[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



                  U.S. GOVERNMENT PRINTING OFFICE
50-314                    WASHINGTON : 2009
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001

            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

                              ----------                              

                        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.
                                 ------
                                 
                                 [GRAPHIC] [TIFF OMITTED] 50314A.010
                                 
                                 [GRAPHIC] [TIFF OMITTED] 50314A.011
                                 
                                 [GRAPHIC] [TIFF OMITTED] 50314A.012
                                 
                                 [GRAPHIC] [TIFF OMITTED] 50314A.013
                                 
                                 [GRAPHIC] [TIFF OMITTED] 50314A.014
                                 
                                 [GRAPHIC] [TIFF OMITTED] 50314A.015
                                 
                                 [GRAPHIC] [TIFF OMITTED] 50314A.016
                                 
                                 [GRAPHIC] [TIFF OMITTED] 50314A.017
                                 
                                 [GRAPHIC] [TIFF OMITTED] 50314A.018
                                 
                                 [GRAPHIC] [TIFF OMITTED] 50314A.019
                                 
                                 [GRAPHIC] [TIFF OMITTED] 50314A.020
                                 
                                 [GRAPHIC] [TIFF OMITTED] 50314A.021
                                 
                                 [GRAPHIC] [TIFF OMITTED] 50314A.022
                                 
                                 [GRAPHIC] [TIFF OMITTED] 50314A.023
                                 
                                 [GRAPHIC] [TIFF OMITTED] 50314A.024
                                 
                                 [GRAPHIC] [TIFF OMITTED] 50314A.025
                                 
                                 [GRAPHIC] [TIFF OMITTED] 50314A.026
                                 
                                 [GRAPHIC] [TIFF OMITTED] 50314A.027
                                 
                                 [GRAPHIC] [TIFF OMITTED] 50314A.028
                                 
                                 [GRAPHIC] [TIFF OMITTED] 50314A.029
                                 
                                 [GRAPHIC] [TIFF OMITTED] 50314A.030
                                 
                   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.
