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29–757 PDF 2007

S. Hrg. 109–852

STOP!: A PROGRESS REPORT ON PROTECTING

AND ENFORCING INTELLECTUAL PROPERTY

RIGHTS HERE AND ABROAD

HEARING

BEFORE THE

OVERSIGHT OF GOVERNMENT MANAGEMENT, 

THE FEDERAL WORKFORCE AND THE DISTRICT 

OF COLUMBIA SUBCOMMITTEE

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

JULY 26, 2006

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

MICHAEL L. ALEXANDER, Minority Staff Director 

TRINA DRIESSNACK TYRER, Chief Clerk 

OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL 

WORKFORCE AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE 

GEORGE V. VOINOVICH, Ohio, Chairman 

TED STEVENS, Alaska 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

DANIEL K. AKAKA, Hawaii 

CARL LEVIN, Michigan 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

ANDREW RICHARDSON, Staff Director 

RICHARD J. KESSLER, Minority Staff Director 

NANCI E. LANGLEY, Minority Deputy Staff Director 

EMILY MARTHALER, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Voinovich ............................................................................................. 1

Senator Coburn ................................................................................................. 3

Senator Akaka .................................................................................................. 14

Senator Coleman .............................................................................................. 15

Prepared statement: 

Senator Levin .................................................................................................... 31

WITNESSES 

WEDNESDAY, JULY 26, 2006

WITNESSES 

Chris Israel, Coordinator for International Intellectual Property Enforcement, 

U.S. Department of Commerce ........................................................................... 4

Stephen M. Pinkos, Deputy Under Secretary of Commerce for Intellectual 

Property, and Deputy Director, U.S. Patent and Trademark Office ................ 6

Arif Alikhan, Vice Chairman, U.S. Department of Justice’s Task Force on 

Intellectual Property, and Deputy Director, National Intellectual Property 

Law Enforcement Coordination Council ............................................................ 8

Anthony C. LaPlaca, Vice President and General Counsel, Bendix Commercial 

Vehicle Systems LLC ........................................................................................... 10

Loren Yager, Director, International Affairs and Trade, U.S. Government 

Accountability Office ............................................................................................ 12

ALPHABETICAL LIST OF WITNESSES

Alikhan, Arif: 

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 52

Isreal, Chari: 

Testimony .......................................................................................................... 4

Prepared statement .......................................................................................... 32

LaPlaca, Anthony C.: 

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 66

Pinkos, Stephen M.: 

Testimony .......................................................................................................... 6

Prepared statement with attachments ........................................................... 45

Yager, Loren: 

Testimony .......................................................................................................... 12

Prepared statement .......................................................................................... 81

APPENDIX 

Questions and answers submitted for the Record from: 

Mr. Israel .......................................................................................................... 101

Mr. Pinkos ......................................................................................................... 106

Mr. Alikhan ....................................................................................................... 111

Mr. LaPlaca with attachments ........................................................................ 118

Mr. Yager .......................................................................................................... 124

(1)

STOP!: A PROGRESS REPORT ON 

PROTECTING AND ENFORCING 

INTELLECTUAL 

PROPERTY RIGHTS HERE AND ABROAD 

WEDNESDAY, JULY 26, 2006

U.S. SENATE,

OVERSIGHT OF GOVERNMENT MANAGEMENT,

THE FEDERAL WORKFORCE, AND THE

DISTRICT OF COLUMBIA SUBCOMMITTEE,

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 3:34 p.m., in room 

SD–342, Dirksen Senate Office Building, Hon. George V. Voinovich, 

Chairman of the Subcommittee, presiding. 

Present: Senators Voinovich, Coleman, Coburn, and Akaka. 

OPENING STATEMENT OF SENATOR VOINOVICH 

Senator VOINOVICH. The Committee will come to order. Good 

afternoon. I thank all of you for coming. 

Today, the Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia will review the President’s Strategy for Targeting Organized Piracy, also 

known as STOP!. The Subcommittee will also review how the 

STOP! Initiative is working in conjunction with the National Intellectual Property Law Enforcement Coordination Council, also 

known as NIPLECC, to protect intellectual property rights and to 

prosecute those who violate IP Plans. 

In 2002, after hearing one too many stories about intellectual 

property (IP) theft from small and medium-sized companies, I initiated a series of hearings, of which this is the fifth hearing, on trade 

protection of IP, IP theft, and the negative impact of counterfeit 

and pirated goods on the economy. I also began my effort to persuade the Bush Administration and then-Secretary of Commerce 

Evans and then-U.S. Trade Representative Bob Zoellick to take action. In fact, I voted against two trade bills to send a message to 

the President that more needed to be done to protect intellectual 

property rights. 

Therefore, I was very pleased when the STOP! Initiative was announced in October 2004. STOP! is designed to improve the Federal 

Government’s effort to protect and enforce intellectual property 

rights through increased cooperation and coordination among the 

various Federal agencies charged with each oversight. STOP! and 

2

interagency groups such as NIPLECC are leading the Administration’s efforts at combating IP theft. 

Last June, the Subcommittee held a hearing to review the initial 

progress of the STOP! Initiative after its first year. Though the 

STOP! Initiative was making progress, I was concerned that it 

lacked leadership and direction. Strong leadership is particularly 

important because there are so many Federal departments and 

agencies involved in protecting and enforcing U.S. intellectual property rights. 

Shortly after that hearing, I was pleased the Administration appointed Chris Israel to the post of Coordinator for International Intellectual Property Enforcement. Mr. Israel is aided by Arif 

Alikhan, who is with the Department of Justice. These two gentlemen are with us today, and I look forward to their testimony. 

Since the last hearing, Senator Bayh and I introduced S. 1984, 

the Intellectual Property Rights Enforcement Act, which would 

unify and improve upon the STOP! Initiative and NIPLECC. S. 

1984 was referred to the Judiciary Committee, and I am continuing 

to work with that committee on this legislation. 

I want to stress the importance of this hearing to manufacturing. 

In 2000, the United States employed roughly 17.2 million people in 

manufacturing. In May 2006, the number of manufacturing jobs 

had decreased to roughly 14.2 million, a loss of approximately 3 

million jobs. In Ohio, there were more than 1 million manufacturing jobs in 2000. By April of this year, the number of manufacturing jobs had fallen to 810,700. 

While counterfeiting is not the only factor in these job losses, it 

is part of the problem. The U.S. Chamber of Commerce estimates 

that roughly 750,000 jobs have been lost as a result of counterfeiting. Moreover, profits from counterfeit products fill the pockets 

of criminals at the expense of legitimate businesses and their employees whose jobs are put at risk, as well as the consumers who 

buy these fake, and often dangerous, products. 

America’s competitive advantage is derived from innovation and 

rising productivity, and the protection of intellectual property remains one of the best means for ensuring that American manufacturers enjoy the fruits of their investments and innovation. The 

very foundation of our economy is the American entrepreneur. Who 

will want to continue on this path if you know your work product 

is going to be stolen under your nose at every turn? Unfortunately, 

I can give you one example after another of how that has happened. 

I am particularly interested in hearing about the strategies to 

address counterfeit goods from China, which remains the global 

leader in production and sale of counterfeit goods. Customs and 

Border Patrol seizure statistics indicate that almost 70 percent of 

all intellectual property-related seizures involve goods from China. 

However, China is not the only culprit. Brazil, Russia, Venezuela, 

India, and Argentina also have weak records on intellectual property rights enforcement. 

This past May, I was a guest speaker at a U.S. Patent and 

Trademark Office conference entitled ‘‘IP Global Marketplace,’’ 

which was held in Columbus, Ohio. PTO is one of the agencies 

working as part of the STOP! Initiative, and these programs are 

3

part of the ongoing STOP! outreach to small and medium-sized 

businesses. I thought that this conference went very well. I was 

glad to be part of it, and I applaud such efforts. I look forward to 

hearing from Stephen Pinkos, Deputy Director of the U.S. Patent 

and Trademark Office, about this important aspect of the STOP! 

Initiative, as well as future plans for similar activity. 

I believe that if the government’s efforts to protect IP are to succeed, there must be close and seamless coordination between the 

numerous agencies involved in IP protection. In addition, the Federal Government must be able to recruit, train, and retain the necessary workforce needed to implement such programs. The human 

capital aspect of the IP enforcement effort is often overlooked, but 

critically important for their success. 

I look forward to the witnesses’ testimony and learning what 

progress has been made over the past year and what remains to 

be done to address the challenges. Manufacturers, including those 

in Ohio, have run out of patience as they see their jobs lost to intellectual property theft, and the flourishing black market of the 21st 

Century. 

The Ranking Member of this Committee, Senator Akaka, is currently not here, but will be. And I would like to recognize Senator 

Coburn, who has presiding duty at 4 o’clock. Senator, I am glad 

you are here today. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. Thank you, Mr. Chairman. I want to tell you 

how much I appreciate your holding the hearing on this issue. The 

success and future of our country and our trading relations depend 

on the value of our intellectual property. It is as important as the 

defense to our country in terms of our military defense. It is as important as any other aspect of our economy. 

Our education system and our motivation within our economy is 

tuned to the idea that if you have a better mousetrap, you can get 

copyright or patent and trademark protection on that. This government will, in fact, allow you the opportunity to gain the reward 

from that. That has not been so in terms of international trade, especially with China. My Subcommittee held a hearing in Los Angeles on intellectual property and also on counterfeiting of our currency. And the fact is the Administration has not been as aggressive as it needs to be in forcing the hands of those people that we 

deal with, who benefit greatly from having access to our markets 

to protect the real property, the intellectual property, of people of 

this country. I believe this hearing could not be more timely, nor 

more important, to our future, because if you unravel intellectual 

property ownership and you unravel patent ownership, what you 

do is you unravel our economy. Our future depends on our ability 

to have a robust and vibrant economy to secure the future, both in 

terms of military and defense, but also to secure the future for a 

standard of living that is above and beyond everyone else in the 

world. And we have done that through intellectual property advances and through the economy benefiting from innovation and invention in this country. It should be protected and it should be rewarded as a method to advance our Nation. 

Thank you, Mr. Chairman. 

4

1The prepared statement of Mr. Israel appears in the Appendix on page 32. 

Senator VOINOVICH. Thank you very much. 

We have an impressive line-up of witnesses. I look forward to our 

discussion. Given the late start for this hearing, we will have one 

panel of five witnesses: 

Chris Israel is the Coordinator for International Intellectual 

Property Enforcement. Nice that you are here today. I have heard 

your name and used it for a long time, and now am going to have 

a chance to hear from you. 

Stephen Pinkos is the Deputy Under Secretary of Commerce for 

Intellectual Property and Deputy Director of the U.S. Patent and 

Trademark Office. Steve and I have had a chance to meet each 

other, and he did a wonderful job for us in Columbus. 

