[Senate Hearing 110-912]
[From the U.S. Government Publishing Office]
S. Hrg. 110-912
PIRATING THE AMERICAN DREAM: INTELLECTUAL PROPERTY THEFT'S IMPACT ON
AMERICA'S PLACE IN THE GLOBAL ECONOMY AND STRATEGIES FOR IMPROVING
ENFORCEMENT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
SECURITY AND INTERNATIONAL TRADE AND FINANCE
OF THE
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
ON
THE CONSEQUENCES OF COUNTERFEITING AND PIRACY AND STRATEGIES FOR
SAFEGUARDING INTELLECTUAL PROPERTY RIGHTS INCLUDING CURRENT EFFORTS,
AND NEWLY PROPOSED STRATEGIES
__________
THURSDAY, APRIL 12, 2007
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
Available at: http: //www.access.gpo.gov /congress /senate /
senate05sh.html
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
CHRISTOPHER J. DODD, Connecticut, Chairman
TIM JOHNSON, South Dakota RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York WAYNE ALLARD, Colorado
EVAN BAYH, Indiana MICHAEL B. ENZI, Wyoming
THOMAS R. CARPER, Delaware CHUCK HAGEL, Nebraska
ROBERT MENENDEZ, New Jersey JIM BUNNING, Kentucky
DANIEL K. AKAKA, Hawaii MIKE CRAPO, Idaho
SHERROD BROWN, Ohio JOHN E. SUNUNU, New Hampshire
ROBERT P. CASEY, Pennsylvania ELIZABETH DOLE, North Carolina
JON TESTER, Montana MEL MARTINEZ, Florida
Shawn Maher, Staff Director
William D. Duhnke, Republican Staff Director and Counsel
Andrew Olmem, Republican Counsel
Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
George Whittle, Editor
------
Security and International Trade and Finance
EVAN BAYH, Indiana, Chairman
MEL MARTINEZ, Florida, Ranking Member
SHERROD BROWN, Ohio MICHAEL B. ENZI, Wyoming
TIM JOHNSON, South Dakota ELIZABETH DOLE, North Carolina
ROBERT P. CASEY, Pennsylvania ROBERT F. BENNETT, Utah
CHRISTOPHER J. DODD, Connecticut
Jayme Roth, Staff Director
Jennifer C. Gallagher, Republican Staff Director
C O N T E N T S
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THURSDAY, APRIL 12, 2007
Page
Opening statement of Chairman Bayh............................... 1
Opening statements, comments, or prepared statements of:
Senator Martinez............................................. 3
Senator Brown................................................ 4
Senator Casey................................................ 5
WITNESSES
George V. Voinovich, U.S. Senator from the State of Ohio......... 6
Prepared Statement........................................... 29
Moises Naim, Editor in Chief, Foreign Policy Magazine............ 11
Prepared Statement........................................... 30
Response to written questions of:
Senator Bayh............................................. 60
Loren Yager, Director of International Affairs and Trade,
Government Accountability Office............................... 14
Prepared Statement........................................... 34
Brad Huther, Senior Advisor for Intellectual Property
Enforcement, U.S. Chamber of Commerce.......................... 15
Prepared Statement........................................... 55
Tim Demarais, Vice President, ABRO Industries.................... 17
Prepared Statement........................................... 57
PIRATING THE AMERICAN DREAM: INTELLECTUAL PROPERTY THEFT'S IMPACT ON
AMERICA'S PLACE IN THE GLOBAL ECONOMY AND STRATEGIES FOR IMPROVING
ENFORCEMENT
----------
THURSDAY, APRIL 12, 2007
U.S. Senate,
Subcommittee on Security and International Trade
and Finance,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The subcommittee met at 2:06 p.m., in room SD-538, Dirksen
Senate Office Building, Senator Evan Bayh (Chairman of the
Subcommittee) presiding.
OPENING STATEMENT OF CHAIRMAN EVAN BAYH
Senator Bayh. I am pleased to call the meeting of this
subcommittee to order, and I want to thank everyone for your
attendance today. I know there are a lot of other important
issues, and we will get right to our panelists after brief
opening statements by members of the committee.
I would like to begin by thanking my colleagues for being
with me here today. Senator Martinez, I look forward to working
with you to have a vigorous agenda for our subcommittee, and I
know that it will be a collegial undertaking because we worked
well together in the past on many, many issues.
Sherrod, you and I have known each other since the days of
our youth, being Secretaries of State together way back when,
so it will be pleasure working with you on these issues as
well, particularly since we come from neighboring states.
George, I am going to be introducing you in a moment. We
consider your opinion to be so important, you are a panel of
one. And you have had experience as a mayor, as a Governor, in
addition to being in the U.S. Senate, so your perspective on
these issues is greatly valued.
I am going to be introducing the members of the second
panel when Senator Voinovich is done with his testimony.
Just a few brief words of my own. I would like to begin
thanking two additional colleagues who are not with us today,
that is Senator Leahy and Senator Specter, the Chairman and
Ranking Member of the Judiciary Committee. This issue is one of
those issues where there is overlapping interest between the
two committees, and I want to express my personal appreciation
to Senator Leahy and Senator Specter for facilitating our
hearing today. I know they are keenly interested in this topic,
and will be taking it up in short order.
They currently have a very busy agenda on the Judiciary
Committee with the Attorney General's testimony coming up here
shortly, some of the resignations in the Justice Department. It
is a full schedule for them, so I appreciate them letting us
take the lead here today.
Obviously, legislation in this area will be addressed in
the Judiciary Committee. Today, we are looking to flesh out the
information necessary to allow legislation to move forward, so
I want to thank the members of the Judiciary Committee for
that.
This is a matter of significant urgency and importance for
our country. Intellectual property theft is substantial and a
growing problem, and while we have taken some good steps,
particularly the STOP Initiative and the recently filed filing
before the WTO, more needs to be done, if we are going to make
a permanent dent in this problem.
The estimates are that U.S. businesses lose $250 billion
annually because of intellectual property theft. These are
resources that could be going to profits, to wages, to
investment, and obviously in taxes to our government to meet
the costs of Social Security, Medicare, and other pressing
priorities. The estimates are that we have lost over 750,000
jobs in the United States because of intellectual property
theft. Clearly, this is a significant hindrance to employment
growth. Ten percent of all pharmaceuticals worldwide are
estimated to be fake pharmaceuticals, with obvious health
consequences potentially there.
I have seen articles that indicate that up to 90 percent of
business software in China is pirated. Fifty percent of
business software in India may be pirated, as well. Airline
parts, auto parts, and a variety of other sectors in our
economy suffer because of this, and obviously the recent WTO
filing targeted music, films, and other parts of the
entertainment industry.
The Administration has taken some important good first
steps, as I just mentioned, but there are some inherent
limitations to these steps, so we need to continue the
progress. For example, the WTO filing is good, but it addresses
only 4 percent of the problem, and the WTO process itself can
take years to reach fruition.
We also need to make sure that this will be the beginning
of a sustained effort. It has taken us some years to get to the
point where we are finally taking some serious steps. I
personally hope that these steps are not in an attempt to
gather support for fast-track legislation or the Korea Trade
Initiative, but, instead, to show a new embrace of vigorous
efforts to crack down on intellectual property theft.
This is also important to our Nation's security. I will
just touch upon this briefly. I serve on the Intelligence
Committee and the Armed Services Committee. Along with Senator
Martinez, we take up these issues on a regular basis. We seized
an Al Qaeda manual--I think it was in Afghanistan--some time
ago, which recommended the sale of counterfeit goods as a
possible source of financing for that organization. There were
$1.2 million of fake auto parts seized in Lebanon not long ago.
The proceeds from those sales were destined for Hezbollah.
North Korea engages in illicit sales of faked goods. There were
reports in U.S. News and World Report at the time of the first
World Trade Center attack, that that attack could quite
possibly have been financed by the sale of counterfeit goods.
So, if we are serious about our Nation's security, we also
need to be serious about cutting off the funds for those who
seek to harm us; all too frequently that involves the theft of
intellectual property.
Finally, let me say that the support for the global trading
system is at stake in this debate. This goes right to the heart
of America's comparative advantage in the economy of tomorrow.
If we invest in innovation, in educating our population, in
investing in research and development to create new goods, new
services, new cures, and that innovation is stolen from us
because intellectual property theft takes place, the global
economy will not work well. It is not a sustainable model, for
when our trading partners have a comparative advantage, we buy
from them; but when we have a comparative advantage, they steel
from us. That just will not last.
So, I hope that it is possible to be for global trade, but
also to be serious for enforcing the rules of global trade,
particularly the protections of intellectual property. Our
businesses, our workers, and our taxpayers have a right to
expect our government to take vigorous action in the face of
such a serious problem, and that is what has brought us here
today.
Senator Martinez, I would be pleased to turn to you for
your opening comments.
STATEMENT OF SENATOR MEL MARTINEZ
Senator Martinez. Mr. Chairman, thank you very, very much,
and I also want to let you know how much I am looking forward
to working with you on this subcommittee and doing a lot of
good work in the months ahead.
You have called this very timely hearing. It is a problem
that obviously impacts American competitiveness, and it is, as
you have highlighted in your remarks, something that all of us
ought to be very rightly concerned. And while we have done some
things, our government still needs to do much, much more.
It comes very timely for me because just last week I was
visiting in California, and I had an opportunity to see folks
in the entertainment industry, and it is staggering to hear the
losses of their sustaining as a result of pirated goods; and
not only in their medium, which cannot only be done by stamping
out a CD or DVD, but also through the Internet, which is almost
seamless and invisible. And the losses are, indeed, staggering
and having the impact of costing American jobs.
So, whether on the issue of airline safety because of
airplane parts or whether the medical goods that our folks are
receiving are, in fact, what they think they are getting or
what their prescriptions are calling for, it is an issue, as
you indicated, of competitiveness, and also our edge in the
global marketplace which oftentimes is defined by ingenuity and
innovation. So, I think all of those lead to a multi-billion
dollar industry that is, in fact, occurring under our very
noses and one in which I think we need to do more.
Congress and the Administration have taken strong steps
toward combating intellectual property theft, but we have not
done enough. Since the 1990's, global trade in counterfeits has
grown eight times and even faster than legitimate trade. We
need to increase our resources for the departments to fight
this problem, and look for ways that we can increase penalties
for the counterfeits and pirates, and better coordinate with
international IP protection organizations.
So, I am pleased to be joined here today by our
distinguished panel of witnesses, and most of all I want to
welcome our dear colleague, Senator Voinovich, and I look
forward to hearing from you, sir.
So, thank you, Mr. Chairman, for this hearing, and I look
forward to, as I said, working with you not only on this issue
on the many others we will tackle in the coming months. Thank
you.
Senator Bayh. Thank you, Senator Martinez.
Senator Brown.
STATEMENT OF SENATOR SHERROD BROWN
Senator Brown. Thank you, Mr. Chairman. Thank you for the
work that you do on intellectual property. Senator Bayh and I
sat in his office maybe a month ago talking about these issues,
and I appreciate all of his contribution on this. And Senator
Voinovich, both as Governor and as Ohio's senior Senator, has
worked hard especially on manufacturing issues and what it
means to our state and exports and all of that, so thank you,
George, for that work.
In the earliest days of our Nation, we sent the marines to
the shores of Tripoli to combat piracy against American goods.
The Barbary pirates are long gone, but the losses we suffer
today are just as real as those at the dawn of the 19th
Century.
Since the early 1990's, trade in counterfeits has grown, it
is believed, at eight times the rate of legitimate trade and
now comprises up to 9 percent of world trade. The largest
violators are China and Russia. According to the International
Intellectual Property Alliance, in 2005, China copyright
violations accounted for $2.6 billion. Russia violations
accounted for $1.9 billion in U.S. trade losses. Further, IPR
violations from Chinese firms alone cost American companies up
to $24 billion a year in lost revenues.
Fake products compose 15 to 20 percent of all products made
in China. Intellectual property rights have, frankly, been a
foreign concept in the People's Republic of China. For decades,
under communism, private property was banned; and for centuries
before that, all ideas were owned by the state. Instead of
innovation, the Chinese economic development strategy has
largely relied on duplication. Just yesterday, The Washington
Post reported on entire cities and towns being developed in
China's major cities that strive to be full replicas of U.S.
and European cities. Chinese motorists drive ``Chery'' cars
that bear a striking similarity to Chevy cars to towns such as
``Thames Town'' outside of Shanghai. Reports suggest that U.S.
auto parts producers, a lot of them in Indiana and Ohio and
Pennsylvania, a key industry for much of our country, are
losing up to $9 billion each year due to Chinese fakes.
So, how do we properly address this problem? In 1999,
Congress sought to create a coordinated program within the
Administration to effectively counter the production and the
importation of fake products. Unfortunately, the Administration
has not held up its responsibilities in effectively enforcing
IPR violations, as indicated by the ever-increasing volume of
products that violate U.S. patents, copyrights, and trademarks
over the past several years. The IPR Enforcement Act will work
to stop the flood of fake imports into the U.S. through a
comprehensive coordinated strategy in two important ways:
First, the bill requires the Administration coordinate the
efforts among the myriad of agencies engaged in stopping IPR
violations under White House leadership. This legislation
requires that agencies share the information and establish
formal processes for cooperation and coordination at the state
and local levels.
