Downloaded from the Internet for Free Is to Use Circumvention Devices, Such As Game Copiers Or Modification Chips

February 7, 2014

Ms. Susan F. Wilson Director for Intellectual Property and Innovation Office of the United States Trade Representative 600 17th Street, N.W. Washington, D.C. 20508

Re: 2014 Special 301 Comments on Piracy of Nintendo Video Game Products

Dear Ms. Wilson:

Nintendo of America Inc. (Nintendo) submits this letter in response to the “Request for Written Submissions From the Public,” which appeared in the January 3, 2014 Federal Register. In that notice, the Office of the United States Trade Representative (USTR) requested comments pursuant to Section 182 of the Trade Act of 1974 (19 U.S.C. 2242), known as “Special 301,” on “countries that deny adequate and effective protection of intellectual property rights or deny fair and equitable market access to U.S. persons who rely on intellectual property protection.”

Nintendo has provided information to the International Intellectual Property Alliance (IIPA), which is included in the filing of that organization. Nintendo is associated with the IIPA through its membership in the Entertainment Software Association (ESA). This letter provides more detailed information on piracy of Nintendo video game products, with an emphasis on Internet piracy, along with Nintendo’s Special 301 placement recommendations.

Nintendo, its publishers and developers, are injured by the prevalence and ease of illegal online distribution, as well as the continued manufacture, assembly, distribution, import, export and sale of counterfeit Nintendo video game products and illegal circumvention devices across the globe. In the past few years, the scope of online piracy for Nintendo has grown dramatically. Every month tens of thousands of illegal Nintendo game files are detected on the Internet. The legal environment to limit the flow of these files remains extremely challenging.

Theft of Nintendo’s video games illegally shared over the Internet impacts all who create, develop, market and sell video games for the Wii U, Wii, Nintendo 3DS and the Nintendo DS family of handheld systems. Surging Internet piracy continues to result in lost sales, lost jobs,

lost taxes for local, state and national governments, as well as the loss of incentives to create and innovate.

Despite the operation of Nintendo’s anti-piracy programs in over 40 countries, worldwide piracy of Nintendo video game products remains a chronic problem resulting in huge losses. Special 301 has proven to be a highly effective tool in highlighting those countries that do not provide adequate protection of copyrights and trademarks.

For 2014, Nintendo recommends that USTR designate: (1) Brazil to remain on the Watch List; (2) China for monitoring under Section 306 of the Trade Act and continued placement on the Priority Watch List; (3) Mexico to remain on Watch List; and (4) Spain to be elevated to the Watch List.

NINTENDO OF AMERICA INC.

Nintendo of America Inc., based in Redmond, Washington, serves as headquarters for Nintendo’s operations in the Western Hemisphere and markets the highly successful line of Nintendo video game products. Nintendo has branch offices in Redwood City, California and New York, New York. Also located on Nintendo’s campus in Redmond is Nintendo Software Technology Corporation, which creates game software for Nintendo’s video game systems. In 1999, Retro Studios was founded in Austin, Texas as a sister-company to Nintendo of America Inc. Retro is a development studio dedicated to creating products for Nintendo. Nintendo holds the company’s intellectual property rights, including copyrights and trademarks, in the Western Hemisphere. In 2013, these U.S.-based entities employed approximately 1,350 people in the United States. In addition, Nintendo coordinates the worldwide anti-piracy program on behalf of its parent company, Nintendo Co. Ltd. of Kyoto, Japan.

Nintendo video game hardware platforms (i.e. Wii U, Wii, Nintendo DS, Nintendo 2DS, Nintendo DSi and Nintendo 3DS) play Nintendo’s proprietary game software, as well as proprietary game software created by its third party licensees. Hundreds of U.S. companies independently create, license, market and sell Nintendo video game products. Worldwide piracy of Nintendo products also adversely affects the earnings and employment of these companies.

Table of Contents

Nintendo Video Game Products ...... 4

Internet Piracy and Circumvention Devices ...... 5

Nintendo Infringing Hard Goods ...... 11

Brazil Overview ...... 12 Brazil ...... 13

China Overview ...... 22 China ...... 23

Mexico Overview ...... 32 Mexico...... 33

Spain Overview ...... 47 Spain ...... 48

NINTENDO VIDEO GAME PRODUCTS

Console Name Release Date Units Sold To Date November 18, Wii U 5.86 million WW 2012

Nintendo 3DS March 27, 2011 42.74 million WW

™ Nintendo DS family of systems April 5, 2009 153.98 million WW (inclusive of DS Lite, DS and DSi)

November 19, 100.9 million WW Wii 2006

Nintendo Marquee First Appearance Characters (Appeared in “1 Million+” Sellers)

Mario 1981 in Donkey Kong, Arcade

1996 in Pokémon Green (Japan Pikachu only), Game Boy

Donkey Kong 1981 in Donkey Kong, Arcade

1994 in Donkey Kong Country, Diddy Kong Super NES

1995 in Donkey Kong Country 2: Dixie Kong Diddy’s Kong Quest, Super NES

1997 in The Legend of Zelda, Zelda and Link Nintendo Entertainment System (NES) 1991, Super Mario World, Super Yoshi NES

Star Fox 1993, Star Fox, Super NES

1992, Kirby’s Dream Land, Game Kirby Boy

Wario 1983, Mario Bros., Arcade

1989, Metroid, Nintendo Samus Aran Entertainment System (NES)

INTERNET PIRACY AND CIRCUMVENTION DEVICES

The most common way to play illegal Nintendo video games downloaded from the Internet for free is to use circumvention devices, such as game copiers or modification chips.

Therefore, the trafficking in, sale and use of these devices facilitate Internet piracy.

Game Copiers: Game copiers are circumvention devices used to bypass the security embedded in Nintendo’s handheld video game systems to allow users to play illegal video games downloaded from the Internet. Nintendo makes video games available for download on the Internet only through its proprietary systems. Hence, all Nintendo game files offered via the Internet for download are illegal copies.

The following section illustrates how game copiers work to circumvent Nintendo’s security and how these circumvention devices facilitate the downloading of illegal game files from the Internet.

This is a popular “game copier.” A USB-to-Micro SD flash memory card reader (included in packaging) is used to transfer illegal games downloaded from the Internet from computer to a Micro SD flash memory card.

The game copier card (included in packaging) is designed exactly like an authentic Nintendo DS game card (except for the addition of a slot at the top of the game copier card to accept a Micro SD flash memory card). This card contains copyright protected Nintendo software (logo data) used to bypass the security of the Nintendo DS system’s security measures.

The user purchases the Micro SD flash memory card separately. Game software is illegally downloaded from the Internet and stored on this Micro SD flash memory card.

The Micro SD flash memory card containing illegal game files is inserted into the game copier card.

The Micro SD flash memory card is here. The R4 game copier is the most popular in the world.

The game copier card is inserted into the Nintendo DS card slot on the Nintendo DS system to play the illegal game files.

Game Copier Card v. Authentic Nintendo Video Game Cartridge

Game copier card (note the Micro SD flash memory card in the slot)

Authentic

Internet Piracy

Tens of millions of illegal digital copies of Nintendo’s video game products are made available through several Internet protocols each year. The trafficking in, sale and use of circumvention devices facilitate Internet piracy of video games because the only way to play illegal Wii or Nintendo handheld systems game files downloaded from the Internet on Nintendo video game systems is by using circumvention devices, such as the above-mentioned game copiers and mod chips. Certain terms, defined below, are commonly used when discussing Internet piracy.

Internet Piracy Definitions:

• Cyberlocker - "Cyberlockers," also known as "sharehosts," "one-click hosts," or "direct downloads (DDL)" are websites that provide storage space (varying in size but usually at minimum several hundred megabytes, and at maximum a few gigabytes) for any file type a user wishes to upload and store. After uploading a file, a user is commonly given a password and/or a direct URL to access that file. Many users use this functionality to store infringing content, and pass along the URL (“link”) needed to access the file to other users via cyberlinkers.

• Cyberlinker - "Cyberlinkers," also known as "indexers," are websites that collect the links (a.k.a. URLs) for infringing content that users have uploaded and stored on cyberlockers. For a cyberlinker to be most effective, it must be vigilant in gathering the most up-to-date links, eliminating those which no longer work (either because the original user removed the file, the file was corrupted somehow or a copyright owner had requested the file to be removed). The most popular cyberlinkers usually have a dedicated community that contributes links (either from uploading the infringing content themselves and sharing the link, or finding a working link from another source and sharing it).

• Peer-to-Peer (P2P) Networks - Computer networks, like BitTorrent and eDonkey, are established between users who share illegal Nintendo game files (or parts of files) among themselves. Users download illegal Nintendo game files through accessing P2P portal sites.

• P2P Portal Sites - Websites that offer links, trackers, or indices to connect users to the P2P networks for downloading illegal Nintendo game files.

