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

       INTERNATIONAL PATENT ISSUES: PROMOTING A LEVEL PLAYING FIELD FOR
                            AMERICAN INDUSTRY ABROAD
    =======================================================================

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
                             INTELLECTUAL PROPERTY,
                         COMPETITION, AND THE INTERNET

                                     OF THE

                           COMMITTEE ON THE JUDICIARY
                            HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 APRIL 26, 2012

                                   __________

                               Serial No. 112-115

                                   __________

             Printed for the use of the Committee on the Judiciary

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          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 Intellectual Property, Competition, and the Internet

                       BOB GOODLATTE, Virginia, Chairman

                       BEN QUAYLE, Arizona, Vice-Chairman

    F. JAMES SENSENBRENNER, Jr.,         MELVIN L. WATT, North Carolina
    Wisconsin                            JOHN CONYERS, Jr., Michigan
    HOWARD COBLE, North Carolina         HOWARD L. BERMAN, California
    STEVE CHABOT, Ohio                   JUDY CHU, California
    DARRELL E. ISSA, California          TED DEUTCH, Florida
    MIKE PENCE, Indiana                  LINDA T. SANCHEZ, California
    JIM JORDAN, Ohio                     JERROLD NADLER, New York
    TED POE, Texas                       ZOE LOFGREN, California
    JASON CHAFFETZ, Utah                 SHEILA JACKSON LEE, Texas
    TIM GRIFFIN, Arkansas                MAXINE WATERS, California
    TOM MARINO, Pennsylvania             HENRY C. ``HANK'' JOHNSON, Jr.,
    SANDY ADAMS, Florida                   Georgia
    MARK AMODEI, Nevada

                         Blaine Merritt, Chief Counsel

                       Stephanie Moore, Minority Counsel
                                C O N T E N T S

                                  ----------

                                 APRIL 26, 2012

                                                                       Page

                               OPENING STATEMENTS

    The Honorable Bob Goodlatte, a Representative in Congress from
      the State of Virginia, and Chairman, Subcommittee on
      Intellectual Property, Competition, and the Internet...........     1
    The Honorable Melvin L. Watt, a Representative in Congress from
      the State of North Carolina, and Ranking Member, Subcommittee
      on Intellectual Property, Competition, and the Internet........     3
    The Honorable John Conyers, Jr., a Representative in Congress
      from the State of Michigan, Ranking Member, Committee on the
      Judiciary, and Member, Subcommittee on Intellectual Property,
      Competition, and the Internet..................................     4

                                   WITNESSES

    Roy F. Waldron, Senior Vice President, Associate General Counsel
      and Chief Intellectual Property Counsel, Pfizer, Inc., on
      behalf of Pharmaceutical Research and Manufacturers of America
      Oral Testimony.................................................     7
      Prepared Statement.............................................     9
    Chris Israel, Partner, American Continental Group (former U.S.
      Coordinator for International Intellectual Property
      Enforcement)
      Oral Testimony.................................................    22
      Prepared Statement.............................................    24
    Sean P. Murphy, Vice President and Counsel, International
      Government Affairs, Qualcomm Incorporated
      Oral Testimony.................................................    38
      Prepared Statement.............................................    41
    A. Christal Sheppard, Ph.D. J.D., Assistant Professor, University
      of Nebraska College of Law
      Oral Testimony.................................................    62
      Prepared Statement.............................................    65

              LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

    Material submitted by the Honorable John Conyers, Jr., a
      Representative in Congress from the State of Michigan, Ranking
      Member, Committee on the Judiciary, and Member, Subcommittee on
      Intellectual Property, Competition, and the Internet...........     6

                                    APPENDIX
                   Material Submitted for the Hearing Record

    Prepared Statement of the Honorable John Conyers, Jr., a
      Representative in Congress from the State of Michigan, Ranking
      Member, Committee on the Judiciary, and Member, Subcommittee on
      Intellectual Property, Competition, and the Internet...........    95
    Response to Post-Hearing Questions from Chris Israel, Partner,
      American Continental Group (former U.S. Coordinator for
      International Intellectual Property Enforcement)...............    97
    Prepared Statement of Horacio E. Gutierrez, Corporate Vice
      President & Deputy General Counsel, Microsoft Corp.............   100
    Prepared Statement of Biotechnology Industry Organization........   105

                          INTERNATIONAL PATENT ISSUES:

                        PROMOTING A LEVEL PLAYING FIELD

                          FOR AMERICAN INDUSTRY ABROAD

                                  ----------

                            THURSDAY, APRIL 26, 2012

                  House of Representatives,
             Subcommittee on Intellectual Property,
                         Competition, and the Internet,
                                    Committee on the Judiciary,
                                                        Washington, DC.

        The Subcommittee met, pursuant to call, at 10:12 a.m., in
    room 2141, Rayburn House Office Building, the Honorable Bob
    Goodlatte (Chairman of the Subcommittee) presiding.
        Present: Representatives Goodlatte, Quayle, Chabot, Watt,
    Conyers, Chu, Deutch, Lofgren, Jackson Lee, Waters, and
    Johnson.
        Staff Present: (Majority) Vishal Amin, Counsel; Olivia Lee,
    Clerk; and (Minority) Stephanie Moore, Subcommittee Chief
    Counsel.
        Mr. Goodlatte. Good morning. This hearing of the
    Subcommittee on Intellectual Property, Competition, and the
    Internet will come to order. And I recognize myself for an
    opening statement.
        I will start by wishing you all a Happy World IP Day. Today
    we are holding a hearing on international patent issues,
    looking specifically at the problems that American companies
    face when seeking enforcement and using patents overseas. The
    Leahy-Smith America Invents Act was the first patent reform
    bill in over 60 years and the most substantial reform of U.S.
    patent law since the 1836 Patent Act. In light of the AIA's
    recent passage which maintains the U.S. patent system as the
    global standard, we need to now expand our focus and closely
    examine the adequacy and effectiveness of patent systems in
    foreign countries and whether they meet global trading
    standards. We need to evaluate whether they create a level or
    an unlevel playing field for American inventors.
        Looking at recent history, today's hearing topic appears to
    be the first time in either the House or Senate that Congress
    has looked specifically at international patent laws in the
    context of intellectual property enforcement. As we will learn
    today, U.S. innovators continue to face patent-specific
    enforcement issues internationally. These global problems
    require real solutions. The ability to obtain timely decisions
    regarding patent applications as well as meaningful enforcement
    of patent rights go to the very heart of our innovative
    companies and their ability to compete on the global playing
    field.
        Unfortunately, we have seen many foreign countries ignore
    real legal reforms and effectively create major barriers to
    trade for U.S. companies in the patent space. When asked why he
    robbed banks, Willie Sutton once said, ``Because that is where
    the money is.'' And it appears that in the context of IP
    enforcement, foreign countries have been focusing their market-
    distorting actions right where the money is. From an economic
    and jobs perspective, company profits are driven directly by
    the goods or products that they can sell. And for patented
    innovations, many foreign countries are getting a free pass
    when it comes to the patent systems they have in place.
        As more and more American companies expand their
    international presences and seek patent protection in foreign
    markets, these patent-specific harms have grown exponentially
    in their importance. Less than a decade ago, there were only a
    handful of companies that filed for patents abroad and faced
    these kinds of market access issues. Today nearly every
    innovative American company that sells patented products abroad
    is harmed in some way by these market-distorting actions.
        This hearing is meant to shine a spotlight on these issues
    and encourage the Administration to expand the U.S.
    Government's efforts to do more and work to find real solutions
    to these unfair trade practices that distort the free market
    trade and end American jobs. For a range of innovative
    companies, from the pharmaceutical and biotech space to
    technology and manufacturing, the patents that they own or
    license form the foundation of their business. In the United
    States, we have worked to ensure a patent system that not only
    expeditiously reviews patent applications but issues quality
    patents that can be enforced through the courts and
    administrative proceedings. The U.S. patent system is designed
    to be fair, meeting our international obligations and not
    discriminating against any field of technology.
        The same cannot be said of the patent systems and patents
    granted in many markets around the world. When American
    companies seek patent protection in foreign markets, they see
    their patent applications being held up, with patent pendency
    times approaching a decade in some cases. They see their
    patents subjected to unnecessary administrative hurdles. And
    even after going through these challenges they continue to face
    issues in foreign courts and administrative agencies to even
    bring their product into the local market.
        When Nations go out of their way to devalue the
    intellectual property of America's innovative companies, they
    not only violate their international commitments but create a
    significant negative economic impact that hits the U.S. economy
    and domestic jobs.
        This hearing is just a start. And as we work to make
    progress on these issues, we look forward to working with
    American innovators and industry to help identify specific
    concerns and issues so that the U.S. Government works with our
    trading partners to find solutions. We can ensure that the
    solutions reached are in line with compelling U.S. economic
    interests and job creation.
        I look forward to both hearing from all of our witnesses on
    the issues that they have seen on the ground and also engaging
    in a discussion on how we can improve and correct the patent
    issues that American industry faces abroad to promote U.S.
    manufacturing, technology, and innovation.
        It is now my pleasure to recognize the Ranking Member of
    the Subcommittee, the gentleman from North Carolina, Mr. Watt.
        Mr. Watt. Thank you, Mr. Chairman. And thank you for
    convening this important hearing--maybe among the most
    important hearings we could be having, although unfortunately
    about things we don't have absolute control over but need to
    evaluate nevertheless.
        A little over 2 weeks ago on April 10, the Obama
    administration issued a report entitled, ``Intellectual
    Property and the U.S. Economy: Industries in Focus.'' The
    report stands as the first of its kind backed by comprehensive
    investigation by the Federal agencies that share responsibility
    for safeguarding the interests of American industries, the
    Department of Commerce and the U.S. Patent and Trademark
    Office.
        As we celebrate World IP Day today, this report reinforces
    the major contributions that all U.S. intellectual property-
    intensive industries make to the Nation's economy;
    specifically, after examining 313 American industries, the
    investigation identifies 75 industries as IP-intensive. These
    industries produce 27.1 million jobs for our citizens.
        The report further concludes that a substantial share of
    IP-intensive employment in the United States was in trademark-
    intensive industries, followed by patent- and copyright-
    intensive industries respectively.
        Intellectual property has played a major role in building
    American industry, largely because IP enforcement within the
    United States is strong. Unfortunately, American intellectual
    property does not always enjoy the same level of protection
    throughout the world. Other countries profit from an immense
    world trade of illicit goods and anti-competitive practices
    that violate the IP rights of U.S. rights holders. So while
    today we focus on patent-intensive industries and the
    challenges those industries face globally, we must remain ever
    vigilant in our effort to enhance America's standing in the
    competitive international market and to guard against unfair
    foreign encroachments on our intellectual property rights.
        The annual Special 301 Report by the United States Trade
    Representative is scheduled for release next Monday, April 30.
    That report will identify those countries that continue to
    provide inadequate intellectual property protections for U.S.
    products and also highlight any progress that has been made.
    Inadequate protections can consist broadly of a lack of legal
    structure for protecting IP rights and inadequate penalties for
    IP crimes or poor enforcement of laws designed to protect
    rights holders.
        We are fortunate to have here today witnesses from the
    pharmaceutical and technological industries to report to us
    firsthand some of the ongoing obstacles they face in foreign
    markets as well as two experts, including our former staff
    person Dr. Christal Sheppard, who have extensive experience
    evaluating these issues.
        The bottom line, Mr. Chairman, is, we can have the most
    innovation, best protected intellectual property possible in
    the United States; but unless it is protected around the world
    in this international global environment in which we are
    operating, we are kind of swimming upstream always.
        So I will conclude, Mr. Chairman, and allow the witnesses
    to update us on the current state of affairs for patent
    protection abroad and hopefully some suggestions also on how we
    may be able to strengthen those enforcements and patent
    protections in other parts of the world.
        I yield back.
        Mr. Goodlatte. The Chair is pleased to recognize the
    Ranking Member of the full Committee, the gentleman from
    Michigan, Mr. Conyers.
        Mr. Conyers. Chairman Goodlatte, I thank you and the
    Ranking Member for putting this together. And its importance
    has already been stated by both of you. I agree completely.
        Earlier this week, I began developing something that is
    related. And it is called the zero percent unemployment goal of
    this country, another very far-reaching attempt to come about
    full employment at another way. It has never been put together
    before. But that connects very directly into this hearing on
    international patent issues. So it gives me a chance to broach
    both of these topics and invite our witnesses to think about
    the interrelationship.
        The economy, both nationally and globally, the economies of
    the world in the end all turn on how many people are gainfully
    employed. And we have now reached the point in our political
    maturation that we now realize that having a job is a right, a
    serious and important right. And the way our patent laws relate
    to this is of critical importance; what the Internet does, how
    intellectual property is regarded in each of these states.
        So this Committee has a huge ongoing responsibility to
    begin to examine the systems in the rest of the world because
    we can't ask people to do what we would like them to do when we
    don't even know what they are doing. And that is going to task
    our staff and our resources going into the next Congress, for
    sure. And I think we are up to it. I think it is an exciting
    challenge that all ties into why we joined here today.
        I did want to say one word about our witness Mr. Israel,
    who is here. I wanted to in particular welcome him to the
    Committee. I may be given the honor of introducing Christal
    Sheppard. So I will turn back my time and thank you very much.
        Mr. Goodlatte. Thank you, Mr. Conyers. And I have a feeling
    that request is going to be honored. And without objection,
    other Members' opening statements will be made a part of the
    record.
        We have a very distinguished panel of witnesses today. Each
    of the witnesses' written statements will be entered into the
    record in its entirety. And I ask that each of you summarize
    your testimony in 5 minutes or less. To help you stay within
    that time, there is a timing light on your table. When the
    light switches from green to yellow, you have 1 minute to
    conclude your testimony. When the light turns red, it signals
    the witness' 5 minutes have expired. And before I introduce our
    witnesses, as is customary with this Committee, I would like to
    ask them to stand and be sworn.
        [Witnesses sworn.]
        Mr. Goodlatte. Thank you. Be seated. Our first witness is
    Dr. Roy F. Waldron, Senior Vice President, Associate General
    Counsel and Chief Intellectual Property Counsel at Pfizer. Dr.
    Waldron leads a team of Pfizer attorneys and professionals
    worldwide who procure patents, work closely with R&D business
    development, and the Pfizer business units and ensure
    enforcement of trademarks. He serves as the chair of the IP
    task force at PhRMA and is on the board of the Intellectual
    Property Owners Association. He joined Pfizer in 1999 from
    White & Case's IP practice group and was also previously an
    associate at Fish & Neave. Dr. Waldron has a JD from New York
    University School of Law, a Ph.D. in physical organic chemistry
    from Yale University, and a bachelor's degree from Dartmouth
    College.
        Our second witness is the Honorable Chris Israel. Mr.
    Israel served as our Nation's first U.S. Coordinator for
    International Intellectual Property Enforcement during the
    administration of President George W. Bush. As the President's
    IP Coordinator, he was responsible for coordinating and
    leveraging the resources of the U.S. Government to protect
    American intellectual property rights at home and abroad. Prior
    to this, he served as Deputy Chief of Staff to Commerce
    Secretaries Don Evans and Carlos Gutierrez, where he assisted
    in the leadership and management of all major Commerce
    Department priorities, such as trade and economic policy. Mr.
    Israel also served as Deputy Assistant Secretary of Commerce
    for Technology Policy where he helped lead the Administration
    policy designed to maximize U.S. competitiveness and
    technological growth. Currently Mr. Israel is a partner at the
    American Continental Group. He received his bachelor's degree
    from the University of Kansas and an MBA from George Washington
    University.
        Our third witness is Mr. Sean Murphy, Vice President and
    Counsel, International Government Affairs, at Qualcomm. Mr.
    Murphy manages Qualcomm's international public policy agenda,
    representing the company before branches of the U.S. and
    foreign governments, industry associations, and multilateral
    institutions like the OECD and APEC. Before joining Qualcomm in
    2001, Mr. Murphy practiced law at Mayer Brown and served in the
    Office of the U.S. Trade Representative. He holds a bachelor's
    degree in political science from the University of California
    Santa Barbara, a master's degree from the University of
    Cambridge and a law degree from Georgetown University.
        And our fourth and final witness has some close ties to
    this Committee and most especially to the Ranking Member of the
    Committee, so I will yield to Mr. Conyers for the purpose of an
    introduction.
        Mr. Conyers. Thank you very much, Chairman Goodlatte. I am
    going to put this in the record because it is far too long. And
    I know she didn't have anything to do with its preparation, but
    with the admiration of all of your former staff members and the
    Members of the Committee, I will just briefly summarize.
        She is presently teaching law at Nebraska College of Law.
    But ironically, she started off as a scientist, at the
    University of Michigan and then finally to Cornell Law School
    and working on the Appeals Federal court, practicing in a large
    firm and then the United States International Trade Commission.
    So she brings a full circle of expertise that is important in
    forming the views that she will present here today.
        Dr. Sheppard, we are all here, on both sides of the aisle,
    very pleased to welcome you back as a distinguished witness.
        [The information referred to follows:]

