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





                  FULL COMMITTEE HEARING ON THE IMPACT
                        OF INTELLECTUAL PROPERTY
                  ON ENTREPRENEURSHIP AND JOB CREATION

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

                                HEARING

                               before the


                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             JULY 21, 2010

                               __________


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


            Small Business Committee Document Number 111-074
Available via the GPO Website: http://www.access.gpo.gov/congress/house


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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman

                          DENNIS MOORE, Kansas

                      HEATH SHULER, North Carolina

                     KATHY DAHLKEMPER, Pennsylvania

                         KURT SCHRADER, Oregon

                        ANN KIRKPATRICK, Arizona

                          GLENN NYE, Virginia

                        MARK CRITZ, Pennsylvania

                         MICHAEL MICHAUD, Maine

                         MELISSA BEAN, Illinois

                         DAN LIPINSKI, Illinois

                      JASON ALTMIRE, Pennsylvania

                        YVETTE CLARKE, New York

                        BRAD ELLSWORTH, Indiana

                        JOE SESTAK, Pennsylvania

                         BOBBY BRIGHT, Alabama

                      DEBORAH HALVORSON, Illinois

                  SAM GRAVES, Missouri, Ranking Member

                      ROSCOE G. BARTLETT, Maryland

                         W. TODD AKIN, Missouri

                            STEVE KING, Iowa

                     LYNN A. WESTMORELAND, Georgia

                          LOUIE GOHMERT, Texas

                         MARY FALLIN, Oklahoma

                         VERN BUCHANAN, Florida

                      BLAINE LUETKEMEYER, Missouri

                         AARON SCHOCK, Illinois

                      GLENN THOMPSON, Pennsylvania

                         MIKE COFFMAN, Colorado

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

                  Karen Haas, Minority Staff Director

        .........................................................

                                  (ii)

  


                         STANDING SUBCOMMITTEES

                                 ______

               Subcommittee on Contracting and Technology

                     GLENN NYE, Virginia, Chairman


YVETTE CLARKE, New York              AARON SCHOCK, Illinois, Ranking
BRAD ELLSWORTH, Indiana              ROSCOE BARTLETT, Maryland
KURT SCHRADER, Oregon                W. TODD AKIN, Missouri
DEBORAH HALVORSON, Illinois          MARY FALLIN, Oklahoma
MELISSA BEAN, Illinois               GLENN THOMPSON, Pennsylvania
JOE SESTAK, Pennsylvania
MARK CRITZ, Pennsylvania

                                 ______

                    Subcommittee on Finance and Tax

                    KURT SCHRADER, Oregon, Chairman


DENNIS MOORE, Kansas                 VERN BUCHANAN, Florida, Ranking
ANN KIRKPATRICK, Arizona             STEVE KING, Iowa
MELISSA BEAN, Illinois               W. TODD AKIN, Missouri
JOE SESTAK, Pennsylvania             BLAINE LUETKEMEYER, Missouri
DEBORAH HALVORSON, Illinois          MIKE COFFMAN, Colorado
GLENN NYE, Virginia
MICHAEL MICHAUD, Maine

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, Pennsylvania, Chairman


HEATH SHULER, North Carolina         MARY FALLIN, Oklahoma, Ranking
BRAD ELLSWORTH, Indiana              LOUIE GOHMERT, Texas

                                 (iii)

  
?

               Subcommittee on Regulations and Healthcare

               KATHY DAHLKEMPER, Pennsylvania, Chairwoman


DAN LIPINSKI, Illinois               LYNN WESTMORELAND, Georgia, 
MELISSA BEAN, Illinois               Ranking
JASON ALTMIRE, Pennsylvania          STEVE KING, Iowa
JOE SESTAK, Pennsylvania             VERN BUCHANAN, Florida
BOBBY BRIGHT, Alabama                GLENN THOMPSON, Pennsylvania
MARK CRITZ, Pennsylvania             MIKE COFFMAN, Colorado

                                 ______

     Subcommittee on Rural Development, Entrepreneurship and Trade

                 HEATH SHULER, North Carolina, Chairman


MICHAEL MICHAUD, Maine               BLAINE LUETKEMEYER, Missouri, 
BOBBY BRIGHT, Alabama                Ranking
KATHY DAHLKEMPER, Pennsylvania       STEVE KING, Iowa
ANN KIRKPATRICK, Arizona             AARON SCHOCK, Illinois
YVETTE CLARKE, New York              GLENN THOMPSON, Pennsylvania

                                  (iv)

  


                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Graves, Hon. Sam.................................................     2

                               WITNESSES

Holleyman, Mr. Roberts, President & CEO, Business Software 
  Alliance.......................................................     3
Carnes, Mr. Rick, President, Songwriters Guild of America, 
  Nashville, TN..................................................     5
Friedman, Mr. Steven, President, t3 Technologies, Inc., Tampa, 
  FL. On behalf of Computer & Communications Industry Association     6
Carnes, Mr. Peter, CEO, Traffax Inc., Silver Spring, MD. On 
  behalf of The Association for Competitive Technology...........     9
Mansfield, Mr. William, Director of Intellectual Property, ABRO 
  Industries, South Bend, IN. On behalf of Motor Equipment 
  Manufacturers Association......................................    10

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    20
Graves, Hon. Sam.................................................    22
Holleyman, Mr. Roberts, President & CEO, Business Software 
  Alliance.......................................................    24
Carnes, Mr. Rick, President, Songwriters Guild of America, 
  Nashville, TN..................................................    31
Friedman, Mr. Steven, President, t3 Technologies, Inc., Tampa, 
  FL. On behalf of Computer & Communications Industry Association    34
Carnes, Mr. Peter, CEO, Traffax Inc., Silver Spring, MD. On 
  behalf of The Association for Competitive Technology...........    37
Mansfield, Mr. William, Director of Intellectual Property, ABRO 
  Industries, South Bend, IN. On behalf of Motor Equipment 
  Manufacturers Association......................................    46

Statements for the Record:
Lipinski, Hon. Dan...............................................    54
Copyright Alliance...............................................    56
eBay Inc.........................................................    58

                                  (v)



 
                  FULL COMMITTEE HEARING ON THE IMPACT
                       OF INTELLECTUAL PROPERTY ON
                   ENTREPRENEURSHIP AND JOB CREATION

