[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



 
   SINKING THE COPYRIGHT PIRATES: GLOBAL PROTECTION OF INTELLECTUAL 
                                PROPERTY

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



                                HEARING

                               BEFORE THE

                      COMMITTEE ON FOREIGN AFFAIRS

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 6, 2009

                               __________

                           Serial No. 111-17

                               __________

        Printed for the use of the Committee on Foreign Affairs


 Available via the World Wide Web: http://www.foreignaffairs.house.gov/

                                 ______




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                      COMMITTEE ON FOREIGN AFFAIRS

                 HOWARD L. BERMAN, California, Chairman
GARY L. ACKERMAN, New York           ILEANA ROS-LEHTINEN, Florida
ENI F.H. FALEOMAVAEGA, American      CHRISTOPHER H. SMITH, New Jersey
    Samoa                            DAN BURTON, Indiana
DONALD M. PAYNE, New Jersey          ELTON GALLEGLY, California
BRAD SHERMAN, California             DANA ROHRABACHER, California
ROBERT WEXLER, Florida               DONALD A. MANZULLO, Illinois
ELIOT L. ENGEL, New York             EDWARD R. ROYCE, California
BILL DELAHUNT, Massachusetts         RON PAUL, Texas
GREGORY W. MEEKS, New York           JEFF FLAKE, Arizona
DIANE E. WATSON, California          MIKE PENCE, Indiana
RUSS CARNAHAN, Missouri              JOE WILSON, South Carolina
ALBIO SIRES, New Jersey              JOHN BOOZMAN, Arkansas
GERALD E. CONNOLLY, Virginia         J. GRESHAM BARRETT, South Carolina
MICHAEL E. McMAHON, New York         CONNIE MACK, Florida
JOHN S. TANNER, Tennessee            JEFF FORTENBERRY, Nebraska
GENE GREEN, Texas                    MICHAEL T. McCAUL, Texas
LYNN WOOLSEY, CaliforniaAs  TED POE, Texas
    of 3/12/09 deg.                  BOB INGLIS, South Carolina
SHEILA JACKSON LEE, Texas            GUS BILIRAKIS, Florida
BARBARA LEE, California
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
MIKE ROSS, Arkansas
BRAD MILLER, North Carolina
DAVID SCOTT, Georgia
JIM COSTA, California
KEITH ELLISON, Minnesota
GABRIELLE GIFFORDS, Arizona
RON KLEIN, Florida
                   Richard J. Kessler, Staff Director
           Yleem Poblete, Republican Staff Director
            David S. Abramowitz, Chief Counsel deg.
           Kristin Wells, Deputy Chief Counsel deg.
     Alan Makovsky, Senior Professional Staff Member deg.
       David Fite, Senior Professional Staff Member deg.
   Pearl Alice Marsh, Senior Professional Staff Member deg.
     David Killion, Senior Professional Staff Member deg.
      Hans Hogrefe, Senior Professional Staff Member deg.
        Manpreet Anand, Professional Staff Member deg.
     Robin Roizman, Professional Staff Member/Counsel deg.
        James Ritchotte, Professional Staff Member deg.
         Michael Beard, Professional Staff Member deg.
          Cobb Mixter, Professional Staff Member deg.
         Amanda Sloat, Professional Staff Member deg.
         Peter Quilter, Professional Staff Member deg.
                    Daniel Silverberg, Counsel deg.
       Shanna Winters, Senior Policy Advisor and Counsel
      Laura Rush, Professional Staff Member/Security Officer deg.
        Genell Brown, Senior Staff Associate/Hearing Coordinator



                            C O N T E N T S

                              ----------                              
                                                                   Page

                               WITNESSES

Mr. Steven Soderbergh, National Vice President, Directors Guild 
  of America.....................................................    27
Mr. Richard Cook, Chairman, The Walt Disney Studios..............    38
Mr. Michael F. Miller, Jr., International Vice President, The 
  International Alliance of Theatrical Stage Employes (IATSE)....    46
Mr. Zach Horowitz, President and Chief Operating Officer, 
  Universal Music Group..........................................    59
Mr. Timothy P. Trainer, President, Global Intellectual Property 
  Strategy Center, P.C...........................................    67

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

The Honorable Dana Rohrabacher, a Representative in Congress from 
  the State of California: Statement of Mr. Jeffrey ``Skunk'' 
  Baxter.........................................................     8
The Honorable Howard L. Berman, a Representative in Congress from 
  the State of California, and Chairman, Committee on Foreign 
  Affairs: Statement of the Recording Industry Association of 
  America and letter, along with attachments, from Mr. Mitch 
  Bainwol to the Honorable Howard L. Berman dated September 25, 
  2008...........................................................    16
Mr. Steven Soderbergh:
  Prepared statement.............................................    30
  Additional submission by the Directors Guild of America........    33
Mr. Richard Cook: Prepared statement.............................    41
The International Alliance of Theatrical Stage Employes (IATSE): 
  Prepared statement.............................................    49
Mr. Zach Horowitz: Prepared statement............................    62
Mr. Timothy P. Trainer: Prepared statement.......................    70

                                APPENDIX

Hearing notice...................................................   100
Hearing minutes..................................................   101
The Honorable Howard L. Berman: Prepared statement...............   103
The Honorable Ileana Ros-Lehtinen, a Representative in Congress 
  from the State of Florida: Prepared statement..................   106
The Independent Film & Television Alliance: Statement............   111


   SINKING THE COPYRIGHT PIRATES: GLOBAL PROTECTION OF INTELLECTUAL 
                                PROPERTY

                              ----------                              


                         MONDAY, APRIL 6, 2009

                  House of Representatives,
                              Committee on Foreign Affairs,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 o'clock a.m., 
in the Van Nuys Civic Center, 14410 Sylvan Street, Van Nuys, 
California, Hon. Howard L. Berman (chairman of the committee) 
presiding.
    Chairman Berman. The hearing of the Foreign Affairs 
Committee will come to order. Thank you all for coming, and I 
do want to notice the presence of Congressman Adam Schiff, who 
is not now a member of the committee, but has been for a number 
of years, and is a active member of the Judiciary Committee, 
with great interest in some of the issues we will be 
discussing, and a fellow Californian. We appreciate his 
interest in this issue, and without objection, he may 
participate in the hearing and be able to ask questions of the 
witness.
    I would like to start off by thanking everyone who traveled 
here today to help sink the copyright pirates who plunder our 
country's creative wealth. The theft of intellectual property, 
or IP, has plagued America's entertainment industry for many 
years. Just this week, a month before its release, the film 
``Wolverine'' was downloaded over the Internet hundreds of 
thousands of times. IP piracy has now become an issue for a 
broad cross-section of the U.S. economy--for 
companies, deg. big and small, deg. in places 
far from Hollywood, Nashville, deg. and Broadway.
    While the House Foreign Affairs Committee has always delved 
into matters of global economics and trade, this hearing marks 
the start of a concerted effort to capitalize on opportunities 
that are unique to this committee. Through our oversight of 
international programs, travel, and long-standing relationships 
with policymakers from other countries around the world, we 
plan to work more closely with other governments, deg. 
to provide the resources, the  deg.training, 
the  deg.legal guidance, deg. and 
tools, deg. which they need to alleviate the 
international piracy that is so devastating to American 
ingenuity and American jobs.
    According to the International Intellectual Property 
Alliance, copyright infringement in 43 countries caused an 
estimated $18.3 billion in trade losses in 2007. The Motion 
Picture Association of America noted that the film industry 
lost $6.1 billion in 2005 due to motion picture piracy. The 
music industry estimates over 40 billion illegal downloads in 
2008.
    The U.S. Chamber of Commerce found that trade in 
counterfeited goods is responsible for the loss of 750,000 
American jobs per year. We just spent billions of dollars on a 
stimulus package to provide jobs to millions of unemployed 
Americans, and if we merely focused on curtailing piracy and 
counterfeiting, we would preserve almost 1 million jobs.
    IP protection is an economic stimulus. To help boost our 
economy, it is imperative we take measures to ensure American 
innovations are protected abroad and artistic communities can 
earn a return on their investment in new creative expression.
    This hearing is particularly timely as the Office of the 
United States Trade Representative will soon release the 
``Special 301'' report. This report lists specific countries 
whose lack of IP protection has the greatest adverse effects on 
the United States' intellectual property industries--among 
them, Russia, China and India.
    The types of piracy occurring abroad range from selling 
DVDs on street corners to mass productions of optical 
discs, deg. and unauthorized reproductions distributed 
via the Internet.
    By way of example, even though Russian law enforcement 
officials have increased the number of raids against warehouses 
storing pirated material, the number of criminal enforcement 
actions in the physical as well as online environment falls far 
short of what is necessary to address the problem.
    While Russia did shut down the Web site, allofmp3.com, 
which sold business without rights holder' deg.s 
authorization, it became a game of Whac-A-Mole, as almost 
immediately several others took its place. In addition, Russia 
has yet to certify a legitimate collecting rights society, 
which, if it finally happens, will help  deg.finally 
allow performers get paid deg.to collect for use of 
their music. Russia needs to live up to the intellectual 
property rights agreement it made with the United States in 
November 2006, especially if it would like to be considered 
ready to join the World Trade Organization.
    While Russia has failed to enforce intellectual property 
rights sufficiently, China has chosen to enforce them 
selectively. Through deg.During the summer Olympics in 
China, there were few, if any, counterfeit Olympic T-shirts to 
be found in the street stalls. NBC found that only 1 percent of 
online viewing by Americans occurred on copyright-infringing 
sites. This proved that it is possible for Beijing to combat 
piracy when it wants to--when the eyes of the world are on 
China. Estimates from the United States copyright industries 
show that 85-90 percent of their members' copyrighted work sold 
in China, deg. in 2007, deg. were pirated. 
Internet piracy is rampant in China, deg. and 
increasing, deg. as more Chinese are going online. In 
fact, the leading Chinese search engine for audio files, Baidu, 
offers links for downloading or streaming unauthorized 
copyright material.
    According to a recent article in Forbes, the number of 
copyright infringing videos on Chinese user-generated sites 
jumped more than six fold between September 2007 and September 
2008. China must demonstrate the will and the way to deal with 
piracy.
    As the desire for American content reaches new audiences 
overseas, pirates are becoming more sophisticated and daring. 
In particular, we are disturbed by the rise of signal piracy in 
the Philippines, and alarmed by pirates in Thailand who have 
established their own movie channels. These modern day Thai 
`` deg.pirates of the air'' deg. are beaming 
unauthorized programming to millions around the region. 
Clearly, these types of piracy don't need to be occurring in 
big countries to have a devastating impact on the American 
economy. The Bahamas currently maintains a provision in its 
copyright law that allows local cable operators to downlink, 
retransmit, deg. and profit from United States-
copyrighted works without authorization from the copyright 
holder. This practice sets a dangerous precedent for the 
protection of United States audiovisual works throughout the 
Caribbean and Latin America.
    Even countries not on the priority watch list 
engaged deg. in unprecedented levels of piracy. Spain 
remains a hub of Internet piracy. Mexico has more than 80 well-
organized black markets selling pirated goods. Moreover, Mexico 
has the most prolific camcorder piracy problem in Latin America 
as Mexican law doesn't protect against the recording of motion 
pictures in theaters. Speaking of lack of laws, we still need 
Canada to take a meaningful step to updating its copyright laws 
to come into compliance with the World Intellectual Property 
Organization Internet treaties.
    Intellectual property piracy is truly a global problem that 
harms not only U.S. industry but has economic implications for 
other countries developing and supporting their own 
entertainment industries. India ought to appreciate the need to 
address IP protection. It' deg.s own homegrown 
entertainment industry, ``Bollywood,'' is subject to many of 
the same concerns that plague Hollywood. We need to do better 
at protecting Bollywood films when pirated copies are sold in 
mom and pop shops here in the U.S. And, as is evident with the 
crossover success, deg. and number of pirated copies 
of ``Slumdog Millionaire'' viewed in India, India needs to 
enforce adequate protections for international innovation as 
well.
    The United States and its trading partners rely heavily on 
investments in intellectual property to drive our economies. 
Unfortunately, the incentives and profits for engaging in 
piracy are high, and the risks of being apprehended and 
sanctioned are low in many of the countries around the world. 
Furthermore, The Center for Global Risk and 
Security, deg. at the RAND Corporation, deg. 
released a report, deg. in March, deg. 
documenting a link between piracy, organized 
crime, deg. and funding of terrorist activities. 
Piracy of copyrighted materials is not a victimless crime and 
its global repercussions must be addressed. I plan to introduce 
legislation, deg. shortly, deg. that will 
begin to elevate the attention given to intellectual property 
concerns abroad.
    We hope to hear from our distinguished panel of witnesses 
today about the real impact of piracy on their 
businesses, deg. and what mechanisms we can implement 
to protect American intellectual property internationally.
    And it is now my pleasure to recognize someone who came a 
very long way for this hearing, and we are very grateful. She 
gets the prize, for many things, but she is the ranking member 
of the House Foreign Affairs Committee. She is a good friend 
and we are really excited. She came to Van Nuys, California, 
for this hearing. Our ranking member, Ileana Ros-Lehtinen, for 
any opening remarks that she might have.
    Ms. Ros-Lehtinen. Thank you so much, Howard. It is indeed, 
a pleasure and an honor to be here in your area, and to have 
our California colleagues as well. Our districts have a 
symbiotic relationship, because your constituents make their 
livelihoods here, so it is in my interest to make sure that 
they continue to have a strong economy, because then they take 
their money to my district in South Beach and spend it. So we 
want them to continue to make money so they can come to Florida 
and stimulate our economy.
    Now my husband is a lawyer, who always lectures me at the 
end of the week about what Congress is doing meddling in all 
these issues for which we have no jurisdiction. But in this 
case--and he made sure that I had this with me--the 
Constitution of the United States, our Founding Fathers, 
Article I, Section A, states that ``Congress shall have the 
power to promote the progress of science and useful arts by 
securing for limited times to authors and inventors the 
exclusive right to their respective writings and discoveries.''
    So copyrights and patents have been important from our 
Founding Fathers to the front pages of today's papers. When we 
look at the piracy that was going on, and continues to go on in 
``Wolverine'' and other movies and music, we see that it has 
continued from way back when to today.
    I am so glad that you have made sure that our committee has 
had a long-standing interest in this worldwide problem, and its 
broad impact on our U.S. interests, including our national 
security. A prominent example of the committee's work was the 
hearing in 2003, at which senior officials from Homeland 
Security and INTERPOL testified that violent militants, 
including al-Qaeda, Hamas, and Hezbollah, were in fact 
enriching themselves from intellectual property piracy and 
their proceeds in order to fund their activities around the 
world.
    According to the Secretary-General of INTERPOL:

