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

                     PROTECTING U.S. INTELLECTUAL PROPERTY
                       OVERSEAS: THE JOINT STRATEGIC PLAN
                                   AND BEYOND

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

                                    HEARING

                                   BEFORE THE

                          COMMITTEE ON FOREIGN AFFAIRS
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED ELEVENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 JULY 21, 2010

                                   __________

                               Serial No. 111-111

                                   __________

            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
    ELIOT L. ENGEL, New York             DONALD A. MANZULLO, Illinois
    BILL DELAHUNT, Massachusetts         EDWARD R. ROYCE, California
    GREGORY W. MEEKS, New York           RON PAUL, Texas
    DIANE E. WATSON, California          JEFF FLAKE, Arizona
    RUSS CARNAHAN, Missouri              MIKE PENCE, Indiana
    ALBIO SIRES, New Jersey              JOE WILSON, South Carolina
    GERALD E. CONNOLLY, Virginia         JOHN BOOZMAN, Arkansas
    MICHAEL E. McMAHON, New York         J. GRESHAM BARRETT, South Carolina
    THEODORE E. DEUTCH,                  CONNIE MACK, Florida
        FloridaAs of 5/6/       JEFF FORTENBERRY, Nebraska
        10 deg.                          MICHAEL T. McCAUL, Texas
    JOHN S. TANNER, Tennessee            TED POE, Texas
    GENE GREEN, Texas                    BOB INGLIS, South Carolina
    LYNN WOOLSEY, California             GUS BILIRAKIS, Florida
    SHEILA JACKSON LEE, Texas
    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

                                C O N T E N T S

                                  ----------
                                                                       Page

                                   WITNESSES

    The Honorable Victoria A. Espinel, U.S. Intellectual Property
      Enforcement Coordinator, Executive Office of the President.....    14
    The Honorable John T. Morton, Assistant Secretary, U.S.
      Immigration and Customs Enforcement (ICE), U.S. Department of
      Homeland Security..............................................    40
    The Honorable Chris Israel, Co-Founder and Managing Partner, PCT
      Government Relations LLC (Former U.S. Coordinator for
      International Intellectual Property Enforcement)...............    58

              LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

    The Honorable Howard L. Berman, a Representative in Congress from
      the State of California, and Chairman, Committee on Foreign
      Affairs:
      Prepared statement.............................................     4
      Letter from James N. Gianopulos, Fox Filmed Entertainment,
        dated July 20, 2010..........................................    10
      Statement from the American Association of Independent Music
        (A2IM) dated July 21, 2010...................................    11
    The Honorable Victoria A. Espinel: Prepared statement............    16
    The Honorable John T. Morton: Prepared statement.................    44
    The Honorable Chris Israel: Prepared statement...................    60

                                    APPENDIX

    Hearing notice...................................................    72
    Hearing minutes..................................................    73
    The Honorable Eni F.H. Faleomavaega, a Representative in Congress
      from American Samoa, and Chairman, Subcommittee on Asia, the
      Pacific and the Global Environment: Prepared statement.........    75
    The Honorable Russ Carnahan, a Representative in Congress from
      the State of Missouri: Prepared statement......................    78
    The Honorable Gerald E. Connolly, a Representative in Congress
      from the Commonwealth of Virginia: Prepared statement..........    80
    The Honorable Michael E. McMahon, a Representative in Congress
      from the State of New York: Prepared statement.................    82
    Written responses from the Honorable John T. Morton to questions
      submitted for the record by the Honorable Howard L. Berman.....    83
    Written responses from the Honorable Victoria A. Espinel to
      questions submitted for the record by the Honorable Russ
      Carnahan.......................................................    87
    Written responses from the Honorable John T. Morton to questions
      submitted for the record by the Honorable Russ Carnahan........    88
    Written responses from the Honorable Victoria A. Espinel to
      questions submitted for the record by the Honorable Michael E.
      McMahon........................................................    91
    Written response from the Honorable John T. Morton to question
      submitted for the record by the Honorable Michael E. McMahon...    92

      PROTECTING U.S. INTELLECTUAL PROPERTY OVERSEAS: THE JOINT STRATEGIC
                                PLAN AND BEYOND

                                  ----------

                            WEDNESDAY, JULY 21, 2010

                      House of Representatives,
                                  Committee on Foreign Affairs,
                                                        Washington, DC.
        The committee met, pursuant to notice, at 10:04 a.m. in
    room 2172, Rayburn House Office Building, the Honorable Howard
    L. Berman (chairman of the committee) presiding.
        Chairman Berman. The hearing will come to order. In a
    moment I will recognize myself and the ranking member for up to
    7 minutes each to make opening statements. All other members
    will then have an opportunity to make a 1-minute opening
    statement if they wish to do so, and without objection members
    may also place written statements in the record.
        Last year the committee held a hearing with witnesses from
    industry and labor to examine the impact of intellectual
    property theft on the U.S. economy. Today's hearing will focus
    on government efforts to stem the problem of piracy.
        In my district, I have seen firsthand how piracy and
    counterfeiting impacts not only creativity, but jobs. The
    lengthy credits at the end of every movie remind us how many
    people it takes to bring a film to the screen--and there are
    many who play supporting roles to the projects who don't even
    appear in the credits. When a movie is pirated, it puts all of
    those jobs at risk.
        The ease of the distribution in the case of CDs and DVDs
    make them an obvious target for piracy, but counterfeiting and
    IP theft impact many other industry from pharmaceuticals to
    auto parts, from clothing to sporting goods. As such,
    intellectual property is an integral part of many important
    policy issues, from climate change, to fighting infectious
    disease in the developing world, to Russia's accession to the
    WTO.
        The geographic scope of intellectual property theft has
    also grown. While our attention was previously focused on a
    relatively small number of countries--most notably Russia and
    China--we have now seen an explosion of piracy and
    counterfeiting in many nations. And the situation is further
    exacerbated by Chinese policies like ``indigenous innovation''
    which may discriminate against foreign intellectual property
    holders in favor of their own domestic businesses. Today,
    piracy and counterfeiting has become so effortless, and
    enforcement resources spread so thin, that the legitimate
    marketplace for music and movies is disappearing in countries
    such as Spain.
        The current situation is untenable--and I commend the Obama
    administration for taking aggressive action to improve
    enforcement. We were pleased to see Vice President Biden call
    industry leaders together back in December, and eagerly awaited
    the Joint Strategic Plan on Intellectual Property Enforcement,
    which was recently issued by U.S. Intellectual Property
    Enforcement Coordinator Victoria Espinel, one of our
    distinguished witnesses today.
        In the 2009, Pro-IP Act, we envisioned that the
    intellectual property enforcement coordinator would work with
    all the key players in the administration and make policy
    recommendations to help Congress and the relevant agencies and
    departments more efficiently and more effectively protect this
    vital part of our economy. The Joint Strategic Plan takes an
    important step in the right direction by including IP-
    enforcement guidelines stretching across eight different
    Federal agencies. We look forward to hearing Ms. Espinel speak
    on behalf of the administration about improving and modernizing
    our laws, and look forward to working with her and ensuring she
    has adequate resources to do her job.
        The coordinator has a tough job that is enhanced by the
    many agencies it works with to coordinate our IP enforcement
    strategy. Most recently, I was interested to read about the
    initiative undertaken by Immigration and Customs Enforcement,
    or ICE, to seize the domain names of Web sites that were
    unlawfully offering first-run movies. That is exactly the kind
    of innovative thinking the Vice President called for--and I am
    curious to hear from Assistant Secretary Morton on how it came
    about, the obstacles you faced and how we can scale Operation
    ``In Our Sites'' to enterprises that facilitate the theft of
    music, books and other products prone to counterfeiting.
        I understand that the program isn't a panacea--I know that
    some unlawful sites that we take down today will spring up with
    new names, and in new jurisdictions, tomorrow. But part of the
    idea is to educate users--looking for the many legitimate sites
    such as Hulu, Vevo, Pandora Rhapsody, and others coming online
    every day.
        Senator Leahy and I are exploring legislative approaches to
    expand on the ICE program, and would like to learn from your
    experiences before introducing legislation later this month.
    But we are committed to reining in the rogue sites and the
    intermediaries that facilitate or support financially the
    online businesses predicated on theft. As was described at a
    subcommittee hearing held 3 years ago, Visa testified that its
    credit card system should not be used for illegal transactions.
    Furthermore, they stopped processing transactions for
    ALLOFMP3.com, a notorious foreign Web site based in Russia for
    downloading illegal music in part because it was the ``right
    thing to do.'' This should be the guiding principle.
        Our frustration with lackluster foreign enforcement is
    nothing new. The Office of the U.S. Trade Representative has
    been publishing its Special 301 report for about two decades,
    detailing the state of intellectual property enforcement in all
    its forms on a country-by-country basis. While there is some
    positive news in this year's report in three countries--the
    Czech Republic, Hungary, and Poland--have been removed from the
    watch list much more work needs to be done. Some of the largest
    countries and largest markets in the world such as China,
    Russia, and India remain on the priority watch list. The same
    goes for one of our closest trading partners, Canada, which is
    on the priority watch list for failing to fulfill international
    commitments to strengthening its copyright laws and for
    demonstrating weak enforcement in the IP and online areas.
        This committee should play a positive role in moving the
    ball forward. After last year's hearing on copyright issues,
    the committee engaged in conversations with the Government of
    the Bahamas on their compulsory license of pay television which
    had been on the books for almost 10 years. As a result of our
    intervention, the Bahamas repealed those compulsory license and
    copyright owners are now negotiating for their goods and
    service for market value.
        In the State Department authorization bill passed by the
    House last year, we included a provision that would expand the
    IP attache program to provide for greater focus on intellectual
    property protection in our embassies around the world and
    station additional personnel in countries where greater U.S.
    involvement could result in better enforcement.
        The committee needs to continue to engage on these issues.
    I look forward to hearing from all of our distinguished
    witnesses on the ways we can support a strong and productive
    government role in protecting one of our most treasured assets.
        First, though, I would like to turn to the ranking member,
    Ileana Ros-Lehtinen for any opening remarks that she may wish
    to make.
        [The prepared statement of Mr. Berman follows:]

