THE RECORDING INDUSTRY 2005 COMMERCIAL PIRACY … · COMMERCIAL PIRACY REPOR T 2005 PAGE 02...

THE RECORDING INDUSTRY 2005COMMERCIAL PIRACY REPORT

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COMMERCIAL PIRACY REPORT 2005 PAGE 02

CONTENTS

INTRODUCTION

MUSIC PIRACY FACTS AND FIGURES

BEHIND MUSIC PIRACY: ORGANISED CRIME

THE INDUSTRY FIGHT AGAINST PIRACY

PRIORITY COUNTRIES

BRAZIL

CHINA, INDIA

INDONESIA, MEXICO

PAKISTAN, PARAGUAY

RUSSIA, SPAIN

UKRAINE

SPECIAL FOCUS

BULGARIA

CANADA, KOREA

TAIWAN

COMMERCIAL PIRACY ON THE INTERNET

REGIONAL OVERVIEWS

ASIA-PACIFIC, EUROPE

MIDDLE EAST-AFRICA, LATIN AMERICA

THE CALL TO GOVERNMENTS

03

04

06

08

09

09

10

11

12

13

14

14

14

15

16

16

17

17

18

19

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For all the importance of the internetto the future of the music business,commercial piracy, largely of physi-cal discs, remains a critical problemfor our industry worldwide. Illegaltraffic in pirate music was worthUS$4.6 billion last year; 34% of all discs are illegal, meaning thatone in three discs sold worldwide is a pirate copy; and in a record 31countries of the world, fake record-ings outsell the legitimate alternative.

These are not dry statistics: theyreflect the real damage that thismass-scale copyright theft is doing– to investment in music worldwide,to the livelihoods of artists and cre-ators, to the wellbeing of hundredsof thousands of people working inthe sector, and to innovation andeconomic growth.

The music industry fights piracybecause if it did not, the musicindustry would quite simply notexist. We have already seen ourbusiness decimated by piracy incertain regions of the world. Themusic market of Latin Americatoday is two fifths of what it was in1997; the Asian market outsideJapan has shrunk by almost half in the same period.

Our industry is a risk businesswhich depends totally on the protection of our core intellectualproperty – artist recordings. Weinvest a bigger share of our turnover– at least 15% – in developing talent

FIGHTING PIRACY – SIGNS OF PROGRESS IN 2004than nearly any other industryinvests in research and develop-ment. We spend billions of dollarsreleasing and marketing over100,000 albums in a single year.And we re-invest our profits backinto new talent.

This is the virtuous cycle of invest-ment and re-investment that is atthe centre of our business – andwhich can only work when there is good, effective enforcement of copyright.

This report looks to governments to take action against piracy. Theyhave every interest in doing so.Intellectual property is, in the devel-opment of modern economies, ajewel worth protecting. Copyrightindustries are worth over 5% of the GDP of the US and Europeaneconomies, a sector worth around1 trillion US dollars globally*.Sectors like entertainment andmedia far outpace growth rates inmost other industries. Lost industryrevenues means lost tax revenues –in the hundreds of millions of dollars. These points are widelyaccepted among governments, but unfortunately, not sufficientlyillustrated in practical policies.

This report includes a shortlist oftop ten priority countries – these aremarkets which have unacceptablepiracy rates that urgently requireaddressing. There is, in 2004, however, some good news too.

INTRODUCTION

The music industry fightspiracy because if it did not,the music industry wouldquite simply not exist.”

“

For example:

n In Taiwan, a concerted offensivehas helped significantly reducephysical piracy – although internetpiracy is a fast-growing problem

n In Brazil, the government hastaken some action, raising penalties and forming a newNational Council to combat intellectual property crime – abody from which much will beexpected in the next year

n In Spain, government anti-piracyefforts are in the spotlight, with a comprehensive package of anti-piracy measures proposed

n There is good progress also inParaguay; and in early 2005 there was the first big actionagainst CD plants in Pakistan

n In Mexico, a new experimentcombining intensive enforcementwith a programme to convertpirate traders into legitimate vendors has in the early stagesachieved good results.

These are positive stories. We lookto make more progress in thesecountries in 2005, and for similaractions from the other top ten prior-ity countries in the coming months.

Over the next few years society isgoing to have to learn to take piracymore seriously – piracy not just ofmusic, but in all its forms. It is nolonger acceptable for governmentsand individuals to turn a blind eye,

or to regard piracy as merely a smallirritation to society. The illegal musictrade is destroying creativity andinnovation, eliminating jobs andlivelihoods and bankrolling organised crime.

But it is not just an isolated problemfor the music industry. Piracy is amalaise that today affects allaspects of people’s lives. Almost all goods are being counterfeited –from films to foodstuffs, from brakepads on cars to life-saving drugs.This year piracy will have a detri-mental effect on every individual.

The message is clear – these arenot problems the private sector candeal with alone; governments haveto take their share of responsibility.For the music industry, there issome good progress reported in this edition of the CommercialPiracy Report. That is encouraging,but nowhere near enough. We look for a lot more progress in the coming year.

John Kennedy, Chairman & CEO, IFPI

* Figure compiled by PWC: GlobalEntertainment and Media Outlook 2004–2008

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PIRACY WORTH US$4.6 BN

Global pirate sales of music totalledan estimated 1.5 billion units in2004, worth US$4.6 billion at pirateprices.* The value of the worldpirate market for music equates tothe entire legitimate music marketsof the UK, Netherlands and Spaincombined.

Disc piracy, which makes up thebulk of the problem,grew only 2%in 2004 to 1.2 billion units. Despitethis, global pirate disc sales arealmost double the level of 2000,and 34% – one in three – of allmusic discs sold worldwide in 2004 was a pirate copy.

Sales of all pirate recordings (discsplus cassettes) fell slightly in 2004,mainly due to falling cassette piracyand, particularly in Asia, to piracyon the internet. There werestepped-up anti-piracy initiatives in several territories, includingMexico, Brazil, China, Hong Kongand Spain. However, disc piracyincreased overall with particulargrowth in India, Eastern Europeand parts of Latin America.

DISC PIRACY TRENDS

Internationally, the shift towardsmore smaller-scale CD-R opera-tions continued in 2004. Disc plant piracy is estimated to havedropped by 4% to 575 million units, helped by a slight fall inChina, which remains by far theworld’s largest pirate market. CD-R piracy, on the other hand,increased by 6% to 560 millionunits, spurred by growth in LatinAmerica – which accounts fornearly half of all global pirate CD-Rsales – and a sharp increase in

India, where 120 million piratedCD-Rs were sold last year. Therewere also increases noted in theMiddle East and in Eastern Europe, particularly Turkey.

Disc piracy is now evenly splitbetween two methods of manufac-ture and distribution – on the onehand pre-recorded discs producedin optical disc plants and, on theother, CD-R discs which are masscopied on high speed burners insmall laboratories or offices. Discplant piracy predominates in Asiaand Russia, whereas CD-R piracyis more common in Latin Americaand southern Europe.

HIGH PIRACY IN 31 COUNTRIES

There has been a notable increasein the number of countries whereillegal music sales outnumber legal sales (see table). A total of 31 countries had piracy levelsequivalent to or greater than their legitimate music markets compared to 23 in 2003. The new countries whose piracy rateshave moved them into the 50% or more bracket are: CentralAmerica, Chile, Czech Republic,Greece, India and Turkey.

FAKE CASSETTES DOWN

Cassette piracy is concentrated in Russia,China, India, Turkey,Pakistan as well as Middle Easternand African countries. Sales ofpirate cassettes fell by 28% to 390 million in 2004, with discs

*The value estimate is for commercial physicalpirate product only – it doesn’t include illegaldownloading via the internet – and it is calculated at pirate selling prices. Commerciallosses to the music industry from piracy are substantially greater.

MUSIC PIRACY FACTS AND FIGURES

2000 2001 2002 2003 20040

200

400

600

800

1000

1200

DISC PIRACY GROWTH SLOWS IN 2002–2004

million units

640

950

1085 1130 1155

One in three discssold worldwide is a pirate copy

Source: IFPI, National Groups

n The ease with which discs can be copied – either via industrial burning machines which can burn 60 CD-Rs an hour, or through computers and stand-alone disc burners – has substantially reducedmarket entry and production costs for pirates.

n CD-R burning labs are easier to hide and much more portable.

n Where larger pirate operations tend to concentrate on major international artists that they can export, smaller scale CD-R pirates have moved in on local repertoire.

n A CD-R containing mp3 files can easily hold five or more full-lengthalbums. Pirates are now turning to DVD-R, which in single-sided format offers at least six times the capacity of CD-R.

