FINAL REPORT Program Title & Number: 2002/000-266.01.01 PHARE Project preparation, Training

and Management Facility Project Title: Study to get accurate estimates of the level of piracy in

Estonia in the field of intellectual and industrial property for the project “Alignment of Estonian intellectual property legislation, enforcement of EU intellectual and industrial property legislation”

Contract number: 2002/000-266.01.01 Study carried out by: Jaak Oja (Law office J. Oja, Ltd. - Tallinn - Estonia)

Martien G. de Boer (DB Consultancies - Haaften - Nether-lands) by order of GICO SpA (Via Giulio Caccini 1, 00198 Roma, Italy)

Beneficiary Institution The Republic of Estonia, represented by the Ministry of Culture, is the beneficiary institution. The experts held consultations with representatives of the Ministry of Culture and with a representative of the EU Delegation in Estonia.

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INTRODUCTION

On the road to information society, investments in information, media and intellectual property are increasing. Not every entrepreneur has presently understood that their company’s success depends on a greater extent on the investments into immaterial assets (such as trade marks, licenses, patents etc.) rather than on the investments into material assets. Intellectual property is an indispensable instrument for building up the information society of the twenty-first century in market economy. On the other hand, the state has to provide intellectual property owners with an appropriate system of the IPR laws, enforcement of these laws and has to have an effective court system to resolve intellectual property disputes. Enforcement does not mean only to have enforcement bodies such as the Police, Customs and Border Guard, it also means their effective activities against piracy and traders in counterfeit goods and close co-operation in sharing information and experience. The aim of this Report is to analyze and access the various trends of piracy and counterfeiting in Estonia. Since the official statistics had been published selectively (and mainly not existing), earlier analytical studies had usually been commissioned as case-reports and the conclusions had remained very poor. So far, no comprehensive study has been completed which covered the subject of piracy in Estonia in an integrated and concise form. The reporters have tried to follow the provisions of Terms of Reference and trace the present piracy situation in Estonia. The reporters conclude that the official information on piracy and counterfeiting in Estonia is not sufficient to make final conclusions on the level of piracy in the field of intellectual property. Different private organizations are involved in anti-piracy activities in order to determine persons trading in pirated goods and help the Police and Customs to carry out assessments of goods that may be pirated. The reporters have held many interviews with the representatives of these organizations to collect information about the identity of the persons involved in the trade of pirated goods, what are the numbers of pirated goods and what is the level of piracy in different kind of goods in Estonia. These interviews are all reflected in the Inception Report.

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The reporters found that it is impossible to fulfill all the aims of Terms of Reference since statistics on piracy, which have to be collected by state bodies, are missing, as are missing scientific analysis and research work. As a result of a lack of human resources, the two reporters were not able to find out during three months what is the level of piracy in entire Estonia or even in the capital city Tallinn. The reporters can affirm that the level of piracy can be defined only in case there will exist long-term trustworthy statistical accounting and estimation. I TERMS OF REFERENCE (TOR) 1. Objective of the assignment To produce a complete study on the nature and extent of piracy and counterfeiting in Estonia assessing its impact on intellectual and industrial property rights.

2. Scope of Work The work to be carried out is a complete study on the level of piracy and counterfeiting in Estonia in the field of intellectual and industrial property to get accurate and objective estimates for efficient implementation and enforcement of intellectual and industrial property rights. Since a reliable private or public sector study on this area does not exist, the contractor will compile all data in a systematic and complete way. In accordance with the terms of reference this study is limited to piracy and counterfeiting, include those facilitated by use of the Internet or new technologies, of rights protected by intellectual and industrial property laws. This study therefore concentrates on the unauthorized production, distribution (including parallel imports) or lucrative use of pirate and counterfeit goods, the facilitation of their production, and the distribution of such goods (including importation and retailing). The terms “piracy” and “counterfeiting” in relation to goods are loosely to cover any production and commercial sale of goods that have been produced in the absence of legally binding permission granted by the owner of the intellectual property rights. More specifically the term “piracy” within the parameters of this study includes the unauthorized copying of copyrighted works such as for instance software) or objects of related rights, for resale by the way of profit or trade. The term “counterfeiting” is generally understood to mean the unauthorized manufacture and distribution of copies of such goods and works which are intended to appear to be similar to the original as to be passed off as genuine examples. This includes for instance use of famous brands on apparel or clothing not manufactured by or on behalf of the owner of the trademark, which are traded in a form intended to be indistinguishable to ordinary consumers from the genuine product.

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3. Specific tasks to be accomplished The study has to cover all areas affected by piracy and counterfeiting in intellectual and industrial property law, to distinguish clearly the problems of piracy and counterfeiting in the field of intellectual property, in one side, and industrial property in the other. Despite the fact that a complete study is required, the areas have to be covered should be classified within the two main fields of law referred. Considering the current situation of the Estonian market, the study would necessarily provide information on the following areas:

3.1. Industrial Property

• Patent, utility models, industrial designs and geographical indications • Trademarks (luxury goods and fashion clothes; sportswear and footwear;

belts, hats, ties, and other clothing; perfumes; toys; spare parts and car accessories; pharmaceuticals, others)

3.2. Intellectual Property Software, videogames or electronic games, music recording, motion pictures, cable and satellite TV, books and publications, public performances, others

In each one of the areas to be covered, the study will include besides all that information proposed by the tenderer information regarding:

• Institutional set up problems. Estimating loses and influence of the rates obtained in the current institutional framework and its consequences for future institutional initiatives.

• Activities masterminded by citizens, residents or foreigners. The study should provide a clear distinction on infringements committed by Estonian citizens, residents or foreigners.

• Information on imported and locally produced products. Offer and demand of goods protected by intellectual or industrial property rights may be met by importation or local production. Given that this distinction is relevant in the analysis, it should be included as a category for each one of the areas to be covered.

• Pricing practices and selling strategies regarding each one of the areas concerned. Price is the main indicator to enforcement authorities to put a potentially counterfeited product under suspicion. Therefore, different strategies are used for each product being this information essential not just to identify counterfeiters but also to determine how the counterfeiting market works.

• Targeted consumers for each one of the pirated or counterfeited goods concerned. Information on the demand side of the supply will facilitate the knowledge of the affected markets and therefore a distinction on the consumer will be indispensable.

• Cause and motivation. The best-known motivations for piracy are quick profits, low investments and risks; cover unsatisfied markets demands,

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difficulty of detection and proof, among others. However a clear distinction and explanation should be given for each one of the areas concerned.

• Cases in which agents, distributors or former business associates may be involved. Some local dealers become pirates themselves. A distributor licenses to sell a trade marked product may decide to sell another product in packaging bearing the trade mark and get-up of its principal, or one similar to it. Even it could happen that they exploit the intellectual property right or licensed goods even after the license has expired. Therefore, this distinction also needs to be considered, including similar cases in which officials of licensee, commissioned persons or ex/employees may be involved.

• Corruption in public authorities or institutions, governmental officials, collecting societies or associations of right-holders in relation to piracy and counterfeiting. Due to the role and position they wield a lot of influence and therefore any data linking them with the subject matter should also be included in the study.

