hearing will focus on the federal government's role and responsibility in the global action and enforcement of intellectual property rights the subcommittee will also seek additional information responsibilities without objection the chair and ranking minority member will have five minutes to make opening statements followed by opening statements not to exceed its three minutes by any other member who seeks recognition without objection members and witnesses may have five legislative days to submit a written statement or extraneous materials for the record i'd like to welcome all of you to today's septimus a hearing on federal efforts to protect and enforce the intellectual property rights of our nation's industrial base throughout the domestic and global marketplace before we begin i'd like to apologize for the subcommittee having to postpone our original hearing that was scheduled for november fourth but our legislative calendar was rather for that week as some of you probably will recall so i welcome our distinguished witnesses especially those who have had to rearrange their travel our business schedules in order to a tin today's rescheduled hearing and look forward to hearing your testimony intellectual property rights are i p r is an issue that is near and dear to my heart and the livelihood of many of my constituents my congressional district the thirty third which includes los angeles cover city and hollywood california is home to a number of and pardon entertainment companies including sony studios the culver studios capitol records raleigh studios and television studios and of course the american film institute according to figures compiled by americans for the arts approximately thirty thousand people are employed in entertainment related industries located in my congressional district more than eighteen thousand people who work in the congressional district make a living from film radio and television who profits and future viability are dependent on strong i p r protection and enforcement as a fellow as well as to the future growth and stability of our nation and the global economy since the establishment's of the world trade organization in one nine hundred ninety five america ip related industries have prospered through a mystic comparative advantage in innovation and research but this advantage has been vital trading partners and strategic allies this causes great economic harm to innovation and innovators who invests in effect and capital in the products are creations that have been proved our standard of living and increased our knowledge base while the true amount is unclear recent estimates of the losses are cost associated with ip and frenchman for the us domestic industry ranges from two hundred to two hundred and fifty billion dollars annually the prevalence of such losses extends to all ip related sectors including information technology life sciences digital content pharmaceuticals the defense industry and the entertainment industry these are losses threaten our nation's economic growth and global leadership in innovation for the more i p r infringement poses significant risk to our national security consumer welfare and ability to rely upon an effective legal framework for our domestic industries working abroad according to the los angeles county economic development cooperation the cause of global privacy and counterfeiting activities in los angeles county in the year two thousand and five was estimated at five point two billion dollars those figures were proportionally shared across all sectors of the ip driven economy with motion pictures leading the way at two point seven billion dollars followed by the recording industry apparel members of apparel makers and soft ware developers unless such twins are soon curtailed the roughly one million l a county ip dependent jobs will be placed at a significant risk the findings in this year's special three zero one report issued by the office of u s trade representative tell us that a combination of technological advances and various market access barriers in key countries are preventing our companies from protecting their ip based goods and services so with that in mind i would like our witnesses to discuss what they believe are the major factors in the escalation of i p r infringement abroad specifically our want our government  panelists to explain how they believe the newly established intellectual property in force months in the in fourth meant coordination office will aid in their development of a stronger framework for managing our into agency p r protection and enforcement responsibilities both domestically and abroad specifically with new authorities and what new is hardy's has this office been granted to believe our patchwork of agencies charged with combating global i p r infringement furthermore i'd like you to discuss our trade agreements with other nations including those issues being negotiated as part of the proposed anti counterfeit into a trade agreement are reducing the growing incident of digital based privacy are the illegal manufacturers conniff it drugs and consumer goods for importation these activities pose a significant threat to our economy to public health to national security and must be countered in order to maintain our position in the global marketplace and lastly i'd like to address an emergency an emerging i p r issues with the people's republic of china and its efforts to restrict our domestic technology industries from patisserie baiting in their government wide what you meant program and under the chinese government's newly issued rules only products that contain chinese prepared to carry intellectual property would be eligible for government procurement this process will in effect result in excluding the products of international companies from the government but human market in china this is a troubling development that will have major economic consequences for our trade relations if we do not find an admin a couple resolution and i am hopeful that eyewitnesses can educate us on the latest developments with these matters and other recommendations on how the subcommittee and facilitating a resolution vital importance to our home state economy once again i want to thank our panelists for joining us today and look forward to your testimony and with you taking the be placed on the record without objection thank you madam chair intellectual property contributes five point five trillion dollars i repeat five point five trillion dollars a year to our economy in fact we have become the intellectual property giant around the world we have traded many many jobs entry level jobs in manufacturing of garments and other products for our development of these high skill high paying jobs and we've offloaded many of them to china so i find it today particularly confusing that china would look at this bargain that has been so favorable to them and begin the process of far exceeding any any moratorium or prohibition allowed under the w we in the united states congress under the chairwoman in my watch participated in china ascending to the w they did so not having met all the requirements but with a promise to meet them and to continue in this direction intellectual property was in fact at the core of the items which shine a had not lived up to their responsibility  promised to over the years countries such as russia have been prohibited and stopped from getting into that for good reason we've seen that china has not gained any respect for intellectual property in fact they continue to be the largest customer in asia for microsoft products they simply don't buy them madam chair it's very clear that we have to say that china has a right to have such special property as is necessary for its own defense we need to maintain a policy that certain technology must be domestic for our national security certainly neither one of us would want  the ability to put a space based defense system into space not to be domestic mystically controllable unknown but china very clearly is trying to force partnering with s companies transfer technology for purposes of getting a jump start on that next generation of products and services so madam chair i appreciate your viewing something which is committee has a long standing belief that we now know only control the procurement process government wide but we have and by necessity a requirement to look beyond our borders for free and fair trade and access panel this morning and it's the policy of the committee on oversight and government farm where and all witnesses before they testify and i'd like to ask all of you to please panelists will first start with mister mccauley who is the assistant u s trade representative for the intellectual property innovation at the office of u s trade representative and he serves as the chief policy adviser