[Congressional Record (Bound Edition), Volume 152 (2006), Part 1]
[Senate]
[Pages 1510-1512]
[From the U.S. Government Publishing Office, www.gpo.gov]




             STOP COUNTERFEITING IN MANUFACTURED GOODS ACT

  Mr. SPECTER. Mr. President, I will to take a moment to speak about 
H.R. 32, the Stop Counterfeiting in Manufactured Goods Act of 2005, 
sponsored by Representative Knollenberg and 59 House cosponsors. The 
counterfeiting of goods bearing American held trademarks is an 
important problem that I am committed to fighting, as reflected by my 
sponsoring S. 1699, the Senate companion bill to H.R. 32, earlier this 
year with Senator Leahy and Senators Alexander, Bayh, Brownback, Co-
burn, Cornyn, DeWine, Durbin, Feingold, Feinstein, Hatch, Kyl, Levin, 
Reed, Stabenow, and Voinovich.
  H.R. 32, the Stop Counterfeiting in Manufactured Goods Act of 2005, 
addresses a problem that has reached epidemic proportions as a result 
of a loophole in our Criminal Code: the trafficking in counterfeit 
labels. Criminal law currently prohibits the trafficking in counterfeit 
trademarks ``on or in connection with goods or services.'' However, it 
does not prohibit the trafficking in the counterfeit marks themselves. 
As such, there is nothing in current law to prohibit an individual from 
selling counterfeit labels bearing otherwise protected trademarks 
within the United States.
  This loophole was exposed by the Tenth Circuit Court of Appeals in 
United States v. Giles, 213 F.3d 1247, 10th Cir. 2000. In this case, 
the United States prosecuted the defendant for manufacturing and 
selling counterfeit Dooney & Bourke labels that third parties could 
later affix to generic purses. Examining title 18, section 2320, of the 
United States Code, the Tenth Circuit held that persons who sell 
counterfeit trademarks that are not actually attached to any ``goods or 
services'' do not violate the Federal criminal trademark infringement 
statute. Since the defendant did not attach counterfeit the marks to 
``goods or services,'' the court found that the defendant did not run 
afoul of the criminal statute as a matter of law. Thus, someone caught 
redhanded with counterfeit trademarks walked free.
  H.R. 32 closes this loophole by amending title 18, section 2320 of 
the United States Code to criminally prohibit the trafficking, or 
attempt to traffic, in ``labels, patches, stickers'' and generally any 
item to which a counterfeit mark has been applied. In so doing, H.R. 32 
provides U.S. Department of Justice prosecutors with the means not only 
to prosecute individuals trafficking in counterfeit goods or services 
but also individuals trafficking in labels, patches, and the like that 
are later applied to goods.
  Congress must act expeditiously to protect U.S. held trademarks to 
the fullest extent of the law. The recent 10- count indictment of 4 
Massachusetts residents of conspiracy to traffic in approximately $1.4 
million of counterfeit luxury goods in the case of U.S. v. Luong et 
al., 2005 D. Mass., underscores the need for this legislation. 
According to the indictment, law enforcement officers raided self-
storage units earlier this year and found the units to hold 
approximately 12,231 counterfeit handbags; 7,651 counterfeit wallets; 
more than 17,000 generic handbags and wallets; and enough counterfeit 
labels and medallions to turn more than 50,000 generic handbags and 
wallets into counterfeits. Although the U.S. Attorney's Office was able 
to pursue charges of trafficking and attempting to traffic in 
counterfeit handbags and wallets, they could not able to bring charges 
for trafficking and attempting to traffic in the more than 50,000 
counterfeit labels and medallions. As such, these defendants will 
escape prosecution that would have otherwise been illegal if they had 
only been attached to an otherwise generic bag. This simply does not 
make sense and had the Stop Counterfeiting in Manufactured Goods Act of 
2005 been in effect at the time of indictment, U.S. prosecutors would 
have been able to bring charges against the defendants for trafficking 
and attempting to traffic in not only counterfeit goods but also 
counterfeit labels.

