ISRAEL

Israel is being maintained on the Watch List due to continuing serious U.S. concerns regarding its policies on data protection for proprietary test data and national treatment for U.S. rights holders in sound recordings. In 2003 Israel was moved from the Priority Watch List to the Watch List. Last year's move was based primarily on Israel's improvements in copyrights and trademark enforcement, as well as on senior-level assurances that OECD-level protection would be implemented for confidential test data submitted by innovator pharmaceutical and agricultural chemical producers, i.e., third parties would be prevented from relying on those data to obtain marketing approval ("data exclusivity"). Israel has also offered assurances in the past that it would take no action to affect its policy of national treatment copyright protection for U.S. producers of phonograms. Over the last year, Israel made further headway in copyright and trademark enforcement. We note that Israel recently joined the U.S. and ten other countries in the largest single law enforcement action ever undertaken against Internet piracy. While it remains to be seen whether Israeli prosecutions will result from this action, we view Israel's willingness to participate as a positive indication of Israel's willingness to improve criminal IPR enforcement. However, U.S. industry notes that the persistence of a significant level of piracy suggests that additional enforcement resources may be needed.

On the key issue of data exclusivity, Israel's actions have not met U.S. expectations. In April 2004, the Israeli Government developed a set of recommendations on data exclusivity that recognized for the first time the need to provide a minimum five-year period of protection for confidential test data for innovator firms in Israel. However, several serious shortcomings in the recommendations would severely compromise the data protection afforded by Israel, keeping it far short of OECD-level standards for data exclusivity. The Israeli Government has postponed further action on its data exclusivity recommendations and provided written assurance that it will engage with the United States to address U.S. concerns on data exclusivity. In addition, U.S. biotechnology firms suffer from a lack of adequate protection for their intellectual property, due to an onerous patent system that allows competitors to stall the grant of patent rights through open-ended, pre-grant opposition proceedings, as well as the lack of data exclusivity. Regarding the national treatment issue with respect to copyrights in sound recordings, new provisions in Israel's draft copyright bill, coupled with Israel's failure to provide clarification on the future status of national treatment, run counter to Israel's previous assurances and have reinforced U.S. concerns that it could cease national treatment protection for U.S. rights holders. An out-of-cycle review will be held this summer to assess whether Israel has made sufficient progress in responding to U.S. concerns on confidential test data, in ensuring that Israel will continue to provide national treatment for U.S. rightholders in sound recordings, and to consider whether Israel's Special 301 status should be changed.