[Senate Hearing 111-847]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-847
 
   OVERSIGHT OF THE OFFICE OF THE INTELLECTUAL PROPERTY ENFORCEMENT 
                              COORDINATOR

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


                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 23, 2010

                               __________

                          Serial No. J-111-99

                               __________

         Printed for the use of the Committee on the Judiciary




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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin                 JEFF SESSIONS, Alabama
DIANNE FEINSTEIN, California         ORRIN G. HATCH, Utah
RUSSELL D. FEINGOLD, Wisconsin       CHARLES E. GRASSLEY, Iowa
ARLEN SPECTER, Pennsylvania          JON KYL, Arizona
CHARLES E. SCHUMER, New York         LINDSEY GRAHAM, South Carolina
RICHARD J. DURBIN, Illinois          JOHN CORNYN, Texas
BENJAMIN L. CARDIN, Maryland         TOM COBURN, Oklahoma
SHELDON WHITEHOUSE, Rhode Island
AMY KLOBUCHAR, Minnesota
EDWARD E. KAUFMAN, Delaware
AL FRANKEN, Minnesota
            Bruce A. Cohen, Chief Counsel and Staff Director
                  Matt Miner, Republican Chief Counsel


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     1
    prepared statement...........................................   184

                               WITNESSES

Almeida, Paul E., President, Department for Professional 
  Employees, AFL-CIO, Washington, DC.............................    20
Bienstock, Caroline, President and Chief Executive Office, Carlin 
  America, New York, New York....................................    25
Espinel, Victoria A., Intellectual Property Enforcement 
  Coordinator, Office of Management and Budget, Washington, DC...     3
Hirschmann, David, President and Chief Executive Office, Global 
  Intellectual Property Center, U.S. Chamber of Commerce, 
  Washington, DC.................................................    22
Meyer, Barry M., Chairman and Chief Executive Office, Warner 
  Brothers Entertainment, Inc., Burbank, California..............    17

                         QUESTIONS AND ANSWERS

Responses of Paul E. Almeida to questions submitted by Senators 
  Coburn and Grassley............................................    36
Responses of Victoria A. Espinel and Caroline Bienstock to 
  questions submitted by Senators Coburn, Grassley and Hatch.....    41
Responses of David Hirschmann to questions submitted by Senators 
  Coburn and Grassley............................................    77
Responses of Barry M. Meyer to questions submitted by Senators 
  Coburn and Grassley............................................    84

                       SUBMISSIONS FOR THE RECORD

Almeida, Paul E., President, Department for Professional 
  Employees, AFL-CIO, Washington, DC, statement..................    88
Bienstock, Caroline, President and Chief Executive Office, Carlin 
  America, New York, New York, statement.........................    97
Copyright Alliance, Patrick Ross, Executive Director, Washington, 
  DC, letter.....................................................   108
    March 24, 2010, letter.......................................   110
    Report.......................................................   133
Espinel, Victoria A., Intellectual Property Enforcement 
  Coordinator, Office of Management and Budget, Washington, DC, 
  statement......................................................   170
Hirschmann, David, President and Chief Executive Office, Global 
  Intellectual Property Center, U.S. Chamber of Commerce, 
  Washington, DC, statement......................................   175
Meyer, Barry M., Chairman and Chief Executive Office, Warner 
  Brothers Entertainment, Inc., Burbank, California, statement...   186
Yates, James M., Missouri, statement.............................   196


   OVERSIGHT OF THE OFFICE OF THE INTELLECTUAL PROPERTY ENFORCEMENT 
                              COORDINATOR

                              ----------                              


                        WEDNESDAY, JUNE 23, 2010

                                       U.S. Senate,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:05 a.m., Room 
SD-226, Dirksen Senate Office Building, Hon. Patrick J. Leahy, 
Chairman of the Committee, presiding.
    Present: Senators Whitehouse, Klobuchar, Franken, Hatch, 
Grassley, and Coburn.

OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM 
                      THE STATE OF VERMONT

    Chairman Leahy. There are many things going on on the Hill, 
but this whole area of intellectual property is one of great 
concern not only to me, but to many here. Intellectual property 
fuels the American economy and creates jobs.
    The Chamber of Commerce estimates that American 
intellectual property accounts for more than $5 trillion. IP-
intensive industries employ more than 18 million workers, many 
of them in my own State of Vermont.
    Just as intellectual property is crucial to our economy, 
counterfeiting and piracy of that American intellectual 
property slows our growth. We recognize the value and 
importance of IP throughout our Nation's history.
    It is actually included in our Constitution; a strong, but 
balanced system for protecting intellectual property is not 
uniquely a Democratic or Republican priority. It is something 
that joins both parties.
    The pro-IP bill enacted last Congress was co-sponsored by 
22 Senators, 11 Democrats, 11 Republicans, and it passed the 
Senate unanimously. Patent reform legislation is another 
shining example of our bipartisan work in this area.
    Along with Senators Hatch, Sessions and Kyl, we forged 
bipartisan consensus, legislation to improve the economy and 
create jobs and not add to the deficit. It shows what we can do 
when we work together.
    Today's hearing is the first oversight hearing with the 
Intellectual Property Enforcement Coordinator. It is her first 
appearance before this panel since her confirmation hearing 
before this Committee last November. And we welcome Victoria 
Espinel back to the Committee to discuss the joint strategic 
plan for intellectual property enforcement.
    She testified here in her confirmation hearing, got a 
unanimous vote out of the Judiciary Committee, and was 
confirmed unanimously on the floor of the Senate.
    Congress created the IP enforcement coordinator position in 
response to concerns of numerous agencies within the government 
sharing responsibility for protecting intellectual property who 
were not sharing information and coordinating as well as they 
should.
    In order to enforce the laws, we have to have it as 
efficient and effective as possible. And intellectual property 
crime takes so many different areas. It could be a counterfeit, 
an inferior semiconductor that then finds its way into one of 
our military aircraft.
    It could be the counterfeit and unsafe pharmaceutical 
products used to treat an illness, pirated software. Mob-run 
Cyberlockers subscription service has stolen American movies, 
as Reuters reported just yesterday.
    In all these forms, it hurts our economy, results in the 
loss of hundreds of thousands of jobs, and billions in tax 
revenues. But it can also put our health and safety in jeopardy 
here in this country and put the health and safety of our 
troops fighting abroad in jeopardy.
    So the first important task for the enforcement coordinator 
was to create a joint strategic plan, and I applaud Ms. Espinel 
for the way she has worked on that and the openness of it.
    I am concerned that increasingly the Internet is being used 
to steal intellectual property from books and journal articles, 
software, movies, music. This is no longer an emerging 
nuisance, but a very real threat to our economy.
    The AFL-CIO recently cited studies estimating that digital 
theft of just movies and music cost more than 200,000 jobs. 
That is unacceptable under any economic climate, and it is 
devastating today.
    So I wish to work with Senator Hatch, Senator Whitehouse 
and others on legislation that is going to target those that 
profit directly from taking American property.
    I thank Ms. Espinel for appearing before the committee. And 
something we normally do not do in this committee, if there is 
good news to report from the U.S.-Algeria World Cup match, I 
will report it.
    [Laughter.]
    Chairman Leahy. I have been on this Committee for a third 
of a century and I think that is the first time such an 
announcement has been made.
    Ms. Espinel, of course, had previously served as the 
Assistant U.S. Trade Representative for Intellectual Property. 
She was chief trade negotiator for the United States on 
intellectual property issues.
    She received her undergraduate and law degrees from 
Georgetown. Those of us who got law degrees from Georgetown 
appreciate. She has a master of laws degree from the London 
School of Economics.
    [The prepared statement of Chairman Leahy appears as a 
submission for the record.]
    Chairman Leahy. Ms. Espinel, please go ahead.

 STATEMENT OF HON. VICTORIA A. ESPINEL, INTELLECTUAL PROPERTY 
   ENFORCEMENT COORDINATOR, OFFICE OF MANAGEMENT AND BUDGET, 
                         WASHINGTON, DC