Second, the bill requires the Administration be held
accountable by submitting to Congress a strategic plan that
develops clear and comprehensive action by the Administration.
We no longer must combat a fleet of pirates off the north
coast of Africa, but the economic damage from piracy is even
greater today. We must show every bit as much resolve in
protecting American interests, and this legislation is a good
first step. I hope after this we will put forward the same
dedication on dealing with currency issues, with protecting of
workers, protecting of the environment, as we do of protecting
intellectual property. All of them are very important.
I commend Senators Bayh and Voinovich for their leadership.
Thanks.
Senator Bayh. Thank you, Senator Brown, for your interest
in this issue, which I know is important for Ohio as well as
Indiana and the rest of the country, and also for putting it in
historical context for us. Very interesting.
Senator Casey.
STATEMENT OF SENATOR ROBERT P. CASEY
Senator Casey. Senator Bayh, thank you very much, and thank
you for your leadership; and Senator Martinez, Senator Brown,
and, of course, Senator Voinovich, we would like to see our
colleagues as witnesses once in a while. I had the opportunity
just once this year to introduce Governor Randell in a
transportation hearing, and I did not realize what it was like
to be on the other side of that table here, so we are happy to
see you here.
I do not need to reiterate some of the points that have
already been made. This is a critically important problem for
the world, but especially for the American economy. Obviously,
I represent the Commonwealth of Pennsylvania, a tremendous job
impact that this has in a very adverse way.
One statistic which may have already been cited but it
bears repeating, just in terms of that one issue, that one
concern about jobs, an estimated 750,000 American jobs are lost
due to counterfeit merchandise, and that brief half a sentence
tells it all. So, I think it is a critically important issue
for our country, and I appreciate Senator Bayh making this an
issue, as well as other members of this subcommittee as well
the full committee; and, Senator Bayh, I wanted to thank you
for that leadership, but I also want to make sure I am going to
strongly support your bill. Is it 522?
Senator Bayh. That is correct. 522.
Senator Casey. Thank you.
Senator Bayh. Thank you, Senator Casey. It has been my
privilege now to work with two generations of the Casey family,
and look forward to addressing this and many other pressing
issues with you.
Senator Voinovich, thank you for your time. It has been a
privilege to work with you for many, many years, and I think
your presence here before this panel and our cooperation on
this initiative shows this is not a partisan issue. Something
the democrats and republicans can work well on together. I hope
that we can work well with the Administration on this, as well.
It is something that affects businesses, workers, and I salute
your making this a priority, and I am grateful for your
leadership, and we are looking forward to hearing from you
today. Thank you.
STATEMENT OF GEORGE V. VOINOVICH, U.S. SENATOR FROM THE STATE
OF OHIO
Senator Voinovich. Thank you, Senator Bayh, and members of
the committee. I just could not help thinking about the number
of times that I appeared before the Congress as mayor and
Governor, and how frightened I was.
I want you to know that I welcome this hearing because we
want to get this bill through Congress this session, and I
appreciate the fact that Senator Leahy and Senator Specter have
been helpful to us on it. It is very important that we get
their support for this legislation. I think that it also does
one other thing, and that is to bring to the public's attention
the importance of this subject, and many of you have already
spoken eloquently to the negative impact that our not enforcing
intellectual property rights has had on our Nation.
I am proud that, as Governor, my administration gave high
priority to manufacturing, and it grew during my time as
Governor. And Senator Brown, that is one of the things that I
was proud of: Fining manufacturing group. I worked with Ohio
companies to conduct nine Ohio business trade and investment
missions which were designed to open global markets for Ohio
products. These trips span the globe and led to over 275
meetings between businesses and foreign government officials,
and these trade missions resulted in tremendous success for
Ohio business. Between 1991 and 1996, Ohio's export of
manufacturing goods increased 46 percent; and, during that
time, I am proud to say that it was big and small manufacturers
that participated in that growth of export.
Since I arrived in the Senate, I have continued to fight
for Ohio manufacturers. Unfortunately, I found that
participation in the global economy has a dark underside: The
theft of intellectual property and piracy of goods. After I
arrived in the Senate, I began to hear from some of the same
Ohio companies that joined the economic trade missions when I
was Governor. These companies were facing a serious and growing
theft: The theft of their intellectual property and competition
from pirated products. As a matter of fact, one of the
companies that I brought to China in 1995 did very well, got
ripped off, and contacted me and said, ``You know, what can you
do to help me?''
As a result of these complaints, I held six oversight
hearings about trade and intellectual property in the Homeland
Security and Governmental Affairs Subcommittee on the Oversight
of Government Management. Too often during these hearings I
heard the same story: U.S. companies would sell their products
overseas, often working with a local partner; and, soon after,
the partner or some other IP thief would counterfeit and start
to sell the very goods that the U.S. companies had worked to
export. Most disturbing to me was the fact that when I first
started to conduct hearings into this problem, the response
from our own government was almost nonexistent. During this
time, I continued to express my concerns to the Administration,
first the Secretary of Commerce Evans and USTR Bob Zoellick,
and more recently to my good friend Rob Portman when he was
with the USTR, as well as Secretaries Coteras and Paulson.
My message was simple: Our government was not doing enough
to address this problem, and it was failing to address
companies that were subject to this theft.
I was not content just to voice my complaints. I voted
against two separate free trade bills. And I am a free trader,
but I voted against two free trade bills to get the
Administration's attention to focus on the problem of
intellectual property theft.
Finally, in 2004, President Bush established the Strategic
Targeted Organized Piracy Initiative, the STOP Initiative. And
while I thought that was a good first step, I also believed
these efforts needed an orchestra leader, someone who wakes up
in the morning and goes to bed late at night thinking about how
to improve IP protection and enforcement. I was pleased that in
July of 2005 the President appointed Chris Israel to serve as
the first U.S. coordinator for intellectual property
enforcement. While I believe these efforts started to pay
dividends, they have, from what I understand from people in
Ohio and around the country--and I commend the President for
taking the initiative to improve the response--the next step is
for Congress to enact legislation to improve on this work, make
it permanent, and give Congress an appropriate oversight role.
What I am basically saying is, they worked real hard, they
put something in place, and I think we ought to put it into the
concrete and do it legislatively.
That is why during the 109th I partnered with the Chairman
of this Subcommittee, who also recognized the devastation this
problem is having on U.S. manufacturing, and we introduced the
Intellectual Property Rights Enforcement Act. Because we did
not get the legislation passed in the 109th, this past February
we reintroduced it again. This legislation would improve our
existing enforcement efforts: No. 1, providing better domestic
enforcement coordination; two, strengthening international
enforcement by reaching out to like-minded countries and
improving coordination with these countries. We just cannot do
this by ourselves. We need to have the same kind of reach-out
that we have in intelligence in terms of intellectual property
rights. And three, improving Congress oversight for requiring
the development of a governmentwide IP strategic plan and
annual reports to Congress on how these efforts are faring;
and, fourth, requiring the IP coordinator to work with IP
stakeholders to develop resources to address their needs.
Just as important, this legislation keeps the next
administration from reinventing the wheel in January 2009. In
Washington, we all know we come up with new ideas, and just as
all the pieces are put in place, we have a shift in power and
we lose our momentum, and I do not want to lose the momentum we
have gained on the STOP Initiative. Rather, I want to continue
and improve on it. Our democratic system is another thing that
a lot of our competitors do not have to worry about, and that
is something we fail to realize. Now, you wonder sometimes, are
we really organized today in the Senate, House, the
Administration, to deal with this global competition that we
are experiencing? Countries like China, sadly, do not have
congressional elections every 2 years and Presidential
elections every 4 years. They do not have to worry with losing
their momentum because, when the regime comes to power, it
stays in power. Stays in power.
Well, I was disappointed we were not able to get this
passed in the 109th. Senator Bayh and I continued to work with
business, industry groups, and labor groups to enact it. I have
also, as I mentioned, spoken to Senator Leahy and Senator
Specter, and I understand that the Judiciary Committee will
hold hearings on a number of IP items, including this
legislation. I look forward to working with the members of the
Judiciary Committee on this legislation, and I appreciate the
willingness of the Chair and Ranking Member to examine this
important issue. I would note that since we reintroduced this
legislation, over 30 organizations have endorsed it, including
the U.S. Chamber of Commerce, the AFL-CIO, National Association
of Manufacturers, and United Auto Workers.
Now, let me just say this: With the kind of support we have
here in this room, there is not any reason why we cannot get
this done on a bipartisan basis in this Congress. It is long
overdue. The last bastion that we may have to be competitive in
that global market place is our new ideas; and if they could
steal our ideas, then we are in very big trouble.
So, I think this is important to our national security, I
think it is important to our global competitiveness, and I
really appreciate the fact that you have given me a chance to
share my thoughts with you this afternoon. Thank you.
Senator Bayh. Senator, thank you for your long-standing
devotion to this issue and for really being one of the moving
factors behind the creation of the STOP Initiative. As I
understand it--I will ask my colleagues if there are any
questions, but as I understand your testimony, you think this
needs to be a major national priority, you think that it needs
to be coordinated across the branches of government, you think
it needs to be a global response, and it must be permanent?
Senator Voinovich. Yes, I do, absolutely, and I am hopeful
that the Administration understands how important it is to our
country. I mean, they have done a halfway decent job on this,
and now they have a chance to make it permanent and move
forward.
And again, I hope the folks that are sitting behind me will
make it very clear to the Administration how important it is to
their respective organizations that this gets done now.
Senator Bayh. Well, I agree.
Are there questions? Senator Martinez.
Senator Martinez. Senator, I was going to ask you, I know
that permanence is one of the issues, but is there a different
enforcement mechanism that the STOP Act would do different from
what is being done now, or is it mostly the fact that it would
be established and permanent?
Senator Voinovich. There are two things--the STOP Act does
not have the international dimension, even though Chris Israel
is traveling around, it does not. He is kind of doing it on his
own. But there is nothing in the legislation that says we ought
to be reaching out with other countries in the area of IPR
enforcement.
Second, this legislation provides that, in the Office of
Budget and Management, you have got somebody there that is
going to look over how this is all working out, because the
problem today with Chris is that he is, like, the coordinator
of some lower-level people. And I mentioned this morning to OMB
Director Portman, that you need somebody at OMB to sort of be
there, and someone says, ``You know, this is not working,'' and
agencies know that somebody that is over them can stay on them.
It is very much like what I did. I had regional representatives
when I was Governor, and they were supposed to get stuff done
out in the state, and all of the agencies of state government
were supposed to cooperate with them. Well, what I did was I
had those regional reps send me a weekly report, so every week
I read what was going on. The agency directors knew I was
reading those reports, and they knew that if they were not
cooperating they would hear from me, and I think that is the
kind of oversight that we need if we are going to get serious
about this enforcement.
Senator Martinez. That is all, thank you.
Senator Bayh. One of our witnesses on the next panel from
the GAO will explain how the STOP Initiative has been good, but
from an ongoing perspective there are improvements in the
structure that could make it more either more effective in
terms of setting goals and identifying resources necessary for
achieving them and holding people accountable for following
through.
You were sounding more like a former executive, George. It
was refreshing to hear.
Senator Casey.
Senator Casey. Two quick comments.
Senator, thank you for your testimony, and especially the
sense of urgency that you bring to this issue. That is always a
challenge, it seems, in Washington, and I appreciate the
intensity of your focus on this in the long years of work you
put into it.
And second, for mentioning my Pennsylvania colleague,
Senator Specter, in his work on Judiciary, along with Senator
Leahy and others, as part of this team effort to get this job
done, but thank you again.
Senator Voinovich. Thank you.
Senator Bayh. I would like to ask the members of the second
panel to please come forward and take your seats.
While you are doing so, let me say that I would be remiss
if I also did not thank our colleague, Senator Dodd, the
Chairman of the full Banking Committee, for facilitating the
hearing today. I am very grateful for his leadership. He cares
deeply about this issue, and I want to publicly express my
gratitude to Senator Dodd.
Gentlemen, thank you very much. I am going to ask for your
help. If I get the pronunciations of any name slightly wrong,
do not hesitate to correct me.
What we would like to do, if it is appropriate, after the
introductions--Moises, I think we will begin with you and then
go to Dr. Yager and then Brad Huther, and then finally Tim
Demarais, if that order is appropriate.
Your full statements will be submitted for the record. If
we could try to keep it close to 5 minutes, that will be ideal;
of course, members of the committee will try to do the same.
But if you run a little bit over it, that will be OK. If you
keep it in the ballpark, that would be good.
Our first panelist today, Moises Naim--did I get that
correct?
Mr. Naim. Yes.
Senator Bayh [continuing]. Is the editor and publisher of
Foreign Policy magazine, a leading publication on international
politics and economics. He has written extensively on the
political economy of international trade and investment,
multinational organizations, economic reforms, and
globalization. He is the author and editor of several books and
has written numerous essays and articles. His regular opinion
columns appear in The Financial Times and are also carried by
many of the world's leading newspapers. Naim is one of the six
members of Time magazine's international board of economists.
Moises, thank you for joining us today.
I will make the other introductions, and we will begin with
the statements.