The trend in music piracy towards the CD-R format (much of which nowuses material illegally sourced from the internet) has added to the musicindustry’s piracy problems. For example:

Country Over 50% 25–50% 10–24% Less than 10%

North America Canada, USA

Europe Bulgaria Croatia Belgium AustriaCzech Republic Cyprus Finland DenmarkEstonia Hungary Netherlands FranceGreece Italy Slovenia GermanyLatvia Poland Spain IcelandLithuania Portugal IrelandRomania Slovakia NorwayRussia SwedenSerbia/MontenegroTurkey SwitzerlandUkraine UK

Asia China Philippines Hong Kong JapanIndia Taiwan South Korea SingaporeIndonesia ThailandMalaysiaPakistan

Latin America ArgentinaBrazilCentral AmericaChileColombiaEcuadorMexicoParaguayPeruUruguayVenezuela

Middle East Egypt Israel BahrainKuwait Oman QatarLebanon Saudi Arabia UAE

Australasia AustraliaNew Zealand

Africa Morocco NigeriaSouth AfricaZimbabwe

Domestic music piracy levels are calculated as pirate units divided by legal units plus pirate units.

DOMESTIC MUSIC PIRACY LEVELS IN 2004

HOW MUSIC DISC PIRACY IS CHANGING


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continuing to replace cassettes. IFPI has included figures on DVDmusic piracy for the first time,reflecting the sharp increase in use of the format. At least 20 million pirate DVD music videoswere sold in 2004. DVD musicvideo is the music industry’s primary growth format accounting for 8% of global music sales.

GLOBAL OPTICAL DISC OVER-CAPACITY

Global over-capacity in the opticaldisc industry is a major contributingfactor to the piracy of music, film,games and other software pro-duced on optical discs (see table).

During 2004 the supply of record-able discs for all media – includingCD-R and DVD-R – considerablyexceeded demand. Factory outputof recordable discs continued togrow during 2004 when legitimatedemand for CD-R media actuallyfell in major markets such as theUS, Japan and Western Europe.

Taiwan remains the largest supplierof blank recordable discs althoughthere were notable improvementsagainst music piracy in 2004.

RECORD HARDWARE HAUL IN 2004

Anti-piracy enforcement is helpingsignificantly in containing musicpiracy. A record amount of plantlines and equipment were decommissioned in 2004. Disc manufacturing line seizuresincreased from 68 to 87, representing annual productioncapacity of 380 million discs –equivalent in scale to nearly half the legitimate CD music market in

the US. In addition, 28,350 CD-R burners were seized last year,almost twice as many as in 2003.Seizures of pirate music productstotalled 45 million* in 2004.

PRE-RELEASES TARGETED

Albums by well-known artists are a profitable target for music pirates.Illegal copies are made availablebefore the record is commerciallyreleased. Since new releases makeup two-thirds of total music sales in most markets, the effect is toundermine investment from recordcompanies in marketing and pro-motion, particularly of new acts.

The internet is compounding theproblem, as pre-releases can beillegally posted, downloaded andburned onto CD-Rs and distributedworldwide within hours. Key newreleases by Eminem, 50 Cent andOasis have been found onlineweeks before release. Recordcompanies have sometimes had to bring release dates forward inresponse.

IFPI and its record company members work to curb piracy ofpre-release recordings. IFPI’s pre-release database helps anti-piracypersonnel track pirate copies.Seizures of pre-release piratealbums have fallen by 50% over the past two years. During 2004there were 52 titles seized.

Sophisticated security systemsand tighter controls by record companies have been imple-mented as new albums arerecorded, pressed and prepared

Territory (Million units)

Capacity Demand Over-Capacity

Source: Understanding & Solutions Ltd. *IFPI National Groups**Russia Demand: source is IFPI estimates for CD and DVD onlyFormats include CD, DVD, CD-R/W, DVD-R/W, CD Rom, DVD Rom,Video CD

DISC OVER-CAPACITY

Taiwan

China

Hong Kong

Malaysia

Mexico

Singapore

Brazil

Thailand

Poland

Russia**

Pakistan*

Total

10,700

5,800

2,700

2,500

1,600

700

600

600

600

450

400

26,650

10,400

4,700

2,610

2,440

1,490

640

480

550

450

390

370

24,520

300

1,100

90

60

110

60

120

50

150

60

30

2,130

The table below lists the 11 territories with the the largest discmanufacturing over-capacity. Capacity exceeds demand by thirteen times in these territories combined

PIRACY BY FORMAT 2004

1% DVD music video

25% Cassette

38% CD

36% CD-R

Anastacia’s latest album – official release

A pirate copy found before the release date


for release. As well as closingopportunities for ‘leaks’, this hasalso greatly reduced the pre-release availability of new recordson file-sharing networks and internet sites.

*This figure excludes many millions of discs seized inChina, of which a significant proportion is believed tocontain pirate music.

ts.

n Globally, pirate music worth US$4.6 billion

n 1.2 billion pirate discs sold

n In 31countries piracy is over 50%

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BRAZIL BUSINESSMANCHARGED WITH BRIBERY

A prominent businessman wasjailed in Brazil in 2004 accused ofactive corruption, following an on-camera arrest made as heallegedly attempted to bribe thehead of Brazil’s Congressional Anti-Piracy Commission (CPI). The CPI was set up in 2003 mandated with tackling the country’s huge piracy problem.

Law Kim Chong was arrested inJune 2004, charged with allegedlyoffering a bribe to Luiz Antonio deMedeiros, chairman of the CPI, toleave him and his retail and importbusinesses alone.

It is believed that Chong’s busi-nesses had been damaged by aCPI operation which seized tonnesof apparently counterfeited andsmuggled goods during raids in his shopping centres. Following initial approaches made to the CPI, Law allegedly took up negotiationsdirectly with the CPI chairman. Anoffer of payment of between 1 and2.3 million US dollars is alleged tohave been made by Law in returnfor the CPI report to “protect andexempt” him.

The courts allowed police to monitor and film the payment of thefirst instalment of the alleged bribe(US$75,000), after which Law andhis lawyer were arrested.

In November 2004 there were further raids on a warehouse whichwas identified by the CPI as one oftheir main targets, and believed tobe associated with Law. Over tenmillion blank CD-Rs and DVD-Rswere seized.

Law Kim Chong has been jailedaccused of active corruption and all his businesses and activities inBrazil are subject to investigation.

PARAGUAY PIRATE JAILEDOVER IMPORTS

A key organised crime figure wasjailed for seven and a half years inParaguay in April 2004 in relation to the first organised crime caseinvolving blank CD-R importers. It was the result of three years ofco-operation with law enforcementand continuous lobbying of theParaguayan government.

Antonio González Neira was one of the most powerful and influentialpirates (‘contrabandistas’) inParaguay. Two accomplices werealso given six-year prison sen-tences. One captained the vesselbringing the illicit CD-Rs intoParaguay and the other was theventure’s financier and front man.

POLICE DISMANTLE SPANISH CD-R PIRACY NETWORK

Thirty nine people were arrested in Spain in a crackdown on anorganised gang alleged to be producing and distributing pirateCD-Rs. Spanish national policeexecuted a series of eight raids inApril 2004, successfully disman-tling the gang based in Granadawith links to other cities inAndalucia and elsewhere.

The officer in charge of the opera-tion alleged that the gang was also connected with illegal immigrationnetworks. During the searches 82machines capable of copying 720discs per hour were discovered.

BEHIND MUSIC PIRACY:ORGANISED CRIME

Seizure of multiple CD-R burners in Valencia, Spain

PIRACY IS NOT VICTIMLESS

There is much more to musicpiracy than a cheery market tradergiving a knock-down price forthe latest hit CD.

Piracy is not a victimless or ‘soft’crime, but is often a lucrativesource of revenue for serious and organised international crimegangs who exploit music and awide variety of other products. The large profits made can fundother serious crimes including people and gun smuggling, drugtrafficking, credit card fraud andmoney laundering.

Organised crime syndicates areattracted to music piracy becauseof the low entry costs and highpotential profits involved. This isexacerbated by the traditionally low risk of prosecution coupledwith a lack of real criminal penalties.

Some recent cases illustrate thecomplexity and global reach of the pirates.

ITALY: POLICE OFFICER SHOT

An Italian police officer, coordinatorof a unit involved in a major anti-piracy operation, was shot at in Naples in November 2004. The fiscal police officer came under concentrated gunfire in hiscar from two people in a jeep nearthe city’s Gianturco police station.

Forensic police specialists con-firmed the attack was intended tokill. It is believed the attempt isrelated to the recent anti-piracyoperation which uncovered anextensive organisation involved

in counterfeit music and movies,and linked to a well-knownCamorra ‘mafia’ gang.

The Camorra’s historical involvement in music piracy was confirmed in May 2005 byNaples Deputy Attorney GeneralFranco Roberti, who said of 1,800 people sentenced to jail for piracy offences in 2000, 213were active Camorra members,and a further 121 were linked tovarious mafia gangs.

HONG KONG CONSPIRACY

A six-year international investiga-tion concluded last year withheavy jail sentences for two individuals involved in a majorpiracy operation.

Two former directors of GoldenScience, a Hong-Kong based discmanufacturing company, wereconvicted of their involvement in amassive disc piracy operation inJuly 2004, and given ‘exemplary’jail sentences of six and a halfyears. Significantly, the pair wascharged not with simple copyrightinfringement but with the moreserious ‘conspiracy to defraud.’

The case originated from one of the world’s single biggest-everpirate disc seizures of 19 milliondiscs in Hong Kong, back in 1998.