    Ms. Espinel. Thank you. Chairman Leahy, members of the 
Judiciary Committee, thank you for your continued leadership on 
this important issue.
    I sit here today humbled by my recent confirmation and 
service to the President as the first Intellectual Property 
Enforcement Coordinator on a vital issue facing American 
businesses and American consumers in the 21st century.
    Congress created my office in an important first step at 
reform, and the response has been overwhelmingly supportive. I 
feel privileged to have the opportunity to work with you on 
this effort.
    Congress tasked the Administration with developing and 
implementing a U.S. Government strategy to tackle a wide range 
of problems associated with intellectual property enforcement, 
and today I am pleased to present you with that strategy.
    This first strategy reflects the hard work of and 
coordination between numerous U.S. Government agencies, 
including many dedicated public servants and law enforcement 
officials, the public, the private sector, and my small, but 
hardworking team. But the release of this strategy marks the 
commencement of a long process, and much hard work lies ahead.
    Our country needs America's ingenuity now more than ever. 
It is America's innovation that drives our economy and keeps 
our people working, and that makes our enforcement efforts all 
the more critical.
    In this strategy, we have attempted to capture the most 
significant issues that require immediate attention. We will be 
targeting counterfeiters and pirates, not those engaged in 
legal and legitimate activities. Increased coordination, 
cooperation, and prioritization must accompany this first step; 
and, legislative action may be required in order to fulfill our 
goals.
    The United States has always been a global leader in 
developing new technologies. We lead the way in bringing new 
pharmaceuticals to consumers, inventing tires that keep 
families safe on the road, developing environmentally conscious 
technologies, creating innovative software, and producing 
films, music and games that are craved by consumers around the 
world.
    However, our leadership in the development of innovative 
technology and creative works also makes us a global target for 
theft. Counterfeiting and piracy affects a vast range of 
businesses and industry sectors. As part of our efforts to 
develop the strategic plan, we asked the public for input so 
that we could understand directly their concerns, and we 
received over 1,600 responses. My office reviewed all of those 
responses and posted them all on our Website.
    I also met with companies across a broad range of America's 
industries, as well as unions, academics, and consumer groups, 
to engage them about where the problems in intellectual 
property enforcement lie and to find out what we can do to make 
things better for the many Americans and American industries 
that depend on intellectual property for their success. This 
strategy reflects the recommendations that came from the 
public.
    I want to emphasize that the development of this strategy 
was an interagency collaboration. The Department of Justice, 
Homeland Security, Commerce, USTR, HHS, State and others all 
worked tirelessly to make this an excellent and forward-leaning 
strategy.
    The overarching mission is to ensure that all of the 
agencies that have a hand in enforcing intellectual property 
are working together in a coordinated fashion and in a manner 
that is consistent with the priorities of this Administration.
    With increased cooperation and coordination, this plan has 
the ability to alter our approach to enforcement for the better 
for many years to come. To do so, we are taking some bold new 
steps and we look forward to working with you.
    Just to highlight a few items. The U.S. Government will 
launch an initiative to collect and analyze data to determine 
the jobs and the exports that are generated by the intellectual 
property industries.
    We will also collect data on the resources that we spend on 
intellectual property enforcement to make sure that we are 
using those resources as efficiently as possible. This 
information will be valuable to better inform our approach for 
years to come.
    We will lead by example. We are establishing a 
governmentwide procurement working group which will prepare 
recommendations on how to reduce the risk of the purchase of 
counterfeit products. We will also review our policies and 
practices to promote the legal use of software by those who are 
doing business with the U.S. Government.
    This Administration is strongly committed to transparency 
in our policymaking. Both the process through which the 
strategy was developed and the substance of the strategy 
reflect that. We will increase information-sharing with right-
holders. We will work to ensure that victims of crime and the 
public are appropriately informed of our activities.
    In order to reduce duplication and waste, we will ensure 
that Federal agencies are coordinating, cooperating, and 
offering broad participation on this issue. We will improve the 
effectiveness of our personnel that are overseas to combat 
intellectual property infringement. We will strive to station 
those personnel in the countries of top concern, and we will 
improve coordination of our capacity and training so that the 
foreign governments have the tools necessary to strengthen 
enforcement on their own.
    We will work with foreign governments to increase foreign 
law enforcement efforts, and we will promote enforcement of our 
rights through our trade policy tools, such as trade agreements 
and the special 301.
    We are establishing a counterfeit pharmaceutical 
interagency Committee to examine the numerous problems 
associated with unlicensed Internet pharmacies, health and 
safety risks in the United States due to the distribution of 
counterfeit pharmaceuticals, and the proliferation of 
counterfeit drugs abroad.
    To further guard against counterfeit drugs, we will 
increase our enforcement efforts in cooperation with relevant 
agencies, including Customs, the Food and Drug Administration, 
and DEA.
    In order to reduce counterfeit goods coming into our supply 
chain, we want to encourage voluntary disclosure; to encourage 
importers to come forward when they learn that counterfeit 
drugs have infiltrated their supply chain without their 
knowledge.
    We also need to facilitate cooperation to reduce 
infringement occurring over the Internet. It is important for 
the private sector to work together to find practical and 
efficient solutions to the problems on their own.
    In the meantime, we will be, also, exploring alternative 
measures to reduce piracy online. For example, we will go after 
foreign-based Websites and Web services that violate our 
intellectual property rights using a combination of tools, 
including law enforcement, diplomatic measures, and 
coordination with the private sector.
    We will also conduct a comprehensive review of our laws to 
determine if there are deficiencies that are hindering our 
enforcement efforts and to make sure that we are addressing 
those deficiencies.
    Finally, we will undertake a comprehensive review of our 
efforts to support our businesses, big and small, when they are 
navigating in overseas markets, including in China.
    I have stated some ambitious goals. This Committee has been 
steadfast in its fight for justice for the American people. I 
commend your leadership on these issues, and I look forward to 
working closely with this Committee in the coming months on 
improving our enforcement efforts here and abroad.
    Thank you very much.
    [The prepared statement of Ms. Espinel appears as a 
submission for the record.]
    Chairman Leahy. I believe in balanced copyright laws. The 
same day the Senate passed the Pro-IP Act, the Senate also 
passed legislation that Senator Hatch and I had to make it 
easier to use orphan works.
    When I look at online piracy, the criminal enterprises are 
stealing full-length feature movies made in the U.S., and then 
that money is being used to fund other criminal activity. 
Organized crime used to be involved in things like bootleg 
liquor and that generations ago. Now, they are involved in 
these things.
    Will you work with us on legislation that we can enact to 
allow us to shut down these kinds of Websites that are being 
used by organized crime?
    Ms. Espinel. Yes. This is an issue of great concern to us 
and we would look forward to working with you on such 
legislation.
    Chairman Leahy. Now, one of the concerns we had and one of 
the reasons why, again, several on this committee, in both 
parties, wanted to do this coordination, is that, we were 
afraid that some of the actions that should be taken were not 
being taken, because there was not good enough coordination 
among the various agencies.
    Are you finding you are able to bring these agencies 
together or are you finding resistance? And be frank.
    Ms. Espinel. Thank you, Senator. I have found, in the 
process of putting together this strategy, that there has been 
a tremendous amount of coordination and excellent input from 
the agencies.
    I really want to underscore actually how committed the 
agencies have been to this process. We worked very, very 
closely with many of them, including the Department of Justice, 
Homeland Security, Commerce, the USTR, State, HHS, and they 
have worked very closely and collaboratively with us to make 
this strategy as strong as possible.
    There are a number of things in the strategy that go to 
exactly the issue that you raised. I will highlight just a few, 
but we have committed to increase coordination of our domestic 
law enforcement agencies to make sure that they are working 
together as well as possible, including increased information-
sharing.
    Chairman Leahy. If I could just go on that a bit. That 
coordination, the local law enforcement, there are a lot of 
things they could do if they had the tools, the expertise, and 
the coordination; am I correct?
    Ms. Espinel. Yes, you are correct. And, in fact, there are 
items in the strategy that go to that issue very directly; 
coordination with our state and local law enforcement, so that 
we can maximize the resources that we have and help support the 
Federal law enforcement efforts that we have ongoing.
    We also want to make sure that our personnel that are 
stationed overseas are well coordinated both in country, so 
they are working together well as teams in country, and that 
they are getting good, clear guidance and priorities from the 
Administration back at home.
    We have committed to make sure that our training efforts 
are coordinated; that we are focusing on the countries of most 
concern. We are also establishing four new working groups. So 
in addition to the interagency Committee that we have created 
on intellectual property enforcement, we will be creating four 
new working groups on government procurement, counterfeit 
pharmaceuticals, economic analysis, and our international 
capacity-building and training efforts.
    Chairman Leahy. One of the things I am very concerned 
about--I am trying to say this based on just what has been in 
the press, obviously. If there is a closed session--and I am 
sure you have seen some of the classified material on it.
    But if we are having counterfeit microchips and other 
materials in our Department of Defense chain or acquisition 
chain, I worry what that might do to our men and women who are 
on the front lines, and we are in two wars, and we have other 
responsibilities around the world.
    Is that something that you and the Department of Defense 
are looking at?
    Ms. Espinel. Yes, Senator. We share your concern. Selling 
counterfeit products to our military is reprehensible and must 
be stopped. We are working with the Department of Defense, as 
well as other relevant agencies to address this problem.
    Chairman Leahy. Well, I think it is safe to say that if you 
need help from this Committee or any other Committee on that, 
you will get strong bipartisan help.
    Ms. Espinel. Thank you.
    Chairman Leahy. Then, last, you raised the issue of IP 
theft and international organized crime. The Attorney General 
has stressed that.
    Is this a priority in trying to coordinate between Homeland 
Security and Department of Justice? I know you have referred to 
this already in your department, because if organized crime 
gets their hands into this, we have a real, real problem.
    Ms. Espinel. We share that concern, as well. We are 
concerned that this type of activity is very attractive to 
organized crime, because the profit margins are high and the 
risk is low.
    I think many of the things that we are doing in the 
strategy, including the increased coordination efforts that I 
mentioned, will help us better target all types of intellectual 
property crime, including those that are linked to organized 
crime.
    Chairman Leahy. Thank you very much.
    Senator Hatch.
    Senator Hatch. Well, thank you, Mr. Chairman.
    Welcome to the committee. We are very pleased with your 
work and what you are doing, and I really appreciated your 
comments, your opening comments.
    Today's hearing is really history-making, because this is 
the first oversight hearing of the Office of the Intellectual 
Property Enforcement Coordinator. So I think that is a good 
thing.
    Let me just ask a few questions here that hopefully will 
help us a little bit.
    When you appeared before this Committee last year, I 
expressed reservations about placing your position in the 
Office of Management and Budget. As you know, I believe that 
the IP enforcement coordinator position would have been better 
suited with an organization that had a clear nexus to 
intellectual property concerns.
    Could you give us an update on how things are working with 
OMB and how many are working with you on your staff, and what 
is your annual budget?
    Ms. Espinel. Yes. So just let me start by saying that the 
Office of Management and Budget coordinates policy in a number 
of areas, and one of their roles is to make sure that the 
agency's activities are consistent with the President's 
priorities and the Administration's priorities, and that is the 
role of my office, as well.
    I am lucky in this effort in that I am not alone. There are 
many agencies that are committed to this effort, and so I have 
the resources and the expertise of those Federal agencies to 
call on, as well as the resources and the expertise inside of 
OMB.
    Some of those agencies have been generous enough to supply 
