat IPR violations, the Philippine Bureau of Customs has issued guidelines on border control measures through the Customs Administrative Order 6-2002. As a follow-up regulation, the Bureau also issued the Customs Special Order No. 24-2002. The Order intends to strengthen customs border control over imports containing goods suspected to be infringing upon the IPR of owners as defined by the IP Code and related Laws, through the creation of an Interim Intellectual Property Unit (IPU) in the BOC. Meanwhile, as of September 12, 2003, the Bureau had approved the Customs Special Order 19-2003 that transformed the Interim IPR unit to a Permanent Intellectual Property Unit. This would centralize border policy development and implementation for better monitoring and interdiction of possible IPR violations at the ports of entry.

This significant progress equips the BOC to efficiently concentrate on the concerns and issues surrounding IPR in the area of border control. As a specialized unit, the IPU will be able to effectively monitor IPR related activities through the creation of an IPR database system, and hence, be able to competently coordinate with other agencies and organizations that have same purpose. Moreover, a permanent IPU will result to a swifter response of the Bureau on complaints by IP stakeholders on piracy and trademark infringements, among others

On the other hand, the Revised Implementing Rules and Regulations of R.A.47 No. 9160 (Anti-Money Laundering Act of 2001) as amended by R.A. No. 9194 (Anti-Money Laundering Law) includes among its provisions the following:

Rule 3.i “Unlawful activity refers to any act or omission or series or combination thereof involving or having relation, to the following:

(K) Violations under Republic Act No. 8792, otherwise known as the Electronic Commerce Act of 2000;

(K.2) Piracy, which refers to:

(58) the unauthorized copying, reproduction,(59) the unauthorized dissemination, distribution,(60) the unauthorized importation,(61) the unauthorized use, removal, alteration, substitution, modification,(62) the unauthorized storage, uploading, downloading, communication, making available to the public, or(63) the unauthorized broadcasting of protected materials, electronic signature on copyrighted works, including legally protected sound recordings or phonograms or information material on protected works, through the use of telecommunication networks, such as, but not limited to, the internet in a manner that infringes intellectual property rights.

These rules were approved by the Senate and the House of Representatives on August 6, 2003.Acknowledging the importance of technology in the proliferation of IPR violations, new laws are being geared towards regulating the processes by which pirated products are produced. In fact, the Optical Media Act of 2003 or Republic Act 9239, has been ratified into law last February 10, 2004. This legislation focuses on the “unregulated mastering, manufacture of and replication in optical media” of copyrighted materials in the Philippines, wherein the importation and

44 Intellectual Property Office (IPO) Office Order No. 13, Series of 200245 Southeast Asia Regional Initiatives for Community Empowerment (SEARICE) Primer, as cited by Basilio, Robert JA, Jr. , June 24, 2002. www.cyberdyaryo.com46 A.M. - Administrative Matter47 R.A. – Republic Act

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exportation of optical media are among the activities to be licensed by the Optical Media Board. The new law is expected to help curtail piracy in the software, music and video/movie industries.

The law component of IPR protection also includes the membership of a country in international copyright treaties and enforcement measures. The Philippines has been actively participating and joining such agreements, such as the World Trade Organization – Trade-Related Aspects of Intellectual Property Rights (WTO-TRIPS Agreement)48. As stated in the IAC-IPR 1999 Executive Summary Report, “in compliance with the WTO-TRIPS Agreement, the IPR Laws namely: PD 49, - Copyright Laws as amended by PD 1988; RA 165 – Patent Laws; RA 166 – Laws on Trademarks, Trade names, and Service marks; Articles 188 and 189 of the Revised Penal Code; and PD 1987 – Videogram Regulatory Board Law – were simplified and rolled into one law called, RA 8293, otherwise known as the Intellectual Property Code of the Philippines.” The latest international treaty in which the country participated in are the WIPO Copyright Treaty, WCT, and the WIPO Performances and Phonograms Treaty, WPPT, in October of 2002.

Among the different IPR laws listed in Table 14, the Optical Media Act is the law that tackles, not the intellectual property itself, but the medium in which the IP is stored. The Act seeks to regulate the technology and medium through which the songs, movies, software and all other such IPR materials, are recorded and transmitted/transferred, which is the Optical Media. The development of the optical media has made the mass production of optical discs fast and easy, taking no more than four (4) seconds to replicate one disk. Currently, the minimum number of copies a replicating machine can duplicate is 60,000 (OMB Primer). This number is reproduced at marginal costs to the pirate hence, the activity becomes very lucrative.

Through the OMB better IPR protection is expected to be achieved through:

the expanded jurisdiction of the concerned government agency in its arrest and seizure activities;

the greater punishment rendered to the pirates; and

better licensing system for the machines used for replication and production.

Concern for IPR protection does not only involve the national government, but the local government units (LGUs) in the Philippines as well. During the last quarters of 2003, LGUs in the country passed anti-piracy ordinances in their jurisdictions. The first anti-piracy LGU ordinance, Ordinance 2003-09249, was passed and adopted in Naga City last September 3, 2003. The ordinance requires that all business licenses and permits issued by the City government must carry the express condition that the licensee(s) will not engage in the sale, rental, transfer, distribution, manufacture and/or production of pirated counterfeit or fake goods, articles or services. It also prohibits other persons to commit said acts within the licensee’s business establishment or premises.

A breach of these conditions may be grounds for the revocation or suspension of the business permit. Moreover, the ordinance provides authority to the local government to seize or confiscate pirated or counterfeit goods of any person engaged in any business or trade.

48 The WTO-TRIPS Agreement is the most detailed and comprehensive multilateral agreement on intellectual property to date, which sets the minimum standards for IP protection among counties.49 Ordinance 2003-092, entitled "An Ordinance Imposing Penalties Upon Persons and Establishments for the Sale, Rental, Transfer, Distribution, Manufacture and/or Production of Counterfeit or Fake Goods, Articles, and for Other Purposes".

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The same type of local law was passed in Iloilo City last December 2003. It is expected that other cities and municipalities will follow suit with the passage of Department of Interior and Local Government (DILG) Memorandum Circular (MC) No. 2003-229, entitled “Protection of Intellectual Property Rights” last December 8, 2003. This MC endorses the anti-piracy LGU ordinance and enjoins all LGUs in the country to help enforce IPR protection.

Enforcement and AdjudicationGovernment Sector Efforts on Enforcement

An Intellectual Property Office was created to administer and implement the State policies declared in the IP Code. The agency was first placed under the supervision of the Department of Trade and Industry (DTI) during its initial creation, but was later transferred to the Office of the President, specifically under the Office of the Executive Secretary.