• Marketplaces - Any auction site, trade board or classified listing website, like eBay, Craigslist, Mercado Libre and Alibaba, operated with the express purpose of allowing users to advertise, buy and sell products. These websites vary from auction-style bidding to periodic sales postings or classified ads for services offered by other users. In many cases, users looking to profit from infringing hard goods abuse these websites.

• Webshops/E-Commerce Sites - Internet retailers offering/distributing hard goods (game copiers, mod chips, counterfeit Nintendo products) via a website. Each website typically has one individual seller per website with no take-down procedure for notification of infringement.

• Monitoring & Enforcement - These terms include the manual or automated search techniques to locate and identify infringing content combined with manual or automated issuance of legal notification (DMCA takedown notices, Cease-and-Desist Letters or other legal warnings) to the appropriate Internet Service Provider (ISP). Rights owners will either perform such techniques in-house, or hire vendor companies who specialize in these services, as way to determine what infringing content is available online and act upon it.

Most Prevalent Types of INTERNET PIRACY Impacting Nintendo

Cyberlockers Cyberlocker Linking Sites. (Hosted Content) Facilitate location of content Examples - Uploaded.to, 4shared.com

Direct Download/ROM sites Websites. Facilitate sale of pirated (Hosted Content) games to consumers

Example –www.embulabr.br.com

P2P Networks P2P Portal Sites. (Content Made Available by Individual Users) Facilitate location of P2P Content

Examples – BitTorrent, eDonkey

Auction Sites,

Trade Boards, Webshops Sale of Hard Goods to (Hard Goods) Consumers, Distributors

Example- eBay, Craigslist,

subito.to, taobao

INFRINGING NINTENDO HARD GOODS

The chart below shows Nintendo video game products confiscated worldwide during seizures from 2008 to 2013. Seizures include illegal copies of Nintendo games, circumvention devices and component parts.

Nintendo believes the increase in online piracy has caused a decrease in seized hard goods products, a trend Nintendo expects to continue.

* * * * * * * * * * * * * * * *

BRAZIL OVERVIEW

Nintendo recommends that Brazil remain on the Watch List.

Key Messages: Internet piracy continues with no adequate legal infrastructure in place to respond to the threat it poses to rights holders.

Brazil has never acceded to the WIPO Copyright Treaty and has neither specific laws to protect IP owners from the unauthorized circumvention of technical protection measures, nor laws holding Internet Service Providers liable for hosting infringing web sites. This poses serious challenges when addressing the growing problem of IP violations and illegal downloads available on Brazilian web sites. It is critical that laws be passed addressing these two serious shortcomings.

Recommendations: • Adopt and strictly enforce new laws that explicitly protect against the circumvention of technical protection measures and trafficking in circumvention devices; hold Internet Service Providers responsible for facilitating piracy under certain circumstances, including a requirement that ISPs expeditiously remove infringing content when notified by a rights holder representative.

• Publicize legal actions and raids taken against infringers, especially for online piracy, to increase awareness and deterrence.

• Bring criminal prosecutions against major infringers, including those facilitating piracy on the Internet. The courts must impose stronger penalties against IP crimes (both traditional forms of piracy and online piracy) to raise awareness and foster deterrence.

• Customs officers should proactively seize IP infringing goods and should cooperate with U.S. Government officials to train more customs officers in IP.

BRAZIL

Nintendo recommends that Brazil remain on the Watch List.

• Internet piracy continues with no adequate legal infrastructure in place to respond to the threat it poses to rights holders.

Hard goods piracy for Nintendo persists in Brazil, however, the trend is shifting to Internet piracy. Two popular areas for Internet access to illegal Nintendo video game files are through peer-to-peer (P2P) and Portuguese language link sites (cyberlinkers) that link to host sites (cyberlockers), most of which are not hosted in Brazil.

Cyberlinkers

Cyberlinkers collect the links (a.k.a. URLs) for infringing content that users have uploaded and stored on cyberlockers. For a cyberlinker to be most effective, it must be vigilant in gathering the most up-to-date links, eliminating those which no longer work (either because the original user removed the file, the file was corrupted somehow or a copyright owner had requested the file to be removed). The most popular cyberlinkers usually have a dedicated community that contributes links (either from uploading the infringing content themselves and sharing the link, or finding a working link from another source and sharing it).

The use of cyberlinkers is popular in Brazil. The below chart shows that the illegal content being accessed by Brazilians is hosted outside of Brazil.

Top 5 Cyberlink Sites for Brazilian Users

Link Site Host Country ISP Alexa Rank (Brazil) kickass.to Canada Netelligent Hosting Services 140 torrentz.eu Canada Netelligent Hosting Services 274 heroturko.me Other CloudFlare 1,383 baixegames.net Romania Voxility SRL 3,318 monova.org Canada Moxie Communications 3,826

The above screen shot of a Portuguese language cyberlinker says: “Download Free Games: Mario Galaxy.”

Illegal P2P downloads

The chart on the following page lists the top 10 countries where illegal P2P downloads are most popular for Nintendo video games. Data comparing 2013 to 2012 shows that the top five countries stayed the same in 2013 ranking, including Brazil at number three.

Nintendo expects to see an upward trend of Illegal P2P downloads of video games in Brazil and other South American countries in 2014, as more countries in the region increase broadband penetration and overall Internet connections.

Global P2P Piracy Share of Nintendo Games by Country - 2013

Italy Italy 19% Spain Brazil Other Countries 28% United States France Chile Spain Mexico 3% 16% Germany United Russia Kingdom United Kingdom 3% Russia United Brazil Chile 3% 9% States Other Countries Germany Mexico France 7% 3% 4% 5%

Illegal P2P Downloads of Nintendo Games January 1, 2013 to December 31, 2013 (Source: DtecNet & mBargo) Italy

Spain

Brazil 3,500,000 United States 3,000,000 France 2,500,000 Mexico 2,000,000 Germany 1,500,000 Russia 1,000,000

500,000 United Kingdom

0 Chile

The 2013 decrease in overall number of downloads compared to 2012 may be due to a key factor: for the first seven months of 2013, the technological protection measures (TPMs) preventing play of pirated Nintendo 3DS games were secure (i.e.

unhacked). Since infringing video games downloaded from the Internet cannot play on the Nintendo 3DS system without a circumvention device, demand for the illegal 3DS is reduced with no operational circumvention device available. When the TPMs were hacked in August 2013, the demand for infringing video games increased. It is expected that these infringement numbers will increase in 2014.

Illegal P2P Downloads of Nintendo Games Italy January 1, 2012 to December 31, 2012 (Source: DtecNet) Spain

Brazil 3,500,000 USA 3,000,000 France 2,500,000 Germany 2,000,000 Mexico 1,500,000 Chile 1,000,000 UK 500,000

0 Russian Federation

The chart below gives P2P download figures for Brazil for the past four years.

BRAZIL Illegal P2P Downloads of Nintendo Games 2010 - 2013 (Source: DtecNet & mBargo)

1,000,000 2010

800,000 2011

600,000 2012

400,000 2013

200,000

While the TPMs protecting the game content on legitimate 3DS games were broken over a year ago, the game content itself was unplayable until August 2013 upon the release of a certain circumvention device. Despite this, many users still sought to download illegal copies of Nintendo 3DS games in preparation for the release of a circumvention device. In the final months of 2013, the offerings of game copiers for sale on Mercado Libre increased as shown in the chart below on page 19.

Internet Auction Sites in Brazil

Internet auction sites provide an easy and relatively anonymous platform for transactions of infringing products, especially circumvention devices such as game copying devices. MercadoLibre.com is Latin America’s largest online trading platform with headquarters in Argentina and a branch office in Brazil (mercadolivre.com). The charts below show that the number of listings on Mercado Libre selling game copiers in Brazil fell to 2011 levels.

In 2013, statistics compiled by Nintendo’s monitoring service show demand on the online marketplaces for game copier circumvention devices fell. This decline is likely due to the fact that the Nintendo 3DS handheld system on which the game copier circumvention devices play was secure (i.e., unhacked) until September.

Nintendo expects an increase in the number of offerings in 2014, as we saw in November and December 2013 as the availability of the devices becomes more wide spread.

Compliance on Mercado-Libre for Brazil was uneven in 2013, despite good compliance in 2012. Nintendo has worked hard to educate auction sites around the world regarding which products are illegal and why.

Enforcement by the Brazilian government, as well as publicity of actions against infringers, would help deter the sale of game copiers on auction sites, especially with respect to repeat sellers, and educate consumers against purchasing devices from these sites in the future.

Mercado Libre covers 13 Latin American markets, and Brazil is its largest.

Internet Auction Sites - Number of Listings of Game Copiers on Mercado Libre (Source: MarkMonitor)

30,000 2010 25,000 2011 20,000 2012

15,000 2013

10,000

5,000

Screenshot of game copying devices available on Mercado Livre in January 2014.

