[Senate Hearing 109-852]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-852
 
   STOP!: A PROGRESS REPORT ON PROTECTING AND ENFORCING INTELLECTUAL 
                    PROPERTY RIGHTS HERE AND ABROAD

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

                                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

                             SECOND SESSION

                               __________

                             JULY 26, 2006

                               __________

       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
             Michael L. Alexander, Minority Staff Director
                  Trina Driessnack Tyrer, Chief Clerk


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

                  GEORGE V. VOINOVICH, Ohio, Chairman
TED STEVENS, Alaska                  DANIEL K. AKAKA, Hawaii
NORM COLEMAN, Minnesota              CARL LEVIN, Michigan
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

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


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Voinovich............................................     1
    Senator Coburn...............................................     3
    Senator Akaka................................................    14
    Senator Coleman..............................................    15
Prepared statement:
    Senator Levin................................................    31

                               WITNESSES
                        Wednesday, July 26, 2006
                               WITNESSES

Chris Israel, Coordinator for International Intellectual Property 
  Enforcement, U.S. Department of Commerce.......................     4
Stephen M. Pinkos, Deputy Under Secretary of Commerce for 
  Intellectual Property, and Deputy Director, U.S. Patent and 
  Trademark Office...............................................     6
Arif Alikhan, Vice Chairman, U.S. Department of Justice's Task 
  Force on Intellectual Property, and Deputy Director, National 
  Intellectual Property Law Enforcement Coordination Council.....     8
Anthony C. LaPlaca, Vice President and General Counsel, Bendix 
  Commercial Vehicle Systems LLC.................................    10
Loren Yager, Director, International Affairs and Trade, U.S. 
  Government Accountability Office...............................    12

                     Alphabetical List of Witnesses

Alikhan, Arif:
    Testimony....................................................     8
    Prepared statement...........................................    52
Isreal, Chari:
    Testimony....................................................     4
    Prepared statement...........................................    32
LaPlaca, Anthony C.:
    Testimony....................................................    10
    Prepared statement...........................................    66
Pinkos, Stephen M.:
    Testimony....................................................     6
    Prepared statement with attachments..........................    45
Yager, Loren:
    Testimony....................................................    12
    Prepared statement...........................................    81

                                APPENDIX

Questions and answers submitted for the Record from:
    Mr. Israel...................................................   101
    Mr. Pinkos...................................................   106
    Mr. Alikhan..................................................   111
    Mr. LaPlaca with attachments.................................   118
    Mr. Yager....................................................   124


                      STOP!: A PROGRESS REPORT ON
                 PROTECTING AND ENFORCING INTELLECTUAL
                    PROPERTY RIGHTS HERE AND ABROAD

                              ----------                              


                        WEDNESDAY, JULY 26, 2006

                                 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 3:34 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. George V. 
Voinovich, Chairman of the Subcommittee, presiding.
    Present: Senators Voinovich, Coleman, Coburn, and Akaka.

             OPENING STATEMENT OF SENATOR VOINOVICH

    Senator Voinovich. The Committee will come to order. Good 
afternoon. I thank all of you for coming.
    Today, the Subcommittee on Oversight of Government 
Management, the Federal Workforce, and the District of Columbia 
will review the President's Strategy for Targeting Organized 
Piracy, also known as STOP!. The Subcommittee will also review 
how the STOP! Initiative is working in conjunction with the 
National Intellectual Property Law Enforcement Coordination 
Council, also known as NIPLECC, to protect intellectual 
property rights and to prosecute those who violate IP Plans.
    In 2002, after hearing one too many stories about 
intellectual property (IP) theft from small and medium-sized 
companies, I initiated a series of hearings, of which this is 
the fifth hearing, on trade protection of IP, IP theft, and the 
negative impact of counterfeit and pirated goods on the 
economy. I also began my effort to persuade the Bush 
Administration and then-Secretary of Commerce Evans and then-
U.S. Trade Representative Bob Zoellick to take action. In fact, 
I voted against two trade bills to send a message to the 
President that more needed to be done to protect intellectual 
property rights.
    Therefore, I was very pleased when the STOP! Initiative was 
announced in October 2004. STOP! is designed to improve the 
Federal Government's effort to protect and enforce intellectual 
property rights through increased cooperation and coordination 
among the various Federal agencies charged with each oversight. 
STOP! and interagency groups such as NIPLECC are leading the 
Administration's efforts at combating IP theft.
    Last June, the Subcommittee held a hearing to review the 
initial progress of the STOP! Initiative after its first year. 
Though the STOP! Initiative was making progress, I was 
concerned that it lacked leadership and direction. Strong 
leadership is particularly important because there are so many 
Federal departments and agencies involved in protecting and 
enforcing U.S. intellectual property rights.
    Shortly after that hearing, I was pleased the 
Administration appointed Chris Israel to the post of 
Coordinator for International Intellectual Property 
Enforcement. Mr. Israel is aided by Arif Alikhan, who is with 
the Department of Justice. These two gentlemen are with us 
today, and I look forward to their testimony.
    Since the last hearing, Senator Bayh and I introduced S. 
1984, the Intellectual Property Rights Enforcement Act, which 
would unify and improve upon the STOP! Initiative and NIPLECC. 
S. 1984 was referred to the Judiciary Committee, and I am 
continuing to work with that committee on this legislation.
    I want to stress the importance of this hearing to 
manufacturing. In 2000, the United States employed roughly 17.2 
million people in manufacturing. In May 2006, the number of 
manufacturing jobs had decreased to roughly 14.2 million, a 
loss of approximately 3 million jobs. In Ohio, there were more 
than 1 million manufacturing jobs in 2000. By April of this 
year, the number of manufacturing jobs had fallen to 810,700.
    While counterfeiting is not the only factor in these job 
losses, it is part of the problem. The U.S. Chamber of Commerce 
estimates that roughly 750,000 jobs have been lost as a result 
of counterfeiting. Moreover, profits from counterfeit products 
fill the pockets of criminals at the expense of legitimate 
businesses and their employees whose jobs are put at risk, as 
well as the consumers who buy these fake, and often dangerous, 
products.
    America's competitive advantage is derived from innovation 
and rising productivity, and the protection of intellectual 
property remains one of the best means for ensuring that 
American manufacturers enjoy the fruits of their investments 
and innovation. The very foundation of our economy is the 
American entrepreneur. Who will want to continue on this path 
if you know your work product is going to be stolen under your 
nose at every turn? Unfortunately, I can give you one example 
after another of how that has happened.
    I am particularly interested in hearing about the 
strategies to address counterfeit goods from China, which 
remains the global leader in production and sale of counterfeit 
goods. Customs and Border Patrol seizure statistics indicate 
that almost 70 percent of all intellectual property-related 
seizures involve goods from China. However, China is not the 
only culprit. Brazil, Russia, Venezuela, India, and Argentina 
also have weak records on intellectual property rights 
enforcement.
    This past May, I was a guest speaker at a U.S. Patent and 
Trademark Office conference entitled ``IP Global Marketplace,'' 
which was held in Columbus, Ohio. PTO is one of the agencies 
working as part of the STOP! Initiative, and these programs are 
part of the ongoing STOP! outreach to small and medium-sized 
businesses. I thought that this conference went very well. I 
was glad to be part of it, and I applaud such efforts. I look 
forward to hearing from Stephen Pinkos, Deputy Director of the 
U.S. Patent and Trademark Office, about this important aspect 
of the STOP! Initiative, as well as future plans for similar 
activity.
    I believe that if the government's efforts to protect IP 
are to succeed, there must be close and seamless coordination 
between the numerous agencies involved in IP protection. In 
addition, the Federal Government must be able to recruit, 
train, and retain the necessary workforce needed to implement 
such programs. The human capital aspect of the IP enforcement 
effort is often overlooked, but critically important for their 
success.
    I look forward to the witnesses' testimony and learning 
what progress has been made over the past year and what remains 
to be done to address the challenges. Manufacturers, including 
those in Ohio, have run out of patience as they see their jobs 
lost to intellectual property theft, and the flourishing black 
market of the 21st Century.
    The Ranking Member of this Committee, Senator Akaka, is 
currently not here, but will be. And I would like to recognize 
Senator Coburn, who has presiding duty at 4 o'clock. Senator, I 
am glad you are here today.

              OPENING STATEMENT OF SENATOR COBURN

    Senator Coburn. Thank you, Mr. Chairman. I want to tell you 
how much I appreciate your holding the hearing on this issue. 
The success and future of our country and our trading relations 
depend on the value of our intellectual property. It is as 
important as the defense to our country in terms of our 
military defense. It is as important as any other aspect of our 
economy.
    Our education system and our motivation within our economy 
is tuned to the idea that if you have a better mousetrap, you 
can get copyright or patent and trademark protection on that. 
This government will, in fact, allow you the opportunity to 
gain the reward from that. That has not been so in terms of 
international trade, especially with China. My Subcommittee 
held a hearing in Los Angeles on intellectual property and also 
on counterfeiting of our currency. And the fact is the 
Administration has not been as aggressive as it needs to be in 
forcing the hands of those people that we deal with, who 
benefit greatly from having access to our markets to protect 
the real property, the intellectual property, of people of this 
country. I believe this hearing could not be more timely, nor 
more important, to our future, because if you unravel 
intellectual property ownership and you unravel patent 
ownership, what you do is you unravel our economy. Our future 
depends on our ability to have a robust and vibrant economy to 
secure the future, both in terms of military and defense, but 
also to secure the future for a standard of living that is 
above and beyond everyone else in the world. And we have done 
that through intellectual property advances and through the 
economy benefiting from innovation and invention in this 
country. It should be protected and it should be rewarded as a 
method to advance our Nation.
    Thank you, Mr. Chairman.
    Senator Voinovich. Thank you very much.
    We have an impressive line-up of witnesses. I look forward 
to our discussion. Given the late start for this hearing, we 
will have one panel of five witnesses:
    Chris Israel is the Coordinator for International 
Intellectual Property Enforcement. Nice that you are here 
today. I have heard your name and used it for a long time, and 
now am going to have a chance to hear from you.
    Stephen Pinkos is the Deputy Under Secretary of Commerce 
for Intellectual Property and Deputy Director of the U.S. 
Patent and Trademark Office. Steve and I have had a chance to 
meet each other, and he did a wonderful job for us in Columbus.
    Arif Alikhan is the Vice Chairman and Executive Director of 
the Department of Justice Task Force on Intellectual Property.
    Anthony LaPlaca is Vice President and General Counsel of 
Bendix Commercial Vehicle Systems LLC.
    And Loren Yager is the Director of International Affairs 
and Trade at the Government Accountability Office.
    Gentlemen, it is the custom of this Subcommittee that we 
swear in the witnesses. If you will stand and take the oath, I 
would appreciate it. Do you swear that the testimony you are 
about to give this Subcommittee is the truth, the whole truth, 
and nothing but the truth, so help you, God?
    Mr. Israel. I do.
    Mr. Pinkos. I do.
    Mr. Alikhan. I do.
    Mr. LaPlaca. I do.
    Mr. Yager. I do.
    Senator Voinovich. As is the custom with this Subcommittee, 
if the witnesses could limit their testimony to 5 minutes, your 
full written statements will be included in the record.
    Ms. Israel, we would like to hear from you first.