        ``Intellectual property crime is becoming the preferred 
        method of funding for a number of terrorist groups. 
        There are enough examples now with the funding of 
        terrorist groups in this way for us to worry about the 
        threat to public safety.''

    As you pointed out, many people believe that the piracy of 
intellectual property, including their own illegal copying of 
music, movies, and software, or their purchasing of bootleg 
copies, is close to being a victimless crime with only a minor 
cost to large and wealthy corporations.
    But there are in fact real victims in these so-called 
victimless crimes. I am so glad that you have been so involved 
in international copyright infringement for many years. As our 
economy has moved from one of traditional manufacturing to one 
that is knowledge-based, the protection of intellectual 
property rights has become increasingly important to our 
country's prosperity.
    It is definitely a cause for concern to the increasing 
number of Americans whose livelihoods depend on these 
industries.
    In 1996, the International Intellectual Property Alliance, 
which you quoted, estimated that United States businesses lost 
more than $6 billion to copyright pirates in other countries, 
with China accounting for one-third of the total.
    The problem was enormous then, but it has grown rapidly 
since. U.S. companies lost last year, as you pointed out, more 
than $20 billion due to copyright infringement around the 
world. It's an annual theft of tens of billions of dollars as 
manifested in the loss of countless jobs, and a major reduction 
in tax revenues. The problem is a global one, and there are few 
countries where it does not occur, sadly, including our own.
    But the great bulk of the problem occurs in relatively few 
countries. The principal blame falls upon the criminals and 
those who do the dirty work, but their ability to operate 
requires the tolerance of national and local governments. 
Protection from law enforcement officials is often secured 
through corruption funded by large profits from these criminal 
activities.
    But widespread corruption is not the only obstacle. The 
biggest problem is that many of these foreign governments view 
this issue as being of little concern to them and see the cost 
as being largely borne by others. Thus, they have little 
incentive to do more than the minimum needed to keep the U.S. 
and other countries reasonably satisfied that they are in fact 
doing something.
    This lax attitude makes much of our effort to deal with 
this problem ineffective. When they are confronted with 
evidence that their citizens are engaged in illegal activities, 
and are reminded that their international agreements require 
them to take action to stop it, foreign governments are prone 
to make empty pledges that they will do more in the future. 
They believe that then we will go away.
    So new measures are often agreed to, promises are made, and 
yet somehow the problem is never fully resolved. So any policy 
that relies on securing new agreements or fresh promises is 
unlikely to solve the problem. That is the case in China, the 
worst violator of intellectual property rights.
    The U.S. Government has repeatedly asked Chinese 
authorities to take action and we have been repeatedly told 
that they are doing the best they can. But too little is being 
done and that is by choice.
    China's largest Internet search company automatically asks 
anyone who logs on to their site if they want to link to a wide 
array of known music piracy sites. It is actually pushing 
piracy. It is a legitimate company operating openly in China, 
Baidu. The Chinese authorities are well aware of this problem, 
they could shut it down with a phone call, but they have 
knowingly decided to do nothing to address our complaints 
because they have decided to pursue a policy in which Baidu and 
other Chinese companies will become global players in this 
industry.
    The Chinese authorities have invested enormous resources 
into censoring anything on the Web that dares to mention 
democracy, that dares to mention the Falun Gong, or any other 
subject that the regime wants to suppress. Many people have 
actually gone to jail for simply expressing their views, yet 
Chinese officials make the absurd claim that there is nothing 
more that they can do regarding online intellectual property 
piracy. That is outright theft made possibly by government 
policy, and China is not the only country where this occurs. 
The root of the problem is worldwide. For many governments, the 
costs of doing nothing are small while the financial benefits 
to their own companies can be quite large.
    The only way to change that attitude is to change the 
incentives, namely by increasing the cost of failing to take 
action. The effectiveness of this approach will depend directly 
upon the pressure that is applied. That cannot happen without 
the active role of the U.S. Government. Asking our trading 
partners to uphold their commitments is certainly a part of 
that process, but the olive branch alone has not worked and 
will not work. It must be supplemented with firmer measures. 
Yes, we must actively use the existing process in the various 
international agreements that concern intellectual property 
rights, and yes, we must work with our allies to coordinate our 
efforts as many of these are increasingly impacted by this 
problem too.
    We literally cannot afford to look the other way and 
tolerate inaction when our interests are being undermined by 
governments which profess friendship and profess cooperation 
even as their citizens rob ours of their wealth and 
livelihoods, and our country of its prosperity.
    Thank you so much, Mr. Chairman, as always, for holding 
this hearing, and thank you for the kind invitation, Mr. 
Berman.
    Chairman Berman. We're glad to have you here, Ileana, and 
now I am going to recognize the other members who are with us 
for a  deg.short--as opposed to my--comments. Then of 
course we will all leave. Oh, no. [Laughter.]
    I am pleased to recognize my neighbor and colleague from 
Los Angeles, Mr. Sherman.
    Mr. Sherman. Thank you, Mr. Chairman. If this subject 
affected only the entertainment industry, there would be well 
enough reason to have these hearings here today, because the 
core copyright industries, by themselves, are 7 percent of 
American gross domestic product, and are responsible for well 
in excess of $100 billion of exports each year.
    But this problem is even larger than the entertainment 
industry. It affects counterfeit drugs, counterfeit aircraft 
and auto parts, handbags. In total, counterfeiting costs U.S. 
business over $250 billion annually. That is increasing.
    Illegitimate goods have increased from $5.5 billion in 1982 
to more than $600 billion annually, and now comprise 6-9 
percent of world trade. Counterfeit auto parts alone cost auto 
companies $12 billion annually, $3 billion to the U.S. 
companies. Some 750,000 American jobs have been lost due to 
counterfeit merchandise. There's a threat to consumers as 10 
percent of all pharmaceuticals worldwide are fake drugs. And 2 
percent of the airline parts installed each year are 
counterfeit.
    The benefit to organized crime has been noted by the 
ranking member. There is also a benefit to terrorism. The 1993 
World Trade Center bombing was partially financed through the 
sale of counterfeit goods. One-point-two million dollars in 
counterfeit brake pads and shock absorbers were seized in 
Lebanon. The profits were earmarked for Hezbollah. An al-Qaeda 
training manual recommends the sale of counterfeit goods as a 
source of revenue for that organization.
    We face a worldwide recession, and I think at the core of 
our world economic problem is the lopsided trade deficit that 
the United States has with the world, and a big part of that is 
the fact that so many countries have, as a matter of policy, 
decided to allow American copyrights, patents and trademarks to 
be infringed upon.
    Some countries approach this with good faith, and we need 
to streamline, we need to provide aid to their enforcement 
efforts. But let's face it: Some countries do not have good 
faith. They are playing us and we will have to decide, as a 
country, whether we are serious about intellectual property or 
whether we are just going to go through this kabuki dance 
again, where we send a protest note and one or two 
counterfeiters are inconvenienced for a while.
    Ultimately, we'll have to decide whether those who are 
playing us on the intellectual property issue will have access 
to U.S. markets, and that will get very controversial. I yield 
back.
    Chairman Berman. I thank the gentleman and now the casual, 
sort of Hollywood, California, gentleman, who took off his 
sunglasses, unfortunately. Mr. Rohrabacher is recognized.
    Mr. Rohrabacher. Thank you very much, Mr. Chairman, and 
thank you for holding this hearing on an issue that should be 
of the utmost importance to the American people.
    The theft of America's intellectual property represents a 
tremendous loss of wealth, that undermines the standard of 
living of our people and undermines the prosperity of our 
country. America's creative genius has always been our greatest 
asset. In the last few decades, however, as we have heard, our 
country has shied away from confronting this issue of 
intellectual property theft with both friends and countries 
that are adversarial as well.
    We can no longer turn a blind eye to this situation. In 
today's economy, it is our duty to the creative Americans, with 
patents and copyrights, to see that their ownership rights are 
not being violated, and that the value of their creativity is 
not looted, and that foreign governments that are aiding and 
abetting this blatant theft are called to task.
    Mr. Chairman, whether it is an attempt to severely limit 
damages suffered by our inventors, when the rights of their 
patents are violated, or whether it is the copyright violations 
which are manifested in the piracy of music and films, American 
law should be on the side of our creative citizens. American 
inventors, songwriters, musicians, scriptwriters and film 
producers are valuable national assets that we should defend 
from foreign, and yes, domestic looters.
    The body of our Constitution, as Ileana has pointed out, 
uses, mentions the word right, and I might add, it only uses in 
the body of the Constitution, that word once, and that is in 
reference to the right of inventors and authors to control and 
profit from their genius.
    But now we are allowing these rights granted by our 
Constitution to be violated by foreign thieves. I look forward 
today to hearing about the details of the magnitude of the 
challenge that we face, in order to put an end to this global 
and domestic thievery. It is time to bring the hammer down on 
those who engage in this crime, and I would ask at this time to 
include in the record remarks on intellectual property theft by 
my good friend, ``Skunk'' Baxter, Jeffrey ``Skunk'' Baxter, who 
was lead guitar player with Steely Dan, and of course the 
Doobie Brothers, and I would ask that his remarks be made part 
of the record.
    Chairman Berman. After we read them. No. Of course. And 
without objection, they will be included in the record.
    [The information referred to follows:]Jeffrey 
"Skunk" Baxter--scanned deg.








