[Senate Hearing 108-587]
[From the U.S. Government Publishing Office]
S. Hrg. 108-587
PIRATES OF THE 21ST CENTURY: THE CURSE OF THE BLACK MARKET
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HEARING
before the
OVERSIGHT OF GOVERNMENT MANAGEMENT,
THE FEDERAL WORKFORCE AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE
of the
COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
APRIL 20, 2004
__________
Printed for the use of the Committee on Governmental Affairs
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COMMITTEE ON GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama MARK PRYOR, Arkansas
Michael D. Bopp, Staff Director and Chief Counsel
Joyce A. Rechtschaffen, Minority Staff Director and Counsel
Amy B. Newhouse, Chief Clerk
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OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE AND THE
DISTRICT OF COLUMBIA SUBCOMMITTEE
GEORGE V. VOINOVICH, Ohio, Chairman
TED STEVENS, Alaska RICHARD J. DURBIN, Illinois
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
ROBERT F. BENNETT, Utah THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois FRANK LAUTENBERG, New Jersey
JOHN E. SUNUNU, New Hampshire MARK PRYOR, Arkansas
Andrew Richardson, Staff Director
Marianne Clifford Upton, Minority Staff Director and Chief Counsel
Kevin R. Doran, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Voinovich............................................ 1
WITNESSES
Tuesday, April 20, 2004
Jon W. Dudas, Acting Under Secretary of Commerce for Intellectual
Property, and Acting Director, U.S. Patent and Trademark Office 5
Francis Gary White, Unit Chief, Commercial Fraud Division,
Immigration and Customs Enforcement, Department of Homeland
Security....................................................... 7
Daniel C.K. Chow, Professor, The Ohio State University College of
Law............................................................ 22
Jeff Gorman, President and CEO, The Gorman-Rupp Company,
Mansfield, Ohio................................................ 25
Phillip A. Rotman, II, Assistant Patent and Trademark Counsel,
Dana Corporation............................................... 27
Alphabetical List of Witnesses
Chow, Daniel C.K.:
Testimony.................................................... 22
Prepared statement with attachments.......................... 65
Dudas, Jon W.:
Testimony.................................................... 5
Prepared statement........................................... 43
Gorman, Jeff:
Testimony.................................................... 25
Prepared statement........................................... 85
Rotman, Phillip A., II:
Testimony.................................................... 27
Prepared statement with attachments.......................... 91
White, Francis Gary:
Testimony.................................................... 7
Prepared statement........................................... 54
APPENDIX
Questions and Responses for the Record from:
Mr. Dudas.................................................... 115
Mr. White.................................................... 119
PIRATES OF THE 21ST CENTURY: THE CURSE OF THE BLACK MARKET
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TUESDAY, APRIL 20, 2004
U.S. Senate,
Oversight of Government Management, the Federal
Workforce, and the District of Columbia Subcommittee,
of the Committee on Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 9:33 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. George
Voinovich, Chairman of the Subcommittee, presiding.
Present: Senator Voinovich.
Staff Present: Amanda Nichols, Counsel; Andrew Richardson,
Staff Director; Kevin Doran, Chief Clerk; Marianne Upton,
Minority Staff Director, and Deborah Parkinson, Minority Staff
Assistant.
OPENING STATEMENT OF SENATOR VOINOVICH
Senator Voinovich. The meeting will come to order. Good
morning, and thanks very much for being here today.
The title of this hearing this morning is, ``Pirates of the
21st Century: The Curse of the Black Market.'' It's a pretty
serious title. It could be a movie title, and if somebody would
make a movie about it, I think the American public might be so
engaged that we would really start getting something done about
the problem that we have.
We're going to focus on the effectiveness of the Federal
Government's efforts to enforce intellectual property rights.
Specifically, this hearing is going to examine the activities
of the Department of Commerce, the Office of the U.S. Trade
Representative (USTR), and the Department of Homeland Security,
to protect U.S. intellectual property interests both at home
and abroad.
I want to begin by noting that the Office of the United
States Trade Representative was unable to send a witness. This
is very distressing to me, as the USTR plays a prominent role
in intellectual property issues, and I believe their testimony
is crucial to uncovering why it seems that we are not getting
the job done in enforcing our intellectual property rights. I
also find it ironic that they did not have anyone to send.
One topic I wanted to cover with them today is their lack
of resources, particularly their staffing levels. This is an
office of 225 people, with a budget of roughly $40 million. In
my December hearing, where I focused on the human capital
challenges at USTR and Commerce, I was shocked to learn that an
office as small as USTR had so many responsibilities. I was
also shocked to hear that USTR testified that it relied heavily
on personnel from other agencies to perform their functions.
If USTR were present today, I would again ask questions
concerning their small staffing and funding levels and whether
they have the right number of people, with the right amount of
resources, to protect U.S. intellectual property rights and
subsequently U.S. manufacturing jobs.
This is a very important issue. This agency needs to be
examined to determine if it has the resources to successfully
carry out its mission. I intend to ask the General Accounting
Office to look into the issue and report back to me what they
find. I would also like to add that although USTR is not here,
they have agreed to answer questions from Subcommittee Members
after the hearing in writing, and I certainly have some
questions for them.
The importance of our hearing today is underscored by the
fact that the United States has lost over 2.7 million
manufacturing jobs since July 2000. In July 2000, there were
more than one million manufacturing jobs in the State of Ohio.
Yet, by October 2003, this had fallen to 840,000. This is a
loss of 17.6 percent of the State's manufacturing employment, a
loss of more than one out of every six Ohio factory jobs.
These numbers represent a crisis for Ohio's economy,
especially since the manufacturing sector in Ohio accounts for
the second highest weekly earnings of any economic sector and
supports local communities and schools with more than $1
billion in corporate franchise and personal property taxes.
Ohio's manufacturing companies are distressed by our
current trade priorities, especially with regards to China. I
have heard it over and over and over again. As I meet with
business leaders throughout the State, one of their top
concerns is their inability to compete on a level playing field
with their Chinese competitors. Many of them are for free
trade, but they really don't believe that we have fair trade,
as they feel that our government's policies with respect to
intellectual property rights are not helping to level the
playing field and affecting their bottom line.
This is not surprising, however, when you look at the
statistics on the subject. The International Chamber of
Commerce estimates that counterfeiting drains between $300-$350
billion annually from the world's economy. This is roughly 5 to
7 percent of total world trade, and each dollar lost to
American citizens and companies ends up lining the pockets of
people I refer to as criminals. They are criminals. Actually,
they are stealing ideas from other people and selling them on
the marketplace. That's theft.
For U.S. manufacturers, protection of intellectual property
is not an abstract concept. America's competitive edge is
derived from innovation and rising productivity, and the
protection of intellectual property remains one of the best
means for ensuring that American manufacturers enjoy the
benefits of their investments.
The very foundation of our economy is the American
entrepreneur, but who will want to continue on this path if
your work product can be stolen out from under your nose at
every turn? In fact, the International Anti-Counterfeiting
Coalition puts revenue loss--this is a stunning number--to U.S.
trademark holders at $200 billion a year.
While USTR's Special 301 report contains a lengthy list of
countries with deficient intellectual property protection, this
hearing will place a specific emphasis on counterfeit goods
from China, which remains the leader in counterfeit goods
production for the majority of U.S. companies. It is estimated
that 15 to 20 percent of all products made in China are
counterfeit, and this accounts for roughly 8 percent of the
Chinese gross domestic product. In fact, the Bureau of U.S.
Customs and Border Protection seizure statistics show that
about one-half of all intellectual property related seizures
for anywhere in the world involving goods entering a U.S. port
are from China.
I am not surprised by these numbers. This has been an
ongoing problem with China for some time now. USTR cited
China's failure to provide adequate protection of patents,
copyrights and trademarks back in 1991, when it threatened to
impose a billion-and-a-half dollars in trade sanctions.
When I was in China on a trade mission as governor of the
State of Ohio in 1995, this was an issue that I talked about
constantly with Chinese Government officials.
At that time, the International Intellectual Property
Alliance, an association of major U.S. copyright-based
industries, had estimated that intellectual property rights
piracy by Chinese firms cost U.S. firms $2.3 billion in lost
trade. The terms of China's WTO accession required that China
immediately bring its intellectual property laws into
compliance with the WTO agreement on Trade Related Aspects of
Intellectual Property Rights. But I haven't seen any evidence
that China's behavior has changed a bit since then. We need to
stop standing by and watching as, year after year, China
continues to counterfeit U.S. products, costing many Americans
their jobs.
While a wide variety of manufacturing industries have
experienced job losses related to intellectual property rights,
I would like to focus specifically on one industry which has a
large presence in my State: The automobile industry. According
to a 2003 report from the U.S. Federal Trade Commission, the
counterfeit auto parts industry accounts for $3 billion in
business to the United States alone, and $12 billion per year
globally. The Commission has also estimated a related loss of
about 250,000 domestic jobs in the auto industry as a result.
Automotive suppliers across the country have identified this
rising illegal practice as a risk to their global sales and
operations. Many U.S. automobile parts manufacturers have
sustained damage to their international branding and
reputations as a result of active efforts to copy their
packaging and trademark protected materials. Senator Levin and
I are co-chairs of the Senate Auto Caucus and we are very
concerned about this issue.
The purpose of this hearing is to learn what the Executive
Branch is doing about this and whether their efforts are
succeeding. I was encouraged to see some progress on the issue
in the January 2004 Commerce Department manufacturing report,
which stated that: ``to the extent that U.S. investment in
research and development provides a competitive edge in the
marketplace, the protection of the intellectual property
developed by U.S. manufacturers which embodies the product of
that research becomes critical to the future of the
manufacturing sector.'' I just wonder, though, how many other
Commerce Departments have said this over the years. I will be
interested to hear how the Commerce Department today plans to
follow through on that statement.
I was also encouraged to read in the same report that
Commerce will be reinforcing the efforts of the National
Intellectual Property Law Enforcement Coordination Council,
which has been around since 1999, whose mission is ``to
coordinate domestic and international intellectual property law
enforcement among Federal and foreign entities.'' With so many
agencies, namely Commerce, Homeland Security, USTR, Justice and
the FBI all involved in efforts to fight counterfeiting, I
believe this Council will be crucial to maximizing the
government's effectiveness in this area. I am interested to
learn everyone's opinion on how successful this Council has
been and the prospects for its future success.
I am looking forward to hearing the testimony of all of our
witnesses today and learning what more we can do to find
solutions to this challenge. American manufacturers, including
those in Ohio, have run out of patience as they see jobs lost
to intellectual property piracy and the flourishing black
market of the 21st Century.
We have a nice line up of witnesses today. On our first
panel we have two witnesses representing the Bush
Administration. First is John Dudas, Acting Under Secretary for
Intellectual Property within the Department of Commerce, and
Director of the U.S. Patent and Trademark Office. We also have
Francis Gary White, Unit Chief of Commercial Fraud, Immigration
and Customs Enforcement, U.S. Department of Homeland Security.
I am really glad to have both of you here. Mr. White, I am
also very happy that you're here because you are actually
``hands on'' in terms of the operation. So often we get people
that are higher up and when you start asking questions about
what happens, they really don't know because they have so many
other responsibilities on their plate.
James Mendenhall, the Assistant U.S. Trade Representative
for Intellectual Property, was scheduled to testify but
cancelled at the last minute. As I said, I am very disappointed
that the USTR isn't here today because they are very much a
part of this whole issue.
Our second panel consists of three Ohio witnesses. First
we're going to hear from Professor Daniel C.K. Chow of the
Michael E. Moritz College of Law at Ohio State University, my
alma mater. Michael Moritz, who the college was recently named
after, was one of my classmates, in my graduating class. In
fact, it's interesting, that we both ran for president of the
law school Young Republican Club. I won and he lost. We had a
class reunion 2 years ago here in Washington. They said, well,
Moritz might be the Senator and Voinovich might be in Moritz'
position. I said there is no way in the world that if I was a
practicing lawyer I would have been able to contribute $30
million into the Ohio State University College of Law.
Joining Professor Chow is Phillip A. Rotman II, Assistant
Patent and Trademark Counsel for Dana Corporation. Dana is
based in Toledo and is celebrating its 100th anniversary this
year. Finally, we're going to hear from Jeff Gorman, President
and CEO of the Gorman-Rupp Company, headquartered in Mansfield,
OH.
I want to thank all of you for making the trip to
Washington today. Again, thank you for coming.
If all the witnesses would please stand, I will administer
the oath. Our testimony is sworn to before this Subcommittee.
So if you would stand and raise your right hand.
Do you swear that the testimony you are about to give
before the Subcommittee is the truth, the whole truth, and
nothing but the truth, so help you, God?
[Affirmative responses.]
Let the record show that the witnesses have answered in the
affirmative.
Mr. Dudas, will you begin, please.
