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The Anti-Piracy Strategy for Optical Disc and its Relationship

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									       The Anti-Piracy Strategy for Optical Disc and its
     Relationship with Technology Development in Taiwan

                                      Wen-Hsiang Lu

                                            Introduction

Protection of intellectual property is essential for the development of a “Green Silicon
Island”. Technology innovation is the key to maintain competitive advantage for
economic success. Taiwan government recognizes that the protection of IPR will
increase the attractiveness of Taiwan as a site for the undertaking of innovative
research. The dealing of piracy is an important task in the development of Intellectual
Property rights protection in Taiwan; it also draws considerable attention in the
negotiations with its international counterparts.


Copyright piracy is causing serious losses to our economy and grave damage to
Taiwan’s reputation as a leading international trading country. The level of piracy is
different in various industries in Taiwan, such as motion pictures is 44%1, music
recordings is 47%, and computer software is 43% in 2002. The present methodology
adapted by right holders groups to calculate piracy rates are quite heterogeneous,
therefore presents a dilemma for policy making and forming basis for international
negotiations. Optical disc piracy like any other crime, does not pay, which includes
CD, CD-ROM and DVD, government should engage in a comprehensive attack on
optical disc piracy to secure ratification and implementation of the Trade Related
Aspect of Intellectual Property Agreements (TRIPs). Except the amendments to the
Copyright Act and the enacted Optical Disk Act, government also took effective and
adequate enforcement measures to crack down OD piracy. In order to combat illegal
ODs, Taiwan government established the Integrated Enforcement Task Force (IETF)2,
which comprises a 220-member IPR Police Force and works in cooperation with the
Joint Optical Disk Enforcement Taskforce (JODE)3 to implement raids and seizures of
OD manufacturing devices, raw materials and products of underground plants.



1
  IIPA 2002 Estimated U.S. trade losses due to copyright piracy.
2
  IETF is under the National Police Administration of the Ministry of Interior.
3
  JODE is comprised by the related agencies of the Ministry of Economic Affairs

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After the completion of the “2002 Action Year for IPR Protection” campaign, Taiwan
government continued implementing the “Comprehensive 3-year Action Plan
(2003-2005) on IPR Protection”. Accomplishment in 2003 includes completing the
amendments to the Copyright Act and further reinforcing IPR enforcement
mechanisms. Meaningful results have been achieved for dealing with piracy and
counterfeiting. Nevertheless, piracy rate is still concerned by the right holders. The
piracy rate based on right holder groups could be over estimated, which damage the
image of Taiwan. Piracy rate is also one of the benchmarks the interest groups
considered how effective of the anti-piracy measure government engaged.
Recognizing that information right holder groups provided is crucial in effective and
adequate protection of IPR as well as international negotiations, Taiwan is prompted
to develop a logical and accurate model for the calculation of piracy to produce a
more reliable data for international negotiations; and on the other hand, to provide a
more tangible indication in enforcement mechanisms.


    Current Situation of Optical Disc (Audio and Visual CD) Piracy
                               in Taiwan

Throughout the world, digital piracy, especially unauthorized copies of “optical
media” products such as CDs, VCDs, DVDs, and CD-ROMs has increased
dramatically in recent years. The Special 301 4 report of the USTR addresses
significant concerns with respect to the growing issue of optical disk piracy to its
trading partners. As a trade-oriented country, Taiwan government recognizes that
effectively deter optical disc piracy covers comprehensive legislative and enforcement
Measures.


Piracy Losses in Asia Region

Over the last three years, the piracy loss in the Asia area is serious and causes most
concerns by the right holder groups. According to the reports of International
Intellectual Property Alliance (IIPA), in Asia area, the total piracy loss of revenues in
2001 was US$ 4201 millions, and US$ 4826 millions in 2002. The piracy loss of


4
  Section 182 of the Trade Act of 1974, requires the United States Trade Representatives (USTR) to
identify countries that deny adequate and effectively protection of intellectual property rights or deny
fair and equitable market access to U.S. persons who rely on intellectual property protection. Section
182 is commonly referred to as the “Special 301” provisions in the trade act.

                                                    2
motion pictures was US$ 427 millions in 2001, in 2002 was US$ 455 millions, and in
2003 was US$ 520 millions. The piracy loss of records & music was US$ 473
millions in 2001, in 2002 was US$ 420 millions, and in 2003 was US$ 575 millions.


