[Senate Hearing 112-922]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 112-922

       OVERSIGHT OF INTELLECTUAL PROPERTY LAW ENFORCEMENT EFFORTS

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

                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 22, 2011

                               __________

                          Serial No. J-112-28

                               __________

         Printed for the use of the Committee on the Judiciary
         
         
         
                                      ______

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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin                 CHUCK GRASSLEY, Iowa
DIANNE FEINSTEIN, California         ORRIN G. HATCH, Utah
CHUCK SCHUMER, New York              JON KYL, Arizona
DICK DURBIN, Illinois                JEFF SESSIONS, Alabama
SHELDON WHITEHOUSE, Rhode Island     LINDSEY GRAHAM, South Carolina
AMY KLOBUCHAR, Minnesota             JOHN CORNYN, Texas
AL FRANKEN, Minnesota                MICHAEL S. LEE, Utah
CHRISTOPHER A. COONS, Delaware       TOM COBURN, Oklahoma
RICHARD BLUMENTHAL, Connecticut
            Bruce A. Cohen, Chief Counsel and Staff Director
        Kolan Davis, Republican Chief Counsel and Staff Director
        
        
        
                            C O N T E N T S

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                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     1
    prepared statement...........................................    40
Grassley, Hon. Chuck, a U.S. Senator from the State of Iowa......     3

                               WITNESSES

Witness List.....................................................    39
Espinel, Victoria A., Intellectual Property Enforcement 
  Coordinator, Office of Management and Budget, Washington, DC...     4
    prepared statement...........................................    42
Weinstein, Jason M., Deputy Assistant Attorney General, Criminal 
  Division, U.S. Department of Justice, Washington, DC...........     7
    prepared statement...........................................    50
Snow, Gordon M., Assistant Director, Cyber Division, Federal 
  Bureau of Investigation, Washington, DC........................     9
    prepared statement...........................................    67
Gina, Allen, Assistant Commissioner, Office of International 
  Trade, U.S. Customs and Border Protection, U.S. Department of 
  Homeland Security, Washington, DC..............................    11
    prepared statement...........................................    76
Barnett, Erik, Assistant Deputy Director, U.S. Immigration and 
  Customs Enforcement, U.S. Department of Homeland Security, 
  Washington, DC.................................................    12
    prepared statement...........................................    89

                               QUESTIONS

Questions submitted by Senator Coburn for Victoria Espinel and 
  all witnesses..................................................   109
Questions submitted by Senator Coburn for Jason Weinstein and all 
  witnesses......................................................   111
Questions submitted by Senator Coburn for Gordon Snow and all 
  witnesses......................................................   113
Questions submitted by Senator Coburn for Allen Gina and all 
  witnesses......................................................   115
Questions submitted by Senator Coburn for Erik Barnett and all 
  witnesses......................................................   117
Questions submitted by Senator Franken for Victoria Espinel......   119
Questions submitted by Senator Franken for Jason Weinstein.......   120
Questions submitted by Senator Franken for Erik Barnett..........   121
Questions submitted by Senator Grassley for Allen Gina...........   122
Questions submitted by Senator Grassley for Erik Barnett.........   123
Questions submitted by Senator Grassley for Victoria Espinel.....   124
Questions submitted by Senator Hatch for Jason Weinstein.........   125

                                ANSWERS

Responses of Victoria A. Espinel to questions submitted by 
  Senators Coburn, Franken, and Grassley.........................   126
Responses of Gordon M. Snow to questions submitted by Senators 
  Grassley and Coburn............................................   164
Responses of Allen Gina to questions submitted by Senators Coburn 
  and Grassley...................................................
Responses of Erik Barnett to questions submitted by Senators 
  Coburn, Franken and Grassley...................................   181
Responses of Jason M. Weinstein to questions submitted by 
  Senators Coburn, Franken, and Hatch (Note: At the time of 
  printing, after several attempts to obtain responses to the 
  written questions, the Committee had not received any 
  communication from the witness.)...............................   223

                MISCELLANEOUS SUBMISSIONS FOR THE RECORD

American Federation of Musicians, American Federation of 
  Television and Radio Artists, Directors Guild of America, 
  International Alliance of Theatrical Stage Employees, Moving 
  Picture Technicians, Artists and Allied Crafts of the United 
  States, Its Territories and Canada, International Brotherhood 
  of Teamsters, Screen Actors Guild, June 20, 2011, joint letter.   224
American Society of Composers, Authors, and Publishers (ASCAP), 
  Paul Williams, President and Chairman of the Board, New York, 
  New York, June 20, 2011, letter................................   225
Institute for Policy Innovation (IPI), Tome Giovanetti, 
  President, Lewisville, Texas, June 20, 2011, letter............   227
Kelley, Colleen M., National President, National Treasury 
  Employees Union, (NTEU), Washington, DC, statement.............   228
Motion Picture Association of America, Inc., Paramount Pictures 
  Corporation, Sony Pictures Entertainment Inc., Twentieth 
  Century Fox Film Corporation, Universal City Studios LLC, Walt 
  Disney Studios Motion Pictures, Warner Bros. Entertainment 
  Inc., June 22, 2011, joint letter..............................   236
Recording Industry Association of America, Inc., (RIAA), Mitch 
  Bainwol, Chairman and CEO, Washington, DC, June 21, 2011, 
  letter.........................................................   239
U.S. Chamber of Commerce, Washington, DC, statement..............   240

 
       OVERSIGHT OF INTELLECTUAL PROPERTY LAW ENFORCEMENT EFFORTS

                              ----------                              


                        WEDNESDAY, JUNE 22, 2011

                                       U.S. Senate,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:06 a.m., in 
Room SD-226, Dirksen Senate Office Building, Hon. Patrick J. 
Leahy, Chairman of the Committee, presiding.
    Present: Senators Leahy, Kohl, Whitehouse, Klobuchar, 
Franken, Coons, Blumenthal, Grassley, and Coburn.

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

    Chairman Leahy. Good morning. Sorry. We are trying to do 
about 40 things here at once, as you know. We have about five 
meetings going on at once, so I apologize for the delay 
starting, but I do appreciate the witnesses who are here to 
discuss the enforcement of our Nation's intellectual property 
laws. We spent a lot of time on this in the Committee in the 
last few months, and there is good reason for that. While 
estimates of intellectual property theft are hard to get 
exactly the amount, we know that it costs billions of dollars 
and hundreds of thousands of lost jobs. Now, I do not care what 
the economic climate is. That would be unacceptable. Of course, 
it is devastating today. It is not like 50 years ago where you 
get very excited about somebody who had a bank robbery where 
they stole a couple hundred thousand dollars. Most bank robbers 
get caught. We are talking about people who, with a keystroke, 
might steal tens of millions of dollars or more.
    Now, whether the property theft takes place on street 
corners or on the Internet, it poses a threat to American 
businesses, American public safety, and now we are finding even 
the American military. It is an epidemic. But thanks to the 
work of each of our witnesses, it is one that we are making 
significant strides to combat.
    Today's hearing is almost a year to the day from our first 
oversight hearing for the Intellectual Property Enforcement 
Coordinator (IPEC) position, which was created by the PRO-IP 
Act. Several Members of this Committee cosponsored that bill, 
and one of the primary motivations behind creating this new 
position was to have one central presence to coordinate the 
work being done across the government to combat intellectual 
property theft. So it is fitting that the IP Enforcement 
Coordinator, Victoria Espinel, joins us again. She is joined by 
representatives from some of the key enforcement agencies with 
which she works--the Department of Justice, the Federal Bureau 
of Investigation, Customs and Border Patrol, and Immigration 
and Customs Enforcement.
    The IPEC position has not been in place for very long, but 
you have worked very closely together, and I appreciate that. 
All of your agencies, as well as the other members of the 
Intellectual Property Rights Center, deserve credit for putting 
egos and turf aside and coordinating your investigative and 
prosecutorial efforts. This is so widespread that no one agency 
could handle it all. All of you working together, though, we 
might have a handle on it. And I know a lot of you have had to 
defer to another agency in pursuit of a high-profile 
investigation. I commend you that you have done that for the 
greater good. There was a time in our history when that would 
not have been done.
    Now, Ms. Espinel, last year when you appeared before this 
Committee, you unveiled the IPEC's Joint Strategic Plan against 
counterfeiting and infringement. That plan outlined the general 
purposes behind your intellectual property enforcement 
strategy--growing the American economy and promoting 
innovation, protecting consumer trust and safety, and 
preserving our National security. And it appears you have taken 
some great steps in that area.
    I would mention two areas in particular. The first is in 
criminal enforcement. The coordinated efforts of the Justice 
Department and law enforcement have resulted in a number of 
victories, including two cases involving more than $100 million 
in counterfeit merchandise. The Justice Department and ICE ran 
a successful ``Operation in our Sites'' and took down 120 
domain names of Web sites that were trafficking counterfeit 
goods.
    The second advance is your ability to engage so many 
prominent members of the Internet ``ecosystem''--including 
payment processors, Internet registrars, and ad networks--to 
come together to combat online infringement. This complements 
what we have been doing in Congress on the PROTECT IP Act, and 
it points out that the private sector can always do more to 
self-police than the government could ever enforce on its own. 
So we have to work together on that.
    Intellectual property enforcement is a great example of a 
bipartisan area. The PRO-IP Act, for example, was cosponsored 
by 22 Senators--11 Democrats and 11 Republicans--and it passed 
the Senate unanimously. Last month we reported the PROTECT IP 
Act unanimously from the Committee. The House is currently 
considering another IP-related bill, the America Invents Act. 
That we passed out of the Senate 95-5.
    So there is a long way to go. I cannot emphasize how 
important this is. It is not just the thousands and thousands 
of jobs, the billions of dollars lost, but there are also great 
threats to our public safety and to our law enforcement and 
others. I will use an example of in the area of things that 
could be done, what happens in a part of the country like mine 
where it may be 10 below zero in January and somebody destroys 
the command and control of our power systems. That goes off 
into a different area, but it just shows how interdependent we 
are in these areas.
    [The prepared statement of Senator Leahy appears as a 
submission for the record.]
    Senator Grassley.

STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR FROM THE STATE 
                            OF IOWA

    Senator Grassley. I usually start out my remarks by 
thanking you for holding this hearing. I will go beyond that 
this time and say that not only by holding this hearing but 
several others you have had and the promotion of bipartisan 
legislation, in fact, almost a consensus formed that you need 
to be complimented for. But I think also beyond even helping 
our own economy, you are bringing attention to a lot of things 
that are seen as a global issue, and by your leadership and 
U.S. leadership in this area, doing much more good than what 
maybe you even anticipate, but without a doubt recognize a 
tremendous need in trying to solve it wherever we can. So thank 
you for that, including this hearing.
    Our country is a global leader in innovating, creating, and 
developing new technology and products. The U.S. Chamber of 
Commerce estimated that over 19 million Americans are employed 
by intellectual property-based industries here in this country. 
The Chamber estimates that more than 60 percent of U.S. exports 
involve intellectual property and more than seven-tenths 
trillion of the U.S. gross domestic product is represented by 
intellectual property-related industries.
    At the same time, the theft of intellectual property has 
skyrocketed out of control, even beyond what we most often talk 
about involving the country of China. A recent report estimated 
that counterfeit and piracy has resulted in 2.5 million jobs 
lost in the G-20 economies, and that brings additional emphasis 
to what I complimented you about, Mr. Chairman, of having a 
hearing here that has international implications.
    Beyond the jobs lost in the G-20 countries, the global 
value of counterfeited and pirated goods exceeded $650 billion. 
Protecting intellectual property rights is crucial to promoting 
innovation, creating new jobs, and advancing economic growth in 
the United States. Protecting intellectual property rights is 
also critical to keeping American consumers safe from unsafe 
and defective consumer products. No one intentionally wants to 
buy dangerous counterfeit pharmaceuticals, defective electrical 
products, malfunctioning equipment, and sub-par construction 
materials. Yet consumers are scammed all the time into 
purchasing these products.
    I am pleased today that we hear from our federal law 
enforcement agencies about their efforts to enforce these 
property rights, both here in the United States and abroad, and 
how they are coordinating with each other and industry to stop 
intellectual property theft and how they are helping to protect 
the American economy and the safety of our public.
    I am interested in hearing more about the Intellectual 
Property Enforcement Coordinator's recommendations, whether law 
enforcement needs more tools to go after these criminals and 
how the PRO-IP Act has helped combat intellectual property.
    I just said how important this Committee hearing is, and 
you might wonder how important it is when I say I have to leave 
at 10:30 for flood issues on the Missouri River when I am 
meeting with FEMA people, but I am going to have to leave. And 
I also want to make an excuse for Senator Hatch, who is tied up 
in the Finance Committee as Ranking Member there because he has 
always been very actively involved in intellectual property 
rights.
    So I might be able to be back here at 11, Mr. Chairman, but 
if I do not get back to ask questions, then I will submit them 
for answer in writing.
    Chairman Leahy. Without objection, your questions and 
anybody else's questions will be included. I thank you, and I 
thank you for your compliment. It is nice to work on things 
that bring Republicans or Democrats together, and this is one 
of those areas, just as so many of you did on the patent bill.
    Victoria Espinel serves as the Nation's first Intellectual 
Property Enforcement Coordinator. She was confirmed by the 
Senate in 2009. I remember that confirmation hearing very well. 
She is well qualified for this position. She previously served 
as the Assistant U.S. Trade Representative for Intellectual 
Property and Innovation. She was the chief trade negotiator for 
the United States on intellectual property issues. She was a 
professor at George Mason University School of Law. She served 
as an adviser to several committees in Congress, including this 
one. She received her undergraduate and law degrees from 
Georgetown--I am delighted to see somebody with a law degree 
from Georgetown--and a master of laws degree from the London 
School of Economics.
    Ms. Espinel, please go ahead, and what we will do is I will 
introduce each one of you separately and each one of you will 
speak or give your statement. Your whole statement will be made 
part of the record, of course, and then we will open it to 
questions.
    Ms. Espinel.

