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When Jan Baldyga visits Warsaw Stadium, he pulls his cap down so far it practically touches his mustache. Baldyga, antipiracy director of Poland’s leading music industry coalition, ZPAV, can’t risk being recognized. He’s been to the former football-stadium-turned-flea-market for contraband goods � many times before. He’s accompanied American record studio executives to show them the pirated goods on sale. And police, urged by industry groups like Baldyga’s, have made more than three dozen raids at the stadium in the last three years, confiscating more than 1.4 million CDs, or about $20 million worth. Baldyga isn’t satisfied with those raids, however. He wants the stadium shut down, and he is not alone. The film, software, and pharmaceutical industries here in Poland, among others, all complain that Warsaw Stadium is a major artery in the supply line of pirated and counterfeit goods around the country and to western Europe. A recent Polish government report says there may be as much as $300 million worth of stolen intellectual property sold at the stadium each year � including $2 CDs from Sony Music artists; DVDs of Disney films that haven’t even arrived in theaters; unlicensed Microsoft software that gets used in offices all around the country; Philip Morris brand cigarettes sold below cost; and $15 bottles of Pfizer Corp.’s Viagra. In Poland’s war against intellectual property abuse, Warsaw Stadium is Enemy Number One. But the problem goes well beyond its perimeter. Counterfeit goods, piracy, porous borders � ever since Poland’s economy took off in the 1990s as outside investors poured in, there has been an ugly side effect to the explosive economic growth. In 2003 nearly a third of all DVDs, nearly half of all CDs, and nearly half of business software sold on the Polish market were pirated products, according to the Washington, D.C.-based International Intellectual Property Alliance (IIPA). Last year this represented an economic loss totaling $520 million. Business managers and lawyers in the pharmaceutical, cigarette, and cable TV industries also report wide-scale IP abuse, with losses estimated in the billions of dollars. But in the last five years, multinational companies have said they’re not going to take it anymore. Working with local and international trade groups and the press, the businesses have had some notable successes: Poland’s government and local police are taking the Fortune 500′s IP concerns more seriously. They’re conducting raids on homes and local businesses that are accused of pirating wares; they’re shutting factories that manufacture illegal goods. Border patrol of black-market goods has gotten tighter. And most of the 500 biggest Polish companies have pledged to obtain a license when they purchase software. Last year the multinationals were able to draw U.S. government attention to their efforts. At the same time Poland was pledging its troops to help out America’s war in Iraq, Fortune 500 companies were able to persuade the Office of the U.S. Trade Representative to put Poland on its “301 Priority Watch List.” As one of the 11 countries on the list � along with Bulgaria and Russia � Poland will be subject to trade sanctions if it doesn’t clamp down on its IP abuses. These combined efforts are starting to pay off. The country’s business piracy rate dropped from 86 percent of software in 1999 to 45 percent last year, according to the IIPA. And after years of increasing consumer piracy in sound recordings (audiocassette tapes and CDs) and motion pictures (videotapes and DVDs), piracy rates have finally stabilized. Police are also capturing a larger percentage of pirated goods on the market, according to the IIPA. In 2001 they confiscated 481 pirated DVDs and videotapes. In 2002 that number jumped to 17,109. Last year that number catapulted to 51,000. Still, there is plenty of work to be done. It is hard to get a conviction for piracy or counterfeiting goods in a country where cases linger in a slow, underfunded court system. And, for the drug industry, company efforts to protect new drugs from copycat generics run afoul of politicians who wish to keep costs low for Polish consumers. The problem could even get worse. On May 1 Poland will be the largest of ten countries joining the trade-borderless European Union. Pharmaceuticals, cigarettes, and brand-name clothing carry higher price tags in central and western Europe, and victims of IP infringement fear that Poland’s ascendancy into the E.U. will lead to an increase in pirated and counterfeit goods in the gray and black markets in western European countries. “We’ve come a long way in the 14 years we’ve been fighting this,” Baldyga says. “But there’s still a lot to do.” In the 1990s, after being cut free from the Soviet Bloc, Poland was one of the two fastest-growing European economies (along with Ireland). From 1993 to 2000, Poland’s GDP grew at a pace of 5.2 percent per year. Prior to 1995, growth was led by exports. But thanks to government