Also with us today is Dr. Loren Yager. Dr. Yager is
currently serving as Director of the International Affairs and
Trade Team of the U.S. Government Accounting Office (GAO),
where he is responsible for international trade and related
issues. Dr. Yager has recently completed reports and
congressional testimony on topics including China import
remedies, global corporate/social responsibility, global
intellectual property protection, offshoring of U.S. services,
terrorist financing, the World Trade Organization, Conflict
Diamonds, China's WTO compliance, the Maquiladora industry,
container security, and a variety of other subjects--you have
been a busy man, Dr. Yager--particularly in the subject that
gathers us here today. I want to thank you and your staff for
your very thoughtful work. It was very analytical and very
detailed, so I am grateful for your sharing the thoughts that
you and your staff have here with us today.
Also with us is Mr. Brad Huther. Thank you for joining us
today. Mr. Huther coordinates the U.S. Chamber of Commerce's
Intellectual Property Enforcement Program. The Chamber is a
business federation representing 3 million companies,
associations, state and local Chambers and American Chambers of
Commerce abroad. Mr. Huther joined the Chamber in January 2005
to advance its fight against counterfeiting and piracy. His
commitment to strengthening intellectual property systems
worldwide is evident through his work as President and CEO of
the International Intellectual Property Institute, Special
Attach' at the World Intellectual Property Organization in
Geneva, and Associate Commissioner of the U.S. Patent and
Trademark Office. Mr. Huther, I would like to thank you and the
Chamber for your presence today.
Just as Senator Voinovich's presence and Senator Martinez's
presence demonstrates that this is a bipartisan undertaking.
The Chamber's interest in this, along with the AFL-CIO, the
United Auto Workers and others shows that this can unite
management as well as labor, and I would particularly like to
thank you for your cooperative approach toward complementing
those steps that have been taken thus far, but also looking to
how we could improve and buildupon what has been done. So, I
want to thank you for the spirit you have brought to this
dialog.
Last, but by no means least, we have Timothy Demarais, Vice
President of ABRO Industries, Inc. It is good to have a fellow
hoosier with us here, adding some additional midwest common
sense to the dialog this morning, and also to help us put a
human face on this problem. Tim has spent 33 years with ABRO
Industries. Based in South Bend, Indiana, ABRO sells adhesives
and other products. As Vice President of International Sales
and Marketing, Mr. Demarais developed the ABRO brand concept
which has spearheaded company growth from $4 million in sales
in 1974 to a projected $100 million in 2007. Mr. Demarais has
made more than 100 overseas business trips since joining the
firm, doing business in over 150 countries. He helped ABRO
achieve the President's ``E'' Award in 1991 and the President's
``E'' Star Award in 2005. He was featured with ABRO's company
President in the Wall Street Journal for a 2004 cover story on
combating counterfeiting in China. Demarais personally led
raids on foreign firms that were illegally importing fake ABRO
products, resulting in the seizure and destruction of thousands
of cartons of counterfeit merchandise. He received his BBA in
marketing from the University of Notre Dame. During his junior
year, he studied international business at Sophia University
Tokyo. Tim, we look forward to hearing from you again today.
Dr. Naim, let us begin with you.
STATEMENT OF MOISES NAIM, EDITOR IN CHIEF,
FOREIGN POLICY MAGAZINE
Mr. Naim. Thank you, Mr. Chairman, for giving me the
opportunity to be before you today. Before entering into the
details of my presentation of my testimony, I want to recognize
you and your leadership, Mr. Chairman, in battling the problems
created by the booming global trade in counterfeits as well as
your sincere interest in seeking innovative solutions to
contain this growing threat, having followed your efforts and
those of Senator Voinovich and other members of the committee
for years in trying to untangle or understand and find
innovative and interesting ways of dealing with this.
Today, I will make five brief points concerning the
international trade in stolen intellectual property, and I will
conclude the remarks with a proposal for your consideration.
First, the international trade in counterfeited goods is
just one of many illicit trades that has recently boomed. It is
very important to understand that the trade in counterfeits is
just one segment of a booming black economy that, thanks to
globalization and some other changes that took place in the
nineties, have acquired unprecedented scope and consequences
for the global economy, and it is undermining institutions and
politics everywhere in the world.
The illegal international trade in people, narcotics,
timber, industrial waste, human organs, weapons of mass
destruction, and myriad other goods is booming, as I said, and
there are many interesting similarities among all these traits.
Smuggling luxury products from Asia to Europe may look very
different than smuggling cocaine from the Andes to Florida or
illegal workers to Spain or small arms to Africa.
Yet, the economic forces, organizational arrangements, and
business models driving these trades, as well as the behavior
of the players involved, are strikingly similar. They are not
the same people or the same criminal networks, but the forces
that drive them and the way they are organized and operate,
they are much in common. Government responses have also been
quite similar, and unfortunately in all cases their success has
proven very elusive. There is hardly any country that can claim
major progress in containing the growth of any of these illicit
trades. Therefore, a major implication of this first point is
that there is much that can be learned from past and current
efforts aimed at curbing illicit traffic, trafficking in other
markets and products.
In some cases, these traffics are connected. The vendor
that sells you a fake luxury bag in the streets in Manhattan or
a few blocks from here is often as illicit as the bag itself.
The network that traffics in counterfeits are connected to the
networks of trafficking in illegal workers, and those in turn
are connected to the networks that specialize in money
laundering.
My second point is that a common mistake that I have found
in legislation aimed at controlling illicit trades everywhere
is that too often it assumes that governments are more capable
and effective than what has proven to be the case. There are
many reasons for this performance gap, but the most important
is that governments are very constrained when they have to
operate outside their national jurisdiction. The natural
habitat of a government is inside a nation's borders; instead,
the national habitat of traffickers is in between national
borders.
While traffickers are perfectly at home when operating
illegally across borders, governments are slowed down, indeed
often paralyzed when having to operate internationally. This
means that in order to be effective in battling international
smuggling rings, government needs to be selective in what it
tries to achieve. It is unrealistic to expect government to
combat every aspect of counterfeiting. Therefore, selectivity
and modesty in the choice of goals assigned to government
agencies should be a crucial test of any legislation in this
area.
The third point is that another frequent characteristic of
antitrafficking campaigns worldwide is that they all tend to
concentrate more on constraining the supply of the smuggled
goods that are limiting their demands. This fact is well-known
in the case on the War on Drugs in the United States or what
happens with illegal workers.
It is important to remember that the boom in pirated goods
owes as much to a growing demand as it does to growing supply,
where talking literally about billions of consumers around the
world who are willing--indeed, eager--to bogus facsimiles of
products at a fraction of the price of the original lawful
goods. This market of consumers is served by millions of some
of the most innovative, ruthless, and managerially and
technologically sophisticated entrepreneurs at work today in
the global economy.
This is a powerful market and is driven more by high
profits than by low morals, by demand as well as by supply.
Thus, approaching this fight purely from a law enforcement or
legalistic perspective aimed at curbing the supply will miss
the fact that we are in the presence of a gigantic market with
millions of buyers and sellers and immense volumes of
merchandise and money changing hands.
My fourth point is simple and brief, and you have already
noted, and it is in the legislation, and that is that no
country can successfully tackle this problem acting alone. A
global problem cannot be solved with unilateral national
efforts containing the growth of the global counterfeiting
market inevitably requires the effective coordination of
several nations acting in concert.
My final point is that patents, copyrights, trademarks and
other legal instruments are increasingly failing to protect the
rights of owners of intellectual property. Brands, designs,
formal software and content with commercial value are being
routinely stolen, copied, and sold worldwide at a fraction of
the price charged by the original owners. Entire industries
have been devastated by piracy.
It is apparent that the ability of governments to enforce
intellectual property rights is rapidly declining. The
governments are not being able to stop this. Moreover, there
are good reasons to assume this decline cannot be stopped,
reversed, or even slowed down in the short term. The
implication of this point is not that governments have to
abandon the fight to ensure intellectual property rights are
protected and enforced at home and abroad, but other
governments should not be held accountable for their
complacency and often their complicity with the counterfeiting
industry.
Rather, the implication is that governments need to be
supported in their efforts to combat this illicit trade by the
most intensive use possible of anticopying technologies. There
is much that technology can do and is already doing to
safeguard products from illegal copy. I, therefore, believe
that it is very promising market-based solution is to include
in any legislation mechanisms that will stimulate and
accelerate the development and adoption of new technology by
the business sector. These technologies will make
counterfeiting products far more difficult than what they are
now to copy.
I am convinced that, in the foreseeable future, technology,
not patents, sanctions or other traditional means for fighting
intellectual property theft will become critical in protecting
the intellectual property of innovators, creators, and artists.
Thank you again, Mr. Chairman and members of the
subcommittee, for affording me this opportunity to testify
before you.
Senator Bayh. Thank you, Dr. Naim.
Dr. Yager.
STATEMENT OF LOREN YAGER, DIRECTOR OF INTERNATIONAL AFFAIRS AND
TRADE, GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Yager. Mr. Chairman, Ranking Member Martinez, thank you
for the opportunity to appear before this subcommittee to
discuss our work on U.S. efforts to protect U.S. intellectual
property rights. We appreciate the opportunity to contribute to
the congressional oversight of IP protection both in this
hearing as well as in another report on the subject for Senator
Voinovich that will be released shortly.
IP protection and enforcement cut across a wide range of
U.S. agencies and functions, making coordination among all
parties essential and creating an important oversight role for
the Congress. In my statement today, I will address two topics
on IP enforcement: First, the effectiveness of the current
coordinating structure to guide and manage U.S. Government
efforts; and second, the extent to which current efforts
incorporate important features of an effective national
strategy.
Mr. Chairman, my statement today will also include some
observations on how the Bayh-Voinovich legislation addresses
key weaknesses that we have identified in our work on IP
enforcement. To address these issue, I have drawn on a number
of completed GAO studies, and these studies are identified in
my written statement.
Mr. Chairman, to discuss the current interagency
coordination structure on IP, you have to understand two key
components. The first component is what is called ``NIPLECC,''
the National Intellectual Property Law Enforcement Coordination
Council. Created by the Congress in 1999 to serve as the
central coordinating structure for IP enforcement across
Federal agencies, NIPLECC has struggled to define its purpose,
retains an image of inactivity within the private sector, and
continues to have leadership problems, despite enhancements
made by Congress in December 2004 to strengthen its role.
The second component is the 2004 Presidential initiative
called ``STOP,'' the Strategy to Target Organized Piracy, which
is led by the National Security Council. Many agency officials
said that STOP has increased attention to IP issues within
their agency in the private sector as well as abroad, and
attribute that to the fact that STOP came out of the White
House, thereby lending it more authority and influence.
To summarize our key findings, we raised two questions
about this combination of NIPLECC and STOP to ensure IP
protection, and I could term these two as accountability and
long-term viability. Both of these issues were mentioned in the
opening statements as well as in Senator Voinovich's statement.
In terms of accountability, we found that STOP's potential
is limited because it does not fully address valuable
characteristics of an effective national strategy. For example,
its performance measures lack baselines and targets to assess
how well the activities are being implemented. In addition, the
strategy lacks a risk-management framework in a discussion of
current or future costs, important elements to effectively
balance the threats from counterfeit products with the
resources available.
Although STOP identifies organizational roles and
responsibilities with respect to individual agency's STOP
activities, it does not specify who will provide oversight and
accountability among the agencies who are carrying out the
strategy. This lack-of-accountability features limit the
strategy's usefulness as a management tool for effective
oversight by Congress as well as accountability to the private
sector and to consumers who STOP aims to protect.
In terms of long-term viability, we point out that STOP has
no permanence as a Presidential initiative and, therefore, no
guarantee that it will exist after the end of this
Administration. While the most recent annual report describes
many STOP activities, it does not explain how NIPLECC
principals plan to carry out the responsibilities mandated by
the Congress. From the beginning of NIPLECC, Congress's goal
has been to institutionalize law enforcement coordination, and
our work suggests that this goal has not yet been met.
In GAO's recent report on this subject, we included
recommendations to address these issues of accountability and
long-term viability. Our discussions with the IP coordinator,
in preparation for this testimony, indicated that NIPLECC has
taken some steps to address GAO's recommendations, such as
working with OMB to understand government priorities and
resources related to IP enforcement.
Mr. Chairman, I would note that the Bayh-Voinovich
legislation proposes more fundamental changes to the current
coordinating structure. For example, by creating IPEN, it
eliminates the need for NIPLECC and resolves the lack of
permanence that is of concern with the STOP Initiative. In
addition, the legislation requires the new coordinating
structure to prepare a plan that addresses key elements of an
effective strategy, building in mechanisms for accountability,
oversight, and strengthening leadership. These changes are
consistent with the key findings of our report.
Mr. Chairman, this concludes my statement. I would be happy
to answer any questions that you have.
Senator Bayh. Dr. Yager, thank you very, very much.
Mr. Huther.
STATEMENT OF BRAD HUTHER, SENIOR ADVISOR FOR INTELLECTUAL
PROPERTY ENFORCEMENT, U.S. CHAMBER OF COMMERCE
Mr. Huther. Thank you very much, Mr. Chairman. I am sorry
Senator Martinez left the room, but I wanted to commend him as
well as you----
Senator Bayh. Nothing personal, Mr. Huther. He said he will
be back in a couple of minutes.