me with temporary details in order to help with the development 
of this strategy. So I have a small, but very hardworking team.
    We are a new office, as you know. So we will be assessing 
our needs on an ongoing basis. But I would also just like to 
say I think I came into this job with a choice either to put 
together a very modest plan that would be easy to implement or 
put together an ambitious plan.
    It was my choice and the choice of the agencies that worked 
with me to put together a very ambitious plan, and I am 
confident that we will be able to implement it.
    Senator Hatch. Thank you. I noticed in the joint strategic 
plan that the first enforcement strategy action item is the 
establishment of a U.S. Government-wide working group to 
prevent U.S. Government purchase of counterfeit products.
    As you are well aware, counterfeiting and piracy are not 
just about downloading music or pirated software, although 
that's bad enough. These crimes affect all sectors of our 
economy, including high tech, pharmaceuticals, auto parts, the 
quality and safety of our food, just to mention a few.
    Take the semiconductor industry, for example. If fake chips 
find their way into many critical parts of our infrastructure, 
they can threaten the safety of not only our military and first 
responders, but the general public who rely on semiconductors 
to control their cars, planes, trains, medical equipment, or 
even power systems.
    What do you recommend we do to immediately halt this 
illicit and dangerous trade of illegal counterfeit imports? 
Now, you have given us some indications here and I have 
appreciated what you have said so far.
    Ms. Espinel. Thank you very much. The health and safety 
risks that are posed by counterfeit products are significant 
and of serious concern to us.
    Obviously, counterfeit products coming into the U.S. 
Government procurement supply chain, particularly our military 
and our law enforcement, is completely unacceptable and 
something that we need to address as a matter of immediate 
concern.
    As we say in the strategy, we have committed to working 
with the Department of Defense, as well as many, many other 
agencies, to make sure we are getting a handle on this problem 
and that it stops.
    There are other things in the strategy, as well, that I 
think will help us in this effort, including seeking to give 
more law enforcement authority so that FDA, CVP and others can 
help stop counterfeit products, including counterfeit 
pharmaceuticals that are coming into our country.
    Senator Hatch. Thank you. There seems to be a lot of 
misinformation regarding the Anti-Counterfeiting Trade 
Agreement, or ACTA. In some cases, those who are intimately 
familiar with the actual text of the publicly available draft 
treaty documents have done the misreporting.
    Now, I recognize that you are not actively negotiating 
ACTA, but I would like your comments on whether ACTA would 
indeed change existing law and what role do you see ACTA 
playing in increasing the quality of international IP 
enforcement?
    Ms. Espinel. The ACTA negotiations are ongoing, as you 
know. I can say, and let me say very clearly, that the USTR and 
the Administration do not see ACTA as a vehicle for changing 
existing law.
    Let me also say that the ACTA negotiations, I think, are a 
critical component of our strategy to increase cooperation with 
foreign law enforcement and our trading partners in other 
countries, and the Administration is committed to concluding an 
ACTA that has strong intellectual property enforcement 
provisions as part of that effort.
    Senator Hatch. Well, thank you. Mr. Chairman, I want to 
compliment you for your leadership in the IP world and the 
things that you have done ever since I have been on this 
committee.
    I have appreciated working with you. You are an excellent 
leader in this area, and I just want to personally compliment 
you for your work.
    Chairman Leahy. Thank you. We have worked together on these 
things. As we have tried to demonstrate, it is not a partisan 
issue. We think we have some of the most innovative geniuses in 
the world here in the United States. We just want to protect 
what they do.
    Senator Franken.
    Senator Franken. Thank you, Mr. Chairman. Thank you for 
your leadership in this area.
    Ms. Espinel, I want to thank you for coming to this hearing 
to speak with us again today. As I mentioned to you at your 
confirmation hearing, I am extremely concerned about Net 
neutrality.
    Today, a young kid in his basement in Owatonna, Minnesota 
can create a song and can, via the Internet, become an 
international sensation. If some company can pay for priority 
Internet access, that kid might not be able to have a shot.
    But Net neutrality is and must also be a matter of 
protecting lawful content and usage, and I am also extremely 
concerned about piracy on the Internet. I do not want what 
happened to the record industry to happen to the motion picture 
industry. I know that people sometimes in those industries get 
nervous when you talk about Net neutrality that lip service is 
given to piracy, but they do not believe it. ``No, you are 
talking about Net neutrality, you cannot be concerned about 
piracy.''
    What I want to know is how do you put in place--and I asked 
this kind of last time--measures to protect against privacy 
that do not impede the free flow of information on the 
Internet?
    Ms. Espinel. We recognize the need for legal certainty and 
effective measures both to promote investment in the Internet 
and for our right-holders. Let me also say, as you pointed out 
and as the Chairman of the FCC has pointed out, that Net 
neutrality does not apply to unlawful content, including 
distribution of illegal copyrighted products.
    I felt when I took this job and I feel having now been in 
the job for a few months even more strongly that it is possible 
for us to preserve Net neutrality while still going after the 
type of illegal infringing activity that you refer to that is a 
priority for this Administration.
    Senator Franken. I understand that. And maybe we can do 
this further down the road, talk about the kind of architecture 
in the Internet that we need to do that. You also talked about 
legislative action that might be needed to achieve our goals. 
And the Chairman talked a little bit about that, but I would 
like to pursue that further.
    But I do want to talk about medical device manufacturers in 
my home state of Minnesota. New ideas in medical devices can be 
a huge source of hope and a big help for Americans with medical 
conditions, and I want to make sure that we protect those 
intellectual property rights that encourage this innovation.
    But recently, people in India and China have been making 
counterfeits of these devices. Now, how are we going to enforce 
those rights there internationally? That is what I want to 
know. How are we going to enforce on medical devices?
    Ms. Espinel. Medical devices, among many industries, are 
facing significant challenges overseas, including in the 
markets that you just mentioned. There is a whole--that is a 
great priority for us and a great concern for us.
    There is a whole section of this strategy that speaks to 
exactly that, to enforcing our rights overseas, and there are a 
number of recommendations in the strategy that go to that.
    Let me highlight one in particular. I think it is very 
clear to me, to our Attorney General, to the Administration as 
a whole, that we need to have the cooperation of our trading 
partners if we are going to effectively address intellectual 
property.
    We can pour resources and commitment into this issue, but 
unless we have their cooperation, it is possible for the United 
States to address this problem around the world effectively on 
our own.
    So there are a number of things in the strategy that go to 
exactly that issue, to make sure that we are making very clear 
to our trading partners that it is a priority for us that they 
enforce American intellectual property rights; that we work 
with our trading partners to ensure that they have the tools 
that they need in order to enforce our rights.
    There is good activity already happening now there, but I 
think there is more that could be done and this is our plan for 
getting that done.
    Senator Franken. I just want to make sure that when we are 
doing our trade agreements and talking to our trading partners, 
that we have the leverage to be able to make that happen, and I 
know that is what you did in your last job.
    So thank you very much. And thank you, Mr. Chairman.
    Ms. Espinel. Thank you.
    Chairman Leahy. Senator Coburn.
    Senator Coburn. Thank you. Welcome. Following up on a 
little bit of what the Senator from Minnesota asked you.
    Do we have the cooperation of China now in enforcement of 
our intellectual properties?
    Ms. Espinel. Obviously, China is an issue of great concern. 
Obviously, there is much improvement on intellectual property 
that needs to happen with respect to China.
    There is much in this strategy that goes to that issue, but 
I also want to emphasize that this strategy is part of a larger 
Administration strategy with respect to China; and, in fact, I 
believe there are senior officials, Ron Kirk and Secretary 
Locke, that are testifying, I believe, at this moment on our 
overall China approach.
    Senator Coburn. But the answer is no. Is that correct?
    Ms. Espinel. The answer is that we need to see improvement 
in China, absolutely.
    Senator Coburn. The answer is we do not have the 
cooperation of the Chinese government. Matter of fact, in a 
meeting there 2 years ago, the secretary of commerce of China 
told me personally he had no intent of honoring those 
properties, because they were a developing nation, even though 
they are a signatory to the WTO, which requires them to honor 
it.
    So just for the record, we do not have the cooperation of 
China. They are stealing our intellectual property. They are 
stealing our future today.
    Which services do you believe have made the most progress 
in strengthening intellectual property enforcement?
    Ms. Espinel. In terms of the agencies of the U.S. 
Government?
    Senator Coburn. Yes, in terms of the agencies.
    Ms. Espinel. I can say with great sincerity that I feel the 
agencies that we work with most closely, and I will name those, 
have shown a tremendous commitment to this issue over the last 
6 months, and I expect that to continue.
    In fact, as much work has gone into developing this plan, 
the much harder work of implementing it lies ahead of us. So I 
want to thank them for the commitment they have shown, but also 
thank them for all the hard work, the increasingly hard work 
that they will be committing to this process as we move 
forward.
    We have worked very closely with the Department of Justice, 
with the Department of Homeland Security, with State, USTR, 
Commerce, Health and Homeland Services, particularly the Food 
and Drug Administration, and all of them have shown a great 
deal of commitment to this effort.
    Senator Coburn. Is it your plan to focus more on domestic 
intellectual property enforcement more so than international 
enforcement?
    Ms. Espinel. That is an interesting question. So I think in 
many cases, it is very hard, frankly, I think to draw sort of a 
bright line between them.
    For example, one of the things that we are focused on is 
coordinating our domestic law enforcement, but much of what our 
domestic law enforcement does is work to stop products that are 
coming in from overseas from entering our borders. So while 
that is a domestic coordination effort, it is going to support 
our international efforts.
    That is also true with the Internet, obviously. That is a 
tool for global distribution. So while there may be domestic 
efforts that we are undertaking there, much of that activity is 
going to address Internet activity that is taking place outside 
of our borders.
    There is an entire section of the strategy that focuses 
just specifically on actions to enforce our rights overseas, 
but I want to emphasize that much of what we are doing 
domestically will also have a positive impact on infringement 
that is occurring abroad.
    Senator Coburn. I want to thank you for the report, and I 
know it was not your responsibility to deliver it on time. It 
was due in 2008 to the committee. But I do thank you for the 
effort that you put forward in that regard.
    Tell me what your comments are on the newly reconstituted 
Intellectual Property Task Force of the Justice Department.
    Ms. Espinel. We were very pleased that Attorney General 
Holder relaunched the task force. The task force has attacked 
this problem with vigor, and they have worked very, very 
cooperatively with us, with the other Federal agencies, with 
the Administration as a whole. I think it is a very good 
effort.
    Senator Coburn. How many enforcement actions have you seen 
carried out by them?
    Ms. Espinel. The task force that has been set up by the 
Attorney General is not--it is not their responsibility to take 
on operational cases. In other words, what the task force is 
doing is informing the overall policy approach and the 
prioritization and resources the Department of Justice will put 
into this effort.
    And in that regard, I think there has been a great deal of 
energy and commitment to this.
    Senator Coburn. But do you recall or are you aware of the 
number of actions that the Justice Department has filed in 
terms of intellectual property?
    Ms. Espinel. I would rather not take the risk of giving you 
an imprecise answer. So if it is all right with you, I can 
check on a precise number and be back to you shortly.
    Senator Coburn. Thank you. Mr. Chairman, I want to thank 
you for holding the hearing. We are a nation that is suffering 
a lack of jobs right now and one of the reasons we are 
suffering a lack of jobs is tens of billions of dollars in 
productivity and jobs that should be in this country have been 
stolen by those that violate international intellectual 
property rights, chief of which is China.
    Chairman Leahy. You will get no disagreement here. Senator 
Hatch and I were just talking back and forth, because the two 
of us have worked on this for decades now. I know in my own 
state, so many of our jobs are based on intellectual property, 
we have become a high tech state, and the constant concern we 
have in that area.
    Senator Whitehouse, I am going to step out for a few 
minutes. But then if you would take the gavel, I will be right 
back.
