[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
PROTECTING INTELLECTUAL PROPERTY RIGHTS IN A GLOBAL ECONOMY: CURRENT
TRENDS AND FUTURE CHALLENGES
=======================================================================
HEARING
before the
SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
ORGANIZATION, AND PROCUREMENT
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
DECEMBER 9, 2009
__________
Serial No. 111-65
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.house.gov/reform
U.S. GOVERNMENT PRINTING OFFICE
57-791 WASHINGTON : 2010
-----------------------------------------------------------------------
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001
COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
EDOLPHUS TOWNS, New York, Chairman
PAUL E. KANJORSKI, Pennsylvania DARRELL E. ISSA, California
CAROLYN B. MALONEY, New York DAN BURTON, Indiana
ELIJAH E. CUMMINGS, Maryland JOHN L. MICA, Florida
DENNIS J. KUCINICH, Ohio MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts JOHN J. DUNCAN, Jr., Tennessee
WM. LACY CLAY, Missouri MICHAEL R. TURNER, Ohio
DIANE E. WATSON, California LYNN A. WESTMORELAND, Georgia
STEPHEN F. LYNCH, Massachusetts PATRICK T. McHENRY, North Carolina
JIM COOPER, Tennessee BRIAN P. BILBRAY, California
GERALD E. CONNOLLY, Virginia JIM JORDAN, Ohio
MIKE QUIGLEY, Illinois JEFF FLAKE, Arizona
MARCY KAPTUR, Ohio JEFF FORTENBERRY, Nebraska
ELEANOR HOLMES NORTON, District of JASON CHAFFETZ, Utah
Columbia AARON SCHOCK, Illinois
PATRICK J. KENNEDY, Rhode Island BLAINE LUETKEMEYER, Missouri
DANNY K. DAVIS, Illinois ANH ``JOSEPH'' CAO, Louisiana
CHRIS VAN HOLLEN, Maryland
HENRY CUELLAR, Texas
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
PETER WELCH, Vermont
BILL FOSTER, Illinois
JACKIE SPEIER, California
STEVE DRIEHAUS, Ohio
JUDY CHU, California
Ron Stroman, Staff Director
Michael McCarthy, Deputy Staff Director
Carla Hultberg, Chief Clerk
Larry Brady, Minority Staff Director
Subcommittee on Government Management, Organization, and Procurement
DIANE E. WATSON, California, Chairman
PAUL E. KANJORSKI, Pennsylvania BRIAN P. BILBRAY, California
JIM COOPER, Tennessee AARON SCHOCK, Illinois
GERALD E. CONNOLLY, Virginia JOHN J. DUNCAN, Jr., Tennessee
HENRY CUELLAR, Texas JEFF FLAKE, Arizona
JACKIE SPEIER, California BLAINE LUETKEMEYER, Missouri
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
MIKE QUIGLEY, Illinois
Bert Hammond, Staff Director
C O N T E N T S
----------
Page
Hearing held on December 9, 2009................................. 1
Statement of:
Glickman, Dan, chairman and chief executive officer, Motion
Picture Association of America, Inc.; Robert W. Holleyman
II, president and chief executive officer, Business
Software Alliance; Brian Toohey, senior vice president for
international affairs, Pharmaceutical Research and
Manufacturers of America; and Frank Vargo, vice president,
international economic affairs, National Association of
Manufacturers.............................................. 87
Glickman, Dan............................................ 87
Holleyman, Robert W., II,................................ 95
Toohey, Brian............................................ 103
Vargo, Frank............................................. 125
McCoy, Stanford K., Assistant U.S. Trade Representative for
Intellectual Property and Innovation, Office of the U.S.
Trade Representative; Robert L. Stoll, Commissioner for
Patents, U.S. Patent and Trademark Office; Jason Weinstein,
Deputy Assistant Attorney General, Criminal Division, U.S.
Department of Justice; William E. Craft, Acting Deputy
Assistant Secretary, Bureau of Economics, Energy, and
Business Affairs, U.S. Department of State; and Loren
Yager, Director, International Affairs and Trade,
Government Accountability Office........................... 8
Craft, William E......................................... 40
McCoy, Stanford K........................................ 8
Stoll, Robert L.......................................... 17
Yager, Loren............................................. 60
Weinstein, Jason......................................... 28
Letters, statements, etc., submitted for the record by:
Bilbray, Hon. Brian P., a Representative in Congress from the
State of California, prepared statement of................. 4
Craft, William E., Acting Deputy Assistant Secretary, Bureau
of Economics, Energy, and Business Affairs, U.S. Department
of State, prepared statement of............................ 42
Glickman, Dan, chairman and chief executive officer, Motion
Picture Association of America, Inc., prepared statement of 90
Holleyman, Robert W., II, president and chief executive
officer, Business Software Alliance, prepared statement of. 97
McCoy, Stanford K., Assistant U.S. Trade Representative for
Intellectual Property and Innovation, Office of the U.S.
Trade Representative, prepared statement of................ 10
Murphy, Hon. Christopher S., a Representative in Congress
from the State of Connecticut, prepared statement of....... 146
Stoll, Robert L., Commissioner for Patents, U.S. Patent and
Trademark Office, prepared statement of.................... 19
Toohey, Brian, senior vice president for international
affairs, Pharmaceutical Research and Manufacturers of
America, prepared statement of............................. 105
Vargo, Frank, vice president, international economic affairs,
National Association of Manufacturers, prepared statement
of......................................................... 127
Weinstein, Jason, Deputy Assistant Attorney General, Criminal
Division, U.S. Department of Justice, prepared statement of 30
Yager, Loren, Director, International Affairs and Trade,
Government Accountability Office, prepared statement of.... 62
PROTECTING INTELLECTUAL PROPERTY RIGHTS IN A GLOBAL ECONOMY: CURRENT
TRENDS AND FUTURE CHALLENGES
----------
WEDNESDAY, DECEMBER 9, 2009
House of Representatives,
Subcommittee on Government Management,
Organization, and Procurement,
Committee on Oversight and Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m. in
room 2247, Rayburn House Office Building, Hon. Diane E. Watson
(chairwoman of the subcommittee) presiding.
Present: Representatives Watson, Connolly, Cuellar, Speier,
Chu, Maloney, Bilbray, and Issa.
Staff present: Bert Hammond, staff director; Valerie Van
Buren, clerk; Adam Bordes and Deborah Mack, professional staff;
Adam Fromm, minority chief clerk and Member liaison; John Ohly,
minority professional staff member; and April Canter, minority
staff member.
Ms. Watson. Good morning. The Subcommittee on Government
Management, Organization, and Procurement of the Committee on
Oversight and Government Reform will now come to order.
Today's hearing will focus on the Federal Government's role
and responsibility in the global protection and enforcement of
intellectual property rights. The subcommittee will also seek
additional information from administrative witnesses on the
strategic objectives of the Obama administration for improving
coordination among the stakeholder agencies having IPR
protection or enforcement responsibilities.
Without objection, the Chair and ranking minority member
will have 5 minutes to make opening statements, followed by
opening statements not to exceed 3 minutes by any other Member
who seeks recognition.
Without objection, Members and witnesses may have 5
legislative days to submit a written statement or extraneous
materials for the record.
I would like to welcome all of you to today's subcommittee
hearing on Federal efforts to protect and enforce the
intellectual property rights of our Nation's industrial base
throughout the domestic and global marketplace.
Before we begin, I would like to apologize for the
subcommittee having to postpone our original hearing that was
scheduled for November 4th, but our legislative calendar was
rather full that week, as some of you probably will recall. So
I welcome our distinguished witnesses, especially those who
have had to rearrange their travel or business schedules in
order to attend today's rescheduled hearing, and look forward
to hearing your testimony.
Intellectual property rights [IPR], is an issue that is
near and dear to my heart and the livelihood of many of my
constituents. My congressional district, the 33rd, which
includes Los Angeles, Culver City, and Hollywood, CA, is home
to a number of important entertainment companies, including
Sony Studios, the Culver Studios, Capital Records, Raleigh
Studies, and Television Studios, and, of course, the American
Film Institute.
According to figures compiled by Americans for the Arts,
approximately 30,000 people are employed in entertainment-
related industries located in my congressional district. More
than 18,000 people who work in the congressional district make
a living from film, radio, and television, whose profits and
future viability are dependent on strong IPR protection and
enforcement.
As a fellow member of the California congressional
delegation, I know my Ranking Member Bilbray recognizes the
vital economic importance of intellectual property to our
State's economic health, as well as to the future growth and
stability of our Nation and the global economy.
Since the establishment of the World Trade Organization in
1995, America's key IP-related industries have prospered
through our domestic comparative advantage in innovation and
research, but this advantage has been severely undermined by
sharp escalation in IP infringement, such as piracy and
counterfeiting, even among our closest and most vital trading
partners and strategic allies. This causes great economic harm
to innovations and innovators who invest significant capital in
the products or creations that have improved our standard of
living and increased our knowledge base. While the true amount
is unclear, recent estimates of the losses or costs associated
with IP infringement for the U.S. domestic industry ranges from
$200 to $250 billion annually.
The prevalence of such losses extends to all IP-related
sectors, including information technology, life sciences,
digital content, pharmaceuticals, the defense industry, and the
entertainment industry. These losses threaten our Nation's
economic growth and global leadership in innovation.
Furthermore, IPR infringement poses significant risk to our
national security, consumer welfare, and ability to rely upon
an effective legal framework for our domestic industries
working abroad. According to the Los Angeles County Economic
Development Corp., the cost of global piracy and counterfeiting
activities in Los Angeles County in the year 2005 was estimated
at $5.2 billion. Those figures were proportionately shared
across all sectors of the IP-driven economy, with motion
pictures leading the way at $2.7 billion, followed by the
recording industry, apparel makers, and software developers.
Unless such trends are soon curtailed, the roughly 1
million L.A. County IP-dependent jobs will be placed at a
significant risk. The findings in this year's special 301
Report issued by the Office of U.S. Trade Representatives tell
us that a combination of technological advances and various
market access barriers in key countries are preventing our
companies from protecting their IP-based goods and services.
With that in mind, I would like our witnesses to discuss
what they believe are the major factors in the escalation of
IPR infringement abroad. Specifically, I want our Government
panelists to explain how they believe the newly established
intellectual property enforcement coordination office will aid
in their development of a stronger framework for managing our
inter-agency IPR protection and enforcement responsibilities,
both domestically and abroad. Specifically, what new
authorities has this office been granted to police our
patchwork of agencies charged with combating global IPR
infringement.
Furthermore, I would like you to discuss how our trade
agreements with other nations, including those issues being
negotiated as part of the proposed anti-counterfeiting trade
agreement, are reducing the growing incidence of digital-based
piracy or the illegal manufacturing of counterfeit drugs and
consumer goods for importation.
These activities pose significant threats to our economy,
to public health, to national security, and must be countered
in order to maintain our position in the global marketplace.
Last, I would like to address an emerging IPR issue with
the People's Republic of China and its efforts to restrict our
domestic technology industries from participating in their
governmentwide procurement programs. And under the Chinese
government's newly issued rules, only products that contain
Chinese proprietary intellectual property would be eligible for
government procurement. This process will, in effect, result in
excluding the products of international companies from the
government procurement market in China. This is a troubling
development that will have major economic consequences for our
trade relations if we do not find an amicable resolution.
I am hopeful that our witnesses can educate us on the
latest developments with these matters and other
recommendations on how we at the subcommittee can be helpful in
facilitating a resolution for all parties involved.
I will also ask my ranking member, Mr. Bilbray, for his
consideration on how we may be able to work collaboratively on
this topic of vital importance to our home State's economy.
Once again, I want to thank our panelists for joining us
today and look forward to your testimony.
Are you taking his place, Mr. Issa?
Our distinguished Member, Mr. Issa from San Diego, will
take the place of our ranking member, Mr. Bilbray.
Mr. Issa.
Mr. Issa. Thank you, Madam Chair. I would ask unanimous
consent that Mr. Bilbray's entire opening statement be placed
in the record.
Ms. Watson. Without objection.
[The prepared statement of Hon. Brian P. Bilbray follows:]
[GRAPHIC] [TIFF OMITTED] T7791.001
[GRAPHIC] [TIFF OMITTED] T7791.002
Mr. Issa. Thank you, Madam Chair.
Intellectual property contributes $5.5 trillion--I repeat,
$5.5 trillion--a year to our economy. In fact, we have become
the intellectual property giant around the world. We have
traded many, many jobs, entry-level jobs in manufacturing of
garments and other products, for our development of these high-
skill, high-paying jobs, and we have off-loaded many of them to
China. So I find it today particularly confusing that China
would look at this bargain that has been so favorable to them
and begin the process of far exceeding any moratorium or
prohibition allowed under the WTO.
We in the U.S. Congress, under the chairwoman and my watch,
participated in China ascending to the WTO. They did so not
having met all the requirements but with the promise to meet
them and to continue in this direction. Intellectual property
was, in fact, at the core of the items which China had not
lived up to their responsibility but promised to. Over the
years, countries such as Russia have been prohibited and
stopped from getting into that for good reason. We have seen
that China has not gained any respect for intellectual
property. In fact, they continue to be the largest customer in
Asia for Microsoft products. They simply don't buy them.
Madam Chair, it is very clear that we have to say that
China has a right to have such special property as is necessary
for its own defense. We, too, maintain a policy that certain
technology must be domestic for our national security.
Certainly neither one of us would want the ability to put a
space-based defense system into space not to be domestically
controllable and known. But China very clearly is trying to
force partnering with U.S. companies' transfer of technology
for purposes of getting a jump start on that next generation of
products and services.
So, Madam Chair, I appreciate your viewing something which
this committee has a longstanding belief that we not only
control the procurement process governmentwide, but we have, by
necessity, a requirement to look beyond our borders for free
and fair trade and access for our products.
So I look forward to our witnesses and, again, Madam Chair,
thank you for holding this important hearing.
I yield back.
Ms. Watson. Thank you.
Without objection, Members and witnesses may have 5
legislative days to submit a written statement or extraneous
materials for the record.
I now yield to Congressman Cuellar for an opening
statement.
Mr. Cuellar. Thank you, Madam Chair. I appreciate this
hearing.
I am a big believer in trade agreements, but one of the
things that I think, along with my other colleagues, we have to
make sure that we protect our intellectual properties. I am
interested, as we go through the testimony, to see what we are
looking at as we look at the countries of Colombia, of Panama,
and, of course, of Korea also. If you all could highlight that
also during your testimony, if one of you all could do that.
Otherwise, Madam chair, I am ready to listen to the testimony
and ask some questions afterwards.