Mr. Huther. Well, maybe I will say it twice, then, but he
has been working on the Chamber on this issue since the Chamber
decided to begin working on this issue, and we are especially
grateful for his support and your leadership in bringing us to
where we are today.
In Washington, the phrase ``public-private partnership'' is
used a lot, and yet I think if there is a good example of a
public-private partnership, it could very well be the
combination of what the business community is doing through a
coalition against counterfeiting and piracy that now numbers
almost 300 trade associations and companies, whose commitment
is to do one thing, and that is to work toward the development
of solutions that can be transferred to companies everywhere,
not just those of the Chamber or not just those of the
associations and companies that are present in our program,
because we think it is critical--it has been brought out
earlier--that without the leveraged efforts of anyone and
everyone who is involved in this problem, both directly and
indirectly, including consumers, who sometimes are not
associated with the problem, this problem is not going to go
away.
The features that you have included in your proposed
legislation, we think, builds upon the solid foundation that
others have already addressed. The work of the Administration,
together with the work of the business coalition that the
Chamber now represents shows good progress, but if we were to
stay the course, doing what we are now doing, we believe we
would not be able to effectively deliver the kind of global
solution that is really necessary.
So, your approach in terms of engaging and elevating the
importance of this public policy issue, and including the
involvement of stakeholders and foreign governments and the law
enforcement community without impinging on their current
authorities to continue to do what they have been doing before
and to make decisions as they are authorized to make them, we
think, is the right overall strategy to engage in.
The Chamber, in its coalition, is working on facets of this
program that have been addressed, including the technology
issue, how we can deal with Internet problems, where a lot of
the trade and illicit goods is occurring, to transferring
knowledge to many of our small and medium enterprises that lack
the resources first to even protect their supply chain, if they
know they have got a problem with it; or, second, to protect
their intellectual property rights, if they file for patent or
trademark or copyright protection in foreign locations. It is
an expensive undertaking, and no one is capable of doing this
alone.
So, therefore, the framework that you are establishing, in
my opinion, and in the Chamber's opinion, is building on the
best premise: Let's keep the best parts of what we have learned
through STOP, let's continue to engage the business community
because we are not only knocking on government's door or asking
for things to be done. We are pledging our resources and our
expertise and our talent to add to that of the government. And
maybe at some point in time when we engage other partners, as
the Administration has already begun to do, the E.U.-U.S.
framework has promise for doing some very important work in
that region. The Security and Prosperity Partnership Agreement
in North America, while lacking in E.U. and U.S. collaboration,
I think, has the chance to do the very same thing in our part
of the world. APAC and other organizations like them are doing
them together.
So, your IPEN framework starts connecting all the stars in
the constellation at a time when I think those stars are
properly aligned to do and leverage the work that needs to be
done on a much grander scale than we have been able to justify
to date.
I will close by indicating that I had the privilege of
testifying before then Chairman Voinovich's subcommittee on the
issues of STOP and on the issues of NIPLECC. I said then, and I
say now: I think they do very good work. I know they are
because they come to the Chamber on average once a month to
tell us what kind of progress they are making.
If I had one criticism, which your bill address, I said
then that I thought that if the Government Performance and
Results Act Framework were invoked in this area, it would
become a lot clearer for industry to understand where the
government is going, enable us to understand how we might
redirect some of our activities and resources so as to support
a national strategy to deal with this, and linking that
national strategy to an international one.
So, again, Mr. Chairman, we thank you for your leadership
on this issue. It is clear the Chamber supports the enactment
of this legislation. More importantly, I think I could tell you
that the Chamber, together with its working coalition, stands
ready to help and contribute to the successful implementation
of what we think is one of the most important public strategies
that the Congress can undertake in the current session. So,
thank you.
Senator Bayh. Thank you very much. We are in favor of what
works, and building upon past successes and collaborating going
forward to improve the effectiveness of this effort, and you
and your organization have been very instrumental on that, so
once again I want to thank you for your contribution, both past
and future.
Mr. Demarais, our representative from the real world. We
are looking forward to hearing from you.
STATEMENT OF TIM DEMARAIS, VICE PRESIDENT,
ABRO INDUSTRIES
Mr. Demarais. Thank you, Mr. Chairman, for giving me the
opportunity to testify regarding one of America's most
contentious foreign trade issues: The theft of intellectual
property worldwide. I spent my entire career--33 years--working
overseas combating legitimate competition. Just the last few
years I realize there is something else out there that is not
equal playing field, and hopefully today we try to balance that
playing field.
I feel ABRO is one of the most unique, one of the most
innovative trading companies in the United States. We are known
as the buccaneers of the trading world from what we have done
in the past. We initially concentrated on selling ABRO products
in Third World markets, and there is no place we would not
travel to introduce our ABRO brand. We visited and did business
in diverse markets such as Nigeria, Congo, Pakistan, Lebanon,
Saudi Arabia, Sierra Leone--just to name a few of the diverse
markets. We now sell our ABRO products in over 150 countries.
In time, our ABRO automotive products became the brand of
choice in many global markets, but unfortunately today the ABRO
name has also become the brand of choice to counterfeit by
unscrupulous manufacturers worldwide. We recognized early that
our trademark was one of our most important assets, and over
the past 28 years we have registered the ABRO trademark in 167
countries. So, we were doing our job. We had spent hundreds of
thousands of dollars registering our trademark, and ironically
we have spent an equal amount in defending our trademark
worldwide against importers of counterfeit ABRO products.
Although we could point to many examples of counterfeiters
overseas, one foreign company that has taken intellectual
property violation to a new level is Hunan Magic Company in
Hunan, China. We did not know we had this problem until 2001,
when I received an E-mail from our ABRO distributor, requesting
that he would like to buy the ABRO products from our Chinese
subsidiary. I knew we did not have a Chinese subsidiary, and
went to the Canton Trade Fair later that year and was
absolutely shocked to see Hunan's Magic booth, which had a full
display of all of our ABRO products, and the company was
actively selling ABRO products to many overseas customers,
including my own.
The company had literally stolen our corporate identity,
stating they owned the ABRO name, which, of course, is not
true. I immediately contacted the show officials and advised
them that this company was illegally selling ABRO products. The
officials agreed to raid the booth, and I was stunned when the
general manager of the Chinese company produced documentation
that showed they had the rights to the trademark in China. It
actually was in a trademark registration. It was an
application, but to them they took it as the official
trademark.
There was obviously uncertainty at this point, until I
picked up a sample of our ABRO Epoxy that Hunan Magic was
displaying in their booth and selling to my customers. Our ABRO
Epoxy is a product that I personally developed 20 years ago. At
that time, we were not doing a hundred million dollars. We were
somewhat of a low-budget operation. I had taken a picture of my
wife applying epoxy to our bicycle in our house and put this
photo on a blister card similar to this. This product has
become one of our most popular selling ABRO products with
millions of units being sold annually.
I immediately asked the general manager of Hunan Magic who
is this lady on the ABRO Epoxy card? He told the show officials
it was some western model.
I reached into my wallet, pulled out on a picture of my
wife which finally convinced the show authorities we actually
own the trademark, and they closed down the booth, and Hunan
Magic was cited for using the ABRO trademark illegally.
We thought the matter was settled and we were very happy,
until the next trade show, when Hunan Magic changed the
packaging slightly by deleting the face of my wife and
replacing it with the face of an Asian woman but keeping
everything else the same, including the ABRO name. As you could
see, they are identical.
This story was a subject of a cover feature in the Wall
Street Journal, and we thought the notoriety would convince the
Chinese Government to do something by controlling this renegade
Chinese manufacture. Unfortunately, their illegal activity has
become more blatant, as Hunan Magic is now selling ABRO
products in all our major markets, and the general manager has
publicly stated that his ABRO brand is one of the most
successful brands they have ever introduced. That is why we are
thrilled that a new act is being introduced in the Senate by
Senator Voinovich and, of course, yourself. We all know about
the War on Terror that is being fought globally, but in the
business community we look at intellectual property violations
as a War on Economic Terrorism.
As these companies who are counterfeiting are stealing
patents, trademarks, ideas, and designs from American
companies. It was encouraging to note that recently the U.S.
Government announced that would it ask the World Trade
Organization to organize meetings to address deficiencies in
China's protection of the intellectual property rights on
books, music, videos, and movies. However, there was no mention
of many other U.S. products that are being counterfeited,
including automotive parts and accessories. We only hope that
the U.S. Government will address these deficiencies in all
areas of intellectual property violations.
The past 5 years have been most frustrating as ABRO's
biggest competitor is not STP, General Electric, or some other
well-known automotive chemical manufacturer. Our biggest
competitor has become ABRO products from China, which is
clearly not how our American dream to ABROnize the world was
expected to play out. We ask that the U.S. Government treat
intellectual property matter more seriously and pass
legislation that will correct these trade injustices and then
provide agencies overseas the effective muscle to enforce the
new trade legislation.
Thank you for giving me the opportunity to testify today
and allow me to vent some of my personal past frustrations on
this matter. We continue to fight the battle in the overseas
sales trenches every day, but we do need some help from the
generals back here in Washington. The War on Economic Terrorism
can be won, but it is going to take a concentrated effort by
everyone here in Washington to force China and other countries
who violate intellectual property to comply with their WTO
obligations, which requires these economic powers to enforce
intellectual property laws in their own country. Thank you.
Senator Bayh. Mr. Demarais, thank you very much. We are
happy to provide you a forum to vent your frustrations, but
more than that we would like to provide you with action to
address the problem that has been affecting you. And I wish I
could say that your testimony here today was some sort of
aberration, but regrettably it reflects the experience of too
many American businessmen and women who have attempted--who
have had to combat this kind of problem often without the kind
of backup, as you say, from the generals in Washington that you
deserve, so thank you for that.
By the way, Senator Martinez, you should know Mr. Huther
said very nice things about you in your absence.
Senator Martinez. I am sorry, I had to step out for a
minute, I am sorry, but thank you, sir.
Senator Bayh. We will make sure the record notes that.
We begin some questions now. I will start, and then I will
limit myself to 5 minutes and turn to you; and, if there are
further questions, we will keep going.
I am going to start in the order in which our witnesses
testified, but let me just start, Moises, not only for you, but
other panelists, judging by your written testimony and oral
presentations today, it is my impression that all of you would
agree this is a growing problem, a growing phenomena. It is not
contained. It is not static. It is, in fact, continuing apace,
unfortunately. I think, Moises, you particularly said that
there is a degree of humility in our effort to combat this
through traditional methods, so we should take--the steps that
have been taken have been good and positive. We need to build
on them, but take perhaps with a grain of salt or some degree
of skepticism claims by anyone that material advancements have
been made in containing the problem. Is that a fair
description?
Mr. Naim. It is, Mr. Chairman, and essentially I want to
reiterate a central message, and that is that I would love to
see companies like ABRO and Mr. Demarais have incentive and
additional possibilities to use their ingenuity to try to find
ways that would make the copying of the products more
difficult. I am not suggesting that there should not be
legislation and all sorts of initiatives, local and
international, to protect companies like ABRO from the fact
that the products are stolen, but it would be wonderful if they
are given--that that same ingenuity would be stimulated to find
ways to make it harder because, by the time we make these
processes take place, they will continue to suffer significant
losses.
Senator Bayh. Are aware of any efforts along those lines to
promote technologies that would combat--of course, in the
entertainment arena, we are familiar, but perhaps a bit harder
in the manufactured goods.
I must say when you first suggested it and I read it with
in your submitted testimony, I think it is an excellent idea,
but the first thing that crossed my mind today when you said it
and I read it was to wonder how long it would be before the
technology intended to protect IP was itself stolen.
Mr. Naim. That is one aspect, and the other aspect is tat
not all products will be amenable to be protected by physical,
by protections and technology, and we have to recognize that.
But, Mr. Huther can tell you that, in the business sector,
this is already happening, a lot of the companies are
complaining and are suffering, are just not waiting for
legislation, are just not waiting for the patents. They are
already taking matters in their own technological hands and
investing significant amounts of money in research and
development of products, processes, and technologies that would
make copying harder. As you said, Mr. Chairman, in music and
videos and technology and software, there is a significant push
in that direction.
All I am saying is that it will be very interesting to find
ways to create even more incentives for these companies to do
this.
Senator Bayh. Let me ask you about, as we await the
creation of technologies that enable us to make the kind of
advancements we all hope to make, as you pointed out, this is a
transnational problem that needs a multilateral response. Part
of our legislative suggestion would be to identify countries
with similar interests that are willing to adhere to state-of-
the-art standards and try to build out from there.
The Justice Department has offered a different opinion.
They do not think that is a useful suggestion. For example,
they say that the exclusion of China and Russia from such an
effort would make it ineffective. What is your reaction to
that?
Mr. Naim. I tend to agree, Mr. Chairman, with the Justice
Department. I think that this problem cannot be solved by
excluding parts of the chain. And yes, China may be an
epicenter of manufacturing and exports of counterfeited goods,
but the United States is an epicenter of the distribution and
purchase of these goods. So, there are as many violations of
intellectual property taking place in the streets of the United
States and in the United States by customers that are buying
these illegal products as there are companies in China and
elsewhere that are selling these products.
So, again, as I said in my statement, this is a problem
that has suppliers, but it also has customers, and therefore it
is very important to integrate, to have an integrated view of
this.
