[Senate Hearing 109-352]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-352
 
FINDING AND FIGHTING FAKES: REVIEWING THE STRATEGY TARGETING ORGANIZED 
                                 PIRACY

=======================================================================

                                HEARING

                               before the

                  OVERSIGHT OF GOVERNMENT MANAGEMENT,
                 THE FEDERAL WORKFORCE AND THE DISTRICT
                        OF COLUMBIA SUBCOMMITTEE

                                 of the

                              COMMITTEE ON
                         HOMELAND SECURITY AND
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 14, 2005

                               __________



       Printed for the use of the Committee on Homeland Security
                        and Governmental Affairs



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        COMMITTEE ON HOMELAND SECURITY AND 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
TOM COBURN, Oklahoma                 THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island      MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah              FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico         MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia

           Michael D. Bopp, Staff Director and Chief Counsel
   Joyce A. Rechtschaffen, Minority Staff Director and Chief Counsel
                      Trina D. Tyrer, Chief Clerk


   OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE AND THE 
                   DISTRICT OF COLUMBIA SUBCOMMITTEE

                   NORM COLEMAN, Minnesota, Chairman
TED STEVENS, Alaska                  CARL LEVIN, Michigan
TOM COBURN, Oklahoma                 DANIEL K. AKAKA, Hawaii
LINCOLN D. CHAFEE, Rhode Island      THOMAS R. CARPER, Delaware
ROBERT F. BENNETT, Utah              MARK DAYTON, Minnesota
PETE V. DOMENICI, New Mexico         FRANK LAUTENBERG, New Jersey
JOHN W. WARNER, Virginia             MARK PRYOR, Arkansas

                   Andrew Richardson, Staff Director
              Richard J. Kessler, Minority Staff Director
            Nanci E. Langley, Minority Deputy Staff Director
                       Tara E. Baird, Chief Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Voinovich............................................     1
    Senator Akaka................................................     4
    Senator Pryor................................................    11
    Senator Carper...............................................    31
    Senator Levin................................................    34

                               WITNESSES
                         Tuesday June 14, 2005

Jeffrey O. Evans, President and Chief Executive Officer, The 
  Will-Burt Company, Orrville, Ohio..............................     6
Jon W. Dudas, Under Secretary of Commerce for Intellectual 
  Property, and Director, U.S. Patent and Trademark Office.......    15
Victoria Espinel, Acting Assistant U.S. Trade Representative for 
  Intellectual Property..........................................    17
Daniel Baldwin, Acting Assistant Commissioner of the Office of 
  Strategic Trade, U.S. Customs and Border Protection, U.S. 
  Department of Homeland Security................................    19
Laura H. Parsky, Deputy Assistant Attorney General, Criminal 
  Division, U.S. Department of Justice...........................    21
Loren Yager, Director, International Affairs and Trade, U.S. 
  Government Accountability Office...............................    23
Brad Huther, Director, Counterfeiting and Piracy Initiative, U.S. 
  Chamber of Commerce............................................    38
Franklin J. Vargo, Vice President, International Economic 
  Affairs, National Association of Manufacturers.................    40

                     Alphabetical List of Witnesses

Baldwin, Daniel:
    Testimony....................................................    19
    Prepared statement...........................................    70
Dudas, Jon W.:
    Testimony....................................................    15
    Prepared statement...........................................    56
Espinel, Victoria:
    Testimony....................................................    17
    Prepared statement...........................................    65
Evans, Jeffrey O.:
    Testimony....................................................     6
    Prepared statement with attachments..........................    49
Huther, Brad:
    Testimony....................................................    38
    Prepared statement...........................................   109
Parsky, Laura H.:
    Testimony....................................................    21
    Prepared statement with an attachment........................    76
Vargo, Franklin J.:
    Testimony....................................................    40
    Prepared statement...........................................   118
Yager, Loren:
    Testimony....................................................    23
    Prepared statement...........................................    88

                                APPENDIX

Grocery Manufacturers Association, prepared statement............   126
``What are Counterfeiting and Piracy Costing the American 
  Economy,'' submitted by the National Chamber Foundation........   128
Questions and answers submitted for the record from:
    Mr. Dudas....................................................   150
    Ms. Espinel..................................................   156
    Mr. Baldwin..................................................   163
    Ms. Parsky with an attachment................................   169
    Mr. Huther...................................................   183
    Mr. Vargo....................................................   187


                 FINDING AND FIGHTING FAKES: REVIEWING
                THE STRATEGY TARGETING ORGANIZED PIRACY

                              ----------                              


                         TUESDAY, JUNE 14, 2005

                                   U.S. Senate,    
                  Oversight of Government Management,      
                         the Federal Workforce, and the    
                       District of Columbia Subcommittee,  
                      of the Committee on Homeland Security
                                        and Governmental Affairs,  
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:20 a.m., in 
room SD-562, Dirksen Senate Office Building, Hon. George V. 
Voinovich, Chairman of the Subcommittee, presiding.
    Present: Senators Voinovich, Akaka, Levin, Carper, and 
Pryor.

             OPENING STATEMENT OF SENATOR VOINOVICH

    Senator Voinovich. The hearing will please come to order I 
want to apologize to the witnesses and to Mr. Evans for the 
delay. We were scheduled with a vote this morning at 10 
o'clock. One thing that someone asked me a long time ago, what 
is the difference between Governor and being a Senator, and I 
said, when you are Governor, you control your schedule. When 
you are a Senator, somebody else does, so I again apologize for 
the lateness of beginning this hearing.
    Thank you all for coming. Today, the Subcommittee on the 
Oversight of Government Management, the Federal Workforce, and 
the District of Columbia will examine the Administration's 
Strategy Targeting Organized Piracy, also known as STOP!, which 
was announced last October to combat the growing international 
trade in counterfeit and pirated goods.
    This is the fourth hearing in a series of trade-related 
hearings by this Subcommittee going back to the 107th Congress. 
The prior hearings were held on April 22, 2002, December 9, 
2003, and April 20, 2004. So we have been on this now for a 
while.
    International trade in counterfeit and pirated goods now 
account for an estimated 7 percent of all global trade. The 
impact of this trade on the American economy is substantial, 
with the trade in counterfeit goods alone costing U.S. 
industries between $200 and $250 billion, according to the U.S. 
Trade Representative's (USTR) most recent Special 301 Report.
    Moreover, the problem is getting substantially worse. Since 
2000, the number and value of intellectual property seizures by 
the U.S. Bureau of Customs and Border Protection have more than 
doubled.
    As these statistics show, thanks to modern communications 
and travel, intellectual property thieves can sell fakes around 
the globe, operating from nearly any country in the world. And 
thanks to the efficiency of modern means of production, they 
can produce as many fakes as they can find buyers. Some thieves 
are so skilled that their fakes are, in some cases, 
indistinguishable from the authentic products. Even the 
producers of authentic goods cannot tell them apart.
    Such pervasive and sophisticated intellectual property 
theft poses a direct threat to the health of the United States 
economy. Intellectual property is the last bastion of our 
competitiveness. It is the one area where the United States has 
an absolute advantage in global trade. China, along with some 
of the other countries that are competing with us, has cheaper 
wages, cheaper health care costs, cheaper energy costs, but our 
economy is still vastly more productive than China's and other 
countries because of our intellectual property.
    What is very troubling to me is that the growth in 
intellectual property theft abroad, especially in China, is 
occurring despite the fact that many of the countries where 
such theft is rampant, including China, have agreed to enact 
intellectual property rights legislation as part of their trade 
agreements with the United States and the World Trade 
Organization (WTO). For example, as a condition to its entry in 
the WTO, China agreed to comply with the Agreement on Trade-
Related Aspects of Intellectual Property Rights, TRIPS, which 
set minimum standards for intellectual property protection for 
WTO members.
    Yet, while China did enact the requisite intellectual 
property legislation, enforcement of the law has been severely 
lacking, allowing intellectual property theft to flourish 
within its borders. And frankly, some parts of the Chinese 
economy are just built on trademark violations and 
infringements on intellectual property rights.
    Recognizing the need to combat the burgeoning of 
intellectual property theft abroad, in October 2004, the U.S. 
Trade Representative and the Departments of Commerce, Homeland 
Security, and Justice initiated the Strategy Targeting 
Organized Piracy, or STOP!--I love it. STOP! is a coordinated 
government-wide initiative designed to empower American 
businesses to secure and enforce their intellectual property 
rights in overseas markets, to stop fakes at U.S. borders, and 
to reach out to our trading partners to build an international 
coalition to stop piracy and counterfeiting worldwide.
    I was very pleased with the announcement of STOP!. As 
someone who has worked with several Ohio companies that have 
had their product counterfeited, I can testify to the pressing 
need for more action to help American companies, especially 
small- and medium-sized companies, fight intellectual property 
theft abroad. In one of the hearings we had a year or so ago, 
the big companies said, they can take care of it themselves. 
They have lawyers over there. They can spend thousands, in some 
cases millions, of dollars taking care of the problem. But the 
little guy can't afford it.
    I am presently working with three Ohio manufacturing 
companies that have had their products counterfeited by firms 
operating in China: Gorman Rupp, which produces pumps, Step 2, 
which produces toys, and the Will-Burt Company, which produces 
telescoping masks, and whose CEO and President, Jeff Evans, 
will be testifying today. Mr. Evans, thank you for being here 
today.
    This past April, I traveled to China and had the 
opportunity to meet with Premier Wen. During our meeting, I 
brought these three cases to the attention of Premier Wen and 
told him that China was being short-sighted in not helping 
these companies, because eventually, such rampant intellectual 
property theft would deter innovation in China and hurt its 
economy. I want Mr. Evans to know that I will continue fighting 
for the Ohio manufacturing companies and I am not going to 
stop, sir, until we get something done.
    It is my hope that STOP! can provide American companies 
with the help they need to protect their intellectual property 
rights abroad as well as improve the Federal Government's 
overall efforts to fight intellectual property theft. I look 
forward to learning today about STOP!'s accomplishments and 
what the Administration's long-term plans are for this 
initiative.
    I believe the ultimate success of STOP! depends on its 
implementation of two important and interrelated issues. First, 
how STOP! improves the coordination of the numerous departments 
and agencies responsible for protecting intellectual property 
rights; second, whether the Federal Government is able to 
recruit, train, and retain the workforce necessary to implement 
STOP!. There is a human capital part of this. How many people 
do you have? How good are they? That has a lot to do with 
whether or not this is going to be as successful as we want it 
to be.
    Any effective campaign against intellectual property theft 
requires proper coordination of numerous departments and 
agencies. Especially when the perpetrators are overseas, 
Federal employees must work as a cohesive team to maximize 
their effectiveness. However, I am concerned that coordination 
of intellectual property enforcement has not received the 
attention it demands, and I have talked about this with Rob 
Portman, who is the new head of the USTR.
    In addition, in prior hearings by this Subcommittee, it was 
revealed that several human capital issues were significantly 
hindering the ability of the Federal Government to enforce our 
trade laws. In particular, high turnover and a lack of formal 
training of personnel were identified as significant problems. 
Because the success of any initiative depends on the people 
charged with its implementation, I hope to learn today whether 
these problems have been addressed so that STOP! can fulfill 
the ambitious goals, the Bush Administration, has set forth.
    I also hope to learn today what we in Congress can do to 
assist the Administration in implementing STOP!. Is there 
additional legislation that we need to pass to facilitate and 
move on this?
    I am interested in knowing if more personnel are needed, if 
our trade and IP laws are strong enough to deter intellectual 
property theft, and if steps can be taken to reduce the cost to 
private parties to protect their intellectual property rights.
    I look forward to hearing the testimony of today's 
witnesses and I thank Senator Akaka for being here. It seems 
you and I are the ones that just keep working on this, don't 
we? I am so glad that you are here this morning and I would 
like to call on you for your opening statement.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you very much, Mr. Chairman. It is a 
pleasure to work with you. Thank you for calling this morning's 
hearing. Mr. Chairman, you have been an important advocate for 
the U.S. manufacturing sector, and I know Ohio's businesses and 
workers appreciate your efforts in seeking a more level playing 
field with some of our trading partners.
    Today's hearing, which will review the government's efforts 
to target organized piracy, builds on two other hearings I have 
attended over the past few weeks. The first hearing discussed 
the possible links between counterfeit goods and organized 
criminal and terrorist organizations. The second hearing, while 
focusing on cargo security and weapons of mass destruction, 
touched on problems with the counterfeit goods.
    As our witness from Ohio, Mr. Evans, will testify, the sale 
of counterfeit goods is not a victimless crime. And as Mr. 
Huther of the U.S. Chamber of Commerce knows, counterfeit goods 
or intellectual property crime is a national problem that 
affects all segments of our economy.
    Our hearing will help us pull together the pieces of this 
problem by examining the government's coordinated strategy for 
combatting the piracy of intellectual property known as STOP!, 
or the Strategy Targeting Organized Piracy. This program began 
in October 2004 and brings together government, private 
industry, and U.S. trading partners. It is run by the Commerce 
Department and the Office of the U.S. Trade Representative, 
which in addition to developing and coordinating U.S. 
international trade policy is also responsible for conducting 
an annual review of global intellectual property challenges. 
That report, known as the Special 301 Review, identifies 
countries with the most significant problems, and I am sure Ms. 
Espinel of USTR will discuss some of the findings of the 2005 
report.
    IP counterfeiting and piracy is a global problem. According 
to Interpol, ``counterfeiting is so widespread that few 
legitimately manufactured goods are not copied in one form or 
another.''
    The USTR estimates that the sale in counterfeit goods is 
$512 billion annually, or 7 percent of global trade. Given the 
increased scope and magnitude of counterfeiting, especially in 
the areas of CDs, DVDs, and digital information on the 
Internet, the member countries of the Organization for Economic 
Cooperative and Development have requested a study of this 
issue which is due next year. As the U.S. economy evolves from 
manufacturing focused to knowledge-based. This issue is more 
important than ever to America's economic well-being.
    Our national IP strategy must ensure that U.S. businesses 
can compete fairly in the global market. Simply stated, 
American brand names, ideas, and innovations must be protected. 
In certain countries, IPR issues compete with other U.S. policy 
objectives or with the country's own economic interests. China, 
for example, is reported to be the leading exporter of 
counterfeit and pirated goods, manufacturing two-thirds of all 
counterfeit goods that come into the United States. I am 
pleased that through programs such as Operation Spring, which 
involved ICE, China's Ministry of Public Security and the 
Motion Picture Association of America, some progress has been 
made.
    Much more needs to be done to protect American businesses, 
especially small businesses and consumers. I look forward to 
learning how the various agencies involved in IPR issues are 
coordinating their efforts. At this point, however, there does 
not appear to be a clear, systematic means for law enforcement 
agencies to share information, nor does there appear to be a 
systematic means for the law enforcement community to share 
information with the policy makers. This was one of the lessons 
from September 11, and I hope that we are applying this lesson 
to the growing problem of IPR crime.
    Again, I thank you, Mr. Chairman, for holding today's 
hearing and I complement you on bringing together a broad range 
of witnesses who will present their views, concerns, and, I 
hope, recommendations to us this morning. Thank you very much, 
Mr. Chairman.
    Senator Voinovich. Thank you, Senator Akaka.
    We have three excellent panels of witnesses this morning 
and I look forward to good discussion. All witnesses' 
statements will be entered into the record in their entirety 
and I would appreciate if you could please summarize your 
statements in the allotted 5 minutes that we have given you.
    It is the custom of this Subcommittee to swear in all of 
the witnesses, and if all of them are here, I would appreciate 
if you all would stand up and I will administer the oath of 
office.
    Do you swear that the testimony you are about to give this 
Committee is the truth, the whole truth, and nothing but the 
truth, so help you, God?
    [Chorus of ``I do.'']
    Senator Voinovich. Let the record show they all answered in 
the affirmative.
    Testifying on our first panel is Jeff Evans, President and 
CEO of the Will-Burt Company, which was recently recognized as 
Ohio's Exporter of the Year for 2004. Congratulations.
    As I mentioned in my statement, Will-Burt has had horrible 
problems with intellectual property thieves in China. I have a 
strong personal connection to Will-Burt's case. When I was 
Governor of Ohio, the Will-Burt Company traveled to China with 
me on a trade mission. We set out with the best of intentions, 
to help an Ohio manufacturing company expand its market base. 
Suffice it to say, Will-Burt's experience has forever changed 
that company.
    In fact, when I spoke with Premier Wen in April, I told him 
how embarrassed I was that the Will-Burt Company that I had 
brought to China in 1995 had been a victim of intellectual 
property theft in China, and I pointed out to him that I was a 
great supporter of normal trade relations with China. I was 
outspoken for it, and just how disappointed I was that they 
weren't doing what they promised to do in terms of their WTO 
commitments.
    Since Mr. Evans has a very compelling story to share with 
us this morning, I felt it was important for him to testify 
first. Mr. Evans, thanks for making the trip from Orrville, 
Ohio. Orrville, Ohio, is the home of Smucker's, which we hear 
about every morning on the ``Today'' program. But there are a 
few other companies in Orrville, aren't there, Mr. Evans?
    Mr. Evans. Yes, there are.
    Senator Voinovich. Thank you very much, and we look forward 
to your testimony.

