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When Jan Baldyga visits Warsaw Stadium, he pulls his cap down so far itpractically touches his mustache. Baldyga, anti-piracy director ofPoland’s leading music industry coalition, ZPAV, can’t risk beingrecognized. He’s been to the former football-stadium-turned-flea-marketfor contraband goods — many times before. He’s accompanied American recordstudio executives to show them the pirated goods on sale. And police,urged by industry groups like Baldyga’s, have made more than three dozenraids at the stadium in the last three years, confiscating more than 1.4million CDs, or about $20 million worth. Baldyga isn’t satisfied with those raids, however. He wants the stadiumshut down, and he is not alone. The film, software and pharmaceuticalindustries in Poland all complain that WarsawStadium is a major artery in the supply line of pirated and counterfeitgoods around the country and to western Europe. A recent Polishgovernment report says there may be as much as $300 million worth ofstolen intellectual property sold at the stadium each year — including $2CDs from Sony Music artists; DVDs of Disney films that haven’t evenarrived in theaters; unlicensed Microsoft software that gets used inoffices all around the country; Philip Morris brand cigarettes soldbelow cost; and $15 bottles of Pfizer Corp.’s Viagra. In Poland’s war against intellectual property abuse, Warsaw Stadium isEnemy Number One. But the problem goes well beyond its perimeter.Counterfeit goods, piracy, porous borders — ever since Poland’s economytook off in the 1990s as outside investors poured in, there has been anugly side effect to the explosive economic growth. In 2003 nearly athird of all DVDs, nearly half of all CDs, and nearly half of businesssoftware sold on the Polish market were pirated products, according tothe Washington, D.C.-based International Intellectual Property Alliance(IIPA). Last year this represented an economic loss totaling $520million. Business managers and lawyers in the pharmaceutical, cigarette,and cable TV industries also report wide-scale IP abuse, with lossesestimated in the billions of dollars. But in the last five years, multinational companies have said they’renot going to take it anymore. Working with local and international tradegroups and the press, the businesses have had some notable successes: Poland’s government and local police are taking the Fortune 500′s IPconcerns more seriously. They’re conducting raids on homes and localbusinesses that are accused of pirating wares; they’re shuttingfactories that manufacture illegal goods. Border patrol of black-marketgoods has gotten tighter. And most of the 500 biggest Polish companieshave pledged to obtain a license when they purchase software. Last year the multinationals were able to draw U.S. government attentionto their efforts. At the same time Poland was pledging its troops tohelp out America’s war in Iraq, Fortune 500 companies were able topersuade the Office of the U.S. Trade Representative to put Poland onits “301 Priority Watch List.” As one of the 11 countries on thelist — along with Bulgaria and Russia — Poland will be subject to tradesanctions if it doesn’t clamp down on its IP abuses. These combined efforts are starting to pay off. The country’s businesspiracy rate dropped from 86 percent of software in 1999 to 45 percentlast year, according to the IIPA. And after years of increasing consumerpiracy in sound recordings (audiocassette tapes and CDs) and motionpictures (videotapes and DVDs), piracy rates have finally stabilized.Police are also capturing a larger percentage of pirated goods on themarket, according to the IIPA. In 2001 they confiscated 481 pirated DVDsand videotapes. In 2002 that number jumped to 17,109. Last year thatnumber catapulted to 51,000. Still, there is plenty of work to be done. It is hard to get aconviction for piracy or counterfeiting goods in a country where caseslinger in a slow, underfunded court system. And, for the drug industry,company efforts to protect new drugs from copycat generics run afoul ofpoliticians who wish to keep costs low for Polish consumers. The problem could even get worse. On May 1 Poland will be the largest often countries joining the trade-borderless European Union.Pharmaceuticals, cigarettes and brand-name clothing carry higher pricetags in central and western Europe, and victims of IP infringement fearthat Poland’s ascendancy into the E.U. will lead to an increase inpirated and counterfeit goods in the gray and black markets in westernEuropean 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 oneof the two fastest-growing European economies (along with Ireland). From1993 to 2000, Poland’s GDP grew at a pace of 5.2 percent per year. Priorto 1995, growth was led by exports. But thanks to government