        Ms. Ros-Lehtinen. Thank you so much, Mr. Chairman. My
    commitment to protecting the intellectual property rights of
    U.S. citizens and our companies is longstanding. Prior to
    becoming the ranking member of this committee, I chaired the
    Subcommittee on International Economic Policy and Trade where
    fighting the piracy of intellectual property was one of our top
    concerns. I would like to note that our chairman has
    demonstrated consistent leadership on this issue in this
    committee as well as at the Judiciary Committee where in the
    110th Congress Chairman Berman served as the chairman of the
    Subcommittee on Courts, the Internet and Intellectual Property.
    Under his direction the Foreign Affairs Committee held a field
    hearing, as he noted, in California in April 2009, that brought
    together a remarkable set of witnesses representing the major
    interests in the music and movie industries. He knows a lot of
    cool people in Hollywood. Thank you for that hearing.
        Their description of the threat to their industries from
    piracy in China and elsewhere was stunning in its scope and
    consequences. Unfortunately, this problem has continued to grow
    rapidly. The Global Intellectual Property Center estimates that
    the annual loss to U.S. businesses now total over $12 billion
    in the music recording industry, $12 billion in the automotive
    industry, $46 billion the pharmaceutical industry, and $53
    billion in the software industry. That is well over $100
    billion in income and jobs lost--stolen actually--from this
    country and our citizens every year.
        It is unfortunate that many people in our country and
    abroad regard these crimes as impacting only faceless and
    wealthy corporations. The fact is that our economy has become
    increasingly more knowledge-based, and costs resulting from IPR
    policy have grown for all of us in terms of reduced employment,
    reduced income, and government revenue.
        The problem is a global one, and there are few countries
    where it does not occur, including our own, but there are some
    countries where the problem is not only widespread among the
    general population, but it is tolerated, even promoted by
    national and local governments. China is by far the worst
    violator of intellectual property rights globally, and its
    government is complicit in ensuring that it keeps its number
    one position. Chinese authorities have repeatedly pledged to
    take action to deal with the open and rampant theft of U.S.
    intellectual property. However their efforts to date have been
    minimal, especially when compared with the immense resources
    and energy they have dedicated to censoring the Internet
    services of content that they find objectionable. In fact,
    intellectual property piracy in China is rapidly increasing,
    often with tacit government support and even as a consequence
    of official policy.
        For example, the government is actively supporting efforts
    by China's largest Internet search company to become a global
    player. With the government looking on by automatically
    offering to those who log on its site the opportunity to link
    to a long list of known music piracy sites, in effect actively
    facilitating the theft of intellectual property. The Chinese
    authorities are fully aware of this problem and could stop it
    with a simple phone call, but they have brushed aside all
    requests to do so and have deliberately decided to do nothing
    to halt the aiding and abetting of this continuing theft.
        But this is only one of many examples. Intellectual
    property violations in Russia are also extensive and
    longstanding, ranging from pirated music and videos to
    pharmaceuticals. Here, too, the government has repeatedly
    promised to take action, but then has done little or nothing.
        Corruption at all levels of the Russian Government has made
    this problem a difficult one to address, but it is compounded
    by the lack of interest on the part of senior officials who see
    it as an American problem that does not impact them. However,
    Russia's desire to join the World Trade Organization, or the
    WTO, provides the United States with the necessary leverage to
    compel Moscow to carry out its promises. Before the U.S.
    approves its application, we must require that Moscow take
    effective action to shut down the expensive piracy of
    intellectual property occurring on its territory and put in
    place far-reaching safeguards to ensure that it does not
    reoccur.
        In fact, given Russia's history of broken promises, Moscow
    should be required to demonstrate a long track record of
    success prior to an okay by the United States to its joining
    the WTO.
        President Obama has said that increasing U.S. exports is a
    key to creating jobs here in the U.S. Because those exports are
    increasingly made up of intellectual property, our future
    prosperity depends upon our ability to fight piracy in other
    countries.
        An easy way to enhance U.S. exports and intellectual
    property rights at the same time is through carefully
    negotiated trade agreements such as those we have already
    signed with Colombia, Panama and South Korea. These agreements
    will help raise the standards of our trading partners' national
    laws and regulations regarding intellectual property protection
    to new highs. They will also provide enhanced monitoring and
    corrective measures if the governments refuse to take action to
    end piracy.
        At a time when Americans are apparently facing
    extraordinary economic challenges, Congress cannot leave the
    task of protecting intellectual property rights of U.S.
    citizens and U.S. businesses to the Executive Branch alone. We
    cannot afford a business as usual approach to those governments
    that profess friendship and cooperation even as they bless the
    theft of our citizens' wealth and of our country's prosperity.
        Thank you, Mr. Chairman, for this hearing and this
    opportunity.
        Chairman Berman. Thank you very much for your very strong
    statement, and does the gentleman from California seek
    recognition? The gentleman is recognized for 1 minute.
        Mr. Sherman. I think we have taken good steps to do what we
    can to protect intellectual property if we are going to be
    inside the box, but the problem is as long as we stay inside
    the box America will be a nation in decline. China is
    synonymous with intellectual property theft. Our diplomats trip
    over pirated disks being sold on the streets on their way to
    meetings where they can make further concessions to the
    Chinese.
        Not content with stealing our intellectual property for the
    Chinese market, China now wants to steal the U.S. market as
    well through the Internet. Clearly trade retaliation is
    necessary to get China's attention, but that would anger many
    in Wall Street, Washington, and Wal-Mart. We should also be
    taking cyber offensive to use viruses to shutdown these sites
    and we should be going after those who advertise on sites
    primarily dedicated to piracy.
        I look forward to trying to get outside the box. I realize
    that the tendency is to stay inside. Thank you.
        Chairman Berman. Thank the gentleman. The gentleman from
    New Jersey, Mr. Smith, is recognized for 1 minute.
        Mr. Smith. Mr. Chairman, it is very sobering to read that
    the Global Intellectual Property Center estimates almost $125
    billion of losses annually in just four industries alone: The
    pharmaceutical, automotive, recording, and software industries.
    The loss of American jobs is staggering. Mr. Chairman, as we
    all know, almost all of the damage done to American workers, to
    our companies, and to our economy is done by a mere handful of
    foreign governments--China, Russia, Brazil, Mexico, and just a
    few others. In fact, the Chinese Government is the cause of
    most of the problem. It tolerates and in some cases probably
    encourages widespread infringement of American intellectual
    property rights, and then exports U.S. property rights
    infringing products right back to us.
        In fact, the U.S. Trade Representative's 2010 Special 301
    report said that 79 percent of the infringing products ceased
    at our border were of Chinese origin.
        Mr. Chairman, my hope is that we will take not only Special
    301 actions against the Chinese on such things as labor rights,
    but Special 301 negotiations should be fully initiated, and if
    they fail we need to take more aggressive action.
        Chairman Berman. The time of the gentleman has expired. The
    gentleman from Florida, Mr. Deutch, is recognized for 1 minute.
        Mr. Deutch. Thank you, Mr. Chairman. Thank you, Ranking
    Member Ros-Lehtinen. Thank you for holding this hearing. I
    would like to thank the witnesses for being here today and I
    look forward to hearing your thoughts.
        Intellectual property theft is often overlooked as a
    serious crime but, unfortunately, it is a highly lucrative
    underground business that often serves as a profitable and low-
    risk funding source for very serious criminal activities from
    international crime groups to terrorist organizations. There
    are too many examples to list where profits from IP piracy ends
    up in the hands of terrorist groups. One notable example
    involves several piracy rings in the tri-border area of South
    America that have been linked to large-scale donations to the
    Iranian-backed terrorist organization Hezbollah.
        Isolating the sources of this funding through this IP
    piracy will take high level international cooperation,
    increased accountability, and adequate resources. This hearing
    should provide an opportunity to explore this further. I hope
    we will continue our work on this important issue, Mr.
    Chairman, and I look forward to probing this further as we get
    into questions.
        I yield back. Thank you.
        Chairman Berman. The gentleman from California, Mr.
    Rohrabacher, is recognized for 1 minute.
        Mr. Rohrabacher. Thank you very much, Mr. Chairman.
        So, we are losing jobs, we are losing over $100 billion a
    year. This is insane. I will just say that steal from me once,
    shame on you. Steal from me twice, shame on me. Well, the fact
    is we have been ignoring this for years. We watched China track
    down a dissident who may utters a few words on the Internet,
    and yet they won't put up one bit of effort to try to stop this
    theft of intellectual property rights which is putting our
    people out of work, and transferring wealth into their
    countries. We have been putting up with it. It is time for us
    not to put up with it anymore. We either get tough on
    intellectual property rights and the theft of our intellectual
    property or we will lose the future because that is what the
    future is all about.
        Thank you very much, Mr. Chairman.
        Chairman Berman. I thank the gentleman, and the gentleman
    from Illinois, Mr. Manzullo, is recognized for 1 minute.
        Mr. Manzullo. Thank you, Mr. Chairman, for calling this
    meeting. It has been nearly 2 years since we passed the Pro IP
    Act and it was signed into law, and it is quite appropriate
    that we have this oversight hearing today.
        IP piracy threatens our future economic prosperity. IP
    piracy is more than music, it is more than movies, it threatens
    the long-term health of the manufacturing sector. Coming from a
    district where one out of four jobs in our biggest city is
    directly related to manufacturing, it is quite important to us.
        I experienced this issue firsthand several years ago when I
    advocated for an environmental technology firm located in
    Rockford, Illinois, which experienced theft of their IP for a
    wastewater treatment plant when bidding on a project in China.
    They were one of the few success stories using the Chinese
    court system to enforce their patent. I worked directly with
    our U.S. Embassy officials in Beijing who personally monitored
    the hearing and also worked very closely with the Chinese
    Ambassador to the United States. At that time I chaired the
    U.S.-China Interparliamentary Exchange, and he took great
    interest in the case because it was such a rank violation.
        Chairman Berman. Time.
        Mr. Manzullo. But it should not take the intervention of a
    Member of Congress in order to protect our manufacturers.
        Chairman Berman. The time of the gentleman has expired. I
    now ask unanimous consent to enter into the record a letter
    from Jim Gianopulos, chairman and CEO of Fox Filmed
    Entertainment, and comments from the American Association of
    Independent Music, supporting the importance of this hearing.
    The committee has received no letters dismissing the importance
    of the hearing. [Laughter.]
        [The information referred to follows:]Fox Filmed
    Entertainment deg.

        Chairman Berman. We are very pleased to have Victoria
    Espinel with us, the only member of the first panel. Victoria
    Espinel currently serves as the first U.S. Intellectual
    Property Enforcement Coordinator in the Executive Office of the
    President. She is responsible for developing and implementing
    the administration's unified strategy for the defense of
    intellectual property right.
        From 2007 to 2009, Ms. Espinel taught intellectual property
    and international trade law at George Mason School of Law.
    Prior to this, Ms. Espinel served as the first Assistant U.S.
    Trade Representative for Intellectual Property and Innovation
    at the Office of the USTR, and in that capacity I remember her
    testifying before the committee down the hall.
        She holds a master's of law from the London School of
    Economics, a J.D. from Georgetown University Law School, and a
    B.S. in foreign service from Georgetown University's School of
    Foreign Service.
        We are very pleased to have you here and we look forward to
    hearing your testimony. Your entire statement will be put in
    the record, and if you would care to summarize your remarks, we
    welcome you to begin.

         STATEMENT OF THE HONORABLE VICTORIA A. ESPINEL, U.S.
    INTELLECTUAL PROPERTY ENFORCEMENT COORDINATOR, EXECUTIVE OFFICE
                            OF THE PRESIDENT

        Ms. Espinel. Thank you very much. Chairman Berman, Ranking
    Member Ros-Lehtinen, and members of the House Committee on
    Foreign Affairs, thank you for your leadership on this
    important issue. I feel particularly privileged to work with
    this committee. This is a global problem that will require
    global solutions.
        As many have already noted, intellectual property
    infringement affects a vast range of businesses and industry
    sectors. In developing a strategic plan, we asked the public
    for input so that the administration could hear their concerns
    directly, and we received over 1,600 responses. We reviewed all
    of those responses, and the hundreds of recommendations that
    came with them, and posted them on our Web site so that
    everyone could see what we were taking into account.
        We met with companies across a broad spectrum of America's
    industries as well as unions, academics, and consumer groups to
    engage them about where the problems in enforcement lie, and to
    find out what we can do to make things better for the many
    Americans and American industries that depend on intellectual
    property for success. The strategy that we delivered to
    Congress a few weeks ago reflects that input from the public.
        I also want to emphasize that the strategy reflects an
    extensive interagency collaboration: Justice, Homeland
    Security, Commerce, USTR, HHS, State, and others all worked
    with us to make this an excellent and forward-leaning strategy.
        This plan has the ability to alter our approach to
    intellectual property enforcement for many years to come. To do
    so we are taking some bold new steps and we look forward to
    working with this committee on many of them. Let me highlight a
    few now.
        Recognizing the importance of our overseas personnel, we
    will improve their effectiveness and coordination.
    Specifically, we will work to prioritize our personnel where
    they are needed most. We will establish embassy working groups
    and work plans to better coordinate, and we will ensure that
    our overseas personnel have clear priorities and guidance.
        We are establishing an interagency working group to improve
    our capacity-building and training so that foreign governments
    can strengthen enforcement on their own. We will share plans
    and information and best practices, focus efforts where
    enforcement is most needed, develop agency strategic plans,
    ensure that our trainings are consistent with our laws and with
    our polices, and coordinate our efforts with international
    organizations and the business community to make our trainings
    as effective as possible.
        We will work with foreign government to increase foreign
    law enforcement efforts, and we will promote enforcement of
    American intellectual property rights through our trade policy
    tools, including bilateral dialogues, our trade agreements,
    communicating our concerns clearly through mechanisms such as
    Special 301, and when necessary, asserting our rights at the
    WTO to dispute settlement process.
        We are establishing an interagency counterfeit
    pharmaceutical committee to focus on the problems associated
    with unlicensed Internet pharmacies distributing counterfeits
    in the United States and the proliferation of counterfeit drugs
    abroad.
        We need to facilitate cooperation to reduce infringement
    over the Internet. It is essential for the private sector to
    work together to find practical and effective solutions to this
    problem, at the same time we will vigorously investigate and
    prosecute criminal activity. We will focus on foreign-based Web
    sites and web services that violate our intellectual property
    rights using a combination of tools, including law enforcement,
    diplomatic measures, and coordination with the private sector.
        We will review how we support our businesses as they face
    difficulties in overseas markets. Due to the scale and scope of
    manufacturing, its industrial policies and its potential as an
    export market, it is fair to say that China raises a
    particularly troubling set of issues. Therefore China will be a
    significant focus of our enforcement efforts.
        Since the release of the strategy a few weeks ago the
    administration announced the launch of a new joint initiative
    to go after Internet piracy, Operation In our Sites. During the
    course of the first investigation under this initiative, DHS
    and DOJ authorities moved together across the country to seize
    numerous bank and PayPal accounts from sites that were offering
    first run movies, often within hours of their theatrical
    release. Federal agents also seized the names for these pirate
    sites. But this is only the beginning of our enforcement
    actions.
        Before I conclude I want to say a word or two about John
    Morton who is following me at this table. Under his leadership
    ICE has made intellectual property enforcement a real priority.
    ICE's creation of the interagency IPR center demonstrates that
    agency's commitments, and John has taken that center to a new
    place. Domestic and foreign law enforcement, as well as
    industry partners, are coordinating better and working together
    because of it both domestically and internationally, and I want
    to applaud what he has done.
        I have stated some ambitious goals today. We are aware that
    the release of the strategy is just the beginning, and that
    much hard work lies ahead. I commend your leadership on these
    issues and I look forward to working closely with this
    committee in the coming months on improving our enforcement
    efforts both here and abroad.
        Thank you very much and I look forward to your questions.
        [The prepared statement of Ms. Espinel follows:]