The IPO is commissioned to implement the changes introduced by the IP Code, such as: 1) the streamlining of the procedure in registering trademarks by abolishing the Supplemental Register; 2) the overhaul of the patent system from first-to-invent to first-to-file system; and, 3) the liberalization of the registration of technology transfer arrangements. The IPO also executes a policy-making role and exercises quasi-judicial jurisdiction for violation of all kinds of intellectual property rights. The agency has the authority of hear and decide on:

administrative cases involving violations of intellectual property rights where the claim for damages is P200,000 and above;

opposition and cancellation cases for trademarks;

cancellation of patents, utility models and industrial designs; and

compulsory licensing

It also has the authority to settle disputes involving technology transfer payments and author’s rights to public performance or other communication to the public of his works.50

The agency is the main coordinating body for IPR enforcement activities done by the government and, to some extent, those of the private sector’s as well. In July of 2002, the Intellectual Property Rights Enforcement Action Panel (IPREAP) was formed to further advance the IPR advocacy and protection in the country. The IPREAP consists of government agencies and private representatives from the academe, Research and Development Institutions and business/trade organizations, and IP organizations. At present, the following sit in the panel as members: Intellectual Property Office (IPO), National Bureau of Investigation (NBI), Department of Justice (DOJ), National Telecommunications Commission (NTC), Videogram Regulatory Board (VRB), Philippine National Police (PNP), Bureau of Customs (BOC), Intellectual Property Coalition (IPC), Council to Combat Piracy and Counterfeiting of Patents, Copyrights and Trademarks (COMPACT), Intellectual Property Association of the Philippines (IPAP), Philippine Internet Commerce Society (PICS), Electronics Industry Association of the Philippines (EIAP), Quezon City Chamber of Commerce and Industry (QCCCI) and Davao City Chamber of Commerce and Industry (DCCCI).

The IPO has taken the lead in all the said activities of the IPREAP. The agency also created an Intellectual Property Enforcement Unit in its organization, under the Office of the Director General, for a more effective execution of the other strategies in the agency's master plan.

Earlier efforts in enforcing IPR laws include the creation of the Presidential Inter-Agency Committee on Intellectual Property Rights (PIAC-IPR) through the Executive Order No. 60 in February 26, 1993.51 The PIAC-IPR monitored IPR infringement activities and enforced the IP Laws, thus, generating a good business environment beneficial to both local and foreign IP stakeholders. The PIAC-IPR was composed of nine (9) government agencies namely: the Department of Trade and Industry - Bureau of Trade Regulation and Consumer Protection (DTI-BTRCP), Videogram Regulatory Board (VRB), Department of Justice (DOJ), National Telecommunications Commission (NTC), Bureau of Customs (BOC), National Bureau of Investigations (NBI), Philippine National Police (PNP), Economic Intelligence and Investigation Bureau (EIIB), and the Bureau of Food and Drugs (BFAD). When the PIAC-IPR was abolished in 2002, the said agencies continued to individually implement the IPR laws.

50 Information lifted from the IPO General Information Brochure.51 However, the PIAC-IPR was abolished in 2002 through the Executive Order No. 72.

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Among the law enforcement agencies, the DTI, DOJ, NBI, PNP, EIIB “respond to search warrant raids” 52, while the NTC and VRB are able to use their own mandates to enforce their authority. The two latter agencies execute their individual monitoring and arrest activities. However, joint agency inspection and seizure efforts are also performed.

The DTI-BTRCP activities were carried out in the whole country by the regional offices of the said department. This agency has an extensive jurisdiction over the confiscation of trademarked goods, from wristwatches, wines/liquors, construction materials, clothes, accessories, etc., to copyrighted and licensed materials such as CD-Rom software programs, playstation CDs, music cassette tapes and CDs, and video VCDs and DVDs. Similarly, the NBI, EEIB, PNP, and BOC had been able to seize the same types of fake goods during their enforcement activities.

On the other hand, the BFAD has authority over the arrest of specific kinds of establishments and people, such as those reproducing and distributing fake drugs, food, cosmetics, and various pieces of medical device. Lastly, the VRB was the lead agency concentrating on curtailing video piracy, and has apprehended establishments engaged in this particular kind of IPR infringement53.

How did the government conduct its IPR enforcement activities?

During the time when the PIAC-IPR was still active, two of its main enforcement activities were to monitor and apprehend firms for violation of IPR laws. From 1993-2001, the number of firms monitored for IPR violations has been

increasing. This is true except during 1996 and 2001 when the figure dropped by 1.3% and 8.2%, respectively. On the other hand, the number of apprehended firms reflected a wave-like trend. The trend reached its twin peaks during the years 1995, at 2,145, and 2000, at 1,480 (Figure 9).

Among the agencies, the Department of Trade and Industry (DTI) registered the highest number of firms monitored. On average, it inspected 77.7% of the total from 1996-2001, followed by the Videogram Regulatory Board (VRB), at 15.1% (Table 15). This suggests that the over-all trend in the monitoring performance of the PIAC-IPR, during the years presented, was generally determined by the operations of DTI.

52 IAC-IPR 1999 Executive Summary; The IPR enforcement activities of the mentioned agencies need a filed complaint (filed to the DOJ) from the IP stake-holder/s before they are executed. Hence, their raids are carried out with search warrants. 53 The VRB had been abolished with the enactment of the Optical Media Act of 2003. The agency’s activities and responsibilities are now carried out by the Optical Media Board (OMB).

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On the other hand, Table 16 shows that most of the raids conducted from 1996-2001 was accomplished by the Department of Justice (DOJ) and the National Bureau of Investigation (NBI). They carried out an average of 28.6% and 23.4% of the total operations, respectively. These are the two agencies that generally influenced the performance of the PIAC-IPR regarding apprehending firms that commit IPR violations.

More recent enforcement activities54 of the government include the intensified search and arrest operations of the VRB in 2002, at 259, compared to the 37 cases recorded in 2001 (Figure 10). This resulted in the confiscation of eleven (11) optical disk lines and a number of CD burners. In addition, 4.31 million units of video discs were also seized during the year. However, there was a 25.9% decline in the figure during 2003 wherein the number of search warrant operations was recorded at 192. The number of confiscated machines from these activities registered at 218 pieces, while that of the confiscated equipments was 36 pieces.

54 With the abolition of the PIAC-IPR in 2002, data collection of government enforcement activities had been done in a per agency basis.

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The VRB experienced a 22.7% decline in their monitoring/inspection activities in 2002. These operations resulted to the confiscation of 1.7 million units of video discs, and 55 pieces of A/V equipment. On the other hand, the number of operations rose by 423 in 2003, registering at 1,957. Consequently, there was an increase in number of confiscated goods and A/V equipment to 2.3 million units and 248 pieces, respectively. Furthermore, 60 pieces of machineries were also seized.