TESTIMONY OF JON W. DUDAS,\1\ ACTING UNDER SECRETARY OF
COMMERCE FOR INTELLECTUAL PROPERTY, AND ACTING DIRECTOR OF THE
U.S. PATENT AND TRADEMARK OFFICE
Mr. Dudas. Thank you, Mr. Chairman. Thank you for the
opportunity to appear before you and discuss the problem of
counterfeiting and intellectual property theft and piracy and
the Department of Commerce's role in protecting intellectual
property abroad.
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\1\ The prepared statement of Mr. Dudas appears in the Appendix on
page 43.
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Secretary of Commerce Don Evans is keenly aware of the
increasing significance of intellectual property protection for
American businesses and innovators and has made combating
counterfeiting and piracy a top priority for the entire
Department.
As you know, intellectual property is a net export of the
United States and is responsible for creating and sustaining
tens of millions of jobs in the United States. As Acting Under
Secretary of Commerce for Intellectual Property and Acting
Director of the Patent and Trademark Office, I am dedicated to
coordinating U.S. Government efforts to reduce the toll that IP
theft takes on American IP owners and users. I commend you for
holding today's hearing and am grateful to the Subcommittee for
its interest in finding additional ways to protect U.S.
intellectual property owners' assets overseas and, as you
mentioned, informing people of the importance of this issue and
these problems that we face.
Increasingly, both the United States and our trading
partners are relying on intellectual property to drive economic
growth. This is because competitive success in a market economy
depends heavily on intellectual property assets held by an
institution.
Piracy and counterfeiting threaten to undermine some of the
strongest areas of growth in the U.S. economy. According to the
International Intellectual Property Alliance, U.S. copyright
industries continue to lead the U.S. economy in their
contributions to job growth, gross domestic product, and
foreign sales/exports. Between 1977 and 2001, the U.S.
copyright industries' share of the GDP grew more than twice as
fast as the rest of the U.S. economy.
The costs of counterfeiting and piracy are not merely
economic. Consumer health and safety is at stake as well. U.S.
Food and Drug Administration counterfeiting investigations have
jumped from about 5 in the late 1990's to 22 in 2002.
Counterfeit drugs very often contain no active ingredient, or a
mixture of improper active ingredients. Counterfeit batteries
can explode in electronic equipment or children's toys. Even
product approval marks certifying a product's safety are now
being counterfeited widely.
To make matters worse, the global criminal nature of IP
piracy is all too real. During a House International Relations
Committee hearing in 2003, the Secretary General of Interpol
identified a disturbing potential trend when he testified that
IP crime is becoming the preferred method for funding a number
of terrorist groups. A customs expert with the European
Commission recently stated that al-Qaeda and Hezbollah are
among organizations believed to be using counterfeit goods to
launder money and fund their activities.
The USPTO is directed by statute to advise the President,
through the Secretary of Commerce, and advise all Federal
agencies on national and international intellectual property
policy issues, including intellectual property protection in
other countries. The USPTO also serves as the co-chair, as you
mentioned, with the Criminal Division of the Department of
Justice of the National Intellectual Property Law Enforcement
Coordination Council, or NIPLECC, which is tasked with
coordinating domestic and international intellectual property
law enforcement.
The USPTO provides intellectual property enforcement
training and technical assistance on a truly global basis. Over
the last several years, the USPTO has assisted countries around
the world in establishing adequate enforcement mechanisms to
meet their obligations under TRIPs. We provide technical and
legal advice to the USTR through the annual Special 301
process, the TRIPs council review of implementing enforcement
legislation, and in the negotiation of free trade agreements.
Our approach to the ongoing FTA negotiations has been to
follow a TRIPs-plus format by expanding the minimum standards
set out in TRIPs. One way of achieving the TRIPs-plus goal is
be enhancing the enforcement provisions contained in the TRIPs
agreement and combining them with the enforcement provisions
contained in the World Intellectual Property Organization
Internet treaties.
As I am sure the Subcommittee is aware, and as you noted,
one of the areas of greatest concern with respect to
intellectual property piracy is Asia, and particularly mainland
China. Despite China's membership in the WTO, and its
requirement to comply with the TRIPs agreement, the lack of
effective IP enforcement in China is a major problem for U.S.
business interests, costing potentially billions and billions
of dollars in lost revenue.
Last fall, Secretary Evans led a mission to China and
highlighted China's lack of intellectual property rights
enforcement. The Secretary met with high-ranking Chinese
officials and reiterated a continuing concern, that effective
IPR protection requires that criminal penalties for stolen
intellectual property theft and fines are large enough to be a
deterrent rather than a mere business expense. Secretary Evans
has carried a strong message of the need for results, results
that can be measured so that progress can be identified. That
is perhaps the most important issue in China, to see a trend
where results are identified and we can see progress.
As a follow up to the Secretary's October 2003 trip, I
recently led a delegation to China with other members of the
USPTO China team for consultations with senior officials at
China's patent and trademark office and other intellectual
property agencies, as well as customs and enforcement. While
our visits were well-received and we were pleased to note a
continuing and increasing awareness among Chinese officials of
the importance of IP protection and enforcement, we have not
yet seen significant progress on most of the key issues we have
been urging China to act on for some time. These issues include
enhanced criminal enforcement, protecting copyrights over the
Internet, and stopping the export of counterfeited goods.
Mr. Chairman, the demands on Commerce and USPTO's expertise
in the international arena have grown dramatically in the last
few years. These demands will certainly increase in the next
few years, as well as our obligations to meeting our core
missions.
I am hopeful that with the continued support and
partnership of this Subcommittee, we will be able to provide
American intellectual property owners with the protection they
deserve and need.
In terms of the economy and national security, much is at
stake. That is why our experts will continue to work tirelessly
to protect American products in every corner of the globe.
Thank you very much for this opportunity to answer your
questions.
Senator Voinovich. Thank you very much. When was it that
you visited China?
Mr. Dudas. The first week of March.
Senator Voinovich. Mr. White.
TESTIMONY OF FRANCIS GARY WHITE,\1\ UNIT CHIEF, COMMERCIAL
FRAUD DIVISION, IMMIGRATION AND CUSTOMS ENFORCEMENT, DEPARTMENT
OF HOMELAND SECURITY
Mr. White. Good morning, Mr. Chairman, and thank you for
the opportunity to testify about the Department and ICE's, the
Immigration and Customs Enforcement's efforts undertaken to
investigate intellectual property right violations. I would
also like to note the strong interest of the Department's
leadership in this area and the support they have provided ICE
as we move forward in our mission to detect IP violations.
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\1\ The prepared statement of Mr. White appears in the Appendix on
page 54.
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With the creation of the Department of Homeland Security in
2003, the investigative and intelligence functions of the
former U.S. Customs Service and the Immigration and
Naturalization Service were merged into ICE, now the second
largest Federal law enforcement agency. ICE's mission is to
protect the United States and its citizens by detecting,
interdicting and investigating threats arising from the
movement of people and goods into and out of the country, and
to detect and shut down vulnerabilities in our Nation's border,
aviation system, and economic systems.
Today's increasing demand for products protected by
intellectual property rights has escalated. The losses to the
U.S. economy in revenue and jobs due to IPR violations are
staggering. In 1982, the International Trade Commission
estimated the loss in counterfeiting and piracy at $5 billion.
By 1998, the International Chamber of Commerce estimated that 5
to 7 percent of the world trade was comprised of counterfeit
goods, a market worth $350 billion.
In many cases, the profit of counterfeit merchandise is
used to fuel additional criminal activities. Some of these
profits are laundered and invested in legitimate business
enterprises. Both ICE and the Customs and Border Protection
(CBP), have modified enforcement strategies that were
originally aimed at simply seizing counterfeit goods before
they entered the U.S. market. Now ICE coordinates targeted
seizures with follow-up criminal investigations and forfeiture
of assets. Our ultimate goal is to dismantle the smuggling
organizations and to halt the flow of counterfeit merchandise
into the commerce of the United States.
To help us with this mission, in July 2003, ICE created the
financial investigative initiative identified as Operation
Cornerstone. This program is dedicated to the U.S. economic
security and highlights the DHS mission to protect the United
States by securing its borders, transportation sector, ports,
and critical infrastructure.
Cornerstone protects the integrity and security of the U.S.
economy by identifying, targeting and eliminating systematic
vulnerabilities in the financial, commercial, trade,
manufacturing, and transportation sectors that could be
exploited by criminal or terrorist organizations.
To attack the counterfeiting problem, a multi-agency, the
National Intellectual Property Rights Coordination Center, was
developed in 2000, comprised of both investigative and
intelligence research personnel from ICE, CBP, and the FBI.
The IPR Center works with copyright owners and trade
associations on an ongoing basis, and has conducted outreach
presentations to both trade associations and foreign
governments. This year, in April 2004--April 28 to be exact--
the IPR Center will host its inaugural industry anti-
counterfeiting coalition working group in conjunction with
IACC. They will meet with trade associations and business to
better identify and address the growing IP issues and to
identify criminal trends. In addition, the IPR Center personnel
have provided training in IP enforcement, as well as legal
requirements necessary to successfully prosecute IPR
violations.
The IPR Center also plays a key role in international IPR
enforcement by participating in worldwide IPR working groups
and committees. Since the majority of counterfeit goods are
produced in foreign countries, ICE attache offices around the
world work closely with their host country law enforcement
counterparts. Their efforts in developing information regarding
the manufacture and shipment of counterfeit goods have resulted
in numerous seizures of containers of these illegal goods in
the United States. Computer parts, toys, video games, wearing
apparel, and watches are a few examples of counterfeit
merchandise routinely seized by ICE and CBP.
But IPR violations can take many forms and may also involve
health and safety concerns. Counterfeit pharmaceuticals, tools,
electrical cords, as well as aircraft and automobile parts, all
have a significant impact on the public safety. For example,
laboratory testing of imported counterfeit batteries have
revealed inferior manufacturing practices that create improper
ventilation, causing increased risk of explosions.
In conclusion, as much as we have done to protect
intellectual property rights, we must do more in staying ahead
of the perpetrators. Greater interaction among ICE, industry,
intellectual property right owners, and the public, as well as
domestic and international law enforcement organizations, is
critical to our effort in combating the increasing threat posed
by IPR violations.
I would like to thank you, Mr. Chairman, and the
distinguished Members of the Subcommittee, for their support
and the opportunity to testify before you today.
I request my full written statement be included in the
record, and will be glad to address any questions you might
have.
Senator Voinovich. Thank you very much, Mr. White.
It's interesting to me that both of you have mentioned
organizations, terrorist organizations that are taking
advantage of this to generate money for their organizations.
That's an aspect of this that I was unaware of.
Is that pretty rampant? I mean, ordinarily we just think of
a country doing a lax job of enforcing their trademark, to kind
of wink and pay lip service to doing something about it, and
people continue to do it. They know they're doing it, but they
are benefiting from it because of the money they're generating.
But you're saying we have organizations that are actually
in various countries that are counterfeiting goods and then
selling them on the open market, generating the cash, and then
using it to fund their illegal activity?
Mr. Dudas. There certainly are links that have been
identified outside the USPTO with law enforcement nationally
and internationally with ties to organized crime, primarily,
from what I understand, because it is more profitable than even
selling drugs in many ways, which is another way of funding
organized crime.
Also the criminal thresholds are much lower in many nations
and the enforcement is less enthusiastic in many nations. Some
have testified, including Interpol, that they believe that some
of the terrorist organizations are also finding this to be a
preferred method for funding because of how attractive it is,
with the lower cost of prosecution and higher profitability.
Mr. White. We, at ICE, are aware of the allegations of
potential terrorist funding. We have no sustainable evidence to
link IPR violations to terrorist activity and terrorist
funding. However, because of the allegations that are being
provided to us, we take this issue very seriously. We
constantly are looking at this as a possibility. This is part
of our investigative process and it is a concern to ICE as well
as to the Department. It is not one we're taking very lightly.
We are very aggressively trying--as we receive allegations
now of IP violations, we look at the bigger picture. We look at
the people. We look at the goods. We look at the funding,
trying to again focus on the economic security.
Senator Voinovich. It's interesting, because I had a
hearing last year in my capacity on the Foreign Relations
Committee, a hearing on corruption and organized crime in the
southeastern Europe area. In fact, my feeling is that that's
even a greater threat over there with corruption and organized
crime than terrorism.
It was interesting that during the testimony it never came
up that counterfeiting was a way they are operating to raise
money. They talked about drugs, they talked about arms, they
talked about prostitution rings and so forth, but never got
into the issue of counterfeiting.
With regard to the National Intellectual Property Law
Enforcement Coordination Council, which has been around since
1999, do you feel that this Coordination Council is achieving
its mission of coordinating domestic and international
intellectual property law enforcement among Federal and foreign
entities?