                              ----------                              


                        Wednesday, July 21, 2010

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 1:00 p.m., in Room 
2360 Rayburn House Office Building, Hon. Nydia Velazquez 
[chairwoman of the Committee] presiding.
    Present: Representatives Velazquez, Moore, Dahlkemper, 
Lipinski, Graves, Bartlett, Luetkemeyer and Thompson.
    Chairwoman Velazquez. This hearing is now called to order.
    Many of our most successful ventures in America started as 
a note on a napkin, or a dream by an entrepreneur. When these 
ideas blossom into new products and services, they create jobs, 
a critical component of any economic recovery. The success of 
these new ventures requires a system that effectively protects 
entrepreneur's ideas from being unfairly copied and stolen. 
Businesses that develop new products need assurances that the 
economic value of their innovations will be maintained.
    At the same time, we must insure the rules are workable. If 
they are overly restrictive, companies that help entrepreneurs 
reach global markets will see their growth curtail. 
Technological entrepreneurs want to know that innovations like 
TiVo And Slingbox are not hindered, as we seek to protect 
content creator's rights.
    Because of our entrepreneur's productivity, the United 
States is an unparalleled global leader when it comes to new 
ideas. In fact, more than 18 million Americans work in 
industries with an intellectual property focus. This includes 
industries where small firms are independent television and 
movie producers, video game designers, some writers, and 
manufacturers. Collectively, these and other industries make 
U.S. intellectual property worth $5.5 trillion operating in 
hundreds of thousands of small businesses.
    Just as the concept of intellectual property touches many 
economic sectors, preserving it requires diverse approaches. 
The Administration recently announced plans to bolster 
protection of American business interests. The private sector 
has played, and will continue to play, an equally important 
role in protecting intellectual property. Those efforts will be 
highlighted today, as we look at the proactive efforts to meet 
small business needs.
    As the Internet continues to evolve, we see a cross section 
of businesses who can help reserve U.S. ideas. The advent of e-
Commerce has been a boom to many small businesses. It has also 
allowed artists and more producers to rapidly disseminate music 
and video content, while reaching new audiences. But the 
Internet has also created opportunities for piracy.
    To assist U.S. companies in the Internet age, content 
owners are taking several steps. They are engaging in consumer 
outreach and education, and, where necessary, taking legal 
action against infringers. Others are collaborating with video 
and social networking portals to distribute their product.
    In the end, the innovation of entrepreneurs is directly 
tied with the confidence that their ideas will not be stolen. 
Today's hearing will examine how the system for protecting 
intellectual property can spur job growth, and foster 
innovation. During every previous recession, the creativity of 
America's entrepreneurs has led us back to prosperity. That 
will be the same again, today.
    I thank all of our witnesses for taking time out of your 
busy schedule to be here with us to provide your insight into 
this very important issue. And with that, I yield to the 
Ranking Member, Mr. Graves, for his opening statement.
    [The prepared statement of Chairwoman Velazquez is included 
in the appendix.]

    Mr. Graves. Thank you, Madam Chair, and thank you for 
holding this hearing on intellectual property, and my thanks to 
the witnesses also for being here. I look forward to hearing 
your testimony.
    On average, intellectual property represents about 70 
percent of a business' value, which is a significant increase 
from the past. However, many small businesses assume or don't 
understand that intellectual property issues affect them just 
as much as it does their larger counterparts.
    The reality is that small businesses have a significant 
amount to gain or lose when it comes to intellectual property 
protection. Intellectual property laws in the United States are 
designed to protect a company's ideas. And it's typically the 
most valued asset a company usually has to offer. Whether it's 
a name, or a logo, or software, videos, new inventions, or 
literature, laws are in place to protect them. Taking full 
advantage of U.S. Intellectual Property laws helps small 
businesses, and gives them a better opportunity to be 
successful, and create businesses, or create jobs.
    Protecting intellectual property is critical to our 
economy, jobs, and consumers. A violation of Intellectual 
Property laws directly affects a company's brand, its market 
share, its bottom line, its ability to export, and creates a 
number of safety concerns for consumers. It's very easy to see 
the trickle down effect that this has on an economy. And it's 
important that the United States maintains an aggressive 
strategy for protecting these highly valued assets.
    U.S. Customs and Border Protection have seen seizures of 
counterfeited and pirated goods increase over the past few 
years. And if there's one bad actor, there's usually many more 
hiding. The Administration needs to take, and must take a hard 
line approach to fighting intellectual property violations, 
both domestically, and internationally. The economic 
consequences are too strong to ignore. And, additionally, 
engaging the world in a more open trade will bring greater 
transparency to the seedy underworld of counterfeit goods, and 
help reduce these threats to our economy, while improving 
consumer safety.
    Again, Madam Chairman, I want to thank you for holding this 
hearing, and I'm looking forward to our witnesses.
    [The prepared statement of Mr. Graves is included in the 
appendix.]

    Chairwoman Velazquez. Thank you.
    The Chair recognizes the gentlemen from Illinois for a 
unanimous consent request.
    Mr. Lipinski. Thank you, Madam Chairwoman. I want to thank 
you for holding this hearing, and Ranking Member Graves for 
holding this hearing.
    I want to ask unanimous consent to insert an opening 
statement for the record, look forward to hearing from the 
witnesses. And I consider South Bend to be part of the Chicago 
area, since you're going to have Mr. Mansfield here from ABRO 
Industries with us.
    [The prepared statement of Mr. Lipinski is included in the 
appendix.]

    Chairwoman Velazquez. Hearing no objections, so ordered.
    The gentleman is recognized. No? Okay.
    The Chair now will introduce Mr. Robert Holleyman. He is 
the President and CEO of the Business Software Alliance. Mr. 
Holleyman has headed the Alliance since 1990, overseeing its 
BSA operations in more than 85 countries. BSA is the largest 
software industry trade organization, working with 
international governments to advance the industry's goal.
    The gentleman has five minutes to make his presentation. 
Welcome.

