[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
 SAFE DOSES ACT, THE COUNTERFEIT DRUG PENALTY ENHANCEMENT ACT OF 2011, 
               AND THE FOREIGN COUNTERFEIT PREVENTION ACT

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

                                HEARING

                               BEFORE THE

                   SUBCOMMITTEE ON CRIME, TERRORISM,
                         AND HOMELAND SECURITY

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                                   ON

                   H.R. 4223, H.R. 3668 and H.R. 4216

                               __________

                             MARCH 28, 2012

                               __________

                           Serial No. 112-132

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov



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                       COMMITTEE ON THE JUDICIARY

                      LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina         JERROLD NADLER, New York
ELTON GALLEGLY, California           ROBERT C. ``BOBBY'' SCOTT, 
BOB GOODLATTE, Virginia                  Virginia
DANIEL E. LUNGREN, California        MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio                   ZOE LOFGREN, California
DARRELL E. ISSA, California          SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana                  MAXINE WATERS, California
J. RANDY FORBES, Virginia            STEVE COHEN, Tennessee
STEVE KING, Iowa                     HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona                  Georgia
LOUIE GOHMERT, Texas                 PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio                     MIKE QUIGLEY, Illinois
TED POE, Texas                       JUDY CHU, California
JASON CHAFFETZ, Utah                 TED DEUTCH, Florida
TIM GRIFFIN, Arkansas                LINDA T. SANCHEZ, California
TOM MARINO, Pennsylvania             JARED POLIS, Colorado
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
MARK AMODEI, Nevada

           Richard Hertling, Staff Director and Chief Counsel
       Perry Apelbaum, Minority Staff Director and Chief Counsel
                                 ------                                

        Subcommittee on Crime, Terrorism, and Homeland Security

            F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman

                  LOUIE GOHMERT, Texas, Vice-Chairman

BOB GOODLATTE, Virginia              ROBERT C. ``BOBBY'' SCOTT, 
DANIEL E. LUNGREN, California        Virginia
J. RANDY FORBES, Virginia            STEVE COHEN, Tennessee
TED POE, Texas                       HENRY C. ``HANK'' JOHNSON, Jr.,
JASON CHAFFETZ, Utah                   Georgia
TIM GRIFFIN, Arkansas                PEDRO R. PIERLUISI, Puerto Rico
TOM MARINO, Pennsylvania             JUDY CHU, California
TREY GOWDY, South Carolina           TED DEUTCH, Florida
SANDY ADAMS, Florida                 SHEILA JACKSON LEE, Texas
MARK AMODEI, Nevada                  MIKE QUIGLEY, Illinois
                                     JARED POLIS, Colorado

                     Caroline Lynch, Chief Counsel

                     Bobby Vassar, Minority Counsel


                            C O N T E N T S

                              ----------                              

                             MARCH 28, 2012

                                                                   Page

                               THE BILLS

H.R. 4223, the ``Safe Doses Act''................................     4
H.R. 3668, the ``Counterfeit Drug Penalty Enhancement Act of 
  2011''.........................................................    14
H.R. 4216, the ``Foreign Counterfeit Prevention Act''............    17

                           OPENING STATEMENTS

The Honorable F. James Sensenbrenner, Jr., a Representative in 
  Congress from the State of Wisconsin, and Chairman, 
  Subcommittee on Crime, Terrorism, and Homeland Security........     1
The Honorable Robert C. ``Bobby'' Scott, a Representative in 
  Congress from the State of Virginia, and Ranking Member, 
  Subcommittee on Crime, Terrorism, and Homeland Security........    21
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, and Ranking Member, Committee on 
  the Judiciary..................................................    22

                               WITNESSES

Dara A. Corrigan, Associate Commissioner for Regulatory Affairs, 
  U.S. Food and Drug Administration
  Oral Testimony.................................................    28
  Prepared Statement.............................................    30
Thomas T. Kubic, President and CEO, Pharmaceutical Security 
  Institute
  Oral Testimony.................................................    38
  Prepared Statement.............................................    41
Travis D. Johnson, Vice President-Director of Legislative Affairs 
  & Policy, The International AntiCounterfeiting Coalition
  Oral Testimony.................................................    45
  Prepared Statement.............................................    47
Gilbert Lee Sandler, Member, Sandler, Travis, & Rosenberg, P.A.
  Oral Testimony.................................................    57
  Prepared Statement.............................................    59
Lucian E. Dervan, Professor, Southern Illinois University School 
  of Law
  Oral Testimony.................................................    73
  Prepared Statement.............................................    76

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable F. James Sensenbrenner, Jr., 
  a Representative in Congress from the State of Wisconsin, and 
  Chairman, Subcommittee on Crime, Terrorism, and Homeland 
  Security.......................................................    23
Prepared Statement of the Honorable Robert C. ``Bobby'' Scott, a 
  Representative in Congress from the State of Virginia, and 
  Ranking Member, Subcommittee on Crime, Terrorism, and Homeland 
  Security.......................................................    24
Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, and 
  Ranking Member, Committee on the Judiciary.....................    26
Material submitted by the Honorable Jason Chaffetz, a 
  Representative in Congress from the State of Utah, and Member, 
  Subcommittee on Crime, Terrorism, and Homeland Security........   190

                                APPENDIX
               Material Submitted for the Hearing Record

Prepared Statement of the Honorable Sheila Jackson Lee, a 
  Representative in Congress from the State of Texas, and Member, 
  Subcommittee on Crime, Terrorism, and Homeland Security........   199
Prepared Statement of the Honorable Steve Chabot, a 
  Representative in Congress from the State of Ohio, and Member, 
  Subcommittee on the Constitution...............................   202
Prepared Statement of the Honorable Linda T. Sanchez, a 
  Representative in Congress from the State of California, and 
  Member, Committee on the Judiciary.............................   205
Letter from the Chamber of Commerce of the United States of 
  America........................................................   206
Letter from the International Trademark Association (INTA).......   207


 SAFE DOSES ACT, THE COUNTERFEIT DRUG PENALTY ENHANCEMENT ACT OF 2011, 
               AND THE FOREIGN COUNTERFEIT PREVENTION ACT

                              ----------                              


                       WEDNESDAY, MARCH 28, 2012

              House of Representatives,    
              Subcommittee on Crime, Terrorism,    
                             and Homeland Security,
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 10 a.m., in room 
2141, Rayburn Office Building, the Honorable F. James 
Sensenbrenner, Jr., (Chairman of the Subcommittee) presiding.
    Present: Representatives Sensenbrenner, Goodlatte, Poe, 
Chaffetz, Conyers, and Scott.
    Staff Present: (Majority) Sam Ramer, Counsel; Arthur 
Radford Baker, Counsel; Tony Angeli, Counsel; Lindsay Hamilton, 
Clerk; (Minority) Bobby Vassar, Subcommittee Chief Counsel; Ron 
LeGrand, Counsel; and Veronica Eligan, Professional Staff 
Member.
    Mr. Sensenbrenner. The Subcommittee will come to order.
    Today's hearing will examine legislation to address the 
transportation, sale, and theft of various types of counterfeit 
goods. Counterfeit and stolen merchandise constitute a danger 
to the public that is not readily evident. More than the costly 
theft of intellectual property, counterfeit goods have the 
capacity to injure and kill innocent and unsuspecting 
Americans.
    This hearing studies three legislative proposals: H.R. 
4223, the ``Safe Doses Act;'' H.R. 3668, the ``Counterfeit Drug 
Penalty Enhancement Act of 2011;'' and H.R. 4216, the ``Foreign 
Counterfeit Prevention Act.'' The common purpose of all three 
of these bills is to reduce and punish the trafficking of 
counterfeit goods and stolen merchandise.
    Last week, I introduced H.R. 4223, the ``Safe Doses Act,'' 
a bipartisan bill to combat medical cargo theft. This bill 
increases penalties for stealing, embezzling, and fraudulently 
obtaining medical products in the interstate of foreign 
commerce.
    Counterfeit or stolen medical products enter the legitimate 
stream of commerce, and the ultimate user relies on the belief 
that the products are authentic. Unfortunately, these products 
are often adulterated or mishandled, thereby making the product 
ineffective or even hazardous to the user.
    The Safe Doses Act enhances penalties for those who traffic 
in counterfeit, adulterated, or stolen medical products. It 
also gives law enforcement enhanced tools to curb medical cargo 
theft.
    The Senate companion to this bill, S. 1002, was reported 
unanimously by the Senate Judiciary Committee earlier this 
month.
    H.R. 3668, sponsored by Mr. Meehan of Pennsylvania and Ms. 
Sanchez of California, increases penalties for trafficking in 
or attempting to traffic counterfeit drugs. This bipartisan 
bill also doubles the penalties for repeat offenders.
    Counterfeit drugs can be deadly. Last month, the FDA 
notified 19 doctors and clinics in the U.S. that they may have 
purchased counterfeit vials of a life-saving cancer drugs. 
Avastin is an integral part of cancer treatment for millions of 
Americans each year.
    The fake drug is believed to have originated in China or 
India, and was sent to the United States from a company in 
Barbados. The owner of the Barbados company admitted there was 
nothing in the vials that would fight cancer, but equally 
asserted he did nothing wrong.
    The FDA is still investigating how many cancer patients 
missed their critical treatments or were administered a 
solution of salt, starch, and acetone, rather than the genuine 
chemotherapy drug.
    Counterfeit drugs are prosecuted under the general 
counterfeit goods statute, which contains a maximum penalty of 
10 years for a first offense. Even with a 10-year penalty, the 
actual sentences imposed under the existing counterfeit goods 
statute are dramatically lower.
    According to the Sentencing Commission, between FY06 and 
FY10, there were 385 Federal prosecutions for counterfeit 
goods. The median sentence was 17 months. The mean sentence was 
only 10 months.
    This legislation provides needed enhancements to both deter 
and punishing the trafficking of counterfeit drugs.
    The Senate passed its companion bill, S. 1886, by voice 
vote last month.
    H.R. 4216 was introduced last week by Mr. Poe and Mr. 
Chabot to reduce unnecessary hurdles faced by law enforcement 
when investigating suspected counterfeit or pirated products 
detained at our ports of entry. The Trade Secrets Act currently 
prohibits officials from the U.S. Customs and Border Protection 
from communicating with or providing information to copyright 
and trademark owners during the course of an investigation of 
suspected counterfeit or pirated goods. This bill would permit 
the flow of information between the CBP and mark-owners, and 
allow better enforcement of the law, while preventing 
counterfeit or pirated goods from entering our country.
    Counterfeit goods seriously mislead the public. Goods and 
merchandise bearing a well-known brand name or trademark are 
inherently trusted by the purchasing public. This trust extends 
beyond the products' authenticity. In the case of medicine, it 
extends to a drug's purity in ingredients. In the case of 
consumer electronics--for instance, a DVD player--it extends to 
its performance.
    Brand names are a mechanism by which great companies endure 
or fail.
    Counterfeit goods can cause great harm. Last month, the GAO 
issued a report to the Senate Armed Services Committee, 
following a lengthy undercover investigation of suspected 
counterfeit electronic parts in the supply chain of the 
Department of Defense. The GAO made undercover purchases of 
military-grade electronic parts. These parts were sent to an 
independent testing laboratory for analysis, ranging from 
electron microscope inspection to x-ray analysis. Testing 
revealed that all of the parts purchased were determined to be 
what is called suspect counterfeit, the strongest term 
signifying the potential violation of copyright or trademark 
laws, or misrepresentation through fraud or deceit.
    These bills propose common-sense, necessary improvements to 
the Federal law to combat counterfeit drugs, stolen medical 
cargo, and misbranded merchandise.
    I look forward to hearing from the witnesses, and I thank 
them for participating in today's hearing.
    [The bills, H.R. 4223, H.R. 3668, and H.R. 4216 follow:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                               __________
                               