Piracy Losses in Taiwan


In Taiwan, the total piracy loss of revenues was US$ 333 millions in 2001, and US$
848 millions in 2002. However, Taiwan’s business software piracy level is declined
from 53% of 2001 to 43% of 2002; the records & music piracy level is declined over
the last three years, from the 48% of 2001 to 42% of 2003. Due to the losses of
copyright piracy, the interest groups such as IIPA, IACC submitted recommendations
placed Taiwan on the Special 301 Priority Watch List.


      Trade Losses and Piracy Levels of Digital Piracy in Taiwan,
                             2001-2003
                                                                 in millions of U.S. dollars

    Industry              2001              2002              2003          Total Losses in Asia
                    Loss      Level   Loss       Level   Loss     Level    2001    2002      2003
 Motion Pictures     35.0      30%     42.0      44%     42.0      44%     427.5 455.0 520.0
Records & Music      51.7      48%     98.6      47%      58.0     42%     473.5 420.3 574.6
Business Software   106.8      53%     91.2      43%      NA       NA     1829.5 2583.5       NA
 Entertainment      119.4      70%    596.1      56%     261.8     42%    1147.6 1024.4 1191.7
    Software
     Books          20.0               20.0              20.0             376.2    289.8   313.5

  Total Losses in    332.9            847.9              NA
      Taiwan
Total Piracy Losses 4201.1            4826.2             NA               4201.1 4826.2     NA
      in Asia
Source: International Intellectual Property Alliance

         Initiatives Toward Effective IP Protection Environment

In order to eradicate digital piracy in Taiwan, Taiwan government not only has revised
its IP-related laws and regulations but adopted effective enforcement mechanisms
including border control and judicial proceeding procedures.


Legislative Amendment

In order to carry out specific actions designed to curb piracy and infringement of


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copyrighted materials, including optical disks, the Copyright Act was amended and
entered into force on July 11, 2003. Not only has it broadened the scope of public
crime to apply to sale or display of optical disks at night markets and to increase civil
remedies and criminal penalties, but has also afforded protection to electronic right
management information.


Highlights from the amendments of the Copyright Act:
- The amended Act accords a right of remuneration for public performances to right
  holders of sound recordings and performers.
- The amended Act affords protection to electronic rights management information
  (“ERMI”). The Act also provides for sufficient civil remedies and criminal
  penalties for violations of protection to ERMI.
- The amended Act explicitly prohibits the use of infringing copies of computer
  programs for business purposes. Under the amended Act, the use of computer
  software that is known to be infringing may not be used for any business purpose,
  including internal operations.
- Regarding civil remedies, the amount of statutory compensation is increased from
  NT$1 million to NT$5 million when the infringement is ruled as serious in nature.
- In the case of criminal penalties, the major changes are summarized as follows:
               The fines are increased up to NT$8 Million (US$ 250,000).
               The amended Act contains a new confiscation provision.
               The amended Act introduces a new forfeiture provision to be enforced
               by police authorities.
The amended Act incorporates copyright infringement as a public offense.
Specifically, the amended Act provides that, when unauthorized reproduction is made
for the purpose of profit making or for sale in the format of an optical disk, complaints
from the copyright holder prior to initiating enforcement actions will no longer be
required.


Due to the rapid development of technology, pirated optical discs (OD) have become
the major source of copyright infringement in Taiwan. To deter pirated ODs from
infringing intellectual property rights, as of 14 November 2001 Taiwan has
promulgated the Optical Disk Act. Under these regulations, a system was instituted to
control the source of pre-recorded OD plants.
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IPR Protection Action Plan


In correlation with the foregoing efforts, the Taiwan government has been relentlessly
instituting a series of IP protection and enforcement programs, such as the”2002 IPR
Protection Action Year” and the “Comprehensive 3-year Action Plan (2003-2005) on
IPR Protection.” In addition to revising IP-related laws and regulations, enforcement
task forces such as the Integrated Enforcement Task Force (IETF) under National
Police Administration and the Joint Optical Disk Enforcement Taskforce (JODE)
under Ministry of Economic Affairs have also been established by the Taiwan
government to implement the inspection of optical disks. In order to deter the Internet
crime, National Police Administration established the Cyber Crime Taskforce under
the Bureau of criminal Investigation.