Top 10 Countries Offering Game Copiers for Sale – 2013 (Source: MarkMonitor) Number of game copier listings found per month / per country via online marketplaces Country Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Total United 1 States 1641 1652 1256 1248 1272 967 1205 873 783 807 698 931 13333 2 Italy 8 875 369 340 902 551 534 482 628 816 721 886 7112 3 China 2710 226 558 419 365 243 138 165 183 152 302 231 5692 4 Netherlands 560 496 596 667 338 247 206 289 283 343 307 331 4663 5 Brazil 325 337 417 313 211 231 180 157 208 169 999 809 4356 6 Venezuela 350 253 294 302 298 292 415 328 395 370 335 461 4093 7 New Zealand 458 447 418 403 419 392 397 347 242 107 155 146 3931 8 Mexico 211 218 223 306 272 182 175 198 197 167 142 187 2478 9 Spain 125 152 116 44 63 8 445 213 223 252 293 399 2333 10 Chile 153 134 148 188 173 153 160 140 164 160 142 164 1879

Top 10 Countries Offering Game Copiers for Sale – 2012 (Source: MarkMonitor)

Number of game copier listings found per month / per country via online marketplaces Country Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Total 1 Brazil 2247 3023 2487 2469 3612 3313 2242 2568 4007 1818 364 350 28500 2 United States 1299 651 786 734 793 973 926 1042 1412 1616 1749 2087 14068 3 New Zealand 809 970 781 520 610 659 547 558 492 680 508 451 7585 4 China 325 46 602 116 183 87 860 1154 562 504 268 162 4869 5 Netherlands 314 303 388 345 293 319 306 394 333 391 363 458 4207 6 Venezuela 422 289 221 202 147 227 178 191 191 167 251 423 2909 7 Mexico 336 228 211 181 184 157 213 222 146 173 222 197 2470 8 Chile 126 53 144 96 119 115 115 95 104 146 135 151 1399 9 Costa Rica 185 147 94 61 96 77 96 64 86 139 158 194 1397 10 Canada 164 130 84 84 95 131 123 100 65 92 120 119 1307

2013 Rate of Compliance with Take Down Notices – BRAZIL Source: MarkMonitor

100.00%

95.00% Mercado Libre

90.00%

85.00%

80.00% Mercado Libre was the only Marketplace to which Nintendo issued enforcement notices where the listing location was determined to be Brazil. 75.00%

Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec

2012 Rate of Compliance with Take Down Notices – BRAZIL Source: MarkMonitor

100%

95%

90%

Mercado Libre 85%

Mercado Libre was the only Marketplace to which 80% Nintendo issued enforcement notices where the listing location was determined to be Brazil. 75% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Brazil has never acceded to the WIPO Copyright Treaty and has no specific laws to protect IP owners from the unauthorized circumvention of technical protection measures, nor laws holding Internet Service Providers liable for hosting infringing web sites. This poses serious challenges when addressing the growing problem of IP violations and illegal downloads available on Brazilian web sites. It is critical that laws be passed addressing these two serious shortcomings.

Recommendations

• Adopt and strictly enforce new laws that explicitly protect against the circumvention of technical protection measures and trafficking in circumvention devices; hold Internet Service Providers responsible for facilitating piracy under certain circumstances, including a requirement that ISPs take down infringing content when notified by a rights holder representative.

• Publicize legal actions and raids taken against infringers, especially for online piracy, to increase awareness and deterrence.

• Bring criminal prosecutions of major infringers, including those facilitating piracy on the Internet. The courts must impose stronger penalties against IP crimes (both traditional forms of piracy and online piracy) to raise awareness and foster deterrence.

• Customs officers should proactively seize IP infringing goods and should cooperate with U.S. Government officials to train more customs officers in IP. * * * * *

CHINA OVERVIEW Nintendo recommends that China remain on the Priority Watch List and subject to Section 306 monitoring

Key Messages: China continues to be the hub of production for infringing Nintendo video game products, including circumvention devices. Customs services in nine countries across three continents seized over 73,000 infringing Nintendo video game products sourced from China in over 82 separate seizure actions in 2013.

Steps imposed on Nintendo to try to enforce in China against those manufacturing and trafficking in circumvention devices are too onerous.

In Nintendo’s experience, the police view game copiers as infringing Nintendo’s trademark, but not counterfeit. This distinction limits the remedies available since criminal actions are not available based on the circumvention provisions in China.

Internet piracy enforcement in China requires constant monitoring and scrutiny, even if sites agree to prohibit the offering up of the illegal goods.

Circumvention devices facilitate the downloading and playing of illegal Nintendo games via the Internet. Nintendo’s notice and take down program is focused, therefore, on the removal of circumvention devices from online marketplaces in China, but removal is inconsistent at best.

Chinese Customs must recognize and address the growing problem of exports from China of infringing goods through small parcels or courier services.

Recommendations: ● Administrative authorities should issue stiffer penalties to ISPs, infringers, and sellers/distributors of circumvention devices in an effort to curtail the production and distribution of illegal products.

• Prosecutors should bring more criminal cases against large-scale manufacturers of infringing products and circumvention devices, and courts should impose higher penalties to deter this criminal activity.

● Customs officers must actively seize illegal products being exported out of China – especially illegal circumvention devices leaving China for shipping abroad. The national government must place greater emphasis on, and dedicate increased resources to, improving the Customs authority’s ability to halt the exportation of infringing items.

● Online marketplace websites must proactively monitor and remove listings of circumvention devices and terminate the accounts of repeat infringers.

● Given the increase in shipment of infringing products in small parcels, more efforts should focus on interdicting these shipments leaving the country.

PEOPLES’ REPUBLIC OF CHINA

Nintendo recommends that China remain on the Priority Watch List and subject to Section 306 monitoring.

● China continues to be the hub of production for infringing Nintendo video game products, including circumvention devices.

● Steps imposed on Nintendo to try to enforce in China against those manufacturing and trafficking in circumvention devices are too onerous.

● Internet piracy enforcement in China requires constant monitoring and scrutiny even if there is agreement with the sites to prohibit the offering up of the illegal goods.

● Chinese Customs must recognize and address the growing problem of exports from China of infringing goods through small parcels or courier services.

For over a decade, China has been the hub of production for infringing Nintendo video game products, including circumvention devices. China is the leading worldwide exporter of these illicit goods.

Customs services in nine countries, including the U.S., across three continents seized over 73,000 infringing Nintendo video game products sourced from China in over 82 separate seizure actions in 2013. This` sourcing of products from China is key to understanding the scope of Nintendo’s challenges with piracy.

Chinese Customs

Chinese Customs slightly improved its efforts in 2013 to prevent exportation of infringing products from China. Nintendo engaged a third party anti-counterfeiting not-for-profit organization to assist with enforcement actions at the customs level, as well as to participate in scheduled Customs trainings. But as millions of infringing products continue to escape China Customs’ inspection and are distributed around the world, China must place far more attention on shipments leaving the country, especially those in small parcels. Nintendo is aware of hundreds of thousands of clusters of sites offering infringing products that are drop-shipped in small packages and exported out of China by postal and courier services. This growing trend of

23 small packages carrying counterfeit and illegal products, sent via postal and courier services, leads Nintendo to conclude that China Customs needs to dedicate more resources to thwart the export of goods at post offices, airports, and by local courier services. Traditionally, China Customs focuses more on stopping imports than halting export of illegal goods.

As the graph illustrates below, with focused training in the detection of counterfeit and infringing Nintendo products, China Customs detained five shipments of suspected infringing Nintendo game products in 2013. This is an improvement over last year, but far below previous years. The roughly 8600 goods seized amounts to only 11% of the number of infringing Nintendo video game products coming from China which were seized by other customs services.

Hard Goods Seized by China Customs vs. Numbers of Actions

10,000 50 9,000 45 8,000 40 7,000 35 6,000 30 5,000 25 4,000 20 3,000 15 2,000 10 1,000 5 0 0 2010 2011 2012 2013 Products 6,733 4,232 171 8,619 Actions 43 30 3 5

China Customs should make IP education and training of its frontline customs agents a

priority in 2014 in order to learn about identification of counterfeit products and illegal

goods such as circumvention devices. More importantly, vastly improving Customs’

performance will require a nationwide campaign to focus on this problem area and

increase resources and directives to provincial customs authorities.

The chart below identifies the local and provincial customs services that seized infringing Nintendo video game products in 2010 through 2013.