The operations conducted by the NBI in 2002 declined by -8.83%, from the 419 figure in 2001 (Table 17). However, the number rose by 5.24 in 2003. The PNP has more than doubled its efforts in enforcing IPR protection as the operations carried out rose by 120% in 2002, from 177 in 2001. Enforcement activities of the agency were further intensified by 7.2% in 2003. Meanwhile, the BOC conducted additional operations in 2002, at 10, compared to the 9 operations registered in 2001. However, the figure slid by 20% in 2003.

One of the relevant achievements of the PNP, among the raids it conducted in 2002, was the seizure of the counterfeit videogram materials in Meycauayan, Bulacan estimated to worth PhP1 billion. Case for violation was filed before the DOJ against 12 foreign nationals caught in the activity.

Figure 11. Enforcement Activity Flow Chart

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Stage 1. IP stake-

holder's investigator monitors a presumed

IPR violator

Stage 2. Evidence

gathered is evaluated by IPR

lawyers for complaint filing to gov't agencies

Stage 3.Complaint of private sector is evaluated

by the NBI/PNP

Stage 4. Preparation of necessary requirements

for the granting of a search warrant (made by both the NBI/PNP and the

complainant).

Stage 5. NBI/PNP file for a search warrant.

Special IPR court hears the case.

Stage 6. When a warrant is granted,

NBI/PNP and private cooperate to execute

enforcement operations

Stage 7. NBI/PNP and

private complainants

file a complaint affidavit

Stage 8. DOJ/ Fiscal evaluate the probable cause and decides if there is a

case

Stage 7.a. Complainant and

defendant agree on a settlement

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The flow chart55 in Figure 11 shows the series of activities conducted before an IPR case is tried in the IPR courts. Simultaneous with the filing of a criminal case is the filing of a civil one, wherein the client in the former is the government and in the latter, the private infringed party. Due to the numerous cases handled by the state prosecutor, the private prosecutors are given permission by the courts to handle both the criminal and civil aspects of the cases. This occurs to about 80%-90% of the total IPR cases.

Most often than not, about 60%-70%, the IPR cases do not continue to formal court trial proceedings. This is because at Stage 8, of the flow chart, the parties involved agree on a settlement. As a rational economic individual, one would engage in a transaction that will minimize his costs and maximize his benefits. An IPR case, like any other case, entails not only financial, but other transaction costs to both parties involved in the proceedings. When the private complainant settles before the case is formally filed in the courts, the state is left with no complainants and no case. Although the state may continue to file criminal charges against the violators and prosecute, it is now left with no willing witnesses. The same occurs even when the private complainants do continue with the criminal and civil cases, but settle in the middle of the trial. The civil charges against the violators may be dropped, but the criminal case may still be 0continued by the state. Again, with no cooperation from the private complainants, the IPR criminal cases are no longer pursued.

Government Sector Efforts on Border Control

With the new regulations in place such as that of the border control56, additional trainings for BOC employees were conducted for the effective and efficient implementation of the law. Orientation training seminars on border control were conducted in key cities in the Philippines such as Manila, Cebu and Davao last December 28-29, 2002, January 16-17, 2003, and February 12-13, 2003, respectively. The training seminars were attended by 441 BOC officials and private IP stakeholders.

To further strengthen border control in the country, the BOC conducted the training/workshop entitled "The New Intellectual Property (IP) Border Control Measures" last October 3, 2003. The activity aimed to familiarize the BOC IP Unit officials and personnel on:

the key functions and responsibilities of the IP Unit as mandated in the CSO 19-2003;

the rudiments of the IP Code;

the importance of protecting intellectual property rights; and

the salient provisions of the CAO 6-2002 on border control measures. This will ensure that a uniform and effective implementation of the regulation is applied in customs ports, nationwide.

This workshop is basically a capacity-building activity for the BOC's IP Unit. It is expected that the training seminar will increase the IP Unit's awareness on IPR issues, and further strengthen their commitment in protecting IPR at the border.

Government Sector Efforts On Mediation

Due to the problems in the judicial system, i.e. judicial bottlenecks and backlog of cases, the IPO started to develop its capacity for resolving IPR infringement disputes. This is also in view that the IPO’s increased use of the mediation process will help promote a climate of confidence among investors regarding the intensity of IPR protection in the country.

In 2003, the IPO conducted the mediation internship program which produced twenty-six (26) highly trained mediators. The program resulted to an 85% settlement rate; of the twenty (20) cases that were fully mediated, 17 were settled, while only three (3) cases failed. The mediation process that transpired during the program proved to be more expedient than the current adjudicative process regarding IPR cases. Prior to the mediation program, the same IPR

55 Flow chart has been formulated based on personal interviews with IPR lawyers. Consequently, succeeding discussions are also based on the said interviews.56 Customs Special Order 19-2003 that transformed the Interim IPR unit to a Permanent Intellectual Property Unit

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cases have been pending at the Bureau of Legal Affairs (BLA) for an average of 4.9 years. On the other hand, the cases were settled during the program within an average rate of twenty-one (21) working days, from the date the cases were assigned to mediation until the agreements were signed.

The IPO also conducted mediation workshops/seminars in 2003 which discussed concerns such as: 1) the principles of conflict, its typologies, and the basic responses to and motives of conflict, 2) the types of negotiations, 3) principles of interest-based mediation and the types of mediations, 4) the various tools in mediation, the ethics involved, and 5) the challenges of a mediator. These activities are efforts to strengthen human resource capabilities in handling mediation processes concerning IPR.

Effects of Enforcement Activities on Piracy Rates

As seen from Figure 12, an inverse relationship between the number of monitored firms for IPR violations and the software piracy rate is observed. As the number of monitored firms increased, the software piracy rate estimated by the Business Software Alliance (BSA) declined. The two variables also registered high negative correlation (-0.96507), which indicates a strong relationship between the two57.

However, the same cannot be said about the association between the apprehension activities and the piracy rates (Figure 13). No distinct relationship between the number of raids and the piracy rate was observed. Furthermore, the statistical analysis between the two variables resulted to a 0.456932 correlation. This suggests that the large values in the piracy rates may be associated with the large values of the number of apprehended firms, although this relationship is weak 58.

57 Correlation is an analysis tool that is used to determine whether two ranges of data move together; 1) whether large values of one set are associated with large values of the other (positive correlation), 2) or whether small values of one set are associated with large values of the other (negative correlation), or 3) whether values in both sets are unrelated (correlation near zero). A perfect direct relationship produces a correlation co-efficient of +1.00; a perfect inverse relationship produces an r of -1.00. A co-efficient of 0 means there is no relationship at all between the two variables.58 Ibid

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From this comparison, it can be observed that piracy rates relate more to the monitoring, rather than the apprehension enforcement activities.