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

    Ms. Espinel. Thank you. Chairman Leahy, Ranking Member 
Grassley, Members of the Judiciary Committee, thank you for 
your continued leadership on this important issue.
    One year ago today we sent you our Joint Strategic Plan on 
Intellectual Property Enforcement. Today we will be submitting 
to you a report on the progress made in the year since the 
strategy was issued. While we have taken great steps forward 
over this past year, much work lies ahead, and we need a 
continuing, coordinated response to these problems.
    First let me say that law enforcement is doing great work. 
I feel lucky and proud to be sitting here today with these 
people and not just at the hearing today but every day that I 
work with them and their colleagues. Law enforcement agencies 
all have a number of priorities, but they have shown real 
commitment to intellectual property enforcement.
    Looking at fiscal year 2009 compared to fiscal year 2010, 
DHS investigations and seizures of goods crossing our borders 
have each increased by over 30 percent, and FBI investigations 
are up by more than 44 percent. DOJ has bolstered State and 
local law enforcement by providing $6.5 million in grants. That 
$6.5 million has been used to seize close to $200 million worth 
of infringing goods.
    Through Operation in our Sites, DOJ and ICE have seized 125 
domain names used for counterfeiting and piracy. DOJ and the 
FBI have increased investigation and prosecution of trade 
secret cases to protect against the transfer of American 
innovation and technology overseas. Some cases involve the 
theft of technology owned by our automobile industry or 
extremely valuable proprietary code.
    Internationally, ICE now has a full-time IP-dedicated 
attache in China, and the FBI is preparing to do the same. The 
President has called for the placement of six DOJ attaches 
specializing in intellectual property in strategic global 
locations to strengthen international enforcement.
    We are pressing our foreign counterparts to do more, and we 
are seeing greater cooperation from some governments. In June, 
DOJ and ICE worked with Dutch law enforcement to seize a server 
that was being used for piracy. ICE, working with the World 
Customs Organization, Interpol, and others, has targeted online 
sales of counterfeit medicines in coordination with 45 
countries, resulting in worldwide arrests and seizures of 
thousands of potentially harmful drugs.
    China is clearly a priority. In January, President Obama 
and President Hu Jintao issued a joint statement, agreeing that 
China will strengthen its efforts to protect intellectual 
property rights. China has launched a Special Campaign Against 
Piracy and Counterfeiting under the direction of its State 
Council. We are working with USTR, PTO, law enforcement, and 
others to assess the impact of this campaign and to press China 
to do more.
    In addition to increased law enforcement against online 
infringement, we need cooperation and action from the private 
sector. Given the scope of the problem, we will never address 
it as effectively if we do not have more engagement and action 
from all of those who have a stake in Internet commerce.
    Over the past year we have been encouraging cooperative 
voluntary practices to reduce infringement online that are 
practical and effective and consistent with important policy 
principles, including privacy and due process. We strongly 
support these voluntary agreements to help address 
counterfeiting and piracy online. They are complementary to 
increased enforcement, updated legislation, and coordinated 
educational campaigns.
    Many rogue Web sites earn revenue through the use of online 
payment processing services. The major credit card companies 
and payment processors have now agreed to a set of voluntary 
best practices that provide for rapid investigation and for 
payment processors to withdraw their services from sites that 
are operating unlawfully. Starving illegal online businesses of 
revenue will necessarily disrupt and likely cripple the 
business model of many illegal enterprises. Many rogue Web 
sites also earn revenue through advertising, including from 
some of America's best-known companies. The ads for iconic and 
trusted brands lend legitimacy to illicit sites and can mislead 
consumers into believing that the sites are legitimate.
    We have been working with many of the major ad networks to 
reach agreement on a set of voluntary best practices. While 
still under discussion, these best practices would limit ads 
being placed on sites engaged in counterfeiting or piracy. We 
believe that legitimate companies do not want to be supporting 
illegal activity. We are working with a number of major 
advertisers and their trade associations to develop a voluntary 
pledge demanding that their ads not be placed on pirate sites. 
That process is also underway.
    My office is focused on good government, saving taxpayer 
dollars and making sure that we avoid duplication and waste. We 
now have 30 law enforcement teams across the country led by ICE 
and the FBI that include federal, State, and local law 
enforcement. To better coordinate abroad, our embassies have 
established senior-level working groups to improve their 
efforts, and in April the PTO launched a public online data 
base that will lead to more efficient use of resources by 
allowing different agencies to share materials and avoid 
duplicative work.
    We must prevent counterfeit products from coming into the 
U.S. Government's supply chain. We are working intensely with 
NASA and DOD to have recommendations to the President in early 
fall.
    Effective enforcement against online infringement requires 
strong laws that keep up with technology. In March, we made 20 
recommendations for legislative changes to Congress. We have 
been working with Congress on proposals that address illegal 
streaming, economic espionage, the Trade Secrets Act, and 
counterfeits sold to the military. We commend Chairman Leahy, 
Senator Klobuchar, Senator Kohl, Senator Whitehouse, Senator 
Franken, Senator Coons, Senator Blumenthal, and Senator 
Grassley for their leadership on these important issues.
    Finally, we know that there is a great deal of interest in 
Congress in giving our law enforcement additional tools to stop 
Web sites engaged in substantial criminal infringing activity. 
This is a priority issue for us as well, and my office has 
convened a process to develop the administration's position on 
this legislation.
    I commend this Committee's leadership on IP enforcement, 
and I look forward to working closely with you on improving 
protection of American intellectual property. With a unified 
front, we can and will defeat the criminals preying upon U.S. 
businesses.
    Thank you.
    [The prepared statement of Ms. Espinel appears as a 
submission for the record.]
    Chairman Leahy. Thank you very much.
    Incidentally, I like the idea of having, as you mentioned, 
the people in our embassies abroad because we have always had 
military liaisons, agricultural liaisons, and others. They are 
all important, but this is extraordinarily important.
    Jason Weinstein is the Deputy Assistant Attorney General in 
the Criminal Division, Department of Justice. In that role he 
oversees the Division's efforts to combat intellectual property 
crime, computer crime, anti-gang and violent crime, and human 
smuggling. Before joining the Criminal Division, he was chief 
of the Violent Crime Section at the United States Attorney's 
Office for the District of Maryland. He served as Assistant 
U.S. Attorney in the Southern District of New York. He received 
his undergraduate degree from Princeton, his law degree from 
the George Washington School of Law.
    Deputy Assistant Attorney General, we are delighted to have 
you here. And did I pronounce your last name right?
    Mr. Weinstein. Yes, you did, Mr. Chairman.
    Chairman Leahy. I always worry about that. Thank you.

  STATEMENT OF JASON M. WEINSTEIN, DEPUTY ASSISTANT ATTORNEY 
    GENERAL, CRIMINAL DIVISION, U.S. DEPARTMENT OF JUSTICE, 
                         WASHINGTON, DC

    Mr. Weinstein. Good morning, Chairman Leahy, Ranking Member 
Grassley, and Members of the Committee. I thank you for the 
opportunity to be here today.
    As we all know, and as the Chairman said in his opening, 
criminal enforcement of intellectual property rights is 
critical to our economic security and to the health and safety 
of our citizens. Piracy, the distribution of counterfeit goods, 
and trade secret theft threaten American companies and American 
jobs. Counterfeit pharmaceuticals and other dangerous products 
threaten our health and safety. And when counterfeit computer 
hardware makes it into the military supply chain, it puts our 
troops, already in harm's way, in even greater danger.
    Technological innovations have revolutionized the way the 
world does business. The increasing availability of Internet 
access has allowed rights holders to distribute or stream 
digital content to a worldwide market almost instantaneously. 
And with improvements in manufacturing and transportation and 
shipping, even small businesses have unprecedented 
opportunities to market and distribute their goods and services 
around the world.
    Yet as our world has become smaller, the threat posed by IP 
crime has grown bigger. IP criminals have exploited these same 
innovations to engage in every type of IP offense imaginable, 
from online piracy, the sales of counterfeit goods and 
pharmaceuticals, to economic espionage. And these IP criminals 
can now operate anonymously in cyberspace, committing their 
crimes from around the corner or around the globe.
    In recognition of this growing threat, Attorney General 
Holder has made IP enforcement a top priority, and from the 
highest levels, the Department of Justice is fully committed to 
aggressive, effective criminal enforcement efforts, both here 
and abroad, to protect our Nation's IP stakeholders and the 
American public.
    Under the leadership of the Task Force on Intellectual 
Property, which was formed by the Attorney General in February 
2010, the Department has pursued a comprehensive strategy that 
includes the following:
    No. 1, aggressive investigations and prosecutions of IP 
crime, with a particular emphasis on cases involving health and 
safety, trade secret theft and economic espionage, links to 
organized criminal enterprises, and large-scale commercial 
counterfeiting and piracy, particularly when it occurs online.
    No. 2, training for State, local, and federal law 
enforcement.
    No. 3, a grant program that, as Victoria mentioned, has 
provided approximately $6.5 million to date to support IP 
enforcement efforts at the State and local level.
    No. 4, extensive outreach to victims of IP crime.
    And, No. 5, last but not least, close collaboration with 
other Federal Government agencies and with the Intellectual 
Property Enforcement Coordinator, who has provided outstanding 
leadership in charting and pursuing the administration's 
comprehensive approach to IP protection and enforcement.
    In all of that important work, our outstanding prosecutors 
at DOJ, both from the Criminal Division's Computer Crime and IP 
Section and from the Computer Hacking and Intellectual 
Property, or CHIP, Network in the U.S. Attorney's Offices, 
enjoy very strong relationships with our agency partners and in 
particular with the agencies represented on the panel with me 
today--the FBI, ICE, Homeland Security Investigations, and 
CBP--and with the national IP Rights Coordination Center.
    Those strong relationships and the dedication and skill of 
our prosecutors and agents have led to a number of major 
enforcement successes, including the examples referred to in my 
written statement, and those cases, and many others like them, 
illustrate the scope of our efforts to pursue IP criminals. But 
they also reveal the global reach that IP criminals can have. 
The individuals and organizations responsible for these crimes 
often operate from foreign jurisdictions, and it is often 
impossible to identify, arrest, and prosecute them or to obtain 
critical evidence against them without the assistance of 
foreign law enforcement.
    For that reason, Mr. Chairman, our work does not stop at 
our shores. Due to the increasingly international nature of IP 
crime, close coordination and cooperation with our foreign 
partners is critical to our success. We have also placed great 
emphasis on strengthening the enforcement capacity of nations 
overseas, from Europe to Asia, to Africa, to South America, to 
Mexico, both to reduce safe havens for IP criminals and to 
improve our ability to hold those criminals accountable 
throughout the world.
    In pursuing this critical mission, we are fortunate to have 
the support of Congress and in particular of this Committee. I 
am pleased to have the opportunity today to discuss how our law 
enforcement strategy has been significantly enhanced by the 
additional tools and resources provided in the PRO-IP Act of 
2008. We thank the Committee for its support of that Act and 
for its continuing efforts to identify ways to further enhance 
our ability to enforce IP rights and protect American consumers 
and businesses.
    I thank you for the opportunity to be here today, and I 
would be pleased to answer your questions.
    [The prepared statement of Mr. Weinstein appears as a 
submission for the record.]
    Chairman Leahy. Thank you very much.
    Our next witness, Gordon Snow, is Assistant Director for 
the Cyber Division at the FBI. His lengthy career with the 
Bureau began as a special agent in 1992. He also served in the 
U.S. Marine Corps for more than 10 years. Among his many roles 
with the Bureau, Mr. Snow has served as on-scene commander for 
the Counterterrorism Division in Afghanistan. He served as 
Director of the National Cyber Investigative Joint Task Force, 
received his undergraduate degree from the University of 
Michigan, Ann Arbor; also received an MBA from Virginia Tech 
and a law degree from Catholic University.
    Mr. Snow, we are delighted to have you here. Please go 
ahead.