TESTIMONY OF JEFFREY O. EVANS,\1\ PRESIDENT AND CHIEF EXECUTIVE 
         OFFICER, THE WILL-BURT COMPANY, ORRVILLE, OHIO

    Mr. Evans. Thank you. Good morning, Senator Voinovich and 
honorable Members of the Subcommittee. On behalf of the 
employees at the Will-Burt Company, and in support of other 
companies like ours, I appreciate and am thankful for the 
opportunity to address you here today.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Evans with attachments appears in 
the Appendix on page 40.
---------------------------------------------------------------------------
    Will-Burt, 87 years old, is a 100 percent employee-owned 
company located in Orrville, Ohio, and employs approximately 
270 people. In 2004, Will-Burt was selected as Ohio's Exporter 
of the Year, and approximately 25 percent of its sales come 
from abroad. Will-Burt manufactures a variety of mast products 
for military and commercial sales. In particular, Will-Burt 
developed, manufactures, and distributes a mast that sets atop 
police and rescue vehicles, called ``Night-Scan.'' Will-Burt 
has secured both patent protection and trademark protection in 
China for its Night-Scan products.
    Will-Burt had been successful in marketing its products for 
a number of years, but its approach was not focused. A Chinese 
company, Shenzhen Superway, approached Will-Burt promising 
larger sales volumes if Will-Burt granted an exclusive license 
agreement to the company to act as Will-Burt's sole distributor 
throughout China. Will-Burt did agree to this arrangement, but 
only after securing a contract whereby Shenzhen Superway agreed 
not to steal Will-Burt's product or violate its protected 
interests. At first, sales increased dramatically. However, it 
was not long until the distributor determined that there was 
more money in the transaction by knocking off the product and 
bypassing Will-Burt completely.
    The agreement reached with the Chinese company, which 
called for certain sales goals, contained language to protect 
the confidentiality of Will-Burt's product information and also 
contained a non-compete clause. Unfortunately, the Chinese 
company was aware of a fact unknown to Will-Burt. The Chinese 
company knew that it could steal, appropriate, knock-off a U.S. 
company's product and engineering, and steal the intellectual 
property associated with that product, with the knowledge that 
such action could be done with virtual impunity. The Chinese 
company got what it wanted, the product, knowing that its 
promises would not be enforced.
    Within a year, Will-Burt noticed the distributor was not 
meeting its sales goals. Will-Burt came to learn that sales 
were off because the product had been reverse-engineered and 
was being sold outside of the contractual agreement. Will-Burt 
discovered this fact shortly after a visit to China to 
determine why sales were down. During this visit, Will-Burt 
discovered its mast had been counterfeited and was being 
marketed in China under the same trade name, and then under a 
different name, by companies affiliated with its prior 
distributor.
    Once the Chinese company learned how to manufacture the 
product on its own, it entirely disregarded the contract and 
Will-Burt's patent and trademark rights and proceeded to 
manufacture and sell the product as its own. We have copies of 
pictures which clearly illustrate the knock-off as a copy of 
the Will-Burt product, which can be seen on the side here. The 
pictures to the left are the Will-Burt product. The pictures on 
the right are the Chinese counterfeits, and as you can see, 
they are virtually identical.
    We also have sample pages from the manual for this Chinese 
knock-off, which remarkably contained pictures from Will-Burt's 
manual and Will-Burt's web address. Of particular interest 
might be the picture of the Ohio Highway Patrol vehicle in the 
Chinese knock-off manual.
    Like many U.S. companies, the Will-Burt Company had a 
business relationship with a Chinese entity that pirated Will-
Burt's technology and confidential information. Will-Burt was 
victimized by a Chinese business climate and legal system that 
fosters and condones the illegal appropriation of another's 
product, but makes any attempt to remedy this wrong a practical 
impossibility. In fact, Will-Burt's end customer, the Chinese 
Police Security Bureau, in effect, the National Police 
Department, is purchasing illegal counterfeit products from 
Chinese companies, which directly violates several of the laws 
there in existence to enforce.
    Prior to the pirating, Will-Burt had sold about $1 million 
of product through a Chinese distributor in China in 2001, and 
then saw a decline to a little over a half-million in 2002 when 
the pirating was initiated. Sales declined further, to about a 
quarter-of-a-million dollars, in 2003, and lower yet last year. 
We believe that the pirated product now has a market in excess 
of $2 million per year in China.
    There are now at least two more companies that are 
violating Will-Burt's rights in China with counterfeit 
products. Worse, these illegal Chinese products are now being 
marketed outside of China, threatening Will-Burt's markets 
worldwide in countries such as Taiwan and Israel.
    After learning of the counterfeiting, Will-Burt, at 
considerable expense, employed a law firm in China to 
investigate and recommend a course of action, whether political 
or legal. The conclusion can be summarized quite simply. Even 
though everything you say is true, there is no effective 
remedy.
    Will-Burt has recently entered into another arrangement 
with a distributor in China in effect to recapture the sales 
lost to the counterfeiting company. Unfortunately, Will-Burt's 
product must now compete against itself.
    Will-Burt has undertaken great expense in its attempt to be 
competitive in the Chinese market. As an example, ten separate 
Will-Burt employees have traveled to China over the past 5 
years for a total of more than 35 trips, and at a significant 
cost to the company.
    I can tell you that the fight is not over. Will-Burt is 
currently deploying other tactics and strategies focused on 
regaining Chinese market share through its current distributor 
while working to contain the problem within the borders of 
China. Given the nature of the legal and economic system in 
China, both tasks will be difficult. This is particularly true 
when the playing field is uneven and the political processes 
employed by our government have not yet been successful in 
addressing this injustice.
    Thank you for this opportunity to testify.
    Senator Voinovich. Thank you, Mr. Evans. I appreciate your 
participation today. Your testimony powerfully exemplifies the 
damage that can be done by intellectual property thieves and on 
the pressing need to crack down on counterfeiting and piracy 
abroad.
    I want to commend you for your willingness to talk about 
this issue publicly. Where is Mr. Dudas? I called the STOP! 
hotline this morning. After the last hearing, Senator Akaka, 
remember when they gave us a number for STOP!? I called the 
number and nobody even knew what I was talking about.
    Today, I got hold of a woman by the name of Amy Cotton and 
she just was a cracker jack. She met all of my expectations. 
She didn't know I was a Senator to begin with. At about the end 
of 15 minutes, I told her who I was.
    But one of the things that she mentioned is that there are 
many businesses who have had their trademarks infringed upon 
and they are afraid to have their name mentioned for fear that 
there might be some retaliation. And I asked the question, are 
you aware of that? She said, well, we think there is, and 
certainly some of the bigger companies are concerned about 
retaliation.
    So the fact that you are here and testifying today is very 
important and, of course, since I gave Premier Wen the 
information on you, they know firsthand who you are.
    When you discovered that your technology was being--that 
you were being knocked-off, did you seek immediate help from 
the Federal Government?
    Mr. Evans. We did, and at the time, the most obvious 
solution was to find an attorney in China, which we did, and 
pursue our rights in China. What we found at the time was that 
the amount of money that we would have had to expend would have 
probably been close to $50,000 to come to any kind of a 
solution, and we were told that the solution would be that the 
company would just shut down and reopen as another company, so 
we didn't find any effective remedy that direction.
    Senator Voinovich. In other words, you did call for Federal 
assistance, though, is that right?
    Mr. Evans. Yes.
    Senator Voinovich. And they said what?
    Mr. Evans. At the time, the advice was principally to fight 
it through an attorney in China.
    Senator Voinovich. So get yourself a lawyer over there and 
fight it?
    Mr. Evans. Yes.
    Senator Voinovich. Were you able to get any--did you seek 
any assistance from the embassy, from the Foreign Commercial 
Office of the embassy in China?
    Mr. Evans. We did do that and it was pretty much the same 
answer as to how best to fight it. There are legal proceedings 
you can go through and there are administrative proceedings we 
were told that we could pursue. But again, the cost of doing 
any of those was pretty onerous for a company our size.
    Senator Voinovich. OK. It was how long ago that you first 
discovered this?
    Mr. Evans. In 2001, 2002, somewhere in that range.
    Senator Voinovich. So it has been, what, 3 years, at least?
    Mr. Evans. Three years, yes.
    Senator Voinovich. Do you have any idea of the expense that 
you have incurred as a result of this in terms of people going 
over there----
    Mr. Evans. Oh, I am sure it has been several hundred 
thousand dollars, just in terms of legal fees, in terms of the 
people we have sent over, the trips, the 16-hour flights to 
Beijing. Yes, it has been considerable.
    Senator Voinovich. If you can get that information to me, 
if you feel you could share it, I would be appreciative. You 
say how much, a couple hundred thousand?
    Mr. Evans. I would say, yes.
    Senator Voinovich. That is a lot of money for a small 
company.
    Mr. Evans. It is a lot of money.
    Senator Voinovich. But you felt that it was worth your 
while to pursue it?
    Mr. Evans. That would include the money that we are 
spending on continuing to market ourselves there and continuing 
to fight. What we eventually concluded in 2002 was that we 
would not prevail on a legal or political solution. The only 
way to compete--the only way to win was to out-compete them, 
and that is the direction we have chosen to go.
    Senator Voinovich. So you are going to make your product 
different and compete?
    Mr. Evans. We are currently working with our distributor in 
China whereby he will make the product for us in China, and he 
is then competing in China with the knock-off products. Our 
product is still more expensive than the knock-offs that we are 
competing against, but there is a premium that companies are 
willing to pay, albeit somewhat small, for the original, 
authentic U.S. product.
    Senator Voinovich. So the fact of the matter is that prior 
to that time, you were manufacturing in Orrville, Ohio?
    Mr. Evans. That is right.
    Senator Voinovich. So as a result of this, because of the 
way this has worked out, you are now having to manufacture over 
there and compete against your own product?
    Mr. Evans. We had no choice but to move these products and 
the manufacturing of them to China, that is correct.
    Senator Voinovich. Based on your experiences, what lessons 
would you like to pass on to other American businesses?
    Mr. Evans. I guess the first would be to take a long view 
of what is going on, because I started off my career as a CPA 
and one of the accounting principles is that of matching. You 
match expenses and revenues. What we are getting today in the 
United States is the benefit of inexpensive goods coming into 
the country, and what China is getting is the benefit of jobs 
and foreign exchange. What will happen in the future is that 
our manufacturing base will be impaired, and to China, they 
will eventually see a drying up of proprietary product coming 
in. Companies will eventually stop shipping to China if they 
are just going to see it come back as a knock-off. So looking 
longer view rather than trying to make some additional sales in 
the short-run would be one of the points of advice I would like 
to give.
    The other is to work very closely with the Federal agencies 
that we have now come to know quite well. Early on, we didn't 
really work with some of these other offices, USTR, some of the 
others, when we first went into China and they have been 
providing us a good deal of support lately in some of the ways 
that we are trying to fight it now. So I would say that would 
be a second thing I would recommend.
    Senator Voinovich. So right now, they are giving you a hand 
with the China crack-down on the outfit that has counterfeited 
your product?
    Mr. Evans. Exactly, as well as some good hard action items 
as to how to keep the product in China and how to attempt to 
avoid having to compete worldwide against the counterfeits.
    Senator Voinovich. Thank you. Senator Akaka.
    Senator Akaka. Thank you very much, Mr. Chairman.
    Thank you for your response, Mr. Evans, and for sharing 
some of your experiences in China.
    I know it is difficult to gain market entry into a 
Communist country. But China has been evolving and changing so 
rapidly that I am beginning to become concerned about how much 
the central government is able to regulatre businesses. It is 
obvious that the companies that you are dealing with are 
running their businesses, in some instances, without regard to 
government regulations.
    I was glad to hear that you did seek a Chinese lawyer to 
help you. I just want to share with you that I knew the 
President of Sony way back when he first began to sell in the 
United States and he did the same thing. He hired a U.S. 
attorney to help him do business in the United States, and it 
worked well.
    Today's hearing is examining the Federal Government's 
initiative to help businesses like yours protect their 
intellectual property. My question to you is, if a similar 
thing were to happen today, who would you look to for help in 
our Federal Government?
    Mr. Evans. I believe the USTR has been very helpful to us, 
as well as the Department of Commerce, Under Secretary 
Aldonis's office. We found some pretty good support from both 
those offices. And a lot of the references that we got to those 
came from the Senator's office, Senator Voinovich. He pointed 
us in the right direction and it did help us to find those two 
agencies in particular that are helping us.
    Senator Akaka. The Chairman asked you whether you received 
any help from the embassy. Did you receive any help from the 
embassy?
    Mr. Evans. Not a significant amount, other than, as I said, 
the discussions of how to go about the legal proceedings in 
China.
    Senator Akaka. Mr. Evans, before you were asked to testify 
at this hearing, did you know about the STOP! program, and if 
so, how did you learn about it?
    Mr. Evans. I am sorry to say I did not know of the STOP! 
program or the acronym. I was aware of some of the initiatives, 
I believe, that are coming from it, but not of the program 
itself.
    Senator Akaka. From what you know about that program now, 
is it one that would have made a difference if you knew about 
it?
    Mr. Evans. Again, I haven't learned a great deal about it 
in the meantime. That will be my homework for next week.
    Senator Akaka. Thank you very much for your responses. The 
Chairman and this Subcommittee is really looking hard at this 
issue. If you can tell us how to make it better, we would 
certainly appreciate it, and that is our effort now.
    Thank you very much, Mr. Chairman.
    Senator Voinovich. Thank you, Senator.
    Senator Akaka. I yield back my time.
    Senator Voinovich. Senator Pryor.