Figure 14 shows that the number of monitored firms and level of new BOI investments in Software Development and IT Services trends are moving in the same direction. As the number of monitored firms rises, the level of new investments also increases, though with a one year lag. Meanwhile, when the monitoring activities declined in 2001, the level of investments followed the same direction in 2002. This is an evidence of an association between IPR protection and

investment decisions in the Software Development sector.

This strengthens the IPR Protection conceptual framework presented earlier (Figure 6) -- that market perceptions and speculations are significant issues that affect demand for software products and services. Investment decisions, made by risk-averse investors, do not only depend on economic elements but on security factors as well. Hence, decision-makers also take note of the government efforts on the totality of IPR protection through the legislation passed and enforcement activities conducted.

The level of piracy in the Music/Recording Industry has continued to climb since 1997 until 2003. In the IIPA estimates, piracy rates had been consistent at 20% until 2000, but rose by 13.0 percentage points in 2001, and eventually reached 40% in 2002. The 2003 rate remained at 40%. IPC estimates coincided with the IIPA level in 1999 and 2003. The IPC rates, however, rose to 21% in 1999, and also climbed by 8.2 percentage points in 2001 (Table 18).

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Comparative analysis of the IPC music piracy rates and government enforcement activities showed that as the number of apprehended firms declines, music piracy rate increases (Figure 15). When the raid activities climbed in 2000, piracy rate still rose but only by 0.31 percentage points, the lowest registered increase in rates from 1997-2001.

On the other hand, IPC estimates of video piracy showed an association with the monitoring activities of all IPR enforcement agencies (Figure 16). In 1998, a year after the implementation of the IP Code, the video piracy rate slid by 4 percentage points, while the number of monitored firms for IPR violations rose to 10,138, from the 8,944 figure in 1997. As the monitoring activities intensified, video piracy, on the other hand, declined. This was observed until the year 2000. In addition, analysis showed a –0.716 correlation between the two variables.

Figure 17 shows that the number of apprehended firms for IPR violations, by selected agencies with jurisdiction in confiscating pirated video products, had an opposite trend that of the estimated video piracy rates. When the raid operations of the VRB, NBI, PNP and BOC declined from 1,148 in 1996 to 213 in 1997, the piracy rate rose by 8.6

percentage points. Moreover, as the arrest operations of the identified agencies increased, piracy rates experienced a slowdown. Analysis showed a –0.71747 correlation between the two variables.

In 2000, the impact of the increase in the number of arrests was intensified by the confiscation of 10 replicating machines, worth approximately PhP80 million each. The seizure of 6 replicating machines in 2001 had a similar effect on the state of movie

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copyright infringement in the country. Furthermore, in 2003, the VRB was able to seize a large number of machines and A/V equipment in both their inspection and arrest operations, of 278 and 284 pieces, respectively. This also helped in the decline of video piracy rate during the year.

It is observed that music piracy rates responded to the apprehension activities of all the IPR enforcement agencies. The declining trend of the total apprehension activities has encouraged the proliferation of the infringements. On the other hand, movie piracy rates reacted more to the total monitoring activities of all agencies active in the PIAC-IPR from 1997-2001.

But it should be noted that, with the existence of the VRB, there was a lead agency that concentrated on combating video piracy. Hence, there are relatively more efforts in enforcement with regards to curtailing video piracy. As seen in Figure 17, the video piracy rates responded to the apprehension activities of agencies (VRB, NBI, PNP, BOC) with jurisdiction over video piracy.

Private Sector Effort

The private sector has also been active in the enforcement activities regarding IPR protection. It has been working hand-in-hand with the government agencies in their monitoring and apprehension activities.

The organizations composing the Intellectual Property Coalition (IPC)59 help in the IPR protection in their individual capacities. The Philippine Association of the Recording Industry (PARI) has been active in enforcement of IP laws, and has assisted the VRB and NBI in their arrest and seizure activities. In 1999, it had worked with the NBI, EIIB, and DOJ in confiscating pirated music CDs. It has also provided rewards for information leading to illegal replication operations.

Another member organization, the Filipino Society of Composers, Authors, and Publishers FILSCAP, has the Intellectual Property Foundation which aims to assist the government modernize IP legislation. Moreover, it seeks to help the government build capabilities in IP administration and enforcement, and take regional and international initiatives in IP. Its effectiveness, however, has been hampered by the lack of resources.

Meanwhile, the IP-stakeholders themselves, and their companies, individually maintain pools of investigators primarily for IPR protection. These people provide monitoring services against IPR infringements, for them to report to the government enforcement agencies. They also help the government gather enough pieces of evidence in support for the court to grant a search warrant. Moreover, for additional man-power, they cooperate with the NBI or PNP in the agencies' raid activities.

Public Information and Education Campaign

Government Effort

The government educates and informs the Philippine society on issues regarding the Intellectual Property Rights and the IP Code through series of seminars, workshops, trainings, exhibits, and the like. The main government agencies that organize such activities are the DTI and IPO.

An example of such is the trade fair organized by the DTI-CWTRG in 2001. The fair, entitled "Empowering Consumers, Enabling Business", showcased the products of the Philippine Standards (PS) licensee holders, goods for which appropriate patents, trademarks and copyrights have been served, and the manufacturers and services of selected companies duly accredited by appropriate government agencies. Meanwhile, to strengthen government and private partnership in the fight against piracy and counterfeiting, an "Action Planning Workshop to Strengthen Public Appreciation and Enforcement of IPRs" was conducted in the same year by the PIAC-IPR. The workshop came up with "A Resolution and Strategic Action Plan to Strengthen Public Awareness and Enforcement of Intellectual Property Rights. This plan, which was submitted to the Office of the President, was formulated to operate as the master plan that records the programs and activities aimed to curtail piracy and advocate IPR protection in the country.

59 The Intellectual Property Coalition will be discussed extensively in the succeeding sections of the report.

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When the PIAC-IPR was abolished60 in 2002, the IPREAP continued to implement the activities that were formulated in the Strategic Action Plan. Hence, during the IPR week in October of 2002, the IPO (the main coordinating body of the IPREAP) conducted the following:

Exhibit of Filipino Industrial Designs and Creative Utility Models with the theme: “Bilog at Parisukat, Disenyong Nakakagulat: Isang Kalipunan ng mga Original na Disenyong Gawang Pinoy” held at the IPO Building Lobby, Makati City;

On-the-Spot painting contest for high school students with the theme: “IP in the National Development” held at the 2nd Floor, IPO Building;

2nd Nationwide Essay Writing Contest on Intellectual Property Rights; and

organized the Regional Symposium on Copyright held at the Westin Philippine Plaza Hotel on October 24-25, 2002.