  TESTIMONY OF CHRIS ISRAEL,\1\ COORDINATOR FOR INTERNATIONAL 
 INTELLECTUAL PROPERTY ENFORCEMENT, U.S. DEPARTMENT OF COMMERCE

    Mr. Israel. Thank you Chairman Voinovich and Senator 
Coburn. I am pleased to be here with you today to discuss the 
U.S. Government's intellectual property enforcement efforts.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Israel appears in the Appendix on 
page 32.
---------------------------------------------------------------------------
    As the U.S. Coordinator for International Intellectual 
Property Enforcement, it is the task of my office to leverage 
the capabilities and resources of the U.S. Government to 
promote effective global enforcement of intellectual property 
rights. Today, I would like to discuss the ongoing leadership 
and prioritization of the Bush Administration regarding IP 
enforcement, the progress of the Administration's STOP! 
Initiative, and, finally, provide some insight on how we are 
coordinating our efforts.
    The reasons for the Administration's leadership on IP 
enforcement and for its prioritization are clear. As you both 
noted, there are, frankly, few issues that are as important to 
the current and future economic strength of the United States 
as our ability to create and protect intellectual property. 
U.S. IP industries account for over half of U.S. exports. They 
represent 40 percent of our economic growth, and they employ 18 
million Americans who earn 40 percent more than the average 
U.S. wage.
    This growth and prosperity is put in jeopardy, though, by 
rampant theft of American IP worldwide. Quite simply our 
ability to ensure and secure a reliable environment for 
intellectual property is critical to the strength and continued 
expansion of the U.S. economy. Therefore, the protection of 
intellectual property is a critical trade and economic issue 
for the Bush Administration. We seek every opportunity at every 
level to engage our trading partners, strengthen our 
enforcement capabilities, and engage our industry.
    As this Subcommittee understands, the problem of global 
piracy and counterfeiting confronts many industries, exists in 
many countries, and demands continuous attention. With finite 
resource and seemingly infinite concerns, how we focus our 
efforts is crucial. A critical element in our overall 
coordination is the Strategy Targeting Organized Piracy 
(STOP!), Initiative launched by the Bush Administration in 
October 2004.
    STOP! is built on five key principles: First, empowering 
innovators to better protect their rights at home and abroad; 
second, increasing efforts to seize counterfeit goods at our 
borders; third, pursuing criminal enterprises involved in 
piracy and counterfeiting; fourth, working closely and 
creatively with industry; and, fifth, aggressively engaging our 
trading partners to join our efforts.
    STOP! is a broad, interagency effort led by the White House 
that draws upon the capabilities of the Department of Commerce, 
Department of Justice, USTR, the State Department, the 
Department of Homeland Security, and FDA.
    The principles of STOP! are essentially our combined action 
plan. They are the things that this Administration is committed 
to expanding, coordinating, and executing in order to protect 
American IP and demonstrate leadership around the world.
    On a number of fronts, STOP! has shown measurable success. 
We have provided useful tools and information for rights 
holders. Criminal enforcement has increased dramatically. 
Customs seizures of counterfeit goods have doubled since 2001. 
And we are leading an aggressive effort around the world to 
promote IP enforcement.
    On this front, we are especially pleased by strong IP 
enforcement programs, established recently at the U.S., EU, and 
G-8 summits. These, essentially, establish an international 
network of like-minded countries committed to addressing piracy 
and counterfeiting.
    The flexibility of STOP! has been a key element to its 
effectiveness. It has provided leadership and direction, while 
allowing agencies to remain focused on their priorities and 
maximize their strengths. Through STOP!, we have accomplished a 
great deal; however, we certainly know that much remains to be 
done.
    We know that the effort to fight IP theft is a long-term 
commitment that requires a coordinated strategic approach. 
Developing and maintaining this approach is the mission of my 
office. Our office has supported a number of Administration 
priorities, worked to maintain senior-level commitment, 
provided input on key policy matters, established a presence 
internationally, reached out to industry, attempted to sustain 
clear communication with Congress, and provided accountability.
    Mr. Chairman, we are dedicated to stopping intellectual 
property theft and providing businesses with the tools they 
need to flourish in a global economy. As the Bush 
Administration continues its efforts, we look forward to 
working with this Subcommittee to promote strong intellectual 
property rights protection for American businesses and 
entrepreneurs around the world.
    Thank you very much for the opportunity to be here today, 
and I look forward to your questions.
    Senator Voinovich. Thank you very much for being here. Mr. 
Pinkos.

 TESTIMONY OF STEPHEN M. PINKOS,\1\ DEPUTY UNDER SECRETARY OF 
 COMMERCE FOR INTELLECTUAL PROPERTY, AND DEPUTY DIRECTOR, U.S. 
                  PATENT AND TRADEMARK OFFICE

    Mr. Pinkos. Thank you, Chairman Voinovich. It is good to 
see you again, Ranking Member Akaka. Thank you both for your 
leadership on the issue of protecting intellectual property 
around the globe.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Plinkos with attachments appears 
in the Appendix on page 45.
---------------------------------------------------------------------------
    I appreciate this opportunity to be a part of this panel, 
and especially join my Administration colleagues, two gentlemen 
who are doing yeoman's work on the front line of protecting 
intellectual property. I am happy to be able to report on some 
of USPTO's progress as part of a very strong Bush 
Administration STOP! team in promoting effective IP protection 
and enforcement, both here in the United States and abroad.
    Our goal, the Administration goal, as Chris alluded to, is 
quite simple. It is to decrease the amount of global IP theft 
and increase the bottom line for America's creators, inventors, 
entrepreneurs, and manufacturers. And also, as Chris mentioned, 
President Bush fully appreciates the importance of IP-based 
industries to the future of America's economic success.
    At the USPTO, our STOP! efforts fall under three general 
categories. First, we work under the auspices of STOP! to 
ensure that we have an effective IP system here in the United 
States that is understood and accessible to everybody. Second, 
we work very hard to help other countries enact effective IP 
laws and operate efficient, high-quality, and customer-friendly 
patent and trademark offices. So when we advise, like we did in 
Ohio, folks to register their trademarks overseas that when 
they approach an office, it is very similar to ours and very 
easy to understand. And, third, we work as part of the STOP! 
team to help ensure that U.S. businesses and individuals can 
enforce their rights that they have so diligently secured.
    Under number one, helping U.S. businesses and entrepreneurs 
and independent inventors to understand the system here, we are 
particularly concerned that they understand the importance of 
IP and take the steps that they may want to take to protect 
their IP. Thus, we have launched a small business awareness 
campaign. Mr. Chairman, you alluded to it. We are sponsoring IP 
conferences around the country where we bring IP experts to 
these various cities, and not just from the U.S. PTO, but from 
DOJ and Customs and Federal judges, as well. In addition to 
Columbus, we have been to Salt Lake City, Phoenix, Austin, 
Miami, San Diego, and recently in Nashville, all within the 
last 14 months.
    We are doing some programs that are specific to China so 
that businesses can understand the IP environment there, which 
includes changes in the law, and that they may want to take 
defensive action by registering a trademark or seeking patent 
protection. Even if they are not intending to do business 
there, we have programs to help protect their products from 
being counterfeited. We have done these programs in Baltimore, 
Detroit, Atlanta, Chicago, Seattle, and here at our 
headquarters in Alexandria.
    Mr. Chairman, as you also know, the U.S. PTO mans the 
government hotline, where real live IP experts answer the phone 
and help provide guidance and direction to U.S. citizens and 
businesses to help them navigate the government agencies that 
are involved in IP. We refer a lot of people to Justice, and 
the FBI, and other places. And we also maintain a specific 
website, stopfakes.gov/smallbusinesses, particularly aimed at 
informing small businesses of their IP rights.
    But going forward on the small business initiative, there 
is a lot to still do. We would like to place IP experts at 
trade shows around the country, to bringing STOP! to thousands 
of people. We would like to do more Webinars--or start doing 
Webinars, and we are examining that now instead of having to go 
around the country, which we intend to continue to do, of 
course, next year with at least another half a dozen 
conferences.
    We also want to promote these resources more effectively, 
with more private sector associations, coordinate a little bit 
better with USG agencies, like the Small Business 
Administration, and work more with State and local officials. 
We talked a little bit about that in Columbus, because 
sometimes the first place a businessperson will go will be the 
Secretary of State to register their business.
    The U.S. Patent and Trademark Office also offers a lot of 
training and coordinates a lot of training globally, and under 
STOP! we are establishing an academy at the PTO where we are 
able to greatly increase the number of foreign officials that 
we are bringing here. We are going to do 16 programs this year, 
21 next year. Again, our counterparts from across the 
government come to help. And we do a lot of training overseas 
as well, including technical training at the patent and 
trademark offices in foreign countries and bring them here too. 
For example, 2 weeks ago, we had the commissioner of trademarks 
for China and several of his officials in our office learning 
very technical things.
    We are doing all of this because we want to make sure that 
we get to the right people from the right countries, targeting 
the right issues and measuring all the results so we can 
maximize benefits.
    Mr. Chairman, I appreciate the opportunity to be here and 
to expand upon some of our efforts during the questioning. I 
just want to emphasize that the Patent and Trademark Office is 
very much dedicated to making sure all U.S. businesses, 
particularly small and medium-size businesses, have the 
information they need to protect their rights here and abroad.
    Thanks again for having the hearing.
    Senator Voinovich. Thank you. Mr. Alikhan.