                                   __________

        Ms. Sheppard. Thank you.
        Mr. Goodlatte. Thank you, Mr. Conyers. And Dr. Sheppard, we
    welcome you as well. We welcome all of you, and we will begin
    with Dr. Waldron.

     TESTIMONY OF ROY F. WALDRON, SENIOR VICE PRESIDENT, ASSOCIATE
       GENERAL COUNSEL AND CHIEF INTELLECTUAL PROPERTY COUNSEL,
        PFIZER, INC., ON BEHALF OF PHARMACEUTICAL RESEARCH AND
                        MANUFACTURERS OF AMERICA

        Mr. Waldron. Good morning, Mr. Chairman and Members of the
    Subcommittee. Thank you for this opportunity to appear here
    today.
        Mr. Conyers. Turn it on.
        Mr. Waldron. Thank you for this opportunity to appear here
    today. My name is Roy Waldron and I am the Chief Intellectual
    Property Counsel for Pfizer. I am also the Chair of the
    Intellectual Property Task Force within the International
    Section of PhRMA, the Pharmaceutical Research and Manufacturers
    of America. It is in this capacity as chairman of that task
    force that I appear here today.
        With your permission I would like to summarize our prepared
    statement and I request that our full written submission be
    included in the record in its entirety.
        PhRMA represents the country's leading pharmaceutical
    research----
        Mr. Goodlatte. Dr. Waldron, you may want to pull that
    microphone closer to you. People will hear you better in the
    audience I think.
        Mr. Waldron. PhRMA represents the country's leading
    pharmaceutical research and biotechnology companies. U.S.
    biopharmaceutical research makes important economic
    contributions to the U.S. GDP, contributions likely to grow if
    the incentives and underpinnings for large-scale R&D investment
    remain intact. The U.S. biopharmaceutical sector supported a
    total of 4 million jobs in 2009, including more than 650,000
    direct jobs. The U.S. biopharmaceutical industry also exported
    about $46 billion in goods in 2011, making it the sixth largest
    U.S. exporting industry for the year. Markets outside of the
    U.S. are fueling demand for innovative medicines due to their
    increasing economic growth and rising middle class. Both
    innovative medicines and generics play a critical role in the
    health of patients around the world. However, the innovation of
    new medicines depends on a respected and enforced intellectual
    property regime. Intellectual property protections spur the
    discovery of new medicines which later become generics.
        Although strong intellectual property protections are
    provided in the United States, this is not true in many
    countries where the greatest growth potential for U.S.-
    developed innovative medicines is expected to occur in the
    future. Many of these countries' local biopharmaceutical
    companies are owned or connected to the government, if not
    supported by the government's industrial policies. The main
    competitive edge of the U.S. biopharmaceutical industry
    relative to these local businesses is the innovative nature of
    our products. However, while developing and testing a new
    medicine requires significant and risky investment of over $1
    billion on average and over a development period of up to 12
    years, local companies can copy medicines with little effort in
    a very short period of time. Without the legal principles and
    mechanisms in place which recognize and enforce patents
    effectively, local companies can market copies immediately and
    obliterate our industry's innovative competitive advantage.
    Unsurprisingly, foreign governments as well as local companies
    resist the establishment of these IP principles and mechanisms.
        We face three categories of patent-related barriers: lack
    of efficient, effective, and timely patent enforcement;
    problems with extreme delay in the grant of patents; and
    restrictive requirements and other locally imposed hurdles to
    patent grants. Some barriers are inconsistent with
    international law but are maintained to protect local
    interests. At the same time, these local interests, when doing
    business in the U.S., benefit from the effective and open U.S.
    patent system.
        To move to a more level playing field, we urge the
    Subcommittee to, one, ensure that the Administration pursues
    strong intellectual property standards in free trade
    agreements, including the ongoing negotiations of the TPP, the
    Trans-Pacific Partnership, by building on the agreement with
    Korea and the principles in U.S. law, particularly the
    provision of 12 years of regulatory data protection for
    biologics.
        Two, support efforts of the U.S. Government to secure full
    implementation of all international obligations under
    multilateral regional and bilateral trade agreements.
        And three, support the IP attache's program of the USPTO
    and other capacity building programs.
        Effective patent enforcement is absolutely critical for
    growth in exports of our medicines. A country such as China,
    with weak patent enforcement, illustrates the problems
    encountered by our industry. In China, the enforcement of court
    orders is not automatic and damages are simply inadequate. Many
    countries permit the grant of compulsory licenses that allow
    others to exploit a patented invention without the permission
    of the patent owner. Compulsory licenses may be appropriate in
    extraordinary situations to meet legitimate needs of the
    public; however, competitors in many countries want to use them
    to obtain U.S. technology without having to make the costly and
    risky investment needed to develop it.
        In many countries significant delays in granting patents
    create business uncertainty and, even worse, allow copiers to
    free ride and enter the market with impunity. PhRMA's members
    can wait an average of 8 years for a final patent rejection in
    Chile and 10 to 13 years in Brazil. To make matters worse,
    these countries do not extend the terms of their patents to
    compensate for these delays, nor for regulatory approval
    delays, as we do in the U.S.
        As our statement for the record sets out, although PhRMA
    members are now able to get onto a playing field of patent
    protection, that field is far from level. Unfortunately, it is
    not just a game. The level playing field is critical to the
    future sustainability of U.S. innovation, innovative
    businesses, jobs, and exports.
        We greatly appreciate, therefore, your interest in
    obtaining more information about the level of IP protection
    worldwide and we would be pleased to provide additional
    information. Thank you again.
        [The prepared statement of Mr. Waldron follows:]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                __________
        Mr. Goodlatte. Thank you, Dr. Waldron. Mr. Israel, welcome.