Arif Alikhan is the Vice Chairman and Executive Director of the 

Department of Justice Task Force on Intellectual Property. 

Anthony LaPlaca is Vice President and General Counsel of Bendix Commercial Vehicle Systems LLC. 

And Loren Yager is the Director of International Affairs and 

Trade at the Government Accountability Office. 

Gentlemen, it is the custom of this Subcommittee that we swear 

in the witnesses. If you will stand and take the oath, I would appreciate it. Do you swear that the testimony you are about to give 

this Subcommittee is the truth, the whole truth, and nothing but 

the truth, so help you, God? 

Mr. ISRAEL. I do. 

Mr. PINKOS. I do. 

Mr. ALIKHAN. I do. 

Mr. LAPLACA. I do. 

Mr. YAGER. I do. 

Senator VOINOVICH. As is the custom with this Subcommittee, if 

the witnesses could limit their testimony to 5 minutes, your full 

written statements will be included in the record. 

Ms. Israel, we would like to hear from you first. 

TESTIMONY OF CHRIS ISRAEL,1 COORDINATOR FOR INTERNATIONAL INTELLECTUAL PROPERTY ENFORCEMENT, U.S. 

DEPARTMENT OF COMMERCE 

Mr. ISRAEL. Thank you Chairman Voinovich and Senator Coburn. 

I am pleased to be here with you today to discuss the U.S. Government’s intellectual property enforcement efforts. 

As the U.S. Coordinator for International Intellectual Property 

Enforcement, it is the task of my office to leverage the capabilities 

and resources of the U.S. Government to promote effective global 

enforcement of intellectual property rights. Today, I would like to 

discuss the ongoing leadership and prioritization of the Bush Administration regarding IP enforcement, the progress of the Administration’s STOP! Initiative, and, finally, provide some insight on 

how we are coordinating our efforts. 

The reasons for the Administration’s leadership on IP enforcement and for its prioritization are clear. As you both noted, there 

are, frankly, few issues that are as important to the current and 

future economic strength of the United States as our ability to create and protect intellectual property. U.S. IP industries account for 

5

over half of U.S. exports. They represent 40 percent of our economic growth, and they employ 18 million Americans who earn 40 

percent more than the average U.S. wage. 

This growth and prosperity is put in jeopardy, though, by rampant theft of American IP worldwide. Quite simply our ability to ensure and secure a reliable environment for intellectual property is 

critical to the strength and continued expansion of the U.S. economy. Therefore, the protection of intellectual property is a critical 

trade and economic issue for the Bush Administration. We seek 

every opportunity at every level to engage our trading partners, 

strengthen our enforcement capabilities, and engage our industry. 

As this Subcommittee understands, the problem of global piracy 

and counterfeiting confronts many industries, exists in many countries, and demands continuous attention. With finite resource and 

seemingly infinite concerns, how we focus our efforts is crucial. A 

critical element in our overall coordination is the Strategy Targeting Organized Piracy (STOP!), Initiative launched by the Bush 

Administration in October 2004. 

STOP! is built on five key principles: First, empowering 

innovators to better protect their rights at home and abroad; second, increasing efforts to seize counterfeit goods at our borders; 

third, pursuing criminal enterprises involved in piracy and counterfeiting; fourth, working closely and creatively with industry; and, 

fifth, aggressively engaging our trading partners to join our efforts. 

STOP! is a broad, interagency effort led by the White House that 

draws upon the capabilities of the Department of Commerce, Department of Justice, USTR, the State Department, the Department 

of Homeland Security, and FDA. 

The principles of STOP! are essentially our combined action plan. 

They are the things that this Administration is committed to expanding, coordinating, and executing in order to protect American 

IP and demonstrate leadership around the world. 

On a number of fronts, STOP! has shown measurable success. 

We have provided useful tools and information for rights holders. 

Criminal enforcement has increased dramatically. Customs seizures of counterfeit goods have doubled since 2001. And we are 

leading an aggressive effort around the world to promote IP enforcement. 

On this front, we are especially pleased by strong IP enforcement 

programs, established recently at the U.S., EU, and G–8 summits. 

These, essentially, establish an international network of like-minded countries committed to addressing piracy and counterfeiting. 

The flexibility of STOP! has been a key element to its effectiveness. It has provided leadership and direction, while allowing agencies to remain focused on their priorities and maximize their 

strengths. Through STOP!, we have accomplished a great deal; 

however, we certainly know that much remains to be done. 

We know that the effort to fight IP theft is a long-term commitment that requires a coordinated strategic approach. Developing 

and maintaining this approach is the mission of my office. Our office has supported a number of Administration priorities, worked 

to maintain senior-level commitment, provided input on key policy 

matters, established a presence internationally, reached out to inVerDate 0ct 09 2002 10:19 Apr 19, 2007 Jkt 029757 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 C:\DOCS\29757.TXT SAFFAIRS PsN: PAT
6

1The prepared statement of Mr. Plinkos with attachments appears in the Appendix on page 

45. 

dustry, attempted to sustain clear communication with Congress, 

and provided accountability. 

Mr. Chairman, we are dedicated to stopping intellectual property 

theft and providing businesses with the tools they need to flourish 

in a global economy. As the Bush Administration continues its efforts, we look forward to working with this Subcommittee to promote strong intellectual property rights protection for American 

businesses and entrepreneurs around the world. 

Thank you very much for the opportunity to be here today, and 

I look forward to your questions. 

Senator VOINOVICH. Thank you very much for being here. Mr. 

Pinkos. 

TESTIMONY OF STEPHEN M. PINKOS,1 DEPUTY UNDER SECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY, 

AND DEPUTY DIRECTOR, U.S. PATENT AND TRADEMARK OFFICE 

Mr. PINKOS. Thank you, Chairman Voinovich. It is good to see 

you again, Ranking Member Akaka. Thank you both for your leadership on the issue of protecting intellectual property around the 

globe. 

I appreciate this opportunity to be a part of this panel, and especially join my Administration colleagues, two gentlemen who are 

doing yeoman’s work on the front line of protecting intellectual 

property. I am happy to be able to report on some of USPTO’s 

progress as part of a very strong Bush Administration STOP! team 

in promoting effective IP protection and enforcement, both here in 

the United States and abroad. 

Our goal, the Administration goal, as Chris alluded to, is quite 

simple. It is to decrease the amount of global IP theft and increase 

the bottom line for America’s creators, inventors, entrepreneurs, 

and manufacturers. And also, as Chris mentioned, President Bush 

fully appreciates the importance of IP-based industries to the future of America’s economic success. 

At the USPTO, our STOP! efforts fall under three general categories. First, we work under the auspices of STOP! to ensure that 

we have an effective IP system here in the United States that is 

understood and accessible to everybody. Second, we work very hard 

to help other countries enact effective IP laws and operate efficient, 

high-quality, and customer-friendly patent and trademark offices. 

So when we advise, like we did in Ohio, folks to register their 

trademarks overseas that when they approach an office, it is very 

similar to ours and very easy to understand. And, third, we work 

as part of the STOP! team to help ensure that U.S. businesses and 

individuals can enforce their rights that they have so diligently secured. 

Under number one, helping U.S. businesses and entrepreneurs 

and independent inventors to understand the system here, we are 

particularly concerned that they understand the importance of IP 

and take the steps that they may want to take to protect their IP. 

Thus, we have launched a small business awareness campaign. Mr. 

7

Chairman, you alluded to it. We are sponsoring IP conferences 

around the country where we bring IP experts to these various cities, and not just from the U.S. PTO, but from DOJ and Customs 

and Federal judges, as well. In addition to Columbus, we have been 

to Salt Lake City, Phoenix, Austin, Miami, San Diego, and recently 

in Nashville, all within the last 14 months. 

We are doing some programs that are specific to China so that 

businesses can understand the IP environment there, which includes changes in the law, and that they may want to take defensive action by registering a trademark or seeking patent protection. 

Even if they are not intending to do business there, we have programs to help protect their products from being counterfeited. We 

have done these programs in Baltimore, Detroit, Atlanta, Chicago, 

Seattle, and here at our headquarters in Alexandria. 

Mr. Chairman, as you also know, the U.S. PTO mans the government hotline, where real live IP experts answer the phone and help 

provide guidance and direction to U.S. citizens and businesses to 

help them navigate the government agencies that are involved in 

IP. We refer a lot of people to Justice, and the FBI, and other 

places. And we also maintain a specific website, stopfakes.gov/

smallbusinesses, particularly aimed at informing small businesses 

of their IP rights. 

But going forward on the small business initiative, there is a lot 

to still do. We would like to place IP experts at trade shows around 

the country, to bringing STOP! to thousands of people. We would 

like to do more Webinars—or start doing Webinars, and we are examining that now instead of having to go around the country, 

which we intend to continue to do, of course, next year with at 

least another half a dozen conferences. 

We also want to promote these resources more effectively, with 

more private sector associations, coordinate a little bit better with 

USG agencies, like the Small Business Administration, and work 

more with State and local officials. We talked a little bit about that 

in Columbus, because sometimes the first place a businessperson 

will go will be the Secretary of State to register their business. 

The U.S. Patent and Trademark Office also offers a lot of training and coordinates a lot of training globally, and under STOP! we 

are establishing an academy at the PTO where we are able to 

greatly increase the number of foreign officials that we are bringing here. We are going to do 16 programs this year, 21 next year. 

Again, our counterparts from across the government come to help. 

And we do a lot of training overseas as well, including technical 

training at the patent and trademark offices in foreign countries 

and bring them here too. For example, 2 weeks ago, we had the 

commissioner of trademarks for China and several of his officials 

in our office learning very technical things. 

We are doing all of this because we want to make sure that we 

get to the right people from the right countries, targeting the right 

issues and measuring all the results so we can maximize benefits. 

Mr. Chairman, I appreciate the opportunity to be here and to expand upon some of our efforts during the questioning. I just want 

to emphasize that the Patent and Trademark Office is very much 

dedicated to making sure all U.S. businesses, particularly small 

8

1The prepared statement of Mr. Alikhan appears in the Appendix on page 52. 

and medium-size businesses, have the information they need to 

protect their rights here and abroad. 

Thanks again for having the hearing. 

Senator VOINOVICH. Thank you. Mr. Alikhan. 

TESTIMONY OF ARIF ALIKHAN,1 VICE CHAIRMAN, U.S. DEPARTMENT OF JUSTICE’S TASK FORCE ON INTELLECTUAL 

PROPERTY, AND DEPUTY DIRECTOR, NATIONAL INTELLECTUAL PROPERTY LAW ENFORCEMENT COORDINATION 

COUNCIL 

Mr. ALIKHAN. Chairman Voinovich and Ranking Member Akaka, 

thank you very much for this opportunity to discuss the Department of Justice’s contribution to the Administration’s STOP! Initiative and the Department of Justice’s efforts to protect and enforce 

intellectual property rights. 