• Economic value of losses estimated due to piracy and counterfeiting. An estimation of losses estimated on each of the areas covered will be provided.

4. Expected outputs

• Complete study Report on piracy and counterfeiting in Estonia in Estonian and English languages.

• Inception Report and Final Report including full assessment and analysis on piracy and counterfeiting in Estonia and recommendations for further action.

• Methodology of the study for future use (enabling Estonian authorities to carry out similar surveys on an annual basis).

To provide the Ministry of Culture of Estonia and the European Commission with detailed information on the nature and extent of piracy and counterfeiting in intellectual and industrial property rights in Estonia. The contractor shall develop according to the methodology and information of these terms of reference a detailed analysis of each of the types of piracy and counterfeiting affecting intellectual and industrial property rights. The contractor shall suggest additional measures where appropriate. The results as ascertained need to be validated on real data. The methodology and the results of the validation process together with the contractor’s interpretation must be clearly and concisely presented in a final study report. The contractor may suggest possible actions, which the government could consider to eliminate/combat/control the production, distribution, and sale of pirated and counterfeit goods and works subject to intellectual and industrial property rights in Estonia. The report shall objectively describe the level of Piracy in Estonia in the field of intellectual and industrial property, taking into account such questions as the definition of different kinds of piracy and counterfeiting and the different economic rights that may be affected. In addition, the impact of these practices on the different stakeholders (producers, distributors and users) shall be described. Thus, the study

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will be made combining existing information with other ways of obtaining the need data and estimations from experts on the subject, custom and police authorities and other information resources appropriated to carry out the required task. As agreed with the representative of the Ministry of Culture, of the Ministry of Finance and of the Delegation of the European Commission in Estonia during a meeting on Monday November 18th, 2002, at the offices of the Delegation of the European Commission in Estonia, the study report has to be considered integrated in the Final Report. The main stages to complete the study would be according to the TOR: 1. Preparation and design of questionnaires, interviews and strategy for the

information search. 2. Fieldwork to carry out the strategy and obtaining relevant data. 3. Compile the study with estimates of the level of piracy in Estonia in the field of

intellectual and industrial property. During the preparation stage, the tenderer will work closely with those institutions, which later on may provide the most reliable inputs in order to get support in the design on the questionnaires contents and structure. Considering the lack of existing data on Estonian piracy and counterfeiting, the strategy is essential for the success of the project and to obtain the estimations requested by the beneficiaries as well as by the Commission. The participation of the local expert during this stage will also contribute to establish the right orientation and design of the project. All stages should by carried out in Estonia. Counting with the necessary local support and assistance, the working language should be English.

II RELEVANT BACKGROUND OF THE ASSIGNMENT Since the early 1980s counterfeiting and piracy of branded and copyrighted goods have grown considerably in Europe to a point where they have now become a widespread phenomenon with a global impact. The phenomenon has gone hand in hand with the economic and political developments that have occurred during the past two decades, such as steady growth of national trade, the internationalization of the economy and the development of new technologies. Due to the globalisation of the economy and political developments highly active markets for the production and consumption of counterfeit and pirated products have sprung up. It has fed on the growth of the information society and of the emergence of modern sophisticated technologies, which are easy to use for the purpose of copying products. Any infringement of authors’ rights, neighbouring rights and industrial property rights is a serious threat not only to the rights owners but also to the economy and culture of the nation. In counterfeiting and piracy enormous amounts of money are involved and (on the

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international level) it is mostly organized by hard criminals who cause extremely high damages, not only financially (e.g. loss of income for authors and performing artists, for the state by dodging taxes), and economically (spoiling the market for legitimate industries, thus jeopardizing employment) but there also are related crimes like for instance forgery, swindle, theft, money laundering, false custom and tax declarations and participation in a criminal organization. According to the Counterfeiting Intelligence Bureau, which has been set up by the International Chamber of Commerce (figures of 1998) counterfeiting and piracy account for between 5% and 7% of world trade in value terms (1). European Commission (Directorate-General for Trade) has sent in October 22nd, 2002 a letter, No: Trade-F/1/PVM D(2002) 41476, to European IPR experts on a survey on enforcement issues in the area of Intellectual Property Rights. This letter says, that the Commission attaches great importance to the enforcement of intellectual property rights (IPR) and in particular to the fight against piracy and counterfeiting, both within and outside its border. In recent years there was progress in this area, as a result of commitments made by WTO members to adopt their legislation to the requirements of the TRIPS Agreement. This obligation was due by 1996 for developed countries and by 2000 for developing countries. In principle, least developed countries have until 2006 to adapt their legislation. The TRIPS Agreement provides a compromise solution by creating a balance between the need for a set of minimum standards adequately protecting the holders of IPR and the need to take account of the difficulty of putting in place a system of implementation for countries with limited resources and/or no tradition of IP protection. In spite of these improvements in the legislative field, the levels of piracy and counterfeiting remain extremely high. It seems thus clear that in order to effectively combat this felony it is not sufficient for countries to reinforce their legislative framework. It is also essential to ensure a vigorous implementation of the enforcement legislation. This is why, as a first step to address the problem, DG Trade has taken the initiative to survey on enforcement issues in the area of IPR, with the objective of assessing in a detailed manner the current situation (2). Upon Estonia’s accession to the WTO and after agreeing to the European Union Accession Partnership, most legislation concerning intellectual and industrial property has been carefully examined and reviewed in Estonia in the last few years. Despite existing problems specially in the enforcement field, there is a strong will on the Estonian Government to align intellectual and industrial property laws with those of the EU Member States rendering them as effective as possible. 1 The Green Paper of the European Commission of 15 October 1998, COM(98)569 final. 2 Letter of DG Trade: Trade –F/1/PVMD(2002) 41476 d. 22 October 2002

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Despite existing formal legislation, serious enforcement problems remain with respect to both intellectual and industrial property rights. Special efforts are being carried out, coordinated specially by the Ministry of Economy and Communications (Industrial Property Rights) and the Ministry of Culture (Copyrights), in order to work out new and updated legislation, to bring together the main state authorities and collective societies active in the sector and to change the mentality of general public awareness and opinion in this field. Currently the citizens and residents have relatively low level of knowledge of these specific rights; people can hardly understand the notion of protecting intangible rights that are being granted to them. Therefore the need to strengthen administrative capacities and co-ordination and to achieve efficient enforcement of intellectual and industrial property rights, together with the lack of experience and experts on this area, require a particularly urgent action to complete alignment with the EU and strengthen administrative and judicial capacity with a view to tackling piracy and counterfeiting. The main problem to be addressed is the lack of official information regarding the level of piracy and counterfeiting. Despite isolated initiatives carried out by organizations like BSA Estonian regarding software or punctual statistics collected by police or customs, there is not complete and reliable information available on the subject mater. Therefore, the lack of information is often perceived to be one of the main obstacles in the fight against counterfeiting and to implement policy initiatives at both the private and the official level. III OBJECTIVE OF THE ASSIGNMENT AND SCOPE OF WORK It has been required to produce a complete study on the nature and extent of piracy and counterfeiting in Estonia assessing its impact on intellectual and industrial property rights and to get accurate and objective estimates for efficient implementation and enforcement of those rights. This report is limited to piracy and counterfeiting, including those facilitated by the use of the Internet. Parallel imports of goods were not included in the study, since (international) enforcement bodies as a rule do not recognize parallel imports as being piracy. Parallel imported goods have been manufactured with the consent of the right owner and so do not infringe intellectual or industrial property rights. Parallel imports regard a breach of contract between the right owner and the manufacturer or between the right owner and national wholesalers/retailers. This report does not go deep into the infringement of patents. Experience shows that, since pirates only are interested in quickly earned money and easy profits, they in general are not interested in making big investments needed to manufacture patented goods,