National Level enforcement Network

Taiwan’s enforcement efforts in curbing IPR infringements require the continuous and
ongoing cooperation of several competent authorities, including the Integrated
Enforcement Task Force (IETF) of the National Police Administration of the Ministry
of Interior, the Bureau of Investigation and Prosecutors’ Office of the Taiwan High
Court of the Ministry of Justice, the Directorate General of Customs of the Ministry of
Finance, the Anti-Counterfeiting Committee and Joint Optical Disk Enforcement
Taskforce   (JODE) of the Ministry of Economic Affairs.


Border Control Mechanism

In addition to strenuously conducting in-land anti-piracy activities, Taiwan
government also enhanced its border control measures. The Directorate General of
Customs of the MOF and Customs Offices have implemented a set of border control
measures to form a tighter network dealing with Optical Disk products’ import and
export. Taiwan IP border control measures includes: OD manufacturing implement
and border inspection; SID Code inspection system for OD export; Trademark export
monitoring system; Inspection for exports of audio-visual copyrighted works and
OEM audio CDs; Chip marking system; Export monitoring system for computer

                                          5
program related products; Customs’ trademark and copyright protection measures.


Enforcement Result by JODE


JODE conducted 1,088 inspections of OD factories in 2003, which is a 266% increase
from the 297 inspections conducted during the same period in 2002. Of these, ten
cases were found in violation of the Optical Disk Management Statute. Ten plants
were ordered to close and cease operation. Seventeen suspects were prosecuted and
eleven manufacturing machines were seized, as well as 303,575 pieces of illegal ODs
and total value of NT$ 132,145,250 were seized. Inspection results provided by JODE
show that between July and December 2003 the number of equipment, pieces of
illegal ODs, and the total value seized have remained unchanged since July, indicating
that control at the reproduction/distribution level is being administered effectively and
adequately. Results from this year inspections also prove that JODE’s enforcement
efforts are producing a deterring effect on infringements. Under intensive inspection,
underground OD plants are nearly eradicated.

                          JODE Enforcement Performance

                                                           Jan. to Dec. 2003
                                                     2002                   2003
                                                      297                   1,088
          Number of Inspections                  Day      Night       Day        Night
                                                 264        33        703         385
  Number of Cases Found Violating the
                                                    16                    10
    Optical Disk Management Statute
                           Manufacturing
   Number of Plants                                 10                     9
                               Plants
        Closed
                          Packaging Plants           5                     1
      Number of Cases Prosecuted                    12                     7
     Number of Suspects Prosecuted                                        17
 Number of Administrative Disposition                6                     8
      Number of Machines Seized                      8                    11
Number of Illegal ODs          Pieces                                   303,575
and Total Value Seized          Value                              NT$132,145,250
Source: The Joint Optical Disk Enforcement Taskforce (JODE), Ministry of
         Economic Affairs




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                       Methodologies for Counting Piracy Rate


The piracy rates5 right holder groups adapted are used by the trading partners while
engaged in the trading negotiations. The international copyright owners include
Business Software Alliance (BSA), International Federation of the Phonographic
Industry (IFPI), Motion Picture Association (MPA), and International Intellectual
Property Alliance (IIPA). The methodologies used to calculate the losses of piracy and
piracy rate are as followed:


BSA
Software Applications Pirated
The difference between software applications installed (demand) and software
applications legally shipped (supply) equals the estimate of software applications
pirated.
Piracy Rate
The piracy rate was defined as the volume of software pirated as a percent of total
software installed in each country.
Comments for Methodology Used by BSA
The shipments of software applications should not be regarded as the sales units in the
market. The errors of estimate of software applications installed (demand) in each
country are cumulated in the process of projection and difficult to estimate. The errors
in each member’s estimate of software application shipments (supply) are highly
correlated; therefore, the errors could be greatly expanded.


IFPI
Pirate Sales Units
(domestic pirate cassette sales units + regional pirate cassette sales units +
international pirate cassette sales units) + (domestic pirate CD sales units + regional
pirate CD sales units + international pirate CD sales units) + (domestic CD-R for
commercial pirate production sales units + regional pirate CD-R for commercial
pirate production sales units + international CD-R for commercial pirate production


5
    Piracy rates as shown on “Trade Losses and Piracy Levels of Digital Piracy in Taiwan, 2001-2003”


                                                    7
sales units)
Pirate Rate
Pirates sales units (pirate sales units + legitimate sales units)
Comments for the Methodology Used by IFPI
The volume of pirate sales is estimated from the seizures and investigators’ reports.
The estimation methods are not validated. The volume of seizures is not equal to the
units sold in the market, the adjusting factor is not validated.