               OPENING STATEMENTOF SENATOR PRYOR

    Senator Pryor. Thank you, Mr. Chairman, and thank you for 
continuing to focus on this important issue.
    Let me ask a question of the witness, if I may. I am trying 
to get a sense of the scope of the problem in China. What is 
your sense of the scope of the problem there?
    Mr. Evans. My thought is that when you send a product to 
China, the question is not will this be knocked-off or not. The 
question is, will we have a good 5 years of making the product 
before it gets knocked off? It is pervasive.
    Senator Pryor. I know you are not a complete expert on 
this, but is it your impression that it covers pretty much 
every product type there?
    Mr. Evans. I believe it does. For example, looking at the 
Will-Burt Company, you can see our products here. They are not 
everyday products. They are not well known. The market over 
there is very small. And yet there are two or three companies 
counterfeiting it right now. If they will do that for a market 
our size, clearly, larger markets would entice them even more. 
And it is a technical product. There is circuitry. There is 
programming. There is a lot of mechanics. It was a difficult 
product to reverse engineer.
    Senator Pryor. I was going to say, this is all based on 
reverse engineering. They get a hold of one of your products 
and they just figure out how it works and they start making it?
    Mr. Evans. That is correct.
    Senator Pryor. Do you know, by comparison, how does it 
operate and function as compared to your product? Is it 
virtually the same?
    Mr. Evans. It is virtually identical. The quality isn't as 
good, and we have won some contracts against them because of 
that. But the quality is not poor and the pricing is such a 
differential that it is difficult to sell against.
    Senator Pryor. That was actually my next question related 
to the purchasers of these knock-off products. Do they clearly 
understand that they are buying a knock-off or do they think 
that they are buying your product?
    Mr. Evans. At this point, they no longer think they are 
buying our product because the names have changed. It doesn't 
say Will-Burt Night-Scan. It has a different name.
    Senator Pryor. But originally, it actually had your name on 
there?
    Mr. Evans. Originally, it had our name, yes.
    Senator Pryor. OK.
    Mr. Evans. The manual has Xeroxed copies of pages from our 
manual. It was virtually billed as our product. The website for 
this company used the name ``Will-Burt'' in their address.
    Senator Pryor. Just out of curiosity, how much do these 
products sell for in China?
    Mr. Evans. Somewhere between $1,500 and $4,000.
    Senator Pryor. Is it your impression that the product that 
has been knocked-off in China is being sold only in China, or 
is it being exported out of China? Are you seeing it around the 
world?
    Mr. Evans. We haven't seen the product elsewhere yet, but 
it is being marketed. We have notification from several other 
countries that they are attempting to market it outside of 
China now.
    Senator Pryor. I want to ask you, if I may, about China's 
legal system. You have had some experience with that, it sounds 
like, being advised to hire a Chinese lawyer and fight. What is 
your impression of China's legal system?
    Mr. Evans. Well, my impression is that they have a 
conundrum going on where they are attempting to enforce their 
laws, but at the same time they are attempting to enforce 
public policy of creating jobs and creating foreign currency 
exchange, and the two are colliding in such a way that the 
reparations you can get through the legal system aren't too 
spectacular. Our understanding is that at the end of a long, 
drawn-out process, one might expect to receive a very small 
dollar award and potentially just the fact that the knock-off 
company would go out of business and then would come back in 
business as another name.
    Senator Pryor. In the United States under a situation like 
this, you might be entitled to monetary reward for loss of 
market share, etc., and loss of profits, etc., but you also 
might get injunctive relief where the court would actually 
prevent the company from knocking off your product in the 
future. Is that remedy available to you in China, the 
injunctive relief?
    Mr. Evans. My understanding is no, because even if it did 
occur, a new company could open up with the same people, 
perhaps the same address, manufacture the same product. So you 
could injunctively close down the first company, but then its 
predecessor would come into being.
    Senator Pryor. And again, I know I am asking for your 
perception based on your experience there, you don't hold 
yourself out to be an expert. But, is it your perception that 
the problem with China's legal system, as it related to your 
product and knock-offs generally, is the problem that China 
does not have sufficient law to cover this area, or is the 
problem more one of enforcement?
    Mr. Evans. Again, I am not an expert, but my impression is 
it is the enforcement rather than the lack of law.
    Senator Pryor. And the last question I had was about the 
STOP! program that Senator Akaka asked you about a few moments 
ago. As I understand it, you went through this entire process 
without really being aware that the STOP! program existed?
    Mr. Evans. That is true.
    Senator Pryor. How can the government do a better job of 
letting companies like this one know about the resources and 
the programs available in China and, I guess, around the world? 
What can the government do to do a better job of informing you 
of your options under Federal law?
    Mr. Evans. That is a very good question. I would expect 
that most larger companies are well tied in and would know 
about it. So it would seem to me that it is the smaller 
companies that don't have the resources that you need to get 
to. And whether you do that through an enhanced communication 
program, working with State agencies--as Senator Voinovich 
mentioned, we got our start in China through working with the 
Governor's office at the time. He was the Governor of Ohio. 
There are a lot of companies going that route because you can 
find your State Government helping you to make contacts and 
find distributors. Perhaps some communication there with, say, 
the State Department of Development would be of some benefit.
    Senator Pryor. Thank you, Mr. Chairman.
    Senator Voinovich. Thank you, Senator Pryor.
    As you know, this STOP! program kicked off in October of 
last year. You might be interested that I voted against the 
last two trade agreements and basically did so on the grounds 
that they weren't enforcing our trade laws and WTO rules. 
Secretary Zoellick at the time, the U.S. Trade Representative, 
came in with this sort of a one-stop-shop program. What we are 
hoping to do today is to find out how much coordination is 
going on and whether it is staffed or not.
    One thing I did find out, they do have some good people 
because I called the number this morning.
    Mr. Evans. I heard you say that. I think that is good.
    Senator Voinovich. I have to say, I was genuinely impressed 
with the person on the other end of the line, but I will say, 
and will bring this up with Mr. Dudas when he comes in, she 
said, we have this China specialist and the China specialist is 
in Detroit talking to some folks there about the program. So we 
are going to want to find out how many people do you have 
working there in that shop.
    I think your suggestion, Mr. Evans, is a good one in 
response to Senator Pryor's question, and that is that the 
State Governments should be very familiar with this program. 
When we went over with you folks, we should have had everything 
worked out, and hopefully it will be a lot better.
    Thank you very much for being here today. We are going to 
keep working with you.
    One last thing is do you think we will ever be able to 
close down the operation that is counterfeiting you?
    Mr. Evans. I am not sure, and at this point, I am less 
concerned about remedying our own situation and more concerned 
with just raising this issue so that we can stop others in the 
future. I would be happy if we could close it down. I will be 
even happier if we just contain it to China. That is my bigger 
concern at this point.
    Senator Voinovich. Where is it located, the company? What 
town?
    Mr. Evans. Shenzhen, a couple-hours drive from Shanghai.
    Senator Voinovich. Well, thank you very much for being here 
today.
    Mr. Evans. Thank you.
    Senator Voinovich. Our next panel is the Under Secretary of 
Commerce for Intellectual Property and Director of the U.S. 
Patent and Trademark Office, Mr. Dudas. I want to welcome you 
back to the Subcommittee.
    Victoria Espinel is the Acting Assistant U.S. Trade 
Representative for Intellectual Property. I understand that Ms. 
Espinel traveled to Europe last week with several Federal 
officials to discuss ways of strengthening the STOP! 
initiative. Hopefully, Ms. Espinel, we are going to get some of 
the other countries that are WTO signatories to help us put 
pressure on particularly the Chinese and I would be interested 
to hear your assessment of the trip.
    Dan Baldwin is the Acting Assistant Commissioner of the 
Office of Strategic Trade in the Department of Homeland 
Security. I think when we first had our hearing, I don't think 
we had a Homeland Security Department.
    Laura Parsky is the Deputy Assistant Attorney General for 
the Criminal Division at the Department of Justice.
    Loren Yager is the Director of International Affairs and 
Trade at the Government Accountability Office. Dr. Yager, 
welcome back to the Subcommittee. You have always provided 
insightful comments and I look forward to your testimony.
    I think we are down far enough on the chain in terms of 
operation of the Departments that we have got some real 
practitioners here that are testifying before us.
    Mr. Dudas, before you begin, one of the things when I 
talked with Ms. Cotton was that she said that people have to 
hire a trademark specialist in China in order to register their 
trademarks. One of the thoughts I had was that is it possible 
that we could have somebody do that, or would you have to have 
a law changed to do it? And also, perhaps in terms of the 
Chinese Government, if they are sincere about this, one of the 
ways you could expedite some of these cases would be to get 
their permission to go ahead and handle it in that way. I don't 
know how feasible that is.
    I really am interested in looking at the whole procedure 
that you are going through and have you analyze it to let us 
know if there is something we can do to be of help, either 
through legislation or whatever to expedite this thing as 
quickly as possible. So thank you for your testimony and thanks 
for being here.

 TESTIMONY OF JON W. DUDAS,\1\ UNDER SECRETARY OF COMMERCE FOR 
INTELLECTUAL PROPERTY, AND DIRECTOR, U.S. PATENT AND TRADEMARK 
                             OFFICE

    Mr. Dudas. Thank you, and I will respond early to that 
question you had. Would you like me to respond now or in the 
hearing?
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Dudas appears in the Appendix on 
page 56.
---------------------------------------------------------------------------
    Senator Voinovich. Whenever you would like.
    Mr. Dudas. That is fine. I think there are things that can 
be done. In fact, we have certain limitations. I am glad you 
had such a good experience with the line. Our goal is to get an 
intellectual property expert with regional expertise on the 
line who can either help you or get you the person that can 
help. We have had over 400 calls and they have been largely 
successful when we have worked with folks.
    We cannot give legal advice or act as a person's attorney 
because we are securing intellectual property rights in our 
office. I am glad you raised what you raised. We are working 
with other agencies within the Department of Commerce to find 
out if there is a way to give legal assistance to small 
businesses, or ways we can partner with the private sector in 
order to give this kind of legal assistance, so that we are not 
at odds with people trying to get intellectual property rights 
in the United States but at the same time giving them legal 
advice elsewhere. I would like to explore that further and come 
back to you with some ideas we might have within the Department 
of Commerce on how we might be able to get that done.
    I will also tell you the United States is pushing very 
hard. Our office led negotiations on a treaty called the Madrid 
Protocol that the United States has joined that makes it very 
easy for small businesses, for any business, to get a trademark 
in one country and then hopefully get it in 50 countries. We 
need to work with China and other nations to make it that 
simple. You apply in the United States and then you just choose 
a certain number of countries. We are not completely there yet, 
but we do have a great number of countries that are already 
organized and are able to do that.
    I will be happy to go further and answer more questions you 
have along those lines. Thank you for having this hearing and 
it is a pleasure to be here. This is an opportunity to discuss 
the progress made by the Bush Administration in combatting 
intellectual property theft. Since my testimony before you last 
year, the Administration generally and the Department of 
Commerce specifically have developed a multi-faceted approach 
within our agencies to protect IP both here at home and in 
other countries.
    Piracy and counterfeiting affect all Americans, as you 
noted, on many levels. As I testified last year, IP theft is 
not solely an economic issue. It is an incredibly important 
economic issue, but it can also harm consumers' health and 
safety. Everyone is affected, from the hard-working parent 
buying medicines or baby formula, as you have heard today from 
the private sector to the small business trying to make a 
payroll, a tight payroll at times in light of unfair 
competition from overseas and fakes in the streets. Most 
seriously, intellectual property theft can involve organized 
crime as well as possible terrorist funding, who use the ill-
gotten proceeds to fund horrific acts against humanity.
    STOP! is the most comprehensive U.S. Government-wide effort 
ever taken to put an end to pirated and counterfeited goods. 
The explicit goal of STOP! is helping American businesses 
secure and enforce their IP rights at home and abroad. Issues 
surrounding counterfeiting and piracy are being raised at the 
highest levels within the Executive Branch in the United 
States. Putting an end to IP theft is a priority of this 
Administration, with the NSC coordinating the Departments 
before you today in the STOP! effort. Already, the 
Administration's direction has resulted in vigorous cooperation 
among us and tangible results.
    Secretary of Commerce Carlos Gutierrez is keenly aware of 
the significance of IP protection for U.S. businesses. 
Secretary Gutierrez has emphasized that combatting IP theft is 
a top Commerce priority across the Department. The Secretary 
could not have been more direct or clearer when he stated 
during his recent trip to China that ``intellectual property 
rights violations are a crime, and we don't believe we should 
be negotiating crimes with our trading partners.''
    As Under Secretary of Commerce for Intellectual Property 
and Director of the Patent and Trademark Office, I share the 
Secretary's sentiments and am dedicated to reducing the toll 
that IP theft takes on all Americans, particularly with a focus 
on small businesses and independent inventors.
    The USPTO has a unique role in the Federal Government, 
being the only executive agency that exclusively focuses on IP, 
including the examination of patent and trademark applications 
in the United States and advising fellow Administration 
departments and agencies on U.S. IP policy and IP protection in 
other countries. Because I am most familiar with the USPTO's 
own activities for STOP!, I will take just a moment to share 
some of them. I know you will want to explore further 
activities of other agencies, as well.
    Under the auspices of STOP!, the USPTO maintains the STOP! 
hotline, that you called today. One of the things we can do 
best is to advertise that, so I will take a moment to note that 
the hotline number is 1-866-999-HALT. We couldn't get STOP!. We 
would have had to steal the name. HALT is close enough, since 
someone already had the number STOP!.
    Hotline callers receive information from USPTO's IPR 
attorneys with regional expertise, and IPR attorneys who have 
regional expertise on securing patents, trademarks, and 
copyrights on enforcing those rights. If they don't have the 
answer because it involves another agency, they will give you 
the name of a person in another agency and the caller can 
follow up. Since October 2004, we have received more than 400 
phone calls and we are working to try to increase the number of 
phone calls we receive by making businesses more aware.
    The USPTO has also launched an intensive communications 
campaign to educate small businesses on protecting their IPR, 
both in the United States and abroad. Earlier this year, the 
USPTO inaugurated a conference series targeting small 
businesses by providing grassroots-level education on securing 
rights for copyright, patent, or trademark, with an emphasis on 
protecting IP overseas. The first program was held in Salt Lake 
City last month. There was an intense interest from small 
businesses. We have also planned at least three more seminars 
through September.
    In addition, some of our other programs focus exclusively 
on doing business in China. Our next event, as you mentioned, 
is tomorrow in Detroit. We had great registration from 
Midwestern small businesses wishing to secure their rights.
    The Department of Commerce is also working broadly to 
expand awareness of IP risk and protection. Another initiative 
of STOP! is a gateway website, www.stopfakes.gov. This website 
features specialized information, including IP tool kits 
designed to help small businesses protect their IPR in other 
countries such as China, Korea, Mexico, and others. This is 
another cooperative effort among agencies within the 
Administration.
    A tremendous benefit of STOP! is heightened cooperation 
among the agencies in our mutual goal of fighting piracy and 
counterfeiting. For example, our colleagues at the Department 
of Homeland Security and Customs and Border Protection are 
working with the USPTO to inform trademark owners of the 
Customs recordation process in order to prevent the import of 
fakes.
    We are working with our colleagues at the Department of 
Justice and the Office of the Trade Representative to enhance 
the domestic and international IP environment for American 
businesses.
    Mr. Chairman, you have been very clear about the 
unfortunate truth. Counterfeiting and piracy remain growth 
industries in some countries. But the thieves' days are being 
numbered. Combatting IP theft is a top priority for this 
Administration, and the Administration's focus has already 
resulted in unprecedented levels of interagency coordination. 
Commerce, working closely together with other Federal agencies 
through STOP! is making progress in attacking IP theft 
internationally and domestically.
    Thank you very much for your time. I look forward to 
continued questions.
    Senator Voinovich. Thank you, Mr. Dudas. Ms. Espinel.