[[Page 1511]]

  As Assistant Attorney General Alice Fisher said, ``Those who 
manufacture and sell counterfeit goods steal business from honest 
merchants, confuse or defraud honest consumers, and illegally profit on 
the backs of honest American workers and entrepreneurs.'' This point is 
underscored by the Bureau of Customs and Border Protection estimate 
that trafficking in counterfeit goods costs the United States 
approximately $200-$250 million annually. With each passing year, the 
United States loses millions of dollars in tax revenues to the sale of 
counterfeit goods. Further, each counterfeit item that is manufactured 
overseas and distributed in the United States costs American workers 
tens of thousands of jobs. With counterfeit goods making up a growing 5 
to 7 percent of world trade, this is a problem that we can no longer 
ignore.
  To be sure, counterfeiting is not limited to the popular designer 
goods that we have all seen sold on corners of just about every major 
metropolitan city in the United States. Counterfeiting has a 
devastating impact on a broad range of industries. In fact, for almost 
every legitimate product manufactured and sold within the United 
States, there is a parallel counterfeit product being sold for no more 
than half the price. These counterfeit products range from children's 
toys to clothing to Christmas tree lights. More frightening are the 
thousands of counterfeit automobile parts, batteries, and electrical 
equipment that are being manufactured and placed into the stream of 
commerce with each passing day. I am told that the level of 
sophistication in counterfeiting has reached the point that you can no 
longer distinguish between the real and the counterfeit good or label 
with the naked eye. However, just because these products look the same 
does not mean that they have the same quality characteristics. The 
counterfeit products are not subject to the same quality controls of 
legitimate products, resulting in items that are lower in quality and 
likely to fall apart. In fact, counterfeit products could potentially 
kill unsuspecting American consumers.
  In addition to closing the ``counterfeit label loophole,'' the Stop 
Counterfeiting in Manufactured Goods Act strengthens the Criminal Code 
and provides heightened penalties for those trafficking in counterfeit 
marks. Current law does not provide for the seizure and forfeiture of 
counterfeit trademarks, whether they are attached to goods or not. 
Therefore, many times such counterfeit goods are seized one day, only 
to be returned and sold to an unsuspecting public. To ensure that 
individuals engaging in the practice of trafficking in counterfeit 
marks cannot reopen their doors, H.R. 32 establishes procedures for the 
mandatory seizure, forfeiture, and destruction of counterfeit marks 
prior to a conviction. Further, it provides for procedures for the 
mandatory forfeiture and destruction of property derived from or used 
to engage in the trafficking of counterfeit marks.
  When this legislation was sent over to the Senate from the House, 
concerns were raised to Senator Leahy and myself about the language in 
Section 2(b)(1)(B) of this bill pertaining to the forfeiture authority 
of the U.S. Department of Justice. In focusing our attention to this 
section, we discussed the scope of the facilitation language, which 
parallels the drug and money laundering forfeiture language in 21 
U.S.C. 853 and 18 U.S.C. 982, respectively, and how it might relate to 
Internet marketplace companies, search engines, and ISPs. Specifically, 
we were aware of concerns regarding the potential misapplication of the 
facilitation language in section 2(b)(1)(B) to pursue forfeiture and 
seizure proceedings against responsible Internet marketplace companies 
that serve as third party intermediaries to online transactions.
  Mr. LEAHY. Section 2(b)(1)(B) authorizes U.S. attorneys to pursue 
civil in rem forfeiture proceedings against ``any property used, in any 
manner or part, to commit or to facilitate the commission of a 
violation of subsection (a).'' The intent of this language is to 
provide attorneys and prosecutors with the authority to bring a civil 
forfeiture action against the property of bad actors who are 
facilitating trafficking or attempts to traffic in counterfeit marks. 
The forfeiture authority in section 2(b)(1)(B) cannot be used to pursue 
forfeiture and seizure proceedings against the computer equipment, Web 
site, or network of responsible Internet marketplace companies, which 
serve solely as a third-party to transactions and do not tailor their 
services or their facilities to the furtherance of trafficking or 
attempts to traffic in counterfeit marks. However, these Internet 
marketplace companies must make demonstrable good faith efforts to 
combat the use of their systems and services to traffic in counterfeit 
marks. Companies must establish and implement procedures to take down 
postings that contain or offer to sell goods, services, labels, and the 
like in violation of this act upon being made aware of the illegal 
nature of these items or services.
  It is the irresponsible culprits that must be held accountable. Those 
who profit from another's innovation have proved their creativity only 
at escaping responsibility for their actions. As legislators, it is 
important that we provide law enforcement with the tools needed to 
capture these thieves.
  Senator Specter, it is also my understanding that the U.S. Sentencing 
Commission recently promulgated new Federal sentencing guidelines to 
account for the changes in how intellectual property crimes are 
committed. Could you clarify for the record why we have authorized the 
U.S. Sentencing Commission to further amend the Federal sentencing 
guidelines and policy statements for crimes committed in violation of 
title 18, section 2318 or 2320, of the United States Code?
  Mr. SPECTER. As Senator Leahy is aware, periodically the Sentencing 
Commission has sought to update the Federal sentencing guidelines upon 
the periodic directive of Congress to reflect and account for changes 
in the manner in which intellectual property offenses are committed. 
The recent amendments to which you refer were promulgated by the 
Sentencing Commission pursuant to the authorization in the Family 
Entertainment and Copyright Act of 2005, also known as FECA. These 
amendments to the Federal sentencing guidelines, which took effect on 
October 24, 2005, address changes in penalties and definitions for 
intellectual property rights crimes, particularly those involving 
copyrighted prerelease works and issues surrounding ``uploading.'' For 
example, these guidelines provide for a 25 percent increase in 
sentences for offenses involving prerelease works. In addition, the 
Commission revised its definition of ``uploading'' to ensure that the 
guidelines are keeping up with technological advances in this area.
  I would like to make it clear for the record that the directive to 
the Sentencing Commission in section 3 of H.R. 32 is not meant as 
disapproval of the Commission's recent actions in response to FECA. 
Rather, section 3 covers other intellectual property rights crimes that 
Congress believes it is time for the Commission to revisit. 
Specifically, section 3 directs the Commission to review the 
guidelines, and particularly the definition of ``infringement amount,'' 
to ensure that offenses involving low-cost items like labels, patches, 
medallions, or packaging that are used to make counterfeit goods that 
are much more expensive are properly punished. It also directs the 
Commission to ensure that the penalty provisions for offenses involving 
all counterfeit goods or services or devices used to facilitate 
counterfeiting are properly addressed by the guidelines. As it did in 
response to the No Electronic Theft Act of 1997 and FECA, I am 
confident that the Commission will ensure that the Federal sentencing 
guidelines provide adequate punishment and deterrence for these very 
serious offenses, and I look forward to the Commission's response to 
this directive.
  Mr. LEAHY. Senator Specter, thank you for that clarification. As you 
are aware, there has been overwhelming support for this legislation. It 
has been very heartening to see such overwhelming support for this 
important