reforms,such as liberalizing trade barriers and privatizing manygovernment-operated industries, investment became Poland’s new economicengine. In the mid-1990s, foreign investment increased by an average ofmore than 20 percent annually, according to a study by the HelsinkiSchool of Economics. Lately, however, the economy has stalled. Economicgrowth has shrunk to just over 1 percent today, and foreign investmentis falling. Poland’s huge unemployment rate — 18 percent — is staggeringlyhigh for Europe. Wojciech Dziomdziora, deputy director of the legal department atPoland’s Ministry of Culture, says his government’s first priority after1989 was to build democracy and a market economy. But according toDziomdziora, who many anti-piracy advocates consider to be the point manin government when it comes to working on their issues, a long andrelentless lobbying campaign by industry has convinced the government toprioritize IP concerns. Redmond, Wash.-based Microsoft Corporation is one of the companiesbehind that effort. Starting in the mid-1990s, Microsoft and theWashington, D.C.-based Business Software Alliance (BSA) began workingwith local police to identify companies operating withinPoland — including other multinationals — that were using pirated copies ofMicrosoft’s software. “As recently as three years ago, almost nine outof ten businesses here were using software that was illegitimate,” saysKrzysztof Janiszewski, anti-piracy specialist in the software giant’sWarsaw office. Microsoft and the BSA had some early successes: In 2000 Microsoft tippedthe police off to a business in the city of Wroclaw selling illegalsoftware. The police raided, and later that year prosecutors won theirfirst conviction for a violation under the country’s Copyright Act,passed in 1994. In October 2001 Microsoft worked with police toapprehend a Polish dealer, with a client list of 700, who was sellingillegal software on the Internet. In all, the BSA has participated inmore than 150 software raids. More recently, Microsoft has coordinated police action with publicrelations efforts. Last year, Janiszewski reports, a number ofhigh-profile raids of suspected illegal software vendors and users werereported in the local media, and the BSA followed up by distributingflyers about the raids in Poland’s biggest cities. The organization alsosent warning letters to the country’s 500 biggest companies, andaccording to the BSA’s director in Poland, Mikolaj Sowinski, more than80 percent responded positively to the organization’s request to pledgegood behavior. “Polish firms are starting to understand that when theywant to use something, they have to acquire licenses,” he says. In recent years multinational companies have been able to get the policeto make raids on private homes, too. Ewa Wziech, a lawyer at the Canal+Group’s Warsaw office (a media division of parent company VivendiUniversal S.A.), says his company was originally thrilled with how fastits satellite cable service was taking off after its Polish launch in1995. As late as 2000-2001, Canal+ was reporting year-over-year growthof more than 30 percent in Poland (it had some 300,000 subscribers atits peak). But then a strange thing happened: Subscriber growthmysteriously stagnated. Wziech fingers piracy as the cause. “People weresubscribing just to get their hands on the equipment [to pirate],” shesays. “They were then canceling.” Like Microsoft and the BSA, Canal+ went to the police for help. Wziechsays the police were initially reluctant to search people’s homes. Butlate last year Canal+ finally got the police to take action. Beforeconducting raids of homes, Canal+ notified local print and TV outletswho accompanied the police. Wziech says the police have made a dozenarrests. Polish borders are also slowly tightening up. Mariusz Kaczmarek,director general of FOTA, the Poland-based branch of the U.S.-basedMotion Picture Association of America, says his organization has pressedcustoms officials to be more aggressive along Poland’s eastern border. “As a result, almost all [the pirated DVDs on the black market] are nowhomegrown,” says Kaczmarek. To stem the supply to markets like the Warsaw Stadium, his organizationrecently started analyzing the output of optical disc plants throughoutthe country. Last year FOTA found that three plants were producing anoticeably high amount of DVDs and CDs. FOTA asked the police to see ifthe plants had authorization to produce all of the discs or if some ofthe products were being illegally manufactured. After reviewing theplants’ books, the police shut the factories down. At least one company is actively pointing customs officials in thedirection of counterfeiters. In 2001, tired of the billions it waslosing every year from the illegal trade of its cigarettes,Switzerland-based tobacco and food giant Philip Morris