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maybe medicines excluded. According to the information of Estonian Patent Office there has no such a kind of piracy cases ever been found. There seems to be no information regarding illegally copying of books. Reporters mention however the possibility of partly copying – scientific – books and articles by students of the Universities. Although under Estonian law this on itself does not constitute an copyright infringement, it is worth wile to take a closer look at this subject, since there exists the possibility that third parties copy books and articles on behalf of students and have them pay for it, or students, copying the texts themselves may be trading these copies later to the third persons. Investigation this subject may require a separate study. IV DEFINITIONS OF PIRATED AND COUNTERFEIT GOODS Although in the Terms of Reference definitions of counterfeit and pirated goods have been given, reporters took the liberty not to use these definitions, but, since piracy is an international and border crossing problem, the definitions as stipulated by international treaties and regulations instead. As of November 13th, 1999, Estonia is a member of the World Trade Organization (WTO). Therefore, the definitions of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) are used. Footnote 14 to Article 51 of the TRIPS Agreement reads: “Counterfeit trademark goods shall mean any goods, including packaging, bearing without authorization a trademark which is identical to the trademark validly registrated in respect of such goods, or which cannot be distinguished in its essential aspects from such a trademark, and which thereby infringes the rights of the owner of the trademark in question under the law of the country of importation. Pirated copyright goods shall mean any goods which are copies made without the consent of thee right holder or person duly authorized by him in the country of production and which are made directly or indirectly from an article where the making of that copy would have constituted an infringement of a copyright or a related right under the law of the country of importation.” Article 1 § 2a and 2b of the Council Regulation (EC) No. 3295/94 of 22 December 1994 of the European Union stipulates (3): 3 Council Regulations (EC) No.32957945 of 22 December 1994, laying down measures to prohibit the release for free circulation, export, re-export or entry for a suspensive procedure of counterfeit and pirated goods.

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“Counterfeit goods means: - goods including the packaging thereof, bearing without authorization a trademark which is identical to the trademark validly registered in respect of the same type of goods, or which cannot be distinguished in its essential aspects from such trademark, and which thereby infringes the rights of the holder of the trademark in question under Community law or the law of the Member State in which the application for action by the customs is made, - any trademark symbol (logo, label, sticker, brochure, instructions for use or guarantee document) whether presented separately or not, in the same circumstances as the goods referred to in the first indent, - packaging materials bearing the trademark of counterfeit goods, presented separately in the same circumstances as the goods referred to in the first indent. Pirated goods mean goods which are or embody copies made without the consent of the holder of the copyright or neighbouring rights, or the holder of a design right, whether registered under national law or not, or of a person duly authorized by the holder in the country of production, where the making of those copies infringes the right in question under Community law or the law of the Member State in which the application for action by customs authorities is made.” Furthermore, reporters have paid attention to unlicensed reproduction of works of fine art in Estonia, which constitutes an infringement of the copyright of the creating artist. Since, as reporters noticed, in Estonian common parlance no distinction is made between pirated and counterfeit goods or infringement of reproduction rights, and all is covered with the term “piracy”, reporters will in general use this word as well to cover the above mentioned definitions. No product is immune to piracy, as long as it concerns well-known brands of luxury goods, clothing, sportswear, footwear, perfumes, toys, watches, spare parts for cars and airplanes, medicines, music and films of popular artists, computer games and -software, as long profits can be made by the pirates and the risks are considered to be low. No attention has been paid to unlicensed public performances of copyrighted works since this, although constituting a – criminal - infringement of authors’ rights does not meet the definitions of “piracy”. V GATHERING DATA (METHODOLOGY OF WORK) Reporter De Boer has, during his active period as a special law enforcement officer, been involved in anti-piracy operations for a long time. Thus he has good knowledge of intellectual property law enforcement and of international right holders organizations. He represents BIEM (Bureau International des sociétés gérant les droits d’Enregistrement et de reproduction Mécanique) in the Joint Customs/Business Working Group on

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Intellectual Property Rights of the World Customs Organization (the working name of the Customs Co-operation Council) in Brussels (Belgium) and in the Anti Counterfeiting Committee of the Association des Industries de Marque AIM, also based in Brussels (Belgium). Through his contacts with the abovementioned organizations as well as through his contacts as former special law enforcement officer he received names and addresses of the Estonian right holders and anti-piracy organizations as well as of Estonian law enforcement. Reporter Oja is a lawyer in Tallinn and has worked as a civil law and litigation lawyer for 27 years. He is specialized in civil law, litigation, administrative law and intellectual property law at present. He has been a member of the Estonian National Group of AIPPI and has been involved in law drafting process. He is thoroughly familiar with Estonian national intellectual property legislation and is well acquainted with Estonian national judiciary and institutions. Reporter Oja carried out research in the National Library regarding the legal and economic aspects of piracy on the Estonian market. He also did research with the Estonian Statistic Board Department. Both reporters worked closely together, interviewing selected Estonian representatives of right holders (-organizations), lawyers, Police and Customs authorities. The results of the majority of the interviews have been laid down in the Inception Report. A copy of the Inception Report, which is at the same time a Study Report, has already been put at the disposal of the Ministry of Culture, the representatives of the EU Delegation in Estonia and the Ministry of Finance. A list of the people interviewed is attached to this report. Where appropriate, the Internet has been consulted to find recent information regarding the fight against piracy by international bodies. Websites of the following organizations and agencies were accessed - World Trade Organisation (WTO – www.wto.org), World Customs Organisation Strategic Group (WCOIPR – www.wcoomd.org), World Intellectual Property Organisation (WIPO – www.wipo.org), International Intellectual Property Association (IIPA - www.iiap.com), International Association for the Protection of Intellectual Property (AIPPI – www.aippi.org), Foreign Ministry of Estonia (www.vm.ee), Estonian Patent Office (www.epa.ee), Ministry of Culture (www.kul.ee), Supreme Court of Estonian (www.nc.ee), Estonian Legal Translation Centre (www.legaltext.ee) etc. A search on the word “piracy” produced 579 results, in 500 sorted legal acts on the WTO homepage etc. The reporters found that the best Industrial Property homepage in Estonia is the site of the Estonian Patent Office. It is always updated and has a very good structure, index and help