                               
                               
                               
                               
                               
                               __________
                               
                               
                               
                               
                               
                               
                               
                               
                               __________
    Mr. Sensenbrenner. It is now my pleasure to recognize, for 
his opening statement, the Ranking Member of the Subcommittee, 
the gentleman from Virginia, Mr. Scott.
    Mr. Scott. Thank you, Mr. Chairman.
    I am pleased to join you today for the hearing on important 
matters of concern the bills before us seek to address.
    Two of the bills we will address today concern problems 
with prescriptive drugs. One concerns problems presented by 
counterfeit drugs; the other large-scale theft of prescriptive 
drugs from warehouses, distribution facilities, and while in 
transit.
    The first bill, H.R. 3668, the ``Counterfeit Drug Penalty 
Enhancement Act of 2011,'' doubles imprisonment maximums from 
10 to 20 years for an offense involving counterfeit drugs, the 
same maximum level for knowingly or recklessly causing serious 
bodily injury with a counterfeit product, including drugs. It 
also increases the maximum fines for both individuals and 
companies, doubling the maximum for a base offense.
    The second bill, the Safe Doses Act, establishes offenses 
related to pre-retail medical products, including aggravated 
offense where a defendant is an employee or recidivist, or 
where the offense involves violence or a deadly weapon, or 
causes serious bodily injury or death.
    For violation without an aggravation, the penalty is up to 
3 years. If aggravated, the maximum penalty is up to 15 years, 
unless it involves more than $5,000, which drives it up to 20 
years; if it involves death or serious bodily injury, up to 30 
years. And then, for good measure, we make a predicate offense 
for all manner of additional penalty provisions, such as RICO 
or other racketeering, money laundering, or other provisions, 
and increase the maximum for these penalties beyond the maximum 
for their original purposes, to go after major organized crime 
syndicates.
    So what we are doing to solve the crime? We are increasing 
penalties. We keep doing the same thing, but increasing 
penalties doesn't really increase the ability to reduce the 
crime.
    The next Congress and beyond we will see the same 
complaints about the problem. We are likely to do the same 
thing again, just increase penalties. Yet there is no evidence 
that the serious problems we are seeking to address result from 
lack of laws or lack of penalties. We have plenty of laws on 
the books. Everything we are covering in these bills is already 
against the law. And the penalties are plenty high enough.
    We have more or higher penalties for crime than any other 
Nation on Earth. We lock up a higher portion of our population 
than any country on Earth. We have 5 percent of the world's 
population; 25 percent of the world's incarcerations.
    So I would be curious to see what evidence our witnesses 
will put forth to establish that criminals are currently 
choosing to engage in the conduct addressed by these bills 
simply because the current penalties are not high enough to 
dissuade them. And if there is no such evidence, then we are 
just making the proposals on notions of what might work.
    What we need to do is to increase the resources to 
prosecutors, so that they can solve more crimes rather than 
just increase penalties for those unlucky enough to get caught.
    Moreover, we want to encourage the industry to exhaust all 
reasonable means of preventing these thefts from properties and 
other facilities in the transit scheme. In April 2001, a 
Fortune magazine article, entitled ``Drug Theft Goes Big,'' 
reports that when thieves committed the largest prescriptive 
drug theft in history, by breaking into Eli Lilly's warehouse 
in Connecticut, they did so by cutting through the tar roof of 
a warehouse and sliding down ropes. Security was so lax that 
the thieves were able to pull their own tractor-trailer up to 
the loading dock, spend a couple hours loading the stolen 
goods. In a similar event several months earlier, thieves broke 
into a GlaxoSmithKline warehouse, by coming through the roof.
    While none of this in any way shields or excuses the 
perpetrators, it clearly gives a suggestion that more security 
is needed. And I believe the Government and industry working 
together at all points in the factory-to-retail chain need to 
work together to prevent and detect such thefts.
    That would yield greater reductions than continually just 
adding crimes and penalties to the code when there are 
questions about whether the laws on the books are not being 
adequately enforced. I am aware that industry and Government 
regulatory authorities are working toward these ends, and I 
would hope that they will let us know what ways we can help 
that effort based on evidence of what works.
    Finally, H.R. 4216, the ``Foreign Counterfeit Prevention 
Act,'' aims to thwart the flow of stolen and counterfeit goods 
from entering the country. While I support the bill's goals, I 
cannot support the measure in its current form. The samples and 
images that the bill would allow U.S. Customs and Border 
Protection to release to rights-holders will include tracking 
and distribution codes that identify proprietary and 
confidential supply-chain information, even though these codes 
serve little if any purpose for the process of determining the 
authenticity of a product. Lawful importers will not have any 
protection or recourse from the release of this information.
    I sympathize with the needs of rights-holders and 
manufacturers to protect the integrity of their brands and the 
safety of their products, and for this reason I fully support 
anti-circumvention device provisions in the legislation. I hope 
the bill moves forward, that the compromises will include 
guarantees that importers and exporters will have many a 
meaningful role in verifying products' authenticity, and also 
provide for penalties against rights-holders that knowingly 
provide false information to Customs and Border Patrol to 
damage a competing legitimate importer.
    Mr. Chairman, thank you, and I look forward to the 
testimony of the witnesses.
    Mr. Sensenbrenner. The gentleman from Michigan, Mr. 
Conyers, the Ranking Member of the full Committee.
    Mr. Conyers. Thank you, Chairman Sensenbrenner. I begin my 
comment by expressing my gratitude to you for allowing the 
professor of the law school, named Lucian Dervan, to join here 
in the discussions this morning, because he is prepared to 
discuss the first two measures.
    And of course our old friend, Gilbert Lee Sandler, is here 
to talk about the third provision, the Foreign Counterfeit 
Prevention Act.
    And I think this balances out our investigation of these 
three measures in a very fine way.
    Let me first point out that the first two measures need to 
be examined in terms of how we might be able to improve the law 
enforcement and prosecutorial aspect of the problem that we are 
taking on in the first two bills before us.
    Let's ensure that our law enforcement and prosecutors' 
offices are adequately resourced, that they have what is needed 
to effectively investigate and prosecute offenders.
    I often wonder how many law violators are examining the 
criminal code to find out what the maximum sentencing is, or 
whether it has been increased or even doubled, or whether they 
think first of that area of concern. Or do they maybe more 
likely remember that these cases are being aggressively handled 
by the law enforcement apparatus in their particular community? 
And it is something that I hope we will have a full discussion 
of here this morning.
    And then with regard to the third bill, the whole question 
of how we deal with foreign counterfeit issues, H.R. 4216, I am 
impressed with the Sandler view that we may be able to make 
some progress on this area. By the way that he has described 
what their experience is in the firm that--mostly from Florida, 
but it is actually a global operation--has experienced in terms 
of import-export regulatory issues.
    I join with the Chair and Ranking Member in welcoming each 
and every witness. And I will submit my statement for the 
record.
    Mr. Sensenbrenner. Without objection, all Members' opening 
statements will be placed in the record at this point.
    [The prepared statement of Mr. Sensenbrenner follows:]

  Prepared Statement of the Honorable F. James Sensenbrenner, Jr., a 
 Representative in Congress from the State of Wisconsin, and Chairman, 
        Subcommittee on Crime, Terrorism, and Homeland Security

    Today's hearing will examine several issues related to the 
transportation, sale, and theft of various types of counterfeit goods. 
Counterfeit and stolen merchandise constitute a danger to the public 
that is not readily evident. More than the costly theft of intellectual 
property, counterfeit goods have the capacity to injure and kill 
innocent and unsuspecting Americans. My hope is that this hearing will 
reveal those issues and identify areas which may require legislative 
action.
    This hearing studies three legislative proposals. H.R. 4223, the 
``Safe Doses Act,'' H.R. 3668, the ``Counterfeit Drug Penalty 
Enhancement Act of 2011,'' and H.R. 4216, the ``Foreign Counterfeit 
Prevention Act.'' A common purpose for all three of these bills is to 
reduce and punish the trafficking of counterfeit goods and merchandise.
    Last week, I introduced H.R. 4223, the bi-partisan House companion 
bill to S. 1002, the Safe Doses Act. These bills set and increase the 
penalties for stealing, embezzling and fraudulently obtaining medical 
products in interstate or foreign commerce. An important point to this 
legislation is that counterfeited medical products enter the legitimate 
stream of commerce and the ultimate user relies on the belief that the 
products are authentic. This legislation enhances the penalties for 
those who traffic in counterfeit, adulterated or stolen medical 
products. It also gives law enforcement enhanced tools to curb medical 
cargo theft. S. 1002 was reported out of the Senate Judiciary Committee 
earlier this month.
    H.R. 3668, sponsored by Mr. Meehan and Ms. Sanchez, enhances the 
penalties for trafficking in, or attempting to traffic, counterfeit 
drugs. The bi-partisan bill also doubles the penalties for repeat 
offenders. Even with the current 10-year maximum penalty, the actual 
sentences imposed under the existing counterfeit goods statute are 
dramatically lower. According to the U.S. Sentencing Commission, 
between FY 2006 and FY 2010, there were 385 federal prosecutions for 
counterfeit goods. The median sentence was 17 months; the mean sentence 
was only 10 months. This legislation provides needed enhancements to 
both deter and punish the trafficking of counterfeit drugs. The Senate 
companion bill, S. 1886, passed by voice vote in the Senate.
    H.R. 4216 was introduced last week by Mr. Poe and Mr. Chabot to 
reduce unnecessary hurdles faced by law enforcement when investigating 
suspected counterfeit or pirated products detained at the border. The 
Trade Secrets Act currently prohibits officials from U.S. Customs and 
Border Protection from communicating with and providing information to 
copyright and trademark owners during the course of an investigation of 
suspected counterfeit or pirated products. This bill would permit the 
flow of information between CBP and mark owners and allow better 
enforcement of the law while preventing counterfeit or pirated products 
from entering the United States.
    Counterfeit goods seriously mislead the public. Goods and 
merchandise bearing a well-known brand name or trademark are inherently 
trusted by the purchasing public. This trust extends beyond the 
product's authenticity. In the case of medicine, it extends to a drug's 
purity and ingredients. In the case of consumer electronics, for 
instance a DVD player, it extends to its performance--every time, and 
for a long period of time. For decades, brand names are a mechanism by 
which great companies endure or fail.
    Counterfeiters, also known as brand pirates, exploit the brand name 
of a quality product. No one is going to counterfeit a Ford Edsel or a 
Sony Betamax. Yet brand pirates will go to great lengths to counterfeit 
a Sony Playstation or an iPod. Like many criminals, their singular 
objective is financial gain.
    Counterfeit goods can cause great harm. Last month, the GAO issued 
a report to the Senate Armed Service Committee following a lengthy 
undercover investigation of suspected counterfeit electronic parts in 
the supply chain of the Department of Defense. The GAO made undercover 
purchases of military-grade electronic parts. The parts were sent to an 
independent testing laboratory for analysis ranging from electron 
microscope inspection to x-ray analysis. Testing revealed that all of 
the parts purchased were determined to be what is called ``suspect 
counterfeit,'' the strongest term signifying a potential violation of 
copyright or trademark laws, or misrepresentation to defraud or 
deceive.
    Counterfeit drugs could be deadly. Last month, the FDA had to 
notify 19 doctors and clinics in the United States that they may have 
purchased counterfeit vials of a life-saving cancer drug. Avastin is an 
integral part of cancer treatment for millions of Americans each year. 
The fake drug is believed to have originated in China or India and was 
sent to the United States from a company in Barbados. The owner of the 
Barbados company admitted there was nothing in the vials that would 
fight cancer but equally asserted that he did nothing wrong. The FDA is 
still investigating how many cancer patients missed their critical 
treatments and were administered a solution of salt, starch and acetone 
rather than a genuine chemotherapy drug.
    This hearing will explore the harm caused by counterfeit goods and 
misbranded merchandise. We will look at the need for legislation and 
whether law enforcement requires more tools to combat counterfeit 
products.
    I look forward to hearing from the witnesses, and I thank them for 
participating in today's hearing.
                               __________

