[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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