Senator Bayh. I see my time--I have run up against the 5-
minute limit.
Mel, why don't I turn to you.
Senator Martinez. Thank you, Evan.
Mr. Naim, I wanted to ask you your thoughts, and I glean
from your testimony it is a difficult issue for governments to
enforce intellectual property in their own countries, but I was
wondering how much of it was due to the difficulty of
enforcement and how much was just benign neglect on their part
and not caring enough to do it and, therefore, the implications
of that in terms of trade agreements we entered into and the
seriousness of purpose with which we might be able to enforce
our trade agreements.
Mr. Naim. Yes, Senator Martinez, that is a very good
question, and I agree with you and others that have noted the
importance of placing this issue more in the center of the
legislative efforts and taking more initiatives, and I welcome
the bill, and I think this discussion and debate is very
important.
So, there is some benign neglect, but I would just be
careful and cautious in just chalking it down to lack of
political will in some governments. That may be the case, but
let us remember that there are very powerful economic interests
associated with this industry, and that in many countries these
interests are far more powerful even than governments.
I do not know that in some countries governments can risk
the instability and political upheaval that would create taking
on what is essentially in many countries the biggest game in
town. For many countries, this is the largest employment-
producing, revenue-producing industry, and people that are in
it are involved and very often part of the government, are part
of the military, part of the judiciary. And so it is--and I
understand that working with governments that are so penetrated
by the traffickers poses important questions and dilemmas.
All I am trying to show is the complexity of the issue and
outline the limitations of legislative initiatives, not
particularly this one, but to be careful not to create the
illusion of solutions, but be careful and understand the limits
of this activity.
Senator Martinez. I think it is very enlightening what you
say, but also a bit frightening to think that they may be
bigger than the governments in other countries, but I would
think that in places like India and China, which are such huge
trading partners of ours, would be two places where more
enforcement by the government and more of an interest by the
government might be helpful, and I am not sure that would
translate to every other country, but certainly there.
Mr. Huther, I wonder if you might touch on, through the
Chamber, what do you see business doing to assist themselves in
the vein of what was being suggested through their own
technology and so forth to bring about change in this arena,
even before legislation.
Mr. Huther. I would be delighted, Senator. The Chamber,
together with its coalition, has seven active working groups,
one of which focuses specifically on the issue of not only
current technology but leading-edge or next-generation
technology that could protect products at some various stages
of the supply chain. We have learned from the preliminary
research that old technology like radio frequency identifiers
that have been around for 40 years or more, the counterfeiters
and pirates have quite adroitly learned how to take advantage
of that technology and turn it into a way of protecting their
part of the supply chain, the illegitimate part. But you could
find examples of holograms, you can find examples of
watermarks, you can find examples of all different types of
technology that industry has decided to try at sometimes
considerable expense. It is not inexpensive to put something
that costs a penny or a dime on literally millions of products
that you are shipping all over the planet.
I think the bottom line is we are dealing with a very
sophisticated, organized element that understands that, if they
could defeat the technology, they could enhance the
profitability of what they are doing. So, they are probably
investing more resources in finding ways to invest in the
technology we are trying to employ and transfer the benefits of
to companies all over the planet, but most notably the small
and medium enterprises who really do not have a good
understanding of what this kind of technology can and should do
for them, but it is a high-risk thing. The latest technology
becomes yesterday's work-around for counterfeiters.
Senator Martinez. Mr. Chairman, I wanted to thank you for
the hearing and, as I told you at the beginning, I am going to
catch an airplane to meet a speaking engagement in Florida
tonight, but I want to thank the panel before being here. And
it seems to me that at a time when entities that are really
outside governments and outside nations present the greatest
risk to national security that this type of an industry that
also operates really outside the law and outside our
governmental supervision and oversight and regulations is the
very thing that, in confluence with one another, can continue
to fund and enhance the threat to our national security that we
see from terrorism.
So, it seems like an adjoining part of terrorism, if we
think about it in that broader context. But thank you very much
for this important hearing, and thank you.
Senator Bayh. Have a safe trip.
Mr. Yager, I would like to move to you, if I could, and I
would like to get back to the Justice Department and some of
the concerns they expressed about our proposed approach. Let's
start with the issue of stovepiping and information sharing.
The Department seems to be under the impression that
information is being adequately shared horizontally across
government agencies and that that is not an issue. What is your
opinion?
Mr. Yager. Chairman Bayh, we have been doing work on this
particular subject now for a number of years, and I guess it
depends on your perspective, but I think maybe their
expectations are not in the same place as the Congress's
expectations in terms of information sharing.
For example, I think the performance of NIPLECC itself is
one that I think that the Department of Justice has generally
been supportive of the way that it was set up, but
unfortunately it has not reached or has not changed the
expectations of the Congress in a number of ways. For example,
in the budget process, the Congress has made a number of
comments about the quality of the NIPLECC report, particularly
before the most recent report in saying it has not met their
expectations in terms of timeliness and quality. So, I think,
from the perspective of the Congress, it has not met
expectations.
In addition, I think as Brad mentioned before, the private
sector has also expressed some questions about the
effectiveness of coordination in this area.
Finally, there is another group that has been set up--it is
called the ``Intellectual Property Center'' (IPR Center)--which
was supposed to be a combination of the Department of Justice
and the FBI and Department of Homeland Security and ICE, which
was supposed to be co-located where those folks work together
to share leads. Unfortunately, the promise of that type of
coordination has not been fulfilled, whereas the Department of
Homeland Security has staff that apparently the Department of
Justice has not been able to put full-time people in there.
Now, I understand there is no one actually staffing that
center.
So, the expectations may be the different. We think there
is a lot of room for improvement. As I mentioned in my opening
statement, we have another report coming out shortly which has
to do with intellectual property protection as it is achieved
at the U.S. border. And again, based on the work we have done
both speaking to the private sector as well as talking to
government officials, we think there are significant
improvements that can be made in this area.
Senator Bayh. In your previous comments about the need for
permanence, about the need for benchmarks for progress, about
allocating scarce resources in the maximum way, all those sorts
of things, are there additional steps on top of what is
currently being done that would benefit our efforts?
Mr. Yager. Absolutely. We think that many of these sound
somewhat complicated to say national strategy, but, in fact,
many of the things we talk about are very common sense, talking
about the risks to achieving the strategy, talking about the
resources. Obviously, trying to have a dialog with the
Congress, you need to be able to talk about resource, resource
needs, and what are the risks out there that need to be
addressed; and we think that having that in a strategy where
this kind of a dialog could take place both with the Congress,
with the private sector, would help achieve some of those
goals.
Senator Bayh. I thought it was interesting in Justice's
letter to Chairman Leahy--and we do not have the Congressional
Research Service at the witness table today, but they debunked
an additional critique which was kind of ironic since they
claim that information sharing was very good in taking place,
they suggested our approach would require them to share
information, which the Justice Department was not accustomed to
doing when it touched upon criminal prosecutions and that kind
of thing, and the Congressional Research Service pointed out
there are concerns in this regard were perhaps not well-
founded.
Mr. Yager. If I could make a couple of comments on that, I
think the one thing that is important to remember is that
Justice is a very important part of this group going forward,
and the group going forward, their main purpose is intellectual
property enforcement. So, it seems hard to imagine why the
Justice Department would be so concerned about a group trying
to weaken, in fact, what the group was set up to achieve.
Again, Justice will be an important part of this group and they
would be able to contribute to this discussion.
And I think also in that legislation you have the savings
clause which allows them to determine whether the kinds of
efforts or actions would be contrary to law or procedure or
regulation, which I believe also seems to provide a reason why
it would not necessarily challenge the kinds of things they
have been concerned about.
If I could just make one more comment relative to Senator
Martinez's point. When we are looking at different countries
around the world--and I think this is a point that Dr. Naim
said--there certainly is a difference between trying to enforce
rules and get the cooperation of a country like Paraguay, which
really does not have a large domestic market, does not have
much of a legitimate trade, versus China, where, in fact, they
do stand to lose a lot.
So, I think the comments about, you know, using leverage in
a place like Paraguay or others that do not have a large
domestic market or do not have a lot of legitimate business,
certainly that would be a big challenge, whereas in China there
is legal activity and significant issues to be lost.
The other thing is as China develops and develops more
firms and some of the intellectual property on their own, there
would be more domestic constituencies with which to work so
that they can say, ``Yes, we are losing our own intellectual
property as well as risking U.S. firms or taking intellectual
property from the United States.''
So, we think there is an important distinction. There are
certainly countries, even China, where providing incentives to
improve will eventually help their domestic manufacturers, as
well.
Senator Bayh. Dr. Naim, you were nodding your head?
Mr. Naim. I completely agree with Dr. Yager, and that is a
point I made in my written statement about the need for
selectivity and being very selective and very targeted in these
efforts; and, therefore, that means differentiating the Chinas
from the Paraguays becomes a very important element for their
success and precondition for success of this bill.
Senator Bayh. Thank you.
Mr. Huther, about information sharing across government
agencies, what has been the experience of your members in that
regard? Can that be improved upon?
Mr. Huther. Yes, sir, and in many respects I communicated
that as recently as Tuesday of this week.
Senator Bayh. I am sure your members found it to be
shocking that the government was not seamlessly communicating
horizontally across departments?
Mr. Huther. It is difficult to do, I must say. I formerly
worked in the government, so I think I can speak with some
sense of the complications and complexities that are associated
with it.
Having said that, we believe that without that kind of
information sharing and without creating an avenue for business
to be kept informed on the basis of whatever intelligence
business can provide into that data base or network of
information is critical. The Chamber of Commerce is together
with one agency and the Department of Commerce financing a new
attempt to allow industry groups and law enforcement
authorities to create via Interpol a new form of intelligence
which could be monitoring activities globally realtime, so
that, as a counterfeiting criminal act occurs in one country or
one port, that information can be uploaded into the data base,
and, more importantly, used very much like your legislation
proposes: To be used by Interpol to compare and contrast
against the same people doing money-laundering activities, such
as Dr. Naim mentioned; or human trafficking, which oftentimes
can be a subset of the counterfeiting piracy milieu.
So, we want to create as many opportunities to have new
forms of information, share it as widely as we can, not to
compel--we do not have the authority to compel people to use
it, but to make it available to them in ways that the law
enforcement community, especially in the United States, finds
very helpful.
If I could comment on Dr. Naim's comment about the Justice
Department view of the question of how one goes about dealing
with other foreign governments being a step in the wrong
direction, I have informed them that I do not see it that way.
I see your legislation supplementing already extant agreements
that the U.S. Government has entered into to deal with
transnational counterfeiting shipments of both pirated as well
as counterfeiting works.
So, if we can view this, what I see your legislation doing,
or what we at the Chamber see your legislation doing, is adding
value of condition of collaboration, condition of coordination,
but elevating it to a much higher level. So, if I could use the
word that all of this is aimed at ``supplementing'' what is out
there and supplanting nothing, I think that is exactly what
your legislation is designed to do.
Senator Bayh. We were looking for allies, both horizontally
in our country and vertically internationally, to hear sharing
information across jurisdictions. Obviously, we were scrupulous
in writing it in a way that would not compromise criminal
prosecutions, but, that said, sharing information to the extent
possible to enhance our efforts across agency responsibilities;
and then globally looking for countries with similar standards,
similar interests, starting, as you said in your book, and
building from there to include those who are working toward
meeting those standards. Obviously, those are part of the
problem you have to engage. You just cannot leave them out.
Just two more questions for you. I take it by your comments
you think that this should be a permanent priority for our
government and not to depend on the ebbs and flows of
priorities of different administrations and that is something
useful that the legislation would bring, a permanence feature?
Mr. Huther. That is one of the primary advantages we see.
Senator Bayh. One other interesting thing I would
appreciate your take on, I read with some interest the articles
following the Administration's filing of the recent WTO
complaint with regard to entertainment, intellectual property
and that kind of thing, and some of the articles tend to
suggest this, taken in concert with some other recent actions
by the Administration, constitute a get-tough approach on
trade, and there is always sort of a subtext. Is this the
beginning of a protectionist move in our country, or are these
steps designed to head off protectionist mood in our country,
and your organization has been to expand for global trade. I
hope it would be possible for expanding global trade, but also
be for vigorous enforcement of the rules that govern global
trade, in this case particularly those rules which in the long
run will augment innovation that not only helps our country but
all those who will benefit from it.
So, is it possible to be for more vigorous enforcement of
intellectual property standards and at the same time be for
trade and not be labeled a protectionist?
Mr. Huther. The Chamber does not find any inconsistency in
those whatsoever. If the President of the Chamber, Tom Donahue,
were here, he would use a phrase which he uses often, which is:
The only thing the United States business community seeks in
its international trading arrangements is a level playing
field. And, frankly, I should point out, Mr. Chairman, that
this is not just about China, this is not just about foreign
governments. We have a very serious problem of inbred
counterfeiting activity going on within the United States. So,
we have to be as vigorous in our approach to making sure that
we take steps to create an equivalent level playing field for
our foreign trading partners, as we would expect them to do the
same. And given the level playing field, we would look forward
to the opportunity to have U.S. industry compete against the
best in the rest of the world. That is all we ask.
Senator Bayh. That is always been my altitude, as well.