    [The prepared statement of Mr. Scott follows:]

   Prepared Statement of the Honorable Robert C. ``Bobby'' Scott, a 
  Representative in Congress from the State of Virginia, and Ranking 
    Member, Subcommittee on Crime, Terrorism, and Homeland Security

    Thank you, Mr. Chairman. I am pleased to join you today for this 
hearing on the important matters of concern that the bills before us 
seek to address. Two of the bills that we will discuss today concern 
problems with prescription drugs. One concerns the problems presented 
by counterfeit drugs; the other concerns the large scale theft of 
prescription drugs from warehouses, distribution facilities, and while 
in transit. Both counterfeit drugs and large-scale medical product 
theft pose substantial risks to the public. Patients should be able to 
rely on their medications to be safe, effective, and unadulterated, and 
we certainly need to treat it as a significant crime when criminals 
counterfeit drugs or steal shipments of drugs. Both counterfeit drugs 
and large-scale medical product theft are serious problems that merit 
serious solutions. Unfortunately, the bills we are discussing today do 
not adequately address the problems.
    The first bill, H.R. 3668, the ``Counterfeit Drug Penalty 
Enhancement Act of 2011,'' doubles imprisonment maximums from 10 years 
to 20 years, for an offense involving counterfeit drugs, the same 
maximum level as for knowingly or recklessly causing serious bodily 
injury with any counterfeit product, including drugs. It also increases 
the maximum fines for both individuals and companies, doubling the 
maximum for a base offense.
    The second bill, H.R. 4223, the ``Safe Doses Act of 2012,'' 
establishes offenses related to ``pre-retail medical products,'' 
including aggravated offense where the defendant is an employee or a 
recidivist or where the offense involves violence or a deadly weapon, 
or causes serious bodily injury or death. For a violation without an 
aggravation, the penalty is up to 3 years. If aggravated, the maximum 
penalty is up to 15 years, unless it involves more than $5,000, which 
drives it up to 20 years, and if it involves death or serious bodily 
injury, up to 30 years. Then, for good measure, we make the crimes 
under the bill predicate offenses for all manner of additional penalty 
provisions such as RICO, other racketeering, money laundering and other 
provisions, and we even increase the maximum for these penalties beyond 
the maximums for their original purposes to go after major organized 
crime syndicates.
    So here we go again doing what we almost always do to solve a crime 
problem--increase penalties. We keep doing the same thing hoping for 
different results. And next Congress, or beyond, when we see the same 
complaints about the problem we'll likely do the same thing again--
increase penalties. Yet, there is no evidence that the serious problems 
we are seeking to address result from a lack of laws or penalties. We 
have plenty of laws on the books. Everything we are covering in these 
bills is already against the law. And the penalties are plenty high 
enough. We have more and higher penalties for crime than any nation on 
earth. We have more people locked up than any nation on earth, by far, 
both by total number and per capita. We have 5% of the world's 
population and 25% of the world's incarcerations. So I will be curious 
to see what evidence our witnesses put forth to establish that 
criminals are currently choosing to engage in the conduct addressed by 
these bills simply because the current penalties are not high enough to 
dissuade them. If there is no such evidence and we are simply making 
these proposals on notions of what might work, it is my notion that we 
are far more likely to see results if we prosecuted more of the cases 
we are concerned about, and there is no evidence to show that the 
proposals in the bills will cause any more prosecutions than are 
currently being brought.
    Moreover, we want to encourage the industry to exhaust all 
reasonable means of preventing these thefts from their properties and 
other facilities in the transit scheme. The April 2011 Fortune Magazine 
article, titled, ``Drug Theft Goes Big'' reports that when thieves 
committed the largest prescription drug theft in history, by breaking 
into Eli Lilly's warehouse in Connecticut, they did so by cutting 
through the tar roof of the warehouse and sliding down ropes. Security 
was so lax that the thieves were able to pull their own tractor trailer 
up to the loading dock, and spend a couple of hours loading the stolen 
goods. In a similar event several months earlier, thieves broke into a 
GlaxoSmithKline warehouse by coming through the roof. While none of 
this in any way shields or excuses the perpetrators of these crimes, 
clearly these examples point to the need for more security. I believe 
that government and industry working together, at all points along the 
factory to retail chain to prevent and detect such thefts, would yield 
greater reductions than continually adding crimes and penalties to the 
code when there are questions as to whether the laws already on the 
books are not being adequately enforced. I am aware that industry and 
government regulatory authorities are working toward these ends, and I 
would hope that they will let us know ways in which we can help that 
effort based on evidence of what works.
    Finally, H.R. 4216, the ``Foreign Counterfeit Prevention Act'', 
aims to thwart the flow of stolen and counterfeit goods from entering 
the country. While I support the bill's goals, I cannot support the 
measure in its current form. The samples and images that the bill would 
allow U.S. Customs and Border Protection to release to rights holders 
will include tracking and distribution codes that identify proprietary 
and confidential supply chain information even though these codes serve 
little, if any, purpose in the process of determining the authenticity 
of a product. Lawful importers will not have any protection or recourse 
from the release of this information.
    I sympathize with the needs of rights holders and manufacturers to 
protect the integrity of their brands and the safety of their products. 
For this reason, I fully support the anti-circumvention device 
provisions of the legislation. I hope that if the bill moves forward, 
any compromise will include guarantees that importers and exporters 
have a meaningful role in verifying products' authenticity, and also 
provide for penalties against rights holders that knowingly provide 
false information to Customs and Border Patrol to damage a competing, 
legitimate importer.
    Thank you, Mr. Chairman.
                               __________

    [The prepared statement of Mr. Conyers follows:]

   Prepared Statement of the Honorable Robert C. ``Bobby'' Scott, a 
  Representative in Congress from the State of Virginia, and Ranking 
    Member, Subcommittee on Crime, Terrorism, and Homeland Security

    Thank you, Mr. Chairman. I am pleased to join you today for this 
hearing on the important matters of concern that the bills before us 
seek to address. Two of the bills that we will discuss today concern 
problems with prescription drugs. One concerns the problems presented 
by counterfeit drugs; the other concerns the large scale theft of 
prescription drugs from warehouses, distribution facilities, and while 
in transit. Both counterfeit drugs and large-scale medical product 
theft pose substantial risks to the public. Patients should be able to 
rely on their medications to be safe, effective, and unadulterated, and 
we certainly need to treat it as a significant crime when criminals 
counterfeit drugs or steal shipments of drugs. Both counterfeit drugs 
and large-scale medical product theft are serious problems that merit 
serious solutions. Unfortunately, the bills we are discussing today do 
not adequately address the problems.
    The first bill, H.R. 3668, the ``Counterfeit Drug Penalty 
Enhancement Act of 2011,'' doubles imprisonment maximums from 10 years 
to 20 years, for an offense involving counterfeit drugs, the same 
maximum level as for knowingly or recklessly causing serious bodily 
injury with any counterfeit product, including drugs. It also increases 
the maximum fines for both individuals and companies, doubling the 
maximum for a base offense.
    The second bill, H.R. 4223, the ``Safe Doses Act of 2012,'' 
establishes offenses related to ``pre-retail medical products,'' 
including aggravated offense where the defendant is an employee or a 
recidivist or where the offense involves violence or a deadly weapon, 
or causes serious bodily injury or death. For a violation without an 
aggravation, the penalty is up to 3 years. If aggravated, the maximum 
penalty is up to 15 years, unless it involves more than $5,000, which 
drives it up to 20 years, and if it involves death or serious bodily 
injury, up to 30 years. Then, for good measure, we make the crimes 
under the bill predicate offenses for all manner of additional penalty 
provisions such as RICO, other racketeering, money laundering and other 
provisions, and we even increase the maximum for these penalties beyond 
the maximums for their original purposes to go after major organized 
crime syndicates.
    So here we go again doing what we almost always do to solve a crime 
problem--increase penalties. We keep doing the same thing hoping for 
different results. And next Congress, or beyond, when we see the same 
complaints about the problem we'll likely do the same thing again--
increase penalties. Yet, there is no evidence that the serious problems 
we are seeking to address result from a lack of laws or penalties. We 
have plenty of laws on the books. Everything we are covering in these 
bills is already against the law. And the penalties are plenty high 
enough. We have more and higher penalties for crime than any nation on 
earth. We have more people locked up than any nation on earth, by far, 
both by total number and per capita. We have 5% of the world's 
population and 25% of the world's incarcerations. So I will be curious 
to see what evidence our witnesses put forth to establish that 
criminals are currently choosing to engage in the conduct addressed by 
these bills simply because the current penalties are not high enough to 
dissuade them. If there is no such evidence and we are simply making 
these proposals on notions of what might work, it is my notion that we 
are far more likely to see results if we prosecuted more of the cases 
we are concerned about, and there is no evidence to show that the 
proposals in the bills will cause any more prosecutions than are 
currently being brought.
    Moreover, we want to encourage the industry to exhaust all 
reasonable means of preventing these thefts from their properties and 
other facilities in the transit scheme. The April 2011 Fortune Magazine 
article, titled, ``Drug Theft Goes Big'' reports that when thieves 
committed the largest prescription drug theft in history, by breaking 
into Eli Lilly's warehouse in Connecticut, they did so by cutting 
through the tar roof of the warehouse and sliding down ropes. Security 
was so lax that the thieves were able to pull their own tractor trailer 
up to the loading dock, and spend a couple of hours loading the stolen 
goods. In a similar event several months earlier, thieves broke into a 
GlaxoSmithKline warehouse by coming through the roof. While none of 
this in any way shields or excuses the perpetrators of these crimes, 
clearly these examples point to the need for more security. I believe 
that government and industry working together, at all points along the 
factory to retail chain to prevent and detect such thefts, would yield 
greater reductions than continually adding crimes and penalties to the 
code when there are questions as to whether the laws already on the 
books are not being adequately enforced. I am aware that industry and 
government regulatory authorities are working toward these ends, and I 
would hope that they will let us know ways in which we can help that 
effort based on evidence of what works.
    Finally, H.R. 4216, the ``Foreign Counterfeit Prevention Act'', 
aims to thwart the flow of stolen and counterfeit goods from entering 
the country. While I support the bill's goals, I cannot support the 
measure in its current form. The samples and images that the bill would 
allow U.S. Customs and Border Protection to release to rights holders 
will include tracking and distribution codes that identify proprietary 
and confidential supply chain information even though these codes serve 
little, if any, purpose in the process of determining the authenticity 
of a product. Lawful importers will not have any protection or recourse 
from the release of this information.
    I sympathize with the needs of rights holders and manufacturers to 
protect the integrity of their brands and the safety of their products. 
For this reason, I fully support the anti-circumvention device 
provisions of the legislation. I hope that if the bill moves forward, 
any compromise will include guarantees that importers and exporters 
have a meaningful role in verifying products' authenticity, and also 
provide for penalties against rights holders that knowingly provide 
false information to Customs and Border Patrol to damage a competing, 
legitimate importer.
    Thank you, Mr. Chairman.
                               __________

