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[Senate Hearing 114-664]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 114-664

   CHALLENGES AND OPPORTUNITIES FOR U.S. BUSINESS IN THE DIGITAL AGE

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

                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 15, 2016

                               __________

                                     
   
   
   
   
   
   
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            Printed for the use of the Committee on Finance
                                   ______

                         U.S. GOVERNMENT PUBLISHING OFFICE 

26-247-PDF                     WASHINGTON : 2017 
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                          Washington, DC 20402-0001

                          COMMITTEE ON FINANCE

                     ORRIN G. HATCH, Utah, Chairman

CHUCK GRASSLEY, Iowa                 RON WYDEN, Oregon
MIKE CRAPO, Idaho                    CHARLES E. SCHUMER, New York
PAT ROBERTS, Kansas                  DEBBIE STABENOW, Michigan
MICHAEL B. ENZI, Wyoming             MARIA CANTWELL, Washington
JOHN CORNYN, Texas                   BILL NELSON, Florida
JOHN THUNE, South Dakota             ROBERT MENENDEZ, New Jersey
RICHARD BURR, North Carolina         THOMAS R. CARPER, Delaware
JOHNNY ISAKSON, Georgia              BENJAMIN L. CARDIN, Maryland
ROB PORTMAN, Ohio                    SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      MICHAEL F. BENNET, Colorado
DANIEL COATS, Indiana                ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
TIM SCOTT, South Carolina

                     Chris Campbell, Staff Director

              Joshua Sheinkman, Democratic Staff Director

                                  (ii)

                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman, 
  Committee on Finance...........................................     1
Wyden, Hon. Ron, a U.S. Senator from Oregon......................     2

                               WITNESSES

Foucart, Bruce, Assistant Director, National Intellectual 
  Property Rights Coordination Center, Immigration and Customs 
  Enforcement, Department of Homeland Security, Arlington, VA....     5
Schenk, Norman T., vice president, global Customs policy and 
  public affairs, UPS, Washington, DC............................     7
Triggs, Tom, chief legal officer and general counsel, Belkin 
  International, Inc., Playa Vista, CA...........................     8

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Foucart, Bruce:
    Testimony....................................................     5
    Prepared statement...........................................    21
    Responses to questions from committee members................    25
Hatch, Hon. Orrin G.:
    Opening statement............................................     1
    Prepared statement...........................................    35
Schenk, Norman T.:
    Testimony....................................................     7
    Prepared statement...........................................    36
    Responses to questions from committee members................    37
Triggs, Tom:
    Testimony....................................................     8
    Prepared statement...........................................    40
    Responses to questions from committee members................    46
Wyden, Hon. Ron:
    Opening statement............................................     2
    Prepared statement...........................................    47

                             Communications

The Center for Fiscal Equity.....................................    49
eBay Inc.........................................................    50
International AntiCounterfeiting Coalition (IACC)................    53
The Internet Association.........................................    58
Venus Fashion, Inc...............................................    59

                                 (iii)