    TESTIMONY OF CHRIS ISRAEL, PARTNER, AMERICAN CONTINENTAL GROUP
        (FORMER U.S. COORDINATOR FOR INTERNATIONAL INTELLECTUAL
                         PROPERTY ENFORCEMENT)

        Mr. Israel. Thank you. Chairman Goodlatte, Ranking Member
    Watt, and Members of the Committee, I truly appreciate the
    opportunity to appear before you to discuss the promotion and
    protection of American intellectual property and specifically
    to examine challenges and barriers presented to American
    companies when they seek patent protection in key global
    markets.
        From May 2005 to March 2008, I had the privilege of serving
    as the U.S. Coordinator for International Intellectual Property
    Enforcement. We were tasked by Congress and the President to
    coordinate and leverage the resources of the U.S. Federal
    Government to protect American IP at home and abroad. Mr.
    Chairman, during my experience in this position, it became
    clear to me that it was and remains critical for the U.S.
    Government to actively seek every opportunity to support IP-
    intensive U.S. companies competing globally in their compelling
    economic interests. It is clear that adequate and effective
    global patent protection is essential to U.S. competitiveness,
    and I would argue that there are several key reasons for this.
        First, as you noted in your opening statements, Mr.
    Chairman, and directly related to the work of this Committee is
    the passage of the Leahy-Smith America Invents Act. The AIA
    represents a major achievement in strengthening and modernizing
    U.S. patent law and making it the global standard for quality
    and efficiency. While the USPTO continues to implement the AIA
    in a methodical and thoughtful way, many of our biggest
    competitors are going either advertently or inadvertently in
    the opposite direction. This disconnect, as was noted by
    Ranking Member Watt, with the U.S. setting the global standard
    while other countries seek competitive advantage by racing to
    the bottom, is certainly not a new competitive dynamic for the
    United States but seeing it play out in terms of global patent
    policy is something policymakers need to be aware of and
    prepared to address.
        Second, exacerbating this problem is the fact that we are
    seeing a dramatic increase in international patent filing in
    the countries that often expose U.S. companies to poor patent
    protection. The growth in patent applications in China, India,
    and Brazil from 2006 to 2010 average 7 percent a year, while
    the growth in patent applications in the United States, the EU,
    and Japan over the same period average 0.7 percent.
        Third, and perhaps most importantly, the challenges and
    threats to global patent protection affect our most competitive
    and innovative companies and industries. As was reported in the
    Obama administration report that Ranking Member Watt noted in
    his opening comments, the 26 patent intensive industries in the
    United States support 3.9 million very well-paying jobs. Not
    surprisingly, our U.S. patent-intensive industries also drive
    U.S. exports. Our innovative products lead the world and span
    multiple categories, including health care, advanced
    manufacturing, chemicals, energy, transportation, software,
    information technology, and others. These are areas where the
    U.S. must seek to increase its competitive advantage through
    innovation and global commercialization. This can only be
    accomplished when coupled with a policy approach that promotes
    strong patent protection.
        Mr. Chairman, while my written testimony provides detailed
    examples of the many ways our trading partners have undercut
    American innovation through overt and less obvious practices, I
    would like to quickly bring a few of these examples to the
    attention of the Committee.
        Some countries explicitly restrict the patentability of
    inventions for a number of unrelated factors purely for
    competitive reasons. For example, India excludes software
    patents as a whole, except when combined with novel hardware.
    In the context of breakthrough U.S. innovations in clean
    technologies, countries such as China, India, Bolivia,
    Venezuela, and others have pushed for a range of, quote,
    flexibilities in global patent rules under the false claim that
    patent protections hinder the flow of important energy-related
    technologies. Additionally, countries such as Chile, Brazil,
    India, Russia, Argentina and others have continuously avoided
    requirements in the TRIPS Agreement to provide exclusivity for
    proprietary data that is required in order to grant marketing
    approval to pharmaceutical agrichemical and biotechnology
    products.
        Also a major concern of many U.S. innovators is the threat
    of countries issuing compulsory licenses for their products,
    essentially breaking the patent and allowing their competitors
    to manufacture and market a product in that country. India
    recently issued a compulsory license for a patent that was held
    by a U.S. subsidiary of Bayer.
        The Chinese Government even subsidizes the development of
    domestic technologies by providing direct financial support for
    Chinese companies to file foreign patent applications. China
    also discriminates against foreign competitors by limiting the
    ability of non-Chinese IP owners to access the Chinese market.
        Mr. Chairman, this Committee has raised an important issue
    that impacts countless U.S. businesses of all sizes and is at
    the core of our overall global competitiveness. I truly
    appreciate the opportunity to participate in this hearing and
    look forward for any chance to support the work of the
    Subcommittee and the Committee in the future.
        [The prepared statement of Mr. Israel follows:]
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                                 __________

        Mr. Goodlatte. Thank you, Mr. Israel. Mr. Murphy, welcome.

       TESTIMONY OF SEAN P. MURPHY, VICE PRESIDENT AND COUNSEL,
        INTERNATIONAL GOVERNMENT AFFAIRS, QUALCOMM INCORPORATED

        Mr. Murphy. Good morning, Chairman Goodlatte, Ranking
    Member Watt, and other Members of the Subcommittee. It is an
    honor to testify this morning. I am grateful for the
    opportunity.
        My name is Sean Murphy and I manage international policy
    issues at Qualcomm, including intellectual property and
    international trade. Let me begin by thanking Members of the
    Subcommittee for your important efforts to support American
    innovation through strong intellectual property laws. Thank you
    also for your recognition of the challenges that U.S. patent
    holders confront in other countries which threaten America's
    competitive edge, technology leadership, and jobs.
        The patent system has been critical to Qualcomm's success.
    Founded in 1985, Qualcomm started with seven engineers in a
    living room with ideas to improve mobile communications. At the
    time, mobile technologies were expensive, unreliable, and
    limited only to voice calls. Our founders were determined to do
    better and pioneered a new digital communications technology
    called code division multiple access, or CDMA. Today we are a
    successful global company of more than 23,000 employees, 65
    percent of whom are engineers, with 73 locations in the U.S.
    and 172 locations worldwide. More than 90 percent of our global
    revenues are earned outside the United States but nearly 70
    percent of our employees work here.
        The adoption of CDMA has exceeded our expectations and
    helped to drive a global revolution in mobile technologies and
    services. Today there are 6 billion mobile connections in a
    world of 7 billion people.
        Qualcomm's business model concentrates on two key areas.
    First, we design state-of-the-art semiconductors and software
    which are the brains of today's advanced mobile phones,
    tablets, e-readers, and other mobile devices.
        Second, we broadly license our portfolio of U.S. and
    foreign patents to virtually every manufacturer in the mobile
    industry. We reinvest approximately 20 percent of annual global
    revenues in R&D, which equated to about $3 billion last year
    and over $19 billion since our founding.
        These investments produce new inventions that drive what we
    call a virtuous cycle of innovation. Our business model enables
    a $1.3 trillion global ecosystem, promotes competition and
    choice, and benefits consumers. Qualcomm is one of countless
    innovative technology companies that rely on strong patent
    protections to drive U.S. jobs, economic growth, and exports.
        According to the Department of Commerce report that
    Congressman Watt mentioned, IP-intensive industries account for
    over one-third of U.S. GDP and 40 million American jobs. IP
    licensing generated a trade surplus of $84 billion last year.
    To sustain this impressive growth, American innovators need
    fair market opportunities and adequate patent protections
    globally. However, foreign governments and industries try to
    achieve unfair competitive advantage through a variety of
    protectionist policies. These measures aim to promote
    indigenous innovation or exclude, minimize, or devalue American
    technologies.
        A few examples: pressure to reduce licensing fees or
    royalty rates and make other concessions; local working
    requirements, such as local manufacturing in order to preserve
    patent rights; exclusion of certain technologies from patent
    protection; the use of homegrown technical standards to benefit
    domestic technology or industry; and the threat of antitrust
    enforcement to force the transfer of patented technologies on
    unfair terms.
        Beyond these specific practices, which are not adequately
    addressed by existing treaties or trade agreements, we see a
    growing trend worldwide to weaken patent protection. It is
    imperative that the United States lead by example and send
    consistent messages to our trading partners about strong patent
    laws and fair market access for American innovators.
    Governments, including our own, should not favor or
    discriminate against any particular business model, technology,
    or means of commercializing intellectual property. In sum,
    policymakers should refrain from picking winners and losers,
    and laws and policies should be ``business model-neutral'' in
    their design and their effect. Yet the opposite is the norm in
    many countries critical to U.S. companies.
        We should vigorously expand and enforce international
    agreements and trade policy dialogues in order to promote a
    level playing field for American innovators and job creation.
    This approach will serve us well today, while also encouraging
    the next generation of U.S. inventors and U.S. employment.
        Thank you again for the opportunity to appear today to
    share Qualcomm's perspectives. I welcome your questions. Thank
    you.
        [The prepared statement of Mr. Murphy follows:]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                              __________

        Mr. Goodlatte. Thank you, Mr. Murphy. Dr. Sheppard,
    welcome.