Mr. Demarais, to you, just one brief comment. I hope that
your wife was not too offended as having been identified as a
model.
Mr. Demarais. She is talking looking for her contract now.
Senator Bayh. At least there was some silver lining to that
unfortunate appropriation of her, of your family, which is one
of the most brazen instances of packaging copying I have heard
of.
The recent action by the Administration to help protect
movies and DVDs and that sort of thing is good as far as it
goes. As I mentioned in my opening comment, it covers about 4
percent of the intellectual property theft that we experience
as a country, so let me ask you: Did that action do anything
for you, your workers, your products?
Mr. Demarais. The recent action regarding the film
industry? No, but it does create some awareness. For years, we
have talked about this. I mean, the movie industry has been
affected by this. I think I first visited China 15 years ago,
and the first thing I was offered when I got off the airplane
was a dollar DVD or CD tapes. Clearly, they have been impacted
by this maybe longer than we have in our industry. Since then,
it is a snowball effect. Every product that we see out there
that we make in the States and Europe is subject to be
counterfeited, and we hope this is something that we will
follow through on. It is a very frustrating experience to go
out there and promote a brand and then have somebody knock it
off at half the price.
And we failed to mention not only the price is an issue,
but the quality is an issue. I do not know how many people have
told me in certain markets in Dubai or Abu Dhabi where they
sell ABRO products, they will not buy my products because
certain ABRO products are failing. I get the samples back to my
lab, I found out it is made in China or made in India. It is a
double-edged sword, one you lose a market share because of
price, and second because of quality. Some people take the
attitude, ``I can't trust the ABRO name,'' and this is
something we tried to buildup over the last 40 or 50 years.
So, clearly, we want all industries protected, and it is
going to take time.
Senator Bayh. Well, and I agree. My own view is that this
was a good step. I hope it is a first step and shows a
continuing dedication on the part of this Administration and
future administrations to creating a level playing field that
we discussed here today. If you read some of these articles,
there is some people at least raise the possibility because of
upcoming votes on fast track and free-trade agreements and that
kind of thing, and I hope that that is not the case, that, as
we expand trade, we also expand our devotion to making sure
that intellectual property is protected. It is the only way the
global economy is going to function well, in the long run, at
least as far as I can tell, with the humility we have to bring
to our efforts to make it that way, implicit in my comments.
My last question, and I will make a closing comments for
all of us. You have been patient today and I appreciate your
time in your efforts to join us. Just very briefly, Mr.
Demarais, your workers, your company, what do they expect of
our government when it comes to this kind of thing? When you
experience these sorts of things you experience, what do they
feel you then have a right to expect for us?
Mr. Demarais. It is a great question because we have been
asking that question for the last 10 years because, as I said,
we are the foot soldiers out there. We are the ones going to
market, not just my employees, but my customers. The authorized
ABRO dealer that we set up in every country, he expects
something, too, because we are--we made a decision to work one
man in this market, he is buying the ABRO USA product, and all
of a sudden the market is full of non-USA ABRO products. So,
what does he expect? He cannot believe that we cannot protect
the ABRO trademark, and obviously employees feel the same way.
What do we expect from the government? I just came back
from a trip to West Africa. I met with three or four various
embassies over there, and they said the same thing: We need to
have some teeth in our legislation. We need to have people on
the ground that can enforce. It is one thing to have these
laws, but unless we can enforcement them, unless we can work
with the various countries--and every country treats
intellectual property differently; certain countries just blow
the whole area off--you are not going to make much progress
there, no matter how much legislation you have.
It is a combination of things. I think basically, though,
once you get the legislation through, you have to have a way of
enforcing it on the ground.
Senator Bayh. That is an excellent comment, and I will just
end with a little story that I think illustrates your point and
part of the challenge that we face here. Condoleezza Rice, her
first trip following becoming Secretary of State, was to China,
and there was a story in the New York Times about her
discussions with her counterpart, one of the big hotels in
Beijing, and part of her dialog with this individual was to
say, ``Look, we really need to have more vigorous enforcement
of intellectual property protection, it is not fair,'' and he
agreed with her comments and said that they just passed new
laws, which, in fact, they had passed new laws, and that they
would make it a priority and enforce the laws and that sort of
thing.
The reporter concluded the story by writing that when he
left the hotel where this dialog had taken place, there were
some of these kiosks out directly in front of the hotel, where
for sale you could find recent copies DVDs of the movie ``The
Aviator'' before it had actually been released in our own
country, and a Chinese policemen was sort of walking along,
paused in front of the kiosk, inspected the goods and continued
casually along his way, suggesting that there was some distance
between the discussion at the highest levels of government and
actual enforcement at the street level where, of course, it
needs to take place.
So, perhaps some years ago we could afford to take a
cavalier attitude about these things, but when it involves $250
billion annually and goes right to the heart of what perhaps
will be our long-term comparative advantage, we need to be
serious about this. We will never provide a perfect solution--
it is not possible--but we need to try to do the best we can. I
think you have the right to expect that, your workers--our
taxpayers--have a right to expect that to bring a sense of
urgency to this problem. That is why we had the hearing today.
I wanted to thank all of you for your time and insights,
and now it is up to us to take this hearing, along with our
colleagues on the Judiciary Committee, and translate this into
action. Thank you all very much.
The committee is adjourned.
[Whereupon, at 3:33 p.m., the hearing was adjourned.]
[Prepared statements and responses to written questions
supplied for the record follow:]
PREPARED STATEMENT OF SENATOR GEORGE V. VOINOVICH
Chairman Bayh and Subcommittee members, good afternoon, and thank
you for the opportunity to testify before you at this important
hearing. I welcome this hearing, and I am encouraged that you are
examining the impact of intellectual property (``IP'') theft on
American competitiveness. It is another important step in raising
public awareness about this issue and improving our coordination and
enforcement efforts.
I am deeply concerned with the problem of intellectual property
theft, particularly because such piracy has a significant impact on
manufacturers, and manufacturing plays a vital role in Ohio's economy.
I am proud that as Governor, my administration gave high priority to
manufacturing, and that it grew during this time.
During my tenure as Governor, I worked with Ohio companies to
conduct nine Ohio Business, Trade and Investment Missions, which were
designed to open global markets for Ohio products. These trips spanned
the globe and led to over 275 meetings between businesses and foreign
government officials. These trade missions resulted in tremendous
success for Ohio business--between 1991 and 1996, Ohio's export of
manufactured goods increased by an unprecedented 48 percent! During
that time, I am proud to say that big or small--Ohio manufacturers were
participating in the global economy.
Since I arrived in the Senate, I have continued to fight for Ohio's
manufacturers. Unfortunately, I have found that participation in the
global economy has a dark underside--the theft of intellectual property
and the piracy of goods. After I arrived in the Senate, I began to hear
from some of the same Ohio companies that joined the economic trade
missions when I was Governor. These companies were facing a serious and
growing threat--the theft of their intellectual property and
competition from pirated products.
As a result of these complaints, I held six oversight hearings
about trade and intellectual property in the Homeland Security and
Governmental Affairs Subcommittee on Oversight of Government
Management, the Federal Workforce and the District of Columbia, which I
chaired. Too often during these hearings, I heard the same story. U.S.
companies would sell their products overseas, often working with a
local partner, and soon after, the partner or some other IP thief would
counterfeit and start to sell the very goods that the U.S. companies
had worked to export. Most disturbing to me was the fact that when I
first started to conduct hearings into this problem, the response from
our own government was almost non-existent.
During this time, I continued to express my concerns to the
Administration, first to Secretary of Commerce Evans and USTR Zoellick,
and more recently to my good friend Rob Portman when he was USTR, as
well as Secretaries Gutierrez and Paulson. My message was simple; our
government was not doing enough to address this problem, and it was
failing to assist the companies that were subject to this theft.
I was not content just to voice my complaints. I voted against two
separate free trade bills with Australia and Morocco because I was
trying to get the Administration to focus on the problem of IP theft.
Finally, in 2004, President Bush established the Strategy Targeting
Organized Piracy initiative (the ``STOP! initiative''). While I thought
this was a good first step, I also believed these efforts needed an
orchestra leader, someone who wakes up in the morning and goes to bed
at night thinking about how to improve IP protection and enforcement. I
was pleased that in July 2005 the President appointed Chris Israel to
serve as the first U.S. Coordinator for International Intellectual
Property Enforcement. While I believe these efforts have started to pay
dividends, and I commend the President for taking the initiative to
improve the government's response to the problem, the next step is for
Congress to enact legislation to improve on this work, make it
permanent, and give Congress an appropriate oversight role.
This is why during the 109th Congress, I partnered with the
Chairman of this Subcommittee, who also recognized the devastation that
this problem is having on U.S. manufacturing, to introduce the
Intellectual Property Rights Enforcement Act (``IPREA''). Because we
did not get this legislation enacted during the 109th Congress, this
past February we reintroduced the IPREA (``S. 522''). The legislation
would improve our existing enforcement efforts by: (1) providing better
domestic enforcement coordination; (2) strengthening international
enforcement by reaching out to like-minded countries and improving
coordination with these countries; (3) improving congressional
oversight by requiring the development of a government-wide IP
strategic plan, and annual reports to Congress on how these efforts are
faring; and (4) requiring the IP coordinator to work with IP
stakeholders to develop resources to address their needs.
Just as important, this legislation keeps the next administration
from reinventing the wheel in January 2009. In Washington, we all know
that we come up with new ideas, and just as all the pieces are in
place, we have a shift in power, and we lose our momentum. I do not
want to lose the momentum we have gained under the STOP! initiative;
rather, I want to continue and improve on it. Our democratic system is
another thing that a lot of our competitors do not have to worry about.
Countries like China--sadly--do not have Congressional elections every
two years and Presidential elections every four years. They do not have
to worry about losing their momentum because when a regime comes to
power, it stays in power.
While I was disappointed that we were not able to get this
legislation passed during the 109th Congress, Senator Bayh and I
continue to work with businesses, industry groups, and labor groups to
enact it. I have also spoken with Senators Leahy and Specter, Chairman
and Ranking Member of the Senate Judiciary Committee, and I understand
the Judiciary Committee will hold hearings on a number of IP items,
including S. 522. I look forward to working with Members of the
Judiciary Committee on this legislation, and I appreciate the
willingness of the Chair and Ranking Member to examine this important
issue. I would note that since we have reintroduced the legislation,
over thirty organizations have endorsed it, including the U.S. Chamber
of Commerce, the AFL-CIO, the National Association of Manufacturers and
the UAW.
These organizations recognize that Congress can no longer ignore
threats to our national economic security caused by IP theft; the cost
is simply too great. Just to give you a few astonishing statistics,
intellectual property theft is costing American business an estimated
$250 billion each year and has resulted in an estimated 750,000 jobs
lost. In the global economy, where competition is as high as I have
ever seen in my lifetime, we cannot allow such staggering losses to
continue. We must do a better job in combating these pirates of the
21st century.
Although I was encouraged by the USTR's announcement on Monday that
it would file WTO cases against China over its deficiencies in IP
protection and enforcement, I am still concerned that the scope of the
problem is not fully appreciated, even within the United States.
Unfortunately, too often, many believe that intellectual property theft
is an issue limited to knock-off hand bags and pirated DVDs and CDs.
The press coverage of the USTR's announcement seems to confirm this
belief, as it largely focused on IP violations related to music and
movies. Unfortunately, today, everything from medicine to airline and
auto parts is counterfeited, and these fake products end up on store
shelves here in the U.S. and around the world. These fake products are
having a devastating impact on businesses both large and small, and
pose a serious risk to consumers who cannot differentiate between
genuine products and counterfeit knock-offs.
In the global economy, one of the only ways America can continue
competing is through our own ingenuity--it is one of our best
competitive advantages. American manufacturing is already at a
disadvantage in the foreign marketplace. Our competitors have lower
wages, and they are not plagued by the same stringent regulations and
rising health care and energy costs. This is why we must address
intellectual property theft head-on in order to protect America's
competitive edge, so we ensure that our companies continue to enjoy the
fruits of their investments and innovation.
Thank you for allowing me to testify today, and I look forward to
working with Senator Bayh to pass S. 522, and I would encourage our
colleagues to join us as we move this important legislation forward.
------
PREPARED STATEMENT OF MOISES NAIM, PH.D.
Editor in Chief, Foreign Policy Magazine
April 12, 2007
Mr. Chairman, distinguished members of the Committee,
My name is Moises Naim and I am the Editor in Chief of Foreign
Policy magazine. I am also the author of a recent book entitled
Illicit: How Smugglers, Traffickers and Copycats are Hijacking the
Global Economy. In this book, I summarize the findings of more than a
decade of research into the inner workings and the consequences of
illicit trafficking. I have studied the smuggling of everything from
people and weapons to narcotics and human organs; and from endangered
species to laundered money. I have also researched the trade in pirated
products of all kinds, including medicines, automobiles, industrial
parts, luxury goods, and a host of other commodities.
It is on this last illicit trade in counterfeits that our
discussion focuses today, and on which I shall concentrate my remarks,
Mr. Chairman.
