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* Dispute over Internet gambling dates back to 2003
* US: Antigua has "unrealistic demands" for resolving spat
By Doug Palmer
WASHINGTON, Jan 28 (Reuters) - The United States warned Antigua and Barbuda on Monday not to retaliate against U.S. restrictions on Internet gambling by suspending American copyrights or patents, a move it said would authorize the "theft" of intellectual property like movies and music.
"The United States has urged Antigua to consider solutions that would benefit its broader economy. However, Antigua has repeatedly stymied these negotiations with certain unrealistic demands," said Nkenge Harmon, a spokeswoman for the U.S. Trade Representative's office.
The strong statement came after the tiny Caribbean country said it would suspend U.S. copyrights and patents, an unusual form of retaliation, unless the United States took its demands for compensation more seriously in a ruling Antigua won at the World Trade Organization.
"The economy of Antigua and Barbuda has been devastated by the United States government's long campaign to prevent American consumers from gambling on-line with offshore gaming operators," Antigua's Finance Minister Harold Lovell said in a statement.
"We once again ask ... the United States of America to act in accordance with the WTO's decisions in this matter."
U.S. copyright holders also blasted Antigua's plan.
"We are of the firm view that suspending intellectual property rights is not the right solution, and that state-sanctioned theft is an affront to any society," Steve Metalitz, counsel to the International Intellectual Property Alliance, said in a statement.
Antigua, a former British colony with few natural resources, has knocked heads with the United States since the late 1990s, when it began building an Internet gambling industry to replace jobs in its declining tourist industry.
The gambling sector at its height employed more than 4,000 people and was worth more than $3.4 billion to the country's economy, but it has shrunk to fewer than 500 people because of U.S. restrictions, the Antiguan government says.
The United States said it never intended as part of its WTO commitments to allow foreign companies to offer online gambling services. In 2007, it began a formal WTO procedure to withdraw the gambling concession and reached a compensation package with all WTO members, except Antigua.
Antigua argued in a case first brought to the WTO in 2003 that U.S. laws barring the placing of bets across state lines by electronic means violated global trade rules.
It won what it considers a key victory in 2005 when the WTO ruled a U.S. law allowing only domestic companies to provide online horse-race gambling services discriminated against foreign companies.
When the United States failed to change the law, the WTO in 2007 gave Antigua the right to retaliate by waiving intellectual property rights protections on some $21 million worth of U.S. goods annually, a fraction of the $3.44 billion the island country requested.
Typically, the WTO authorizes countries to retaliate by raising tariffs. But in Antigua's case it decided the country was too small for that step to be an effective tool to persuade the United States to change its law.
Harmon said Antigua would be unwise to proceed with the plan "to authorize the theft of intellectual property."
"Government-authorized piracy would undermine chances for a settlement. It also would serve as a major impediment to foreign investment in the Antiguan economy, particularly in high-tech industries," he said.
Mark Mendel, an attorney for Antigua, said he was flabbergasted the United States would scold Antigua for seeking to impose sanctions authorized by the WTO.
"The Americans never negotiated with us. That's the thing about what they say that makes us so upset," Mendel said.
Antigua still holds out hope of reaching a negotiated settlement, but after waiting more than five years its patience is running out, Mendel said.
If the United States remains unwilling to open its market in online gambling, Antigua is interested in what else Washington can do to help it create jobs, Mendel said.