Customs Conducting 2010 2011 2012 2013 Seizures Guangzhou Customs 6 21 3 1 Shenzhen Customs 33 2 0 2 Hangzhou Customs 2 3 0 1 Nanjing Customs 1 1 0 0 Wenzhou Customs 1 0 0 0 Shanghai Customs 0 3 0 1 Kunming Customs 0 1 0 0 Total 43 31 3 5

Online Marketplaces

Online auctions, B2B Exchange and trade boards (a.k.a. online shopping sites) continue to grow at a steady pace, with new sites opening every year. Through these sites, consumers and merchants all over the world can easily be connected to Chinese suppliers and manufacturers. China-based sites have grown rapidly over the past years and it is a struggle for rightsholders, wishing to protect their rights, to keep up with the rapid growth. In response to this growth, Nintendo’s online monitoring vendor has added several China-based shopping sites to their program, including China Alibaba (1688) and PaiPai.

Despite the company’s increased enforcement against China-based online marketplaces, a huge number of infringing Nintendo products continue to be offered on worldwide online marketplaces. In 2012, China was 4th among all countries worldwide in game copier listings found per month. In 2013, the total game copier listings in China increased, placing China 3rd worldwide. Nintendo is monitoring more China-based sites than last year. Nintendo has worked for several years with China-based marketplaces such as Alibaba and DHGate to reduce the availability of game copiers with success. Nintendo believes nearly all game copier products listed for sale on worldwide marketplaces originate in China.

We urge the Chinese Government to communicate to these online auction and shopping websites that the sale and distribution of circumvention devices and other illegal products that harm legitimate rightsholders will not be tolerated. Proactive filtering should be required to prevent listings of circumvention devices and other infringing items. The online marketplaces should terminate the accounts of repeat infringers. Marketplaces like DHGate demonstrate that it is feasible for these sites to comply and still grow their international customer base.

China is poised to overtake the United States to become the world's largest e-commerce market this year, according to estimates from consultancy Bain & Co. (China Daily, 12/12/2013)

Top 10 Countries Offering Game Copiers for Sale – 2013 (Source: MarkMonitor)

Number of Game Copier Listings Found per Month / per Country via Online Marketplaces Country Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Total 1 United States 1641 1652 1256 1248 1272 967 1205 873 783 807 698 931 13333 2 Italy 8 875 369 340 902 551 534 482 628 816 721 886 7112 3 China 2710 226 558 419 365 243 138 165 183 152 302 231 5692 4 Netherlands 560 496 596 667 338 247 206 289 283 343 307 331 4663 5 Brazil 325 337 417 313 211 231 180 157 208 169 999 809 4356 6 Venezuela 350 253 294 302 298 292 415 328 395 370 335 461 4093 7 New Zealand 458 447 418 403 419 392 397 347 242 107 155 146 3931 8 Mexico 211 218 223 306 272 182 175 198 197 167 142 187 2478 9 Spain 125 152 116 44 63 8 445 213 223 252 293 399 2333 10 Chile 153 134 148 188 173 153 160 140 164 160 142 164 1879

Top 10 Countries Offering Game Copiers for Sale – 2012 (Source: MarkMonitor)

Number of Game Copier Listings Found per Month / per Country via Online Marketplaces Country Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Total 1 Brazil 2247 302 2487 2469 3612 3313 2242 2568 4007 1818 364 350 28500 3 2 United States 1299 651 786 734 793 973 926 1042 1412 1616 1749 2087 14068 3 New Zealand 809 970 781 520 610 659 547 558 492 680 508 451 7585 4 China 325 46 602 116 183 87 860 1154 562 504 268 162 4869 5 Netherlands 314 303 388 345 293 319 306 394 333 391 363 458 4207 6 Venezuela 422 289 221 202 147 227 178 191 191 167 251 423 2909 7 Mexico 336 228 211 181 184 157 213 222 146 173 222 197 2470 8 Chile 126 53 144 96 119 115 115 95 104 146 135 151 1399 9 Costa Rica 185 147 94 61 96 77 96 64 86 139 158 194 1397 10 Canada 164 130 84 84 95 131 123 100 65 92 120 119 1307

The most popular and well-known brand of game copier in

the world available on China-based marketplaces is the

“R4,” a brand of game copier manufactured almost

exclusively in China.

Based on Nintendo’s global marketplace Internet monitoring in 2013, “R4” brand game copiers accounted for a majority of game copier listings on all marketplaces globally in 2013. Over 80% of all listings in six of the other nine countries in the Top 10 (presented in the 2013 chart above) are for “R4” game copiers.

“Working With” Online Marketplaces Requires Monitoring on Front and Back End

Internet piracy enforcement in China requires constant monitoring and scrutiny, even if there is agreement with a site to remove listings of illegal goods. For example, Nintendo has been engaged with Taobao, the large Chinese-based online marketplace, in a roller coaster ride of inconsistent compliance. The chart below shows Nintendo’s efforts at sending take down notices and Taobao’s compliance for three years. It is apparent that Taobao’s compliance with Nintendo’s take down requests is sometimes outstanding, but also can be inconsistent and

28 nearly non-existent at times. When this happens, Nintendo then re-engages with Taobao. Typically this requires educating new Taobao employees as to why certain goods are illegal, and then compliance goes back up -- until it falters again and Nintendo must re-engage with them. Each time, Taobao seems to require more information from Nintendo to validate its take down requests. The most recent dip in compliance reflects three months of negotiations over new demands by Taobao for indemnification when they remove items listed.

China’s Anti-Circumvention Law is Too Burdensome to Use

Despite Nintendo’s best efforts to take action against manufacturers of game copying circumvention devices under China’s anti-circumvention laws, the legal hurdles to utilize China’s law prohibiting the manufacture and trafficking of these devices are too high. In order to obtain criminal law enforcement and prosecutor interest and support, for example, a product must be deemed to be counterfeit 1 – the legal basis for criminal prosecution consideration. In Nintendo’s experience, the police view game copiers as infringing Nintendo’s

1 A counterfeit product in China is one with the identical registered mark used without authorization on the same type of goods, while an infringing product is found if an identical or similar mark is used on the same or similar type of goods.

trademark, but not counterfeit. This distinction limits the remedies available since criminal actions are not available based on the circumvention provisions in China.

A game copier, however, violates Nintendo’s intellectual property rights in its software copyright and trademark. Unable to gain the level of interest required for a criminal enforcement action under China’s anti-circumvention and/or trademark laws, in 2013 Nintendo turned its resources toward obtaining a Chinese copyright registration in order to pursue criminal liabilities of game copiers from the copyright perspective. In the Spring of 2013, Nintendo successfully obtained its copyright registration in the software protected by its technological protection measures employed to secure its system. Now Nintendo is tasked with educating criminal law enforcement and prosecutors on the specific copyright law violation of the unauthorized copying of the software found in game copiers.

To assist in meetings with law enforcement, Nintendo is working with a representative from the Economic Crime Investigation Department ("ECID”) to ensure that the police officers consider the matter thoroughly. Since the enforcement against the unauthorized copying of software code is complicated, police officers and prosecutors must be fully informed on the core claim. Nintendo has held several meetings with the police to brief the officers on the relevant legal grounds and technical issues.

The steps imposed by the Chinese Government as a precursor to taking any actions against circumvention device manufacturers has been a lengthy process, which has caused a significant delay in obtaining any effective legal actions against rampant manufacturing and trafficking in circumvention devices. Nintendo hopes to see enforcement actions by the Chinese Government in 2014 based on software infringement and supported by the recently obtained copyright registration.

Internet Piracy in China Poses Unique IP Enforcement Challenges

One of Nintendo’s major challenges in China has been the manufacture, distribution and sale of circumvention devices that facilitate the downloading and playing of illegal Nintendo games available via the Internet. Coupled with the shifts in growth of Internet piracy due to increasing access to high-speed data, the challenges remain significant.

Data from 2013 does not show that China is one of the top 10 infringing countries in the world for illegal P2P downloads of infringing Nintendo games. This is not from a lack of online piracy in China, but is more likely due to the challenges with monitoring online piracy in China. Internet monitoring services used by rightsholders have to grasp the Chinese language nuances in their monitoring techniques and Nintendo continues to work with its antipiracy vendors to

30 improve capabilities to monitor Chinese Internet piracy, including the use of Internet monitoring capabilities located in Mainland China that searches in Chinese (Mandarin).

The results so far do not paint an accurate picture of the overall piracy in China compared to the rest of the world.

Nintendo is trying to improve its understanding of the piracy market in China by engaging a local monitoring service. For example, Nintendo’s value in its legacy titles has led to high rates of online piracy around the world. Until recently, the rate of legacy piracy in China was unknown. Through the use of this new local online monitoring service for only two weeks it is clear those in China value these legacy video games. A

January 16, 2014 report generated following only two weeks of scanning found over 64,000 unique links to Nintendo video game content.

This reflects a previously unknown rate of piracy from which a landscape can be generated so that an accurate picture of online piracy in China can be understood.

Recommendations

● Administrative authorities should issue stiffer penalties to ISPs, infringers and, sellers/distributors of circumvention devices in an effort to curtail the production and distribution of illegal products.