to the state's trade representative on the intellectual property and trade issues and serves as the lead u s trade negotiator on intellectual property and innovation to the w t o and trips council and as part of the u s free trade agreement negotiations next to him is mr robert stoll who is the commissioner of patents at the u s patent and trademark office where he oversees the administration of all u s p t o patent program and prior to his current appointment mr stroll served as director of in forstmann for us p t o as well as dean of education and training programs for external agency stakeholders involved with intellectual property issues mr jason weinstein is the deputy assistant attorney general of the criminal division at the u s department of justice before joining the criminal division mr weinstein served as chief of the violent crime section in the u s attorney's office for the district of maryland and as assistant u s attorney for the seven district of new york before becoming a federal prosecutor mr weinstein served as special investigative counsel in the justice department's office of inspector general mr william kraft is the acting deputy assistant secretary of the bureau of economics energy and business affairs at the u s department of state prior to this he was director of the office of multilateral trade and agricultural affairs he is the lead officer in the state department all issues related to the world trade organization  at the government accountability office where he oversees issues associated with intellectual property rights and international trade negotiations and i asked each of the witnesses now give a brief summary of their testimony and to keep this summary under five minutes in duration your complete written statement will be included in the hearing record and before we proceed i'm going to miss to if she would like to make an opening statement chair one thank you to the ranking member mr bilbray and all the members of the subcommittee for the opportunity to join you today and talk a little bit about the mission of the office of the u s trade representative in respect of the protection and enforcement of intellectual property rights as you said in your opening statement madam chairwoman one of the factors that makes american exporters and investors competitive across so many sectors of the global economy is the value we add to our products and services through innovation and creativity intellectual property rights and their protection and enforcement are critical to securing that comparative advantage in global trade and thus to securing the jobs of workers in america's many innovative and creative industries providing leadership in the creation and maintenance of a global infrastructure of trade rules to support american exports and investments is a critical part of the work of the office of the u s trade representative it's a job that we carry out in coordination with the other agencies represented here at the table and in coordination in coming days with the new intellectual property enforcement coordinator who's recently been confirmed by the senate we carry out that mission in many ways one of the best tools we have is one that was handed to us by the united states congress of consistently monitoring our partners trade practices through the special three zero one report if they know that we are holding a magnifying glass up to their actions they will be less likely to break the rules and special zero one is one of our biggest and strongest magnifying glasses we use it to scour the globe for copycats and counterfeiters and call out countries that provide safe havens but the theft of american intellectual property challenges in the scope and sophistication of international piracy and counterfeiting the special three zero one process has expanded in scope and breadth to match that challenge for our most recent report protection and enforcement and also afford an opportunity to give credit where it's due the republic of korea is a good example of both of those it was removed from the watch list in two thousand and nine marking the latest in a series of improvements in the asia pacific region and around the world that have been encouraged and recognised through the special three zero one process created by congress we hope to see that trend continue and spread it is vital that trading partner such as china russia and other countries on the priority watch list and watch list follow suit it is also critical that value trading partners like canada and spain step up and confront emerging challenges like internet piracy china still presents significant challenges to the protection and enforcement of intellectual property rights including the indigenous innovation challenge that was mentioned by you madam chairwoman and by mr in your opening statements with china we are making use of every available trade tool to achieve progress on ip issues madam chairwoman let me say it as plainly as ambassador kirk has said it china must do more to protect us intellectual property rights in addition to reporting and engaging bilaterally u s t r is also providing essential leadership through trade agreements to strengthen norms for the enforcement of intellectual property rights a key u s t r initiative in this area is the anti counterfeiting trade agreement or active in that effort we're partnering with a group of key trading partners representing about fifty percent of global global merchant merchandise trade when it's finalized the act it will help governments around the world to more effectively combat the proliferation of pirated and counterfeit goods with  that i will close my summary of my remarks and thank you and the members of the committee for the opportunity to be here today thank you madam chairman watson and members of the subcommittee am pleased to be here to discuss the efforts of the department of commerce and the u s p t o in promoting the protection of intellectual property rights in a global economy innovation and creativity are essential  ingredients of our nation's prosperity appropriate protection of that innovation and creativity domestically and internationally is necessary to stimulate job growth and promote our economic well being that's why safeguarding these important assets is a top priority for all of us at this table and throughout the obama administration it is truly a team effort among our agencies to help fight piracy and counterfeiting within an outside our borders the department of commerce plays an important role in encouraging innovation and strengthening the nation's ability to compete in the global marketplace the u s p t o statute directs us to advise the president through the secretary of commerce on intellectual property issues and to advise other federal departments and agencies on matters of intellectual property policy in the united states and in intellectual property protection in other countries to this and we are actively involved with the delap meant of overall u s government ip policy we work to develop unified standards for international ip provide policy guidance on domestic ip issues and work with other agencies to secure strong ip provisions in free trade and other international agreements we also provide training education and capacity building programs designed to a respect for ip and encourage the development of strong ip enforcement regimes by us trading partners madam chair my written statement contains more details of the wide range of our efforts in my limited time here i'd like to highlight some of our programs and initiatives the u s p t o coordinates organizes and participates in intellectual property rights training to a capacity building and technical assistance we are especially proud of our global intellectual property academy or get pa since its creation in two thousand and five the u s p t o has provided in its two hundred twenty thousand square foot training facility in alexandria virginia a high level capacity building programs and technical assistance training to foreign judges prosecutors customs officials ip enforcement personnel as well as officials from copyright trademark and patent offices from around the world those individuals come to the us to learn discuss and strategize about global intellectual property rights protection and enforcement our program goals include fostering a better understanding of international intellectual property obligations and norms exposing participants to the us model of protecting and enforcing intellectual property rights and promoting discussion of intellectual property issues in a friendly and supportive environment the academy provides both multi lateral programmes and country specific programs as needed we further invasion programmes dedicated to specific legal as shoes or technologies as the academy continues to develop the u s