Thank you very much for having this hearing today.
Ms. Watson. If there are no further opening statements, the
subcommittee will now receive testimony from the witnesses
before us today.
We will now turn to our first panel. There will be two this
morning. It is the policy of the Committee on Oversight and
Government Reform to swear in all witnesses before they
testify. I would like to ask all of you to please stand and
raise your right hands.
[Witnesses sworn.]
Ms. Watson. Let the record reflect that the witnesses
answered in the affirmative.
I will now introduce the panelists. We will first start
with Mr. Stanford K. McCoy, who is the Assistant U.S. Trade
Representative for the Intellectual Property and Innovation at
the Office of U.S. Trade Representative. He serves as the chief
policy advisor to the U.S. Trade Representative on the
intellectual property and trade issues and serves as the lead
U.S. trade negotiator on intellectual property and innovation
to the WTO and Trips Council, and as part of the U.S. Free
Trade Agreement negotiations.
Next to him is Mr. Robert Stoll, who is the Commissioner of
Patents at the U.S. Patent and Trademark Office, where he
oversees the administration of all U.S. PTO patent programs.
Prior to his current appointment, Mr. Stroll served as Director
of Enforcement for U.S. PTO, as well as Dean of Education and
Training Programs for external agency stakeholders involved
with intellectual property issues.
Mr. Jason Weinstein is the Deputy Assistant Attorney
General of the Criminal Division at the U.S. Department of
Justice. Before joining the Criminal Division, Mr. Weinstein
served as chief of the Violent Crime Section in the U.S.
Attorney's Office for the District of Maryland, and as
assistant U.S. attorney for the Southern District of New York.
Before becoming a Federal prosecutor, Mr. Weinstein served as
Special Investigative Counsel in the Justice Department's
Office of the Inspector General.
Mr. William Craft is the Acting Deputy Assistant Secretary
of the Bureau of Economics, Energy, and Business Affairs at the
U.S. Department of State. Prior to this, he was Director of the
Office of Multilateral Trade and Agricultural Affairs. He is
the lead officer in the State Department for all issues related
to the World Trade Organization [WTO], including negotiations
including the DOHA Development Round and WTO Accession issues.
Mr. Loren Yager is the Director of International Affairs
and Trade at the Government Accountability Office, where he
oversees issues associated with intellectual property rights
and international trade negotiations.
I ask that each of the witnesses now give a brief summary
of their testimony, and to keep this summary under 5 minutes in
duration. Your complete written statement will be included in
the hearing record.
Before we proceed, I am going to ask Ms. Chu if she would
like to make an opening statement.
Ms. Chu. I am just happy to take part in these proceedings
and I look forward to hearing what the witnesses have to say.
Ms. Watson. We are happy to have you.
Mr. McCoy, would you please proceed.
STATEMENTS OF STANFORD K. MCCOY, ASSISTANT U.S. TRADE
REPRESENTATIVE FOR INTELLECTUAL PROPERTY AND INNOVATION, OFFICE
OF THE U.S. TRADE REPRESENTATIVE; ROBERT L. STOLL, COMMISSIONER
FOR PATENTS, U.S. PATENT AND TRADEMARK OFFICE; JASON WEINSTEIN,
DEPUTY ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, U.S.
DEPARTMENT OF JUSTICE; WILLIAM E. CRAFT, ACTING DEPUTY
ASSISTANT SECRETARY, BUREAU OF ECONOMICS, ENERGY, AND BUSINESS
AFFAIRS, U.S. DEPARTMENT OF STATE; AND LOREN YAGER, DIRECTOR,
INTERNATIONAL AFFAIRS AND TRADE, GOVERNMENT ACCOUNTABILITY
OFFICE
STATEMENT OF STANFORD K. MCCOY
Mr. McCoy. Thank you, Madam Chairwoman. Thank you to the
ranking member, Mr. Bilbray, and all the members of this
subcommittee for the opportunity to join you today and talk a
little bit about the mission of the Office of the U.S. Trade
Representative in respect to the protection and enforcement or
intellectual property rights.
As you said in your opening statement, Madam Chairwoman,
one of the factors that makes American exporters and investors
competitive across so many sectors of the global economy is the
value we add to our products and services through innovation
and creativity.
Intellectual property rights and their protection and
enforcement are critical to securing that comparative aviation
in global trade, and thus to securing the jobs of workers in
America's many innovative and creative industries. Providing
leadership in the creation and maintenance of the global
infrastructure of trade rules to support American exports and
investments is a critical part of the work of the Office of the
U.S. Trade Representative. It is a job that we carry out in
coordination with the other agencies represented here at the
table, and in coordination in coming days with the new
Intellectual Property Enforcement Coordinator, who has recently
been confirmed by the Senate.
We carry out that mission in many ways. One of the best
tools we have is one that was handed to us by the U.S. Congress
of consistently monitoring our partners' trade practices
through the special 301 report. If they know that we are
holding a magnifying glass up to their actions, they will be
less likely to break the rules, and special 301 is one of our
biggest and strongest magnifying glasses. We use it to scour
the globe for copycats and counterfeiters and call out
countries that provide safe havens for the theft of American
intellectual property.
Madam Chairwoman, this year marks the 20th anniversary of
the first special 301 report, which was mandated by the U.S.
Congress in 1988 and first issued in 1989. The past two decades
have brought enormous new challenges in the scope and
sophistication of international piracy and counterfeiting. The
special 301 process has expanded in scope and breadth to match
that challenge. For our most recent report, USTR examined IPR
protection and enforcement in 77 countries and listed 46 of
them in the report.
Special 301 works because the reports' rankings shine a
light on IP protection and enforcement, and also afford an
opportunity to give credit where it is due.
The Republic of Korea is a good example of both of those.
It was removed from the watch list in 2009, marking the latest
in a series of improvements in the Asia Pacific region and
around the world that have been encouraged and recognized
through the special 301 process created by Congress.
We hope to see that trend continue and spread. It is vital
that trading partners such as China, Russia, and other
countries on the priority watch list and watch list follow
suit. It is also critical that valued trading partners like
Canada and Spain step up and confront emerging challenges like
Internet piracy.
China still presents significant challenges to the
protection and enforcement of intellectual property rights,
including the indigenous innovation challenge that was
mentioned by you, Madam Chairwoman, and by Mr. Issa in your
opening statements. With China we are making use of every
available trade tool to achieve progress on IP issues.
Madam Chairwoman, let me say it as plainly as Ambassador
Kirk has said it: China must do more to protect U.S.
intellectual property rights.
In addition to reporting and engaging bilaterally, USTR is
also providing essential leadership through trade agreements to
strengthen norms for the enforcement of intellectual property
rights. A key USTR initiative in this area is the Anti-
Counterfeiting Trade Agreement [ACTA]. In that effort, we are
partnering with a group of key trading partners representing
about 50 percent of global merchandise trade. When it is
finalized, the ACTA will help governments around the world to
more effectively combat the proliferation of pirated and
counterfeit goods.
With that, Madam Chairwoman, I will close my summary of my
remarks and thank you and the members of the committee again
for the opportunity to be here today.
[The prepared statement of Mr. McCoy follows:]
[GRAPHIC] [TIFF OMITTED] T7791.003
[GRAPHIC] [TIFF OMITTED] T7791.004
[GRAPHIC] [TIFF OMITTED] T7791.005
[GRAPHIC] [TIFF OMITTED] T7791.006
[GRAPHIC] [TIFF OMITTED] T7791.007
[GRAPHIC] [TIFF OMITTED] T7791.008
[GRAPHIC] [TIFF OMITTED] T7791.009
Ms. Watson. I thank you, Mr. McCoy.
Mr. Stoll, you may proceed.
STATEMENT OF ROBERT L. STOLL
Mr. Stoll. Thank you, Madam Chairwoman Watson and members
of the subcommittee. I am pleased to be here to discuss the
efforts of the Department of Commerce and the U.S. PTO in
promoting the protection of intellectual property rights in a
global economy.
Innovation and creativity are essential ingredients of our
Nation's prosperity. Appropriate protection of that innovation
and creativity domestically and internationally is necessary to
stimulate job growth and promote our economic well-being. That
is why safeguarding these important assets is a top priority
for all of us at this table and throughout the Obama
administration. It is truly a team effort among our agencies to
help fight piracy and counterfeiting within and outside our
borders.
The Department of Commerce plays an important role in
encouraging innovation and strengthening the Nation's ability
to compete in the global marketplace. The U.S. PTO's statute
directs us to advise the President through the Secretary of
Commerce in intellectual property issues and to advise other
Federal departments and agencies on matters of intellectual
property policy in the United States and in intellectual
property protection in other countries.
To this end, we are actively involved with the development
of overall U.S. Government IP policy. We work to develop
unified standards for international IP, provide policy guidance
on domestic IP issues, and work with other agencies to procure
strong IP provisions in free trade and other international
agreements. We also provide training, education, and capacity
building programs designed to foster respect for IP and
encourage the development of strong IP enforcement regimes by
U.S. trading partners.
Madam Chair, my written statement contains more details of
a wide range of our efforts. In my limited time here, I would
like to highlight some of our programs and initiatives.
The U.S. PTO coordinates, organizes, and participates in
intellectual property rights training, trade capacity building,
and technical assistance. We are especially proud of our Global
Intellectual Property Academy [GIPA]. Since its creation in
2005, the U.S. PTO has provided in its 20,000 square foot
training facility in Alexandria, VA, high-level capacity
building programs and technical assistance training to foreign
judges, prosecutors, Customs officials, IP enforcement
personnel, as well as officials from copyright, trademark, and
patent offices from around the world. Those individuals come to
the United States to learn, discuss, and strategize about
global intellectual property rights protection and enforcement.
Our program goals include fostering a better understanding
of international intellectual property obligations and norms,
exposing participants to the U.S. model of protecting and
enforcing intellectual property rights, and promoting
discussion of intellectual property issues in a friendly and
supportive environment.
The Academy provides both multi-lateral programs and
country-specific programs as needed. We further envision
programs dedicated to specific legal issues or technologies as
the Academy continues to develop. The U.S. PTO's programs
reached an average of 4,000 individuals in over 100 countries
annually.
In partnership with the Department of Commerce's United
States and Foreign Commercial Service and the Department of
State, U.S. PTO intellectual property experts are sent out to
strengthen global intellectual property protection and
enforcement overseas in selected high-profile countries where
U.S. IP challenges are greatest.
The IP experts support, as part of the overseas
intellectual property rights attache program, U.S. embassies
and consulates on IPR issues, including devising strategies to
stop counterfeiting and piracy and supporting U.S. Government
efforts to improve the protection and enforcement of IPR. They
also advocate U.S. intellectual property policies, coordinate
training on IPR matters, and assist U.S. businesses that rely
on IPR protection abroad.
The U.S. PTO has offered free programs and materials to
help small- and medium-sized businesses improve their
understanding of intellectual property, increase the value of
intellectual property in their businesses to protect against
counterfeits and piracies and of their intellectual property
through our public awareness campaign.
An important effort is the intellectual property awareness
campaign [IPAC], IP basics program, offered nationwide by U.S.
PTO since 2005 to over 1,000 small- and medium-sized
businesses. These programs include presentations by our
attorney advisors that cover the entire range of intellectual
property.
With that, Madam Chairman, I would like to conclude my
remarks. Thank you.
[The prepared statement of Mr. Stoll follows:]
[GRAPHIC] [TIFF OMITTED] T7791.010
[GRAPHIC] [TIFF OMITTED] T7791.011
[GRAPHIC] [TIFF OMITTED] T7791.012
[GRAPHIC] [TIFF OMITTED] T7791.013
[GRAPHIC] [TIFF OMITTED] T7791.014
[GRAPHIC] [TIFF OMITTED] T7791.015
[GRAPHIC] [TIFF OMITTED] T7791.016
[GRAPHIC] [TIFF OMITTED] T7791.017
[GRAPHIC] [TIFF OMITTED] T7791.018
Ms. Watson. Thank you, Mr. Stoll.
Mr. Weinstein, you may proceed.
STATEMENT OF JASON WEINSTEIN
Mr. Weinstein. Good morning. I want to thank you,
Chairwoman Watson, and the ranking member and members of the
subcommittee for the opportunity to appear before you today.
Attorney General Holder has made intellectual property
protection a top priority, and the Department of Justice is
fully committed to aggressive, effective criminal enforcement
efforts to protect our Nation's IP stakeholders and the
American public. The Department has worked with our law
enforcement partners to develop a strong enforcement program
that combines aggressive investigation and prosecution of IP
crimes with law enforcement training and victim outreach.
However, because we understand that in the global economy a
successful criminal enforcement program requires a strong
international component, we also work in partnership with our
foreign law enforcement counterparts whenever possible, which
has resulted in great successes.
For example, in January of this year Kevin Xu was sentenced
to 78 months in prison for conspiring with others in China to
traffic in counterfeit cancer drugs and other pharmaceuticals.
Many of these counterfeits were lacking active ingredients or
contained unidentified impurities, and drugs with lot numbers
identical to the counterfeits were detected in the legitimate
supply chain in London, which promoted a massive recall in the
U.K.
Just this past September the department obtained its 64th
felony conviction arising from Operation Fastlink, which
targeted multi-national organized criminal networks. In the
underlying investigation, which was one of the largest
international law enforcement actions ever taken against online
piracy, the FBI worked with foreign law enforcement to conduct
over 120 simultaneous search warrants in 27 States and a dozen
foreign countries.
These are just two examples of the many, many successful
international enforcement efforts that we have participated in,
and we are proud of all of them, and they all demonstrate the
value of strong relationships with international and foreign
law enforcement.
The cornerstone of the Department's international efforts
is the Intellectual Property Law Enforcement Coordinator
[IPLEC], program. With the help of the State Department, we
have deployed two experienced Federal prosecutors to serve as
IPLECs, one in southeast Asia and one in eastern Europe, to
provide training and operational assistance in those regions.
Working with the IPLEC for Asia, the Department also
spearheaded the formation of the Intellectual Property Crimes
Enforcement Network [IPCEM], which has helped to strengthen
communication channels and promote the informal exchange of
evidence among member nations in Asia.
In addition, the Department through the Criminal Division
co-chairs the Intellectual Property Criminal Enforcement
Working Group, which is part of the U.S.-China joint liaison
group for law enforcement cooperation. The working group has
fostered an open dialog on criminal IP enforcement, has
increased information and evidence sharing, and has resulted in
a number of successful joint operations between the United
States and China, including Operation Summer Solstice, which
targeted a criminal organization believed to be responsible for
the distribution of over $2 billion worth of pirated and
counterfeit software. Summer Solstice was the largest ever
joint criminal enforcement operation between the FBI and law
enforcement in China.