                       Establishment of Tolerable Piracy Rate

In the past, right holder groups have calculated piracy rate from estimating the supply
rather than targeting at the actual market volume, which brings about the possibility of
double counting. According to a study6 that the calculation of piracy rate is most
accurate when considered from the consumption of unauthorized audiovisual optical
disks within the national border, whose figure will also account for illegal imports.
The study team has developed a benchmark and also produced a pseudo-tolerable
level of piracy rate of audiovisual optical disks in Taiwan. In a survey7 conducted
recently, the result show that the current piracy rate for music CD is 30.5% while a
42.9% for VCD and DVD.

    The Definition of Tolerable Piracy Rate


“Tolerable Piracy Rate” is calculated based on the piracy rates provided by IIPA and
IFPI, in addition to those economical and social indexes given by the United Nation.
To estimate the ”Tolerable Piracy Rate” of one particular country, we considered the
piracy rates and many other factors of its adjacent countries, such as economical
progress, social character, educational level, technology development, as well as
religious and judicial practices. Based on and adjusted upon such factors, it yields an
average piracy rate, which may be considered as a reasonable piracy rate for such
individual country. Therefore the so call tolerable piracy level is the average piracy
rate of those adjacent countries and being adjusted by their own social and economical

6
  The study team is comprised by the Graduate Institute of Intellectual Property, Graduate Institute of
Technology and Innovation Management, Statistic Extension and Marketing Survey Research Center,
the Department of Statistics, and the Department of Risk Management at Chengchi University.
7
  The marketing survey is handled by Chengchi University Statistical Extension and Research Center.

                                                    8
factors. If actual piracy rate of an individual country is lower than this given tolerable
piracy level, that means its actual piracy activity is less severe than the average piracy
rate of its adjacent countries. Hence this piracy level is tolerable.


Tolerable Piracy Rate Estimate Methodology


The piracy rate provided by IIPA and IFPI all over the world in recent five years, the
combination of all kind of indexes all over the world in United Nations statistical
database, including: economy index, population index, education, index, life index,
crime index, religion index. According to the empirical analysis of the study, Taiwan’s
music tolerable piracy rate is 21.17%, motion picture tolerable piracy rate is 24.74%;
according to IIPA, music piracy rate in Taiwan was 48%, motion picture was 44% in
2002.


Empirical analysis: Taiwan’s Music Piracy Rate

        Year               IIPA Estimate            Tolerable            Difference
                            Piracy Rate            Piracy Rate
        1998                    16                    35.54                -19.54
        1999                     22                   28.37                 -6.37
        2000                     44                   20.45                 23.55
        2001                     48                   29.47                 18.53
        2002                     48                   21.17                 26.83
        2003                    33*                    27**                   6
*NCCU estimate piracy rate in 2003.
**Tolerable Piracy Rate in average five years.

Empirical analysis: Taiwan’s Motion Picture Piracy Rate

        Year               IIPA Estimate            Tolerable            Difference
                            Piracy Rate            Piracy Rate
        1998                    10                    24.28                -14.28
        1999                     20                   23.32                 -3.32
        2000                     30                   23.73                 6.27
        2001                     30                   25.50                 4.50


                                             9
            2002                        44                            24.74                    19.26
            2003                     36*                              25**                       11
*NCCU estimate piracy rate in 2003.
**Tolerable Piracy Rate in average five years.

The East Asian piracy rate in recent five years


Average     Taiwan   Hong   Singapore    South      Philippines Thailand   Malaysia Indonesia Average*   Taiwan’s
 Piracy              Kong                Korea                                                             Goal
  Rate
 Music-      35.6    38.2     16.8           19.2       28       26.4         63.4    92.3      27.5          27
  IFPI
 Motion      26.8     20       25            22         72           60       80       90       23.5          25
Pictures-
  IIPA
* Asian region-Taiwan, Hong Kong, Singapore, South Korea aggregate average piracy rate in every
  year.