    Senator Whitehouse [presiding]. I would be happy to. And I 
want to thank you, before you go, for holding this hearing. I 
want to join all of my colleagues in applauding your leadership 
on this issue and emphasizing how important this is, as Senator 
Coburn has just said, to our economy.
    In that context, Ms. Espinel, you indicate in your 
testimony that it is our leadership in the development of 
innovative technology and creative works that makes us a global 
target for theft. I would hazard that we are ``the'' global 
target for theft, not ``a'' global target for theft.
    But I wonder if you have any quantification of the loss to 
our economy from the piracy and theft of intellectual property, 
not just in the entertainment industry, but across biotech, 
high tech, pharmacy, consumer, defense, all these other areas 
in which we are at the wrong end of the intellectual property 
drain.
    Ms. Espinel. So I would say it is very difficult to 
quantify precisely the impact of infringement on our economy, 
because infringement----
    Senator Whitehouse Orders of magnitude?
    Ms. Espinel [continuing]. Because infringement is illicit 
activity and it is difficult to quantify. Counterfeiters and 
pirates tend not to keep excellent records.
    That said, I think it is very clear and indisputable that 
we have a very significant problem on our hands, which is why 
the Administration is focused on fixing it.
    Senator Whitehouse. Orders of magnitude, tens of millions 
of dollars, tens of billions of dollars, trillions of dollars?
    Ms. Espinel. It is not my nature or inclination to 
speculate without precise data. I think it is--from what we 
hear, from what we hear every day from industries across this 
incredibly broad range of American industries--and I should 
say, even though I have done this work for a long time, I 
myself was surprised when we went out to the public and asked 
to hear concerns and as I traveled around the country talking 
to companies how broad the spectrum of American industries was 
to come forward to tell us that they were suffering, both small 
companies and big companies.
    So I think it is fair to say that it is an enormous 
problem. I think it is having a significant impact on the U.S. 
economy.
    I am aware, as you may be, as well, that the ITC is doing 
some analysis of this issue, particularly with respect to 
activities that are ongoing in China, and we look forward to 
the outcome of that.
    I will also mention in this regard that one of the things 
that we have committed to do in this strategy is launch an 
initiative by the U.S. Government to start collecting 
comprehensive data across all the spectrums of American 
industry that depend on intellectual property so that we can--
--
    Senator Whitehouse. Well, let me jump in and ask that you 
conclude your answer on that in the form of a written response 
to a question for the record, to get back with whatever data 
you have.
    The reason that I am asking this question is because from 
my point of view, it very much appears that this is an issue 
that average Americans do not appreciate, because the 
information is not out there about how significant it is.
    When it is defense contractors that are hacked and plans of 
fighter planes that are stolen, it is classified. When it is a 
biotech company that has its process stolen and replicated in 
China, it is not in their interest to disclose that or even 
really find out about it. They just want to kind of keep doing 
what they are doing.
    I think we have a significant under-appreciation of this. 
It would not surprise me if we are on the losing end of the 
biggest transfer of wealth, the biggest criminal transfer of 
wealth in the history of the planet right now. We are just 
being--every industry--just hoovered out of intellectual 
property, and I think, frankly, we do very little about it.
    So I think the more we can push on the enforcement, it will 
help our trade policies if we are showing really strong 
enforcement at home.
    Why is it that I can go, in four or five mouse clicks, to a 
pirated movie on a Website and find MasterCard and Visa 
supporting that criminal activity by having themselves there on 
the Website to pay? Why is it that we had testimony on this 
Committee that if you go to the Chinese competitor to Cisco, 
you can find the little personal quirks that people wrote into 
the software that they designed it for Cisco in the Chinese 
software, proving that they stole it, and we are OK with that, 
we have not done anything about that?
    Over and over again, you see an acceptance of piracy of our 
intellectual property that I think exists, the tolerance 
exists, because we have not been clear about how hard this hits 
our economy and how many industries it hits and how big the 
number is of what we are losing.
    So my time is going to run out on that, but I really hope 
that you will dedicate some effort to trying to get as solid 
answer as you can to my question and, in your important role as 
the IP coordinator, dedicate as much of your energy as you can 
to getting this message out to people. And you cannot do that 
if you cannot tell stories or give data. If all you can do is 
say words like ``enormous''--we hear the word ``enormous'' 50 
times a day. It does not mean anything.
    We need stories, we need data, and then we can become very 
strong advocates for you and help you solve this problem.
    Senator Grassley.
    Senator Grassley. Mr. Chairman, I am not going to be able 
to stay very long. But this is such an important issue, I 
wanted to come by and explain that I had conflicts and could 
not be here.
    I think it is very, very important that we have this 
oversight hearing, because the situation is as serious as 
Senator Whitehouse has just stated. I am very interested in 
making sure that intellectual property rights are protected 
here in the United States and abroad.
    Because of that, I was engaged in the drafting of the 
legislation that created the IPEC position a few years back. I 
support improved coordination between U.S. Government agencies 
to go after bad actors and strengthen enforcement of our 
intellectual property laws. And I also want to make sure that 
we are doing our best to efficiently utilize limited resources 
and reduce duplication and waste.
    So I am looking forward to reviewing this proposed strategy 
and hearing how it can be improved for enforcement efforts 
against counterfeiting and piracy. And I am going to submit 
some questions for answers in writing.
    Thank you, Mr. Chairman.
    Ms. Espinel. Thank you, Senator. I look forward to it.
    Senator Whitehouse. Thank you, Senator Grassley.
    Senator Klobuchar.
    Senator Klobuchar. Thank you very much, Senator Whitehouse. 
And thank you for your work today, and to all the witnesses.
    I am very glad we are holding this hearing today. It is 
incredibly important to our state. In addition to the medical 
device industry that Senator Franken spoke about, we are now 
seventh in the country for Fortune 500 companies. We make a lot 
of things in Minnesota and we care very much about the 
protection of our products.
    In fact, as we move forward, I believe one of the ways we 
are going to get out of this economic rut we are in is through 
innovation and through actually even more innovation and more 
products and more new things.
    So I am very concerned about this international 
counterfeiting and the piracy that is going on.
    My first question is a specific one. I head up the 
American-Canadian Inter-Parliamentarian Group, and Senator 
Grassley sometimes goes to the meeting, and every time we push 
on this issue with the Canadians. And I know the Harper 
government actually asked the Prime Minister about this.
    I know they want to do more on this. But do you know 
anything about the status of the Canadian counterfeiting laws? 
Because there is a major problem, I know, for our movie 
industry and music industry and others with what is going on in 
Canada.
    Ms. Espinel. So let me first just say I completely agree 
with you on the importance of innovation and IP enforcement to 
our economy.
    The President has made clear that it is the No. 1 priority 
for this Administration to get our economy back on track, and 
we feel very strongly that enforcement of our intellectual 
property rights will help support our jobs and promote our 
exports. So we are in complete agreement on that fact.
    Turning to your specific question with respect to Canada, 
we share your concerns with the Canadian system, and I 
appreciate your raising it. You may be aware that the Canadians 
have recently introduced new legislation.
    Senator Klobuchar. It seems like they do every year.
    Ms. Espinel. It has been an ongoing process with the 
Canadians. And you are right, the legislation has been 
introduced on this issue before.
    I think the latest bill that has been introduced is 
different from earlier bills in significant ways. One of those 
ways is it is focused on enablers. But we are still in the 
process of assessing that legislation.
    I think it is very important that Canada move forward to 
address the deficiencies in its system. I think it is important 
that they, in addition to the type of legislation that they 
have introduced, that they pass the WIPO Internet Treaties.
    As long as we are discussing Canada and given your interest 
in medical devices, I think it is also important that Canada 
make progress on its own border control. As you may know, they 
do not have sufficient law enforcement authorities for their 
border control. That has made it harder for their law 
enforcement officials to act, and we continue to encourage 
Canada to fix that problem.
    Senator Klobuchar. All right. Thank you. Senator Thune and 
I recently introduced a P2P Cyber Protection and Informed User 
Act, which focuses on these peer-to-peer file sharing programs, 
which are often a method for transporting copyrighted works. 
And I have been shocked at some of the stories we have heard 
more on the fraud front from our state of people who--someone 
goes home and they are working from home on the accounting for 
their company, a company of 100 people, and then they do not 
know their kid has one of these programs on and suddenly all 
the employees' data is there stolen and basically used for 
identity theft.
    But my focus here is on copyrighted works with peer-to-
peer. Do you know if that is addressed in the strategic plan 
and if there is a focus on that kind of computer theft?
    Ms. Espinel. So there are a few things in the strategy I 
would point to that go to this issue of the distribution of 
pirated material over the Internet, including with respect to 
P2P.
    First, we believe it is essential for the private sector to 
work together. So we are and have actively encouraged Internet 
service providers and others to work with the right-holders to 
come up with solutions that are practical and efficient to try 
to address this problem, and we believe that type of 
cooperation is very important.
    However, I also want to emphasize that it is not our 
position that we will sort of sit back and let the private 
sector deal with this problem on their own. We are also 
committed to taking action ourselves.
    In that regard, I would mention a couple of things. The 
foreign-based Website commitment that we have made, it is clear 
to us that foreign-based Websites are a particular problem that 
we need to address, both in terms of the products that are 
coming into our country from those foreign-based Websites and 
the particular law enforcement challenges that they pose 
because they are overseas. So that is a problem that we are 
committed.
    As we say in the strategy and there has been some allusion 
in ths hearings to we are also undertaking assessment of our 
laws to see if there are deficiencies there that are hindering 
our enforcement efforts with respect to the issues that we 
raise and what we need to do to address those.
    Senator Klobuchar. Thank you very much. I will submit some 
other medical device questions, I know that has been covered, 
for the record. But I want to thank you for that and just say I 
really believe if we are going to continue with this innovation 
economy in the direction I think we need to go for our entire 
country, this is going to be a major component of it.
    So thank you for your work.
    Ms. Espinel. Thank you.
    Chairman Leahy [presiding]. Thank you very much for being 
here. If there are other questions, we will submit them for the 
record. I appreciate you being here. I appreciate having your 
father here in the audience.
    Ms. Espinel. Thank you, Chairman Leahy. And thank you and 
the other members of the Committee for continuing to bring 
attention to this issue and for your leadership.
    Chairman Leahy. Thank you. Staff will set up for the next 
panel. Thank you very much.
    Ms. Espinel. Thank you.
    Chairman Leahy. Incidentally, in the soccer game, we 
actually did score, but it was disallowed. So it is still zero-
zero. As you may have noticed, that has happened to the U.S. in 
a couple of these things. I do not want to suggest anything, 
but there is a strong feeling among some of the staff watching 
that, and doing it solely as a professional aid to the 
chairman, that it was not the world's best call. And those 
comments had absolutely nothing to do with the hearing.
    Now, we have four witnesses here. The first will be Barry 
Meyer, the Chairman and CEO of Warner Brothers, a position he 
has held since 1999. He first joined Warner Brothers in 1971. 
He has gone sort of up through the lines, including executive 
vice president and chief operating officer; has brought Warner 
Brothers into being one of the best companies in America.
    He is a member of many industry boards and associations, 
including the Motion Picture Association of America, the Museum 
of Television and Radio, and the Academy of Motion Pictures 
Arts and Sciences.
    He received his undergraduate degree from the University of 
Rochester, law degree from Case Western University School of 
Law.
    What I am going to do, if nobody has any objection, we will 
have each witness testify and then we will ask questions, and I 
am aware of the fact that Mr. Hirschmann is suffering from 
laryngitis.
    Mr. Hirschmann, I can assure you, I sympathize. With all 
the pollen in the air, my voice leaves a lot to be desired.
    But, Mr. Meyer, we will start with you, and thank you very 
much. I know you and Dr. Smith came in here last night and I 
appreciate having you here; and, Carol Melton, appreciate you 
being here.