    Mr. Sensenbrenner. It is now my pleasure to introduce 
today's witnesses.
    Dara Corrigan became associate commissioner for Regulatory 
Affairs at the FDA in September 2010. Prior to joining FDA, Ms. 
Corrigan worked in the Office of Health Reform at the 
Department of Health and Human Services. In 2003, she served as 
an acting inspector general and principle deputy general 
inspector general for the Department of Health and Human 
Services. She left public service for 3 years between 2004 and 
2007 to join the firm of Arnold & Porter in Washington.
    She began her career in the Federal Government in 1990, 
following a judicial clerkship, spent almost 8 years as a trial 
attorney at the Department of Justice in the Civil Division and 
as an assistant civil attorney for the District of Columbia. 
She moved in 1999 to the Department of Health and Human 
Services, where she served as the deputy chief counsel and the 
director of program identity for the Centers for Medicare and 
Medicaid Services. She received her juris doctorate degree from 
the University of Virginia in 1990.
    Thomas Kubic is the president and CEO of the Pharmaceutical 
Security Institute. He serves as an officer with the 
Partnership for Safe Medicines and is an adviser to the 
Permanent Forum on International Pharmaceutical Crime and 
Interpol's Medical Products Counterfeiting and Pharmaceutical 
Crime Unit.
    Prior to joining PSI, he served with the FBI for 30 years. 
As an FBI deputy assistant director, his innovative programs in 
both the Laboratory Division and Criminal Investigation 
Division were recognized throughout the law enforcement 
community.
    Travis Johnson has been with the International Anti 
Counterfeiting Coalition in Washington since 2005. He currently 
serves as the vice president and director of legislative 
affairs and policy. Previously, he served as associate counsel.
    Before his work at the IACC, Mr. Johnson was an associate 
IP attorney at the Draughon Attorneys at Law in Ponte Vedra 
Beach, Florida. He received his bachelor of arts in political 
science from the University of Florida and juris doctor and 
certificate in intellectual property law from the University of 
Florida in 2002. He received a master's of arts in political 
management from George Washington in 2009
    Gilbert Lee Sandler is a founding member of the law firm of 
Sandler, Travis, & Rosenberg, PA, and as a principle of its 
affiliated consulting company, Sandler & Travis Trade Advisory 
Services. He is also a Chair of the Regulated Industry 
Committee on the American Association of Exporters and 
Importers, and general counsel to the American Free Trade 
Association.
    Previously, he served as a Department of Justice senior 
trial attorney on customs and trade matters before going into 
private practice 37 years ago. He is a graduate of Dartmouth 
and received his J.D. from the NYU Law School.
    Lucian Dervan has been a professor at the Southern Illinois 
University School of Law since 2009. In 2011, he was appointed 
to the advisory committee of the NACDL White-Collar Criminal 
Defense College at Stetson. He serves as a faculty member of 
the program.
    Prior to joining the SIU School of Law, Professor Dervan 
served as a law clerk for the Honorable Phyllis A. Kravitch of 
the U.S. Court of Appeals for the 11th Circuit, and spent 6 
years in private practice with King & Spalding LLP and Ford & 
Harrison LLP. He received his B.A. in history and political 
science from Davidson and his J.D. from Emory University School 
of Law in 2002.
    Without objection, the witnesses' written statements will 
be entered in the record in their entirety.
    I ask them to summarize their testimony in 5 minutes or 
less. Please pull the microphone close to you and make sure 
that is on when you testify. And we have the little green, red, 
and yellow lights to remind you when to wrap it up.
    Ms. Corrigan.
    Can you pull it a little closer to you, and is it on?
    Ms. Corrigan. Yes.
    Mr. Sensenbrenner. Okay, reset the clock. [Laughter.]

   TESTIMONY OF DARA A. CORRIGAN, ASSOCIATE COMMISSIONER FOR 
     REGULATORY AFFAIRS, U.S. FOOD AND DRUG ADMINISTRATION

    Ms. Corrigan. Thank you. I appreciate that. And thank you 
again, Chairman Sensenbrenner, Ranking Member Scott, and 
Members of the Subcommittee. My name is Dara Corrigan, and I am 
the associate commissioner for Regulatory Affairs at the FDA.
    FDA's simple, yet increasingly difficult mission, is to 
protect the public health by ensuring the safety and efficacy 
of medical products, and the safety of food, in an era of 
globalization. The FDA very much appreciates this opportunity 
to testify and this Subcommittee's focus on the public health 
dangers that occur when patients receive stolen or counterfeit 
prescription drugs.
    The Office of Regulatory Affairs, which I lead, represents 
FDA's boots on the ground. We are an office of 4,400 people, 
about one-third of all employees at the FDA. We are the 
employees who inspect food, drugs, devices, and other medical 
products at the sites where they are manufactured and at the 
border where they are imported. We test medical products and 
other regulated products in our laboratories across the 
country.
    But of greatest interest to this subcommittee is our staff 
of 262 special agents and support staff who are charged with 
conducting criminal investigations under the Federal Food, 
Drug, and Cosmetic Act.
    Since it began in 1993, the Office of Criminal 
Investigations, or OCI, has investigated thousands of criminal 
schemes involving FDA-regulated products. These schemes have 
included the distribution of counterfeit and unapproved drugs; 
large-scale organized illicit diversion of prescription drugs; 
and fraudulent schemes involving ineffective treatments for 
AIDS, cancer, and other diseases, just to name a few.
    Since it began, OCI's cases have resulted in close to 6,000 
criminal convictions and the levying of nearly $13 billion in 
fines and restitution.
    FDA has a forensic chemistry lab that has patented a device 
that allows us to differentiate between many counterfeit and 
legitimate prescription drugs. It is a portable handheld device 
that can be used by health and regulatory officials, law 
enforcement, and even pharmaceutical companies. This is one of 
the many tools that FDA is using to improve safety along the 
entire drug supply chain.
    As you know, as you have already mentioned, the potential 
danger to the public from trafficking in counterfeit drugs is 
very high. Counterfeit drugs may not contain life-saving or 
life-sustaining ingredients. They may be contaminated with 
toxic materials. In instances of cargo theft of drugs, FDA is 
particularly concerned, because patients are in danger of 
receiving substandard treatment if criminals do not keep these 
products in an appropriate way. They may be expired, and they 
may not have been stored properly.
    These are not hypothetical risks. As the Chairman just 
mentioned, FDA notified 19 medical practices in three States 
that they had purchased unapproved drugs from a foreign 
supplier that were distributed through a licensed wholesaler in 
the U.S. The drug's labels said Avastin, as you know, but they 
contained none of the active ingredient of the very necessary 
cancer drug Avastin.
    You talked about already the fact that in March 2010 
thieves broke into an Eli Lilly warehouse and stole 
pharmaceuticals valued at $75 million. In 2009, criminals stole 
129,000 vials of insulin and reintroduced at least some of 
those vials into the legitimate drug supply. Those vials of 
insulin required refrigeration, and the criminals did not keep 
the insulin in the appropriate way. Because they reintroduced 
these vials, at least some of these vials, into the legitimate 
supply chain, they had lost their potency, and people were not 
able to maintain the necessary glucose control.
    This Subcommittee has introduced legislation that would 
increase penalties for cargo theft of medical products and for 
trafficking counterfeit drugs.
    From the FDA's perspective, the risk of public harm is 
significant, and we see enhanced penalties that are focused 
specifically on prescription drugs as beneficial to our overall 
effort to protect the supply chain. Our legitimate drug supply 
chain is one of the safest in the world, but there are real 
risks.
    To address these risks, FDA has a comprehensive strategy to 
further enhance the safety along the entire supply chain, from 
raw source materials to finished products for consumers. The 
strategy includes doing more inspections, placing people 
overseas, using sophisticated technology for imports. And we 
think our ability to track and trace over the entire supply 
chain will help us.
    We very much appreciate the opportunity to discuss these 
issues and to deter criminal activity that endangers the 
public.
    Thank you.
    [The prepared statement of Ms. Corrigan follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                               __________

    Mr. Sensenbrenner. Thank you.
    Mr. Kubic.

TESTIMONY OF THOMAS T. KUBIC, PRESIDENT AND CEO, PHARMACEUTICAL 
                       SECURITY INSTITUTE

    Mr. Kubic. Good morning, Chairman Sensenbrenner, Ranking 
Member Scott, Members of the Subcommittee.
    It is indeed an honor to be asked to testify today about 
two criminal law problems that have serious implications for 
consumer safety. They are the large-scale medical product theft 
and pharmaceutical counterfeiting.
    I want to commend Chairman Sensenbrenner and the other 
sponsors of the Safe Doses Act, and Congressman Meehan, the 
sponsor of the Counterfeit Drug Penalties Enhancement Act, for 
your leadership in protecting patients.
    My name is Tom Kubic, and I am the president and CEO of the 
Pharmaceutical Security Institute. This is a nonprofit 
association composed of the security directors from 26 
pharmaceutical manufacturers, who are dedicated to protecting 
the public health by ensuring the safe distribution of 
pharmaceuticals that are indeed effective.
    PSI has developed an anti-counterfeiting strategy and a 
unique and globally recognized counterfeit medicines reporting 
system known as the Counterfeits Incidents System.
    As mentioned, prior to joining the PSI, I served a 30-year 
career in the FBI, including a term as deputy assistant 
director in the Criminal Division.
    I am here today on behalf of the Coalition for Patient 
Safety and Medicine Integrity, whose purpose is to protect 
patients from the risks posed by stolen and inappropriately 
handled medical products, and their ultimate reentry into the 
legitimate supply chain.
    The coalition's members include Abbott, Eli Lilly, 
GlaxoSmithKline, J&J, Novartis, Novo Nordisk, Sanofi, and 
PhRMA.
    Large-scale medical product theft is a significant problem, 
and by large-scale, I mean inched entire tractor-trailer loads 
and warehouses full of medicines and medical products. Thefts 
of this magnitude are conducted by sophisticated criminal 
organizations that are hijacking tractor-trailers at rest 
stops, breaking into warehouses, and evading alarm systems, 
forging shipping documents, producing high-quality counterfeit 
labels with alternate expiration dates and lot numbers, and 
otherwise thwarting the intense security measures used by the 
industry.
    These criminal organizations face little risk of being 
caught, but patients face a significant risk from unsafe 
products.
    As mentioned earlier, the risk to patient safety was well 
illustrated by the 2009 incident in which a truckload 
containing 129,000 vials of insulin was stolen in North 
Carolina. And a few months later, the FDA received a report 
that some of these vials had been reintroduced into the supply 
chain, when a diabetic patient reported to the medical center 
in Houston.
    The compromised product was ultimately found in pharmacies 
in 17 States. And today, there are over 125,000 units which are 
still unaccounted for.
    The Safe Doses Act is bipartisan legislation that would 
modernize the Federal Criminal Code. The passage of this 
statute will allow law enforcement to utilize well-established 
investigative tools against an increasingly sophisticated 
criminal element that traffics in stolen medical products 
without regard for public safety.
    The companion bill in the Senate has 34 bipartisan 
cosponsors and was recently unanimously approved by the Senate 
Judiciary Committee.
    In contrast to stolen medical products, counterfeit 
medicines are deliberately and fraudulently produced and/or 
mislabeled in order to appear to be genuine. The counterfeiting 
occurs to both branded and generic products, and it represents 
a wide range of danger.
    In 2010, globally, there were 2,054 incidents of this 
nature, and often millions of dosage units were involved.
    The current penalties for counterfeiting do not reflect the 
serious danger posed to ordinary consumers. Federal 
counterfeiting laws do not distinguish between trafficking 
counterfeit medicines and counterfeit wallets, even though 
counterfeit medicines pose a significantly graver danger to the 
public health.
    The Counterfeit Drug Penalty Enhancement Act would increase 
penalties for trafficking of counterfeit drugs to a level 
similar to offenses such as those of narcotics trafficking.
    Thank you again for the opportunity to testify here today 
and for your attention to this very serious problem. And I look 
forward to some discussion and questions
    [The prepared statement of Mr. Kubic follows:]

    
    
    
    
    
    
    
    


                               __________
    Mr. Sensenbrenner. Thank you very much.
    Mr. Johnson.

  TESTIMONY OF TRAVIS D. JOHNSON, VICE PRESIDENT-DIRECTOR OF 
        LEGISLATIVE AFFAIRS & POLICY, THE INTERNATIONAL 
                  ANTICOUNTERFEITING COALITION