       TESTIMONY OF A. CHRISTAL SHEPPARD, Ph.D. J.D., ASSISTANT
            PROFESSOR, UNIVERSITY OF NEBRASKA COLLEGE OF LAW

        Ms. Sheppard. Good morning, Mr. Chairman, Ranking Member
    Watt, and distinguished Members of the Subcommittee. I thank
    you for the opportunity to appear today before you to discuss
    international patent issues. I am sincerely honored and humbled
    to testify before this Committee on an issue of utmost
    importance to our national economy. I have a strong academic
    interest in this area; but also as a citizen of the United
    States, I, along with every other person in this country, have
    a personal interest in ensuring a level playing field for
    American industry worldwide.
        As alluded to in that wonderful introduction--thank you
    very much--I come at this issue from a unique perspective. As
    was discussed, I have had the pleasure of working as a bench
    scientist in the field of molecular biology. I am a registered
    patent attorney. So I have prosecuted patents both nationally
    and internationally. I have worked within the Federal Circuit
    and at the International Trade Commission. And I have worked in
    science policy and most recently in intellectual property
    policy right here with this very Committee.
        So having that background, I can personally attest to the
    amount of hard work, labor, cost, and time that goes into
    creating new inventions, including new drugs and how important
    it is that the intellectual property laws provide a framework
    so that such research can continue to take place. I know the
    challenges and intricacies and frankly the headaches involved
    in obtaining patent protection nationally and internationally
    and then later enforcing those same patents.
        I understand the challenges the courts face in interpreting
    IP laws. They try very hard but sometimes it is challenging.
    And I also know--and I do not take lightly--how hard it is to
    enact the reforms that I have and will continue to propose.
        Finally, as I currently teach law students patent law
    international IP and other issues, students bring me insights
    that I previously did not have. I hope all of those things will
    be useful in this conversation.
        In my written remarks, I discuss in detail the importance
    of IP with reference to the American innovators Steve Jobs and
    Steve Wozniak, the Steves who cofounded Apple Computer. I
    discuss these two to drive home the fact that the economy of
    the United States in the 21st century is and will remain based
    on the ingenuity of we, the people. And that ingenuity of ``we,
    the people'' must be protected. The Steves and others built
    their American empires not upon manufacturing but upon the
    intellectual property laws that help to protect the fruits of
    their labor from outright theft and surreptitious free riding.
        One of the things I hammer into my students--and I am sure
    they would say ``hammer''--is that patent law does not convey a
    right to use. Patent law does not convey a right to sell. All a
    patent gives a patent holder is the right to stop others from
    making or using or selling or importing or offering to sell.
    But to be more succinct, all a patent actually conveys is a
    right to sue.
        Unfortunately, that right can be undermined in many ways
    that are discussed in my written testimony and that were
    discussed by others here today and that we will continue to
    discuss. These are the actual companies at this table who have
    been in the trenches in these issues and with the
    Administration trying to protect these rights.
        Congress has taken many steps in the past, including
    creating the Special 301 list, to level the playing field
    globally for IP. I discuss in my written remarks several of the
    steps that the Congress has taken, including implementing
    TRIPS, the creation of Special 301, passage of Pro IP, creation
    of the International Trade Commission which addresses
    infringing imports, and passage of the America Invents Act.
        However, today I think what I am going to talk about--with
    the time left, which is almost none--the additional hurdles
    that I think can bear fruit, if tackled. In my written remarks,
    I detail several places where I think congressional efforts
    would be the most effective and the Administration to tackle.
    The summary of my written submission is that a lot of these
    issues are public policy issues that the Constitution put upon
    Congress. The courts look to Congress for guidance. However, on
    the issue of patentability that guidance has not been
    forthcoming.
        Within my written testimony, there is a quote from 1972
    with the courts looking for guidance from Congress on
    patentability issues. That guidance has not come. And most
    recently, the Supreme Court has again revisited that issue, and
    narrowed patentability. The companies here will talk about the
    fact that other countries have been narrowing patentability in
    various ways or doing things that affect U.S. companies'
    ability to patent or enforce. In order for the United States to
    have a legitimate voice in the conversations to stop other
    countries from narrowing patentability and enforcement, the
    United States has to, in some ways, put their own house in
    order. Patentability has to be addressed in the U.S..
    Additionally, the U.S. itself is not in full compliance on some
    IP issues.
        I am over my time. From that side of the dais, it seems
    like a lot more time. From this side, it seems like no time at
    all. So I will stop talking now.
        [The prepared statement of Ms. Sheppard follows:]
        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                 __________