        Chairman Berman. Well, I thank you very much, Ms. Espinel,
    and I will yield myself 5 minutes to start the questioning.
        In the Joint Strategic Plan there is a paragraph about
    improving the effectiveness of personnel overseas to combat IP
    infringement. Do you have a notion of how the administration
    will do that? Will the administration support the provision on
    greater IP resources abroad that we had in our State Department
    authorization bill?
        And just to add, I have some information that the
    administration does not have plans to replace the person who is
    in the Department of Justice's Intellectual Property Law
    Enforcement Coordinator Program who is now based in Sofia,
    Bulgaria, and as we understand when that individual returns at
    the end of the year there will be no replacement. Could you
    take a look into that particular issue and let us know if it
    has been resolved?
        Ms. Espinel. We agree, as many have said the experience of
    the company in Mr. Manzullo's district indicates that our
    overseas personnel are critical to our efforts. They play a
    very important role in a number of ways, including improving
    our relationships with our counterparts in foreign law
    enforcement, which is critical because we have to have our
    trading partners taking this seriously if we are going to be
    effective. They have been very effective in terms of training
    capacity building, again to help foreign law enforcement take
    this on more seriously.
        So I am in complete agreement with you that while the
    overseas personnel that we have right now are doing an
    excellent job, I think that there are also ways that they could
    be improved further.
        We have some ideas along those lines. Part of that is
    making sure we have personnel in the places where we need them
    most. Part of that is making sure that they are working well
    within the embassies; that they have the support that they need
    when they are on the ground. Part of that is making sure that
    they are getting clear guidance and priorities from Washington,
    and that we have clear communication.
        I am well aware of the bill that you introduced on this and
    it seems to me that the goals in that bill are entirely
    consistent with what we are trying to do with the
    administration's strategy, so we would indeed support that.
        Chairman Berman. Can you give me advice on how to get the
    Senate to take it up? [Laughter.]
        Ms. Espinel. I will confer and get back to you.
        Chairman Berman. The same issue in the context of
    cooperative efforts within the business community the Joint
    Strategic Plan talks about, can you elaborate on that a little
    bit? And how do you hope to see that work, and what should
    Congress do, and how does it measure cooperative efforts within
    the business community to reduce Internet piracy, especially if
    no agreement is reached? Can we name and shame?
        Ms. Espinel. So as we noted in the strategy, we think it is
    not just important but essential for the private sector to be
    working together, to have all sort of players in the Internet
    economy working cooperatively to find a solution to Internet
    piracy that is both practical and efficient. We are actively
    encouraging that cooperation to happen.
        That said, while we think it is essential that it is
    happening, it is also not our position that we will sit back
    and wait for the private sector to figure this out on their
    own. There are actions that we can take as the government and
    we will take those actions, including investigating, vigorously
    investigating and prosecuting criminal activity where we can.
        While we are also exploring alternative measures to
    reducing Internet piracy, and it may be that there are new
    things that we need to do, I will tell you we take this problem
    very seriously, and we would like to consider all options.
        In terms of naming and shaming, since you raised that
    specifically, one of the things that we have committed to do in
    the strategy is work with USTR and the other agencies, of
    course, to use the Special 301 to highlight foreign Web sites
    that are a particular problem. One thing that has been very
    clear to me in this job is that foreign Web sites are a
    particular problem that we need to address both because of the
    scope of material that is coming into the United States from
    foreign-based Web sites, and because they pose particular
    challenges for our law enforcement to go after them. So we are
    very focused on figuring out how we address what is an
    admittedly an complicated problem, but an extremely important
    one.
        Chairman Berman. Thank you, and my time has expired. I am
    going to yield 5 minutes to the ranking member, Ms. Ros-
    Lehtinen.
        Ms. Ros-Lehtinen. Thank you so much, Mr. Chairman. Thank
    you for your testimony.
        On China and Russia, all experts agree that China is by far
    the leading violator of intellectual property rights in the
    world and has been for some time, and for years the United
    States and other governments have pressed Chinese officials to
    take action to stop this rampant piracy with little to show for
    it. How can we bring sufficient pressure on China to stop this
    widespread theft? What form would that pressure take? And is
    this a country that deserves normal trade relations with the
    U.S.? I don't believe that it does because of this and many
    other reasons.
        And on Russia, the Russian Government has repeatedly
    pledged and signed agreements to fight the rampant intellectual
    property piracy on its territory, but it has yet to fulfill any
    of those commitments. Now President Obama has said that he will
    work to bring Russia into the WTO as soon as possible. Now,
    given Russia's history of false promises wouldn't it make more
    sense to have its government demonstrate a track record of
    success in fighting piracy before we let them enter the WTO and
    thereby we lose our leverage? Thank you.
        Ms. Espinel. Well, first of all, I would agree with you
    that China is the biggest problem that we face for a whole host
    of reasons, including the fact that the volume of what is
    coming out of China dwarfs what is coming out of other
    countries. Eighty percent of what our Customs seizes every year
    comes from China. The range of products that are coming out of
    China are immense, and the fact that China has beyond sort of a
    lack of enforcement has affirmative industrial policies in
    place that are directed at putting our companies at a
    competitive disadvantage is an enormous problem, and one that
    we are very focused on. It is unacceptable for China to
    continue the practices that it has in place, and we are
    committed to making that stop.
        There are a number of things in the strategy that I think
    will go to helping us enforce our rights better overseas in all
    markets, but let me assure you that in all of those areas China
    is a particular focus. There are a number of things that I
    could highlight. In the interest of time, though, let me focus
    on one that has a particular focus on China which is the
    following: We think it is very important to make sure that as
    our companies are moving into overseas markets, and in
    particular in China, that they know that they have the full
    support of the U.S. Government behind them.
        And you mentioned the President's goals of doubling
    exports. Using intellectual property enforcement as one of the
    tools that we have to double exports is of critical importance
    to the administration. So we are going to, we are actively now
    actually working with Commerce and other agencies to assess
    what it is that we do as a government to support our industries
    as they are moving into China, and to see if, one, our
    companies are aware of the resources of the U.S. Government
    that are at their disposal, but two, and even more than that,
    that there is more that we could be doing now to make sure that
    our companies know that they are well supported by their
    government as they are navigating the Chinese market.
        With respect to Russia, I could speak to the issues with
    Russia at great length. I will just say briefly there are
    enormous intellectual property enforcement problems in Russia
    as you pointed out. They have been going on for a significant
    amount of time. USTR and other agencies are well aware of that.
    I think that the point that you make about WTO accession is a
    very good one, and clearly Russia needs to make significant
    improvements in intellectual property in order to join the WTO.
        Ms. Ros-Lehtinen. Thank you, but I am not sure that my
    question was answered. What kind of pressure can we bring to
    bear on China and on Russia to make them fulfill their pledges
    and commitments, and isn't our rush to have Russia enter the
    WTO giving them an easy pass and saying they don't have to do
    anything about intellectual property theft?
        Ms. Espinel. With respect to Russia, we have made clear to
    the Russian Government repeatedly that intellectual property
    enforcement has to be strengthened in order for them to enter
    the WTO, and in fact USTR is on its way to meet with Russia
    about WTO accession and the improvements that we need to make
    there in the coming weeks.
        So, I think the leverage that we have with Russia and one
    of the important points of leverage that we have is exactly
    what you referred to, the WTO accession process, and we intend
    to use it. And if there is a lack of doubt about that let me
    allay those concerns.
        Ms. Ros-Lehtinen. Thank you, Mr. Chairman, my time is up
    but I think that we are just letting China and Russia slide,
    and I think it is pretty obvious.
        Chairman Berman. The time of the gentlelady has expired.
    The gentleman from Florida, Mr. Deutch, is recognized for 5
    minutes.
        Mr. Deutch. Thank you, Mr. Chairman. Thank you for your
    testimony, Ms. Espinel.
        Intellectual property theft, as I raised earlier, has been
    increasingly funding to the terrorist organizations like Hamas
    and Hezbollah, an egregious example of which there are,
    frankly, too many to list, involves counterfeiters in tri-
    border area of South America who have provided millions of
    dollars in direct contributions to Hezbollah through their IP
    piracy. In fact, one such especially designated global
    terrorist entity in Paraguay provided the payment of millions
    of dollars directly to Hezbollah.
        Can you outline what is being done to combat this type of
    terror financing and what level of coordination between U.S.
    enforcement and intelligence agencies take place, and
    ultimately as you pursue your broader strategy, if you could
    speak to the extent to which this type of financing that comes
    from IP piracy plays a role in your determination of how best
    to approach these issues?
        Ms. Espinel. Thank you. So, first I would say that we are
    well aware of the fact that piracy and counterfeiting generally
    are attractive for the types of organizations that you are
    talking about, for illicit organized criminal activity, because
    the margins are high and because the risks are low, or
    perceived as low, so that is something that we are quite
    focused on.
        One of the things that I think that we need to ensure that
    we are doing a better job of in order to go after this problem
    is to make sure our law enforcement agencies are sharing
    information cooperatively, and that is something that we are
    very focused on and have already started to put steps in place
    to make sure that that happens.
        With respect to the link between organized criminal
    activity and international piracy and counterfeiting, we are
    working with the National Security Council as well as other
    relevant agencies to see what more we can find out about the
    extent of that scope. There are some cases that you alluded to
    but there may be a problem, there may or may not be a problem
    that sort of extends beyond that, and I think that is important
    for us to know as we are putting our policies in place.
        But more generally I think the efforts that we are taking
    with DOJ, with the FBI, with DHS, and others to prioritize this
    issue and to make sure our law enforcement agencies are sharing
    information cooperatively will be helpful to address this issue
    generally, and including the kind of links that you refer to
    between piracy and counterfeiting and organized criminal
    activity.
        Mr. Deutch. Thank you. So as you put in place, as you
    pursue these efforts to share information between law
    enforcement agencies can you describe what that looks like on
    the ground, the enforcement of the IP laws and how that
    information ultimately is shared with appropriate national
    security agencies?
        Ms. Espinel. Well, obviously I am somewhat limited in what
    I can say in a public hearing like this. What I can do, first
    of all, I am happy to have discussions outside this hearing if
    that would be helpful.
        The second thing that I can tell you is, as we move forward
    in this progress and move toward better sharing of databases
    and other information, I think there will be stuff that we can
    talk about publicly. I am both obligated by legislation, but
    also interested in coming back and talking to this committee
    and to Congress generally about what we have done in December
    to move forward in practical ways.
        Again, I may always be somewhat limited in what I can say
    in a public hearing.
        Mr. Deutch. Finally, is the issue of funding of terrorist
    organizations through IP piracy on the agenda in discussions
    that take place not just interagency in America but in your
    discussions with the folks who do enforcement in the countries
    that we are dealing with to combat these issues?
        Ms. Espinel. Absolutely.
        Mr. Deutch. Thank you.
        Chairman Berman. The time of the gentleman has expired, and
    the gentleman from New Jersey, Mr. Smith, is recognized for 5
    minutes.
        Mr. Smith. Thank you very much, and thank you for your
    testimony.
        Let me just focus on one particular issue. Both over-the-
    counter and prescription drug safety and efficacy are of deep
    concern to all patient consumers. As more drugs are foreign-
    sourced the risk of producing inferior, substandard products
    and/or the stealing of the patents to those compounds is
    obviously very, very high.
        Bing reported last December on its blog, and it was an
    article written by Jim Edwards, that in China there were two
    inspectors watching the drug factories--in the entirety of
    China. I have seen other reports that suggested that less than
    10 percent of the factories are looked at by FDA, so this is
    obviously an engraved invitation, if you ask me, for huge
    amounts of fraud, ripping off of, again, this intellectual
    property. And even if they don't sell the product to the United
    States, there are markets all over the world where that
    American name or that multinational's name will be bought and
    bought in huge quantities, and if it is an inferior compound or
    a ripped off product, obviously that raises very serious
    concerns.
        So my question to you is, how does your office work with
    the FDA to ensure, and on the proactive side, I mentioned two
    inspectors, I don't know if that is true, we tried to get
    information, we got all kinds of numbers, but two is like--I
    mean, that is incompetence if you ask me in terms of sourcing
    or deploying FDA inspectors, how does your office work with the
    FDA to ensure that on-site inspections actually occur? Because
    if you don't go to the source, if you check out, how do you
    know what is going into the product as that product is
    produced, and whether or not it is being counterfeited, or they
    are doing something on the cheap in order to put the name on it
    but not have the effective ingredients?
        And do you do anything when it comes to adverse events that
    are reported to the FDA? Is your office brought in in any way
    when there is a suspicion that these adverse impacts on
    patients might be triggered by a counterfeit or a compound that
    was pirated, and then it came back into the United States?
        It seems to me, I mean, I have met with FDA people over the
    years many times, whether it be on Acutane or other things, and
    I have been shocked at how laissez-fairelazzifare deg.
    on some sells products they have been developing over the
    years. And it seems to me that, if there is a spike in adverse
    events, does that trigger anything to suggest there might be a
    counterfeit product making its way into the United States?
        And this is especially pertinent as more and more of our
    pharmaceuticals are foreign sourced, especially the
    manufacturing of that product--Pfizer, Astro-Zenica, and
    Novartis are only the most recent huge companies that are
    putting more, not less, of their operations in the PRC.
        Ms. Espinel. Thank you. So this is an enormously important
    problem. As you pointed out, it has detrimental effects for our
    economy in terms of intellectual property infringement, but
    obviously the health and safety implications of this problem
    are enormous, and it is something that we care very much about.
    It is a problem that is both domestic in terms of an impact on
    our domestic economy, and a potentially growing problem in
    terms of counterfeit drugs actually getting into the supply
    chain in the United States.
        Although I think most Americans probably feel that the U.S.
    supply chain is relatively safe, there are counterfeit
    pharmaceuticals coming into the United States, which is
    obviously an enormous problem, and as you pointed out, overseas
    the scope of this problem, particularly in countries located in
    Africa, is significant and reprehensible. So it is something we
    are very focused on.
        We are setting up an interagency committee that is going--a
    new interagency committee that is going to focus on exactly
    this set of issues. We have been working very closely with FDA
    actually over the past few months as we put together the
    general strategic plan, and we will continue to do that.
        One of the things that we are working with FDA on is seeing
    if there is a way to better track into the U.S. Government
    supply chain particular pharmaceuticals if it become clear that
    there is a problem, for example, counterfeiting, with those
    pharmaceuticals. So we are very focused on that.
        With respect to your question about inspectors in China, I
    think we have grave concerns about the level of quality control
    in China.
        Mr. Smith. Is two the right number?
        Ms. Espinel. But I was going to say that is something I
    don't know. So rather than speculate let me look into that and
    we will get back to you.
        Mr. Smith. I appreciate that. I noted or would note that
    there was a GAO report issued back in 2008 and it did make the
    point that we were spending some $11 million in 2008, fiscal
    2008, on foreign inspectors. It seems to me that is woefully
    inadequate. And you know, if there could be some kind of
    collaboration with your office to say if we really want to cut
    down on the piracy but also protect the health and well being
    of your people we need to beef up inspections.
        Ms. Espinel. Thank you.
        Mr. Smith. Thank you.
        Chairman Berman. The time of the gentleman has expired. The
    gentleman from Virginia, Mr. Connolly, is recognized for 5
    minutes.
        Mr. Connolly. Thank you, Mr. Chairman, and thank you for
    holding these hearings. I would ask, if it hasn't already been
    done, concurrence to at this point put my full statement in the
    record.
        Chairman Berman. Without objection, it will be included.
        Mr. Connolly. I thank the chair. Ms. Espinel, if the United
    States is successful in shutting down a Web site like China's
    Baidu, is there a risk for retaliatory measures for U.S. search
    engines?
        Ms. Espinel. As I have said in the testimony, as we say
    very clearly in the strategy, one of the problems that we have
    to address is this issue of foreign-based Web sites, and the
    products that are being brought into the United States with
    digital content, but also physical products such as counterfeit