STATEMENT OF BARRY M. MEYER, CHAIRMAN AND CEO, WARNER BROTHERS 
                ENTERTAINMENT, INC., BURBANK, CA

    Mr. Meyer. Thank you. Thank you, Chairman Leahy, and thank 
you, members of the committee. I appreciate the opportunity to 
appear before you today.
    And I want to start, first, by thanking all of you and your 
colleagues for passing the Pro-IP Act to establish this 
critical role of intellectual property enforcement coordinator, 
and thereby to strengthen our government's commitment to 
copyrights, American creativity, and innovation.
    As the release of the joint strategic plan and her 
testimony this morning demonstrates, consumers are being well 
served by the appointment of Victoria Espinel. She hit the 
ground running and, in our opinion, she is doing an incredible 
job of bringing together the many resources of the Federal 
Government to coordinate and share information.
    The plan she presented represents another important step 
forward in achieving a higher level of cross-agency 
collaboration on intellectual property issues, and we are 
particularly pleased to see a call for greater cooperation in 
the business community in reducing the spread of online 
infringement, as well as the proposal for a comprehensive 
initiative to pursue foreign-based websites that infringe and 
steal American intellectual property.
    Encouraging all stakeholders in the online ecosystem to 
help reduce copyright crime and combating illegal online 
activity from abroad are appropriately identified as top 
priorities in this plan.
    We commend the efforts of all those in the Administration 
who played a role in developing this plan, and especially thank 
President Obama and Vice President Biden for their deep 
commitment and their strong and thoughtful leadership.
    We stand ready to work with Ms. Espinel to implement this 
ambitious blueprint for strengthening the government's 
coordinated IP enforcement activities.
    Mr. Chairman, the work being undertaken by the intellectual 
property enforcement coordinator goes to the heart of what we 
and others in the creative community do to inform, educate and 
entertain.
    We at Warner Brothers are engaged in virtually every aspect 
of the entertainment industry, from feature films to 
television, home entertainment, animation, comic books, 
interactive games, product and brand licensing, international 
cinemas, and others. Now more than ever, technology and media 
in all of these businesses are seamlessly integrated into 
consumers' lives.
    While today's average consumer still spends more time 
watching content on television than over the Internet, that is 
changing. Online video views were up more than 200 percent at 
the end of 2009. We continue to see double-digit growth in time 
spent with online media as consumers continue to shift their 
behaviors and their habits.
    Technological advances, coupled with market changes and 
consumer behavior, have required us to constantly rethink our 
models. We do this more than willingly. We use such events as 
opportunities to innovate.
    Warner Brothers has developed many new digital delivery 
models that enable consumers to access content across numerous 
platforms and devices. Our goal is straightforward--to deliver 
content to consumers in the highest quality, with the most 
choices, with reliable convenience and portability, at 
reasonable price points, while at the same time diminishing the 
risks of unauthorized reproduction and distribution.
    Beginning more than 15 years ago, Warner Brothers led the 
effort to work with consumer electronics and technology 
companies in the development of the DVD. We continue to 
collaborate with the technology industries to deliver content 
in new, smart, consumer-friendly ways.
    For example, today we include with our Blu-ray titles a 
standard definition version that can be used on a PC, MAC or 
mobile device. We have launched numerous products that allow 
users to incorporate their social networks into functions like 
BD-Live to coordinate online movie screenings with friends and 
post commentaries via Internet-connected Blu-ray players.
    With recent data showing that 58 percent of television-
Internet households use television and the web simultaneously 
at least a third of the time, incorporating these experiences--
connecting them--is a key component of our digital strategy.
    We have partnered with Apple, Microsoft, Amazon, Sony, and 
many others to distribute our products to personal computers, 
media servers, gaming consoles, and mobile devices. Our content 
is available on a wide variety of video-on-demand subscription 
and electronic sell-through services over the Internet, cable 
and satellite platforms, and mobile networks.
    At the same time that we release our films in physical form 
on DVD and Blu-ray, electronic copies are available for 
purchase online and can be enjoyed on a variety of devices.
    Warner Brothers is also at the forefront of modifying the 
traditional distribution windows. Typically, studios released 
motion pictures on DVD at least 2 months before they were 
available electronically via video-on-demand rental services. 
Today, Warner's video-on-demand window coincides with our 
packaged media release dates so consumers can access both 
physical and digital options of our content sooner.
    Furthermore, as a result of the FCC's recent decision 
promoting the use of secure digital outputs, we are now 
actively pursuing opportunities for an early window release of 
our films over cable and satellite systems in advance of DVD 
and Blu-ray.
    My point here, Mr. Chairman, is that the image of the 
entertainment industry as one that is simply circling the 
wagons around old outmoded business models despite the 
explosion of new technology is simply not true. Our industry 
has been changing and innovating with remarkable speed.
    It is clear to all of us that none of this innovation would 
be possible without the tireless efforts of millions of 
talented professionals working in the film and television 
industries, which extends far beyond just the studio lots in 
California or the streets of New York.
    Last year, the motion picture industry employed over 2.4 
million people and paid over $41 billion in wages across all 50 
states. Our on-location production activity also supports more 
than 115,000 small businesses across the country, 80 percent of 
which employ fewer than 10 people. And when film productions 
roll into a local community, they average $225,000 a day of 
economic input into the local economy.
    Nationwide, the motion picture industry generated $15.7 
billion in public revenues in 2008, and we consistently boast a 
positive balance of trade in virtually every country in which 
we do business.
    While high-speed broadband networks bring immense 
opportunities for the exchange of information and ideas, the 
inappropriate use of these networks can facilitate the 
anonymous theft and rapid, ubiquitous, illegal distribution of 
copyrighted works.
    It is not an overstatement to say that rampant theft of 
intellectual property strikes at the heart of our Nation's 
economy. It strikes at the heart of the core values of reward 
for innovation and hard work and our ability to complete 
globally.
    In short, Internet theft puts at risk one of America's 
great export industries. We at Warner Bros. are doing 
everything we can to combat piracy, spending tens of millions 
of dollars annually to do so. We have secured our production 
and distribution chains such that there has been no pre-
theatrical release of a Warner Bros. movie in over 5 years.
    We are working with technology companies to develop 
technical tools and reaching out to Internet service providers 
and online intermediaries to enlist their assistance in 
reducing the vast amounts of digital piracy that clog their 
networks.
    We hope the government will continue to encourage Internet 
service providers, online payment processors, search engines, 
advertising networks and others to cooperate with copyright 
owners and take reasonable proactive measures to disable or 
disrupt digital piracy.
    While the release of the joint strategic plan is a critical 
step forward with respect to government-led efforts, we 
acknowledge that no silver bullet exists either in the public 
or private sector that can fully eradicate the problem of 
piracy.
    Rather, the problem must be pursued on a variety of levels 
and through multiple approaches, which include providing robust 
legitimate alternatives, ensuring cross-industry cooperation to 
prevent infringement, and vigorous enforcement efforts at home 
and abroad. But there is no doubt that continued and hopefully 
increasing government support regarding the value of copyright 
protection and the responsibility of all participants to 
address the issue of piracy is crucial.
    As the Administration's plan recognizes, Warner Bros. and 
others in our community play a significant role in the vibrancy 
of the American economy. Enforcement of laws to ensure that 
consumers enjoy what we create has broad benefits, as 
recognized by today's hearings and the effort described by the 
coordinator.
    In closing, I would like to again thank Ms. Espinel for her 
hard and thoughtful work to date, and to thank you, Mr. 
Chairman, and the members of your committee for allowing me the 
opportunity to address this really important topic for our 
industry.
    I am happy at this point to answer any questions you may 
have.
    [The prepared statement of Mr. Meyer appears as a 
submission for the record.]
    Chairman Leahy. Thank you very much. Of course, all of the 
statements will be placed in the record in full.
    Paul Almeida is the President of the Department for 
Professional Employees at the AFL-CIO. He has been there since 
2001. Mr. Almeida serves on several AFL-CIO policy committees, 
including the legislative public policy committee, the 
international affairs committee, and the immigration committee, 
where he serves as vice chair.
    Prior to joining the Department for Professional Employees, 
Mr. Almeida served as president to the International Federation 
of Professional and Technical Engineers. He has a degree in 
engineering from the Franklin Institute of Boston.
    Mr. Almeida, I am delighted to have you here. Please go 
ahead.

    STATEMENT OF PAUL E. ALMEIDA, PRESIDENT, DEPARTMENT FOR 
        PROFESSIONAL EMPLOYEES, AFL-CIO, WASHINGTON, DC

    Mr. Almeida. Good morning, Chairman Leahy and distinguished 
members of the committee. My name is Paul Almeida. I am the 
President of the Department for Professional Employees, a 
coalition of 23 national unions affiliated with the AFL-CIO.
    I am honored to speak today on behalf of the more than 4 
million professional and technical people whom our affiliated 
unions represent. On their behalf, permit me to commend and 
thank you. Many of you participated in passing the Pro-IP Act.
    My message is simple. Numerous industries are adversely 
impacted by the theft of intellectual property. Intellectual 
property equates to jobs and income for American workers. Theft 
of intellectual property raises unemployment and cuts income.
    For too many workers in the United States today, both jobs 
and income are hard to come by. If the United States allows 
attacks on intellectual property to go unanswered, it puts good 
livelihoods at risk.
    With regards to the arts, entertainment and media 
industries, I am especially pleased to deliver today a 
statement that the executive council of the AFL-CIO unanimously 
adopted in March.
    I would ask that this statement, ``Piracy is a Danger to 
the Entertainment Industry Professionals,'' be made part of the 
hearing record.
    Chairman Leahy. Without objection, it will be.
    [The statement appears as a submission for the record.]
    Mr. Almeida. As you will see, the Department for 
Professional Employees proposed this statement on behalf of the 
nine affiliated unions representing professionals, both 
performing artists and craft workers in arts, entertainment and 
media industries.
    At the core of this statement is a recognition that digital 
theft diminishes incentives to invest and prompts a downward 
spiral for U.S. jobs and our economy. Digital theft imperils 
jobs and income.
    In the words of this statement, combating digital theft and 
the sale of illegal CDs and DVDs is nothing short of defending 
U.S. jobs and benefits. Estimates of the number of jobs lost to 
piracy in this one sector alone runs in the hundreds of 
thousands.
    While exact numbers are difficult to find, there can be no 
question about the magnitude of the problem for the entire 
United States--billions of dollars of revenue for U.S. 
industries and millions of lost U.S. jobs.
    Online access continues to accelerate and expand. As it 
does so, it increasingly displaces traditional models for 
distributing content and, thus, heightens the potential for 
digital theft.
    The efforts of the Screen Actors Guild and the American 
Federation of Television and Radio Artists, along with the 
Motion Picture Association of America, to conclude an 
international treaty that will protect the economic and moral 
rights of audiovisual performers will provide additional 
support in this battle.
    The losses of income arise because entertainment 
professionals depend on compensation at two points; first, when 
the professionals do the work, and, later, when others use and 
reuse the intellectual property that the professionals created.
    In the words of the statement, entertainment professionals 
may work for multiple employers on multiple projects and face 
gaps in their employment. Payments for the work that they have 
completed helps sustain them and their families through under-
employment and unemployment.
    For AFTRA recording artists, in 2008, 90 percent of income 
derived from sound recordings was directly linked to royalties 
from physical CD sales and through paid digital downloads.
    SAG members working under the feature film and TV contract 
that same year derived 43 percent of their total compensation 
from residuals. Residuals derived from the sale of secondary 
markets funded 65 percent of the International Alliance of 
Theatrical and Stage Employees, the motion picture industry 
health plan, and 36 percent of the SAG health and pension fund.
    Writers Guild of America East-represented writers often 
depend on residual checks to pay their bills between jobs, and, 
in some cases, the residual amounts can be as much as the 
initial compensation.
    Online theft robs hard-earned income and benefits from 
professionals who create the works. So digital theft and 
counterfeiting threatens U.S. jobs and income. That is the bad 
news. The good news is that you have taken action and have had 
the wisdom to confirm Victoria Espinel to fill the position you 
have created.
    Permit me to add a final observation. The arts, 
entertainment and media industries are some of the all too few 
U.S. industries that generate a trade surplus in the midst of 
growing U.S. trade deficits. Professionals in the arts, 
entertainment and media industries organized in labor unions at 
a rate far above the private sector generally.
    These facts belie the ill-founded and thoughtlessly 
repeated misconception that unions somehow undercut union 
competitiveness. Years of research at the Department for 
Professional Employees showed that professional and technical 
people want a chance to do their job right.
    The unions that these people organize help them to achieve 
that goal. With innovation through intellectual property, 
heavily unionized industries not only compete globally, but 
enable the United States to lead the world.
    Thank you for inviting me to participate in this hearing, 
and I look forward to answering questions.
    [The prepared statement of Mr. Almeida appears as a 
submission for the record.]
    Chairman Leahy. I thank you, also, for being here. It is 
helpful. One of the interesting things about your testimony, 
sir, is that it is nice when we see labor and business sitting 
side-by-side on something where there is this agreement.
    I just hope that we can make sure that not only the 
policymakers here on the Hill, but on the other end of 
Pennsylvania Avenue know how important this is.
    David Hirschmann is President and CEO of the Global 
Intellectual Property Center, U.S. Chamber of Commerce. He is 
also Senior Vice President of the Chamber. He has been with the 
Chamber since 1992.
    Prior to his work for the Chamber, he served as a staff 
member in the House of Representatives, as a graduate of Duke. 
One thing he and I have in common is we are both losing our 
voice today.
    But, Mr. Hirschmann, obviously, your full statement will be 
in the record. Please go ahead, however you care to.