TESTIMONY OF ARIF ALIKHAN,\1\ VICE CHAIRMAN, U.S. DEPARTMENT OF 
   JUSTICE'S TASK FORCE ON INTELLECTUAL PROPERTY, AND DEPUTY 
   DIRECTOR, NATIONAL INTELLECTUAL PROPERTY LAW ENFORCEMENT 
                      COORDINATION COUNCIL

    Mr. Alikhan. Chairman Voinovich and Ranking Member Akaka, 
thank you very much for this opportunity to discuss the 
Department of Justice's contribution to the Administration's 
STOP! Initiative and the Department of Justice's efforts to 
protect and enforce intellectual property rights.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Alikhan appears in the Appendix 
on page 52.
---------------------------------------------------------------------------
    The Department's principal contribution to the STOP! 
Initiative is the work of the Department of Justice's Task 
Force on Intellectual Property. In October 2004, the IP Task 
Force issued a comprehensive report detailing 31 
recommendations, which the Department then spent the next year 
and a half implementing. I am proud to say that as of this 
June, when the task force issued this progress report, the 
Department implemented all 31 of the recommendations contained 
in the 2004 report, by, among other things, increasing the 
number of intellectual property prosecutors by creating five 
additional Computer Hacking and Intellectual Property, or CHIP, 
Units in the District of Columbia, Nashville, Orlando, 
Pittsburgh, and Sacramento; by deploying an experienced Federal 
prosecutor as an Intellectual Property Law Enforcement 
Coordinator, or IPLEC, to Southeast Asia and obtaining funding 
for a coordinator in Eastern Europe; by increasing the number 
of extradition and mutual legal assistance treaties that 
include intellectual property offenses; by vigorously 
protecting the right of victims to bring cases in the civil 
courts; and by organizing victims' conferences on intellectual 
property awareness.
    The Department of Justice, however, did not stop at simply 
implementing the recommendations of the task force. Instead, 
the Department went well beyond those recommendations by 
creating seven new CHIP Units, in addition to the five I 
previously mentioned, in Austin, Texas; Baltimore; Denver; 
Detroit; Newark; New Haven, Connecticut; and Philadelphia--
bringing the total number of CHIP Units to 25; in addition, the 
Department increased the number of defendants prosecuted for 
intellectual property offenses by 98 percent; by providing 
training and technical assistance to over 2,000 foreign 
prosecutors, investigators, and judges regarding intellectual 
property investigations and prosecutions; by working closely 
with the U.S. Trade Representative to improve language 
regarding IP protections in free trade agreements and other 
international treaties; by publishing a nearly 400-page 
comprehensive resource manual on prosecuting IP crimes; and by 
filing 13 amicus, or ``friend of the court,'' briefs in the 
Supreme Court in cases involving IP disputes.
    The Department of Justice has also prosecuted a wide array 
of intellectual property crimes, including novel prosecutions 
that are likely to have the greatest deterrent effect. In 
addition, the Department is focused on the prosecution of cases 
that endanger the public's health and safety, including cases 
involving counterfeit pharmaceuticals, such as cholesterol 
medication, counterfeit Viagra and Cialis, and also other items 
such as counterfeit batteries and electrical cords.
    A large part of the Department's success stems from its 
efforts to marshal the right people to do the job the right 
way. In doing so, the Department has implemented a three-part 
approach.
    First, the Department of Justice's anti-counterfeiting 
enforcement is anchored by the Criminal Division's Computer 
Crime and Intellectual Property Section, a team of highly 
specialized prosecutors focused on computer crime and IP 
offenses.
    Second, the Department has designed Computer Hacking and 
Intellectual Property, or CHIP, Coordinators in every U.S. 
Attorney's Office in the country. CHIP Coordinators are Federal 
prosecutors who are given specialized training in intellectual 
property and certain types of computer crime. Each district has 
at least one CHIP Coordinator; many have two or more.
    Third, the Department has created CHIP Units generally in 
districts where the incidence of intellectual property and 
high-tech crimes is higher and more likely to affect the 
national economy. Each unit consists of a concentrated number 
of trained CHIP prosecutors in the specific U.S. Attorney's 
Office.
    Through this three-part approach, the Department has 
developed a highly motivated and effective nationwide network 
of 25 CHIP Units and more than 230 skilled intellectual 
property prosecutors. But in addition to these contributions, 
the Department has also contributed to the STOP! Initiative by 
supporting legislative efforts. The Department of Justice has 
developed legislation known as the Intellectual Property 
Protection Act of 2005. This proposed legislation is designed 
to strengthen penalties against copyright criminals, reform 
forfeiture provisions, strengthen a victim's ability to recover 
losses for IP crimes, and criminalize the attempt to commit 
copyright infringement.
    The Department also recognizes that education is a key tool 
in the efforts to promote intellectual property protection. For 
example, in a joint venture with the U.S. Patent and Trademark 
Office, the Department of Justice and USPTO are funding a 3-
year, $900,000 youth education program with national nonprofit 
educational organizations. In addition, the Department of 
Justice has also educated American business owners by 
participating in USPTO's Global Marketplace conferences, as Mr. 
Pinkos has mentioned.
    Thank you again for this opportunity to address the 
Department of Justice's efforts to protect and enforce 
intellectual property rights. I will be happy to answer any 
questions you may have.
    Senator Voinovich. Pretty impressive testimony.
    Mr. Alikhan. Thank you, sir.
    Senator Voinovich. Somebody caught fire over there. That is 
great. Mr. LaPlaca.

TESTIMONY OF ANTHONY C. LAPLACA,\1\ VICE PRESIDENT AND GENERAL 
         COUNSEL, BENDIX COMMERCIAL VEHICLE SYSTEMS LLC

    Mr. LaPlaca. Good afternoon Chairman Voinovich and 
distinguished Members of the Subcommittee. My name is Anthony 
LaPlaca, and I am Vice President and General Counsel for Bendix 
Commercial Vehicle Systems LLC. I am testifying today on behalf 
of Bendix and will be sharing our views and experiences on 
dealing with intellectual property theft.
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    \1\ The prepared statement of Mr. LaPlaca appears in the Appendix 
on page 66.
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    First, I would like to thank the Subcommittee for the 
invitation. We are honored to represent business here today and 
hope that our testimony will lead to a greater understanding of 
the issues.
    Bendix Commercial Vehicle Systems is headquartered in 
Elyria, Ohio. We develop and supply active safety technologies, 
including air brake control systems, air disc brakes, and 
electronic stability systems used on medium- and heavy-duty 
commercial vehicles. Bendix employs over 2,200 people in North 
America.
    Motor Equipment Manufacturers Association estimates that 
counterfeiting has a $12 billion impact on the transportation 
industry. We at Bendix are concerned about this issue's impact 
on our business, as well as the adverse effect on our brand 
equity, as well as potential impact on vehicle brake 
performance, and highway safety.
    The financial impact to Bendix from the infringement of its 
intellectual property rights and from the recent influx from 
Asia of knock-off air brake parts is significant. For air brake 
valve products alone, we lose millions of dollars of revenues 
annually due to this issue. Other Bendix product lines, such as 
air dryers, are also currently becoming prime targets for this 
activity.
    But the challenge is more than financial for us. Bendix's 
brand reputation is built on products that are highly 
engineered and validated through extensive testing to ensure 
quality and reliability to withstand the demanding operating 
conditions of commercial vehicle use. Customers rely on Bendix 
air brakes to stop commercial vehicles that can weigh up to 
80,000 pounds, and these vehicles transport all types of cargo, 
from commercial goods to hazardous materials, as well as buses 
and coaches that transport people.
    Bendix believes customer confusion is a major contributor 
to the proliferation of knock-off replacement parts. Many of 
these knock-offs look so similar to the genuine parts that they 
are often returned to Bendix as part of a warranty claim. Even 
Bendix personnel, at times, have trouble telling the difference 
until the parts are disassembled for examination.
    Through warranty claims and ongoing reports from the field, 
we are aware of multiple instances where end users have been 
confused or misled at the time of purchase. Customers are under 
the impression that they are purchasing genuine Bendix 
replacement parts. They are influenced by the look of the part 
as well as by use of Bendix part numbers and part names.
    I would like to give a recent example of where a knock-off 
component returned from the field demonstrated how a poorly 
built air brake valve could have potentially serious safety 
implications.
    An air brake technician reported the difficulty he 
experienced in getting a new relay valve to work following the 
purchase and installation on a new truck. After numerous 
adjustments and rechecking of the air lines, the technician 
removed the valve and discovered the problem. The valve's 
control port was not drilled all the way through. If this valve 
were to be used on a vehicle, the partially blocked port would 
have prevented proper air flow. This type of air flow blockage 
could cause as much as a 70-percent degradation in the 
vehicle's braking capability. Fortunately, a catastrophic brake 
failure was avoided by this technician's diligence. However, 
this scenario illustrates how the situation can pose 
potentially significant risks to highway safety.
    Bendix has instituted a three-pronged intellectual property 
protection and enforcement program which focuses on protection, 
enforcement, and education and awareness. Here are examples of 
the intellectual property protection and enforcement actions 
taken thus far:
    We are instituting a patent and trademark infringement 
action in the U.S. District Court against a company selling and 
distributing knock-off parts that infringe Bendix patents and 
trademarks.
    Trade show enforcement actions at major industry events 
where we have successfully worked with show sponsors to remove 
infringing products and product literature from the offending 
party's show booth.
    Sending numerous cease-and-desist letters to successfully 
stop infringing sales by companies in the United States and in 
Canada.
    While our efforts to enforce patent and trademarks against 
infringement have been successful, the problem of customer 
confusion with the proliferation of knock-offs still persists. 
Lookalike products sold with the same names and part numbers 
continue to exacerbate the situation for us.
    We have launched a multi-faceted customer and industry 
awareness campaign aimed at trucking fleets, our distributors 
and dealers, and end users.
    We have had continuing dialogues with senior management of 
our distributors to discuss the importance of IP compliance, 
and we continuously train our sales and customer service people 
about the issues.
    To date, Bendix has conducted this program entirely with 
its own resources. We spend over $1 million annually on 
intellectual property protection and enforcement activities in 
addition to the significant expenditure of internal management 
time and attention. Although Bendix has not yet had occasion to 
utilize many of the government's resources, we have sent 
representatives to anti-counterfeiting conferences sponsored by 
the National Intellectual Property Rights Coordination Center, 
and we have learned about many of the available government 
resources through this activity.
    Bendix recommends expanding and promoting these seminars, 
making them more widely accessible in the industry. We think 
distributors, dealers, and retailers would particularly benefit 
from this type of government-sponsored education and awareness 
program.
    The sophistication of counterfeit operations has improved 
to the point of making it difficult for customers to discern 
real from fake. But, in terms of performance, quality, and 
actual costs, there are obvious differences. And for Bendix, in 
particular, dealing with components and systems that affect 
braking ability of heavy vehicles, with their impact on highway 
safety, underscores the need to control this issue.
    But in many instances, existing intellectual property laws 
do not adequately address Bendix's current problem. The buying 
and selling of lookalike products is a problem propagated by 
the knock-off reseller's use of the same part numbers and the 
same product names as the genuine Bendix products. Often these 
part numbers are not eligible for trademark protection. Since 
these air brake products and components have safety-critical 
applications, Bendix recommends that new legislation should be 
enacted extending intellectual property protection to 
industrial designs of these types of safety-critical 
components. In fact, the entire automotive industry, and 
certainly other key U.S. manufacturing sectors, would benefit 
from this type of legislation. I have included in my written 
testimony a brief statement about this type of proposal.
    Bendix would like to thank the Members of the Subcommittee 
for the invitation to testify and for focusing much needed 
attention on this issue. We welcome the opportunity to answer 
questions that you may have. Thank you.
    Senator Voinovich. Thank you very much, Mr. LaPlaca.
    Mr. Yager, you have been watching things from the cat-bird 
seat. I remember your testimony in prior hearings on this 
issue. I am interested in hearing how you think things are 
going.