The world’s piracy rate in recent five years


Average All Developed Developing                        Taiwan,            Taiwan     Taiwan       Taiwan’s
 Piracy country country country Asia                  Hong Kong             2002       2003          Goal
  Rate                                                 Singapore                         *
                                                      South Korea
 Music- 34.78      25.53        44.45           45.39    27.45                48         33              27
  IFPI
 Motion 54.59      43.96        60.50           62.24        23.45            44         36              25
Pictures-
  IIPA
* NCCU estimate piracy rate in 2003


    Perspectives for the Government to Reduce Optical Disk Piracy


Effective implementation of IPR enforcement not only tops the national agenda, but
also motivates innovative development and industrial upgrading by safeguarding
global competitiveness of the nation. Piracy issue is complex, by analyzing the data,
offshore piracy status, the current status of piracy in Taiwan, the policy to reduce
piracy can be developed by a series of reasonable long term and short term policies.


The Short Term Measures of Anti-Piracy


The short-term goal is to take effective actions to reduce the piracy rate immediately
and avoid international pressure. The short-term policy of anti-piracy could be
achieved within the next three years. Taiwan government is implementing the

                                                        10
“Comprehensive 3-year (2003-2005) Action Plan on IPR Protection”. The short-term
goals signifies the collaboration from the Executive Yuan, Legislative Yuan, and the
Judicial Yuan. These are consolidating the establishment of JODE and IETF;
strengthening border control mechanism; ensure judicial rulings reflect the severity of
infringements; enhance professionalism of legislative authorities.


The Mid-Term and Long-Term Target


The mid-term measures of effective enforcement to OD piracy includes to encourage
industry to develop anti-piracy technology and business model, to promote anti-piracy
public awareness, and to set up IPR specialized judges and judicial personnel The
long-term target is to establish the permanent IP program in general public and to
establish the special court for IPR infringement cases.


  The Responsibility for the Industry to Develop Anti-Piracy Policy

Government made every effort to combat piracy at any cost, however, fighting piracy
relies on the joint effort from industries, government can not do it alone. The
industries should take actions from technology development, business management,
and legal aspect in compliance with government policy to prevent piracy.


Industry’s Short-Term Measures

The short-term measures for industries to eradicate the optical disk piracy includes:
reduce the price of the CD, music CD delivery, flexible marketing strategies,
increased number in authorized users of music, and EZ-D self destruct optical disks
system to prevent coping.


Industry’s Mid-Term and Long-term Measures

The mid-term measures to combat piracy include: movie mobile disks, the ATM
music stations, and the joint authorization of use for movies in cable servers and
residential areas. The long-term measure is to establish a comprehensive
pay-as-you-go online music/movie exchange platform and online checking


                                           11
mechanism.
                                     Conclusion


The protection of intellectual property rights is an ongoing and continuous effort.
Taiwan’s enforcement efforts in curbing IPR infringements demand the continuous
and ongoing cooperation of several competent authorities, including government
officials, judicial officials, police, investigation, and customs officials. Meaningful
results have been showed in the enforcement statistics. However, the right holder
groups still concerned the rampant of the optical disk piracy. The methodologies of
calculating piracy rate the right holder groups used still heterogeneous, therefore there
is a necessity to develop a reasonable piracy rate study for the on going negotiations.
It is expected that through the constant inspection and update enforcement policies
that Taiwan can see the diminution of audiovisual piracy.




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References

The Empirical Study on the Policy and Measures for the Problem of
Piracy of Music and Video CD, 2004; Graduate Institute of Intellectual
Property, Graduate Institute of Technology and Innovation Management,
Statistic Extension and Marketing Survey Research Center, the
Department of Statistics, and the Department of Risk Management at
Chengchi University, Taipei, Taiwan

Toward Developing Adequate and Effective IP Protection Environment in
Taiwan, 2004; Intellectual Property Office, Ministry of Economic Affairs,
Taipie, Taiwan

2002 Performance Report on Intellectual Property Rights Protection in
Taiwan, 2003; Intellectual Property Office, Ministry of Economic Affairs,
Taipie, Taiwan

IIPA 2003 “Special 301” Recommendations, IIPA 2001-2002 estimated
Trade Losses Due to Copyright Piracy, International Intellectual Property
Alliance, Washington, DC

2003 Special 301 Report, United States Trade Representatives,
Washington, DC




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