reforms, such as liberalizing trade barriers and privatizing many government-operated industries, investment became Poland’s new economic engine. In the mid-1990s, foreign investment increased by an average of more than 20 percent annually, according to a study by the Helsinki School of Economics. Lately, however, the economy has stalled. Economic growth has shrunk to just over 1 percent today, and foreign investment is falling. Poland’s huge unemployment rate � 18 percent � is staggeringly high for Europe. Wojciech Dziomdziora, deputy director of the legal department at Poland’s Ministry of Culture, says his government’s first priority after 1989 was to build democracy and a market economy. But according to Dziomdziora, who many antipiracy advocates consider to be the point man in government when it comes to working on their issues, a long and relentless lobbying campaign by industry has convinced the government to prioritize IP concerns. Redmond, Washington-based Microsoft Corporation is one of the companies behind that effort. Starting in the mid-1990s, Microsoft and the Washington, D.C.-based Business Software Alliance (BSA) began working with local police to identify companies operating within Poland � including other multinationals � that were using pirated copies of Microsoft’s software. “As recently as three years ago, almost nine out of ten businesses here were using software that was illegitimate,” says Krzysztof Janiszewski, antipiracy specialist in the software giant’s Warsaw office. Microsoft and the BSA had some early successes: In 2000 Microsoft tipped the police off to a business in the city of Wroclaw selling illegal software. The police raided, and later that year prosecutors won their first conviction for a violation under the country’s Copyright Act, passed in 1994. In October 2001 Microsoft worked with police to apprehend a Polish dealer, with a client list of 700, who was selling illegal software on the Internet. In all, the BSA has participated in more than 150 software raids. More recently, Microsoft has coordinated police action with public relations efforts. Last year, Janiszewski reports, a number of high-profile raids of suspected illegal software vendors and users were reported in the local media, and the BSA followed up by distributing flyers about the raids in Poland’s biggest cities. The organization also sent warning letters to the country’s 500 biggest companies, and according to the BSA’s director in Poland, Mikolaj Sowinski, more than 80 percent responded positively to the organization’s request to pledge good behavior. “Polish firms are starting to understand that when they want to use something, they have to acquire licenses,” he says. In recent years multinational companies have been able to get the police to make raids on private homes, too. Ewa Wziech, a lawyer at the Canal+ Group’s Warsaw office (a media division of parent company Vivendi Universal S.A.), says his company was originally thrilled with how fast its satellite cable service was taking off after its Polish launch in 1995. As late as 2000-2001, Canal+ was reporting year-over-year growth of more than 30 percent in Poland (it had some 300,000 subscribers at its peak). But then a strange thing happened: Subscriber growth mysteriously stagnated. Wziech fingers piracy as the cause. “People were subscribing just to get their hands on the equipment [to pirate],” she says. “They were then canceling.” Like Microsoft and the BSA, Canal+ went to the police for help. Wziech says the police were initially reluctant to search people’s homes. But late last year Canal+ finally got the police to take action. Before conducting raids of homes, Canal+ notified local print and TV outlets who accompanied the police. Wziech says the police have made a dozen arrests. Polish borders are also slowly tightening up. Mariusz Kaczmarek, director general of FOTA, the Poland-based branch of the U.S.-based Motion Picture Association of America, says his organization has pressed customs officials to be more aggressive along Poland’s eastern border. “As a result, almost all [the pirated DVDs on the black market] are now homegrown,” says Kaczmarek. To stem the supply to markets like the Warsaw Stadium, his organization recently started analyzing the output of optical disc plants throughout the country. Last year FOTA found that three plants were producing a noticeably high amount of DVDs and CDs. FOTA asked the police to see if the plants had authorization to produce all of the discs or if some of the products were being illegally manufactured. After reviewing the plants’ books, the police shut the factories down. At least one company is actively pointing customs officials in the direction of counterfeiters. In 2001, tired of the billions it was losing every year from the illegal trade of its cigarettes, Switzerland-based tobacco and food giant Philip Morris International, Inc., sent 40 local undercover agents to Lithuania, Poland, Ukraine, and Russia to investigate. A pack of Marlboro cigarettes, a