   STATEMENT OF DAVID HIRSCHMANN, PRESIDENT AND CEO, GLOBAL 
    INTELLECTUAL PROPERTY CENTER, U.S. CHAMBER OF COMMERCE, 
                         WASHINGTON, DC

    Mr. Hirschmann. Thank you very much, if you put up with the 
voice. If this does not hold up, I can either have somebody 
read it or maybe we will just stand with what the AFL-CIO said 
on this issue.
    Chairman Leahy. See the lights dim.
    [Laughter.]
    Mr. Hirschmann. Mr. Chairman, the leadership you have 
provided on this issue really is exemplary. It is truly this 
committee's jobs agenda and it is why labor and business can 
join together on this issue.
    The enactment of the Pro-IP Act 2 years ago was a landmark 
event. We are very pleased that the----
    Chairman Leahy. Would you like one of the staff to read 
the--I would be happy to, either from your office or--I realize 
it is your statement, but it is an important statement.
    Would you please identify yourself?
    Mr. Esper. Sure, Mr. Chairman. My name is Mark Esper, and I 
am the Executive Vice President of the Global Intellectual 
Property Center.
    Chairman Leahy. At the Chamber.
    Mr. Esper. At the Chamber, yes, sir.
    Chairman Leahy. Thank you.
    Mr. Esper. So I am pinch-hitting right now.
    Let me begin with a statement. As David Hirschmann was 
saying, the enactment of the Pro-IP Act in the fall of 2008 was 
a landmark event that was accomplished on a bipartisan basis, 
with the support of a diverse group of stakeholders, including 
both business and organized labor.
    Without that legislation, we would not be having today's 
important session.
    We are very pleased that the Administration yesterday 
released the first national IP enforcement strategy. We applaud 
the White House intellectual property enforcement coordinator, 
Victoria Espinel, for undertaking this thorough review of the 
government's IP enforcement efforts with alacrity following her 
Senate confirmation late last year.
    Congress and the Administration should focus now on 
implementing and building up on this plan to approve the 
effectiveness of Federal IP enforcement. As a first step, 
Congress should help ensure that Ms. Espinel and each of the 
agencies responsible for a portion of this strategy have the 
requisite authority, budget and staff to implement and expand 
upon this plan.
    U.S. competitiveness has become directly and inextricably 
linked to our Nation's ability to adequately and effectively 
enforce IP rights. That is why we must do more to address 
counterfeiting and piracy in both the physical and the online 
environments. Businesses invest heavily in measures to prevent 
and investigate IP theft, but the private sector can only do so 
much.
    Congress and the Administration must also be committed to 
implementing sound IP policies and sustaining strong 
enforcement efforts in the U.S. and abroad.
    In working to implement and build upon this plan, we urge 
this Committee to keep three goals at the top of the list. 
First, aggressively cracking down on the growing problem of IP 
theft online by making it harder for criminals to use the 
Internet to distribute stolen American ideas and to harm 
consumers.
    Second, make the United States the toughest, most capable 
enforcer of IP laws in the world, building on the Pro-IP Act, 
by further expanding the dedicated, effective, full-time 
resources at both the state and Federal level to fight IP 
theft. For example, the Customs reauthorization bill, which 
provides structure, resources, tools and direction necessary to 
bolster Customs and Border Protection and ICE's capacity to 
prevent counterfeit goods form entering the United States.
    And third, protecting IP rights globally. We must resist 
all efforts to create unwarranted exceptions to strong IP 
protections, hold our trading partners accountable, and work 
with ally countries to raise the global bar for IP protection. 
For example, we should complete an ambitious and comprehensive 
anti-counterfeiting trade agreement, ACTA, with strong IP 
protection and enforcement provisions this year.
    Let me offer a couple of additional thoughts on the need to 
thwart online theft of IP. Intellectual property thieves are, 
above all else, distribution experts. They do not spend money 
on innovating new products. They do not spend money on testing 
products for safety.
    Instead, they focus all their efforts on building world 
class distribution channels for their illicit activities. These 
are highly organized criminal networks, often with global 
reach.
    So it is no surprise that these thieves have migrated their 
illegitimate enterprises to the Internet. This includes both 
physical goods and digital services. It includes everything 
from knock-off pharmaceuticals and auto parts to illegal copies 
of movies, music and digital books.
    Rogue sites offer stolen, live broadcasts of sporting 
events and the latest movies available as digital streams in 
high definition. This is why we welcome the steps outlined in 
the national strategy to ensure our IP enforcement efforts 
adapt to the digital age. Determining the best way to address 
this problem without impeding legitimate online commerce will 
not be easy.
    But it is clear that we must move beyond the perception 
held by some that if it is online, it is not a crime. We 
believe that a serious discussion about how to best foster 
continued innovation while protecting IP in the online 
marketplace is long overdue.
    The Global IP Center and our members will continue to 
vigorously pursue voluntary business-to-business solutions, 
where practicable. However, we also believe that Congress and 
the Administration should examine this problem and consider new 
and creative efforts to fight counterfeiting and piracy online.
    A reasonable starting point for addressing IP theft online 
is identifying and shutting down Websites, many of which are 
situated overseas, but many of which are also here in the 
United States, whose business models are indisputably centered 
on the sale or distribution of counterfeit and pirated 
products.
    We look forward to working with the Committee and with the 
Congress to explore creative and effective methods that would 
make it more difficult for such sites to sustain a business 
model built on facilitating IP theft.
    In concluding, let me reiterate that protecting IP rights 
is a critical component of our economic resurgence and vitally 
important to America's future and job creation. While we 
anticipate that the IP enforcement coordinator will work to 
further refine this plan, it is imperative that she begin 
implementing it now, given all that is at stake.
    Thank you for this opportunity to share our perspectives on 
these important issues. The Global IP Center looks forward to 
working with you, Mr. Chairman, and the Committee and the 
Congress in the future.
    Thank you.
    [The prepared statement of David Hirschmann appears as a 
submission for the record.]
    Chairman Leahy. Thank you very much.
    Our last witness is Caroline Bienstock, the President and 
CEO of Carlin America, a music publishing company that was 
founded by her father, Freddy Bienstock. Ms. Bienstock first 
joined the company in 1989. She is a member of numerous 
industry boards, such as the American Society of Composers, 
Authors and Publishers, the National Music Publishers 
Association.
    She received her bachelor's degree from Yale College, her 
law degree at the Boston University School of Law, and her MBA 
from Wharton.
    Ms. Bienstock, please go ahead.