The Department’s principal contribution to the STOP! Initiative 

is the work of the Department of Justice’s Task Force on Intellectual Property. In October 2004, the IP Task Force issued a comprehensive report detailing 31 recommendations, which the Department then spent the next year and a half implementing. I am 

proud to say that as of this June, when the task force issued this 

progress report, the Department implemented all 31 of the recommendations contained in the 2004 report, by, among other 

things, increasing the number of intellectual property prosecutors 

by creating five additional Computer Hacking and Intellectual 

Property, or CHIP, Units in the District of Columbia, Nashville, 

Orlando, Pittsburgh, and Sacramento; by deploying an experienced 

Federal prosecutor as an Intellectual Property Law Enforcement 

Coordinator, or IPLEC, to Southeast Asia and obtaining funding for 

a coordinator in Eastern Europe; by increasing the number of extradition and mutual legal assistance treaties that include intellectual property offenses; by vigorously protecting the right of victims 

to bring cases in the civil courts; and by organizing victims’ conferences on intellectual property awareness. 

The Department of Justice, however, did not stop at simply implementing the recommendations of the task force. Instead, the Department went well beyond those recommendations by creating 

seven new CHIP Units, in addition to the five I previously mentioned, in Austin, Texas; Baltimore; Denver; Detroit; Newark; New 

Haven, Connecticut; and Philadelphia—bringing the total number 

of CHIP Units to 25; in addition, the Department increased the 

number of defendants prosecuted for intellectual property offenses 

by 98 percent; by providing training and technical assistance to 

over 2,000 foreign prosecutors, investigators, and judges regarding 

intellectual property investigations and prosecutions; by working 

closely with the U.S. Trade Representative to improve language regarding IP protections in free trade agreements and other international treaties; by publishing a nearly 400-page comprehensive 

resource manual on prosecuting IP crimes; and by filing 13 amicus, 

or ‘‘friend of the court,’’ briefs in the Supreme Court in cases involving IP disputes. 

9

The Department of Justice has also prosecuted a wide array of 

intellectual property crimes, including novel prosecutions that are 

likely to have the greatest deterrent effect. In addition, the Department is focused on the prosecution of cases that endanger the 

public’s health and safety, including cases involving counterfeit 

pharmaceuticals, such as cholesterol medication, counterfeit Viagra 

and Cialis, and also other items such as counterfeit batteries and 

electrical cords. 

A large part of the Department’s success stems from its efforts 

to marshal the right people to do the job the right way. In doing 

so, the Department has implemented a three-part approach. 

First, the Department of Justice’s anti-counterfeiting enforcement is anchored by the Criminal Division’s Computer Crime and 

Intellectual Property Section, a team of highly specialized prosecutors focused on computer crime and IP offenses. 

Second, the Department has designed Computer Hacking and Intellectual Property, or CHIP, Coordinators in every U.S. Attorney’s 

Office in the country. CHIP Coordinators are Federal prosecutors 

who are given specialized training in intellectual property and certain types of computer crime. Each district has at least one CHIP 

Coordinator; many have two or more. 

Third, the Department has created CHIP Units generally in districts where the incidence of intellectual property and high-tech 

crimes is higher and more likely to affect the national economy. 

Each unit consists of a concentrated number of trained CHIP prosecutors in the specific U.S. Attorney’s Office. 

Through this three-part approach, the Department has developed 

a highly motivated and effective nationwide network of 25 CHIP 

Units and more than 230 skilled intellectual property prosecutors. 

But in addition to these contributions, the Department has also 

contributed to the STOP! Initiative by supporting legislative efforts. The Department of Justice has developed legislation known 

as the Intellectual Property Protection Act of 2005. This proposed 

legislation is designed to strengthen penalties against copyright 

criminals, reform forfeiture provisions, strengthen a victim’s ability 

to recover losses for IP crimes, and criminalize the attempt to commit copyright infringement. 

The Department also recognizes that education is a key tool in 

the efforts to promote intellectual property protection. For example, 

in a joint venture with the U.S. Patent and Trademark Office, the 

Department of Justice and USPTO are funding a 3-year, $900,000 

youth education program with national nonprofit educational organizations. In addition, the Department of Justice has also educated 

American business owners by participating in USPTO’s Global 

Marketplace conferences, as Mr. Pinkos has mentioned. 

Thank you again for this opportunity to address the Department 

of Justice’s efforts to protect and enforce intellectual property 

rights. I will be happy to answer any questions you may have. 

Senator VOINOVICH. Pretty impressive testimony. 

Mr. ALIKHAN. Thank you, sir. 

Senator VOINOVICH. Somebody caught fire over there. That is 

great. Mr. LaPlaca. 

10

1The prepared statement of Mr. LaPlaca appears in the Appendix on page 66. 

TESTIMONY OF ANTHONY C. LAPLACA,1 VICE PRESIDENT AND 

GENERAL COUNSEL, BENDIX COMMERCIAL VEHICLE SYSTEMS LLC 

Mr. LAPLACA. Good afternoon Chairman Voinovich and distinguished Members of the Subcommittee. My name is Anthony 

LaPlaca, and I am Vice President and General Counsel for Bendix 

Commercial Vehicle Systems LLC. I am testifying today on behalf 

of Bendix and will be sharing our views and experiences on dealing 

with intellectual property theft. 

First, I would like to thank the Subcommittee for the invitation. 

We are honored to represent business here today and hope that our 

testimony will lead to a greater understanding of the issues. 

Bendix Commercial Vehicle Systems is headquartered in Elyria, 

Ohio. We develop and supply active safety technologies, including 

air brake control systems, air disc brakes, and electronic stability 

systems used on medium- and heavy-duty commercial vehicles. 

Bendix employs over 2,200 people in North America. 

Motor Equipment Manufacturers Association estimates that counterfeiting has a $12 billion impact on the transportation industry. We at Bendix are concerned about this issue’s impact on our 

business, as well as the adverse effect on our brand equity, as well 

as potential impact on vehicle brake performance, and highway 

safety. 

The financial impact to Bendix from the infringement of its intellectual property rights and from the recent influx from Asia of 

knock-off air brake parts is significant. For air brake valve products alone, we lose millions of dollars of revenues annually due to 

this issue. Other Bendix product lines, such as air dryers, are also 

currently becoming prime targets for this activity. 

But the challenge is more than financial for us. Bendix’s brand 

reputation is built on products that are highly engineered and validated through extensive testing to ensure quality and reliability to 

withstand the demanding operating conditions of commercial vehicle use. Customers rely on Bendix air brakes to stop commercial vehicles that can weigh up to 80,000 pounds, and these vehicles 

transport all types of cargo, from commercial goods to hazardous 

materials, as well as buses and coaches that transport people. 

Bendix believes customer confusion is a major contributor to the 

proliferation of knock-off replacement parts. Many of these knockoffs look so similar to the genuine parts that they are often returned to Bendix as part of a warranty claim. Even Bendix personnel, at times, have trouble telling the difference until the parts 

are disassembled for examination. 

Through warranty claims and ongoing reports from the field, we 

are aware of multiple instances where end users have been confused or misled at the time of purchase. Customers are under the 

impression that they are purchasing genuine Bendix replacement 

parts. They are influenced by the look of the part as well as by use 

of Bendix part numbers and part names. 

I would like to give a recent example of where a knock-off component returned from the field demonstrated how a poorly built air 

brake valve could have potentially serious safety implications. 

11

An air brake technician reported the difficulty he experienced in 

getting a new relay valve to work following the purchase and installation on a new truck. After numerous adjustments and rechecking of the air lines, the technician removed the valve and discovered the problem. The valve’s control port was not drilled all the 

way through. If this valve were to be used on a vehicle, the partially blocked port would have prevented proper air flow. This type 

of air flow blockage could cause as much as a 70-percent degradation in the vehicle’s braking capability. Fortunately, a catastrophic 

brake failure was avoided by this technician’s diligence. However, 

this scenario illustrates how the situation can pose potentially significant risks to highway safety. 

Bendix has instituted a three-pronged intellectual property protection and enforcement program which focuses on protection, enforcement, and education and awareness. Here are examples of the 

intellectual property protection and enforcement actions taken thus 

far: 

We are instituting a patent and trademark infringement action 

in the U.S. District Court against a company selling and distributing knock-off parts that infringe Bendix patents and trademarks. 

Trade show enforcement actions at major industry events where 

we have successfully worked with show sponsors to remove infringing products and product literature from the offending party’s show 

booth. 

Sending numerous cease-and-desist letters to successfully stop 

infringing sales by companies in the United States and in Canada. 

While our efforts to enforce patent and trademarks against infringement have been successful, the problem of customer confusion 

with the proliferation of knock-offs still persists. Lookalike products 

sold with the same names and part numbers continue to exacerbate 

the situation for us. 

We have launched a multi-faceted customer and industry awareness campaign aimed at trucking fleets, our distributors and dealers, and end users. 

We have had continuing dialogues with senior management of 

our distributors to discuss the importance of IP compliance, and we 

continuously train our sales and customer service people about the 

issues. 

To date, Bendix has conducted this program entirely with its own 

resources. We spend over $1 million annually on intellectual property protection and enforcement activities in addition to the significant expenditure of internal management time and attention. 

Although Bendix has not yet had occasion to utilize many of the 

government’s resources, we have sent representatives to anti-counterfeiting conferences sponsored by the National Intellectual Property Rights Coordination Center, and we have learned about many 

of the available government resources through this activity. 

Bendix recommends expanding and promoting these seminars, 

making them more widely accessible in the industry. We think distributors, dealers, and retailers would particularly benefit from this 

type of government-sponsored education and awareness program. 

The sophistication of counterfeit operations has improved to the 

point of making it difficult for customers to discern real from fake. 

But, in terms of performance, quality, and actual costs, there are 

12

1The prepared statement of Mr. Yager appears in the Appendix on page 81. 

obvious differences. And for Bendix, in particular, dealing with 

components and systems that affect braking ability of heavy vehicles, with their impact on highway safety, underscores the need to 

control this issue. 

But in many instances, existing intellectual property laws do not 

adequately address Bendix’s current problem. The buying and selling of lookalike products is a problem propagated by the knock-off 

reseller’s use of the same part numbers and the same product 

names as the genuine Bendix products. Often these part numbers 

are not eligible for trademark protection. Since these air brake 

products and components have safety-critical applications, Bendix 

recommends that new legislation should be enacted extending intellectual property protection to industrial designs of these types of 

safety-critical components. In fact, the entire automotive industry, 

and certainly other key U.S. manufacturing sectors, would benefit 

from this type of legislation. I have included in my written testimony a brief statement about this type of proposal. 