                 STATEMENT OF ROBERT HOLLEYMAN

    Mr. Holleyman. Madam Chairwoman, Ranking Member Graves, 
thank you for inviting the Business Software Alliance to 
testify.
    Small business is an integral part of the success of the 
software industry. 97 percent of the software firms in this 
country are small businesses, three-quarters of the software 
firms in America have fewer than 20 employees, and we believe 
that the success of these businesses is an integral part of the 
entrepreneurial spirit, as well as the economic leadership of 
this country.
    America's copyright industries lead the world, and that's a 
great thing for us to be excited about. And the software 
industry is, by far, the largest of the copyright industries. 
Software and related services sector employs more than 2 
million Americans at jobs that are twice the national average 
wage, and the software industry contributes a $37 billion 
positive trade surplus for the U.S.
    All software companies partner, as well, with resellers, 
integrators, and other software developers, most of which are 
small businesses. For example, Apple, a BSA member, provides 
technology and tools for developers, including more than 43,000 
partners who have created software for the iPhone and iPad. 
These developers are overwhelmingly small businesses and 
individuals, and have earned more than $1 billion from App 
Store sales to date.
    Symantec, and Microsoft, and other BSA members have partner 
programs for thousands of small businesses. Microsoft, for 
example, has 640,000 partners in its network, and about 15,000 
of those were here in Washington last week for a partner 
conference at the Convention Center.
    This entire software industry is built on the foundation of 
intellectual property protection, and that is rooted in our 
Constitution. But our industry faces a substantial problem from 
software theft. In the U.S., one in five PC applications 
installed last year were stolen, and we have the lowest 
percentage rate of software piracy in the world here in the 
U.S. Many countries have much higher rates. For example, China 
has a rate of software piracy of 79 percent.
    Now, small developers are particularly threatened by 
software theft. They often lack the resources to fight 
infringement, and they have fewer product lines across which to 
spread the risk. But the economic harm from illegal software 
use goes far beyond the software industry. And, indeed, this is 
the untold story.
    Most software theft occurs when an otherwise legal business 
makes illegal copies of software for their workplace. This 
gives them an unfair cost advantage, because software is a 
critical tool of production. And these businesses compete 
unfairly with companies, large and small, across all sectors of 
the economy that respect the law. So, internationally, while 
most businesses in high piracy countries like China, steal the 
software they use to run their companies. The vast majority of 
their U.S. competitors pay for their software, as they should.
    Simply put, overseas producers from high piracy markets 
compete unfairly with U.S. companies, undermining the sales of 
U.S. goods, and displacing American jobs.
    In conclusion, I would like to congratulate Congress and 
the Administration on the release of the first Joint Strategic 
Plan on IP Enforcement. One month ago today, Vice President 
Biden unveiled this plan with Victoria Espinel, the first ever 
U.S. IP Enforcement Coordinator. Her office, and the Strategic 
Plan, itself, were mandated by Congress in the bipartisan Pro 
IP Act of 2008.
    The Plan calls for specific actions, including promoting 
enforcement of IP overseas, improving coordination among law 
enforcement resources in this country, and serving as a model 
for the rest of the world by insuring that government agencies, 
and federal contractors manage and protect IP assets in the 
workplace.
    I urge this Committee and Congress to insure robust 
implementation of this plan, particularly as it pertains to 
small business. U.S. leadership in software depends on the 
success of small business, and that hinges on effective 
protection of IP for everyone.
    Thank you for the opportunity to testify.
    [The prepared statement of Mr. Holleyman is included in the 
appendix.]

    Chairwoman Velazquez. Thank you, Mr. Holleyman.
    Our next witness is Mr. Rick Carnes. He is the President of 
the Songwriters Guild of America, located in Nashville, 
Tennessee. Mr. Carnes is a working songwriter who has co-
written number one songs for Reba McEntire, ``I Cannot Even Get 
The Blues,'' and Garth Brooks, ``Longneck Bottle.'' The 
Songwriters Guild was formed as the Songwriters Protective 
Association in 1931, and promotes the profession of 
songwriting. Welcome.

                    STATEMENT OF RICK CARNES

    Mr. Rick Carnes. Thank you so much, Chairwoman Velazquez, 
and Ranking Member Graves for the opportunity to testify on the 
impact of intellectual property on entrepreneurship and job 
creation. I would also like to take a moment to thank Fred 
Cannon of BMI, and Cindi Tripodi of the Copyright Alliance for 
their assistance in alerting me to this hearing.
    My name is Rick Carnes, and I'm President oft he 
Songwriters Guild of America. The SGA is the nation's oldest 
and largest organization run exclusively by and for 
songwriters. I am a professional songwriter living and working 
in Nashville, Tennessee since 1978. While I've been fortunate 
enough to have a modicum of success in my career writing number 
one songs for both Garth Brooks and Reba McEntire, along with 
songs recorded by Dean Martin, Steve Wariner, Alabama, Pam 
Tillis, Conway Twitty, among others, I'm constantly reminded of 
the perilous existence of all of us who have chosen songwriting 
as a profession.
    Critical for this Committee is the fact that professional 
songwriters are not employees. We are self-employed small 
business people, and the songs we write produce jobs everywhere 
you look. Practically everything in this country is sold with 
music. Examples abound, just turn on the TV and listen to the 
car commercials. Every restaurant provides music with your 
meals. Fashion follows music, sporting events have music, 
technology is tied at the hip to music. The iPad and the 
iPhone, and practically everything else that starts with an `i' 
delivers and plays music. Can anyone deny the resurgence of 
Apple computers was tied directly to the iPod, and iTunes as a 
music delivery service? Search engines sell huge amounts of 
advertising on searches for songs. And music file downloading 
was and is a major driver in the adoption of broadband Internet 
service.
    Songwriters' jobs are valuable to the economy, and totally 
green. No smoke stacks or heavy infrastructure costs are needed 
for song creation. The only resource we depleted is pencil 
erasers, and the only thing we spill is coffee.
    Every single job in the music industry springs from a hit 
song. Unlike recording artists, songwriters don't make money 
from live shows, or selling merchandise, because we don't 
perform. And, frankly, we're not that pretty. We're the folks 
who sit in a room along with a guitar, and a blank page, and a 
burning desire to tell our story through music.
    As professional songwriters, we make all of our money from 
copyrights. The income from those copyrights come primarily 
from two sources, CD sales, and if we're lucky enough to get a 
single, we get performance money when the song is played on 
radio or TV. But songwriting as a profession is vanishing.
    Songwriters can no longer depend on record sales for a 
major part of their income in a market where it is estimated 
that 20 songs are stolen on line for every song that's sold. 
The music publishers are not contracting staff songwriters any 
more. It's too risky to advance money for songs in a market 
that doesn't protect those songs from theft.
    The last music publisher I signed with had 12 professional 
songwriters on staff in 1998, the year of Napster. By 2008, 
they had let go of all of their staff writers, including myself 
and my wife.
    We need to establish new business models for digital music 
delivery that will insure the protection of copyrighted songs, 
while giving consumers a great experience with music at a fair 
price. Unfortunately, it is very difficult to establish those 
business models, when the entrepreneurs we need to fund those 
ventures have to compete in a marketplace glutted with stolen 
music.
    It is the hope of songwriters everywhere that technological 
innovation will help find a solution to the problem of music 
piracy. In that regard, the SGA supports the development of 
high performance content delivery networks that could give 
consumers a better, safer experience in accessing music on 
line. In this way, we might be able to compete with the virus 
ridden, poor quality, illegal copies of copyrighted songs you 
so often find on peer-to-peer services.
    In closing, let me recount an experience that is happening 
all too often to me with my discussion with songwriters today. 
I met a legendary country song writer in a coffee shop last 
month in Nashville, and he told me he's now selling ammunition 
at gun shows instead of writing songs. When I asked him if he 
was ever going to start writing again, he said, and I quote, 
``Why bother?''There will always be people who are moved by the 
muse to write the occasional song, but without a way to sell 
their music and make a living, the professional songwriters 
that made American music the envy of the world, will pursue 
other jobs that pay a liveable wage, jobs where their work and 
their rights are respected, and protected.
    In conclusion, Ms. Chairwoman, and members of the 
Committee, SGA truly appreciates your efforts on behalf of 
small business people like us. We look forward to working with 
you to enliven job creation in the music industry through the 
protection of intellectual property rights, and the 
encouragement of technological innovation in the delivery of 
music. SGA and I stand ready to be a part of that effort. Thank 
you so much.
    [The prepared statement of Rick Carnes is included in the 
appendix.]