Before I begin, I want to thank you, Chairman Bayh, and your
colleagues on the Subcommittee on Security and International Trade and
Finance for giving me the opportunity to come before you today. The
trade in illicit goods is one of the most pressing issues of our time
and I am pleased to come before the Subcommittee. I also want to
recognize your leadership, Mr. Chairman, in tackling the problems
created by the booming global trade in counterfeits, as well as your
sincere interest in seeking innovative solutions to contain this
growing threat.
Today I want to make five points concerning the international trade
in stolen intellectual property--and offer one proposal for your
consideration:
Firstly, the international trade in counterfeited goods is just one
of many illicit trades that have boomed in the last decade and a half.
The revolutionary changes in technology and politics that began in the
early 1990s made the movement of people, goods, information, and money
easier than ever before. These changes made it cheaper for businesses,
non-governmental organizations, churches, terrorists, and countless
other groups and bodies to operate globally, and with more ease than at
any time in history.
Smugglers, always internationally-minded and always quick to detect
and exploit price differences among neighboring nations, were among the
first to take advantage of the opportunities created by globalization.
Before the most recent wave of globalization, traffickers were
primarily limited to illegally moving goods across borders between
adjacent countries. But beginning in the 1990s, they could exploit
price and cost differences globally, moving their merchandise across
continents in large volumes. Their profits, technological and
managerial sophistication, and their political influence increased
accordingly.
Today, smuggling on a global scale has become one of the most
potent forces reshaping the world's political and economic landscape.
Yet, in contrast to the globalization of legitimate business, the
media, or even terrorist organizations, the globalization of smuggling
and its consequences has received little attention.
When we actually look at the illegal, international trade in
people, narcotics, timber, industrial waste, human organs, weapons of
mass destruction, and other goods, we see interesting similarities
among them. While smuggling luxury products from Asia to Europe may
look very different than smuggling cocaine from the Andes to Florida,
and while trafficking Central American workers to California may look
different than trafficking human kidneys from China to Canada, in fact
many of the economic forces, organizational arrangements, business
models, and behavior of the players are quite similar. They are not the
same people or criminal networks. But the forces that drive them and
the way they are organized bear much in common.
Governments' responses have also been quite similar--and, in all
cases, unfortunately their success has proven very elusive. There is
hardly any country that can claim major progress in containing the
growth of any of these illicit trades. Therefore, a major implication
of this first point is that much that can be learned from past and
current efforts aimed at curbing illicit trafficking in other markets,
and these lessons can be fruitfully applied to new initiatives aimed at
limiting the trade in stolen intellectual property.
Secondly, a common factor in all of the illicit trades I have
studied is how easy it is to overestimate governmental capabilities.
One of the most common mistakes I have found in legislation aimed at
controlling illicit trades is that, too often, it assumed that
governments are more capable and effective than has proven to be true.
There are many reasons for this, but the most important is that
while traffickers are global, governments are national. Governments
have a hard time working outside their national jurisdictions. The
natural habitat of government is inside a nation's borders. The natural
habitat of traffickers is in-between national borders--in the cracks
and shadows of globalization. While traffickers are perfectly at home
when operating in these interstices, governments are slowed down,
indeed often paralyzed, when working within them.
In this respect, globalization has had very asymmetrical
consequences for traffickers and for the public servants charged with
chasing them. New technologies, political changes, and policy reforms
around the globe have had the effect of empowering criminals more than
governments. In some instances, they have even demonstrably weakened
governments.
This means that governments must exercise great caution when
assigning new tasks and responsibilities to agencies and departments,
and their bureaucrats. Government is indispensable in the fight to curb
smuggling in general and counterfeits in particular. But in order to be
effective, government needs to be selective in what it tries to
achieve. It is unrealistic to expect government to combat every aspect
of counterfeiting. History proves that it cannot. This approach will
further burden already over-stretched governments and greatly reduce
their effectiveness. Priorities are important in any policy discussion
related to the fight against global counterfeiting. But, as you all
know well, the hardest part of setting priorities is not deciding what
to do, but rather deciding which goals, though admirable, must be cast
aside. Nowhere is this more true than in the fight against smugglers,
traffickers, and copycats.
The third point is that another frequent characteristic of anti-
trafficking campaigns worldwide is that they all tend to concentrate
more on constraining the supply of the smuggled goods, than on limiting
their demand. This fact is well known in the case of the United States'
War on Drugs where, resources spent on interdiction and eradication
outstrip those aimed at curbing homegrown demand. It is also true of
efforts against illegal migration which--at least until recently--were
overwhelmingly devoted to stopping the illegal entry of foreigners
while largely ignoring their American employers.
These strategies failed, and the same risk of failure is possible
in the fight against counterfeiters. It is important to remember that
the boom in pirated goods owes as much to a growing demand as it does
to a growing supply. We are talking about literally billions of
consumers around the world who are willing--indeed eager--to buy bogus
facsimiles of products at a fraction of the price of the original,
lawful goods. This market of consumers is served by millions of some of
the most innovative, ruthless, and managerially and technologically
sophisticated entrepreneurs at work today in the global economy.
This is a powerful market--and it is driven more by high profits
than by low morals.
Approaching this fight purely from a law-enforcement or legalistic
perspective will miss the fact that we are in the presence of a
gigantic market with millions of buyers and sellers and immense volumes
of merchandise and money changing hands.
The implication of my third point is this: it's necessary to think
about incentives, profits, value-chains, and business models when
thinking about how to align this market with the needs of society. It
is important to recognize that, more often than not, it is futile for
governments to work against global markets that are this massive and
powerful. It is far better to use these market forces to help achieve
your achieve goals. It is in this spirit that I will offer a proposal
for your consideration in just a moment.
Before I do so, let me make a fourth point, which is simple and
brief. No country can successfully tackle this problem acting alone. A
global problem cannot be solved with unilateral, national efforts.
Curbing the growth of the global counterfeiting market inevitably
requires the effective coordination of several nations acting in
concert. This is a slow, frustrating, and often ineffective process.
But no other options exist. Anyone that argues in favor of a unilateral
solution is mistaken. Such an approach will retard the adoption of more
effective efforts, even as it creates the illusion that something is
being done to deal with the problem.
Lastly, counterfeits are undermining a critical foundation of
global capitalism: the intellectual property rights regime. It has now
become apparent that patents, copyrights, and other legal instruments
are not affording inventors, artists and, generally speaking, the
owners of intellectual property adequate protection against the
unlawful appropriation of their property. Brands, designs, formulas,
software, and content that has value is being routinely stolen, copied,
and sold worldwide at a fraction of the price charged by the original
owners. Entire industries have been devastated by piracy.
It is equally apparent that the ability of governments to enforce
the legal rights of owners of intellectual property is rapidly
declining. Moreover, it is not at evident that this decline in the
effectiveness of legal instruments to protect intellectual property can
be stopped, reversed, or, in a great many cases, even slowed down. In
some instances, it is not even clear that the countries in which major
counterfeiting operations exist have governments with the political
will or the institutional wherewithal to clamp down on counterfeiters.
The massive scale of their operations, the employment they generate,
the profits they yield, and the widespread accomplices that
counterfeiters have in government, politics, law enforcement, the
military, the media, and the judiciary make them a formidable political
and economic force. (Too often they are also a formidable armed force.)
The implication of this point is not that governments have to
abandon the fight to ensure that intellectual property rights are
protected and enforced at home and abroad. Rather the implication is
that governments need to be supported in their efforts by the most
intensive use possible of anti-copying technologies. In many industries
in the near future, technology and science are going to be far more
effective at protecting intellectual property rights than legal
instruments and governments. In some industries that is already, and
increasingly, the case.
I believe that the effectiveness of anti-piracy legislation
significantly depends on its ability to use markets and incentives to
achieve its goals. By this I mean its ability to deal not only with the
supply side of illicit markets, but also and with equal attention to
the demand for the counterfeited goods and products. And naturally, on
how well it incorporates the fact that this is a transnational problem
whose alleviation will prove elusive to actions taken by governments
acting alone.
One area that I do not believe has been sufficiently considered is
the reality that there is much that technology can do (and is already
doing) to safeguard some products from illegal copying. I therefore
believe that a very promising, market-based solution is to include in
any legislation mechanisms that will stimulate and accelerate the
development and adoption of new technologies. Specifically,
technologies that will make counterfeiting products far more difficult
than what it is now. I am convinced that in the foreseeable future
technology--not patents, sanctions, or other traditional means for
fighting intellectual property theft--will become critical in
protecting the intellectual property of innovators, creators, and
artists.
Thank you, again, Mr. Chairman and members of the Subcommittee for
affording me this opportunity to testify before you. I look forward to
your questions and comments.
------
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PREPARED STATEMENT OF BRAD HUTHER
Senior Advisor for Intellectual Property Enforcement,
U.S. Chamber of Commerce
April 12, 2007
Good afternoon Chairman Bayh and members of the subcommittee. My
name is Brad Huther and I am appearing before you today on behalf of
the U.S. Chamber of Commerce. The Chamber is the world's largest
business federation, representing more than 3 million businesses and
organizations of every size, sector and region of the economy.
Thank you for the leadership you and Senator Voinovich have
provided on an issue of utmost importance to the U.S. business
community.
The Chamber commends recent government-wide efforts to increase
attention to the global threat of counterfeiting and piracy. The last
few years have witnessed the launch of several public-private
partnerships designed to combat intellectual property (IP) crime
including the Administration's Strategy Targeting Organized Piracy or
STOP! initiative, the Chamber's Global Anti-counterfeiting and Piracy
Initiative and similar regional coordination efforts within Europe and
North America, just to name a few. The current Administration's STOP!
initiative has spurred the Department of Commerce, the Justice
Department, the State Department, the United States Trade
Representative, the Department of Homeland Security, and the Food and
Drug Administration to elevate the importance of IP-related crime and
coordinate previously disparate Federal activities to battle this
crime. The Chamber and the more than 285 members of the Coalition
Against Counterfeiting and Piracy have aggressively supported the STOP!
initiative. This interagency effort has achieved a number of successes,
for example, the Department of Justice charged 350 defendants with
intellectual property offenses in FY2005, nearly double the number
charged in the previous year. Additionally, 2006 saw arrests and
indictments resulting from investigations conducted by Immigration and
Customs Enforcement increase by 40% over the 2005 level. These
successes and the efforts of the STOP! initiative provided a good first
step toward a comprehensive national strategy to combat IP crime.
Despite these and other noteworthy achievements under STOP!, the
Chamber believes the Intellectual Property Rights Enforcement Act is a
positive and necessary next step critical to the battle to curtail IP
theft domestically as well as globally. This legislation builds upon
the achievements of the STOP! initiative by creating a better organized
and permanent interagency framework allowing for more efficient
collaboration and intelligence sharing, while recognizing the necessity
to team with foreign governments committed to making positive strides
in battling IP crimes. Enacting this legislation would clearly
demonstrate that the U.S. is prepared to handle this category of crime
with the seriousness it demands on a permanent basis and with global
reach.
IP fraud is an extremely lucrative and low-risk crime that
threatens brand owners and creative innovators in all business sectors.
We share your view, Mr. Chairman, that counterfeiting and piracy are
cash-generating operations for organized criminal networks and
terrorist activities.\1\ These large criminal gangs possess
international manufacturing capabilities and sophisticated distribution
channels that rival, and sometimes surpass, those of legitimate
businesses. The Intellectual Property Rights Enforcement Act elevates
such criminal activity to the levels of money laundering and black-
market crimes. The Chamber supports this integrated approach in the
fight against the theft of intellectual property.
---------------------------------------------------------------------------
\1\ See Official Testimony of John C. Stedman, Lieutenant, County
of Los Angeles Sheriff's Department before the United States Senate
Committee on Homeland Security and Governmental Affairs, 25 May 2005.
Officer Stedman testified to an investigation that linked the sale of
counterfeit cigarettes to Hezbollah fundraising.
---------------------------------------------------------------------------
The business community also recognizes the need to leverage its
collective resources to partner with the government in battling this
scourge. The Chamber has developed a strategic action plan with
tangible steps to stop counterfeiting and piracy. Our strategy has
three major components:
First, to educate lawmakers, the media, businesses,
innovators and consumers about health, safety and economic
dangers that counterfeiters and pirates are imposing on us;
Second, to enforce the legitimate rights of small
companies, manufacturers and retailers to protect the goodwill
of their product line and to have safe, reliable distribution
channels in the United States;
Third, to engage, on a global basis, countries that
are not honoring their international trade obligations, crack
down on counterfeiters and pirates of intellectual property,
and strengthen their borders and shipping controls.
We believe our efforts, when combined with those of business
organizations and governments around the globe, will create a safer
marketplace for consumers, protect the jobs of American workers and
expand our competitiveness internationally.
The Intellectual Property Rights Enforcement Act provides a strong
foundation for our future collaboration. By creating an expanded and
permanent interagency enforcement unit to combat IP theft, a better
organized more disciplined force will emerge. This legislation proposes
the formation of the Intellectual Property Enforcement Network (IPEN)
to oversee coordination among the players I have mentioned and to
ensure that a strategic plan to combat IP crimes is effectively
implemented. Agencies, while retaining their autonomous nature and
continuing to perform their essential functions and duties, would
belong to a group of high-level policy makers under a more disciplined
structure that will be better prepared to counter highly organized
counterfeiting networks. For example, S. 522 would not modify the
independent prosecutorial discretion of the Department of Justice or
permit other agencies to unduly influence the essential operational
duties the DOJ faces daily. IPEN would, however, enhance interagency
cooperation and coordination on a broad range of strategically
important activities, including intelligence sharing.