        Mr. Goodlatte. Dr. Sheppard, you have a unique perspective
    on that, and we appreciate your statement.
        I will begin the questions with Dr. Waldron. Dr. Waldron,
    in the patent world, there are many hurdles that a foreign
    country can raise to prevent a company from selling a product
    based on a lawfully granted patent. But in recent years, we
    have seen countries like Brazil, Thailand, and India using the
    threat of a compulsory license as a negotiating strategy to
    force American companies to manufacture or license their
    products to local companies at government mandated prices.
    Recently, India took the unprecedented step of issuing a
    compulsory license against a Bayer oncology drug, stating among
    other reasons that the patented drug was not being sufficiently
    worked in India because it was not locally manufactured.
        What steps can the U.S. Government take or should it have
    taken to ensure that countries think twice about using a
    compulsory license simply as a negotiating strategy or to
    facilitate their budget planning?
        Mr. Waldron. The U.S. Government should take a hard line on
    these issues. I think if you liken compulsory licensing to the
    lifeboats on an ocean liner, you don't frequently see those
    being employed except in extraordinary circumstances. In fact
    if they are used regularly, one would begin to question the
    sanity of running ocean liners, if that would be the only
    recourse. What we really need to do is get to the heart of why
    some of these countries are imposing compulsory licensing. Some
    of them are for fiscal reasons. They haven't put enough money
    in the budget for their health care systems. These are not
    extraordinary circumstances that would justify essentially the
    abrogation of an individual patent holder's rights. I mean,
    this has a direct effect if it were to continue and extrapolate
    to other countries. And other countries may mimic what has
    happened in Brazil and India and Thailand, which would be
    devastating to the U.S. industry. This has a direct effect on
    our ability to sell drugs in those countries and has a direct
    effect on the investment that we put into developing drugs that
    may be of use in those countries. And it has a direct effect on
    the jobs that are created in the United States. We have a
    competitive advantage versus the rest of the world in the
    biopharmaceutical and biotech area. We should not hesitate, as
    a government, to go forward and protect the interests of our
    companies, particularly our competitive advantage versus those
    in the economic area.
        Mr. Goodlatte. If the Indian Government's decision is not
    reversed on appeal, do you envision an increased risk for other
    patent protected drugs or even other patented technologies in
    other areas, like energy, communications, and the Internet
    basically being taken away by foreign governments?
        I will ask you and then I will ask Mr. Israel the same
    question.
        Mr. Waldron. I believe there is a risk. This is something
    that is being experimented with. And I think it is also a test
    of our resolve to see whether we are going to stand up for our
    own industry in these contexts. If we don't send a hard message
    on these issues, I think we will find it increasingly difficult
    to combat it at a later stage when sort of the horse is out of
    the barn. I believe it is important to make a statement very
    early about this because we will find green technology and
    other industries under the same pressure. And when we find the
    whole panoply of our industries under siege and unable to do
    business in these countries, I think we will find ourselves in
    a sorry state.
        Mr. Goodlatte. Thank you. Mr. Israel?
        Mr. Israel. I think the dynamic that you lay out, Mr.
    Chairman, is exactly correct. And I think we are seeing it play
    out in realtime. I think we have seen in recent years the
    threat of compulsory licensing being applied or at least
    discussed in relationship to clean technologies. I think we
    need to be also very aware that this isn't just an individual
    Nation concern but it is a more global concern because a lot of
    the countries that are using this tactic or threatening this
    tactic are also working very hard within global organizations,
    such as WIPO, the World Intellectual Property Organization, to
    promote this type of position, to promote this type of a
    framework. Brazil, for example, has recommended within the
    Standing Committee on Patents at WIPO that a manual be put
    together that would instruct countries on how to essentially
    work around intellectual property rights.
        So as Dr. Waldron lays out, this is something that has a
    slippery slope dynamic to it. I think we are seeing it played
    out in realtime and I think on the compulsory licensing
    question, we need to be very focused on the prongs that exist
    within TRIPS that do allow for compulsory license. You need to
    exhaust the negotiations with the rights holders and there
    needs to be a true emergency at hand. And I think in very few--
    no circumstances really have we seen those prongs being met.
    And it has largely been used as a tool, either as a negotiating
    tactic or for other competitive purposes.
        Mr. Goodlatte. Dr. Waldron, the Administration is currently
    negotiating a Trans-Pacific Partnership Aagreement that
    includes provisions dealing directly with the issue of
    regulatory test data protection and how it should be protected.
        Can you explain to the Committee the importance of data
    protection, the markets that lack adequate protection, and how
    it should be protected as a part of the TPP? And I will ask
    that question of Mr. Israel as well.
        Mr. Waldron. The 12 years of data protection that you
    mentioned that is set forth under U.S. law and we believe is
    key to being part of the TPP and other free trade agreement
    negotiations that are ongoing, the reason we say it is key is
    because the biomedical and biotechnology industries are
    extremely risky industries. The investment is very risky. There
    is an extremely high attrition rate. As I noted, it costs over
    $1 billion on average to develop a new drug. In these times of
    selective capital movement around the world, we want to ensure
    that companies feel certainty in investing in drugs so that
    when they come to a country or one of our trading partners that
    they are at least guaranteed a period of nonusage of their data
    in the regulatory scenarios. It is absolutely critical to have
    that certainty and I think that we would absolutely think it is
    a key part of any trade negotiation going forward.
        Mr. Goodlatte. Mr. Israel, my time has expired. But I am
    going to ask you one more question and you can address both. We
    know that many of these countries have de facto TRIPS
    violations. Should the United States be more aggressive in
    bringing cases at the WTO or utilizing our other international
    trade tools? And also, can you give me a sense of what the Bush
    administration did?
        Mr. Israel. Certainly, Chairman Goodlatte. I think the
    answer is definitely. I think the position of the United States
    Government--and this transcends any Administration I think--
    should always be to enforce the interests and the rights of
    American companies and American intellectual property holders
    at the WTO through well constructed and winnable cases. It is a
    very difficult process, as you know. And you have to win these
    cases when you go forward with them. The Bush administration
    brought about 24 cases before the WTO and has expanded a number
    of fields and ranges. There were two cases brought for
    intellectual property infringements against the Chinese. We
    settled a patent case against the Argentineans in 2002. So
    there is an active history here, and I think the Obama
    administration is carrying forward with that.
        In terms of TPP, just very quickly, as Dr. Waldron noted,
    it is very important to include provisions regarding data
    exclusivity within all of our trade agreements. I think it is
    important to understand that the proprietary test data that is
    required for regulatory approval of a pharmaceutical or a
    biological product is in and of itself an intellectual
    property. It is a piece of intellectual property. It is very
    difficult to construct that data. The Administration has stated
    that it is negotiating TPP as if trade promotion authority were
    in place, which unfortunately it is not. Trade promotion
    authority--and it dated back to the 2002 Trade Act which
    extended it to 2007--stipulates that the government, that the
    Administration, any Administration should negotiate a trade
    agreement that attempts to mirror or mimic U.S. law as closely
    as it possibly can. Of course in U.S. law, we do have 12 years
    of data exclusivity for biological products and 5 years for
    pharmaceutical products.
        So I think that indicates a note of consistency that should
    be noted as we negotiate to TPP.
        Mr. Goodlatte. Thank you very much. My apology to our other
    two witnesses. I am sure that other Members will have some
    questions for you.
        And I now yield to the Ranking Member, Mr. Watt.
        Mr. Watt. Thank you, Mr. Chairman. Let me first compliment
    all four of the witnesses on your testimony which dealt very
    well with a description of the problem. But as I started to
    mention in my opening statement, I am more interested in
    flipping the switch and trying to find some solutions to the
    problem. I think we have identified the problem pretty
    comprehensively, and I know that is what this hearing was
    about. But it seems to me that Representative Waters and I may
    have a slightly different perspective on this because we serve
    on both the Financial Services Committee and the Judiciary
    Committee. And there seems to me to be three areas in which our
    economy can be pretty--either out of step with the rest of the
    world or in step with the rest of the world. And I think we
    probably have done a better job in the financial services
    economic currency area than we have in the trade policy area
    and the intellectual property area. Those are the three areas
    generally where I kind of look at this. One side of me says
    that it is easier, I suppose, to have a world regime of money
    because you are dealing with only one product. In fact, when we
    stepped outside of dealing only with money and started dealing
    with derivatives and collateralized debt obligations and other
    things and we didn't have any worldwide system of dealing with
    them, our financial services system broke down, too, and our
    economy collapsed as a result of it.
        So I am not here bragging about the financial services
    mechanisms. But at least we have you know Basel I, II, and III
    and the International Monetary Fund and what have you. I don't
    know that there is a parallel system of entities in place in
    the intellectual property area. And I am not sure we have done
    an outstanding job of writing into our trade policies any
    requirements that there be any harmonization of intellectual
    property standards. We tend to approach these things, it seems
    to me, in different categories, even though they intersect with
    each other regularly.
        So I guess my general question would be, what are the
    incentives that would make other countries want to be more
    aggressive in the intellectual property area? How can we
    increase those incentives? Is the only way that we have to
    increase those incentives to increase the disincentives for
    them not to do it? In other words, a more punitive deterrence--
    what is the word I am looking for--reactive kind of system
    where we retaliate against people and other countries who don't
    do it. Is there some positive way we can incentivize this other
    than increasing the negative way we do it?
        Those are the two questions generally that I--and I am
    sorry it took me so long to kind of outline my vision of how
    this works. But maybe my vision of how it works is inaccurate
    also. And if you want to take a shot at dealing with that
    vision, I am happy to have you do that, too. But I am more
    interested in finding out whether you think there are ways that
    we can incentivize other countries to have a more robust
    intellectual property protection regime rather than just
    retaliating against them for not doing it.
        Mr. Waldron. Thank you for that question. I do think that
    there are things that we can do. The U.S. economy is the prize
    of a lot of our trading partners. They want to do business
    here. We allow a number of countries and their businesses to do
    business in the United States. I think that there is a lot of
    levers that we can push on sort of ensuring that countries
    respect intellectual property, particularly our intellectual
    property, and come to a harmonized regime on intellectual
    property. It is like, right now we have several FTAs which sort
    of remain unenforced with respect to IP provisions, Chile being
    one of them where it has been pending for 7 or 8 years and
    still that country has not implemented measures to comply with
    its free trade agreement. I say that we should at least take a
    serious look at allowing other countries to have the benefits
    of trading with the United States, yet at the same time not
    enforcing their obligations reciprocally I think is
    problematic, and I think we have to take a serious look at
    that. I also think diplomatically--I mentioned the USPTO
    attache's program is a positive step. I think we need to
    empower our Diplomatic Corps on IP issues, and I think that
    they can achieve good results locally if we are able to empower
    them to work essentially in the Diplomatic Corps to achieve
    those goals. Other countries around the world--I mean and there
    are many of them--have topnotch people pushing IP issues in a
    number of fora, and I think that we should actually look to
    that as a mechanism for showing that we are serious about this
    and we are empowering people to do it and that we really mean
    it.
        Mr. Watt. Let me go to the other end of the spectrum here
    because my time has run out with my question rather than your
    answer. We will get an academic perspective, and then at some
    point in the process later, maybe you can address, Mr. Israel,
    I am particularly interested in your perspective on it since
    you were in the prior Administration and had something to do
    with it. The Administration, I think, is consistently trying to
    find an answer to the mechanism here.
        But let me get an academic perspective on it from Dr.
    Sheppard.
        Ms. Sheppard. You mentioned the three areas, and that is a
    very important point. One of the reasons that TRIPS, Trade-
    Related Aspects of Intellectual Property, that agreement was
    seen to be such a success--and, frankly, countries thought it
    was very heavily favored toward industrial Nations, was because
    for the first time, it melded two of the areas that you talked
    about. It linked intellectual property with trade. And by doing
    that, they were able to have an active redress for countries
    that were in violation of IP.
        Prior agreements, such as Paris and Berne, did not tie
    trade to intellectual property. By tying tade to IP, they were
    able to look at the interdependency between the countries
    because as was mentioned a moment ago, not only do we want to
    sell our products abroad and have them protected, they want to
    sell their products here. And by linking those two things
    together, trade and IP, if IP isn't respect on one end, then
    perhaps something that they want to sell here is not able to be
    sold. So that is how we link those two things.
        TRIPS was successful on that basis. However, perhaps now we
    need TRIPS Plus, and that is what the TPP, some people believe
    and also ACTA are attempting to do. I am going to stop on that
    point.
        Mr. Murphy. Mr. Chairman, may I briefly add three
    observations.
        The first thing I would offer up is the United States, as I
    said in my statement, can lead by example. One thing that we
    can do is ensure that we as a government are sending consistent
    messages to our trading partners. In some areas involving
    intellectual property, there are mixed signals. On the one
    hand, you have some of the trade agencies that are pushing very
    hard to ensure strong enforcement and strong protections.
        There are other agencies whose missions are tangential or
    touches on intellectual property which may be saying things
    that are sending some of our trading partners the idea that
    maybe U.S. policy is shifting. Such as, for example, comments
    on certain high-profile patent litigation in the United States,
    which suggest an evolution in our law. Also, for example, the
    nexus between antitrust and intellectual property right now is
    in a state of change. Governments around the world are watching
    what emanates from Washington at the nexus of these two fields.
    Again, foreign governments are drawing conclusions, perhaps
    selectively, that what we are doing and talking about
    domestically is consistent with their own domestic interests.
        Secondly, I agree with Dr. Sheppard that more can be done
    for TRIPS Plus obligations. As I said in my statement, I gave a
    list of different practices that are problematic to U.S. Patent
    holders which are not currently addressed by existing rules.
    There are loopholes, and there are certain exclusions or
    flexibilities which are being exploited, and I think we can do
    more to leverage what our foreign trading partners' economic
    interests are in order to shore up our own by getting better
    obligations.
        Thirdly, I also note that a lot of developing economy
    companies are slowly moving up the value chain. Mr. Israel's
    testimony talks about the fact that Chinese patent holders are
    applying for patents in much larger volumes than ever before.
    It may take a generation or more, but I think we can be
    optimistic that some of our trading partners, who are causing
    us some difficulty, will slowly come to the conclusion that
    strong patent protection is in their own national interest.
        Mr. Quayle. [Presiding.] Thank you, Mr. Watt.
        The Chair now recognizes the gentleman from Ohio, Mr.
    Chabot, for 5 minutes.
        Mr. Chabot. Thank you. I would like to personally thank you
    for being generous with your time and for allowing me to go
    next. I had planned on attending a classified cybersecurity
    briefing at 11, so I am going to catch the tail end of it. I
    wouldn't have made it at all except for your willingness to
    allow me to go next. Thank you.
        Mr. Israel, I have a couple of questions for you. In your
    testimony, you mentioned the current negotiations to establish
    the TPP, which could provide global patent protection for U.S.
    businesses. Again, in regard to the data exclusivity, and I
    know that Dr. Waldron has already commented on this somewhat,
    but if you can expound upon a little bit about why it is so
    important, so critical that we continue to negotiate for 12
    years of data exclusivity?
        Mr. Israel. Thank you, Mr. Chabot.
        I think the principle is so important, and Dr. Waldron did
    begin to explain why it is so critical for U.S. pharmaceutical
    and biotech and agricultural companies as they invest so much
    money in the regulatory approval process. I think the step of
    getting a patent granted in many of these countries is a very
    difficult and lengthy and expensive one in and of itself. You
    are then asked, obviously, to go to the regulatory agency and
    get that product approved and demonstrate its safety and
    efficacy. That is what this package of information that we are
    talking about really represents in providing an exclusivity so
    it cannot be relied upon by other competitors which have not
    put that similar set of resources and time and energy into
    constructing that information and providing it is absolutely
    critical.
        As we have noted, the standard here in the United States is
    12 years for biological products, 5 years for small molecule
    pharmaceutical products. So I think that the notion that we
    would be absolutely consistent and very strong on that
    consistency as we negotiate with our foreign trade partners,
    whether it is within the context of the TPP or other trade
    agreements, it is a principle in almost all of our free trade
    agreements. And certainly it is something that we need to be
    very vigilant to continue to stress going forward.
        Mr. Chabot. Thank you.
        Can you tell us how the Obama administration has approached
    the data exclusivity issue as well as the intellectual property
    rights generally in their negotiations thus far?