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system. Last time they visited this site on November 17th, 2002 and it had been updated on November 14th, 2002. Reporters have prepared three questionnaires: one aimed to the general public and to be published on the website of the Ministry of Culture, one on behalf of the Police and one on behalf of Customs authorities. The Ministry of Culture will provide for circulation of the latter two through the appropriate Ministries. Models of the questionnaires have been attached to this report. Reporters found that the only tool, which enables to compare the situation in the country, is the experience of people working with the above problems in Estonia. So they can give the following recommendations for any study work to be carried out in the future: 1. try to find out whether official written statistics exist in the country and what are the state bodies responsible for the collection of such statistics; 2. contact persons responsible for enforcement of IPR laws to interview them; 3. contact the right-holders representatives and representing organizations to interview them; 4. review police, customs and court statistics and compare these with other statistics available; 5. look for the articles published in newspapers, magazines and books during last 4-5 years; 6. find out the Internet sites of state agencies; 7. contact lawyers, trademark and patent attorneys to interview them; 8. analyze court decisions and sentences. VI THE SOURCES OF INTELLECTUAL PROPERTY LAW IN THE INTERNATIONAL LAW 6.1. The TRIPS Agreement Rules At present the globalization of the Intellectual Property system takes place all over the world, professor Ants Kukrus wrote (4). The co-operation of the European countries after the World War II in the field of unification of industrial property’s legal protection has developed widely, creating a ground for co-operation in the field of legal protection of intellectual property. This fact also characterizes the development and problems of political and economic integration of Europe. Civil and Business Law with the activities in the sphere of enforcement these Laws by the Governments must create preconditions for the realization of the EU´s four basic freedoms (free movement of goods, services, capital and workers). More attention should be paid to spheres such as legal protection of intellectual property, competition law and the development of consumer protection legislation in the conditions of accession to the EU and in order to implement acquis communautaire in the Estonian legal system. 4 Professor Ants Kukrus. Eurointegratsioon ja intellektuaalse omandi õiguskaitse.Tallinn, 1999, lk.337.

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The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) deals with the World Trade Organization’s (WTO) origin and activities, with the WIPO and WTO agreement (came into force on January 1, 1996) as well as with the issues related to Estonia. The TRIPS Agreement exerts a considerable influence on the harmonization of the WTO´s Member States´ law. Application of minimum requirements in all fields of intellectual property law is anticipated in all fields of copyright and neighbouring rights, as well as in the fields covering trade marks, geographical indications, industrial designs, patents and layout designs of integrated circuits. The TRIPS Agreement creates a minimum standard for the protection of intellectual property with all Member States of the WTO obliged to achieve this standard. As a result, measures are to be taken by governments to protect intellectual property rights. The purposes of the TRIPS Agreement are:

- Implementation of the GATT’s basic principles and intellectual property related international conventions;

- Creation of intellectual property protection laws and their implementation measures;

- Arrangement of multilateral disputes; - Creation of transitional provisions.

Three basic principles of the TRIPS Agreement:

1. Creation of minimum standards in the member states for intellectual property protection and for implementation of this protection. Minimum standards, determined by the Agreement, do not prevent the states from imposing higher standards.

2. Each state protects the citizens of the member states, giving them rights, provided by the Agreement. This principle of implementing regime follows from the basic conditions of GATT’s international trade and from intellectual property’s international founding agreements.

3. The member states are to protect intellectual property of the other member states´ citizens as efficiently as they protect that of their own citizens. If a citizen of one state is given any rights, then the citizens of all other member states must be also given the same rights. This is called the most-favoured nation (MNF) principle.

The TRIPS Agreement assures, that the appropriate standards of intellectual property protection exist in all the member states. The authors of the agreement proceeded from the already existing intellectual property protection related conventions, for example from the Paris Convention of Protection of Industrial Property and the Berne Convention of the Protection of Literary and Artistic Works (copyright). The Agreement adds new and higher standards, which were insufficient or missing in the above-mentioned conventions.

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The third section of the TRIPS Agreement deals with the ensuring of intellectual property rights. Civil and administrative proceedings, as well as legal protection instruments are regulated in detail. The member states have to guarantee, by law, the judicial rules to take effective action under the TRIPS Agreement. The procedure must prevent the formation of barriers in legal trade and give effective protection against offences. The fourth section of the TRIPS Agreement provides the issues of intellectual property rights acquisition and retaining, as well as related inter partes procedures. The fifth section of the Agreement provides the issues related to disputes prevention and procedure of disputes settlement. 6.2. International Treaties and Conventions 6.2.1. International conventions and treaties concerned with Industrial Property Law are listed and the dates when Estonia acceded or re-acceded these are published on the Internet site of the Estonian Patent Office. Also the Patent Office has published a book “Industrial Property Law in the Republic of Estonia” in English (Tallinn, 2000) which is partially being updated at present time. 6.2.2. International conventions and treaties concerned with Intellectual Property Law are listed in State Gazette, Second Part in the years 1994-2002. The texts of international conventions and treaties in Estonian are also available on the Internet and in the “WinLex” database of legal acts. VII THE HARMONIZATION OF NATIONAL LAW WITH THE PROVISIONS OF INTERNATIONAL LAW Most of the Estonian intellectual property legislation has already been harmonized with European Union legislation and regulations as well as with the requirements of the World Trade Organization and World Intellectual Property Organization. 7.1. Estonian Constitution Article 3 of the Estonian Constitution stipulates: generally recognized principles and rules of international law are an inseparable part of the Estonian legal system. At same time, international treaties and conventions are enforced after these are ratified and denounced by the Estonian Parliament (Riigikogu) according to Article 121 of the Estonian Constitution. Article 123 of the Estonian Constitution prescribes that if national laws or other legislation of Estonia are in conflict with international treaties ratified by the Riigikogu, the provisions of the international treaty shall apply.

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Article 25 stipulates that everyone has the right to compensation for moral and material damage caused by the unlawful action of any person. Article 32 prescribes that the property of every person is inviolable and equally protected. … Everyone has the right to freely possess, use, and dispose of his or her property. … The right of succession is guaranteed. Article 39 provides that an author has the inalienable right to his or her work. The state shall protect the rights of author. The same regulations of the Constitution are fixed in the General Part of the Civil Code Act, Law of Obligations Act, Code of Civil Procedure (§ 9), and the same regulation is used in the Code of Administrative Court Procedure. 7.2. Legal Acts regulating Industrial Property Law in Estonia:

- Patents Act, entered into force 1996-06-26; - Utility Models Act, entered into force 1996-07-26; - Trade Marks Act, entered into force 1995-09-01; - Industrial Design Protection Act, entered into force 1999-03-16; - Layout-Designs of Integrated Circuits Protection Act, entered into force 2001-04-

20; - Geographical Indications Protection Act, entered into force 2000-06-05.

All these Acts have been revised by the Riigikogu several times and harmonized according to the International Treaties and Conventions. The Riigikogu has also passed several Acts that will be enforced later:

1. Implementation of the Convention on the Grant of European Patents Act, passed 2002-04-17 and will be enforced on the day of entering into force of the accession of the Republic of Estonia to the Convention on the Grant of European Patents;

2. the new text of Trade Marks Act, passed on 2002-05-22 and will be enforced on January 1st, 2003.