More generally, the Department has placed great emphasis on
efforts to strengthen enforcement capacity overseas, from
Europe to Asia to Africa to South America to Mexico. In fact,
over the past 5 years, working on partnership with some of the
agencies represented here on this panel with me, DOJ attorneys
have provided training and education on IP enforcement to over
10,000 prosecutors, investigators, and judicial officers from
over 100 countries.
Because IP crime has increasingly become the province of
international organized crime, we are working to identify and
to address links between organized crime and intellectual
property. The Department has already taken a number of
significant steps to incorporate IP into its existing organized
crime strategy, as directed by the PRO-IP Act.
To succeed in the missions that I have outlined, we work
closely with all of our partner law enforcement agencies,
including through the National Intellectual Property Rights
Coordination Center. Our ability to increase the number and
scope of our IP investigations has also been bolstered more
recently by the addition of 31 dedicated FBI special agents to
investigating IP crime, and we appreciate Congress' decision to
fund those positions.
Finally, the Department works extensively on IP issues with
other agencies in the Federal Government, including those
represented here today, and with the industries most affected
by IP crime, and we also look forward to working very closely
with Victoria Espinel, who was confirmed just last week as the
new IP Enforcement Coordinator, and with our partner agencies
on the newly formed or to-be-formed IPEC Advisory Committee.
Again I thank you for the opportunity to share with you the
high priority that the Attorney General places on criminal
enforcement of IP rights and the work that we do every day at
the Department of Justice to combat intellectual property crime
both here and abroad.
I would be happy to take your questions.
[The prepared statement of Mr. Weinstein follows:]
[GRAPHIC] [TIFF OMITTED] T7791.019
[GRAPHIC] [TIFF OMITTED] T7791.020
[GRAPHIC] [TIFF OMITTED] T7791.021
[GRAPHIC] [TIFF OMITTED] T7791.022
[GRAPHIC] [TIFF OMITTED] T7791.023
[GRAPHIC] [TIFF OMITTED] T7791.024
[GRAPHIC] [TIFF OMITTED] T7791.025
[GRAPHIC] [TIFF OMITTED] T7791.026
[GRAPHIC] [TIFF OMITTED] T7791.027
[GRAPHIC] [TIFF OMITTED] T7791.028
Ms. Watson. Thank you, Mr. Weinstein.
Now you may proceed, Mr. Craft.
STATEMENT OF WILLIAM E. CRAFT
Mr. Craft. Thank you, chairwoman and committee members. It
is a pleasure to be here today to testify on the State
Department's role in protecting intellectual property rights in
today's global economy.
We welcome the committee's interest in this issue and look
forward to continuing to work with you to achieve our mutual
goal of ensuring that U.S. intellectual property rights are
fully respected everywhere in the world. As President Obama has
said, innovation is the key to good new jobs for the 21st
century.
Since intellectual property rights encourage and reward
innovation, protecting American intellectual property abroad is
one of the State Department's top economic policy priorities.
We work closely with other U.S. Government agencies, the
private sector, and foreign governments to achieve that goal.
Within the State Department, our efforts are led by the
Office of Intellectual Property Enforcement, part of the Trade
Policy and Programs Deputate that I head. That office now has a
staff of 12 people. As you are aware, Congress created this
office in 2005 to strengthen State Department efforts to combat
counterfeiting and piracy.
IPE promotes enforcement of U.S. IP rights overseas,
represents the State Department in inter-agency IPR policy
discussions, and participates actively in bilateral and
multilateral negotiations to improve enforcement of IP rights.
State implements IPR enforcement training and technical
assistance programs for which the Congress has given us $4
million in 2009. In calendar year 2009, we used that money to
train over 1,500 customs, police, and judicial officials from
more than 20 countries, including the Ukraine, Mexico, Russia,
Vietnam, and Nigeria.
State also conducts public outreach to foreign audiences on
the importance of IP to host country economies, innovators, and
creators, and trains our embassy officers overseas around the
world on IP enforcement.
Intellectual property enforcement is integrated into the
work of other State Department bureaus and offices. For
example, we work closely with our Bureau of International
Organizations and with other agencies to strengthen the World
Intellectual Property Organization and to ensure that other
U.N. agencies support good IP policy. Our regional bureaus,
U.S. embassies, and consulates are on the front lines of
protecting U.S. IP rights in particular countries, responding
to complaints raised by U.S. companies and vigorously pressing
foreign governments to combat piracy and counterfeiting.
There is a Foreign Service officer assigned to work on
intellectual property protection in every U.S. embassy
overseas.
Madam Chairwoman, as you have noted, piracy and
counterfeiting are still enormous problems, but we are making
some headway. There are more examples in my written testimony,
but let me just cite two examples of areas where we think we
have made a positive impact.
On the enforcement side, the U.S. Government and the
private sector have been working actively with Mexico to
encourage them to increase enforcement of their laws, and
working on information provided by the U.S. industry, the
Mexican Attorney General's office recently arrested a number of
individuals for camcording in movie theaters, thereby
dismantling one of Mexico's major camcording rings.
In terms of the winning hearts and minds side on public
outreach, an excellent example is the way that our embassy in
Bosnia helped to develop an IPR school campaign with a
curriculum and comic books printed in the three local
languages, supported by appearances by the U.S. Ambassador and
several Bosnian movie and music stars.
Let me just note, Madam Chairwoman, that the State
Department concurs with the recent GAO report's recommendations
on improving coordination between our embassies and our
intellectual property attaches overseas, and we have sent a
cable to relevant posts instructing them to implement the
recommendations of the GAO. We are getting responses from the
posts and we are reviewing those now.
As Mr. Stoll and the others have noted, we know very well
and very favorably Ms. Espinel and we look forward to working
with her as she tries to raise the image and profile of
protecting intellectual property as she takes on her new role.
We look forward to working very closely with her.
Finally, let me thank you and the committee for your
interest in this very important issue and to assure you that we
look forward to working with you to strengthen our efforts to
protect intellectual property.
Thank you very much.
[The prepared statement of Mr. Craft follows:]
[GRAPHIC] [TIFF OMITTED] T7791.029
[GRAPHIC] [TIFF OMITTED] T7791.030
[GRAPHIC] [TIFF OMITTED] T7791.031
[GRAPHIC] [TIFF OMITTED] T7791.032
[GRAPHIC] [TIFF OMITTED] T7791.033
[GRAPHIC] [TIFF OMITTED] T7791.034
[GRAPHIC] [TIFF OMITTED] T7791.035
[GRAPHIC] [TIFF OMITTED] T7791.036
[GRAPHIC] [TIFF OMITTED] T7791.037
[GRAPHIC] [TIFF OMITTED] T7791.038
[GRAPHIC] [TIFF OMITTED] T7791.039
[GRAPHIC] [TIFF OMITTED] T7791.040
[GRAPHIC] [TIFF OMITTED] T7791.041
[GRAPHIC] [TIFF OMITTED] T7791.042
[GRAPHIC] [TIFF OMITTED] T7791.043
[GRAPHIC] [TIFF OMITTED] T7791.044
[GRAPHIC] [TIFF OMITTED] T7791.045
[GRAPHIC] [TIFF OMITTED] T7791.046
Ms. Watson. Thank you, Mr. Craft.
Now you may proceed, Mr. Yager.
STATEMENT OF LOREN YAGER
Mr. Yager. Thank you. Good morning, Madam Chairwoman,
Ranking Member Bilbray, and members of the subcommittee. Thank
you for the opportunity to appear before the subcommittee to
discuss our work on U.S. efforts to protect intellectual
property rights. We appreciate the opportunity to continue our
contributions to the record that this committee has established
on IP protection.
This hearing is timely, as Congress recently overhauled the
U.S. structure for IP protection. The PRO-IP Act created a new
structure, and the Senate recently confirmed the coordinator to
chair the Advisory Committee.
In my statement today I will address two topics on IP
protection and enforcement that are relevant to that structure.
First let me talk about the lessons learned from past efforts
to coordinate IP protection and enforcement, and second I will
make a few observations on the efforts of the Patent and
Trademark Office intellectual property attaches in key
countries around the world.
Let me start with a few observations from our prior work.
The PRO-IP Act of 2008 enacted several changes that addressed
weaknesses we found in the prior IP coordinating structure.
That structure was initiated under two different authorities
and lacked clear leadership and permanence, hampering the
effectiveness and long-term viability of such coordination.
In a GAO report undertaken for this committee in 2004, we
reported that this council had not undertaken any independent
activities since it was created. Congress subsequently made
enhancements in 2004 to strengthen its role but we reported
that it continued to have leadership challenges.
In contrast, the Presidential initiative called STOP had a
positive image among the agencies and the private sector, and
from its beginning was characterized by a high level of
coordination and visibility. However, as a Presidential
initiative it lacked permanence, since its influence was tied
to a single administration.
While its impact will depend upon its implementation, the
PRO-IP Act of 2008 enacted several changes that addressed
weaknesses in that prior structure. For example, the act places
leadership in the Executive Office of the President, a status
similar to STOP. In addition, the PRO-IP Act specifically
requires the new agency to prepare a strategic plan that builds
in mechanisms for accountability and for oversight. The PRO-IP
Act requires the council to submit the strategic plan to
committees of the Congress to improve accountability.
Let me now turn to another important issue, and that is the
placement of the PTO IP attaches abroad. An additional theme of
the PRO-IP act is the emphasis on strengthening the capacity of
U.S. agencies abroad to protect and enforce IP rights. In a
report we released in September of this year, we found that the
IP attaches could be an asset to U.S. firms and to other U.S.
agencies who needed assistance in matters related to IP
enforcement. These IP attaches provided this assistance by
adopting a number of practices.
First, the attaches served as effective focal points. Prior
to the creation of the IP attache position, State economic
officers had primary responsibility for IP, but IP attaches are
full time in the issue, and they also impart their subject
matter expertise, which enhances their effectiveness as focal
points.
Second, they established IP working groups. Several agency
officials at the posts we visited in China, Thailand, and India
said that the working groups provided several benefits, such as
increasing coordination on training and on other activities.
Third, the attaches leverage resources through joint
activities. For example, the IP attaches helped the Foreign and
Commercial Service efforts to assist firms by providing advice
on how to avoid IP problems and answering IP-related questions.
While our observations on PTO's attaches abroad are largely
positive. Our prior work has also demonstrated that the long-
term success of overseas operations requires careful attention
to human capital planning. In particular, we have observed that
other agencies attempting to establish a presence abroad had to
make specific efforts to ensure that they could recruit and
retain sufficient personnel with both the technical as well as
the cultural expertise that is essential in those posts. These
considerations may be important as the Congress and the PTO
make decisions about the scale and the performance of this
program.
Madam Chairwoman, Ranking Member Bilbray, thank you for the
opportunity to appear before this subcommittee to summarize our
work. I will be happy to answer any questions that you or other
Members have.
[The prepared statement of Mr. Yager follows:]
[GRAPHIC] [TIFF OMITTED] T7791.047
[GRAPHIC] [TIFF OMITTED] T7791.048
[GRAPHIC] [TIFF OMITTED] T7791.049
[GRAPHIC] [TIFF OMITTED] T7791.050
[GRAPHIC] [TIFF OMITTED] T7791.051
[GRAPHIC] [TIFF OMITTED] T7791.052
[GRAPHIC] [TIFF OMITTED] T7791.053
[GRAPHIC] [TIFF OMITTED] T7791.054
[GRAPHIC] [TIFF OMITTED] T7791.055
[GRAPHIC] [TIFF OMITTED] T7791.056
Ms. Watson. Thank you so much, Mr. Yager.
We will now move to our question period and proceed under
the 5-minute rule. Before that, I would like to welcome
Congresswoman Carolyn Maloney to our committee. Thank you for
coming and sitting in with us today.
I want to delve a little deeper into what is happening, Mr.
McCoy, and particularly this week, in China. We know that the
government is developing regulations regarding what are being
called, as you mentioned, national indigenous innovation
products. My understanding is that these regulations would, in
essence, create preferences for Chinese vendors and eliminate
U.S. information technology and intercommunication industries
from China's government procurement and acquisition markets.
This proposal obviously raises multiple issues surrounding
compliance with international trade laws, as well as our
bilateral agreements with the Chinese government.
Can you address how the Obama administration, including the
USTR, has been proactive with this issue? It is very troubling
to us, so let us know.
Mr. McCoy. Madam Chairwoman, this is indeed a serious
concern that you have identified, this indigenous innovation
preference issue. Certainly it is in the interest of both the
U.S. Government and the Chinese government to promote
innovation. There are appropriate ways to do that, and there
are inappropriate ways to do that. Let's be clear: innovation
is no excuse for discrimination. We are very alert to these
industry concerns about China's indigenous innovation policies
in a wide range of areas, including the recent announcements
out of China on a procurement preference list.
We are in the process of expressing our serious concerns.
The inter-agency team in the U.S. Government has sprung into
action. Ambassador Huntsman has received instructions and he
and his team are in the process of raising our questions with
all of the appropriate counterparts in the Chinese government.
I can assure you we will stay fully engaged and continue to
follow this closely.
Ms. Watson. There has been mention that we have attaches
and we have FBI and so on in our overseas embassies, and so I
am really pleased to hear that you are working through the
Ambassadors. I have been there, and we really need to have
close scrutiny and interchange back with our administration as
to how we are progressing.
The 2009 special 301 report that was mentioned highlighted
the increased incidence of Internet piracy among U.S. trading
partners. Some countries such as France and Britain have
pursued legislation that would cutoff Internet access for users
who repeatedly are caught engaging in integral peer-to-peer
file sharing. Any of you that would like to address this
particular question, please feel free to do so. Do you believe
that this is a potential legislative remedy to our own
significant peer-to-peer file sharing problem? We will start
with you, Mr. Stoll.
Mr. Stoll. Thank you, Madam Chairman.
I am not sure that type of activity would be something that
the United States would want to follow. I think that there is
an intent to try to take care of the issues related to piracy
in many manners, but I am not sure that removing access--I
think in France it is a three strikes you are out program. I am
not sure that would be palatable here in the United States.
I think that taking many other actions to be able to reduce
piracy in the United States is an important interest in all of
the agencies represented here, but I am not sure that is the
right direction to go in.
Ms. Watson. Mr. Weinstein.
Mr. Weinstein. I would agree with that, Madam Chairwoman.
As a general matter, it is my view that the technology is not
the problem, it is the way in which the technology is being
used that creates the problem, and I think this is no
exception.