    STATEMENT OF GORDON M. SNOW, ASSISTANT DIRECTOR, CYBER 
   DIVISION, FEDERAL BUREAU OF INVESTIGATION, WASHINGTON, DC

    Mr. Snow. Thank you. I am pleased to appear before you 
today to discuss the Prioritizing Resources and Organization 
for Intellectual Property Act of 2008 and the FBI's efforts, 
activities, and successes relating to intellectual property 
rights crimes.
    The enforcement of U.S. laws protecting IPR is critical to 
the U.S. economy, our National security, and the health and 
safety of American citizens.
    IPR violations, which include theft of trade secrets, 
digital piracy, and the trafficking of counterfeit goods, 
result in billions of dollars in lost profits annually.
    Some IPR violations pose a more far-reaching and serious 
threat to the U.S. than just economic loss to the rights 
holder. Such violations put public safety at risk through the 
sale of counterfeit pharmaceuticals, electrical components, 
aircraft and automobile parts, and the funding of organized 
crime. My remarks today will focus on the role the FBI plays in 
protecting IPR, our efforts to coordinate with other federal 
agencies to ensure that intellectual property is protected, and 
our successes in this arena.
    The FBI's strategic objective is to detect and disrupt 
state-sponsored groups and international and domestic criminal 
organizations that manufacture counterfeit goods and distribute 
or otherwise profit from the theft of intellectual property.
    The FBI partners closely with the National Intellectual 
Property Rights Coordination Center, which is hosted by U.S. 
Immigration and Customs Enforcement. The IPR Center serves as a 
centralized, multiagency entity for the U.S. Government's 
criminal enforcement of intellectual property laws, hosting 
weekly deconfliction meetings to ensure resources are 
effectively and efficiently devoted to investigations.
    The FBI moved its Intellectual Property Rights Unit to the 
IPR Center in April of 2010. The IPR Unit provides national 
program management for the FBI IPR program and initiates and 
conducts IPR investigations that are complex, 
multijurisdictional, and/or international in nature.
    As a result of the PRO-IP Act, the FBI has 51 dedicated IPR 
special agents placed in 21 field offices and the IPR Unit. Of 
these 51 positions, 44 special agents were placed in 20 field 
offices where United States Attorneys' Offices had Computer 
Hacking and Intellectual Property Rights Units. The locations 
for the distribution of these resources were selected based on 
a regional domain analysis of the threat to intellectual 
property, intellectual property threat intelligence reporting, 
input from the IPR Center, and an understanding that the 
geographically dispersed nature of IPR violations and subject 
locations made it possible to establish venues regionally. The 
placement of the special agents was coordinated with and 
approved by the Office of the Deputy Attorney General and the 
Executive Office of the United States Attorneys.
    In an effort to improve international relationships on IPR 
investigations, the IPR Unit embedded a dedicated IPR team 
comprised of an analyst and an agent in the FBI's Legal Attache 
offices in Beijing and New Delhi to work directly with local 
and regional authorities on IPR matters for 60 days. Based upon 
the results of this effort and the threat emanating from these 
regions, the IPR Unit is currently in the process of embedding 
a full-time IPR dedicated agent in Beijing for one year.
    The FBI places a heavy emphasis on meaningful training and 
capacity building. The FBI provides IPR training to domestic 
and international law enforcement officials and is 
collaborating with its partner agencies to develop a more 
comprehensive and advanced intellectual property training 
curriculum to ensure a uniform foundation across law 
enforcement agencies conducting IPR investigations. The FBI 
also provides State and local law enforcement and industry 
liaisons with information about how to most effectively partner 
with the Federal Government in IPR cases. In fiscal year 2009, 
the FBI provided IPR training to 782 individuals from the 
Federal Government, the domestic private sector, foreign 
governments, and the overseas private sector. In fiscal year 
2010, that number was 1,678 additional individuals within the 
same groups. At the end of last month, the FBI had already 
trained up to 1,064 individuals.
    Over the past two years, the FBI provided training in IPR 
to law enforcement officials from 15 different countries. The 
FBI's use of PRO-IP Act resources has permitted an increased 
focus on training in high-priority areas.
    Over the past year, the FBI and its partners have 
successfully investigated major IPR violations that resulted in 
millions of dollars in losses and unquantifiable harm to human 
health and safety. Those examples are in my statement.
    The PRO-IP Act has enabled the FBI to dedicate increased 
numbers of special agents and analysts to IPR matters, ensure 
quality training, and support effective interagency 
collaboration. We look forward to working with the Committee 
and Congress as a whole to continue on a successful course 
forward for the Nation that protects intellectual property and 
its citizens.
    Thank you for the opportunity to be here, and I would be 
happy to answer any questions you may have.
    [The prepared statement of Mr. Snow appears as a submission 
for the record.]
    Senator Whitehouse [presiding]. Thank you, Mr. Snow.
    Our next witness is Allen Gina. He is Assistant 
Commissioner at the Office of International Trade for the 
United States Customs and Border Protection agency, a position 
he has held since March. Mr. Gina began his career as a customs 
inspector in 1983. Prior to serving in the Office of 
International Trade, he served as Assistant Commissioner at the 
Office of International Affairs. From February 2003 to May 
2004, he was detailed to the Directorate of Border and 
Transportation Security to help set up the Department of 
Homeland Security. He received his undergraduate degree from 
Queens College in New York, is a graduate of the Kennedy School 
of Government Senior Executive Fellows Program, and we welcome 
him today.
    Mr. Gina.

  STATEMENT OF ALLEN GINA, ASSISTANT COMMISSIONER, OFFICE OF 
 INTERNATIONAL TRADE, U.S. CUSTOMS AND BORDER PROTECTION, U.S. 
        DEPARTMENT OF HOMELAND SECURITY, WASHINGTON, DC

    Mr. Gina. Good morning, distinguished Members. Thank you 
for the opportunity to discuss the actions we are taking at 
Customs and Border Protection to ensure that the laws governing 
intellectual property rights are properly enforced.
    Having spent the past 29 years of my career with CBP and 
previously the U.S. Customs Service and having been a uniformed 
inspector, I have firsthand experience of the challenges CBP 
encounters daily to protect our National security while also 
facilitating the flow of legitimate trade and travel and 
enforcing trade laws.
    As you know, CBP targets goods entering the United States, 
and we detain and seize merchandise that infringes trademarks, 
trade names, and copyrights. We also assess fines and penalties 
against violators and enforce exclusion orders issued by the 
International Trade Commission. Our office's import 
specialists, trade specialists, auditors, lawyers, and other 
disciplines are trained in the many facets of international 
trade to take into account the ever-changing challenges at over 
300 ports of entry.
    In addition to our own staff, CBP partners with other 
federal agencies, foreign governments, and the private sector. 
Our closest partner in IP enforcement is, of course, our sister 
agency, ICE, which is the investigative arm of DHS. Within the 
U.S. Government, we also work closely with Ms. Espinel's office 
to ensure a coordinated U.S. Government response to IP theft as 
envisioned in the PRO-IP Act.
    Internationally, we actively engage our trading partners to 
share best practices, exchange information, and conduct joint 
enforcement operations. For example, we are conducting a joint 
enforcement operation focusing on counterfeit pharmaceuticals 
shipped via international mail and express consignment with 11 
members of APEC. In addition to our collaboration in APEC, CBP 
strengthened its engagement with China customs by amending the 
Memorandum of Cooperation on IP Enforcement that our two 
agencies signed in 2008. Last month, I signed letters of 
exchange with my counterpart from China customs to remove all 
limits on the amount of information that we can share.
    When goods arrive at our borders, CBP inspects targeted 
shipments and seizes, forfeits, and disposes of the counterfeit 
and pirated goods. Last year alone, cooperative efforts by CBP 
and ICE resulted in 19,959 seizures. This year we are on pace 
to reach 25,000 seizures. This is in comparison to 3,500 
seizures made in 2001 and 14,600 seizures made in 2006.
    Our seizures also lead to criminal convictions such as the 
federal conviction of an individual who trafficked in 
counterfeit Cisco equipment that Mr. Barnett will be referring 
to.
    Nevertheless, CBP recognizes that we must continue to 
improve our enforcement efforts. The appropriation from 
Congress will help us do so. We plan on spending the funds on 
human capital, technology procurement, training, and travel for 
outreach and temporary duty assignments to support IPR 
enforcement.
    CBP identified several challenges in its five-year strategy 
on IPR enforcement which was delivered to Congress in 2010, 
including a need for additional advance information, the high 
quality of counterfeit and pirated goods which is making 
infringement determinations more challenging, and the need to 
enhance our partnerships with the trade community. We are 
working to resolve these issues, and we have a number of 
initiatives to guide us that are included in the IPEC's Joint 
Strategic Plan and our own five-year IPR strategy.
    To improve the information available for targeting, we 
initiated the pharmaceutical Center for Excellence and 
Expertise pilot in November. The center works with industry 
stakeholders to enhance CBP's understanding of and centralize 
our knowledge of private sector business practices. Last month, 
the CEE personnel conducted an enforcement operation in which 
they worked with ICE and DOJ to obtain three criminal warrants.
    To combat the improving quality of counterfeit and pirated 
goods which makes infringement determinations increasingly 
difficult, we are working with the IPEC to identify legislative 
recommendations that would allow CBP to share information with 
right holders to leverage their expertise. With your assistance 
implementing these recommendations, we will be able to take 
dramatic steps toward enforcing IPR at the border.
    I thank you again for the opportunity to appear before you 
today, and I would be happy to answer any of your questions. 
Thank you.
    [The prepared statement of Mr. Gina appears as a submission 
for the record.]
    Chairman Leahy [presiding]. Thank you very much.
    Our next witness is Erik Barnett. He serves as Assistant 
Deputy Director for Immigration and Customs Enforcement, which 
we know as ICE. His responsibilities in this position include 
intellectual property theft enforcement, narcotics trafficking, 
human rights violations, and war crimes, among others. That is 
a pretty big portfolio.
    Mr. Barnett. Yes, sir.
    Chairman Leahy. Prior to joining ICE, he served as 
Assistant U.S. Attorney in the Eastern District of Virginia, 
where he was chief of the Narcotics and Dangerous Drug Unit. He 
spent some time on this Committee, as we all know, as the 
legislative fellow for Senator Durbin. He received his 
undergraduate degree from the University of Arizona, law degree 
from California Western School of Law.
    Please go ahead, sir.

  STATEMENT OF ERIK BARNETT, ASSISTANT DEPUTY DIRECTOR, U.S. 
    IMMIGRATION AND CUSTOMS ENFORCEMENT, U.S. DEPARTMENT OF 
               HOMELAND SECURITY, WASHINGTON, DC