  STATEMENT OF CAROLINE BIENSTOCK, PRESIDENT AND CEO, CARLIN 
                  AMERICA, NEW YORK, NEW YORK

    Ms. Bienstock. Good morning, Chairman Leahy and members of 
the committee. I am Caroline Bienstock, President and Chief 
Executive Officer of Carlin America, Inc. I am also a member of 
the National Music Publishers Association.
    I want to thank you for inviting me to testify today about 
oversight of the Office of the Intellectual Property 
Enforcement Coordinator. NMPA strongly supported the Pro-IP Act 
of 2008 and the appointment of Victoria Espinel as the first 
intellectual property enforcement coordinator.
    We are encouraged by the release of the first IPEC report 
yesterday, which sets the stage for the development of a joint 
strategic plan for intellectual property. NMPA has not had a 
chance to analyze the report in detail, but based on a 
preliminary review, it reflects our views on what the 
government must do to effectively enforce copyright protections 
domestically and internationally. We will finalize our review 
quickly and to the extent we have additional comments, we will 
supplement my written testimony.
    At the outset, I want to thank you, Mr. Chairman, and the 
members of the Committee for all you have done to protect music 
in your support of intellectual property. You have long 
recognized that the property rights of intellectual property 
deserve no less protection than physical property.
    My company, Carlin America, is a family owned music 
publishing business founded by my father, Freddy Bienstock. The 
Carlin catalog includes more than 150,000 songs, including Body 
and Soul, Chantilly Lace, Dedicated to the One I Love, Fever, I 
Got You, I Feel Good, and the scores of ``Cabaret'' ``Company'' 
and ``Follies.''
    For more than 80 years----
    Chairman Leahy. You realize, half the people in the 
audience, these songs are now going through their minds.
    Ms. Bienstock. As they should be.
    [Laughter.]
    Ms. Bienstock. Need I say more. For more than 80 years, the 
NMPA has been the principal trade association representing 
music publishers like us, over 2,500 music publishers and their 
songwriter partners in the United States. To put it simply, 
music publishers represent the interests of the songwriter and 
the song.
    Songwriters, in particular, are especially vulnerable to 
harm from online music theft, because they generally do not 
have the option of earning money from ancillary income streams, 
such as live performance, touring, merchandise sales, or 
acting.
    The songwriter and music publisher must rely on the old-
fashioned, traditional sources of revenue for their money in 
song, as well as while the marketplace is changing everyday.
    Despite the extensive copyright laws in place right now, 
online digital theft is rampant. Millions of copyrighted songs 
have been and continue to be downloaded illegally from the 
Internet. We have seen at least one source that said at this 
time, 95 percent of downloaded music on the Internet is 
illegal.
    For every illegal download or stream, a songwriter is 
denied compensation for his or her creative work. This stuff is 
no different in concept from the burglary of a home or 
shoplifting from a store.
    As we move further into the digital and wireless age, music 
publishing can continue to flourish, but only if combating 
online theft remains a top priority of our government. Without 
strong copyright laws, music publishing companies would not 
risk investing in new writers or acquiring new songs; and, 
therefore, existing jobs would be lost and new songs and new 
jobs would not be created.
    To safeguard the songwriter and the music publisher, the 
government must substantially increase their efforts to combat 
online digital theft. We believe the strategic plan will be a 
huge step in the right direction. To be effective, funding and 
implementation will be key. We urge the Committee to support 
IPEC's efforts in this regard.
    The music publishing community is willing and happy to work 
closely with this Committee and Ms. Espinel and her staff to 
ensure that copyright enforcement measures are enhanced and 
streamlined. If Congress properly funds the initiatives and 
enacts the proposals recommended by IPEC, online music theft 
will be minimized and music will flourish well into the 
foreseeable future. And most importantly, songwriters will 
continue to write the songs that are so dear to those on this 
Committee and to the rest of the country.
    I thank you again for this opportunity to testify, and I am 
happy to answer any questions you may have.
    [The prepared statement of Ms. Bienstock appears as a 
submission for the record.]
    Chairman Leahy. Thank you very much.
    I will put in the record a submission from the Copyright 
Alliance, with information from all 50 states on the importance 
of intellectual property.
    [The information appears as a submission for the record.]
    Chairman Leahy. I note that there are 114 professional 
photographers employed in the whole State of Vermont.
    Let me ask just one question. I sat here and I have spent 
so much time on this over the years, I watch all the changes. 
You have encryption, you watch films and they will open and 
within a few days, somebody is selling bootleg copies, 
certainly in the record business, with so much online. You see 
the problem there.
    But there are a lot of other things. It is software, 
medicine. I talked about the real concern I have with the 
Department of Defense getting material that is going to be 
vital for our people in the field and getting counterfeit 
matters.
    What happens when you get counterfeit brake pads in your 
car? I just bring it right down to something that would affect 
every one of us, when you are driving to work.
    Assuming the will--and I think there is the will of the 
bipartisan group here--assuming the will, can you believe that 
we can write legislation tough enough to go after this and then 
have the enforcement mechanism tough enough to go after this?
    I realize we may not get all of it, but given the 
legislation and given the will and our law enforcement and our 
trade representative and everything, can we make a significant 
dent in this?
    I will begin with you, Mr. Meyer. What do you think?
    Mr. Meyer. Thank you, Mr. Chairman. I think that we can 
make a significant dent in it, and I think the first step, 
which has really been taken now, is the support of the 
government.
    We are firm believers in having the private sector work 
cooperatively between content owners and ISPs, certainly, in 
the United States to try to work out whatever the proper 
protections are.
    But key to that is a knowledge that the government is 
supporting all of these actions. And I do think starting with 
the issue of education, of making people understand what is 
legal and what is not legal, and what is infringing content and 
what is not. It will not be an easy task, especially as the 
technology evolves.
    Starting with that educational component can make an 
enormous difference. And using technology to bolster that 
education will help to address the issue.
    Chairman Leahy. In fact, I would urge all our colleges and 
universities, during freshmen orientation, would not allow--
they do not want to see their students going down to the local 
stores and stealing things off the shelf. It is also stealing 
if you take it off the Internet.
    Mr. Almeida.
    Mr. Almeida. I think you are right. I think a key point is 
a process of educating the public. You just made the point, 
Caroline made the point. You would not tell your children to go 
in and take something off a shelf. But somehow, on the 
Internet, it is all right to do that.
    It is all right to also pick something up off the street 
that is a bootleg copy of something. And there is a disconnect 
that what people's work for our entertainment is not views as 
real work. There is kind of a disconnect.
    It is our entertainment when we go to a movie or when we 
listen to music, but it is real work for people who do that, 
and I think there is a disconnect there, as well, and I think 
we need to do that education process. And the same with 
products, as well, that the safety is critical to our well 
being.
    Chairman Leahy. Mr. Esper.
    Mr. Esper. Yes, Mr. Chairman. I agree, as well. I think not 
only can we make a significant dent in the problem, we cannot 
afford not to try. There is just simply too much at stake.
    As the United States continues to move up the value chain 
more to a knowledge-based economy, this is where our future is. 
This is where we are uniquely competitive in the international 
environment. So we really have to tackle this.
    I believe that with sufficient action by the 
Administration, some clear legal framework from the Congress, 
that I think all industries, including those that we call the 
intermediaries, will get on board with this.
    Everybody wants to solve this problem. The challenge is 
how. And as the colleagues here on the panel have pointed out, 
the big challenge is how do you deal with the culture that has 
emerged, has developed over the Internet, the sense that if it 
is online, it is not a crime.
    That is going to be the real challenge to tackle.
    Chairman Leahy. Ms. Bienstock, I assume you agree, too.
    Ms. Bienstock. Of course, I do. I think the importance is 
the enhanced enforcement also sets an important tone that 
combats an attitude that has been developing that the Internet 
is somehow a superior vehicle than intellectual property and as 
they are balanced against one another.
    We have a generation of young people that have grown up 
believing that music ought to be free, because it is able to be 
available for free. And I think increased enforcement will do 
something to develop the conversations in the home and at 
universities about what is OK to do, and, also, what you open 
your computer to when you bring your computer to file sharing.
    So, yes, I think increased enforcement has a very important 
role both to actually address the problem, but also to 
denominate and make clear what our interests are and that we 
value intellectual property.
    Chairman Leahy. Thank you very much.
    Senator Franken, did you have any questions?
    Senator Franken. Yes, thank you. Mr. Almeida, as I said 
before, even though I am on this committee, I am not a lawyer, 
but I was in show business. The entertainment--yes, I was. I 
know it is hard to believe, considering what a productive 
member of this Committee I am.
    [Laughter.]
    Senator Franken. The entertainment industry is truly an 
American industry and, as you put it, one of the all too few 
American industries that generates a substantial trade surplus.
    American culture, music, movies, TV shows, books, is one of 
our Nation's greatest assets, literally, and I am proud to have 
been a part of that industry. And I am actually a member of 
three of those unions that signed on to the executive council 
of the AFL-CIO statement. I am a member of the Writers Guild, 
the Screen Actors Guild, and AFTRA.
    I can tell everybody firsthand that those residuals that 
you are talking about that you get when you are either between 
jobs or under-employed or over-employed, as I am now, those 
checks mean a lot. And I still get checks--I still get a $12 
check every time they run Trading Places.
    I just want to ask you what it means to artists and people 
in the crafts when the piracy prevents you from getting those 
residuals. What is the effect of that?
    I would like to ask Mr. Meyer what the effect of all of 
that is on sort of the business plan when someone is either 
giving a green light or not giving a green light to a product, 
to a movie or to a TV show, in terms of how that figures in, 
because it is not only losing--I think you are not only losing 
money on what has already been made, but in a sense, you are 
basically having to make a decision, are we going to make this 
thing, because our ancillary income is not going to be what it 
should be.
    Go ahead.
    Mr. Almeida. Thank you. I think there is also a 
misconception. Most people in America do not work under the 
business model of getting paid for part of their work up front 
and then waiting to get--for use and reuse, and I think it is a 
concept that a lot of people are just totally unfamiliar with.
    An A-lister, such as yourself, probably does rather well, 
but the----
    Senator Franken. Thank you.
    [Laughter.]
    Mr. Almeida. But the working actors who really depend on 
that and the writers who depend on the back-end payments, the 
residuals, the back-end payments, it is a huge part of their 
survivability. With the stage hands, in particular, that helps 
to fund their collective pension and health and welfare fund. 
It does not flow to the individual member, but goes to the 
collective.
    So, again, I think it is a model that most of us have never 
worked under. They say, ``What, you get paid part of it now and 
you get what? You wait for the checks to come? ''
    So I think there is a disconnect there, as well, that 
people do not realize this model and how it works, and I think 
it is an important part.
    And I do not mean to answer Mr. Meyer's part of it, but if 
funds are not flowing, then product is not being made. And that 
is kind of like part of the intangible. It is like how much--
would I be making another movie if the money was there. And the 
piracy is definitely impacting across the board with all of the 
entertainment unions.
    Senator Franken. I think Mr. Almeida just answered your 
question for you. No, no, go ahead. I am sorry.
    Mr. Meyer. Well, I actually was going to jump in and 
reiterate part of what Mr. Almeida said. Employment in the 
motion picture and television production business is 
notoriously lumpy for employees. They can work great periods of 
time intensely and then not work for another year or two or 
sometimes even longer periods of time, which leads to the 
importance of residuals.
    These payments for the reuse of the product that they have 
worked on is what keeps the economic model going, and it is a 
stabilizing factor in the economic model for so many employees, 
which is one of the reasons why it has been in place for--I 
think the first residual model came into play in 1960. So it is 
a very, very important consideration.
    But getting back to the point about how it affects the 
overall economic model, to the extent that this kind of theft 
reduces the overall economics for any producer, financier or 
production company, of course, it has to affect how many new 
projects we make, the nature of the new projects that we make, 
which has a concomitant effect on all of the employment levels 
for people who are working on it.
    There is one other point I would like to make, as long as I 
have the floor right now. I guess that is a Senate term.
    Senator Franken. Well, you are kind of using my time, but 
go ahead.
    [Laughter.]
    Mr. Meyer. Then I will get off the floor. Then I will get 
off the floor.
    Senator Franken. Well, I had hoped to say something else, 
but these guys just will not stop. But go ahead. Go ahead.
    Mr. Meyer. Senator Whitehouse mentioned something before 
about the transfer of wealth. One of the things that I think we 
overlook when we think about this problem in general is it is 
not just how it is affecting the current state of our business.
    The digital technologies have provided an opportunity for 
so many of our businesses, maybe ours in particular, for the 
most robust transformational growth that anyone can imagine.
    There is nothing not to like about something that is 
faster, less expensive, and much higher in quality. There is 
nothing not to like about that. The problem is it is hard to 
see where we could have gone, where this could have taken a 
great American industry were it not for the dampening effect of 
piracy, this effect that is holding it down.
    That is why I think everybody has trouble estimating what 
the loss is. You do not know what it could have been were it 
not for this, and I think that is an important thing for us all 
to keep in mind.
    Senator Franken. I am sorry, and I know--let me just make 
about a 20-second comment, because you talked in your testimony 
about sort of all the adaptations you are making that are 
almost a response to piracy, and Blu-ray and the different 
platforms that you are doing, which I think are just amazing 
and are revolutionizing the way we get entertainment, are 
changing so fast.
    In some small way, they were a response to piracy. So maybe 
the innovation was prompted by it. But I think that--I applaud 
you for all the different innovation that you are doing in 
terms of the kind of platforms that we are seeing. And this is 