 TESTIMONY OF VICTORIA ESPINEL,\1\ ACTING ASSISTANT U.S. TRADE 
            REPRESENTATIVE FOR INTELLECTUAL PROPERTY

    Ms. Espinel. Chairman Voinovich, Ranking Member Akaka, 
other Members of the Subcommittee, thank you for inviting me 
here today. I am pleased to have this opportunity to speak with 
you about the enforcement of intellectual property and the 
Administration's STOP! initiative.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Espinel appears in the Appendix 
on page 65.
---------------------------------------------------------------------------
    The protection of IP is at the top of USTR's enforcement 
agenda. We have taken a comprehensive approach towards 
protecting IP by employing all the tools and resources at our 
disposal to improve intellectual property enforcement 
worldwide. For example, we have used our Special 301 Report to 
spotlight areas in need of reform abroad and we have used our 
FTAs to raise protection and enforcement of intellectual 
property with those specific countries or blocks of countries 
to a level comparable to our own. We will continue to use these 
tools in coordination with other agencies on behalf of our 
right holders.
    Protecting IP is one of the most complex issues of our 
trade agenda. Since the advent of TRIPS nearly 10 years ago, 
globalization and new technologies have made it easier for 
thieves to steal, copy, and sell auto parts, medicines, and 
sports equipment to unsuspecting consumers. This illicit trade 
is growing. International criminal networks have found it more 
profitable and less risky to raise cash by entering into the 
trade of counterfeit and pirated goods. Unfortunately, existing 
international forums and agreements have proven insufficient to 
adequately address this new global challenge.
    The international trade in fakes is hurting our companies 
and our citizens, as demonstrated clearly by the testimony of 
Mr. Evans today. U.S. businesses are having a difficult time 
tackling the problem, particularly small and medium-sized firms 
with limited staff, resources, and operations to protect 
themselves. Making matters worse, these firms are finding 
themselves having to address consumer complaints of inferior 
products passed on as their own.
    More needs to be done. The STOP! initiative is an important 
start to addressing the challenges arising from the trade in 
fakes. Announced late last year, STOP! is designed to bring 
together all the major players, the Federal Government agencies 
that are charged to protect the intellectual property, the 
private sector, and our trading partners, to take action 
together in cracking down on piracy and counterfeiting.
    Through STOP!, we are tackling theft of IP along with seven 
other participating agencies through a series of collaborative 
domestic and international initiatives that will make the trade 
environment friendlier for our consumers.
    Domestically, as you will hear today, the agencies are 
working with the private sector and taking comprehensive 
actions to realizing our October goals, including through our 
law enforcement and home security actions, working with our 
businesses to help them secure and enforce their IP rights, and 
working to eradicate the domestic market by educating the 
public about the importance of intellectual property and the 
risk of counterfeiting.
    Internationally, we began earlier this year reaching out to 
like-minded IP-friendly governments to build international 
support to attack the trade in fakes. It is critical that we 
have other governments working with us in order to address this 
global challenge.
    We are proposing a series of initiatives intended to 
enhance border enforcement, law enforcement interactions, and 
the exchange of information to better use our resources and 
personnel to address this shared problem. These initiatives are 
drawn from actions we have been taking in the past year 
domestically to improve our own enforcement of intellectual 
property. At the same time, we are also learning from the 
practical solution and problems other countries are 
encountering in their efforts fighting IP theft to consider how 
we may further advance our cooperation and how we may be able 
to improve our own domestic programs.
    Multilaterally, we have been advocating support for a 
series of initiatives in forums such as the G-8, APEC, and the 
OECD and other regional summits to further anti-piracy and 
counterfeiting. By working within these organizations, we hope, 
among others, to encourage countries that would otherwise not 
work directly with us to accept stronger IP enforcement 
measures that will protect our right holders.
    Our efforts are yielding results. In assisting STOP! 
coordination pursuant to the Administration's overall policy, 
we facilitated outreach and significantly improved 
coordination. As a result of the STOP! team's collective 
efforts, APEC recently endorsed an initiative on anti-piracy 
and counterfeiting that we proposed in Japan and Korea, while 
the OECD has agreed to undertake a study that will aid 
governments in making the case for stronger action against IP 
theft.
    Through our FTAs, we have substantially improved IP 
protection abroad. In close coordination with our industry, we 
have been working intensely with, for example, Australia and 
Singapore to ensure that the FTAs are fully implemented. We 
have also been working with our current trading partners to 
develop action plans to undertake similar efforts while we are 
engaged in the negotiations.
    Through our annual Special 301 Report, we have also 
witnessed examples of how the report can affect change. For 
example, in Pakistan, Pakistan has long been turning out 
millions of pirated optical disks. It is a fact that we have 
highlighted to the government there regularly and noted in our 
Special 301 Report by elevating the country as a more egregious 
offender of intellectual property. We were pleased to see 
Pakistan shut down six of the plants cited in the report not 
long after the report's public release this year.
    Mr. Chairman and Members of the Subcommittee, thank you for 
providing me with the opportunity to testify. I know I speak 
for my colleagues on the STOP! team when I say we appreciate 
your interest, guidance, and vigilance on the important issue 
of protecting intellectual property. We look forward to working 
with you to fine-tune our efforts with the goal of improving 
the situation for American rights holders worldwide. This task 
is a top priority for each of us. I look forward to your 
questions.
    Senator Voinovich. Thank you. Mr. Baldwin.

TESTIMONY OF DANIEL BALDWIN,\1\ ACTING ASSISTANT COMMISSIONER, 
OFFICE OF STRATEGIC TRADE, U.S. CUSTOMS AND BORDER PROTECTION, 
              U.S. DEPARTMENT OF HOMELAND SECURITY

    Mr. Baldwin. Good morning, Chairman Voinovich and Members 
of the Subcommittee. Thank you for this opportunity to testify 
and update you on the steps that the Department of Homeland 
Security is taking to improve the enforcement of intellectual 
property rights as part of the Administration's STOP! 
initiative.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Baldwin appears in the Appendix 
on page 70.
---------------------------------------------------------------------------
    Both U.S. Customs and Border Protection, CBP, and 
Immigration and Customs Enforcement, ICE, are full participants 
in the STOP! initiative. But my testimony this morning will 
focus on the contributions of CBP, the primary agency 
responsible for border enforcement in the STOP! initiative.
    CBP, as the guardian of the Nation's borders, safeguards 
the homeland foremost by protecting the American public against 
terrorists and instruments of terror while at the same time 
enforcing the laws of the United States and fostering the 
Nation's economic growth through lawful trade and travel, 
including the laws and regulations related to the protection of 
IPR.
    Between 2000 and 2004, the number of importations into the 
United States grew by approximately 20 percent and the value of 
those imports grew by 24 percent. Interestingly, during that 
same 5-year period, the number of Homeland Security seizures 
for counterfeit and pirated goods at our borders increased by 
124 percent and the value of those goods increased by 306 
percent. I identify these numbers to show you the magnitude and 
the scope that faces CBP at the border in enforcing these IP 
infringing goods.
    Although China accounts for much of this increase, seizures 
of counterfeit and pirated goods from other countries have also 
increased. There have been estimates already cited this morning 
that 7 percent of all global trade involves counterfeit and 
pirated goods.
    Although CBP's efforts to date have been successful, the 
flood of IPR-infringing imports requires us to explore new 
ideas for IPR enforcement. Today, I will discuss new approaches 
CBP is taking as part of STOP! to enhance and complement 
traditional methods of DHS's IPR enforcement.
    With the STOP! initiative, CBP is diversifying its IPR 
enforcement portfolio in moving beyond our traditional methods. 
These approaches improve our ability to identify high-risk 
companies and shipments while maintaining the flow of 
legitimate trade.
    In addition, our STOP! initiatives include greater 
cooperation with the business community and other government 
agencies to provide improved protection. Our initiatives 
include creating and testing an innovative statistical risk 
model for assessing IPR risks at the border; establishing a 
post-entry verification or IPR audits program designed to 
identify business practices that leave us vulnerable to IPR 
violations and determine the scope of a company's IPR 
violation. We are collaborating, as has been mentioned, with 
the Patent and Trademark Office to make it easier for 
businesses to obtain trademark protection through the 
recordation process. And finally, we have been engaged in 
issuing proposed regulations to enable CBP to better protect 
U.S. copyrights for sound recordings and motion pictures and 
some audio-visual works.
    I would mention IPR risk modeling as a method to enhance 
our current efforts by applying a statistical model to our 
import data and to data provided by other government agencies 
and from the business community to identify that risky 
neighborhood or what we would call a model that identifies the 
characteristics of IPR infringement. We are then able to apply 
that model to both the transactions and to an account-based 
form, meaning we will better target for transactions coming 
across the border, but more importantly, be able to better 
target companies that participate in risky businesses for IPR 
infringement.
    That IPR risk model leads us to the innovative program that 
we have established for creating IPR audits. For the first 
time, CBP is conducting approximately two dozen IPR audits for 
companies that exhibit strong characteristics for IPR 
infringement. We conduct an audit to look at their internal 
control systems to evaluate whether they are sufficiently 
prepared to ensure that they are not importing IP infringing 
goods and work with those companies to ensure that they are 
able to maximize their internal control systems to guarantee 
against IP infringement.
    We are also working, as I mentioned, with the PTO to 
streamline our recordation process. We have been working with 
PTO to develop a hyperlink system so that when a company is 
able to register their trademark with PTO, they will 
automatically be linked to Customs to record their mark to help 
us protect their mark, as well. What is key here is that this 
is our main initiative to help small businesses identify and 
help us protect their mark by simultaneously recording with 
Customs. We hope to have that system up and running later this 
summer.
    With our STOP! initiatives, CBP has broken new ground in 
the fight against counterfeiting and piracy. We will continue 
to work with DHS headquarters, our colleagues at ICE, and other 
partner agencies as well as other industry, and continue to 
improve our targeting and enforcement efforts to deprive IPR 
violators of their illicit financial gains.
    Thank you again, Chairman Voinovich, Members of the 
Subcommittee. Thank you for the opportunity to testify. I look 
forward to your questions.
    Senator Voinovich. Thank you, Mr. Baldwin. Ms. Parsky.

  TESTIMONY OF LAURA H. PARSKY,\1\ DEPUTY ASSISTANT ATTORNEY 
       GENERAL, CRIMINAL DIVISION, DEPARTMENT OF JUSTICE

    Ms. Parsky. Chairman Voinovich, Members of the 
Subcommittee, intellectual property enforcement is an extremely 
important topic to the Department of Justice, and I commend you 
for holding this hearing to explore how the U.S. Government is 
responding to the growing threat of intellectual property 
theft. Today, I am pleased to share with you the Department of 
Justice's efforts to protect intellectual property rights 
through its enforcement efforts and participation in the STOP! 
Initiative.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Parsky with an attachment appears 
in the Appendix on page 76.
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    Mr. Chairman, we are at a pivotal time in the history of 
intellectual property rights enforcement. A number of factors 
have converged to create unprecedented challenges to 
intellectual property rights holders and to law enforcement. 
The Internet and technology have made piracy and counterfeiting 
easier and less expensive than ever before. At the same time, 
the quality of the illicit goods is often near perfect. 
Detecting these illegal operations is more difficult than in 
the past and is compounded by sporadic and inconsistent 
enforcement throughout the world. Piracy and counterfeiting are 
low-risk, high-reward endeavors which are beginning, not 
surprisingly, to attract international organized crime 
syndicates.
    The Department of Justice occupies a unique role in our 
government as the sole agency with criminal prosecutorial 
authority. One of the most important contributions the 
Department makes to the protection of intellectual property 
rights, as well as to the STOP! Initiative, is the prosecution 
of organized criminal networks that steal the creative works of 
U.S. businesses, both large and small.
    As my written testimony highlights, in the past few years, 
the Department has undertaken several of the most significant 
and successful multi-district and international law enforcement 
operations, dismantling some of the most prolific Internet 
piracy groups that steal digital copyrighted works, such as 
software, movies, games, and music, and distribute them 
worldwide on the Internet, often before they are released for 
commercial sale to the public. It is these digital copies that 
are so often used to create the counterfeit hard copies that 
are sold at international borders.
    One example of this effort is Operation FastLink, in which 
the Department led the single largest international enforcement 
effort ever undertaken against online piracy. In one 24-hour 
period beginning on April 21, 2004, law enforcement executed 
over 120 searches in the United States and ten countries across 
multiple time zones. Through this unprecedented effort, we have 
identified over 100 individuals believed to have engaged in 
online piracy, many of whom are high-level members or leaders 
of online piracy release groups. Since last December, eight of 
these offenders have been convicted and many more individual 
prosecutions are ongoing.
    Although these large-scale enforcement operations are 
resource- and time-intensive, they are an extremely effective 
way to enhance international intellectual property enforcement. 
By attacking the top level of the counterfeit distribution 
chain in this way, before the stolen works reach peer-to-peer 
and other distribution networks both online and off, the 
Department ensures the greatest protection for rights holders 
and consumers against the illegal reproduction and distribution 
of copyrighted and counterfeit materials.
    In addition, through working on joint operations with our 
foreign counterparts, we are enhancing their understanding of 
and ability to pursue future intellectual property 
prosecutions.
    Although investigation and prosecution is our primary 
focus, combatting intellectual property crime requires a multi-
faceted approach, one that is global in scope and maximizes 
interagency coordination within the U.S. Government.
    In this regard, the Department of Justice participates 
regularly in the interagency collaboration and international 
outreach that are fundamental to the STOP! initiative. 
Department officials have participated in the recent STOP! 
tours to Asia and Europe, and we are working with other 
agencies to increase public awareness of the harms of 
intellectual property theft. Through training and international 
outreach, we seek to help U.S. businesses work with foreign law 
enforcement to protect their intellectual property rights.
    During these international trips, the Department has met 
directly with its foreign law enforcement counterparts, 
generating increased foreign interest in strong international 
enforcement of intellectual property rights. By developing this 
law enforcement network and points of contact through the STOP! 
international outreach, it will be easier and faster to enlist 
the cooperation of foreign law enforcement when future U.S. 
investigations identify foreign targets. It will also assist 
foreign investigations and prosecutions directly affecting 
American intellectual property business interests in foreign 
countries.
    In addition to our prosecutorial and international efforts, 
the Department's principal contribution to STOP! has been the 
work of the Department of Justice's Intellectual Property Task 
Force, or ``IP Task Force.'' Last fall, the IP Task Force 
completed a wide-ranging and exhausting--exhaustive review--it 
was also exhausting--of the Department's intellectual property 
enforcement efforts. Its collective recommendations were issued 
in a 70-page report last October. The Department is now engaged 
in the considerable and important work of implementing those 
recommendations.
    For instance, in January of this year, the Department 
expanded its Computer Hacking and Intellectual Property (CHIP) 
program and the designation of CHIP coordinators in every U.S. 
Attorney's Office nationwide, bringing the total CHIP network 
to more than 200 prosecutors trained in prosecuting high-tech 
and intellectual property crimes.
    Piracy is a global problem that requires a global response. 
Through its contributions to the STOP! initiative, the 
Department of Justice has made international prosecutions a 
priority within our overall intellectual property strategy. Our 
goal is to lead by example and to build international law 
enforcement relationships that allow us to work with our 
foreign counterparts in attacking this global problem.
    While our primary focus and responsibility lies in the 
enforcement of this Nation's criminal intellectual property 
laws, we are committed to working effectively with other U.S. 
agencies to ensure that the overall intellectual property 
rights approach of the United States is second to none.
    Thank you again for this opportunity to address the 
Department of Justice's efforts to protect intellectual 
property rights. I will be happy to answer any questions you 
may have.
    Senator Voinovich. Thank you, Ms. Parsky. Dr. Yager.