    Mr. Barnett. Good morning, Mr. Chairman, and I thank you 
and Members of the Committee for the opportunity to discuss 
ICE's efforts in intellectual property theft enforcement.
    With the Committee's indulgence, I will begin my remarks 
just by walking you through one of ICE's very recent successes 
in IP theft enforcement.
    Less than two months ago, the Fifth Circuit Court of 
Appeals affirmed a criminal conviction for trafficking in 
counterfeit Cisco network cards. The defendant had a contract 
to sell genuine Cisco network cards to the United States Marine 
Corps. The court noted that the criminal case began when a 
shipment from China was intercepted by a CBP officer who 
suspected that the Cisco parts were not genuine and were 
counterfeit. CBP informed an ICE agent, who contacted and 
interviewed the defendant. The case involved ICE, the Defense 
Criminal Investigative Service, and the Houston United States 
Attorney's Office and resulted in the defendant being sentenced 
to 51 months in a federal prison. That was the high end of the 
Sentencing Guidelines range.
    We submit respectfully that there are three very important 
points that arise from this significant intellectual property 
theft case.
    First, ICE cannot achieve success in IP theft enforcement 
without partnerships with other key law enforcement agencies, 
many of whom are represented today at this table.
    Second, ICE needs the support of the private sector to 
thoroughly conduct criminal investigations. Cisco Systems 
worked diligently with our agents on identifying the 
counterfeits and assisting with the investigation.
    Finally, and clearly the most troubling, is that 
counterfeiting is no longer limited to luxury brands and high-
end goods. It has infiltrated almost all segments of commerce. 
Wherever there is a price point at which criminals can make a 
profit with absolute disregard for the significant impact on 
public safety, just in the past year, ICE has seen cases 
involving fake cancer drugs and heart medicines, phony circuit 
breakers that could have been built into homes, and counterfeit 
airbags destined for used cars. ICE has received a fair amount 
of recognition for our increased IP theft enforcement over the 
past two years. In particular, since last June we have engaged 
with the Justice Department in innovative enforcement through 
Operation in our Sites against Web sites that commit IP theft.
    At ICE our intention has been no less than to change the 
face of IP theft enforcement in the United States through 
vigorous and consistent investigation and prosecution. But our 
efforts do not--cannot--occur in a vacuum. CBP, FBI, DOJ, and 
Victoria Espinel's office have all worked steadily with ICE 
over the past two years on moving forward. We have also enjoyed 
the assistance of State Attorneys General and local law 
enforcement through 26 local IP Theft Enforcement Teams, also 
known as IPTETs. These were developed last year by ICE at the 
IPR Center to attack IP theft at all levels throughout the 
country. We work with DOJ to provide training for each of the 
IPTETs.
    Our successes have been achieved through the dedicated 
efforts of our agents, more than 7,000 of whom are in ICE's 
Homeland Security Investigations, whose mission to combat IP 
crime comes from one of our legacy agencies, the U.S. Customs 
Service. Mostly, though, our success has been made possible 
through the joint efforts of agencies at the National 
Intellectual Property Rights Coordination Center, also known as 
the IPR Center, that although led by ICE, consists now of 19 
partner agencies, including FBI and CBP. The existence of the 
IPR Center is a recognition that no one law enforcement agency 
alone can take on IPR theft enforcement.
    That recognition sparked the announcement last week of 
Operation Chain Reaction, a specialized enforcement action 
involving ICE, CBP, FBI, DOJ, and the relevant military 
investigative agencies, as well as the General Services 
Administration, at the IPR Center. Operation Chain Reaction 
will specifically target for investigation individuals that 
attempt to sell counterfeit goods to the military and other 
U.S. Government agencies.
    Thank you again for the opportunity to testify, and I would 
be pleased to answer any questions.
    [The prepared statement of Mr. Barnett appears as a 
submission for the record.]
    Chairman Leahy. Well, thank you very much.
    You know, you talked about the artificial airbags, for 
example, or counterfeit airbags. We have also seen it with 
brake pads and everything else. And sometimes people think that 
with these counterfeit goods it is like buying a handbag or a 
belt holding a brand name from a street corner. That is one 
thing, and that is wrong, too. But these are things that you 
can end up dying as a result of it.
    In counterfeit drugs, we have seen that with cancer 
patients and others, the high cost of drugs. Well, you can buy 
it somewhat less on one of these things, but it is useless to 
protect their lives. Those things worry me, as I know it does 
you.
    Ms. Espinel, I was glad to see what you have done to bring 
the private sector together on intellectual property and 
infringement. You had several members of the Internet 
ecosystem, payment processors, advertisers, networks, 
registrars. They formed a nonprofit to combat illegal 
pharmacies, which goes to what I was just saying here. Those go 
well.
    How extensive do you think this voluntary action can be? Is 
this a real tool that we can count on in the future?
    Ms. Espinel. I think it could be enormously important, and 
that is why my office, with the Administration as a whole, 
including the President and the Vice President, have been so 
supportive of this approach. You have sites that are selling 
illegal goods and services, and if pay processors are not 
engaging with those sites and are not processing those sorts of 
illegal transactions, they no longer have a financial incentive 
to sell.
    You have sites that are supported by advertising, which is 
problematic both in that it is giving those sites a source of 
revenue but also, as I mentioned, it is making sites appear 
legitimate when they are not. If we can get both the ad 
networks that place those ads and the major advertisers online 
to step up and take steps to make sure that ads are not placed 
on those sites, I think that could be enormously important, 
again, both in terms of cutting off the revenue source and in 
making those sites seem less legitimate.
    Internet service providers have interaction with obviously 
subscribers across the United States. I think having ISPs 
engage in educational activities so that the customers they 
interact with are aware that they are engaging in what is 
illegal activity I think can be enormously valuable. Domain 
name registries and registrars--obviously the ones who 
essentially are leasing the names of the Web sites--have an 
important role to play, and we have found them to be very 
cooperative in our efforts and also--I will let law enforcement 
speak to this, but also engaging with law enforcement.
    Chairman Leahy. You mentioned a challenge there, and the 
advertisers, it is an area that really bothers me, and you have 
put your finger on it. It is not just the revenue they get. It 
is the verisimilitude they give to the site, and that bothers 
me a great deal. I can think of some these advertisers that 
have done this, and at some point I would hope that they would 
realize voluntarily they should work with you because, 
otherwise, there will have to be real pressure from the 
Congress on this.
    Let me ask each one of the rest of you. We can talk about 
successes, and there have been a lot. What would you say--we 
are the legislators, we are the appropriators. We have to have 
some idea of where we are going. What would you describe as the 
greatest challenge that your agency or your office faces 
related to intellectual property enforcement? If you could do 
it briefly, what is the greatest challenge? Mr. Weinstein, I 
will start with you first.
    Mr. Weinstein. Mr. Chairman, I think it is the 
international/transnational nature of IP crime, and 
particularly as it relates to online piracy. You know, as I 
said in my opening remarks, the fact that the crime could be 
committed by somebody sitting in an apartment somewhere in a 
country in Eastern Europe just as easily as if the person was 
in this building makes it a particular challenge. And as you 
know, there are a number of particularly difficult things that 
make international cases challenging generally and they make 
online cases challenging in particular: the need to collect 
electronic evidence, the need to follow the trail of proxies 
and other anonymizing technologies used by these criminals to 
try to protect their identity when they are committing the 
crime, and the fact that they are often in countries where they 
believe that they have safe havens. And so for that reason, one 
of the things we try to do is work with our foreign partners to 
reduce safe havens overseas.
    Chairman Leahy. It is not like a bank robbery where you 
could look at the surveillance cameras.
    Mr. Weinstein. That is right.
    Chairman Leahy. Mr. Snow.
    Mr. Snow. Senator, I would echo what Mr. Weinstein just 
said, the international nature of not only the cyber threat 
itself, but the global proliferation on the Internet and how it 
brings into this a harder investigative road to go forward. I 
would add to it also just an extreme knowledge and insight that 
we can bring to the private sector in that partnership. I think 
there have been years where the private sector has thought that 
we would want to push off, from the law enforcement side, 
investigations, number one; or, two, that we did not have the 
time to look at those investigations and address them as 
seriously as we have in the last two years.
    Chairman Leahy. That is encouraging.
    Mr. Gina.
    Mr. Gina. Sir, CBP being a non-investigatory agency but one 
that interdicts, you know, apprehends, and seizes, I think a 
significant challenge for us is actually determining the 
legitimacy of goods and/or based on current technology the 
quality of counterfeits has so significantly improved, being 
able to partner with the appropriate right holders to make 
those determinations is probably one of the most significant 
challenges for CBP.
    Chairman Leahy. Interesting. Thank you.
    Mr. Barnett.
    Mr. Barnett. Mr. Chairman, one of the benefits of being 
last is I can certainly agree with everything that has just 
been said, and I do.
    The other thing I would mention is that a disturbing trend 
in terms of enforcement capacity is that ICE and CBP seizures 
in fiscal year 2010 of parcels coming into the country that are 
valued--manufacturer's suggested retail price of counterfeiting 
that is valued under $1,000, seizures increase 40 percent. More 
and more counterfeits are coming in through the parcel 
services, so FedEx, U.S. Mail service, otherwise. And while we 
are still seeing the 14-foot cargo containers that allows you 
to seize hundreds of thousands of dollars worth of counterfeit 
goods at a time, there are some real resource challenges but 
also investigative challenges in terms of working backwards 
from a parcel.
    So a lot of this I think is--as Mr. Weinstein said, a lot 
of this is because this has become Internet-based shopping, and 
the pharmaceuticals are still coming in that way as well.
    Chairman Leahy. I was going to say, a pharmaceutical is an 
easy one to send that way.
    Mr. Barnett. Yes, sir.
    Chairman Leahy. Well, I appreciate this. Before I yield to 
Senator Coburn, who has been waiting here patiently, I just 
wanted to ask consent to insert in the record letters and 
statements from various outside groups: the U.S. CMS, Recording 
Industry Association of America, the American Federation of 
Musicians, and others, American Society of Composers, National 
Treasury Employees Union, Institute for Policy Innovation, 
Motion Picture Association of America, a number of studios and 
a number of others.
    [The information referred to appears as a submission for 
the record.]
    Chairman Leahy. I thank you very much.
    Senator Coburn.
    Senator Coburn. Mr. Chairman, first of all, let me thank 
you for having this hearing. I think it is tremendously 
important. We lose hundreds of billions of dollars of GDP to 
intellectual property theft every year, and I want to thank 
each one of you personally for what you do. I think the idea 
that we are now starting to see coordination through the 
various agencies is very helpful and I think is sending the 
signal.
    Let me start my questions with Ms. Espinel and let me thank 
you again for what you are doing. You said that it is underway 
to see the ads not going on these rogue websites. Do you have 
any idea when you are going to be able to accomplish that?
    Ms. Espinel. That is an excellent question. We are pressing 
very aggressively on it. Obviously, it ultimately lies in the 
hands of the private sector, so our role as government here is 
really to encourage and convene and facilitate a discussion and 
to let them know how important this is for the administration.
    I would hope that we could see sort of a final agreement 
here within the next few months. I think we have made some 
progress, and I think we have a lot of good will that we are 
working with. So I would hope that within the next few months 
we would be able to say that we had agreement. But I will also 
say that hearings like this one and other ways that Congress 
can demonstrate, including I know how important this issue is 
for you, I think that is enormously helpful to our efforts not 
just on the voluntary cooperation but in general. And if this 
is something that is important to Congress, that is useful for 
us to know. I think that it is also useful for the community at 
large to know.
    Senator Coburn. Today it is not a violation of any law that 
you intentionally know you are going on a rogue Web site to 
place an ad there. There is no violation of federal law, is 
there?
    Ms. Espinel. I will take advantage of having the expertise 
of DOJ on this panel to defer questions, but I will say that I 
think, you know, there are definitely areas involving Internet 
stakeholders and online infringement where the law is murky, 
and that is one of the reasons that we think, you know, 
regardless of the status of the law, companies need to step up 
and do more.
    We think the first best approach would be to have the 
private sector driving that effort and enthusiastic about it 
rather than moving to more, say, heavy-handed--but I would also 
want to say that ultimately our goal is to drive down online 
infringement, and so if the approach that we are very 
enthusiastic about and think it is going well, if that 
ultimately turns out not to be successful, then, of course, we 
will reassess.
    Senator Coburn. Okay. Mr. Weinstein, I noticed that under 
the appropriations under the PRO-IP Act you did not receive the 
funding for the grant authorization, but the appropriators gave 
you other funding that you were allowed to use. One of the 
things that concerned me about what I saw on this is we are 
using nonprofits to train rather than government staff. Why is 
that? Do we not have capable staff which we can train rather 
than--and we limit the grants, but we do not limit the grants 
to nonprofits. We limit the grants to the States. Could you 
just clear that up for me?
    Mr. Weinstein. I would be happy to, Senator.
    First of all, the appropriations we got, where there were 
actual monies provided, were the monies that we used to hire 
the new prosecutors, the new agents. The grant program, as you 
indicated, was not funded, but our Office of Justice Programs 
used discretionary funds, about $6.5 million and counting, to 
provide those grants.
    The three nonprofits that were among the 27 grantees who 
received some of that money received the money because one of 
the things that they can do a little more easily than we can do 
with government contracting rules is actually set up the 
trainings. The substance of the training was provided by 
government experts, so our folks did participate in the 
trainings and were the experts in the room who were doing the 
instructing. But some of the nonprofit grantees just can 
contract for space and handle the logistics of arranging a 
training session a little more easily than we can.
    Senator Coburn. Okay. I am about to run out of time. Mr. 
Gina, you talked about your increase in seizures on counterfeit 
goods and the ability--you do have the ability to assess 
penalties in the form of monetary fines. Between 2001 and 2006, 
you assessed $1.1 billion in fines. You only collected $2.7 
million. You noted that since 2006 the increased assessment of 
penalties and collection of penalties, but the collection only 
went up by three percent. Why is it that we have so much 
trouble collecting the fines that you assess?
    Mr. Gina. Our attempt is to reach the individuals who are 
ultimately accountable, and we have been challenged in having 
those individuals pay the penalties. At the direction of 
Commissioner Bersin, he has asked us to look at our penalties 
and our mitigation process to actually see if we can go against 
other individuals that may have a financial connection or a 
nexus to those individuals. Very similar to areas such as 
antidumping, countervailing duty, we have foreign-based 
importers of record who, when we go to assess the penalty, they 
are outside the reach of CBP, but the Commissioner has asked us 
to review that.
    Senator Coburn. All right. Thank you.
    Mr. Chairman, I will have the rest of my questions for the 
record.
    Chairman Leahy. Thank you, and I appreciate the questions 
you had here.
    [The questions of Senator Coburn appear under Questions.]
    Chairman Leahy. Senator Kohl.
    Senator Kohl. Thank you very much, Mr. Chairman.
    Ms. Espinel, your office issued a report earlier this year 
that called economic espionage one of the most serious 
intellectual property crimes facing our country. Nearly 80 
percent of Fortune 500 companies' market value is in 
intellectual property, including trade secrets, and they lose 
billions of dollars when criminals steal them.
    As you know, I have introduced legislation to increase 
penalties for economic espionage, and we have been working with 
your office on it. This bill is a small but important step in 
updating and modernizing the 1996 law that made economic 
espionage a federal crime. Can we count on your support for our 
legislation?
    Ms. Espinel. Absolutely. We think this is an enormously 
important issue. Trade secret theft in general, because of the 
negative impact that it has in taking the technology and 
innovation that is developed by American companies, is one of 
the worst types of IP crimes, and then economic espionage, 
where a foreign government is involved, is even more egregious. 
So we think it is an enormously important issue. We say it all 
the time, but it is absolutely true that our intellectual 
property is our global comparative advantage, and if we are 
losing it to other countries, it has enormous repercussions for 
our economy, and we look forward to working very closely with 
you on the legislation that you introduced, and thank you for 
your leadership.
    Senator Kohl. Thank you so much. We have heard, Ms. 
Espinel, from companies and lawyers who advise them on trade 
secrets that they would be aided in their fight against 
economic espionage if they could bring private lawsuits in 
federal court. Would you support creating a federal private 
right of action for trade secret theft?
    Ms. Espinel. It is something that we would seriously 
consider. We have had some preliminary conversations with the 
Department of Justice about this, and I can commit to get an 
answer to you on that issue. I know it is something that you 
are interested in. It is not something that we have a final 
position on, but I can tell you, as a general matter, as I 
said, this is a very important issue to us, and if a private 
right of action would be beneficial to our law enforcement, 
then I think it is something that we would at least seriously 
consider, if not support.
    Senator Kohl. Would it help, Ms. Espinel, trade secret 
owners better protect their businesses if they had this right?
    Ms. Espinel. Since there is no formal administration 
position on this, I would prefer not to give a formal answer at 
this time, but I can promise you that we will consider it. As I 