    Mr. Rohrabacher. And finally, one point that I would like 
to make, and that is Ileana outlined very well the just 
arrogant theft that's taking place in China. China is widely 
recognized as an adversarial country to the United States, 
competitor and an adversary, perhaps even a potential enemy. 
Certainly a nondemocratic, authoritarian country that has seen 
no liberalization of their political system.
    You might expect this type of theft, this type of behavior 
from the Chinese, and we should try to push them in the right 
direction and put pressure on them.
    But we have trouble with our friends as well. Let us note 
that many of the pirated items that we are talking about, that 
end up, even sent back to the United States, adding insult to 
injury, they are pirating, selling them overseas, then they 
bring them here. One of the worst violators of permitting their 
country to become a transshipment depot happens to be Canada, 
our best friend.
    So we have one of our, you know, worst adversaries on one 
side, engaging in this crime, but who is aiding and abetting 
the crime but our best friend, Canada. And Canada refuses, for 
example, to permit their customs people to seize, or to at 
least stop goods that are being transshipped through Canada 
into the United States. They won't even permit them to stop 
these counterfeit items that are blatantly counterfeit items.
    So we need to hold Canada, our friend as well as our 
adversaries, we need to hold them responsible for this, and we 
need to make sure people know, around the world, we are getting 
serious with this issue because it has a dramatic impact on the 
economic well-being of our people at a time when we cannot take 
that for granted.
    Thank you very much, Mr. Chairman.
    Chairman Berman. Thank you, and the gentleman from 
California, Mr. Royce, a member of the committee.
    Mr. Royce. Thank you, Mr. Chairman. I don't think many 
people realize just the impact this has on our economy. The 
estimate is about $5 trillion a year in terms of the portion of 
our economy, the GDP that comes about as a result of 
intellectual property, everything from motion picture to 
pharmaceuticals. And that's larger than the GDP of any other 
country on the planet. So when it comes to undermining 
intellectual property in the U.S., it has a very pronounced 
effect.
    But more importantly I think to us right now, is because of 
the margins in this particular crime, the ability for this to 
fund terrorism becomes very acute. Hezbollah utilizes this type 
of activity. As a matter of act, Assad Ahmad Barakat, who runs 
the tri-border area in Argentina, Paraguay, Brazil, he has been 
caught sending checks to Hezbollah. Hezbollah, as a matter of 
fact, the leadership of Hezbollah, have thanked him for his 
ongoing efforts.
    Now today, he is in jail for tax evasion in Paraguay. But 
that hasn't stopped him, or his associates, from continuing in 
this endeavor to support the Hezbollah terrorist organization. 
And as we know, maybe it cost $1.5 million to run that 
operation on 9/11, it is very, very vital for these terrorist 
groups to have access to these types of resources.
    So unless we shut this down, everything from human 
trafficking rings to terrorist operations around the planet, 
are funded by this kind of activity.
    Another reason why India--you know, the chairman, Chairman 
Berman spoke about the need to get India on board. If you think 
about it, the godfather of godfathers, as he is called, of 
Indian organized crime, Dawoud Ibrahim, is linked to piracy in 
a big way, and frankly, also, he is a big supporter of al-
Qaeda, and in the past also of the LeT??? deg.. He was 
largely responsible--that that organization was responsible, 
back in 1993, for the Mumbai bombings. That series of bombings 
killed 257 people.
    Now D Company is the operation he runs. It is now 
integrated into every part of the Indian film making industry, 
from distribution to loan sharking, and I guess a special irony 
here, for those of you who saw ``Slumdog Millionaire,'' is the 
fact that a lot was made of organized crime there, and the way 
in which corruption has that insidious effect.
    Think for a minute, the very people portrayed, the very 
organized crime syndicates, are involved today in pirating and 
undermining Bollywood, and on undermining Hollywood. One more 
example. And if they weren't tied to terrorist networks that 
were engaged in this kind of activity, we would have enough to 
worry about.
    But this should really focus our attention, I'm afraid. The 
high profit margins in this type of crime make for little 
wonder why gangsters and terrorists have turned to piracy. But 
turning back to the overarching theme of the Founding, the 
architects of this republic. You know, they said patents and 
copyrights are the legal implementation of the base of all 
property rights, and that, to them, was a person's right to the 
product of that individual's mind.
    That is why the architects of this republic cared a lot 
about this concept and put it in the Constitution, that is why 
we should care, and thank you again, Mr. Chairman, for this 
hearing.
    Chairman Berman. Thank you, and the fifth gentleman from 
California, Mr. Schiff, is recognized.
    Mr. Schiff. Thank you, Mr. Chairman. It is my privilege to 
represent the cities of Burbank, Glendale and Pasadena, and 
several surrounding communities, home to many hard-working 
Americans who are employed in the entertainment industry, both 
at movie studios, the recording industry post-production shops, 
among other IP enterprises, and I have seen firsthand, the toll 
that intellectual property theft takes on the lives of real 
Americans.
    The work product of my constituents is being stolen every 
day. I have often said, deg. that on an individual 
level, piracy is nothing less than high-tech shoplifting, and 
in the aggregate, it can destroy whole industries.
    There is no difference between stealing a DVD from a store 
and selling a pirated DVD on the street, or uploading it to the 
Internet, and when people buy pirated DVDs on the street, or 
download music on the Internet without paying for it, they 
aren't just stealing products, they're stealing jobs from 
American workers, which with unemployment rates in excess of 10 
percent here, in California, and approaching that point in 
other parts of the country, we ought to be more concerned with 
than ever.
    A critical component of our Nation's competitive strength 
is the creation of copyright-based goods and services. This is 
a reality even clearer now as the American automobile industry, 
once the prime example of 20th Century American ingenuity and 
prowess in manufacturing exports, stands on the brink of 
collapse.
    The American assembly line of the 21st Century is now made 
up of the creation, production and export of things like music, 
motion pictures, software products, books, accounting for 6 
percent of our Nation's GDP.
    Indeed, the U.S. copyrighted industry is one of the few 
bright spots in our economy, and will serve as a key 
cornerstone in the effort to rebuild our 
economy, deg..
    When one of our trading partners allows copyright 
infringement to occur with impunity, they are gaming the system 
and injuring our economy. We have to take much stronger steps 
to ensure other countries on our list of infringers are forced 
to take piracy more seriously.
    In Congress, we have been working to accomplish this. As a 
co-founder and co-chair of the Congress International Anti-
Piracy Caucus, a caucus made up of over 70 Members of both the 
House and Senate, we are committed to reducing the scourge of 
piracy abroad.
    Each year, we unveil a country watch list, signaling out 
high priority countries such as Russia and China, due to the 
scope and depth of their piracy problems, which cost United 
States copyright industries, and millions of Americans who work 
in these companies, billions of dollars every year. Next month, 
we will be unveiling our 2009 watch list.
    I want, though, to highlight also the role that some of the 
American companies and American industries play in tacitly 
support piracy in other parts of the world.
    For example, unfortunately, many of the major United States 
credit card companies were previously facilitating transactions 
on a notorious Russian Web site that has been identified by our 
U.S. Trade Representative and the Department of Commerce as the 
world's highest volume online seller of pirated music.
    But these problems go on. There are a number of fringe, 
online sites that brazenly promote the infringement of U.S. 
copyrights, that also benefit from hosting ads and obtaining ad 
revenues from legitimate U.S. companies, often at times 
unbeknownst to these companies.
    I have, for example, here, a screen capture of a Web site, 
and I am not going to give the name of it, it is in the 
Ukraine, cause I don't want to promote their illegal business, 
but if you can see a little more closely on this, they are 
illegal offering songs and albums from Kelly Clarkson and U2 
for sale, and on the front page you can see logos for Visa and 
MasterCard.
    Not only is it problematic to facilitate these 
transactions, but their inclusion on the page can add a false 
perception of legitimacy to the Web site. I think we need to 
look at how extensive this problem is, and how other companies 
and other industries are, at times willingly, at times 
knowingly, facilitating the piracy of American work product, 
and, by extension, the piracy of American jobs.
    I am greatly appreciative to the leadership Chairman Berman 
has shown on this issue, and I guess I thought we were here as 
an acting subcommittee of the Judiciary. So I must thank you 
also, since we are not, since we are here with your Foreign 
Affairs hat on, Mr. Chairman, to thank you for allowing me to 
participate as an ex officio member of Foreign Affairs.
    Thank you, Mr. Chairman.
    Chairman Berman. Yes, but I do hope Chairman Conyers 
understands, we are not asserting authority to pass copyright 
amendments in the Foreign Affairs Committee. Although--well, 
no; never mind. [Laughter.]
    I want to thank all my colleagues, and sort of the warm-up 
act, and now for the feature, we really have an exceptionally 
knowledgeable panel with us today to discuss global protection 
of intellectual property rights. And I would like to introduce 
them.
    Mr. Steven Soderbergh is the director and the national vice 
president of the Directors Guild of America. He also chairs the 
Eastern Directors Council, is co-chair of the Creative Rights 
Committee, and is chairman of the Eastern Independent Directors 
Committee.
    In 2000, two of Mr. Soderbergh's films, and they were 
remarkable films, ``Erin Brockovich,'' and ``Traffic,''--and 
``Traffic,'' having just been to Mexico City, it is like that 
is playing out in real life--were nominated for a Best Director 
Oscar, making him the first director since 1938 to receive dual 
Academy Award nominations in the same year in the directing 
category. He is a prolific filmmaker, who has directed 20 films 
and produced numerous others.
    Mr. Richard Cook is a 38-year veteran film executive and 
chairman of Walt Disney Studios. Mr. Cook oversees all aspects 
of the developing, production, distribution, deg. and 
marketing, deg. for all live action and animated films 
at Walt Disney Studios.
    He is also responsible for Disney's worldwide home 
entertainment operations, Disney Music Group, Disney Theatrical 
Group, Disney ABC Worldwide Television, and Disney Media 
Networks, Disney ABC domestic television, as well as the 
studio's legal and business affairs in all areas of new 
technology.
    Mr. Michael Miller, Jr., is the international vice 
president of the International Alliance of Theatrical Stage 
Employees (IATSE) General Executive Board, deg. and 
also serves as a labor trustee on the Motion Picture Industry 
Pension and Health Alliance.
    He began his career with IATSE in 1990, deg. when 
he was initiated into IATSE's Stagehands Local 27 in Cleveland, 
Ohio. In 1993, he was elected to the executive board of that 
local and served in that capacity until he was elected 
Secretary-Treasurer in 2003, then joined the IATSE West Coast 
office as international representative in 2001.
    Mr. Zach Horowitz is the president and chief operating 
officer of Universal Music Group, deg. and is 
responsible for Universal's Music Publishing Group, one of the 
industry's largest and most successful operations. He also 
oversees a number of other key areas of the 
company, deg. including Universal Music Group 
Distribution, Universal's leading distribution operation, which 
includes Vivendi Visual Entertainment and Fontana.
    Mr. Horowitz serves on the board of directors of the 
Recording Industry Association of America, deg. and 
holds a post on the National Academy of Recorded Arts and 
Sciences presidential advisory council.
    Mr. Horowitz, I will include the statement of the RIAA and 
Mr. Mitch Bainewalls' September letter to me in the hearing 
record.
    [The information referred to follows:]FTR2--
Horowitz RIAA deg.












FTR3--Horowitz letter deg.











    Chairman Berman. And finally, we have Timothy Trainer, the 
founder and president of Global Intellectual Property Strategy 
Center, an intellectual property legal consulting firm. Mr. 
Trainer's career includes work with the U.S. Government in the 
intellectual property rights branch of the U.S. Customs 
Service, and in the Office of Legislative and International 
Affairs for the U.S. Patent and Trademark Office.
    Mr. Trainer worked for the law firm, * deg.Archer 
and Haddon, and served as a past president of the International 
Anti- deg.Counterfeiting Coalition. His work has 
included representing the United States at the World 
Intellectual Property Organization, representing the industry 
at INTERPOL's IP Crime Action Group, and co-chairing the U.N.'s 
Economic Commission for Europe's IP Group.
    All of your written statements will be a part of the 
record. If you could try to summarize your statements in about 
5 minutes. We are not going to pound the gavel. We have looser, 
California laid-back rules here. But we will sort of lightly 
touch the gavel when you are getting as long as we have been.
    And Mr. Soderbergh, why don't you begin.