● Customs officers must actively seize illegal products being exported out of China – especially illegal circumvention devices leaving China for shipping abroad. The national government must place greater emphasis and dedicate increased resources to improving the Customs authority’s ability to halt the exportation of infringing items.

● Online marketplace websites must proactively monitor and remove listings of circumvention devices and terminate repeat infringer accounts.

● Given the increase in shipment of infringing products in small parcels, more efforts should focus on interdicting these shipments leaving the country, especially through postal and courier channels. * * * * *

MEXICO OVERVIEW

Nintendo recommends that Mexico be elevated to the Priority Watch List.

Key Messages: Mexico must implement fully the WIPO Internet Treaties by addressing the loophole in its law providing Mexican traffickers in circumvention devices a pass unless the devices (manufactured in China and imported into Mexico) are manufactured in Mexico.

Mexico’s law prohibits illegal circumvention devices only if the devices are manufactured in Mexico. This requirement renders the law meaningless, since virtually all the devices are manufactured in China. Mexico acceded to the WIPO Internet Treaties in 2002 and twelve years later, Mexico should by now have fully implemented the WIPO Internet Treaties.

Mexico should elevate IP enforcement as a priority and demonstrate its commitment to doing so with an increase in raids at its notorious markets as well as prosecutions resulting in convictions with deterrent sentences.

Nintendo believes raids run by Mexican authorities are still an effective way to deter criminal activity.

Mexico should rely upon the knowledge of its IP government officials who were dedicated and previously trained by U.S. IP officials, rather than dismissing most government officials trained in IP. This move has resulted in instability and the need to start training from scratch. Additionally, Mexico should cooperate with the U.S. Government to provide IP training to its newly hired civil servants.

Recommendations: • Mexico also must address its lack of norms in the area of ISP responsibility and amend its law to recognize the important role ISPs play in enforcing online piracy, including the role of a notice and take down system.

• Mexico should dedicate additional resources and provide opportunities for all law enforcement authorities and judges dealing with IP matters to regularly attend courses to improve their knowledge of IP laws and effective enforcement procedures.

• The Mexican Government must emphasize the effectiveness of raids to stop illegal vendors, suppliers and online piracy regimes – especially concerning repeat infringers and including more willingness to investigate complex online piracy regimes and seek convictions through criminal prosecutions.

• Personnel systems that only grade performance on raid numbers should be altered to recognize that the most value in thwarting IP crimes comes from building on raids to target higher levels of operating personnel (e.g., significant suppliers, traffickers, and distribution chains).

MEXICO

Nintendo recommends that Mexico be elevated to the Priority Watch List.

• Mexico must implement fully the WIPO Internet Treaties by addressing the loophole in its law providing Mexican traffickers in circumvention devices a pass unless the devices (manufactured in China and imported into Mexico) are manufactured in Mexico.

• Mexico should elevate IP enforcement as a priority and demonstrate its commitment to doing so with an increase in raids at its notorious markets as well as prosecutions resulting in convictions with deterrent sentences.

• Mexico should rely upon the knowledge of its IP government officials who were dedicated and previously trained by U.S. IP officials, rather than dismissing most government officials trained in IP. This move has resulted in instability and the need to start training from scratch. Additionally, Mexico should cooperate with the U.S. Government to provide IP training to its newly hired civil servants.

Hard goods piracy in Mexico, found at notorious physical markets such as San Juan de Dios, Tepito, Pericoapa and Meave, remains a major problem for Nintendo. These markets have sold illicit products for decades, with no end in sight. The only way to end this scourge is through a government commitment to provide resources that ensure permanent closure of markets offering counterfeit goods and hold market owners accountable for the booths engaging in illicit activities, as well as aggressively prosecuting IP crimes and finding other creative strategies to stop the distribution of pirated Nintendo video game products and other counterfeit goods.

Nintendo believes raids run by Mexican authorities are still an effective way to deter criminal activity.

Mexican agencies such as the Specialized IP Unit of the PGR, police and Attorney General’s Office must improve their cooperation and coordination in 2014 and take action against the criminals at these notorious markets.

IP enforcement must be a year-round priority for enforcement agencies. Raids must be followed with prosecutions, source investigations and indictments, or recidivist vendors will

33 continue to sell infringing products. Unfortunately, without meaningful follow-up to raids in Mexico, there is little deterrence to piracy. Nintendo understands that enforcement personnel in Mexico are normally evaluated strictly on a quantitative basis of the number of infringing goods seized. This contributes to an emphasis on lower-level raids, which can produce significant numbers of goods seized and also a reluctance to pursue those in higher positions (e.g., the distributors and suppliers) in the piracy chain, even though targeting higher levels would have more impact in thwarting piracy.

Nintendo is concerned that many Mexican government officials at all levels, who were previously trained in IP by the U.S. Government and industry, have been dismissed and replaced by new Mexican government employees with less knowledge of IP protection and enforcement methods. These dismissals of IP civil service personnel were reportedly in key IP- related agencies including the Mexican Attorney General’s office, police departments, cybercrime investigation and digital analysis departments, and some customs offices. This is highly concerning to Nintendo, due to the significant IP training resources expended over a decade by the U.S. Government and industry and progress that had been made by Mexico previously. Mexico needs to recognize the value of its previously trained employees and draw upon their IP knowledge.

The chart below shows the numbers of counterfeit Nintendo products seized in Mexico over the past five years. Seizures rebounded in 2012 after a dismal enforcement performance in 2011. In 2013, seizures of Nintendo products again went down even below the low levels of 2011. Mexican Customs was the exception and continued its outstanding work in 2013. Virtually all of the products seized, as shown in the chart below, for 2013 came from the good work of Mexican Customs.

Total Counterfeit Products Seized – MEXICO

140,000 120,000 2009 100,000 2010 80,000 2011 60,000 2012 2013 40,000 20,000 0 1

Nintendo and its representatives educate and train customs authorities around the world on detection of circumvention devices and other infringing goods. In 2013, the following trainings were held in Mexico:

Date Location Audience Mar Mexico City Mexican Association for Intellectual Property Protection (AMPPI) Conference Apr Puerto Palomas Customs – Puerto Palomas Apr Mexico City Airport Customs – Mexico City Airport Apr Ciudad Juarez - Chihuahua Customs offices of Ciudad Juarez and Puerto Palomas; IMPI; Customs Central Office May Mexico City American Chamber Mexico for Customs authorities; Mexican Customs officials, IMPI, Copyright office Jun Mazatlan Customs office in Mazatlan, Sinaloa including Mazatlan port; IMPI and Customs Central Office authorities. Oct Tijuana Customs Officials from Tijuana, Ensenada, Mexicali and Tecate; IMPI and Customs Central Office authorities.

Nintendo is grateful to those attending these trainings. One example of Mexican Customs’ agility came from Tijuana, after Nintendo received information importers were starting to shift to Tijuana because Guadalajara Customs was seizing circumvention devices. Training was then held in Tijuana late last year where customs confirmed they had seen these devices but thought they were computer equipment. Nintendo is now confident that Tijuana Customs is familiar with these devices and will screen and carry out seizures.

As noted above, however, there are recent reports that many Mexican government IP officials have been dismissed and replaced by new employees who have little knowledge of IP. This is highly concerning to Nintendo. The company will continue to participate in training efforts by the U.S. Government and industry groups supporting the new Mexican government officials to enable them to carry out effective raids, sustained investigations and prosecutions, and help them to combat IP infringement in Mexico.

Mexico’s lack of laws to enable customs officials to stop infringing goods in transit remains a concern. Despite positive work by Mexican customs officials to identify infringing goods, reportedly their efforts are hindered by the lack of legal authority to stop goods in transit that allow infringing products to transit through Mexico to other countries. Reportedly some of these goods officially destined for Central America are sent back to Mexico, or never leave the country.

Additionally, Nintendo continues to be concerned with false information provided by importers to hide their location and true identity, especially for bigger shipments.

Circumvention devices are seized under Trademark Law

Mexico’s law prohibits illegal circumvention devices only if the devices are manufactured in Mexico. This requirement is baseless and unprecedented around the world and renders the law meaningless, since virtually all the devices are manufactured in China. What should matter is whether someone is illegally trafficking in the devices. The devices are shipped into foreign countries in whole or in component parts (for in country assembly). (See pictures below on pages 43 – 45)

When Mexican Customs seizes circumvention devices it is done under Trademark Law instead of the anti-circumvention law because of this deficiency in Mexico’s laws. These game copier circumvention devices infringe a number of Nintendo’s intellectual property rights, including trademark. Mexico acceded to the WIPO Performance and Phonograms Treaty (WPPT) and WIPO Copyright Treaty (WCT) (collectively, the “WIPO Internet Treaties”) in 2002. Thus, twelve years later, Mexico should by now have fully implemented the WIPO Internet Treaties. Under this treaty, Mexico is required to provide adequate legal protection and effective remedies against the circumvention of technological protection measures used by rights holders to protect their works.