said, we have already had some preliminary discussions with the 
Department of Justice. We will turn up the volume on those 
discussions and be back to you as soon as possible.
    Senator Kohl. Okay. Thank you.
    Mr. Weinstein, do you support my legislation to increase 
criminal penalties? Do you think there are any additional 
changes that need to be made to the Economic Espionage Act of 
1996 to improve its effectiveness?
    Mr. Weinstein. Senator, we do support your bill. We think 
it is a good idea, and I think its intent is consistent with 
the proposals that are in the white paper that Victoria's 
office sent to Congress in March. And we appreciate your 
leadership on this issue as well.
    We have been working with your staff, as I think you know, 
to provide technical assistance and are happy to continue to do 
that.
    There is not anything that comes to mind that I think could 
make the bill stronger. I know that there is frequently 
discussion about whether legislative changes are needed to give 
us additional tools to protect trade secrets during the course 
of investigations and prosecutions, that is, to give companies 
greater comfort that their secrets will be protected during the 
course of a criminal case. And in our view, although we are 
always happy to explore other options, it is our view that that 
is not so much an issue of whether we have adequate tools, but 
whether companies are sufficiently educated about the tools we 
do have.
    Section 1835 gives courts very broad authority to fashion 
orders and appropriate remedies to protect trade secrets during 
criminal cases, everything from--you know, the statute gives 
the court authority to do whatever it wants, but the tools 
include, you know, closing a courtroom, making orders that 
provide that the trade secrets are available only for the 
attorney's eyes, protective orders, things of that nature. And 
what we have been trying to do, both the FBI and DOJ, has been 
to educate victim companies at conferences and other meetings 
we have with victim companies throughout the country about 
those tools, to give them greater comfort that if they come 
forward and they assist us in investigations and prosecutions, 
their trade secrets will be protected. And we have got a number 
of examples from major companies--Goldman Sachs, Societe 
Generale, whose name I just butchered, Ford, Dupont, Dow 
Chemical--major U.S. companies that have come forward and, I 
think been responsive to the training and education we have 
been doing with them and that they have more comfort and 
confidence that their trade secrets will remain protected while 
we try to vindicate their rights in a criminal court.
    Senator Kohl. Thank you. Quickly, a last question. For many 
years, the Department of Justice was slow to prosecute economic 
espionage. Recently, DOJ has stepped up enforcement and has had 
a number of successful high-profile convictions, yet we have 
heard from stakeholders that they are hesitant to report 
economic espionage to Justice because they are concerned that 
it will not prosecute cases unless they are high-profile, slam-
dunk cases and that their trade secrets may not be fully 
protected during a trial.
    What can we do to address these concerns?
    Mr. Weinstein. Well, taking the second one first, I think 
as I said we need to do more. We have been doing quite a bit, 
both the FBI and Justice, to try to educate potential victims 
that their trade secrets will be protected and that we have got 
the tools to do that. But obviously we need to be constantly 
vigilant and make sure that we are doing even more to make sure 
that victims have that comfort.
    With respect to the first characterization, I just 
respectfully disagree with anyone who would say that. The fact 
is trade secret cases are inherently difficult. They are time-
consuming. Some are more difficult than others, but Justice 
does not shy away and the FBI or the law enforcement partners 
do not shy away from difficult cases. In fact, I think we are 
drawn to them. If people feel that trade secret cases are 
taking a long time, it is not a reflection of our lack of 
desire or focus on them. It is a function of the complexity of 
the case.
    I can tell you that the IP task force that I mentioned in 
my opening remarks that the AG created last February has made 
the prosecution of trade secret and economic espionage cases 
one of the highest priorities for him personally and for the 
Department. So throughout the country, not just at CCIPs but in 
the U.S. Attorney's Offices and the FBI, we are seeking those 
cases out, and we are aggressively pursuing them.
    Senator Kohl. Thank you, Mr. Weinstein.
    Thank you, Mr. Chairman.
    Chairman Leahy. Thank you.
    Senator Franken.
    Senator Franken. Thank you, Mr. Chairman, for this 
important hearing, and thank you all for the work that you are 
doing.
    I have a question that is really for anyone who wants to 
answer it. It is about China. I am probably the only Member of 
the Committee who made most of his living creating intellectual 
property, so I have a special interest in this hearing.
    Mr. Weinstein, I know you mentioned China as an emphasis 
and also online activity as an emphasis. What percentage of the 
Chinese people are online?
    Mr. Weinstein. I do not know the answer to that question, 
Senator. I do not know if Victoria does.
    Ms. Espinel. I do not know the answer to that question, but 
I know that it is a lot. And, in fact, one of the things that 
we are seeing in China----
    Senator Franken. There are a lot of people in China.
    Ms. Espinel [continuing]. Is sort of sites that are very 
similar to U.S. sites, you know, Chinese versions of eBay and 
Facebook and Google being developed in China because of the 
number of people that are online.
    Senator Franken. I noted the special emphasis on China and 
the Internet, but the vast majority of people in China are not 
online. What I am interested in is enforcing that copyright 
infringement, too. I have seen a report that the private DVD 
industry--this is the physical DVDs; this is not online--in 
China brought in over $6 billion in 2010. What are we doing 
about that?
    Ms. Espinel. I will mention a few things, but then I may 
also call on my colleagues to speak as well. It is absolutely 
true that in China and in other countries around the world we 
have a huge physical problem in addition, frankly, in China, to 
also a growing online problem. But the scope of the physical 
problem in China both in terms of impacting the domestic market 
in China and in terms of counterfeit goods, physical goods that 
then get exported out of China around the world, is a big 
problem. I will just mention a few things.
    First, China is clearly the priority focus in terms of 
countries overseas, and there is no other country in the world 
that is receiving the amount of pressure from the U.S. 
Government that China is, and that includes President Obama has 
raised this repeatedly with President Hu Jintao, but it has 
also been raised by senior-level officials across the 
administration.
    The Chinese launched Special Campaign Against 
Counterfeiting and Piracy, and while they have launched 
campaigns in the past, this campaign is being led by the State 
Council, which is sort of like the Chinese equivalent to the 
Cabinet, and it is overseen by their Vice Premier. So it is a 
much more senior and much more coordinated campaign than any 
that China has launched in the past.
    One of the things that we are engaged in right now is 
working with law enforcement agencies here that have people on 
the ground--industry, USTR, PTO, and others--to find out 
exactly what happened in that campaign. The Chinese set out 10 
to 12 goals that they were going to address and see which of 
those they have actually made progress on, which they have in 
some, and where they are deficient and press them to do more in 
the areas where they are deficient.
    Two other things that I would mention just briefly. Part of 
what--we need to have foreign law enforcement, including 
Chinese law enforcement, more engaged, and Attorney General 
Holder was in Beijing, in China, and he made it very, very 
clear to his counterpart that there needed not just to be nice 
high-level discussion between the Attorney General and his 
counterpart, but actual on-the-ground cooperation from foreign 
law enforcement. Attorney John Morton of ICE and Alan Bersin of 
CBP were also in China within the last nine months pressing 
their counterparts to do more.
    Beyond pressure, I think we also need to have people on the 
ground in order to build those day-to-day relationships, which 
is why I think it is so important that the agencies here are 
all having attaches or essentially law enforcement personnel 
placed on the ground in China to help build those relationships 
directly.
    The last thing that I would mention is USTR this year for 
the first time did a special report on what they call notorious 
markets. So those are both physical markets and online markets 
that exist. Many, as you probably will not be surprised to 
hear, are in China, and the purpose of the report is to get 
Chinese law enforcement to do more, so to encourage countries 
to actually be enforcing in their own backyard.
    One of the benefits of those, we have seen not just 
increased law enforcement, for example, from the Hong Kong 
authorities coming out of that report; we have also seen in the 
online environment some of the Chinese sites, at least one big 
Chinese site sort of voluntarily say that they were going to 
take action because they were unhappy about being on the USTR 
list.
    With that, I have taken a lot of time, so I am going to 
pause, if any of my colleagues would like to add to that.
    Mr. Weinstein. The only thing I would say, Senator, is that 
there is virtually no type of IP crime for which China would 
not be at or near the top of the list of concern. It is not 
just piracy and it is not just online piracy, but it is 
manufacturing counterfeit DVDs, it is fraudulent software, it 
is counterfeit goods, trade secret, economic espionage. China 
is all over some of our biggest cases in that area, too.
    From a law enforcement point of view, what we emphasize is 
bilateral engagement with Chinese law enforcement. CCIPs is 
part of a working group with the Ministry of Public Security to 
try to identify cases where we can help each other exchange 
evidence, cases we can work together jointly. We had one big 
case back in 2007 in which we took down--helped the Chinese 
take down a ring of 25 people who, according to Microsoft, were 
manufacturing $2 billion in counterfeit Microsoft software. But 
that is just one case, and one case four years ago. And so what 
we want from China is not just encouraging signs but enduring 
commitment. We want the Chinese to match their words and the 
promises with action, and we intend to keep the pressure on to 
make sure they do that.
    Mr. Snow. And, sir, I will make one quick statement. 
Obviously, in our international outreach from the law 
enforcement side, and particularly in this case from the FBI, 
we found out in all the cyber threats that the people that we 
embed, not just the people that we have at the embassy, but the 
people who wake up every day and work on the computer crime 
investigative units across the world, when we embed a person 
from the FBI or from law enforcement there, it just moves that 
relationship so much further forward. It makes sure that we 
have the correct connectivity and much more success.
    Obviously, I do not think that we will be able to embed 
somebody over in the Ministry of Public Security, but we do 
have somebody that is going to be attached directly to the 
embassy in Beijing. We are selecting that person now. We have a 
full immersion Chinese speaker that will go over there and try 
to make that relationship between law enforcement, you know, 
with the direction of the--and the guys of the Department of 
Justice in the Intellectual Property Coordination Office would 
like to go to see if we can work on those issues, and we have 
engaged our Director of Intelligence to evaluate those threats 
that are over there.
    Senator Franken. I am sorry I went over my time, Mr. 
Chairman. I want to note the USTR, as Ms. Espinel mentioned, 
and or China has certain trade obligations to us. I hope we 
enforce them, and I hope we are working with the USTR and WTO 
to clamp down on this huge problem.
    Thank you.
    Senator Whitehouse [presiding]. Chairman Leahy had to go to 
another hearing that is scheduled. As everybody on the 
Committee and everybody on the panel knows, he has been a real 
champion on these intellectual property enforcement issues, but 
he had to excuse himself for another hearing, so I will carry 
the gavel for him for the remainder of this hearing, and I 
recognize Senator Coons.
    Senator Coons. Thank you, Senator Whitehouse, and thank you 
to everybody on the panel for your very determined hard work in 
this field, for your testimony in front of us today, for your 
obvious coordination and enthusiasm in taking on what I think 
is one of the most important strategic challenges facing the 
United States. If we are to sustain our competitiveness, if we 
are continue to be the world's innovation leader, and a vibrant 
economy, we have to get this right. It is something that I 
think the administration has brought a new level of focus and 
coordination to, and I just wanted to commend you for that.
    I had a chance to meet with USTR Ron Kirk earlier this week 
and highlighted the importance, in my view, of additional 
enforcement resources, additional assertion of American rights. 
As Senator Franken mentioned, I think we are, frankly, losing, 
have been for more than a decade losing huge amounts of 
American intellectual property of all different types. Senator 
Kohl's work on trade secrets, I think, is particularly 
important. I am pleased to hear about your enthusiasm for 
pursuing that.
    I wondered, Mr. Snow and Mr. Weinstein, if you might just 
briefly mention--we have dedicated a lot of this conversation 
to state actors and to private actors within states such as 
China, but can you just comment about links you may have seen 
between IP theft and organized crime or terrorist 
organizations, whether in the U.S. or abroad, and what DOJ in 
particular is doing about that.
    Mr. Weinstein. Sure, Senator. As you know, I think in the 
PRO-IP Act, one of the things the statute calls for is to have 
law enforcement engage in an effort to identify links between 
IP crime and organized crime, and we have taken that to heart.
    The Attorney General has directed us to make sure that we 
do everything we can to make sure that our IP investigators and 
our organized crime investigators are sharing information. One 
of the things that we did was have all of the agencies that do 
IP investigations input all of their data into what we call 
IOC-2, which is the International Organized Crime Intelligence 
Center, to try to identify links between organized crime groups 
and organized crime investigations and IP crime, and those 
links exist and they are being pursued. I cannot obviously talk 
about particular investigations, but those links have been 
found and are being pursued.
    What we are finding with IP crime, especially online 
piracy, is that it is increasingly being committed by 
nontraditional organized crime groups. These are sophisticated 
criminal organizations, and it is not just piracy. One of the 
bigger counterfeit goods cases we took down involved a group 
that was operating at eight manufacturing plants in China, 13 
shell companies, and was, in every sense of the word, an 
organized crime group. But I think the statute is really 
focused more on, you know, old-school organized crime, and new-
school organized crime, you know, transnational organized crime 
groups, that is something that we have been pursuing.
    We also have been cross-training the IP investigators and 
organized crime investigators to be able to understand the work 
each other is doing, and we are trying to get them to work 
together as much as possible in cases.
    Senator Coons. Three things, if I could.
    First, we just had a field hearing in Delaware on Monday 
where deconfliction and the importance of Fusion Centers and 
sharing was referenced, and I wondered if, Mr. Barnett, given 
some of your previous testimony and given your comment, if 
deconfliction of ongoing investigations was an important tool.
    Second, just on the point you were just on, under Section 
402(b) of the PRO-IP Act, Congress was to appropriate funds for 
the AG for exactly this purpose. The written testimony 
suggested we have not. I am new here. Should we?
    And then I have a last question for Ms. Espinel.
    Mr. Weinstein. I guess I will take it before I turn it over 
to Erik to talk about deconfliction. I guess I will take the 
money question.
    I am not in the habit of turning down money when people are 
offering it to me, but I think that notwithstanding the fact 
that that portion of the bill was not funded, it is something 
that we have taken on enthusiastically. Obviously, these 
investigations, even those that do not involve organized crime 
but particularly those that do, are resource intensive, and 
they take a lot of time, and because they are by their nature 
international, you know, they are more complicated and more 
expensive than other cases.
    IOC-2 as an entity, which is critical to our ability to 
identify links not just between OC and IP crime, but among 
organized crime cases throughout the country generally, I think 
has not been funded at the level that perhaps it could be. But, 
you know, obviously we support the President's budget request, 
and I think that the most important part of that budget request 
from an IP point of view is not about organized crime, but is 
the position that Victoria mentioned in her opening, which is 
the proposal to create six international CHIPs to work 
overseas, which is an expansion of a program we have had in 
place for three or four years called the IPLEC program, IP Law 
Enforcement Coordination program, which are positions that we 
embed overseas in our embassies who work in--one for three or 
four years worked in Eastern Europe; the other continues to 
work in Asia--to train law enforcement to build capacity in the 
regions in which they are operating, to work on joint 
investigations with those foreign countries, and to help U.S. 
prosecutors who are investigating and building cases here in 
the U.S. get the evidence they need and get the targets they 
need when those people or that evidence is located overseas.
    So we enthusiastically support that portion of the 
President's request, and we think it is a critical investment 
in our ability to fight IP crime as we move forward in this 
century.
    Senator Coons. I can see that my time has expired, and not 
wanting to go over my time, I will simply say how grateful I am 
for the testimony of the panel and the opportunity to follow up 
on some of the proposals in your white paper. And I know 
Senator Klobuchar, who has taken the lead on that, may well ask 
questions that I would have asked about misperceptions of our 
cosponsored bill. So thank you very much for your appearance 
before the Committee.
    Senator Whitehouse. And we can, of course, have a second 
round for further questions, but now it is my pleasure to 
recognize our distinguished Ranking Member, Senator Grassley.
    Senator Grassley. Thank you. I have three questions. I may 
not get to all of them because I want three people maybe to 
look at the first one, Espinel, Weinstein, and Barnett. What 
additional tools would you like to see enacted into law that 
would assist you in your efforts to protect intellectual 
property both here and abroad?
    Ms. Espinel. I will speak to that briefly, especially since 
you wanted to hear from others on the panel, but there are 
three things that I would highlight.
    One is we believe the ability to have increased penalties 
in certain areas would be helpful, and those are for the types 
of IP crimes that we consider to be particularly egregious, 
including economic espionage, IP crimes that would have a 
serious risk to health and safety, sales to the military. There 
are certain--you know, as the intellectual property 
infringement problem has expanded, there are certain types of 
crimes that are particularly reprehensible and for which we 
think we may need increased penalties.
    The second thing I would mention is we need to make sure 
that our laws are keeping pace with technology. One thing I 