    pharmaceuticals that are coming in through foreign-based Web
    sites. So, we have committed to focus on those as a particular
    problem, and I think John Morton is also going to be speaking
    directly to that issue.
        That said, we are aware of the fact that foreign-based Web
    sites raise a whole host of complicated issues. One of those
    issues is the fact that it is difficult for our law
    enforcement, it is more challenging for our law enforcement to
    go after foreign-based Web sites. The other is that it is very
    important to this administration that our policies with respect
    to the Internet in general are ones that preserve openness and
    don't give other countries excuses to do things that we find
    unacceptable.
        However, this is illegal activity. This is illegal activity
    that has an enormously detrimental impact on our economy, so it
    is important that we go after it vigorously.
        Mr. Connolly. In May, the Congressional International Anti-
    Piracy Caucus highlighted the problem of foreign Web sites, as
    you just said, that provide access to unauthorized copies of
    U.S. copyrighted material. Priority sites for China's Baidu,
    Canada's isohunt, the Ukraine's MP3's fiesta, Germany's
    RapidShare, Luxembourg's RMX 4U.com, and Sweden's The Pirate
    Bay, what sort of collaborative efforts are needed among the
    original content producer and companies that specialize in
    advertising of payment solutions to shutdown these sites, in
    your view?
        Ms. Espinel. I think it is absolutely essential that that
    cooperation take place and that is something that we have been
    working on facilitating very actively. There are many, many
    players in the Internet economy. Obviously the rightholders
    have a big responsibility to be enforcing their rights, but in
    order for us--for us as a country to have a solution to this
    problem that is practical, efficient, and not overly
    burdensome, it is necessary for us to have cooperation from all
    the players in the Internet economy, and all the people that
    are benefitting either directly or indirectly from
    infringement.
        I do want to emphasize though that while we think that
    cooperation is very important we also know that we as a
    government need to be taking action, so we will not just sit
    back and wait for the private sector to come to an agreement.
    We are both exploring whether there are other measures that we
    can use to reduce Internet piracy, and we will vigorously
    investigate and prosecute Internet piracy as we can with the
    existing law enforcement authorities that we have now.
        Mr. Connolly. To what extent do you believe in this effort,
    Europe's lack of recognition of the First Sale Doctrine is an
    impediment?
        Ms. Espinel. That my lack of recognition?
        Mr. Connolly. No, no. Europe's, Europe's lack of
    recognition of the First Sale Doctrine. They have a different
    view of copyright law than we do.
        Ms. Espinel. The Europeans have a different view of many
    things compared to what we do. With respect to the First Sale
    Doctrine and their view of that, would you allow me to find out
    more about that----
        Mr. Connolly. Sure.
        Ms. Espinel [continuing]. So I can give you a better and
    more complete answer?
        Mr. Connolly. Yes, get back to us.
        And my final question, you know, President Obama has made
    significant expansion, I think, of the doubling of exports, one
    of his major goals, a laudable goal, lots of things have to be
    in place for that to happen--new trade agreements, strengthen
    and enforce trade agreements and so forth, but one of them
    clearly is this issue of intellectual property protection, and
    especially in a place like China. If they are going to be
    stealing intellectual property left and right so that we have
    nothing to sell them because they sell it and manufacture it
    themselves to the domestic market, it defeats the whole purpose
    of a free trade regime, and significantly impedes the ability
    of the President to achieve his goal. Your comment?
        Ms. Espinel. I absolutely agree with you. We have a very
    ambitious goal set by the President to double exports in 5
    years. Part of what we have to do in order to meet that goal is
    to make sure we have viable export markets. If our export
    markets are polluted by counterfeit and piracy, there is no way
    for our businesses to be able to compete. So, it is critical to
    the administration that one of the things we do, and as you say
    there are many things that we will have to do, but one of these
    has to be ensuring that our intellectual property rights are
    being enforced overseas.
        Chairman Berman. The time of the gentleman has expired, and
    I believe this is the first time the First Sale Doctrine has
    ever been mentioned in a Foreign Affairs Committee hearing.
    [Laughter.]
        Mr. Manzullo, the gentleman from Illinois is recognized for
    5 minutes. It is all according to this screen. I just follow
    the screen.
        Mr. Manzullo. Well, thank you.
        Maybe this question is over simple, if that is a word. Mr.
    Smith talked about piracy taking place in pharmaceuticals,
    which is very subtle, hard to determine, and takes an enormous
    amount of people and agencies to try and find the source, et
    cetera. I was in China several years ago in Ku-ming, when I led
    the U.S.-China Interparliamentary Exchange. Congresswoman
    Jackson Lee was with me, and Congresswoman Marcia Blackburn,
    and we went into the town square there, and the people that
    were our hosts surrounded us. Marcia said, ``Don, why don't you
    pull the guards with you and let me go off and find the
    stuff?''
        Well, it wasn't too hard. So I took the guards with me.
    Congresswoman Blackburn just walked a few feet and there they
    were, first run movies for a buck, everything being openly
    sold, absolutely no desire, no enforcement on the part of the
    Chinese Government to stop that. Interestingly enough when you
    leave China, when you fill out the declarations it says that
    you are not taking from China any CDs or movies or things of
    that nature.
        My question is, if the Chinese are making absolutely no
    efforts to corral piracy within their own country, knowing full
    well that that crap finds its way back to the United States and
    around the world and destroys jobs, what do you do in a case
    like that?
        You can have all the personnel you want. I mean, how do you
    enforce that? How do you force China to follow their words that
    says that they want to be a player and protect intellectual
    property rights?
        Ms. Espinel. So, first, with your permission I would like
    to refer to something that you said in your opening statement.
    You referred to a company in your district that had been having
    serious problems in China.
        Mr. Manzullo. Right.
        Ms. Espinel. And I wanted to note that I have been talking
    to a number of companies in the manufacturing space and working
    with the National Association of Manufacturers to visit
    Illinois, in particular, to talk to manufacturing companies
    there so that we understand better the problems that they are
    facing, and can do a better job of trying to address them.
        With respect to your question now, obviously the lack of
    political will in China to address this issue and the lack of
    it being a significant priority for many parts of the Chinese
    Government is a real challenge that we face. So part of what we
    need to do to address this is to make clear to the Chinese that
    for this administration at this time this is a real problem and
    the policies that China has put in place----
        Mr. Manzullo. No, I understand that it has been a problem
    all along, regardless of who is in the White House or who
    controls Congress. You would agree, this is not a political
    issue because we all agree up here it is a big trade
    infringement, but how do you punish China for doing this?
        I mean, it is so outrageous. You have probably been there
    and seen the piracy taking place. That is why I said it is
    probably an over-simple question, but that goes right to the
    heart of it. You know, unless China enforces these laws
    internally--I mean, why even waste your time sitting at a table
    with them? There has to be a penalty that they have to pay.
    What would the penalty be?
        Ms. Espinel. Well, China needs to enforce its laws
    domestically, but even beyond the domestic market one of the
    problems that we face with China, we as the United States face
    with China, is the fact that they are manufacturing illegal
    products and then exporting them around the world. Obviously we
    need to be working very closely with the Chinese Government to
    try to fix this problem but----
        Mr. Manzullo. But why would they work with you when they
    allow the open sale taking place in the town squares? I mean,
    they have no desire to crack down. They need to pay a penalty.
    I mean, they know that. They have gamed the system so long. I
    am sorry. I took your time.
        Ms. Espinel. But I do want to emphasize that part of--the
    United States is not going to be able to address this problem
    by itself, we are aware of that, and one of the things that we
    need to do as well is working with our trading partners because
    we are not the only country that is facing these problems now,
    and see if we can improve the coordination that we have with
    other governments so that we can collectively bring pressure to
    bear on China.
        Chairman Berman. The time of the gentleman has expired. The
    gentleman from California, Mr. Sherman, is recognized for 5
    minutes.
        Mr. Sherman. Thank you, Mr. Chairman.
        I want to agree with the gentleman from Illinois. They are
    not going to do anything unless there is a penalty, but I think
    that the Chinese are right if they assume that Wall Street,
    Wal-Mart and Washington will combine to make sure that they
    never face a penalty.
        I think the witness is wrong when you tell us that this is
    a low priority for China. It is a high priority. It is very
    important to them that they keep stealing, and for them to say,
    no, this is a low law enforcement priority, no, it is a very
    high priority that they keep stealing our intellectual
    property.
        Now, the gentleman from Virginia talked about the
    President's idea of tripling exports. I hope that this is not
    to be combined with quintupling imports. We have got to cut the
    trade deficit. Increased exports when exceeded by increased
    imports means we lose even more jobs.
        I do want to highlight the particular venality of Baidu,
    which is perhaps more than any--well, certainly more than any
    other company in the IAPC 2010 report responsible for the theft
    of American music, and China is like 99 percent of the online
    piracy for music, and I hope you would respond for the record
    what you are going to do about it, but I suggest that the
    gentleman from Illinois is probably right. Without penalties
    they are not going to do anything.
        It is your job to summarize for the President all the
    options, and so my concern is whether you are investigating all
    the options or just those that you are allowed to talk about in
    polite society. For example, have you investigated and do you
    know whether we have the technological capacity to take down
    the illegal site, the sites primarily devoted to music piracy
    or movie piracy? The site is up somewhere in the world, God
    know some hackers at a high school in China could take it down.
    They have taken down our U.S. Government sites, whether it is
    virus or multiple hit.
        Do we have the capacity to do that? Have you investigated
    that?
        Ms. Espinel. That is something that we are actively
    investigating because----
        Mr. Sherman. Oh, good. Go ahead.
        Ms. Espinel [continuing]. It is obviously a big concern. It
    is not a simple question and it is not a simple answer. In
    summary, I will say there are technological ways to take down
    sites, but one of the challenges that we face is that even if a
    site is taking down it is not that hard for a site to go back
    up at a slightly different----
        Mr. Sherman. Well, if you take down 10 or 20, it makes a
    statement. You can take them down as quickly as they can put
    them up. But you are saying we have the capacity if somebody
    has got a site, you know, stolenmusic.com, we could take that
    site down, we are just not doing it yet because we figure they
    will pop up as----
        Chairman Berman. Will the gentleman yield?
        Mr. Sherman. Yes, I will yield.
        Chairman Berman. What about a safe harbor for copyright
    holders who want to use efforts to deny service to----
        Mr. Sherman. They will help.
        Chairman Berman [continuing]. Intellectual property
    infringers? I heard that idea once.
        Ms. Espinel. If I could just make a general comment. I
    would also say our ability and what we can do differs
    significantly when we are talking about domestic versus
    foreign-based Web sites.
        Mr. Sherman. I am talking about foreign-based Web sites.
        Ms. Espinel. That is not one of the things----
        Mr. Sherman. And you are right, I think Universal could
    hire a couple of those high school kids and maybe act more
    quickly than the government. Let me ask and squeeze in one more
    question.
        What do we do with those who pay money to advertise on
    sites devoted chiefly to music or movie theft? Are they allowed
    to deduct their cost of their advertising? Do they face any
    penalties based on the amount, or what is the penalty for
    buying an ad on stolenmusic.com?
        Ms. Espinel. So since your question is with respect to
    foreign-based Web sites, let me just emphasize that our ability
    to take down----
        Mr. Sherman. Assume it's a U.S. company selling vegematics
    to Americans and they buy an ad on this Chinese Web site
    westealmusic.com?
        Ms. Espinel. And with respect to your question about
    penalties for ad brokers, it is an interesting one. It is not
    one that has been raised.
        Mr. Sherman. I have raised it. Please report back to the
    committee about it.
        Ms. Espinel. One of the things that my office can do is
    take exactly this kind of input and concerns and make sure that
    we are investigating it and discussing it internally as an
    administration.
        So, I thank you for that, and I thank you for any input you
    might have in the future.
        Mr. Sherman. Thank you.
        Chairman Berman. The time of the gentleman has expired. The
    gentleman from California, Mr. Rohrabacher, is recognized for 5
    minutes.
        Mr. Rohrabacher. First and foremost, let me identify myself
    with the line of questioning and the statements made by Mr.
    Manzullo or Mr. Sherman. Mr. Sherman, as some of us have dealt
    with in the past, understand that he is an accountant by
    profession, and thus accountability actually means something to
    him, and he has a career of looking at cost/benefit and
    calculating that out, and so I think that really leads to
    reality at times, although I disagree with him on some thing.
    [Laughter.]
        Now with that said let me note that there were some things
    that I disagreed with Members of Congress a few years ago when
    they were proposing that our patent system change so that the
    actual publication of patents even before they were issued was
    mandated.
        Do you think that if we would have mandated the publication
    of our patent applications before the issuance of those patents
    would have increased the theft of American intellectual
    property rights?
        Ms. Espinel. The type of domestic patent reforms that you
    refer to are not ones that my office has directly focused on.
        Mr. Rohrabacher. That is not what I am asking you. I am
    asking you as someone who understands intellectual property
    theft. The law mandating the publication of a person's patent
    application before it was issued would it increase the chances
    of theft?
        Ms. Espinel. Well, in truth since that is not what my
    office focuses on, and since it's not deeply familiar with the
    background of, I don't want to give an answer. However, I am
    happy to take those concerns back and----
        Mr. Rohrabacher. Okay, got it. Now, how long have you been
    in your position now?
        Ms. Espinel. A little over 6 months.
        Mr. Rohrabacher. 6 months? And what consequences have you
    determined were applicable to people in countries that we
    actually find blatantly and continuing even after being
    notified involved the intellectual cost of American property,
    or the cost of American intellectual property I should say?
        Ms. Espinel. So I came into this office about 6 months ago
    with three main goals.
        Mr. Rohrabacher. I am not asking that. What are the
    consequences, I don't care what main goals you came in with,
    what are the consequences you have determined after 6 months
    plus you have a background in this for years, what consequences
    are you suggesting that someone or some government that
    continues to acquiesce or involves themselves in intellectual
    property theft should face?
        Ms. Espinel. I think with respect to individuals that are
    engaged in intellectual property, that are engaged in criminal
    activities, we need to be prosecuting them. Investigating them
    and then prosecuting them.
        Mr. Rohrabacher. In other countries. So we demand that the
    other countries prosecute them. What are we doing now? The
    other countries know this intellectual property theft is going
    on. They have not prosecuted. What if they continue to refuse
    to prosecute those people? What consequences are you suggesting
    that people who blatantly go along with this intellectual
    property theft or are involved in it will suffer?
        You have been there 6 months. You would have a whole career
    based on this. What are your recommendations?
        Ms. Espinel. One of the things that we need to do is see
    whether or not our own domestic law enforcement, which is very
    focused on the situation now, as John Morton and others can
    testify to is to make sure that they have the authorities that
    they need. There may be additional legislative authorities in
    order to be able to go after effectively people that are in
    overseas markets so that we are not entirely dependent on the
    government of those countries to act.
        Mr. Rohrabacher. And if indeed the other government refuses
    to permit our jurisdiction, our people doing this, what are the
    consequences that you believe that we should do as a nation to
    those nations that are refusing to go along with us and are
    acquiescence to this $100 billion rip off of the American
    people?
        Ms. Espinel. Well, obviously, if other government are not
    respecting our rights, we need to make clear to them that the
    United States considers this to be----
        Mr. Rohrabacher. No, no, what are the consequences? Making
    clear, they know what they are doing, we know what they are
    doing. What are the consequences that you are suggesting that
    our Government do to a government like China that is blatantly
    permitting this rip off of the American people?
        Ms. Espinel. One of the areas where there can be
    consequences is to use our trade policy tools, including as the
    ranking member, Ms. Ros-Lehtinen said.
        Mr. Rohrabacher. What retaliation in those trade rules
    would you suggest that we implement?
        Chairman Berman. The time of the gentleman has expired.
    Unanimous consent if there is no objection heard, I will give
    the gentleman another minute.
        Mr. Rohrabacher. Thank you very much, Mr. Chairman.
        So what would you suggest that when the President has seen
    the leadership in China four times so far in his presidency,
    what do you think the President--now you say we are getting
    serious--what should the President say, if you don't do this,
    you have known all along they are ripping us off, what should
    the President suggest we are going to do this if you don't
    crack down?
        Ms. Espinel. Well, as you are aware, our ability to impose
    penalties on other countries is limited, it is shaped by the
    laws that Congress put in place. So as I alluded to before, and