On the website of the Supreme Court of Estonia, there are only several bookmarks and an index of Industrial Rights disputes – 5 civil cases concerning trademarks and 1 administrative case on the activities of Patent Office. Even if we consider that only 20-30% of such disputes are reviewed in the Supreme Court of Estonia, the number of court cases in the period 1993-2002 is very small. 7.3. Legal Acts regulating Intellectual Property Law in Estonia:

- Copyright Act, entered into force 1992-12-12 - Broadcasting Act, entered into force 1994-06-15 - Act on Prevention of Importation and Exportation of Goods Infringing Intellectual

Property Rights, entered into force 2001-09-01.

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On the website of the Supreme Court of Estonia, you can find only 1 civil case on determination what is a pirated CD, 5 civil cases on copyright, 3 criminal cases concerning copyright and neighbouring rights and 1 criminal case concerning trade in pirated CDs. The very low number of court cases in the Supreme Court indicates that there are not so many copyright disputes in Estonia. Since the websites of courts of appeal are in a stage of development, information on how many court cases these 4 courts are revising is not available until now. The same situation is with the court statistics collected by the Ministry of Justice. 7.4. Enforcement of the TRIPS Agreement in Estonia and its influence on National Law The TRIPS Agreement requires that governments of the Member States of the World Trade Organization provide for enforcement procedures (5) so as to permit effective action against any act of infringement of intellectual property rights covered by this agreement, including expeditious remedies to prevent infringements, and remedies which constitute a deterrent to further infringements. In order to create an affective deterrent to infringement, the judicial authorities shall have the authority to order that goods they have found to be infringing be, without compensation of any sort, disposed of outside the channels of commerce in such a manner as to avoid any harm, caused to the right holder, or, unless this would be contrary to existing constitutional requirements, destroyed. As of September 1st, 2002, a new revision of the Copyright Act and entirely new Penal Code are enforced in Estonia. Some rights holders fear that this new legislation is too weak and will not provide for the deterrent as is meant by the TRIPS Agreement (6). Before the changes in June 6st, 2001 the Act on Prevention of Importation and Exportation of Goods Infringing Intellectual Property Rights was passed through the Riigikogu. It entered into force on September 1st, 2001. On the same day – September 1st, 2001 several legal acts including amendment of the Trade Marks Act entered into force the new section 363 which prescribes: Seized counterfeit clothing and footwear from which unlawful signs have been removed may be transferred, with the written permission of the possessor of the rights, to state or local government health care or social welfare institutions. This procedure of delivery such goods to health care and social welfare institutions is prescribed by Regulation No.77 of the Minister of Finance, dated August 31st, 2001 and enforced on September 1st, 2001. It seemed to be a good idea to donate, according to the Trade Marks Act, seized pirated goods, if the false trademarks have been stripped off, to charity. On international level 5 The TRIPS Agreement, Article 47. 6 Inception Report, page 9.

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right holders strongly oppose this idea (7). Idea that counterfeit and pirate products should be donated to charity rather than destroyed is fundamentally flawed. Firstly, it sends to the people a totally wrong message. At a time when right holders and authorities alike are trying to heighten public awareness about the truth connected to this insidious activity, not least the links with organized criminal and terrorist networks and the dangers inherent in counterfeit products, this measure would spread the idea that counterfeits are just as acceptable and fit for their apparent purpose as the genuine articles. Secondly, it is dangerous. This is not just about money: it is about safety. Who makes the call to donate counterfeit shampoo or medicines, or textiles that are flammable or contain irritating dyes, or toys, which contain poisonous coloring matters? As for goods that are not physically dangerous, we have to remember that it only takes one CD to be the master copy for a thousand counterfeits. It is also a double blow for the right holder. Not only has it suffered from the presence of fakes in the first place, it will now have to suffer the damage to brand equity which will lead from the goods, apparently branded, not being anywhere near as effective as the label suggests. Also, there are many documented cases of donated goods later appearing in the genuine distribution chain in Europe, e.g. when labels have been removed from garments, loose counterfeit labels are imported and sewn to the goods again. On September 1st, 2002, the new amendments of Trade Marks Act entered into force and section 363 is void. In the new law text is said that seized counterfeit goods have to be destroyed or exterminated. But there are no signs that the Minister of Finance will repeal Regulation No. 77. According to Mr. Andres Aavik, the Estonian representative of REACT, such kind of charity is still in use. The Police do not think the new legislation will influence the way they work. As yet there is neither experience nor jurisprudence under the new law. Some time ago the Joint Customs/Business Working Group on Intellectual Property Rights of the World Customs Organization prepared draft legislation for the benefit of its Members. Now the model legislation is in the process of being revised and modernized. The World Customs Organization will advise its Members to adopt this new model, which is designed for a better border control. The European Commission (DG Internal Market) is working on a Draft Directive on IPR Enforcement. The draft is almost ready, but it will take some time to have it adopted by all EU Institutions. 7 This has been brought to the attention of the DG Taxation and Customs Union of the European Commission by letter from AIM on October 15th, 2002.

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The new legislation is likely to impose stiff penalties on pirates and to enable Customs officers to seize goods even if they merely suspect them to be counterfeit. The Enforcement Directive will not be directly applicable but will have to be implemented by the Member States into their own national legislation. Since a large amount of pirated products are bought by foreign tourists, thus causing a demand, a problem is caused by Article 60 of the TRIPS Agreement, reading “Members [of the WTO] may exclude from the application of the above provisions small quantities of goods of a non commercial nature contained in traveller’s personal luggage or sent in small consignments.” Article 10 of the of the Council Regulation (EC) No. 3295/94 of 22 December 1994 of the European Union stipulates: “This regulation shall not apply to goods of a non-commercial nature contained in traveller’s personal luggage, within the limits laid down in respect of relief from customs duty”. In Estonia there are no regulations regarding the number of illegal goods the travellers are allowed to import or export. It depends on the judgement of the border customs officer. Section 2 of the Estonian Act on Prevention of Importation and Exportation of Goods Infringing Intellectual Property Rights just stipulates: “This Act does not apply to personal effects carried by a traveller across the Customs’ frontier, if the nature and amount of the effects correspond tot the purpose of the trip”. VIII STUDY RESULTS IN DETAIL 8.1. “Bullet points” It was required in the Terms of Reference, that reporters should include in their studies a number of bullet points in each one of the areas to be covered. However, reporters found that there are common problems in all areas mentioned, so the remarks below are, if no specific subject is mentioned, covering all subjects. 8.2. Institutional set up problems On of the major institutional problems reporters met is the fact that various institutions all have their own method to compile statistics. There is no central institution which would collect, compile and analyze such statistics. The Customs Authorities are almost the only official body which collects usable statistics, but those statistics only regard imports and exports, mainly which are detected by Customs, stopped and seized on official border crossings.