A six year international investigation followed, with the two principals jumping bail.Eventually, with the assistance ofnational police in Hong Kong,China and Canada as well asInterpol, both were returned toHong Kong to face trial.

Raid on pirate vendor in Guadalajara, Mexico

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Among other products seized were approximately 25,000recorded CD-Rs and DVD-Rs containing music, films and videogames, fake Rolex watches andforged driving licences.

CHINESE CRIME SYNDICATEHEAD GETS SEVEN YEARS

In the largest trial of its kind inChina, the head of a criminal syndi-cate was sentenced to seven yearsin jail on March 13, 2004 for hisinvolvement in the sale of morethan six million illegal audiovisualproducts. The other defendantsinvolved, 16 people in total, weresentenced to jail terms of betweenone and six years.

State prosecutors in China indicated that the syndicate hadbeen responsible for one third of allpirate CDs seized nationwide overa period of several years.

The head of the syndicate admittedhaving set up his business in 2001,renting a warehouse and importingillegal audio visual products fromHong Kong.

It was discovered that between2001 and March 2003 the syndi-cate had imported more than tenmillion pirate discs from overseas.

MALAYSIAN ORGANISEDCRIME GANG TARGETED

Malaysia’s Ministry of DomesticTrade and Consumer Affairs(MDTCA), acting on IFPI informa-tion, targeted Malaysia’s largestalleged pirate music distributionsyndicate with a raid on a storagefacility in January 2004. Over350,000 discs were seized.

A two-year ongoing investigationby IFPI had identified the premisesas a local distribution hub used by wholesalers and retailers in the Ampang area of Malaysia. All the discs contained audio product – both Chinese and international repertoire, and all the discs bore logos linked to a single distribution network.

Daniel, Brazil“The work of the artist is serious.Year after year we struggleand work hard to achieve our dream.And, when we finallyachieve it, we must endure this crime.The Brazilian peoplemust understand this crime.They should know that buyingpirate product means cooperating with organised crime.We must do our part in destroying – and not buying – pirate material.”(Published in O Globo and Diario de São Paulo)

n Collaboration by a minimum of three people

n Criminal activity which has, or is intended to be, continued over a prolonged period

n Commission of serious criminal offences, or offenceswhich, taken as a whole are of considerable importance

n Motivated by the pursuit of profit or power

n Operations are international, national or regional

n Uses violence or intimidation

n Uses commercial or other business-like structures

n Engages in money laundering

n Exerts influence upon politics, the media, public administration, judicial authorities or the economy

Source: National Crime Intelligence Service (NCIS) UK

It is increasingly evident from the industrialised scale of counterfeiting that trans-national organised criminal groups are heavily involved in a wide range of intellectual property crime. This is a cause for concern especially as some of theseactivities have significant implications for publicsafety and security. It provides law enforcementagencies with an added incentive for engaging incollective efforts to combat these criminal activities.”

John Newton, Interpol Intellectual Property CrimeProgramme Manager, 2005

Pirate discs are destroyed in Spain

An arrest is made (R) in Mexico during police raids on the notorious Tepito market

“

CHARACTERISTICS OF ORGANISED CRIME GROUPSAND THEIR ACTIVITIES

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THE INDUSTRY FIGHTAGAINST PIRACY

THE ANTI-PIRACY RESPONSE

The recording industry fights musicpiracy with a global team of 250investigators and analysts backedby forensics, training programmes,intelligence databases and undercover surveillance.

FORENSICS

IFPI uses an advanced forensiclaboratory which helps track pirateproduction from source by match-ing pirate discs with moulds at their plant of origin. Forensics hasplayed a major role in identifyingplants producing pirate product –some198 plants in 40 countries to date. It has provided evidential support for US government 301submissions and was key to theimposition of trade sanctionsagainst Ukraine in 2002.

In May 2005, efforts by the forensicdepartment produced a spectacu-lar result. Pakistan has become anincreasing source of pirate product,with optical disc plants exporting at least 230 million pirate discs in2004. Painstaking forensic worktracked product from the Pakistanplants to 46 countries worldwide.Pakistan’s Federal InvestigationAgency arrested nine people,seized 400,000 pirate discs and10,000 master discs or ‘stampers’and closed down five plants.

In another case, international investigators submitted 100 CDsfrom a freight container in Durban,South Africa as suspected counterfeit product. These discswere forensically matched to plantsin South East Asia, leading to raidson a number of plants.

THE FIGHT BACK IN FIGURES IN 2004

n A total of 87 disc manufacturing lines were taken out of operation,up from 68 in 2003 – the majority from plants in South East Asia. These lines have a combined production capacity of 380 million discs – equivalent to almost half of the legitimate CD market in the US.

n Total of 28,350 CD-R burners were seized, almost double the number seized in 2003.The total potential production capacity of theseized burners is estimated at 800 million discs.

n Around 71 million blank CDs were seized, up from 40 million in2003, along with 100 million inlays. Seizures of blank discs and inlaycards are indicative of the quantity of recorded discs pirate syndicatesplan to produce.

n Seizures of all formats including cassettes and DVDs totalled 45 million*.

n Law enforcement officers reported over 12,000 arrests in raidsinvolving pirate music. Despite the lack of precise data on convictionsand sentencing, it is clear that far too few pirate operators are convicted and effectively punished.

SOME MAJOR ACTIONS WORLDWIDE

n Major seizures in the Latin American region included: over 1.3 millionpirate CD-Rs in Guadalajara, Mexico during February 2005 – part of aspecial project to clean up the local market; the largest-ever seizure ofblank CD-Rs – 15.8 million – in Mexico City in November 2004 followingan eight month investigation.

n A shipment of over 3 million blank CD-Rs en route from Taiwan to Brazilvia Paraguay was stopped at Asuncion in Paraguay in November – one ofmany shipments entering Brazil carrying blank discs for the pirate market.

n Customs in Mexico City seized 7,600 CD burners, originating in China, in June 2004.

n Customs discovered 1.8 million counterfeit CDs during a ship search on Chinese waters. Eight people were arrested and indicted for tax evasion and smuggling.

n Customs who stopped a lorry, supposedly carrying hair products, on the Bulgarian/Romanian border found well over 100,000 DVDs and 54 stampers – the ‘master copy’ used to press illicit discs.

n A plant in Lagos, Nigeria, suspected of producing counterfeit productwas raided and 25 illegal stampers along with one million discs seized.

*This figure excludes many millions of discs seized in China, of which a significant proportion is believed to contain pirate music.

ENFORCEMENT TRAINING

IFPI trains and advises law enforcement agencies worldwide.It is a member of Interpol’sIntellectual Property Crime ActionGroup (IIPCAG) and collaborateswith UNESCO and the WorldCustoms Organisation (WCO). This involves providing data to theWCO for example, that enablescustoms officers to access up-to-date information about shipments through a secure worldwide intranet system.

Cooperation with customs hasreaped results. In March 2005, IFPILatin America and the Panamaniancustoms authorities signed an anti-piracy agreement that will helpstop the movement of pirate trafficinto Latin America.

MONITORING CD PLANTS

IFPI regularly advises disc plantsworldwide to help them avoidpirate orders.

In 2004, IFPI created a CD plantdatabase where information is heldon over 1,000 active optical discplants worldwide. It has alreadybeen used to identify the originalmanufacturing plant from themould codes of seized discs, tracethe movement of second-hand equipment and prioritise plant visits.

Investigation and raids on CDplants are showing results. Russia’sRoff Technologies optical disc plantagreed a substantial settlementwith IFPI and eight member com-pany plaintiffs in March 2005 overthe manufacture of counterfeitCDs. IFPI has also filed a criminalcomplaint against a Taiwaneseplant Delphi Technology.

Anti-piracy efforts made a clearimpact in 2004, with record quantitiesof equipment seized and optical discplant lines decommissioned

IFPI’s forensic lab uses a high magnification microscope to compare the reference disc from aknown manufacturing source (L), with a pirate disc (R). This can determine the origin of the disc

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For the third year running, IFPI is publishing the international recordingindustry’s top ten priority countries inthe fight against music piracy

PRIORITY COUNTRIES

Cassette 2%

CD-R 98%

Brazil’s legitimate music marketsaw a partial recovery in 2004, following a drastic fall in 2003.Pirate sales outweigh legitimateunit sales, crippling an importantmarket. Legitimate sales in Brazilwere 108 million in 1997, but nowonly reach 66 million.

Piracy remains a big obstacle to the development of new acts andthe health of the local industry. It isestimated that approximately 200million blank CD-Rs entered thecountry from Paraguay in 2004,many destined for the pirate market.

The Brazilian government hasrecognised the threat to its copy-right industries, as well as piracy’sdetrimental effect on internationaltrade. As a result, it has started totake steps to combat the problem.Some of these important actionsinclude:

n Increasing minimum penalties for piracy as of August 2003

n The commissioning of a comprehensive report from theCongressional Anti-PiracyCommission (CPI) in the first halfof 2004. This led to the detentionof a major suspected pirate inSao Paulo and large seizures ofpirate product

n Additional operations at the border with Paraguay to restrictthe importation of blank CD-Rs

n Massive and ongoing press cov-erage on piracy that has raisedpublic awareness of the problem

n The creation of the ‘NationalCouncil to Combat Piracy andCrimes against Intellectual Property’(National Anti-piracy Council)

Pirate product is still readily available in commercial districts in all major cities in the country.Adjacent to legal shops are smallillegal replication facilities whichare on the increase due tocheaper access to equipmentand blank discs.