p t o s programs reached an average of four thousand individuals in over one hundred countries and you will leave in partnership with the department of commerce says u s and foreign commercial service and the department of state u s p t o intellectual property experts are set out to strengthen global intellectual property protection and foresman overseas in selected high profile countries where u s ip challenges are greatest the ip experts support as part of the overseas intellectual property rights attache program s embassies and consulates on i p r issues including devising strategies to stop counterfeiting and piracy and supporting u s government efforts to improve the protection and enforcement of i p r they also advocate s intellectual property policies coordinate training on i p r matters and assist u s businesses that rely on i p r protection abroad the u s p t o has offered free programs and materials to help small and medium sized businesses improve their understanding of intellectual property increase the value of intellectual property in their businesses to protect against counterfeiting in piracies and of their intellectual property through our public awareness campaign an important effort is the intellectual property awareness campaign aipac i p basics program offered nationwide by u s p t o since two thousand and five to over one thousand small and medium sized businesses these programs included presentations by our attorney average however because we understand that in the global economy a successful criminal and forstmann program requires a strong international component we also work in partnership with our foreign law enforcement counterparts whenever possible which has resulted in great successes for example in january of this year kevin jew was sentenced to seventy eight months in prison for conspiring with others in china to traffic in counterfeit cancer drugs and other pharmaceuticals many of these counterfeits were lacking active ingredients or contained u fast lane which targeted multinational organized criminal networks in the underlying investigation which was one of the largest international law enforcement actions ever taken against online piracy the f b i worked with foreign law enforcement to conduct over one hundred  twenty simultaneous search warrants in twenty seven states and a dozen foreign countries and these are just two examples of the many many successful international enforcement efforts that we have just begun and we're proud of all of them and they all demonstrate the value of strong relationships with international and for law enforcement the cornerstone of the department's international efforts is the intellectual property law enforcement coordinator program with the help of the state department we have deployed to experience federal prosecutors to serve as one in southeast asia and one of eastern europe to provide training and operational systems in those regions working with the applied for asia the department also spearheaded the formation of the intellectual property crimes enforcement network which is help to strengthen communication channels and promote the informal exchange of evidence among member nations in asia in addition the department through the criminal division co chairs the intellectual property criminal enforcement working group which is part of the us china jointly is on group for law enforcement cooperation the working group has fostered an open dialogue criminal ip enforcement has increased information and evidence sharing and has resulted in a number of successful joint operations between u s and china including operation summer solstice which targeted a criminal organization believed to be responsible for the distribution of over two billion dollars where the pirated and counterfeit software summer solstice was the largest ever joint criminal enforcement operation between the f b i and law enforcement in china more generally the department is placed great emphasis on efforts to strengthen enforcement capacity overseas from europe to asia to africa to south america to mexico in fact over the past five years working in partnership with some of the agencies represented here on this panel with me  provided training and education on ip enforcement to over ten thousand prosecutors investigators and judicial officers from over one hundred countries and because i p crime has increasingly become the province of international organized crime we're working to identify and to address links between organized crime and intellectual property and the department is already taking a number of significant steps to incorporate into its existing international organized crime strategy as directed by the pro i act in the missions that i've outlined we work closely with all of our partner law enforcement agencies including through the national intellectual property rights coordination center and our ability to increase the number and scope of our ip investigations has also been bolstered more recently by the addition of thirty one dedicated f b i special agents to investigating ip crime and we appreciate congress decision to fund those positions finally the department worked extensively on ip issues with other agencies in the federal government including those represented here today and with the industry's most affected by ip crime and we also look forward to working closely with victoria aspinall who is confirmed just last week as the new ip enforcement coordinator and with our partner agencies on the newly formed or to be formed divisor committee  indigenous innovative our innovation product and my understanding at these regulations would in essence create preferences for chinese vendors and eliminate us information technology and into communication industries from china's government but q are meant an acquisition market and this proposal obviously raises multiple issues surrounding compliance with the international trade laws as well as our bilateral agreements with the chinese government can you address  madam chairwoman this is indeed a serious concern that you've identified the indigenous innovation preference issue certainly it's in the interest of both the u s government and the chinese government to promote innovation there are appropriate ways to do that and there are inappropriate ways to do that let's be clear innovation is no excuse for discrimination we are very alert to these industry concerns about china's indigenous innovation policies in a wide range of areas including the recent announcements out of china on a preference list we are in the process of expressing our serious concerns the interagency team in the us government has sprung into action and ambassador huntsman has received instructions and he and his team are in the process of raising our questions with all of the appropriate counterparts in the chinese government and i can assure you so i'm really pleased to hear that you're working through the ambassadors i've been there and we really need to have close scrutiny and interchange back with the administration as to how we're progress in ok the two thousand and nine special through a one report that was mentioned highlighted the increase incidence of internet privacy among u s training partners some countries such as france and britain have pursued legislation that would cut off internet access for users who repeatedly are caught engaging in in peer to peer file sharing and any of you that would like to address this particular question please feel free to do so do you believe that this is a potential  thank you thank you miss this madam chairman i'm not sure that there was a day that that type of activity would be something that the united states would want to follow i think that there is an intent  o to try to take care of the issues related to pi in many manners but i'm not sure that we moving access i think it was in france it's a three strikes you're out program i'm not sure  that would be palatable here in the united states i think that taking many other actions to be able to piracy in the united states is an important interest in all the agencies represented here but i'm not sure that's the right direction to go in with the motion picture association of america with software alliance with the entertainment software association to help identify emerging trends and identify and prosecute the most serious online copyright great successes over the last few years perhaps more than any other and the program that i mentioned is a key component of that strategy the fact that sites are often posted on servers that are located overseas presents investigative challenges but the challenge is that we're working very closely with our foreign partners to overcome the fact that a person commits this kind of crime from what he thinks is the privacy of an apartment or an office somewhere in eastern