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

    Mr. Yager. Thank you, Mr. Chairman. It is good to be back 
in front of this Subcommittee again. Thank you for the 
opportunity to appear again before the Subcommittee to discuss 
our work on U.S. efforts to protect U.S. intellectual property 
rights. We appreciate the opportunity to contribute to the 
record that this Subcommittee has established on IP protection. 
As you stated in the Subcommittee's 2005 hearing, and repeated 
again today, counterfeit and pirated goods create health and 
safety hazards for consumers, damage companies that are victims 
of this theft, and pose a threat to the U.S. economy.
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    \1\ The prepared statement of Mr. Yager appears in the Appendix on 
page 81.
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    Since my last testimony before this Subcommittee, the 
United States has continued to develop and implement its 
Strategy for Targeting Organized Piracy (STOP!), which outlines 
the priority IP efforts of six agencies. To understand more 
fully how this strategy might contribute to better protection 
of IP, I will address three topics: First, the range and 
effectiveness of multi-agency efforts on IP protection that 
preceded STOP!; second, initial observations on the 
organization and efforts of STOP!; and, finally, some initial 
observations on the efforts of U.S. agencies to combat pirated 
goods at U.S. borders, which is one of the STOP! priority 
efforts.
    To address these issues, I have drawn on a number of 
completed GAO studies, and I also provide initial observations 
from ongoing projects, including one for this Subcommittee and 
one for the House Committee on Government Reform. Let me first 
talk about some of the prior multi-agency efforts to address 
IP.
    As you know, STOP! is not the first effort to coordinate 
agency activities, and as I mentioned last year, these prior 
coordination efforts have achieved very different levels of 
success. For example, the Special 301 process, led by USTR, was 
generally cited as an effort that has been quite effective in 
collecting input from multiple agencies and improving IP-
related laws in other nations. On the other hand, U.S. 
Government efforts to improve IP enforcement through NIPLECC 
were ineffective, having done little more than publish a number 
of annual reports compiling individual agency activities. STOP! 
was an effort to boost attention to IP enforcement. As most 
agency and industry observers indicated, the enforcement area 
is where the emphasis is now needed.
    In terms of my second issue, STOP! has energized U.S. 
efforts to protect and enforce IP. As earlier witnesses have 
stated, STOP! has focused attention on outreach to foreign 
governments and on helping small and medium-sized enterprises, 
among a range of other activities. Private sector members 
generally had positive views about STOP!. However, let me make 
two comments. First, the relationship between STOP! and 
NIPLECC, its predecessor, is not entirely clear and may create 
confusion among agency and private sector officials. In 
addition, as a Presidential initiative, STOP! does not have the 
same accountability requirements and permanence as a 
legislatively created structure, which makes it difficult to 
track the progress of its efforts.
    To the extent that the coordinator takes the best of the 
two structures using the energy and multi-agency input from 
STOP! to fulfill the reporting requirements of NIPLECC for a 
results-oriented strategy, this would be a very positive 
development.
    On my final point, continuing weaknesses in U.S. agencies' 
IP enforcement efforts at the U.S. borders illustrate the 
challenges STOP! faces in carrying out some of its objectives. 
The overall task of assessing whether particular imports are 
authentic has become more and more difficult as trade volume 
and counterfeit quality increase. As I mentioned in my written 
statement, a number of the new tools that CBP has developed to 
better target suspect shipments and deal with problem importers 
are works in progress whose future impact is uncertain.
    In response to your request, GAO will be reporting to this 
Subcommittee early next year on the level of resources and the 
tools to best utilize those resources at the U.S. border for 
the purpose of IP protection. I look forward to a dialogue with 
the Subcommittee on those topics.
    In conclusion, the challenges of IP piracy are enormous and 
will require the sustained and coordinated efforts of U.S. 
agencies, their foreign counterparts, and industry to be 
successful. We appreciate the Subcommittee's attention to this 
topic, as it appears that the hearing today has already led to 
some clarifications of the relationship between STOP! and 
NIPLECC. In addition, this Subcommittee has been a leader in 
developing and applying accountability measures to improve 
government performance, and we believe that the long-term 
success on this issue will be enhanced by this kind of 
oversight.
    Mr. Chairman, other Members of the Subcommittee, this 
concludes my prepared statement. I would be pleased to answer 
any questions that you may have.
    Senator Voinovich. Thank you, Mr. Yager.
    We have been joined by the Ranking Member of this 
Committee, Senator Akaka.
    Senator Akaka, I understand that you have a statement that 
you would like to put in the record, and we welcome it.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. Thank you very much, Mr. Chairman. I want to 
join you in welcoming the witnesses, and I want to commend our 
Chairman for his leadership in the area of enforcing 
intellectual property rights for American manufacturers and 
entrepreneurs. We have made technological advances due to the 
efforts and exceptional talents of individuals who are from our 
academic institutions, government, and private enterprise, and 
these advances have transformed the American economy and 
changed the way that our companies do business.
    Mr. Chairman, I am pleased that you have led on this and 
that you recognize the importance of this issue and are 
reviewing the status of the STOP! Initiative. I thank you for 
holding today's hearing, and I will submit my remarks for the 
record.
    [The prepared statement of Senator Akaka follows:]
                  PREPARED STATEMENT OF SENATOR AKAKA
    Thank you, Chairman Voinovich. I join you in welcoming our 
witnesses and commend you for your leadership in the area of enforcing 
intellectual property rights for American manufacturers and 
entrepreneurs.
    We live in an increasingly changing world. Technology provides 
improvements and conveniences for everyday life that were almost 
unimaginable only a few decades ago. These technological advances are 
the product of efforts by exceptionally talented individuals who are 
supported by academic institutions, government, and private enterprise. 
We are justifiably proud of the achievements of our brightest minds and 
most innovative companies.
    These technological advances have transformed the American economy 
and changed the way that our companies do business. Today's global 
economy is fostering new opportunities for U.S. businesses and 
opportunities to forge relationships around the world.
    Unfortunately, U.S. manufacturers and businesses daily face the 
threat of theft of their most innovative products and ideas. Although 
estimates vary widely, we know that counterfeiting costs our companies 
billions of dollars and deprives our workforce of hundreds of thousands 
of jobs.
    Counterfeit goods also threaten public health and safety by 
bringing unregulated and untested products into the U.S. marketplace. 
Consumers have no way of determining whether the goods that they are 
buying are legitimate or counterfeit.
    The STOP! Initiative is an important step forward because the 
program demonstrates an understanding that solving the problem of 
counterfeit goods cannot be accomplished solely through the efforts of 
the Federal Government and law enforcement agencies. Counterfeit goods 
are a global problem. Protecting manufacturers and consumers from 
counterfeiters must be accomplished through international efforts and 
through cooperation with our trading partners.
    I am pleased that Chairman Voinovich recognizes the importance of 
this issue and is reviewing the status of the STOP! Initiative. Thank 
you for holding today's hearing. I look forward to hearing from our 
witnesses about this important and timely subject.

    Senator Voinovich. Senator Coleman, thank you for being 
here today. Do you have a statement you would like to give.

              OPENING STATEMENT OF SENATOR COLEMAN

    Senator Coleman. Thank you, Mr. Chairman. Let me start by 
thanking you for holding this important hearing, and I thank 
our witnesses for their commitment to solving this. It is a big 
challenge we face. I represent a State that has high-tech 
companies. Medtronic for cardiac pacemakers and 3M are targets. 
It is a big issue there. It is also a big issue with small 
business that sometimes do not have the knowledge of how to 
deal with it. Many of the small businesses are now doing 
international trade, and so this is an extremely important 
area.
    I would like to have my full statement, Mr. Chairman, 
entered into the record, and I would just then appreciate the 
opportunity to ask some questions of the witnesses. So, again, 
thank you for your leadership on this issue.
    [The prepared statement of Senator Coleman follows:]
             PREPARED OPENING STATEMENT OF SENATOR COLEMAN
    I want to start by thanking Chairman Voinovich for holding this 
important hearing, and also by thanking our witnesses for their 
commitment to solving one of the biggest challenges we face in an era 
of increased global competition.
    There have been a lot of columns, reports, and studies published 
about the role of the United States in a changing global economy. Of 
all the recommendations I have read about how we can maintain our 
competitive edge, one that really struck me came from Minnesota native 
Tom Friedman in his book, The World is Flat. Friedman says that despite 
the many challenges we face, we will always be a global economic leader 
if we continue to be ``the world's dream machine.'' By fostering, 
nurturing, and most importantly--protecting--the creativity of our 
Nation's greatest minds, I believe we will continue to win the global 
competition for many generations to come.
    We are all at today's hearing because we know how important it is 
to protect our Nation's innovations, inventions, and ideas. According 
to the United States Trade Representative's office, theft of 
intellectual property costs American corporations a staggering $250 
billion per year. IPR violations also hurt working moms and dads. The 
U.S. Customs and Border Protection service estimates that over 750,000 
jobs have been lost due to counterfeiting intellectual property. We 
need to make numbers like these a thing of the past.
    This hearing is of particular interest to me because this is a 
critical issue to my home State of Minnesota where companies like 3M, 
Target, and General Mills can't afford to have their products pirated 
and their trademarks counterfeited. I look forward to hearing the 
testimony of our witnesses to learn more about where we have been, how 
far we have come, and where we need to go to better protect our 
intellectual property.

