Brazil's piracy issues hurt U.S.

Three downtown shopping areas here sell only counterfeit, pirated and smuggled goods. These open marketplaces only appear to be the province of scrappy independent operators.

"Behind this is organized crime – mainly Chinese mafia," said Mr. Medeiros, a legislator from here who led a congressional investigation of intellectual property crimes. A bodyguard hovered at a discreet distance.

Crime lords around the world have discovered that stealing intellectual property can be more profitable and less risky than drug trafficking.

Brazil is an important producer and destination in the global piracy market, draining billions of dollars from U.S. companies, eliminating jobs and raising prices for legitimate products.

U.S. entertainment, books and software companies estimate that they lose nearly $1 billion a year to piracy in Brazil.

Brazil loses as well – an estimated 2 million jobs, Mr. Medeiros said.

"Look at our shoes," said Roberto Giannetti da Fonseca, president of Brazil's Foreign Trade Center Foundation. "Chinese factories are producing exact copies that even say, 'Made in Brazil,' and exporting them to us."

Last year, police arrested a prominent Chinese-Brazilian businessman, Law Kin Chong, and charged him with offering $2 million to Mr. Medeiros to go easy on him in the congressional probe.

Mr. Medeiros said Mr. Law was the biggest trafficker in counterfeit goods in Brazil.

After Mr. Law's arrest, police raided a warehouse containing 7.5 million blank CDs and 3.5 million blank DVDs.

30 Officers Arrested

The police said Mr. Law's operation supplied more than 10,000 pirate vendors in Brazil, including vendors at malls he owned. Mr. Medeiros said the case has also led to the arrest of more than 30 police officers in São Paulo.

"All of Law's personal security detail were policemen," he said. "When we met, we were surrounded by policemen – Law's policemen and my policemen."

The case has not gone to trial. Mr. Law waits in a prison in Brasilia. His attorney, Luiz Fernando Pacheco, said that Mr. Law is an innocent victim of congressional harassment and that it was Mr. Medeiros who solicited the money.

"Mr. Law had all the reasons to believe he was [a] victim of extortion," Mr. Pacheco said in an e-mail. "He has the highest interest in fighting illegal commerce of counterfeit goods. ... Sadly, this is not the case in other popular malls, where this illegal commerce runs free, without any serious measures being adopted by the local authorities."

The Brazilian Supreme Court is hearing a challenge of Mr. Law's arrest. Another case alleges that Mr. Medeiros illegally imprisoned Mr. Law by making him wait in a hearing room between sessions of his congressional panel.

Mr. Medeiros, a former boss in a metalworkers' union, decided two years ago to investigate piracy because it was costing Brazilians their jobs.

He was made chairman of a Congressional Parliamentary Inquiry, which held hearings, prodded police and issued a scathing report last summer.

Under pressure from the committee, police raided a São Paulo mall owned by Mr. Law in March 2004 and seized 5,000 sacks of counterfeit and smuggled goods worth $2.5 million. The mall rents to businesses that are responsible for their products, Mr. Pacheco said, but those who sell pirated goods are fined or forced out by management.

Mr. Law was compelled to testify before the committee and said he was innocent of the charges raised by Mr. Medeiros.

Mr. Medeiros said word then came to him through the police that Mr. Law wanted a deal.

"They said, 'You'll be set for life. You'll be re-elected. In return, you will make a final report saying everything is fine with Law,'" Mr. Medeiros said.

Mr. Medeiros said he pretended to go along. Through intermediaries, a meeting was arranged at a hotel in Araras, a town about 400 miles west of São Paulo. Mr. Medeiros and a police investigator with the anti-piracy committee had secretly arranged with a local judge to issue a warrant for Mr. Law's arrest.

At the last minute, the judge backed out. " 'I have children,' he said," Mr. Medeiros said.

The meeting went ahead as planned. Mr. Medeiros wore a hidden tape recorder. The congressman said Mr. Law tried for a price less than $2 million. The two finally agreed on the full price spread over "four or five installments," Mr. Medeiros said.

"It was all taped. But we came back to São Paulo without being able to arrest Law," he said.

In June, when a lawyer acting on Mr. Law's behalf delivered $80,000, arrest warrants were issued for Mr. Law and several others.

"If they can't get this guy, then what hope do we have?" said Eric Smith, president of the International Intellectual Property Alliance, which represents entertainment and software companies that have urged trade sanctions against Brazil for doing too little to enforce anti-piracy laws.

Market for counterfeits

Brazil's population of 186 million people, including 70 million middle-class consumers, makes it Latin America's biggest market for counterfeit goods. Industry representatives say the biggest pirate manufacturing centers are in China, Russia, Taiwan and Hong Kong. Crime syndicates operating in Brazil have Chinese factories providing merchandise.

"For minimal investment, you can open an optical disc factory and crank out millions of units a year, with a 10,000 percent profit," Mr. Smith said. "It's like the drug business, only there's no death penalty if you get caught."

Sometimes, organized crime syndicates even work with terrorists. The international police organization Interpol says piracy operations in the tri-border area of Brazil, Paraguay and Argentina provided funding for Hezbollah, a radical Islamic party labeled a terrorist group by the U.S. government.

Despite such heavyweight associations, Brazilians have been slow to recognize intellectual property theft as a crime.

"Price drives consumers to pirate works," said Enoch Bruder, a São Paulo publisher and member of Brazil's new National Council to Combat Piracy and Organized Crime. "It wasn't felt to be a crime, or if it was seen that way, it was considered a romantic crime."

Mr. Smith's International Intellectual Property Alliance says less than 1 percent of the piracy raids conducted in Brazil over the last seven years have led to convictions.

With growing music and movie businesses in Texas, intellectual property theft is beginning to hit home.

Sen. John Cornyn, R-Texas, has sponsored legislation toughening penalties for piracy and counterfeiting with strong support from tech and entertainment industries in Texas.

Nokia Oyj, which has its U.S. headquarters in Irving, and Dallas-based Texas Instruments have very critical concerns about copyright interests, said Chip Roy, a legislative counsel for Mr. Cornyn.

U.S. applies pressure

Mr. Law's arrest has been the high point in Brazil's efforts to crack down on intellectual property piracy. The country is facing pressure from U.S. industries to do more or face trade sanctions.

The U.S. Trade Representative's office, citing Mr. Law's arrest, in April held off on any sanctions for six months to give Brazil more time to take action against pirates.

Some in Washington say the crackdown has been lethargic and half-hearted.

"We raised the issue with their Justice Ministry, and they kind of shrugged it off," said Rep. Mark Foley, R-Florida, who heads the entertainment industries caucus in the House. Brazilians frequently blame their piracy problems on Paraguay, which shares an 800-mile border with Brazil, and a treaty that allows Paraguayan cargo to enter Brazilian ports without being inspected.

Mr. Medeiros, however, said he welcomes the heat on Brazil, because he's not satisfied, either.

"The Brazilian government has made progress, but it has to have international pressure," he said. "Brazil has to fight this."

Jim Landers recently toured Brazil on a German Marshall Fund fellowship aimed at enhancing the understanding of trade issues affecting Europe and the United States.

E-mail jlanders@dallasnews.com

Source: Dallas Morning News