[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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                       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:]
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                          __________

    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:]
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                             __________

    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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