    Mr. Johnson. Chairman Sensenbrenner, Ranking Member Scott, 
Members of the Committee, thank you for the opportunity to 
appear before you today.
    The issues that H.R. 4216, the ``Foreign Counterfeit 
Prevention Act,'' seek to address have been priority concerns 
for the IACC's members for a number of years. I would like to 
thank Judge Poe and Representative Chabot for their recognition 
of these concerns and their sponsorship of this bill.
    Recent events, such as the discovery of counterfeit Avastin 
in the drug supply chain, and this week's report published by 
GAO regarding counterfeit military components, serve as a 
reminder of the threats posed by counterfeit goods, not only to 
businesses but to the general public and to the Nation's 
security.
    Counterfeiting is a serious crime, and U.S. Customs and 
Border Protection remains our first line of defense against 
these crimes. For that reason, I would ask you for a second to 
step into a CBP officer's shoes.
    Last year, over $2 trillion worth of goods were imported 
into the United States, passing through over 300 ports. Your 
job, in the simplest of terms, is to get legitimate goods to 
the consumer market as quickly as possible, while also assuring 
that illicit goods, including counterfeit products, are 
identified and interdicted before they make it to consumer 
shelves. From the time the shipment is presented for 
inspection, you have 5 days to make a decision: Should you let 
them into the country, exclude them, or do you need more time 
to investigate?
    Aside from all the other contraband that you have to deal 
with, you are also tasked with determining whether the goods in 
front of you violate one of the nearly 30,000 individual IP 
rights that are recorded with Customs.
    It is beyond unreasonable to expect CBP officers to gain 
and maintain the expertise necessary to quickly and accurately 
make those sorts of determinations.
    We know that is the case, because there is not a day that 
goes by without my member companies receiving calls from ports 
around the country requesting their assistance in determining 
whether certain goods are real or fake. Traditionally, when 
these goods came into a port, if the officer had any doubts 
about their legitimacy, his first call was to the rights-
holder.
    Customs regulations authorize sharing of samples of suspect 
goods from the time that the goods are presented, well before 
an officer is required to make a decision as to whether or not 
the goods should be obtained for further investigation.
    Our members report an average turnaround time of 48 hours 
or less from the time that a sample or even a digital 
photograph of the goods is received, to respond to those CBP 
inquiries.
    Though that authority to seek assistance from rights-
holders remains, beginning around 2007 to 2008, our members 
began reporting a reluctance on the part of CBP officers to 
provide those images and samples, or if they did provide them, 
to do so in such a highly redacted form that any relevant 
information, which might have been useful in making a 
determination of the authenticity, was obscured.
    CBP cites an April 2000 directive and the Trade Secrets Act 
as its justification for this policy shift. But unable to 
leverage the expertise of rights-holders, we can expect 
significantly greater delays and significantly lower accuracy 
in CBP's authentication of goods. Yet every day that a decision 
is delayed and every decision that is made incorrectly results 
in additional harm to legitimate manufacturers, retailers, and 
consumers. In either circumstance, American businesses and 
consumers will continue to suffer until CBP's policy is 
rectified.
    Customs' approach to sharing information and collaborating 
with rights-holders is likewise frustrated in both the pre- and 
post-seizure context. Rights-holders who are injured by the 
importation of illegal circumvention devices due to what we 
believe was a simple legislative oversight. CBP has refused to 
this day to make disclosures to rights-holders, citing a lack 
of authority under Section 1201 that was enacted by the DMCA.
    In 2004, this Judiciary Committee acknowledged this as a 
concern, noting in its report language for the Piracy 
Deterrence and Education Act, ``The Committee believes this gap 
in disclosure serves only to protect those who import illegal 
devices. The Committee recommends CBP close this loophole and 
provide information about illegal circumvention of devices to 
copyright owners.''
    Closing this gap was likewise the subject of legislation 
proposed later that year by DHS, which was never adopted. And 
nearly 8 years later, the owners of intellectual property who 
were harmed by the importation of circumvention devices have no 
means of obtaining information about the seizure of those 
goods.
    While CBP is actively seeking to leverage new technologies 
and tools to aid their efforts in detecting and deterring 
counterfeits, the expertise of rights-holders is a powerful 
tool that can and should be leveraged without delay. H.R. 4216 
provides a simple and direct means of doing so by providing 
clear guidance to CBP regarding its authority to work with IP 
owners to achieve some of its most fundamental goals.
    I thank you again, and I look forward to your questions.
    [The prepared statement of Mr. Johnson follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                               __________

    Mr. Sensenbrenner. Thank you.
    Mr. Sandler.
    I don't think your mike is on.
    Mr. Sandler. I apologize.
    Mr. Sensenbrenner. Much better.

           TESTIMONY OF GILBERT LEE SANDLER, MEMBER, 
               SANDLER, TRAVIS, & ROSENBERG, P.A.

    Mr. Sandler. Mr. Chairman, thank you, and Ranking Member, 
thank you very much for allowing us to testify here today.
    I am here on behalf of the American Free Trade Association. 
We are very committed to facilitation of trade, to competitive 
pricing and distribution of brand-name products. And we are 
very much opposed to the introduction of counterfeit goods into 
the United States, and are prepared to assist in every way to 
try and make the Customs and Border Protection more effective 
at the borders.
    The legislation, however, H.R. 4216, as drafted, is 
legislation which we would oppose, because it lacks any of the 
safeguards we think are important to preserve legitimate 
parallel market trade. And we think that that can be 
accomplished through amendment of this bill in ways that would 
allow law enforcement to proceed very, very effectively.
    Before going into that, the first thing to do, though, is 
to put into perspective what this bill actually does. It does 
not attack the real problem, which was described very 
eloquently by Mr. Johnson. The explosion of imports into the 
United States, the numbers that have come up because of the 
small express shipments and mail shipments that come in, have 
meant that in the last years, CBP is seizing more shipments 
than ever but of lower value, because they have so many 
shipments to police.
    They have a huge haystack to go through, and they are 
working hard with the trade. And we are participating with them 
to try to find ways that they can better target the suspect 
shipments to determine whether or not they have counterfeit 
goods in them.
    This legislation doesn't deal with that issue at all. This 
legislation deals with the needles and the straws that have 
already been identified as suspect by CBP. It talks about how 
to deal with those small numbers as opposed to the large volume 
that they have to deal with at the ports.
    It does not address that real problem. And it does it in 
the context in which they already have authority to provide 
redacted samples to rights-holders prior to seizure, and they 
do so regularly.
    The last report by CBP said that in the current 
environment, working cooperatively with intellectual property 
owners, their seizures of fragrance products and colognes last 
year increased 470 percent, that they are able to be very 
effective and much more effective by working in partnership in 
ways that do not jeopardize confidential information that 
appears on these samples.
    Make no mistake about it that the samples that would be 
provided in an unredacted or coded condition would reveal 
highly commercially sensitive information. And we don't rest 
our arguments upon some arcane interpretation of the Trade 
Secrets Act. What we are concerned about is that we have had 
four companies--Macy's, Costco, Kmart, and Quality King--have 
all had to go to the Supreme Court to affirm the legitimacy of 
the parallel market.
    Since 1983, I have regularly been in court, fighting to 
keep confidential information about sources of supply of the 
parallel market, and we have been very successful in that for 
over 27 years.
    There are codes placed on these products, which are 
tracking codes, which are used by those who would like to 
eliminate parallel market competition in their brand-name 
genuine products, and that could be used under this legislation 
to impede that trade.
    We would encourage the Committee to take a hard look at 
opportunities to mold this into something which is an effective 
anticounterfeiting tool, while at the same time balancing the 
interests of legitimate trade. And we have proposed many 
examples of things that might be done: limit disclosures to 
where there is a demonstrated need; determine whether or not 
redacted or unredacted samples would be sufficient; educate CBP 
to be more effective; use third parties to test and to prove 
whether or not goods are genuine; allow importers a short time 
in that 30-day window, which Customs has, in which to assure 
that the goods are genuine; limit this to recorded marks and 
copyrights, and to piratical and not infringing; and have a 
real undertaking by the rights-holders that would commit them 
to not use this for anti-competitive purposes when the products 
turn out to be genuine.
    We look forward to working with the Committee and its 
Members to try and bring this to a better solution to a very 
real problem.
    [The prepared statement of Mr. Sandler follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                               ATTACHMENT






                               __________

    Mr. Sensenbrenner. Thank you very much.
    Mr. Dervan.

           TESTIMONY OF LUCIAN E. DERVAN, PROFESSOR, 
           SOUTHERN ILLINOIS UNIVERSITY SCHOOL OF LAW

    Mr. Dervan. Thank you, Mr. Chairman, Ranking Member Scott, 
Members of the Subcommittee.
    My name is Lucian Dervan, and I am an assistant professor 
of law at Southern Illinois University School of Law. I 
currently write and teach in the area of criminal law, 
including sentencing, and I greatly appreciate the invitation 
to speak today, regarding the important work of this 
Subcommittee in seeking to eradicate the significant issue of 
counterfeit drugs and large-scale medical product theft.
    In my limited time today, I would like to focus my 
statement on several specific issues in hopes that my insights 
might further assist the Subcommittee in achieving its goals.
    First, I encourage the Subcommittee to further examine the 
mens rea elements of the newly proposed theft of medical 
products statute. A cornerstone of the American criminal 
justice system is mens rea, or the idea that to be convicted of 
a crime, one must have acted with a guilty mind. In many 
instances, however, new legislation fails to require adequate 
mens rea for conviction. The result is that innocent conduct 
may become criminalized.
    Second, I encourage the Subcommittee to consider the true 
impact of the proposed increase to seven statutory maximums in 
an effort to deter crime and enhance punishments. Studies 
regarding the impact of increasing the severity of sentences 
for criminal offenses, particularly where the offense already 
carries a significant sentence, indicate that such policies, 
though well-intentioned and meant to create a strong deterrent 
result, unfortunately, do not have the desired effect.
    Further, research I have conducted regarding the impact of 
increases in statutory maximums indicate such amendments fail 
to significantly increase individual defendants' sentences. As 
discussed more fully in my written statement, this is due, at 
least in part, to the utilization of such enhanced sentencing 
provisions by prosecutors during plea-bargaining.
    Often, instead of using these new tools to secure increased 
sentences as intended by the legislature, prosecutors use such 
revisions to create significant and powerful incentives for 
defendants to accept plea offers.
    Given the evidence that increasing sentencing severity is 
often ineffective at deterring criminality generally, and the 
evidence that increasing statutory maximum sentences does not 
translate into significantly increased sentences for convicted 
individuals, perhaps consideration should be given to other 
mechanisms by which to achieve the goals of eradicating 
counterfeit drugs and large-scale medical product theft.
    One proposition that is supported by research in the field 
of criminal justice is to increase enforcement actions against 
those engaging in these offenses. In fact, studies indicate 
that increasing the likelihood of apprehension and conviction 
can have a significant deterrent effect.
    Further, additional mechanisms by which to advance the 
mission of the Subcommittee might include requiring 
manufacturers and distributors of pre-retail medical products 
to increase security at storage facilities and during the 
transportation of these materials. It might also be advisable 
to consider ways in which pre-retail medical products might be 
better tracked during manufacture and transportation. Such a 
tracking system might better enable law enforcement and the 
industry to identify compromised materials and allow for more 
accurate and swifter notification to the public when a breach 
has occurred, thus empowering consumers with information to 
better protect themselves.
    In closing, I would like to address one additional issue. 
While creating additional overlapping Federal criminal statutes 
and significantly increasing the statutory maximum penalties 
for offenses related to prescription drug offenses may not 
result in greater deterrence of potential offenders or 
significantly increase sentences for those convicted, such 
legislation will perpetuate the phenomenon of 
overcriminalization and with it the continued deterioration of 
our constitutionally protected right to trial by jury.
    Today, almost 97 percent of criminal cases in the Federal 
system are resolved through a plea of guilty. As the number, 
breadth, and sentencing severity of Federal criminal statutes 
continue to increase through overcriminalization, prosecutors 
gain increased ability to create overwhelming incentives for 
defendants to waive their constitutional right to a trial.
    As my research has shown, a symbiotic relationship exists 
between overcriminalization and plea-bargaining. This 
relationship has led us to our current state and created an 
environment in which we have jeopardized the accuracy of our 
criminal justice system in favor of speed and convenience.
    In my most recent article, written in collaboration with 
Dr. Vanessa Edkins, we discovered that more than half of 
innocent defendants will falsely admit guilt in return for a 
perceived benefit.
    As overcriminalization continues to create the incentives 
that make plea-bargaining so prevalent and powerful, we must 
ask ourselves as a country what constitutional price is being 
paid when, even though we act with good and noble intentions, 
we create yet another law or increase yet another statutory 
maximum where it is not absolutely necessary to achieve our 
goal.
    I commend the Subcommittee for its focus on the important 
issue of stolen and counterfeit goods, and I thank you for the 
opportunity to testify today.
    I welcome any questions the Subcommittee might have 
regarding my remarks.
    [The prepared statement of Mr. Dervan follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    