Recent investigations and raidsby the police indicate that organ-ised crime groups are still involvedin the importation of blank CD-Rsand the reproduction of illegaldiscs in Brazil. These groups haveconnections to individuals andorganisations in Paraguay andSoutheast Asia. A sign of thingsto come was a major raid at theborder town of Foz do Iguaçu inDecember, seizing over 200,000blank discs.

The National Anti-piracy Councilappears to be a serious commit-ment by the government toaddress the piracy problem. The council has prepared a planwith 100 individual actions thatare being executed to combatpiracy. In a very encouragingmove, the government invited private copyright industries,including APBD, to participate in the council.

The Brazilian government should:

n Implement the anti-piracy planproduced by the National Anti-piracy Council, under the direct supervision of the Ministry of Justice

n Setup mechanisms to monitorthe results of the implementa-tion and its eventual positiveeffects on the affected industries

Piracy by format 2004 Brazil statistics

BRAZIL

Legal Market Value US$ 374m

Legal Market Units 66m

Pirate Market Value US$ 79m

Pirate Market Units 73m

Piracy Level 52%

BRAZIL

CHINA

INDIA

INDONESIA

MEXICO

PAKISTAN

PARAGUAY

RUSSIA

SPAIN

UKRAINE

Source: IFPI,CD-R discs smuggled into Brazil by bus

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China has the world’s largest piratemarket. Despite rapid economicgrowth and rising incomes,widespread and entrenched piracy remains the major obstacleto realising China’s huge potentialas a music market.

Pirate music continues to flood the major Chinese cities and retail markets.

The Chinese government has, to a certain extent, responded toglobal criticism of its poor trackrecord in protecting intellectualproperty. The Chinese governmenthas increased raids and seizuresthroughout the country, andannounced in December 2004 that it will lower the threshold forapplying criminal penalties forcopyright infringements.

The government also announced a year-long anti-piracy campaign to be carried out in twelve cities, totackle piracy from the manufactur-ing level to distribution at retail.

However, the absence of clearcoordination between differentgovernment agencies, coupledwith a lack of political will andresources at lower levels of government, have prevented any substantial progress.

The majority of the actions taken so far have only led to civil penal-ties, with a few exceptions whereinfringers were convicted by thecriminal courts. To the continuingfrustration of the creative indus-tries, there has been little effectiveaction taken against manufacturingplants producing large volumes ofpirate optical discs.

Despite a nationwide effort led byPremier Wu Yi, more persistentefforts are urgently needed inconjunction with tougher actionby local and regional enforcementauthorities. Pirates have to becriminally prosecuted, convictedand sentenced at a deterrent level.

Recommended action for government:

n Criminal cases not just adminis-trative proceedings must beinitiated against infringers

n The criminal courts must beurged to view copyright infringement as a crime andimpose deterrent sentencesagainst infringers

n Enforcement and copyrightmanagement agencies shouldconsult more often with thecopyright industries and workclosely with them to fight piracy

n The government should expand the level of marketaccess provided to foreignrecord companies so that theycan play a better role as part-ners in the fight against piracyand in providing legitimate products to Chinese society

Piracy by format 2004 China statistics

CHINA





Piracy Level 85%

Cassette 20%

CD 80%

India has seen a rise in piracylargely due to the sharp increase in the use of new disc formats, the availability of mp3 files, and the proliferation of large-scale CD-R burning.

The main hurdles to effectiveenforcement of intellectual propertyrights are the lack of support fromenforcement agencies and theslow pace of the courts.

The police are often reluctant to act against pirates due in part toinadequate manpower and morepressing law and order problems.Corruption is an unfortunate realityand frequent leaks to pirates result in the failure of raids.

The huge backlog of legal casesmeans trials progress very slowly –in some cases taking over fiveyears. Pirates are often acquittedsince witnesses cannot be tracedand product may have deterio-rated. Of over 8,000 casesregistered by IMI since 1998, lessthan 1,000 have been resolved, of which only 708 resulted in a con-viction (66 of these involved prisonterms). With such insufficient deter-rence, pirates act with impunity.

Regular training by recordingindustry group IMI has led tonotable success in enforcement.Police in Kerala carried out up to 30 raids per month against illegalvendors, and recently police inPatna, Bihar seized over 500,000CDs in raids in one day.

IMI has been involved in 8,826raids since 1998, seizing over1,700 CD burners, 3.2 millionpirate CDs and 33,000,500 inlay cards.

The government has been slow to respond to proposals on anti-piracy actions.

A notable exception is the government of Tamil Nadu, which recently amended an actdealing with bootlegging and drug offences to include musicpiracy. Since it came into force inlate 2004 at least nine notoriouspirates have been detained. This disrupted the pirate marketand legitimate sales increased by 30% in the state.

Recommended action for government:

n States should revise relevantacts similar to the action taken in Tamil Nadu

n IPR-specific officers should bedesignated for each district in all states

n The Customs Act should beamended and customs authorised to seize importedpirate products

n Optical disc regulation shouldbe enacted without delay

n Fast-track courts should be created to handle IPR cases and allow consolidation of cases

n Tax rebates should be given tomembers of associations likeIMI who contribute towards anti-piracy operations

Piracy by format 2004 India statistics

INDIA





Piracy Level 56%

Cassette 29%

CD-R 71%

PRIORITY COUNTRIES

Seizure of discs by Chinese customs

CPR_v8.1 6/7/05 8:37 am Page 10

Indonesia is a top ten priority country for the first time. The piracyrate has steadily increased over the past few years, and has nowreached 80%.

The country has at least 15 opticaldisc plants where regulation isurgently needed to control the production and export of pirateproduct. There is growing evidenceof Indonesian pirate CDs beingexported to established marketssuch as Australia.

The government is aware of theproblem, and a draft of a newOptical Media Act to regulate discplants has been tabled. Howeverthe act is weak throughout and fails to tackle the issues central to copyright protection. For example,it omits the mandatory source iden-tification – SID – codes on all discs.Also omitted is the need for plantsto keep production reports for atleast three months. Administrativepenalties are too weak, currentlyincluding only the revoking of thelicence and publication of infringements.

Controls are also needed overimportation of replication machin-ery. The Indonesian governmenthas recently taken over the provi-sion of SID codes to plants.

Pirate product is openly and widelysold in established shopping malls.There were raids against a numberof pirate retail outlets in 2004, butenforcement and prosecutionremain an insufficient deterrent.

The notorious pirate retail and distribution area of Globok market– closed temporarily by the

authorities during the Pan AfricanSummit meeting in mid April 2005– was, until then, flourishing.

It is estimated that the marketwas distributing three millionpirate discs every day. Such blatant and large-scale activityillustrates the lack of commitmentto intellectual property enforcement.

A more recent phenomenon hasbeen the emergence of piratemusic DVDs imported from Chinaand Malaysia. However, the vastmajority of pirate pop titles areproduced locally.

Recommended action:

The government needs tourgently address the lack ofresources given to fighting piracy,and apathy throughout theenforcement and judicial system.Political will is needed to get localenforcement authorities to takesustained and immediate action.The regulations governing discplants need to be furtherimproved to prevent large scale pirate disc production in the country.

Piracy by format 2004 Indonesia statistics

INDONESIA





Piracy Level 80%

The Mexican pirate market is estimated at 76 million units, with a distribution network of about50,000 street and fixed marketvendors. Although piracy levelshave improved slightly – mainly as a result of stepped-up enforcementand a better economic climate –more has to be done in order forMexico to regain its position withinthe world’s top ten music markets.

The industry’s anti-piracy cam-paign has seen measurable resultswith seizures slightly up on lastyear, of some 8 million recordedCD-Rs, 27 million blank CD-Rs,and 9,000 burners in the course of some 2,000 raids in 2004. Thejudicial system returned positiveresults with 172 detentions and 26 sentences that involved jail time or fines.

The legislative climate has alsoimproved. As part of a reformedcriminal code, piracy has beenclassed as an organised crimeactivity, which allows for the impo-sition of harsher criminal penaltiesand provides additional protectionto witnesses.

Mexico also implemented a newregulation for optical discs, whichshould allow more governmentagencies to confiscate pirate product on the streets. Despite all the progress, the anti-piracycampaign remains hampered bythe requirement to present a complaint for every raid that theauthorities carry out.

In 2004, IFPI and its Mexican affili-ate Amprofon launched a specialproject in Guadalajara, Jalisco,combining enforcement, lobbying

and marketing in support of astate programme to convertpirate vendors into legitimatepoints of sale. Two notoriouspirate markets have been raidedregularly, and practically cleanedup. The four major municipalitiesmaking up metropolitanGuadalajara have committed torevoking the licenses of offendersthat continue to sell pirate product.