    maybe I should be more explicit about this, it may be necessary
    for us to make legislative changes both so that we have more
    teeth in our trade policy tools, and so that our domestic law
    enforcement----
        Chairman Berman. Would the gentleman yield for 10 seconds?
        Mr. Rohrabacher. Of course I will.
        Chairman Berman. In the late 1990s, rampant continues, at
    another time when there was rampant piracy in China with the
    manufacturing of counterfeit CDs, we proposed countervailing
    tariffs on a variety of items that we thought equaled the value
    of the stolen property. Just the threat of that caused three
    plants to be destroyed. Unfortunately the piracy continued in
    other places.
        Mr. Rohrabacher. Let me reclaim my time. The chairman has
    come up with a great suggestion of what we can consider. Would
    you think that this is something that we should do and threaten
    other countries that are acquiescent to this type of rip off of
    the American people?
        Chairman Berman. Unfortunately, the time has expired 40
    seconds, but we can hear back from you later.
        Ms. Espinel. Those types of suggestions from Members of
    Congress are enormously helpful.
        Chairman Berman. The gentlelady from Texas, Ms. Sheila
    Jackson Lee, is recognized for 5 minutes.
        Ms. Jackson Lee. Thank you very much, Mr. Chairman, and
    thank you for the hearing, and that of the ranking member.
        This is an issue that many members have been addressing
    from the 1990s, and as Congressman Manzullo said, it is not an
    issue that is partisan. I remember working with Chairman Hyde,
    the late Chairman Hyde from Illinois on the Judiciary Committee
    and as well Chairman Berman over the years on this question of
    intellectual property.
        I think it is important to note that the cost of this abuse
    is jobs, and I have never seen an administration more committed
    to creating job than the Obama administration. The true cost to
    the American people is seen in the 750,000 jobs that have been
    lost as a result of intellectual property violations. Worst of
    all the statistics have indicated that the scale of these
    illegal activities is rising despite efforts from both the
    government and private sector by billions of dollars a year.
        One of the most troubling, my colleagues have spoken about
    the pharmaceuticals, but I remember the tooth paste scare,
    counterfeit tooth paste that contained a dangerous chemical
    that was distributed and sold to consumers under the trademark
    of Colgate-Palmolive. Of course, that company lost reputation
    and millions of dollars.
        So, I think what we are trying to glean from you, Ms.
    Espinel, is what is the enthusiasm, the energy? I am going to
    yield to you for an answer but as I do that I note that my
    friend John Morton will be testifying, and let me just as an
    aside compliment him for an innovative and new approach to
    ICE's immigration efforts with respect to employers. I know
    this is not that hearing, but I want to put that on the record.
    It has achieved, I think, a better approach.
        I use that as an example that the government can be
    effective, but I am not hearing the sense of urgency in
    grabbing after this crisis of losing jobs in an economy that
    cannot afford to lose the jobs, and I know that you work with
    the USTR (U.S. Trade Representative), a very competent part of
    your competent team and your own competence.
        So let me yield to you to allow you to energetically give
    us some meat and potatoes. What would you be doing with respect
    to your efforts at the WTO, at the IPR? Would you seek stronger
    commitments? Where is, as my colleagues have been asking, where
    is the hammer? Where is the recognition that this is a crisis?
        If we were to go and find ``Avatar'' for $1 in China,
    recognizing all that the director and others put in that
    amazing picture, if nothing else because of the magnitude of
    it, I use that as an example that is most in our minds that it
    is a huge cost of putting that together, and then to find that
    in China, then I would say this is dish banging time on the
    table. This is time to show that kind of ``I am going to get
    them'' in an obviously civil manner.
        I am going to yield to you for the enthusiasm, the action
    items that the administration is doing and thinking about it in
    terms of stopping the loss of almost 1 million jobs from
    counterfeit activities going on.
        I yield to you, Ms. Espinel.
        Ms. Espinel. Thank you, and thank you for your kind words
    to my colleague, John Morton, and all the excellent work that
    ICE, the whole ICE team, is doing under his leadership which is
    indeed innovative and a real significant step forward in terms
    of the progress and priorities.
        Let me assure you this administration is enormously
    committed to this problem. As you pointed out, the President's
    number one priority is getting our economy back on track, and
    enforcement of intellectual property is critical to protect the
    jobs that we talked about and to promote our exports as we have
    already talked about.
        Ms. Jackson Lee. Will you look for stronger language in a
    WTO TRIPs agreement specifically?
        Ms. Espinel. That is an interesting question. That is,
    again, one that has not come up in the 6 months, but those
    kinds of suggestions are interesting to us. I think, you know,
    beyond the TRIPs agreement, which is not to downplay the
    importance of it because it is enormously important, it is
    clear that we need a stronger international standard on
    enforcement, and whether we do that at the WTO or whether we do
    that working with our trading partners directly, I completely
    agree with you that the legal framework, the international
    agreements that we have right now on intellectual property
    enforcement, while good, are not good enough.
        Ms. Jackson Lee. So you would ask for stronger intellectual
    property rights enforcement?
        Ms. Espinel. Yes, absolutely.
        Chairman Berman. The time of the gentlelady has expired,
    and the gentleman from Texas is recognized for 5 minutes.
        Ms. Jackson Lee. Thank you very much.
        Mr. Poe. Thank you very much, Mr. Chairman. Thank you for
    being here. Appreciate your comments. I have several questions.
    But first, I just want to make it clear to you that in my other
    life I used to be a judge and prosecutor and I hate thieves.
    There is just nothing worse than a thief, whether it is an
    individual or a nation.
        China seems to me to have a culture of thievery. It is
    culturally and politically acceptable, in my opinion, in China
    to have theft of American products and intellectual property,
    and I know they are big trading buddies, but how do we hold
    them accountable specifically. I like the tariff idea.
        What about until China gets their thievery in order not
    allowing visas for their citizens not to come to the United
    States? If we mean business about not stealing business, what
    do you think about that idea?
        Ms. Espinel. I think we do mean business. I think we
    absolutely need to make sure that China is being held
    accountable.
        Mr. Poe. Do you like the idea of withholding visas until
    they start cracking down on the organized crime in their
    country of stealing intellectual property?
        Ms. Espinel. I think it is an interesting idea. I think we
    need to make sure in everything that we do that we are taking
    steps that benefit our economy as a whole. And so one of the
    things that makes dealing with China complicated is the fact
    that we do have many different connections with China in our
    economy, and while we absolutely need to make sure that the
    violations of American intellectual property rights, the fact
    that China is taking our research and development, the fact
    that China is building an innovation industry basically on the
    backs of our own industries, we need to make sure that stops,
    but we need to make sure that stops in a way that doesn't have
    a significant detrimental impact on other parts of our economy.
        Mr. Poe. Well, I don't know that prohibiting visas from the
    Chinese that wants to come to school here hurts our economy as
    much as the thievery that takes place in China with the
    intellectual property. I understand that the piracy of movies,
    the piracy of songs has prohibited the development of more
    movies, the development of more music in the music industry
    because of the cost to our industry because of piracy, not just
    in China, but the former Soviet Bloc and Eastern European
    countries are involved in all of this as well. So there needs
    to be some consequences.
        I agree with all of those who have stated, you know, we can
    try the diplomatic channels. Well, that doesn't work.
        Next question: Have you had any input, influence,
    encouragement or discouragement from the State Department not
    to be so tough on the Chinese because they are our trading
    buddies?
        Ms. Espinel. No. The State Department, among other
    agencies, works very closely with us on the plan. I think they
    are well aware, as are we, of the problems that we face in
    China. I think the short answer to that question is no.
        Mr. Poe. Good. Good to hear.
        Google was real concerned about the Chinese and their
    intellectual property theft of Google. Now that has sort of
    been resolved. I understand that Google is not too concerned
    about their blog site being a venue for intellectual property
    theft. Do you want to comment on that? That their blogs are
    being used as a basis for developing piracy, international
    piracy.
        Ms. Espinel. Well, I won't comment or speak for Google in
    terms of their views on intellectual property enforcement or
    intellectual property infringement. I will tell you that we are
    discussing with Google, as we are with a number of the
    companies that are involved in making the Internet work and
    making the Internet the great thing for American commerce as it
    has been, to see whether or not there are additional things
    that we could be doing to address one of the negative effects
    of the Internet, which has been this proliferation of
    counterfeiting and piracy.
        Mr. Poe. I have two more questions in my 30 seconds. Master
    Card and Visa, how cooperative are they in all of this process?
    When people use Master Card, pirate company allows Master Card
    or uses Master Card and Visa, are they cooperative in trying to
    bring down these sites, refuse payment? Are you getting
    cooperation from Master Card and Visa or are they slow?
        Ms. Espinel. We are talking to Master Card and Visa about
    what their operations are. Again, I don't want to speak for
    them but I don't believe they want their services to be used
    for illegal activity, so I am hopeful that we will be able to
    move the ball there.
        Chairman Berman. The time of the gentleman has expired. The
    gentleman from New Jersey, Mr. Sires, and I do remind the
    members we have the second panel. Mr. Sires.
        Mr. Sires. Thank you, Mr. Chairman, and I apologize for not
    being here earlier but I had other commitments.
        I will just be very blunt with you. Is there anything that
    they don't steal or copy in China from us or from the rest of
    the world? Can you think of anything?
        Ms. Espinel. Certainly the scope of what is manufactured in
    China in various ways is vast.
        Mr. Sires. Okay. So how can I as a consumer in New Jersey
    feel that it is safe for me to take it off the shelf if they
    don't cooperate? They obviously are not embarrassed by it
    because I assume that you have approached this subject with
    them, and I would like to know of their reaction, but how can I
    as a consumer feel that it is safe to take that product off the
    shelf that comes from China?
        I mean, just the other day I saw medicine. You know, it
    just goes on and on and on. So what can you assure me that we
    are doing everything we can to make sure that the product that
    I am going to purchase is safe?
        Ms. Espinel. I can assure you that this is an issue that we
    care deeply about, and we have already talked in this hearing
    quite a bit about the importance of intellectual property
    enforcement to our jobs and to our exports, and to restoring
    our economy. But the issues that you raise, the issues of
    health and safety and that sort of basic issue of consumer
    confidence in the system is one that I think is enormously
    important. Part of what intellectual properties do for us as a
    society has helped give our consumer that certainty, that
    predictability, that faith that our products are what they
    purport to be.
        So, we need to have our laws, but we also need to make sure
    that those laws are being enforced so that consumer can have
    confidence.
        I think the U.S. Government supply chain is certainly the
    focus of this committee. There are other countries overseas
    that struggle even more with the issue of their supply chain
    being infiltrated, but we are very focused on making sure that
    our own supply chain into the United States Government and to
    our United States consumers is as secure as it can be.
        Mr. Sires. And I will just share this with you in less than
    1 minute. The other day I was having lunch--this happened a
    couple of months ago--I was having lunch and I was having a
    piece of catfish, and another member sat next to me, and he
    said--I won't mention his name. He said, you know, we have to
    do something in the agriculture bill because most of the
    catfish that is imported into the United States are grown by
    sewage outflows in Vietnam. I can tell you that I will never
    eat another piece of catfish for the rest of my life. But this
    is just the kind of thing that we are not aware of, and this
    happened to me a couple of months ago. Thank you.
        And what is the reaction of the Chinese when you approach
    them on some of these issues?
        Ms. Espinel. Well, with respect to the catfish story for a
    moment. My husband's family is from Louisiana, and I am deeply
    attached to Louisiana, so you know, catfish is something near
    and dear to me as well.
        Mr. Sires. I said Vietnam, not Louisiana. I will buy that.
        Ms. Espinel. With respect to China, it is clear Chinese
    needs to take this more seriously. Regardless of what their
    sort of official reaction is, they need to be doing more, and
    that is a priority for us to make that happen.
        Mr. Sires. Just tell your husband to put on it Louisiana
    grown. Thank you.
        Chairman Berman. The time of the gentleman has expired. I
    guess it is choice of Vietnamese sewage or American oil on the
    catfish.
        The gentleman from Massachusetts.
        Mr. Delahunt. Well, Mr. Chairman, you can always come to
    New England where things are clean and clear and tasty.
        You know, I agree clearly it is about jobs and it is about
    balance of things and it is about the economy, but at one level
    it is really about our national security, and I think we should
    not lose sight of that, and I think it is clear from the
    comments that we hear there is an anger, justifiable anger that
    exists, and I think it is also clear that it is perceived that
    China is the most significant aspect of this problem, and that
    it would appear that you don't have the tools to motivate the
    Chinese from rhetoric to action.
        I think it is absolutely essential that the administration
    propose to the Congress those tools or those mechanisms that
    will get the attention of the Chinese and actually motivate
    them to match their actions with their rhetoric. I am sure
    different moments there have been optics as far as enforcement
    is concerned, but this conversation has been going on every
    since I came to Congress and that is some 14 years, and it is
    getting to the point where it is just totally unacceptable.
        I think we are losing credibility as well as jobs because
    we have not taken hard sufficient action. There has to be real
    consequences, and if they are not it is just simply going to
    continue. I bet if you took a vote of this committee, that
    would receive unanimous support, and it is up to this
    administration now to move expeditiously in a way that is
    respectful but if we do not respond forcefully and hard against
    China until they clean up their act it is going to send a
    message to the rest of the world that, you know, we are just
    spinning our wheels.
        I applaud the good efforts that are being made. I think
    task force comments headed by task for concepts headed by ICE,
    the work that you are doing is fine, but it is going to require
    something of a different order of magnitude. I think we ought
    to consider this economic terrorism. We are at risk if we do
    not address this problem, and I think you are hearing that, you
    know, from both sides, Republic and Democrat. This has got to
    become a high priority right up there with job creation and
    health care, and all of the other issues that we are
    confronting. If we do not do something about protecting our
    intellectual property, we are at risk. Care to make a comment?
        Ms. Espinel. I fully agree with that. I appreciate your
    suggestion about proposals to Congress because I look forward
    to working with you and with the committee as a whole to figure
    out more what we can do there.
        Mr. Delahunt. Let me just get to Mr. Poe's idea about
    withholding visas, but, first of all, we want them to come here
    so that they will spend some money here. I want those students
    to come to schools in New England because for every
    international student it generates 50 trips from overseas by
    family members and friends which helps our economy.
        So this has got to be directed along the lines that were
    suggested earlier by the chairman, about having clear
    countervailing tariffs that are painful and will keep Chinese
    goods from coming into this country. My instinct tells me that
    is the answer. You know, jobs are leaving China now going to
    other countries that are undercutting, so it is not like there
    is not a market out there. That, I think, is a suggestion that
    should be taken up expeditiously.
        Chairman Berman. The time of the gentleman has expired.
    Others are saying no more small ball, but the fact is, Ms.
    Espinel, you are unwavering in a number of things that are
    going to make incremental improvements, and the question is, is
    there something bigger? And we appreciate you being here, and
    what you are doing, and thank you very much. We will now have a
    second panel. We will hear from Mr. Morton who will talk about
    what ICE has done that have some real consequences.
        We have our second panel. Our first witness will be
    Assistant Secretary John Morton, Assistant Secretary of
    Homeland Security for the U.S. Immigration and Customs
    Enforcement, known as ICE. In this capacity, he directs the
    principal investigative component of the Department of Homeland
    Security, the second largest investigative agency in the
    Federal Government.
        Mr. Morton has an extensive background in Federal law
    enforcement. He has held a variety of positions within the
    Department of Justice, including those of trial attorney,
    special assistant with the general counsel in the former INS,
    and counsel to the deputy attorney general. Mr. Morton received
    his law degree from the University of Virginia, School of Law.
        Our second witness is Chris Israel. He is the former U.S.
    Coordinator for International Intellectual Property
    Enforcement, which was located then at the Department of
    Commerce.
        Appointed by President Bush in 2005, Mr. Israel was
    responsible for coordinating resources within the Federal
    Government to defend intellectual property rights domestically
    and internationally. Prior to this appointment Mr. Israel
    served in the Department of Commerce, first as deputy assistant
    secretary for technology policy, and later as deputy chief of
    staff to two commerce secretaries. Prior to that time he was
    deputy director for international policy at Time Warner. Mr.
    Israel has a B.A. from the University of Kansas and an MBA from
    the George Washington University.
        Thank both of you for being here today, and Secretary
    Morton, why don't you start.

