The IP Law Modification incorporates awhole new chapter III to Title IV of the IPLaw, following very closely the IP chapterof the Free Trade Agreement signed bet­ween USA and Chile. For the first time the law provides for certain limitations to ISP’sliability in case of IP violations committedthrough their networks and systems. Appli­cation of these new rules shall be without prejudice of the application of the generalrules on civil liability.

IP Law Modification sets a new rule, uponwhich the ISPs shall be exempt from having to compensate IP rights owners incase of damages suffered by these ownersdue to actions committed through the ISP’snetworks, provided the ISPs fulfill certainconditions. These conditions may vary depending on the service provided.

In order to fall into this safe harbor framework, ISPs must:

a) Have established public and generalterms upon which they may exercise their right to terminate their agreements withcontent providers that are judicially quali­fied as repeated offenders against the IPrights protected by law;

b) Not interfere with the technologicalmeasures of protection and rights mana­gement of protected works that are widelyacknowledged and legally used, and

c) Not have generated nor have selec­ted the content or its addressees. Additionally, said ISPs must adhere to other conditions, specific for each servicethey provide. For said purpose, the lawdistinguishes between:

a) data transmission, routing or connec­tion supply service providers;

b) temporary automatic data storage; and

c) service providers that, upon user request, store data in their networks orsystems, either by themselves or third par­ties, or provide services that include search, linkage or reference to Web sitesby means of search engines, includinghyperlinks and directories.

In order to properly observe the constitutio­nal rights of privacy and safety of commu­nications, a prohibition of surveillance oroversee data is also imposed. Service pro­viders are not required to perform activesearches of illicit activities nor supervisethe content of data transferred, stored or referenced.

A special, brief and summary proceeding isalso set forth in order to safeguard IP rights against violations committed through net­works or digital systems. These proceedingsinclude measures destined to withdraw, disqualify or block infringing content in theISP’s network or systems. In this matter, Chi­lean law opted for the judicial notificationsystem, a process in which the order to with­draw contents from the web is preceded by ajudicial analysis of the existence of anyinfringement. This system is different fromthe American notification system, uponwhich the affected party may notify the ISPof the existence of the violating content.

The law also provides for the right of IPowners to judicially request the delivery ofnecessary information to identify the provi­der of infringing content.

2. Piracy Countermeasures

The current regime of civil and criminaloffenses of IP rights is considered inade­quate by many. The increase of piracy inChile, which keeps it in the priority watch list in the “2010 Special 301 Report” ¹ prepared by the US Trade Representative Office,brought about the need to modernize the tools that would allow a better protection for theIP owners, establishing effective measures against violations commonly referred to aspiracy by means of civil and criminal actions.

Specifically, there is the intention of fighting piracy and unauthorized uses by means of more and better legal actions for use in the investigation and harsher punishment for the offenses. This should be a very relevant issue for the international public opinion, since piracy in Chile doubles that of the OCDE country members, according to the Business Software Alliance. ²

The IP Law Modification sets out a new chapter of civil and criminal sanctions to the infrin­gement of IP rights and derivative works, as well as new mechanisms and procedural tools to be used in case of uses outside the

legal framework.

This chapter stands out because of the reunion of several different criminal offen­ses, which used to be dispersed throug­hout the regulation. New offenses are incorporated as well, with penalties gra­duated according to the damage inflicted,

therefore introducing objective factors thatallow a more fair sanction. The supplemen­tary sanction for not categorized violationsis kept, which corresponds to a fine of 5 to50 UTM.

In general terms, the criminal penalties are also kept, but the amount of the fines is hea­vily increased, leveling with those establis­hed in the Industrial Property Law.

The IP Law Modification describes as offenses:

-Any unauthorized use of IP protec­ted works and interpretations, produc­tions and broadcastings of derivative works.

-Forgery of literary, scientific or artistic works protected by law; of exe­cution charts; of the number of effecti­vely sold copies; of standing to authori­ze the use of IP rights or licenses regar­ding performances or interpretations ofprivate domain sound recordings.