In terms of criminal enforcement, we are increasingly
concerned--we have been for some time and we continue to be
concerned it--online piracy. It is perhaps the greatest
emphasis of our computer crime and IP section. In pursuing
online piracy, we work closely with industry, with the Motion
Picture Association of America, with the Business Software
Alliance, with the Entertainment Software Association to help
identify emerging trends and to identify and prosecute the most
serious online copyright thieves.
We have had great successes over the last few years and are
continuing to prosecuting wares groups--that is, online
organized groups that are engaging in piracy of software and
music--focusing on the first suppliers, on the primary
distributors of those materials online.
We have more recently engaged in fairly aggressive
investigative operations against peer-to-peer networks,
particularly those using BitTorrent software. We had an
operation that we called the Elite, which resulted in eight
convictions, including the first ever conviction at trial of a
high-ranking administrator of a P2P Web site that was
distributing massive amounts of infringing copyrighted works--
software, video games, music, movies, the whole works--and who
got a substantial sentence.
We are also trying to get the problem at the source.
Oftentimes the multi-million dollar online piracy scheme begins
with a camcorder, someone who is taping a movie, for example,
in a movie theater, and so we have aggressively worked in
partnership with the MPA and other interested partners to
identify appropriate targets for camcording cases and recently
convicted, late last year, convicted a gentleman named Michael
Logan here in D.C. who was viewed as perhaps the most prolific
camcorder on the east coast.
So we are trying to get to the problem at all ends, both
once they are on an infringing site and even at the origin at
the camcording level.
I would also say that since this problem is increasingly an
international one, our international work engagement with
foreign partners is increasingly important in this area,
perhaps more than any other, and the IPLEC program that I
mentioned is a key component of that strategy.
The fact that these sites are often posted on servers that
are located overseas presents some investigative challenges,
but they are challenges that we are working very closely with
our foreign partners to overcome. The fact that a person
commits this kind of crime from what he thinks is the privacy
of an apartment or an office somewhere in eastern Europe, for
example, or Asia is not the safe haven that it used to be. We
are working very hard with our foreign partners, not only to
aggressively enforce criminal laws and to take down the
organizations and individuals engaging in this conduct, but we
are also working to increase their capacity so that we can
reduce the number of safe haven countries throughout the world
for people who engage in this kind of behavior.
Criminals, particularly criminal organizations, that engage
in this type of online piracy, particularly from overseas or
using overseas servers and other assets, should make no mistake
about our resolve to find them and locate them and our
increasing capacity to do that.
Ms. Watson. Thank you. My time is up, so I would like to go
to our most distinguished ranking member, Mr. Bilbray, for 5
minutes.
Mr. Bilbray. Thank you, Madam Chair. I apologize for my
tardiness, gentlemen.
Mr. Stoll, you said that the American people, you didn't
think the American system had the stomach to do the three
strikes like the British and the French. First of all, it kind
of gets me nervous when we figure we don't have the intestinal
fortitude of the French, but that's a different issue.
You want to elaborate on why we don't have the stomach for
it?
Mr. Stoll. I am not sure I didn't--maybe I shouldn't have
said don't have the stomach. I don't think that would be the
direction we would go, because their access for informational
purposes would be removed completely, as well. So we have a
balancing act of interests here. I think there are many
mechanisms where we are able to take care of the problem
related to piracy, but I am not sure that it would probably be
in the interests of our society to block access for other
purposes of information exchange, education, of Internet
access. So I think that's what I am trying to say.
I think that there are mechanisms that are in place. We
work with MPAA, with RIAA. There are many different things to
do. I am not sure just about blocking access would be something
that we would want to do.
Mr. Bilbray. I apologize. I am not as well versed as
obviously I should be. When you say blocking access, are they
talking about a national ban?
Mr. Stoll. Yes.
Mr. Bilbray. The British are talking about a national ban?
Mr. Stoll. That's what my understanding is. I believe that
is correct.
Mr. Bilbray. OK. Gentlemen, let me be a little blunt. I
think the perception out there--and I would ask you to either
verify it or refute it--is that when it comes to intellectual
piracy, China is the Somalia of the intellectual world. Is that
fair to say?
Mr. Yager. If I could just make a couple of comments on
that, Ranking Member Bilbray, certainly China has some unique
features that make it a special problem. One, it is an enormous
exporter. It has the capability to export a wide range of goods
and services, many of which have some level of intellectual
property.
Second, China is also a major market. It has become an
increasingly large market, not just for U.S. goods, but for
goods from other places around the world.
So this is one of the few places around the world where you
have both this enormous export capacity as well as a large
internal market, so U.S. firms are understandably interested in
serving that market, as well as gaining protection from the
kinds of exports that China does produce, both shipping here as
well as to third countries.
Mr. Bilbray. So what you are telling me is China is at that
critical location right along the major shipping lanes of
intellectual property, which indicates that sounds a lot like
Somalia to me.
Mr. Yager. They certainly have a unique position. Whether
it is in the south, the manufacturing center of the world,
where they are able to produce in mass quantities and at
relatively high quality, and using intellectual property in
some cases that is not owned by those firms. It does have a
unique position.
Mr. Bilbray. Are you a diplomat? You sure sound like it.
Go ahead, sir.
Mr. Weinstein. I am not a diplomat, either, but I have
never been accused of being a diplomat, but I do think it is
worth pointing out, Congressman, that sometimes some of the
countries that present the greatest challenges for IP crimes
generally also are the most engaged in terms of trying to
address their weaknesses, so it is certainly no--there really
is no secret and there can't be any dispute that China is a
source of a very large quantity of infringing goods, both hard
goods and electronic goods.
But we have enjoyed a very productive and increasingly so
working relationship with Chinese law enforcement, and I think
the FBI and ICE and Chinese law enforcement officials, working
with our prosecutors, have made great strides over the last few
years. So at least from a law enforcement perspective I think
China is working hard to try to address the challenges that
even it identifies within its borders.
One of the areas in which I think we have been effective in
other parts of Asia, particularly in southeast Asia and in
eastern Europe through the IPLEC program that I mentioned, we
have a prosecutor who works on a day-to-day basis not only to
do joint operations with law enforcement in those countries or
those regions where we have IP problems, but also to build
their capacity to investigate and prosecute their own cases.
That is a program that we very much would like to see expanded,
and it is our long-term goal to expand, and China would be
probably first on the list of places on the globe where we
think more engagement, at least at the law enforcement level,
would be productive for everyone.
Mr. Bilbray. Well, China probably has the best capabilities
of doing enforcement of anybody in the world. I mean, they
probably have one of the tightest-knit enforcement capabilities
that anybody has ever seen on the face of the earth, so their
argument for not being able to crack down really is not germane
to this issue.
The question that I have, though, is with at least the huge
reputation of being the pirating capital, doesn't that give
indications to other countries that, look, if you are big
enough, if you are rich enough, if you intimidate the rest of
the world you can get away with a lot of this, or maybe it is
the other way that, Look what's going on in China. Why don't we
try it in Monterrey, Mexico, or why don't we try it in
Singapore. Well, Singapore is kind of a tight, little
community, so you might have that problem, too. But questions
about how that gives a potential for other parts of the world
to expand into the pirating aspect.
Mr. McCoy. I could speak to that, Mr. Ranking Member, if I
could. I think it is important to bear in mind that China, in
addition to being the world's leading exporter of knock-off
products, is also really suffering in terms of its domestic
market the consequences of really decimating markets for
software, music, films, and other IP-intensive products because
of inadequate respect for IPR, so there is a lesson there to
other trading partners, as well, not to go down this path, and
we have seen in the Asia Pacific region and around the world
other trading partners such as the Republic of Korea, such as
Hong Kong, Taiwan, Singapore, take a different path and really
look toward growing respect for IP rights as an important part
of their economic growth story, and we would hope that other
trading partners around the world follow that example.
Mr. Bilbray. Thank you, Madam Chair. I would be very
interested to know how they handle Windows 7, which was really
a blatant piracy action that was going on in China.
Ms. Watson. Thank you.
We will now proceed with questioning. Mr. Cuellar of Texas.
Mr. Cuellar. Thank you very much, Madam Chair.
Mr. Weinstein, let me ask you, what are we doing to--let me
start off with the Republic of Mexico, a big NAFTA country
along with Canada. What are we doing to work with them
internationally, because I saw your report where you talk about
domestically and the coordination that we have here, but what
are we doing to work with, let's say, the Republic of Mexico,
because now, as in our drug cartels are now involved, the ones
in Mexico are involved in--they are going into legitimate areas
now, what we call legitimate businesses. I just want to see
what we are doing to work with the Mexican government.
Mr. Weinstein. Congressman, one of the things that we have
been doing recently with Mexico is working with their officials
at the border. One of the things that we do generally when we
engage internationally--bilaterally, that is--is try to
identify what the particular weakness is in the enforcement
regime of particular countries, and it does vary by region and
it certainly varies by country. Sometimes the problem is a lack
of political will. Sometimes the problem is the political will
is there but there is corruption. And sometimes it is a lack of
coordination among agencies that would be responsible for
various aspects of IP enforcement. Sometimes it is a
combination of the three.
In Mexico, at least on the ports, in the ports, what we
identified as a significant weakness was a lack of coordination
among agencies that would be responsible for port security, and
so one of the things that we did was work aggressively at three
of the largest ports in Mexico, including Monterrey and Vera
Cruz, to improve the level of coordination to teach the
inspectors and the other people responsible for the security of
the port how to do targeted inspections, how to identify
potentially infringing goods.
In at least two of the ports, if I recall correctly, there
had never been--or at least one of them, if not two--there had
never been a seizure of infringing goods prior to our training
and our engagement with them, and in the period following that,
the technical assistance we provided, there were seizures
through the roof at those ports and those ports became much
more effective at trying to identify infringing goods as they
are moving across the border.
That is one area in which we have engaged in Mexico. It is
not the only one, but it is one of the most prominent recently.
Mr. Cuellar. When working with our domestic partners, and
different law enforcement, I know that I have heard from the
U.S. Chamber and other folks saying that we have so many
threats to our country that when it comes to counterfeiting and
this type of piracy that our resources are not put there. Is
there anything else we can do to help our businesses, to
protect them from this economic loss? Whoever else wants to add
to that.
Mr. Weinstein. I will jump in. I will lead off briefly and
then turn it over to my colleagues.
One of the things that we have done with our partners at
FBI and ICE to try to improve the level of coordination and to
improve our ability to be responsive to IP stakeholders is to
invest a lot of time and resources in the IP Rights
Coordination Center, which is located in Crystal City. It is
operated principally by ICE, but it has partnership from a
number of different agencies, FBI and other law enforcement
agencies that have some interest in IP enforcement.
It is intended to do a number of things. No. 1, it provides
for a pooling of intelligence from all these different agencies
so that they can share intelligence and share information and
make their investigations more coordinated and more effective.
It is also a deconfliction center, and it is also meant to be
one-stop shopping for an industry. We had an industry meeting
there on Monday, a lunch with representatives of 29 different
IP stakeholder companies or organizations, and one of the
things we emphasized to them is that not only can they make
referrals directly to the Justice Department, but they can make
referrals to the IP Rights Coordination Center. It is meant to
be a place where they can share information themselves, they
can make referrals, and they can get law enforcement to respond
as quickly as possible.
Mr. Cuellar. I appreciate that. I think that one-stop
center so they know who to call instead of being bounced from
one place to the other place, so I appreciate that. I
appreciate the work that you all do.
Mr. Yager.
Mr. Yager. Yes. One point I'd like to make. I think your
question raises a very important issue, and that is in some
cases what we find is these are criminal networks that
operating, for example, on the border, so they may not just be
involved in intellectual property crimes. There could also be
money laundering, there could be illegal arms sales, there
could be illegal drugs that are being traded by the same
criminal networks. So I think it is important to focus not just
on China but also look, for example, at the southern border to
determine whether products are being brought in by those same
criminal networks that are also taking advantage of the border
to make other transactions, either guns moving south or illegal
drugs moving north.
Mr. Cuellar. Right. Again, from what we hear--I live in
Laredo, a border town, and we hear that those criminal
organizations are starting to look at different ways of making
money, so we appreciate it, so whatever you all can do to
protection it.
Last question for Mr. McCoy.
Mr. McCoy, our Ambassador Ron Kirk--I will close up with
this--are we doing everything possible? I am a big supporter,
was a big supporter of CAFTA, big supporter of Colombia, big
supporter of Panama, South Korea, and hopefully we will have
those agreements this coming year, but are we doing everything
possible under those negotiations to make sure that we protect
the intellectual property rights of our stakeholders?
Mr. McCoy. I believe we are, Congressman. Ambassador Kirk
has said repeatedly that ensuring strong IP protection is one
of the top priorities for the President's trade agenda. It is
something that we are working to move forward, both through the
implementation of free trade agreements that are already out
there, close monitoring and enforcement to make sure that those
agreements are properly implemented, our trading partners
deliver on their promises, going forward as we look toward new
trade agreements, as we look to getting the trade agreements
that are out there into force. We will continue that emphasis
on proper implementation of IP provisions, and with efforts
like the Anti-Counterfeiting Trade Agreement and the special
301 report we can continue to drive home that point.
Mr. Cuellar. Thank you all. Thank you, Madam Chair.
Ms. Watson. Thank you very much. You are welcome.
Ms. Chu of California.
Ms. Chu. Thank you, Madam Chair.
Well, this is for any of the panelists. The GAO has
identified continued weakness in Global intellectual property
protections and enforcement mechanisms, and specifically cites
one challenge being the ineffective coordination of agency
stakeholders charged with protection and enforcement
responsibilities. From what I understand, there are eight
agencies with overlapping protection and enforcement
responsibilities, and from what I can tell there is not one
single agency that leads the charge.
I know that there was legislation that created the
Intellectual Property Enforcement Coordinator, and this is one
step forward, but that person has not yet been put into place
as of now.
What specific steps would you like to see the coordinator
take in tackling these issues?
Mr. Yager. Ms. Chu, I think there are three points that we
would make.
We think that the legislation does address some of the
prior weaknesses. I think a couple things that we would
recommend is that the new group follows the guidance regarding
the key elements of the national strategy so that the IP
coordinator can create that strategy and ensure that all parts
are working together. That would include not just the law
enforcement but also the policy level working together.
The balance would also include working both at the firm
level as well as at the industry and at the country level.
Finally, I think a point that was made earlier, to the
extent possible utilize alliances with IP owners abroad,
because in many cases the leverage that the United States has
can be limited, but when you also team up with some of the IP
owners abroad there could be greater success. So I think there
are a couple of general points that we make in our prior
statements about how this person or this new group could be
effective.