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As mentioned later in this report (page 23), it is possible to bring goods into Estonia by crossing the so-called “green border”. There are no statistics regarding these unofficial imports or it may be too complicated to obtain correct figures. Even the Statistical Office of Estonia does not have specified statistics on the import, export or transit of illicit goods. Police only have statistics on criminal cases where counterfeit or pirated goods are involved. The Ministry of Justice started in September 2002 to add an extra chapter “Intellectual Property Court Cases” to their court cases statistics. The Estonian National Bank does not have information on trade in illicit goods and has no need for this kind of information since it does not belong to their tasks. Reporters recommend that the Statistical Office of Estonia collect all data on trade in IPR infringing goods as a separate subject to enable the creation of a good overview of the problem. As it can be expected that Estonia will become a Member State of the European Union in the near future, correct and reliable statistics will be needed for Union purposes. Already now Customs authorities of the European Union Member States are obliged to send their statistics on intellectual property cases to the Commission on a yearly basis. Another problem signalized by reporters is that apparently different governmental bodies work on the problem of piracy, but there seems to be no or little co-ordination in their activities. Reporters have the impression that the problems of piracy, mainly the dangers to health and safety, and the dangers to culture and national economy are not very well known by the general public. The general public usually does not have knowledge of the stipulations in criminal law, which recently has been the subject of major principal changes (last change was 45 days after the coming into force of the Penal Code). Piracy and counterfeiting, if come to the knowledge of the general public, is not considered to be a serious crime. Infringement of intellectual property is not considered to be equivalent to theft of material property. They are considered to be commercial offences and not effecting natural persons. It is recommended that - preferably by radio and/or television - an information and awareness raising campaign will be launched. This campaign will have to touch the health- and safety risks the members of the general public will run. Even state officials seem to be not well informed about the changes in criminal law in time. For example: it seems to be not very well known that the maximum monetary fine

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for legal entities, regarding IPR infringements, is 250.000.000 EEK, where it has been before the changes in the law 25.000.000 EEK. The amendments to the Penal Code were published in the State Gazette, Part I, number 82, on October 14th, 2002. After one week, on October 21st, 2002, the full updated text of the Penal Code was published in the State Gazette, Part I, number 86, but without the amendments published on October 14th, 2002. This constitutes a big problem not only for state officials - judiciary and law enforcement - but also for lawyers and representatives of right holders, to find out which version of which law text is in force at the moment. Since this is just one example and lawyers are confronted with this kind of problems quite regularly it is recommended that the State Gazette should be more meticulous in its publications. 8.3. Activities masterminded by citizens, residents and foreigners It remains unclear in which way each of the abovementioned categories is involved in the trade in counterfeit and pirated products. According to the Central Criminal Police, there are no signs that organized crime is involved in piracy in Estonia (8), whereas the Estonian Organization for Copyright Protection (Eesti Autoriõiguste Kaitse Organisatsioon) thinks organized crime is not greatly involved in audio- and video piracy (9). A summary will be given below. The term “Estonian citizens and residents” shall also include Estonian legal persons, especially when trading on the market. 8.4. Audio and video piracy In the field of audio and video piracy, about 30% of the illicit copies are so called “home burnt” by Estonian citizens and residents. Music is downloaded from the Internet in MP3 format and transferred to audio format, or existing legal CDs are copied. It is hard to find out how many musical works, computer games, films and computer software are copied through the Internet. A number of them will be privately used only. Others may be used as masters to compile and burn illegal CDs. Right holders mentioned that illegal copying of music (and software) CDs is widely spread in university cities in Estonia, where lots of students are responsible for producing, trading and exchanging pirated copies of music CDs, etc. An extra problem is that downloading of music is possible by the use of the software obtained from KaZaA. This so called P2P ((Personal (computer) to Personal (computer)) fast track software enables the user to search for music in the computers of other KaZaA 8 Inception Report, page 16. 9 Inception Report, page 11.

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software users and download directly from there. KaZaA was created in Estonia by Estonian programmers. In a civil court case in the Netherlands, instituted by the Dutch authors’ rights society Buma/Stemra, the Dutch Court of Appeal ruled that, since KaZaA only put software at the disposal of their clients, KaZaA does not commit a copyright infringement by itself. Apparently KaZaA recently sold the software to an Australian company Sharman. Now a civil court case is pending in Australia. KaZaA is to be considered the successor of the meanwhile officially closed program Napster. Mostly pirated video films, traded in Estonia, are home-copied by Estonian citizens and residents. 8.5. Software Investigation by the Business Software Alliance BSA10 showed that about 10-15% of illegal CD-ROMs containing computer software are “home burnt” in Estonia after downloading the software from the Internet. BSA sent out 150 letters, warning the owners of sites offering illegal software. As a result, 13% stopped offering software and 87% closed the sites. BSA also discovered that 30% of unlicensed computer programs are used by the state and 70% with people at home (10). By the latest information published in newspapers Eesti Päevaleht (no 275; November 25, 2002, p.11) and Äripäev (no.217; November 28, 2002, p.3; ) the level of piracy of computer programs is 53% and five years ago this figure was 90%. BSA has a plan to reach better results and have only 33% pirated computer programs in 2004 as is the present level of piracy computer programs in Scandinavian countries. In the United States, this figure is 25% (information published in DELFI Internet Magazine – www.delfi.ee - November 27th, 2002). A study conducted by the Baltic Region Office of Microsoft, published in Äripäev (no.215; November 26, 2002, p.4), reveals that the level of piracy of computer programs is 53% in Estonia, as compared to the 56% in Lithuania and 59% in Latvia. According to this study, this year IT trading firms will lose 1.1 milliard (billion) EEK in Estonia, 1.4 milliard EEK in Latvia and 2.9 milliard EEK in Lithuania. 8.6. Fine art An illegal activity of Estonian companies has been discovered to be the reproduction of works of fine art - e.g. sculptures - as copies which are printed on mug, jars, saucers and other souvenirs without the consent of the creating artist(s). As an example is mentioned the sculpture of “Kissing Students” by sculptor Mati Karmin and architect Tiit Trummal in Tartu. Those cases can be solved in civil procedures. 10 Inception Report, page 10.

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8.7. Foreign originated pirated goods Main countries, where counterfeit and pirated goods, which are imported into Estonia, are manufactured, are mentioned to be Russia, Ukraine, Lithuania, Turkey, Thailand and China (11). Most of those illicit goods are imported via airports, harbours or formal land border crossings. However, there is the possibility to bring goods into Estonia by crossing the so called “green line”, where there are no official crossings guarded by Customs. These imports constitute only a small part of the total. Customs control the green line to the best of their possibilities, but they suffer from lack of money and resources. It should be taken in account that the Eastern border is a demarcation line and that the green line goes through swamps or over Lake Peipus and Lake Pskov. Those lakes are monitored by modern equipment. Although illegal imports over the “green borderline” seem to be not too important, there might be reason for some concern. 8.8. Pricing practices and selling strategies/Targeted consumers As a rule counterfeit and pirated products are cheaper than the legitimate ones. As an example one of the right holders organizations mentioned that a pair of original sport shoes will cost 800 - 900 EEK, whereas a pair of counterfeit shoes will cost 250 - 300 EEK (12). Since Estonian citizens noticed that the quality of pirated products is worse than the originals, they seem to be less interested in buying those goods. The general public nowadays is more interested in good quality than in the bad quality of pirated goods. They simply wait for the yearly sales to obtain genuine product, when prices are about 50% lower. Methods of distribution are different. A large number of illegal CDs is sold to foreign tourists, especially Finns and Swedes. The CDs themselves are not offered, but the tourist is shown a list of titles, from which he can choose. The seller or a helper then goes somewhere and after some time he comes back with the wanted CD(s). This system can be called a warehousing system. This seems to be the trend nowadays. Other illegal goods are to be found on the Kadaka and Merekeskus (the Sea Center) markets in Tallinn. The main customers again are Finnish and Swedish tourists. As mentioned above, the Customs have difficulties in taking action against these “exports”, due to the exceptions in law and regulations regarding traveller’s personal luggage. 11 Inception Report, page 17. 12 Inception Report, page 13.