europe for example or asia is not the safe haven that used to be we are working very hard with our foreign partners not only to aggressively enforce criminal laws and to take down these organizations and individuals engaging this conduct but we're also working to increase their capacity so that we can reduce the number of countries throughout the world people who kind of behavior and criminals who quickly criminal organizations that engage in this type of online piracy overseas are using overseas servers and other assets should make no mistake about our resolve to find them and locate them and our increasing capacity don't have the stomach for it i'm not sure should have said don't have the stomach i don't think that the that would be the direction we would go because their access for informational purposes would be removed completely as well so we've got a balancing act interest here i think there are many mechanisms where we are able to take care of the problem related to piracy but i'm not sure that that it would probably be in in the interests of our society to block access for other purposes of information exchange education of internet access so i think that that's what i'm trying to say i think that there are mechanisms that are in place i we work with m p with there are many different things to do i'm not sure just absolutely black blocking asset access would be something that we would want to do and i apologize i'm not as well versus obviously i should be when you say either verify it or refute it is that when it comes to intellectual pirate piracy china is the somalia of the intellectual world is that fair to say tightest net enforcement capabilities that anybody's ever seen on the face of the earth so their argument for not being able to crack down really is it is not germane to this issue  question is i that is with at least the huge reputation of being the pirating capital doesn't that give indications the other countries that look if you're big enough that you're rich enough that you intimidate the rest of the world you can get away with a lot of this or maybe it's the other way that look look what's going on in china why don't we try it in monterrey mexico or why don't we try it in singapore or singapore is kind of a title community so you might have that problem  questions about how that gives a potential for other parts of the country to expand on the other parts of the world to expand into the pirating aspect i could speak to that mr ranking member if i could the i think it's important to bear in mind that china in addition to being the world's leading export knockoff product is also really suffering in terms of its domestic market the consequences of really decimat markets for software music films and other ip intensive products because of inadequate respect for i p r so there's a lesson there other trading partners as well not to go down this path and we have seen in the asia pacific region and around the world other trading partners such as the republic of korea such as hong kong taiwan singapore take a different path and really look towards growing republican country along with can i what are we doing to work with them internationally because i saw your report where you talk about domestically in the coordination that we have here but what are we doing to work with that say with the of coordination among agencies that would be responsible for port security and so one of things that we did was work aggressively at three of the largest ports in mexico in monterey to improve the level of coordination to the inspectors and the other people responsible for the security the ports how to do target inspections how to identify potentially infringing goods and it at least two of the ports if i recall correctly there had never been at least one of them if not to their never been infringing goods prior to our training and our engagement  mexico it's not the only one but it's one of the most prominent when working with our domestic partners the different law enforcement i know that i've heard from the u s chamber of the public saying that you know we got so many threats to our country that when it comes to kind of fading and this type of piracy that our resources are not put there is there anything else we can do to help our businesses to to protect them from this economic i believe we are congressman ambassador kirk said repeatedly ensuring strong ip protection is one of the top priorities for the president's trade agenda it's something that we're working to move forward  through the implementation of free trade agreements that are already out there close monitoring and enforcement to make sure that those agreements are properly implemented our trading partners deliver on their promises going forward as we look toward new trade agreements as we look to  getting the trade agreements that are out there into force we will continue that emphasis on proper implementation of ip provisions with efforts like counterfeiting trade agreement and the special trio one report we can continue to thank you madam chair well this is for any of the panel as the g a o g a o has identified continued weakness in global intellectual property rights protections and enforcement mechanisms and specifically cites and from what i can tell there is not one single agency that leads the charge i know that there was legislation that created the intellectual property enforcement court nater and this is one step forward but that that person has not yet burning the midnight oil last night on her first day at work because she talked with me a little bit about how we can work together looking very much forward to teaming with her we already work intensively with the other  through interagency coordination of trade policy under the rubric of the trade policy committee mechanism that's been set out by congress as a vehicle to coordinate including on intellectual property trade weinstein the world health organization estimates that fifty percent of drugs worldwide are counterfeit which translates into approximately thirty eight billion dollars in lots of legitimate u s corporate sales here due to the sale of these counterfeit drugs this statistic raises great concerns for me because these are life threatening type of issues and they're huge ramifications to consumers who knowingly purchased these counterfeit drugs and put themselves what  not stopping at the borders and where we're trying to find people who engage in this kind of wherever they are with their china or here and speaking of china one of the biggest cases involving counterfeit products it's not a pharmaceutical but it's a kind of product that affects health and involve prosecute folks who are willfully violating our laws and introducing pirated antibiotics and other substances to force growth into our livestock chain here in to go to eat a wind and solar you could go to neighborhoods in taipei or hong kong and lightly get knockoffs or infringed items at a discount if you look at it foresman is everything it should be and the estimate is accurate that we're losing about a quarter of a billion dollars a year because of intellectual property infringements of one sort or another the best estimate i've seen in terms of  agent seizures of pirated materials is if the value is something south of three hundred million in other words about one percent of the estimated cost of the total infringements does not  that while you're not expecting everything to come through our borders but one percent sounds pretty low in terms of our success rate at interdicting these materials or agents coming into our our country coming talking about goods that are coming here electronically the problem is far greater than the resources on has available either investigative or prosecutor resources and i think the problem grows as more and more piracy is committed through online means i'm not i'm i'm an optimist by nature but i'm also particular optimistic because i think the people who we have conducting these about prosecutions are are the best trained in the world and work very hard to  keep pace with that and indeed to be one step ahead of the people that we're investigating and so i think that we've got people doing it we just don't have enough of them and the problem is of a magnitude that is far greater than our resources allow having said that i think that one of the things that it demonstrates is the need for us to be able to turn ourselves into force multipliers and and that is to expand capacity overseas so that our overseas partners can engage in aggressive actions within their own borders and i'll give you just one example that i think is really a lot  and they didn't know how to conduct an investigation that type of the like work with them and their technology was quite outdated they had an outdated personal computer and they had a dial up