    Chairwoman Velazquez. Thank you, Mr. Carnes.
    Our next witness is Mr. Steven Friedman. He is the 
President of T3 Technologies located in Tampa, Florida. T3 
Technologies has provided main frame computer solutions to the 
small and medium-size business community since 1992. Mr. 
Friedman is testifying on behalf of Computer and Communications 
Industry Association, representing companies in the computer, 
Internet, information technology, and telecommunications 
industries. Welcome.

                  STATEMENT OF STEVEN FRIEDMAN

    Mr. Friedman. Thank you, and good afternoon, Chairwoman 
Velazquez, Ranking Member Graves, and members of the Small 
Business Committee. First, I want to thank you for allowing me 
to tell my story here today. I've been a small business owner 
for 19 years, and it's a label that I'm very proud to wear.
    Let me say, first, that I do not disagree that intellectual 
property can be of great help to small businesses in 
commercializing their ideas. However, my recent experiences 
have proven to me that the current IP system is a bit out of 
balance, and that our imbalanced Intellectual Property laws 
actually hinder innovation, disproportionately so for small 
businesses.
    This reality was recognized recently by Justice Stevens in 
one of his final Supreme Court opinions in Bilski v. Kappos, in 
which he wrote, and I'm quoting, ``Even if a patent is 
ultimately held invalid, patent holders may be able to use it 
to threaten litigation, and to bully competitors, especially 
those that cannot bear the costs of a drawn out, fact- 
intensive patent litigation. That can take a particular toll on 
small and upstart businesses.''
    I, personally, hear a lot of talk about intellectual 
property and its importance to small business, but from where I 
sit, IP is really just a complicated regulatory system. This 
regulation of knowledge and ideas has expanded into many areas 
of our economy. AS with any regulation, big business figures 
out the best ways to navigate the system, while the little guys 
who don't have the high priced legal teams at their disposal 
get tied up with paperwork and lawsuits, or simply eliminate 
innovative ideas from their plans in order to avoid such 
paperwork and lawsuits.
    My story is fairly technical and complicated, but the 
lesson is simple; intellectual property can be as much a danger 
to small business as it is a benefit. A large firm can use the 
current Intellectual Property laws to effectively put smaller 
rivals that threaten its bottom line out of business.
    Let me first briefly explain the market I'm in. Until 
recently, my company built computer systems that were capable 
of running IBM's mainframe operating system, similar to the way 
Dell and HP build systems that run Windows. Although some 
people are unfamiliar with mainframes, or may think them as 
relics, in reality, they power much of the world that we live 
in today. They are the computing power behind ATMs, health care 
records, global stock markets, the Social Security 
Administration, just to name a few, and 70 percent of the 
world's government and corporate data is stored on mainframes. 
It's estimated up to $5 trillion in business assets reside on 
these systems. My small company sold such mainframe systems to 
Fortune 500 businesses, the U.S. military, NATO, and a large 
number of city and county governments.
    I employed over 50 people who served nearly 1,000 customers 
in 28 countries selling our mainframe solutions to former IBM 
customers who needed lowers power mainframes, because, quite 
simply, not everyone needs a Ferrari. This was a profitable 
niche for us, and we quickly became a ``go to'' company for 
businesses that needed cost- effective mainframes.
    One of the reasons we got into this business was in 1999, 
IBM had stopped selling these smaller mainframes that we sold. 
With no competitors left in the field, they simply were able to 
scale down their larger systems, and charge what we felt were 
monopoly rents to these smaller users. Seeing this as an 
opportunity for our little company, we licensed a new 
technology from a company called Platform Solutions, a 
California-based small business, whose product allows less 
expensive hardware to run IBM's mainframe operating system. As 
a result, I could compete with IBM by selling much more 
affordable mainframe machines to my customers.
    Thanks to a well-known Department of Justice Consent Decree 
that lasted for decades, and it compelled IBM to license their 
mainframe operating system to all comers on reasonable and non-
discriminatory terms. This is what permitted a small startup 
company like Amdahl to innovate and excel in the market in the 
1980s and 1990s. The continuation of this practice was a basic 
assumption in our decision to develop our products.
    However, in 2003, IBM was released from this Consent 
Decree. Almost immediately, they began putting up obstacles to 
T3 and our customers who wished to license this operating 
system. This culminated on October 31st, 2006, when IBM 
publicly announced they would no longer license their patented 
operating system to any hardware except their own. Imagine, if 
you will, if Microsoft one day announced that they were 
building their own PCs, and that Windows would only be sold on 
those machines.
    To make matters worse, they then sued my business partner 
and I for alleged intellectual property violations. The court 
process has taken three years, cost millions of dollars, and is 
still not over. To make matters worse, IBM has since purchased 
PSI and shelved its technology. And now, almost incredibly, in 
civil court, IBM hides behind Intellectual Property laws 
claiming that they permit otherwise forbidden monopolistic 
behavior, essentially saying that Intellectual Property laws 
trump Antitrust laws.
    Chairwoman Velazquez. Time is expired. Can you sum it up?
    Mr. Friedman. Yes. Absolutely.
    Chairwoman Velazquez. Because votes are happening right 
now.
    Mr. Friedman. Okay. Although I can afford no cure-alls, I 
do implore you to think beyond bumper sticker slogans, and 
think through the whole process, and the unintended 
consequences of these laws. And I thank you for your time, and 
look forward to answering any questions.
    [The prepared statement of Steven Friedman is included in 
the appendix.]

    Chairwoman Velazquez. Okay. The Committee will stand in 
recess until we finish voting on the House floor. Thank you.
    [Recess.]
    Chairwoman Velazquez. The Committee is called back to 
order. Sorry for the time that we spent on the House floor.
    It is my pleasure to introduce Mr. Peter Carnes, and he is 
not related to Mr. Rick Carnes. And he is the CEO of Traffax, 
Incorporated located in Silver Spring, Maryland. Traffax is a 
startup that measures traffic flows through the use of 
Bluetooth Wireless signal. Mr. Carnes is testifying on behalf 
of the Association for Competitive Technology, representing 
more than 3,000 technology firms.
    Welcome.