 TESTIMONY OF LOREN YAGER,\1\ DIRECTOR, INTERNATIONAL AFFAIRS 
        AND TRADE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Yager. Chairman Voinovich, good morning, other Members 
of the Subcommittee. Thank you for the opportunity to appear 
again before the Subcommittee, this time to discuss our work on 
U.S. efforts such as the STOP! initiative to protect U.S. 
intellectual property rights.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Yager appears in the Appendix on 
page 88.
---------------------------------------------------------------------------
    The statement is drawn from the report that we did on 
intellectual property protection last year, and we have held a 
number of interviews in recent weeks to update the material. I 
ask that my written statement be made part of the record.
    Senator Voinovich. Without objection.
    Mr. Yager. Mr. Chairman, we know that the effects of IP 
theft on the U.S. economy are enormous, but the testimony of 
Mr. Evans of Will-Burt also shows the profound effect that 
these can have on individual businesses. From our trips to 
China, Brazil, the Ukraine, and Russia, we also assembled some 
illustrations of the kinds of material that are easily 
available in those other locations and we have also shown some 
of the prices of the real versions as well as the copied 
versions so that people can get an understanding of just what 
is involved there. So we have a few items for display up on the 
table.
    Senator Voinovich. Why don't you talk about those for just 
a minute.
    Mr. Yager. OK. One of the things that we can demonstrate, 
as some of the other witnesses also referred to, there is a 
wide range of quality when it comes to the types of goods that 
are available. In some cases, it is quite hard to determine 
whether it is legitimate or not. In other cases, it is very 
clearly a knock-off. But it is one of the reasons why the 
participation of the government agencies and the private sector 
is so important, because in many cases, only the private sector 
can determine whether the goods that is being sold is, in fact, 
a fake or a real item. So close cooperation between the agency 
officials and the private sector is obviously important.
    For example, we were in Hong Kong looking at goods coming 
across the border from China and the Customs official had 
broken open a couple of boxes of apparel, could not tell 
whether these were legitimate or not, and made the interesting 
point that even the company representative in Hong Kong 
couldn't look at those to determine whether they were real or 
not. He had to consult his order book to see whether, in fact, 
that was a real product. So it shows just the kind of range of 
quality that you have. Some are very clearly knock-offs. Some 
are quite difficult to distinguish from the real thing.
    So, Mr. Chairman, you heard from the Administration 
witnesses about the STOP! initiative. The purpose of my oral 
statement is to put STOP! in the context of the other 
coordination efforts that the U.S. Government has to enforce IP 
and to note some areas where U.S. efforts could be improved.
    First, it is important to note that STOP! includes a range 
of agency activities that were already underway as well as some 
that have begun as part of the initiative. For example, the 
Justice Department Task Force on IP was already underway, but 
those efforts have now been rolled into STOP!. In addition, the 
OECD study that was mentioned earlier on the extent of IP 
piracy that has recently been agreed to has been under 
discussion for some time and STOP! may have provided additional 
momentum to get this study off the ground. The most visible new 
efforts undertaken as part of STOP! are the outreach efforts, 
the visits of the Administration to foreign countries, 
including a trip to Asia as well as a trip last week to Europe.
    The second point I want to make is that STOP! is only one 
of a number of other IPR coordination mechanisms underway 
within the U.S. Government. I think it is useful to contrast 
the performance of three of these mechanisms, the Special 301 
process, the NIPLECC, and the IPR Center.
    Based on the evidence we collected in our visits to four 
countries and in our discussions with industry and agency 
officials, we found that the Special 301 process was having a 
positive effect on agency coordination and it also had some 
positive effects on legislation in certain countries. On the 
other hand, we found that the NIPLECC--that is the National 
Intellectual Property Law Enforcement Coordination Council--has 
had little effect on coordination, and the private sector has 
little confidence in that group. As you know, the NIPLECC was 
provided with $2 million during the most recent appropriations 
cycle but does not appear to have decided how to use that 
funding.
    The third coordination mechanism, the IPR Center, is a 
joint effort between DHS and the FBI, but this group has lost a 
number of its on-board staff since we completed our work last 
year. At the current time, only about half of the positions in 
the center are filled and the lack of secure access to FBI 
computer systems at the center means that the slots are not 
always effectively utilized.
    Based on these three examples, Mr. Chairman, there is a 
mixed picture when you look at the various coordination 
mechanisms within the government on this important matter. As a 
result, looking beyond the increase in attention that STOP! 
might provide in the short term, it is unclear whether there is 
a permanent mechanism that will enable U.S. agencies to 
successfully coordinate on the enforcement side issues.
    Based on our prior work, we believe that there are specific 
steps that the agencies can take to improve the effectiveness 
of their efforts. One step is for DHS to complete the targeting 
effort that was described earlier as targeting is the only way 
to make the most of the scarce resources at the border for 
inspecting cargo.
    A second step is for agencies to tighten some of the high-
risk systems that still exist. We pointed out a number of 
weaknesses in the CBP inbound system that allows enormous 
volumes of cargo to be shipped throughout the United States 
with limited inspection and control.
    Third, we think that the agencies can better communicate 
how small and medium-sized firms can utilize the law 
enforcement options of agencies such as CBP, and the agencies 
can also provide better information to firms regarding the 
prospects for protection of their intellectual property abroad.
    Mr. Chairman, let me make one final observation. Despite 
the scale of the IP problems abroad and the extensive 
interagency efforts and Special 301, sanctions have been used 
only once, and that was against the Ukraine, and the last WTO 
case on IP protection was brought in the year 2000.
    Mr. Chairman, this concludes my statement. I would be happy 
to answer any questions that you have.
    Senator Voinovich. Thank you very much, Mr. Yager.
    Customs and Border Patrol, you have talked about these 
audits, Mr. Baldwin.
    Mr. Baldwin. Yes.
    Senator Voinovich. You have done the audits and the 
question is, once the audits are done, what do you do with 
them? For example, if you determine that a company, a trading 
company or whatever it is, doesn't have things in place in 
terms of checking to make sure that the stuff coming in here is 
not violating intellectual property rights, what do you do?
    Mr. Baldwin. Well, we have several steps and we are 
actually pursuing now what is the proper remedial or punitive 
action to be taken. First, I would like to highlight the fact 
that this is rather unique for how we would traditionally 
enforce IPR. I think we have a traditional approach that you 
would need to examine the goods at the border, open the 
container, find the infringing mark, and take action against 
the transaction and the transaction alone.
    What this approach is really trying to do is hold the 
businesses accountable for their IP infringing goods. This is a 
unique approach.
    So now to more directly answer your question, Mr. Chairman, 
what we would hope to do is evaluate their internal control 
system to identify the various weaknesses that they have if we 
find infringing goods, and we have in the warehouses. We have 
made seizures. We have made destructions. We have worked with 
the companies to try to improve their system and give them an 
idea of the best practices to ensure that this does not 
continue. But we also have the recourse of applying greater 
levels of examinations now that they have established a 
pattern----
    Senator Voinovich. This is stuff that is coming to this 
country--you are examining it when it gets here, right?
    Mr. Baldwin. Yes.
    Senator Voinovich. What if you find out you have a company 
that 90 percent of the stuff they are bringing in is 
counterfeit? Why don't you, when you find that 90 percent of a 
company's shipments are counterfeits, just say you can't ship 
to the United States any more. Goodbye, we are not going to 
allow you to import any more into the United States of America, 
period. Can you do that?
    Mr. Baldwin. I think we could certainly explore that option 
if we were to find 90 percent. Unfortunately, I don't think we 
ever find a margin of error that high. Even though we might 
make 7,000 seizures last year for IP-infringing goods, I would 
suggest that there wasn't any one company that dominated the 
vast majority of those seizures.
    You will find consistently where we show two-thirds of the 
infringing goods are coming from China and we might find other 
countries that are sourcing those IP-infringing goods, but we 
are not finding a prevalent number of companies that account 
for those seizures or discrepancies on an annual basis.
    However, what I think our program for IPR audits is trying 
to identify is that there are companies that are vulnerable for 
IPR infringement and we are trying to attack it in that 
fashion, as a complement to our traditional----
    Senator Voinovich. Do you have the authority to do it? 
Right now, if two-thirds of the stuff coming in from a company 
is counterfeit, are you saying, look, you have demonstrated 
that you are a bad company, you are a counterfeiting operation. 
Can you stop them and say, we are not going to accept any more 
goods in the United States?
    Mr. Baldwin. I would be happy to get you a list, as a 
question for the record, as to what our remedial actions are 
under our current authority and how we could proceed if we 
found such an egregious violation.
    Senator Voinovich. I would like to find out whether or not 
you need additional laws for you to make that happen.
    We have the STOP! operation, OK. Mr. Evans patently has a 
situation where his trademark has been infringed upon. Why 
can't you determine that they have been infringed upon and 
basically say that if this company that has infringed on them 
is importing into the United States, that they can't bring 
their goods here? In other words, you give an order to say--my 
thought was that you have got a place where somebody can go and 
it is obvious based on everything that you can see, all the 
information that he brought, he has available, that there has 
been a knock-off. It is overwhelming. Why can't you then say to 
Customs, this product should not be brought into the United 
States?
    Mr. Dudas. You can say to Customs--there are certain 
products that can't be brought into the United States, there is 
this particular product that is being imported, and we think it 
is counterfeit. I don't mean to speak for Customs but I think 
Customs works very closely with the private sector on that 
topic and they can identify counterfeits.
    One of the things that was just testified to earlier was 
that we are working with Customs, particularly with small 
businesses, in making sure that small businesses know very 
early on that when they get their trademark, they should record 
that with Customs immediately. In fact, we are putting that 
information on the notice of trademark registration so that the 
very first set of instructions they get with their trademarks 
include going to Customs.
    Senator Voinovich. In terms of STOP!, and you said you got 
400 calls, how many of the 400 people that have called have 
gotten any kind of remedy?
    Mr. Dudas. I would like to say that every single person who 
has called has gotten some form of remedy. The wide variety of 
calls we have gotten have included one woman calling who wanted 
to start a company called ``Copycats'' and sell counterfeit 
purses in the State of Washington. We convinced her why that 
was not a good idea through pangs of conscience.
    We have had hundreds of calls from people calling to find 
out what they need to do to register for trademarks in the 
United States. You would think that this is something that 
might be problematic. It is not problematic in that it is the 
precursor for getting intellectual property anywhere else in 
the world if they are operating in the United States. In many 
cases, you need your IP in the United States before you will be 
able to get it, or at least to secure your rights.
    We have had people calling in particularly with questions 
about what are the risks philosophically and specifically about 
whether or not to invest in China, whether or not to start a 
business in another country, or how might I get my trademark.
    I think to a degree everyone has had the opportunity to 
discuss the issue. We have not been getting the kinds of calls 
where they are asking for an investigation to begun.
    Senator Voinovich. Mr. Evans, he has got his property, 
these masts. If they are being brought in the country now, 
could you stop them from being brought in?
    Mr. Dudas. I think Mr. Evans could--if they were being 
imported into the United States. The first step would be that 
Mr. Evans would be able to enforce his rights. Our laws are 
very clear that you cannot import an infringing product into 
the United States.
    Senator Voinovich. What would Mr. Evans do?
    Mr. Dudas. If they are importing it from within China----
    Senator Voinovich. If I know a company is shipping 
counterfeits into a U.S. port.
    Mr. Dudas. With that kind of information, I would defer to 
Customs about specifically where he would go. If he calls our 
line, we will make certain that we help as much as we can or 
get him to a person within Customs. Customs could also work on 
that. If you know there is certain manifest information and you 
know where it is coming in. Folks from the private sector do 
that all the time, and as you noted----
    Senator Voinovich. OK, but the question is somebody has got 
to make up their mind that he has been infringed upon, somebody 
here says, you have been infringed on. And the question is, can 
somebody say he has been infringed on and then call Mr. Baldwin 
and say, Mr. Baldwin----
    Mr. Dudas. Actually, we can't make a determination about 
whether or not a product that we haven't seen is infringing. 
Certainly, any private business can say, ``I know it is not my 
product coming in.'' That puts it under suspicion. Again, I 
think this is something more for Customs. Customs looks at that 
and then Customs has the ability to identify it as a 
counterfeit or not and seize it.
    Senator Voinovich. Just one more minute. Go ahead, Mr. 
Baldwin.
    Mr. Baldwin. I was just going to add that, ironically 
enough, Mr. Evans and I were having this same discussion just 
before the hearing began where we were discussing that he was 
interested in recording his mark now with Customs in the event 
that there should be some imports of this product.
    We have many avenues where, much like the STOP!----
    Senator Voinovich. Could he do that now?
    Mr. Baldwin. He could do it now. If he has registered his 
trademark----
    Senator Voinovich. And could you do anything about it?
    Mr. Baldwin. If there were imports of his product. He would 
notify us. We would record it, have it in our systems, and be 
prepared should imports that infringe on his mark occur.
    We also have other avenues. I will discuss very quickly 
about----
    Senator Voinovich. The question I have is--and I have gone 
on too long, but the question is, who determines that he has 
been infringed upon? What determination has been made that he 
has been infringed upon?
    Mr. Baldwin. Customs and Border Patrol does have the legal 
authority to make an infringement determination should an 
import of the infringing merchandise occur. So Customs can do 
that within our own authority. What we request ahead of time, 
though, is that Mr. Evans record his mark with Customs. That 
helps give us more information as to what his mark entails, 
what are the technical specifications, what would be required, 
and helps us help him protect his mark.
    Senator Voinovich. OK. Senator Akaka.
    Senator Akaka. Thank you very much, Mr. Chairman.
    Ms. Espinel, in February 2005, the International Anti-
Counterfeiting Coalition submitted recommendations to the U.S. 
Trade Representative regarding countries that do not adequately 
protect and enforce intellectual property rights. The coalition 
reported that some IPR holders believe the Mexican enforcement 
environment is worse than China and the coalition recommended 
that Mexico be placed on the priority watch list. My question 
is, how is the USTR working with the Mexican Government on this 
issue?
    Ms. Espinel. Let me mention a couple of things. One is 
Mexico does have a significant enforcement problem, and that is 
a concern to us not only because our rights holders are 
investing there, but because we share a border with them, and 
USTR has directly been raising those concerns with the Mexican 
Government and has made it clear to them that this is one of 
our top priorities for them that they have to address. So we 
have been using the Special 301 Report, but our ongoing 
bilateral discussions with Mexico to make quite clear that this 
is a serious concern for us.
    I also want to note, though, that as has been mentioned 
here, we have been under the STOP! initiative reaching out to 
other trading partners to try to increase our coordination and 
cooperation with them, and although we have not yet, as has 
been mentioned, we have visited several countries in Asia. We 
have visited several countries in Europe. We are also planning 
to be talking to Canada and Mexico, key trading partners with 
whom we share a border, to try to increase our cooperation with 
them under the STOP! initiative.
    If I could just make one other point, one of IACC's other 
concerns that they raise had to do with transshipment and the 
problem that we have of counterfeit and pirated goods going 
through Free Trade Zones. That is one of the things that we are 
trying to address under the STOP! initiative, and in our 
Special 301 Report this year, we included a new section 
highlighting the problem of transshipment through Free Trade 
Zones and our concern with them at the--in direct response to 
the concerns raised by IACC.
    Senator Akaka. Dr. Yager, in your testimony, you discuss 
the risks associated with the in-bond system run by the 
Department of Homeland Security.
    Mr. Yager. Right.
    Senator Akaka. This program allows cargo to be transported 
from one U.S. port to another U.S. port before it is formally 
entered into U.S. commerce or exported to a foreign country. In 
your written testimony, you stated that in-bond shipments are 
the least inspected and a fast-growing sector and are, 
therefore, considered high risk.
    Can you discuss what specific recommendations GAO has made 
to DHS on the in-bond system, and can you elaborate on how this 
system can be exploited to allow pirated and counterfeited 
goods to enter the United States?
    Mr. Yager. Thank you, Senator Akaka. We actually did a 
report that looked in depth at the in-bond system that came out 
in January 2004, and we had a number of recommendations which I 
will go over. But for people that aren't familiar with the in-
bond system, it is a situation where the goods physically enter 
the United States in a port like Los Angeles or Long Beach or 
New York; then they are shipped internally into another city in 
the United States. For example, if it is apparel, it might be 
going to Cleveland or Cincinnati, where many of the 
headquarters of certain firms are. And then it is brought into 
the commerce of the United States at that port, for example, in 
Cincinnati or another place.
    Now, the problems that we found with this particular in-
bond system was it had a number of internal control weaknesses 
which meant that many of the goods that were being brought into 
this country were then put in this in-bond system, and let me 
just say, this is not a small percentage of U.S. imports. 
Estimates are that as high as 50 percent of U.S. imports coming 
into the ports are shipped in-bond and then entered into the 
commerce in an interior city.
    But between that time when it comes into the U.S. port and 
when it is actually entered into the commerce in that interior 
city, there is very weak internal control on that system. For 
example, there are long time periods to allow the trucks to get 
from the entry port to its port of entry into the United 
States. And then there are also situations where it is a very 
poorly automated system such that there is no specific control 
on how to close out shipments. So the shipments could be 
diverted into the commerce of the United States without 
actually having gone through the formal entry process.
    So we had a whole range of recommendations on how to fix 
the in-bond system and we are working right now and we have 
been trying to get responses from DHS to determine how they 
have changed and what progress they are making in trying to fix 
the system. But we did find it to have serious weaknesses in 
terms of its controls over the merchandise, which means that 
some of that merchandise could get into the U.S. commerce 
without having been officially entered through a port of entry 
and going through DHS.
    Senator Akaka. Thank you. Ms. Parsky, as you know, one of 
the fastest-growing areas of IPR crime is pirated music and 
movies and illegal file sharing on the Internet. There will 
always be individuals who want something for nothing. Recently, 
however, industry and the government have worked together to 
educate consumers on how such actions impact our community.
    Have there been any noticeable changes in public attitudes 
in the U.S. regarding the risk of illegal file sharing, for 
example, and what more can the Justice Department do regarding 
IPR crime prevention?
    Ms. Parsky. Senator, you raise a very important point, 
which is the public attitude within the United States about 
piracy, and particularly for children, and the widespread 
piracy of music and movies and video games, and this is 
something that the Justice Department is very aware of. We 
have, as part of the IP Task Force Report's recommendations, 
launched a public awareness campaign. Former Attorney General 
Ashcroft held the first session of a program called ``Activate 
Your Mind, Protect Your Ideas'' soon after the release of the 
IP Task Force's Report. This was a program for high school 
students where there were convicted perpetrators, IP thieves, 
who came and spoke to the students as well as those who create 
the products to give them a sense of what kind of damage is 
done by this type of piracy.
    On April 28 of this year, current Attorney General Alberto 
Gonzales was in Los Angeles for a second part to this program 
that was focused on the movie industry. He spoke to a number of 
high school students about what it really means to be stealing 
these things, and how even if it is over the Internet, it 
causes the same harm and is the same type of crime as if it 
were a physical CD.
    This is something that is going to take a long-term effort, 
because I think that there is a problem in terms of youth not 
understanding the damage that is caused by IP theft. But it is 
something that we are committed to doing, and it is going to 
take reaching into high schools, but really into elementary 
schools where children are starting to develop their ideas of 
what is right and wrong and what is actually against the law, 
to educate them.
    But I will tell you that this is a long-term effort because 
I think there is an attitude problem across the United States, 
and it is something on which we are trying to partner with 
private industry and with other government agencies. I know 
that PTO has also been engaged in a public education campaign. 
So we are trying to find ways that we can work together to get 
the message out, to educate the public, and then most 
importantly, through a lot of our criminal prosecutions, we are 
searching for those cases that will send out a very strong 
deterrent message and to publicize those, so people know that 
this is something that is illegal and that there are 
consequences for the behavior.
    We have brought recently some cases involving the most 
recent developments, the most high-technology means of piracy, 
such as peer-to-peer networks using the BitTorrent technology, 
and so we have brought these cases to send a very clear message 
that no matter what type of technology you use, that it is 
illegal and that we will find a means to enforce the U.S. laws.
    Senator Akaka. Thank you very much for your responses. My 
time has expired, Mr. Chairman.
    Senator Voinovich. Senator Carper.