internet connection and using data personal computer with a dial a better connection internet connection following the guidance given to two broad aspects to this one has to do with capability on the ground and our counterparts the other have to do that with political will and i'd like the panel to address that candidly we know that in some cases including trading partners and allies the united states are not seized with this mission how how severe are we prepared to be and historically how severe have we ever been and impressing upon an ally or a trading partner or even somebody who's near those categories that we mean business and we're prepared to exact a price if they don't in fact change their behavior from the top i can speak to that congressman i think that we need to have a strategy that proceeds on two fronts one is to be very frank and when appropriate very critical of our trading partners who don't step up to the challenge and the other front to work in tandem with our trading partners through leadership and partnership to really get at this problem better because on the one hand we have to be honest enough to call it out when the problem is bad on the other hand we cannot solve this global problem alone we have to have international leadership and partnership and be working with our trading partners and sometimes we have to be capable of walking and chewing gum doing both of those things at the same time with the same trading partners  there have certainly been occasions in the past when we have gone all the way to the extent of trade sanctions with trading partners who refused to protect u s intellectual property the most recent occasion with ukraine  all of the tools of the trade arsenal are available to make progress where it's appropriate and we're continuing to use all the tools at our disposal that i'm sure on my time is up and by the way i'd ask and ask assent to my opening sta a question for mr connelly other members of the committee regarding our current approach to supply side enforcement when it comes to pirated content on the internet and i was a little discouraged hear your critique of demand side restrictions because i wonder about the efficacy of a strategy that effectively tries to play whack a mole around the world we're talking about one guy with a computer your resolve but as we look at the trend line over the last several years of pirated content and the number of sites that are selling them are going in only one direction and so i guess i ask would say that the greatest investment of resources that we have made is in this program because with the cost of putting one prosecutor in of foreign region or foreign country that person can have an impact on enfor operations but transnational porson operations and an important operations in the countries and regions which is operating that they go far beyond what that one process prosecutor can do working on to even a very full caseload here in the united states so it's a  it's not an expensive program by any means the cost of putting a person in his family overseas for an extended period of time is not small but it is a sound investment in in our ability to to have greater impact on the force inside not only here but throughout the world  in terms of how concerned you should be that someone has the capacity to basically take up and move their operations i would say there is reason to be concerned about it but by no means are those methods of detection or evading capture  full proof in fact quite the contrary as we have improved our relationships with our foreign partners as we have increased our ability to share evidence and to share intelligence and share information more quickly than we ever have before the person who picks up a enforcement against people who are operating in their countries but that they can be more effective in their own countries so i think that we are it's our determination to get people wherever they are and to find their servers and to find their assets wherever they are in the world has in america can you speak in general terms of those nations that pose the greatest threat to our information technology vendor supply chain for counterfeiting and national  hearing what i can say is that that the regions that are the greatest concern to us right now i think are china obviously as we discussed earlier south south america and parts of africa  address that as we can but i think the regions that we are the most concerned about in terms of not just online piracy all types of piracy would be would be south america and and and africa and china and as i mentioned earlier i think  one area that you keep coming back to is the area of human capital and not necessarily committing another human capital planning and i guess you're speaking of  we're now going to proceed to second and final panel and we'll try to get you out of here by noon and so we have to watch our own time in the committee but now that we've narrowed down to just three of us i think we can do that it is the policy of the committee on oversight and government reform to swear in all witnesses before their testify and i'd like to ask all of you to please stand and raise your right hand do you solemnly swear to tell the truth the whole truth and nothing but the truth thank you let the record reflect that the witnesses answered in the affirmative and i'll now take a moment to introduce our prestigious and distinguished panelists i would first like to start with mr dan glickman who serves as a chairman and c e o of the motion picture association of america and prior to becoming the leading voice for the motion picture industry and some of my congressional district most prominent employers mr goodman probably served as a member of congress from the fourth congressional district of kansas for eighteen years as well as the secretary of agriculture in the clinton administration in addition to his current position with him he serves on the boards of the american film institute  the chicago mercantile exchange communities in schools and the center for u s global in gateman he is also a member of the genocide prevention task force which is  chaired by secretaries madeleine albright and bill cohen and a member of the council on foreign relations and a member of the academy of motion pictures arts and sciences mr robert holliman is the president and chief executive officer of the business software alliance he is widely known for his work on policy related issues affecting the technology industry including intellectual property laws cyber security international trade and electronic commerce and before joining the b s a he spent eight years serving the pharmaceutical research and manufacturers of america referred to as pharma and prior to joining pharma mr two he served in multiple government affairs roles in the medical device and telecommunications industry before entering the private sector he served as both a desk officer and deputy director in the equipment officers of the u s department of commerce and finally mr frank varcoe is the vice president for international affairs at the national association of manufacturers he serves as its lead lobbyist and spokesman  issues of trade currency and other issues related to global markets and access and prior to joining them in midst of arco had a three decade trade policy to rear at the u s department of commerce and so with out objection before proceeding to testimony from my panels i would like to submit a statement for the record on behalf of a coalition of music ministry representatives that include performing artists publishers songwriters composers and record labels and what is telling to me from their testimony is how critical i p r protection enforcement is to industry stakeholders across the entertainment spectrum including independent artists and major recording studios alike and i am proud to have the music industry as a major constituent in our california's thirty third congressional district and welcome the many cultural and economic contributions they provide to our nation and as i travel abroad and they do so myself as representing los angeles california and covers city and i get nice nods but when i say hollywood big smiles so our industry reaches heavy on of the globe and pretty much represents who we are at least we try to put forth the movies that represent the true beliefs of america so i ask that each of the witnesses now give a brief summary of their testimony and to keep this summary under five minutes in duration if possible and your complete written statements will be included in the hearing record and so mystical like to start with you and welcome thank you madam chairwoman thank you very much for your leadership on film and entertainment issues it's a great honor for me after spending eighteen years in the house of representatives to come back