going to keep transforming and revolutionizing the way we enjoy 
entertainment and get our information. So thank you for doing 
that.
    Chairman Leahy. Senator Whitehouse, and then Senator 
Klobuchar, and then we will be through.
    Senator Whitehouse. Thank you, Mr. Chairman. Mr. Meyer, you 
have talked about online piracy being rampant, described how 
sophisticated criminal enterprises are behind it. But it is 
also an area in which legitimate sophisticated enterprises are 
also deeply involved.
    If I want to go and download a stolen product of yours, I 
get there on a search engine that is a legitimate search 
engine, Google, and I download it across an internet service 
provider, like AT&T. And if there is a way that I am asked to 
pay for it, it is not impossible to have Visa and MasterCard be 
there on that pirate Website.
    So you have these very legitimate businesses that are 
participating in and supporting the online piracy that is 
degrading your asset base and stealing your revenues.
    Why is this not being adequately worked out in the private 
sector between these industries? You say you spend tens of 
millions of dollars fighting this issue. I assume a lot of that 
goes to lawyers. Everybody knows where the courthouses are.
    What are the things that are inhibiting industries like 
yours from bringing in Visa and MasterCard, from bringing in 
the ISPs, from bringing in the search engines and saying, 
``Look, you guys, you cannot keep supporting this in this way. 
We are going to ask for a court order,'' and hash it out 
through that mechanism?
    What are the failures in that traditional, well established 
mechanism for private dispute resolution?
    Mr. Meyer. Well, I think it is a great question. Having 
legitimate enterprises participate in the illegal activity, has 
a certain backhanded way of legitimizing it. If you can pay 
with your MasterCard, it cannot be illegal.
    But in answer to your question, there is nothing. I think 
that we are working very hard now, especially with the ISPs in 
the first place, to try to make sure that they are policing 
their networks in a way to distinguish between illegal activity 
and legitimate activity.
    One of the technical problems that we have, is that the 
illegitimate activity has gotten so facile. You referred before 
to taking four or five clicks to get to an illegal download. We 
worry that it is just one click.
    But the distinction, it is so hard to make the distinction 
that we are trying to technically work with them to sort out 
how you find these distinctions.
    But when we do, we are not finding an awful lot of 
resistance on principle. What we are finding is that there are 
some technical obstacles that we have to face together.
    I will say this, that, clearly, in the last short period of 
time, a year or two or three, the involvement, the interest of 
the government in protecting intangible intellectual property 
has really, I think, weighed heavily on the industry, including 
those who might not have been as interested in it before.
    So even though we are not specifically asking for 
legislation right now, the overall impact of the government's 
interest in protecting this industry has had an enormous effect 
on the conversations in the private sector.
    Senator Whitehouse. Well, we certainly want to help, 
because there is a distinct national interest, given what I 
consider to be the scale of this theft. I mean, I really do 
think that you could take Willie Sutton, Bonnie and Clyde, and 
the James Gang and add them all up together and they are penny 
ante. They are nothing compared to the scale of the theft that 
we are suffering as a Nation right now, and, by and large, 
often oblivious to it.
    But I still do not--I will just leave you with the thought 
that it seems incongruous that with the level of effort that 
you have dedicated to this, with the level of stake that you 
have in this as a business, with the level of attention that 
this gets from Congress, that I could probably leave this 
hearing and go to my computer and within a very few clicks, use 
Google to get to an illegal Website, facilitated by whoever the 
ISP is here, AT&T, Verizon, I do not know, and Visa pops up on 
the thing and nobody has--you would have thought that your 
lawyers would be there in 30 seconds saying not--as long as I 
can find it, I am going to take it and shut it down, because 
somehow Google is getting me there.
    Somehow the ISP is delivering the service. Somehow Visa is 
involved. And if it can be done, it can be cut off, I would 
think, and I do not know why it is not being cut off on a much 
more aggressive basis.
    Mr. Meyer. Well, Senator, we do utilize the takedown notice 
provisions of the DMCA. We send out thousands of notices, when 
we notice things are up, that they be taken down.
    The problem with that as a mechanism is that it is after 
the fact and once something is up, it is virally distributed 
and there is not much you can do about it.
    We are talking about a process here that disables the 
enablers. In your example, if you could not go to Google and 
search for it, if that were not able to happen, all the other 
illegal activity would be prevented.
    So that is an enabling practice that we have to look at, 
and we are looking at it right now.
    Senator Whitehouse. I think we might have just heard a goal 
scored, sudden shouting from the anteroom.
    Senator Klobuchar. And what people want to hear next are my 
questions, I am sure.
    Maybe we can get a report, Mr. Chairman.
    Chairman Leahy. Hold on. Right here, we have got it.
    Senator Klobuchar. You should read it.
    Senator Whitehouse. This is chairman's news. If it went the 
other way, I would announce it.
    Chairman Leahy. On the important things, not that Senator 
Whitehouse's question and your answer are not. The U.S. soccer 
team has scored a goal and this one is being allowed to count. 
So it is U.S.-1, Algeria-0.
    [Applause.]
    Chairman Leahy. This is somewhat unprecedented for me. Is 
this the last minute? Is the game over? Can somebody find out 
if the game is over?
    [Laughter.]
    Senator Klobuchar. You can spruce up my questions if you 
could announce that in the middle.
    Chairman Leahy. Ten minutes left in the game. Take all the 
time you want, Senator Klobuchar.
    I might note, on a more serious thing, Senator Klobuchar 
and Senator Whitehouse and I are all former prosecutors, and I 
have got to tell you, it is not just closing it down, and 
important that is. It is not just bringing suits.
    I would like to see a few people go to jail. It is theft. 
If you steal $1 million, you go to jail. If you steal $10,000, 
you are going to go to jail.
    I would like to see a few people go to jail for stealing 
this stuff. It may focus the attention.
    I am sorry. Senator Klobuchar, go ahead, please.
    Senator Klobuchar. Well, thank you very much, Mr. Chairman.
    And thank you very much, Mr. Almeida, for going through all 
those numbers, which it will help me when we are in these 
discussions with the Canadians, which I was referencing 
earlier, because I think sometimes it just seems like big 
corporations and when you start talking about the individual 
people and what the residuals mean.
    I was also harkening back to my law school days. My senior 
essay got published and I would get about--I think like $200 a 
year for royalties for Uncovering the Dome, which Mr. Meyer--my 
book on the politics behind the building of the Metrodome in 
Minneapolis and never got picked up as a movie. But I am still 
getting those royalties.
    Mr. Meyer. Is it still available?
    Senator Klobuchar. Yes, it is. That would be probably be an 
ethical violation that I do not want to commit here.
    But I wanted to, first, maybe follow-up with what the 
Chairman was talking about with the criminal. We actually had a 
case set. I think Warner Brothers was aware of it. But a case 
in Minnesota where they actually prosecuted someone, I think it 
might have been music, for illegally downloads, an individual, 
who was just a person that did it, and a jury verdict came in. 
I cannot remember what happened on appeal.
    But the funny part about the story was my daughter was in 
middle school in Arlington, Virginia. We pick her up 1 day and 
she said, ``Mom, did you hear what happened in Duluth? You can 
get prosecuted.'' The librarian had called them all in and told 
them about it.
    So I was just wondering if what the Chairman was talking 
about here with the prosecution, as difficult as it is and so 
many multiple violations that are going on right now, do you 
think that is helpful; if education efforts along those lines 
are helpful?
    Ms. Bienstock. I do think it is helpful. I think it is 
helpful, because it enables the conversations to occur in 
people's households, like you had in the car, about the 
possibility of prosecution for an individual.
    While we, as an industry, had issues about suing our own 
customers, because these are people who, in theory, wanted 
music and, therefore, would have been customers, the net result 
of litigation was that there were many conversations not only 
in the home, but in schools, and there was an education process 
that occurred at a university level about what it meant to 
provide bandwidth to college students and then not pay 
attention to what they did with it.
    So I think that the prosecution efforts have been useful, 
but they are limited. It's a game of whack-a-mole. You have to 
work with the ISPs to get them to acknowledge that they are 
something other than a dumb pipe, and I think that has been a 
challenge for us.
    They are not--because those people are their customers, I 
think there has been an unwillingness on the part of the ISPs 
to take responsibility for self-policing without pressure from 
the private sector, but that pressure would be greatly enhanced 
from the government.
    So we are looking for pressure on the ISPs, to address 
Senator Whitehouse's point, because we have not been able to do 
that alone. We have met with pushback. So getting the 
government involved in working with the ISPs would be very 
useful for us.
    Senator Klobuchar. That would be a much bigger way to do 
it, and, also, these organized efforts that we have been 
referring to, which are much bigger prosecutions.
    Mr. Meyer, I know that the movie industry took a slightly 
different approach to going atfer some of this piracy. The 
music industry was the first hit by it, just because it was 
easier to steal.
    Could you talk about what you did, what was the difference 
in the approach, and the changes you are seeing when it was, 
say, peer-to-peer, which I referenced the bill I have with 
Senator Thune, and now it is more about these streaming sites 
or Cyberlockers or some of the new ways that people are 
stealing things?
    Mr. Meyer. Well, peer-to-peer piracy was really basically a 
method of trading files and downloading those. So we were 
always concerned about download times and at what point it 
became inconvenient for people to steal as opposed to buying 
legitimate product at--actually, really in answer to your 
question, Senator, one of the things that we tried to do was 
some of the things I talked about earlier, which is just making 
our product available on a wide variety of different platforms 
and at very reasonable price points. The price points of the 
product that we have produced have really come down in many of 
these venues.
    So we have, in a certain way, tried to compete with the 
pirates in the peer-to-peer world, that required downloading 
and time and effort, by making the product more available 
legitimately, more useable on a wide variety of platforms.
    As the world migrates into a streaming and now a 
Cyberlocker world where one or two clicks away and you can have 
something that requires no downloading time, that just streams 
in real time, and for a small subscription fee to an illegal 
subscription site, you can get an unlimited number of illegally 
obtained movies.
    Our efforts in adjusting our business models and adjusting 
our use of the technology to put our product out there are 
becoming impaired. So we are now looking for--we are going to 
now have to look for government help and more help from the 
technology enablers to allow us to really deal with this, 
because it has gotten to a brand new level now.
    Senator Klobuchar. Are you familiar with the Canadian 
situation? Because I think people always think about China and 
other countries, but that they do not have good enough 
intellectual property laws right now.
    While you guys make movies up there sometimes, they have 
not put into place the protections. I think people would be 
surprised by that.
    Mr. Meyer. Well, we were aware a number of years ago. Our 
industry has done a lot of production in Canada, motion picture 
production, especially television production, and we were aware 
a number of years ago that our good neighbors to the north did 
not really have in place a camcording law, an anti-camcording 
law.
    And frankly, thanks to Senator Feinstein and Senator 
Cornyn, two members of this committee, in a very, very strongly 
worded letter to the appropriate Canadian governmental 
official, they put one in place relatively quickly.
    Our impression is that they are moving along in that 
direction, continuing to move along in that direction, but are 
not yet there. I do not have anymore specifics about it, 
though.
    Senator Klobuchar. Mr. Esper.
    Mr. Esper. Yes, Senator. I just wanted to add one point, as 
well, to build on what was said here, and that is this problem 
is only increasing and increasing exponentially.
    As more and more people gain access to the Internet and as 
Internet speeds increase, the problem will just continue to 
escalate. And it is not just movies and music. I would bet a 
good deal of money right now that somebody is online streaming 
the FIFA Webcast that you are watching right now, that staff is 
watching in the back room.
    That signal is being stolen and you cannot capture it, as 
Barry said a little while ago, in some of these cases. And that 
is happening across industries, across our own sports leagues. 
And the problem is also now moving into publishing houses and 
e-books across the board.
    So when you see the confluence of all these factors, you 
really become worried that the 18 million Americans that depend 
on IP industries for their jobs and the tens of millions more 
that are indirectly employed by these industries, we have a lot 
at risk.
    Senator Klobuchar. I agree. And again, I really see this as 
the key. I commend you for the industries you are in, as we 
look at where we have grown and where we should focus our 
attention in this country, from medical device to biotech to 
high tech to the work in the movie/TV industry.
    We have to look at those areas that are growing and 
exporting and those are the areas that we want to make sure 
that we are protecting, because it is so easy to put such a 
deep gash into profits by simply stealing the idea.
    So I want to thank you all for what you are doing. I know I 
am devoted, as the rest of us are who stayed here, not just to 
hear your testimony, but to hear the final World Cup score.
    Chairman Leahy. We won. The U.S. won in overtime.
    [Applause.]
    Chairman Leahy. The U.S. won in overtime.
    Senator Klobuchar. Overtime? I thought it was one out.
    Chairman Leahy. It was, but they had 2 minutes left, and 
they won--we won.
    Senator Klobuchar. We won, good.
    Chairman Leahy. It would have been two, except for one of 
the calls, but I am not going to suggest that anyone would make 
a mistake on a call in soccer.
    I should also state, just for full disclosure, you talked 
about your residuals and Senator Franken his. I also get 
residuals from three Batman movies, the last being Dark Knight.
    I should also add that every cent of that goes to the 
children's library in Montpelier, Vermont, the Kellogg-Hubbard 
Library, where I had my first library card when I was 4 years 
old, and I use that to encourage kids to read, as they should. 
We would be all better off if kids read better.
    With that, I thank you all for being here. This has been a 
fascinating thing. Obviously, what I am trying to do is build 
support for even more and tougher legislation and enforcement 
by the Administration.
    I applaud both the Republicans and Democrats on this 
Committee who have joined so well in that.
    Thank you all very much.
    [Whereupon, at 12:02 p.m, the hearing was adjourned.]
    [Questions and answers and submissions for the record 
follow.]





                                 
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