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Meanwhile the Kadaka market is closed and the Merekeskus market is under observation by right holders and the Police. According to the information of the music trading companies, 100,000 CDs and big amounts of audiotapes c.q. audio-cassettes and videotapes were sold on Kadaka market every month in 1998. It is estimated that the turnover of CDs on Kadaka market was 30,000-100,000 EEK per day. To compare these amounts with the turnover of other CD selling companies: Lasering sold 10,000 CDs in 1998 and AS Pedrobeat, the largest wholesaler, sold 60,000 CDs per year (13). According to professor Heinu Koitel, IIPA has found out that US enterprises lost 4 million USD due to piracy in 1997. IIPA has suggested including Estonia in their black list (14). Price policy could be of help in fighting piracy. For example, it is mentioned that since Estonian local music repertoire on CDs has dropped in price, the turnover in legally manufactured CDs in 2002 has gone up about 30% as compared to 2001. Prof. H.Koitel also proposed to decrease the prices of CD-s to avoid piracy in 1999 (15). It will not be possible to use price policy in all market segments as a means against piracy. Especially those products, which have required high research- and developing costs, cannot be sold near, at or under the cost price. 8.9. Cause and Motivation of Piracy 8.9.1. Theory of Motivation There is both an objective and a subjective component to actual human behaviour. In the objective sense, a behavioural norm manifests itself in peoples’ specific acts, the form and substance of which conform to society’s interests and requirements. In the subjective sense a behavioural norm becomes a part of peoples consciousness as a certain model of behaviour, incorporating therein to a greater or lesser extend their understanding of social values and the social meaning of their own actions. This model plays a significant role in the motivation of behaviour. All social norms are characteristic of society. The main widely known categories of social norms are legal norms, moral norms, commonly accepted norms and corporate or associational norms, the objective of which is to regulate specific types of social relationships. Legal norms, which are the means for creating order in human behaviour, form the normative basis for law and order. There is not always a direct and immediate relationship between normative behaviour and the norm. A norm is the foundational basis for normative behaviour. The purpose of legal norms is to provide the judicial means by which it is possible to enforce required 13 Professor Ants Kukrus, page 115. 14 Professor Heinu Koitel. Piraatlusele ja võltskaubandusele intellektuaalse omandi valdkonnas lüüakse hingekella, lk.124.Juridica 1999, nr.3. 15 Professor Heinu Koitel, lk.124.

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behaviour. In order to adequately perceive objective reality and effectively act within it, an individual must acquire the norms and values of the social environment which surrounds him or her and get into that environment to essentially become one with it, or in other words, become socialized. The socialization of an individual already begins in his or her early childhood at which time his or her attitudes are formed in connection with all that surrounds him or her. This facet of the socialization process seems to be especially important in the shaping of deviant behaviour. In choosing a version of behaviour, an individual will decide in favour of a version or versions, which will assist him or her to achieve the individual’s goal, which has been established. It is expected that a person who has developed normally will harmonize his or her activity in the pursuit of fulfilling his or her needs with the rules of life and norms established in the society. Non-normative behaviour primarily means behaviour that is not regulated by norms and, secondarily, behaviour, which is contradictory to norms. In both instances, an individual proceeds from a pre-existing behavioural model, but determines and realizes an independent version of behaviour. The possibility for non-normative behaviour is conditioned upon the fact that human consciousness is capable of going beyond every stereotype and developing new versions of behaviour what, from the perspective of society, may be positive or negative. Negative non-normative behaviour, especially criminal activity, alcoholism, addiction to narcotics, piracy activities, etc. inhibits the development of society and damages its interests (16). 8.9.2. Piracy Motivation and Causes in Estonia In Estonia, steady social roots for piracy exist as more than 60 % of Estonian citizens and residents have a relatively low standard of life. So they are very often unable to buy original CDs or clothing and sports shoes. It is not a reason to justify their law breaking activities but can explain the results of illegal activities as consumers and, sometimes, as piracy producers (17). As mentioned in the Terms of Reference the main motivations for piracy are the easy and quick profits to be made. Pirates make these relatively high profits by not having research- and developing costs, costs on commercials, but simply make use of copies of existing well-known and well-marketed products or the works of popular creating and performing artists. In case of material products they purchase cheap products of poor to very poor quality and supply them with the illegally copied logos of well-known brand owners. When copying toys, for instance, they use cheap materials, which are dangerous for the users, being often toxic and below consumers’ safety standards. 16 Silva Kaugia.Legal Behaviour:Norm and Deviation. Juridica International II, 1997, pages 7-9. 17 Professor Heinu Koitel, lk.124.

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Pirates make their profits out of the production and distribution of counterfeit products since they are able to make use of copies of the genuine product at remarkable lower costs than research, production and distribution of the genuine product requires. Consumers, buying counterfeit and/or pirated goods, often do so because they want to show off, and be seen with for instance a Breitling or Rolex watch, Hugo Boss clothes or one of another expensive brand, clothing and footwear of well known brands, and give their children toys as advertised in television commercials. All this at a price noticeably lower than the price of the genuine product. The risks for pirates are small. The main difficulty is detection of the counterfeit or pirated product. Sophisticated pirates can make the pirated product look genuine to the general public, which only after some time will find out that the quality of their purchase is poorer than expected, or that they are running a health- or safety risk. It is known that in some cases this resulted in a so called “buyers strike” against the (genuine) brand. Members of the general public will rarely lodge (criminal) complaints when they have been “victims” of piracy. However, since Customs and Police are better trained, also with the help of right holders, and co-operate regularly with right holders, the risks for pirates have increased. Mutual co-operation and exchange of information between law enforcement bodies as well as between law enforcement bodies and right holders organizations are most important in the fight against piracy. Therefore, Police and Customs authorities signed - in order to further effectuate co-operation - a co-operation agreement in November 2001. One of the main purposes of this agreement is the development of the information exchange system between the Customs and the Police. It is recommended to consider the possibility to conclude Memoranda of Understanding with right holders organizations, to formalize the co-operation between them and the authorities and regulate the way of exchange of information within the framework of the law. Memoranda of Understanding are already in use between international right holders organizations and the World Customs Organization. 8.10. Cases in which agents, distributors or former business associates may be involved Practice shows, that no legitimate business will admit that their agent, distributor or business partner is involved in trade in and trafficking of pirated goods, simply because they do not want to be associated with involvement in those activities. Estonian society and Estonian market are small and, generally spoken, everybody knows everybody who is acting in the same business. If an agent or distributor would be involved in trade in counterfeit or pirated goods and thus would act unfairly, it would be