While there are a number of ways Mexico could meet its obligations, Nintendo would be pleased to provide to the Mexican Government an alternative draft provision to revise the Mexican Penal Code by adding an article in Title 26 of Book 2nd. This language would focus on making it a crime to traffic in circumvention devices in Mexico.

Illegal P2P Downloads

The chart below lists the top 10 countries where illegal P2P downloads are most popular for Nintendo video games. Data comparing 2013 to 2012 shows that Mexico moved from 7th in 2012 to 6th in 2013.

Illegal P2P Downloads of Nintendo Games Italy January 1, 2013 to December 31, 2013 (Source: DtecNet & mBargo)

Spain

Brazil

3,500,000 United States

3,000,000 France 2,500,000 Mexico 2,000,000 Germany 1,500,000 Russia 1,000,000

United 500,000 Kingdom

0 Chile

Illegal P2P Downloads of Nintendo Games Italy January 1, 2012 to December 31, 2012 (Source: DtecNet) Spain

Brazil 3,500,000 USA 3,000,000 France 2,500,000 Germany 2,000,000 Mexico 1,500,000 Chile 1,000,000 UK 500,000

0 Russian Federation

The chart below gives P2P download figures for the past four years.

MEXICO Illegal P2P Downloads of Nintendo Games 2010 - 2013 (Source: DtecNet & mBargo)

500,000

400,000 2010

300,000 2011

200,000 2012

100,000 2013

The 2013 decrease in overall number of downloads compared to 2012 is possibly due to a key factor: for the first seven months of 2013, the technological protection measures (TPMs) preventing play of pirated 3DS games were secure (i.e., unhacked). While the TPMs protecting the game content on legitimate 3DS games were broken over a year ago, the game content itself was unplayable until August 2013 upon the release of a specific circumvention device. Despite the fact that the console itself was unhacked, many users may have sought to download illegal copies of Nintendo 3DS games in preparation for the release of the device.

The chart on the next page presents the numbers of circumvention devices seized in Mexico over the past four years. The Mexican Government must recognize Mexico’s video game piracy shift from hard goods to Internet piracy facilitated through use of circumvention devices. Fortunately, in 2013 more circumvention devices were seized due to the excellent work of Mexican Customs.

Internet Auction Sites in Mexico

Internet auction sites provide an easy and relatively anonymous platform for transactions of infringing products, including circumvention devices. In Mexico, consumers continue to trade and sell infringing products on the auction site Mercado Libre, which is based in Argentina and is the largest online marketplace in Latin America.

Mexico remained a top 10 country for offering game copier circumvention devices for sale, dropping just one position from 7th to 8th while very slightly increasing the total number of infringing listings (see below chart). The demand for game copiers correlates with demand to download infringing Nintendo content from the Internet (i.e., but for the game copiers pirated software would not play on Nintendo video game systems). Nintendo has worked hard to educate auction sites around the world regarding which products are illegal and why.

Number of Listings of Game Copers on Mercado-Libre - MEXICO (Source: MarkMonitor)

4,000 2010 2011 3,000 2012

2,000 2013

1,000

Top 10 Countries Offering Game Copiers for Sale – 2012 (Source: MarkMonitor)

Number of Game Copier Listings Found per Month/per Country via Online Marketplaces Country Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec Total 1 Brazil 2247 3023 2487 2469 3612 3313 2242 2568 4007 1818 364 350 28500 2 United States 1299 651 786 734 793 973 926 1042 1412 1616 1749 2087 14068 3 New Zealand 809 970 781 520 610 659 547 558 492 680 508 451 7585 4 China 325 46 602 116 183 87 860 1154 562 504 268 162 4869 5 Netherlands 314 303 388 345 293 319 306 394 333 391 363 458 4207 6 Venezuela 422 289 221 202 147 227 178 191 191 167 251 423 2909 7 Mexico 336 228 211 181 184 157 213 222 146 173 222 197 2470 8 Chile 126 53 144 96 119 115 115 95 104 146 135 151 1399 9 Costa Rica 185 147 94 61 96 77 96 64 86 139 158 194 1397 10 Canada 164 130 84 84 95 131 123 100 65 92 120 119 1307

The Mexican website selling game copying circumvention devices shown on the next page reveals the ease of accessing devices in Mexico that circumvent TPMs and support online piracy.

Game Copiers Imported Into Mexico in Parts for In Country Assembly

Sellers, distributors and suppliers of game copying devices continue to import and assemble products for Mexican informal markets. Nintendo is grateful that Mexican Customs notifies rights holders of seizures and provides other identifying information that allows Nintendo to recognize recidivist importers. However, importers involved in shipments of circumvention devices often provide false information at the customs level, making it virtually impossible to identify true locations and individuals behind the activity. Nintendo is then unable to follow leads to assembly operations and distributors.

Customs brokers should place stricter requirements on their clients (e.g., request written statements verifying the goods shipped are authorized and information on source of goods).

January 16, 2013 - 300 internal boards for game copying devices seized by Guadalajara Customs coming from Hong Kong. Below is a separate seizure by Guadalajara Customs on the same date of 300 housing parts for game copier circumvention devices coming from Shenzhen, China. Name of importer is different but almost identical importer address.

Labels are not affixed to the product but shipped separately, again, for in-country assembly and

distribution.

Recommendations

• Mexico must update its law to implement fully its WIPO Internet Treaty obligations and make the trafficking in circumvention devices in Mexico a criminal offence.

• Mexico also must address its lack of norms in the area of ISP responsibility and amend its law to recognize the important role ISPs play in enforcing online piracy, including the role of a notice and take down system.

• Mexico should dedicate additional resources and provide opportunities for all law enforcement authorities and judges dealing with intellectual property matters to regularly attend courses to improve their knowledge of IP laws and effective enforcement procedures. Mexico should rely on government officials previously trained in IP, as well as cooperate with U.S. IP government officials to conduct IP training sessions for the newly hired Mexican civil servants.

• The Mexican Government must emphasize the effectiveness of raids to stop illegal vendors, suppliers and online piracy regimes – especially concerning repeat infringers. Mexico should commit resources, manpower and demonstrate more willingness to investigate complex online piracy regimes and seek convictions through criminal prosecutions.

• Personnel systems which only grade performance on raid numbers should be altered to recognize that the most value in thwarting IP crimes comes from building on raids to target higher levels operating personnel (e.g., significant suppliers, traffickers, distribution chains).

* * * * *

SPAIN OVERVIEW Nintendo recommends elevating Spain to the Watch List.

Key Messages: Passage of bills to reform both the IP Law/Civil Procedural Law and the Penal Code is critical to address the serious problems of: (1) websites hosted outside Spain that target Spanish consumers with links to pirated content; and (2) the trafficking of circumvention devices.

To move the implementation of the Ley Sinde in a positive direction, additional resources must be provided to the IP Commission.

Nintendo has received reports that the IPC is understaffed, lacks resources and has a significant backlog, resulting in delays of more than one year to initiate cases. The Spanish Government should provide adequate resources and IP training to enable the IPC to carry out its objectives.

Spain remains a piracy haven for the global distribution of circumvention devices.

These websites specialize in the sale of circumvention devices not only to Spanish customers, but also deliver to the majority of EU Member States and beyond (often including shipping to the US).

The high level of video game downloads by Spanish users on P2P networks directly correlates to the availability and use of circumvention devices locally.

Nintendo’s data shows that Spain is near the top of Nintendo’s top 10 chart of illegal P2P downloads for 2013. Despite the huge population difference between the U.S. and Spain, Spain saw 116% more illegal downloads than in the U.S. in 2013.

Recommendations: • Significant resources are required to support and respond to complaints filed by rights holder associations before the IP Commission. These additional resources will allow the IPC to more efficiently process complaints.

• Since so many illegal video games are downloaded in Spain from foreign-based cyberlockers, and accessed through cyberlinkers or P2P linking sites hosted outside Spain, the IPC must address this issue by authorizing the blocking of linking sites.

• Reform of the Penal Code should include an amendment for new Article 270.4.

• The Spanish Government should work with the U.S. Government and rights holders to provide necessary IP training to Spanish prosecutors, judges and IPC officials, particularly focusing on Internet piracy and effective on-line investigation, prosecution, and adjudication of criminal copyright infringement on the Internet.

SPAIN

Nintendo recommends elevating Spain to the Watch List.

● Passage of bills to reform both the IP Law/Civil Procedural Law and the Penal Code is critical to address the serious problems of: (1) websites hosted outside Spain but which target Spanish consumers with links to pirated content; and (2) the trafficking of circumvention devices.