here and to be in the greatest a little to feel like home it feels like home and also it makes me yearn to come back although i have no intention of going down that road but i would say that motion pictures directly or indirectly we employ about two and a half million people in this country we are one of the few industries that has a positive balance of payments surplus with every single country in the world we do business with  movies are produced in television shows are produced in all fifty states now employment in all fifty states and if you talk about a symbol of america entertainment is probably a profound and powerful symbol of everything to do with our great country so that this is a really important industry an important issue for us as well and these jobs are good jobs high paying jobs and important to the country as well so i want to and by the way over half of our revenues are derived from outside the united states so what happens in the rest of the world trade issues are life or death for us because people do love our products so what are what are the things that i was listening to the work of the government officials and by the way they've done a very good job u s t r just the other agencies here i must say both in the bush administration and in the obama administration have picked up these issues and the importance of intellectual property rights protection can always do more we talk about that i'm going to talk about some additional suggestions the first thing is we now have a coordinator we've talked about that under the pro y p bill we have an ip coordinator this is very important somebody that's accountable that we can focus on that we can go to and can help lead and marshal resources and in force and policy throughout the united states government the question now is to make sure that she and her organization realize the full potential of this position by funding sapir oh she's a critical senior level official in the u s inner agency team that position has not been confirmed yet that's very important to get that done we talked about the special three zero one process this is a critical tool  deficiencies in foreign markets and serves as the administration's overall roadmap and just to give you some idea i was over in spain recently spain is a very serious problem involving internet piracy president obama met with the president of spain mr zapatero raised the issue of internet piracy spain is on the special three zero one list and it's hot because of that government to government coordination and impacted it's highlighted there are hopeful desire to fix some of the problems that we have here we have something called the general system of preferences g s t program which is intended to offer trade benefits to developing countries while at the same time protecting u s interests however too frequently there is a disconnect between special three zero one which are the countries on our watch list and trade preference programs with some of the most egregious offenders of u s intellectual property rights receiving preferential access to the u s markets despite their long standing failure to effectively protect us creativity so in my view our foreign policy needs to be more coordinated and cohesive in this particular result linking special trio three zero one a trade preference program eligible but eligibility would provide us a powerful enforcement tool we have a variety of trade agreements free trade agreements there are three pending right now colombia korea and panama we want to work with you and your colleagues to see the three pending implemented so that we can benefit from the negotiated i p r obligations of our trading partners that they all involve i p r in the case of korea they are there are very significant improvements and they are in force mint of intellectual property as a result of these trade agreements and it's something that we think is important to us w not a free trade agreement the u s motion picture industry has a keen interest in the anti counterfeiting trade agreement or actor which is in particular dealing with issues of internet piracy and i would echo the call of the comments have been made about having more i overseas in our industries above all i guess my point in all of this is that this is a big dynamic important industry for america it's very much the face of the soft power of america our intertainment world and  having you all engaged in this having an enforcement team and a trade team and our u s government engaged in this we make real progress in dealing with what mr bilbray calls the problems of china which just keep going and going and going and although there is some hope for some improvement there but but the fact of matter is we've made progress in other places in the world and we appreciate your interest in this issue thank you so much and that he says sucking the staff we're going to health care it's about education it's about the environment and national economic security the software industry is helping to provide specific solutions to these national needs the trade surplus but all of these benefits are endangered by software theft the compelling statistic for today is that software theft reached three billion dollars last year most software throughout the curs when it otherwise would business makes illegitimate copies of software for its use when repeated millions of times by businesses and consumers throughout the world this has a staggering cumulative effect harms of software theft includes lot lost jobs industry and tax revenue but what has been missing from this equation is the way this competition a company that steals business software has an unfair competitive advantage over an enterprise that pays for both get roughly equal productivity benefits from the software but only one  software piracy is a problem around the world particularly acute and many of the fastest growing developing markets that have disproportionately high rates of piracy let me talk about china wherever i travel in the united states and around the world the place i'm asked about most frequently is china in china only twenty percent of software is paid in comparison in the us eighty percent  that means that there are a whole host of chinese enterprises that are enjoying an unfair advantage over their u s counterparts this unfair advantage is exacerbated by the new industrial policies that threaten to shut out u s companies madam chair one thank you for your comments and your opening for your questions to the government witnesses today steps by the s government to ensure that providers of software and other innovative technology can continue to have access to china as the fastest growing market in the world are critical companies in six critical sectors from software telecommunications and high energy efficiency products were given a deadline to apply to get on the list of preferred products the chinese government will buy we believe that few if any u s companies will qualify lest they turn over their ip to a chinese entity this could amount to a potentially massive transfer of jobs and economic power madam chairwoman that is a step that is not in our national interest or in the interest of u s companies china made this announcement just a few weeks ago it violates a series of credit but the administration is actively pushing back on this policy and i urge you and the ranking member to strengthen their hand by expressing your own opposition to china's ambassador here in washington this issue is important not just to the industry but to a wide range of business and governmental interests in the u s and abroad and indeed i could add that it's not even in china's own interest to exclude their ability to obtain the best products from the u s or elsewhere in closing i would ask all of us to begin thinking about intellectual property theft in a different way the problem is more pervasive it's more complex and it's more pernicious than it was just a few years ago quite frankly i think we need to think of another term other than the word piracy for this to talk about the broad in scope of the problem national implications national economic implications and thank you about the importance of ip intensive industries a corner the commerce department currently driving over fifty percent of our exports and forty percent of our growth here in the united states very important economic industries farmers member companies are innovators devoted to developing medicines  allow patients to live longer healthier and more productive lives farmers membership ranges in size from small startup research firms to corporations that employ tens of thousand americans and income and encompass both pharmaceutical and biotechnology companies the research based pharmaceutical sector is one of those knowledge intensive enterprises of the us economy in two