                   STATEMENT OF PETER CARNES

    Mr. Peter Carnes. Thank you. Chairwoman Velazquez, Ranking 
Member Graves, and well, there were distinguished members of 
the Committee here before, but I'm sure that they'll be able to 
review this by--
    Chairwoman Velazquez. They will be coming back.
    Mr. Peter Carnes. Right. So, my name is Peter Carnes. I'd 
like to thank you for holding this important hearing on the 
role that intellectual property plays in driving innovation and 
creating economic growth. And, most importantly, new jobs.
    I am the Chief Executive Office of Traffax, Inc., a 
transportation monitoring equipment startup in College Park, 
Maryland. Traffax was a May 2008 winner in the University of 
Maryland's Maryland Technology Enterprise Institute business 
plan competition, and we, as you said, design equipment and 
systems to measure the flow of traffic, both pedestrian and 
vehicular traffic. We use a technology that detects and 
monitors electronic signals from end-use electronic devices. 
The technology is accurate, it's inexpensive to deploy, and it 
operates while protecting people's privacy, which is a 
significant improvement, and overcomes some disadvantages found 
in some existing technologies.
    While we are US-based, traffic is a global problem, and 
Traffax' equipment is also currently being used in Canada, 
England, Australia, and Brazil. We're many conversations with 
other European countries. We have a whopping seven employees, 
and we've managed to extend our reach of our equipment to these 
particular areas. And the way that we've been able to do that 
is, obviously, we've been able to attract good partners, but 
it's the value of our idea, and the ability to solve an 
apparent problem that has really helped us expand beyond 
Maryland, and beyond the U.S., into other parts of the world.
    In today's global world, innovation serves as the linchpin 
for creating future jobs, solutions to modern problems, and 
maintaining technological leadership. When I go to work 
everyday, I have a very unique opportunity. I have the 
opportunity to fail, and I do it over, and over, and over until 
I find a solution. Most people when they go to work, they need 
success, and they need it all the time, so they cannot push the 
envelope. In my job, I'm supposed to make sure things change. 
I'm supposed to focus on problems, and make sure that they get 
solved. And that's a tremendous benefit, but it is a high-risk 
way to live your life. And the reason that that works is 
because that there is the potential for there to be high reward 
when you solve a real problem, and you find a creative 
solution.
    So, to do that, you've got to integrate IP culture into all 
stages of your innovation process to be able to protect the 
work that you do. So, you have to treat IP holistically within 
your business, you have to view it as copyright, trademark, 
relationships that you make, and, obviously, patent 
protections. You have to reward employees that help you create 
IP.
    So, we view IP as America's way forward. And according to 
the 2007 report by the Information Technology and Innovation 
Foundation, IT, Information Technology, adds $2 trillion 
annually to the U.S. economy, and is responsible for nearly all 
of the pickup in economic growth over the last decade. And when 
you look at the people's day-to-day work, that translates to 
increases in productivity. That increase in productivity comes 
from IT. For IT to work, it requires its own fuel, which is 
intellectual property, or the right to benefit from your idea.
    There's, essentially, three roadblocks that I identified 
for building IP culture, the time it takes the USPTO to process 
a patent, the uncertainty of IP protection in overseas markets, 
and the lack of funding options from banks and SBA for 
companies that create IP. Small technology companies like mine, 
we do not buy buildings, we do not buy furniture, we do not buy 
trucks, we often don't even buy computers. We use our money to 
pay engineers, and software developers, and marketing people, 
and sales people to create a new idea, create a message, and 
get it out. And we have a very difficult time with funding 
unless we can point to IP as something that will help an 
investor value their return.
    So, we would like for you to do the work that you do, and 
we recognize that it's quite difficult, but we believe that the 
USPTO needs some help, and they need to be able to use the 
money that they collect, that we pay them in fees, so we ask 
you to pass the USPTO budget request. We want you to continue 
to do what you can to help protect IP globally, both focusing 
on bad actors, but trying to achieve harmonization with our 
closer friends, as well. And then whatever work could be done 
to help the SBA recognize that all small businesses aren't 
delis, they aren't gas stations, some of them have the same 
kind of technology problems that IBM, and Google, and Apple, 
and eBay have. Thank you.
    [The prepared statement of Peter Carnes is included in the 
appendix.]

    Chairwoman Velazquez. Thank you, Mr. Carnes.
    The Chair recognizes the Ranking Member for the purposes of 
introducing our next witness.
    Mr. Graves. Thank you, Madam Chairwoman.
    Our next witness is Mr. William Mansfield. He's the 
Director of Intellectual Property at ABRO Industries in South 
Bend, Indiana. ABRO Industries was founded in 1939, and 
currently manufactures and distributes industrial, automotive, 
and consumer products. Mr. Mansfield is testifying on behalf of 
the Motor & Equipment Manufacturers Association. Welcome.

                 STATEMENT OF WILLIAM MANSFIELD

    Mr. Mansfield. Madam Chairwoman, Ranking Member Graves, and 
other distinguished members of the Small Business Committee, 
thank you for the opportunity to testify before you today on 
the impact of intellectual property on entrepreneurship and job 
creation. My name is William Mansfield, Director of 
Intellectual Property for ABRO Industries, Incorporated.
    I am here representing the Motor & Equipment Manufacturers 
Association and ABRO. The Motor & Equipment Manufacturers 
Association, or MEMA, represents nearly 700 companies that 
manufacture motor vehicle parts for use in the light vehicle 
and heavy-duty original equipment, and after-market industries. 
Motor vehicle parts suppliers are the nation's largest 
manufacturing sector, directly employing over 685,000 U.S. 
workers, and contributing to over 3.2 million jobs across the 
country.
    ABRO Industries Incorporated is a small after-market 
supplier headquartered in South Bend, Indiana. Now, if you 
never heard of ABRO Industries before, do not feel bad. 
Virtually, no American has. ABRO operates in a manner once 
common in America, but which is now almost unheard of. ABRO has 
a variety of automotive hardware and basic consumer goods, such 
as radiator fluid, glues, and masking tape, manufactured in 
America under the ABRO brand name.
    We sell those items exclusively overseas, mostly in 
developing nations. We do not sell any items in the United 
States. We have spent decades building the ABRO brand name into 
a reliable identifier of high-quality goods. ABRO greatly 
values its name, which is registered in multiple categories in 
over 160 nations.
    Because ABRO faces counterfeiters all around the world, I 
run ABRO's very aggressive Anti-Counterfeiting program, and I 
fought counterfeiters on six continents. And I'm always looking 
for a case in Antarctica, as well, on ABRO's behalf.
    The magnitude of global counterfeiting is significant. 
International IP protection is about much more than Hollywood, 
or luxury goods, though both will always be an important 
component of the battle. IP protection is also about safety of 
a wide variety of consumer products, such as pharmaceuticals, 
and motor vehicle parts.
    Counterfeit parts and components for motor vehicles pose a 
critical problem to the American economy, and the supplier 
industry. MEMA conservatively estimates that counterfeit goods 
cost motor vehicle suppliers at least $3 billion in the United 
States, and $12 billion globally in lost sales. And while 
protecting intellectual property is important for major 
multinational corporations, I would argue that IP is extremely 
critical for small businesses like ABRO, which has only 24 
employees, because a single incident could force a company out 
of business. A giant corporation can recover from a hit to its 
reputation, a small company does not have this ability. If 
counterfeiters have managed to undermine their brand name by 
selling low-quality and/or defective products under that name, 
they can easily be permanently damaged, or even destroyed.
    Now, it is common to blame all counterfeiting on China, and 
this is, of course, not the case. Counterfeits are also made in 
India, Russia, and other countries. We at ABRO have been able 
to work with the Chinese government in enforcing our 
intellectual property, and they have pursued counterfeiters 
when our company presented credible evidence of our trademark 
being violated.
    There's a wide range of counterfeit parts and components 
for vehicles that are manufactured and distributed globally, 
which may result in catastrophic vehicle systems malfunctions, 
endangering the car or heavy-duty truck driver operating the 
vehicle, and all motorists traveling the same road.
    Trademark or brand infringement is the most immediate 
problem faced by many motor vehicle suppliers. Pirates also 
copy trade dress or the unique appearance of product packaging. 
Often they do not make perfect copies, instead making the 
packaging confusingly similar. To demonstrate, I have three 
cans of spray paint, a genuine ABRO product, and products 
labeled AMBRO and ARVO. This example shows how hard it can be 
for the average consumer to distinguish between an authentic 
and a counterfeit good.
    MEMA supports the recent Intellectual Property Enforcement 
Coordinator's Joint Strategic Plan, which is the first ever 
plan to include a roadmap on how to address challenges of 
counterfeiting, and piracy of American IP. Additional resources 
are necessary to fully implement the plan, which will improve 
our nation's ability to combat counterfeiting and piracy.
    Our country must promote and defend a robust international 
system of IP laws and norms, while strengthening cooperation 
with like- minded countries, and key trading partners to 
promote shared IP protection. Congress should authorize 
additional resources for CBP and ICE to enforce intellectual 
property laws at our borders, and support comprehensive robust 
anti- counterfeiting trade agreements.
    Finally, Congress should consider expanding the IP Attache 
program. These contacts have generally assisted my company in 
understanding local anti-counterfeiting procedures, gaining 
access to key foreign government personnel, and obtaining the 
necessary resources to fight counterfeiting in other nations.
    Madam Chairwoman, thank you again for the opportunity to 
testify today.
    [The prepared statement of William Mansfield is included in 
the appendix.]