The Chamber has actively supported the establishment of regional
frameworks to increase cooperation on enforcement of intellectual
property rights among our most important trading partners. Here are
just a few relevant examples of new enforcement efforts that are being
pursued in ways that we believe are complementary to the global
Intellectual Property Enforcement Network which you and Senator
Voinovich have proposed in S. 522:
The EU-US Action Strategy for the Enforcement of
Intellectual Property Rights includes fifteen bilateral,
multilateral and public-private action strategies, many of
which involve the sharing of enforcement intelligence with
relevant law enforcement authorities;
The Security and Prosperity Partnership of North
America contains similar action items, most notably a goal to
``develop a network of enforcement professionals among the
governments of Canada, Mexico and the United States to jointly
collaborate on enforcement against transnational counterfeiting
and piracy.'' The three governments are currently considering
ways of identifying authorized law enforcement officials to
conduct domestic criminal investigations and prosecutions of
counterfeiters and pirates and enhancing domestic industry/
government cooperation and information sharing; and
At the G8 Leaders Summit in St. Petersburg last
year, a comprehensive IP enforcement strategy was announced,
which included an agreement ``. . . on a plan to establish a
formal IP law enforcement infrastructure within the G8 . . .
for the pursuit of joint law enforcement operations targeted at
IP crimes.''
IPEN would provide an excellent platform with which the U.S.
private sector can interact to express its concerns and provide
intelligence on criminal activity. The business community has a clear
role to play by contributing its expertise and resources to assist the
government in taking on all aspects of counterfeiting, including those
relating to technical assistance and capacity building. Company-
financed investigations, which complement the work of law enforcement
officials, will have grater leveraged benefits via IPEN as well.
Through the promotion of greater private sector collaboration and
enhanced channels of communication, we believe IPEN will have a
substantially more efficient and increased capacity to obtain and
distribute intelligence on Intellectual Property Rights (IPR) crimes
simultaneously to all relevant agencies.
Accordingly, we believe the Intellectual Property Rights
Enforcement Act articulates a clear and compelling need for greater
international enforcement cooperation in battling IP crimes. IPR crime
adversely affects countries that are our potential trading partners.
While all recent Free Trade Agreements contain substantive sections
regarding intellectual property rights protection and enforcement,
without greater international IPR enforcement activities the investment
climate and trading environment in these countries will be hampered.
The Intellectual Property Rights Enforcement Act would be invaluable in
creating a framework that rewards countries for having legal regimes
that enforce IP laws, shut down piracy operations, arrest and prosecute
those who commit IP crimes, and for having officials with the authority
to inspect, seize and destroy counterfeit goods at ports of entry.
On June 14, 2005, I testified before the Senate Subcommittee on
Oversight of Government Management, The Federal Workforce and the
District of Columbia regarding the STOP! initiative. The Chamber's view
then was that STOP! provided an excellent example of interagency
collaboration and offered considerable promise in the fight against IP
theft. We recommended, however, that provisions of the Government
Performance and Results Act, especially those relating to establishing
performance indicators and the means for validating actual versus
planned achievement of them, are rigorously applied to measure the
Administration's progress. Essential to the proper functioning of any
interagency program is a requirement for increased oversight, including
involving stakeholders in advising the Congress and the administration
in the process of developing appropriate metrics for the measurement of
success. By establishing performance indicators and the means for
validating actual versus planned achievements, and linking them to the
resources necessary for success, IPEN should achieve even greater
advances in the future. We are pleased to see that S. 522 incorporates
these important concepts.
The Chamber understands how important this battle is and stands
ready to support the enactment and implementation of this legislation.
Thank you, Chairman Bayh, for focusing on a dangerous and very real
threat to our economy, jobs for our citizens, and the holders of
intellectual property rights. I appreciate the opportunity to provide
testimony and will be happy to respond to any questions you may have.
______
PREPARED STATEMENT OF TIM DEMARAIS
Vice President, ABRO Industries
April 12, 2007
Good afternoon, Mr. Chairman and Members of the Subcommittee:
Thank you for giving me the opportunity to testify regarding one of
America's most contentious foreign trade issues--the theft of
intellectual property worldwide.
My name is Tim Demarais and I am the Vice President of ABRO
Industries which we believe is one of the most unique and innovative
international trading companies in the USA today. ABRO Industries
traces its corporate roots back to 1939 when our founder began working
with manufacturers in the USA selling their products in the
international market place. In the 1970's, the ``ABRO'' brand was
developed as part of a long term sales strategy to sell USA automotive
products internationally under a single brand name. We initially
concentrated on selling our ABRO products in third world markets and
there was no place in the world we would not travel to introduce our
ABRO brand. We visited such diverse markets as Nigeria, Congo,
Pakistan, Lebanon, Saudi Arabia and Sierra Leone just to name a few. We
now sell our ABRO products in over 150 countries. We continue to
``ABROnize'' new products on an annual basis and we now offer over 200
ABRO products to our dedicated ABRO customer base internationally.
In time, our ABRO automotive products became the brand of choice in
most global markets but unfortunately today the ABRO name has also
become the brand of choice to ``counterfeit'' by unscrupulous
manufacturers worldwide. They say that imitation is the ``ultimate form
of flattery'' but we certainly are not ``flattered'' that companies are
literally stealing millions of dollars of legitimate ABRO sales
annually in clear violation of international intellectual property
rights. We recognized early that our trademark was one of the most
important assets we own and over the past 38 years, we have registered
the ABRO trademark in 167 countries. We also own 1,085 registrations in
numerous international classifications as we consider intellectual
property protection of paramount importance. We have spent hundreds of
thousands of dollars registering our ABRO trademark and ironically, we
have spent an equal amount of money in defending our ABRO trademark
worldwide against importers of counterfeit ABRO products.
Although we can point to many examples of counterfeiters overseas,
one foreign company who has taken intellectual property violation to a
new level is Hunan Magic of China. We did not know we had a problem
with this company until 2001 when we received an e-mail from our
Bosnian distributor requesting that he would like to buy ABRO products
from our Chinese subsidiary. I knew we did not have a Chinese
subsidiary and went to the Canton Trade Fair later that year and was
absolutely shocked to see Hunan Magic's booth which had a full display
of all of our ABRO products and the company was actively selling ABRO
products to many overseas customers visiting the show. The company had
literally ``stolen'' our corporate identity stating they owned the ABRO
name.
I immediately contacted the show officials and advised them that
this company was illegally selling our ABRO products as we own the ABRO
trademark. After I substantiated the fact that we hold the official
ABRO trademark registration in China, the show officials agreed to
``raid'' the booth with me and I was stunned when the General Manager
of the Chinese company produced documentation that showed they had the
rights to the trademark in China. Later it was discovered this
``documentation'' was an application and not the actual trademark
itself. There was obviously uncertainty at that point at the show until
I picked up a sample of our ABRO Epoxy that Hunan Magic was displaying
at their booth. Our ABRO Epoxy is a product that I personally developed
20 years ago. At that time, we were not doing $100 Million a year in
sales and we were somewhat ``low budget'' and I had taken a picture of
my wife applying epoxy to our bicycle and then put this photo on a
blister card. The product has become one of our most popular selling
ABRO products with millions of units being sold annually. I immediately
asked the General Manager of Hunan Magic who the lady was on his ABRO
Epoxy card and he told the show officials it was some ``western''
model. I reached in my wallet and pulled out a picture of my wife which
finally convinced the show authorities we actually owned the trademark
and they closed down the booth and Hunan Magic was cited for using our
ABRO trademark illegally. We thought the matter was settled until the
next trade show when Hunan Magic changed the packaging slightly by
deleting the face of my wife and replacing it with a face of an Asian
woman but keeping everything else the same including our ABRO name.
This story was the subject of a cover story article in The Wall Street
Journal in November 2004 and we thought the notoriety would convince
the Chinese government to do something about controlling this renegade
Chinese manufacturer. Unfortunately, their illegal activity has become
even more blatant as Hunan Magic is now selling the ABRO brand of
products in all of our major markets and their General Manager has
publicly stated that ``his'' ABRO brand is one of the most successful
brands they have ever introduced.
Since the Chinese government will not enforce intellectual property
laws to protect our ABRO name, we are forced to take legal action in
the various markets where these counterfeit products are being sold.
For the past several years, we have spent most of our time traveling
overseas not actively marketing our ABRO products as we should be but
basically working with in-country attorneys and local police and Custom
officials to try to seize and destroy these counterfeit products once
they enter the foreign country. Last month, I took a business trip to
West Africa and in Cameroon successfully led raids against wholesale
shops who were selling counterfeit ABRO products. Thousands of cartons
of counterfeit ABRO products were seized and will be eventually
destroyed. I did hold meetings with the Commercial Attaches at U.S.
Embassies in Nigeria, Ghana and Cameroon and was told by all of the
Embassy personnel that intellectual property violations are growing
rapidly in their respective markets and they wish they had more
``teeth'' to try to enforce intellectual property laws.
That is why we are thrilled by the new Intellectual Property Rights
Enforcement Act that is now being introduced in the Senate by Senator
George Voinovich and Senator Bayh. We all know about the War on Terror
that is being fought globally but in the business community we look at
intellectual property violations as a war on economic terrorism as
these companies who are counterfeiting are stealing patents,
trademarks, ideas and designs from American companies. We are all aware
this illicit activity is costing U.S. companies sales, profits and
jobs.
It was encouraging to note that recently the U.S. Government
announced it will ask the World Trade Organization to organize meetings
to address deficiencies in China's protection of intellectual property
rights on books, music, videos and movies. However, there is no mention
of many other U.S. products that are being counterfeited including
automotive parts and accessories. We hope that the U.S. Government will
address deficiencies in all areas of intellectual property violations.
When the U.S. agreed to grant China WTO status, China certainly
received tremendous trade benefits which is evident by all of the
Chinese goods that are sold in the U.S. However, with WTO benefits come
WTO obligations and the U.S. Government must insist that the Chinese
government live up to these obligations as counterfeit merchandise from
China is responsible for the loss of more than 750,000 American jobs.
We feel very passionate about the new Intellectual Property Rights
Enforcement Act as we deal with counterfeit issues on a daily basis and
this is not just a growing trade problem for ABRO Industries but a
problem all USA manufacturers face internationally. The past five years
have been most frustrating as ABRO's biggest competitor is not STP,
General Electric, Bondo, ITW or some other well known automotive
chemical manufacturer but our biggest competitor has become ABRO
products from China which is clearly not how our American dream to
``ABROnize'' the world was expected to play out. It was mentioned in
the The Wall Street Journal article in November 2004 that the
intellectual property problem we are facing in China is a classic
``David vs. Goliath'' story. The 23 people at ABRO Industries can only
do so much against this economic super power. We only ask that the U.S.
Government treat the intellectual property matter more vigorously and
pass legislation that will correct these trade injustices and then
provide various agencies overseas the effective ``muscle'' to enforce
this new trade legislation.
Thank you for giving me the opportunity to testify today and allow
me to vent some of my personal past frustrations on this matter. We
continue to fight the battle in the overseas sales trenches every day--
but we do need some help from the ``generals'' back here in Washington.
This war on economic terrorism can be won but it is going to take a
concentrated effort by everyone here in Washington to force China to
comply with their WTO obligations which requires this economic super
power to enforce intellectual property laws in their own country.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR BAYH
FROM MOISES NAIM
Q.1. On page 255 of your book, Illicit, you assert that a smart
multilateral approach to combating illicit trade has to be
selective. You cite the Financial Action Task Force (FATF), the
anti-money laundering initiative, as a good model for
multilateral enforcement cooperation. In referencing FATF, you
highlight the organization's selectivity as the key to its
success. Countries join only if they are able to meet a list of
qualifications, and consequently not every country is invited
to join. Rather, the key to FATF's success is mutual trust,
which can only be generated by establishing standards as part
of a ``careful, deliberate process.''
Regarding intellectual property protection, the United
States should continue to actively engage China, India, Brazil,
and other sources of counterfeit products through bilateral and
multilateral efforts. However, do you agree that an effective
international enforcement mechanism must be limited to
countries that can meet high standards, and who have
demonstrated a commitment to enforcement, even if China, India,
and Brazil would not be ready to initially participate in such
an arrangement?
A.1. I do agree that the FATF model has much to offer and that
its essential structure and approach should be replicated as
much as possible in multilateral efforts to combat
counterfeiting. I also agree that--as stated in your question--
the United States should continue to also actively engage
countries that are major producers of counterfeited products.
It is possible that the solution lies in creating a sequential
process whereby an initial core group of countries [major
counterfeit consuming countries] can later be enlarged to
include others [major counterfeit producing countries]. It is
important to note that many industrialized countries where most
companies which are victims of counterfeiting are headquartered
are, at the same time, home to the largest consumer population
of counterfeited products.
With time, and after consolidating its operations, this
initial FATF-like structure can then be enlarged to also
include countries that are the sources of these counterfeits.
In any case, creating a FATF-like structure to combat
counterfeiting is, in my mind, a welcome step. I stand ready to
elaborate on these and other points that the Subcommittee may
have.