              OPENING STATEMENT OF SENATOR CARPER

    Senator Carper. Thanks, Mr. Chairman. To our panel, 
welcome. Thanks for joining us this morning and for your 
presentations.
    A long time ago, I was a Naval flight officer. I served a 
fair amount of my time in my squadron in Southeast Asia and 
occasionally I would fly in and out of Taiwan. I recall our air 
crews buying books and reading them and they were just knock-
offs of classics and other texts and so forth. We probably 
still have a few in our library at home. But at the time, 
Taiwan was regarded as a Nation that didn't pay a lot of heed 
to intellectual property rights. They had an opportunity to 
make a dollar, knock-off something of ours, they would just go 
ahead and do it.
    Now, it looks like the nation, from your testimony, from 
what I have heard, the nation that is the greatest perpetrator 
of dealing in counterfeit goods is China, which sort of leads 
me to wonder, what has happened to other countries who sort of 
led the way in this effort, among them Taiwan? Do they continue 
to persist in counterfeiting goods as they once did? Have they 
changed their ways? Have they mended their ways? And are there 
any lessons that we might learn with respect to countries like 
Taiwan and their previous practices that might apply to courses 
we would take with China?
    Mr. Dudas. Yes, there are many lessons learned. In fact, 
what your experience was and what you are speaking about now, 
is something that goes back scores of years, if not hundreds of 
years. There is a question of development of countries and 
whether or not countries begin by copying to jump-start their 
economies and then eventually get their own products and have 
their own interests in turning out their own products and their 
own innovation. These statements have been made about a number 
of Asian nations. That has been said about the United States 
100 years ago that the United States had a model along those 
lines.
    I think there are places that disagree with that, but there 
are certainly signs that this may be the case here, as well. If 
you can jump-start an economy along those lines, it is our 
responsibility to make certain that China, the largest country 
in the world, realizes today, and all developing nations 
realize today that intellectual property enhances their 
development. It does not hurt their development.
    By educating those countries, by working with them both 
through the carrot and the stick, we are letting them know that 
this is unacceptable from a trade perspective and to their 
trading partners. We spend a great deal of time working with 
those countries to develop their systems.
    One piece of good news continuing along this path in China 
is they had more patents issued last year to Chinese nationals 
than they did to foreigners for the first time in their 
history. They have the largest trademark office in the world. 
They are learning more and more every day that they need to 
innovate if they are going to produce. It is our responsibility 
to make certain they understand that it is unacceptable to us 
and that they have to play within the rules.
    Senator Carper. Does anybody else want to add to that? 
Please, Dr. Yager.
    Mr. Yager. I would like to add just a couple points. One 
thing that you brought up here is China is a particularly 
important problem for two reasons. One, it is such a large 
internal market. Losing access to that market is quite a big 
problem in itself. But then, obviously, China is also a world-
class exporter of these kinds of pirated goods.
    We visited a number of countries in our work, but China was 
the one that had that particular combination of being both a 
large exporter as well as a large consumer of many of these 
goods. That is what makes it obviously so important.
    But I think your point is one that, when the United States 
can ally itself with interest groups within those nations that 
have similar goals, the likelihood that they will be successful 
in getting laws changed and getting enforcement and protection 
of intellectual property goes way up. Some countries obviously 
don't have a lot of intellectual property to protect and, 
therefore, linking with interest groups inside those countries, 
frankly, is quite difficult, while others, there may be pockets 
of groups that do have interest in protecting their 
intellectual property. It behooves the United States to work 
closely with those groups because they can provide some of that 
domestic support for what is a fairly intensive and expensive 
effort to enforce these rules.
    Senator Carper. All right. Thank you.
    Ms. Espinel. If I could just add to that, I think the USTR 
is generally better known for being the stick rather than the 
carrot and we have worked intensely with Taiwan. We have been 
very concerned about their intellectual property enforcement 
and we have made that a priority issue with Taiwan for a number 
of years. So I think one of the lessons learned, generally, is 
that we need to keep the pressure on with countries with whom 
we have concerns. Taiwan has started to respond to that. They 
have begun improving their enforcement. In recognition of that, 
USTR moved them down the 301 Watch List earlier this year.
    But I think one thing that has changed, a relatively new 
development, are exports of counterfeit and pirated goods and 
the export market that is being created, and I think in order 
for us to be able to address that effectively, we really do 
need to cooperate with our trading partners. That is not 
something the United States can do alone, and that is one of 
the primary objectives, as you know, of the STOP! initiative, 
is to try to bring our trading partners together so that we can 
deal with this international trade and export of counterfeit 
and pirated goods in cooperation with them.
    Senator Carper. Let me ask a somewhat different question. 
There is a table up here, as we can see, and on the table are a 
variety of goods. I am not sure what all of them are. I 
recognize the sneakers. It looks like some of it might be 
toothpaste. I don't see any what looks like it might be 
prescription medicines, knock-offs on----
    Mr. Yager. There actually are some pharmaceuticals, I think 
just in front of the household goods. There are a couple of 
copies of prescription medicines.
    Senator Carper. One of the issues that has been kicking 
around here in the Senate for a while, and in the House, too, 
for a couple of years is the issue of reimportation of 
prescription medicines or pharmaceuticals, and I would ask you 
to--I don't care who takes this on, but for whoever feels 
comfortable, in talking with us about the counterfeiting of 
prescription medicines or pharmaceuticals and what we need to 
be mindful of. What do we face in terms of the flow of 
counterfeit drugs into this country? How are we trying to deal 
with that, and how should we be dealing with that threat?
    Mr. Dudas. Regarding counterfeits, I can tell you that the 
World Health Organization has done a study stating that 10 
percent of the world's market in pharmaceuticals is 
counterfeit. It was a small study, but of those that they 
found, 67 percent didn't contain the right amount of the active 
ingredient or contained a different kind of active ingredient. 
As you can imagine, someone who bases their business on 
stealing doesn't have the greatest integrity in the quality of 
their product.
    In the United States we don't have that problem because of 
how strong Customs is and because of what our rules and laws 
are. I can only speak from an IP perspective that we need to be 
incredibly careful, knowing what level of counterfeits there 
are out there in the world versus knowing that we have safe 
drugs in the United States.
    Mr. Yager. I can add just a short matter----
    Senator Carper. Please.
    Mr. Yager. One of the things that is actually different 
about pharmaceuticals is, in many cases, they are actually 
imported by the end user. So it doesn't come in through the 
kinds of containers and shipments that we have mostly talked 
about here this morning, that many of the goods that are being 
imported are individuals who are using it through a website or 
they have other contacts outside of this country and it is 
being imported in very small quantities. And therefore, it is 
actually a very different kind of an inspection and targeting 
mechanism than what we have talked about today.
    GAO did a report on that earlier this year, I believe, 
where we talked about the importation of pharmaceuticals, and 
it really just has to do with trying to look at the small 
package deliveries and get some sense of how many of those 
might be containing illegal goods, because obviously, there are 
some real dangers associated with the kinds of goods. When it 
becomes pharmaceuticals, there are some real dangers to the 
consumers, that they are importing something which is fake and 
doesn't have the active ingredient, or maybe worse, that it has 
some other ingredients that could be harmful.
    Senator Carper. All right. My time has expired, Mr. 
Chairman. Thank you.
    Senator Voinovich. Senator Levin.

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. Thank you, Mr. Chairman. Thank you for 
holding this hearing and thanks to the panel.
    One of the biggest problems in counterfeiting is the 
problem which exists for automotive suppliers. The Federal 
Trade Commission estimates that the loss in sales to the 
automotive supplier industry is about $12 billion a year 
worldwide in counterfeit material. I want to ask you a number 
of questions about the automotive sector.
    The theft of intellectual property now in China is so 
widespread and bold that an entire car is being knocked off. 
The Chevrolet Spark, which is copied, manufactured, and sold 
under the name of Cherry QQ by the Chinese Cherry Automotive 
Company, Limited. They even allegedly are going to try to 
export this knock-off to the United States. This vehicle is 
based on the Daewoo Matese, which is a mini-car originally 
developed and manufactured in Korea. GM Daewoo launched the 
Chevrolet Spark for the Chinese market, where it is assembled 
in a joint venture. And then all of a sudden GM noticed there 
appeared to be such a strong resemblance between the Chevrolet 
Spark and the Cherry QQ in April 2003.
    I am wondering whether or not any of you are familiar with 
this issue, this counterfeit. Are you all familiar with it? OK. 
Are we going to allow the import of a car which violates the 
intellectual property rights of GM Daewoo?
    Mr. Dudas. If it violates the intellectual property rights 
that they have in the United States, it cannot be imported.
    Senator Levin. Have you studied this knock-off?
    Mr. Dudas. We have seen from GM Daewoo the pictures of the 
car and learned they actually interconnect almost perfectly. 
The only difference is the back handle of the car is nine 
millimeters back, or something along those lines.
    Senator Levin. Have we talked to the Chinese about this?
    Mr. Dudas. We have talked to the Chinese.
    Senator Levin. And what is their response?
    Mr. Dudas. We are continuing those dialogues and 
discussions along those lines of what has happened. There are 
questions that they have about what forms of intellectual 
property did Daewoo and GM engage in in China, and under what 
procedure they will follow. I believe GM and Daewoo are 
actually taking a case in China. We are attempting to work with 
them. I believe they are enforcing their rights in China 
through one legal theory. We are watching that case very 
closely.
    Zippo lighters was a case where the Chinese Government 
declined to go forward and send for criminal investigation 
after a seizure and the U.S. Department of Commerce officials, 
USTR officials, and others pressed to say they are trying to 
enforce their rights in your country. They need to be allowed 
to enforce their rights. And now those have been referred as 
criminal cases in the Zippo case, I believe just this week.
    Senator Levin. They have been referred by the Chinese?
    Mr. Dudas. I am sorry, I didn't hear your----
    Senator Levin. Referred by who to whom?
    Mr. Dudas. They were administrative seizures in China. It 
is our opinion they needed to be referred to a criminal case in 
China. We told the Chinese Government that they have rejected 
sending those administrative cases as criminal cases we believe 
you need to do that, which they have agreed to do. They 
understand that. So when a company is----
    Senator Levin. They have agreed to do that this week?
    Mr. Dudas. This week.
    Senator Levin. And they are well known for agreeing to 
things and then not following through. So when did they say 
they would do this?
    Mr. Dudas. They said that this week.
    Senator Levin. That they would do this immediately? That 
they would do it this decade? When?
    Mr. Dudas. It is very fresh news. In each of these cases, 
what I am trying to distinguish between are companies that are 
enforcing their intellectual property rights in China. That is 
an area where the U.S. Government can step in and say, you have 
laws in place, and you must enforce those laws and be fair with 
U.S. companies----
    Senator Levin. If the Chinese Government is serious about 
intellectual property, and I don't believe for one minute that 
they are, by the way. I have seen so little evidence of 
enforcement of the trade agreements; I don't believe them, and 
I don't believe their commitments; I don't believe their 
promises. I will only believe it when their actions live up to 
what the law and requirements are. Until then, conversations 
are meaningless as far as I am concerned. Are you as frustrated 
as I am?
    Mr. Dudas. Your point is exactly right. It is actions that 
speak louder than words. It is enforcement of laws, not laws, 
that is what is most important. We feel an amount of 
frustration when we hear statistics that show the amounts of 
illegal goods we are seizing in the United States.
    We do see progress with the commitment level of working 
towards both passing laws and enforcing laws. You have made the 
exact point that the U.S. Government is making results that 
will make a difference.
    Senator Levin. In the auto equipment area, virtually every 
automotive part has turned up in the counterfeit trade--
windshield glass, brakes, safety lighting, headlights, tail 
lights, emissions components, structural parts, sheet metal 
parts, suspension parts, tires, belts, hoses, alternators, 
windshield wipers, and many other parts and components. We are 
going to need our government to take a lot stronger action with 
the Chinese on counterfeiting.
    I mean, when I read what is going on and when the Chinese 
Government refers, for instance, automotive counterfeit issues 
to their courts instead of taking a position themselves, when 
they deal with the trade agreement as they have by not 
enforcing the policies which are in that agreement, it is 
infuriating. I will give you one quick example. I will just 
quote from the USTR 2004 Report to Congress on China's WTO 
compliance.
    It says that since acceding to the WTO, ``China has 
increasingly''--increasingly--``resorted to policies that limit 
market access by non-Chinese origin goods and that aim to 
extract technology and intellectual property from foreign 
rights holders. The objective of these policies seems to be to 
support the development of Chinese industries that are higher 
up the economic value chain than the industries that make up 
China's current labor-intense base or to protect less 
competitive industries.'' That is our report.
    Since China's WTO accession, it says here, China has 
increasingly resorted to policies that limit market access. 
What are we doing with China besides just jawboning? That is my 
last question. What specific actions are we going to take to 
China saying, you enter into an agreement. You have got access 
now. You have acceded to the WTO. Our own report says your 
policies are getting worse in terms of limiting market access.
    Ms. Espinel. Senator Levin, you probably know that USTR 
announced last year that we were conducting an extraordinary 
out-of-cycle review of China because of the very significant 
concerns I think we all share with respect to what is happening 
in China. We issued our report just a few weeks ago, on April 
29, with the determinations of that out-of-cycle review, and in 
that report, we announced a few new actions that we would be 
taking with respect to China that go beyond mere discussions.
    First, we elevated China to the Priority Watch List. As you 
probably know, China had not been on the watch list for a 
number of years, for almost a decade. So we have moved them up 
and onto as a Priority Watch List country to indicate the 
extreme level of concern that we have with how China is 
enforcing intellectual property.
    We also announced in the Special 301 Report that we would 
be invoking the transparency procedures of the TRIPS agreement 
in order to require China to provide to us detailed information 
about their enforcement of intellectual property. As you 
probably know, one of the problems that we have and that our 
industry has is the lack of transparency inside China and its 
intellectual property enforcement. So we are going to use the 
TRIPS procedures in order to require them to give us more 
information.
    We have also announced that we----
    Senator Levin. When is that information due?
    Ms. Espinel. We have not yet filed the request, although we 
are in the process of drafting it in consultation with our 
interagency colleagues and our industry and we plan to follow 
it very soon.
    We also announced in the report that we have been working 
with our industry intensely on developing our WTO options, 
which would, of course, include litigation.
    Senator Levin. I will tell you, we are ``watching,'' we are 
``seeking information,'' and we are ``coming up with options.'' 
Not one of those, to me, constitutes this is the action we are 
taking against you because you have violated your commitments, 
you have violated the WTO rules, and until we do that, as far 
as I am concerned, it is all hot air.
    I am so frustrated. I am sure that frustration comes out. I 
am sure I am not alone in this. But we are basically watching 
China. It is one thing to have to deal with cheap labor and to 
have to compete with government owned enterprises, which we do 
instead of competing with private companies. It is something 
else when that government, and companies that it controls, 
ignores the rules, and that is what is happening. I think that 
frustration level is shared by a lot of folks here in Congress. 
So you can watch China, but we are watching what the 
Administration does and doesn't do and hopefully, this hearing 
will help. Again, I am very grateful to the Chairman for 
calling this hearing. It is all part of an effort to get China 
to deal honestly with the world.
    Senator Voinovich. Senator, your brother and I were in 
China for a week and I share your same frustration. I will say 
this, that I think that we are cranking things up and I will be 
interested in our next two witnesses, who will comment on it 
from the point of view of the private sector in terms of 
whether or not we are getting the coordination, and whether or 
not we are getting the enforcement.
    Senator Levin. Thank you, Mr. Chairman.
    Senator Voinovich. I thank the witnesses for being here 
this morning. Again, there are many questions that I would like 
to ask. In deference to the next two witnesses, I think bring 
them on. Thank you very much for being here, and I will say 
this, that the best news I had is when I called the STOP! 
number and got the kind of action that I got, because the last 
time I called the number I was supposed to call, the person on 
the end of the line didn't know what I was talking about. So we 
are making progress. Thank you.
    Our next two witnesses are Brad Huther, who is the Director 
of Counterfeiting and Piracy Initiative at the U.S. Chamber of 
Commerce, and Frank Vargo who is Vice President for 
International Economic Affairs at the National Association of 
Manufacturers (NAM). Mr. Vargo has testified before this 
Subcommittee before and I welcome him back.
    I will tell you, Mr. Vargo, that I have been a little 
disappointed in the National Association of Manufacturers, 
particularly in your reluctance to put pressure on the 
Secretary of the U.S. Treasury in terms of China's fixing their 
currency. I thought for a while you were going to move forward 
and you backed off and I want to say I am very disappointed, 
because it is only going to be because of efforts from outfits 
like yours and the Chamber of Commerce and others that we are 
going to get this government to move forward.
    Now, I think the Treasury Secretary has assured me that 
they are going to do something, but just as Senator Levin and I 
are frustrated with IPR problems--I am very frustrated in terms 
of the fact that we just keep allowing them to fix their 
currency and hurt our competitiveness. We have just got to get 
serious, and it won't happen without the support from people 
like the Manufacturers and the Chamber and the NFIB and a lot 
of other business groups. For some reason, it just seems that 
when we finally get to the edge, no one is willing to push.
    I look forward to your testimony and we will start with Mr. 
Huther. Thank you, both of you, for being here.
    Mr. Vargo. Senator, Mr. Chairman, if I could--I will 
respond to your statement in my remarks, but I just want to say 
that I am surprised at what you have to say because we have 
been pushing very hard and I would like to discuss that.
    Senator Voinovich. OK. Well, that is what we want to hear 
today.
    Mr. Huther.