-Plagiarism of IP protected works,whenever the author’s name is changedor deleted or the title of the work or its text is maliciously altered.

-Omission to make execution charts by those obliged to pay retribution basedon the use of IP rights or derivative works,whenever those charts are necessary forthe collective management of IP rights; andthe forgery or adulteration of said executioncharts and certain data in the state of account.

Piracy is a central element in this modifica­tion, seeking to substantially improve thelegal framework applicable to individualsand criminal organizations dedicated to theillegal manufacture, distribution and marke­ting of products or creations. Therefore, aspecific criminal regulation is established incase of piracy, increasing up to two degrees the maximum penalty applicable. The lawdistinguishes the marketing of illicit copiesor protected works from those who, withintent to make a profit, manufacture, import,have or acquire for commercial distributionor rental purposes said illicit copies. Repea­ted offenders are strongly penalized.

Procedural means and mechanisms in the law are perfected. The IP owner’s right to exercise actions destined to cease the illicit activity, indemnify economic and moral loses and publish the subsequent judgment is recognized. As per request of said owner, the offending goods shall be destroyed or set aside from commerce and illicit copies can only be destined to chari­table work with the express authorization of the IP owner.

New preventive measures destined to cease the illicit activity are granted. Thesemay be ordered in any stage of the trial andhave to be requested by the party. Undercertain conditions, these measures may berequested on a pre-judicial basis.

In order to calculate the compensation, theaffected party may choose between theremuneration the offender should have paidto the IP owner in order to acquire a properlicense or the profits lost due to the infringe­ment. The legitimate sale value of the infrin­ged goods shall be taken into account inorder to determine the pecuniary damage.In regards of the determination of moral damage, the judge shall consider the circums­tances of the infringement, the seriousness ofthe damage and the objective degree of illicitspreading of the work.

3. New Exceptions to IP rights

The introduction of this chapter was motiva­ted by the interest to balance the IP owner’srights with the rights of the community as awhole to legally access the protected crea­tions. Therefore, a series of limitations and exceptions within the legal framework wereincluded, which grant access to cultural goods and the legitimate exercise of funda­mental rights by the community, just as it isrecognized in most countries.

These exceptions shall be applicable to IPrights and to deri­vative works when appropriate.

The right to quote is extended and more thoroughly detai­led, being the purpose of the use of the fragment the maincriterion. Right to quote may be used for criticizing, illus­trating, teaching or investigative purposes.

Neither authorization nor payment shall be required, as long as the source, work’s title andauthor’s name are mentioned.

A new exception is set forth regarding the visually and hearing handicapped, as well asother kind of disabilities. Within this exception, the reproduction, adaptation, distribu­tion and public communication of protected works is permitted, as long as there is nocommercial interest and is always performed within the scope of people suffering therespective disability.

Some anachronistic expressions are replaced, bringing about technological neutrality,like exceptions for libraries and archives, exceptions for educational purposes, excep­tions applicable to satire and comedy, along with exceptions for computer software.Among the latter, two new exceptions are added in compliance with the US free tradeagreement. Said exceptions protect reverse engineering activities executed upon lega­lly acquired software, with the sole purpose of achieving operative compatibility bet­ween software or for investigative and research purposes. On the other hand, activitiesexecuted with the sole purpose of testing, investigating or correcting the operation orsecurity of the computer in which the software is installed, are also protected.

A temporary copy exception is also added. This exception is subject to com­pliance with certain and specific condi­tions regarding its use, always within the framework of technological procee­dings application.

Finally, the removal of article 45 bis must be emphasized, which established the so called “three step rule”, which is included in the Bern Convention and the TRIPS agreement of the World Trade Organiza­tion. This rule had been drafted as an imposition of additional conditions for the compliance of the old exceptions. Such removal was made with the intention to provide a more objective nature to the exceptions regime, thus avoiding the uncertainty caused by the need to provide additional explanations of such conditions.

¹ This report states that Chilean’s IP performance is way below the expectations of a free trade agreementpartner.

² Diario Financiero, Wednesday February 3rd, 2010, printed Edition.