 STATEMENT OF MR. STEVEN SODERBERGH, NATIONAL VICE PRESIDENT, 
                   DIRECTORS GUILD OF AMERICA

    Mr. Soderbergh. Good morning. I am honored enough to be 
here, and respectful enough of your time to speak briefly and 
plainly. We are here to talk about piracy, primarily Internet 
piracy, and while I am here officially representing the 
Directors Guild, I would like to speak to you personally.
    I am a film maker, and so by some loose definition, I am 
also an artist, but since the subject of art is very 
subjective, I want to talk about numbers, because numbers are 
not subjective. Numbers are, inarguably, what they are.
    So here are a few numbers to think about. In 2007, the 
entertainment industry, despite the piracy figures mentioned by 
the chairman, generated a trade surplus of $13.6 billion.
    In 2005, the entertainment industry generated 1.3 million 
jobs, over $30 billion paid in wages, and over $30 billion paid 
to vendors and suppliers. That generated $10 billion in paid 
taxes.
    As strong as those numbers are, we could do more. We could 
make an even larger contribution to the economy, if it weren't 
for theft, in the form of piracy.
    I won't bore you in this verbal testimony with figures of 
how piracy has affected my own work, because I am not an 
exceptional case here. Everyone is hurt by this.
    Most people see the entertainment industry as a bunch of 
pampered celebrities. I see it that way, sometimes, and I wish 
my saying that that's not true could just instantly dissolve 
that illusion.
    Certainly, Michael Miller will attest to the fact that most 
people that work in this industry are resolutely middle class 
and are largely living paycheck to paycheck. But let's set 
aside this issue of perception for a moment and get back to the 
numbers.
    I guess my question is: If the automobile industry told you 
that 25 percent of its cars had gone missing, from leaving the 
assembly line to getting to the car lot, you would have the 
Department of Justice doing wind sprints to figure out how to 
solve this. We are facing a very similar situation.
    Piracy increases unemployment by reducing the revenue paid 
to the people providing that employment, and that results in 
lost jobs.
    What is our solution here? Well, this is what we know. 
Litigation is slow and the Internet is fast. This may not be 
the best time to speak about self-regulation, but I don't think 
it makes much sense for us to ask the Government to be the 
police in this issue.
    What we would like is to be deputized to solve our own 
problems. We would like to be granted the kind of pull-down and 
inspection abilities that we are seeing proposed in France, so 
that we can act swiftly and fairly on our own behalf. IF we are 
given this ability, I feel we can figure out a way that is 
efficient and creative to make piracy a difficult last resort 
instead of a best first option.
    The other reason to do this is that it will allow the 
industry to retain and continue to create jobs without asking 
for taxpayer assistance in the form of Government intervention.
    Forty years ago, as some movies targeted for adults began 
to show the world as it is instead of as we might wish it to 
be, censorship bodies sprung up all over the country to 
determine whether each film complied with community standards, 
and film makers were faced with the possibility of having to 
screen their films for every one of these groups before they 
could present their work to the public.
    this was impractical, to say the least, and a subsequent 
court ruling deemed that it was illegal as well. The solution 
was the creation of the MPAA, which established a ratings 
system that we still use today. It works and it doesn't cost 
the taxpayers a single penny.
    The extreme level of competition at all levels of this 
business has resulted in an intelligent hard-working, capable 
workforce, and this business is actually remarkably transparent 
when you compare it to other businesses of similar scale. It is 
for these reasons I ask you to empower the industry to confront 
this problem, which extends to every country and every content 
provider in the world.
    Since the United States is the world's largest exporter of 
entertainment, I believe we have an obligation to create a new 
paradigm for combating piracy. I don't think it is going to 
happen without a fresh approach to the way the Government and 
the rights holders interact. I am here as a member of the 
creative community, to tell you that we are ready and able to 
confront this problem.
    I would like to submit some additional materials for the 
record which will provide details on the impact of piracy on my 
own films, as well as our thoughts on the French solution, and 
other DGA suggestions for Congressional action on this matter.
    Thank you for your time.
    [The prepared statement of Mr. Soderbergh 
follows:]Steven Soderbergh deg.






    Chairman Berman. Thank you, and the additional submission 
will be included in the record of this hearing.
    [The information referred to follows:]Sodenbergh 
FTR deg.












    Chairman Berman. And Mr. Cook.

   STATEMENT OF MR. RICHARD COOK, CHAIRMAN, THE WALT DISNEY 
                            STUDIOS

    Mr. Cook. Mr. Chairman, thank you for convening this 
hearing today. No issue is more important to The Walt Disney 
Studios than the protection of intellectual property. 
Intellectual property is the core of our business. The ability 
to protect that intellectual property is what drives our 
ability to continue investing in new creativity, to tell new 
stories, and to keep innovating.
    These are challenging times for the entertainment industry. 
Movie studios, like other companies, have had a difficult 
choice in these tough economic conditions. Yet the motion 
picture industry maintains great promise as a truly unique 
American industry with a strong history of creating high-paying 
jobs and contributing to local economies across the United 
States.
    Now, more than ever, we should encourage policies that 
promote investment in this type of creativity. We are facing a 
sea change in the nature of the piracy challenge. Gone are the 
days when borders provided a barrier to trafficking in pirated 
goods. No longer do we live in a world where piracy is confined 
to a small number of large criminal syndicates.
    Today, the actions of a single individual can feed an 
entire chain of online and offline piracy. Most importantly, 
what happens in one country now has a profound impact on 
businesses in other countries.
    Let me share with you an example that illustrates the 
international scope and complexity of the piracy challenge.
    Last year, we released ``Wall-E,'' a wonderful Disney-Pixar 
film that won the Academy Award for best animated film. The 
film was released in theaters in the United States on June 27. 
It was released in the Ukraine a week later, on July 3rd. On 
July 5th, a copy of the movie that was camcorded in a theater 
in Kiev appeared for the first time on a Russian Internet site.
    Within 2 days, copies of the same version appeared on a 
peer-to-peer site. Within 7 days, copies were uploaded on 13 
other Internet sites. Within 10 days of the film's Ukrainian 
release, there were copies online in Russian, English, Spanish, 
Dutch and Mandarin.
    The same copy served as a master for physical copies, 
worldwide. This DVD copy was found in Kiev 1 day after a copy 
first appeared on the Internet. One day later, a second copy 
was purchased in Chicago. The next day, a third copy was 
purchased in Lima, Peru. A week later, these copies were 
purchased in Guadalajara, Mexico, and New York City. By July 
31st, copies of the same version were purchased in Argentina, 
Indonesia, Philippines, the U.K., China, Canada, Turkey 
Hungary, Japan, Russia, Chile, Australia and Brazil.
    In total, 54 purchases were made, all sourced from the same 
copy. Camcording is a major concern. More than 90 percent of 
recently-released movies on counterfeit DVDs can be sourced to 
illegal camcording.
    The camcording also demonstrates that the combined efforts 
of industry and Government can make a difference. In 2005, Mr. 
Chairman, you joined with then-Chairman Smith, and Senators 
Feinstein and Cornyn, to pass a law making unauthorized 
camcording a Federal crime. The impact of this law has been 
dramatic.
    In 2004, New York was the center of illegal camcording 
activity. That year, there were 113 camcorded copies traced to 
New York theaters. In 2008, there were nine.
    In the 50 States put together, the number of camcorded 
copies in 2008 was down by almost a third from 2004.
    When camcording began to decrease in the United States, we 
noticed increased activity elsewhere, particularly in Canada. 
Between 2005 and 2006, Canadian-source camcorded copies rose by 
24 percent. After consultations with the Canadian Government, 
including cooperative engagement between the United States and 
Canadian Governments, Canada enacted its own camcording law in 
2007.
    Since then, we have seen Canadian-source camcorded copies 
fall by nearly half.
    As might be expected, effective legislation and enforcement 
is starting to push this activity elsewhere. Countries without 
effective camcording legislation, such as Ukraine, the 
Philippines, Thailand and Mexico, have become havens for 
illegal camcording operations. There is an urgent need for 
action and an effective international response.
    The camcording provisions in the recent South Korea and 
Malaysia FTAs should be a model for future FTAs. Similarly, the 
United States Government should make effective legal 
protections a priority in bilateral discussions and in Special 
301 determinations.
    This is an area where we know we can make a difference. But 
it will take joint efforts of industry and government on an 
international scale to make it work. There are other 
manifestations of technological development enabling widespread 
infringing distribution, deg. that demand attention if 
piracy is going to be meaningfully addressed. A case in point 
is Internet piracy on user-generated content, or UGC sites.
    In just a few short years, we have seen unprecedented 
growth in UGC sites and services. Rather than resort to 
litigation or legislation, as our first response to the rampant 
piracy on these sites, we engaged a number of sites directly in 
an effort to find a solution.
    The result was a set of Principles for User-Generated 
Content Services that reflect a shared commitment to 
eliminating infringement on these sites, including through the 
use of state-of-the-art filtering technology, while also 
protecting fair use and promotion of original and authorized 
user-generated content. Those principles have now been joined 
by 12 companies in the United States and in Europe, and as a 
result, we have seen a substantial reduction in piracy on 
participating UGC sites.
    But similar to the camcording experience, infringing 
activity is moving from those sites that are implementing 
effective filtering technologies to those that do not.
    Unsurprisingly, many of those sites are located overseas. 
So as with camcording, a meaningful solution was must an 
international one. As we engage with UGC sites, both 
domestically and around the world, we continue to advocate a 
constructive solution along the lines of the one embodied in 
the UGC principles. We would strongly encourage the United 
States Government to do what it can to promote similarly 
effective interindustry solutions, here, and in its 
interactions abroad.
    Finally, I want to take note that while our problems with 
piracy and counterfeiting abroad remain significant, we 
continue to have very serious threats right here at home.
    The fact is the United States studios lose more revenue to 
piracy occurring over broadband networks in this country than 
they do to piracy in countries abroad, like China, Russia and 
Thailand, where piracy rates run between 75 and 90 percent. 
This is an area, Mr. Chairman, to which you have devoted 
substantial thought, and to which we must continue to devote 
our energy and attention.
    I look forward to working constructively with you and other 
members of the committee as we seek meaningful solutions to 
these complex problems. Thank you.
    [The prepared statement of Mr. Cook 
follows:]Richard Cook deg.










    Chairman Berman. Thank you, Mr. Cook.
    And Mr. Miller.