thousand and eight are in sector invested over sixty five billion dollars in research and development now that amount about seventy percent was invested here in the united states the pharmaceutical industry supports more than three million jobs and directly and employs nearly seven hundred thousand americans to foster continued economic growth and deliver breakthroughs our sector relies on policies that promote and protect pharmaceutical innovation especially complimentary protections of patents and data protections our companies face significant challenges to discovery development commercialization of new medicines adequate protection of intellectual property both within and outside the us is essential for continued vance's against challenging and cost diseases in addition access to international markets is critical to are cheering that these products meet reach as many patients as possible in that regard for members especially appreciate the continuing strong efforts of us to be our state commerce and p t o to promote compliance with international obligations by our trading partners our member companies also undertake significant research both privately and through public private partnerships to develop medicines that disproportionately affect poor countries and addition to research in this area in recent years our industry has donated more than mine billion dollars to access to medicines programs more than the entire foreign aid budget of countries like canada or the netherlands and provided enough health interventions to help one point seven billion people in the developing world currently nearly three thousand medicines are under development including three hundred medicines for rare diseases seven hundred fifty for cancers and a hundred nine to fight hiv aids a recent test top study estimated the cost of developing a new medicine at over one point two billion dollars a year and for every approximately ten thousand compounds that enter the r and d pipeline eventually only one comes to market and can take as long as fifteen years to complementary legal mechanisms in particular provide periods of xclusive marketing for new therapies these and mechanisms are essential to attract investment needed to fund the r and d process first patents protect inventions in the made in the course of research in development by giving the innovator the right to prevent the un authorized use inventions for a defined period of time second data protection has proven essential clinical data represents the investment in conducting the rigorous link the preclinical and clinical studies at the f d a requires one of our concessions made by the u s in the trips agreement was to provide developing countries with a number of extended transition periods implement new standards as of two thousand and five all but the least developed countries are required to comply with provisions of trips many of these trading partners have been it benefited tremendously from the openness of our market and how the industries that aggressively compete with our own it even now many of these countries have not fully met their trips obligations to provide effective ip protection another important area of concern which was discussed earlier is counterfeit drugs weak regulatory and i enforcement regimes in some countries i contribute to this problem which increases health risks the patients in addition to the failure to meet ip obligations many countries are at barriers to reduce the access of our products clearly these research adversely affect the health of patients in their countries but they also have potential negative effects on the united states and consumers will block worldwide we believe it is critical for the u s government to take action against measures that the vibe but that prevents fair and equitable market access for our products our members believe the special through one process is a particularly useful trade tool for which these barriers and priority markets can be removed in addition to special three zero one the administration should use all available trade tools including bilateral and multilateral trade negotiations to pursue a positive agenda on pharmaceutical trade for example the us korea free trade agreement negotiations included provisions on pharmaceuticals in specific steps to improve the transparency and accountability of the administration to build on the success and include similar provisions in agreements with future trading partners thank you again for the opportunity to speak with you today harman and its member companies believe it is crucial for this  to continue on this issue that we've been referring to china is proposed regulation of what's being called the national indigenous innovation product that certainly is the intent of those regulations that something would have to be completely indigenous to china which would require the transfer it's certainly not clear that  every computer applications and devices communications products modernized office equipment software new equipment and highly energy efficient products and the understanding is this will be latin america and governments understand that this could be sweeping in scope and what we need is to be rolled back while there are further discussions with the u s the e u and other major major trading partners  jobs because not only does this take away the potential for job growth for american companies and software and other industries in china but it could cost the loss of jobs we currently have today if that large market think looking at the lack of oversight and trade agreements in the past create a situation like what we've got right now with colombia and especially panama does hurt when you've got a great proposal like we've got with panama they want to buy our bulldozers mr borrow they want to build a canal with american equipment and washington's political structure is whole in this up when there was any agreement i saw that should be parallel could become a parallel as china as we see on the horizon the question is is it just because as we would say too big to fail too big to confront now that we are confronted with an eighty percent of world hiring coming out of one political agency and we can't say that they're not willing to enforcement we saw how effective they were with the milk situation sort of given a i g pay raises they take people out in the backyard but you want to clarify exactly how we could be a little tougher on this and i mention this before we have this conflict because we have these countries on our special three zero one list and yet the same countries there are general as a preference one is for example as russia eight years ago the u s industry submitted a petition to suspend j s p benefits for russia which has been on the priority watch list for the last twelve years which has some of the highest piracy in the world however no actions were taken on the petition and copyright piracy rages in russia ironically russia is one of the fastest growing legal markets as well for u s products so these these are as you can imagine very complicated issues china my friend robert talked a bit about china course file the deputy ok so against china for basically inadequate intellectual property enforcement we largely won that case the chinese are going to be appealing that case and i i think one of the things that's helping us now more than what we faced in the past is the rest of the world is coming along with us now if it were viewed just as the u s versus china will probably wait for another two hundred fifty years to get really anything done but if it's the rest of the world involved in this case if they join with us on the manufacturing sectors the pharmaceutical sectors the automobile sector the entertainment sectors and the agriculture sectors and i think that we can have some impact they are in the w t o now and one positive sign i see out of china for the first time is a great entrepreneurial class that's building that wants to protect their own intellectual property and sees that see themselves as victims of those of our government action in this regard but it is not easy and there's no there's no simple solution except pressure at all levels from the public sector and the private sector and it's had some impact in other parts of the world it has not yet had dramatic impact in china there's no question about it as a european union backing us up on this that they are beginning to back us up a lot more than they used to be for example  t well for a while you know they they let us fight the battles for them as they offer us gotten into that habit but now i mean europe in the united states share many of the same perspectives on manufacturing and intellectual property issues in the film issue for example there's a quota china will only import twenty foreign films a year under what you call normal