Mr. Dudas. That's a very good question. I think the answer
depends on what is expected from NIPLECC. NIPLECC arose out of
an expectation that there is a need for more coordination among
government agencies, certainly within the United States, what
agencies are doing, how effective are they.
NIPLECC has been extremely effective in terms of becoming a
reporting mechanism from agency to agency, so that agencies
know what other agencies are doing. It has not been something
that has--it has no staff of its own, no dedicated staff, nor
particular resources. It has not, in and of itself, become a
leading force in intellectual property enforcement, in my
opinion, nor has it become something that has been the primary
coordination throughout the U.S. Government.
What it does right now, it's primarily again agencies
coming together, reporting what they're doing, coordinating
activities, understanding where resources are being spent to
make sure it's not duplicative nor redundant, to make sure that
we understand the full force of what the U.S. Government is
doing.
It has increased in importance. There has been an agreement
among agencies to come together to talk about public awareness
campaigns within the United States and internationally. But I
believe to take the next step, to make it an even more
effective coordination council, it may require looking at
funding from within, and certainly that's one of the
responsibilities PTO has, as well as the co-chair of the
council.
Senator Voinovich. Mr. White.
Mr. White. I believe, as an organization and a coordination
council, it is effective, but is it as effective as it could
be? I think there is room for improvement.
We participate. It's meetings are scheduled. It's an
excellent coordination tool, but I believe that it can improve.
Senator Voinovich. What's troubling is that the charter
says its mission is to coordinate domestic, international, and
intellectual property law enforcement among Federal and foreign
entities. Obviously, this responsibility is split up with
Commerce, Customs, USTR, the FBI, and so forth.
It seems to me that if this problem is as significant as it
is, as you have now added a new dimension of terrorism, that
one person/agency should be in charge of knowing what's going
on in all the agencies in order to better coordinate the
government's efforts. This is necessary because from what I'm
hearing today, each agency comes and listens to what the other
is doing, so they're aware of what they're doing, but there is
nobody looking at the big picture, to coordinate everyone's
efforts.
When I was governor, I had coordinators of a cabinet
council comprised of four or five departments. Because these
departments had some synergism going on, they, in effect, had a
symbiotic relationship. They tried to make sure they knew what
was going on, to direct things, and keep everyone working
together as a team.
It is just reminiscent of the 9/11 hearings, that the left
hand didn't know what the right hand was doing, there wasn't
coordination. There wasn't the sharing of information--somebody
was not paying attention to the big picture.
Would you agree that we ought to perhaps look at staffing
NIPLECC and having somebody there that is looking at the big
picture to assess what everybody is doing?
Mr. Dudas. I think that any time you would have dedicated
staffing or resources that would help coordinate that better,
that is something that should be considered. It is something
that, as Acting Under Secretary, I have been out speaking to
folks. The co-chair is also the Department of Justice and we
have begun discussions about how we would go about doing that,
either from within our agencies or how we may want to go about
doing that.
So I would agree that dedicated staff and dedicated
resources to NIPLECC is something that would make it more
effective.
Senator Voinovich. If you were sitting down and designing
an organizational structure from scratch, and looked at the
respective responsibilities of the various agencies involved,
do you feel that we are organized in the best way that we can
be organized?
In other words, what happens in organizations is that
things change sometimes and you're a lot busier, and then less
busy, and you try to organize things to deal with the problem.
But as the problem moves and changes, ordinarily what you do is
you look at your structure to see whether or not it is
responding to the challenge that's there, and also the issue of
shaping your workforce to make sure you've got the right people
with the right skills and knowledge at the right place in time.
At this stage of the game, with your plate seeming to be
growing with items, if you were to look at this today and step
back for a moment, is it organized the way it ought to be
organized? Or do you think it should be looked at differently?
Mr. Dudas. I can say that, from a philosophical
perspective, the idea that you have different organizations
with a particular expertise coming together and providing that
expertise to each other, and maintaining separate entities, I
think probably is the right approach.
Do I think it's perfect, or do I think it can't be improved
in individual areas? I absolutely think it can, and I can
identify areas at USPTO where it can be improved from a
resource perspective, etc.
But I think one of the issues that comes up in intellectual
property rights enforcement is there are so many different
agencies that are involved, and is that the right way to do it,
or should it be one central agency that deals completely with
intellectual property rights? To some degree, that is the
USTPO, but certainly we are not an enforcement agency of the
likes of the Department of Justice or Customs or anything along
those lines.
I can share with you just an experience from the USPTO why
I think being able to tap into the expertise of the USPTO
without having separate expertise--and I certainly think this
probably plays out in other areas, like the Department of
Justice and Customs. Much of what we do at the PTO is try to
lead by example in the United States. Our office continues to
be the envy of the world as far as how to set up an
intellectual property system in an office. So much of what we
do is work with other nations to develop their intellectual
property offices. That's literally hundreds of people within
our office.
What we do in treaty negotiations, what we do in terms of
working with other offices to help them set up a patent system,
really plays a significant role even in what we do for FTA
agreements and what we do elsewhere. I would say there's room
for improvement, but the idea of having an area that has
enforcement and an area that offers technical expertise, being
able to tap into other areas of the government, is probably the
most efficient way to do it, in my opinion.
Senator Voinovich. Mr. White.
Mr. White. I believe our organizational structure right now
for the enforcement of IP violations is effective and well
organized. With the creation of the Department of Homeland
Security and the Immigration and Customs Enforcement as an
investigative tool within the Department, by providing the
expertise that has been brought together by legacy Customs and
legacy Immigration agents, I have personally seen a change in
the dynamics, the quality of the work, and the quality of the
investigations. I am pleased and very comfortable in the
direction we're moving down the road.
Also, from an enforcement perspective, we have looked very
seriously at intellectual property rights for some time. With
the creation of the Intellectual Property Rights Center, it was
our intention of bringing together our separate functions, even
within the legacy customs role. I believe that organization,
although I can see an expanding role for it, right now is
effective and can continue to be effective. My concern is the
public perception of the role, the public knowledge of the IPR
Center.
We, in the law enforcement community, are familiar with it,
but do we need to do something more to bring it to the public's
attention?
Senator Voinovich. What do you mean by that?
Mr. White. Well, recently I began to research with our
Office of Public Affairs the possibility of public service
announcements that would be geared to communities. I have heard
that there is a concern that outside of the law enforcement
community, the public, and the trade, is not aware of the IPR
Center. So we are looking at what can we do to publicly
advertise ourselves, to make ourselves known.
That is one of the reasons why our April 28 conference,
partnershipping with the international anti-counterfeiting
coalition, is going to Atlanta. That maybe is what we need to
do: Move ourselves, and rather than hosting all our meetings in
Washington, go where the industries are, making it more
convenient for them to participate.
These are just some of the thoughts. Organizationally, I
think we're organized correctly. But I also think that there is
more we can do to take the message out, that maybe we have not
done as well as I would like us to have done.
Senator Voinovich. One of the questions I was going to ask
is nobody seems to know what you're doing. You have the Small
Business Administration and other Federal agencies that have
outreach organizations that are helping inform people about
what's going on.
I will never forget when I was governor, I was concerned
that not enough of our businesses were involved in
international trade. With regard to the Export-Import Bank, I
found out that we were at the bottom of the list in taking
advantage of Export-Import funds. I looked into it and found
out the reason why is because nobody was really paying
attention to it.
Now, I would have thought maybe the Export-Import Bank
might have been hustling and making their services available.
I, subsequently, hired two people in my administration to
advertise the availability of funds and process applications.
We went from being at the bottom to the top because there was
an aggressive effort to go out and market it.
If you did that, do we have the people in place that could
respond to these complaints that are coming in?
For example, I read an article in the Cleveland Plain
Dealer this Sunday about an Oregon business where somebody is
absolutely copying their product and so forth. It's Videx, Inc.
The Chinese changed the name to Vdiar. Instead of dealing with
this thing as an individual company, they basically said to
them we can't deal with you individually but we can deal with
the whole industry. You know, we don't have the staff to just
deal with your particular problem.
If you go out and do what you're saying, do you have the
people available to follow through?
Mr. White. From an investigative perspective, I do believe
we do. Obviously, we would look to prioritize our
investigations, and we would assess the actual complaint
allegation. But I believe, yes, we do.
In our partnership with other law enforcement agencies,
with the criminal statutes that are provided within the State
law enforcement, is where I think we can improve on. I'm
working towards that, because that is a concern of mine.
I think what we have done is a very good job of developing
our international work relationships. I think we've done a very
good job here, with the trade associations, but not necessarily
have we hit the State and local law enforcement officers that I
would like to go to. That is a partnership that I think we need
to really work on and hopefully we can do in the near future.
Senator Voinovich. This stuff over here that you brought
with you, what is that? It looks like the Dollar Store.
[Laughter.]
Mr. White. It's counterfeit merchandise, merchandise seized
by ICE agents and CBP inspectors, just as examples of some of
the material that we have been able to seize over the last
year.
Senator Voinovich. That tennis shoe is supposed to be what?
Mr. White. It should be Nikes, but they're not.
Senator Voinovich. Then I see a little bottle. Is that some
kind of medicine that is counterfeited?
Mr. White. Yes, Chairman. It is counterfeit Viagra.
Senator Voinovich. They'll find out quickly whether it
works or not. [Laughter.]
Mr. White. Yes, Chairman.
Senator Voinovich. And then it looks like there's some
cigarettes, also counterfeited cigarettes?
Mr. White. Yes, sir. These are the concerns of ours on
public health and safety. Even the Oakleys, the counterfeits,
do not provide eye protection. There are so many issues that
come forward. These are not just simple t-shirt counterfeits.
They are public health and safety concerns. When you begin to
look at the aircraft industry, the auto parts industry, these
are extremely sensitive to us.
Senator Voinovich. With our terrorism responsibilities as
they are--I talked to a former head of Customs, a good friend
of mine, Frank Keating, former governor of Oklahoma who now
heads up a large group here in Washington. He said that when
they were Customs, they really did the job of stopping this
stuff at the border.
With the new responsibilities that Customs has under the
reorganization, how many additional people do you have in your
agency to get the job done? Have you increased the number of
people that are involved?
Mr. White. Yes, sir, although I don't have the exact
statistics with me. In previous allocations we were able to
bring additional agents on board to do the work of intellectual
property rights, and I believe that number showed an increase
last year and the year before. They are focused on intellectual
property rights.
We have seen an enforcement area of intellectual property
rights alone. In preparation, I was looking at our statistics,
and just on the criminal enforcement perspective in 2003, as I
recall, we had 132 arrests on intellectual property rights
violations. In year-to-date, by mid-year of 2004, we had 125.
So I believe we've got a focused effort on criminal
enforcement, and by that criminal enforcement and the results,
it helps us develop trends in the import process that allows us
to have a better focused enforcement at the border for
seizures, by understanding when we get into the actual analysis
of the case, how they found the system to be vulnerable. We
share that with CBP.
Senator Voinovich. What I would like you to do, is to give
me a written breakdown of the agents assigned to intellectual
property issues within Customs, both before and after the
reorganization. I would also like to see a breakdown of the
budget.
Mr. White. Yes, sir.
Senator Voinovich. This is maybe a little bit redundant,
but if I was a small- to medium-sized manufacturer of widgets,
and I just found out that a Chinese company was stealing my
widget design and shipping it to the United States, with the
exact same packaging as my widgets, what would be my recourse
today?
Mr. White. I would always encourage someone who finds their
process, their identity, has been counterfeited, that they
notify the local law enforcement for immediate attention.
Because again, States do have appropriate criminal statutes, as
well as we and ICE have 25 SAC offices, and 171 resident agent
offices. As I recall, there are three in the Ohio area--
Cleveland, Columbus and Cincinnati----
Senator Voinovich. Wait a second. You're talking about
contacting your officers in Customs, not some other law
enforcement agency?
Mr. White. Correct. So that we could begin to immediately
analyze the allegation.
The local offices know to contact us in the IPR Center, the
Commercial Fraud and Investigations Unit. Our role is to help
coordinate their national and international, to help facilitate
their investigative case at the lowest level, at the ground
level, at the actual site of the allegation. That would be one
way that I would recommend it.
The other way I would recommend for some of the smaller and
mid-sized businesses are the trade associations. I suspect most
who have IP issues are members of trade associations, to help
them facilitate and getting the information to us. Those would
just be a couple of recommendations that I might make.
Senator Voinovich. Isn't the latter you just mentioned kind
of going around the barn? Let's say I have a friend of mine
that makes the best mixer in the world. This is an actual case.
And several years ago, a company in China copied this. Moving
on that was like going through the Maginot Line to get anything
done about it.
It would seem to me that there should be some mechanism
that, if I can demonstrate that somebody has actually done what
you have here, that you ought to be able to stop that from
coming into the country. The issue is how soon after this has
been found to be true--I mean, how long does it take for
somebody to say yes, you're right, they did counterfeit your
patent, they are manufacturing your product. How much time does
it take for something like that to stop?