   TESTIMONY OF BRAD HUTHER,\1\ DIRECTOR, COUNTERFEITING AND 
          PIRACY INITIATIVE, U.S. CHAMBER OF COMMERCE

    Mr. Huther. Thank you very much, Mr. Chairman and Members 
of the Subcommittee. I will be brief.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Huther appears in the Appendix on 
page 109.
---------------------------------------------------------------------------
    I have watched this issue for a long time. I have watched 
questions of interagency collaboration for a long time, and I 
just simply want to get to the bottom line, which is, I think, 
one of the best examples of interagency collaboration that I 
have seen. Although it has got a long way to go, I think it 
thus far has taken some very important steps, such as those you 
have heard today.
    I don't think, however, the STOP! initiative by itself is 
the ultimate answer. It is the Administration's answer, but the 
business community has a very strong obligation to contribute 
to this. That is why the Chamber itself has developed a very 
aggressive action plan focusing on three main areas of trying 
to alert or educate, if you will, members of the public, 
Members of Congress, anybody who doesn't understand the scope 
of this problem, including small businesses who are not very 
well informed on the issue, I am sad to say.
    Second, we want to offer whatever help we can to encourage 
stronger enforcement of their rights wherever those rights 
convey, such as those that you have adequately demonstrated 
here this morning with Mr. Evans' example.
    And then finally, the Chamber will be targeting a number of 
countries, not only China, but Brazil, Korea, Russia, and the 
list will go on. We have people on the ground in those 
countries who are looking very hard at what is happening to 
enforce the intellectual property rights, or for that matter, 
just out and out thievery of American-owned manufactured goods 
or innovative technology.
    So the Chamber pledges the fact that it is willing to do 
its part. It can't do it alone or together with the STOP! 
agencies and succeed either. That is why my colleague, Mr. 
Vargo, and I represent a coalition which now numbers 74 
members, major national associations--you know all of them. 
Senator Levin just left, but the Motor Equipment Manufacturers 
Association and the Automobile Manufacturers Alliance are two 
members of that coalition who are hard at work in a number of 
the areas he cited.
    We are taking a look at the issues, some of which have been 
raised today, including the Organization for Economic 
Cooperation and Development (OECD) study. We are supporting the 
OECD study in a number of respects to get rid of one 
fundamental problem that everyone hears everywhere you go, 
which is ``show me the data.'' While the data that we have all 
been pointing out in our public documents--and by the way, I 
have with me a copy of a brochure which we think summarizes all 
the statistics, from the World Customs Organization to the U.S. 
Trade Representative to you name it. Whoever has quoted 
something about counterfeiting and piracy, we have attempted to 
record it in this document. I offer it to the Subcommittee to 
take a look at it to see if you think it is helpful, because we 
intend to take that kind of information to all of the three 
million members who comprise the Chamber of Commerce.
    Senator Voinovich. With the permission of the Subcommittee, 
I will enter it in the record.
    Mr. Huther. Thank you very much.\1\
---------------------------------------------------------------------------
    \1\ The pamphlet entitled ``What are Counterfeiting and Piracy 
Costing the American Economy,'' submitted by Mr. Huther, appears in the 
Appendix on page 126.
---------------------------------------------------------------------------
    But this coalition is not just one that sits around the 
table and talks. We have five task forces. They are working on 
things like the OECD study. They are working on things like 
drafting model text for future Free Trade Agreement 
negotiations. They are working on the No Trade in Fakes, or 
supply chain questions, that you have heard described today.
    From an industry point of view, we think we can contribute 
to the best practices that are out there to protect America's 
supply chain. We hope those best practices could be useful to 
the Department of Homeland Security and the Department of 
Commerce in ways that develop guidelines for others to follow. 
And so the list goes on.
    Finally, I will indicate, as you asked, what can the 
Congress do, and I think there are three very specific things 
that I would like to suggest. One is H.R. 32, which was passed 
by the House last month and is a very effective solution, in 
our opinion, to strengthen the protection of trademarked items, 
especially those things that deal with labels and the like 
which are attached to some of the illegally counterfeited and 
imported goods. So enactment of that statute soon will 
strengthen America's ability to protect itself against 
counterfeiters, for sure.
    Second, you mentioned earlier, Mr. Chairman, your views on 
Free Trade Agreements. I am a little reluctant to specify this 
one, but the Chamber does support ratification of the Dominican 
Republic-CAFTA Free Trade Agreement. Putting aside some of the 
political issues, there is a chapter in DR-CAFTA which is very 
strong on strengthening intellectual property rights protection 
in that very important region. If you want to worry about where 
goods are flowing illegally into the United States, that is one 
region, just like all the others that we have heard. So doing 
anything that we can do to provide stronger protection through 
Free Trade Agreement negotiations, we think is an important 
element of a comprehensive strategy.
    And then finally, it is a little bureaucratic sounding, but 
there are two issues that haven't been addressed today. Who is 
going to coordinate all the work of the STOP! agencies? The 
Commerce-State-Justice appropriations bill last year indicated 
that there should be such a person appointed. We keep hearing 
very positive indications that the appointment of such an 
individual, as well as possibly some restructuring of NIPLECC, 
are in the works and we advocate that those decisions be taken 
soon because you do need a single focal point for this program, 
in my opinion, if it is going to have a greater chance of 
success than it has already demonstrated.
    And then finally, the Congress can take a very active role 
through the use of the Government Performance and Results Act. 
It was passed 10 years ago to get agencies to get their act 
together, to develop strategic plans, to look at the global 
issues that are important to the American people. Certainly, we 
at the Chamber think that this is a national priority that has 
already arrived and we would advocate that if these STOP! 
agencies can develop an integrated action plan with a single 
point of contact to coordinate it at a very high level of 
government, and then can be tasked with providing reports to 
you, and frankly, the Chamber stands willing to provide reports 
to you, as well, on whether we are succeeding in achieving our 
performance metrics for the things that we are trying to 
contribute to this effort.
    So the bottom line is I have listened to presentations by 
Jon Dudas. I have listened to other presentations by similar 
members of the agency panel that you have established this 
morning. I have listened to the comments of Secretary 
Gutierrez. I can tell you that we at the Chamber are quite 
impressed with what we hear. We are quite impressed with the 
level of detail and the care of planning. But we realize that 
if this is going to work well, all of us have to do our part to 
contribute to the ultimate solution.
    Thank you, Mr. Chairman.
    Senator Voinovich. Thank you. Mr. Vargo.

      TESTIMONY OF FRANKLIN J. VARGO,\1\ VICE PRESIDENT, 
    INTERNATIONAL ECONOMIC AFFAIRS, NATIONAL ASSOCIATION OF 
                         MANUFACTURERS