In addition, the industry is releasing targeted productsfor this market to assist local distributors in the conversion programme. This campaign isproving to have a positive effect.

Despite these efforts, the high level of piracy in Mexico continues to severely undermine music sales.

Recommended action:

n Dismantle the organised crimegroups involved in importingblank CD-Rs and burners supplying the pirate market

n Exercise stricter control at stateand local level over commercialpermits for street traders, andrevoke the licenses of those selling pirate product

n Seek approval of the bill inCongress that provides for ex-officio actions in cases of piracy

n Promote educational cam-paigns in schools and collegesto raise awareness of the detrimental effects piracy has on creativity, innovation andsociety as a whole

Piracy by format 2004 Mexico statistics

MEXICO





Piracy Level 60%

Cassette 6%

DVD 4% CD 90%

Cassette 4%

CD-R 96%

PAGE 11

Production machinery at illegal disc plant

CPR_v8.1 6/7/05 8:37 am Page 11


Pakistan is one of the largestexporters of pirate discs in theworld with an estimated 230million discs exported in 2004.

In early 2005 there were nineknown disc manufacturing plantsoperating in the country. Withannual legitimate demand in thecountry estimated at less than 30million units in all formats, the vastmajority of what Pakistan producesis exported outside the country.

Neighbouring regions are awashwith product from Pakistan, butdiscs originating there have alsobeen found in Europe, Africa andthe USA. Domestic and interna-tional repertoire are both affected.

In 2004, a new phenomenon was the production of pirate ‘pre-release’ material. This is particularlydamaging to the music industry asit affects the single most importantphase in the commercial life cycleof a sound recording.

There have been some positivemoves however. The Pakistani government took action againstoptical disc plants in May 2005. In a major action, the FederalInvestigation Agency arrested nine people, seized 400,000 piratediscs and 10,000 master discs or ‘stampers’ and closed down five plants.

Customs has also acted. The Pakistani Central Board ofRevenue has issued a directiverequiring customs officers toinspect every shipment for export to ensure it contained only Pakistani repertoire. The customs authorities of Karachienforced this directive and pirateexports were temporarily disrupted.

Seizures at transhipment points,such as Dubai airport, have however revealed smuggling ofdiscs in hand luggage and courier services.

Recommended action:

Pakistan needs substantiallystepped-up and sustainedenforcement. The action takenagainst the plants this year mustcontinue and be followed up withstrong optical disc regulation.Until then Pakistan will remain a key priority for the recordingindustry.

Piracy by format 2004 Pakistan statistics

PAKISTAN





Piracy Level 59%

Every year an estimated 250 millionblank CD-Rs are imported intoParaguay and then shipped out to neighbouring countries. The overwhelming majority are destined for the pirate market.

The Paraguayan and Brazilian governments are trying to restrictthe flow of contraband across ‘TheFriendship Bridge’ which connectsCiudad del Este in Paraguay andFoz do Iguaçu in Brazil. However, a lack of resources on both sidesundermines the effectiveness ofthese border operations.

Nonetheless, the government inParaguay has made progress. A specialised anti-piracy unit (UTE)was launched, under the directionof the Ministry of Industry andCommerce (MIC) to address theneed for more actions. The UTEhas started to raid pirate locationsin Asuncion and Ciudad del Este,as well as investigating suspectblank CD-R importers. Meanwhile,due to operations organised withthe MIC, authorities have been ableto seize over 11 million blank CD-Rs and 4,000 burners.

In addition, twelve indictmentswere issued in two major organised crime cases related to piracy and 57 import permits of suspected ‘front’ companiestrading in blank CD-Rs in 2004were revoked.

There is no question that thesedevelopments reflect a clear commitment to fighting piracy.

However, the government stillfaces important challenges indealing with the disproportionateimportation of CD-Rs, the size-able export of discs, and theweak criminal penalties availablefor copyright infringement.

Recommended action:

n Instruct customs to scrutinise allblank CD-R and DVD-R importsfor incorrect valuation or fraudu-lent documentation, as well asrestrict contraband travellingacross The Friendship Bridge

n Seek approval of an existing billin congress that provides forstricter penalties for thoseengaged in piracy, which isbacked by most copyrightindustries in Paraguay

Piracy by format 2004 Paraguay statistics

PARAGUAY


Legal Market Units 0.4m



Piracy Level 99%

CD-R 9%

CD 26%

Cassette 65%

Cassette 1%

CD-R 99%

PRIORITY COUNTRIES

Presuntos Implicados, Spain“Every day I see people using all their efforts and talent to tryand succeed in this beautiful profession of music. But I also seehow music piracy and illegal copying from the internet stopsthese people earning their living.This kills the only chance theyhave to be a musician or composer and live with dignity fromtheir job. Do not drown us, keep buying legal music. Do it for the sake of the dreams of the upcoming musicians.”

Discs seized in raid on Pakistan plant

CPR_v8.1 6/7/05 8:37 am Page 12

PAGE 13

Russia is the second biggest piratemarket after China. Pirate salesgrew from US$330 million in 2003to US$450 million in 2004. With far too much disc manufacturingcapacity to meet local demand,Russian exports pirate CDs world-wide in large quantities. Risingpiracy, coupled with Russian-based websites offering unlicensedmusic files, compounds the problem.

As of April 2005, there were 34licensed optical disc plants with a combined annual productioncapacity of 450 million discs – a figure which has tripled in threeyears. Of these, nine plants arelocated on government-owned military/industrial sites. Forensicanalysis by IFPI has helped provethat Russia is exporting pirate discs widely.

Enforcement is sporadic and haslittle deterrent effect. While plantsare occasionally raided, convictionsare rare. Of 12 raids between 2002and 2004 only four resulted in criminal cases, with conditionalsentences granted.

The Russian government’s effortsto tackle music piracy are a chronicle of unfulfilled politicalpromises. The government set up a commission on intellectual property (IPR Commission) in2002, but it has shown no signifi-cant results. A further offensivepromised by Russian officials in2003 again came to nothing. Currently, the intellectual propertyindustries are calling on the USgovernment under its 301 tradeprocedures, to revoke Russia’s‘GSP’ duty-free import benefitsand for Russia to be made aPriority Foreign Country. These

industries are also urging thatRussia not be permitted to jointhe WTO until it takes effectiveaction against its severe piracy problem.

Russia needs a comprehensivestate strategy on copyright andneighbouring rights protection,with participation from the copy-right industries. Political will, fromthe highest quarters, is necessaryto implement this. Fighting piracy must be a top priority.

Recommended action:

n Make regular unannouncedinspections on all known opticaldisc plants, and close lines andseize machinery found to beproducing pirate product

n Direct the Supreme Court toissue sentencing guidelines forjudges including the impositionof deterrent criminal penalties

n Take down websites offeringinfringing products (physical oronline) and criminally prosecutethose responsible

n Modify optical disc licensing tocontrol plant operations moreeffectively

n Increase the number and type of criminal prosecutions broughtby police and prosecutors

n Ensure Russia signs up to theWorld Intellectual PropertyOrganization (WIPO) Treaties

n Ensure Russia fulfils its obligations under the RomeConvention and creates a clearregime for the operation of collecting societies

Piracy by format 2004 Russia statistics

RUSSIA





Piracy Level 66%

Spain’s piracy rate has hovered for several years around 24% andcontributed substantially to a market downturn of 32% over the past five years.

Enforcement was stepped up in2004, with a total of 13,400 actionsover the year. Seizures were on apar with 2003, with nearly four million pirate units and more than2,300 burners taken out of circula-tion, and the arrest of 2,866 people.

The legal climate has seen somepositive developments. New criminal code regulations onoffences relating to intellectualproperty, which entered into forcein October 2004, are a welcomeimprovement. However they arenot being implemented effectivelyby the judiciary.

Spain’s cultural industries have lobbied politicians hard. Thisincluded a personal meeting inJune 2004 between the thenrecently elected country’s president, Jose Luis RodriguesZapatero and the heads of themain associations representingmusic in Spain accompanied by aninfluential group of local artists. As aresult the government committedto an integrated plan to fight piracy,which was approved by the cabinetin April 2005 and is to be confirmedby Royal Decree before June 2006.

This extensive plan includes the creation of specialised enforce-ment units dealing with IP offences;orders to Spain’s public prosecu-tors aimed at standardising thecriteria by which the courts takeaction; public awareness campaigns; ongoing training forpolice and judiciary and the

creation of a cross-sector committee with representativesfrom government, the culturalindustries and consumers.

Recent years have seen moreorganised groups focusing onmusic piracy in Spain – evidencedin part by the 74 piracy networksdismantled in 2004. Many ofthese groups have links to othercriminal activities.

Spain has also seen a rise in theillegal download of music files viathe internet. As of March 2005,there were 3.8 million broadbandconnections in Spain, and over60% of users said they hadbroadband installed to regularlyaccess music and film throughpeer-to-peer networks. Theindustry is pressing for the gov-ernment’s integrated anti-piracyplan to include regulations toreduce illegal internet usage.