  STATEMENT OF MR. MICHAEL F. MILLER, JR., INTERNATIONAL VICE 
   PRESIDENT, THE INTERNATIONAL ALLIANCE OF THEATRICAL STAGE 
                        EMPLOYES (IATSE)

    Mr. Miller. Good morning. Thank you for the opportunity to 
set forth the impact of piracy on IATSE members. The IATSE was 
founded in 1893 by a group of stagehands in New York City, and 
has expanded during our 116-year history with local unions 
chartered throughout the United States and Canada.
    Today, the IATSE is the largest entertainment union in the 
world with nearly 120,000 members. For our members, the issues 
of combating piracy and protecting intellectual property are of 
paramount concern. There are hundreds of thousands of 
individuals employed in the entertainment industry. Most are 
hard-working people who do not earn the millions of dollars 
that a few high-profile actors do, but work in middle class 
jobs for middle class wages and middle class benefits.
    Besides the actors and actresses, the number of individuals 
employed on the production of any given motion picture may be 
anywhere from 200 to a 1000 employees. They are not in front of 
the camera but supply the necessary labor to make those movies.
    The wages we negotiate for our talented and skilled members 
are higher than the minimum hourly wage, but it must be 
remembered that often our members have to make their paychecks 
last much longer, because these are not permanent jobs, they 
are jobs that will end when production is complete, and the 
next job they get may not be for many months.
    Because of the nature of our business, we have attempted to 
ensure that our members and their families are taken care of by 
securing additional benefits to be provided for them in the 
form of residual payments. When studios release DVDs to the 
market, our members share in those sales with these residuals. 
In the IATSE, those payments are contributing to the health and 
retirement benefits that our members so desperately need.
    When pirated copies are selling on the streets, are being 
illegally downloaded from the Internet, our members and many 
more workers see nothing. Piracy is costing these individuals 
an estimated $100 million in pension and health care benefits, 
annually.
    Piracy is stealing, pure and simple. Anyone who sells, 
acquires or copies these materials, without permission, is 
simply a thief. Downloading a movie without paying for it is no 
different than stealing a DVD off the shelf of a store.
    Making movies available on the Internet for downloading, 
selling pirated DVDs on the street, or camcording and 
redistributing movies, broadcasts or performances, are all 
forms of piracy.
    Unfortunately for our members, much of the public still 
perceives the illegal pirating of motion pictures as a 
victimless crime. But piracy is not a petty and victimless 
crime. Piracy is a devastating economic attack that in 2005, 
alone, cost our industry $6 billion, and as large as that sum 
is, it is only a fraction of the $250 billion that copyright 
piracy costs the overall U.S. economy every year.
    In fact, in 2005, piracy cost the movie industry more than 
141,000 jobs and $4.5 billion in annual lost wages, while 
depriving State and local governments of $837 million in tax 
revenue, money that could have gone toward roads, schools, or 
infrastructure to help further shore up American communities.
    Downloading movies and music without the authorization of 
copyright holders is a growing international problem, and we 
need to take action. Recently, the international community has 
started to get involved, and China, Russia and the European 
Union have drafted legislation to implement or increase 
criminal penalties for counterfeiting and intellectual property 
piracy. But that is not enough.
    Other international law enforcement agencies have 
recognized that piracy is a serious crime, and are beginning to 
step up their efforts to prevent, or maybe reduce it. Mexico 
has begun to step up its fight against piracy by creating new 
advertising aimed at children, and statements by officials that 
denounce piracy as an illegal activity that supports more 
sinister aspects of organized crime.
    The IATSE consists of members in both the United States and 
Canada, and our Canadian brothers and sisters are seeking 
relief from the Canadian Government in the form of anti-piracy 
legislation as well. Canadian movie theaters account for nearly 
50 percent of all camcorded sources worldwide, and Canada's 
film industry is taking steps to attempt to address that.
    Amendments to Canada's criminal code were passed in 2006, 
which made individuals videotaping a movie for purposes of 
resale punishable by up to 5 years in prison.
    In addition, there is currently an initiative led by the 
Canadian Motion Picture Distributors Association, and other 
industry stakeholders, to support amendments to the Copyright 
Act in Canada. They have not yet been successful.
    What can we do? Well, first, just as society punishes bank 
robbers, the society should punish those pirates who rob us of 
our intellectual property. Sadly, the U.S. Government has not 
been in the forefront of this movement. In 2008, there were 
only 11 Federal cases brought, and of those, five defendants 
pled guilty and one defendant was actually tried and found 
guilty. We can hope that the States are also enforcing these 
laws more rigorously.
    Secondly, we seek to support the sponsorship of stronger 
legislation protecting intellectual property. On the Federal 
level, we now have the PRO-IP Act of 2008 which increases 
penalties for violating U.S. copyright and trademark laws, and 
creates a Cabinet-level IP Czar to advise the President and 
coordinate Federal programs and policy designed to combat 
piracy.
    Finally, we would like to reach out to the studios and 
employers of our members to work together to find new ways of 
encouraging legal downloading of movies and content.
    If the audience for movies can be reached with quick, 
legal, high-quality downloads, this would produce an economic 
benefit, almost immediately.
    The entertainment industry is one of the largest exporters 
of product in the United States and right now is one of the few 
areas in which our economy thrives. It provides revenue for our 
Government and employment for a vast number of U.S. citizens. 
We must collectively take strong action against this problem as 
expeditiously as possible.
    The movie industry is a significant portion of the economy, 
accounting for about 1.3 million jobs, over $30 billion in 
wages and $10 billion in Federal and State taxes each year. The 
loss of more than $6 billion in any year to piracy is 
unacceptable.
    The majority of the workers hurt by piracy are not the big 
name actors or wealthy producers, as they make up a very small 
percentage of the motion picture industry workforce.
    The people who are hurt the most are the ones working 
behind the scenes in middle class jobs on a job-to-job 
employment.
    Motion picture piracy is not something that can be ignored, 
it is a serious crime, and we, in the IATSE, and about 1 
million other hardworking men and women are its victims.
    On behalf of the IATSE, I am particularly appreciative of 
this opportunity to have testimony presented to you and I thank 
the committee for inviting us to participate. If we can be of 
any assistance of answer any questions, we remain available. 
Thank you.
    [The prepared statement of IATSE follows:]for 
Michael Miller deg.




















    Chairman Berman. Thank you very much, Mr. Miller.
    And now Zach Horowitz, we look forward to hearing.
    Mr. Horowitz. Mr. Chairman----
    Chairman Berman. Oh. Let me interrupt you for 1 second. Two 
announcements. This is no longer Florida and Southern 
California. We have been joined, I am very happy to say, by our 
colleague from Houston, Texas, Ms. Sheila Jackson Lee, a member 
of the committee, and interested in these issues.
    And I also want to particularly acknowledge the presence of 
two distinguished representatives from the Consul-General of 
France, David Martinon, and the executive director of the Film 
and TV Department. Notice, in France, the Consul-General has a 
position, executive director of the Film and TV Department. 
Maybe some of our embassies and consulates should have someone 
like that. But Laurent Morlet, we are very happy to have both 
of you with us today.
    Mr. Horowitz.

 STATEMENT OF MR. ZACH HOROWITZ, PRESIDENT AND CHIEF OPERATING 
                 OFFICER, UNIVERSAL MUSIC GROUP

    Mr. Horowitz. Mr. Chairman, let me begin by thanking you 
for the many hours, over many decades, you have dedicated to 
America's creative community. Effective copyright laws give us 
the confidence to look for the next new sound; but we need your 
help.
    One in 3 CDs sold globally are made by pirates, and only 1 
in 20 downloads is legitimate. We estimate that there were over 
40 billion illegal downloads in 2008. That is an online piracy 
rate of 95 percent.
    And when it comes to physical piracy, 90 percent of 
recorded music sales, in places like China and Russia, are 
counterfeit. Even in many EU countries, the piracy rate is over 
50 percent. These bleak statistics have a real cost.
    Our domestic music industry loses over $5 billion annually 
in global piracy, and because U.S. music is the most popular 
genre around the globe, piracy disproportionately affects U.S. 
artists and the U.S. economy. It means lost jobs and lost tax 
revenues.
    If we can't secure a return on our investments, we cannot 
invest in developing artists. How many great artists will go 
undiscovered? Will piracy cheat us out of the next Beethoven or 
the next Beatles? We will never know. And as manufacturing jobs 
disappear, intellectual property is how our kids will earn 
their livelihoods. The stakes are incredibly high, but IP has 
not been the national priority that it needs to be.
    While we appreciate the complexities of trying to protect 
intellectual property in a world with different legal regimes 
and cultures, every country should be expected to abide by 
basic principles of fairness and the rule of law.
    You can be a powerful force in sending that message. 
Allofmp3.com, which has been mentioned by some of you today, 
was a Russian company and it provides a perfect illustration of 
how the U.S. Government can make a difference.
    Allofmp3 was an online service that sold all the most 
popular music of the world, without any authorization from 
artists or rights holders. Users were charged a few cents per 
song, which gave the site a patina of legitimacy, and the 
purchases were redeemed through MasterCard or Visa. No money 
was ever paid out to artists or rights holders.
    By 2006, it was one of the world's most popular music 
sites. When the music industry brought the site to the 
attention of Congress, Members like you made the rogue 
operation the focal point of dialogues on global piracy.
    When Russian officials wanted to discuss membership in the 
WTO, the U.S. Government used allofmp3.com as an example of why 
Russia was not ready to join the global alliance.
    Over time, the spotlight led to action by the Russian 
Government. One of the world's most notorious illegal music 
sites was reined in because U.S. officials brought attention to 
its indefensible business model.
    The success in handling allofmp3.com demonstrates that 
legislation is not the only tool in Congress's arsenal, and 
that traditional law enforcement is not the administration's 
only leverage. We could use that kind of spotlight on Baidu, 
China's number one online search engine. Baidu purposely 
provides links to unauthorized music sites and is responsible 
for 50 percent of the Internet-based piracy in China.
    Google recently launched a fully-authorized online music 
service in China to compete with Baidu. It will be free to 
users and content creators will share in ad revenue generated 
by the site. But can Google China overcome Baidu's first mover 
advantage, or the competitive disadvantage of compensating 
artists and rights holders when Baidu does not?
    Our piracy problems are not limited to far-away places like 
Russia and China. Regrettably, as has been mentioned, our 
closest neighbors present some of our worst piracy challenges. 
The OECD estimates that Canada has the highest level of online 
piracy in the world. Amazingly, Canada still has not modernized 
its copyright law for the digital age, and is now a haven for 
those running unauthorized music Web sites.
    And in Mexico, piracy has reached epidemic proportions. 
Seven out of 10 CDs sold are pirated. We hope this committee 
will call out Canada for its utter disregard for the policies 
at the heart of copyright, and its indifference to the 
realities of the borderless digital marketplace, and we urge 
the committee to add its voice to those calling on Mexico's 
leaders for sustained and consistent anti-piracy enforcement 
initiatives.
    Another area where this committee can make a difference is 
with the USTR's Special 301 list. It would be productive for 
the committee to meet with the ambassadors from the most 
problematic countries, so that you can make clear that lax IP 
enforcement is unacceptable. They need to be left with a real 
sense that there are meaningful repercussions for our trading 
partners, if they don't resolve the 301 issues that place them 
on the list.
    This would be especially valuable for Mexico and Canada to 
do.
    Mr. Chairman, we are in a technology revolution where we 
have the real opportunity to bring music to fans everywhere, 
when they want, where they want, and how they want, in 
legitimate ways never dreamed of before.
    However, unless we are vigilant, unless there is basic 
protection for the work of those who labor so hard to create 
the magic that is music, the opportunities afforded by 
breakthroughs in technology will be lost.
    This will be a tragedy for musicians and fans, for the 
global economy, and for our culture. We hope that the committee 
and Congress can send this powerful message to the world.
    Thank you for your interest and for your continuing efforts 
on behalf of creators.
    [The prepared statement of Mr. Horowitz 
follows:Zach Horowitz deg.










    Chairman Berman. Thank you very much, Zach.
    Mr. Trainer.

    STATEMENT OF MR. TIMOTHY P. TRAINER, PRESIDENT, GLOBAL 
          INTELLECTUAL PROPERTY STRATEGY CENTER, P.C.