would highlight in this regard is the problem of illegal 
streaming from the Internet and making sure that our laws are 
sufficient to allow our prosecutors to bring the cases that 
they want to bring. And generally, in terms of getting law 
enforcement tools, obviously we want to make sure that they 
have what they need in order to do the jobs that they do every 
day. I believe this has already been mentioned, but I will just 
mention briefly one of the problems that we have that we 
understand law enforcement is facing at the border is a 
restriction on their ability to share certain types of 
information with rights holders, which makes it harder for them 
to do their job, and that is something that we think would be 
very useful to have fixed.
    Senator Grassley. Thank you.
    Mr. Weinstein. Senator, I will be brief. Senator Whitehouse 
has never heard me give a brief answer to a question before, 
but I will be uncharacteristically brief.
    In addition to streaming, which Victoria mentioned, and the 
increase in penalties, which we support, there is a proposal in 
the white paper to grant wiretap authority for IP cases so that 
we can intercept wire and oral communications as well as 
electronic communications. Especially as we fight IP crime that 
is related to organized crime, that is an increasingly 
important tool.
    Then the I-CHIPs, which is not a new legislative tool but 
an appropriation that we support that would help us.
    Senator Grassley. Okay. Mr. Barnett.
    Mr. Barnett. Thank you, Senator Grassley. I would echo what 
my colleagues said, and certainly with Victoria's white paper, 
as you well know, that was an interagency process that she, 
frankly, boldly and thoughtfully undertook. So those really 
represent the administration's positions, and so we agree with 
those.
    The one thing that I would note that is important to us and 
has been talked about a little bit and Senator Franken's 
question really got to about China is an international 
presence, but not just a presence of our law enforcement 
agents, which we in the FBI have and CBP will have, but 
international training and capacity building.
    With the Department of Justice and CBP, we recently 
undertook to train Chinese investigators, and there is not just 
lip service from these investigators. They really do want to do 
some good work, but they really do need that the government, 
and that is important to us as a law enforcement agency to have 
partners that have the capacity to work with.
    Senator Grassley. The same three people, because we have a 
finite number of resources for prosecution and for law 
enforcement, and yet we are seeing piracy and counterfeiting 
skyrocketing, and even online, do you think that the right 
holders' actions can alleviate some of the burden on federal 
law enforcement and effectively combat IP theft?
    Ms. Espinel. First, I would say we are aware that we have 
limited resources and an enormous problem on our hands. So part 
of what my office in coordination with all the agencies here at 
the table have been working on is how to use those limited 
resources as efficiently and as effectively as possible. But I 
think absolutely the private sector has a role to play here. 
Right holders have a role to play, and I will maybe ask my law 
enforcement colleagues here to speak a bit about how they 
interact with the private industry and how the right holders 
can help support them in bringing cases.
    In addition to that, as I mentioned before, I think there 
are companies that are involved in facilitating Internet 
commerce, and they can be enormously helpful as well in helping 
us try to stem online infringement.
    Senator Grassley. Mr. Weinstein.
    Mr. Weinstein. Senator, I would say that as a general 
matter, recognizing that we have limited law enforcement 
resources, all of us do, and that IP crime is a little bit 
unusual in that it is an area of the law where victims actually 
have substantial resources typically to enforce their rights, 
we generally do support giving private parties the tools they 
need to enforce their rights. We think it is an important 
complement to law enforcement's ability to focus on the worst 
of the worst.
    To the last thing Victoria said, I think she is absolutely 
right that we have made relationships with and outreach to 
industry a priority, all of us have, and one of the things that 
the IPR Center has done exceptionally well under the really 
outstanding leadership of Bob Rutt, its current director, who 
is here, and the folks that Gordon has placed out there is to 
be a one-stop shop for industry to learn about how to report IP 
crime and to be kept apprised of what law enforcement is doing 
and trends in IP crime, and perhaps I will defer to Erik and 
let him talk about that a little bit more.
    Mr. Barnett. Senator, the question I think is a good one in 
terms of what government can do. As a public servant for now 
almost 20 years, I am very proud of what government can do, 
but, quite frankly, I also recognize government cannot do 
everything and is not responsible to do everything. So I think 
a lot of the work of the private sector is important, and I 
think what Victoria has tried to do is get those voluntary 
actions by the private sector so that, frankly, we do not have 
to pick up a lot of the criminal investigations. So we would 
support what the private sector can do.
    Senator Grassley. Thank you.
    Senator Whitehouse. Thank you, Senator Grassley.
    Well, we are now down to kind of a murderers' row of 
prosecutors here for you, and what I would intend to do is 
recognize first Senator Blumenthal, who served for many years 
with great distinction as the Attorney General of his home 
State of Connecticut, and then although I am next, since I have 
the gavel I will have to be here until the end, then I will 
yield to Senator Klobuchar, a very distinguished district 
attorney, a prosecutor from Minnesota, and then I will close 
out myself. So first, Senator Blumenthal.
    Senator Blumenthal. Thank you. Thank you, Mr. Chairman. And 
thank you for your great work and your testimony today. I have 
a number of questions, and I suspect that we will not reach all 
of them, so I would appreciate answers in writing, assuming 
that we do not.
    First of all, to expand on the answer you have given on the 
private right of action, I would like to know the 
administration's position on according a private right of 
action and a greatly enhanced, much more robust one than they 
may have now. In light of the answer that you have given, Ms. 
Espinel, about turning up the volume, I would appreciate a 
specific position on it, and I hope it will be in favor of it 
because I think in light of the resources that right holders 
can bring to bear and the near for that kind of enforcement, 
there is a real opportunity to enhance enforcement through 
private rights of action.
    Second, in terms of the Kohl bill, I am delighted that you 
are supporting it. I, too, will be joining in it, but a 
question for you, Ms. Espinel. In light of your very 
distinguished background in the trade area, isn't there more 
that we can do to enforce our existing rights as a Nation but 
also perhaps enhance provisions that are in trade agreements to 
protect intellectual property?
    Ms. Espinel. I will mention a few things with respect to 
international agreements. Probably first and foremost is the 
international IP agreement that governs all the WTO members is 
something called the TRIPS agreement, and the TRIPS agreement 
is an excellent agreement, but it is now 15 years since the 
TRIPS agreement was negotiated and concluded, and TRIPS was 
negotiated in a very different world than the one that we face 
today. So online, I mean, the Internet--you know, it was 
essentially concluded in the early 1990s when the Internet was 
not the presence that it is today, and the problems that we are 
facing in terms of online infringement in the copyright world 
but also with respect to the health and safety issues simply 
did not exist. The level of sophistication of counterfeiting, 
the organized criminal enterprises that Jason referred to, 
those also did not exist.
    So that international agreement does not address those 
issues because they literally did not exist at the time the 
agreement was negotiated, and that is the principal reason why 
the United States, working with Japan and a number of other 
countries, embarked on negotiations for an international 
agreement that would focus just on enforcement, on 
counterfeiting and piracy, because we knew that the 
international rules that existed were not adequate to address 
the challenges. Those negotiations were concluded in November. 
I think that agreement, the anti-counterfeiting trade 
agreement, will be of enormous importance as countries sign on 
to it and it goes into effect, both in terms of increasing 
cross-border enforcement action but also in terms of setting a 
new legal standard around the world.
    Now, that agreement is not part of the WTO, and while there 
are 38 countries that have signed on to it and those 38 
countries represent half of global trade. China is not yet one 
of those countries, and obviously from the United States' 
perspective, we think it is enormously important for China to 
be there. I think we are hopeful that as more and more 
countries sign on to that agreement and start increasing 
standards, China will eventually join.
    Senator Blumenthal. Thank you for that answer, and I would 
appreciate also in writing any additional measures that you 
think we can take in terms of enforcement, but also perhaps in 
some of the bilateral areas. As you know, the Senate may soon 
be called upon to consider trade pacts with Korea, Panama, and 
Colombia. I would appreciate your views on that one as well.
    Ms. Espinel. I would be happy to, and I would just say 
briefly that I think the intellectual property provisions of 
those agreements are excellent and would be enormously 
beneficial to the U.S. economy if they went into force. But I 
would be happy to answer in more detail any questions that you 
have.
    [The information referred to appears as a submission for 
the record.]
    Senator Blumenthal. Thank you. Let me also pursue an area 
with you and other members of the panel because it is mentioned 
in your testimony in terms of the United States contracting 
with companies that may be involved, either knowingly or not, 
because of the supply chain of products that reaches them, 
particularly in the defense area, where I think there is a 
vulnerability. As a member of the Armed Services Committee, I 
would be very interested in your views, again, because we may 
run out of time here, in writing if necessary on what more the 
Department of Defense and the Congress can do to prevent the 
infiltration or entangling of our supply chain with counterfeit 
or pirated products.
    Ms. Espinel. Could I speak to that briefly?
    Senator Blumenthal. Absolutely.
    Ms. Espinel. Obviously, it is a very important problem that 
we are facing. We have been working with DOD and NASA on coming 
up with a whole series of recommendations, and we set 
ourselves--we committed ourselves to get those recommendations 
to the President by early fall. That process is underway, but I 
strongly suspect that some legislative or regulatory changes 
may be coming out of that process, so we may be coming back to 
Congress to ask for your help in terms of those legislative 
changes. And beyond legislation, there is a whole sort of host 
of other regulatory policy issues that we feel we need to 
improve inside the U.S. Government to keep counterfeits out of 
our supply chain.
    The second thing that I would mention is increased law 
enforcement efforts, and that I would mention not just the work 
that all of these agencies have been engaged in, but 
specifically the campaign that Erik mentioned in his opening 
statement, I believe, that is specifically targeted at 
prosecuting those who are selling into our military.
    Mr. Barnett. And just to follow up, it was in my written 
statement as well as my oral remarks. That is, I think--the 
most important thing about it is that there are nine agencies 
involved in that, which are the military investigative 
agencies, CBP, FBI, of course DOJ, as well as the General 
Services Administration Office of Inspector General. And it is 
the first time that we have taken a coordinated law enforcement 
approach to securing the DOD supply chain as well as the 
federal supply chain, both for obviously the safety of our 
warfighters as well as, frankly, the taxpayer dollars. So we 
expect to have vigorous and increased activity over the next 
six months to a year on that.
    Senator Blumenthal. Well, I know you mention in your 
testimony, a number of you, operations that have been 
successful--Operation Network Raider, Operation Chain Reaction. 
But the success of those operations may indicate the need for 
even more enhanced law enforcement activities in this area 
because, obviously, there is a problem, and the numbers of 
dollars, the volume and the magnitude of work are so huge, as 
you well know, that I think that greatly increased activity may 
have a lot of payoff.
    Thank you.
    Senator Whitehouse. Senator Klobuchar.
    Senator Klobuchar. Thank you very much. Thank you, Mr. 
Chairman, for holding this hearing, and I know firsthand how 
important protecting intellectual property is. My State was 
built on it, everything from the medical device industry to the 
Post-it note--he is waiting for me to say ``Post-it note''--to 
a lot of our creators in our State from Prince to the Coen 
Brothers. We are a hot place for new bands, and so all of this 
intellectual property has led to one of the reasons our State 
has one of the lower unemployment rates in the country at 6.6 
percent. It still not perfect, but without this kind of 
creativity and thought, things would be a lot worse.
    So I am very focused on how to protect that intellectual 
property, and I think the figures I have seen, we lose 
something like $600 billion a year to people, whether they are 
in China or they set up shop as organized crime to steal our 
intellectual property. And that is one of the reasons, based on 
things I was hearing from our own State, whether it is 
orchestra members or kids working in lighting departments, that 
they all get hurt when you have this theft, wholesale theft of 
intellectual property. So that is why I got involved in 
introducing this bill, and as we all know, it went through the 
Judiciary Committee without objection, although we know there 
is some work that needs to be done really in two areas. One is 
with the cable industry has some concerns and then, second, 
really to make sure that it is very clear that this is about 
people who are profiting should be prosecuted. In fact, the 
statute's exact phrasing, we are actually including this 
penalty within an exact statute that is already on the books 
that makes it a misdemeanor, that it has to be for purposes of 
commercial advantage or private financial gain.
    So I would start with you, Mr. Weinstein, to talk about how 
this bill does not criminalize any new behavior. It simply 
takes particularly egregious acts that already actually are 
considered misdemeanors and makes the worst of the worst 
subject to felony liability. So could you describe just looking 
at the felony streaming bill, which, as I said, passed through 
the Judiciary Committee, how it would not involve--I am looking 
at some of the blog postings on this, which are very hard to 
respond to. It would not involve a kid putting a recording of 
them doing karaoke when they do not do it for profit on the 
Web. It would not involve a teenager putting some music--a 
video of a party--this is one today--that includes background 
music when they are not profiting from putting that video out. 
It would not include a kid putting their high school band 
concert on the Web when they are not profiting, and some of 
these other things that we are seeing that are examples, which 
have nothing to do with for-profit activity that we are trying 
to focus on here.
    Mr. Weinstein.
    Mr. Weinstein. Senator, depending on how bad the band is, 
it may be a crime to post it online.
    [Laughter.]
    Mr. Weinstein. I want to thank you and Senator Coons for 
your leadership. I know this is an issue that----
    Senator Klobuchar. And Senator Cornyn as well.
    Mr. Weinstein. And Senator Cornyn as well. It has been an 
important one for you, and as you know, we have been working 
with your staffs to provide technical assistance on the bill 
and are happy to continue to do that.
    We agree, I think as a number of us have mentioned, that 
streaming is a serious and growing problem. It is in some ways 
the next frontier of online piracy, and it is one that the 
content industry is greatly concerned about.
    To answer your question, we are still reviewing the bill, 
but based on my understanding of what it says, my answer to 
your question, ``Does it make anything criminal that is not 
currently criminal?'' is no, with one limited exception. For 
the most part, it takes conduct, as you said, that would be a 
misdemeanor and just makes it a felony, which we think is a 
more appropriate treatment given the seriousness of the crime 
and the impact that it has economically.
    The exception is for the streaming of pre-release works. 
Currently, to be a misdemeanor, to stream a pre-release work 
and have it be a misdemeanor, it would have to be for 
commercial purpose or private financial gain. Under the bill, 
as I understand it, pre-release streaming would become a 
felony--as is the case, by the way, with distribution and 
reproduction even if there is no commercial purpose and private 
financial gain. Now, let me break that down a little bit.
    As a practical matter--the blog postings are a little bit 
off the wall. As a practical matter, any streaming site----
    Senator Klobuchar. You are going to be quoted for saying 
that.
    Mr. Weinstein. I am sure I will. I do not think they are 
any fan of mine, either. But as a practical matter, any site 
that is going to get prosecuted is one that is going to be with 
a commercial purpose or for private financial gain, and the way 
that is defined in the law is really quite broad. If you have 
an ad-supported site, even if you are not charging for the 
stream, you are conducting it for a commercial purpose.
    The kind of sites that we are interested in, the kind of 
sites that the content industry is worried about, the kind of 
sites that are having an economically devastating impact are 
those that are conducted for a commercial purpose. The irony is 
that pre-release streaming is probably the most serious and has 
the most potentially economically devastating effects because 
streaming pre-release works is streaming them when they have 
their greatest commercial value, and it is the pre-release 
streaming, when Congress changed the statute you are referring 
to to make reproduction and distribution of pre-release works a 
felony, you did so without requiring the commercial purpose and 
private financial gain component to it because of the 
significance of and the economic consequences of pre-release 
distribution and reproduction. And we think that streaming 
should be treated the very same way.
    So with that limited exception, that pre-release streaming 
now becomes a felony even without the commercial purpose or 
private financial gains, you are absolutely correct, although I 
would add that that is perfectly appropriate and we fully 
support it.
    Senator Klobuchar. Does anyone want to add to this in terms 
of how you think it would be helpful?
    Ms. Espinel. I would just say briefly I think to echo what 
Jason said, streaming is sort of the next frontier, and 
streaming essentially is just another form of distribution, the 
way more traditional forms of distribution are. So we think it 
is completely appropriate to make streaming a felony, 
distribution by streaming a felony the way distribution of 
physical copies would already be a felony.
    We are going to continue to face challenges as our law sort 
of sets in place and as the technology moves quickly and often 
ahead of how quickly we can make legislative changes. But this 
area of illegal streaming is a place where we already know that 
we have a problem, and so I think it is enormously important to 
try to clarify what is essentially an ambiguity or deficiency 
in our law so that streaming by distribution is a felony as 
well.
    I think there is a misunderstanding, at least from what I 