    Senator Voinovich. Mr. LaPlaca, have you looked at the 
legislation that is now pending here in Congress?
    Mr. LaPlaca. No, Senator, I have not.
    Senator Voinovich. Do you belong to a trade organization, 
the National Association of Manufacturers or----
    Mr. LaPlaca. We are members of Motor Equipment 
Manufacturers Association and members of their Government 
Affairs Council, so we get a lot of our useful information on 
these topics through MEMA.
    Senator Voinovich. Well, I would like to suggest to you 
that you ask those folks to look at the bill Senator Bayh and I 
have introduced. The purpose of this legislation is to 
formalize the kind of coordination that we are discussing here 
today. The STOP! Initiative is not in the law now, and it is 
being done at the request of the President. Senator Grassley 
has, I think, introduced a bill on dealing with China currency 
issues and I would really like for you and your association to 
review them and give me an appraisal of what you think of them. 
If you or your association think more is needed, I would like 
to hear from you.
    Mr. LaPlaca. Absolutely. Yes, sir.
    Senator Voinovich. You stated that your company spends $1 
million a year, plus a lot of management time, to address IP 
issues. Your people have been impressed with the hearings that 
have been held--not the Congressional hearings, but the IP 
Conferences the PTO sponsors. And you think that is a good 
idea.
    Mr. LaPlaca. I do, Senator. I think raising awareness--we 
are very pleased with the level of awareness over the past 
several years. And, we encourage that type of activity to 
continue, particularly with certain segments. I think certain 
segments of industry, at least from our vantage point, can be 
targeted and can benefit. Those that are in the resale channels 
through whose hands some of these products pass could benefit 
from this awareness.
    Senator Voinovich. Mr. Alikhan, as I said, I was impressed 
with your testimony. How many people, all together, have you 
added at the Justice Department in the areas of IP protection?
    Mr. Alikhan. Mr. Chairman, we have, as I mentioned, the 
three different groups, and that would be a total of 230 
prosecutors, plus or minus a few, who are dedicated to 
intellectual property and cyber crime prosecutions throughout 
the country.
    Senator Voinovich. How many have been added in the last 
couple of years?
    Mr. Alikhan. Well, we have added a series of 12 additional 
CHIP Units, and with that came additional funding for roughly 
two new prosecutors per unit.
    In addition to that, there may have been other CHIP 
coordinators designated, so I do not have an exact number on 
how many precisely have been added, but we have had a 
substantial number of prosecutors added since the October 2004 
report of the Intellectual Property Task Force was issued.
    Senator Voinovich. I would like to know, for the record, 
how many you have added, where you have added them, so I can 
get an idea of the human capital that you have got involved in 
this.
    Mr. Alikhan. Certainly.
    Senator Voinovich. Where do these cases come from?
    Mr. Alikhan. Most of the cases come from referrals from 
victims, if that is what you are referring to.
    Senator Voinovich. Yes.
    Mr. Alikhan. We rely on victims to refer those cases to 
Federal law enforcement agencies, and that is why industry 
outreach, as Mr. LaPlaca was indicating, is so critical in 
these areas. We have worked closely with various industry 
groups, including the Motor Equipment Manufacturers Association 
(MEMA), the Chamber of Commerce's Coalition Against 
Counterfeiting and Piracy, as well as other industry groups, to 
make sure we are getting those cases in a timely fashion.
    Senator Voinovich. How successful have you been?
    Mr. Alikhan. I think we have been fairly successful. We 
still have a long way to go, but I think if you were to talk to 
victim industry groups, they would say, not only the 
Department, but other agencies in the STOP! Initiative have 
gotten the word out that we are interested in pursuing these 
cases, and it is certainly a priority. I know the Attorney 
General has made this a personal priority to pursue 
intellectual property cases and has publicly said so.
    Senator Voinovich. Is the message getting out to the people 
that are involved in this, the criminals? Do we have any 
deterrence yet because of what you are doing?
    Mr. Alikhan. Well, it is certainly hard to measure what the 
deterrent effect is, but certainly one of the priorities of the 
Department is to prosecute those cases that have the maximum 
deterrent effect, going after large-scale distributors, 
manufacturers of counterfeit goods, large-scale software 
pirates, those who are producing counterfeit pharmaceuticals. 
So we are hoping that through those very public prosecutions 
that we are establishing some deterrent effect.
    Senator Voinovich. Mr. Pinkos or Mr. Israel, one of my 
concerns, and how I became involved with this subject matter in 
the first place, is when we had the first hearing and I was 
told by representatives from the departments that they had this 
great system in place. So, I called the number and no one 
seemed to know what I was talking about. I know that has 
improved, but how closely do you work with the Justice 
Department? I am somebody, I call, I feel that my company has 
been victimized by IP theft. Do you take that call and look at 
it and then try to evaluate it so that you could then refer it 
to the Justice Department? How does that work?
    Mr. Pinkos. That is exactly what we do. One of our attorney 
advisers--an administrative person will take the call, 
determine the nature of the call, refer it to an appropriate 
attorney adviser in our office, and they specialize in patents, 
trademarks, or copyright. And they will often determine that it 
is a law enforcement issue, and what they have is a list of all 
the IP enforcement offices going down to all of the different 
U.S. Attorney's Offices, Customs offices, and FBI offices in 
the particular city. So, they have the list of contacts right 
at their fingertips to make the precise referral if it involves 
a law enforcement matter.
    Senator Voinovich. Well, a few years ago, I called to test 
the systems in place, I was told to call the local Customs 
office. I entered the maze. Mr. Alikhan, have you ever talked 
to the folks that are prosecuting? Do they seem to feel that 
the system has been streamlined in terms of getting referals? 
Or are they complaining about it is still pretty cumbersome?
    Mr. Alikhan. I can tell you as a former prosecutor in Los 
Angeles who did intellectual property cases that we have been 
streamlining the process to refer cases, and the best way for 
us to do that is actually sending prosecutors out into these 
industry groups and telling them how to refer cases and whom to 
refer them to. We encourage them to refer, sometimes directly, 
to the U.S. Attorney's Office and the CHIP Coordinators because 
they may know which agency is best suited to pursue the case.
    In addition, in our progress report and the original 
report, in the back of it, we have a series of checklists for 
victims to know how to report a case to Federal law enforcement 
for prosecution.
    Senator Voinovich. Mr. Israel, are you tracking the real 
bad guys out there? By that, I mean there are some companies or 
importers that are notorious for producing knockoffs and 
counterfeits. Have you got the sophistication yet to identify 
who they are and any kind of communication to the Customs and 
Border Patrol that they have got to keep them out of here or 
you ought to look for them or any of that? Have you got the 
STOP! Initiative to that stage yet?
    Mr. Israel. It does exist. It does exist at a fairly 
sophisticated level, Mr. Chairman, and actually, Customs is one 
of the generators of a good deal of that information. One of 
the things Customs has really been trying to do over the last 
several years is really improve and strengthen their use of 
intelligence. They do post-entry audits. For example, if they 
do seize counterfeit goods, they essentially reverse engineer 
the supply chain that brought those goods to the United States 
to try to determine where it came from, what organization or 
entity might be behind the transmission of those goods to the 
United States, and try to develop fact patterns and trend 
analysis and really deploy that to their agents in the field in 
a very coordinated fashion to try to get as much ahead of this 
problem as they can.
    It is a deluge at our borders, and what they are trying to 
do is use good information, use intelligence, assemble 
information the best they can, coordinate with the Department 
of Justice, FBI, other agencies as well, to utilize that 
information and pass that. It is certainly information that, 
through the STOP! Initiative and through our coordination 
efforts, is shared with other agencies. It is also shared with 
industry. I know particularly in the instance of the auto 
industry, there are trade specialists in the Strategic Trade 
Center in Los Angeles, who are focused specifically on the 
transportation industry, and they share detailed information 
about what they are seizing and where it is coming from with 
industry representatives to try to combine that with 
information that industry itself has.
    As others have noted, the information that industry 
captures and has, and knows is as valuable as anything the 
government is aware of, and we need to couple that information 
to the best of our ability.
    Senator Voinovich. Senator Coleman.
    Senator Coleman. Thank you, Mr. Chairman. I am going to 
start with the international and kind of move it, focus it from 
there.
    I will be in China in 2 weeks. I think in 2005 U.S. Customs 
reported China was the No. 1 source of counterfeit products 
seized at our borders. Whoever can respond, how do you assess 
the level of cooperation today with the Chinese in dealing with 
this issue?
    Mr. Israel. I will take a first reaction to that, Senator, 
and that is, certainly China, it needs no explanation from me 
for everyone to understand, is the primary focus of our 
international IP enforcement efforts. It is obvious for all the 
reasons you stated.
    I think within the last few years we have seen a good level 
of cooperation from Chinese leadership. I think this is an 
issue that they understand they need to address, not just 
because the United States is raising it at a very high level 
with them and exploring the utilization of trade tools, such as 
a WTO dispute resolution case, as a possible step to take to 
address some of these concerns. They are increasingly seeing it 
as a threat to their own economic growth and stability over the 
long term.
    Having said that--and this is something we certainly share 
with the Chinese--it is our view that the implementation and 
taking action on that cooperation is still a huge challenge in 
China. Commitment from leaders in Beijing is certainly a 
positive step forward. Putting that in action in the field and 
actually turning that into strong enforcement across the entire 
country of China, in areas like Guangzhou in southern China, 
which is the heart of so many problems that we see, 
particularly in the manufacturing area, is--there is a long way 
to go, quite frankly, and it is an area that we are now focused 
very significantly upon.
    So, I think the level of cooperation from Chinese leaders 
is positive, and it has been helpful over the last few years. I 
think the implementation and acting upon that commitment is 
where we need to go in the future and the next step we need to 
take.
    Senator Coleman. Let me just try others, Brazil and India. 
Anyone else want to respond? Are there similar problems? And, 
by the way, if anyone else--you are all impacted. I would be 
interested in other perspectives, whether you agree or disagree 
with----
    Mr. Israel. I will try to do it very quickly and then share 
some time with my counterparts. I had the chance to be in India 
about 2 or 3 months ago, Senator, to address IP enforcement 
issues with the Indian Government. We are in a place now where 
I think we see tremendous opportunity to work with India in a 
constructive way. I think the economic relationship and the 
trade relationship between the United States and India is in a 
positive place now. Some things were launched as a result of 
the President's trip to India several months ago.
    On the issue of IP enforcement, again, the Indian 
Government is committed to trying to take some steps to improve 
enforcement. It is somewhat similar to China in that you see 
huge enforcement challenges across a very vast and complicated 
country. The individual states within India essentially run 
their own enforcement apparatus, so it is very hard to 
implement something nationwide in India.
    We are doing some positive things with India. The 
Department of Justice hosted a 2-week session for Indian law 
enforcement officials in California earlier this summer. The 
State Department ran a four-city program in India to discuss 
this issue with industry leaders and representatives.
    So I think we have a finite set of challenges and issues we 
need to address with India, but I think we are in a very 
constructive and positive place to address those with the 
Indian Government.
    Senator Coleman. Mr. Pinkos.
    Mr. Pinkos. Yes, if I could comment on Brazil, I recently 
accompanied Secretary Gutierrez on a trip there in early June. 
On the overall IP environment, I would say that it is 
improving. But we have been to countries like Brazil, and there 
is a long way to go. But they do have a national strategy to 
address IP theft, and according to industry statistics, the 
amount of counterfeit--or the amount of piracy of copyrighted 
works is decreasing. There are deeper problems with patented 
products, particularly pharmaceutical products there. One of 
the steps we are taking to help address that is part of the 
Secretary's trip. We established a commercial dialogue, and one 
aspect of that is increased technical cooperation between the 
U.S. PTO and NP, which is their patent office. We are beginning 
that next month to try to help bring them up to speed, so to 
speak, because there are thousands of U.S. applicants that are 
waiting in line right there to get that protection. Of course, 
then the next step is to actually make it meaningful protection 
within the country, but you have to start somewhere.
    Senator Coleman. I was going to ask you, Mr. LaPlaca--I am 
not sure I have enough time because I have so many questions I 
want to ask--whether the private side agrees with the public 
side in terms of progress being made in China, or the situation 
in India.
    Mr. LaPlaca. I think raising awareness is key. From our 
perspective at least, from our industry, we go to trade shows 
now, and we are starting to see vendors from China who years 
ago would come in here and blatantly sell counterfeit products, 
are now backing off. And somehow they are getting the message, 
whether it is through the efforts of these organizations or 
just from enforcement within the industry, I am not sure. But 
we start to see some recognition that there are IP laws in the 
states that they need to be aware of.
    Senator Coleman. Mr. Yager.
    Mr. Yager. If I could just add one thing, Senator Coleman. 
During the work we did on IP earlier, we visited China, Brazil, 
Russia, and Ukraine. And one of the things that we observed 
when we were doing that work is that when the United States is 
able to join with like-minded individuals in those countries, 
it is likely to be much more successful. So when those 
countries have their own IP to protect and you work with the 
folks that have a stake in it, then success is more likely to 
be achieved. I think Brazil is a good example of that. In some 
cases, they have quite a bit of intellectual property, whether 
it is in music or other things, and in those cases I think the 
United States has generally found like-minded groups that they 
can ally with and get some success.
    In other areas, for example, in pharmaceuticals, those 
kinds of conditions may not exist, but I think that is a 
strategy that seems to have some real future to it. The 
difficulty is that in some countries, frankly, those kinds of 
groups are quite small, if you are talking about countries like 
Paraguay that really just exist on the illegal stuff and do not 
have much of their own in terms of property that they need to 
protect. But I think that is a strategy that generally can be 