    Chairwoman Velazquez. Thank you, Mr. Mansfield.
    If I may, I would like to address my first question to Mr. 
Holleyman.
    Two years ago, your Association released a study on the 
impact of piracy. Can you tell the Committee since that study 
was released, how effective your industry has been in 
addressing the problem of piracy in software industry? And how 
does this issue post obstacle for small firms?
    Mr. Holleyman. Thank you for that question. Each year we 
work with ITC, which is one of the leading technology research 
firms to try to quantify the impact of piracy, not just on U.S. 
companies, or not just on our members, but globally.
    Over the past two years, we've seen two trends happen. One 
is that the overall global rates as a percentage of piracy are 
going up, and that is because large markets like China, Brazil, 
the BRIC markets, who have higher rates of piracy on average 
than the global average, they're becoming so important in terms 
of sales of PCs, that the sales of legal software are lagging 
behind, that they're driving overall global rates up.
    At the same time, because of the progress in many 
countries, and also, candidly, because of the economic 
environment last year, the dollar loss due to piracy has stayed 
sort of roughly the same over the last couple of years. But 
it's about $51 billion a year lost due to piracy, and when I'm 
sort of challenged, how could that possibly be the case? Well, 
that's the commercial value of pirated software estimated to 
have been put into use. And if you look at the fact that the 
packaged software industry is a $300 billion a year industry, 
it's not a surprise to see that there could be as much as $51 
billion in pirated value with the marketplace.
    Chairwoman Velazquez. Thank you.
    Mr. Friedman, I recognize that litigation can have a 
crippling effect on small businesses. It also creates the 
prospect of unknown costs. How are your business decisions, 
including those on R&D spending and hiring impacted by this 
uncertainty?
    Mr. Friedman. Certainly, what has happened to us in the 
last few years has put us on guard to be a little more wary 
than we might ordinarily have been in terms of our hiring and 
our R&D. We are also, however, extremely aware and cognizant of 
the importance of IP, especially in the technology field. And 
for a small company, as others here today have testified, it's 
a critical path to success to gain that intellectual property.
    Our issue with it really is only how larger companies 
utilize IP to the detriment of smaller companies. But for 
ourselves, we feel it's a critical component to future success 
for small companies.
    Chairwoman Velazquez. Thank you.
    Mr. Carnes, the music industry supports thousands of small 
businesses, from production-related activities. These includes 
firms ranging from marketing, to video production, to small 
recording studios. Can you discuss the direct and indirect 
effects of piracy on the industries that you deal with?
    Mr. Rick Carnes. Well, as a songwriter, in my testimony I 
said all I produce is copyright. That's the only thing that I 
get paid on. But that copyright, like that hit song, is the 
thing that drives the entire business. I mean, if you get a hit 
song, you run into the studio and you demo it. Well, you 
immediately give jobs to studio musicians, to recording 
engineers, to the studio owners who are small business people. 
And then it goes to the record label. If they decide to record 
it, then they rerecord it. They make a master recording, so now 
you have more studio musicians, you have bigger recording 
studios. The budgets continue to increase. And then once it 
gets to the radio, then you have all the marketing people that 
go out and market the record. And then, of course, you have all 
the retail people that sell the record. And it continues up the 
chain. Then you have the advertising people that use the song 
for the purpose of selling other goods. And every one of these 
things adds--the value is all added on top of one copyright.
    Absent that hit song, that whole process, it all starts 
with a song. Absent the song, it stops right there. If you 
don't have a hit song, that's it.
    Chairwoman Velazquez. Thanks.
    Mr. Peter Carnes, the process of managing and protecting 
one's trademarks, patent rights, or copyrights can be very 
complex. And, in many cases, small firms do not know where to 
start, and maybe end up taking no action. So, can you talk to 
us about what proactive measures should a small business take 
to manage their intellectual property rights?
    Mr. Peter Carnes. Yes, ma'am. Thank you.
    First of all, I'd like to say that the USPTO actually does 
a very good job with regard to outreach, and trying to explain 
their process. It's not their job to tell you about the 
importance of IP, but it is their job to explain to you how 
their process works. And I do think that they generally do a 
good job trying to do that.
    I think that if you're in the technology business, you have 
some sense of make it once, and sell it many times. And once 
you overcome that original hurdle of an idea, then, typically, 
what happens is that you set aside some of your funding to 
engage with an attorney that practices Intellectual Property 
law. And often your investors will require you to do that.
    So, I think that that system is actually pretty well, works 
pretty well as far as information goes. I think the problems 
with IP are not the information about how that it works, but 
the understanding of the timeliness and the effort that it will 
take.
    One area that is a big issue, though, is your patent, if 
you are issued a patent in the U.S., it protects you in the 
U.S., so you must go out and seek protection in every market 
that you think is relevant to your technology. So, anything 
that could happen to help with harmonization would help you, 
especially as a small business, to only have to learn kind of 
the rules, the general rules instead of learning the specific 
rules for each place.
    Chairwoman Velazquez. Thank you.
    Mr. Mansfield, you mentioned in your testimony that ABRO, 
that most Americans haven't heard about ABRO, because you don't 
sell any of the items here. Why is that?
    Mr. Mansfield. Well, first, Madam Chairwoman, I'd like to 
echo Mr. Carnes' comment. I think the USPTO does an amazing job 
in outreach.
    Chairwoman Velazquez. That's good to hear.
    Mr. Mansfield. And they're often not recognized for that, 
but they do very good work there.
    ABRO's history has been about selling where ``Made in 
America'' has a strong competitive advantage. And in developing 
nations around the world, ``Made in America'' really means 
something, no matter if they're angry at us, they're mad at us, 
our political structure, anything, they trust our products, 
especially non-electronic consumer goods. So, we have just 
built up in a small niche where ``Made in America'' can really 
have an impact, especially after 30 years of consistently 
providing American-level quality non-electronic consumer goods.
    Chairwoman Velazquez. Okay. And just since you sell your 
products overseas, can you tell us what obstacles do you face 
when you do business in countries with limited protections of 
IP?
    Mr. Mansfield. It certainly is true that the counterfeiters 
target countries where the protections are hard to get, or hard 
to enforce. They're pretty much any country now, especially 
with the Madrid Protocol, you can get trademarks, you can get 
the registration. But that is not the end of the fight, that's 
just the beginning.
    In most countries, especially developing countries, you 