InternationalInc., sent 40 local undercover agents to Lithuania, Poland, Ukraine andRussia to investigate. A pack of Marlboro cigarettes, a Philip Morrisproduct, costs just 34 cents in Russia, but $1.59 in Poland. So PhilipMorris started taking aggressive actions to stop smugglers from bringingcigarettes from one market to the other. “These cigarettes are oftendisguised in building tiles, shoes, children’s toys and othercontainers,” says Christopher Michie, a partner at Dechert’s Princeton, N.J.,office, who has been seconded to Philip Morris since early 2001. “Ouragents try to identify trends, and give that information in time forcustoms officials to stop it.” In 2002 the Polish Customs Chamber issued a written statement markingits public commitment to protect Philip Morris’ trademark along Polishborders. Since then, Philip Morris receives regular reports from Polandwhen smugglers are apprehended with its cigarettes; the company sendsits technical experts to the border to examine the contraband cigarettesand issue affidavits regarding their authenticity, and it sharesintelligence from its undercover operations with Polish drug enforcementpersonnel. Philip Morris and the Polish Customs Office say that theyhave successfully stopped hundreds of thousands of cigarettes fromentering Poland in the last two years. But what happens to the traffickers is another issue. Kaczmarek, whoseorganization played a role in most of the 1,165 arrests last yearstemming from DVD piracy, says that dealing with the judicial system inPoland is notoriously tough and legendarily slow. Just under 9,000 casesare pending in Polish courts from arrests made for CD, DVD, and CD-ROMpiracy, according to the Polish Ministry of Justice. And there have beenonly 141 convictions, with only 22 people serving jail time for piracysince the Copyright Act was enacted in 1994. Fines for violating thecountry’s various copyright acts amounted to a combined total of $23,611in 2003. “I can make a complaint, and the police will initiate aninvestigation,” says Kaczmarek. “They will make a raid, and theprosecutor will take the case. And then we have a problem [getting] thecourts [to set trial dates].” Marek Rosinski, a lawyer at Baker & McKenzie’s Warsaw office, says thatPolish courts need an overhaul. “Most courts don’t have computersystems,” he says. “They need more people. They need more training. And,quite frankly, the judges aren’t ready.” Companies and industryorganizations have held seminars and tried to educate judges about theIP abuses. But, Rosinski says, there are no specialized divisions of thejudicial 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 overagain.” Along with the court system, multinationals face other formidableobstacles. The pharmaceutical industry has waged a high-profile campaignto prevent cheap generic drugs from infringing on its brand-namemedications. Chuck Ashley, second secretary for economic affairs at theU.S. embassy to Poland, says that how Poland responds to these concernsmay determine whether it gets off the 301 priority watch list. Under the country’s public health care system, Polish citizens pay fordrugs, and the government reimburses them for their expenses. If a drugis not on the official “reimbursement list,” its sales will likely belimited. Stephan Ziegler, general manager of Kenilworth, N.J.-based pharmaceutical giant Schering-Plough Corp.’s Warsawoffice, alleges that the Polish government puts generic drugs made byPolish companies on the reimbursement list even before the patent forthe brand-name drug has expired. Multinational drug companies say they have tried to reason with Polishhealth officials, only to be ignored. “You try to talk to theseofficials, 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 Polishofficial acknowledges that pharmaceutical companies have a legitimatereason to gripe. He says that generics get onto the market earlier thanthey should, but that if his government didn’t act this way, it wouldprobably be on the hook for some $10 billion in public health carecosts. Ziegler responds that the government is behaving like the piratesat 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 ourproduct at the prices we charge [in the E.U.] when cheaper drugs, whichshouldn’t be on the market in the first place, are arriving from[Poland]?” Juan Manuel Iruretagoyena, an E.U. adviser to Poland, says that thecountry will eventually address these problems. Poland realizes that itmust continue adapting its systems to meet Western market economies. “Wehave to remember that only 15 years ago, they were living under Sovietrule,” Iruretagoyena says. “But if they want to continue to attractforeign investment, and build their job base, they are going to need tocontinue on the road they started.”

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