effective.
    I noted on the stopfakes website, they do list a lot of 
those other groups within other countries, like Brazil and 
others, that have an interest in protecting their own 
intellectual property.
    Senator Coleman. I take it we are going to do another 
round, Mr. Chairman?
    Senator Voinovich. We are.
    Senator Coleman. Good. Thank you.
    Senator Voinovich. I would like to follow up on Senator 
Coleman. I know when I met with Premier Wen a year ago this 
last May, I raised the issue of currency fixing and also 
intellectual property rights. He seemed to understand the 
problem, but as one of the witnesses pointed out, so often it 
is the localities that are involved, and it is just a way of 
life for some of them. My goal is to convince other nations 
such as China that it is in the best interest of Chinese 
businesspeople to protect intellectual property rights.
    I just wonder how much work is the Department doing in 
terms of American Chambord??? Commercies??? abroad AmChams that 
we have got around the country--around the world. I know when I 
have visited other countries on trade missions, we spent time 
not only with the embassy folks but, more importantly, with 
AmCham groups and other groups in those countries that were 
basically business organizations. Is there any targeting of 
those groups to try and get them engage in this effort?
    Mr. Israel. I think, Senator, there is a tremendous amount 
of interaction that happens between U.S. officials when they 
travel overseas and AmChams and, importantly, just day-to-day 
interaction between our embassy teams, our Foreign Commercial 
Service teams, and AmChams and other industry groups around the 
world.
    For instance, in China, where PTO has had an IP attache 
posted for the last 2 or 3 years, there is a significant amount 
of interaction between the IP enforcement team in China and the 
U.S. Federal Government and the AmCham over there. The Quality 
Brands Protection Council, which is a number of trademark 
owners who have come together to form----
    Senator Voinovich. Who is the spokesman? One of the 
problems that we identified at former hearings is that we have 
got all these various agencies. Who is the spokesman in this 
area for us? Is it Gutierrez or who is it that really drives 
this home? Is it the Secretary of State? Who is it that 
concentrates on this and speaks and says, ``I represent all 
these agencies''?
    Mr. Israel. With a bit of humility in mind, Senator, I 
think that is a bit of the job that our office was asked to do, 
was to represent these agencies. Admittedly, that is at a much 
lower level, and that does not resonate nearly as much as when 
Cabinet officials and, indeed, the President, offer their views 
on this.
    One thing we have tried to do over the past several years, 
the past couple years, in particular through the STOP! 
Initiative, is to make sure we are taking advantage of every 
opportunity we can that there is coordination within the 
government.
    Senator Voinovich. Is the President briefed on IP issues 
and activities? For instance, when he went to the G-8 meeting, 
is he briefed on IP issues so that he can raise this issue with 
his colleagues at that level?
    Mr. Israel. Yes, sir, I know that was part of his briefing 
package. There was a G-8 leaders' statement on IP that came out 
of the recent meeting in St. Petersburg. The National Security 
Council in the White House, the economic trade team within the 
NSC, has really taken a leadership role on this. So it is part 
of the package that is prepared for the President as he travels 
internationally and addresses economic and trade issues with 
his counterparts.
    Senator Voinovich. One of the other questions that came up 
that was a concern--and I would like Mr. Yager to comment on 
this--was that USTR had about 200 people and they continue to 
maintain that same number of people. I would like to know where 
are they in terms of that staffing? And then what they were 
doing is they were reaching out into other agencies in terms of 
trying to get an expert here and an expert there. I think the 
observation of GAO was that this thing is large enough that 
some effort should be made to locate some of that expertise in-
house because they have got enough work to do to justify that.
    Mr. Yager. That is right, Mr. Chairman. In our most recent 
report about USTR and the human capital challenges they face, 
we made two recommendations. One was to work more closely with 
the agencies that it relies on. Notwithstanding, the fact that 
they might bring more attorneys in, which I think USTR has done 
fairly consistently over the last couple years, some of which 
focus on particular problems like IP; but in addition to that, 
we felt it was important that they do a better job of trying to 
coordinate their efforts in a more systematic way with the 
agencies that they work with and the agencies that they rely on 
to help them, whether it is in negotiating new agreements with 
IP provisions or whether it is working with countries like 
China that need a great deal of assistance and an awful lot of 
encouragement to improve their IP laws.
    Oour recommendations were aimed not only internally at the 
way they provided centers for their own personnel, but also the 
way that they communicate with those other agencies about the 
need for those folks to accompany them or to assist them in 
achieving the goals like protecting IP.
    Senator Voinovich. Mr. Israel, are you aware that the 
Senate Appropriations Committee recommended no funding for 
NIPLECC in fiscal year 2007?
    Mr. Israel. Yes, sir, I am.
    Senator Voinovich. The reason the Appropriations Committee 
cited for eliminating the funding is the lack of any tangible 
action in prior years, including a failure to release an annual 
report this year. I recognize that you have not been in your 
job very long--I think it was just a year ago?
    Mr. Israel. July, sir.
    Senator Voinovich. What tangible actions have you 
undertaken since that time? And when do you expect to issue a 
2006 report? What are you going to do about the committee's 
recommendations to eliminate NIPLECC funding? Because I 
understand that you work under, and get your funding through 
NIPLECC, and if NIPLECC is flat-funded or zeroed out, what 
happens?
    Mr. Israel. A difficult situation, Senator. First, to 
address the topic of the report, as you point out, our office 
came online July almost exactly a year. We are this year--and 
one reason that the report has not been sent to Congress yet is 
that we are in the process of finalizing the report. It should 
go into interagency clearance within the next few days. It 
should be delivered to Congress and to the President upon your 
return in September.
    We are, quite frankly, putting much more effort and 
emergency and emphasis into this report this year. We are going 
to send you a new and improved report. It is going to have 
better analysis of the actual coordination that exists between 
agencies.
    Senator Voinovich. This will be under the auspices of 
NIPLECC?
    Mr. Israel. Correct, sir. Yes, sir. That will be the 
report. It will, in addition, cover both 2005 and to the point 
we are at in 2006. It will be more expansive than previous 
reports.
    It has been our goal to put more effort and more energy 
into this report to give Congress and the President a better 
assessment and analysis of the actual coordination that exists 
to address questions such as the relationship between STOP! and 
NIPLECC, to work with agencies to address some of the 
priorities that we are setting going forward, to have a 
looking-forward section to it as well. So it will be a much 
more value-added----
    Senator Voinovich. What are you going to do to try to 
restore funding? How much money is NIPLECC getting and how much 
is going to be cut out?
    Mr. Israel. Well, under the current situation, the Office 
of Coordination at NIPLECC was funded with $2 million in the 
fiscal year 2004 Omnibus Appropriations Act running through 
September of the end of this fiscal year. So it has $2 million 
to run from 2004 to 2006. The President's request for fiscal 
year 2007 was $1 million, so we would continue, obviously, to 
urge Congress to look favorably upon the President's request.
    I think it would impact the ability of our interagency 
process to move forward with a number of the priorities that we 
have set through the STOP! Initiative. I think also the removal 
of this function, the elimination of the coordination function 
at a senior level within the Administration, would also send an 
unfortunate signal to U.S. industry and to our international 
trading partners that we are downgrading, to some extent, the 
focus that we are paying to this issue. Our position is to 
continue to provide any and all information to members in terms 
of their decisionmaking process on how to allocate resources to 
the IP coordination function of the Federal Government in 
fiscal year 2007.
    Senator Voinovich. If you can get that information to us so 
that we are on top of it, we will see if we cannot help get the 
money that is necessary. I hope that somebody over in Commerce 
is working to resolve those issues.
    Mr. Israel. We will provide you any information that would 
be helpful, Mr. Chairman.
    Senator Voinovich. Senator Coleman.
    Senator Coleman. Thank you, Mr. Chairman. I share your 
concerns you raised regarding NIPLECC, and I do hope that we 
get some information on that.
    Let me throw out a question about terrorist funding from 
counterfeit, pirated materials. Does anybody have any 
information as to whether that is a problem, what we know about 
the problem, and what we are doing about it if there is a 
problem?
    Mr. Alikhan. Senator Coleman, I will take that question. We 
have seen at least one case in which there was a tie to 
terrorist financing. This was a case in Detroit that was 
charged in March 2006 where 19 individuals allegedly operated a 
racketeering enterprise that supported Hezbollah by selling 
counterfeit Viagra and also contraband and counterfeit 
cigarettes.
    That, of course, is of concern to the Department of 
Justice. Of course, the Department's No. 1 priority is the 
prevention of terrorism and concern of prosecuting terrorist 
activity. But aside from that one case, we have not seen, 
necessarily, a definitive link, but certainly there is the 
potential for the use by terrorists of financing through 
intellectual property because of the lucrative nature. And we 
are remaining vigilant and making sure that message is going 
out to the law enforcement agencies to look out for that so we 
can prosecute it aggressively.
    Senator Coleman. What about on the international level? 
Brief mention was made of Paraguay, the tri-border area; there 
has been concern that you have funding there that could be used 
to support Hezbollah, concern that Hezbollah was involved in 
the attack on Israeli--Jewish interests in Argentina that 
resulted in death a number of years back. I am not sure how 
much of this has been confirmed, but how do we keep track of 
the international side, particularly in light of concerns about 
Hezbollah activating sleeper cells and other potential dangers 
that we face as a result of what is going on today in the 
Middle East?
    Mr. Alikhan. Well, we certainly can keep track of any 
criminal prosecutions that are resulting for that. With respect 
to whether, in fact, there is funding for terrorism, I think I 
would have to defer that to the intelligence agencies and what 
they are learning from that.
    Mr. Yager. If I could, briefly. We did a report just a 
couple years ago where we looked at a number of the different 
ways that terrorists might raise funds, and certainly 
counterfeiting and selling counterfeit goods was on the list 
because of, again, as others have mentioned, the very lucrative 
nature of it, the fact that it is either illegal or at least on 
the borders of legality. And I think that is also why it is 
quite important to have the allies like Brazil and Argentina, 
because in some places like Paraguay, frankly, the central 
government does not have the capacity, nor does it necessarily 
have the incentive, to try to drive out that kind of an 
element, because, in fact, some of the areas, particularly the 
tri-border area, thrives on this kind of illegal activity.
    So, clearly, there are potential links there, and I think 
as Mr. Alikhan mentioned, the intelligence agencies are very 
aware of this as well. But it is a fairly significant problem. 
In fact, it is almost the only reason that some of these cities 
like the tri-border area exist.
    Senator Coleman. It would seem to me that common sense 
would dictate that this is a great potential problem. Again, I 
do not have the detail, but the amount of money involved is 
massive. The ability to track it is difficult. And it is just 
kind of ripe for something that is problematic.
    Just one more question in that regard. In terms of state-
sponsored activity, we talked about China and Brazil, and 
obviously we are working with those countries and trying to 
deal with this. And some will question whether we are doing 
enough. What about renegade states like North Korea and Iran? 
Is there any indication of state-sponsored counterfeiting 
activities and whether it is having any impact here?
    Mr. Israel. Well, I know, Senator--and this, again, I think 
falls to some extent within the realm of our intelligence 
agencies and our security agencies. I do know of instances in 
Korea there have been concerns, counterfeit cigarettes, 
counterfeit products--North Korea--which is funding some of the 
activities of that government and keeping it afloat to some 
extent. And I know the Treasury Department in particular has a 
specialized unit that is focused on issues such as that. And 
counterfeit currency is also an issue that our Treasury 
Department is focused on with regard to North Korea.
    I would be happy to consult with them and provide 
additional information.
    Senator Coleman. I would appreciate that.
    Let me go from the global to the local STOP! program. I 
think, Mr. Yager, in your testimony you expressed concerns 
about the lack of permanency in the program. Could you 
elaborate on that a little bit and perhaps give us some 
direction as to what we can do to provide some greater long-
term stability and continuity in dealing with these issues?
    Mr. Yager. Yes, we did talk about the permanence. In my 
oral statement I also talked about the fact that STOP! really 
has created some energy while NIPLECC has the permanence and 
accountability requirements that allow you to look and see what 
has been done from one year to the next. Obviously, I think 
everyone here knows that the IP problem will not be solved 
within this Administration's timetable, so it has to be a 
mechanism that continues to have the kind of attention, as well 
as the resources, that are necessary not just through this 
Administration but as we go forward.
    And as I mentioned, to the extent that there is this 
linkage between a permanent mechanism made up by NIPLECC and 
the energy that was created with STOP!, that would be a 
positive development. But, we also think that the reporting on 
that needs to have some of the characteristics that allow 
Members of Congress, as well as others, to understand what is 
being done, the kind of accountability requirements in terms of 
results, leadership, some very specifically defined roles and 
responsibilities for the different agencies, and how those 
roles reflect the other agencies' internal goals.
    And so I think that those are the kinds of things that we 
look for in a strategy, and we will be, in fact, reviewing the 
strategy to see if it has those kinds of characteristics that 
will allow you to look from one year to the next and really 
track the kinds of successes, as well as the challenges, that 
this organization will face.
    Senator Coleman. Thank you, Mr. Yager. Thank you, Mr. 
Chairman.
    Senator Voinovich. Have you reviewed the legislation that 
Senator Bayh and I have introduced?
    Mr. Yager. Yes, Mr. Chairman, we have. I think that there 
are a couple of things. Obviously, some of the more common 
features that we typically look for when you are talking about 
a group like this, which is designed to bring together so many 
different agencies--and I mentioned a couple of them before, 
but clear goals and objectives as well as performance measures, 
some discussion of the risks and the threats associated with 