Mr. White. I would hope it would be quickly, but I cannot
guarantee it. I don't know--in actuality, I have never looked
at the date and time period. I have to apologize.
Senator Voinovich. I would like to find out. That's really
what this is about. These are little guys, a lot of them. They
haven't got a lot of wherewithal. They don't have a big
corporate staff of individuals that can go ahead and do this.
They feel like they're all by themselves and lonely. They're
the people who need to be able to turn to the government and
say, I need your help.
To say go see a trade organization or something like that,
I don't think that's a very good answer for them, Mr. White.
Mr. White. I would not want them to see the trade
organization for a resolution; only for possibly assistance to
get their allegation--some of the smaller companies do not
know, as you say, and the organization might be able to give
them information about how to get a hold of us. It was only a
possible recommended solution about how to get their complaint
to us, not how to fix their problem.
Please, if I left it like I was suggesting that would be a
fix to their problem, I apologize. It was only----
Senator Voinovich. So the first thing is go and see the
local person, if I'm in Cleveland, Ohio--I think we have
Customs people there. I go to see them, talk to them about it,
and say this is what's happening. You think they would be able
to help them move along with the process?
Mr. White. I do, yes, sir.
Senator Voinovich. OK. What I would like to do is get some
statistics on the last couple of years of cases that have
individually come in and how long has it taken for something to
happen in terms of dealing with that situation.
What Keating told me is that if somebody brought that to
his attention, they could move on it very quickly, and when it
came into the country, they were able to stop it right there. I
think if somebody knew that it could happen that quickly, they
might be reluctant to go ahead and steal somebody's product,
because they figure why steal it, because if you get it back to
the United States, they're not going to----
I talked to another friend of mine who's an investor in a
golf club. They manufacture golf clubs. He said that within 2
or 3 days after they put a new golf club on the market, it's
being duplicated and manufactured in China and sent back to the
United States. It seems to me that if they have that
information and it's verifiable, the government ought to be
able to step in immediately and stop that from coming into the
United States.
Then the next issue is following through, taking the
action, legal, criminal, or otherwise, in the particular
country where they're operating. But if it takes forever and a
day--you were talking in your testimony about the fact that
these fines and criminal penalties have got to be significant,
and the fines have to be made very high, because if you get
fined $60,000 and you make $6 million, you'll do it every time.
That's what I'm getting at, that there doesn't seem to be
enough of this dotting the I's and crossing the T's and really
letting people know that we're serious about this.
I know in the Department of Commerce I talked to Don Evans
about this. He said, yes, we're really serious about it, but it
seems to me that at this stage of the game we should be
aggressively going out and trying to let people know that we're
there and how can we help you.
Mr. Dudas. Mr. Chairman, if I might just add, one of the
points you made at the very beginning was having people aware.
You talked about the title and having people aware of what's
going on.
One of the things we're trying to do at the Patent and
Trademark Office, and we need to do more of, is informing small
and medium enterprises about what kind of environment they are
operating in if they operate in China.
It has come as some surprise to some of us, that both small
and medium enterprises, and in some cases multinational
companies, have not availed themselves of the intellectual
property rights that may be available in China or are unaware
of this. I think they believe the trade relationship is such
that you just go from the Untied States to China and don't
recognize the risks. So that's another area where we have had
discussions, we've had seminars, etc., with small and medium
enterprises.
Again, I think that's where one of the areas I have seen
more in the last year, areas like the U.S. Chamber of Commerce,
certainly the International Anticounterfeiting Coalition and
ITA, the International Trademark Association who are doing more
and has done a great deal in the past to inform their
businesses and their member companies of what they need to do,
both in terms of operating in China or operating in the United
States, and the problems they face. And some of it is a public-
private partnership on that level as well.
Senator Voinovich. It seems to me that there ought to be--
well, first of all, in the United States, when something like
that happens, to be able to move on it quickly. But also, Mr.
Dudas, following up on your suggestion, I know when I visited
foreign countries, we sat down with the folks from the AmCham,
their business. I sit down with them and confidentially tell
them what the scoop is.
I know in one case--and I won't mention the country--that
the courts are corrupt, forget them. I'll never forget it,
because the newspaper people were in the meeting at that time
and they were going to report it. I said please don't do that.
Then we went to the embassy and they did it again, and the
newspaper people said they would report it. I thought we were
going to have an international incident. But they were pretty
blunt about the country and their court system and so forth.
But I think this is some stuff that you really need to get
out to people before they venture over there. As I say, some of
them are smaller. We're encouraging them to get involved in
exports, but we need to make sure that they know what they're
doing when they get involved.
Personnel again. I hate to do this to USTR, but they're not
here to defend themselves and that's their fault. I don't know
whether you'll be candid with me or not. But when we had the
hearing on the capacity of the Department of Commerce and the
USTR, in terms of enforcing our trade laws, I was told by USTR
that they've got about the same number of people they've had
forever.
From your experience with USTR, do you feel they need some
more people over there to get the job done? Mr. Dudas, I think
you mentioned that when they're negotiating their trade
agreements, they call upon your folks to help them with getting
the right language to protect intellectual property rights and
copyright trademarks.
At this stage of the game, having the same number of people
they've had forever, what's your reaction?
Mr. Dudas. I certainly don't feel qualified to speak to
their budget and resources as an expert, but I can say that, as
an agency that's working on intellectual property rights, we
have seen an increase in activity certainly with just free
trade agreements with the Special 301 process, etc. I'm
guessing that USTR could use additional resources. I'm certain
they would know what to do with those resources.
Again, I think the model that we have is one that I believe
works, because it's an opportunity for the USTR, at least with
our agency, to work with us to get the technical and legal
expertise that is necessary. We can provide more people when
necessary, and I know we certainly are taxed but are able to
provide what we need to provide now.
Senator Voinovich. Well, let's start off with your own
agency. USTR goes to you folks for advice, right?
Mr. Dudas. Yes.
Senator Voinovich. Would you say that within the last year
that the requests for your help have increased measurably?
Mr. Dudas. Yes.
Senator Voinovich. How about your department? Are you able
to handle those increased requests coming in?
Mr. Dudas. We are able to handle them, but it is certainly
taxing on our agency as well. The free trade agreements in
particular, we have structured in a way that we are
prioritizing, quite honestly, to make certain that the free
trade agreements and the Special 301 process are important.
I think there has been more activity of late, in the last
few years, because of the free trade agreements, and because of
nations throughout the world having to come to terms with their
WTO obligations and TRIPs obligations.
But I can certainly speak with some expertise, that in our
own office we are continuing to staff slightly more. I think we
will add maybe 2 percent more--I'm sorry, about 10 percent
more--to our area, to make certain we're giving the appropriate
support.
Senator Voinovich. Do you think they might be better off
having one or two people stationed full time at USTR, so that
they wouldn't have to constantly keep coming back to you?
Mr. Dudas. I actually think the model works better to have
them come to our office, because of the expertise that is there
for each of the areas. I mean, when it comes to free trade
agreements or a Special 301 process, sometimes we are asked to
help negotiate and participate.
I think, from the USTR perspective, there are so many
issues on which they have to work, my belief is that at least
in the IPR perspective it would be redundant to have USTR staff
up at that level if they did it throughout. I believe that so
long as the model works and we're being efficient in how we
employ it--and I think to a large degree that has occurred--it
is the right model.
We sometimes will draw from areas of people that were
examiners in the Japanese Patent Office, if we're dealing with
the Japanese office. There is certainly a great amount of
experience to draw from. We have relationships upon which we
can leverage.
For instance, in China, we are able to go to China with a
good degree of ``carrots'' as well. They are the fastest
growing patent office and the largest trademark office in the
world.
Senator Voinovich. What is the office?
Mr. Dudas. Their trademark office is the largest trademark
office in the world. Their patent office is the fastest growing
patent office in the world. I believe it's the fourth or fifth
largest. And they're growing at an incredible rate.
I think they need the expertise that the U.S. Patent and
Trademark Office can offer, to talk about the type of growth
we've had, and also talk about the appropriate ways to deal
with biotechnology issues or to deal with other patent issues.
Those are relationships that we can leverage again.
We also find that these are agencies within any government,
and China in particular, that are pro-intellectual property
rights, that understand it. Again, these are the benefits, I
think, of going to areas of expertise.
Senator Voinovich. Well, if I'm prioritizing in an agency,
it means that some of the things that some people were doing
are not being done, and the issue is what are the things they
were doing that have fallen down to a lower priority and where
does that stack up. I'm really interested in the capacity that
you have to respond to the challenges that you have, just as I
am in the case of Mr. White. How many people do you have, and
how many did you have before, and what's the new responsibility
and demands that are being made. You have to have the people to
get the job done.
I think one thing is that, on this side of the aisle, we
don't pay enough attention to that. My problem is I'm an old
mayor and governor, and administrator. I know that agencies, in
order to get the job done, if you give them a lot more work to
do and you don't give them the budget, the people, or the
resources to get the job done, it doesn't get done. That's
really the real issue here today. This subject is very serious
to our economy.
Mr. Dudas, you said that in the Department of Commerce
manufacturing report it stated that Commerce would like to
reinforce the efforts of the National Intellectual Property Law
Enforcement Coordination Council. We just talked about that.
They would like to reinforce the efforts.
Does that mean getting some staff people over there?
Mr. Dudas. It certainly means we're considering how we can
move beyond being more than just a reporting mechanism, what
does it take, in particular, what proposals do we want to have
in order to consider, from a staffing perspective or a resource
perspective, what would make NIPLECC a more effective
coordinating agency.
It also means really redoubling our efforts, particularly
with the Department of Justice, the Criminal Division, who was
co-chair, to determine what areas do we really need to focus on
in particular and how do we make certain that we have the level
of involvement that we want to get from each of the agencies
that's involved.
I really think it's a matter of taking a look at what
NIPLECC is doing, saying yes, we've been successful for what's
been expected of NIPLECC, but it's an ideal arena in which to
take it to a much higher level, to make it more of, I think,
the kind of coordination that you're talking about, the kind of
coordination that we think we could see, to use it to develop
particular projects that will be beneficial to intellectual
property owners. It involves all of that, and discussions have
begun with the Department of Justice. Certainly the co-chairs
have to be on board to consider taking it to a higher level,
and to some degree, we'll either need additional resources, but
we'll need commitment from each and every agency within NIPLECC
on a particular project or on a mission of the Council.
Senator Voinovich. Don Evans, the Secretary of Commerce,
was in Beijing on October 28, 2003. He stated that the U.S.
patience on China's WTO compliance was ``wearing thin'' and
warned of growing protectionist sentiments in the United States
against China.
I have to say to you, as a Member of the U.S. Senate, that
my patience has worn thin. I have no more patience. All I have
heard is talk, talk, talk, talk, and I haven't seen action. It
seems that we go over there and we talk to these folks, and
they don't seem to get it.
I'll never forget, when I was in South Korea in 1997, and I
was there with a group of business people to promote joint
ventures, as well as to convince the South Korean Government
that they should allow in non-South Korean made vehicles, I
spent 3 days with government officials. I can't remember the
exact statistics, but you'll understand. I said you've got to
do better at allowing in more non-South Korean vehicles. And
they said we're doing better--they had increased it 100 percent
from one-tenth of one percent to two-tenths of one percent.
Today we import more vehicles from South Korea into the
United States than all of the non-South Korean vehicles that go
into South Korea in a year. Think about that. If you buy a non-
South Korean vehicle, you can pretty well be assured, if you're
a South Korean, that you're going to have your tax return
audited, and you may get a few more parking tickets or traffic
tickets.
The point I'm making is that it doesn't seem they get it.
You just said you came back from China in March and you were
over there again, but it's still not happening. What does it
take for us to get the Chinese to understand that they've got
to do something about this problem?
Mr. Dudas. I understand completely your concern, and I can
tell you Secretary Evans is tremendously results-oriented. This
week the Joint Commission on Commerce and Trade meets. I think
what is important that the Chinese understand--the Chinese
Government believes they have done a great deal, and they can
show quantitative enforcement and they can show certainly
millions of CD's or other products that have been destroyed.
But we have our own measures in the United States, and
we've seen the seizures of counterfeit goods that we seize at
our borders grow from 16 percent to 66 percent from mainland
China over the last 5 years. So in an area like that, where
things are clearly getting worse from our own measures, what we
need to see is progress. In China, we're not seeing progress.
What we're seeing is the opposite.
I think what we have always pushed for in the U.S. Patent
and Trademark Office is we need to see how you will measure
results. That's what we're trying to do in the JCCT, is to make
certain the Chinese Government understands how important this
situation is, how dire it truly is.
Senator Voinovich. But it's not in your power to do
anything about enforcement. You can talk to them about the
situation and point it out to them----
Mr. Dudas. That's correct.