Bendix would like to thank the Members of the Subcommittee for 

the invitation to testify and for focusing much needed attention on 

this issue. We welcome the opportunity to answer questions that 

you may have. Thank you. 

Senator VOINOVICH. Thank you very much, Mr. LaPlaca. 

Mr. Yager, you have been watching things from the cat-bird seat. 

I remember your testimony in prior hearings on this issue. I am 

interested in hearing how you think things are going. 

TESTIMONY OF LOREN YAGER, DIRECTOR,1 INTERNATIONAL 

AFFAIRS AND TRADE, U.S. GOVERNMENT ACCOUNTABILITY 

OFFICE 

Mr. YAGER. Thank you, Mr. Chairman. It is good to be back in 

front of this Subcommittee again. Thank you for the opportunity to 

appear again before the Subcommittee to discuss our work on U.S. 

efforts to protect U.S. intellectual property rights. We appreciate 

the opportunity to contribute to the record that this Subcommittee 

has established on IP protection. As you stated in the Subcommittee’s 2005 hearing, and repeated again today, counterfeit and pirated goods create health and safety hazards for consumers, damage 

companies that are victims of this theft, and pose a threat to the 

U.S. economy. 

Since my last testimony before this Subcommittee, the United 

States has continued to develop and implement its Strategy for 

Targeting Organized Piracy (STOP!), which outlines the priority IP 

efforts of six agencies. To understand more fully how this strategy 

might contribute to better protection of IP, I will address three topics: First, the range and effectiveness of multi-agency efforts on IP 

protection that preceded STOP!; second, initial observations on the 

organization and efforts of STOP!; and, finally, some initial observations on the efforts of U.S. agencies to combat pirated goods at 

U.S. borders, which is one of the STOP! priority efforts. 

To address these issues, I have drawn on a number of completed 

GAO studies, and I also provide initial observations from ongoing 

projects, including one for this Subcommittee and one for the 

13

House Committee on Government Reform. Let me first talk about 

some of the prior multi-agency efforts to address IP. 

As you know, STOP! is not the first effort to coordinate agency 

activities, and as I mentioned last year, these prior coordination efforts have achieved very different levels of success. For example, 

the Special 301 process, led by USTR, was generally cited as an effort that has been quite effective in collecting input from multiple 

agencies and improving IP-related laws in other nations. On the 

other hand, U.S. Government efforts to improve IP enforcement 

through NIPLECC were ineffective, having done little more than 

publish a number of annual reports compiling individual agency activities. STOP! was an effort to boost attention to IP enforcement. 

As most agency and industry observers indicated, the enforcement 

area is where the emphasis is now needed. 

In terms of my second issue, STOP! has energized U.S. efforts to 

protect and enforce IP. As earlier witnesses have stated, STOP! has 

focused attention on outreach to foreign governments and on helping small and medium-sized enterprises, among a range of other 

activities. Private sector members generally had positive views 

about STOP!. However, let me make two comments. First, the relationship between STOP! and NIPLECC, its predecessor, is not entirely clear and may create confusion among agency and private 

sector officials. In addition, as a Presidential initiative, STOP! does 

not have the same accountability requirements and permanence as 

a legislatively created structure, which makes it difficult to track 

the progress of its efforts. 

To the extent that the coordinator takes the best of the two 

structures using the energy and multi-agency input from STOP! to 

fulfill the reporting requirements of NIPLECC for a results-oriented strategy, this would be a very positive development. 

On my final point, continuing weaknesses in U.S. agencies’ IP 

enforcement efforts at the U.S. borders illustrate the challenges 

STOP! faces in carrying out some of its objectives. The overall task 

of assessing whether particular imports are authentic has become 

more and more difficult as trade volume and counterfeit quality increase. As I mentioned in my written statement, a number of the 

new tools that CBP has developed to better target suspect shipments and deal with problem importers are works in progress 

whose future impact is uncertain. 

In response to your request, GAO will be reporting to this Subcommittee early next year on the level of resources and the tools 

to best utilize those resources at the U.S. border for the purpose 

of IP protection. I look forward to a dialogue with the Subcommittee on those topics. 

In conclusion, the challenges of IP piracy are enormous and will 

require the sustained and coordinated efforts of U.S. agencies, their 

foreign counterparts, and industry to be successful. We appreciate 

the Subcommittee’s attention to this topic, as it appears that the 

hearing today has already led to some clarifications of the relationship between STOP! and NIPLECC. In addition, this Subcommittee 

has been a leader in developing and applying accountability measures to improve government performance, and we believe that the 

long-term success on this issue will be enhanced by this kind of 

oversight. 

14

Mr. Chairman, other Members of the Subcommittee, this concludes my prepared statement. I would be pleased to answer any 

questions that you may have. 

Senator VOINOVICH. Thank you, Mr. Yager. 

We have been joined by the Ranking Member of this Committee, 

Senator Akaka. 

Senator Akaka, I understand that you have a statement that you 

would like to put in the record, and we welcome it. 

OPENING STATEMENT OF SENATOR AKAKA 

Senator AKAKA. Thank you very much, Mr. Chairman. I want to 

join you in welcoming the witnesses, and I want to commend our 

Chairman for his leadership in the area of enforcing intellectual 

property rights for American manufacturers and entrepreneurs. We 

have made technological advances due to the efforts and exceptional talents of individuals who are from our academic institutions, government, and private enterprise, and these advances have 

transformed the American economy and changed the way that our 

companies do business. 

Mr. Chairman, I am pleased that you have led on this and that 

you recognize the importance of this issue and are reviewing the 

status of the STOP! Initiative. I thank you for holding today’s hearing, and I will submit my remarks for the record. 

[The prepared statement of Senator Akaka follows:]

PREPARED STATEMENT OF SENATOR AKAKA 

Thank you, Chairman Voinovich. I join you in welcoming our witnesses and commend you for your leadership in the area of enforcing intellectual property rights 

for American manufacturers and entrepreneurs. 

We live in an increasingly changing world. Technology provides improvements 

and conveniences for everyday life that were almost unimaginable only a few decades ago. These technological advances are the product of efforts by exceptionally 

talented individuals who are supported by academic institutions, government, and 

private enterprise. We are justifiably proud of the achievements of our brightest 

minds and most innovative companies. 

These technological advances have transformed the American economy and 

changed the way that our companies do business. Today’s global economy is fostering new opportunities for U.S. businesses and opportunities to forge relationships 

around the world. 

Unfortunately, U.S. manufacturers and businesses daily face the threat of theft 

of their most innovative products and ideas. Although estimates vary widely, we 

know that counterfeiting costs our companies billions of dollars and deprives our 

workforce of hundreds of thousands of jobs. 

Counterfeit goods also threaten public health and safety by bringing unregulated 

and untested products into the U.S. marketplace. Consumers have no way of determining whether the goods that they are buying are legitimate or counterfeit. 

The STOP! Initiative is an important step forward because the program demonstrates an understanding that solving the problem of counterfeit goods cannot be 

accomplished solely through the efforts of the Federal Government and law enforcement agencies. Counterfeit goods are a global problem. Protecting manufacturers 

and consumers from counterfeiters must be accomplished through international efforts and through cooperation with our trading partners. 

I am pleased that Chairman Voinovich recognizes the importance of this issue and 

is reviewing the status of the STOP! Initiative. Thank you for holding today’s hearing. I look forward to hearing from our witnesses about this important and timely 

subject.

Senator VOINOVICH. Senator Coleman, thank you for being here 

today. Do you have a statement you would like to give. 

15

OPENING STATEMENT OF SENATOR COLEMAN 

Senator COLEMAN. Thank you, Mr. Chairman. Let me start by 

thanking you for holding this important hearing, and I thank our 

witnesses for their commitment to solving this. It is a big challenge 

we face. I represent a State that has high-tech companies. 

Medtronic for cardiac pacemakers and 3M are targets. It is a big 

issue there. It is also a big issue with small business that sometimes do not have the knowledge of how to deal with it. Many of 

the small businesses are now doing international trade, and so this 

is an extremely important area. 

I would like to have my full statement, Mr. Chairman, entered 

into the record, and I would just then appreciate the opportunity 

to ask some questions of the witnesses. So, again, thank you for 

your leadership on this issue. 

[The prepared statement of Senator Coleman follows:]

PREPARED OPENING STATEMENT OF SENATOR COLEMAN 

I want to start by thanking Chairman Voinovich for holding this important hearing, and also by thanking our witnesses for their commitment to solving one of the 

biggest challenges we face in an era of increased global competition. 

There have been a lot of columns, reports, and studies published about the role 

of the United States in a changing global economy. Of all the recommendations I 

have read about how we can maintain our competitive edge, one that really struck 

me came from Minnesota native Tom Friedman in his book, The World is Flat.

Friedman says that despite the many challenges we face, we will always be a global 

economic leader if we continue to be ‘‘the world’s dream machine.’’ By fostering, nurturing, and most importantly—protecting—the creativity of our Nation’s greatest 

minds, I believe we will continue to win the global competition for many generations 

to come. 

We are all at today’s hearing because we know how important it is to protect our 

Nation’s innovations, inventions, and ideas. According to the United States Trade 

Representative’s office, theft of intellectual property costs American corporations a 

staggering $250 billion per year. IPR violations also hurt working moms and dads. 

The U.S. Customs and Border Protection service estimates that over 750,000 jobs 

have been lost due to counterfeiting intellectual property. We need to make numbers 

like these a thing of the past. 

This hearing is of particular interest to me because this is a critical issue to my 

home State of Minnesota where companies like 3M, Target, and General Mills can’t 

afford to have their products pirated and their trademarks counterfeited. I look forward to hearing the testimony of our witnesses to learn more about where we have 

been, how far we have come, and where we need to go to better protect our intellectual property.

Senator VOINOVICH. Mr. LaPlaca, have you looked at the legislation that is now pending here in Congress? 

Mr. LAPLACA. No, Senator, I have not. 

Senator VOINOVICH. Do you belong to a trade organization, the 

National Association of Manufacturers or——

Mr. LAPLACA. We are members of Motor Equipment Manufacturers Association and members of their Government Affairs Council, 

so we get a lot of our useful information on these topics through 

MEMA. 