it. The cost and resources are obviously something that you 
have always been interested in, particularly the human capital 
resources, the delineation of roles and responsibilities, and, 
in particular with this group, the relationship of this new 
organization to the existing organization of NIPLECC, as well 
as where will that leadership be.
    We know in your legislation you have designated OMB as 
chairing this particular group, and one of the things that we 
have observed is that, obviously, it is important to have 
someone who is clearly in charge of this effort, and that 
person has to have the respect and certainly the participation 
of the different agencies. And so, we have seen different ways 
that this has happened, and, frankly, it depends upon the level 
of energy and the amount of assistance that the interagency 
mechanism provides.
    I do not think it is as important as to where it is, as 
long as there is a dynamic group and someone who leads that 
group and can get the agencies to participate.
    Senator Voinovich. One of the things I am worried about is 
that we have this energy or IP efforts, but as it is an 
Executive initiative, and it is extinguished after we get a new 
President in place. I am trying to figure out how do we 
institutionalize the current efforts in a way that does not 
burden the next Administration. But NIPLECC has been around for 
how long?
    Mr. Israel. Since 1999.
    Senator Voinovich. I would like to work with you folks on 
trying to figure out what the relationship is and how we can 
expand and improve it.
    Now, Mr. Pinkos, is your budget part of NIPLECC's budget, 
or do you get your money from some other source?
    Mr. Pinkos. We get our money from patent and trademark 
applicants. We get no money from the general treasury, so a 
certain amount of money is used on our public policy and our 
training and enforcement efforts.
    Senator Voinovich. The Patent Office, you are on their 
payroll?
    Mr. Pinkos. That is correct.
    Senator Voinovich. So it is separate? And you get your 
money from Commerce under NIPLECC, right?
    Mr. Israel. Correct.
    Senator Voinovich. OK. Can you give me for the record the 
number of people that you brought on as a result of this? I 
would like, for example, in terms of the--how many lawyers do 
you have? I would really like to know the results of the 
telephone calls that come in to the PTO and what happens with 
them. Because that gives us an idea about the level of 
activity, and does anybody track results? Is there any follow-
up as to whether anything has taken place or not?
    Mr. Pinkos. We are focused very much on results, and we can 
provide a lot of those numbers to you for the record.
    Senator Voinovich. Do you collect data from these calls in 
terms of the specific issues? Have you developed any plans to 
collect, analyze, and disseminate this data to other agencies 
or the private sector?
    Mr. Pinkos. We collect data about the nature of the 
problem, where people are calling from, what advice we 
provided. Initially our determination was for privacy reasons, 
we were not keeping the person's contact information because 
certainly some people did not want to provide that. And then, 
also, there are FOIA issues.
    We are re-examining that part of the issue. We are 
instructing our folks to make sure that they have the contact 
to call us back if they have follow-up questions or if they are 
having a problem with another agency and they were not able to 
get through. So we do that, but we are not following back up 
with them currently to see what came to pass with their 
particular issue.
    Senator Voinovich. OK. And you will be able to give me that 
information about the staffing, the human capital part of it?
    Mr. Pinkos. Absolutely. Some of it off the top of my head 
is we have spent $25 million this year--we will have spent in 
2006, and that includes sending attaches overseas to seven 
different countries to focus on IP issues. And we have 
increased our staffing--significantly, and I will get you those 
numbers as well.
    Senator Voinovich. And the Foreign Commercial Service 
(FCS), you have got a special program for them----
    Mr. Pinkos. That is right.
    Senator Voinovich [continuing]. To upgrade their 
information so they are better prepared to handle these issues?
    Mr. Pinkos. Well, the Foreign Commercial Service, if I 
could speak a little bit for them: One, we are partnering with 
the Foreign Commercial Service and State Department on the 
attache program, sending these IPR experts to the hot spots 
around the globe. They have a particular--well, it is actually 
part of ITA, but not part of the Commercial Service, a case 
referral system that I think you have heard about with China, 
when someone alleges a systematic problem there. And I know 
that is sophisticated, monitored, etc., but I cannot speak much 
more about Mr. Israel has had some exposure to FCS, maybe, but 
I don't know precisely how all their systems work.
    Mr. Israel. Just a couple of things, Senator. Definitely, 
FCS has over the past 2 years--and we can provide some 
information to you about the type of material that is being 
provided to Foreign Commercial Service officers overseas to 
allow them to be more understanding of IP issues, to be better 
responders to companies that are coming to them in the 
countries they are posted in and help them out.
    Senator Voinovich. A lot of those guys show up at those 
AmCham meetings, too. They are very active.
    Mr. Israel. Very active. It is an amazingly effective tool 
that we have internationally. Our Foreign Commercial Service is 
also working internationally on trade show initiatives and to 
make sure that if they are engaged in a trade show, as Foreign 
Commercial Service often is internationally, that there is a 
strong program in place and a strong policy in place by those 
trade show organizers. So the U.S. Government will never be 
involved in a foreign trade show that does not have a strong 
intellectual property enforcement program and policy in place.
    Senator Voinovich. Have you been able to observe the 
Customs and Border Patrol? And do you feel the Department of 
Homeland Security has enough resources, including staffing and 
funding, to effectively and efficiently combat IP issues at the 
border?
    Mr. Israel. I have had several opportunities to work, and 
work very closely, with Customs and Border Protection officials 
over the past year. We have also expanded our interagency 
coordination efforts to include Immigration and Customs 
Enforcement (ICE), to bring them into the STOP! program, and 
also to allow them to participate in NIPLECC.
    I would defer any questions regarding their resources and 
funding levels to DHS officials, but as I said, I do get the 
sense--and I know this is the reality--that this is a trade 
priority for them. IP enforcement is a strategic trade priority 
for the Department of Homeland Security. They have a Strategic 
Trade Center based in Los Angeles, with IP specialists who are 
focused on providing information to agents throughout the 
Customs infrastructure. Their seizure numbers have gone up 
significantly over the past 3 or 4 years. They are reaching out 
very aggressively to industry. They have put tools in place, 
such as a recordation system, an online recordation system that 
allows companies to record their trademarks with Customs to 
provide information to Customs in an online database that is 
then used by their agents at the border to give them 
information, for instance, about how you discern differences 
and how you pick up a counterfeit good when it comes in. An 
agent is faced with a shipment at 3 o'clock in the morning, and 
they have to make a very quick decision about whether or not 
they feel it is counterfeit or not. Customs is putting a big 
priority on working with industry to generate that type of 
expertise and information through intelligence gathering, and 
through tools such as their recordation system.
    So, I think there is a tremendous amount of effort and 
emphasis that Customs has put into this problem. They realize 
it is a very huge trade issue they need to deal with.
    Senator Voinovich. So your assumption is that they probably 
are putting a lot more resources into IP enforcement than they 
did before?
    Mr. Israel. I would want to verify that. I would not want 
to assume that, Mr. Chairman.
    Senator Voinovich. Well, we have jurisdiction over them, so 
we will get it.
    Mr. Israel. OK.
    Senator Voinovich. Mr. Yager.
    Mr. Yager. Yes, Mr. Chairman, if I could just make a point. 
In our written testimony on page 15, we talk about some initial 
observations from the work that we currently are performing for 
this Subcommittee, and our initial findings are that the 
resources to address this kind of issue have been dropping, and 
fairly significantly. We have not been to all the ports, and we 
have not completed our survey. We have been in some very 
important points like Los Angeles, Long Beach, San Francisco, 
Philadelphia, and others, and our initial findings are that the 
number of people who are available to do this kind of work is 
decreasing.
    And I certainly agree with Mr. Israel, the challenges 
associated with this, because of the volume, the sophistication 
of the products, make that job very difficult. We are going to 
be reporting soon on the level of resources that we are able to 
find more systematically across the country. But, at least in 
Long Beach and Los Angeles, for example, we found that the 
number of CBP officers--those are the front-line officers that 
are opening the boxes, looking inside, trying to determine 
whether the goods are accurately described in the manifest, as 
well as the entry document, we found they dropped by about 43 
percent. And in addition to that, the import specialists, those 
are the folks that the Customs and Border Patrol officers call 
up and they say, ``I have got some auto parts here. I frankly 
cannot tell whether this is a legitimate part or not. Can you 
help me out? Can you come look at it? Can I put a hold on this 
long enough to determine whether it is legitimate or not?'' 
Those folks have also dropped in some of those key ports. So I 
think that there are reasons to be concerned about the level of 
resources.
    Also, just one quick mention. CBP is putting out this risk 
model. They are trying to develop a risk model to help them 
select the highest-risk shipments so that they can focus their 
resources on the ones that are the highest risk. But that is 
still a work in progress. It has not been implemented fully. 
They are going to run another trial during the summer, but that 
particular model is not operational at this point, and it is 
obviously a very important way to try to target their efforts 
on the highest-risk shipments. And we would certainly support 
that kind of a risk-based model, but, frankly, it is not 
working yet. And they need to get that working in order to make 
maximum use of the personnel that they have.
    Senator Voinovich. OK. In GAO's area of oversight, have you 
looked at Mr. Israel's efforts to coordinate U.S. IP 
enforcement efforts?
    Mr. Yager. Well, the work that we are doing for this 
Subcommittee really is what is happening at the border. So it 
would address exactly the kind of question that you just put on 
the table, which is, What is the status of the efforts at the 
U.S. border, particularly with CBP? And so that is the focus of 
the project that we are doing for this Subcommittee.
    We are also doing some work for the House Government Reform 
Committee, which is looking at the national strategy and seeing 
whether the kinds of things that you can use for effective 
oversight are present in the strategy that will be put 
forward--as we hear now from Mr. Israel, is going to be put 
forward in the next month or so. So we really have efforts 
along both of those different avenues.
    Senator Voinovich. Maybe we ought to get a letter. What I 
would like to do, would be to look at what Mr. Israel is doing, 
what Mr. Pinkos is doing what the Justice Department is doing, 
and the other agencies, to better understand whether or not we 
have the resources employed to get the job done.
    One of the things that really bothers me--and it should 
bother, I think, the people of our country--is that the non-
defense discretionary budget is being squeezed. And the 
President does not get credit for this, but, I mean, if you 
look at those budgets, many of the department budgets are less 
this year than they were last year. And at the same time, we 
are asking them to do more.
    I think that we really need to better understand what 
resources do you need to get the job done. Just like Mr. 
LaPlaca, you say you have X number of people, they are all 
busy, and you say, here are two other things for them to do. 
And they say, well, what am I doing now that I am going to stop 
doing so I can do this new task.
    It seems to me that this is a significant enough--I mean, I 
really believe--and I think that--again, I am not as eloquent 
as Senator Coburn, but the fact of the matter is that 
intellectual capital is the last competitive advantage that we, 
as a Nation, have. If people can steal our intellectual 
property, we are dead. We are not a cheap labor nation and 
other costs, such as energy and healthcare, remains high, but 
the new ideas that come up will keep us ahead. If our 
competitons can take that advantage away from us, then we are 
really in bad, bad shape.
    Mr. Israel, you are in Commerce. That is your shop, right?
    Mr. Israel. I am based on Commerce Department, yes.
    Senator Voinovich. I am going to ask Secretary Gutierrez, 
to allow you to sit down and look at what would be the ideal 
operation to make this thing work effectively. OK? In other 
words, you are starting to get a feel of how all these 
processes and agencies come together, and it is all over the 
lot. I am not asking that it all come under one head agency, 
but it needs coordination. I want to know, what are your 
thoughts on how to best coordinate the Nation's efforts? What 
are the resources that we would need in these various agencies 
and departments to really get this job done? Because I think 
that if we can--and sometimes those of us in Congress--that is 
my big complaint--that the Congress, we are always coming up 
with how you guys ought to do things, and from my experience as 
a governor and mayor, usually the best way to find out how to 
get something done is to go to the people who really are doing 
it.
    But, I have this legislation--we think it is good, but I 
don't know how it would effect your daily efforts. I would 
really like to have you look at it and say, from your 
perspective, this is the ideal way this thing can be organized. 
It may require us to do away with some existing efforts and do 
something else new and innovative. But I think that it would be 
a great gift to your country, and a great legacy for the Bush 
Administration, to come up with something in this area, so that 
once you complete your public service, we know that your 
efforts will continue. I believe that if the folks we are 
dealing with, the countries and the companies in those 
countries, understand that we have got a bunch of people that 
get up early in the morning and go to bed late at night working 
on this issue, that we are going to start to see some real 
progress. But if they think we are just putting in half the 
resources that we need to get the job done we will not see 
enough progress. But if we devote enough resources to these 
efforts, I think that we will make some significant headway in 
terms of dealing with this problem.
    And, Mr. LaPlaca, I am going to look forward to getting 
your information back on some of the legislation that is 
pending.
    I just want you to know that I am going to stay on this 
issue. I think it is important as part of our oversight of 
government management. So I just want all of you to know that 
this is not just something that I will let go until we get the 
job done. So you have my commitment that I am going to stay 
with this, and if you put your time in, you can be assured I 
will do everything I can to help you do the work.
    So, I really thank you for coming today. This has been 
really worthwhile. I know a lot of my colleagues are 
interested. Before these hearings, we held a staff briefing and 
several Senators are really interested in this subject, so we 
have got some allies out there.
    Thank you very much. The hearing is adjourned.
    [Whereupon, at 5:05 p.m., the Subcommittee was adjourned.]