Mr. McCoy. Let me add from the perspective of USTR,
Congresswoman, that I know that as of yesterday Victoria
Espinel, the IP Enforcement Coordinator, has just started work.
I know she was burning the midnight oil last night on her first
day at work, because she talked with me a little bit about how
we can work together, so at USTR we are looking very much
forward to teaming with her.
We already work intensely with the other agencies here
through inter-agency coordination of trade policy under the
rubric of the trade policy staff committee mechanism that has
been set out by Congress as a vehicle to coordinate, including
on intellectual property trade policy.
So we work very closely with the other agencies of the U.S.
Government, and we are looking forward to further enhancing
that cooperative relationship under the guidance of the IP
Enforcement Coordinator.
Ms. Chu. Very good. Then, Mr. Weinstein, the World Health
Organization estimates that 50 percent of drugs worldwide are
counterfeit, which translates into approximately $38 billion in
loss of legitimate U.S. corporate sales each year due to the
sale of these counterfeit drugs. This statistic raises great
concerns for me, because these are life-threatening type of
issues, and there are huge ramifications to consumers who
unknowingly purchase these counterfeit drugs and put themselves
at risk.
What methods are the Department of Justice implementing to
address this problem?
Mr. Weinstein. Congresswoman, it is of great concern to us,
as well, and one of the ways in which we have tried to use our
limited resources, prosecutory resources, is to focus on
intellectual property violations that are a threat to the
public health and safety, and I can't think of one more serious
than the one you just mentioned.
We have prosecuted a number of cases, going back several
years now and continuing through the present, involving people
who have produced counterfeit drugs of all types. Cancer drugs
is the one case I mentioned in my oral statement. There are a
number of others involving Viagra and other types of
medications that are mentioned in my written testimony.
What is striking about these cases is that they are
international in scope, just as the online piracy cases are. In
fact, in November of last year a citizen of the Republic of the
Philippines was charged here and was convicted and sentenced
for participating in a conspiracy to import Viagra and Cialis,
and I believe other types of medication, as well, and was the
first person--he was extradited from Thailand. He was the first
person ever extradited to the United States on a counterfeit
pharmaceutical charge. We hope he will not be the last.
So in that area as well as the online piracy area we were
talking about earlier we are not stopping at the borders and we
are trying to find people who engage in this conduct, wherever
they are, whether they are in China or here.
Speaking of China, one of the biggest cases involving
counterfeit products--it is not a pharmaceutical, but it is a
counterfeit product that affects health and safety--involved a
national Guinea and a U.S. citizen in the Bronx who were
conspiring to import counterfeit tubes of toothpaste from China
that not only didn't contain fluoride, but also contained
microorganisms and in some cases contained diethylene glycol,
which is an ingredient in hydraulic and brake fluid. The co-
conspirators brought in almost 83,000 tubes of this toothpaste,
which had a retail value of just under $117,000. And we managed
to get the importers here in the United States, and they got
significant sentences.
So this is an area that continues to be of concern to us. I
would say, other than online piracy and counterfeiting that
involves online auctionsites and direct sales sites, the public
health and safety continues to be the area where we try to put
our greatest emphasis.
Ms. Chu. Thank you. I see my time is up.
Ms. Watson. Thank you.
We will now proceed to Mr. Connolly of Virginia.
Mr. Connolly. Thank you, Madam Chairwoman.
Let me pick up, if I may, where Ms. Chu left off, Mr.
Weinstein. We acknowledge that not only human pharmacological
agents but veterinarian pharmacological agents are a problem,
as well, coming into the United States. I know the Department
of Justice was involved for many years in trying to prosecute
folks who were wilfully violating our laws and introducing
pirated antibiotics and other substances to Forest Grove into
our livestock and feed chain here in the United States.
There are just lots of examples, intellectual property
examples involving software, involving music and movies and all
the technologies associated with them over the years. It wasn't
that long ago you could go to Etawon and Seoul or you could go
to neighborhoods in Taipei or Hong Kong and blatantly get
knock-offs or infringed items at a discount.
If enforcement is everything it should be and the estimate
is accurate that we are losing about a quarter of a billion
dollars a year because of intellectual property infringements
of one sort or another, the best estimate I have seen, in terms
of border agent seizures of pirated materials, the value is
something south of $300 million. In other words, about 1
percent of the estimated cost of the total infringements.
Doesn't that suggest that, while you are not expecting
everything to come through our borders, but 1 percent sounds
pretty low in terms of our success rate at interdicting these
materials or agents coming into our country?
Mr. Weinstein. Congressman, I wasn't smart enough to check
your math and I don't have figures myself on the amount of
infringing goods, hard goods, that is, that are seized at the
border, but I will tell you as a general matter, whether you
are talking about goods coming in across borders or you are
talking about goods that are coming here electronically, the
problem is far greater than the resources that law enforcement
has available, either investigative or prosecutive resources,
and I think the problem grows as more and more piracy is
committed through online means.
I am an optimist by nature, but I am also particularly
optimistic because I think the people who we have conducting
these investigations, leading these prosecutions, are the best
trained in the world and work very hard to keep pace with and,
indeed, to be one step ahead of the people that we are
investigating. And so I think that we have terrific people
doing it; we just don't have enough of them. And the problem is
of a magnitude that is far greater than our resources allow.
Having said that, I think that one of the things that
demonstrates is the need for us to be able to turn ourselves
into force multipliers, and that is to expand capacity overseas
so that our overseas partners can engage in aggressive
enforcement actions within their own borders.
I will give you just one example that I think is fairly
illustrative. The IPLEC that I mentioned in eastern Europe--you
are going to begin I am getting paid by every time I mention
IPLEC--but our IPLEC in eastern Europe worked with law
enforcement of the Ukraine, which was trying to take down a
major piracy site that was operating in the Ukraine and they
didn't know how to conduct an investigation of that type, and
the IPLEC worked with them.
Their technology was quite outdated. They had an outdated
personal computer and they had a dial-up Internet connection.
And using an outdated personal computer with a dial-up Internet
connection, following the guidance given to them by the one
prosecutor we have over there, an investigator in the Ukraine
took down the entire site.
So by engaging in trainings like that and in teaching
people overseas how to make these cases, themselves, not only
do we have bigger, splashier, more high-impact law enforcement
operations here, but we can multiply the number of people who
are able to be prosecuted in the countries in which they are
operating.
Mr. Connolly. Right. Thank you. That's helpful.
With respect to enforcement there are sort of two broad
aspects to this. One has to do with capability on the ground,
ours and our counterparts; the other has to do, though, with
political will. I would like the panel to address that.
Candidly, we know that in some cases, including trading
partners and allies of the United States, are not seized with
this mission. How severe are we prepared to be, and
historically how severe have we ever been in impressing upon an
ally or a trading partner, or even somebody who is neither of
those categories, that we mean business and we are prepared to
exact a price if they don't, in fact, change their behavior
from the top?
Mr. McCoy. I can speak to that, Congressman. I think that
we need to have a strategy that proceeds on two fronts. One is
to be very frank and, when appropriate, very critical of our
trading partners who don't step up to the challenge. And the
other front is to work in tandem with our trading partners
through leadership and partnership to really get at this
problem better, because on the one hand we have to be honest
enough to call it out when the problem is bad; on the other
hand, we cannot solve this global problem alone. We have to
have international leadership and partnership and be working
with our trading partners.
Sometimes we have to be capable of walking and chewing gum,
of doing both of those things at the same time with the same
trading partners.
There have certainly been occasions in the past when we
have gone all the way to the extent of trade sanctions with
trading partners who refuse to protect U.S. intellectual
property. The most recent occasion was Ukraine. All of the
tools of the trade arsenal are available to make progress where
it is appropriate, and we are continuing to use all the tools
at our disposal.
Mr. Connolly. Madam Chairwoman, my time is up. By the way,
I would ask for unanimous consent that my opening statement be
entered into the record.
Ms. Watson. Without objection.
Mr. Connolly. I just want to observe before you call on Mr.
Murphy that I thank Mr. McCoy for his answer.
Inferentially, one could conclude from your answer some
criticism of past performance on our part in terms of our
consistency in strict enforcement and so conveying to other
countries in the international community.
Thank you.
Ms. Watson. Thank you.
Mr. Murphy from Connecticut.
Mr. Murphy. Thank you, Madam Chair.
I want to continue to pursue the line of questioning from
Mr. Connolly and other members of the committee regarding our
current approach to, I guess, supply side enforcement when it
comes to pirated content on the Internet.
I was a little discouraged to hear your critique of demand
side's restrictions, because I wonder about the efficacy of a
strategy that effectively tries to play whack-a-mole around the
world. We are talking about one guy with a computer that can
move his computer, can move his location, can move the site of
his hosting entity from city to city, from country to country.
I guess I don't doubt your resolve, but as we look at the trend
line over the last several years the amount of pirated content
and the number of sites that are selling them are going in only
one direction.
So I guess I will ask this: what tools do you need that you
don't have now to try to pursue this supply side enforcement
policy, and how worried should I or any of us be about the
ability of the people who are perpetuating these sites to just
simply move to a different place or to take up residence under
a different business entity, given the fact that it is so easy
to just put up a new site and take one down the minute that
they sniff that law enforcement is on to them?
Mr. Weinstein. First, Congressman, I am not suggesting that
enforcement should only be supply side or demand side. I think
that, given limited Federal resources, we can have the greatest
impact by pursuing the supply side, by getting the people who
doing exactly what you just described, who are actually the
first providers of the online content that is then downloaded
by people throughout the world.
You can get the person who is downloading it and making a
few infringing copies, but you haven't actually made an impact
unless you take down the person who is obtaining it, putting it
online, and making it available.
To your question what do we need, I would say that the
greatest investment of resources that we have made is in this
IPLEC program, because with the cost of putting one prosecutor
in a foreign region or foreign country, that person can have an
impact on enforcement operations, both trans-national
enforcement operations and enforcement operations in the
countries and regions in which he is operating that go far
beyond what that one prosecutor could do working on even a very
full caseload here in the United States.
So it is not an inexpensive program by any means. The cost
of putting a person and his family overseas for an extended
period of time is not small, but we view it as a sound
investment in our ability to have a greater impact on the
enforcement side not only here but throughout the world.
In terms of how concerned you should be that someone has
the capacity to basically pick up and move their operations, I
would say there is reason to be concerned about it, but by no
means are those methods of evading detection or evading capture
foolproof; in fact, quite the contrary.
As we have improved our relationships with our foreign
partners, as we have increased our ability to share evidence
and to share intelligence and to share information more quickly
than we ever have before, the person who picks up a server and
moves it overseas or moves it from one country to another
country overseas is much more vulnerable than he ever has been
before. That is why Attorney General Holder--I said that this
was a high priority for him. Attorney General Holder actually
initiated the Department's first major IP initiative when he
was the Deputy Attorney General back in 1999, and one of the
principles of that initiative that we continue to build on
today is the need to engage with our foreign partners so that
we can not only have effective law enforcement against people
who are operating in their countries, but so that they can be
more effective in their own countries.
So I think that our determination to get people wherever
they are and to find their servers and to find their assets,
wherever they are in the world, has never been greater, and our
capacity to do it has never been greater.
Mr. Murphy. So let me ask this: how do I square that with
data showing that the amount of pirated content is greater than
ever? So how do I square your enforcement capacity being
greater than ever with the amount of pirated content continuing
to grow?
Mr. Weinstein. Unfortunately, I don't think that they are
inconsistent at all. I think, as I mentioned to Congressman
Connolly, I think the problem is of a magnitude that is far
greater than the resources that are currently available to
address it. So we try to address it as intelligently and
strategically as we can, both in terms of identifying what
targets we should pursue in our own enforcement operations,
and, as I said, in terms of trying to improve the ability of
our international partners. But it is largely a resource
problem.
I think the strategies we have are effective. I think the
people we have doing it are outstanding. But there are not
enough of them. So I think it is a resource issue.
Mr. Murphy. Thank you, Madam Chair.
Ms. Watson. Thank you so much.
Now we will call on our distinguished Member from
California, Ms. Jackie Speier.
Ms. Speier. Thank you, Madam Chairman.
I guess this is a question for Mr. Weinstein. There is an
alarming number of reported instances where information
technology goods are counterfeited abroad to sell here in
America. Can you speak in general terms of those nations that
pose the greatest threat to our information technology vendor
supply chain for counterfeiting and national security matters?
Mr. Weinstein. Congresswoman, I don't think I can speak,
even in the most general terms, to the countries that pose the
greatest threat from a national security point of view, but I
would be happy to discuss that with the folks in our national
security division and get back to you with a more detailed
answer after the hearing.
What I can say is that the regions that are the greatest
concern to us right now I think are China, obviously, as we
discussed earlier, South America, and parts of Africa. And we
have tried to devote resources in terms of training and
technical assistance to law enforcement in South Africa, for
example, in Brazil, in India, and in other parts of southeast
Asia, and again in China, to try to address that as practically
as we can. But I think that the regions that we are the most
concerned about in terms of not just online piracy but all
types of policy would be South America and Africa and China.
And, as I mentioned earlier, I think those areas that
present the greatest challenge often also present the greatest
opportunity, and some of the law enforcement officials in those
countries tend to be the ones who are the most fully engaged
with us and are just as aware as we are of the extent to which
the problem flows through or arises from the region that they
are operating in. So the fact that there is a great deal of
piracy that involves those countries is not in any way an
indictment of the law enforcement officials in those countries'
commitment to address it; in fact, oftentimes, as I said, those
tend to be our most committed partners.
Ms. Speier. All right.
Mr. Yager, thank you for your work on the GAO reports, and
I guess the ones that predated it that created the genesis of
the new legislation. The one area that you keep coming back to
is the area of just human capital and not necessarily
committing enough human capital planning. I guess you are
speaking of the operations abroad. Could you elaborate on that
some more and tell us, if you haven't already, what more we
need to do.
Mr. Yager. GAO has done a number of reports, as you know,
on human capital planning. We have done some for the State
Department. More generally, we have done some for USAID. But in
this context I think one of the things that we learned when we
traveled last summer to visit some of the key locations where
intellectual property crimes are rampant is that having someone
in that post who is full-time on that job, full-time on IP,
someone who understood some of the technical issues related to
intellectual property protection, even understanding some of
the laws in those host countries, and having the ability to
understand the culture, we thought that those three particular
assets were extremely important.
And where you have that combination, we found, in our
discussions with the private sector, that the private sector
felt very well served, and they felt that the U.S. officials
could be helpful to them in making contact, solving problems,
in some cases before they became a serious problem, and in some
cases solving problems after it got to the point where they
needed to address it with the host government.