Senator VOINOVICH. Well, I would like to suggest to you that you 

ask those folks to look at the bill Senator Bayh and I have introduced. The purpose of this legislation is to formalize the kind of coordination that we are discussing here today. The STOP! Initiative 

is not in the law now, and it is being done at the request of the 

President. Senator Grassley has, I think, introduced a bill on dealing with China currency issues and I would really like for you and 

16

your association to review them and give me an appraisal of what 

you think of them. If you or your association think more is needed, 

I would like to hear from you. 

Mr. LAPLACA. Absolutely. Yes, sir. 

Senator VOINOVICH. You stated that your company spends $1 

million a year, plus a lot of management time, to address IP issues. 

Your people have been impressed with the hearings that have been 

held—not the Congressional hearings, but the IP Conferences the 

PTO sponsors. And you think that is a good idea. 

Mr. LAPLACA. I do, Senator. I think raising awareness—we are 

very pleased with the level of awareness over the past several 

years. And, we encourage that type of activity to continue, particularly with certain segments. I think certain segments of industry, 

at least from our vantage point, can be targeted and can benefit. 

Those that are in the resale channels through whose hands some 

of these products pass could benefit from this awareness. 

Senator VOINOVICH. Mr. Alikhan, as I said, I was impressed with 

your testimony. How many people, all together, have you added at 

the Justice Department in the areas of IP protection? 

Mr. ALIKHAN. Mr. Chairman, we have, as I mentioned, the three 

different groups, and that would be a total of 230 prosecutors, plus 

or minus a few, who are dedicated to intellectual property and 

cyber crime prosecutions throughout the country. 

Senator VOINOVICH. How many have been added in the last couple of years? 

Mr. ALIKHAN. Well, we have added a series of 12 additional 

CHIP Units, and with that came additional funding for roughly two 

new prosecutors per unit. 

In addition to that, there may have been other CHIP coordinators designated, so I do not have an exact number on how many 

precisely have been added, but we have had a substantial number 

of prosecutors added since the October 2004 report of the Intellectual Property Task Force was issued. 

Senator VOINOVICH. I would like to know, for the record, how 

many you have added, where you have added them, so I can get 

an idea of the human capital that you have got involved in this. 

Mr. ALIKHAN. Certainly. 

Senator VOINOVICH. Where do these cases come from? 

Mr. ALIKHAN. Most of the cases come from referrals from victims, 

if that is what you are referring to. 

Senator VOINOVICH. Yes. 

Mr. ALIKHAN. We rely on victims to refer those cases to Federal 

law enforcement agencies, and that is why industry outreach, as 

Mr. LaPlaca was indicating, is so critical in these areas. We have 

worked closely with various industry groups, including the Motor 

Equipment Manufacturers Association (MEMA), the Chamber of 

Commerce’s Coalition Against Counterfeiting and Piracy, as well as 

other industry groups, to make sure we are getting those cases in 

a timely fashion. 

Senator VOINOVICH. How successful have you been? 

Mr. ALIKHAN. I think we have been fairly successful. We still 

have a long way to go, but I think if you were to talk to victim industry groups, they would say, not only the Department, but other 

agencies in the STOP! Initiative have gotten the word out that we 

17

are interested in pursuing these cases, and it is certainly a priority. 

I know the Attorney General has made this a personal priority to 

pursue intellectual property cases and has publicly said so. 

Senator VOINOVICH. Is the message getting out to the people that 

are involved in this, the criminals? Do we have any deterrence yet 

because of what you are doing? 

Mr. ALIKHAN. Well, it is certainly hard to measure what the deterrent effect is, but certainly one of the priorities of the Department is to prosecute those cases that have the maximum deterrent 

effect, going after large-scale distributors, manufacturers of counterfeit goods, large-scale software pirates, those who are producing 

counterfeit pharmaceuticals. So we are hoping that through those 

very public prosecutions that we are establishing some deterrent 

effect. 

Senator VOINOVICH. Mr. Pinkos or Mr. Israel, one of my concerns, and how I became involved with this subject matter in the 

first place, is when we had the first hearing and I was told by representatives from the departments that they had this great system 

in place. So, I called the number and no one seemed to know what 

I was talking about. I know that has improved, but how closely do 

you work with the Justice Department? I am somebody, I call, I 

feel that my company has been victimized by IP theft. Do you take 

that call and look at it and then try to evaluate it so that you could 

then refer it to the Justice Department? How does that work? 

Mr. PINKOS. That is exactly what we do. One of our attorney advisers—an administrative person will take the call, determine the 

nature of the call, refer it to an appropriate attorney adviser in our 

office, and they specialize in patents, trademarks, or copyright. And 

they will often determine that it is a law enforcement issue, and 

what they have is a list of all the IP enforcement offices going 

down to all of the different U.S. Attorney’s Offices, Customs offices, 

and FBI offices in the particular city. So, they have the list of contacts right at their fingertips to make the precise referral if it involves a law enforcement matter. 

Senator VOINOVICH. Well, a few years ago, I called to test the 

systems in place, I was told to call the local Customs office. I entered the maze. Mr. Alikhan, have you ever talked to the folks that 

are prosecuting? Do they seem to feel that the system has been 

streamlined in terms of getting referals? Or are they complaining 

about it is still pretty cumbersome? 

Mr. ALIKHAN. I can tell you as a former prosecutor in Los Angeles who did intellectual property cases that we have been streamlining the process to refer cases, and the best way for us to do that 

is actually sending prosecutors out into these industry groups and 

telling them how to refer cases and whom to refer them to. We encourage them to refer, sometimes directly, to the U.S. Attorney’s 

Office and the CHIP Coordinators because they may know which 

agency is best suited to pursue the case. 

In addition, in our progress report and the original report, in the 

back of it, we have a series of checklists for victims to know how 

to report a case to Federal law enforcement for prosecution. 

Senator VOINOVICH. Mr. Israel, are you tracking the real bad 

guys out there? By that, I mean there are some companies or importers that are notorious for producing knockoffs and counterfeits. 

18

Have you got the sophistication yet to identify who they are and 

any kind of communication to the Customs and Border Patrol that 

they have got to keep them out of here or you ought to look for 

them or any of that? Have you got the STOP! Initiative to that 

stage yet? 

Mr. ISRAEL. It does exist. It does exist at a fairly sophisticated 

level, Mr. Chairman, and actually, Customs is one of the generators of a good deal of that information. One of the things Customs 

has really been trying to do over the last several years is really improve and strengthen their use of intelligence. They do post-entry 

audits. For example, if they do seize counterfeit goods, they essentially reverse engineer the supply chain that brought those goods 

to the United States to try to determine where it came from, what 

organization or entity might be behind the transmission of those 

goods to the United States, and try to develop fact patterns and 

trend analysis and really deploy that to their agents in the field in 

a very coordinated fashion to try to get as much ahead of this problem as they can. 

It is a deluge at our borders, and what they are trying to do is 

use good information, use intelligence, assemble information the 

best they can, coordinate with the Department of Justice, FBI, 

other agencies as well, to utilize that information and pass that. It 

is certainly information that, through the STOP! Initiative and 

through our coordination efforts, is shared with other agencies. It 

is also shared with industry. I know particularly in the instance of 

the auto industry, there are trade specialists in the Strategic Trade 

Center in Los Angeles, who are focused specifically on the transportation industry, and they share detailed information about what 

they are seizing and where it is coming from with industry representatives to try to combine that with information that industry 

itself has. 

As others have noted, the information that industry captures and 

has, and knows is as valuable as anything the government is aware 

of, and we need to couple that information to the best of our ability. 

Senator VOINOVICH. Senator Coleman. 

Senator COLEMAN. Thank you, Mr. Chairman. I am going to start 

with the international and kind of move it, focus it from there. 

I will be in China in 2 weeks. I think in 2005 U.S. Customs reported China was the No. 1 source of counterfeit products seized 

at our borders. Whoever can respond, how do you assess the level 

of cooperation today with the Chinese in dealing with this issue? 

Mr. ISRAEL. I will take a first reaction to that, Senator, and that 

is, certainly China, it needs no explanation from me for everyone 

to understand, is the primary focus of our international IP enforcement efforts. It is obvious for all the reasons you stated. 

I think within the last few years we have seen a good level of 

cooperation from Chinese leadership. I think this is an issue that 

they understand they need to address, not just because the United 

States is raising it at a very high level with them and exploring 

the utilization of trade tools, such as a WTO dispute resolution 

case, as a possible step to take to address some of these concerns. 

They are increasingly seeing it as a threat to their own economic 

growth and stability over the long term. 

19

Having said that—and this is something we certainly share with 

the Chinese—it is our view that the implementation and taking action on that cooperation is still a huge challenge in China. Commitment from leaders in Beijing is certainly a positive step forward. 

Putting that in action in the field and actually turning that into 

strong enforcement across the entire country of China, in areas like 

Guangzhou in southern China, which is the heart of so many problems that we see, particularly in the manufacturing area, is—there 

is a long way to go, quite frankly, and it is an area that we are 

now focused very significantly upon. 

So, I think the level of cooperation from Chinese leaders is positive, and it has been helpful over the last few years. I think the 

implementation and acting upon that commitment is where we 

need to go in the future and the next step we need to take. 

Senator COLEMAN. Let me just try others, Brazil and India. Anyone else want to respond? Are there similar problems? And, by the 

way, if anyone else—you are all impacted. I would be interested in 

other perspectives, whether you agree or disagree with——

Mr. ISRAEL. I will try to do it very quickly and then share some 

time with my counterparts. I had the chance to be in India about 

2 or 3 months ago, Senator, to address IP enforcement issues with 

the Indian Government. We are in a place now where I think we 

see tremendous opportunity to work with India in a constructive 

way. I think the economic relationship and the trade relationship 

between the United States and India is in a positive place now. 

Some things were launched as a result of the President’s trip to 

India several months ago. 

On the issue of IP enforcement, again, the Indian Government is 

committed to trying to take some steps to improve enforcement. It 

is somewhat similar to China in that you see huge enforcement 

challenges across a very vast and complicated country. The individual states within India essentially run their own enforcement 

apparatus, so it is very hard to implement something nationwide 

in India. 

We are doing some positive things with India. The Department 

of Justice hosted a 2-week session for Indian law enforcement officials in California earlier this summer. The State Department ran 

a four-city program in India to discuss this issue with industry 

leaders and representatives. 

So I think we have a finite set of challenges and issues we need 

to address with India, but I think we are in a very constructive and 

positive place to address those with the Indian Government. 

Senator COLEMAN. Mr. Pinkos. 

Mr. PINKOS. Yes, if I could comment on Brazil, I recently accompanied Secretary Gutierrez on a trip there in early June. On the 

overall IP environment, I would say that it is improving. But we 

have been to countries like Brazil, and there is a long way to go. 