Senator Voinovich. But the enforcement of it has to come
from them, or when they try to bring the goods into the United
States, it has to come from the Department of Commerce----
Mr. Dudas. Ultimately, there are trade sanctions that can
be placed. Right now I think the Chinese Government
understands--I certainly believe they understand the message
from Secretary Evans, that they need to show concrete results.
We need to see progress. Right now we're not seeing progress.
I think, beyond that, if progress isn't shown, then the
United States considers all of the options it has on----
Senator Voinovich. I just want to say this to you.
I have been asking now for about a year for a Special 301
investigation into the fact that the Chinese, in my opinion,
are pegging their currency to the U.S. dollar. It's having an
enormous impact on the competitiveness of their products.
I feel the information is solid as a rock; I understand the
National Association of Manufacturers considers it solid as a
rock; that the AFL-CIO considers it solid as a rock. And yet,
our government has done nothing about going forward with a
Special 301 investigation.
A lot of these things that need to be done are very
expensive for businesses to try and do it on their own. Even
trade organizations. If I'm sitting back and I'm the Chinese,
and I know that the facts are there and nobody seems to be
doing anything about it, I'm just going to keep doing what I've
been doing, because I'm going to think that these people aren't
serious.
When are we going to do a Special 301 investigation?
Mr. Dudas. I'm sorry, I can't answer that question on that
area. It's outside my area of expertise. It is an incredibly
important issue--and it's important to manufacturers and you
have been involved in that.
I can carry the message back of your concern that's been
reiterated, and I do understand that area of concern. It's
outside my area of expertise, but I understand what your point
is and I can certainly relay it.
Senator Voinovich. Well, I have a lot more questions here
for you, and I could keep you here for another hour-and-a-half,
but it wouldn't be fair to the other witnesses that we have and
the clock is running.
I want to thank you very much for you both being here
today. I consider what you're doing to be very serious, and
there will be some other questions that I will be submitting to
you for the record.
As a Member of this Subcommittee, I am genuinely interested
in a candid response to these questions. If you need more help
from this side, if it's an issue of more money, of staffing,
flexibility or whatever the case may be, let me know. I don't
know if you're familiar with this or not, but I'm very much
involved with the whole area of human capital, trying to give
you guys the flexibility so you can keep the folks you have and
pay them the bonuses when they're supposed to get them, to
allow you to go out and get the best and brightest people to
come work for you in your respective agencies.
But I would like to do more to help you get the job done.
If you need more money or more staff, I want to know that.
Somebody has got to be candid with us about it. I know
sometimes you go to OMB and they say, well, your budget has got
to be here and there. But we spent a lot of money on a lot of
things, and one thing I think we're not spending enough money
on is people. We want the best and brightest people in
government today. So I would really appreciate your candid
response to these questions.
Thanks very much.
Mr. Dudas. Thank you.
Senator Voinovich. We are now going to proceed to the
second panel. We would like Professor Chow to begin the
testimony, if you will. And if you could, please try to limit
your presentation to around 5 minutes. If you go over a little
bit, that's OK, too. Then we can open it up for questions.
I am glad that all three of you have had a chance to hear
the testimony of the people from the U.S. Patent Office and
also from Customs, and would welcome, in the question and
answer period, your observations and comments about some of the
answers to the questions that I raised with them, and your
opinion about some of the things they talked about.
Professor Chow.
TESTIMONY OF DANIEL C.K. CHOW,\1\ THE OHIO STATE UNIVERSITY
COLLEGE OF LAW
Mr. Chow. Thank you, Mr. Chairman.
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\1\ The prepared statement of Mr. Chow with an attachment appears
in the Appendix on page 65.
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I'm going to talk about counterfeiting in China, which has
come up several times already. Counterfeiting in China is the
most serious counterfeiting problem in world history. The
government estimates in China put counterfeiting at $19-$20
billion per year, and about 8 percent of its gross national
product. U.S. industry estimates that they lose billions to
tens of billions of dollars per year.
Now, no problem like this could exist without the direct or
indirect involvement of the State. In fact, I will discuss the
involvement of government in this problem.
Exports from China make this into a global problem. I want
to flag this point because, Mr. Chairman, we're about to see a
significant increase in exports of counterfeit goods from China
beginning in the year 2004, and I'll explain why.
The reason for this problem--how did this problem come
about--first it's the growth of China's economy, which is the
most spectacular growth of an economy of this size in history.
But it is also the role of foreign direct investment and
technology transfer. China now is the world's largest recipient
of foreign direct investment.
Foreign direct investment is also the best way to get
technology transfer. Thus, China now gets unprecedented access
to patents, trademarks and copyrights. In fact, in many cases
today, the intellectual property component is the most
important part of the foreign direct investment. Proctor &
Gamble, where I used to work, their trademarks in China are
worth many more times than their capital investment in all of
their joint ventures in wholly owned enterprises. In fact, the
value of their trademarks is worth 10 times the value of their
capital, 100 times, maybe 1,000 times--and maybe you can't even
count it.
So thus, what really has caused this problem is two things:
It is this increase in foreign direct investment--China now is
the world's largest recipient--and the unprecedented access to
advance technology. You combine that with a weak legal system
and now you've got the world's most serious commercial piracy
problem.
It is no accident, it is no coincidence, that China is the
world's largest recipient of foreign direct investment, and it
also has the world's most serious commercial piracy problem.
Now, I'm going to focus on just what I think is the most
crucial aspect of the problem, because I know my time is
limited, and I want to talk a little bit in this chart about
the trade in counterfeit goods. The chart itself really divides
the trade into two aspects. One is the manufacture, and then
the second is the distribution.\1\
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\1\ The chart referred to appears in the Appendix on page 70.
---------------------------------------------------------------------------
The manufacture that you see here on the chart is in the
shaded areas. These are in Guangdong Province and Fujian
Province, which these are the first areas that were open to
foreign direct investment in China, and this is where the
counterfeiting problem started. A lot of this activity is
financed by criminal organizations from Hong Kong and Taiwan.
Guangdong Province is the ancestral home of many people in Hong
Kong. Fujian Province is the ancestral home of many of the
people in Taiwan.
Now, the chart also points out--and I want to focus in on
this issue--in addition to manufacture, there is also
distribution. You see the chart points to five major wholesale
markets which distribute goods all over China.
I want to make this point, that these wholesale markets are
set up by the Administration of Industry and Commerce, which is
the government entity, the local government entity which is in
charge of developing trade and commerce. So the government
actually invests in the markets which sell these counterfeit
goods.
Also, the Administration of Industry and Commerce is also
charged with enforcement against counterfeiting, so you can see
the direct conflict of interest in that the government is
supposed to suppress an activity in which it has a direct
financial interest.
Let me just talk a little bit about a town here called
Yiwu, which you see on the chart. It is well known as the
counterfeit capital of China.
Senator Voinovich. Where is that on the chart?
Mr. Chow. It's this town right here [indicating].
Senator Voinovich. OK. I have a copy of this in front of me
here, too. Go ahead.
Mr. Chow. I want to focus in on this just to really point
out what the problem is.
In this town, the entire economy is built on the trade in
counterfeit goods. This used to be a small farming community in
the middle of nowhere, and now it's got a bustling business
center, it's got a four-star hotel, and it really depends
entirely on the trade in counterfeit goods for its economic
development.
Every day, 200,000 customers from all over China visit
Yiwu, and they visit the 33,000 wholesale stores and outlets
which sell 100,000 varieties of products. Ninety percent of
them are counterfeit and infringing. I know that because when I
worked in China I spent many weeks in Yiwu investigating this
and compiled these facts. Two-thousand tons of products are
ordered, and the roads are congested day and night as the
traffic goes in and out.
Now, the entire economy of this town is based on
counterfeit product, the trade in counterfeit goods, and it's
been integrated into the legitimate economy of this town. So
not only do you have this trade, but you have restaurants, you
have hotels, you have night clubs, you have warehouses. All of
this is supported by the trade in counterfeit goods.
Now, what would happen if there was a serious crackdown on
the trade in counterfeit goods in this town? It would shut down
the local economy. It would cause the dislocation through the
loss of jobs, the closing down of business. Indeed, it may
result in social turmoil and chaos, which is something that the
Chinese Government really fears. So, for that reason, because
the town itself has a financial interest in this trade,
counterfeiting is heavily defended at local levels.
This is really where the problem is. The problem is one of
local protectionism because the government has a direct stake,
the local governments have a direct stake in this illegal
trade. And it is very difficult, it has become very difficult
for the national government--and I believe the national
government is sincere, that the authorities in Beijing are
sincere. But it is very difficult for them to control what goes
on at the local level, because the people in Beijing are
policymakers, they're lawmakers. But enforcement occurs on the
ground, at the local level. This is where I think the crux of
the problem is.
I'm going to skip some of this because I know my time is
limited. I want to focus on the export issue because I
mentioned this earlier. I want to make sure that enough
attention is paid to this.
Counterfeits from China probably account for about 80
percent of all exports to the United States. I know that the
Customs statistics talk about 66 percent, but a lot of goods
are transshipped----
Senator Voinovich. Wait. You're saying counterfeits from
China may account for 80 percent----
Mr. Chow. Of all the counterfeit exports to the United
States.
Senator Voinovich [continuing]. Of all the counterfeits in
the world?
Mr. Chow. Well, I'm talking specifically about exports now,
Mr. Chairman. U.S. Customs seized, in the year 2003,
counterfeit product from China consisting of 66 percent of the
total of the counterfeit product that was seized. We believe
that the actual total is probably higher, and that is because
many of these goods are transshipped through other countries,
such as countries in South America, through Canada, that come
into the United States. So we believe that probably a more
realistic figure is about 80 percent.
The value of the counterfeits seized by U.S. Customs in
2003 was valued at $62.4 million. Of course, what is seized can
only represent a tiny percentage of what actually gets into the
market. If it is 1 percent of what actually gets into the
market, then the value of the counterfeit product from China is
between $6-$8 billion.
I believe we're going to see a significant increase in the
export of counterfeits from China starting in 2004. And why is
that? Well, it's ironic, but as part of China's WTO
obligations, China in December 2003 had to eliminate the state
monopoly on export privileges in accordance with its WTO
obligations.
Now, under prior law, only certain state trading companies
could export because only they had the state license to export
product. So if you were a counterfeiter, you had to find a
compliant state trading company to work with you. Of course, to
be honest, there was no lack of state trading companies willing
to work with the counterfeiters, but still there was an added
expense and added obstacle.
But in 2004, because of the elimination of this
requirement, it means that anybody can export, and I believe
what we're going to see is we're going to see many
counterfeiters now turn to export as an opportunity to increase
their profits.
There are no criminal laws against export of counterfeit
products in China. There are criminal laws against
counterfeiting within the country, but none for exports. So if
you're a counterfeiter and you're faced with the possibility of
civil and criminal penalties for counterfeiting within China,
and you're faced with no civil or criminal penalties for
export, I think the choice is pretty obvious of where they're
going to increasingly turn for their profits.
I just want to make two points now with respect to the
future. I believe the real issue here, as I hope I've pointed
out, is an issue of political will. The issue is really the
will of the national government to deal with the problem of
protection at local levels. I believe the national government
is sincere, but it is a very difficult problem to force these
local governments to crack down on counterfeiting because the
social costs of cracking down are very serious. The national
government fully understands that, and I believe they don't
want to incur those costs until they absolutely have to.
Finally, with respect to the WTO and TRIPs--and I guess
you'll have other folks speaking about this--I think that most
people, including myself, believe that China really is in
substantial compliance--excuse me, that it's laws are in
substantial compliance with TRIPs. It's really the enforcement
of those laws which I think falls short, and that is something
I think we have to take a very close look at.
Thank you, Mr. Chairman.
Senator Voinovich. Thank you very much.
Mr. Gorman, thank you for coming this morning. I have to
say, I'm impressed with these witnesses from Ohio.
TESTIMONY OF JEFF GORMAN,\1\ PRESIDENT AND CEO, THE GORMAN-RUPP
COMPANY, MANSFIELD, OHIO
Mr. Gorman. Thank you, Chairman Voinovich. I appreciate the
opportunity to testify and leave you with an important message
regarding the issues facing many American manufacturers.
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\1\ The prepared statement of Mr. Gorman appears in the Appendix on
page 85.
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Senator Voinovich. Mr. Gorman, would you tell us where your
company is located?
Mr. Gorman. Mansfield, Ohio.
When you hear of pirated and knock-off products, you may
think initially of computer software, movies, music and CDs.
I'll assure you the problems go much deeper than that and are
affecting job retention and growth at the core of American
manufacturing.
Our company has steadily seen a growth of pirated items
produced in foreign countries aimed directly at stealing our
products, our after-market parts, and frankly, our identity in
the marketplace.