    Mr. Trainer. Mr. Chairman, members of the committee, I 
thank the chairman and the committee for the privilege and 
opportunity to provide a summary of my full testimony regarding 
the issue of global IP theft. IP crimes threaten our national 
economic security, consumer safety, and the economic health of 
our employers and investors, the companies that research, 
develop, manufacture and distribute products that incorporate 
their trademarks, patents, copyrights, trade secrets, and other 
IP assets.
    Governments around the world have enacted new and stronger 
IP laws, they have seized hundreds of millions dollars worth of 
counterfeit pirated products and prosecuted many IP criminals. 
Yet the overall picture of global IP counterfeiting piracy 
appears generally unchanged from a decade ago.
    At the outset, I outline some of my recommendations. On the 
domestic front, they are to instruct Customs to adopt its 
proposed IP rules that were first published in October 2004.
    Strengthen IP enforcement by providing clear ex officio 
authority. Improve consumer protection against counterfeit and 
pirate products by decreasing dependence on post-entry audits. 
Amend relevant laws to clearly authorize enforcement actions 
against infringing goods that are being exported and moving in-
transit through the United States.
    Strengthen the legal provisions to permit judicial 
forfeiture of infringing goods and the collection of penalties 
and fines.
    Increase IP-dedicated Customs officers to IP enforcement, 
and fund executive branch agency programs to specifically 
address the U.S. demand side for infringing goods.
    My recommendations for the United States on the global 
front are to continue efforts to raise IP enforcement standards 
with our trading partners through free trade agreements, and I 
would echo the comments that have been made already by my 
fellow panelists here with regard to Canada.
    Also to work with intergovernmental organizations to 
promote increased enforcement activity and new standards. 
Provide better IP enforcement assistance programs for our 
trading partners and expand IP technical assistance programs to 
include IP awareness. Our challenge.
    Today's market reality provides counterfeiters and pirates 
with almost unlimited opportunities. Piracy and counterfeiting 
problems pose serious public health and safety risks, some of 
which have been well-documented while others have not.
    Some recent examples include cases involving construction 
cranes, toothpaste, toothbrushes, spacecraft parts, lifestyle 
drugs, eye toner and cosmetic lenses.
    The role of the Internet is implicated even where hard 
goods are involved. Although products must still be 
transported, the Internet is used to offer counterfeit and 
pirate goods, to take orders for goods and to conduct the 
financial transactions. Counterfeiters and pirates can easily 
take advantage of increased bandwidth, an ever-faster Internet, 
a global digital system that grows hourly, and a global system 
of trade facilitation that promotes uninterrupted movement of 
goods.
    With regard to volume and some of our conclusions, the 
latest available annual Customs IP seizure statistics from the 
United States, the European Union and Japan, total over 80,000 
cases. These Customs statistics are just a piece of the puzzle 
in fitting together the picture of global piracy and 
counterfeiting, because not every Customs administration has 
detailed statistics of its IP border enforcement activity.
    U.S. IP owners are injured around the world. For example, 
in Uganda, Procter and Gamble reported that it had lost 20 
percent of market share during a 3-month period because of fake 
counterfeit products.
    Some of the most startling cases have occurred more 
recently, years after IP enforcement has been highlighted 
globally, and years after government and industry have made it 
a priority issue.
    One case involved a joint U.S.-EU effort that resulted in 
the seizure of over 360,000 integrated circuits and computer 
networking components. A second case involved Cisco computer 
network products that made their way to the FAA, FBI, and other 
sensitive U.S. agencies.
    Separately, a 19-month long investigation by Customs 
resulted in charging 29 individuals with conspiracy to smuggle 
950 shipments of counterfeit goods into the United States. The 
estimated value of the seized goods, had they been genuine, was 
$700 million.
    The cases against the defendants involved charges of money 
laundering, smuggling, and conspiracy to import counterfeit 
goods. The few cases mentioned here point to a global piracy 
and counterfeiting problem that goes far beyond the old notions 
of mom and pop operations.
    The quantities involved, the value of goods in these cases, 
and the global distribution channels linking manufacturers on 
one continent to distributors and sellers on another, point to 
a more sophisticated network.
    As the last case above demonstrates, today's global trade 
in counterfeit and pirate products is a business and includes 
people in the operation that know how to move products.
    The more troubling aspect of these cases is that after many 
years of highlighting this problem, and attacking the problem 
with more raids, seizures and destruction of goods, as well as 
imprisonment of defendants, we continue to see what seems to be 
a growing onslaught of illegal activity.
    The fact is that all the enforcement actions by the U.S., 
EU and other government, and their law enforcement authorities, 
have not deterred criminals from engaging in massive scale 
counterfeiting and piracy.
    In conclusion, what is clearly evident is that the singular 
message of IP enforcement is insufficient and inadequate. 
Government and industry must become much more creative and 
imaginative in their messaging about IP.
    What are the benefits and advantages of intellectual 
property? We need to improve our ability to demonstrate why 
intellectual property, in and of itself, is good for all, and 
balance the enforcement message with something that is 
positive.
    I look forward to responding to any questions the committee 
may have. Thank you very much.
    [The prepared statement of Mr. Trainer 
follows:]Timothy Trainer deg.






