                            A P P E N D I X

                              ----------                              


                  PREPARED STATEMENT OF SENATOR LEVIN

    I commend Senator Voinovich for holding a hearing to look at the 
progress we are making in the protection and enforcement of our 
intellectual property rights laws as a follow up on the hearing he 
chaired last year on this topic.
    People may not realize intellectual property theft is not just 
movies, high end handbags and watches being knocked off. Counterfeiting 
has exploded in recent years across many industries to become a serious 
threat to the competitiveness of the U.S. economy. One of the greatest 
assets of American businesses is their intellectual property, but when 
American innovations can quickly be stolen by competitors around the 
world the vitality of those businesses is at risk. The FBI estimates 
that counterfeiting costs U.S. businesses $200 billion to $250 billion 
annually, and growing. Counterfeiting money is a serious crime and 
treated as such. The Counterfeiting of products is a serious and 
growing crime, and the Justice Department and other Federal agencies 
should be doing more to fight it.
    We know that China is the primary source of counterfeit auto parts 
and components and product counterfeiting is one of the U.S. auto parts 
industry's greatest concerns with China along with currency 
manipulation and the ongoing U.S.-European Union and Canadian WTO case 
challenging China's auto parts tariffs. The U.S. auto parts industry 
conservatively estimates it loses $12 billion annually to counterfeit 
auto parts and China is responsible for about three-fourths of that or 
$9 billion.
    The auto parts industry estimates millions of counterfeit auto 
parts enter the U.S. every year and only a fraction of them are ever 
detected at the border. We need to act to stop it cold--because 
counterfeit and pirated automotive parts mean lost revenue and jobs in 
the Untied States. The FTC estimates that the auto industry could hire 
250,000 additional Americans if the sale of counterfeit parts were 
eliminated. Fake parts also undermine U.S. safety standards and put 
customers at risk.
    If I can relay only one message to today's witnesses representing 
some of the Federal agencies working to combat intellectual property 
theft, it is to urge you to increase your prosecution of auto parts 
piracy. So far there has been a lack of willingness to initiate 
criminal cases against auto parts counterfeiters because it was not 
viewed as a serious enough problem by the Department of Justice. The 
industry knows of only one prosecution for auto parts counterfeiting. 
The Department of Justice told us they were unaware of any pending 
case.
    I certainly hope these statistics will change as the U.S. 
Government's initiatives to combat counterfeiting take shape and that 
we will begin to vigorously protect America's intellectual property.
    If the government won't act against currency manipulation by our 
trading partners as they should, if it won't force open export markets 
for U.S. products blocked by tariff and non-tariff barriers and 
aggressively enforce U.S. trade laws as they should, the least it can 
do is enforce our anti-counterfeiting laws.

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