        Mr. Israel. I can do my best to answer that question,
    Congressman. I am obviously not involved in a lot of the very
    important and well-structured arguments and negotiations that
    the Administration is leading. It is a very, very talented and
    effective team that exists at USTR. Victoria Espinel is
    obviously doing a great job leading the enforcement effort
    within the Administration. It is a difficult issue.
        I think it is important to recognize, as we were engaged in
    this issue in 2005 and through the remainder of that decade, a
    lot of these issues were really just starting to kind of bubble
    up. India only put its patent law in place in 2005. China only
    joined the WTO in 2000. So they were really starting to heat up
    at that point. I think they are really starting to almost boil
    over at this point.
        It is a difficult challenge, I think, maintaining the
    posture that the United States be as aggressive as possible to
    protect the economic interests of U.S. rights holders overseas,
    particularly in light of the fact that the United States has
    implemented the AIA and it has really set the global standard
    is an important principle for the entire U.S. Government. I
    think this is an issue that involves Congress and the
    Administration and industry, and everyone really needs to be
    focused in working together. So I think we need to all accept
    that responsibility and shoulder it.
        Mr. Chabot. Thank you. You mentioned that during your time
    with the Bush administration, the USPTO engaged with foreign
    trade partners to increase capacity and quality of patent
    prosecutions overseas. Under the Obama administration, have you
    seen a continuation of those efforts? How would you describe
    them?
        Mr. Israel. Yes, I think there has been a consistency and
    continuation. The PTO attache program continues to be a very
    strong point. It is something which provides the U.S.
    Government a lot of information and relationship building with
    critical foreign governments, and provides U.S. companies
    access to expertise in countries and relationships. I know that
    Director Kappos has been very active in engaging other patent
    offices and trying to provide training in capacity building.
    That is one key area.
        It reflects back a bit to the question that Ranking Member
    Watt asked earlier, where are the carrots, and where are the
    sticks? This is a carrot. I think the extent to which the
    United States, through the PTO and through other resources, can
    provide training and capacity, building to foreign patent
    offices that are struggling, obviously.
        And I think we see examples in our judiciary as well. Judge
    Rader, the Chief Judge of the Federal Circuit, is taking the
    entire Federal Circuit, all of his colleagues, to China in May
    to interact with their colleagues in China and really try to
    build some capacity there.
        So I think there are some carrots, and there are some
    sticks, and I think we need to deploy all of them sensibly.
        Mr. Chabot. Thank you.
        I see my time has expired. I yield back, Mr. Chairman.
        Mr. Waldron. If I may briefly supplement the comment Mr.
    Israel made, regarding the TPP, the Administration has not yet
    tabled the 12 years of biological data exclusivity. I think,
    given the breadth and the scope of this agreement and the
    effect on jobs and our economy going forward in the future, I
    think it is imperative that we look toward tabling that as soon
    as possible.
        Mr. Goodlatte. [Presiding.] The gentlewoman from
    California, Ms. Chu, is recognized for 5 minutes.
        Ms. Chu. Thank you, Mr. Chair.
        Dr. Waldron, the U.S.-Korea trade agreement did provide
    state-of-the-art commitments in intellectual property rights.
    Can you discuss whether you think trade agreements that
    incorporate these strong IP protections, like the U.S.-Korea
    free trade agreement, are ones that the U.S. should be seeking,
    and do they help or hinder your industry in foreign markets?
        Mr. Waldron. We believe that the Korea-U.S. Trade Agreement
    is sort of the gold standard and, along with adding in a
    provision for 12 years of biological data exclusivity, would be
    the gold standard going forward for free trade agreements. I
    think that is the underpinning of showing how serious we are
    about IP protection with our trading partners. I think they are
    critical in their implementation, and I think they have been
    very effective in some countries but not all countries, and I
    think we have to be willing to enforce those agreements and
    make sure our trading partners abide by them going forward. And
    I think they are very beneficial in the long term if they have
    these provisions in them for IP protection.
        Ms. Chu. Okay. Dr. Sheppard, as you know, the Special 301
    Report is an annual review of the global state of intellectual
    property rights protection and enforcement, which is conducted
    by the Office of the United States Trade Representative. It
    identifies a wide range of serious concerns and lists the
    countries which are deemed to have inadequate intellectual
    property right protections. What is the significance of this
    report and how can it be used to incentivize countries to
    harmonize their laws to conform to these international
    agreements to which they are a party?
        Ms. Sheppard. I thank you for that question.
        As I noted in my testimony, there are some countries who
    have been on the list and then have put through the necessary
    changes to get off the list. But there are many, many more
    countries that have been on the list, the watch list, the
    priority watch list since the inception and are still there
    today.
        Does that mean that the list is not important? No, that is
    not what that means. The list is very important because it
    requires the Administration to look every year at the
    agreements and at individual countries to figure out who is in
    compliance and who is not, either de facto or in its result,
    and then have a country-level conversation on specific issues.
    In some places, changes have been made. In the Special 301,
    they also make a determination on whether or not they are going
    to go before the dispute settlement board at the WTO, and that
    is an important determination. Unfortunately, or maybe
    fortunately for some, that particular avenue has not been taken
    up as often as it could be. That is one of the sticks that is
    available.
        But I believe your question is, is 301 important? Yes,
    because it shines a spotlight on the issue, and action plans
    are developed.
        Last year, the Administration started to have the actions
    plans, invite countries to work with the Administration to
    develop an action plan that the other countries believed they
    could implement. I don't know how that process is working. It
    is still the first year; but this is the first year where the
    Special 301 and the Administration have reached out to the
    other countries to make sure that the action plan is something
    that is doable in the eyes of the other country.
        Ms. Chu. Some countries that were on the 301 listing were
    eventually removed from the list. In fact, I think South Korea
    and the Bahamas have succeeded in removing themselves from this
    list. How did they go about doing this?
        Ms. Sheppard. I don't know the exact details. Perhaps Mr.
    Israel knows the exact details. But there is an action plan.
    There are things that listed that say in order to be in
    compliance, you need to do A, B and C. And without knowing the
    details, they must have complied with at least the majority of
    those issues.
        Mr. Chu. Mr. Israel?
        Mr. Israel. I would have to check some of the detail. I
    would suspect that their implementation of the Free Trade
    Agreement that the United States agreed to with South Korea
    probably has a very significant impact on their being removed
    from the list, and they implemented some things such as the
    TRIPS Plus provisions that we negotiated with them as part of
    that free trade agreement. And so I suspect that put them on
    the path to making some pretty significant improvements.
        Ms. Chu. Although I don't think the Bahamas has a free
    trade agreement, so how did they end up getting removed from
    the list? The Bahamas?
        Mr. Israel. That I am not sure of, Congresswoman. I would
    have to check and probably get back.
        Ms. Chu. Dr. Sheppard, how is it that a country could be
    part of the TRIP agreement but still be seriously having
    deficiencies in protecting intellectual property rights?
        Ms. Sheppard. The TRIPS agreement, like most international
    agreements, it is just an agreement. I believe it was Ranking
    Member Watt who alluded to before--we can give our input, but
    we can't make anyone do anything. And conversely, they can have
    their input, but they can't make us do anything. These
    agreements are gentlemen's agreements that you are going to
    comply with what your word is. If you don't comply with what
    your word is, then we will put higher tariffs on some other
    product.
        As I mentioned earlier, the United States has not taken
    advantage of that as often as possibly it could. But there are
    countries, including the United States, which are in violation
    of the TRIPS agreement.
        So, in my opinion, it is hard. It is hard when we are still
    in violation on some issues and go to other countries and talk
    about them being in violation of their issues.
        Ms. Chu. Thank you.
        Mr. Murphy. Mr. Chairman, may I briefly offer an
    observation based upon my time at USTR?
        Mr. Goodlatte. Sure.
        Mr. Murphy. Thank you very much.
        Congresswoman Chu, I agree with your question or statement
    that Special 301 and the annual reporting and watch list is
    still very valuable. It continues to create an opportunity for
    peer pressure and observation, for lack of a better term.
        But I can also offer this: Special 301 predates the
    creation of the WTO and the TRIPS agreement. The United States
    as a member of the WTO is constrained in its ability to bring
    pressure to bear against trading partners that are not in
    compliance with their TRIPS obligations or otherwise
    maintaining policies that burden U.S. IP holders. I think we
    need to have a very honest conversation about how in the post-
    WTO, post-TRIP world, can we ensure that our trade enforcement
    agencies have some leverage to bring to bear that does not
    itself cause the United States to violate its own trade
    commitments, in order to focus the attention of our foreign
    trading partners on doing what they need to do to better
    protect U.S. IP.
        Ms. Chu. Thank you.
        I yield back.
        Mr. Goodlatte. Thank you.
        The Chair recognizes the gentleman from Arizona, the Vice-
    Chairman of the Subcommittee, Mr. Quayle, for 5 minutes.
        Mr. Quayle. Thank you, Mr. Chairman.
        And thank you for holding this important hearing today to
    examine the challenges to U.S. intellectual property
    protections in foreign countries.
        As others have noted, the U.S. Commerce Department reported
    earlier this month that intellectual property supports 40
    million U.S. jobs, or 28 percent of our workforce, and
    contributes over $5 trillion to our GDP. According to the
    report, intellectual property protections have a direct and
    significant impact on the U.S. economy, and the jobs it creates
    are high-paying and important for working families. This really
    shows how important this hearing is, and I thank all of the
    witnesses for their testimony.
        Dr. Waldron, you mentioned Chile as not enforcing IP
    protections as a part of the FTA. I was wondering if you could
    provide a few additional examples of lack of enforcement of
    basic patent rights abroad and explain how that lack of
    enforcement really hampers the innovative industry's ability to
    maintain and grow jobs here in the United States?
        Mr. Waldron. There are a number of provisions, as I look at
    the countries for which we have free trade agreements, but
    Chile is an important one because I think it is one where it is
    imperative that we have sort of a linkage system which would be
    set up to protect our IP rights before the market essentially
    is destroyed by the entry of competitors that essentially can
    go on, and the enforcement mechanisms are very poor. If you are
    not able to export to a market--I mean, there are markets in
    Latin America where we have introduced a product, and within 1
    year, we have lost 85 percent of our market to 23 competitors.
    That was Lipitor.
        With Viagra, there was a case where we lost 98 percent of
    our market within a year to 35 competitors. So there is no
    shortage of competitors willing to come in, particularly in an
    instance where you are not getting the patent protection that
    you have applied for. There is no data exclusivity protection.
    So, within a very short period of time, within a year,
    competitors enter the market. And there is no linkage
    mechanism, no means to resolve a patent dispute, if you have a
    patent, within that period of time, as we do in the United
    States.
        These markets represent huge growth opportunities for U.S.
    businesses. They are big. If we are regularly losing 90 percent
    of our market to local competitors that is a problem because we
    can't expand locally at home, we can't invest and make the
    investments and create the jobs at home that support those
    innovative industries, and it is just sort of a chain reaction
    of things that sort of piecemeal around the world add up to a
    collective problem for the United States where we have that
    competitive advantage.
        Mr. Quayle. Do you think that the Administration is doing
    everything that it can to support U.S. industry and enforcing
    their rights?
        Mr. Waldron. I think we really need to ensure that if we
    have free trade agreements with partners--and Chile has been
    noted--I mean, there are others--that we make sure and follow-
    up on that. There is the 301 mechanism, but it seems to be a
    paper tiger sometimes. It seems it is not followed up on, or it
    is a chastisement, but it really doesn't have any strong
    economic teeth. I think there really has to be something here
    that sort of makes it perfectly clear that these kinds of
    violations are backsliding on obligations, and that is
    unacceptable.
        Mr. Quayle. Thank you.
        Mr. Israel, what additional steps can the U.S. take to
    improve judicial education in foreign countries so that
    enforcement measures can be counted on?
        Mr. Israel. I think that is a key question, Congressman.
        And It does, again, kind of touch on this theme of, what
    can we do to provide incentives, and where does the United
    States have leverage that doesn't necessarily implicate direct
    trade rules or bringing cases? There have been I think some
    great examples in the past where the Justice Department, for
    example, has sent delegations to places like India to help
    train judges, to work with their judicial system, and to try to
    give them a little more capacity on what are obviously very
    complicated cases in any country. We work directly with China.
    We had a system in place called the case referral mechanism
    with China for several years, whereby American companies could
    work directly with the Commerce Department and PTO and our
    attache program in China, and have really kind of a pipeline
    directly into the Chinese enforcement officials to refer
    specific cases of infringement that they saw on the ground.
        I noted the efforts of some individual jurists, such as
    Judge Rader, who has been very active in this area. But I think
    we need to look at this as one of those kind of compliant/
    noncompliant areas, where we see some obvious and overt areas
    where countries violate TRIPS, as Dr. Sheppard has noted. But
    there are a lot of areas that when you get on the ground, if
    you are an American company and it takes you 10 years to even
    get a patent, and then when you get it, there is a judicial
    system that simply disallows you, through inconsistency or
    inability, to really enforce that patent, you are dealt a hand
    that you really can't compete with.
        Mr. Quayle. Do you think even with the education aspect,
    where the DOJ is going in and educating judges, do you think
    you are witnessing, even if you do educate and get them up to
    speed on patent protections and patent law, that if you have a
    process or a thought process from the governing body, that they
    are just not going to actually administer or protect patent
    rights from out-of-state companies, then it is really not going
    to do that much?
        Mr. Israel. Good point. A very fair point. I think you see
    some things that cut against those best efforts very
    dramatically. It is not uncommon in China, for example, in high
    profile intellectual property cases for officials of the
    Chinese government to physically be present at those hearings
    where there is a state-owned enterprise potentially implicated
    in the hearing. It is very hard to counter that from the United
    States. I suppose we could have our diplomats attend a range of
    cases in big countries like China, but you are up against not
    just some systemic flaws but, as you know, you are clearly up
    against some attempts to tilt the competitive framework, again
    the foreign rights holder, typically the United States.
        Mr. Quayle. Thank you, I yield back.
        Mr. Goodlatte. I thank the gentleman.
        The gentlewoman from California, Ms. Waters, is recognized
    for 5 minutes.
        Ms. Waters. Thank you very much, Mr. Chairman.
        I had to step out for awhile and I can imagine that some of
    my questions may have already been answered. I will try to
    frame them in a way that could glean some additional
    information.
        The first thing I want to know is what is our Trade
    Representative doing on these issues? That is where we place
    responsibility for ensuring that we have fair trade, and I am
    sure this must be an issue with the Trade Representative.
        Dr. Waldron, what is our Trade Representative doing?
        Mr. Waldron. I don't have the exact details of the
    procedures going on at USTR right now, but I do know that they
    have not tabled 12 years of biological data exclusivity yet in
    the Trans-Pacific Partnership negotiations that are ongoing. I
    think it is very important for us to ensure that there is a
    strong IP package in this. I think that is an essential part of
    it, and it has not yet been tabled. And I think we really have
    to ensure that we do this because of the breadth and the scope
    of this agreement. I mean, it involves a vast chunk of the
    Pacific Rim countries. These are huge markets for all of
    American businesses, and I think we have to get this right
    because it is going to have huge knock-on effects later.
        I don't know why there has been delay in introducing this;
    but certainly, it is something that represents U.S. law, and I
    think we should definitely push the Trade Representative.
        Ms. Waters. Dr. Sheppard, has this risen as an issue with
    the WTO? Have we taken any initiative from the United States to
    look as if, if not actually, make this an issue with the WTO?
        Ms. Sheppard. Yes. The United States and the USTR has taken
    up several issues with the dispute settlement body. The issue
    went directly against China, and the United States received a
    lot of negative reaction from China for taking them to the
    dispute resolution settlement board. But the conversations
    between USTR and the United States had no fruitful outcomes.
    And when that happens, that is the process you are able to go
    through.
        Someone mentioned earlier, I think it was Mr. Israel,
    talked about the other times when the United States has tried
    to negotiate, negotiate, and then gotten nowhere. That is why I
    think the Trans-Pacific Partnership, as Dr. Waldron was talking
    about, and other avenues of TRIPS Plus agreements are so
    important. And that is one of the things that the USTR is doing
    right now, actively negotiating new treaties that will put into
    place some of the lessons learned from what was lacking in
    TRIPS.
        TRIPS was a huge step forward, but it has been 18 years
    since then. And in that time, other industries have grown up
    that weren't envisioned then. So new protections and new laws
    need to be in written. Mr. Murphy can talk about this, having
    been at the USTR, more than I can--I haven't been there--that
    they are actively every day pushing forward our policies in
    every country. We just don't hear about them.
        Ms. Waters. Well, you know, what you are describing has