have to invest significantly and work to make sure your brand 
is protected there. In my work, I spend about 100 days a year 
on the road internationally physically going to the countries, 
meeting the key people, and learning what works there. And too 
often, Western brand owners assume that what works here, will 
work everywhere. There's always a way to protect intellectual 
property in every country. It's just not always our way. And 
you have to spend the time to learn the local way.
    Chairwoman Velazquez. Thank you.
    Mr. Graves.
    Mr. Graves. Thank you, Madam Chair.
    My question is for each of you, and it's about trade 
agreements. And my curiosity is, when it comes to enforcement 
of intellectual property rights, how do--the trade agreements, 
at least the ones that we've passed recently, do they the 
protections you need? Do they go far enough? Just, in general, 
just I'd be very curious about that. Mr. Holleyman.
    Mr. Holleyman. Sure, I'll start. I think that the trade 
agreements have been a huge factor behind the growth of the 
software industry, both the multilateral ones by WTO, including 
Intellectual Property provisions, but many of the Free Trade 
agreements have been quite specific in recent years in 
addressing the issue of software, insuring that governments 
were using only legal software, and trying to take steps to 
drive private sector use. So, they're important, and we think 
that IP components need to be a part of every trade agreement.
    Mr. Graves. Mr. Carnes.
    Mr. Rick Carnes. Well, certainly, when we harmonize 
treaties, like WIPO, and things like that, that helps, because 
you get--when you have some countries that have limited 
copyright protection, and other countries like the United 
States now has Life Plus 70, gets to be a problem, so it has 
positively impacted us, that we're harmonizing some of the 
laws.
    Mr. Graves. Mr. Friedman.
    Mr. Friedman. I will admit that I am not very well versed 
in the trade agreements. I can say that, historically, about 
one-third of our business has been overseas, primarily in 
Europe. The only restriction that we had was in our early days 
shipping some technology, or not shipping some technology to 
the former Soviet Union into Russia. So, I'm sorry, but I can't 
be too much help on this question, I don't think.
    Mr. Graves. Mr. Carnes.
    Mr. Peter Carnes. Yes, thank you. I, in general, feel very 
positive about the trade agreements, and the progress that has 
been made in that area. And I think that as a government, you 
tend to think about it at a macro level. As an individual, I 
tend to think about it as a micro level. And at the micro 
level, what I see happening in some of these countries is that 
the protection of IP is entering into the narrative. And I 
think in many parts of the world, and I've had the opportunity 
to visit China about 25 times, and I think that part of what we 
need to do is continue to focus on these things at the macro 
level to make sure that it enters into individual narrative, 
because in some parts of the world, I think their view of your 
rights around intellectual property are just fundamentally 
different than the U.S. right. So, I think that the focus of 
our government on these issues encourages discussion down at 
the working level. Thank you.
    Mr. Graves. Mr. Mansfield.
    Mr. Mansfield. I would once again agree with Mr. Carnes, 
who I've never met before today, but, apparently, we're very 
much in agreement.
    I think the more America is involved with other countries 
in these trade agreements, the better Americans are able to 
function in those structures, and the more respect is given to 
intellectual property rights.
    I would love to take this as a chance to, again--the IP 
Attache program, which currently exists, I think we have eight 
of them in our embassies, if that was expanded, I think we 
would have better protection, especially better protection for 
small businesses, who could then call upon that person as a 
local expert in the structure that they are now dealing with.
    Mr. Graves. Thank you, Madam Chair.
    Mr. Luetkemeyer. Thank you, gentlemen, for being here 
today. I've got a couple of questions with regards to--I was 
talking with one of my Small Business people last week, and he 
was kind of frustrated with the process, to the point where he 
said--I asked him if he had his process patent, and he said, 
``No.'' He said, ``One of the things that concerns me is the 
fact when you put the patent out there, it allows everybody to 
see what you just did, and all they have to do is tweak it just 
a little bit, so that they can go out and have their own patent 
on your own product.''
    Do you see something like that as a problem with your own 
particular areas of interest, any of you?
    Mr. Peter Carnes. Yes. Obviously, that is a consideration 
that everybody has. Essentially, the patent process, you have--
after 18 months, your patent is published at some point, and 
people can read it. And I think that you have to think about 
from the perspective of what is the patent system about. It is 
really about trying to drive innovation. So, if people are able 
to read your patent, and develop a significant leap forward, 
then the world needs that leap forward.
    The big issue is whether people can just read your patent, 
and go out and copy your work. And the truth is, the time 
between when the patent is published, and when the patent is 
released, during that time you cannot do anything to discourage 
a potential competitor.
    It used to be the time that you had published your patent, 
and your patent was issued was the time that you established 
your market leadership. And you traveled down the learning 
curve to get better at your technology before somebody else 
did. And right now, with the huge gap of time between when the 
patent is published, and when they're issued, you don't have 
that time to earn that market leadership anymore.
    Mr. Mansfield. I'd also like to comment, if I could, sir.
    Mr. Luetkemeyer. Yes.
    Mr. Mansfield. They have another option. Trade secrets 
exist specifically for that sort of concern. Coca Cola never 
published or patented its recipe, and it jealously guarded it, 
kept it secret, and it hasn't been duplicated. But going public 
is kind of part of the tradeoff of getting the protected period 
under a patent system.
    Mr. Luetkemeyer. Do you believe that existing laws are 
enforced adequately, both here in this country, and abroad, or 
are there problems in one place, or the other?
    Mr. Mansfield. ABRO doesn't actually have any patents. I'm 
just-
    Mr. Luetkemeyer. Intellectual property either way.
    Mr. Mansfield. I think it is getting better. It's far from 
perfect, but more and more there are tools that you can work 
with to protect your own intellectual property. So, by and 
large, I think we're improving yearly.
    Mr. Holleyman. Congressman, I'll add to that. I certainly 
took heart from Mr. Mansfield's comments about the progress 
that his company has been making in markets like China. I have 
been working intellectual property issues there for almost two 
decades, and I do think that there is a level of understanding 
that, ultimately, intellectual property protection will be 
important to China. I think it's a question of when, and where 
will that be exercised. We work very closely with the Copyright 
Office in China, and their enforcement authorities, who are, by 
all accounts in my meetings, very diligent, hardworking, 
committed public citizens. But there are less than 20 people at 
the Central government in China working on copyright protection 
industries, and trademark industries for the whole of China. 