So we certainly found great support for some of the kinds
of people that were put abroad recently by the Patent and
Trademark Office, but I think one of the other points that we
make--and I make this in my written statement--is that you need
the ability to continue to send that set of people with those
skills over there, and agencies that haven't long had a foreign
presence may not be that deep in terms of having people with
the cultural expertise as well as the technical expertise. So
that's one of the cautions that we made in the report that we
recently released.
Ms. Speier. So you looked at four different countries?
Mr. Yager. That's right. We went to three countries, four
posts. China, because of the importance of the Guangzhou area,
has an IP attache in that consulate because it is such a larger
producer of goods for the world.
Ms. Speier. So where else do we need to have individuals
outposted that we don't presently?
Mr. Yager. Of course, it depends on the size of the
program. We know that some places in central Europe are a
significant problem. We know that South America has some, I
think what USTR calls notorious trading areas. There are
certainly other places in southeast Asia where you could
probably benefit from having additional personnel. But, again,
if the personnel don't have that unusual combination of
expertise, they will not be as effective as the people who were
first put in those posts.
Ms. Speier. But it would seem to me--I see my time has
expired--that should be a high priority for us if we are really
going to address this issue long-term, so it might behoove us
to identify those other countries and make sure that there are
individuals with those skills outposted, if you could provide
that to us and the committee.
Thank you, Madam Chair.
Ms. Watson. Thank you so much.
I would like to thank this panel for your testimony. Now
you will be excused so we can bring up the second panel. Thank
you so very, very much.
We are now going to proceed to the second and final panel.
We will try to get you out of here by noon, and so we have to
watch our own timing, the committee, but now that we have
narrowed down to just three of us, I think we can do that.
It is the policy of the Committee on Oversight and
Government Reform to swear in all witnesses before they
testify. I would like to ask all of you to please stand and
raise your right hands.
[Witnesses sworn.]
Ms. Watson. Let the record reflect that the witnesses
answered in the affirmative.
I will now take a moment to introduce our prestigious and
distinguished panelists.
I would first like to start with Mr. Dan Glickman, who
serves as the chairman and CEO of the Motion Picture
Association of America. Prior to becoming the leading voice for
the motion picture industry, and some of my congressional
district's most prominent employers, Mr. Glickman proudly
served as a Member of Congress from the 4th congressional
district of Kansas for 18 years, as well as the Secretary of
Agriculture in the Clinton administration.
In addition to his current position with MPAA, he serves on
the boards of the American Film Institute, the Chicago
Mercantile Exchange, communities and schools, and the Center
for U.S. Global Engagement. He is also a member of the Genocide
Prevention Task Force, which is chaired by Secretaries
Madeleine Albright and Bill Cohen, and a member of the Council
on Foreign Relations, and a member of the Academy of Motion
Pictures, Arts, and Sciences.
Mr. Robert W. Holleyman is the president and chief
executive officer of the Business Software Alliance. He is
widely known for his work on policy related issues affecting
the technology industry, including intellectual property laws,
cyber security, international trade, and electronic commerce.
Before joining BSA, he spent 8 years serving as counsel in the
U.S. Senate, and was an attorney with a leading law firm in
Houston, TX.
Mr. Brian Toohey is the senior vice president for
international affairs at the Pharmaceutical Research and
Manufacturers of America [PHARMA]. And prior to joining PHARMA,
Mr. Toohey served in multiple Government affairs roles in the
medical device and telecommunications industry. Before entering
the private sector, he served as both a desk officer and Deputy
Director in the Equipment Officers of the U.S. Department of
Commerce.
Finally, Mr. Frank Vargo is the vice president for
international affairs at the National Association of
Manufacturers. He serves as its lead lobbyist and spokesman on
issues of trade, currency, and other issues related to global
markets and access. And prior to joining them, Mr. Vargo had a
three decade trade policy career at the U.S. Department of
Commerce.
Without objection, before proceeding to testimony from our
panelists, I would like to submit a statement for the record on
behalf of the Coalition of Music Ministries representatives
that include performing artists, publishers, song writers,
composers, and record labels. What is telling to me from their
testimony is how critical IPR protection and enforcement is to
industry stakeholders across the entertainment spectrum,
including independent artists and major recording studios,
alike. I am proud to have the music industry as a major
constituent in our California's 33rd Congressional District and
welcome the many cultural and economic contributions they
provide to our Nation.
As I travel abroad and introduce myself as representing Los
Angeles, CA, and Culver City, and I get nice nods, but when I
say Hollywood, big smiles. So our industry reaches every corner
of the globe and pretty much represents who we are. At least we
try to put forth the movies that represent the true beliefs of
America.
So I ask that each of the witnesses now give a brief
summary of their testimony, and to keep this summary under 5
minutes in duration if possible. Your complete written
statements will be included in the hearing record.
Mr. Glickman, I would like to start with you. Welcome.
STATEMENTS OF DAN GLICKMAN, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, MOTION PICTURE ASSOCIATION OF AMERICA, INC.; ROBERT W.
HOLLEYMAN II, PRESIDENT AND CHIEF EXECUTIVE OFFICER, BUSINESS
SOFTWARE ALLIANCE; BRIAN TOOHEY, SENIOR VICE PRESIDENT FOR
INTERNATIONAL AFFAIRS, PHARMACEUTICAL RESEARCH AND
MANUFACTURERS OF AMERICA; AND FRANK VARGO, VICE PRESIDENT,
INTERNATIONAL ECONOMIC AFFAIRS, NATIONAL ASSOCIATION OF
MANUFACTURERS
STATEMENT OF DAN GLICKMAN
Mr. Glickman. Thank you, Madam Chairwoman. Thank you very
much for your leadership on film and entertainment issues. It
is a great honor for me, after spending 18 years in the House
of Representatives, to come back here and to be in the greatest
deliberative----
Ms. Watson. Does it feel like home?
Mr. Glickman. It feels like home, and also it makes me
yearn to come back, although I have no intention of going down
that road. But I would say that you all have the greatest jobs
in the world, and you realize it more when you are out, in
terms of the impact that you have on people's lives.
Ms. Watson. Well, I understand you will be leaving soon.
What are you going to pursue, if I can get into your private
business?
Mr. Glickman. We will talk privately about that afterward.
Ms. Watson. All right.
Mr. Glickman. And not for a while, so I will still be
around.
First of all, let me say that the intellectual property
industries represented by those of us here are so critically
important to the country. In the case of motion pictures,
directly and indirectly we employ about 2.5 million people in
this country. We are one of the few industries that has a
positive balance of payment surplus with every single country
in the world we do business with.
The movies and television shows are produced in all 50
States now, employment in all 50 States. And if you talk about
a symbol of America, entertainment is probably as profound and
powerful symbol of everything to do with our great country. So
this is a really important industry and important issue for us,
as well. These jobs are good jobs, high-paying jobs, and
important to the country, as well.
By the way, over half of our revenues are derived from
outside the United States. So what happens in the rest of the
world, these trade issues are life or death for us, because
people do love our product.
So what are the things? I was listening to the work of the
Government officials--and, by the way, they have done a very
good job. USTR, Justice, the other agencies here, I must say
both in the Bush administration and in the Obama administration
have picked up these issues and the importance of intellectual
property right protection. They can always do more. We talk
about that. I am going to talk about some additional
suggestions.
The first thing is we now have a coordinator--and we talked
about that--under the PRO-IP bill. We have an IP coordinator.
This is very important. There is somebody that is accountable,
that we can focus on, that we can go to, and can help lead and
marshall resources and enforcement policy throughout the U.S.
Government. The question now is to make sure that she and her
organization realize the full potential of this position by
funding its remaining elements in the PRO-IP bill, the agents,
the enforcement authorities that are provided in that bill.
It is also important that the nomination for Deputy U.S.
Trade Representative for IP be confirmed. Her name is Miriam
Sapiro. She is a critical senior level official in the U.S.
Inter-Agency Team. That position has not been confirmed yet.
That's very important to get that done.
We have talked about the special 301 process. This is a
critical tool which identifies deficiencies in foreign markets
and served as the administration's overall road map. Just to
give you some idea, I was over in Spain recently. Spain has
very serious problems involving Internet piracy. President
Obama met with the president of Spain, Mr. Zapatero, raised the
issue of Internet piracy. Spain is on the special 301 list and
is hot because of that government-to-government coordination
and impact. It has highlighted their hopeful desire to fix some
of the problems that we have here.
We have something called the general system of preferences
[GSP], program, which is intended to offer trade benefits to
developing countries, while at the same time protecting U.S.
interests. However, too frequently there is a disconnect
between special 301, which are the countries on our watch list,
and trade preference programs, with some of the most egregious
offenders of U.S. intellectual property rights receiving
preferential access to the U.S. market, despite their
longstanding failure to effectively protect U.S. creativity.
So in my view our foreign policy needs to be more
coordinated and cohesive in this particular resolve. Linking
special 301 and trade preference program eligibility would
provide the United States a powerful enforcement tool.
We have a variety of trade agreements, free trade
agreements. There are three pending right now: Columbia, Korea,
and Panama. We want to work with you and your colleagues to see
the three pending FTAs implemented so that we can benefit from
the negotiated IPR obligations of our trading partners. They
all involve IPR. In the case of Korea, there are very
significant improvements in their enforcement of intellectual
property as a result of these trade agreements, and it is
something that we think is important to us.
While not a free trade agreement, the U.S. motion picture
industry has a keen interest in the anti-counterfeiting trade
agreement [ACTA], which is in particular dealing with issues of
Internet piracy. And I would echo the comments that have been
made about having more IPR attaches overseas in our industries.
Above all, I guess my point in all of this is that this is
a big, dynamic, important industry for America. It is very much
a face of the soft power of America, our entertainment world.
Having you all engaged in this, having an enforcement team and
a trade team in our U.S. Government engaged in this, we can
make real progress in dealing with what Mr. Bilbray calls the
problems of China, which just keep going and going and going,
although there is some hope for some improvement there. But the
fact of the matter is we have made progress in other places in
the world, and we appreciate your interest in this issue.
[The prepared statement of Mr. Glickman follows:]
[GRAPHIC] [TIFF OMITTED] T7791.057
[GRAPHIC] [TIFF OMITTED] T7791.058
[GRAPHIC] [TIFF OMITTED] T7791.059
[GRAPHIC] [TIFF OMITTED] T7791.060
[GRAPHIC] [TIFF OMITTED] T7791.061
Ms. Watson. Thank you so much. I was just talking to staff.
We are going to plan another hearing where we want you to
describe just what plans have been laid out by this
administration and the enforcement. That is so important. We
were just talking about how we would line up the countries. I
think China, No. 1. I mean, they are expert at stealing our
intellectual property. Maybe Russia No. 2. And Nigeria, No. 3
in terms of technology.
So anyway, what we are going to do is hold a hearing,
probably after the first of the year. I just want to let you
know what our plans are.
Mr. Holleyman, you may proceed, please.
STATEMENT OF ROBERT W. HOLLEYMAN II
Mr. Holleyman. Madam Chairwoman, Mr. Bilbray, I thank you
so much for holding this hearing today. The hearing is about
protecting intellectual property rights in the global economy,
but this hearing is also about jobs, it is about health care,
it is about education, it is about the environment, and
national economic security.
The software industry is helping to provide specific
solutions to each of these national needs. The greatest value
of what software is is what software does. I would like to
offer for the record examples of several BSA member companies
and the type of software that they are providing and developing
here in the United States to help us meet these national needs.
Ms. Watson. Without objection.
Mr. Holleyman. But we also face a challenge of our own.
Theft of intellectual property, both in the United States and
overseas, is robbing us of resources that we could invest in
more innovative solutions. Let me give you a few facts about
this industry.
It is a $300 billion software and services industry, the
largest copyright industry in the United States and globally.
Sixty cents of every dollar spent on software worldwide inures
to U.S.-based companies, and it is a source of American pride,
with over 2 million direct workers and a $36 billion trade
surplus.
But all of these benefits are endangered by software theft.
The compelling statistic for today is that software theft
reached $53 billion last year. Most software theft occurs when
an otherwise legitimate business makes illegitimate copies of
software for its use. When repeated millions of times by
businesses and consumers throughout the world, this has a
staggering cumulative effect.
Harms of software theft include lost jobs, industry, and
tax revenues, but what has been missing from this equation is
the way this distorts competition. A company that steals
business software has an unfair competitive advantage over an
enterprise that pays for it. Both get roughly equal
productivity benefits from the software, but only one is
bearing the legitimate cost.
Software piracy is a problem around the world. It is
particularly acute in many of the fastest growing developing
markets that have disproportionately high rates of piracy.
Let me talk about China. Wherever I travel in the United
States and around the world, the place I am asked about most
frequently is China. In China, only 20 percent of software is
paid for. In comparison, in the United States 80 percent is
paid for. That means that there are a whole host of Chinese
enterprises that are enjoying an unfair advantage over their
U.S. counterparts. This unfair advantage is exacerbated by the
new industrial policies that threaten to shut out U.S.
companies.
Madam Chairwoman, I want to thank you for your comments in
your opening statement, for your questions to the Government
witnesses today. Steps by the U.S. Government to ensure that
providers of software and other innovative technologies can
continue to have access to China as the fastest-growing market
in the world are critical.
Companies in six critical sectors, from software,
telecommunications, and high energy efficiency products were
given a December 10th deadline to apply to get on a list of
preferred products the Chinese government will buy. We believe
that few, if any, U.S. companies will qualify unless they turn
over their IP to a Chinese entity. This could amount to a
potentially massive transfer of IP, jobs, and economic power.
Madam Chairwoman, that is a step that is not in our
national interest or in the interest of U.S. companies.
China made this announcement just a few weeks ago. It
violates a series of commitments. The administration is
actively pushing back from this policy, and I urge you and the
ranking member to strengthen their hand by expressing your own
opposition to China's Ambassador here in Washington. This issue
is important not just to the IT industry, but to a wide range
of business and governmental interests in the United States and
abroad. And, indeed, I could add that it is not even in China's
own interest to exclude their ability to obtain the best
products from the United States or elsewhere.
In closing, I would ask all of us to begin thinking about
intellectual property theft in a different way. The problem is
more pervasive, it is more complex, and it is more pernicious
than it was just a few years ago.
Quite frankly, I think we need to think of another term
other than the word piracy for this to talk about the breadth
and scope of the problem. It has national implications,
national economic implications.
Thank you for holding this very timely hearing.