Philip Morris product, costs just 34 cents in Russia, but $1.59 in Poland. So Philip Morris started taking aggressive actions to stop smugglers from bringing cigarettes from one market to the other. “These cigarettes are often disguised in building tiles, shoes, children’s toys, and other containers,” says Christopher Michie, a partner at Dechert’s Princeton office, who has been seconded to Philip Morris since early 2001. “Our agents try to identify trends, and give that information in time for customs officials to stop it.” In 2002 the Polish Customs Chamber issued a written statement marking its public commitment to protect Philip Morris’s trademark along Polish borders. Since then, Philip Morris receives regular reports from Poland when smugglers are apprehended with its cigarettes; the company sends its technical experts to the border to examine the contraband cigarettes and issue affidavits regarding their authenticity, and it shares intelligence from its undercover operations with Polish drug enforcement personnel. Philip Morris and the Polish Customs Office say that they have successfully stopped hundreds of thousands of cigarettes from entering Poland in the last two years. But what happens to the traffickers is another issue. Kaczmarek, whose organization played a role in most of the 1,165 arrests last year stemming from DVD piracy, says that dealing with the judicial system in Poland is notoriously tough and legendarily slow. Just under 9,000 cases are pending in Polish courts from arrests made for CD, DVD, and CD-ROM piracy, according to the Polish Ministry of Justice. And there have been only 141 convictions, with only 22 people serving jail time for piracy since the Copyright Act was enacted in 1994. Fines for violating the country’s various copyright acts amounted to a combined total of $23,611 in 2003. “I can make a complaint, and the police will initiate an investigation,” says Kaczmarek. “They will make a raid, and the prosecutor will take the case. And then we have a problem [getting] the courts [to set trial dates].” Marek Rosinski, a lawyer at Baker & McKenzie’s Warsaw office, says that Polish courts need an overhaul. “Most courts don’t have computer systems,” he says. “They need more people. They need more training. And, quite frankly, the judges aren’t ready.” Companies and industry organizations have held seminars and tried to educate judges about the IP abuses. But, Rosinski says, there are no specialized divisions of the judicial system to work on these cases. “We’ll train a judge one month, and the next month he’ll be transferred. We then have to start all over again.” Along with the court system, multinationals face other formidable obstacles. The pharmaceutical industry has waged a high-profile campaign to prevent cheap generic drugs from infringing on its brand-name medications. Chuck Ashley, second secretary for economic affairs at the U.S. embassy to Poland, says that how Poland responds to these concerns may determine whether it gets off the 301 priority watch list. Under the country’s public health care system, Polish citizens pay for drugs, and the government reimburses them for their expenses. If a drug is not on the official “reimbursement list,” its sales will likely be limited. Stephan Ziegler, general manager of Kenilworth, New Jersey-based pharmaceutical giant Schering-Plough Corporation’s Warsaw office, alleges that the Polish government puts generic drugs made by Polish companies on the reimbursement list even before the patent for the brand-name drug has expired. Multinational drug companies say they have tried to reason with Polish health officials, only to be ignored. “You try to talk to these officials, and you write letters to the health officials,” says Ziegler. “The government gives you no answer. They just don’t really care.” Dziomdziora says his government does what it can, but the Polish official acknowledges that pharmaceutical companies have a legitimate reason to gripe. He says that generics get onto the market earlier than they should, but that if his government didn’t act this way, it would probably be on the hook for some $10 billion in public health care costs. Ziegler responds that the government is behaving like the pirates at the Warsaw Stadium, and asks, “What happens when the borders open [when Poland joins the E.U. in May]? Why would anyone want to buy our product at the prices we charge [in the E.U.] when cheaper drugs, which shouldn’t be on the market in the first place, are arriving from [Poland]?” Juan Manuel Iruretagoyena, an E.U. adviser to Poland, says that the country will eventually address these problems. Poland realizes that it must continue adapting its systems to meet Western market economies. “We have to remember that only 15 years ago, they were living under Soviet rule,” Iruretagoyena says. “But if they want to continue to attract foreign investment, and build their job base, they are going to need to continue on the road they started.”

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