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                               __________

    Mr. Sensenbrenner. Thank you very much.
    We will proceed with questions under the 5-minute rule. The 
Chair will defer his questions until the end and recognize the 
gentleman from Texas, Mr. Poe.
    Mr. Poe. Thank you, Mr. Chairman. Thank you all for being 
here.
    The issue of stealing, thievery, and criminals has always 
been part of my background, in that I spent my time down at the 
courthouse in Houston as a prosecutor, a criminal court judge, 
referred to the courthouse as the Palace of Perjury. Some of 
you lawyers might relate to hearing that before.
    But anyway, I am concerned specifically about H.R. 4216, 
and it is because small-business owners in America have their 
goods counterfeited throughout the world, and they are smuggled 
back into the United States. Some of them stay in foreign 
countries, which is a different issue.
    It came to my attention by small-business guy, Farouk Shami 
in Houston, who moved his business from China to Houston to 
hire American workers, about 1,000 of them. And he makes CHI 
hair products, all kinds of things that folks that want all of 
that fancy equipment for hair products, they buy from him 
because he is one of the best in the world.
    But about $10 million a year is stolen from him in 
counterfeit goods. The products are so perfect that I can't 
tell the difference of them. It even has Farouk's photograph on 
there, like the real thing does. It has his warranty, phone 
number, and when these products that don't work--I was going to 
use another word, but I will just say products that don't work, 
they call him, they are all mad, because they have some 
counterfeit product. They don't know that. And he reimburses 
them and gives them the real thing.
    And he says it is an increasing problem; it is not it 
decreasing problem. And some of these goods come back across 
the border into the United States.
    And the way that the law, I think, is being misinterpreted, 
when he works with Border Patrol, he doesn't get enough 
information to confirm whether it is the real thing or not. 
That is his concern.
    D'Addario makes, I think, some of the best guitar strings 
in the world. Seventy percent of the market in China is 
counterfeit goods. This is the real thing, and this is the 
counterfeit product. The counterfeit product even has the 
hologram on it. That is how you know it is counterfeit. That is 
one way.
    But they look exactly alike. And you know what irks me? 
They even have the ``Made in the USA'' sticker on the back when 
these things are made in China.
    And they are being smuggled back into the U.S. And they 
need the ability from Border and Customs, who I think does a 
great job, to have a photograph of the fake and tell whether it 
is theirs are not. And then tell Border Patrol, no, this is a 
fake or it is the real thing.
    Right now, they can't give that information because all of 
the redaction in the photographs, for some reason. Why 
shouldn't the owner or the rights-holder have the ability to 
look at the fake and tell Border Patrol this is a fake?
    It's not just on guitar strings. You have these products--
the real thing, this is a power strip. Another power strip. The 
problem with this one, the counterfeit power strip doesn't come 
with the label counterfeit on it.
    But these are defective. If you plug these in, you may 
start a fire. So you have a safety issue coming into the United 
States.
    And one way the rights-holder, the owners of these 
products, say let us cooperate with Border and Customs and fix 
the law so we can look at the fake, the proposed fake, and tell 
you whether it is fake or not. And if it is not, bring it on 
into the United States. If it is, then follow the rules of law 
after that.
    And there many other products. These are small-business 
owners, and they operate on a small margin. And the 
counterfeiting products with the organized crime syndicate of 
China, I think, is hurting American manufacturing and sales.
    One other thing about Farouk and the D'Addario family, this 
is their name on these things. It is their family reputation 
that is being counterfeited. And when these counterfeit 
products are no good, it hurts their family name. And long-
term, it will hurt their business because of the fakes. And 
they are concerned about a name. A name actually means 
something to small-business owners. Their good name means 
something.
    That is why Farouk reimburses the counterfeit products with 
the real thing and writes a letter of apology and tells them it 
was a counterfeit.
    And I guess my question, Mr. Johnson, my one question, I 
guess I will have to put it in writing, Mr. Chairman.
    Mr. Sensenbrenner. Oh, go ahead. [Laughter.]
    Mr. Poe. I ask unanimous consent for one more----
    Mr. Sensenbrenner. Without objection.
    Mr. Poe. Thank you, sir.
    Explain to me, in less than 30 seconds, why business owners 
need the Border Patrol to send them a photograph of the 
document or the product coming into the U.S.?
    Mr. Johnson. Thank you, Judge Poe.
    In 30 seconds or less, I would say that the need for the 
photographs unredacted and the information that is available on 
the product, whether it is the specific coding that the brand 
is using, or other indicia of authenticity, or indicia of the 
counterfeit nature of the goods, is because the quality of the 
counterfeit product that we see coming into the country these 
days is so much better than what was seen in the past. It is 
nearly impossible for somebody who has not received significant 
training and does not have the expertise to be able to identify 
on their own.
    That is not to say that CBP does not receive significant 
training. The IACC Foundation, which is a separate organization 
that we work with, has trained over 35,000 law enforcement 
personnel in making these sorts of terminations.
    But they are really only able to make the initial call as 
to whether or not they think there is possibly a problem with 
it. They are generally not able to make a final factual 
determination, yes or no, that this is authentic or this is 
counterfeit.
    Mr. Poe. Thank you, Mr. Chairman. I appreciate the 
additional minute.
    Mr. Sensenbrenner. The time of the gentleman has expired.
    The gentleman from Virginia, Mr. Scott.
    Mr. Scott. Thank you.
    Mr. Sandler, what trade secrets or legitimate practices 
might be compromised if more information is disclosed to 
rights-holders?
    Mr. Sandler. The sources of supply are often revealed by 
the tracking codes that are placed on these products. The 
examples that we have demonstrated before in public testimony 
show that the batch codes, the manufacturing codes, the codes 
used for recall, are ones that we had no problem with those 
being revealed.
    We do have problems with special tracking and other types 
of track-and-trace codes, which are placed on--some are only 
readable by ultraviolet lights. Some are placed inside the 
boxes. They are strictly put there in connection with trying to 
identify sources of parallel market trade in legitimate goods.
    Those are the sorts of codes that we thought would be 
revealing of the nature of the commercial transaction in a way 
that would be very harmful and would essentially stop this type 
of legitimate trade.
    Mr. Scott. What is parallel market mean? And how do rights-
holders use information gained to undermine the legitimate 
market?
    Mr. Sandler. Well, the parallel market itself is really a 
creature of our copyright law and our trademark law. You have 
the right to copy and you have the right to manufacture, 
absolutely. But the right to distribute is limited essentially 
to the first sale, also under our patent law.
    So once goods are sold, the person who purchases those 
goods is free to sell them anywhere they wish. There are some 
exceptions to that, but basically that is the arrangement under 
our law. And it allows for interbrand competition in the U.S. 
marketplace.
    So goods which are sold at a lower price in one market will 
find their way into a market where there is a higher price. And 
so it is trade in legitimate goods that are sold in commerce 
legitimately and unlawfully. It has been tested before the 
Supreme Court on at least four separate occasions.
    Mr. Scott. Well, how does the information that is sought to 
be revealed, how do rights-holders undermine the legitimate 
transactions?
    Mr. Sandler. Rights-holders, in looking at who was the 
person who sold for export to the United States or who was also 
involved in the supply chain, can prevent sales to them in the 
future, can take action against them. Lawsuits are often filed. 
Sometimes they are good lawsuits; sometimes they are not good 
lawsuits.
    For the most part, we have been very successful in 
litigation, but it fosters litigation. It is intimidating to 
the trade. And rights-holders and manufacturers can cease doing 
business with those who they think shouldn't be selling their 
goods into a different marketplace.
    Mr. Scott. Thank you.
    Ms. Corrigan, you indicated you have 262 agents. Is that 
nationally?
    Ms. Corrigan. Yes, it is. That includes----
    Mr. Scott. Can you turn your mike on?
    And is there anything in the legislation, in any of these 
bills, that will increase the number of agents?
    Ms. Corrigan. There is not.
    Mr. Scott. Then how will just increasing the sentencing 
help you investigate and prosecute dangerous drug offenses?
    Ms. Corrigan. Our criminal agents do not have the actual 
authority to bring cases. What we believe the enhanced 
penalties will do is enable a full discussion of our cases with 
law enforcement and give law enforcement more tools to 
prosecute individuals who endanger the public health by 
introducing stolen drugs or trafficking in counterfeit drugs.
    Mr. Scott. Without any more agents, why will increasing a 
sentence bring that about?
    Ms. Corrigan. What often happens is we investigate under 
the Federal Food, Drug, and Cosmetic Act. And we bring those 
facts to the Justice Department. And what they have the ability 
to do is look across the board at all of the laws that would 
allow prosecution, and giving them more tools that are focused 
solely on medical products or drugs with enhanced penalties----
    Mr. Scott. Are there any enhanced penalties in any of these 
bills for things that are not now crimes but would be crimes if 
any of these bills passed?
    Ms. Corrigan. There are already penalties and laws that 
cover counterfeit drugs and cargo theft. There is not cargo 
theft--cargo theft is not authorized under the Federal Food, 
Drug, and Cosmetic Act.
    Mr. Scott. Cargo theft is not theft?
    Ms. Corrigan. The investigation. I mean, cargo theft is not 
part of the Federal Food, Drug, and Cosmetic Act. Counterfeits 
are, but cargo theft is investigated by the FBI and prosecuted 
by the Justice Department.
    Where we get involved is when those drugs are reintroduced 
into the legitimate supply chain.
    Mr. Scott. Thank you, Mr. Chairman.
    Mr. Sensenbrenner. The gentleman from Utah, Mr. Chaffetz.
    Mr. Chaffetz. Thank you, Mr. Chairman. I do appreciate it.
    I know all good Americans subscribe----
    Mr. Scott. Mr. Chairman?
    Is your mike on?
    Mr. Chaffetz. Is that better?
    Mr. Sensenbrenner. Without objection, the gentleman from 
Utah can move closer to the Chair. [Laughter.]
    And the clock will be reset.
    This is without prejudice to senior members.
    Mr. Chaffetz. I am just not used to being up here on this 
upper level here, so thank you, Mr. Chairman.
    As I was saying, I know all good Americans subscribe to 
Electronic Engineering Times, since I am sure you do.
    But specifically, the October 24, 2011, article, I would 
ask unanimous consent that this be inserted into the record.
    Mr. Sensenbrenner. Without objection.
    [The information referred to follows:]

    
    
    
    
    
    
    
    
    
    