have read on blog posts, about what this legislation would 
accomplish, so I have seen similar sort of anecdotes, someone 
playing guitar on a street corner takes a video of themselves 
and posts it, or that this is going to be used to go after 
individuals, and, of course, that is just simply not true. The 
purpose of this law, the purpose of our recommendation and the 
legislation that you introduced, as I understand it, is to 
essentially make streaming, distribution by streaming, a felony 
the way that traditional forms of distribution have been for 
many years.
    Senator Klobuchar. When it is for a commercial purpose, 
because, remember, people think of streaming in other ways. 
Some of these examples, when you just say that it is a felony 
by streaming, then they are, like, ``Well, anything I put on 
there, I guess, then, is a felony.'' And that is not what we 
are saying. And so we will continue to work with people, but I 
just refer them to the statute that says it has to be for a 
commercial purpose, with that one limited exception, and for 
private financial gain.
    Thank you very much, and we will continue to work with you 
and try to get at some of these concerns that have been raised 
about the bill, and people have to remember that right now 
someone could be prosecuted for a felony when they are standing 
or a corner and sell over $2,500 worth of DVDs, but they cannot 
be prosecuted for doing the same conduct on the Internet, and 
that is what we are trying to get at to protect the 
intellectual property in this country.
    Thank you very much.
    Senator Whitehouse. Thank you, Senator Klobuchar.
    Let me start with Ms. Espinel. You have mentioned this 
already, but I just want to emphasize that we are here with a 
lot of people from law enforcement. We are talking about a very 
significant crime. We are talking about a crime that has 
colossal economic impacts on our country. And yet there is a 
very, very mixed message because if you go to a rogue Web site 
that is hosting this criminal enterprise, you are taken there 
by legitimate American corporations like Verizon and Comcast 
that run the network to connect you; you find the places by 
going to legitimate American corporations like Google and 
Yahoo! whose search engines will take you to a pirated movie. 
When you get there, you find legitimate American corporations 
like MasterCard and Visa processing payments for the rogue Web 
site. You often find a broader array of legitimate American 
corporations advertising on those Web sites. So if you are an 
ordinary American citizen, you are hearing from all of you 
folks, ``This is a serious crime; we really need to do 
something about it.'' But the other message that you are 
hearing is, ``This is perfectly normal. Your ISP will connect 
you to it. Your search engine will let you find it. Your credit 
card company supports it, and regular companies that you see 
all over the place are advertising on it. This must be legit.''
    And I do not know why it is that the private sector has not 
been more energetic about sorting this out amongst themselves, 
why it is that the content providers, who are themselves very 
big legitimate American corporations, are not taking stronger 
action to stop ISPs from providing these connections, search 
engines from providing the locations, and credit card companies 
and advertisers from supporting the rogue Web sites.
    What is your insight into that? And what can we do to 
accelerate that process? Because we can talk until we are blue 
in the face about what a big crime this is, but when every 
signal the ordinary consumer gets from this is this is 
legitimate, all these companies that I know and like and are 
part of the American economic landscape are in on the deal, 
this cannot be bad.
    Ms. Espinel. So first I will start off by saying I 
completely agree with you, and that is the reason why we have 
been so focused on getting all the different types of companies 
that you named, every single one of them, more engaged and 
taking voluntary action in this process. And that process is 
still underway, and I agree with you that we certainly would 
like to see it move much more quickly, although we also want 
there to be private sector not just engagement but enthusiasm 
about this process, and so that takes some time.
    I would like to mention that--you talked about credit cards 
and payment processors. In my view, the major credit card and 
payment processors have stepped up. We have very recently come 
to agreement on a set of best practices that I think could have 
a significant impact on infringement, and there is a--we will 
be reviewing how that works, and six months from now, I hope 
that we are in a position that we will be able to report some 
real progress there in terms of cutting off these illegal 
sites' ability to sell their goods.
    But we are also in discussions with the advertisers, as you 
mentioned. We are in discussions with the ISPs. We are in 
discussions with the search engines. They are all different 
parts of the Internet economy, and we have made it very clear 
to all of those parts that we feel that they all need to be 
there, that this is also not just a problem for credit cards or 
just a problem for the ISPs or just a problem for the search 
engines. We really need to have all the parts of the Internet 
ecosystem working together if we are going to be effective.
    This is criminal activity, and nothing is going to be 
entirely effective. Criminals are always going to look for ways 
that they can evade law enforcement and that they can evade 
what the private sector did. But we do feel strongly that if we 
have both increased law enforcement--and I hope that it has 
been clear through everything that has happened in the past 
year how serious our commitment is, but combined with that 
increased voluntary action from the private sector, I think 
that can make a tremendous difference. But we need to have all 
the parts of the ecosystem that you mentioned, we need to have 
everyone working together.
    Senator Whitehouse. Mr. Weinstein, aren't those other parts 
of the ecosystem actually as a matter of law aiding and 
abetting the criminal enterprise in supporting it in these 
different ways?
    Mr. Weinstein. Well, Senator, as you know, I think the law 
on secondary liability civilly is trending away from that 
conclusion; that is, it is increasingly difficult even in the 
civil context to hold some of these companies accountable 
without being able to establish that they specifically took 
steps to make the infringement succeed. And that is certainly 
amplified in the criminal context where you have got a higher 
burden of proof and a willfulness standard.
    So I think that if a company that is facilitating 
infringement without knowingly facilitating infringement, 
willfully doing it, intentionally trying to make it succeed, I 
think that it is quite difficult to make a criminal case. That 
is not to say that there are not a set of facts that would 
support it, but I think----
    Senator Whitehouse. Well, let us talk for a minute about 
civil cases. Sometime ago Microsoft brought a very effective 
civil case to shut down the Waledac botnet. The Department of 
Justice and the FBI were very effective recently with a legal 
action, a civil action, that shut down the Coreflood botnet 
after, I do not know, over hundreds of millions dollars, I 
think, in damage had been done. I forget the exact number that 
was used in our briefing.
    In some cases, it appears that both the ISPs and the search 
providers, they are happy to participate; they just do not want 
to have to do it on their own and be the actor against these 
sites. They prefer, it seems sometimes, the legal protection 
and the security and the assurance of a court order that 
somebody obtained that said you must shut down access to this 
site.
    Why is there not more of that going on? You would think 
that you could almost have a friendly lawsuit between the 
content provider and the ISP where they go into court together, 
they agree, much in the way that happened with the Waledac 
botnet with Microsoft. There was no real opposition there. It 
was just a question of sorting it all out, going before the 
court, getting the order, and the next thing you know the 
botnet is shut down. Why can't that apply with respect to rogue 
Web sites as well?
    Mr. Weinstein. Well, civil enforcement is not my area of 
expertise, but as I think some of the cases you mentioned, in 
the lime wire case and some others indicate, we have not found 
some of the companies, the rights holders, at least, to be shy 
about resorting to their civil remedies when they think that 
they have got a case.
    I do not know why there are not more of these sort of 
friendly lawsuits that are designed to get court orders that 
give companies cover. You know, Victoria, I think, has been 
exercising tremendous leadership in trying to bring these 
companies together voluntarily, as she talked about, and she is 
too modest to say it, so I will. I do not think that any of 
that process would be happening if her office did not exist and 
if she was not in it.
    She may have a better insight into sort of what their 
thinking is about how to balance their need to avoid liability 
with their concerns about what their customers will think if 
they are assisting law enforcement or appearing to be anti-free 
Internet. So she may have a better window because she has been 
participating in the discussions about what their thinking is. 
But I do think it is very encouraging that they are taking the 
voluntary steps they are talking about that she has been 
discussing.
    Senator Whitehouse. Well, we will come back to that. One of 
the nice things about waiting to go last is that I have nobody 
waiting and I can go over my time.
    The question of resources I think is a significant one, and 
I know that you all are somewhat constrained by OMB in what you 
are allowed to say about your need for resources. But let us 
just talk about these cases in terms of their complexity.
    As I understand it, if you want to be really effective in 
this area, you need to combine not only traditional criminal 
prosecution with these very modern, Coreflood/Waledac-type 
civil actions that can help shut down the criminal activity. 
Rather than just try to find somebody guilty of it and find 
them and punish them, you can actually stop it. It tends to be 
international, which makes for exactly complicated 
investigative and prosecutorial issues dealing with foreign 
jurisdictions. It tends to have very considerable technical 
complexity that a prosecutor and an agent have to understand in 
order to investigate it.
    When you put it all together, it strikes me that these are 
really apex cases in terms of resource intensiveness and 
complexity. Is that your experience as well? That is a question 
for Mr. Snow and then Mr. Weinstein.
    Mr. Snow. Yes, sir. These cases tend to be very complex. 
Some of the lower-level cases that we had maybe in the past 
decade or so, when we talked about the physical seizure of 
goods in the marketplaces and on the street corners were a 
normal investigative case. It relied on almost the drug 
analogy-type drug case, drug-trafficking resource model, 
whatever was needed in order to secure the area, to grab the 
goods, and then come back for the search and the normal 
prosecution.
    Now that we add the Internet into it, it goes in that exact 
same venue that you are talking about. Huge forensic 
capabilities are needed to look at the evidence that is seized, 
the evidence that is taken down, and how we actually in all 
realms on the Internet and in cyber cases deal with 
anonymization and movement through to actually find out who is 
behind this act itself. So everything----
    Senator Whitehouse. Particularly where the activity is 
originating overseas and it makes the investigation extremely 
complicated to be operating in a foreign nation.
    Mr. Snow. Yes, sir, absolutely. And then the same side--and 
I will let Jason talk for himself, but the same side with the 
CHIPs attorneys and the DOJ prosecutive process.
    Mr. Weinstein. You will recall in April Mr. Snow and I were 
here talking to you about cybersecurity and cyber crime, and I 
think you made a very similar observation about cyber and 
intrusion cases. And everything you said then and everything 
you have said today applies with equal force to these IP cases.
    I just want to highlight one thing that Gordon said, which 
is forensics. You know, the cases are complicated enough when 
you are talking about collecting electronic evidence, but they 
place a significant burden on very, very limited forensic 
resources. You know, computer forensics is a concern in every 
type of case, but it is a particular concern in cyber and IP 
cases.
    So these are incredibly resource-intensive cases, and the 
cases that are likely to have the greatest impact are the ones 
that are the hardest and the most expensive.
    Senator Whitehouse. A number of you have discussed sales to 
the military as an area of particular concern in terms of 
counterfeiting. I know we have had cases in which the Kevlar 
was not Kevlar or in which the advanced microchip was not an 
advanced microchip. And, of course, anything that puts our 
soldiers and the equipment that they need at risk is of 
particular importance.
    Senator Coons and I have a bill on our side, joined by 
Senator Graham and Senator McCain on the other side, to 
increase the penalties for military counterfeiting, and I would 
appreciate if each of you could give your reactions to that 
bill, anything in the way of technical assistance or 
recommendations that you would make. And I think probably based 
on your position, Ms. Espinel, if you are in a position to say 
that the White House would support it or not, or with changes, 
that would be helpful. It is a bill we would like to move, and 
we would like to make sure it is well supported. I think it is 
already strongly bipartisan. It makes a lot of sense. A number 
of you have already raised the issue today, so there is a lot 
of potential here. I would like to make sure it happens, and I 
would like to get your reactions to it as a question for the 
record, if I may. If you would like to respond briefly now as 
well, but I do not want that to constrain a written response in 
a question for the record.
    Ms. Espinel. We would also be happy to send a written 
response, but I will just say briefly, as you know, we made 
recommendations to Congress in March to increase penalties, 
increase the Sentencing Guidelines for sales to the military. 
It is an enormously important issue. We were very pleased to 
see the legislation that was introduced. As it was recently 
introduced, we are still in the process of assessing it. But I 
think I can speak for DOJ or at least ask DOJ to confirm that 
we would--my office would certainly be happy to work with DOJ 
on technical assistance on the legislation, and we think it is 
very important.
    [The information referred to appears as a submission for 
the record.]
    Mr. Weinstein. I completely agree. We have been working 
with your staff for a while to provide technical assistance, 
and we are obviously happy to continue to do that. We think it 
is a very important issue, and it demonstrates more than 
anything that IP crime can be a national security issue. 
Anybody who thinks that IP crime is just selling a bunch of 
DVDs and counterfeit Nikes on the street should read a 
description of one of these cases involving a counterfeit 
network hardware that was going to be used in a computer system 
to control troop movements in Iraq. It will make your jaw drop. 
IP crime is a national security crime, and we think this is a 
vitally important issue to pursue.
    Senator Whitehouse. Very good. I guess the last thing I 
would mention before I let everybody go at the noon hour is 
that I am a member of the International Anti-Piracy Caucus, 
along with Senator Hatch. The Caucus has highlighted China as 
one of the watchlist countries that fail to protect American 
intellectual property. From my time on the Intelligence 
Committee, there is other information out there that this is 
not an appropriate forum to discuss in, but a great deal of the 
public information that has come out about the major attacks 
and hacks on corporations and infrastructure has traced that 
back to China. China appears to be the most dangerous and 
active nation state actor, malefactor, in this area, and the 
administration has recently signed a letter of intent with 
China's Ministry of Public Safety on law enforcement 
cooperation in this area.
    Given the extent to which not only in this behavior seeming 
to emerge from China, but it often seems to be sanctioned--the 
example I have used is in the old days privateers were put on 
the ocean and they were allowed to attack other ships if they 
had letters of mark from a country or principality. They were 
essentially private actors, but they had that going on behind 
them. And I think that it appears that a lot of the activity 
coming out of China is basically privateers who are operating 
with knowledge and the implied consent perhaps of the 
government. Certainly it is a significant economic transfer of 
wealth into China from our country.
    How will you ensure that the relationship with China's 
Ministry of Public Safety will be productive going forward 
given the mixed messages, shall we say, we are getting from 
this country?
    Mr. Snow. Sir, I will go ahead and take that question, and 
I would just state that we spent some time with the Director of 
Intelligence, and we spent some time sending an agent over 
there TDY to Beijing not only to look at a lot of things that 
were going on in the Intellectual Property Rights Center but to 
feel out that relationship with MPS. I think Mr. Barnett 
pointed to it earlier, that MPS is very forward leaning in 
trying to address the threats that they may have over there, as 
well as for us to engage in a good conversation and discussion 
on the threats that we see emanating trans-border into the 
United States from China.
    So we are hoping--and I think it will be fruitful--that 
that direct connect that we will have with the FBI, with 
Customs and Border Protection in the future, with ICE, will be 
that original ground-breaking initiation that it takes in order 
for those law enforcement officers to actually take a look at 
the threat and provide the information that all countries need 
to do to address this globally.
    I think we see that in many respects across the world as 
history developed itself, but I am hoping that that is what we 
will see as we move with MPS.
    Senator Whitehouse. Well, I would encourage you to 
participate in this and to pursue it. But I do not need to tell 
you that you need to do so guardedly given the issues on the 
other side. Senator Klobuchar mentioned this with respect to 
Minnesota. Rhode Island does a lot of invention and design. The 
Rhode Island School of Design is one of the legendary 
universities in this area. I have spoken to Rhode Island 
manufacturers who have been invited to open plants in China, 
and they have refused to do so because it is their expectation 
that the purpose of that invitation was to give access to their 
technology, to their procedures, to their intellectual property 
in ways that would allow it to be stolen, instantly reproduced, 
and they would find a competitor fully up to speed with their 
technology but not paying them any licensing fees or anything 
for the effort and the expense that they put into developing 
the technology. So, you know, right down to a local 
manufacturer in Cranston, Rhode Island, the concern about what 
China is doing to our intellectual property is a very real, 
immediate, and grave one, and I hope that continues to be a 
significant issue for the administration not only in law 
enforcement but also as we deal with them in the diplomatic and 
trade venues. It seems to me that it--I have said that we are 
on the losing end of the biggest transfer of wealth through 
crime and piracy in the history of humankind, and we need to do 
a lot more about it. I know that each one of you is doing an 
enormous amount about it in your own offices and in your own 
ways, and I thank you for your time this morning, and I thank 
you for your service to our country in this important cause.
    The record of the hearing will remain open for an 
additional week if anybody wishes to add anything, and unless 
there is anything else to put into the record--no, there is 
not--we will stand adjourned. Thank you all very much.