So, it's not a question of the ability or interest of certain 
people to do their jobs, but it's a question of a priority 
that's been placed.
    So, in our case, where we have digital piracy largely 
within businesses, including state-owned enterprises, finding 
an effective remedy for enforcement, we're still a long way 
from that. And there are many other countries like that.
    Mr. Luetkemeyer. Okay, very quickly, my time is about to 
run out. I've got one question I would like each of you to 
answer very quickly, if you would.
    With regards to, this is the Small Business Committee, and 
we're always interested in small business folks. Are the laws 
that deal with intellectual property, are they too cumbersome 
for our small businesses to work through, are they about right, 
do they need to be--are they too easy, they need to be 
enforced, or more layers need to be in it to help protection, 
or are we where we need to be, if you wouldn't mind each one 
commenting on that.
    Mr. Friedman. If I may, thank you.
    From our perspective, I think the laws are adequate, but in 
some cases lack clarity, in the case that--in our story that I 
talked about earlier. The nexus where intellectual property and 
antitrust meet, for example, there's lacking a lot of clarity 
of what has precedence in the case that I talked about this 
morning. And the situation of unintended consequences, where it 
actually enabled the monopolist to act in violation, we think, 
of antitrust laws. And, today, that company now has 100 percent 
market share in our marketplace.
    Mr. Holleyman. I'll start by saying that for software 
companies, of which 97 percent of the firms in software in this 
country are small businesses, and globally, 60 cents of every 
dollar that's spent on software around the world comes back to 
a US-based company. I'm often asked when I travel what's the 
secret? Why does that happen? Why has the U.S. been so 
successful? And it's really--it's part three things. One, sort 
of a culture of entrepreneurship, and risk-taking. Two, a good 
educational system, but it's no surprise that because we've had 
very strong intellectual property laws in this country, that is 
really what's allowed us to build a market here, and expand it 
internationally. And, to me, that is the secret sauce that's 
missing in most other countries. So, I think it works well for 
small business.
    Mr. Rick Carnes. As a songwriter, I can say that in terms 
of interdicting physical counterfeited goods, pirated CDs and 
hard version, the government has done some good, with the CHIP 
program, with the FBI, the Intellectual Property Law 
Enforcement Commission, they're actually discussing this. But, 
by and large, the government has ignored the 800-pound gorilla 
in the room, which is intellectual property, songs being stolen 
on the Internet.
    As an individual songwriter, there's no way in the world I 
can enforce my copyrights on line. I have to take literally 
hundreds of thousands of infringers into Federal Court, and 
reduce the case to a court of last resort, probably a quarter 
of a million dollars per every case. How can I possibly do 
that, when the people that are stealing my music are, by and 
large, 14 and 15-year old kids, who really, probably, stole it 
because they don't have a credit card. So, what do I do?
    I mean, if the government doesn't actually come in and help 
enforce the copyright laws on the Internet, then what we need 
is to have the government help us with technological solutions 
that will keep the piracy from happening in the first place.
    Mr. Luetkemeyer. Very good. Thank you. Thank you, Madam 
Chair.
    Chairwoman Velazquez. So, Mr. Carnes, do you believe that 
there is a way to support new distribution methods, while 
insuring financial compensation to right holders?
    Mr. Rick Carnes. I do think that there is a way. What we 
need to do is make sure that we allow for the development of 
premium content delivery networks, sort of, for lack of a 
better--it's a place where you can--like the Kindle from 
Amazon, you've got a side channel, you can just punch a button, 
bam, 60 seconds, you get the book that you want, smooth, easy 
transaction.
    What we need are content delivery networks where you can 
get stutter-free movies, and high definition, fast, perfectly 
delivered copies. The only trouble is that that has run afoul 
of the Fifth Rule of Neutrality, which says that you can't 
discriminate on data on the Internet. Well, this is actually--
I'm being discriminated against when you say that I can't take 
my content, and partner with an ISP to deliver premium content 
that's faster and better. So, I have a problem with the Fifth 
Rule of Network Neutrality, because of that.
    If we could set up those delivery channels, that would help 
us give the consumer a better experience than they get on peer-
to-peer file sharing.
    Chairwoman Velazquez. Mr. Holleyman, I know your 
organization has been supportive of the draft Anti-
Counterfeiting Trade Agreement, so can you talk to us about 
what implications does this draft agreement have for small 
software companies?
    Mr. Holleyman. Sure, thank you.
    We have supported this agreement. There have--
    chairwoman Velazquez. Especially for those small companies 
looking to enter the foreign market.
    Mr. Holleyman. Sure. At the heart of this proposed 
agreement, and it's still in negotiation, so we haven't seen 
what would be a final text, it would, one, not require any 
changes to U.S. law. And we have strong, effective intellectual 
property laws, not perfect, but they can be improved in 
enforcement, but strong laws. This calls upon our trading 
partners to increase their standards of protections in ways 
that will provide, like the U.S., effective tools against 
counterfeiting and piracy. So, we believe for small software 
companies, for whom there's a huge opportunity in foreign 
markets where piracy rates tend to be higher than in the U.S., 
that this agreement has the potential to really make progress 
in fighting piracy. Again, it's not final, but we're encouraged 
by what we've seen today.
    Chairwoman Velazquez. Do you see any will and desire from 
foreign countries to support this type of agreement? What will 
be the kind of benefit for them?
    Mr. Holleyman. Well, I'll say two things. One, I'm 
encouraged by the fact that this agreement was initiated in the 
Bush Administration, reviewed very carefully by the Obama 
Administration before they took it on, so I view it as a 
distinct sort of across party lines, a real win-win for the 
U.S. There are a couple of key trading partners working on this 
together.
    I mean, I think, ultimately, the test will be how many 
other countries when it's final can we get to join it? I mean, 
the verdict is still out on that. Again, the agreement is not 
final, but the intent, and the fact that it's shared across two 
administrations now is very important.
    Chairwoman Velazquez. Okay. Well, let me take this 
opportunity to thank all the witnesses. And we will continue to 
ask the Small Business Committees charged with making sure that 
the law of unintended consequences are not there when it comes 
to legislation that will impact small businesses, we will 
continue to monitor this issue. And I want to take this 
opportunity, again, to thank you for being here today.
    I ask unanimous consent that members will have five days to 
submit a statement and supporting material for this record. 
Without objection, so ordered. This hearing is now adjourned. 
Thank you.
    [Whereupon, at 3:06 p.m., the Committee was adjourned.]

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