The same year, the IPO also sponsored several "Seminars on the IP Code" in Regions CAR, I, IV, VI, VII, and XI.

To further promote awareness on IPR, the Intellectual Property Office, though the IPREAP and the help of the IP Coalition and the IP Alliance of Cebu City, conducted the “IP Campaign Caravan 2003”. The activity was a series of roundtable discussions on Intellectual Property Rights and the various projects of IPREAP that were held in major key cities in the country, namely: Iloilo, Cebu, Baguio, Naga, Metro Manila, and Davao City. Attendees of the seminars were local government officials, representatives from government enforcement agencies, business organizations, and Intellectual Property (IP) stakeholders.

The projects of IP-REAP discussed during the roundtable discussions were:

Local Government Unit (LGU) Template Ordinance, a legislation that seeks to address problems in IPR infringements by curtailing the sale, rental, transfer and distribution of pirated, counterfeit or fake goods, articles and services within the local government’s territorial jurisdiction;

IP Seal and Education Campaign,

Communication Plan, and

Optical Media Bill (OMB).

The campaign resulted to the passage and adoption of LGU anti-piracy ordinance in Naga City, the first Intellectual Property (IP) friendly city in the country. Meanwhile, the city government of Iloilo also issued an anti-piracy local government ordinance to restrain the sale, rental, production and manufacture of counterfeit and fake goods in the local market. The anti-piracy ordinances require that all business licenses and permits issued by the City/Municipal governments to carry the express condition that the licensee(s) will not engage in the sale, rental, transfer, distribution, manufacture and/or production of pirated counterfeit or fake goods, articles or services. The creation of the ordinances was a step towards the local government’s active participation in the fight against IPR infringements. These local laws are expected to promote a better business environment for the manufacture, production and trade of legitimate IPR-based goods and commodities.

Another important outcome of the campaign was the endorsement of the Department of Interior and Local Government for intellectual property rights protection. The Memorandum Circular (MC) No. 2003-229 issued last December 8, 2003, was a product of the Metro Manila seminar on IPR. This MC endorses the anti-piracy LGU ordinance and enjoins all LGUs in the country to help enforce IPR protection.

Private Sector Effort

The government is not the only sector that responded to the problems brought about by the widespread piracy. Feeling the need for IPR protection, the private sector bonded and gathered to form the Intellectual Property Coalition (IPC). The coalition is composed by organizations of IP stake-holders namely61:

60 Executive Order No. 72 that abolished the Presidential Inter-Agency Committee on Intellectual Property Rights (PIAC-IPR).61 Lifted from the IPC Brochure.

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COMPACT, an association founded in 1987 to safeguard intellectual property rights.

Filipino Society of Composers, Authors, and Publishers (FILSCAP) which represents a number of individuals and companies in the music and publishing industries;

Philippine Association of the Recording Industry Inc. (PARI) which represents most of the music recording companies in the country;

AVIDPHIL, the organization of legitimate videogram distributors in the country;

Business Software Alliance, representing the major foreign business software companies;

Asosasyon ng Musikong Pilipino Foundation which is comprised by music performers;

Philippine Entertainment Industry Foundation, Inc. which works to promote the welfare of the entertainment industry;

Brand Protection Association, an organization of companies working for the protection of their trademarks and other intellectual properties;

MPDAP, the Motion Picture Distribution Association of the Philippines;

KATHA, an association of Filipino composers; and

The Quezon City Chamber of Commerce and Industry which is an association of businessmen, SMEs and entrepreneurs in Quezon City;

American Chamber of Commerce and Industry; and

Microsoft, Inc.

The IPC has geared its activities towards the fulfillment of the following objectives62:

To provide a forum of discussion of intellectual property and related issues between and among industry circles and the public in general;

To formulate and adopt a strategic action plan that will identify the problems and issues affecting and afflicting intellectual property rights, and propose solutions and remedial measures therefor;

To participate in all processes and discussions, whether executive or legislative, that are called or designed to generate or formulate government policy on all matters affecting intellectual property;

To inform the general public of the pernicious effects of infringement of intellectual property rights by organizing mass media campaigns;

To liaise with government agencies on any or all matters that concern intellectual property rights;

To serve as a private sector watchdog to monitor the implementation of laws, rules and regulations for the protection of IPR by relevant government agencies; to condemn, criticize and expose ineptitude and corruption; to commend, reward and recognize exemplary performance and dedication to duty; and,

To lend support and assistance to private and government initiatives that will enhance the protection and promotion of IPR.

The IPC also promotes IPR protection and educate/update the public of IPR issues by participating and providing television and print interviews. In these activities, the coalition also tries to convey the significance of legislation in the fight against piracy. With this objective, the coalition adopted some of the programs in the Strategic Action Plan and conducted activities that support the immediate passage of the OMB into a law.

The coalition has conducted OMB advocacy activities in 2003, such as:

62 Ibid

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visiting the Philippine senators to discuss the provisions of the bill, and accordingly ask for their support for the passage of the proposed law. This was held last May of 2003;

participating in the public hearings and consultative meetings conducted by the Senate Committee on Public Information and Mass Media regarding the OMB; and

releasing an advertorial or public statement for the immediate passage of the bill, entitled, “A Plea For Action” that was published in one of the major Philippine dailies last June 3, 2003.

The IPC had been successful in this endeavor, for the Optical Media Act was ratified in February 2004.

As part of the Strategic Action Plan, the IPC also spearheaded the communications plan called “Project Jump”. This project63, which was formulated with the assistance of the Ad Foundation of the Philippines, aims to disseminate information regarding proper IP values and generate public support for Intellectual Property Rights. The main objective of the plan is to make piracy socially unacceptable. The multi-pronged strategy will be supported by a multi-media campaign aimed at the AB and C income households with emphasis on youths ages 13 to 30. The media mix plans to involve all Free TV stations plus HBO, MTV and other cable movie and music channels. The radio, meanwhile, will cover the urban FM stations. Advertisements and cinema placements at major malls are also being considered. The plan is being targeted to take-off in 2004.

The private sector's activities also involve advocacy, information dissemination and educating the public of the negative social and economic effects of this IPR infringement. Example of such endeavor was the "Rock Against Piracy" concert conducted early last 2002. This was participated by various local artists, small and famous, who voiced out their opposition against piracy.