revenue sharing agreements and the u s has maybe thirteen or fourteen of those and the rest of the world has six or seven of those of course you can find every any movie ever made in the history of the world on the streets of china as well but the europeans are beginning to join us on those issues as well and by the way the europeans are making their own a positive movement in the area of piracy you mentioned both france  that are that are moving ahead particular in the area of internet piracy and that's a positive sign not only for themselves but also how it relates to places like china that that's we've seen very little movement the past now let's get back to this so this nexus between if you want to be our first class trading partner you've got to be responsible to the intellectual property issue and i see this is a major issue i've got scientists that have developed a new you know genetically altered algae is that can where you can't be broken you can't play one game here and then expect to play the other game over here i think it requires quite frankly much greater attention to the consistency that exists in the world in there where we kind of turn a blind eye on some things for political reasons and our trade agenda suffers that that is something that we really need to move away from and i and i worry about it madam chair that the fact is the big guys get away with murder while the little guys like panama are waiting in hand with everything we've ever asked from them but because they're so little we don't want to bother with the negotiations and i just think it sends a really a wrong message and i think any parent would would never accept the same thing in their family and i don't think in the international community we should accept it either thank you very much thank you  mr too he california is home to many research institutions from well respected universities to biotech firms and in fact this state is home to two thousand and forty two bio med companies in fact the california bio med industry has grown from ideas first germinated in the state's first universities and flourished through entrepreneurial commitment and investor financing to create a very strong industry that's led to breakthrough technologies and therapies that have helped patients around the world these businesses create high paying jobs and keep more than two hundred seventy thousand californians employed and all of this is dependent on patent protection that a strong how do protection i can i would appreciate the opportunity perhaps to discuss a little bit more with some colleagues and get a more complete answer back to you about some of the areas and ways we work with some of the california medical universities but as i understand it we very much share the concerns that countries around the world need to enforce patents need to provide appropriate protection for our clinical data and in many cases that's not happening the u s really leads the world in its protection and we're finding that that  constituents who work in the film industry either in editing or even acting and i know how important a strong and robust film industry is to them not to mention to the overall u s economy i know the industry's working hard with international governments and the federal government here at home to ensure that our property laws are adequately enforced just yesterday because a she was successful and helping to put an end to the notorious illegal website that was operated in china following that model in our country we're working with the internet service providers very diligently to get them to do the same kind of thing that is permitted under something called the digital millennium copyright act which is the d m c in which all of this is done manufacturing software pharmaceutical automobile and everything for the first time in the last four five years we are all working on this thing as an american gigantic american that in terms of the movie industry well all the all the organizations are there finally beginning to get some political clout both with respect to american industry generally as well as within our own industry a lot of perception out there that our business is big movie stars and that ninety nine point nine percent of the people make less than a hundred thousand dollars and they work very hard to support their families the people the chairwoman was and i'm sure that occupies her district by and large so with that try to develop the political clout to be able to show that this is important to our government as well as governments around the world i don't want to make this all the voice of gloom and doom i think there is there is a growing political clout to take this on for diverting resources into funds that were not focused on ip enforcement so i don't think the tax mechanism certainly in the current climate is the way to do it i think it's a well i think it's getting the new is already been stated innovation is critical to the future of this country and protecting innovation ought to be a core function of of what the u s government does you know i think in some cases countries around the world think differently about intellectual property ideal actual property is what the only right contained in the main body of the u s constitution article one clause eight section eight it's the only right and we have it so much in our soul of our country which allows us to really lead in innovation and many countries around the world simply don't share that view we as the pharmaceutical industry have worked proactively to and in many cases with partnerships with organizations like p t o in the state department to train judges in latin america to trade patent examiners in china to build that capacity and i think it's it's a cooperation that we need to do more of and it's the right type of capacity building that we're engaged in but by protecting innovation ought to be a core function of the u government bringing that up because i think that's one thing we don't teach our children or our members of congress enough about the intellectual property issue that everything that we looked at what happened after eight hundred in this country and how we basically moved on and on our mother country which was the bass countries like germany and britain we know were always had a big head start but intellectual property allowed us to evolve that's where we did get the carnegie is that's where we did get new processing for creating steel that's where the railroad systems were totally renovated by the american that's where the automobile was involved all of the prosperity that we see in capitalism we got our stand was based on the fact of intellectual property protection that government's place in this great economic boom was to protect those intellectual properties so that they were there there was a return for the investment in and developing these new concepts and i think we grossly underestimate that and i'm glad you brought up the fact that before there was a the bill of rights before we articulated the rights of individuals to do and speak and possess certain things the right to possess and protect your intellectual property was in represent an industry in my district that will give you the final word just i concur with what my colleagues have said this is this is a matter that affects the general economy of the country so i think that if we go down the road of doing special assessments and and special taxes for issues that affect our uses fees or even user fees for four items that affect the country as a whole then you could probably do you could probably fund the government just b nothing else but special assessments special user fees i mean i think that i think the question here is resources but it's also a question of will it's also a question of commitment and what's so great about your hearing today is that the message that's being shouted out from you all is that we we need to sustain this will to take these this problem on and i can tell you from an industry's perspective we are getting our act together without question i appreciate that and i just want all of you in the audience to know this is a very critical issue and this won't be the last hearing as i mentioned before we're going to follow up we want to know what's being done in government and you know we have a theory of paygo and we've got a huge debt to china becomes the central focus goal as you mentioned among your three cs politically we need their assistance in dealing with north korea and so on the largest nation in population on the globe and so it presents some unique challenges to us but we're on it the political will is there we're going to continue to pursue it till we get to resolutions that are workable with that thank you for your testimony panel to thank you for the audience being here and we will adjourn the meeting