[[Page 1512]]

bill. Counterfeiting is a threat to America. It wreaks real harm on our 
economy, our workers, and our consumers. This bill is a tough bill that 
will give law enforcement improved tools to fight this form of theft. 
The bill is short and straightforward, but its impact should be 
profound and far-reaching.
  Mr. SPECTER. At this point, I would like to take this opportunity to 
thank like to thank Representative Jim Sensenbrenner, Chairman of the 
House Judiciary Committee, and Representative Joe Knollenberg for their 
leadership in the House with regard to H.R. 32. In January of 2005, 
Representative Knollenberg introduced H.R. 32 in the House. When the 
bill was in Committee, he fostered negotiations between the Department 
of Justice, the U.S. Chamber of Commerce, and the International 
Trademark Association to ensure that it passed the House. I would also 
like to thank my colleague Senator Leahy, ranking member of the Senate 
Judiciary Committee, and Senators Alexander, Bayh, Brownback, Coburn, 
Cornyn, DeWine, Durbin, Feingold, Feinstein, Hatch, Kyl, Levin, Reed, 
Stabenow, and Voinovich for their cosponsorship of S. 1699, the 
companion legislation to H.R. 32. It is through the hard work of all of 
these Members that we were able to achieve truly bipartisan support for 
language that will ensure the protection of American-held trademarks.
  Mr. LEAHY. Some of our most important legislation is produced not 
only when we reach across the aisle in the name of bipartisanship but 
when we work across chambers and reach true consensus. I would also 
like to thank Senators Alexander, Bayh, Brownback, Coburn, Cornyn, 
DeWine, Durbin, Feingold, Feinstein, Hatch, Kyl, Levin, Reed, Stabenow 
and Voinovich for their cosponsorship of the Senate companion 
legislation. Counterfeiting is a serious problem that does not lend 
itself to a quick and easy solution. This legislation is an important 
step toward fighting counterfeiting. I hope we can build on the success 
of this law.

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