A real quick overview of our company. Gorman-Rupp is a
Mansfield, Ohio based manufacturer of pumps and pumping systems
for applications including water, wastewater, petroleum,
government, agricultural, and many other markets. The company
was founded in Mansfield in 1933 by two gentlemen, one of whom
was my grandfather, who during the Great Depression had some
new ideas about how to design, manufacture and sell pumps. They
borrowed $1,500 and started the company. Today we have about
1,000 employees and sell on a global basis.
Competition has always been keen in the pump industry.
Until recently, most competition from pump manufacturers came
from those manufacturers vying for their own market share with
their own ideas, designs, engineering, and manufacturing.
Today, some foreign pump manufacturers have taken a less
ethical approach. Call it copying, counterfeiting, reverse
engineering, knocking off, pirating or whatever, it basically
comes down to stealing your identity, your engineering, for
monetary gain in pump and after-market parts sales.
Pumps may not be a great item of beauty to some, but they
are essential to everyone's everyday lives. Shown on the screen
is one of our main product lines, a 4-inch pump, primarily used
by municipalities for sewage handling.\1\ Shown on this screen
is a knock-off version of the same pump. This pump is
manufactured in Brazil and is not only nearly identical in
looks, but functionally interchangeable in dimension.
---------------------------------------------------------------------------
\1\ The charts referred to appear in the appendix on page 86 and
87.
---------------------------------------------------------------------------
Closer examination of the knock-off pump shows not only the
pirate's imitation of the Gorman-Rupp design, but notice the
name and logo. I submit that it was neither a mistake nor a
mere coincidence.
Technology has simplified the reverse engineering of
products. It has become much easier to copy or steal the
engineering and trade dress of a product than in the past. All
that is really needed is to have one of the original products
and the proper measuring equipment, and you can be in business
without the need for expensive research and development. Add to
this inexpensive labor, much lower overhead than many U.S.
manufacturers face, such as health care, litigation costs,
excess litigation and regulations, etc., and it's quite easy
for the pirate companies to sell pumps and parts at a
considerably lower price, all at the expense of the original
American manufacturer and developer.
Pirates many times use the sales tactic that it's just the
same as the original product or part, and in some cases,
outright confuse the customer that it is the original OEM
product or part. Pirates have deceived Gorman-Rupp's U.S.
customers who learned to their expensive dismay, after
purchasing the pirated parts, that they were not
interchangeable in quality or performance.
Patents are helpful, but they do not eliminate pirating. In
some cases, they even explain information and technology and
trade secrets to the pirating company. It is also very
prohibitive to patent your product in every country around the
world.
Pirating does not just stop with the physical products,
either. We recently learned of a Chinese company that not only
copied the looks, design and manufacture of our pumps, they
even stole our advertising literature. How do we know? The
Gorman-Rupp logo is still displayed on the products in their
literature. The next step is that these Chinese knock-off pumps
will probably find their way to the American market if we do
not have some legislation to protect our engineering investment
and identity. The Brazilian pirates have also copied and
exploited Gorman-Rupp product manuals and product performance
specifications.
Legal recourse against knock-off products in foreign courts
is very time consuming, very expensive, and in some cases,
almost impossible. We find little or no help from the
government in dealing with these issues.
I would ask for the following to be considered: A single
point of contact within the Department of Commerce that is
specifically directed and funded to assist U.S. manufacturers
that have had their products reverse engineered. Second, the
responsibility and authority of the Commerce Department to
instruct the Customs agencies to levy stiff fines or duties on
proven importers of pirated parts.
Gorman-Rupp does not want to stand in the way of honest
competition. In fact, we welcome it. But we need a level
playing field against pirating of our own products and our
identity.
Mr. Chairman, we have a common goal: That is, retention and
creation of jobs. With legislation and procedures that will
seriously impede the importation of these pirated products and
parts, we will and we can expand in the USA.
Thank you.
Senator Voinovich. Thank you very much, Mr. Gorman. Mr.
Rotman.
TESTIMONY OF PHILLIP A. ROTMAN, II,\1\ ASSISTANT PATENT AND
TRADEMARK COUNSEL, DANA CORPORATION
Mr. Rotman. Good morning, Mr. Chairman. My name is Phillip
Rotman, and I am the Assistant Patent and Trademark Counsel at
Dana Corporation. One of my job responsibilities is to enforce
our intellectual property rights around the world.
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\1\ The prepared statement of Mr. Rotman with attachments appears
in the Appendix on page 91.
---------------------------------------------------------------------------
I am here today to testify on behalf of the company, and
will be sharing some of our views and experiences with dealing
with counterfeit products around the world. In some of my
written submissions, I not only focus on China, but also focus
on our experiences in other parts of the world, including the
United States.
Dana Corporation is a global leader in the design,
development, and engineering of products and systems for the
automotive, commercial and off-highway vehicle. As you noted,
we are 100 years old this month. Counterfeiting of automotive
products appears to be on the rise for us. In fact, in the last
5 years, we have noticed a steady increase.
Since 2000, we have instituted over 40 actions around the
world, including China, Taiwan, the United States, and other
countries in Africa. We also have currently a number of ongoing
investigations. It is hard to quantify this problem because we
only know what we know. But during this time, we seized about a
quarter-of-a-million sets of parts--and our parts tend to be
packaged as a kit. We value that the parts that we have
prevented from coming into commerce is about $5 million.
Unfortunately, fines have been rather minimal. They have
totaled about $25,000, and our civil recoveries against the
counterfeiters have only totaled around $200,000. We spend
significant resources to fight this issue. It's hard to
quantify management time and resources, but one way we can
quantify it is what do we pay outside counsel and it averages
about a quarter of a million dollars a year just on
counterfeiting. This doesn't include other forms of
intellectual property disputes.
About two-thirds of our anticounterfeiting activities have
been in China. We have been successful in China in fighting the
problem. We are well organized in China. We have trusted people
working for us, and we do find that we have good relations with
some of the government agencies we work with, partly because we
are back before them time and time again in various locations
seeking to enforce our rights.
Unfortunately, however, most of our actions have been
against small shops. As Professor Chow noted in his written
materials, he describes the way in which parts are distributed
in China and it's very different than anything I have ever
encountered in the United States. To visit a marketplace like
this is truly unbelievable. But we have not been successful at
finding factories which are the source.
Part of that problem is the counterfeiters are smart. They
know that if they create the product at one place, and they
create the packaging at another place, and then they bring the
two components together typically at the shop itself, they can
avoid detection and liability.
Our concern in China has not been with the government's
unwillingness to act. They do take prompt action. In fact, when
we bring a matter to the Chinese Government's attention and we
can prove our case, we generally get results the same day. They
will go seize the product that very day, which I suspect is a
surprise to a lot of people.
Once the product seized has been confirmed as counterfeit,
the product is destroyed. In fact, I was in China last month
dealing with a number of these issues and attended a
destruction ceremony. They are publicized by the local
government on occasions.
But as everyone else has noted, the fines are low. I think
as you noted, Mr. Chairman, when the fine is just the cost of
doing business versus a deterrent, it's a cost of doing
business and it's something they will continue to do.
Another concern in China is the ability to obtain
information. Because it is a state run society, we don't get
access to a lot of the books and records when we conduct a
raid. We are interested in the source of the counterfeit
product and its distribution channel. We want to follow the
product. A lot of times it's very difficult to get access to
that information. We can act on it if we have the information.
I also want to turn our attention to the United States. We
have had some experiences in the United States. As I mentioned
in my written material, we identified counterfeit product in
this country last year. We took it upon ourselves to do
something about it. Interestingly enough, when we filed our law
suit, the first question from the court was, have you given the
other side notice, which we thought was a peculiar question,
given that the reason we moved ex parte for the seizure order
is we were concerned that the products and records would be
destroyed once they learned of the law suit. It turned out that
that didn't occur, that the individual in this country had been
misled as well and was terribly cooperative. However, it could
have been a lot worse.
Unfortunately, we don't see that the criminal laws are
being enforced by the U.S. Government. They are on the books in
Title 18, but if these government agencies have done things,
it's not being well publicized. We view ourselves a leader in
this industry and, frankly, we were surprised to learn of some
of the activities in the last month when we were requested to
come testify. We suspect that outreach is an area that the
government could do a better job on promoting its services,
especially to small companies. We suspect that many companies
and attorneys, frankly, just wouldn't know who to call if they
had a problem.
Also, U.S. law could be improved. As you may be aware,
there is a U.S. Court of Appeals circuit case that overturned
the conviction of a man who was shipping counterfeit fake
labels for designer purses, but because the labels weren't on
or in connection with the goods, his conviction was overturned.
While part of the criminal statute deals with the trafficking
of counterfeit labels and packaging, it's limited to albums,
computer programs, motion pictures, and other audio-visual
works. It frankly doesn't help the manufacturing community to
protect its parts. This deficiency could be addressed by
Congress in revising several sections of Title 18.
Finally, we believe that counterfeit crimes need to be
brought to the same level as drugs and other high-profile
crimes. Governments need the right to seize the assets used in
counterfeiting, such as equipment, tooling, and computers.
Furthermore, it would be beneficial and a deterrent to the
counterfeiters if their assets could be forfeited such as
houses, cars, boats, jewelry, and cash.
In summary, while the United States has good laws on its
books, it needs to become a leader in this area, frankly,
before it can ask other countries to enforce the IP laws on
their books.
Dana would like to thank the Subcommittee for the
invitation to testify. Your support and attention to this
matter strengthens our resolve to fight, and we would be
willing to answer any questions you have. Thank you.
Senator Voinovich. Thanks very much.
Mr. Rotman, you fundamentally are saying that your company
is large enough that you are handling this problem overseas and
here in the United States. A quarter of a million dollars for
outside counsel is a bit of money. Professor Chow, that's more
work for your graduates at Ohio State University.
The fact is, how many employees does Dana have? Just so we
get a sense of this, how large is it?
Mr. Rotman. Sure. Dana has----
Senator Voinovich. Let's say your sales.
Mr. Rotman. About $10 billion a year.
Senator Voinovich. OK. Ten billion dollars is a big
company.
Mr. Rotman. Yes. We have about 60,000 employees worldwide.
Senator Voinovich. Sixty thousand employees. So you're
large.
Mr. Rotman. Yes.
Senator Voinovich. How long have you been in China?
Mr. Rotman. Dana has had a presence in China since the
early 1990's.
Senator Voinovich. Your feeling is that you're handling the
problem in China because you've got the connections and you can
get action pretty rapidly?
Mr. Rotman. There are several reasons we believe we're
successful in China. We think we've found good people to work
for us in China, people we trust. We also have employees in
China who can help us, who are on the lookout for counterfeit
products.
They are incentivized, frankly, to help because if a
counterfeit product is sold, we don't sell a genuine product.
So they are there on the ground and they are in touch with
distributors and retailers who will pass information on to us.
Senator Voinovich. So the bottom line is they have an
incentive to work with you because the counterfeiting is
hurting their distributors for you and that's hurting their
business, so they want to work with you to make sure you do
something about counterfeiting.
Mr. Rotman. That's correct.
Senator Voinovich. And they have the connections with the
government to get the job done?
Mr. Rotman. I wouldn't say we have connections, but----
Senator Voinovich. Well, they have and you have.
Mr. Rotman. I think we've had enough experience that, when
it's time--when we do our homework and we have done our own
internal investigation, and we have determined it is a
counterfeit product or packaging, we believe, we use local
lawyers. We know what government agency to go to.
China has a number of state agencies that have overlapping
responsibilities, and I've heard in the industry of our
counterparts going to the wrong government agency and not
getting results and being frustrated.
Senator Voinovich. So if you were really going to get the
job done in China, would you try to replicate what Dana has
done in China? In other words, we've got a lot of people in
this country that are very small individuals, that have
problems with counterfeiting. They don't have the legal folks
to help them and the connections and so forth.
But if you could take a company like Dana or some other
company of the United States doing fairly well over there, in
terms of dealing with this problem, and tried to replicate that
for the small people, do you think we might make more progress?
I mean, we heard Mr. Dudas basically say he's been over there,
they've been talking to these folks, and nothing is happening.
Mr. Rotman. It's hard to say whether our model would work.
Our model is, I think, unique to us because we do have
employees in China helping us. They are Dana employees. They're
looking out for Dana.
I guess the other issue is that Dana laid the groundwork
many years ago to protect IPR in China by registering IPR in
China, so we have the rights in China to go out and enforce it.
I do think it is possible for a small company to be
successful in China, possibly with some assistance, with us
sharing some information with them about, frankly, how we
investigate and who we work with.
Senator Voinovich. Well, it seems to me it might be very
smart for the Federal Government to look at it, how you're
organized over there and how you get the job done, and maybe
look at some other businesses to institutionalize this so they
can do some work on behalf of companies like Mr. Gorman's, who
don't have the resources and the connections and the rest of it
to get the job done for them.