But they do have a national strategy to address IP theft, and according to industry statistics, the amount of counterfeit—or the 

amount of piracy of copyrighted works is decreasing. There are 

deeper problems with patented products, particularly pharmaceutical products there. One of the steps we are taking to help address that is part of the Secretary’s trip. We established a commercial dialogue, and one aspect of that is increased technical cooperaVerDate 0ct 09 2002 10:19 Apr 19, 2007 Jkt 029757 PO 00000 Frm 00023 Fmt 6633 Sfmt 6601 C:\DOCS\29757.TXT SAFFAIRS PsN: PAT
20

tion between the U.S. PTO and NP, which is their patent office. We 

are beginning that next month to try to help bring them up to 

speed, so to speak, because there are thousands of U.S. applicants 

that are waiting in line right there to get that protection. Of 

course, then the next step is to actually make it meaningful protection within the country, but you have to start somewhere. 

Senator COLEMAN. I was going to ask you, Mr. LaPlaca—I am 

not sure I have enough time because I have so many questions I 

want to ask—whether the private side agrees with the public side 

in terms of progress being made in China, or the situation in India. 

Mr. LAPLACA. I think raising awareness is key. From our perspective at least, from our industry, we go to trade shows now, and 

we are starting to see vendors from China who years ago would 

come in here and blatantly sell counterfeit products, are now backing off. And somehow they are getting the message, whether it is 

through the efforts of these organizations or just from enforcement 

within the industry, I am not sure. But we start to see some recognition that there are IP laws in the states that they need to be 

aware of. 

Senator COLEMAN. Mr. Yager. 

Mr. YAGER. If I could just add one thing, Senator Coleman. During the work we did on IP earlier, we visited China, Brazil, Russia, 

and Ukraine. And one of the things that we observed when we 

were doing that work is that when the United States is able to join 

with like-minded individuals in those countries, it is likely to be 

much more successful. So when those countries have their own IP 

to protect and you work with the folks that have a stake in it, then 

success is more likely to be achieved. I think Brazil is a good example of that. In some cases, they have quite a bit of intellectual property, whether it is in music or other things, and in those cases I 

think the United States has generally found like-minded groups 

that they can ally with and get some success. 

In other areas, for example, in pharmaceuticals, those kinds of 

conditions may not exist, but I think that is a strategy that seems 

to have some real future to it. The difficulty is that in some countries, frankly, those kinds of groups are quite small, if you are talking about countries like Paraguay that really just exist on the illegal stuff and do not have much of their own in terms of property 

that they need to protect. But I think that is a strategy that generally can be effective. 

I noted on the stopfakes website, they do list a lot of those other 

groups within other countries, like Brazil and others, that have an 

interest in protecting their own intellectual property. 

Senator COLEMAN. I take it we are going to do another round, 

Mr. Chairman? 

Senator VOINOVICH. We are. 

Senator COLEMAN. Good. Thank you. 

Senator VOINOVICH. I would like to follow up on Senator Coleman. I know when I met with Premier Wen a year ago this last 

May, I raised the issue of currency fixing and also intellectual 

property rights. He seemed to understand the problem, but as one 

of the witnesses pointed out, so often it is the localities that are 

involved, and it is just a way of life for some of them. My goal is 

to convince other nations such as China that it is in the best interVerDate 0ct 09 2002 10:19 Apr 19, 2007 Jkt 029757 PO 00000 Frm 00024 Fmt 6633 Sfmt 6601 C:\DOCS\29757.TXT SAFFAIRS PsN: PAT
21

est of Chinese businesspeople to protect intellectual property 

rights. 

I just wonder how much work is the Department doing in terms 

of American Chambord??? Commercies??? abroad AmChams that 

we have got around the country—around the world. I know when 

I have visited other countries on trade missions, we spent time not 

only with the embassy folks but, more importantly, with AmCham 

groups and other groups in those countries that were basically 

business organizations. Is there any targeting of those groups to 

try and get them engage in this effort? 

Mr. ISRAEL. I think, Senator, there is a tremendous amount of 

interaction that happens between U.S. officials when they travel 

overseas and AmChams and, importantly, just day-to-day interaction between our embassy teams, our Foreign Commercial Service teams, and AmChams and other industry groups around the 

world. 

For instance, in China, where PTO has had an IP attache posted 

for the last 2 or 3 years, there is a significant amount of interaction 

between the IP enforcement team in China and the U.S. Federal 

Government and the AmCham over there. The Quality Brands Protection Council, which is a number of trademark owners who have 

come together to form——

Senator VOINOVICH. Who is the spokesman? One of the problems 

that we identified at former hearings is that we have got all these 

various agencies. Who is the spokesman in this area for us? Is it 

Gutierrez or who is it that really drives this home? Is it the Secretary of State? Who is it that concentrates on this and speaks and 

says, ‘‘I represent all these agencies’’? 

Mr. ISRAEL. With a bit of humility in mind, Senator, I think that 

is a bit of the job that our office was asked to do, was to represent 

these agencies. Admittedly, that is at a much lower level, and that 

does not resonate nearly as much as when Cabinet officials and, indeed, the President, offer their views on this. 

One thing we have tried to do over the past several years, the 

past couple years, in particular through the STOP! Initiative, is to 

make sure we are taking advantage of every opportunity we can 

that there is coordination within the government. 

Senator VOINOVICH. Is the President briefed on IP issues and activities? For instance, when he went to the G–8 meeting, is he 

briefed on IP issues so that he can raise this issue with his colleagues at that level? 

Mr. ISRAEL. Yes, sir, I know that was part of his briefing package. There was a G–8 leaders’ statement on IP that came out of 

the recent meeting in St. Petersburg. The National Security Council in the White House, the economic trade team within the NSC, 

has really taken a leadership role on this. So it is part of the package that is prepared for the President as he travels internationally 

and addresses economic and trade issues with his counterparts. 

Senator VOINOVICH. One of the other questions that came up 

that was a concern—and I would like Mr. Yager to comment on 

this—was that USTR had about 200 people and they continue to 

maintain that same number of people. I would like to know where 

are they in terms of that staffing? And then what they were doing 

is they were reaching out into other agencies in terms of trying to 

22

get an expert here and an expert there. I think the observation of 

GAO was that this thing is large enough that some effort should 

be made to locate some of that expertise in-house because they 

have got enough work to do to justify that. 

Mr. YAGER. That is right, Mr. Chairman. In our most recent report about USTR and the human capital challenges they face, we 

made two recommendations. One was to work more closely with 

the agencies that it relies on. Notwithstanding, the fact that they 

might bring more attorneys in, which I think USTR has done fairly 

consistently over the last couple years, some of which focus on particular problems like IP; but in addition to that, we felt it was important that they do a better job of trying to coordinate their efforts 

in a more systematic way with the agencies that they work with 

and the agencies that they rely on to help them, whether it is in 

negotiating new agreements with IP provisions or whether it is 

working with countries like China that need a great deal of assistance and an awful lot of encouragement to improve their IP laws. 

Oour recommendations were aimed not only internally at the 

way they provided centers for their own personnel, but also the 

way that they communicate with those other agencies about the 

need for those folks to accompany them or to assist them in achieving the goals like protecting IP. 

Senator VOINOVICH. Mr. Israel, are you aware that the Senate 

Appropriations Committee recommended no funding for NIPLECC 

in fiscal year 2007? 

Mr. ISRAEL. Yes, sir, I am. 

Senator VOINOVICH. The reason the Appropriations Committee 

cited for eliminating the funding is the lack of any tangible action 

in prior years, including a failure to release an annual report this 

year. I recognize that you have not been in your job very long—I 

think it was just a year ago? 

Mr. ISRAEL. July, sir. 

Senator VOINOVICH. What tangible actions have you undertaken 

since that time? And when do you expect to issue a 2006 report? 

What are you going to do about the committee’s recommendations 

to eliminate NIPLECC funding? Because I understand that you 

work under, and get your funding through NIPLECC, and if 

NIPLECC is flat-funded or zeroed out, what happens? 

Mr. ISRAEL. A difficult situation, Senator. First, to address the 

topic of the report, as you point out, our office came online July almost exactly a year. We are this year—and one reason that the report has not been sent to Congress yet is that we are in the process 

of finalizing the report. It should go into interagency clearance 

within the next few days. It should be delivered to Congress and 

to the President upon your return in September. 

We are, quite frankly, putting much more effort and emergency 

and emphasis into this report this year. We are going to send you 

a new and improved report. It is going to have better analysis of 

the actual coordination that exists between agencies. 

Senator VOINOVICH. This will be under the auspices of NIPLECC? 

Mr. ISRAEL. Correct, sir. Yes, sir. That will be the report. It will, 

in addition, cover both 2005 and to the point we are at in 2006. 

It will be more expansive than previous reports. 

23

It has been our goal to put more effort and more energy into this 

report to give Congress and the President a better assessment and 

analysis of the actual coordination that exists to address questions 

such as the relationship between STOP! and NIPLECC, to work 

with agencies to address some of the priorities that we are setting 

going forward, to have a looking-forward section to it as well. So 

it will be a much more value-added——

Senator VOINOVICH. What are you going to do to try to restore 

funding? How much money is NIPLECC getting and how much is 

going to be cut out? 

Mr. ISRAEL. Well, under the current situation, the Office of Coordination at NIPLECC was funded with $2 million in the fiscal 

year 2004 Omnibus Appropriations Act running through September 

of the end of this fiscal year. So it has $2 million to run from 2004 

to 2006. The President’s request for fiscal year 2007 was $1 million, 

so we would continue, obviously, to urge Congress to look favorably 

upon the President’s request. 

I think it would impact the ability of our interagency process to 

move forward with a number of the priorities that we have set 

through the STOP! Initiative. I think also the removal of this function, the elimination of the coordination function at a senior level 

within the Administration, would also send an unfortunate signal 

to U.S. industry and to our international trading partners that we 

are downgrading, to some extent, the focus that we are paying to 

this issue. Our position is to continue to provide any and all information to members in terms of their decisionmaking process on 

how to allocate resources to the IP coordination function of the Federal Government in fiscal year 2007. 

Senator VOINOVICH. If you can get that information to us so that 

we are on top of it, we will see if we cannot help get the money 

that is necessary. I hope that somebody over in Commerce is working to resolve those issues. 

Mr. ISRAEL. We will provide you any information that would be 

helpful, Mr. Chairman. 

Senator VOINOVICH. Senator Coleman. 

Senator COLEMAN. Thank you, Mr. Chairman. I share your concerns you raised regarding NIPLECC, and I do hope that we get 

some information on that. 

Let me throw out a question about terrorist funding from counterfeit, pirated materials. Does anybody have any information as to 

whether that is a problem, what we know about the problem, and 

what we are doing about it if there is a problem? 