    STATEMENT OF THE HONORABLE JOHN T. MORTON, ASSISTANT SECRETARY,
    U.S. IMMIGRATION AND CUSTOMS ENFORCEMENT (ICE), U.S. DEPARTMENT
                          OF HOMELAND SECURITY

        Mr. Morton. Well, Mr. Berman, and Ms. Ros-Lehtinen, and Mr.
    Sires, thank you very, very much for inviting me here today to
    appear before you. This is my first time, Mr. Chairman, before
    the committee and I very much appreciate the invitation, and
    the ranking member as well.
        Let me just note for the committee how much I have enjoyed
    working with Victoria in her short time. She has brought a lot
    of energy and enthusiasm to her job, and it is very much
    appreciated. We are lucky to have her as the IPEC.
        I also want to thank the work of the Department of Justice.
    We have worked very, very closely recently with the United
    States Attorney offices, the Computer Crime and Intellectual
    Property Section in the Criminal Division led by Assistant
    Attorney General Lanny Breuer, and they have been good
    partners.
        And a final note of thanks before I get started to the
    industry that has been victimized and has worked with us on a
    number of our enforcement efforts. The motion picture industry,
    the music industry, and the pharmaceutical industry, in my
    view, a strong partnership between the affected businesses and
    government is essential if we are going to make any headway in
    bringing real consequences to people who violate the law.
        Mr. Chairman, let me just be direct. We need to focus on
    strong intellectual property enforcement from Los Angeles to
    Asia. Simply put, American business is under assault from
    criminals who knowingly pirate copyrighted material or
    counterfeit and trademark goods. American ideas, American
    products are being stolen and sold. Sold on the corner of 4th
    and Main, sold over the Internet. From the counterfeit
    pharmaceuticals and electronics, to pirated movies and
    software, organized criminals are undermining the United States
    economy on a grand scale.
        Why should we care? Well, here is why. American jobs and
    American innovation are being lost. Public health and safety
    are at risk. Pirates and counterfeiters don't pay wages or
    taxes. They don't fund pensions and health care plans. They
    don't invest in new movies or TV shows. They don't develop new
    drugs to cure diseases. They don't invent the next iPhone or
    flat-screen TV. They don't employ Americans. They don't make
    America great. Counterfeiting and piracy hurt American workers
    and American industry, pure and simple.
        Take the music industry, for example, home to extraordinary
    American talent and creativity over the years. In the past 10
    years, the industry has experienced a dramatic decline in
    legitimate sales and employment due to piracy and
    counterfeiting, hurting our major music capitals like
    Nashville, New York and Miami.
        So what do we need to do in the face of this crime, Mr.
    Chairman? In my view, we have to change the face of
    intellectual property enforcement. We can't just seek marginal
    changes. Incremental improvements, a few extra cases here or
    seizures there are welcome but they are ultimately a losing
    cause. We have to think through and address the root causes and
    the long-term cures. In short, we need enforcement marked by
    innovation and by energy.
        Intellectual property enforcement is a central part of what
    we do at ICE. Last fiscal year, we arrested a record 265
    violators and we made 1,750 seizures. This fiscal year, we are
    well on our way to setting new records in both categories of
    arrests and seizures, and we are going to open over 1,000
    cases, the most we have ever done by a long shot in a given
    year. In short, our enforcement efforts have greatly increased,
    and they will continue to strengthen while I am assistant
    secretary, I promise you.
        Intellectual property is also a central part of the broader
    DHS mission. Our sister agencies, Customs and Border Protection
    and the United States Secret Service, play a very important IP
    enforcement role, and Secretary Napolitano has been a strong
    proponent of IP enforcement during her entire tenure at DHS.
        We pursue intellectual property enforcement through three
    ways: Through our domestic offices, through our international
    offices, and through the Intellectual Property Rights
    Coordination Center that is based just across the river near
    National Airport in Arlington, Virginia, which ICE leads.
        Let me say very quickly about the IPR Center. We have a
    total of 12 partners from all over the Federal Government and
    elsewhere. It includes ICE, the FBI, CBP, FDA, the Postal
    Inspection Service, and the Patent and Trademark Office,
    Defense Criminal Investigative Service, the Naval Criminal
    Investigative Service, the Army Criminal Investigation Command,
    and GSA IG's office. They have all just joined to help bolster
    our efforts in the defense supply chain. We also have for the
    first time international partners in Mexico and Interpol.
        At the IPR Center we receive leads, we generate cases, and
    we de-conflict enormous efforts. This last year has been
    particularly busy with successful initiatives being undertaken
    against counterfeit holiday goods, counterfeit pharmaceuticals
    and pirated movies. Let me briefly focus on one such initiative
    focused on the Internet, which you will see here on the
    monitors what is called Operation In Our Sites.
        At the end of June, the IPR Center launched Operation In
    Our Sites, a new initiative aimed at counterfeiting and piracy.
    During the first phase of this initiative, ICE agents working
    with the United States Attorney's Office for the Southern
    District of New York seized domain names of seven Web sites
    offering first run movies, often within hours of their
    theatrical release. These sites on the screen now is a view of
    what one of them looked like prior to June 30, allowed visitors
    to stream or illegally download current and highly popular
    television shows and movies. You could also on some of them buy
    counterfeit software.
        On June 30, over the course of one of the investigations
    agents observed links to more than 200 movies and more than 300
    television programs. I mean, everything is available. On June
    30, more than 75 ICE agents participated in the enforcement
    action, resulting in the seizure of assets from bank accounts,
    from PayPal, investment and advertising accounts.
        Our efforts successfully disrupted the ability of criminals
    to purvey pirated films over the Internet. Industry experts
    tell us that Internet piracy takes about 9 to 15 months when
    you start a new site to develop enough traffic to yield the ad
    revenue that produces a profit. So although these sites can
    come back up again, it takes time to get the advertisers back
    on board and get the necessary traffic.
        The domain names discovered during this operation are now
    controlled, not by the pirates, but by the United States
    Government, namely, ICE. Instead of pirated content, the Web
    sites now feature a banner announcing the seizure of the site
    by the government, ICE and the Department of Justice, and an
    explanation of the Federal crime and punishment for copyright
    theft and distribution. So if you were to go to the sites
    today, instead of the original site you would see this banner.
        Here is an interesting part of this, Mr. Chairman. As the
    new owners of the domain name, ICE has been able to determine
    the number of visitors these sites have received since the
    seizures. Within 2 days of ICE's enforcement action against
    these pirating Web sites, over 1.7 million visitors saw just
    one banner on one site. This number is substantially more than
    the total number of hits the sites were receiving when they
    were selling pirated goods, and that was substantial. One site
    to date has seen over 20 million views, people coming to see
    the government's seizure banner.
        In other words, we believe the government's warning banners
    have gone viral and Internet users by the millions are actually
    seeking a Web site out to view what the government has been
    doing because the government hasn't been doing a lot of it, and
    now all of a sudden the government is doing it and doing it
    forcefully.
        And so it has been a silver lining unanticipated--I had no
    idea this was going to happen--consequence to our enforcement
    action, so we are getting tremendous----
        Chairman Berman. Can you sell advertising? [Laughter.]
        Mr. Morton. We are going to do it for free. We are all
    about being neutral for the taxpayer.
        Operation In Our Sites not only targets Web sites offering
    pirated films and music, but we are going to go after
    everything on the Internet.
        Very briefly, we have domestic offices in every State in
    the Union, Mr. Chairman. We are going to put the full weight of
    those offices to doing this kind of work. Just 6 days ago, we
    arrested in New York two individuals involved in the
    distribution of counterfeit footwear and other products.
        Internationally, we have 63 offices in 44 countries wherein
    nine of the 11 countries on the USTR's priority watch list. We
    have opened an office in Brussels to work directly with the WCO
    on this, and we have got an office, two offices as a matter of
    fact, in China, and we are working hard. It is tough work.
    Obviously, we have heard numerous comments already on how much
    and deep--how deep the challenges are, but we have had some
    success.
        We have worked with the Chinese in Operation Spring
    Cleaning. They actually extradited an individual from China to
    the United States to face prosecution. The person was sentenced
    to 4 years in prison and ordered to pay almost $900,000 in
    restitution to the Motion Picture Association of America, and
    we have had similar successes in China.
        We are also looking to start efforts in Africa. That is the
    next unfortunate wave of IP problems facing us. We are working
    with the State Department.
        Let me just close by saying this, Mr. Chairman. I really
    want to thank you and the other members of the committee for
    having this hearing and, frankly, highlighting the need for IP
    enforcement. It is an area in my view that has long needed more
    attention. It isn't a particularly partisan issue from my
    perspective. It is a problem that has been around for decades.
    It is very serious, and in these times of economic pressure in
    the United States it is a problem I think we as a nation can
    ill-afford to ignore. Thank you.
        [The prepared statement of Mr. Morton follows:]