Mr. Rotman. One thing, Mr. Chairman, if I might add, we
have, I think, as an industry, what the automotive industry has
attempted to do perhaps in the last year or so, is look out for
one another. While a lot of us are competitors, we are
legitimate competitors, but we do believe that counterfeiters
hurt us all. So what we have instructed our people to do is
that, if they find products that they believe to be counterfeit
of another company, they should pass the information back to us
so that we can share that information with others.
We suspect that the counterfeiters are much better
organized than we are, and we're trying as an industry to be
more organized and to share information amongst ourselves to
help each other out.
Senator Voinovich. So the fact of the matter is that you're
recognizing that you have to work more together to get the job
done. In my opening statement I talked about the fact that
we've got $3 billion of auto parts that are coming into the
United States, which we estimate is costing us about 250,000
jobs. So what you're saying is that companies like yours would
be interested in those parts coming in and try to help those
folks?
Mr. Rotman. You mean help others in our industry police for
counterfeiters?
Senator Voinovich. Yes.
Mr. Rotman. Yes. We believe that the counterfeit products
coming in, even from a competitor, hurt us all.
Senator Voinovich. What kind of help do you get at all from
our government?
Mr. Rotman. Not much. We tend to go it alone. In the past,
we've had experience where we were contacted by the government
when they suspected some product was being imported, but the
communication was sporadic, and trying to, frankly, get some
information in order to assess the situation and provide
feedback was difficult.
Senator Voinovich. So, in effect, you took your destiny in
your own hands and said we'll take care of it?
Mr. Rotman. Yes.
Senator Voinovich. Professor Chow, before agreeing to
testify before this Subcommittee, had you heard of the National
Intellectual Property Law Enforcement Coordination Council? If
so, what had you heard about it, and if you knew about it, have
you seen any changes since the inception of the Council in
1998?
Mr. Chow. Well, to be quite honest, I really didn't know
very much about it. I have actually done work for private
clients as well, and we really didn't find that to be a very
helpful resource.
Senator Voinovich. You heard the testimony from the other
witnesses and the questions I asked about their coordinating
their activities. There seems to be several agencies that are
involved.
Do you think it would be valuable if that agency were
provided the staff and the resources to do a better job of
coordinating?
Mr. Chow. It seems to me, based upon my own experience
working in the field here in the United States, that there
really is a lack of coordination and that would be helpful.
Senator Voinovich. So it's your opinion that, from your
observation, these various agencies, in spite of the fact it
was said today they are coordinating and working together, your
impression is that, in fact, there is not very good
coordination and cooperation?
Mr. Chow. Not in particular cases, based on my own
experience. I have worked on several cases in which we found
very little cooperation from some of these agencies, such as
the FBI and Customs, for example, in a couple of cases.
Senator Voinovich. If you were in my shoes and the Members
of this Subcommittee, what would you be doing in order to
handle this?
One of the things you mentioned in your testimony was the
fact that you've got a whole province, Yiwu, that the whole
deal is based on counterfeiting. They've got a problem there
with that community because, if they start doing things,
they're going to have civil unrest and so on and so forth.
They're reluctant to do that because of a lot of people being
unhappy.
Mr. Chow. Yes. Well, I think it's really an issue of
priority for the Chinese Government. Currently, as far as I can
see, the Chinese Government does not have the political will to
force the local jurisdictions, such as Yiwu, to crack down. It
doesn't have the political will because I don't believe the
Chinese Government really feels enough pressure, especially
from brand owners in China, to take that kind of step. It's a
very drastic step to impose a crack down against the will of a
local town or jurisdiction. The national government can do it,
if it wishes to do so, but to do that, it has to expend a lot
of political capital and it has to absorb some very serious
costs.
Now, the government is not going to do that unless it feels
it absolutely has to. I don't believe, currently, that the
government in China is feeling enough pressure or is getting
enough heat from brand owners, or the U.S. Government, to make
it take that drastic step.
Senator Voinovich. One of the other issues we've got in
this country is some of our businesses now are being told that,
in order to stay in business, they have to meet the global
market price. This is very difficult for a U.S. company to do
because the global market price includes Chinese manufacturers,
who don't have to worry about excessive regulations or health
care costs.
The question I've got is, how do we get the Chinese
attention that this is a serious problem and we want something
done about it? What would really be a way of bringing it right
to their attention so that they snap back and say, these folks
are serious about this issue.
For example, one of the things I would like to see happen
is a Special 301 investigation. That takes a long time. But it
just seems that all we do is talk, talk, talk, talk. And my
little bit of relationship with the people over there is that
doesn't get it done. They need to see something more than that.
What is that something more that we need to do to get them
to understand that we're serious about this problem?
Mr. Chow. Mr. Chairman, to be honest, I think there is some
conflict and ambiguity within the industry itself. I think that
the brand owners in China do not want to offend the Chinese
Government. This is one of the things that you see very
clearly, that they are tiptoeing around this issue. They don't
want to do anything to offend the Chinese Government, so they
form an industry group called the Quality Brands Protection
Committee, to work cooperatively with the Chinese Government.
They don't want to do anything confrontational.
Senator Voinovich. Who are they?
Mr. Chow. It's call the Quality Brands Protection
Committee, the QBPC for short. It consists of about 80 multi-
national companies. Their stance--and I was involved in this
when I was working in China--their stance is to work
cooperatively with the Chinese Government. They don't want to
offend the Chinese Government.
The Chinese Government, of course, is very smart and they
can see that they don't want to do anything to the industries
in China, they don't want to take drastic steps. So, thus, I
really think that the industry itself has to determine how far
they're willing to go.
You mentioned a Special 301 action against China. That
would get China's attention. That would bring it right to the
top of its agenda.
Another thing that would bring it right to the top of the
agenda is a WTO dispute resolution petition, challenging
China's compliance with TRIPs. That would bring it immediately
to the top of China's agenda. But that can't occur, Mr.
Chairman, unless industry fully supports it.
Senator Voinovich. What's the latter thing you said, the
WTO----
Mr. Chow. It's a WTO dispute settlement petition, whereby a
complaining country can challenge China's compliance with the
WTO, and TRIPs specifically, that counterfeiting exports from
China of counterfeit products violate China's obligations under
the WTO. That type of petition, brought by the United States,
with the WTO, would put this right at the top of the Chinese
agenda. It will draw their attention, as would a Special 301
action.
Senator Voinovich. I want to go back, because I'm thinking
about the figure you gave us was what? You think it's 66
percent of the counterfeit goods that come into the United
States are from China, is that right?
Mr. Chow. The U.S. Customs, by their own statistics, seized
in 2003, counterfeit product from China worth $62.4 million.
That consisted of 66 percent of the total of the counterfeit
product that was seized from all countries around the world.
I believe that figure is probably a little bit higher
because a lot of the counterfeit product from China is
transshipped through South America and other countries and
comes into the United States. It's probably about 80 percent of
the product that enters into the United States, the counterfeit
product that enters into the United States is from China.
Senator Voinovich. In other words, you believe that there
is enough information available today that a dispute settlement
petition, complaining that they aren't complying with the
intellectual property parts of WTO, would be well taken?
Mr. Chow. Well, it's a process where we have to do
information gathering, but I think it's a viable--and others
may disagree--but I think it's a viable claim. I don't think it
would be easy to prove. There are many issues with that, but
that is a strategy that the United States can take.
If you want to draw this to their attention, I assure you
this will draw this to their attention, as would a Special 301
action brought against China for the failure to protect U.S.
intellectual property rights.
But I believe there is no industry support for either one
of those two actions, at least as far as I can see, and I
believe that the U.S. Government is not about to go and do that
without full industry support. And there is no industry
support, I believe, because most industries do not want to
offend the Chinese Government. So we're in a position where I
think the industry has to, really for themselves, clarify
exactly how far they're willing to go.
Senator Voinovich. Based on your reading and study, do you
feel there is a basis for us to file a Special 301 action?
Mr. Chow. Well, this is also a complicated issue, but
although China is a member of the WTO, it also has other
intellectual property obligations that it entered into under
bilateral agreements with the United States, specifically in
1995 and previously. So on the basis of separate agreements in
which China made separate obligations, specifically with
respect to export in these agreements, which are outside the
WTO, I believe there may be a basis for a Special 301 action.
I mean, just to clarify, the WTO, once you're a member of
the WTO, like the Untied States and China, the WTO framework
prohibits its members from taking unilateral action, such as a
Special 301 action. But because the United States and China
have agreements outside the framework of the WTO, which
predates the WTO, that may provide a basis for the United
States to bring a Special 301 action. But that's a very drastic
step, Mr. Chairman, and it would severely elevate the
seriousness and tension of this problem, and as I mentioned, I
don't believe there is industry support for that.
Senator Voinovich. Well, there is support for it in the
Congress and we're going to have to really get on that. I have
introduced legislation, and it's been introduced in the House
and it's just kind of laying there, but we're going to have to
bring this up and move maybe in our direction if the government
is not willing to go forward with it. Although I understand the
AFL-CIO and the National Association of Manufacturers is
thinking about filing a Special 301 action. That would deal
with one of the problems, and that is the industry, at least
with regard to that issue, understands how serious it is to
manufacturing in this country.
Mr. Chow. But I believe those petitions would not be based
upon--I'm not sure, but from what you're telling me, I don't
think those petitions are based upon the counterfeiting
problem, right?
Senator Voinovich. No, they're based on currency, not
counterfeiting.
Mr. Chow. Right. So that's, I think--just specifically on
intellectual property, bringing a Special 301 action, I don't
think there's any industry support for that.
Senator Voinovich. But you think there's adequate support
for the Special 301 investigation in terms of currency fixing?
Mr. Chow. I think there's a legal--I guess I don't feel I'm
in position to really comment on that, but it appears from what
you say, yes.
Senator Voinovich. Mr. Gorman, prior to your agreeing to
testify, had you heard of the National Intellectual Property
Law Enforcement Coordination Council?
Mr. Gorman. No, sir.
Senator Voinovich. Mr. Gorman, tell me about how much help
you have gotten from your government in terms of the problems
you've been confronted with over the last number of years and
how much has this cost your business, roughly, and how many
jobs do you think we've lost as a result of the fact that we
haven't taken action?
Mr. Gorman. Regarding the government question, I have to
say that I probably haven't pursued it at all. In going to
trade organizations and asking them, are you familiar with
anything that we can do or contact within the government to
address these issues, mostly the answers that come back are
``good luck, you're on your own.'' That's pretty much the
unilateral response that you get from the manufacturing
organizations. So I have to say, in all honesty, no, I have not
really addressed any direct involvement from the government. We
have taken it on by ourselves.
Senator Voinovich. Have you ever asked any government
agency, have you asked the Department of Commerce or the U.S.
Trade Representative, or have you asked the Patent Office, for
any help?
Mr. Gorman. Only indirectly through manufacturing
organizations, who really couldn't come up with any agency that
really addressed the situation of the problems that we were
having.
Senator Voinovich. Do you think there's a lot of other
people in this country that are in the same boat as you are?
Mr. Gorman. I would.
Senator Voinovich. So from your perspective--we had two
people testify, and you heard them testify, that in terms of
what they were testifying to, you didn't relate to what they
were talking about here today?
Mr. Gorman. Well, I have not had any personal experience
with it, but we're going to try it and see what happens.
Senator Voinovich. Do you believe that we need to get more
aggressive in this area, to make information available to
people like you about what help is available to you from the
government?
Mr. Gorman. It would certainly be an advantage. If the
trade organizations aren't familiar with the help that the
government can give, then I don't see how you can expect
especially smaller manufacturers to be aware, either.
Senator Voinovich. It seems to me you've had a problem with
pumps from Brazil for how long?
Mr. Gorman. It's been going on now from 3 to 5 years.
Senator Voinovich. Based on what I saw here today, there
ought to be somebody that could look at that information and
say these people are copying your pump and we are not going to
allow those pumps into the United States.
Mr. Gorman. That would be our suggestion. Give us somebody
that we can go to that has the authority to level out the
playing field. If you can stop it, fine.
Senator Voinovich. And then after a determination has been
made, then whoever in the government is responsible ought to be
able to go after the people in Brazil and the people in China
in terms of their violating their commitments in terms of
intellectual property.
Mr. Gorman. Whether the answer is--we're trying to go after
the company in Brazil now. I'll tell you, it's a very uphill
battle. Months and months of work and expense even to get the
paper----
Senator Voinovich. Are those pumps still coming into the
United States?
Mr. Gorman. Oh, absolutely.
Senator Voinovich. They're still coming in here?
Mr. Gorman. Oh, yes, daily. But trying to stop it on our
own accord, I'll tell you, it's no small task to try and bring
an IP case against a company in Brazil. It's very expensive,
very time-consuming, and we'll see what happens.
Senator Voinovich. Let's start off with the big picture.