Mr. ALIKHAN. Senator Coleman, I will take that question. We 

have seen at least one case in which there was a tie to terrorist 

financing. This was a case in Detroit that was charged in March 

2006 where 19 individuals allegedly operated a racketeering enterprise that supported Hezbollah by selling counterfeit Viagra and 

also contraband and counterfeit cigarettes. 

That, of course, is of concern to the Department of Justice. Of 

course, the Department’s No. 1 priority is the prevention of terrorism and concern of prosecuting terrorist activity. But aside from 

that one case, we have not seen, necessarily, a definitive link, but 

certainly there is the potential for the use by terrorists of financing 

through intellectual property because of the lucrative nature. And 

24

we are remaining vigilant and making sure that message is going 

out to the law enforcement agencies to look out for that so we can 

prosecute it aggressively. 

Senator COLEMAN. What about on the international level? Brief 

mention was made of Paraguay, the tri-border area; there has been 

concern that you have funding there that could be used to support 

Hezbollah, concern that Hezbollah was involved in the attack on 

Israeli—Jewish interests in Argentina that resulted in death a 

number of years back. I am not sure how much of this has been 

confirmed, but how do we keep track of the international side, particularly in light of concerns about Hezbollah activating sleeper 

cells and other potential dangers that we face as a result of what 

is going on today in the Middle East? 

Mr. ALIKHAN. Well, we certainly can keep track of any criminal 

prosecutions that are resulting for that. With respect to whether, 

in fact, there is funding for terrorism, I think I would have to defer 

that to the intelligence agencies and what they are learning from 

that. 

Mr. YAGER. If I could, briefly. We did a report just a couple years 

ago where we looked at a number of the different ways that terrorists might raise funds, and certainly counterfeiting and selling 

counterfeit goods was on the list because of, again, as others have 

mentioned, the very lucrative nature of it, the fact that it is either 

illegal or at least on the borders of legality. And I think that is also 

why it is quite important to have the allies like Brazil and Argentina, because in some places like Paraguay, frankly, the central 

government does not have the capacity, nor does it necessarily have 

the incentive, to try to drive out that kind of an element, because, 

in fact, some of the areas, particularly the tri-border area, thrives 

on this kind of illegal activity. 

So, clearly, there are potential links there, and I think as Mr. 

Alikhan mentioned, the intelligence agencies are very aware of this 

as well. But it is a fairly significant problem. In fact, it is almost 

the only reason that some of these cities like the tri-border area 

exist. 

Senator COLEMAN. It would seem to me that common sense 

would dictate that this is a great potential problem. Again, I do not 

have the detail, but the amount of money involved is massive. The 

ability to track it is difficult. And it is just kind of ripe for something that is problematic. 

Just one more question in that regard. In terms of state-sponsored activity, we talked about China and Brazil, and obviously we 

are working with those countries and trying to deal with this. And 

some will question whether we are doing enough. What about renegade states like North Korea and Iran? Is there any indication of 

state-sponsored counterfeiting activities and whether it is having 

any impact here? 

Mr. ISRAEL. Well, I know, Senator—and this, again, I think falls 

to some extent within the realm of our intelligence agencies and 

our security agencies. I do know of instances in Korea there have 

been concerns, counterfeit cigarettes, counterfeit products—North 

Korea—which is funding some of the activities of that government 

and keeping it afloat to some extent. And I know the Treasury Department in particular has a specialized unit that is focused on 

25

issues such as that. And counterfeit currency is also an issue that 

our Treasury Department is focused on with regard to North 

Korea. 

I would be happy to consult with them and provide additional information. 

Senator COLEMAN. I would appreciate that. 

Let me go from the global to the local STOP! program. I think, 

Mr. Yager, in your testimony you expressed concerns about the 

lack of permanency in the program. Could you elaborate on that a 

little bit and perhaps give us some direction as to what we can do 

to provide some greater long-term stability and continuity in dealing with these issues? 

Mr. YAGER. Yes, we did talk about the permanence. In my oral 

statement I also talked about the fact that STOP! really has created some energy while NIPLECC has the permanence and accountability requirements that allow you to look and see what has 

been done from one year to the next. Obviously, I think everyone 

here knows that the IP problem will not be solved within this Administration’s timetable, so it has to be a mechanism that continues to have the kind of attention, as well as the resources, that 

are necessary not just through this Administration but as we go 

forward. 

And as I mentioned, to the extent that there is this linkage between a permanent mechanism made up by NIPLECC and the energy that was created with STOP!, that would be a positive development. But, we also think that the reporting on that needs to 

have some of the characteristics that allow Members of Congress, 

as well as others, to understand what is being done, the kind of accountability requirements in terms of results, leadership, some 

very specifically defined roles and responsibilities for the different 

agencies, and how those roles reflect the other agencies’ internal 

goals. 

And so I think that those are the kinds of things that we look 

for in a strategy, and we will be, in fact, reviewing the strategy to 

see if it has those kinds of characteristics that will allow you to 

look from one year to the next and really track the kinds of successes, as well as the challenges, that this organization will face. 

Senator COLEMAN. Thank you, Mr. Yager. Thank you, Mr. Chairman. 

Senator VOINOVICH. Have you reviewed the legislation that Senator Bayh and I have introduced? 

Mr. YAGER. Yes, Mr. Chairman, we have. I think that there are 

a couple of things. Obviously, some of the more common features 

that we typically look for when you are talking about a group like 

this, which is designed to bring together so many different agencies—and I mentioned a couple of them before, but clear goals and 

objectives as well as performance measures, some discussion of the 

risks and the threats associated with it. The cost and resources are 

obviously something that you have always been interested in, particularly the human capital resources, the delineation of roles and 

responsibilities, and, in particular with this group, the relationship 

of this new organization to the existing organization of NIPLECC, 

as well as where will that leadership be. 

26

We know in your legislation you have designated OMB as 

chairing this particular group, and one of the things that we have 

observed is that, obviously, it is important to have someone who is 

clearly in charge of this effort, and that person has to have the respect and certainly the participation of the different agencies. And 

so, we have seen different ways that this has happened, and, frankly, it depends upon the level of energy and the amount of assistance that the interagency mechanism provides. 

I do not think it is as important as to where it is, as long as 

there is a dynamic group and someone who leads that group and 

can get the agencies to participate. 

Senator VOINOVICH. One of the things I am worried about is that 

we have this energy or IP efforts, but as it is an Executive initiative, and it is extinguished after we get a new President in place. 

I am trying to figure out how do we institutionalize the current efforts in a way that does not burden the next Administration. But 

NIPLECC has been around for how long? 

Mr. ISRAEL. Since 1999. 

Senator VOINOVICH. I would like to work with you folks on trying 

to figure out what the relationship is and how we can expand and 

improve it. 

Now, Mr. Pinkos, is your budget part of NIPLECC’s budget, or 

do you get your money from some other source? 

Mr. PINKOS. We get our money from patent and trademark applicants. We get no money from the general treasury, so a certain 

amount of money is used on our public policy and our training and 

enforcement efforts. 

Senator VOINOVICH. The Patent Office, you are on their payroll? 

Mr. PINKOS. That is correct. 

Senator VOINOVICH. So it is separate? And you get your money 

from Commerce under NIPLECC, right? 

Mr. ISRAEL. Correct. 

Senator VOINOVICH. OK. Can you give me for the record the 

number of people that you brought on as a result of this? I would 

like, for example, in terms of the—how many lawyers do you have? 

I would really like to know the results of the telephone calls that 

come in to the PTO and what happens with them. Because that 

gives us an idea about the level of activity, and does anybody track 

results? Is there any follow-up as to whether anything has taken 

place or not? 

Mr. PINKOS. We are focused very much on results, and we can 

provide a lot of those numbers to you for the record. 

Senator VOINOVICH. Do you collect data from these calls in terms 

of the specific issues? Have you developed any plans to collect, analyze, and disseminate this data to other agencies or the private sector? 

Mr. PINKOS. We collect data about the nature of the problem, 

where people are calling from, what advice we provided. Initially 

our determination was for privacy reasons, we were not keeping 

the person’s contact information because certainly some people did 

not want to provide that. And then, also, there are FOIA issues. 

We are re-examining that part of the issue. We are instructing 

our folks to make sure that they have the contact to call us back 

if they have follow-up questions or if they are having a problem 

27

with another agency and they were not able to get through. So we 

do that, but we are not following back up with them currently to 

see what came to pass with their particular issue. 

Senator VOINOVICH. OK. And you will be able to give me that information about the staffing, the human capital part of it? 

Mr. PINKOS. Absolutely. Some of it off the top of my head is we have spent $25 million this year—we will have spent in 2006, and 

that includes sending attaches overseas to seven different countries 

to focus on IP issues. And we have increased our staffing—significantly, and I will get you those numbers as well. 

Senator VOINOVICH. And the Foreign Commercial Service (FCS), 

you have got a special program for them——

Mr. PINKOS. That is right. 

Senator VOINOVICH [CONTINUING]. To upgrade their information 

so they are better prepared to handle these issues? 

Mr. PINKOS. Well, the Foreign Commercial Service, if I could 

speak a little bit for them: One, we are partnering with the Foreign 

Commercial Service and State Department on the attache program, 

sending these IPR experts to the hot spots around the globe. They 

have a particular—well, it is actually part of ITA, but not part of 

the Commercial Service, a case referral system that I think you 

have heard about with China, when someone alleges a systematic 

problem there. And I know that is sophisticated, monitored, etc., 

but I cannot speak much more about Mr. Israel has had some exposure to FCS, maybe, but I don’t know precisely how all their systems work. 

Mr. ISRAEL. Just a couple of things, Senator. Definitely, FCS has 

over the past 2 years—and we can provide some information to you 

about the type of material that is being provided to Foreign Commercial Service officers overseas to allow them to be more understanding of IP issues, to be better responders to companies that are 

coming to them in the countries they are posted in and help them 

out. 

Senator VOINOVICH. A lot of those guys show up at those 

AmCham meetings, too. They are very active. 

Mr. ISRAEL. Very active. It is an amazingly effective tool that we 

have internationally. Our Foreign Commercial Service is also working internationally on trade show initiatives and to make sure that 

if they are engaged in a trade show, as Foreign Commercial Service 

often is internationally, that there is a strong program in place and 

a strong policy in place by those trade show organizers. So the U.S. 

Government will never be involved in a foreign trade show that 

does not have a strong intellectual property enforcement program 

and policy in place. 

Senator VOINOVICH. Have you been able to observe the Customs 

and Border Patrol? And do you feel the Department of Homeland 

Security has enough resources, including staffing and funding, to 

effectively and efficiently combat IP issues at the border? 