Meanwhile, the Business Software Alliance (BSA) Philippines64, a non-profit international organization that promotes the use of legal software, launched an anti-piracy campaign entitled “Assistance in Software Auditing Program (ASAP)” in 2001. According to the BSA, ASAP aimed to help companies “conduct software audit in order to adopt proper software management and be able to legalize if there is a need to do so.” Once qualified, the company will be given by the BSA a Certificate of Clean Bill of Software Health that guarantees a one-year grace period from legal actions initiated by members of the BSA. In 2002, the BSA conducted the ASAP 2 Campaign.

The BSA has also established an Anti-Piracy Hotline in Metro Manila, wherein the public can report software piracy occurrences and inquire on issues regarding software compliance and licensing. BSA reported that the anti-piracy hotline “receives a large number of calls from individuals providing leads on organizations that are either using or distributing pirated software”. As an incentive, the BSA provides a “reward of up to P1 million to anyone who calls the anti-piracy hotline and able to provide information leading to a successful enforcement action against a corporate end-user.” As a support activity to the hotline, the organization also launched an as campaign called “Speak up. Don’t cover up”, wherein the anti-piracy hotline numbers of the BSA are advertised.

In addition, the Philippine Network Gaming Alliance (PNGA) also published an anti-piracy advertisement in the newspapers in March 2003. This informed the public of the consequences of using pirated entertainment software products. The ad aimed to instill in the consumers’ minds that “piracy of PC games is a serious crime,” and the “consequence to offenders are very serious.” Information on the length of imprisonment and the amount of fines that infringers would serve and pay are included in the advertisement.

However, though efforts are being exerted (by both the government and private sectors) in combating IPR infringements, more legislation and financial support for better enforcement of the IP laws are needed to have an efficient and effective IP protection. Though the state of piracy in the country seems to respond to the on-going endeavors, greater results could have been acquired if not for these limitations the government and the private sector face.

63 As mentioned earlier, this is also a part of the IPREAP activities, though the main mover of the endeavor is the IPC. It should be noted that the IPC has been an active participant in the “2003 IP Campaign Caravan”, and has involved itself in the conduct of the seminars in all the cities visited. 64 For more information on the BSA Philippines, visit www.bsa.org/philippines

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INSIGHTS ON INTELLECTUAL PROPERTY PROTECTION

Figure 18.

Figure 18 depicts the relationships of the different sectors with regards to intellectual property rights. Basic to this analysis is the understanding that this concern comprises legal, economic and social issues. The legal aspect of it involves the laws governing the IPR and the judicial processes involved in trying IPR cases. These are the de jure institutional arrangements wherein the main authority recognized is the government. The Philippines has confronted this issue by passing laws that aim to protect the rights of IP stake-holders. The progress in this area is continuous as the legal system tries to adapt to the changing environment in the different sectors affected by IPR. Further, for better implementation of the said laws, continuous development of the human capital is being undertaken. However, IPR concerns are also affected by technological advancements. Legislations dealing with technological changes are needed for timely and effective regulations to curtail IPR infringements. The Philippine legislation responded to this need through the passage of the E-Commerce Law and the Optical Media Act.

The social side of IPR deals with the social attitudes and customs towards the legitimacy of the rights on intellectual property. One of the vital concerns in intellectual property rights, or any property rights issue for that matter, is the acceptance of society that intellectual property is an asset in which rights can be allocated to. That it is an income stream that needs management, hence, the provision of the rights. It is significant, therefore, that this knowledge or thinking be ingrained in the value system or norms of the society. By doing so, individuals will be able form expectations that one may be hold on in his dealing with others. Creation of de facto arrangements -- that is, self enforcing rules of property that have evolved out of the interactions of individuals -- regarding the allocation and management of intellectual property rights is possible as a result of this development.

First in this concept is the acceptance and recognition of people that a person has a right and claim over the benefits and economic rents from his intellectual property. That the song, movie, or design, is a private property of the creator, and the consumers are only provided with limited rights over it when bought in the market. At a given price, selling price of the commodity, the consumers are extended with use rights over the property, but not reproduction rights, management rights, etc. Basically, people gain absolute rights on the medium wherein the intellectual property is stored, but limited rights over the content. When these ideas are absorbed by society, individuals may develop their own arrangements in protecting the IPR of stake-holders. However, it should also be mentioned that the responsibility of protection does not only lie on the consumers, but also on the IP stake-holders themselves. They, too, must be dedicated in safe-guarding their rights and persevere in the cause. With this, new social practices may evolve with regards to the interactions of an individual vis-à-vis other people.

One such arrangement that may possibly emerge is the banning of mall and infrastructure owners on the sale of pirate and counterfeit products in their establishments. Legal measures need not be put in place -- though they would definitely strengthen the authority of the arrangement -- but merely the cooperation of the owners themselves can be an effective measure. They may set up their own set of operational and collective choice rules in dealing with the issue. Consumers can also bond together and set up their own norms regarding the IP protection.

In this line of thought, education of the public regarding the IPR issues must mainly deal with changing the cultural perception of society. Consumers do not see that infringing on the rights of other people is stealing, because they are

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not directly affected by the violation. Only a small percentage of the population are artists, writers, inventors, innovators, designers, etc, hence, people do not feel the "real" damage. Moreover, the macroeconomic effects of these IPR violations, i.e. lost revenues, forgone investments and opportunities, are also abstract in concept to an ordinary consumer.

In order to prevent this alienation of the consumer to the intellectual property asset, intellectual property protection must also involve intellectual property development. Filipinos must be encouraged to innovate, invent, and create. The government needs to invest in R & D in the Philippines for advancement of the Filipino intelligence and creativeness. Philippine research and development in the IP related industries such as biotechnology, IT, chemical manufacturing, etc., must be supported for Filipinos to be able to identify with, and better appreciate the concept of intellectual property protection.

On the economics side, an important factor that helps piracy and other IPR infringements survive is the continuous support given by society in these activities. Without the demand, no one will produce the supply. This is one area in which the Philippines also needs to emphasize on. The IPR activities have mainly concentrated in the supply aspect of the problem, as seen by the increasing intensity of IPR enforcement actions through the years. The different government agencies involved in IPR protection have targeted the producers and distributors of the pirate and counterfeit products circulating in the market. This produced positive results, as seen by the declining piracy rates, specifically in the software and video industries.

However, the piracy rates are not the sole indicator of the state of IPR infringement. To evaluate the situation, we must use the combination of the different indicators such as: the levels of consumption of pirate and legal goods, their growth rates, the expansion/contraction of the legal and pirate markets, the price factors, etc. Hence, the demand side of the market must also be dealt with, for the supply and demand are the major economic forces that influence economic decisions of individuals.

In considering the demand of consumers, we enter into the area of market prices. We must admit that the primary cause of the continuous proliferation of piracy is the wide price gap between the legitimate and pirate goods. Though it is impossible for legitimate products to have a price competitive with that of the pirate goods’, producers must acknowledge this factor, and address the concern in the best possible way.