[The prepared statement of Mr. Holleyman follows:]
[GRAPHIC] [TIFF OMITTED] T7791.062
[GRAPHIC] [TIFF OMITTED] T7791.063
[GRAPHIC] [TIFF OMITTED] T7791.064
[GRAPHIC] [TIFF OMITTED] T7791.065
[GRAPHIC] [TIFF OMITTED] T7791.066
[GRAPHIC] [TIFF OMITTED] T7791.067
Ms. Watson. Thank you, Mr. Holleyman.
Mr. Toohey, you can proceed.
STATEMENT OF BRIAN TOOHEY
Mr. Toohey. Thank you, Madam Chairwoman, thank you, Mr.
Bilbray, for the opportunity to be here this morning.
First let me just say I absolutely agree with Secretary
Glickman's and Mr. Holleyman's statements about the importance
of IP intensive industries. According to the Commerce
Department, currently driving over 50 percent of our exports
and 40 percent of our growth here in the United States. Very
important economic industries.
PHARMA's member companies are innovators devoted to
developing medicines that allow patients to live longer,
healthier, and more productive lives. PHARMA's membership
ranges in size from small startup research firms to
corporations that employ tens of thousands of Americans and
encompass both pharmaceutical and biotechnology companies.
The research-based pharmaceutical sector is one of the most
knowledge-intensive enterprises of the U.S. economy. In 2008,
our sector invested over $65 billion in research and
development, and of that amount about 70 percent was invested
here in the United States. The pharmaceutical industry supports
more than 3 million jobs and directly employs nearly 700,000
Americans.
To foster continued economic growth and deliver
breakthroughs, our sector relies on policies that promote and
protect pharmaceutical innovation, especially complementary
protections of patents and data protections.
Our companies face significant challenges to the discovery,
development, and commercialization of new medicines. Adequate
protection of intellectual property, both within and outside
the United States, is essential for continued advances against
challenging and costly diseases. In addition, access to
international markets is critical to ensuring that these
products reach as many patients as possible.
In that regard, PHARMA members especially appreciate the
continuing strong efforts of USTR, State, Commerce, and PTO to
promote compliance with international obligations by our
trading partners.
PHARMA member companies also undertake significant
research, both privately and through public/private
partnerships, to develop medicines that disproportionately
affect poor countries.
In addition to research in this area, in recent years our
industry has donated more than $9 billion to access the
medicines programs, more than the entire foreign aid budget of
countries like Canada or the Netherlands, and provided enough
health interventions to help 1.7 billion people in the
developing world.
Currently, nearly 3,000 medicines are under development,
including 300 medicines for rare diseases, 750 for cancers, and
109 to fight HIV/AIDS. A recent Tufts study estimated that the
cost of developing a new medicine at over $1.2 billion a year,
and for every approximately 10,000 compounds that enter the R&D
pipeline, eventually only one comes to market, and can take as
long as 15 years.
Two complementary legal mechanisms, in particular, provide
periods of exclusive marketing for new therapies. These
mechanisms are essential to attract investment needed to fund
the R&D process. First, patents protect inventions made in the
course of research and development by giving the innovator the
right to prevent the unauthorized use of inventions for a
defined period of time. Second, data protection has proven
essential. Clinical data represents the investment in
conducting the rigorous, lengthy pre-clinical and clinical
studies that the FDA requires.
One of our concessions made by the United States in the
TRIPS agreement was to provide developing countries with a
number of extended transition periods to implement new
standards. As of 2005, all but the least-developed countries
were required to comply with provisions of TRIPS. Many of these
trading partners have benefited tremendously from the openness
of our market and the industries that aggressively compete with
our own. Yet even now many of these countries have not fully
met their TRIPS obligations to provide effective IP protection.
Another important area of concern which was discussed
earlier is counterfeit drugs. Weak regulatory and IP
enforcement regimes in some countries contribute to this
problem, which increase health risks to patients.
In addition to the failure to meet IP obligations, many
countries erect barriers to reduce the access of our products.
Clearly, these restrictions adversely affect the health of
patients in their countries, while they also have potential
negative effects on the United States and consumers worldwide.
We believe it is critical for the U.S. Government to take
action against measures that prevent fair and equitable market
access for our products. PHARMA members believe the special 301
process is a particularly useful trade tools through which
these barriers and priority markets can be removed. In addition
to special 301, the administration should use all available
trade tools, including bilateral and multilateral trade
negotiations, to pursue a positive agenda on pharmaceutical
trade.
For example, the U.S.-Korea Free Trade Agreement or
negotiations included provisions on pharmaceuticals and
specific steps to improve the transparency and accountability
of the pricing and reimbursement listing process. We urge the
administration to build on this success and include similar
provisions and agreements with future trading partners.
Thank you again for the opportunity to speak with you
today. PHARMA and its member companies believe it is crucial
for this subcommittee and the Government, as a whole, to foster
incentives for innovation both United States and abroad.
Thank you very much.
[The prepared statement of Mr. Toohey follows:]
[GRAPHIC] [TIFF OMITTED] T7791.068
[GRAPHIC] [TIFF OMITTED] T7791.069
[GRAPHIC] [TIFF OMITTED] T7791.070
[GRAPHIC] [TIFF OMITTED] T7791.071
[GRAPHIC] [TIFF OMITTED] T7791.072
[GRAPHIC] [TIFF OMITTED] T7791.073
[GRAPHIC] [TIFF OMITTED] T7791.074
[GRAPHIC] [TIFF OMITTED] T7791.075
[GRAPHIC] [TIFF OMITTED] T7791.076
[GRAPHIC] [TIFF OMITTED] T7791.077
[GRAPHIC] [TIFF OMITTED] T7791.078
[GRAPHIC] [TIFF OMITTED] T7791.079
[GRAPHIC] [TIFF OMITTED] T7791.080
[GRAPHIC] [TIFF OMITTED] T7791.081
[GRAPHIC] [TIFF OMITTED] T7791.082
[GRAPHIC] [TIFF OMITTED] T7791.083
[GRAPHIC] [TIFF OMITTED] T7791.084
[GRAPHIC] [TIFF OMITTED] T7791.085
[GRAPHIC] [TIFF OMITTED] T7791.086
[GRAPHIC] [TIFF OMITTED] T7791.087
Ms. Watson. Thank you, Mr. Toohey.
Mr. Vargo.
STATEMENT OF FRANK VARGO
Mr. Vargo. Thank you, Madam Chairwoman and Mr. Bilbray.
The NAM is all about manufacturing in America. We are still
the world's largest manufacturer. We make, believe it or not,
one out of every $5 of everything made and manufactured in the
whole world.
But we are under a lot of challenges and a lot of threats,
and the most serious truly is the threat to the protection of
intellectual property. The United States is never going to be
the world's low-cost producer, nor would we want to be. We want
to be the high-tech producer, the high-value-added producer,
but we have to have protection of patents, trademarks,
copyrights, and those are under real, real threat right now
through what I call the three Cs: counterfeiting, compulsory
licensing, and China. Let me just say a few words about each.
The administration has and the previous administration have
done a good job in increasing enforcement and trying to
intercept counterfeited goods. More resources are going on.
Having Victoria Espinel, who everybody in the trade community
knows and thinks is just a fantastic choice, is very, very
helpful. But there has been a major step backward that nobody
has mentioned as yet, and I do want to focus on, because it may
require legislation. When I first heard of this I couldn't
believe it.
What Customs officials do when they suspect a counterfeit
shipment is, logically, contact the trademark holder or the
patent holder and send photographs or descriptions and say is
this your product. Well, the Customs and Border Protection
legal office recently sent a notification to Customs agents
saying you can't do that any more. You cannot custom the rights
owners with photos or descriptions of suspected counterfeit
products because this could allow facing of liability under the
Trade Secrets Act.
Now, to me this is ridiculous, and if there is, indeed,
some legal conflict here I hope this subcommittee will look
into it, and if we need legislation let's do it. This can undo
all the good. You know, if a Customs official if prohibited
from contacting, say, the Square D Co., which makes excellent
circuit breakers, because they suspect that there is a shipment
of counterfeit circuit breakers--are these real, did you bring
these in--but if they are prohibited from doing that, believe
me, the interception of counterfeit goods in the United States
is going to come way down. I think this is an extremely serious
problem.
Compulsory licensing: the country of Ecuador, for example,
is saying now we need U.S. agricultural chemicals, so we are
going to just force, we will steal the technology. There are
countries talking about global climate change are saying well,
you know, if you want us to participate in improving the
environment, you have to give us the technology. This
technology costs billions and billions to develop, and the even
better technologies of the future are going to require more
billions. Where does this come from? It comes from the flow of
funds by having U.S. companies marketing around the world.
What these countries need to do is not say we want to steal
your technology, but what they need to do first is to join in
the idea the United States has promoted, that look, there
should be an environmental goods and services agreement
globally. What sense does it make for countries to put 20 or 40
or 60 percent import duties on clean climate technologies. You
know, let's get rid of government interference there and let
them take it from there.
Then China. Based on Customs data, we can estimate that 80
percent of the counterfeit goods in the world are made in
China. China joined the WTO in 2001 and promised that they
would provide an effective deterrent against counterfeiting. An
effective deterrent. That means they were going to stop it.
Now 8 years later they haven't done it. They still don't
have the laws necessary to criminalize counterfeiting. It is an
administrative procedure, you get a slap on the hand, you move
across the street, and you are back in business. They have not
cracked down on the corruption in the provinces, where
frequently you have local leaders in cahoots with the
counterfeiters. Enough is enough. This has to be accelerated.
China Customs has to start intercepting the export of
counterfeit goods.
And then China comes along with the indigenous innovation
product accreditation system, saying, you know, we are tired of
using American technologies and British technologies and
Japanese and others. We want Chinese. And the best way to do
that is to take our enormous government procurement market and
close it off. So only indigenous Chinese technologies, those
developed in China and owned by Chinese, and that were
originally registered in China, will be able to participate in
the Chinese government market. Well, you know, that is blatant
protectionism. That is what the whole world trading system is
designed to stop.
Now, on top of that, it was only a couple of months ago
that China solemnly promised in the Joint Commission of
Commerce and Trade statement, that China will require that
products produced in China by foreign enterprises will be
treated equally with domestic products. Well, you know, I guess
that promise was good only for 3 months.
Anyway, this is a very, very serious challenge. This could
be the most serious challenge to U.S. manufacturing ever faced.
So I commend you for this hearing. Please stay on top with the
NAM will. The best way to solve this, of course, is in a
collegial way with the Chinese government, and we certainly
hope that works, but one way or another this is unacceptable.
Thank you.
[The prepared statement of Mr. Vargo follows:]
[GRAPHIC] [TIFF OMITTED] T7791.088
[GRAPHIC] [TIFF OMITTED] T7791.089
[GRAPHIC] [TIFF OMITTED] T7791.090
[GRAPHIC] [TIFF OMITTED] T7791.091
[GRAPHIC] [TIFF OMITTED] T7791.092
[GRAPHIC] [TIFF OMITTED] T7791.093
[GRAPHIC] [TIFF OMITTED] T7791.094
[GRAPHIC] [TIFF OMITTED] T7791.095
[GRAPHIC] [TIFF OMITTED] T7791.096
[GRAPHIC] [TIFF OMITTED] T7791.097
[GRAPHIC] [TIFF OMITTED] T7791.098
Ms. Watson. I would like to thank all the witnesses for
your very informative testimony.
I would like to raise some questions, first with Mr.
Holleyman. I want to continue on this issue that we have been
referring to, China's proposed regulation on what is being
called the national indigenous innovation products.
Is my understanding correct that these regulations will
require your members to partner with or transfer their IPR to
Chinese industry in order to qualify for government procurement
programs?
Mr. Holleyman. Madam Chairwoman, that's the perfect
question, and this issue is moving so quickly. Fortunately, the
U.S. Government team has mobilized very quickly to counter
this. But yes, that certainly is the intent of those
regulations, that something would have to be completely
indigenous to China, which would require the transfer of IP. It
is certainly not clear that any of my members could ever----
Ms. Watson. What type of products?
Mr. Holleyman. Well, there are six categories: computer
applications and devices, communications products, modernized
office equipment, software, new energy and equipment, and
highly energy efficient products, and the understanding is this
will be rolled out across a very broad sector of products,
starting with these. And so it is not clear that any U.S.
company could qualify or will make the type of concessions that
the Chinese are seeking, so this will effectively exclude them
from the market and certainly give hard preferences to whatever
indigenous innovation occurs.
Ms. Watson. Are there other proposals still under
consideration?
Mr. Holleyman. Still under consideration. As with all
things in China, it is not completely explicit and clear until
it is seen, and in this case it moves very quickly, but the
business community not only here but in Europe, elsewhere in
Asia and Latin America, and governments understand that this
could be sweeping in scope, and what we need is this to be
rolled back while there are further discussions with the United
States, the E.U., and other major trading partners.
Ms. Watson. Are we still partnering, discussing partnering
in terms of the membership of China with the WTO?
Mr. Holleyman. Well, they have made a commitment that they
will join the government procurement agreement as part of the
WTO. They did it when they entered the WTO. They have made it
in JCC to commitments to the United States and we believe that
this action is contrary to the spirit of those commitments. in
addition, it will have a dramatic exclusionary effect for
companies.
Ms. Watson. Now, do you think it would be helpful for us
here on this subcommittee to assist you in engaging our Federal
agencies or China's diplomatic representatives here in
Washington on these matters?
Mr. Holleyman. Absolutely. I think that an outreach by this
committee, you as the Chairwoman and Mr. Bilbray, directly to
the Chinese Ambassador urging cooperation and trying to hold
these off for pending further discussions will be useful.
I know that the issue is now getting the highest level of
attention within the U.S. Government. One of our CEOs raised it
at the President's job summit last week because not only does
this take away the potential for job growth for American
companies and software and other industries in China, but it
could cost the loss of jobs that we currently have today if
that large market is shut out for further procurements.
Ms. Watson. Our ranking member, Mr. Bilbray, has questions.
Mr. Bilbray. Thank you.
Congressman, thank you very much for broaching the issue
that there needs to be a nexus between trade agreements and
intellectual property. I think, looking at the lack of
oversight in trade agreements in the past create a situation
like what we have right now with Colombia, and especially
Panama, where we have still got that trade agreement hanging
out there. And I see why people are skeptical of trade
agreements, because they look at the history of not maintaining
some level playing field.
And it really does hurt when you have a gray proposal, like
we have with Panama, that they want to buy our bulldozers, Mr.