    Mr. Vargo. Thank you, Mr. Chairman. It is a great pleasure 
to testify before you again.
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    \1\ The prepared statement of Mr. Vargo appears in the Appendix on 
page 118.
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    Clearly, I have been derelict in not visiting with you or 
your staff to discuss the NAM's actions on the Chinese currency 
issue because the NAM has been the leading advocate for 
pressing to get China's currency revalued. We started about 2 
years ago. When we did, nobody had heard of the yuan. Nobody 
could spell renminbi. And we have elevated this up to where it 
has become one of the government's highest international 
economic priorities.
    We, along the way, began developing a case under what is 
known as Section 301 of the Trade Act, and I think probably you 
are referring to the fact we did not want to file that. But the 
utility of a Section 301 case is if the government is going to 
accept it. The worst thing to do is have a case that you file 
and have the Administration reject it and have the Chinese see 
that there is discord. That is why we did not file, and we were 
very disappointed that a spin-off group of associations did 
that and it was rejected. So that was a negative thing.
    We have worked with the Administration, with Secretary Snow 
very closely, and are at the point now where under the Trade 
Act of 1988, the Secretary of Treasury has stated that if the 
Chinese do not take a significant action before October, that 
they will almost certainly be cited under that Trade Act and a 
process begun. In my view, Mr. Chairman, there is no doubt that 
we would not be there had it not been for the continued and 
very determined efforts of the NAM, which I would be very 
pleased to document should you be interested. There is nothing 
of a higher priority for the NAM than getting that currency 
revalued. It is by far the biggest factor in our trade deficit 
with China. We will not get that deficit down until China's 
currency moves up, and also begins moving towards a market-
determined currency.
    But this hearing, Mr. Chairman, is on counterfeiting, so 
let me turn to that and the STOP! program.
    The NAM has been a very strong supporter of the STOP! 
initiative. We had a lot of discussions with Administration 
officials before the program was put together. We are very 
pleased that many of the ideas that we had put forth are 
incorporated within the initiative. The initiative is 8 months 
old and we are quite satisfied with the way it has been 
evolving.
    There are a couple of areas that need more work and we need 
to sit down and think through what we can do. The most 
important, I believe, is what to do with smaller companies and 
the problems that they are facing. You heard the testimony of 
the Will-Burt Company. This is not an unusual situation. Many 
small companies find they are being ripped off in China or they 
are having to face knock-offs around the world that are 
produced in China. It is a very expensive thing for them to do. 
Basically, they now are told they have to do the investigatory 
work, they have to bring about the legal action. It is a very 
expensive thing for them to do and there ought to be a better 
way to do it.
    This is a crime. Governments ought to be doing more on 
their own to stop these crimes. If you have a case of murder, 
you don't ask the relatives of the victim to go out and begin 
doing their own investigation and bring a case. You have the 
prosecutorial authorities. You have the full force of the 
government behind you. And we need to look at what more we can 
do here.
    This won't be an overnight process, but it is certainly 
something that we need to do in terms of there might be some 
possibilities for having a public defender. There might be some 
possibilities of having the U.S. Government pick up some more 
of the investigatory cost. There might be more we can do 
through diplomatic initiatives.
    Frankly, I don't know. We don't have a program that we can 
lay out. But we want to sit down with the Administration, and 
they have indicated a willingness and interest in doing so, 
with your staff and with others, Mr. Chairman, because we need 
to push this through.
    Mr. Huther mentioned H.R. 32, the bill that Mr. Knollenberg 
introduced in the House. It is not the jurisdiction of this 
Subcommittee or Committee but we hope you will take a very 
close look at it, become a strong advocate for getting that 
passed very quickly. It fills some rather major loopholes in 
U.S. law.
    Finally, let me note that while our focus is on China--
China is the epicenter of counterfeiting in the world--China is 
not the only problem. We have Russia going through the WTO 
accession process now. We want to ensure that we learn lessons 
from China's accession and we see that we are tighter in 
insisting that Russia has what we need before it comes into the 
WTO.
    Thank you, Mr. Chairman.
    Senator Voinovich. Thank you. Again, thank you both for 
being here today.
    One of the questions that I didn't get to ask, and we are 
going to send it off to them, but I think you made some 
reference to it, and that is the issue of coordination. Two 
issues that I am concerned about is who is the orchestra leader 
here? Second, are the folks going overseas?
    I discussed this with USTR Representative Rob Portman. When 
he goes over there, when Mr. Gutierrez goes over there, when 
Mr. Snow goes over there, are they speaking with the same 
voice? So, do we have an orchestra leader there? In your 
opinion, who ought to be the orchestra leader?
    Second of all, very concerned, is do they have the 
staffing, and maybe you were here for the call to STOP!. Well, 
the expert on China is in Detroit. Tell the folks what they 
should be doing and what are your observations in terms of the 
human capital that is needed over there to get the job done. Is 
it adequate or should we do more in that area?
    Mr. Huther. I will try first, if I could, Mr. Chairman. 
There is, as I alluded to in my earlier remarks, no single 
designated spokesperson for the Administration as yet. We are 
not concerned that such an individual hasn't been appointed, 
but we will be if it takes too much longer for that decision to 
be made, because the longer it takes, the more likely it will 
be difficult to keep this interagency coordination effort that 
I have talked about in positive terms continuing.
    Senator Voinovich. Who should be that person, in your 
opinion?
    Mr. Huther. Well, we think the person should be someone who 
has cabinet-level rank, who can speak to these issues 
authoritatively, whether that be a member such as the Secretary 
of Commerce, whether that could be someone in the White House, 
in the National Economic Council, we are not necessarily here 
to say who the right person is or which of the organizations. 
What we do want is someone who can speak to the issues and who 
understands them horizontally, across the board, and who can 
represent the interests not only of the STOP! agencies in a 
fully authoritative way, but frankly, has sufficient interest 
in working with the business community, because I think without 
that, there is not much chance that they will be able to 
leverage the business community's resources.
    We understand that the whole structure of NIPLECC is under 
review. We understand that there are a number of proposals that 
are being evaluated, and we have been told that the decision is 
imminent, and if that is so, then we are patient enough to 
wait.
    So point one, we think the level of coordination for the 
time being is adequate. It would be enhanced if there were to 
be a single point of contact at a very high level to speak for 
the Administration and to represent the interest of the 
business community, small businesses especially, since they 
comprise the vast majority of the Chamber's members, if I could 
put in such a plug.
    On the question of are there enough people on the ground? I 
think the PTO has a good example. The individual that they sent 
to China last year is doing effective work with the business 
community and with the Chinese Government. So positioning U.S. 
Government representatives who really know intellectual 
property issues or counterfeit or piracy subsidiary issues is a 
very significant thing to have.
    We found that this is helpful to groups like the Am-Cham in 
Beijing. We found that, frankly, the more they can come here, 
as the Senator is addressing, to address the business community 
in the United States with firsthand knowledge of what is really 
going on in places like China--and I wish to reiterate, it is 
by no means only China. This problem is everywhere. The more 
people that are out there doing that, the better that we are 
going to feel.
    Now, the agencies have not proposed resources at the full 
level. That is part of what this planning process is all about 
that is going on and that is why I suggest that if the Senate 
were to take an active role in looking at what these cross-
cutting interagency plans are, including staffing level 
resources and performance metrics, what are we going to judge 
success by at the end of the day, then I think we, too----
    Senator Voinovich. The question I have is are you familiar 
enough with these agencies to comment and tell me today whether 
you think that they are adequately staffed?
    Mr. Huther. I am familiar enough with some of them. For 
example, in terms of the Patent and Trademark Office, I can 
tell you that they have a well-oiled capacity to hire high-tech 
people in great quantities and with high quality. They have 
been doing it for a couple of decades now. In fact, this year, 
they are targeting some 900 people alone to recruit from 
America's best engineering and scientific schools. Likewise, 
the International Trade Administration has a very strong record 
of being able to attract people to the Foreign Commercial 
Service with various backgrounds.
    The question that is a longer-term one, I think, is not 
just recruiting them, but what does it take to provide 
continuity on the ground in remote locations where it is very 
difficult to find individuals of that orientation? But if they 
are creative with their family-friendly policies on how they 
structure the assignments and how they compensate the 
individuals, I don't think there is a problem in being able to 
recruit and retain whatever America can offer as its best and 
brightest.
    Mr. Vargo. Mr. Chairman, if I could offer my view on that, 
the STOP! initiative, as I said, is about 8 months old and came 
together with some very good ideas from a variety of agencies 
who I think have worked together in an exemplary way.
    Having spent many years in the government myself, though, I 
can tell you that the half-life of interagency cooperation is 
not that long. So it will need to grow into a coordinating 
mechanism pretty soon, not just to keep the existing program 
going, which is a good one, but to expand it into new areas. I 
believe that will require, in one way or another, coordination 
out of the White House, probably the National Economic Council.
    The question on resources, the biggest lack I see right now 
is resources on the ground in China. The problem is larger than 
the solutions that we have put forward so far. I think another 
resource-short area is one that we need to have aimed at 
educating American companies as to what they need to do to be 
able to defend their rights. Unfortunately, it is not just a 
matter of having a website. It is not just a matter of sending 
out E-mails. We all get thousands of E-mails and unfortunately 
ignore all too many of them. There has to be a more personal 
outreach and that takes staff.
    Senator Voinovich. You have got your Am-Cham groups. What 
is the Am-Cham group doing in Beijing, especially that one in 
Shanghai and a couple of other places? What are they doing in 
terms of putting pressure on the government to do some of the 
things that need to be done in IPR and others?
    Mr. Huther. They are doing a fair amount of traditional 
kinds of things, collaborating within the business community 
and trying to keep communication lines open with the 
government. But more recently, as part of the Chamber's 
stepping up of its own responsibilities in this area, we have a 
number of initiatives that we have announced recently that we 
are going to be undertaking in China, building, for example, 
for lack of a better term, some of the leading IP violator 
indexes going on in China, not naming companies by name but 
rather aggregating the data to say to the Chinese, here is 
where it is today and we are going to start measuring whether 
the IP violations being reported by American companies are 
going up, down, or remaining the same, and we would use those 
data as part, then, of our active campaign.
    We also are looking into two provinces of China. China is a 
very big place. Trying to attack the whole thing is beyond the 
pale. But we have identified two of them, Guangdong Province 
being the most significant of the two. That is where most of 
the counterfeiting activity occurs in China.
    But in these two provinces, what we are going to be doing 
is working with the local provincial officials, identifying: 
where are the problems? Where are these counterfeiters? What 
does it take to identify them, close them down, prosecute them, 
or in the absence of our ability to get that kind of provincial 
cooperation from the local government officials, to raise that 
to Beijing, to say, look, we can't get it done even in these 
two provinces for lack of cooperation, lack of resources, 
whatever the truth is.
    But one thing you will hear over and over again from the 
Chinese is, well, show me the data; we are tired of listening 
to that. So any way that we know how to show the Chinese or the 
Brazilians or the Russians or the Koreans or anybody, we are 
going to gather the data as best we can. We are running 
economic studies in Brazil as part of the collaboration with 
Am-Cham.
    Senator Voinovich. One of the problems that I think that 
you have is, and I want to talk with Premier Wen and I know I 
talked with Don Evans before I left, is they seem to be getting 
it up here, but it falls down out in the provinces. And part of 
the problem is that they have got to create another 250,000 
jobs. They are very concerned about getting people working. And 
so that desire to create the jobs is inconsistent with 
enforcing intellectual property rights and so you get this 
clash going on.
    My feeling is that unless we really get tough, it is not 
going to happen. One of my concerns is that, and I would be 
interested in your observations, is that we have our economic 
interest and then we have our foreign policy interest, and I 
have this sick feeling that part of the reason why we are not 
kicking as hard as we should be is because we need the Chinese 
to help us deal with the situation in North Korea. It seems to 
me that we have got to separate that.
    I would like to know, what are the new provisions in CAFTA? 
Are these new provisions that have been added that are 
different than other trade agreements that we have signed that 
you believe are going to help the situation, Mr. Vargo?
    Mr. Vargo. Certainly, one of the new provisions in CAFTA 
that we have not seen before is particularly important to us, 
and that is the ability for companies to be able to drop 
distributors and pick up new distributors, which in some of the 
Central American countries they have not been able to do. You 
have to go through a very lengthy process.
    So with the emergence with provisions under CAFTA, if a 
company is not satisfied with its distributor, then it can go 
ahead and switch and that will make quite a bit of difference, 
too. So that is one of the improvements in CAFTA.
    Mr. Chairman, I don't want to be a one-note samba here, but 
on China, what we have to do is press for the Chinese to treat 
counterfeiting as a criminal offense. I am not a lawyer and I 
don't know where the bounds are of what an individual has to do 
in order to make a case or present what evidence, but I think 
that the burden is right now too high, particularly on our 
smaller companies. And what we need to do, the U.S. Government 
needs to do, is to press China to set up its own investigatory 
force, its own resources to take reasonable claims of 
counterfeiting, to investigate them, and if they find that the 
Chinese producer does not have a license to the intellectual 
property, that they then prosecute and that they throw them in 
jail, that they publicize this. We can't wait for years to get 
our arms around the problem.
    Senator Voinovich. They have increased their penalties, 
haven't they?
    Mr. Vargo. They have increased their penalties. You 
mentioned a regional question. China is a very big country. 
Certainly, I think that people at the top increasingly get it. 
Certainly Vice Premier Madam Wu Yi does. But you have so many 
provinces, you have so many cities, it is very difficult to do, 
and the Chinese Government, I don't think, has put the priority 
on that which it needs. We met with a delegation of the Chinese 
Government IPR team just a couple of weeks ago at the NAM and 
it was clear they are doing more. It is clear that a lot more 
needs to be done. The WTO doesn't say, every year, you will get 
better and better. It says you will provide, ``adequate and 
effective protection'' for intellectual property, and we are 
running out of time for that.
    We have suggested that a WTO case be prepared. We have 
found some resonance to that. But preparing a WTO case is not 
something one does overnight. We have to get our companies to 
step up to the plate and many of them right now are not 
prepared to do so. Some fear retribution of some form or 
another from China. Others don't like the idea of having to 
say, yes, my brand is being counterfeited out of fear that that 
may lead consumers to go to some other brand. So there is a 
number of reasons.
    But we certainly need to begin looking at what it is we 
have to do to develop an effective WTO case to protect our 
rights or seek compensation here, Mr. Chairman.
    Senator Voinovich. I would really appreciate both of your 
organizations to look at this STOP! procedure and talk about 
some other ways that possibly we could be of help. For example, 
giving some of these small businesses some kind of assistance, 
for they are just unable to do it. And, of course, within your 
respective organizations, you have got some problems. You have 
your large organizations that say, we are going to take care of 
this, and some of them, for instance, General Motors, when 
Cherry knocked them off, I mean, you would have thought it 
would have gone through the roof and they have kind of been 
handling it in a very calm way. Hopefully, they are going to 
get some kind of results.
    But it just seems that we need to do our job here. In other 
words, we have to streamline this process. We need to provide 
more staffing. Would you agree to that, in terms of these 
agencies? I would be interested to look at that and your 
comments on it. Say, hey, look, we have looked at this and this 
is a great thing, but you don't have the bodies over there to 
get the job done.
    And one of the things that came up at one of our last 
hearings was USTR, it is 200 people over there. They have had 
200 for a long time. Do they need to improve their situation? 
Constantly, if they need experts, they have to reach into some 
of these other areas to get them, and I have talked to the new 
Trade Representative Rob Portman about it.
    Have the two of you gotten together, or your organizations 
have sent any letters off to Mr. Portman and said, hey, look, 
you are the new guy on the block. Here are our observations. 
Here are things, Mr. Portman, that I think that you ought to be 
doing in order to shape up. Have you done that yet?
    Mr. Vargo. We have begun working with USTR staff on exactly 
that. Ambassador Portman has stated he is going to do a top-to-
bottom review, and he has started that on China. We would like 
to see a top-to-bottom review on enforcement, as well. 
Enforcement is a very important subject for us.
    Senator Voinovich. Are you satisfied that we are speaking 
with one voice? The thing about it, when you are dealing with 
China, you have one voice. Mr. Portman will be going over 
there, Mr. Gutierrez will be going over there, John Snow will 
be going over there, and some other people. Are you satisfied 
that the message is coordinated enough so that the Chinese get 
how serious we are about this issue?
    Mr. Vargo. We definitely are. We see a very high degree of 
coordination, most particularly between USTR and Commerce on 
China. Secretary Gutierrez, Ambassador Portman are saying 
exactly the same thing.
    Senator Voinovich. I think Mr. Portman went along with 
them, when they went over on the last trip.
    Mr. Vargo. Yes. And having been on the government staffs, 
they are very important. And Hank Levine, the Deputy Assistant 
Secretary for Asia at the Commerce Department, a posting I once 
had, and Charles Freeman, the Assistant USTR for China, are 
joined at the hip. We work very closely with them on a weekly 
basis. There is no question of the coordination.
    What in our view we need to do, though, is to find a way to 
go further and get the Chinese really to take more initiative 
to take their new criminal statutes and apply them and do so in 
a way that does not put an unreasonable burden on innocent U.S. 
companies.
    Senator Voinovich. I know, because my pitch to Premier Wen 
was that it is in his long-term best interest to enforce 
intellectual property rights. It is in his best interest, quite 
frankly, to float his currency, and many international 
organizations have suggested that they go forward with it. So 
it will be interesting to see just how well he understands what 
we are trying to communicate to him.
    I have these little three companies and I have found the 
nature of them and I am going to--Mr. Evans is one of them--I 
am going to get an answer on it. I am going to get something 
done. And I think someone mentioned that you almost have to get 
at an individual company and you can get maybe some help. We 
will see.
    But the big picture is some coordinated strategy, again, 
maybe with the government. Maybe you ought to sit down with 
Portman and others to talk about how we have a public-private 
partnership where we can really make this thing into a big 
deal, because the government can talk all they want to, but I 
believe that when they start hearing from companies that are 
doing business there, that that may have a much larger impact 
upon them than the government saying to them, you have got to 
do these things.
    Mr. Vargo. Mr. Chairman, could I note that for that exact 
reason, the Chamber and the NAM and other associations have 
joined together to form a single voice for the private sector, 
that is, the Coalition Against Counterfeiting and Piracy, and 
that we have both trademark holders and copyright holders all 
working together. So we now have a really single mechanism to 
deal and interface with the U.S. Government and Mr. Huther is 
the Executive Director of that and very savvy, so we are 
looking forward----
    Senator Voinovich. I am going to have my staff pay a lot of 
attention to it. If there is anything I can do--I noticed that 
H.R. 32 is, I guess it is over in Judiciary.
    Mr. Vargo. Yes, sir.
    Senator Voinovich. I understand that Senator Specter is 
looking at it, but we haven't got a sponsor yet and I told our 
people to let them know that I would be glad to be two or 
three. It is a Judiciary issue. Of course, Senator Specter has 
got a few things on his plate right now.
    Mr. Vargo. Right. [Laughter.]
    But we appreciate that, Mr. Chairman. It is very----
    Senator Voinovich. You really have to just keep working on 
elevating this thing, and I think through your respective 
organizations and various States, I think that you ought to be 
encouraging them also to start to beat the drum on these issues 
so that the folks back home understand how significant it is 
and how important it is.
    I have to tell you, I have got manufacturers coming in that 
actually have been in business for 75, 100 years. They actually 
cry in my office about the fact that they are just heartsick 
about what is happening to their businesses. We are seeing a 
little bit of an improvement today because of our currency, the 
value of the dollar is helping a little bit, but the same 
underlying problems still exist. We just really need to be as 
conscientious and hard-hitting as we possibly can to make this 
happen.
    I am absolutely convinced that unless you get up early in 
the morning and go to bed late in the night and they know that 
it is a coordinated, strategic effort that everybody is 
involved in, we will not make the progress that we need to 
make. It is just not going to happen. I talked to Mr. Snow. He 
was in and he said they did their thing last year. You notice 
they are starting too--in terms of the currency situation. I 
think that by the end of this year, something is going to 
happen on currency. When they had that news conference last 
year, when they all got together and said there wasn't a 
problem. I couldn't believe it because everything I saw said 
that they are doing this thing.
    I am hopeful that--well, I see good things happening and 
our job now is to make sure it does, and as I mentioned, you 
guys are partners. Let us keep it up, and thank you very much 
for coming here today. We are going to probably come back 6 
months from now. I am going to stay on this thing until we get 
it done. Thanks.
    [Whereupon, at 12:54 p.m., the Subcommittee was adjourned.]


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