Recommended action togovernment:

n Local authorities must getinvolved decisively in the fightagainst piracy, and use police to crack down on street sellersof pirate product

n Judges and prosecutors mustbe trained in piracy and becomeaware of its links with organisedcrime

n Public awareness campaignsmust seek to reverse the currenttolerance of piracy and makeclear the damage it causes toindustry, culture and society

n The fight against internet piracyrequires amendments to the lawand the promotion of goodpractice among ISPs

Piracy by format 2004 Spain statistics

SPAIN





Piracy Level 24%

Cassette 1%

CD-R 74%DVD 19%

CD 6%

Cassette 55%

CD 45%

DVD 0.5%

CPR_v8.1 6/7/05 8:37 am Page 13


Three years after trade sanctionswere imposed by the US government, and despite highlyencouraging signals from the newYuschenko administration, Ukrainemaintains very high levels of music piracy.

Despite targeted police action,street sales of pirate music productremain widespread. Ukraine’s legitimate demand for opticalmedia is only around one third ofthe country’s annual disc produc-tion capacity – an estimated 500 million.

The problem is clearly one of political will rather than lack ofresources. Police action againststreet sales of pirate product leading up to the Eurovision finalsshows that Ukraine’s law enforce-ment agencies are capable of atleast temporarily limiting retailpiracy. This is even visible at the Petrovka market in Kiev, where over 300 stalls usually sell exclusively pirate and counterfeit material.

However, as pirates are well organised and often enjoy high-level protection, it remains to beseen whether this action can besustained.

Ukraine’s slow and cumbersomecourt system and the completelack of deterrent sentencing arejeopardising lasting results.

Most illegal discs found in Ukraineare now produced in local under-ground CD-R burning labs or aresmuggled in from Russia.

In addition, Ukraine still hostsoptical disc plants where, backedby forensic research, it is evidentthat pirate CDs and DVDs areproduced for local consumptionand export.

Despite regular training andindustry support, the authoritiesare still incapable of applying theoptical disc regulation in order toprevent continued illegal produc-tion at Ukraine’s plants. Follow up to well-documented industrycomplaints is slow, indecisive andincomplete, allowing the pirates asense of impunity. Under thesecircumstances the production ofeven more unauthorised materialis highly likely at any time.

Ukraine’s previous governmentfailed to adopt the necessaryreforms. The new government ofUkraine appears more willing totackle the problem. However,despite strong commitments fromthe president and key membersof the council of ministers, theUkrainian parliament once againfailed to pass urgently neededamendments to the optical disclaw. Consequently US tradesanctions are expected to remain in place.

Recommended action:

n Ukraine must amend the 2002Optical Disc Law, which hasproven too weak to stop illegalproduction

n The criminal code must bestrengthened

n Specialised IPR units should beestablished

n Border controls have to improve

Piracy by format 2004 Ukraine statistics

UKRAINE BULGARIA





Piracy Level 68%

Cassette 69%

CD-R 12%

CD 19%

PRIORITYCOUNTRIES

SPECIAL FOCUS

Bulgaria has failed to prevent aresurgence of the production and export of pirate optical discs.

Bulgaria’s domestic piracy level isamong the highest in Europe.Street piracy is widespread andthe illegal production of opticaldiscs has not been eradicated.

There are loopholes in Bulgaria’scriminal code, such as the lack ofcriminal liability for storage ofpirate goods, inefficiency of pros-ecutors, and courts refusing toimpose serious penalties forcopyright crime.

While Bulgaria is also a transhipment point for discs from Ukraine and Russia through to the Balkans, Greece, Turkey andbeyond, recent seizures andforensic examination show that itis once again becoming a sourceof pirate discs.

In the past Bulgaria was a majorsource of pirate CD production,and the licensing system forplants that it subsequently

adopted in response was seen as a good model. However it isnow proving insufficient. Industryefforts to get a new optical medialicensing system adopted havemet with political resistance andcomplacency.

The country’s law enforcementauthorities have become moreactive in targeting piracy but toproduce a lasting effect Bulgariamust urgently strengthen its laws,better control its CD plants andtask its judicial system to takecopyright crime more seriously.

Certain territories outside of IFPI’s top ten priority countries merit specialattention because of the particularnature of their piracy problem

Ruslana, Ukraine“Ukraine has a vibrant music scene and I am proud to be part of it. It is a crying shame that the talent, time, money and effort that artists like me put into making music isallowed to be destroyed by rampant piracy... I call onPresident Yuschenko and his new government to take strongmeasures to truly protect musicians and the record labelsthat support them against copyright crime.”(Published in European Voice)

Pirate stall in Czech Republic

CPR_v8.1 6/7/05 8:37 am Page 14

PAGE 15

CANADAThere is a special focus onCanada because of the govern-ment’s inaction on copyrightreform, and, in particular, its failureto ratify and implement the WIPO Internet Treaties that would affordprotection to copyrighted worksin the digital environment.

Canada is already in the interna-tional spotlight. The Office of theUS Trade Representative (USTR)in 2005 maintained the country’splacement on its Special 301Watch List, singling out Canadaas a country that must addresssignificant problems with its intellectual property rights (IPR) regime.

According to research companyPollara, it is estimated that morethan 130 million unauthoriseddownloads largely via file-sharingoccur in Canada each month.This translates into 1.6 billiondownloads per year that do notearn royalties for artists or tax revenue for the government.

Canada also faces difficult challenges with respect toenforcement against physicalpiracy. Illegal CDs and DVDs originating from South East Asia,

Russia and Pakistan flow freelyinto Canada due to weak borderenforcement.

Once the goods enter into theretail stream, enforcementbecomes even more problematicas police do not always have adequate resources to addressoperations at this level. While priority is given to investigationsthat deal with importation anddistribution, historically there hasbeen little cooperation betweenfederal police and customsagents. Some progress is beingmade through joint operations,the establishment of a coalition of rights holders, and trainingworkshops.

However, Canada’s overall lack of effective legislation andenforcement is evident. TheUSTR has been compelled toconduct an out-of-cycle review to monitor the territory’s progress“in providing an adequate andeffective IPR regime that is consistent with its internationalobligations and advanced level of economic development,including improved borderenforcement.”

KOREAKorea has rampant internet piracy which continued unabatedin 2004. Broadband access, at 80% household penetration, is the highest in the world.

In addition, mp3 downloads from unauthorised sources to mobiles have increased sharply.Legitimate music sales have fallen drastically, by more than55% since 2001.

In 2004, legal cases againstunauthorised file-sharing servicesprogressed through the courts,and in January 2005 the injunc-tion issued against the operatorsof the file-sharing serviceSoribada was affirmed by thecourt of appeals. However, on the same day, a separate criminalcourt upheld the dismissal of separate criminal charges against Soribada.

The owner of Bugsmusic, thelargest streaming site in Koreawith over ten million members,was found guilty of copyrightinfringement and given a sus-pended jail sentence of 18

months and fined approximatelyUS$20,000. Despite these courtdecisions both services continueto exist. Indeed, in early 2005Soribada started to charge itsusers for the service.

The Korean government hasacknowledged that serious problems confront both theinternational as well as thedomestic recording industry and has begun to address thedeficiencies in the legal frame-work and enforcement structure.Amendments to the copyrightlaw, which granted a transmissionright to record producers cameinto effect in January 2005.

There were also recent proposalsby three national assembly members for a comprehensivereform of the copyright act and the setting up of a joint enforcement agency.

However these proposals do not go far or proceed quicklyenough to adequately help theindustry. The governmenturgently needs to ensure that provisions within the copyrightlaws deal effectively with unlawfulreproduction over the internet.

Drugie Pavila, Russia“After we realised how many people and how much investment is needed to create a band like ours, we started tosee piracy differently.The competition we won involved 8,000participants, who all dreamed of becoming artists.The levelof piracy in our country means that almost none of these talented young singers will have the chance we had to start a career, as the record company will not be able to reinvestthe money from sales of our album.”

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Anti-piracy efforts are achievingresults in Taiwan, but they are ham-pered by the move from physicalpiracy towards online piracy, andan increase in the distribution ofpirate products through catalogueshopping and by home delivery.

In 2004, Taiwan finally saw somebenefits from past years’ painstak-ing efforts against physical piracy.Arrests dropped by over half from673 in 2003 to 357 an indication of successful enforcement.Taiwan’s night markets saw around 50 stalls in operation – a huge improvement on the 300stalls operating daily in 2001.

A combination of vigorous enforce-ment activity and amendments to the copyright laws has resultedin an improvement to the piracy situation. The Intellectual PropertyRights Taskforce finally became apermanent enforcement agency.The governing body for optical disc regulation also stepped up itsefforts with manufacturing plants.For example, well over 1,000inspections on plants were made in 2004 – a significant increase on previous years.

However, there has been a notableshift from pressed CDs to CD-Rs,which are also seeing distributionvia catalogue and home delivery inaddition to street sales.

Also contributing to the drop inphysical piracy is the surging number of consumers turning tothe internet to acquire music. Thecriminal and civil litigation againstKuro and Ezpeer, the two largestfile-sharing services remain amajor focus for the music industryin Taiwan, while other infringing activities on the internet wereclosely monitored. More andmore infringing services are relocating their servers outside of Taiwan to escape detectionand possible prosecution. In2004, 91% of the websites found to be offering illegal music files for download in Taiwan were located in China.