Have you calculated what counterfeiting has meant to your
business in terms of lost income?
Mr. Gorman. It's difficult to put a specific number on it
because you're dealing with small companies that don't have
that specific information available, but it's clearly in the
millions of dollars of imported product, and especially the
after-market parts.
Senator Voinovich. So we're just talking about the pump you
showed me here?
Mr. Gorman. Right.
Senator Voinovich. So with the pump, you would say it's
costing you $3-$4 million?
Mr. Gorman. I would say in that area.
Senator Voinovich. In lost sales?
Mr. Gorman. Clearly, yes, probably much more than that over
the last 3 to 5 years.
Senator Voinovich. Could you calculate the impact that it
has on your employment?
Mr. Gorman. I wish I could. We're the type of company that
takes a lot of pride in not laying people off, even in tough
times. We have not hired as many people as we could have if we
wouldn't have been faced with these situations. But I'm sure
it's 20 to 25 people for our small company, just directly
related to the importation of product. This is not just one
company in Brazil. We have a couple in Brazil that are doing
it. So it's very difficult to put a specific number on it, to
say we have lost ``x'' jobs because of it. But clearly, we have
not been able to grow. It's been a situation of not letting us
grow as much as we could have, or hire new people to replace
those people that have retired.
Senator Voinovich. In your association with other
manufacturers, do you come in contact with other people that
are experiencing the same kind of problem that you have
experienced?
Mr. Gorman. I know it's pretty rampant in the pump industry
itself. You hear other examples pretty much daily in trade
journals and whatever, that it's a very pronounced problem.
But I go back to my suggestion. I think we've got to take
the results into our own hands and stop them from coming into
the country. We can work with the Governments of China or
Brazil and hopefully make some headway there, but I think,
until we have some legislation and some means that clearly
stops it, or at least levels out the playing field, with
increased stiff tariffs at the border, that's going to be the
most immediate thing that you can do.
Senator Voinovich. The best thing would be to just stop the
products from coming in, period. That would be the simplest
thing.
Professor Chow, again, how do you rate the U.S. Government
and all the agencies involved in this whole issue of
intellectual property rights on a scale of 1 to 10, in terms of
what they're doing?
Mr. Chow. Well, I mean----
Senator Voinovich. With No. 1 being the worst and No. 10
being the best.
Mr. Chow. Well, I don't want to seem unfair to them because
I have worked with the U.S. Government and specifically I have
worked with the U.S. Government agencies in attempting to
exclude product from coming to the United States. But quite
honestly, Mr. Chairman, it is very difficult to attempt to
exclude the entry of counterfeit product because a lot of it
comes in under false documentation. The container says it's
full of plastic toys and it's full of counterfeit cigarettes.
It's placing, I think, frankly, an unreasonable burden on the
part of the U.S. Customs Service to expect them to be able to
catch and seize all of the illegal containers at the border.
There are really two choke points. One choke point is to
prevent it from being exported from China or any other country,
and the second choke point is to prevent it from being
imported. You have got to do both of those. You can't place the
entire burden on the U.S. Customs Service because they really
don't have the resources to go and U.S. Customs would grind to
a halt if they had to go and inspect the number of containers
they would have to in order to make a real dent in this
problem.
The other issue, frankly, is that when I met with U.S.
Customs about a year ago, they made it very clear that this was
not their priority, that seizing infringing product at the
border was not their priority. Their priority was terrorism. So
it was clear that, as we were there, brand owners--and I was
representing a brand owner--it was clear, and Customs made it
very clear, that this was not a top priority for them and they
would give it whatever priority they felt it deserved.
Senator Voinovich. The things I want to find out--as I
said, I talked with a former Customs official, who said they
were doing a very good job, and this is why I'm interested in
knowing how many people they have, what are their priorities,
and what's their budget? I am also concerned that in the
process of dealing with the issue of terrorism, that we may be
neglecting dealing with this counterfeit product challenge.
The fact of the matter is that if what both those other
witnesses talked about, in terms of terrorist organizations
using counterfeiting to help pay for their terrorism
activities, it seems to me that gives it even more of a
heightened interest on their part to stop the counterfeiting
that is going on.
Mr. Chow. Well, just to make a comment on that, it was
clear to us, when we met with Customs--and I was representing a
brand owner at that point--it was clear that we were not going
to be their top priority, and we were going to be maybe their
second, third or fourth priority. They said we're very sorry.
And that was clear. They also made it clear that their top
priority was terrorism.
Now, with respect to terrorism, I just want to make a
comment, that at least with respect to China, just to be clear
on this issue, we have seen no evidence that links
counterfeiting from China to terrorism.
Senator Voinovich. Right.
Mr. Chow. OK. I just want to make that clear, that we don't
make that connection. It may be there, but we have not seen any
evidence of it.
Senator Voinovich. From what they said, that counterfeiting
is a way for some of these terrorist groups to fund their
respective organizations. It seems to me, if you're talking
about containers, and you're saying you don't know what's in
them--that's something we have been talking about for quite
some time around here, that we don't know what's coming in in
these containers. If we can get counterfeit goods through
Customs and into the hands of people who will distribute them
in the United States, who says that we can't bring in all kinds
of devices and get them in the hands of terrorists in this
country. That's a question that a lot of us are asking.
It seems to me you've got a ``two-fer'' here. If you
increase the number of people in Customs, you would enhance
your ability to preclude things that could get in the hands of
terrorists while also dealing with the counterfeiting problem
that is impacting negatively on the economy of our country.
We've got two problems right now. We have the problem of
terrorism and we've got the problem of an economy, that if
we're not careful, we may lose.
Mr. Chow. Mr. Chairman, I just want to make a comment on
that. I think it's a natural inclination to link, if you can,
terrorism to counterfeiting. But I do believe that more work
needs to be done there before we can say that connection has
been established. I understand that some groups of brand owners
are trying to make that connection, and that connection may be
there. But I don't think enough work has been done to show that
it's a real established connection.
Senator Voinovich. You said that the choke point is at
Customs and also in the countries where these goods are coming
in. Would you like to repeat what you think--I'm interested in
hearing from you, Mr. Rotman. You're doing all of this on your
own.
Mr. Rotman. Yes.
Senator Voinovich. And you are not getting a lot of help
from Uncle Sam, even though we're apparently spending a lot of
money dealing with the problem.
What would you do if you were running the government in
terms of dealing with this problem?
Mr. Rotman. I do agree with the Professor, that expecting
Customs to look at the product, compare original to counterfeit
and make a determination is asking a lot of somebody. As was
detailed in some of our written material--there was a side-by-
side picture of an engine bearing. We ourselves had trouble
telling the difference between a counterfeit product and an
original. In fact, in some instances, we have to do
metallurgical studies on the product to tell because the
counterfeit is so good. So asking a government agency to do
something that, while we can do it, it takes time, effort, and
a lot of just knowing your product, as almost knowing your
child. That's a lot to ask of a government agency.
I do think that their heart's in the right place, but their
resources just aren't there. As the Professor indicated, in our
experience their priorities are elsewhere.
Senator Voinovich. What was the industry group you were
talking about, Professor?
Mr. Chow. It's the Quality Brands Protection Committee, the
QBPC.
Senator Voinovich. Are you familiar with that?
Mr. Rotman. I am familiar, but we are not a member.
Senator Voinovich. Why not?
Mr. Rotman. Cost. It's expensive to belong.
Senator Voinovich. And the alleged purpose of that is what?
Is it to try and work something out with the government in a
diplomatic fashion so that something will get done?
Mr. Chow. Well, the QBPC is working with the government
specifically on legal reform. In other words, to revise or
amend some of China's laws to give them more bite, because
that's the real issue. The issue of deterrence. So the QBPC is
making that one of its major objectives. They have a number of
other objectives as well, including increasing training for the
local officials and education for the consumer.
Senator Voinovich. OK. So what you're saying is that they
are conscientiously trying to build the infrastructure for
intellectual property rights, the respect for intellectual
property rights, the body of law, the enforcement and so on.
Mr. Chow. Well, the impetus for the QBPC--and I was
actually working in China when it was formed with a group of
companies, and Proctor & Gamble took the lead in forming this--
the idea was that individual companies felt that they were
completely helpless in attempting to resolve this problem. So
by forming an industry group and getting everyone together, you
have now 80 of the most powerful multinational companies, the
biggest names, in China now that belong to the QBPC. To have
that type of presence, to raise the level of--to raise
attention to this problem, that was the idea, and then to work
for long-term reform, to over a longer period of time to
improve the environment for the enforcement of intellectual
property rights in China, that was the basic idea.
Senator Voinovich. How about influencing our government to
take action?
Mr. Chow. Well, the QBPC is basically a China group, and
it's not--frankly speaking, I think some of these companies
have conflicts between their China management on the ground in
China and their U.S. management. The China management is always
taking the position that we can't do anything to offend the
Chinese Government. The U.S. management says but you're losing
all this money over there, why don't we go do something and go
to the U.S. Government? So there's actually some conflict
there, I think.
Senator Voinovich. I think there is obviously some
conflict. The fact is that our government should be doing a
whole lot more than what they're doing. They seem to be
reluctant to take the action that should be taken. Can you
explain that?
Mr. Chow. I honestly believe that, at least with respect to
China, that the U.S. Government will take its direction from
industry. I think that if industry wants drastic action, and it
made it clear to the U.S. Government, that would occur.
I think U.S. industry is giving some conflicting signals,
quite honestly, and the government isn't quite sure what to do.
Senator Voinovich. Well, we do have laws on the books, and
they shouldn't have to take their cues from industry groups to
do what the law requires them to do.
Mr. Chow. Well, if we're talking about specific enforcement
of U.S. laws, for example, I think more can be done there. But
if we're talking about a broader diplomatic, political,
international strategic move, that's where I think the U.S.
Government needs clear direction from industry.
If we're talking about specific border enforcement of
Customs regulations, or if we're talking about enforcement of
the Trademark Counterfeiting Act of 1984, for example--and
there are some real issues with the interpretation of that,
which Mr. Rotman talked about, and there were some other issues
with that--I think those are specific legal issues for which
the U.S. Government could be doing more.
Senator Voinovich. So to put it in a nutshell, one of the
biggest companies in this country, the Dana Corporation, 100
years today, is it?
Mr. Rotman. April 1st.
Senator Voinovich. Of what they're getting in terms of
their Federal Government and the departments that are dealing
with this whole issue of intellectual property rights is very
little.
Mr. Rotman. That would be correct.
Senator Voinovich. And we have Mr. Gorman, who represents a
smaller company, that's been around since 1933, a family
business, very competitive, and the answer to the question
about how much help you're getting is zippo?
Mr. Gorman. Correct.
Senator Voinovich. There seems to be a big conflict between
what these two gentlemen who first testified had to say about
what they were doing and what the perception is of the people
who are supposed to be their customers. It might be good if
they went out and spent some time with their customers, to find
out how they feel about things, and maybe they could do a
better job of servicing those customers.
I am very disappointed, because I believe in quality
management. Quality means that you go out and you talk to your
customers and you find out what they think, and you try to take
care of them. Then you also try and take care of your internal
customers and make sure the people that you have are ready and
able to get the job done.
Apparently we have a failure in both areas. They're not
talking to their customers, and it appears they don't have the
people inside to get the job done that they're supposed to be
doing. So we have a real genuine problem on our hands here, and
unless we get on it, we're going to continue to see the loss of
jobs and a negative impact on the economy of the United States.
That's just one of the things. I am very interested in
manufacturing, because Ohio is a manufacturing State. But if we
don't deal with this and we don't deal with the issue of
currency, if we don't deal with the other problems--Mr. Gorman
and I have talked about health care and energy costs and so
on--we're in for some rough times here in our country,
particularly in economies like Ohio and other manufacturing
States.
I want to thank you very much for coming today. It has been
very enlightening for me. I'm going to do what I can to convey
this to my colleagues and see if there isn't something that we
can do to get going.
I once talked to a very important person in this country,
who is a big man, and said that unless we do something about
the Chinese problem, it's going to be an issue in this
presidential campaign. If something doesn't happen fast, it
will become a major issue, one that all of us should be
concerned about. Because if we don't do enough about enforcing
our trade laws, then we don't have fair trade. If we don't have
fair trade, the protectionism in this country is going to grow
and grow and grow--and international trade is very important to
the economy of the United States. So it's in the best interest
of all of us that we enforce the trade laws. I hope that
somebody can get the message, because I doubt any new trade
agreements are going to get through the U.S. Congress this
year, and maybe next year, unless the American people and their
representatives see that there is something happening and that
the response to what's being done by our agencies to deal with
international property rights isn't that, in terms of the
customers, doing zippo, nothing.
Thank you very much for being here.
Mr. Chow. Thank you.
Mr. Gorman. Thank you.
[Whereupon, at 12 Noon, the Subcommittee adjourned.]
A P P E N D I X
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