                               __________

    Mr. Chaffetz. Thank you.
    It highlights one of the concerns, dealing specifically in 
the semiconductor issue.
    Mr. Johnson, I would appreciate if you could get into this 
a little bit. My concern is that back, evidently, in 2000, 
there was a directive that went out that suggested that, 
``Prior to the release of the sample, Customs officers should 
remove or obliterate any information indicating the name and/or 
address of the manufacturer, exporter, and/or importer, 
including are all barcodes and identifying marks.''
    So you have a situation where somebody is looking at, say, 
some discs or some chips, and the only thing that they are 
allowed to share, we have an example here, in this little 
presentation, a redacted chip picture, where they redact the 
very information that a manufacture would actually need in 
order to properly identify whether this is a legitimate chip or 
not. This was a directive that was issued in 2000, and really 
not enforced until the year 2008.
    Let me just, to the size and scope, Mr. Chairman, between 
2007 and 2010, ICE collaborated with U.S. Customs and Border 
Patrol on more than 1,300 seizures that collectively involved 
5.6 million counterfeit semiconductor devices.
    If you move forward and look at the SanDisk, portable 
memory chips, in June, there were some $852,000 worth of 
counterfeit SanDisks that were seized when they found 1,932 
karaoke machines being shipped from China that had these chips 
in it.
    This is just a portion of that iceberg.
    Mr. Johnson, I want to talk about the size and scope, 
specifically as it relates to chips in the semiconductor issue 
and how you view this.
    Mr. Johnson. Well, the issue with regard to semiconductors 
is really representative of the issue that is being faced by 
manufacturers across all sectors. And the Customs Directive 
that you reference, 2310-008A, has been viewed as problematic 
by all of the IACCs' members, regardless of their product 
sector, in part because really the directive seems to place a 
mandate on Customs to take action that was never actually 
authorized by Customs regulation.
    If you look at 19 CFR 133.25, that Customs drew the 
authority for that directive from, there is absolutely no 
reference to requiring Customs officers to remove the sort of 
information that the directive directed them to do, directed 
them to do so.
    With regard to the scope of the problem----
    Mr. Chaffetz. Well, let's stay specific on that point. My 
understanding is that the National Defense Authorization Act 
allowed, actually has language saying that they may share this 
information but they have chose not to thus far.
    Shouldn't we be compelling them to do that, if they don't 
understand that they do have permission?
    Mr. Johnson. That is correct. That NDAA included provisions 
that explicitly authorized CBP to share that information with 
rights-holders for the limited purposes of making 
authentication of the goods.
    Unfortunately, based on feedback we have been hearing from 
our members, CBP has indicated that they feel that the and NDAA 
provisions are in conflict with existing Customs regulations, 
and that they need to resolve that issue before they can move 
forward with information-sharing.
    Mr. Chaffetz. So, in essence, we have passed a law, it has 
been signed into law, and they believe that is in conflict with 
their own regulations, so they are electing to go with the 
regulation as opposed to the law.
    Mr. Johnson. That is exactly correct.
    Mr. Chaffetz. And this, Mr. Chairman, is the heart of the 
challenge I think that we face. There is a way to swiftly 
determine whether or not these goods are legitimate or not. 
They are taking an extra step to redact the very information 
that these companies need in order to identify, and we have 
passed this into law. It is inexcusable that Customs and Border 
Patrol is taking this extra step. In abundance of caution, they 
should be providing the information to these manufacturers, so 
that they can clearly validate this.
    And with that, I will yield back the balance of my time. 
Thank you, Mr. Chairman.
    Mr. Sensenbrenner. I thank the gentleman.
    The Chair will bat cleanup now.
    Mr. Sandler, I need a little bit more information to try to 
figure out why there is this objection to giving tracking codes 
to Customs.
    The parallel market is legal; peddling counterfeit goods is 
not. So what is wrong with giving tracking codes to the rights-
holder, basically so that the rights-holder can find out, 
number one, if the goods are counterfeit or not?
    Mr. Sandler. Well, there is nothing wrong with giving 
information to rights-holders to determine whether or not goods 
are counterfeit. However, much of that information, the 
tracking codes in particular, are generally not necessary for 
that determination.
    The electronic chips that we just talked about, that very 
well could be the exception to the rule. That may be an 
industry where it is important to give that information. But in 
the fragrance area, it is not necessary.
    There are many other tests and many other ways to verify 
the authenticity of the goods.
    So if that is understood and recognized as a truth, if that 
is accepted for the moment, then the issue becomes, what about 
those rights-holders who would prefer not to have to deal with 
parallel market competition? The many court cases that are 
recorded make it very clear that there is a battle that is 
ongoing, and that the rights-holders, when they are able to, 
those that would oppose that type of legitimate trade will take 
action to stop it. They will file lawsuits. They will make sure 
that merchandise is no longer sold to suppliers, to cut them 
off. They will take those sorts of actions.
    The CBP should not be in the middle of giving information 
that fuels the flames of the fire.
    Mr. Sensenbrenner. Well, on the other hand, we heard all 
kinds of information, both in this hearing and from other 
sources beforehand, of the dangers of counterfeit goods. Now 
maybe in the fragrance area, the dangers are not as great as in 
the counterfeit drug area, or in the case of the counterfeit 
surge protectors that the gentleman from Utah presented to the 
Committee.
    But are you saying that a little bit of knowledge can be a 
dangerous thing, if CBP ends up giving this information? It is 
still up to the rights-holder to have the burden of proof that 
somebody in the parallel market is violating the law.
    Mr. Sandler. I am not asking that CBP turn its back on 
those issues. I am saying that CBP needs better targeting to 
identify more suspect shipments. And I am saying that in the 
context of this legislation, CBP not only has identified this 
importation as a problem, but they have it under detention. It 
is in their custody. It is in their control. It is not going 
anywhere.
    So why would CBP, knowing that it often seizes and detains 
goods which are genuine goods, why would it give commercially 
sensitive information to the rights-holder without first going 
to the importer and giving that importer an opportunity to 
establish that the goods are genuine without first determining 
whether or not this could be validated as genuine or not 
through an independent third laboratory, through some training 
of CBP itself? Why not take those alternatives?
    CBP operates today, and will under this legislation if it 
is adopted, with a 30-day window to do something. The 
legislation recommended by the Administration would use the 
first 12 of those 30 days to allow the importer an opportunity 
to validate the goods. Why not have a safeguard like that built 
into this process?
    Mr. Sensenbrenner. I think we all agree that the CBP needs 
to do better targeting to be able to spot the contraband that 
is trying to be imported into the United States. But it still 
goes back to the business of what is the danger of giving the 
tracking code to the rights-holder?
    Mr. Sandler. The danger is that there will be a cut off of 
the supply of legitimate goods coming into United States to 
trade in a wider distribution arrangement and at lower prices 
to the benefit of the U.S. consumers.
    That has been the battleground that I have been involved in 
since 1983, where not all rights-holders but certain rights-
holders, either through commercial activity, through litigation 
or otherwise, are trying to eliminate this form of lawful 
competition.
    Mr. Sensenbrenner. Well, my time has expired.
    I would like to thank all of the witnesses for their 
testimony today. This is a problem. We are going to have to 
address it. We want to address it in the most effective manner 
possible. And that is what the legislative process is all 
about.
    Without objection, the hearing is adjourned.
    [Whereupon, at 11:11 a.m., the Subcommittee was adjourned.]


                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

       Prepared Statement of the Honorable Sheila Jackson Lee, a 
    Representative in Congress from the State of Texas, and Member, 
        Subcommittee on Crime, Terrorism, and Homeland Security

    First, I would like to thank the Subcommittee Chairman and Ranking 
Member for holding today's hearing on H.R. 3668, the ``Counterfeit Drug 
Penalty Enhancement Act of 2011,'' H.R.4223, the ``Safe Doses Act of 
2012,'' and H.R.4216, the ``Foreign Counterfeit Prevention Act of 
2012'' and I would also like to thank today's witnesses:

        (1)  Dara Corrigan, Associate Commissioner for Regulatory 
        Affairs, U.S. Food and Drug Administration.

        (2)  Thomas T. Kubic, President and CEO, Pharmaceutical 
        Security Institute, and

        (3)  Travis D. Johnson, Vice President and Director of 
        Legislative Affairs & Policy, The International 
        AntiCounterfeiting Coalition.

        (4)  Gilbert Lee Sandler, Member, Sandler, Travis & Rosen P.A., 
        and

        (5)  Lucian E. Dervan, Professor, Southern Illinois University 
        School of Law.

    As we all know counterfeit drugs pose a grave threat to consumer 
safety. H.R. 3668, the ``Counterfeit Drug Penalties Enhancement Act of 
2011'' increases the penalties for using a counterfeit mark on 
illegally trafficked drugs. This legislation serves to plug a gap in 
the law which accounts for counterfeit goods only.
    Because of the increased activity in fake drugs it is important for 
Congress to lay down a marker so that potential criminals are faced 
with more deterrents should they consider stealing drugs.
    Because I represent Houston, Texas, it is of heightened importance 
for consumers and law enforcement officials in our state because of the 
proximity to the Mexican border. It is not inconceivable that crime 
syndicates operating on both sides could cause significant problems by 
stealing drugs and selling them in Mexico.
    That is why I am pleased that the bill amends the federal criminal 
code to increase the maximum penalty from 10 years to 20 years and 
increase the maximum fines for individuals from $2 million to $4 
million and for companies from $5 million to $10 million.
    Where there are multiple offenses, the bill leaves the 20 year 
maximum penalty the same but increases the fine for individuals from $5 
million to $8 million and for companies from $15 million to $20 
million.
    This bill, introduced by my colleagues, Rep. Patrick Meehan and 
Rep. Linda Sanchez on December 14, 2011will hopefully send a strong 
message to criminal enterprises.
    Counterfeit drugs are becoming increasingly more prevalent in 
America. News outlets recently reported that a counterfeit version of a 
widely-prescribed cancer drug, Avastin, appears to have entered the 
U.S. market. John Clark, Chief Security Officer at Pfizer, testified to 
the problem before the full committee in November at SOPA hearing:
    ``Counterfeit medicines pose a threat because of the conditions 
under which they are manufactured--in unlicensed and unregulated sites, 
frequently under unsanitary conditions--and the lack of regulation of 
their contents.''
    In many instances, they contain none of the active pharmaceutical 
ingredient (API) found in the authentic medicine, or an incorrect 
dosage, depriving patients of the therapeutic benefit of the medicines 
prescribed by their physicians. In others, they may contain toxic 
ingredients such as heavy metals, arsenic, pesticides, rat poison, 
brick dust, floor wax, leaded highway paint and even sheetrock or 
wallboard. Counterfeit medicines are a global problem, one from which 
no region, country, therapeutic area is immune.''
    It is important to note that current law prohibits trafficking in 
counterfeit goods. The current penalty for an individual who violates 
the law is not more than 10 years in prison or a $2,000,000 fine or 
both. For a person other than an individual, the current maximum 
penalty is $5,000,000. Penalties are increased for second or subsequent 
offenses or causing serious bodily injury or death.
    This bill increases the penalties for trafficking in counterfeit 
drugs, specifically. Some supporters of H.R. 3668 contend that this 
bill is necessary because counterfeit drugs are a particularly serious 
threat to the public.