    [Whereupon, at 12:03 p.m., the Committee was adjourned.]
    
                            A P P E N D I X

              Additional Material Submitted for the Record

[GRAPHIC] [TIFF OMITTED] 

              Prepared Statement of Chairman Patrick Leahy

[GRAPHIC] [TIFF OMITTED] 

 Prepared Statement of Hon. Victoria A. Espinel, Intellectual Property 
 Enforcement Coordinator, Office of Management and Budget, Washington, 
                                   DC

[GRAPHIC] [TIFF OMITTED] 

  Prepared Statement of Jason M. Weinstein, Deputy Assistant Attorney 
 General, Criminal Division, U.S. Department of Justice, Washington, DC

[GRAPHIC] [TIFF OMITTED] 
    Prepared Statement of Gordon M. Snow, Assistant Director, Cyber 
       Division, Federal Bureau of Investigation, Washington, DC

[GRAPHIC] [TIFF OMITTED] 

  Prepared Statement of Allen Gina, Assistant Commissioner, Office of 
     International Trade, U.S. Customs and Border Protection, U.S. 
            Department of Homeland Security, Washington, DC
            
[GRAPHIC] [TIFF OMITTED] 

  Prepared Statement of Erik Barnett, Assistant Deputy Director, U.S. 
   Immigration and Customs Enforcement, U.S. Department of Homeland 
                        Security, Washington, DC
                        
[GRAPHIC] [TIFF OMITTED] 

                               Questions


Questions submitted by Senator Tom Coburn for Victoria Espinel and all 
                               witnesses

[GRAPHIC] [TIFF OMITTED] 
 Questions submitted by Senator Tom Coburn for Jason Weinstein and all 
                               witnesses

[GRAPHIC] [TIFF OMITTED] 

   Questions submitted by Senator Tom Coburn for Gordon Snow and all 
                               witnesses

[GRAPHIC] [TIFF OMITTED] 

   Questions submitted by Senator Tom Coburn for Allen Gina and all 
                               witnesses

[GRAPHIC] [TIFF OMITTED] 

  Questions submitted by Senator Tom Coburn for Erik Barnett and all 
                               witnesses

[GRAPHIC] [TIFF OMITTED] 

     Questions submitted by Senator Al Franken for Victoria Espinel

[GRAPHIC] [TIFF OMITTED] 

     Questions submitted by Senator Al Franken for Jason Weinstein

[GRAPHIC] [TIFF OMITTED] 

       Questions submitted by Senator Al Franken for Erik Barnett

[GRAPHIC] [TIFF OMITTED] 

     Questions submitted by Senator Charles Grassley for Allen Gina

[GRAPHIC] [TIFF OMITTED] 

    Questions submitted by Senator Charles Grassley for Erik Barnett

[GRAPHIC] [TIFF OMITTED] 

  Questions submitted by Senator Charles Grassley for Victoria Espinel

[GRAPHIC] [TIFF OMITTED] 

     Questions submitted by Senator Orrin Hatch for Jason Weinstein

[GRAPHIC] [TIFF OMITTED] 

                                Answers

 Responses of Victoria Espinel to questions submitted by Senator Coburn

[GRAPHIC] [TIFF OMITTED] 

  Responses of Victoria Espinel, Jason Weinstein, Gordon Snow, Allen 
    Gina, and Erik Barnett to questions submitted by Senator Coburn

[GRAPHIC] [TIFF OMITTED] 

Responses of Victoria Espinel to questions submitted by Senator Franken

[GRAPHIC] [TIFF OMITTED] 

    Responses of Victoria Espinel, Allen Gina, and Erik Barnett to 
                questions submitted by Senator Grassley

[GRAPHIC] [TIFF OMITTED] 

  Responses of Gordon Snow to questions submitted by Senator Grassley

[GRAPHIC] [TIFF OMITTED] 

Responses of Erik Barnett to questions submitted by Senators Grassley, 
                          Coburn, and Franken

[GRAPHIC] [TIFF OMITTED] 

  Responses of Jason M. Weinstein to questions submitted by Senators 
                       Coburn, Franken, and Hatch

    (Note: At the time of printing, after several attempts to 
obtain responses to the written questions, the Committee had 
not received any communication from the witness.)

                Miscellaneous Submissions for the Record

American Federation of Musicians, American Federation of Television and 
 Radio Artists, Directors Guild of America, International Alliance of 
  Theatrical Stage Employees, Moving Picture Technicians, Artists and 
    Allied Crafts of the United States, Its Territories and Canada, 
 International Brotherhood of Teamsters, Screen Actors Guild, June 20, 
                           2011, joint letter

[GRAPHIC] [TIFF OMITTED] 

 American Society of Composers, Authors, and Publishers (ASCAP), Paul 
Williams, President and Chairman of the Board, New York, New York, June 
                            20, 2011, letter

[GRAPHIC] [TIFF OMITTED] 

  Institute for Policy Innovation (IPI), Tome Giovanetti, President, 
                Lewisville, Texas, June 20, 2011, letter

[GRAPHIC] [TIFF OMITTED] 

  Colleen M. Kelley, National President, National Treasury Employees 
                Union, (NTEU), Washington, DC, statement

[GRAPHIC] [TIFF OMITTED] 
    Motion Picture Association of America, Inc., Paramount Pictures 
 Corporation, Sony Pictures Entertainment Inc., Twentieth Century Fox 
   Film Corporation, Universal City Studios LLC, Walt Disney Studios 
Motion Pictures, Warner Bros. Entertainment Inc., June 22, 2011, joint 
                                 letter

[GRAPHIC] [TIFF OMITTED] 

Recording Industry Association of America, Inc., (RIAA), Mitch Bainwol, 
        Chairman and CEO, Washington, DC, June 21, 2011, letter

[GRAPHIC] [TIFF OMITTED] 

          U.S. Chamber of Commerce, Washington, DC, statement

[GRAPHIC] [TIFF OMITTED] 


                                   
                                   [all]