● To move the implementation of the Ley Sinde in a positive direction, additional resources must be provided to the IP Commission.

● Spain remains a piracy haven for the global distribution of circumvention devices.

● The high level of video game downloads by Spanish users on P2P networks directly correlates to the availability and use of circumvention devices locally.

Spain remains one of the global leaders in the sale and distribution of circumvention devices and for illegal downloads of video games from the Internet. The Spanish Government has moved slowly to confront Internet piracy. Legislation to improve the piracy landscape in Spain finally passed in 2011. The law established the Intellectual Property Commission (IPC), but the IPC has been unable to effectively implement its mission. The IPC is understaffed, lacks resources and has a significant backlog resulting in delays of more than one year to initiate cases. The Spanish Government should provide adequate resources and IP training to enable the IPC to carry out its objectives.

In 2014 it is imperative that the IPC show success in addressing Spain’s widespread piracy.

Peer-to-Peer (P2P) Piracy

The pie chart above is from Nintendo’s online monitoring service and shows the countries with the greatest percentage shares of P2P piracy of Nintendo video games. The chart on the next page shows in number of downloads that Spain is near the top of Nintendo’s top 10 chart of illegal P2P downloads for 2013. Despite the huge population difference between the U.S. and Spain, Spain saw more than twice the number of illegal downloads than in the U.S. in 2013. While the total number of downloads in Spain dipped in 2013 compared to 2012, Nintendo does not believe this reflects any impact of the Ley Sinde. The decrease is more likely due to factors such as fewer Nintendo video game releases and thus fewer games to monitor, as well as less popular games and consoles, and improved security in Nintendo’s newer consoles, which remained unhacked and thus secure for most of 2013.

Illegal P2P Downloads of Nintendo Games Italy January 1, 2013 to December 31, 2013 (Source: DtecNet & mBargo) Spain

Brazil

3,500,000 United States

3,000,000 France

2,500,000 Mexico 2,000,000 Germany 1,500,000 Russia 1,000,000 United 500,000 Kingdom Chile 0

Illegal P2P Downloads of Nintendo Games Italy January 1, 2012 to December 31, 2012 (Source: DtecNet) Spain

Brazil 3,500,000 USA 3,000,000 France 2,500,000 Germany 2,000,000 Mexico 1,500,000 Chile 1,000,000 UK 500,000

0 Russian Federation

Note: In 2012, 36 Nintendo titles were monitored. In 2013, 33 Nintendo titles were monitored.

The chart below shows the 10 most popular Spanish-language P2P Portal Sites. None of the domains have been registered in Spain, and Spanish Internet hosting providers host 80% of the websites, illustrating the separation between the content and the users trying to access that content. 50

Top 10 Most Popular Spanish-language P2P Portal Sites

Webhost Domain Registrar Webhost P2P Portal Site Domain Registrar (ISP) Country (ISP) Country

United States Rackmarkt elitetorrent.net ENOM, Inc. Spain (Bellevue, WA) S.L.

GODADDY.COM, United States Rackmarkt mejortorrent.com Spain LLC (Scottsdale, AZ) S.L.

United States Rackmarkt divxtotal.com ENOM, Inc. Spain (Bellevue, WA) S.L.

United States newpct.com ENOM, Inc. OVH SAS France (Bellevue, WA)

Rackmarkt divxatope.com INTERNET.BS CORP Bahamas Spain S.L.

Rackmarkt gamestorrents.com INTERNET.BS CORP Bahamas Spain S.L.

Rackmarkt todocvcd.com INTERNET.BS CORP Bahamas Spain S.L.

United States Rackmarkt tomadivx.org ENOM, Inc. Spain (Bellevue, WA) S.L.

GODADDY.COM, United States OVH lokotorrents.com Spain LLC (Scottsdale, AZ) Hispano PDR (Public United contorrent.com Domain India CariNet States Registry.com)

Cyberlinker Piracy

Top 10 Spanish Language Linking Sites January 1, 2012 to December 31, 2013

gratisjuegos.org 4,500 ba-k.com 4,000 argentinawarez.com 3,500 wiisos.com 3,000 pordescargadirecta.com

2,500 emudesc.net taringa.net 2,000 programaswarez.com 1,500 todoroms.com 1,000 juegoswarez.com 500

The chart above and table below further illustrate the foreign hosting trend for Spanish Internet user piracy. In the chart below the term "Web Pages" reflects the number of pages on which Nintendo illegal files were found to link to. "Files Shared" is the number of illegal files shared from these link sites and the term "Web Infringements" is the number of infringements found to have occurred due to access to these illegally shared files.

Web Link Site Host Country ISP Files Shared Web Infringements Pages United States of gratisjuegos.org CloudFlare 210 455 4,384 America ba-k.com Spain Ovh Systems 401 621 3,518 United States of argentinawarez.com Voxility SRL 232 368 2,606 America wiisos.com France Ovh Systems 51 130 2,312 pordescargadirecta.com Spain Ovh Systems 117 167 1,129 emudesc.net Canada OVH Hosting 109 133 763 taringa.net Argentina Cablevision 5 6 593 programaswarez.com Spain Ovh Systems 28 31 314 todoroms.com Spain Ovh Systems 18 96 250 juegoswarez.com Spain Ovh Systems 19 20 197 TOTAL 980 1,572 11,682

To move the implementation of the Ley Sinde in a positive direction, additional resources must be provided to the IP Commission.

(a) The following results published by the IPC on November 11, 2013 set out the IPC’s achievements since it commenced more than 20 months ago:

- 394 submissions made by rights holders. - 251 submissions dismissed, proceedings not initiated - 143 submissions accepted and proceedings initiated - 73 submissions remain in the investigations phase - 5 submissions at the end of the investigations phase - 65 submissions where investigations have been completed - 18 submissions where files/links removed after the identification of responsible parties and/or intermediaries - 34 submissions where files/links have been removed after the IPC has sent a first notice sent to responsible parties and/or intermediaries - 10 submissions where files/links have been removed further to a second notice sent to responsible parties and/or intermediaries

Despite these statistics cited by the IPC, the final outcome of the above activities is that only 15 websites have ceased making available pirated content. However, none of these 15 websites had a high profile (compared to The Pirate Bay and similar international portal websites) or were among the most popular sources for pirated content for Spanish users. Furthermore, all 15 sites decided to cease infringing activities after receiving the first notice from the IPC. The IPC was not required to forward any notice to local or foreign ISP’s requesting that they stop providing IT infrastructure (hosting or access) to those sites. Notices to ISPs will almost certainly be necessary for more high profile and less co-operative targets and this enforcement tool is the cornerstone of the Ley Sinde’s potential effectiveness. But as yet it has been unused by the IPC.

The Spanish Coalition of Creators and Content Industries (Coalition) reported that its members had submitted 13 websites to the IPC where there was clear evidence of recidivism on the part of these website operators. It was the second time that each of the 13 targets had been reported to the IPC. The submissions were made to help the IPC build stronger cases of infringement against these sites. The Coalition includes the videogame industry association ADESE, of which Nintendo is a member.

The IPC has yet to respond to publisher questions regarding the numbers of infringing files/links removed since its formation. But given that each submission to the IPC involves at least 2 files/links on average and that the IPC recently confirmed that there have been a total of 65 submissions where investigations have been completed, we can roughly say that the number of files/links removed in more than 20 months has been approximately 130. Removing this

number of files/links in this given time frame is wholly insufficient to make any impact on online piracy.

Another important aspect not revealed by the IPC statistics is the delay before the IPC initiates an investigation after receiving a rights holder submission. The Coalition reports that, on average for its members, it has taken the IPC more than 400 days after receiving a submission to start its investigation. Meanwhile, piracy continues unabated. In the digital age, this is simply too slow and ineffectual to have an impact on online piracy levels. To be clear, this one year is simply to start an investigation. To complete the investigation could take a few more months.

These delays in initiating investigations could be remedied through investment of more human resources at the IPC.

More resources devoted to individual rights holder submissions should in turn result in deeper evaluation of each complaint and one would hope better quality decision-making in applying the Ley Sinde law for the purposes intended by the legislature.

(b) Status of ADESE submissions2

As shown in the table below, ADESE has submitted a total of 26 complaints to the IPC concerning 19 websites. ADESE had to re-submit seven complaints to the IPC as all these complaints related to proceedings that were formally closed by the IPC. However, all of these websites continue to make available pirated content (including unauthorized copies of Nintendo video games).

Of these 26 complaints, the IPC has made one resolution, ordering the defendant to remove the reported files/links. The IPC has not requested any ISPs to stop hosting any of these websites to prevent Spanish users from accessing them.

In three cases, the IPC closed the proceedings because of external factors (Isohunt, closed by MPAA action; Masestrenos, converted into another pirate site offering film content; and Programaswarez, where cyberlocker links became inactive further to delays).