The local music industry has, as in the past, devoted substan-tial resources to fighting piracy,though the focus has shifted from physical to online. Therehave also been links forged with Internet Service Providers(ISPs) to help in regulating internet activity.

However, the music industry doesnot enjoy adequate protection by way of legislation, or effectiveenforcement action when rightsare infringed online. The IPR TaskForce must also be provided withadequate training to enhancetheir capability in fighting the new trends in piracy.

TAIWAN

SPECIAL FOCUS

Commercial piracy is increasinglyspreading from the physical discformat to the internet. This reportdeals with internet businesseswhich have been specifically set upto make money from the unautho-rised distribution of music. It doesnot deal with illegal file-sharing,uploading or downloading by individuals using those services.

UNAUTHORISED SERVICES

n Download

The record industry filed criminalcomplaints and civil actions alleging such infringement in Spainagainst the commercial serviceWeblisten, which resulted innumerous injunctions and theeventual closure of this majorunauthorised download site in May2005. Criminal complaints are alsopending against the allofmp3.comsite in Russia, which prosecutorshave rejected to date – despite thefact that it is offering hundreds ofthousands of music files withoutauthorisation from, or payment, tothe rights holders. In May 2005, the German IFPI group obtained an injunction against allofmp3.comconfirming that the service is illegal outside Russia.

n Commercial file-sharing services

Several countries have seen unauthorised file-sharing or ‘peer-to-peer’ (p2p) services start up.China and Taiwan are home to several unlicensed p2p servicesincluding Kuro and EzPeer, cur-rently subject to civil injunctionsand criminal prosecution in Taiwan.The original Soribada p2p servicein Korea has been discontinuedand ordered to pay compensation,

even though a parallel criminalcase was dismissed. (Soribadahas re-invented itself with a different structure and continuesto operate.)

The recording industry’s two highest profile legal cases involve unauthorised file-sharingservices with international scope.At the time of going to press, a judgement was awaited from the US Supreme Court on the liability for copyright infringementof US-based file-sharing serviceGrokster. In Australia, local record companies brought a case against the partiesinvolved in Kazaa. Both judge-ments were expected imminently.

n Streaming

Korea has a number of unautho-rised internet music ‘streaming’sites. In September 2004, thecourt issued civil injunctionsagainst the Bugsmusic streamingsite. The local industry also filedcriminal complaints againstBugsmusic and four other largeunlicensed streaming sites.Bugmusic owner Park SungHoon was found guilty on thecriminal charges in January 2005.

n Disc piracy on the internet

In several of the top ten priorityterritories, commercial pirateshave started to rely on the internetas the distribution channel fortheir counterfeits and illegal CD-Rdiscs. Pirates also use the internetto illegally source the musiccopied onto discs. These types ofillegal disc distribution sites andoffers on the internet have beenfound, for example, in Russia,Ukraine, Brazil, and Argentina.

COMMERCIAL INTERNET PIRACY

Sandra,Argentina“The problem is the huge organisations, real companies,which sell pirate CDs for $5.They not only evade all the taxesbut also trample on artists’ work. I give the best of me in myrecords, and these people don't respect it”.(Published in Clarín)

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PAGE 17

ASIA-PACIFIC EUROPE

REGIONAL OVERVIEW

Most governments in the Asia-Pacific region increased their efforts and provided moreresources towards fighting piracyin 2004, and there have beenmodest gains in reducing piracy levels.

However, Asia still has the world’shighest production capacity ofboth pressed and blank opticaldiscs. Encouragingly, a number of territories’ piracy rates havenow fallen slightly, but piracy levels in China and Indonesiaremained unacceptably high at over 80%.

The experience in Asia shows that success against music piracyis achievable where governmentdemonstrates a strong and visiblepolitical will to rid the territory of piracy.

Piracy in Asia tends to seek outthe points of weak enforcement.There has been a shift of discproduction facilities from territo-ries such as Singapore, HongKong and Taiwan to Vietnam and others places in the MekongDelta, where there is little or nocopyright protection and a lack of real enforcement. At the sametime CD-R piracy is on theincrease in many territories.

Malaysia for example, continuesto be a major exporter of piratediscs, while Pakistan is now oneof the biggest exporters of piratediscs in the world. Exported discs

manufactured in China areincreasing throughout the Asia region.

In the Philippines, the fight againstpiracy is hampered by a lack ofgovernment resources and a lackof adequate legislation to regulatethe numerous optical disc plantsproducing pirate products for thedomestic and international mar-kets. It is believed that some ofthese factories are set up with the help of funds from organisedcrime groups based in Malaysiaand Taiwan.

Pirate products manufactured inthe Philippines have in the pastfound their way into many international markets. However,the Philippine government in2004 introduced new legislationfor disc plants, which it is hoped,will help to control the manufac-ture of illegal discs in the country.

Optical disc regulations have also been passed in Indonesiaand Thailand, and are under consideration in India.

Improvements in the physicalpiracy situation in Asia are offsetby a sharp increase in the illegaldistribution of music via websitesand file-sharing. Taiwan andSouth Korea have seen the sizeof their legitimate markets drop drastically.

Immediate remedies are neededto resolve and control the spreadof online piracy in those countries.

The Council and the Commissionboth reinforced their customs reg-ulations to halt pirate products atEU borders. In February 2005, theCommission released figuresshowing a 172% increase in theseizure of pirate discs for 2003and the first three quarters of 2004.

The Commission adopted in2004 a new plan which provides a global approach to the issue ofIPR enforcement in third countriesand sets out eight proposals forEU action, from the drafting of a‘priority countries list’ to bilateraland multilateral trade actions andtechnical assistance.

EASTERN EUROPE

Although high quality counterfeitCDs are found throughout theregion, the pressed disc is losingground to burned CD-Rs, whichare prevalent in the pirate markets of the Balkans, Bulgaria,Romania, Turkey and Ukraine.

Romania’s piracy level is 55%,due to a continued lack offocused enforcement action and serious judicial shortcomings.Serbia & Montenegro, wheremusic piracy is around 80%,slipped back after a slightimprovement in 2003. The new Serbian government has prioritised IPR enforcement, butthe necessary clamp down onpirate street sales has yet tomaterialise.

The piracy level in Turkey hasincreased to 56%, despite theban on sales of audio-visual products, which has reduced the number of blatant pirate sellers in Turkey’s cities.

Russia’s piracy problem remainsone of the world’s worst, with apiracy level of 66%.

The industry’s priorities in the CISstates are Kazakhstan, Belarus,Moldova and Georgia. Elsewherethe markets are too small (or,as Uzbekistan too distant) andunregulated. There is no mean-ingful activity by police, customs,or judiciary throughout the CIS.

EUROPEAN UNION

Markets in Western Europe, andin particular Southern Europewhere organised crime is heavilyinvolved, continue to suffer fromCD-R piracy. The problem isexacerbated by the accession ofnew countries in Eastern Europe,and weak border controls androgue plants in the EU.

Spain has seen stepped-upenforcement and the new public-private commission, aimed ataddressing problems in intellec-tual property protection andreinforcing laws, is a step in theright direction.

Italian organised crime groupsremain actively involved in musicpiracy. Police are clamping downbut court procedures are slow and there is a lack of deterrent sentencing.

Greece has one of the highestpiracy rates in the EU at 50%.There is an inefficient court sys-tem and leniency towards evennotorious repeat offenders.

The eastward expansion of theEU, and the relaxing of bordercontrols, has facilitated the influxof infringing discs into WesternEurope. There is poor enforce-ment at the EU’s borders withpirate hot-spots Russia, Belarus,Bulgaria and Ukraine. Once pirateproduct crosses these borders it can circulate freely within 25countries.

There are now several EU instruments to fight piracy: The EU Enforcement Directivedue to enter into force by April2006 includes civil measures andprocedures concerning injunc-tions, the freezing of assets andguidelines on awarding damages.Significantly, it also allows for apresumption of ownership if arights holder’s name appears on a sound recording.

The European Commission hasalso made proposals aimed atincreasing criminal sanctions, forexample, prison sentences of atleast ten years for leaders oforganised crime groups.

Pirate product seized in Taiwan

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MIDDLE EAST/NORTH AFRICA

A climate of impunity for piratesexists in most parts of the region,with several governments ignoring the blatant copyrightinfringement in their markets.Local enforcement authoritiesoften show a lack of interest intackling intellectual property crimeand despite relatively sophisti-cated copyright laws, courts failto impose deterrent penalties.

Lebanon remains the country with the highest level of piracy inthe Middle East at 75%, followedby Kuwait at 59% and SaudiArabia at 43%.

In North Africa, piracy rangesbetween 51% in Egypt andalmost 100% in Morocco. In linewith global trends, CD-R piracy is growing fast and has even surpassed cassette piracy in anumber of territories. Illegal compilations, burnt on the spotfrom computer hard-drives inretail outlets, are now awidespread phenomenon.

A number of spectacular raids inLebanon took place in late 2004.More than 200,000 pirated opticaldiscs and cassettes were seizedand key members of a pirate syndicate were arrested.