Taking into account these factors, the task for IP protection is legal, economic and social in nature. Therefore, it is relevant that we must focus, not only on one aspect the intellectual property rights concept. Efforts must be directed in all three. Furthermore, it is not enough for the government to fight IPR infringements alone. The support of the IP stake-holders, and the public as well, is very much important for the effort to be a success.

CONCLUSION

Why protect the intellectual property rights? As seen from the software industry profile presented earlier, there seem to be an inverse relationship between the software piracy rates and the new investments in the industry. The same was observed in the analysis of the movie and recording industries. And from the literatures studying piracy and foreign direct investments, the same conclusion has been attained. Foreign direct investments increase as piracy rates decrease, or put in a different light, FDI also depends on the level of protection on IPR.

Findings in a study conducted by the International Data Corporation (IDC) in 2003 showed that a 10-point reduction in software piracy results in: 1) acceleration in the IT sector growths, 2) creation of new employment and higher tax revenues to the government, 3) countries with higher piracy rates obtain larger benefits from piracy reduction, and 4) a 10-point reduction in piracy is achievable as nearly two-thirds of countries studied have done it once.

The same impression may be derived from IPR infringement or piracy reductions in other industries. As in the movie and recording industries, curtailing piracy would create additional movies, productions, and recording albums in the industries. More economic activities would translate to more opportunities, jobs, and greater output. Further, additional tax revenues for the government would also be earned.

A lot of industries, like the manufacturing, biotechnology, chemical and pharmaceutical, are also IPR based. Depending on the importance of the industry to the over-all economy, an improvement in these business sectors would significantly help in the development of the macroeconomy. And one of the avenues by which the government can help these industries achieve development is by intensifying the protection of IPR.

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The Philippine government has been a staunch supporter of intellectual property rights. IPR protection has been a state policy as provided by the Constitution; and more legislation have been put in place in order to adapt to the changing environment in the IPR system. The E-commerce Act has provisions to address copyright infringement in the internet, while the Optical Media Bill was ratified to tackle optical disc piracy. The country has also joined international treaties and agreements in support of IPR.

The government and the private sectors in the Philippines are actively participating in IPR related endeavors. In 2003 alone, the Intellectual Property Office and the Intellectual Property Coalition had conducted several activities regarding IPR advocacy and information dissemination. Meanwhile, the government enforcement agencies have continuously conducted monitoring and apprehension activities against IPR infringers. They have also been developing their human resources through the conduct of seminars and trainings on IPR issues and concerns.

However, a lot still needs to be done in order to curtail piracy and other IPR violations in the country. One of the downside in the Philippine case, with regards to IPR, is the prevailing social acceptance of IPR infringements. Hence, efforts must also be geared toward addressing this concern. Enforcement activities, placement of laws and other IPR endeavors will not be successful if the social aspect of IPR protection will be neglected. Therefore, the legal, economic and social aspects of IPR protection must all be given emphasis to completely safeguard the rights of intellectual property rights holders.

Though the focus of the study is on copyright industries and on piracy, it should be noted that the paper supports all IPR-related industries and advocates for the development of the Philippine intellectual capital/assets. Thus, both the government and society must give emphasis to protecting the rights of our artists, composers, performers, as well as our scientists, inventors, researchers, and other innovators.

REFERENCES

1995 Census-Based Municipal Population Projections. National Statistical Coordination Board

Association of Video Distributors of the Philippines (AVIDPHIL)

Bengzon, Anthony D. Bengzon & Negre Intellectual Property Attorneys. Personal Interview Bromley, D.W. and M.M. Cernea. 1989. The Management of Common Property Natural Resources: Some Conceptual

and Operational Fallacies. World Bank Discussion Papers, No. 57. The World Bank Washington D.C.

Bureau of Investments, Department of Trade and Industry

Bureau of Trade and Promotions, Department of Trade and Industry

Calimag, Peter L. Angara Abello Concepcion Regala & Cruz Law Offices. Personal Interview.

Clark Development Corporation

Commission on Higher Education

Correa, C. “Bilateral Investment Agreements: Agents of New global Standards for the Protection of Intellectual Property Rights?” August 2004 in http://www.grain.org/briefings/?id=186Commission on Higher Education

Cuevas, A.C. 1994. Institutional Arrangements in Common Pool Resources: The Case of Fishery. A Thesis Manuscript Submitted to the Faculty of the Department of Economics, College of Economics, UPLB.

Cuevas, S.C. 1997. Influence of Technology in Determining the Exclusive and Non-exclusive Property Rights: The Case of Fishery. A Thesis Manuscript Submitted to the Faculty of the Department of Economics, College of Economics, UPLB.

“Economy, Information Technology, and the Critical Role of the Software and Services Sector: Focus the Philippines. 2002-2003. “ Sallstrom Consulting and Nathan Associates Inc. 2002.

E-Philippines Strategic Plan. Information Technology and Electronic Commerce Council (ITECC). February 2003

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Economic Indicators. National Statistical Coordination Board. December 1996.

Economic Indicators. National Statistical Coordination Board. December 1997.

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Economic Indicators. National Statistical Coordination Board. December 2001.

Economic Indicators. National Statistical Coordination Board. December 2002.

Economic Indicators. National Statistical Coordination Board. October 2003.

Eighth Annual BSA Global Software Piracy Study. June 2003.

Electronic Commerce Act, Republic Act No. 8792.

“Expanding Global Economies: The Benefits of Reducing Software Piracy.” International Data Corporation (IDC). 2003

Feder, G. and D. Feeny. 1991. Land Tenure and Property Rights: Theory and Implications for Development Policy. The World Bank Economic Review 5: 135-53.

“Filipino IT Workers Rank High in Survey”. Philippine Daily Inquirer, June 1, 2002.

Fiscor, Mihaly. April 2003. “Intellectual Property and Economic Growth with Special Attention to Copyright and Related Rights.” Lecture prepared for the WIPO-ESCWA Arab Regional Conference on Recent Developments in the Field of Intellectual Property, Beirut, May 5 and 6, 2003.

Film Ratings Board. Local Film Industry.

Foreign Direct Investment Quarterly Report of the National Statistical Coordination Board. 2000

Foreign Direct Investment Quarterly Report of the National Statistical Coordination Board. 2001

Foreign Direct Investment Quarterly Report of the National Statistical Coordination Board. 2002

Functional Literacy, Education and Mass Media Survey (FLEMMS). National Statistics Office. 1994

Garcia, Eduardo T., Jr. " An Economic Analysis of the Effects of Audio CD Piracy to the Local Record Industry". A Thesis Manuscript Submitted to the Faculty of the Department of Economics, College of Economics, UPLB. March 2002.