        Chairman Berman. Mr. Israel.

        STATEMENT OF THE HONORABLE CHRIS ISRAEL, CO-FOUNDER AND
      MANAGING PARTNER, PCT GOVERNMENT RELATIONS LLC (FORMER U.S.
          COORDINATOR FOR INTERNATIONAL INTELLECTUAL PROPERTY
                              ENFORCEMENT)

        Mr. Israel. Thank you, Chairman Berman, Ranking Member Ros-
    Lehtinen, and members of the committee. I really appreciate the
    opportunity to appear before you today and discuss the
    importance of American intellectual property.
        As the chairman noted, from May 2005 to March 2008, I had
    the privilege of serving as the U.S. Coordinator for
    International Intellectual Property Enforcement. That previous
    effort and those we are here to discuss today reflect the
    critical role that IP plays in the competitiveness and growth
    of the U.S. economy. Many of the statistics that back this up
    are well known. Some of them have been discussed today, but
    they certainly deserve noting.
        Particularly relevant to this committee, IP intensive
    industries in the U.S. create an average $14.6 billion in trade
    surplus each year. U.S. IP is worth between $5 trillion and
    $5.5 trillion, more than the Gross Domestic Product of any
    other single country. In States that are represented by
    Representatives of congressional districts of this committee,
    the movie industry alone supports 520,000 jobs and provides
    over $33 billion in direct annual wages. Finally, the number of
    U.S. patents for clean and renewable energy sources has risen
    from 720 in 2002 to 1,125 in 2009.
        For policymakers seeking to support our creative and
    cutting edge industries and workers, few things are as
    important as a strong commitment to the protection of their
    intellectual property.
        Unfortunately, as we are discussing, we are confronting an
    environment in which counterfeiting and piracy have become
    sophisticated global enterprises that threaten entire
    industries, put U.S. consumers at risk, and often provide a
    source of revenue for criminal organizations.
        The Obama administration's 2010 Joint Strategic Plan on
    Intellectual Property and Enforcement lays out a thoughtful and
    comprehensive approach to tackling a number of difficult IP
    policy and enforcement challenges. For instance, the strategy
    recognizes the global proliferation of Web sites that traffic
    in huge volumes of pirated material, and as Assistant Secretary
    Morton just went through in compelling detail, Operation In Our
    Sites led by ICE and DOJ and a number of Federal agencies does
    really provide a compelling example of how law enforcement and
    industry can collaborate to address the problem.
        Likewise, the strategy recognizes that better cooperation
    among a range of industry players, as Coordinator Espinel
    mentioned this morning, is necessary, and ultimately
    legislation, as the chairman noted in his opening comments, may
    indeed be required to have a meaningful impact on online
    piracy.
        The strategy also addresses the significance of the Anti-
    Counterfeiting Trade Agreement. This is a major policy
    initiative that will substantially improve the global climate
    for IP protection. The administration's strategy also promises
    to take the government's own coordination to a new level in
    terms of agencies involved and their ability to tackle
    difficult challenges like counterfeit medicines and supply
    chain management.
        Finally, the importance of sound and relevant data is of
    tremendous importance to policymakers and industry, and can be
    sometimes tedious in detail but I think it is a very important
    thing to consider, and the strategy envisions new government
    data that will quantify the true value of IP to our economy.
        The U.S. confronts a range of domestic and international IP
    issues at any given time. However as we discussed this morning,
    China and Russia do present very unique challenges.
        The U.S. has made some progress with China by working
    bilaterally attempting to enforce trade rules and attacking
    criminal organizations, but it is clear that we are probably
    treading water at best. The WTO cases brought by the United
    States against China in 2007 may ultimately improve some
    enforcement efforts and provide additional market access for
    U.S. content, but we are quickly reminded that nearly four out
    of five software applications running on Chinese computers, the
    biggest PC market in the world by the way, are pirated.
        And late last year China significantly raised the stakes
    for U.S. industries from IT to Clean Tech with more aggressive
    implementation of its indigenous innovation strategy. These
    policies would exclude U.S. companies from large parts of the
    Chinese market and compel transfers of intellectual property as
    the price of entry when they are let in. As Robert Holleyman,
    CEO Of the Business Software Alliance recently put in the
    Washington Post, ``This squeezes us at both ends, shutting many
    of our innovative products out of the market and stealing the
    rest.''
        As has been the case for several years, Russia's desire to
    join the WTO is directly tied to its IP enforcement record.
    Presidents Obama and Medvedev announced at their summit last
    month that they hoped to conclude Russia's outstanding WTO
    commitments by September 30th of this year. In terms of IP
    enforcement this means Russia must make a range of criminal,
    civil and customs enforcement improvements that they first
    committed to in very excruciating detail back in 2006.
        Given the scope of these commitments, it seems to be quite
    a heavy lift. However, the administration has indicated that
    interactions with Russia have intensified on IP issues of late.
        Mr. Chairman, it has become very clear in recent years that
    our ability to protect and promote intellectual property is a
    critical component of our overall foreign policy and important
    goals such as addressing our competitive issues with countries
    like China, reducing our dependence on foreign energy sources,
    promoting exports, and incentivizing foreign investment in the
    United States all depend on our intellectual capital. It is one
    of our most valuable resources and competitive advantages.
        Again, I appreciate the opportunity to come here before you
    today, and I am honored to have this opportunity, and I very
    much look forward to your questions.
        [The prepared statement of Mr. Israel follows:]