Mr. ISRAEL. I have had several opportunities to work, and work 

very closely, with Customs and Border Protection officials over the 

past year. We have also expanded our interagency coordination efforts to include Immigration and Customs Enforcement (ICE), to 

bring them into the STOP! program, and also to allow them to participate in NIPLECC. 

28

I would defer any questions regarding their resources and funding levels to DHS officials, but as I said, I do get the sense—and 

I know this is the reality—that this is a trade priority for them. 

IP enforcement is a strategic trade priority for the Department of 

Homeland Security. They have a Strategic Trade Center based in 

Los Angeles, with IP specialists who are focused on providing information to agents throughout the Customs infrastructure. Their seizure numbers have gone up significantly over the past 3 or 4 years. 

They are reaching out very aggressively to industry. They have put 

tools in place, such as a recordation system, an online recordation 

system that allows companies to record their trademarks with Customs to provide information to Customs in an online database that 

is then used by their agents at the border to give them information, 

for instance, about how you discern differences and how you pick 

up a counterfeit good when it comes in. An agent is faced with a 

shipment at 3 o’clock in the morning, and they have to make a very 

quick decision about whether or not they feel it is counterfeit or 

not. Customs is putting a big priority on working with industry to 

generate that type of expertise and information through intelligence gathering, and through tools such as their recordation system. 

So, I think there is a tremendous amount of effort and emphasis 

that Customs has put into this problem. They realize it is a very 

huge trade issue they need to deal with. 

Senator VOINOVICH. So your assumption is that they probably 

are putting a lot more resources into IP enforcement than they did 

before? 

Mr. ISRAEL. I would want to verify that. I would not want to assume that, Mr. Chairman. 

Senator VOINOVICH. Well, we have jurisdiction over them, so we 

will get it. 

Mr. ISRAEL. OK. 

Senator VOINOVICH. Mr. Yager. 

Mr. YAGER. Yes, Mr. Chairman, if I could just make a point. In 

our written testimony on page 15, we talk about some initial observations from the work that we currently are performing for this 

Subcommittee, and our initial findings are that the resources to address this kind of issue have been dropping, and fairly significantly. We have not been to all the ports, and we have not completed our survey. We have been in some very important points like 

Los Angeles, Long Beach, San Francisco, Philadelphia, and others, 

and our initial findings are that the number of people who are 

available to do this kind of work is decreasing. 

And I certainly agree with Mr. Israel, the challenges associated 

with this, because of the volume, the sophistication of the products, 

make that job very difficult. We are going to be reporting soon on 

the level of resources that we are able to find more systematically 

across the country. But, at least in Long Beach and Los Angeles, 

for example, we found that the number of CBP officers—those are 

the front-line officers that are opening the boxes, looking inside, 

trying to determine whether the goods are accurately described in 

the manifest, as well as the entry document, we found they 

dropped by about 43 percent. And in addition to that, the import 

specialists, those are the folks that the Customs and Border Patrol 

29

officers call up and they say, ‘‘I have got some auto parts here. I 

frankly cannot tell whether this is a legitimate part or not. Can 

you help me out? Can you come look at it? Can I put a hold on this 

long enough to determine whether it is legitimate or not?’’ Those 

folks have also dropped in some of those key ports. So I think that 

there are reasons to be concerned about the level of resources. 

Also, just one quick mention. CBP is putting out this risk model. 

They are trying to develop a risk model to help them select the 

highest-risk shipments so that they can focus their resources on 

the ones that are the highest risk. But that is still a work in 

progress. It has not been implemented fully. They are going to run 

another trial during the summer, but that particular model is not 

operational at this point, and it is obviously a very important way 

to try to target their efforts on the highest-risk shipments. And we 

would certainly support that kind of a risk-based model, but, frankly, it is not working yet. And they need to get that working in order 

to make maximum use of the personnel that they have. 

Senator VOINOVICH. OK. In GAO’s area of oversight, have you 

looked at Mr. Israel’s efforts to coordinate U.S. IP enforcement efforts? 

Mr. YAGER. Well, the work that we are doing for this Subcommittee really is what is happening at the border. So it would 

address exactly the kind of question that you just put on the table, 

which is, What is the status of the efforts at the U.S. border, particularly with CBP? And so that is the focus of the project that we 

are doing for this Subcommittee. 

We are also doing some work for the House Government Reform 

Committee, which is looking at the national strategy and seeing 

whether the kinds of things that you can use for effective oversight 

are present in the strategy that will be put forward—as we hear 

now from Mr. Israel, is going to be put forward in the next month 

or so. So we really have efforts along both of those different avenues. 

Senator VOINOVICH. Maybe we ought to get a letter. What I 

would like to do, would be to look at what Mr. Israel is doing, what 

Mr. Pinkos is doing what the Justice Department is doing, and the 

other agencies, to better understand whether or not we have the 

resources employed to get the job done. 

One of the things that really bothers me—and it should bother, 

I think, the people of our country—is that the non-defense discretionary budget is being squeezed. And the President does not get 

credit for this, but, I mean, if you look at those budgets, many of 

the department budgets are less this year than they were last year. 

And at the same time, we are asking them to do more. 

I think that we really need to better understand what resources 

do you need to get the job done. Just like Mr. LaPlaca, you say you 

have X number of people, they are all busy, and you say, here are 

two other things for them to do. And they say, well, what am I 

doing now that I am going to stop doing so I can do this new task. 

It seems to me that this is a significant enough—I mean, I really 

believe—and I think that—again, I am not as eloquent as Senator 

Coburn, but the fact of the matter is that intellectual capital is the 

last competitive advantage that we, as a Nation, have. If people 

can steal our intellectual property, we are dead. We are not a 

30

cheap labor nation and other costs, such as energy and healthcare, 

remains high, but the new ideas that come up will keep us ahead. 

If our competitons can take that advantage away from us, then we 

are really in bad, bad shape. 

Mr. Israel, you are in Commerce. That is your shop, right? 

Mr. ISRAEL. I am based on Commerce Department, yes. 

Senator VOINOVICH. I am going to ask Secretary Gutierrez, to 

allow you to sit down and look at what would be the ideal operation to make this thing work effectively. OK? In other words, you 

are starting to get a feel of how all these processes and agencies 

come together, and it is all over the lot. I am not asking that it 

all come under one head agency, but it needs coordination. I want 

to know, what are your thoughts on how to best coordinate the Nation’s efforts? What are the resources that we would need in these 

various agencies and departments to really get this job done? Because I think that if we can—and sometimes those of us in Congress—that is my big complaint—that the Congress, we are always 

coming up with how you guys ought to do things, and from my experience as a governor and mayor, usually the best way to find out 

how to get something done is to go to the people who really are 

doing it. 

But, I have this legislation—we think it is good, but I don’t know 

how it would effect your daily efforts. I would really like to have 

you look at it and say, from your perspective, this is the ideal way 

this thing can be organized. It may require us to do away with 

some existing efforts and do something else new and innovative. 

But I think that it would be a great gift to your country, and a 

great legacy for the Bush Administration, to come up with something in this area, so that once you complete your public service, 

we know that your efforts will continue. I believe that if the folks 

we are dealing with, the countries and the companies in those 

countries, understand that we have got a bunch of people that get 

up early in the morning and go to bed late at night working on this 

issue, that we are going to start to see some real progress. But if 

they think we are just putting in half the resources that we need 

to get the job done we will not see enough progress. But if we devote enough resources to these efforts, I think that we will make 

some significant headway in terms of dealing with this problem. 

And, Mr. LaPlaca, I am going to look forward to getting your information back on some of the legislation that is pending. 

I just want you to know that I am going to stay on this issue. 

I think it is important as part of our oversight of government management. So I just want all of you to know that this is not just 

something that I will let go until we get the job done. So you have 

my commitment that I am going to stay with this, and if you put 

your time in, you can be assured I will do everything I can to help 

you do the work. 

So, I really thank you for coming today. This has been really 

worthwhile. I know a lot of my colleagues are interested. Before 

these hearings, we held a staff briefing and several Senators are 

really interested in this subject, so we have got some allies out 

there. 

Thank you very much. The hearing is adjourned. 

[Whereupon, at 5:05 p.m., the Subcommittee was adjourned.] 

(31)

A P P E N D I X 

PREPARED STATEMENT OF SENATOR LEVIN 

I commend Senator Voinovich for holding a hearing to look at the progress we are 

making in the protection and enforcement of our intellectual property rights laws 

as a follow up on the hearing he chaired last year on this topic. 

People may not realize intellectual property theft is not just movies, high end 

handbags and watches being knocked off. Counterfeiting has exploded in recent 

years across many industries to become a serious threat to the competitiveness of 

the U.S. economy. One of the greatest assets of American businesses is their intellectual property, but when American innovations can quickly be stolen by competitors around the world the vitality of those businesses is at risk. The FBI estimates 

that counterfeiting costs U.S. businesses $200 billion to $250 billion annually, and 

growing. Counterfeiting money is a serious crime and treated as such. The Counterfeiting of products is a serious and growing crime, and the Justice Department and 

other Federal agencies should be doing more to fight it. 

We know that China is the primary source of counterfeit auto parts and components and product counterfeiting is one of the U.S. auto parts industry’s greatest 

concerns with China along with currency manipulation and the ongoing U.S.-European Union and Canadian WTO case challenging China’s auto parts tariffs. The 

U.S. auto parts industry conservatively estimates it loses $12 billion annually to 

counterfeit auto parts and China is responsible for about three-fourths of that or 

$9 billion. 

The auto parts industry estimates millions of counterfeit auto parts enter the U.S. 

every year and only a fraction of them are ever detected at the border. We need 

to act to stop it cold—because counterfeit and pirated automotive parts mean lost 

revenue and jobs in the Untied States. The FTC estimates that the auto industry 

could hire 250,000 additional Americans if the sale of counterfeit parts were eliminated. Fake parts also undermine U.S. safety standards and put customers at risk. 

If I can relay only one message to today’s witnesses representing some of the Federal agencies working to combat intellectual property theft, it is to urge you to increase your prosecution of auto parts piracy. So far there has been a lack of willingness to initiate criminal cases against auto parts counterfeiters because it was not 

viewed as a serious enough problem by the Department of Justice. The industry 

knows of only one prosecution for auto parts counterfeiting. The Department of Justice told us they were unaware of any pending case. 

I certainly hope these statistics will change as the U.S. Government’s initiatives 

to combat counterfeiting take shape and that we will begin to vigorously protect 

America’s intellectual property. 

If the government won’t act against currency manipulation by our trading partners as they should, if it won’t force open export markets for U.S. products blocked 

by tariff and non-tariff barriers and aggressively enforce U.S. trade laws as they 

should, the least it can do is enforce our anti-counterfeiting laws.

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