Information Technology (I.T.) Services Industry Profile, Bureau of Export Trade Promotion, Department of Trade and Industry

International Data Corporation (IDC). Expanding Global Economies: The Benefits of Reducing Software Piracy. 2003

Intellectual Property Coalition (IPC) Brochure

Intellectual Property Office-Intellectual Property Rights Enforcement Unit. Accomplishment Report. January-December 2002

“Intellectual Property Rights in the Philippines: Brief Background”. Chan Robles Virtual Law Library.

International Intellectual Property Alliance 2003 Special 301 Reports PHILIPPINES

International Intellectual Property Alliance (IIPA) Comments on Special 301. Out-of-Cycle Review on the Philippines. October 30, 2002

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International Intellectual Property Alliance 2001 Special report METHODOLOGY

Mendoza, Oz. "All About Money". www.philmusic.com

Mendoza-Vianzon, Marlene. Philippine IT Market Metrics. The IDC Advantage. 2001

National Accounts of the Philippines: 1998-2000.National Statistical Coordination Board

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National Statistics Office

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National Statistics Office

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Office of the President Inter-Agency Committee on Intellectual Property Rights Executive Summary. January-December 2001.

Office of the President. "Response to the International Intellectual Property Alliance (IIPA) 2003 Special 301 Report for the Philippines. March 2003.

Parkin, M and R. Bade. Macroeconomics, 2nd Edition. 1992

PDCP Bank Industry Digest. "Computer Software and Services Industry: New Applications Drive Demand. Vol. 20, No.5 0115-4419. May 1996.

Philippine Association of the Record Industry, Inc.

Philippine Export Zone Authority

Philippine Software Industry Association, Inc.

Philippine Statistical Yearbook. National Statistical Coordination Board. 2002

Philippine Standard Industrial Classification (PSIC). 1994.

“Piracy talk With Philippines’ BSA president by Geoffrey P Ramos, October 28, 1999. www.cw.com.hk

Schlager, E. and E. Ostrom. 1992. Property-Rights Regimes and Natural Resources: A Conceptual Analysis. Land Economics 68:249-62.

Seventh Annual BSA Global Software Piracy Study. June 2002.

Subic Bay Metropolitan Authority

Somera, Bienvenido, Jr. President, Philippine Intellectual Property Alliance. Personal Interview.

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“The Annual Sourcebook of the Philippine Information Technology Community”. IT Resource Philippines. 2001-2002 Edition. Published by the WS Computer Publishing Corporation. 2001.

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www.wipo.org

APPENDIX

MOTION PICTURE PIRACY ESTIMATION METHODOLOGY

IIPA Methodology

Video: The term encompasses movies provided in video cassette as well as in optical disc formats. Losses are estimated using one of the following methods:

1. For developed markets:a) The number of stores that rent pirate videos and the number of shops and vendors that sell videos

are multiplied by the average number of pirate videos rented or sold per shop or vendor each year.b) The resulting total number of pirate videos sold and rented each year in the country is then

multiplied by the percent of those pirate videos that would have been sold or rented legitimately and adjusted to reflect the US producer’s share of the market.

Total pirate videos sold/rented = # of stores/shops that sell and rent pirate videos * ave. # of pirate videos rented/sold per shop each year

Loss due to piracy = Total pirate videos sold and rented per year * (% videos that would have been sold or rented legitimately)

2. For partially developed markets:a. The number of legitimate videos sold or rented in the country each year is subtracted from the

estimated total number of videos sold or rented in the country annually to estimate the number of pirate videos sold or rented annually in the country.

b. The resulting total number of pirate videos sold and rented each year in the country is then multiplied by the percent of those pirate videos that would have been sold or rented legitimately and adjusted to reflect the US producer’s share of the market.

Total pirate videos sold/rented = estimated total # of videos sold/rented # of legitimate videos sold/rented

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Loss due to piracy = Total pirate videos rented/sold * (% pirate videos that would have been sold/rented legitimately

3. For fully pirate markets:The estimated number of pirate videos of U.S. motion pictures sold or rented in the country each year is adjusted to reflect the wholesale price of legitimate videos which equals losses due to video piracy.

IPC VIDEO PIRACY ESTIMATION METHODOLOGY

National Statistics Office data (1994) on the Proportion of HH by Ownership of Radio, TV, VCR, and PC

1. Determine the growth in sales of VHS, VCD player, and DVD players and PCs 2. Determine the frequency of movie patronage of Filipinos (either per day/month/year)3. Determine the number of units of videos and VCDs sold/rented per year4. Determine the Total Revenue from video sales

Formula:

General Concept:

Demand = Supply

Demand Supply = Undersupply

Excess demand will be supplied by the underground economy (pirated videos)Where:

Base yeart – % of # of HH owning VCRs and PCs at year t

VCR (and other appliances used for video viewing) and PC Ownershipx = Number of HH with VCRs and PCs at year x = (t+1)

DEMANDV,x – demand for film videos (V) at year x = (t+1)

SUPPLYV,x – units of videos/VCDs sold at year t+1

Formula:

VCR = (Base yeart * Total # of HHt) + Total number of appliances for video viewing sold

PC Ownershipx = Number of Installed PCs

VCR and PC Ownership1995 = (% of HH owning VCRs and PCs at year 1994) + number of VCRs sold (in units)1995 + Number of Installed PCs

DEMANDV,x = VCR and PC Ownershipx * frequency of movie patronage at year t+1

Total Pirated Movies = DEMANDV,x SUPPLYV,x

Piracy Rate = (Total Pirate Movies/ DEMANDV,x) * 100

MUSIC/RECORDING PIRACY

IIPA METHODOLOGY

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The RIIA generally bases its estimates on local surveys of the market conditions in each country. The numbers produced by the music industry generally reflect the value of sales of pirate product rather than industry losses, and therefore undervalue the real harm to the interests of record companies, music publishers, performers, musicians, songwriters, and composers.

Where RIIA has sufficient information relating to known manufacture of pirate recordings that emanate from a third country, this loss data will be included in the loss number fro the country of manufacture rather than the country of sale.

In certain instances appropriate, RIAA employs economic data to project the likely import or sale of legitimate sound recordings, rather than merely reporting pirate sales. In these instances, projected unit displacement is multiplied by the wholesale price of legitimate articles in that market rather than the retail price of the pirate goods.

IPC METHODOLOGY

General Concept:

Demand = Supply

Demand Supply = UndersupplyGiven : TR = RL + RP

Where: RL - Revenue of Legitimate activity; RP – revenue of piracy

RP = TR - RL

(RP / TR) * 100 = piracy rate

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