    been going on for an awful long time. And it seems to me it is
    time for a resolution.
        Mr. Watt alluded to the work that we have done in financial
    reform. Tremendous work with Dodd-Frank and all that goes along
    with that. So having taken a look at what you are describing
    and the negotiations that have gone on and the continued and
    long-term bias against us in many ways, what do you recommend
    can be done legislatively outside of the USTR Trade
    Representative working for us?
        What do you recommend, Mr. Israel?
        Mr. Israel. That is a great and obvious question,
    Congresswoman Waters.
        Trade promotion authority, giving that to the
    Administration, from the standpoint of empowering their
    negotiating status, would be a good thing. I think there are
    things that we can do. There are obviously resource issues
    which are difficult to discuss and it is a very difficult
    environment for that. But I think things like potentially
    giving the Patent and Trademark Office greater ability to
    leverage and manage the IP attache program overseas. Right now,
    it is a bit complicated as they work internationally. It is not
    their natural, kind of organic statute to place individuals and
    diplomats in embassies. And so I think there are some things we
    could do that might strengthen that program and empower it even
    more.
        Ms. Waters. Excuse me a moment. You just said something. I
    have never heard that the role that our ambassadors and their
    staffs could play is to take an issue like this in country and
    help to promote the idea of fairness and a level playing field.
    That may be something, Mr. Watt, that we may be able to
    encourage in some ways.
        My husband was an ambassador, and they talked about a lot
    of things. Of course, he told me that there were a lot of
    things that he couldn't talk about. But I never heard that this
    was a role that they played, even though they have one of their
    designated staff persons dealing with economic development or
    something like that in these countries. I have never heard them
    talk about this.
        Please continue. Thank you.
        Mr. Israel. Clearly, the global footprint that the U.S. has
    through its embassies and diplomats overseas is huge. I
    personally think this problem, this issue, is equal parts law
    and diplomacy; getting the legal framework correct, enforcing
    TRIPS, all of the very detailed things that Dr. Sheppard noted
    is huge. But there is a diplomatic element to this as well. We
    need to be working very aggressively with our trading partners
    that we are aligned with on this issue--the Europeans, the
    Japanese, and other developed countries.
        I think one of the things it is, again going back to this
    carrot and stick formulation that the Congressman Watt spoke
    about, a lot of countries, particularly the growing BRIC
    countries, China in particular, I think are very sensitive to
    being as framed outside the norm. They may be more sensitive to
    that than a handful of individual WTO cases. If their legal
    system is portrayed consistently and effectively as being
    outside the global norm by their trading partners, by the
    United States, the Europeans, their partners that matter, that
    has an impact.
        I think, to your point, if you have an ambassador and a
    team in country that are focused on this--Ambassador Rant from
    2001 to 2008 had a series of annual IP conferences in Beijing.
    The vice premier of China frequently attended, and Cabinet
    members from the United States frequently attended it. It
    really became a focal point for driving these issues.
        Action-forcing events are key. They force our government to
    put things on the table. They force the other government to
    react to those. So there is a lot of diplomacy that can be done
    around this issue in a very strategic way.
        Ms. Waters. Thank you very much.
        Our Chair has been very generous with the time, but in
    wrapping up, do you see this as something that can be framed as
    a serious trade imbalance issue, and how do we do that?
        Mr. Israel. I think it is absolutely a serious trade
    imbalance issue. I think we need to look at this issue when we
    view overall American competitiveness in the same way we talk
    about making our tax system competitive, making our regulatory
    system competitive, our R&D portfolio, all of these things
    that, at a very high level, feed into issues that are of the
    level of congressional committees and Cabinet officials and
    CEOs. I think this is an issue that deserves a place and
    attention on that list as well.
        Mr. Watt. Mr. Chairman, may I make a one-sentence
    intervention?
        Mr. Goodlatte. The gentleman is recognized.
        Mr. Watt. I just remind my colleague from Financial
    Services that it took a worldwide economic meltdown to create
    the environment for international harmonization in the
    financial services area. I am not sure that those kinds of
    incentives are there yet in the intellectual property
    protection environment. So I kind of stacked the question a
    little bit, but I didn't want anybody--we got a lot more
    cooperation internationally after the meltdown than we were
    getting before the meltdown.
        Mr. Murphy. May I respond briefly to Mr. Watt?
        Mr. Goodlatte. Briefly.
        Mr. Murphy. Innovation and patents are key to our 21st
    century economy. We need a corresponding trade policy that
    recognizes that. We need to find better tools and levers for
    our trade negotiators and our diplomats worldwide. We need to
    have strategies that focus on foreign capitals as well as the
    foreign delegations at international institutions. We often
    have disconnects between governments, our foreign trade
    partners in different locations.
        Mr. Goodlatte. Thank you, Mr. Murphy.
        The gentleman from Georgia, Mr. Johnson, is recognized for
    5 minutes.
        Mr. Johnson. Thank you, Mr. Chairman.
        This is a very important hearing today. It comes at a great
    time. Today is World IP Day, where we celebrate. Everyone goes
    home for half a day, and we celebrate innovation throughout the
    world and put up lights and everything and give gifts. It is a
    wonderful day. We are all working today.
        The process and results of research, innovation and
    development, and the protection of these results through our
    patent, trademark and copyright laws are very important,
    particularly in a global community. There are major patent
    barriers that American patent holders face in protecting their
    intellectual property while doing business in many places,
    including China.
        Dr. Waldron, I know that you were asked a question earlier
    about the performance of the Obama administration and you
    mentioned that there was something that needed to be done
    before it expires. What was that?
        Mr. Waldron. It was getting the 12 years of biological data
    exclusivity into the TPP negotiations, the Trans-Pacific
    Partnership.
        Mr. Johnson. Well, I tell you, we have had so much gridlock
    around here. Partisan politics have been the practice. It has
    resulted in us not being able to do many of the things that the
    country needs to do. But I am hopeful we will be able to get
    through this period, and with folks like PhRMA, I hope you will
    support good government and not gridlock government, and we can
    get these things--we can do the things that America needs to do
    in order to maintain its position in the global economy.
        Now, I know that WTO members are required to make patents
    available for inventions in all fields of technology, but many
    countries discriminate based on the place of invention, the
    field of technology or whether products are imported or locally
    produced. Does China utilize regulatory and administrative
    hurdles to devalue patent rights of American companies, in your
    opinion, Dr. Waldron?
        Mr. Waldron. There are a number of levers that effect us in
    China. And I think when you talk about the patent grant
    process, we have a system of fairly arbitrary standards that
    are imposed that we have experienced as pharmaceutical
    companies on how much data is required to get a grant of a
    patent or a grant of a claim. It seems to vary considerably
    across the board. We think that they need to harmonize their
    standards better so it doesn't appear as arbitrary. It seems
    that we have a great deal of difficulty getting scope of claims
    in our patents that are broad enough to protect our products,
    and this is an important issue going forward.
        The other issues in China range from enforcement of
    intellectual property, particular patents. The evidentiary
    hurdles are great. Oftentimes, foreign evidence is not allowed.
    Evidence has to be generated within China. Sometimes this is
    very difficult if you are trying to present a test result and
    there is nobody in China that can perform it; sometimes you are
    just out of luck. This is an unfortunate situation we face on a
    daily basis.
        Mr. Johnson. If I might stop you right there, I wish I
    could let you go forward, but I have got one more question. I
    have more questions actually that I want to ask, but thank you.
        Professor Sheppard, in China, do American innovators have
    sufficient recourse in the Chinese judicial system to protect
    their locally manufactured or their locally granted patents?
    And if not, tell us the extent of the problem and perhaps some
    solution for being able to solve?
        Ms. Sheppard. The biggest part of the problem, and it is
    hard for us as Americans to really internalize this, is that
    there is no judicial independence in China. The courts are very
    much influenced by politics and the needs of the people. If
    putting a company out of business that employs 500 people
    because they are infringing is the right thing to do legally, a
    lot of judges won't do it because of political reasons. I don't
    know how we change that.
        As we discussed earlier, Judge Rader goes to China on a
    regular basis and he is taking the entire Federal Circuit to
    talk about these issues. Maybe one of the things that we should
    be pushing for that kind of comes in from a different angle in
    protecting American interests is looking for not only democracy
    across the world but also judicial independence across the
    world.
        Mr. Johnson. Anyone have any other comments about that?
        Mr. Israel. I think Dr. Sheppard hit it right on the head.
    I think it is a rule of law question as much as anything in
    China. China, except laws and rules they want to enforce, by
    and large doesn't enforce a lot of its laws particularly well.
    So I think you are dealing with a question of--there is a
    question of judicial independence. There is a question of the
    laws being relatively new in China. China only became a WTO
    member in 2000. So as a body of law, it is relatively new in
    China. I think it is, as Dr. Sheppard noted, it is almost first
    and foremost tied to economic rationales or social rationales
    largely in China, and that has to be a very difficult dynamic
    for any American company to walk into a courtroom and not just
    be confronted with needing to win the legal argument, but also
    needing to win the social and potentially the economic argument
    against what they are faced in China in that courtroom.
        Mr. Goodlatte. Without objection, the gentleman is
    recognized for 1 additional minute.
        Mr. Johnson. Thank you, Mr. Chairman.
        Do you think that the way that--well, the Chinese economy
    in 2015 it is projected, 2016 maybe, is projected to become the
    world's largest economy. So that is something you have to deal
    with, America as well as all of the other countries and their
    economies in this global economy, and if the big, 800-pound
    gorilla is cheating, how do you stop the cheating? Is it
    through a trade war? What do you do in order to encourage
    compliance with international standards in a situation like
    this?
        Mr. Israel. I think it has to be a mix of tactics. I think
    it has to be a mix of very high level focus by the U.S.
    Government and other governments that are similarly impacted.
    It needs to be a head of state issue. I think it consistently
    has been for the United States for several years. I think we
    need to make--look at ways to make improvements to the Chinese
    judicial system.
        Mr. Johnson. Do the Chinese want to do that?
        Mr. Goodlatte. The time of the gentleman has expired.
        The gentlewoman from Texas, Ms. Jackson Lee, is recognized
    for 5 minutes.
        Ms. Jackson Lee. Let me thank the Chairman and the Ranking
    Member for this hearing, and the Ranking Member of the full
    Committee who studiously attends these hearings to build his
    excellent portfolio of knowledge, Mr. Conyers. I am delighted
    that he is here and an active Member of this Committee, among
    others.
        Let me acknowledge, standing behind me but not in the room,
    Mr. Chairman, Amanda Woodson, who is my daughter for the day, a
    beautiful, young 13-year-old, who is learning about protecting
    our assets. As a 12-year Member formerly of the Science
    Committee and now a Member of the Homeland Security Committee,
    I have always believed that science, technology, the work that
    many of you are doing, is the work of the 21st century, 22nd
    century, and it is a job creator. Which makes me even more
    proud to welcome back Dr. Christal Sheppard, who quietly served
    us and did not acknowledge the genius of having a masters and a
    Ph.D. in cellular and molecular biology. I needed to put that
    on the record. So I know the University of Nebraska School of
    Law is excited that we added a smidgeon to her vast talent. We
    are delighted to see her as a witness.
        I would like to take a different approach, and again, let
    me say that I couldn't be more chauvinistic, and I don't
    usually use that word, on the inventiveness and the level of
    technological sophistication that America has. And we need to
    protect it.
        So, first of all, I want to acknowledge that President
    Obama has elevated to Cabinet status the Intellectual Property
    Enforcement Coordinator, and I want to have our representative,
    Dr. Waldron, comment on that elevation and how that can be
    utilized?
        I would like Dr. Sheppard to answer a question that I will
    read in just a moment, but let me raise a question generally to
    ask about intellectual property jobs and trade agreements and
    the importance in putting in strong provisions. If you can take
    that question down.
        But what I really want to talk about, because I met with
    members of the Chinese embassy yesterday, and I truly believe
    that we have an opportunity to be a friend and that we are
    doing business with China. They want to do business with us,
    and they are looking to be able to frame their structure going
    forward in a way that comports with the respect of the
    intellectual property of those who they engage with. So I am
    very interested in doing it this way, and that is the moving
    and looking at the Leahy-Smith bill, and I am looking at that,
    that deals with reestablishing a patent system for the global
    market. What I would like to see us do is for America to be the
    standard for all countries, and if you are not in keeping with
    America's standard, you are outside of the marketplace in both
    world ideas and world opportunities.
        Dr. Waldron, would you proceed with that.
        And Dr. Sheppard, I think you heard my question. Why don't
    we push getting our standards to be the world standards and
    match it with enforcement, and anybody that is outside of that
    circle simply can't do business? Because everybody recognizes
    what is precious, and that is your genius and the idea of Bayer
    aspirin being manipulated would not hold because that country
    would be isolated because no one would dare go there if their
    procedures undermine the process. Would you go forward on that
    answer?
        Mr. Israel, you might answer, too, since you are formerly
    head of that agency.
        Yes, Dr. Waldron.
        Mr. Waldron. I agree with you wholeheartedly,
    Representative Jackson Lee. The genius of America is its
    innovativeness. And our competitive advantage vis-a-vis other
    countries is our prize asset, and we should have as a matter of
    policy a means of protecting these things, the things that we
    develop and the things that we market and sell abroad.
        We acknowledge the elevation of the IP coordinator status
    within the Obama administration. This is a welcomed
    development. It brings IP to a high status within the
    Administration, and we think that is a good thing to have on
    people's minds. It also deals with the issue of counterfeits,
    which is something that is a pernicious danger that we also
    have to be constantly vigilant about.
        But we do need a set of policies in this government that
    sort of protects American innovation and American business
    abroad. As mentioned earlier in some of the discussions, the
    diplomatic emphasis here is essential to having that go
    forward. So I agree with everything that has been said.
        Ms. Jackson Lee. Chairman, can we allow them to answer the
    question?
        Mr. Israel, would you add to your answer what strong
    provision we would need to protect, what kind of strong
    provisions?
        And then I would like Dr. Sheppard to finish.
        Mr. Goodlatte. Briefly, if you would.
        Ms. Jackson Lee. Thank you, Mr. Chairman.
        Mr. Israel. Very briefly, I think the answer to your
    question partially answers the question that Congressman
    Johnson answered, which is regarding the Chinese and the
    economy.
        Ms. Jackson Lee. The answer to Jackson Lee's question
    partly is the answer to Congressman Johnson's question? I am
    not sure who you are answering.
        Mr. Israel. I am sorry, Congresswoman. Mr. Johnson asked a
    question.
        Ms. Jackson Lee. And I am asking a global question. I am
    not pointing to the Chinese. Thank you.
        Mr. Israel. Thank you. As China, in particular, becomes the
    world's largest economy, I think it is impossible for them to
    also have a judicial system simultaneously that is not taken
    seriously by the rest of the world. So I do think to your
    question, there is pressure that will mount. And I agree, they
    will gradually need to face that pressure and do something
    about it. And I do think that will have a very positive impact
    going forward.
        Ms. Jackson Lee. Thank you.
        Dr. Sheppard, welcome.
        Ms. Sheppard. Thank you.
        The importance of taking strong positions in IP, very
    briefly, it is very essentially important. It is the only way
    that dollars come back into the United States. To use Apple as
    an example, iPads are made by a Taiwanese company with Chinese
    workers in China. The way that the money comes back to the
    United States is through intellectual property. And unless we
    continue and maintain strong IP, the inventiveness of our
    inventors and the R&D that we do here will never see returns
    from those countries.
        As you mentioned, we do have leverage. They want access to
    our market; we want access to their markets. America is a
    really good market still. So we have leverage, and we shouldn't
    be afraid to use that leverage. It is part law, and it is part
    diplomacy, but we cannot afford to be a paper tiger, as someone
    mentioned earlier.
        Ms. Jackson Lee. Mr. Chairman, I would like to submit
    additional questions for the record.
        And may I just indicate that I am very proud that one of my
    questions to be submitted into the record was written by Ashley
    Hawks who is my Texas Tech intern. This is her last week, and I
    wanted to congratulate her for the work she has done on behalf
    of the people of this country and the 18th Congressional
    District.
        I thank you, Mr. Chairman. And I ask unanimous consent that
    my questions may be submitted in writing for a response.
        Mr. Goodlatte. We will cover that right now. I am proud of
    Ashley and her good work for you.
        I would like to thank all of our witnesses for their
    testimony today.
        Without objection, all Members will have 5 legislative days
    to submit to the Chair additional written questions to the
    witnesses which we will forward and ask the witnesses to
    respond as promptly as they can so that their answers may be
    made a part of the record.
        Without objection, all Members will have 5 legislative days
    to submit any additional materials for inclusion in the record.
        With that, I again thank our witnesses and the Members who
    participated, and this hearing is adjourned.
        [Whereupon, at 12:02 p.m., the Subcommittee was adjourned.]
                                A P P E N D I X