        Chairman Berman. Thank you very much, and I will give
    myself 5 minutes for a few questions.
        The seizing of a domain name, what does ICE have to do to
    make that happen?
        Mr. Morton. We work with the United States Attorney's
    Office. We demonstrate that the particular Web site in question
    is engaged in the illegal distribution of copyrighted material,
    and then we go to the United States District Court, we get a
    seizure order to cease the domain name as an instrument of a
    crime, and we then put up a banner to the world saying we now
    own this. And because the domain registries are largely in the
    United States and are controlled by the intellectual property
    it is a very effective way for us to have a short-term, quick
    enforcement effort.
        It is important to note that the domain name is different
    than the content that may be hosted on the server, and so you
    can get a new domain name. The server may be overseas. The
    contents may be overseas. That is more of a long-term challenge
    for us. But we go into court and we seize them.
        Chairman Berman. I take it the one short-term benefit of
    this process is for people who know that name there is a lag
    time between them picking up what the new domain name is and
    shifting, although practically speaking do you have any sense
    that that does cut down on the piracy, or are there just so
    many different alternatives that if one is back they are
    immediately going to one of the other ones that people who do
    that are totally familiar with?
        Mr. Morton. First of all, you are right. It makes it more
    difficult. I mean, all the individual users have their favorite
    sites and their favorites list. You now have got to change all
    of that. You have got to know what the new one is. If there are
    contractual arrangements with PayPal or with the advertisers,
    those all have to be changed. So it takes--it is definitely a
    serious hindrance. It obviously shuts the site down. They can
    start up again, but it is even more complicated.
        We saw with a few of the Web sites that we seized the
    domain name they didn't get all of the links within the new
    site right and so there would be portions of the site of the
    new site, and if you clicked on a link, for example, their
    policy or about us it would take you back to the original site,
    and it would take you to the government's seizure banner. So it
    definitely hurts their ability to do it.
        Time will tell on the second portion of your question, Mr.
    Chairman. What we are trying to do in Operation In Our Sites is
    not just seize one site here, one site there. We are trying to
    do a whole wave of sites. We are going to follow those sites.
    If they reappear, we are going to follow them. We are going to
    seize those domain names as well, and we are going to try to do
    it across whole categories, and just get in the business of
    letting these folks know we are going to follow you wherever
    you go and we are going to take these domain names. We are
    going to follow you and we expect you to try to pull up again
    and start a new site, but you can expect us to be right on your
    heels.
        Chairman Berman. Thank you. Great.
        Mr. Israel, Ms. Espinel is now in a new place and with some
    new authorities has a position you held. Could you describe a
    couple of the most serious challenges you faced? Any thoughts
    you have of how she might overcome those challenges?
        Mr. Israel. Thank you for the question, Mr. Chairman. She
    is off to a great start in clearing the strategy. They have
    really articulated a number of very key issues. She seems to
    have great cooperation and collaboration across the range of
    industries. I personally never found that to be a huge problem.
    I think there was a perception that there were massive stove
    pipes and heels dug in across the Federal Government. I
    personally found that the people wanted to collaborate, wanted
    to tackle the problem. You are dealing with very eclectic and
    very different agencies, all the way from trade negotiators to
    Federal investigators and prosecutors. It is a challenge to
    pull all those people together in a way that provides
    leadership and adds value to it.
        I think the biggest challenge that we are facing, and I
    will equate it maybe to China in a strange way, we need to
    institutionalize our IP enforcement, priorities, methodologies,
    strategies, and tactics in a way that expands beyond just those
    issues we are talking about at the hearing today. They are
    going to be manning the front line today, and this really has
    to be a long-term systemic effort for the U.S. Government. In
    the way that we see other countries go after IP, we have to go
    after it just as aggressively. That is a huge challenge facing
    us.
        Chairman Berman. Thank you very much. My time has expired.
    The ranking member.
        Ms. Ros-Lehtinen. Thank you so much, Mr. Chairman, and
    thank you, gentlemen, for excellent testimony. I will bunch my
    questions together and let you answer.
        Secretary Morton, you are heading to China in September to
    discuss intellectual property piracy with Chinese officials and
    to sign a new cooperation agreement. Why do you believe that
    these new discussion and yet another agreement will produce
    different results than the ones in the past, and isn't the
    Chinese approach to promise cooperation and then do the
    minimum, throw us a bone to keep us quiet?
        And then, Mr. Israel, on China and Russia you had discussed
    briefly real action that we can take to stop the piracy and to
    stop the theft. Could you elaborate a bit? I wasn't quite
    satisfied with the previous answer of our previous witness of
    how we can bring sufficient pressure to bear on both of these
    countries to have them do the right thing?
        Thank you, Mr. Chairman.
        Mr. Morton. I don't have any illusions about the trip that
    I am going to take to China. I think it is important, though,
    because we have had a number of conversations with the Chinese
    here. I try to be fairly straightforward in my dealings as a
    law enforcement agency. The Chinese know my views, and we have
    had a number of successful operations with the Chinese, and we
    have very good cooperation with Chinese authorities in Hong
    Kong. Now, obviously, Hong Kong has a separate charter and
    status right now.
        And so I, while not underestimating the challenge, and it
    is sobering, my view is while I am in this job I need to do
    everything I can as part of a larger coordinated effort to
    bring about a change result and meaningful consequences. I am
    all about meaningful consequences for criminals who are
    stealing American products and services. And we have had some
    successes with the Chinese.
        I am going to try to push those successes to particularly
    where we have found the Chinese to be willing to work with us
    where there is an international component to the case, where
    there are Americans involved as well as Chinese, and I am going
    to do everything in my power to increase the number of cases
    that we are working to, and take it as far as I can.
        Ms. Ros-Lehtinen. I believe that you will. Thank you, Mr.
    Secretary. Mr. Israel?
        Mr. Israel. Thank you for the question.
        I think in terms of China, as Assistant Secretary Morton
    mentioned, the impression I always receive from speaking to our
    law enforcement officials who are working directly with China
    is that when you got to the actual level of enforcement
    officials, cops working with cops, the rest of China, the level
    of cooperation is pretty good.
        The risk that China runs with this strategy is that at some
    point they are dealing with criminal organizations that are
    engaging in this high-level, sophisticated intellectual
    property theft. That is a problem and a threat to them
    internally as well. I mean, it is kind of a hard thing to
    manage, so I think working directly with their law enforcement
    agencies to bring cases, to go after transnational crime is a
    compelling place, an important place to start and remain.
        The international groups, the G-8, Lyon-Roma
    infrastructure, we initiated some things working through there,
    working through Interpol, I think attacking it as a criminal
    problem; the issue of, you know, potentially looking into what
    types of cases we might be able to bring to the WTO to create
    the authority to bring the type of countervailing duty based on
    IP losses to the United States that some members were speaking
    about earlier certainly is an interesting theory to pursue, an
    idea to pursue.
        This is at the end of the day in economic security issue
    for China, and I think we need to make sure that we try to find
    leverage points that will recognize that.
        With Russia, I think this seems to have all crystallized in
    the WTO question. I do think that is a point of leverage for
    us. I do think there appears to be tremendous consistency
    between the Bush administration and the Obama administration on
    the question of holding to the line on WTO accession for Russia
    and making sure they complete commitments that have been on the
    table now for a very long time. I think that is important to
    remain consistent there.
        There seems to be some renewed incentive in Russia. They
    are trying to evolve their economy into a more innovative place
    so they are compelled by that, I think.
        Ms. Ros-Lehtinen. Thank you very much. Thank you,
    gentlemen. Thank you, Mr. Chairman.
        Chairman Berman. Mr. Manzullo, 5 minutes.
        Mr. Manzullo. Thank you. The first time I went to China was
    in 1997 with Congressman Behrider, Congressman Hastings, and
    actually Rick Kessler was along with a group, and we met with a
    Chinese group called Moffet, which was the--I don't know if
    they call it the same--the intellectual property protection
    agency that was set up at the time, and I returned to China
    several times after that. Nothing gets done.
        You know, I don't think it's a matter of political will.
    Perhaps Mr. Sherman said it correctly that there is a high
    priority to do nothing, and my question is, in terms of the
    remedies has anybody ever thought about the fact that if a
    country stands by and knowingly sees the private sector engage
    in a crime, in this case the pirating of most especially movies
    and songs of that nature, does it ever reach a point when the
    inactivity of a government leads to the criminal activity of
    the private sector being imputed to the government for purposes
    of enforcement?
        Mr. Morton. I am unaware of any circumstance in which that
    has happened in the intellectual property world, and in the
    case of China there have been a number of enforcement actions
    over the years, joint enforcement actions between the United
    States and government authorities to shut down offending
    factories and to arrest and prosecute individuals. It is a
    small number, far fewer than we want, and I am not going to
    challenge Mr. Israel's characterization of us treading water,
    which is what you have observed yourself, but I am not aware.
        Mr. Manzullo. Well, it may be more drowning than treading
    water. The area that I represent is so heavily involved in
    manufacturing intellectual property--the Chinese will take
    something and they will do a knock off in such a short period
    of time. I was told that one of the reasons we have no golf
    club manufacturers in this country, with the exception, I
    think, of PING that does some assembly here, is that they will
    come out with a real great golf club and within 12 hours there
    is a knock off being manufactured in China.
        I just don't know how we are going to be able to get our
    arms around this thing. You know, we talk about how there is no
    political will on the part of the Chinese. I just don't think
    private property rights are within their vocabulary. It is not
    in their culture.
        Mr. Israel. Indeed, Congressman, private property is a new
    concept in China, and I think we are still in the process of
    that being fully adopted into the rule of law and through the
    judicial system in China, and I think what we see in the
    indigenous innovation proposals that are coming out of China
    that are drawing such appropriate scrutiny because we are
    seeing the intellectual property policies, weakness in
    enforcement tied directly to an overt economic strategy. It is
    clearly designed to promote domestic champions. It is clearly
    designed to build those domestic champions upon the innovation
    and input of primarily U.S. companies, but other global
    companies as well, in position in a way in which they are
    directly competitive to----
        Mr. Manzullo. But when the Olympics were in China they knew
    how to protect their trademarks of everything associated with
    the Olympics. I mean, I don't know how long this system can be
    gamed like this, and you wonder how much we are we
    deg.going to lose to China. If you lose on an even playing
    field, that is competition. I know you don't have an answer for
    me and I am not expecting one, but I just want to thank you
    guys for all the hard work that you put in on this.
        Chairman Berman. The time of the gentleman has expired. You
    know, the ranking member, in her first round of questions,
    raised this issue of the leverage point, and in this case she
    was talking about Russia, and accession to WTO. One does start
    to think that we didn't drive a tough enough bargain when we
    let China into WTO in terms of not just laws but enforcement of
    those laws. I mean, there is an acceptance of a certain culture
    in WTO that China did not have to incorporate in order to get
    into that organization.
        You talked about a footprint, I am just going to finish up
    and then anybody else who wants, but you talked about a
    footprint in other countries. We are not talking here about
    people meeting with top government officials and heads of
    enforcement agencies.
        Are you talking about people who are doing enforcement and
    how do they operate in another country? Run around and seize
    stuff?
        Mr. Morton. No. Mr. Chairman, we have a very large
    footprint overseas, the largest in the Department of Homeland
    Security, and it is because we are essentially a criminal
    investigative agency dedicated to transnational crime. That is
    our business--investigating the illicit movement of people,
    money, goods into the United States and out of the United
    States in efforts to steal our goods and services, whether it
    is export control or intellectual property.
        So, we have special agents. They are investigators posted
    throughout the world. They obviously do not have direct law
    enforcement authority in the country in question, so their job
    is to work very, very closely with their law enforcement
    counterparts to educate them, to train them, and wherever
    possible, to engage in joint investigations. Some countries we
    have a great deal of success, others we don't have so much
    success.
        China is a fascinating study in that we have a lot of work
    to do in mainland China. We have a tremendously good working
    relationship on intellectual property with Hong Kong
    authorities. So it is critical to us--one of the things I am
    very interested in, we don't receive a specific appropriation
    for intellectual property, although that may change because
    this year for the first year the President's budget calls for
    specific investigative agents in ICE for this purpose, in
    creating a dedicated corps of overseas ICE investigative
    attaches that line up with the IP resources of USTR and the
    State Department in those countries that are not only the areas
    of concern, but also the countries where we have some like-
    minded views and an ability to carry out additional
    enforcement.
        Chairman Berman. I thank both of you very much. Very
    interesting, very important and I appreciate your being here
    and sharing your thoughts with us, and with that the committee
    hearing is adjourned.
        [Whereupon, at 12:12 p.m., the committee was adjourned.]

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         Material Submitted for the Hearing RecordNotice deg.

                                   Minutes deg.

                                   Faleomavaega statement deg.
                                   __________

                                   Carnahan statement deg.
                                   __________

                                   Connolly statement deg.
                                   __________

                                   McMahon statement deg.
                                   __________

                                   QFRs----Berman deg.
                                   __________

                                   QFRs----Carnahan deg.
                                   __________

                                   QFRs----McMahon deg.
                                   __________