    Chairman Berman. Well, thank you all very much. There are a 
lot of specifics in your testimony that I think we can pursue. 
We will now move from that California thing back to Washington 
for strict enforcement of the 5-minute rule, with the exception 
of our colleague from Texas who missed a chance to have an 
opening statement. So we will give Sheila Jackson Lee a few 
extra minutes.
    The 5 minutes includes not only our speeches and our 
questions but your answers, so members should tailor the 
initial comments accordingly. I will yield myself 5 minutes.
    I guess this is maybe more particularly to Mr. Cook and Mr. 
Horowitz, but anyone on the panel who wants to add to it.
    You have talked about some situations and made some 
suggestions. Mr. Trainer, you raised some very specific issues 
which, I think, make sense for me to talk with Mr. Rangel on 
the Ways and Means Committee about.
    But one of the things I have heard for many years, as we 
move on this path, is you guys are suffering these losses, not 
primarily because of piracy, because the industry hasn't 
adopted new business models. Whatever truth there was to that 
in the late 1990s, the circumstances have changed, and I was 
wondering if either or you, and anyone else on the panel, could 
describe the efforts taken by the industry to help compete with 
free, and what efforts can Congress take to help you outside 
the marketplace in other countries? Particularly your efforts 
to provide consumers what they want, the way they want it.
    Mr. Cook. I think that anyone that has taken a look at the 
business in the last year or so will definitely not subscribe 
to the theory that the industry is not doing anything. I can 
speak for Disney, which, actually, I think we have been the 
leader in most of--meeting these new challenges and new 
business models. We have embraced the view that the best way to 
meet these challenges is to make our products readily available 
through legitimate means, on a well-timed, well-priced basis.
    In doing that, we were the first to offer TV shows and 
full-length feature films for downloads on iTunes. We were the 
first to put our movies on day-and-date rentals with the DVD 
release, and the first company to stream our television content 
online, trying to get the material out faster, in legitimate 
ways, and at prices that are reasonable.
    It is always very difficult to compete with free, but we 
are trying to do that, get them on a timely basis, and well-
priced, and to the public in the best means we possibly can 
through the Internet.
    Chairman Berman. Mr. Horowitz.
    Mr. Horowitz. Last year, Universal Music probably had over 
500 deals to offer our music to all sorts of new innovative 
business models, everything from downloads to subscription 
services, to ad-supported services where it feels like free for 
the consumer, but rights holders and artists are compensated.
    I think the lesson of Napster for the music industry is 
that if we don't find ways to make our music available, 
legitimately, to the consumer, the void will be filled by 
illegitimate users, and we have been, not just Universal, but 
the music industry, generally, have been probably at the 
forefront of finding new ways to bring our music to consumers. 
It is hard to compete with free. It is hard to compete with 
countries that seem to have absolutely no respect for 
intellectual property, and I think it is important for us to 
have these kinds of meetings with people like you, because 
education becomes a key way of making people aware of the 
problem.
    Chairman Berman. Thank you. I have a little over 1 minute 
left. You spoke about the Visa/MasterCard issue with 
allofmp3.com, and a number of us met with their 
representatives, to get them to discontinue.
    Are there other kinds of things that we, in Congress, can 
do, apart from the legislative approach, that could be helpful 
here? Question: Should Baidu be allowed to be listed on the 
stock exchange, deg. without some of the practices 
that some of our user-generated sites are now engaging in in 
terms of filtering? Any thoughts on how we bring pressure to 
bear on American interests which support international piracy, 
consciously, or just by indirect facilitation?
    Mr. Horowitz. Well, Visa and MasterCard are sort of the 
Good Housekeeping seal of approval, and they provide an aura of 
legitimacy to whatever sites use their services, and it was 
absolutely critical, when Congress people met with Visa and 
MasterCard, and conveyed this to them, and ultimately, they 
backed down.
    Chairman Berman. I think in order to enforce the rule on 
myself, I am going to say our time is up. No. I know. But we 
will come around again. So I apologize. But the ranking member 
is recognized for 5 minutes.
    Ms. Ros-Lehtinen. Thank you so much. Thank you for pointing 
out all of the domestic measures that have been taken, need to 
be taken, and international action as well.
    I was wondering if Mr. Soderbergh could flesh out, a little 
bit, his idea about deputizing the industry itself in order to 
take action and wanted to know the panelists' thoughts on that.
    Mr. Soderbergh. Well, when you go into Target and shoplift, 
there is a security guy from Target that catches you, and then 
they make a decision, whether or not they are going to take you 
to the police and prosecute you. At the very least, you are not 
allowed to go into Target anymore. And I just feel like we are 
in a similar situation, that there aren't enough police 
officers in the world to sit at Target and Wal-Mart, and all 
the places where crimes are being committed. It wouldn't be 
very difficult for us, if we were given, you know, this ability 
to identify the people who are making it easiest to transmit 
this copyrighted material, and if we had some sort of, you 
know, graduated mechanism along the lines of the French model.
    First, they are contacted through the Internet. Then they 
are contacted through the mail. Then the third time they get 
pulled for a year. I mean, I think that any solution that 
involves suing people and taking people into court is just not 
going to work. It is not practical,
    and on a public relations level, it is disastrous.
    Ms. Ros-Lehtinen. So you are basing it on the French model 
that has been successful. Are there any differences in terms of 
laws and procedures that you would find that might be a problem 
for us?
    Mr. Soderbergh. Well, I think trying to get legislation 
enacted, that gives us this ability, is going to be really 
tricky. I also think that the industry has to discuss what we 
are doing on the Internet now, how we are placing content on 
the Internet, because I think in the mind of the consumer, when 
you have sites, you know, that have come up recently, and which 
there is a lot of material available for free, most of it 
television, that may work in the sense that it is supposed to 
draw eyeballs to the show and get them to become regular 
viewers of the show. What I think it may be doing, though, in 
the minds of the consumer is, you know, promulgating this idea, 
that if it is on the Internet it is free, and they are going, 
well, I don't understand, I can get--this whole series that I 
love, they are giving me access to this for free. But then that 
same place makes a movie and they are telling me I have got to 
pay for it.
    Then there is the pay structure itself. We are all running 
toward a business model that drops our price point per unit 
precipitously. We are now charging people the least amount of 
money for the easiest access to our product, when I feel like 
we should be looking at our pricing and making it easier for 
them to go out to a movie theater, for instance, and rewarding 
them for making that effort instead of making that the most 
expensive price point in our business.
    But that is just, these are just my own theories.
    Ms. Ros-Lehtinen. Thank you. If you could comment, just 
anybody else on the panel.
    Mr. Horowitz. Just to simplify, under the Digital 
Millennium Copyright Act, the ISPs have what is called safe 
harbor, but they are the key vehicles by which the illegal 
sites are able to get their music to the consumers.
    We are very encouraged by conversations we are having with 
many of the ISPs on the music side, about this graduated 
response, the automatic warning system. We are having 
conversations, you have probably heard, with everyone from AT&T 
to Comcast to Cox, and we hope that they will lead to things 
that echo what is happening, what is being discussed in places 
like France and the U.K., and New Zealand.
    Ms. Ros-Lehtinen. Thank you very much. Thank you, Mr. 
Chairman.
    Chairman Berman. The time of the lady has expired and the 
gentleman from California, Mr. Sherman, is recognized for 5 
minutes.
    Mr. Sherman. I am a bit confused as to how this French 
model that you propose would work. You say that the offending 
site gets pulled. That means that Internet users in the United 
States are not able to get to that site? Is that the way it 
would work?
    Mr. Soderbergh. I guess my limited understanding of it, it 
is something that was just enacted, is that the ISP in the 
third round is, after these two warnings, is pulled off and----
    Mr. Sherman. I am trying to understand what pulled off 
means. ISP or the user?
    Mr. Soderbergh. It is the user that is on this ISP, that 
has been tracked as trafficking in copyrighted material.
    Mr. Sherman. So if----
    Mr. Soderbergh. They then lose the ability to be on that 
site for a year.
    Mr. Sherman. That site for a year. So you are saying if Joe 
Schmo in the United States logs on to a Chinese site and 
downloads a movie, then Joe Schmo will continue to be able to 
use the Internet but won't be allowed to go to that particular 
site again, which Chinese site will then open up 50 other 
sites.
    Mr. Soderbergh. Sure.
    Mr. Sherman. It would be interesting to see how well this 
is working for the French.
    Mr. Horowitz and Mr. Miller, what are the politics in 
Canada that are preventing Canada from adopting good IP 
protection, given the importance of the United States-Canada 
relationship to Canada, but also given the importance of IP 
industries in Canada to Canada?
    Mr. Horowitz?
    Mr. Horowitz. Well, my colleagues in Canada have taken to 
calling the Great White North the Great Black Hole when it 
comes to copyright protection. There seems to be a complete 
indifference, bordering on disdain, for any sort of copyright 
protection, which is astonishing, when you consider that this 
is one of our most important allies, a great trading partner, a 
developed nation.
    They have not brought their laws into compliance with WIPO, 
and as a result, this has become the haven for Web sites that 
traffic in----
    Mr. Sherman. Let me ask a rhetorical, extreme question. 
That is, should we provide any copyright protection for any 
video material or movie where the value-added is over 50 
percent Canadian? That is a hypothetical question. Mr. Cook, I 
am trying to understand camcordering, it seems very easy, and 
yet with ``Wall-E,'' some very sophisticated criminals waited 
until the movie got to the Ukraine. They could have gotten it 
here, in the United States, a week sooner.
    As I understand this camcording, all an organized crime 
enterprise would have to do is bribe the guy that projects the 
movies at the theater to just give them a special midnight 
screening and they cold set up their camcorder.
    How is it that we were successful, at least in the United 
States, in preventing camcording and forcing the criminals to 
wait until you decided to release the movie in the Ukraine?
    And secondly, are these criminals sophisticated enough to 
then dub the movie into a dozen other languages, presumably 
almost as well as Disney dubbed the movie? Because I assume 
when they camcorded it, they only got it in either Russian or 
Ukrainian. I don't know which language that theater used.
    They were sophisticated enough to dub it into a dozen 
languages but not sophisticated enough to get somebody in 
Hoboken to let them get it. They had to wait until it went to 
Ukraine.
    Mr. Cook. I think what has happened in the United States is 
that through a lot of education with the theater owners, and 
with the theater managers, and with all of them, they know that 
it is against the law. There are countless things that go out 
to notify them that it is against the law to do that, and we 
have been successful in catching them. It is the reason all the 
camcording in New York has been down so dramatically.
    So I think that has been a big part of it, and, you know, 
the ones that are camcording, some of them are extremely 
sophisticated. They wait to go to Ukraine because there is no 
law against it. They can go in and make very sophisticated 
copies. Some of the copies that I brought along to show, they 
are maybe not quite as good as coming right out of Pixar, but 
it is nearly as good, and they can soon either do subtitled or 
actual, their own voice recordings, and all, and they are not 
as good but they are good enough, in many cases.
    Chairman Berman. The time of the gentleman has expired. But 
the U.S. experience is a little bit like what
    Mr. Soderbergh was talking about, working with theater 
owners, like working with store security.
    The gentleman from California, Mr. Rohrabacher, is 
recognized for 5 minutes.
    Mr. Rohrabacher. Thank you very much, Mr. Chairman.
    So I take it from the testimony today, deg. that 
we are talking about several major challenges. At least the 
biggest, if not one of the biggest, is dealing with the 
downloading of material that is owned by someone else, and by 
the studios, and thus, the people who are involved with 
producing the material are not getting their money and not 
being paid. Downloads from the Internet. Is that what we are 
talking about, is one of the biggest challenges that we face?
    Then isn't there a technological answer to this somewhere? 
I mean, I am on the Science Committee as well as on the Foreign 
Affairs Committee, and it would seem to me that if we have a 
vehicle, a technological vehicle, and that that is what is 
being used, isn't there a poison pill we can put into our 
product, that will prevent it from being downloaded unless 
there is something done that would identify that?
    Mr. Soderbergh. Well, I think there are two issues there. 
There is no question that you could probably create a sort of 
encryption that, you know, wreaks havoc whenever it is 
downloaded and played. Within days, probably, there is a very, 
very bright Dutch teenager that would figure out how to break 
that encryption.
    One of my more radical solutions is to start finding those 
people and having them work for us. Since they are doing this 
for free, maybe we could pay them to beat their pals at their 
own game. It worked in ``Catch Me If You Can.'' [Laughter.]
    Mr. Rohrabacher. Whose movie?
    Mr. Soderbergh. Steven Spielberg, who ought to be here as 
well. And then I think you would be the ones to know, that 
there are sort of legal ramifications about creating something 
like that, that even though they are theoretically trafficking 
in copyrighted material, the damage that you might create, that 
could move beyond them personally, might become a legal issue.
    Mr. Rohrabacher. Let me note that there are, in other 
arenas, in the intelligence arena of our Government, there are 
certain technologies that are in play, that I think could be 
put to work here, and I don't know exactly how free I am to 
discuss them here, however.
    But with that said, I think we should thoroughly 
investigate----
    Chairman Berman. Is this the one where the computer 
explodes? [Laughter.]
    Mr. Rohrabacher. Well, at any rate. But I think that we 
should, Mr. Chairman, actually go into this, and look to see if 
there is a technological solution that we could bring forward 
to the industry, and I would be happy to talk to you about some 
of these things, off the record.
    Also the second issue that I would like to bring up now--my 
time is almost up--is again Canada. See, we expect China to act 
like a potential enemy and an adversary to the United States. 
We don't expect that from Canada, and it is so disturbing to 
know that Canada is becoming the transshipment depot of the 
world for goods that are counterfeited in China,
    and end up coming through Canada to come here.
    What would you suggest, Mr. Horowitz, that we actually do 
to Canada? Give me a retaliation that we can do.
    Mr. Horowitz. I think the most important, practical thing 
you could do, deg. is engage directly with the 
Canadian Government.
    Mr. Rohrabacher. Well, what do we threaten them with? Tell 
me. I am agreeing with you. I am calling on the United States 
Government today to retaliate against Canada, do something 
specific to try to get them to pay attention to something they 
could solve. This is definitely within their capabilities but 
they are intentionally not solving it.
    What can we do? What is the retaliation that we should seek 
from our Government against them?
    Mr. Horowitz. I don't have the answer.
    Mr. Rohrabacher. Anybody else have the answer? Come on.
    Mr. Soderbergh. Well, they are very polite. We could say 
please. [Laughter.]
    Mr. Rohrabacher. Come on. Here is your chance. You have got 
us here. We have got somebody we can actually influence.
    Mr. Soderbergh. Well, I mean, the only thing that is going 
to----
    Chairman Berman. The military option is off the table.
    Mr. Soderbergh. Exactly. [Laughter.]
    Mr. Rohrabacher. Anybody else have a----
    Mr. Soderbergh. Well, I mean, the only thing that is going 
to have any teeth is actually something along the lines of when 
their content comes this way, that it is harder for them to 
make the kind of profits on their material that, you know, they 
are allowed to make because----
    Mr. Rohrabacher. Let me offer this. If anybody could come 
to me and tell me specifically what you are suggesting, what 
the industry is suggesting, I will work with the chairman and 
try to see if we can push it in that direction.
    Chairman Berman. The time of the gentleman has expired.
    Mr. Rohrabacher. Thank you.
    Chairman Berman. And just sort of the chairman's abuse of 
his prerogatives, the irony is this is a country that pays 
taxpayer money to cover labor costs of American producers who 
will make--they want to make intellectual property in Canada. 
They just don't want to protect it in Canada.
    Mr. Soderbergh. If I could suggest that perhaps we ask the 
Canadian Ambassador to brief us, weekly, on this.
    Chairman Berman. I think that is a subcommittee issue. 
[Laughter.]
    But monthly, I hope. The gentlelady from Texas is 
recognized for 7 minutes to use as she wishes.
    Ms. Jackson Lee. Mr. Chairman, thank you very much, and the 
suggestion of meeting with the committee in Washington, weekly, 
might be a sufficient punishment, that might motivate them. We 
might consider that suggestion, Mr. Chairman.
    I am very pleased that the chairman has focused this on an 
issue of great importance, but, more importantly, that he has 
enormous expertise, and I am delighted that the ranking member 
is here. Let me, as a Texan with stars in her eyes, thank all 
of these presenters, and particularly make note of the fact 
that when we come from places like Texas, we are in fact star 
bitten. So let me thank all of you for the movies and 