               H.R. 4223, THE ``SAFE DOSES ACT OF 2012''

    Rep. Sensenbrenner, Chairman of the Crime, Terrorism and Homeland 
Security Subcommittee, introduced H.R. 4223 on March 20, 2012. In the 
Senate, a bipartisan measure was introduced by Senators Schumer and 
Kyl, the Strengthening and Focusing Enforcement to Deter Organized 
Stealing and Enhance Safety Act of 2011, known as the Safe Doses Act.
    The bill has been reported unanimously by the Senate Judiciary 
Committee. As of today, the Senate bill has 30 co-sponsors.
    Large-scale medical product theft has become a significant problem. 
Sophisticated criminal organizations are believed to be the primary 
perpetrators in the theft of large quantities of medical products and 
the re-introduction of these products into the legitimate supply chain, 
including into pharmacies and hospitals. The result of their criminal 
conduct can be serious public health and safety implications because 
improperly cared for medical products--which can be ineffective or 
harmful--are being used by unsuspecting patients and health care 
professionals.
    The story back in 2009, widely reported, 129,000 vials of insulin 
(valued at approximately $11 million) were stolen in North Carolina. A 
few months later, the FDA received a report that some of the vials had 
been reintroduced into the supply chain when a diabetic patient 
reported to a medical center in Houston with an adverse reaction after 
using insulin from the stolen lot. The FDA issued a warning that the 
insulin had likely not been stored correctly and could still be in the 
market--at that time only 2% of the stolen product had been recovered.
    The spoiled product was ultimately found in pharmacies in 17 
states, with at least 2 additional patients experiencing adverse 
reactions. An investigation linked the theft to an organized crime 
ring, and while some arrests have been made, over 125,000 vials of 
insulin still remain at large.
    Criminal organizations are hijacking tractor-trailers at rest 
stops, breaking into warehouses and evading alarm systems, forging 
shipping documents, producing high-quality counterfeit labels with 
altered expiration dates and lot numbers, and otherwise thwarting the 
intense security measures used by the industry. Some of these 
organizations employ sophisticated surveillance equipment and 
techniques in order to learn exactly when and where they can steal the 
particular shipments they want. The stolen medical products are then 
sold back into legitimate channels.
    All kinds of pharmaceuticals, medical devices and specialty 
nutrition products including infant formula are being stolen. High-
value pharmaceuticals, including treatments for serious diseases, are 
frequent targets.
    These high-value items are the very type of sensitive products that 
need the most careful handling and temperature control since many of 
them can become ineffective and even toxic if stored at the wrong 
temperature, even for a brief time.
    Title 18 United States Code, Section 659 prohibits the theft of 
``any goods or chattels moving as or which are a part of or which 
constitute an interstate or foreign shipment of freight, express or 
other property'' from a variety of sources including storage 
facilities, trailers, warehouses.
    This provision sets forth penalties of a fine and/or imprisonment 
of not more than 10 years. The industry representatives believe that 
the current federal criminal laws are inadequate in that they make no 
distinction between the theft of a load of insulin and stealing a truck 
full tires or electronic products.
    They argue that a specific provision should address the theft of 
medical products because the potential harm is vastly greater when 
medical products are involved. They believe that higher possible 
sentences may not only make people think twice before acting, but also 
will provide law enforcement agencies with the tools they need to 
obtain cooperation in bringing down criminal organizations.
    The industry is calling for tougher federal laws that go after the 
multi-dimensional enterprises carrying out these crimes and recognize 
the health risks created by the improper care and handling of sensitive 
medical products.
    In meetings with Committee staff, pharmaceutical, medical device 
and medical products industry representatives advise that they have 
adopted sophisticated security systems and practices.
    Many companies have instituted strict protocols for their truck 
drivers, including instructions on where they can stop for breaks. Some 
companies even provide armed escorts for their most sensitive 
shipments.
    Although these efforts are making it more difficult for the 
criminals to get what they want, the industry believes that only the 
genuine threat of significant criminal penalties can provide effective 
deterrence.
    No evidence is offered to support such beliefs and no comparisons 
are offered as to the effectiveness of this approach compared to 
others, such as putting more resources into directed investigations and 
prosecutions.
    Nor is there any evidence to support the contention that offenders 
are so specifically aware of the federal laws affecting these issues 
that they are calculating the risks such that they are willing to risk 
up to 10 years in prison, but wouldn't risk a sentence of up to 20 
years in prison and the increased fines under the bill.
    Moreover, it is not clear that any more cases will be brought as a 
result of the provisions of this bill and there is no evidence that 
recidivism is a problem which higher penalties would effectively 
address.

         H.R. 4216, THE ``FOREIGN COUNTERFEIT PREVENTION ACT''

    H.R. 4216, the ``Foreign Counterfeit Prevent Act,'' amends the 
Trade Secrets Act to authorize U.S. Customs and Border Protection (CBP) 
to provide intellectual property rightsholders with samples and images 
of goods offered for import or export, including retail packaging and 
other packing material.
    In order to authenticate suspected counterfeit or pirated products 
seized at U.S. ports, CBP has routinely released samples and images of 
products to rightsholders. In 2008, the agency directed its agents to 
redact identifying markings and codes prior to transmitting images to 
the rightsholders.
    Proponents of this bill are concerned that when the rightsholder 
receives an image from the CBP officer with key numbers, codes, or 
markings blacked out, the remaining information that is provided is 
virtually useless and does not allow the rightsholder to identify the 
product as legitimate or counterfeit.
    Last fall, an amendment was included to the Defense Authorization 
Act (Pub. L. No. 112-81) that partially and temporarily addresses this 
issue. The Defense Authorization Act provision authorizes information 
sharing with the trademark rightsholder when CBP suspects a product 
violates intellectual property laws.
    Proponents of H.R. 4216 feel that the provision in the Defense 
Authorization Act did not go far enough because it only covers 
trademark law violations and it also contains a sunset date.
    H.R. 4216 amends the Trade Secrets Act to provide that it is not a 
violation of that Act for CBP officers to provide information and 
samples, including bar codes and identifying marks, with the 
rightsholder. Proponents of the bill say it will help ensure that CBP 
can continue to seek input from rightsholders to interdict dangerous 
counterfeit products before they enter the U.S. market.
    This legislation also addresses a corollary issue involving 
``circumvention devices,'' which are devices that bypass technological 
means of protection that copyright owners use to prevent illegal access 
to or copying of their works.
    Trafficking in such devices is illegal under the Digital Millennium 
Copyright Act (DMCA) and CBP is authorized to seize such devices. 
However, there is no specific authority for CBP to share information on 
circumvention devices after seizure with copyright owners to help with 
identification or for law enforcement purposes.
    Mr. Chairman, I look forward to hearing from our witnesses this 
morning.

                                

 Prepared Statement of the Honorable Steve Chabot, a Representative in 
Congress from the State of Ohio, and Member, Committee on the Judiciary

    I would first like to thank the Chairman of the Crime, Terrorism 
and Homeland Security subcommittee, Mr. Jim Sensenbrenner, for holding 
this hearing to address concerns with counterfeit goods in our 
marketplace. Trade of counterfeit goods has a negative impact on our 
national economy. The International Chamber of Commerce estimates that 
7% of the world trade is in counterfeit goods--totaling $350 billion. 
This results in American industries losing out on billions of dollars, 
and opportunities for growth in addition to the lost tax revenues.
    Intellectual Property in the United States is responsible for 
spurring new industry, developing useful technology, and creating jobs. 
But this very property is ripe for foreign criminals hoping to profit 
from American innovation. These bad actors replicate trademarked 
American goods and then ship them back to the United States to be sold 
for a profit. Customs and Border Patrol (CBP) agents here in the state, 
make the first contact with these shipments. Unfortunately due to the 
evolving sophistication of counterfeiters and pirates, it is nearly 
impossible for CBP officers to determine whether a shipment is the real 
thing.
    It's critical that CBP officers be able to communicate valuable 
information with rightsholders the individuals most able to 
authenticate their products. For many years, this important partnership 
between and copyright owners made it possible to test and verify items 
seized at the border. Unfortunately, based off a new legal 
interpretation of the Trade Secrets Act in 2008, CBP officers were 
instructed to remove bar codes and product markings, which are often 
the most valuable information in weeding out counterfeit products. The 
new rules have resulted in a major threat to valuable intellectual 
property and in turn, job creation. Procter and Gamble, a major 
employer in my district, has faced many challenges with the change in 
procedure, explained through a specific case study.
    Congressman Ted Poe and I have introduced H.R. 4216 to provide a 
permanent remedy to this deficiency by clarifying that it is not in 
fact a violation of the Trade Secrets Act for CBP officers to share 
information and samples, including barcodes and other identifying 
marks, with the rightsholders. This will result in renewed partnerships 
to better protect intellectual property against imported counterfeits. 
It is time we start untangling regulation that is strangling U.S. 
companies and preventing job growth in these hard economic times.

                               ATTACHMENT







                                

Prepared Statement of the Honorable Linda T. Sanchez, a Representative 
in Congress from the State of California, and Member, Committee on the 
                               Judiciary

    Mr. Chairman,
    Thank you for including H.R. 3668, the ``Counterfeit Drug Penalty 
Enhancement Act of 2011'' in this important hearing about the security 
of the pharmaceuticals upon which our constituents, seniors and 
children all rely.
    I am proud to have introduced H.R. 3668 with my colleague, 
Representative Patrick Meehan of Pennsylvania. I am also pleased to 
note that the Senate counterpart, S. 1886, which was introduced by 
Chairman Patrick Leahy and Ranking Member Charles Grassley of the 
Senate Judiciary Committee, passed the Senate by voice vote earlier 
this month. This demonstrates that this legislation is needed, 
bipartisan, and non-controversial. I strongly encourage this Committee 
to swiftly move this legislation to a mark-up, and from there, to the 
House floor.
    Why is it so important to move this legislation?
    Because our constituents deserve to know the medicine they put into 
their bodies is safe and effective. While all of our districts are 
impacted by counterfeit pharmaceuticals, I would like to describe an 
incident that occurred near my home in Southern California.
    In Los Angeles, a mother and son went looking for some relief from 
their nagging colds at what they thought was a health clinic. 
Unfortunately, what they were told was medication didn't just make them 
sick, it sent them to the hospital.
    The mother reported that as soon as the ``vitamin injection'' hit 
her bloodstream, her heart started racing. Then, her lips went numb and 
she started getting excruciating headaches. After that, she started 
passing out. She lost 30 pounds in a week and her pancreas stopped 
working.
    This frightening story shows the dangers of fraudulent medicines 
are very real, and the consequences can be fatal.
    The Swiss drugmaker Roche, which produces the popular cancer drug 
Avastin, recently became well acquainted with this rampant problem.
    Roche is still investigating how phony vials of Avastin made it to 
nineteen oncology practices in the U.S. The FDA began notifying clinics 
about the questionable drugs in mid-February, but counterfeit Avastin 
might have made it to doctor's offices as early as last July.
    Roche analyzed the vials of phony Avastin in February, and didn't 
find the active ingredient found in the cancer drug. However, they say 
they found traces of the chemical acetone--a solvent used in paint 
thinner. To date, there is no medical use for acetone.
    Experts say that it's tough to gauge what harm a counterfeit cancer 
treatment can inflict on a patient because drug infusions are typically 
spaced out over weeks and months. So, in the span of six months, a 
cancer patient might have received up to twenty fake Avastin infusions.
    That's twenty treatments that did nothing to improve the health of 
a patient suffering from cancer.
    The list of drugs that authorities have found to be counterfeited 
is a long one. They include medications that treat cancer, Alzheimer's 
disease, ulcers, high-blood pressure and high cholesterol. Certain 
vaccines have even been counterfeited.
    Counterfeit drugs account for an estimated $75 billion in annual 
revenue. Why are these criminals so bold? It's because, currently, the 
penalty for selling a counterfeit drug is the same as selling a bootleg 
DVD.
    A DVD will not cause you bodily harm, but each year counterfeit 
drugs result in 100,000 fatalities worldwide. It stands to reason that 
we should have penalties in place that reflect the serious health 
dangers posed by these phony medications.
    H.R. 3668 would be a strong step by this Committee in addressing 
this problem. This bipartisan, non-controversial legislation would 
increase the penalties for those who engage in trafficking of 
counterfeit drugs acting as an important deterrent to criminals and 
providing greater consumer confidence in their medication.
    Thank you Mr. Chairman for holding this hearing, and I again urge 
this Committee to quickly move H.R. 3668.

                                





                                






                                 
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