The average time to initiate proceedings is an unbelievable 441 days. The IPC has not even started proceedings with respect to 16 submissions.

2 All ADESE submissions involve websites which contain links to pirated copies of Nintendo video games. 54

No. of Days Date IPC IPC Before IPC Complaint Proceedings Proceedings Initiated Website Referred to IPC Submitted Commenced Finished Proceedings argentinawarez.com 17/04/2012 05/02/2013 10/04/2013 294 bajui.com 20/08/2013 conemule.com 10/04/2012 contorrent.com 29/03/2012 descargas-directas.net 27/08/2013 exvagos.es 18/07/2012 exvagos.com 19/07/2013 foroxd.com 05/03/2012 11/01/2013 06/03/2013 312 gratisjuegos.org 05/03/2012 25/09/2013 25/11/2013 569 gratisjuegos.org 28/11/2013 ba-k.com 13/09/2012 ba-k.com 22/08/2013 elitetorrent.net 05/03/2012 22/05/2013 26/08/2013 443 elitetorrent.net 10/10/2013 emudesc.net 09/03/2012 11/11/2013 13/12/2013 612 emudesc.com 19/12/2013 isohunt.com* 09/08/2012 11/12/2013 489 masestrenos.com** 30/03/2012 09/09/2013 528 newpct.com 14/03/2012 08/10/2013 31/10/2013 573 newpct.com 15/11/2013 programaswarez.com 21/03/2012 27/02/2013 343 programaswarez.com 16/04/2013 ps3pirata.com 24/04/2013 condescargadirecta.com 28/03/2012 todoroms.com 27/03/2013 29/11/2013 247 zonatorrent.com 27/02/2013

Average days to initiate the proceeding 441

Complaint submitted due to recidivism *Shut down because of an MPAA action. **Shut down. Replaced by bajandopeliculas.com without videogame content

Passage of Bills To Reform The Intellectual Property Law And The Civil Procedural Law Is Critical To Addressing Two Serious Problems

The Spanish Government is currently seeking to amend three laws that could have a huge impact in reducing levels of online piracy and the proliferation of circumvention devices: The Intellectual Property Law Decree 1/1996 of April 12th (the “IP Law”); the Law 1/2000 of January 7th of Civil Procedural Law (the “Civil Procedural Law”); and the Organic Law 10/1995, of November23rd (the “Penal Code”).

Passage of these bills is critical to address the serious problems of: (1) websites hosted outside Spain but which target Spanish consumers with links to pirated content; and (2) the trafficking of circumvention devices.

(1) IP Law/Civil Procedural Law

The newly proposed IP Law is intended to build on the framework set by the Ley Sinde and provide greater clarity and certainty to the IP Commission to enable this authority to make a meaningful impact in reducing levels of online piracy.

Unfortunately, some provisions of the current draft appear to go against this intention and in fact introduce further uncertainties. For example, direct measures against the operators of pirate websites remain a last resort which means that these websites can remain operational for many months or even years after the date upon which the rights holder submits its complaint to the IP Commission.

A further example is the rather subjective and rigid criteria as to what websites qualify as a ‘responsible party’ within the meaning of the new IP Law. Cyberlinkers, the predominant source of pirated content for most Spanish consumers, would generally fall outside these criteria, which surely cannot be the intention of the legislature.

Under this newly proposed Civil Procedural Law, rights holders in civil courts will be able to lawfully identify end users and website operators who make pirate content available online. This is entirely consistent with the preliminary ruling issued by the European Court of Justice (ECJ) in the Promusicae v. Telefonica case. However, in addition, there will need to be amendments to laws governing data protection and date retention to allow rights holders to process and hold this information for the identification purposes previously explained.

(2) Penal Code

The second bill would reform the Penal Code. Unfortunately the same issues identified above with regard to the proposed IP Law are also present in the current draft of the Penal Code bill. Under the current draft provisions, pirate website operators will be able to continue operations for quite a long time without the risk of incurring criminal liability.

Importantly, the draft bill to amend the Penal Code also introduces a new Article 270.4, which seeks to clarify the previous Article 270.3 on the prohibition of circumvention devices.

Proposed Article 270.4 is largely consistent with Article 6 of the EU Copyright Directive. However, the current draft of this bill introduces a commercial purpose test to all trafficking activities, and not limited to “possession” of such devices, which is provided for under the Directive.

The current draft of new Article 270.4 is:

"Anyone who, for commercial purposes, manufactures, imports, puts into circulation or has any means primarily designed, produced, adapted or made to facilitate the unauthorized removal or the neutralization of any technical device used to protect computer programs or any of the other works, interpretations or performances in the terms set out in section 1 of this article shall be also liable to imprisonment for a term of six months to three years."

Nintendo suggests an amendment of the current draft provision as follows:

"Anyone who manufactures, imports, puts into circulation or possesses for commercial purposes any means primarily designed, produced, adapted or made to facilitate the unauthorized removal or the neutralization of any technical device used to protect computer programs or any of the other works, interpretations or performances in the terms set out in section 1 of this article shall be also liable to imprisonment for a term of six months to three years."

Spain remains a piracy haven for the global distribution of circumvention devices.

Eight out of thirteen of the most popular (by traffic ranking) e-commerce sites that offer circumvention devices for sale within the European Union are hosted in or operate from Spain. See chart below.

Three of the other five (opirata.com, mytrendyphone.it and recoverbios.com) offer a Spanish language option on their page.

These websites specialize in the sale of circumvention devices not only to Spanish customers but also deliver to the majority of EU Member States and beyond (often including shipping to the US).

Domain Selling ISP Hosting Est. Visitors Language ISP country Country opirata.com England France 14,000 Multiple OVH Systems chipspain.com Spain Spain 10,700 Spanish acens Technologies, S.L. mytrendyphone.it Italy Denmark 7,700 Multiple DanDomain e-nuc.com Spain Spain 6,600 Multiple ONO gsmpunt.nl Netherlands Netherlands 4,800 Dutch XS4ALL Internet BV impextrom.com Spain United 4,700 Spanish Simply Transit Ltd Kingdom microcubo.com Spain Spain 3,700 Spanish OVH Systems incopia2.com Spain Spain 3,500 Spanish Axarnet Comunicaciones SL digimaniaz.com France Canada 2,500 French Netelligent Hosting Services zonavirtual.es Spain France 1,900 Spanish Tiscali France tuconsola.com Spain Netherlands 1,900 Multiple LeaseWeb B.V. recoverybios.com Italy United 1,900 Multiple Linode, LLC Kingdom alvicius.com Spain Spain 1,800 Spanish DinaHosting S.L. Red: Site is hosted in or operating from Spain. Blue: A non-Spain site that has a Spanish language option.

As Nintendo has obtained numerous positive court decisions against game copier sellers in other EU Member States (e.g. France, Germany, Italy, UK, Belgium and the Netherlands), Nintendo has identified an increase in the number of e-commerce sites selling game copiers operating from Spain. This has reached the extent that Spain has become Europe’s primary haven for sellers of game copiers.

The inconsistency in which Spanish criminal courts have applied the existing Article 270.3 of the Penal Code against sellers of circumvention devices has resulted in game copier sellers setting up their businesses in Spain. Further clarity of the existing legal provisions is required and the current draft of the new Article 270.4 (cited above) should help provide this.

In addition, Nintendo will support efforts by the U.S. Government and IP rights holders to provide necessary IP training to Spanish prosecutors, judges and IPC officials, particularly focusing on how to investigate, prosecute and adjudicate criminal copyright infringement on the Internet. It is imperative that the Spanish criminal Courts apply the laws and impose criminal sanctions against sellers of circumvention devices in order to deter such criminal activity from proliferating in Spain. Without such IP training and the commitment of the Spanish Government to seek deterrent sentences against this type of criminal activity, online piracy and the use of circumvention devices will continue to increase in Spain.

Recommendations

• Significant resources are required to support and respond to complaints filed by rights holder associations before the IP Commission. These additional resources will allow the IPC to more efficiently process complaints.

• Reform of the Penal Code should include an amendment for new Article 270.4.

• The Spanish Government should work with the U.S. Government and rights holders to provide necessary IP training to Spanish prosecutors, judges and IPC officials, particularly focusing on how to investigate, prosecute and adjudicate criminal copyright infringement on the Internet.

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CONCLUSION

The Special 301 process has become one of the most effective tools the U.S. has to encourage countries to make the necessary commitment to improve their intellectual property protection to the level of international standards. Nintendo of America Inc. respectfully submits its recommendations on Brazil, China, Mexico and Spain. Nintendo welcomes the opportunity to work with USTR and other involved federal departments and agencies in any way possible to reduce piracy in all countries, and would be pleased to provide any further information or documentation.

Very truly yours,

NINTENDO OF AMERICA INC.

Devon Pritchard Senior Vice President, General Counsel