Vargo. They want to build a canal with American equipment, and
Washington's political structure is holding this up, when boy,
I tell you, if there was any agreement that I saw that should
be a matter of signing, that was one. But because of the lack
of nexus, we are not doing enforcement.
Now, the Korean situation to me is as close to a parallel,
could become a parallel, as China as we see on the horizon. The
question is: is it just because, as we would say, too big to
fail, that China is too big to confront now, that we are
confronted with an 80 percent of world pirating coming out of
one political agency.
And we can't say that they are not willing to do
enforcement. We saw how effective they were with the milk
tainting situation. Instead of giving them AIG pay raises, they
take people out in the back yard. But you want to clarify
exactly how we could be a little tougher on this?
Mr. Glickman. First of all, that's a great question. I
mentioned this before. We have this conflict because we have
these countries on our special 301 list, and yet the same
countries are on our general preference list.
Mr. Bilbray. Right.
Mr. Glickman. One, for example, is Russia. Eight years ago
the U.S. industry submitted a petition to suspend GSP benefits
for Russia, which has been on the priority watch list for the
last 12 years, which has some of the highest piracy in the
world; however, no action has been taken on the petition, and
copyright piracy rages in Russia. Ironically, Russia is one of
the fastest growing legal markets, as well, for U.S. products.
So these are, as you can imagine, very complicated issues.
China, my friend Robert talked a bit about China. We, of
course, filed a WTO case against China for basically inadequate
intellectual property enforcement. We largely won that case.
The Chinese are going to be appealing that case. And I think
one of the things that is helping us now more than what we
faced in the past is the rest of the world is coming along with
us now.
If it were viewed just as the United States versus China,
we will probably wait for another 250 years to get really
anything done. But if it is the rest of the world involved in
this case, if they join with us on the manufacturing sectors,
the pharmaceutical sectors, the automobile sectors, the
entertainment sectors, and at agriculture sectors, then I think
that we can have some impact.
They are in the WTO now, and one positive sign I see out of
China for the first time is a great entrepreneurial class that
is building that wants to protect their own intellectual
property and see themselves victims of an arbitrary government
action in this regard. But it is not easy and there is no
simple solution except pressure at all levels, from the public
sector and the private sector. It has had some impacts on other
parts of the world; it has not yet had dramatic impact in
China. There is no question about it.
Mr. Bilbray. Is the European Union backing us up on this
now?
Mr. Glickman. They are beginning to back us up a lot more
than they used to be. For example, you know, for a while they
let us fight the battles for them, as they often----
Mr. Bilbray. Europe has gotten into that habit.
Mr. Glickman. But now, I mean, Europe and the United States
share many of the same perspectives on manufacturing and
intellectual property issues. In the film issue, for example,
there is a quota. China will only import 20 foreign films a
year under what you call normal revenue sharing agreements. The
United States has maybe 13 or 14 of those, and the rest of the
world has 6 or 7 of those. Of course, you can find any movie
ever made in the history of the world on the streets of China,
as well. But the Europeans are beginning to join us on those
issues, as well.
By the way, the Europeans are making their own positive
movement in the area of piracy. You mentioned both France,
U.K., that are moving ahead, particularly in the area of
Internet piracy. That is a positive sign, not only for
themselves but also how it relates to places like China that we
have seen very little movement in the past.
Mr. Bilbray. Now, let's get back to this, though, this
nexus between if you want to be our first class trading partner
you have to be responsible to the intellectual property issue.
I see this as a major issue. I have scientists that have
developed new, you know, genetically altered algaes that can
produce diesel gasoline and jetco. This is going to be a big
deal in the next 20 years. Have we made that nexus? Are we
tying those together? Are we welding them together to where you
can't play one game here and then expect to play the other game
over here?
Mr. Glickman. I think it requires, quite frankly, much
greater attention to the inconsistencies that exist in the
world trading situation, and for the U.S. Government to be a
lot more consistent in its own approach.
I realize there are a lot of political issues here that you
have to deal with country-by-country, but the disconnect, just
the Russia example I have given you, and there are a lot of
others in there where we kind of turn a blind eye on some
things for maybe political reasons and our trade agenda
suffers. That is something that we really need to move away
from.
Mr. Bilbray. And I worry about it, Madam Chair, that the
fact is the big guys get away with murder while the little guys
like Panama are waiting in hand with everything we have ever
asked from them, but because they are so little we don't want
to bother with the negotiations, and I just think it sends a
really wrong message. I think any parent would never accept the
same thing in their family, and I don't think in the
international community we should accept it, either.
Thank you very much.
Ms. Watson. Thank you.
Ms. Chu.
Ms. Chu. Mr. Toohey, California is home to many research
institutions from well respected universities to biotech firms.
In fact, the State is home to 2,042 biomed companies. In fact,
the California biomed industry has grown from ideas first
germinated in the State's first universities and has flourished
through entrepreneurial commitment and investor financing to
create a very strong industry that has led to breakthrough
technologies and therapies that have helped patients around the
world. These businesses create high-paying jobs and keep more
than 270,000 Californians employed. All of this is dependent on
patent protection that is strong.
How do the needs of the pharmaceutical industry compare to
that of the biotech and research universities? What are the
areas where you agree with regard to patent requirement? Where
do they diverge?
Mr. Toohey. Well, first of all, Congresswoman, I absolutely
agree with the importance to California and the leading role
that California has played with respect to biomedical
innovation and it is a growing engine for the industry and for
the world and it needs to be protected.
Patents and data protection and the whole suite of
protections available for biomedical innovations are critical.
They are critical to universities. They are critical to
innovative companies. But we are finding in many cases that
these patents are not really respected around the world. I
believe we share very much with biomedical universities the
same concerns about the protection of patents and the
protection of test data protection.
You know, I would appreciate the opportunity perhaps to
discuss a little bit more with some colleagues and get a more
complete answer back to you about some of the areas and ways we
have worked with some of the California biomedical
universities. But as I understand it, we very much share the
concerns that countries around the world need to enforce
patents, need to provide appropriate protection for our
clinical data. And in many cases that is not happening. The
United States really leads the world in its protection, and we
are finding that countries, even developed countries, are not
allowing the protection of IP and market access in order for
all patients to be able to receive their medicines.
Ms. Chu. Thank you.
Mr. Glickman, many of my constituents work in the film
industry, either in set design, editing, or even acting. I know
how important a strong and robust film industry is to them, not
to mention to the overall U.S. economy. I know the industry is
working hard with international governments and the Federal
Government here at home to ensure that intellectual property
laws are adequately enforced.
Just yesterday your organization was successful in helping
to put an end to a notorious illegal Web site that was being
operated in China after a 2-year-long Government investigation.
This conviction of a Chinese couple is the most recent that you
have successfully brought against copyright infringers on
mainland China.
What can we learn from other countries? I know we talked a
lot about China and how badly they are protecting, but are
there examples that are both good and bad of how we can improve
our enforcement system here at home?
Mr. Glickman. That's a very good question. First of all, I
don't want to say it is 100 percent bad in China. After we
filed the WTO case, the Chinese resisted, but there have been
some improvements of training of IP judges. There has been some
enforcement improvement. I would call it not material yet, but
better than it was 5 years ago. But there is a lot of great
stuff. So the pressure stays on and what we find is the more
the Chinese develop an indigenous film industry of local
producers, local actors, local directors, their stuff is
getting pirated all over the place in China, just like our
stuff is getting pirated. So the more we are all in this
together, the better they, as well as us, see the need to
protect intellectual property.
You go into these stores, there is a store in Shanghai
called the Oscar Club. It is about 95 percent pirated stuff.
Most beautiful video store you have ever seen in your life. It
is not just American stuff. It has as much Chinese stuff as
almost anything else. It has French. It has south Asian. It has
everything else. So the more we can get the Chinese creative
community involved, the better we are.
But other countries are also taking a very strong lead,
particularly in Internet piracy. The French have adopted a
system of graduated responses where they try to educate
consumers, and then if they can't get them educated then they
give the Internet service provider a mandate to take more
forceful action. Other countries around the world are following
that model.
We in our country, we are working with the Internet service
providers very diligently to get them to do the same kind of
thing that is permitted under something called the Digital
Millennium Copyright Act [DMCA] in which all of this is done.
But this is a worldwide battle waged everywhere in the world,
but there are two positive things that have happened that I
must tell you. One is this used to be a music and movies issue.
This is a comprehensive, worldwide manufacturing, software,
pharmaceutical, automobile, and everything, and for the first
time in the last 4 or 5 years we are all working on this thing
as an American issue. It is a gigantic American issue.
Then, in terms of the movie industry, we now have our
unions, our guilds, the folks who actually work in the trenches
all the time making these movies, as much involved with us--the
Directors Guild, the Screen Actors Guild, and others, the
Theater--well, all the organizations that are there. So we are
finally beginning to get some political clout, both with
respect to American industry generally as well as within our
own industry.
There is a lot of perception out there that our business is
big movie stars and that's it. Of the people, 99.9 percent make
less than $100,000 a year. They work very hard. They support
their families. They are the people that Chairwoman Watson, I
am sure, that occupies her District by and large.
So with that you try and develop the political clout to be
able to show that this is important to our Government as well
as governments around the world.
I don't want to make this all the voice of gloom and doom.
I think there is a growing political clout to take this on as a
very monumentally serious economic issue to this country. I
hope we can get your help, which we have, and the help of our
U.S. Government representatives to keep the fight going.
Ms. Watson. I would like to conclude with throwing this
question out to all of you, and then specifically being that we
are in the kind of financial crisis as a Government that we are
in, would your industries that are represented here at the
table be willing to contribute financially to our efforts as
the Government through a dedicated tax or users fee? So if you
have recommendations that have not been mentioned, would you
comment on those and let us know how we can pay, how you can
help us to be able to bring these recommendations to fruition.
Let's start with Mr. Holleyman.
Mr. Holleyman. Madam Chairwoman, I think the question for
us is how do we drive more American jobs through protecting IP
here and abroad. I think that companies in BSA are spending
tens of millions of dollars a year independently and through
organizations like BSA to do this. I think that a tax to cover
this could be misused in other markets as a subterfuge for
diverting resources into funds that were not focused on IP
enforcement.
So I don't think the tax mechanism, certainly in the
current climate, is the way to do it. I think it is a will. I
think it is getting the new people in place who are now getting
in place, and the support of this Congress to ensure that
agencies understand this is an issue of American jobs and
American innovation.
Mr. Vargo. Madam Chairwoman, American manufacturing is
already the most heavily taxed in the world. That's one of the
major problems that we face, along with theft of intellectual
property. So I would not see this as a way to go ahead. But
there is so much more the Government can do, both through
coordination and through the trade agreements.
Mr. Bilbray mentioned Panama. He is exactly right. The NAM
likes these trade agreements because we have a manufactured
goods trade surplus. We think NAFTA, CAFTA, Australia, and the
rest together, last year we sold $21 billion more in
manufactured goods than we bought, so we need more of these.
The Government can do more to advance these. Every day that the
Colombia, Panama, and other agreements languish costs us jobs.
It costs us revenues.
Enforcement of trade agreements, this administration is
doing a good job with accelerating that.
Ms. Watson. Mr. Toohey.
Mr. Toohey. Well, as has already been stated, innovation is
critical to the future of this country, and protecting
innovation ought to be a core function of what the U.S.
Government does. I think in some cases countries around the
world think differently about intellectual property.
Intellectual property is the only right contained in the main
body of the U.S. Constitution. Article I, Clause VIII, Section
VIII, it is the only right. We have it so much in the soul of
our country, which allows us to really lead in innovation, and
many countries around the world simply don't share that view.
We as the pharmaceutical industry have worked proactively
and in many cases with partnerships with organizations like PTO
and the State Department to train judges in Latin America, to
train patent examiners in China, to build that capacity. I
think it is a cooperation that we need to do more of, and it is
the right type of capacity building that we are engaged in. But
protecting innovation ought to be a core function of the U.S.
Government.
Ms. Watson. Mr. Bilbray.
Mr. Bilbray. Yes. I appreciate your bringing that up,
because I think that is one thing we don't teach our children
or our Members of Congress enough, about the intellectual
property issue, that everything that we looked at what happened
after 1800 in this country and how we basically moved on and
beyond our mother country, which was the industrial base,
countries like Germany and Britain had a big head start.
But intellectual property allowed us to evolve. That's
where we did get the Carnegies. That's where we did get new
processing for creating steel. That's where the railroad
systems were totally renovated by the Americans. That's where
the automobile was evolved. All of the prosperity that we see
in capitalism we have to understand was based on the fact that
intellectual property protection, that Government's place in
this great economic boom was to protect those intellectual
properties so that there was the return for the investment in
developing these new concepts.
I think we grossly underestimate that, and I am glad you
brought up the fact that before there was the Bill of Rights,
before we articulated the rights of individuals to do and speak
and possess certain things, the right to possess and protection
your intellectual property was in our Constitution before all
those other rights were enumerated, and that is an essential
thing that we don't articulate enough either in our classrooms
or in the halls of Congress.
Thank you very much.
Ms. Watson. And Mr. Glickman, we are going to give you the
final word. Since you represent an industry in my District, we
will give you the final word.
Mr. Glickman. I just concur with what my colleagues have
said. This is a matter that affects the general economy of the
country, so I think that if we go down the road of doing
special assessments and special taxes for issues that affect--
--
Ms. Watson. Or user fees.
Mr. Glickman. Or even user fees for items that affect the
country as a whole, then, you know, you could probably fund the
Government just by nothing else but special assessments,
special user fees. So I think the question here is resources,
but it is also a question of will. It is also a question of
commitment.
What is so great about your hearing today is that the
message that is being shouted out from you all is that we need
to sustain this will to take this problem on, and I can tell
you from an industry's perspective we are getting our act
together, without question.
Ms. Watson. I appreciate that.
I just want all of you in the audience to know this is a
very critical issue, and this won't be the last hearing, as I
mentioned before. We are going to followup. We want to know
what is being done in Government. We have a theory of pay-go,
and we have a huge debt. China becomes the central focus, Mr.
Vargo, as you mentioned among your three Cs, politically. We
need their assistance in dealing with North Korea and so on,
the largest nation in population on the globe, and so it
presents some unique challenges to us.
But we are on it. The political will is there. We are going
to continue to pursue it until we get some resolutions that are
workable.
With that, thank you for your testimony panel two. Thank
you for the audience being here. We will adjourn the meeting.
[Whereupon, at 12:30 p.m., the subcommittee was adjourned.]
[The prepared statement of Hon. Christopher S. Murphy
follows:]
[GRAPHIC] [TIFF OMITTED] T7791.099
[GRAPHIC] [TIFF OMITTED] T7791.100