                                  ----------

                   Material Submitted for the Hearing Record

    Prepared Statement of the Honorable John Conyers, Jr., a Representative
     in Congress from the State of Michigan, Ranking Member, Committee on
       the Judiciary, and Member, Subcommittee on Intellectual Property,
                         Competition, and the Internet
        Today's hearing provides an opportunity for us to scrutinize
    whether the patent systems in foreign countries provide adequate and
    effective patent protection for American innovators and whether they
    provide a level playing field for American creators.
        In particular, we should focus on the problems that American
    companies encounter when they request, enforce, and implement patents
    overseas.
        And, I intend to explore in detail ways that Congress can foster
    U.S. global competitiveness with respect to patent laws and government
    policies in light of the recent enactment of the Leahy-Smith, America
    Invents Act.
        There are several factors we should keep in mind as we consider
    this and other issues today.
        First, a robust patent system is integral to the health of our
    Nation's economy.
        Coincidently, today is World Intellectual Property Day, which
    recognizes the significance of preserving intellectual property
    protection for American businesses and inventors when they use
    international patent laws.
        Last month, the U.S. Department of Commerce released a report
    finding that America's most IP-intensive industries in 2010 generated
    direct employment of 27.1 million jobs and an additional 12.9 million
    jobs. In 2010, these IP-intensive industries accounted for an estimated
    34.8 percent of U.S. gross domestic product.
        At its heart, intellectual property defends the economic value of
    the fruits of the mind's labor, whether it be the spark of invention or
    the inspiration of the artist. It gives an inventor or artist the
    opportunity to profit from their work, in order to both reward and
    support additional creativity.
        It is imperative that American industry abroad is protected by
    sufficient international patent laws and government policies.
        Second, it is critical for us to address barriers to effective
    international patent protection.
        American innovators, industries, and other interested parties have
    identified many of these barriers as part of their proposals to the
    U.S. Trade Representative (USTR), as part of the annual ``Special 301''
    review process.
        Congress enacted Special 301 pursuant to the 1988 Trade and
    Competitiveness Act. The USTR produces an annual survey of the
    intellectual property laws of foreign countries and issues the
    ``Special 301'' report. Last year, 12 countries were included on the
    Priority Watch List and 28 were on the Watch list.
        These submissions list challenges for international patent issues
    including lack of effective patent enforcement and administrative
    hurdles in the patent granting procedures.
        Historically, the annual USTR Special 301 has mentioned the
    deficiencies in patent laws in countries listed on their priority watch
    list. Accordingly, I am looking forward to reviewing the next Special
    301 Report for 2012, which is due later this month.
        Third, we must assure businesses that their patents will be granted
    within a reasonable period of time and not be discriminated against.
        The patent application process, which includes patent filings, can
    often have long pendency times and prevent patentability for certain
    fields of technology.
        While businesses need certainty that a patent will be granted in a
    timely manner, the total pendency for patent applications can be as
    long as 34 months.
        In fact, applicants for pharmaceutical patents may take more than 5
    years in many countries. For example, applicants for pharmaceutical
    patents in Chile have to wait an average of 8 years for final action on
    their patent applications.
        Additionally, many foreign countries have barriers to effective
    enforcement. For example, China is often cited for their inadequate
    damages and ineffective injunctions.
        Our trading partners need to live up to their international
    obligations and they should not discriminate against U.S. companies or
    fields of technology when it comes to patentability and market access.
        Moreover, foreign governments should be able to condition approval
    of a U.S. innovator's license to patent technologies to domestic
    companies unless it reduces the price associated with the products.
        This pressure from foreign governments is a demand for a reduction
    in the price of the patented technology, often below the global
    marketplace value.
        It is clear that many foreign countries simply lack consistent
    stands for patentablity.
        This hearing will allow us to explore these topics and determine
    what role Congress can play to promote a level playing field for
    international patent issues.

    Response to Post-Hearing Questions from Chris Israel, Partner, American
         Continental Group (former U.S. Coordinator for International
                       Intellectual Property Enforcement)
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