entertainment that we have had the pleasure of enjoying, and 
particularly those, Mr. Soderbergh, that have been both 
entertaining and with a message. We appreciate it, greatly.
    We have been using a term that our President has 
reinstituted, and I would like to use it now. The urgency of 
now. That phrase was first utilized by Dr. Martin Luther King, 
and, frankly, I think that we have come to a point where we 
have nowhere to go but to hit this crisis, head on. And I would 
just like to put these numbers in the record, that have 
probably already been.
    But the motion picture industry has suffered piracy that 
has resulted in $6.1 billion in piracy. It is 80 percent of the 
U.S. motion picture studio losses. And then to determine that 
$200 billion, since 2005, which is a lot of money. Then the 
Intellectual Property Alliance has noted that 43 countries 
resulted in an estimated $18.3 billion in trade losses, $3.5 
billion in China, and $2.6 billion in Russia.
    I think we have a monumental crisis, and I believe that we 
need to roll up our sleeves and take all the ideas that we can.
    Mr. Soderbergh, I like both of your ideas. I think we need 
to understand the one that France has put in place. But I think 
the pricing question is something to really look at, because I 
would tell you that many populations, inner city populations, 
rural populations, would like to go to the theater. They don't 
have access to the Internet, like to have it, but might be 
receptive to being rewarded and fill those theater facilities 
and create additional jobs, which I think is very important.
    So I am going to pose questions to all of you.
    Mr. Trainer, if we were to begin to look at countries, and, 
say, for example, we looked at the suggestion in France, would 
we have any First Amendment problems in terms of someone's 
ability to have free expression to use the Internet, etcetera?
    Mr. Trainer. I think the way the U.S. judicial system works 
with litigation, we always have that possibility.
    I think one of the issues is to really look at the Internet 
community. We know that, for example, in the New Zealand 
situation that was raised, they actually postponed the 
implementation of some of their provisions simply because of a 
global outcry to what they had proposed, which is very similar 
to France.
    So I think the problem is there are multiple sides to this 
issue, and before something like this is formally proposed, 
there will be a lot of communities that have to be consulted 
with.
    Ms. Jackson Lee. So we have to get our hands around it and 
really vet it, so that we can have something that will work.
    Mr. Cook, again, do you find this problem internationally, 
meaning the kind of problems we are having? Is India, with its 
problems of participating in this, can they be an ally because 
of Bollywood? Is there any way that we could reach out to them 
and get them to see that this is a mutual loss, which I 
understand they are losing dollars as well?
    Mr. Cook. Well, they are. I think the recent estimates are 
something like $5 billion a year. They also feel there is a 
loss of some 800,000 jobs. They have, obviously, a very robust 
film community that is being rocketed in the wrong direction. 
It is becoming a giant problem for them. Certainly, we can, you 
know, learn from anyone that is doing it well. I am not sure 
they are doing it well right now.
    Ms. Jackson Lee. Well, since we have a problem with their 
taking some of our intellectual property, this is a Foreign 
Affairs Committee, we need to use a hammer, maybe along with 
some sugar, and India might be a place to go, because they are 
being mutually victims but also taking advantage of us.
    Mr. Cook. Absolutely.
    Ms. Jackson Lee. Mr. Horowitz, if we were to meet with 
ambassadors, I think you mentioned the 301 list, and if we were 
to meet with ambassadors, my colleague asked the question--but 
do we add more countries to the list? How should we handle 
this? Again this is a hammer, or the, if you will, chicken and 
egg, or anything to get people to come to the table. Do we use 
a hammer in this meeting? Do we put more people on the 301 
list? Or nations?
    Mr. Horowitz. I know Canada has been on the 301 list for 13 
years now.
    Ms. Jackson Lee. So you wonder what the impact is.
    Mr. Horowitz. Right. But I think that one thing to consider 
is that there are attaches, IP attaches in many of our 
embassies, and I think it would be worthwhile for this 
committee to talk to them and find out what is working, and 
what isn't, and perhaps one of the solutions would be to 
increase the number of attaches that we have around the world.
    Ms. Jackson Lee. The chairman mentioned a similar position 
that France has, which is a producer or an arts person that 
would be looking at these issues.
    Mr. Trainer, quickly, I think we can help you by having 
more Customs and Border Patrol agents. You said we never 
fulfilled our responsibilities on that, and I would like to say 
yes to that, as quickly as possible, to move forward on that.
    I just want to get my last question in to Mr. Miller. These 
jobs are created all over America. When films come to different 
cities, as much as we bid for them, different States. We hire 
people, sometimes on site, obviously. We certainly look to hire 
those who are a part of the union.
    What can we do, working internationally with our union 
brothers and sisters, to see that this is a problem, and they 
begin to put pressure on their own governments?
    Mr. Miller. Well, that is absolutely the case, and that 
this is, for the IATSE, and the people that work in the 
industry, it is a benefits issue and it is a jobs issue, and 
for every dollar that is stolen, it is a job, in some way, 
shape or form, and we need to work with the international 
community to make them aware that they are stealing health care 
from our citizens, and they are stealing jobs on the--not just 
in the United States and Canada, but globally as well, because 
motion pictures are made by U.S. companies all over the world.
    We need to work with all of our trading partners, to 
encourage everyone to protect the intellectual property of 
every artist and company in the world. This is a benefits issue 
and a jobs issue.
    Chairman Berman. The time of the gentlelady has expired.
    Ms. Jackson Lee. Thank you, Mr. Chairman.
    Chairman Berman. Mr. Royce is recognized for 5 minutes.
    Mr. Royce. So how do you incentivize the worst offenders, 
and China, in all of these reports, is the worst violator of IP 
protection? How do you ratchet up that pressure on piracy 
there? You know, being listed as a priority watch country on 
the Special 301 report apparently only goes so far. It hasn't 
achieved the goal.
    Ted Fishman has got a book, ``China Incorporated,'' that is 
interesting in its analysis, in terms of the organized way in 
which China has done this. He says China's failure to police 
intellectual property creates a massive global subsidy worth 
hundreds of billions of dollars to its businesses. China's vast 
counterfeiting schemes invade deep into the economies of their 
victims, expropriating their most valuable assets, and in so 
doing, undermining their victim's ability to counter.
    As China grows into a great power, the wealth transferred 
into the country by stealing intellectual property will propel 
it forward. So far, pilfering intellectual property has cost 
China little. It has benefited it tremendously.
    And he concludes, you know, with this concept. He says when 
tackling the issue of intellectual copyright protection, 
officials from the United States must see their task, not 
simply as a legal issue, but as an exercise in global political 
power.
    Is it time for Congress, and the United States, and for the 
administration, to form a united front here in terms of using 
political power on China on this issue?
    Mr. Trainer. I will jump in. Well, I think there was some 
attempt to do that with the case against China in the World 
Trade Organization, and unfortunately, it didn't have, 
necessarily, the result the United States wanted.
    I think the other thing we should look at is in the post-
war period. You know, we went through this with Japan and with 
Korea, where they were major counterfeiters and pirates, but 
because they have developed and have some very big 
multinationals, and very successful, they too are very 
sensitive to intellectual property today.
    I think one of the big challenges we may have is to add 
another dimension to our efforts in engaging China, which is, 
in addition to the enforcement emphasis, to really get in there 
and try to sensitize, not just the government, but other 
elements of the society about intellectual property----
    Mr. Royce. But they have a different business model, again 
going back to the point made in China, Incorporated. He says 
the business model is one where counterfeiters, companies there 
usurp foreign technology China desperately needs to meet its 
industrial goals. The counterfeiters give those companies the 
means to compete with foreign rivals who are forced to pay full 
fare for proprietary technology.
    In other words, your thesis there, that we could convince 
the companies themselves--no, that is their advantage, that is 
their subsidy.
    Mr. Soderbergh. They were built doing this.
    Mr. Royce. Right.
    Mr. Soderbergh. And that started decades ago, with software 
needed to grow these companies.
    Mr. Royce. So we are going to need a different strategy. 
What might that strategy be?
    Mr. Soderbergh. It is wound so tightly into their culture, 
it is literally a Gordian knot, that I don't know how you 
unwind it. The other problem----
    Mr. Royce. Are we missing something on the WTO enforcement, 
where we go back and use all our force to try to get----
    Mr. Soderbergh. Well, the problem if they can do it if they 
want. Chinese films don't get pirated in China.
    Mr. Royce. Right.
    Mr. Soderbergh. So, clearly, you know, when they want 
something to stop, they can make it stop. I mean, this is the 
regime we are dealing with.
    Mr. Royce. So going back to incentivizing them, so they 
know they have to stop it, do you have a thought on what might 
do the trick?
    Mr. Soderbergh. I think if you are talking about--if you 
get into the area of economic activity, the world is large 
enough, and diverse enough, that even if we removed ourselves 
from certain key areas, there are plenty of other places to go 
for them to do business.
    Mr. Royce. And so they have wrecked the WTO, in a sense. I 
mean, the very concept behind the World Trade Organization is 
to have effective rule of law and effective enforcement. Is 
there a way to reinstitute that, so that there is enough 
pressure, collectively, to offset exactly what you are 
discussing?
    Mr. Soderbergh. Well, that is the issue, is how many people 
can you get to stand behind that idea?
    Mr. Trainer. If I just may add, one of the efforts of the 
anti-counterfeiting trade agreement negotiations that are 
ongoing, which is a smaller subset of countries, to raise IP 
enforcement standards is being pursued in a way, because you 
can't pursue it at the WTO.
    We don't have a critical mass of countries that want to 
raise standards beyond the current international standard.
    Mr. Royce. Yes. I think further examination of this issue, 
Mr. Chairman, would be well worthwhile in order to try to 
figure out a methodology where we might reach that goal of 
having the WTO effectively enforcing intellectual property.
    Chairman Berman. This may be a good time just to indicate--
I was going to do it at the end of the hearing--that we are 
going to hold, in Washington, once the Special 301 report comes 
out, a follow-up hearing to bear down on bilateral remedies, 
technology issues, and the use of our trade representative on 
this, hopefully with an IP Czar there as well as the trade 
representative, if one is appointed.
    Mr. Rohrabacher. Mr. Chairman, if you could just indulge me 
for 10 seconds.
    Mr. Soderbergh mentioned the Gordian knot of China. I would 
remind Mr. Soderbergh, that how did Alexander the Great untie 
the Gordian knot? And that is what we have to do. Thank you.
    Chairman Berman. Mr. Schiff is recognized for 5 minutes.
    Mr. Schiff. Thank you, Mr. Chairman. I wanted to just make 
a couple comments and get your thoughts.
    One is I know through the different business models that 
have been employed, like iTunes, we have increased the 
legitimate sales on the Internet, which is great, and I assume 
those have brought in new revenue.
    But I would assume at the same time that piracy has also 
increased. So it is not that we have taken a chunk out of 
piracy, or diminished piracy, necessarily, but we have maybe 
expanded the pie. So some additional revenues have come in, but 
the piracy probably has come in at an even greater rate than 
legitimate sales.
    So while I think it is laudable that you are trying to 
adapt your business models to capture more legitimate revenue, 
I am not sure it is really curing the piracy problem. And I am 
also a little skeptical of the Google experiment. China, for 
the reason that if the content providers move to an 
advertising-only revenue model, they may be repeating what is 
happening to the newspaper industry. It hasn't worked out that 
well for them, to sort of drop subscriptions, and paying for 
content, and go to a model where they are completely reliant on 
advertising revenue.
    And I would be concerned about moving too much in that 
direction. I realize in China, it is better to get something 
than nothing, but if it ends up becoming the sort of standard 
model for the industry, you may find out that you are falling 
in the steps of the newspaper industry.
    I am very interested in the French model, and as I 
understand it--I don't even know if it i  deg.has gone 
into effect yet. The challenge I would think we would have, 
legislatively, is if we deputize you--and there is nothing I 
would like better than to deputize you, because I don't think 
the Government can do all this.
    What form would that take? Would it take the form of 
providing a legal immunity for those who, after the proper 
notices, take down a site, and therefore may be subject of 
being sued for taking down the site? So would we be 
authorizing, and therefore, in effect, immunizing the ISPs from 
doing that?
    What kind of due process would we need to give if we are 
going to be, you know, affecting speech, among other things, 
and potentially barring people's access to the Internet? So 
that would be a second issue.
    And the final question I have is won't there be an 
increasing confluence of interests among the content makers, 
among the studios, and the recording industry, as well as the 
pipelines, as the pipelines start to get into the entertainment 
business with their video on demand, and other things?
    Don't the pipelines now have a greater confluence of 
interest with you to attack piracy on their own pipeline, 
because they are offering legitimate content now?
    So if you could share your thoughts on those questions.
    Mr. Horowitz. Well, let me just clarify one thing. The 
graduated response notion that we have been talking about in 
France is not the law yet. It has not been passed. It is 
something that is still being debated in France.
    But I think that, to answer one of, I think, your key 
questions, ISPs, for their own purposes now, are realizing that 
their systems are becoming clogged, and that as they become 
more and more interested in freeing up their systems for 
legitimate purposes, their interests do become more and more 
aligned with the content companies, which is part of the reason 
why I think on the music side we are having some very 
successful discussions, for the first time with them now, about 
implementing some sort of voluntary, graduated response system 
here in the United States.
    Mr. Soderbergh.
    And I guess it would be our hope, that since you are not 
talking about finding them, you are not talking about hauling 
them into court, that that person then who tries to sue, 
basically for the fact that you have annoyed them and made 
their life a little more difficult, or at least made it more 
difficult for them to do this specific thing, is going to make 
it more palatable, that these abilities have been granted, you 
know, to the people who control the copyright.
    Mr. Schiff. I thought, though, that part of the French 
model, and I understand that it is not in effect yet, but was 
individuals who are in the business of uploading stuff and 
doing it on a massive scale, and get the requisite notice, or 
whatnot, could be denied the service by the Internet provider, 
and the desire would be not just to block them from access with 
that provider but have an agreement among other providers, that 
if you are banned, you can't go to another provider.
    If that is what France is proposing, in part, then you are 
talking about the prospect of basically blocking people's 
access to the Internet, which is quite a substantial sanction.
    So I would think, you know, the question would be, you 
know, what kind of due process would be necessary, if you are 
talking about, you know, potentially blocking access to such a 
now important tool in all of our lives?
    Mr. Soderbergh. Well, again I get back to the Target 
analogy. How many times do you have to catch this guy pulling 
stuff off your shelf, before you say you can't come in here?
    Mr. Horowitz. I would just point out, there have been 
studies in the U.K., that simply getting a warning notice, just 
that in and of itself, has a significant effect on people 
pirating. Dramatic drop offs in the U.K. when they get that 
warning notice.
    What we are talking about in France, or in any of these 
other countries that are discussing it, are some sort of 
graduated warning that ratchets up. It may not be, ultimately, 
that you are out for a year. It may be that you are out for a 
shorter period of time. But there needs to be some sort of 
rational, reasonable way, deg. that ISPs themselves 
take responsibility and accountability for what happens on 
their services, on their systems.
    Chairman Berman. The time of the gentleman has expired. I 
think we are going to forgo a second round at this 
point, deg. because we are going to have a subsequent 
hearing.
    There are a lot of different areas, with some specificity, 
that both the witnesses and members have discussed, which I 
think we should be following up on, and I had my own experience 
with trying to provide a self-help mechanism for intellectual 
property owners to deal with pirates, deg. that drew 
some controversy in the community. But we are going to take a 
look at a lot of these things and see what we can do, and 
particularly in our interventions with representatives of 
countries that are known, in part, for the massive amount of 
piracy that they are countenancing.
    So with that, I thank all of my colleagues for coming 
today. I thank, really, an excellent group of witnesses for 
being here, and this is an ongoing process, and I appreciate 
very much your taking the time to be with us this morning.
    And with that, the committee hearing is adjourned.
    [Whereupon, at 12:10 p.m., the committee was adjourned, 
subject to the call of the chair.]
                                     

                                     

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