However, the political crisis following Prime Minister RafiqHariri’s assassination has pre-vented law enforcement agenciesfrom sustaining this increasedactivity. There is a lack of prose-cutorial follow-up, pre-raid leaksand the practice of leaving seized goods with the infringer.

Enforcement in Egypt hasimproved, with police in Cairoraiding traditional pirate retail outlets as well as sales pointsoffering ringtones and true-tones for downloading.

In Saudi Arabia massive raids inRiyadh netted over a million illegaloptical discs. However, the lack oftransparency in their enforcementsystem prevents the private sec-tor from assessing whether suchraids are followed by prosecutionand suitably deterrent sentencing.

The establishment of anIntellectual Property Rights unitwithin Kuwait Customs led to awelcome improvement in borderenforcement. However, there is a lack of pro-active follow-up.

REST OF AFRICA

Piracy levels across Africa remainhigh and optical disc productionis growing throughout the region,with 40 disc replication lines operating in South Africa, Nigeriaand Senegal. The cassette currently remains the most-pirated format but CD-R piracy is a growing problem in Kenya,Mozambique and Nigeria.

South Africa is Africa’s mostviable legal market for music,despite ongoing problems withpoverty, crime and AIDS.Although sales value rose 21% in 2004, boosted by strong localrepertoire and rising DVD sales,South Africa’s piracy level is over30%. Pirate and counterfeit product is openly available at flea markets and street stalls.

Following raids on optical discplants in Nigeria in mid-2004,Nigeria’s Copyright Commission(NCC) has pledged to pursueaction against plants involved inproducing infringing product.

The region saw a partial marketrecovery during 2004 and anincreased level of enforcementactions. However, high levels ofpiracy in most Latin Americanmarkets remain a major obstacle to industry stability and investment in new talent.

In 2004, legitimate music salesin the region totalled 155 millionunits, well below the 222 millionunits sold in 1999. This repre-sents a 30% fall over the past five years.

CD-R piracy continues to be themain problem for all territories.This is despite the industry’sseizures. In the region’s biggestmarkets, Mexico and Brazil, moreaggressive anti-piracy effortsyielded combined total seizures of some 41 million blank CD-Rsand over 17,000 burners in 2004.

In Paraguay, the government hasshown a genuine will to combatpiracy despite resource con-straints. Among many otheractions, authorities in Paraguayseized over 11 million blank CD-Rs at the borders. The indus-try recognises the Paraguayan government’s efforts and looksforward to more actions. The high level of blank media importsremains a major concern and the piracy level remains 99%.

Following devastating politicaland economic turmoil in 2002,Venezuela is seeing some stabilityand an influx of ‘petro-dollars’from higher oil prices althoughpiracy is still 80%. Peru’s economy grew by at least 5%in 2004 but piracy is at 98%.

Despite being the top-seller of the Andean region, sales inColombia have been decliningover the past few years. The legitimate market today is half the size it was in 1997. Piracy hasrisen to 71%. The local industry is making huge efforts to maintainan anti-piracy campaign with littlegovernment commitment. Locallegislation is inadequate andresources are limited.

Piracy has practically eliminatedthe legitimate markets in Peru andEcuador. Despite some supportby local authorities in Peru, and a small anti-piracy effort by theindustry, the piracy level is so highthat most record companies haveclosed down. Local legislation inPeru and in Ecuador is more thanadequate if the governments had the requisite political will tocombat piracy.

Argentina’s market recovery continues following the economicand political collapse of 2002. The level of piracy is 55% despiteactions against groups involved in the manufacturing and distribution of illegal products.

In Chile, where the piracy rate is51%, the police are cooperatingwith the anti-piracy campaign, but efforts are mostly limited tothe city of Santiago.

Central American countries suffer from the weakest legalstructures to combat piracy. Anindustry campaign in Costa Ricais also carrying out operations inother countries. Most govern-ments lack the commitment toreduce high piracy levels exceptthe Panamanian government,whose customs office made an agreement with industry to curtail pirate imports.

Youssou N’Dour, Senegal“Music piracy in Africa constitutes today the biggestobstacle to the developmentof the cultural institutionslinked to music.Whether it is a small domestic operation or on an industrial scale, piracyremains a dangerous threatto the economic and socialdevelopment of artists. It is a systematic theft carried outagainst the heritage of thecreators and professionalswho work in music.”

MIDDLE EAST/AFRICA LATIN AMERICA

REGIONAL OVERVIEW

Sandy, Brazil“Other people, not just theartist, suffer as a result ofpiracy.All those involved inthe creation of the work aredirectly affected. Musicians,producers, authors,arrangers, recording studios,photographers, and also the manufacturing staffinvolved in CD replication are victims of the detrimentaleffects of piracy…Piracy is acrime and we certainly cannotsupport it.”(Published in O Globo and Diario de São Paulo)

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PAGE 19

THE CALL TOGOVERNMENTS

The international recording industrytakes an active role in protectingthe works of artists and creatorswhich are the basis of its commer-cial success. These self-helpmeasures are not in themselvesenough. Strong legislation andeffective enforcement as well asrobust political commitment areneeded from governments.

COPYRIGHT LAWS

Copyright laws should be clear, consistent and up to date

Countries must ensure they havegood copyright laws. The legalrights of record producers need tobe clear in order to proceed againstinfringements. Loopholes that mayallow commercial pirates to go freemust be closed. The internet andother digital activities may neednew legislation if not sufficientlycovered by existing rules.International copyright treatiesincluding the Berne and Romeconventions, World TradeOrganization (WTO) rules and theWorld Intellectual Property

Organization (WIPO) Treaties forexample, need to be adopted andimplemented effectively.

JUDICIAL PROCEDURES

Investigative and judicial procedures should be fast and practical

In some countries the law is clearbut copyright crime is not activelypursued. Police, prosecutors andcourts need effective procedures inplace to deal with it. For example,police should have the power tocollect evidence and customs officials should be able to takeaction against suspect shipmentswithout prior complaints from rights holders.

Courts should give full effect to presumptions of rights holders’ownership in copyright cases, without requiring unnecessary lev-els of evidence. Court proceduresshould be fast-tracked to ensureoffenders are punished speedily.

CRIMINAL SANCTIONS

Criminal sanctions must deter – pirates should go to jail

Where sentences are suspended,or fines or jail terms imposed at a low level, sanctions simplybecome a cost of doing businessfor the pirate. Effective penaltiesinclude confiscation of equipmentand seizure of criminally-earned profits.

Substantial compensation ordersand heavy jail sentences must be in the criminal code and used in practice. All of these help to deter anyone seeking to profit from piracy.

DISC PLANT REGULATION

Optical disc plants should be regulated

High-volume production of counterfeit and pirate music CDstake place at a limited number ofmastering and pressing plantsworldwide. Optical discs plantsneed to be regulated effectively tohelp prevent illegal production.Plants should be licensed, andgood business practices, includingthe use of source identification(SID) codes, should be implemented.

Countries that have adopted suchregulation include China, Macau,Hong Kong, Malaysia, Indonesia,Taiwan, the Philippines, Turkey,Bulgaria, Ukraine and Poland. OfIFPI’s top ten priority countries in2005, Russia, Pakistan, and Indianeed such regulation as a matter of urgency.

n Up to date and effective copyright laws and procedures

n Deterrent criminal penalties for copyright crime

n Regulation of optical disc manufacturing

n Political will to prosecute copyright crime

n Aggressive enforcement by police, customs and prosecutors

n Fulfilment of international copyright and enforcementcommitments – backed up by political or WTO pressure where required

GOVERNMENT PRIORITIES IN THE FIGHT AGAINST PIRACY

Best-selling Chinese duo Yu Chuang,have supported anti-piracy initiativesincluding a message on their albumsasking consumers to only buy legitimate products

Paraguayan authorities examine evidence at a distribution centre for illegal product

LAW MUST PROSECUTE

Enforcement agencies andjudiciary must prosecute

Like any other crime, commercialmusic piracy flourishes where governments fail to take action andlack the will to indict pirates. High-level political commitment fromgovernment is needed to attack anddeter commercial copyright crime.

Intellectual property crime shouldbe made a priority by law enforce-ment officials and may needspecialised judges. Judges, prosecutors and police should also be appropriately trained.

Copyright law must be broughtinto line with international norms to create a proper legal basis onwhich to prosecute pirates.International trading rules such as theWTO TRIPS agreement now requirethat governments must provide for‘effective action against any act ofinfringement’ including penaltieswhich ‘constitute a deterrent’.

Like any other crime, commercial music piracy flourishes where governments fail to take action

CPR_v8.1 6/7/05 8:37 am Page 19

IFPI Secretariat54 Regent StreetLondonW1B 5REUnited Kingdom

Tel: +44 (0)20 7878 7900Fax: +44 (0)20 7878 7950www.ifpi.orgwww.pro-music.org

Published by IFPI, June 2005Copyright©2005, International Federation of the Phonographic Industry (IFPI)All data, copy and images are subject to copyright and may not be reproduced,transmitted or made available without permission from IFPI

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