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known immediately with his principals and dealt with appropriately, which will mean the end of his or her business. 8.11. Corruption During the study only one case of corruption was mentioned (18). Policemen informed traders on the Kadaka market of intended police raids. Those policemen have been sentenced by court and imprisoned. Should a case of corruption appear, the case will be investigated by the Department of Internal Affaires, which is a part of the Police Board. The successful functioning of organized crime is impossible without the support of corrupt contacts in state agencies. The number of corruption cases registered by the Police has increased in recent years to a certain extent, but still remains on a very low level, said the authors of the book "Crime in Estonia 1991-2001". For example, in 2000, a total of four corruption cases were registered (seven cases in 1999) and 59 officials were caught taking bribes (44 officials in 1999). The data for 2001 are 13 registered corruption cases and 52 briberies (19). Reporters can only say, that usually the corruption and bribery are the crimes that are deeply hidden by the participants. So the real level of such crimes may be several times higher that those shown in official statistics. According to KAPO (Kaitsepolitsei - the Security Police), the organized criminal groups are primarily interested in collaboration with corrupt Customs, Border Guards, and tax officials (20). 8.12. Economic value of losses due to piracy and counterfeiting During several interviews with the Police, Customs and right holders organizations it became clear that no method exists for measuring the economic impact of trade in counterfeit and pirated goods. It can only be estimated within very wide margins. According to a report of the International Intellectual Property Alliance (21), the estimated level of piracy in the year 2001 should be: motion pictures 40%, sound carriers 60%, business software 69%, entertainment software 90%. No branded goods were mentioned, since trademark owners are not members of this Alliance. It is remarkable that neither right holders organizations nor law enforcement mentioned these figures. The only estimate the reporters received was that one right holders 18 Inception Report, page 16. 19 Crime in Estonia 1991-2002. Tallinn, 2002, page 256. 20 Crime in Estonia 1991-2001, page.256. 21 “2002 Special 301 Report”, pages 425-440, published February 2002; www.iiap.com

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organization assesses that the damages to right owners in all fields of intellectual and industrial property rights might total 300.000.000 EEK per year (22). When asked, the Chamber of Commerce stated not having been confronted with piracy and not having figures regarding the economic impact of the phenomenon. However, some general remarks may be made:

- Producers and retailers of the genuine branded products, sound- and image carriers, etc. suffer from a loss of sales

- There will be a loss of goodwill to the genuine product, when purchasers are not satisfied with the quality of the counterfeit or pirated product, carrying the same brand name.

- Producers have to invest huge amounts of money in brand protection activities, which increases the cost price of the genuine product, thus enlarging the price gap between the genuine product and the counterfeit or pirated one.

- Since profits with the legitimate industry decrease due to the effects of piracy, there will be less money left for research and development of new and better products. In case of the entertainment industry there will be less money to stimulate young creating and performing artists, to develop new repertoire, or to record traditional repertoire, thus jeopardizing national culture.

- There is a serious risk of loss of employment. - The State will lose tax income and excise revenues. - There will be a risk of the loss of opportunity for foreign investments. - The State will have to invest money in the judiciary system and in law

enforcement to fight the – criminal – activities of the pirates. IX IN GENERAL 9.1.Conclusions Since as of September 1st, 2002, new legislation is in force, the situation has improved. Right holders and law enforcement institutions work closely together and exchange information within the limits required by law.

- there are no signs that organized crime is heavily involved in piracy. If so, the partici-

pation is not significant. - less than 1/3 of illicit copies of audio and video material are so called “home burnt” by

Estonian citizens and residents. - new ways to obtain pirated audio/visual works and computer programs have been

developed in the recent past and will be further developed in the near future. As an example, the KaZaA case has been mentioned.

22 Inception Report, page 10.

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- illegal activities of Estonian companies have been discovered in the field of unlicensed reproduction of works of fine arts.

- the main quantities of counterfeit and pirate goods are imported into Estonia from neighbouring countries and the Far East. - imports over the green line are not significant. Effective control of the green line by

Customs is not well possible due to lack of financial and personal resources. - trade in counterfeit and pirated goods exists in large parts due to sales to the many

foreign visitors, who come to Estonia for bargains. - Customs have difficulties checking and controlling these “exports”, due to the

limitations in law, regarding travellers’ personal luggage. - it is recommended that the Statistical Office of Estonia collect all data on trade in IPR

infringing goods as a separate subject to enable the creation of a good overview of the problem.

- it is recommended that - preferably by radio and/or television - an information and awareness raising campaign will be launched. This campaign will have to touch the health- and safety risks the members of the general public will run.

- since there exists the problem of different publications of legal texts and lawyers are confronted with this kind of problems quite regularly it is recommended that the State Gazette should be more meticulous in its publications.

- it is recommended to consider the possibility to conclude Memoranda of Understanding with right holders organizations, to formalize the co-operation between them and the authorities and regulate the way of exchange of information within the framework of the law.

- it is recommended that the Internet website of the Ministry of Culture contain sufficient recent information regarding piracy matters and be regularly updated on this subject.

- it is recommended that the Ministry of Education and Science will promote the paying attention to the consequences of piracy for the culture and economy and the responsibilities of citizens, as well as the possible punishments during the classes of civics or similar in schools.

9.2.Recommendations for possible further studies: - contacts should be made with the (representatives of) Estonian and international right

holders organizations - contacts should be made with the Customs’ Board and senior Customs Officers - contacts should be made with decision-makers at the Ministries of Culture, Finance,

Justice and Economic Affairs - contacts should be made with the Police Board and senior criminal investigation officers with the (Central) Criminal Police - contacts should be made with institutions such as the Chamber of Commerce, Estonian

National Bank, etc. - it should be checked whether the statistics gathering system has been centralized and

statistics are studied and analyzed

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- since at the moment of finishing this report no jurisprudence exists under the new legislation, it is recommended that Court Decisions in piracy cases (both civil and criminal), being made after September 1st, 2002, should be studied and analyzed.

- possible further studies should also include a study of unlicensed copying of (parts of) scientific books and magazines and sociological research. the effects of the information and awareness raising campaign should be studied and evaluated.

- instructions for interviewing people. It depends on the skills of the people who make the interviews. Do they know the subject sufficiently to ask appropriate questions? Anyhow, interviews are the best way in the opinion of the reporters. The interviewer can react immediately on the answers and thus is able to gather more information than will be possible by questionnaires. An in advance prepared questionnaire could be of help to guide the interview to find out are the people informed about piracy.

- the outcome of the questionnaires, reporters prepared already, and had to be circulated by the Ministry of Culture, should be evaluated by the Ministry of Culture and be brought to the attention of the persons who are going to carry out the next study.

-o-o-o-