 
   CHALLENGES AND OPPORTUNITIES FOR U.S. BUSINESS IN THE DIGITAL AGE

                              ----------                              

                        WEDNESDAY, JUNE 15, 2016

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 2:10 p.m., 
in room SD-215, Dirksen Senate Office Building, Hon. Orrin G. 
Hatch (chairman of the committee) presiding.
    Present: Senators Crapo, Burr, Scott, Wyden, Stabenow, 
Cantwell, Menendez, Carper, Bennet, and Casey.
    Also present: Republican Staff: Chris Armstrong, Deputy 
Chief Oversight Counsel; Chris Campbell, Staff Director; 
Everett Eissenstat, Chief International Trade Counsel; Kim 
Frankena, Detailee; and Andrew Rollo, Detailee. Democratic 
Staff: Elissa Alben, Senior Trade and Competitiveness Counsel; 
Greta Peisch, International Trade Counsel; Joshua Sheinkman, 
Staff Director; and Jayme White, Chief Advisor for 
International Competitiveness and Innovation.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
              UTAH, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. Welcome, everyone, to this afternoon's 
hearing, which we have titled ``Challenges and Opportunities 
for U.S. Business in the Digital Age.''
    Over the last decade, the digital economy has dramatically 
changed our way of life, from the way that we hail a cab, 
search for a new home, or order take-out. It has a profound 
effect on all of our lives.
    This is also true for the ways in which companies conduct 
their business. The digital economy provides U.S. businesses of 
all sizes with great opportunities and challenges.
    In today's marketplace, businesses no longer have to rely 
on the hope that a passerby will notice something in their 
storefront window and come in. Today, the business can set up 
shop wherever it wants and sell all kinds of products over the 
Internet to customers all over the world. This represents a 
huge portion of worldwide commerce.
    According to the Internet Association, about $8 trillion 
changes hands in the digital marketplace each year.
    In addition to having a digital storefront that can be seen 
in every corner of the world, the Internet also provides new 
tools for businesses to find and retain customers. For example, 
it is now possible to tailor advertisements to specific market 
segments and customers using social media.
    However, as with all great technological and societal 
developments, there are challenges that come part and parcel 
with the opportunities. Although the United States has largely 
embraced and supported the changes brought about by expanded 
Internet commerce, there are many countries around the world 
that do not fully embrace this potential.
    Many countries want to regulate various facets of the 
Internet, including the digital economy, operating under a 
mindset from the last century.
    Put simply, that is not a wise or sustainable approach to 
dealing with the Internet. That is why the Finance Committee 
worked to make digital trade a priority in our international 
trade negotiations through the Trade Promotion Authority, or 
TPA, statute that was signed into law last year.
    The digital trade negotiating objective in the new TPA law 
directs the administration to do a number of things in order to 
protect the Internet as we know it, including ensuring that our 
digital goods and services will be exported to other nations 
without duties, that our electronic goods and services are 
treated no less favorably than their physical counterparts, and 
that the free flow of data across borders is not inhibited.
    Another equally important challenge facing businesses and 
consumers in the digital marketplace is the rise of 
counterfeits. Just as the digital economy has made it easier 
for businesses to find and engage with consumers, it has also 
enabled counterfeiters to do the same.
    Small businesses are the backbone of our economy, and for 
these businesses, the Internet is a powerful tool.
    Now, I have a call coming in from the President. So I am 
going to have to put the rest of my remarks into the record and 
turn to my colleague, my great colleague who works with me on 
this committee, Ron Wyden, and then come back as soon as I can.
    [The prepared statement of Chairman Hatch appears in the 
appendix.]
    The Chairman. Thank you, Ron. I appreciate it.

             OPENING STATEMENT OF HON. RON WYDEN, 
                   A U.S. SENATOR FROM OREGON

    Senator Wyden [presiding]. Thank you very much, Mr. 
Chairman. Thank you for scheduling this important hearing.
    In my view, there are two issues at hand today, and in many 
respects, they are two sides of the same coin. The first is 
about how more small businesses are tapping foreign markets, 
thanks to the digital economy and e-commerce platforms.
    The bottom line is that the Internet is the shipping lane 
of the 21st century, and every business in this country, in one 
way or another, is digital.
    Take the example of Bike Friday, an Oregon company that 
makes folding bicycles. It may not always be bicycle season in 
Oregon, but it is always summertime somewhere. The Internet is 
an essential resource that enables Bike Friday to reach 
customers and process orders 24/7, regardless of time 
differences.
    It is exactly the same story if you are talking about the 
steel industry, if you are talking about the manufacturing 
sector, if you are talking about clean energy, or if you are 
talking about apparel.
    Digital technology is a booster shot in the arm for exports 
at a time when 95 percent of the world's customers live outside 
the borders of the United States.
    American businesses and their workers today are not relying 
on listings in the yellow pages or waiting for new customers to 
walk through the door. Many of their storefronts are online, 
and they are always open.
    That is one side of the coin.
    The other is the challenge represented by counterfeit 
goods. For the trade enforcers, it used to be a matter of 
identifying a shipping container filled with fake computer 
chips or tennis shoes.
    Although those shipping containers still come in, 
counterfeit goods are now also delivered in individual packages 
that go straight to the doorsteps of the American consumer.
    So the challenge of rooting out counterfeits is a lot more 
difficult than it once was, and it poses a direct threat to 
family-wage jobs in our country and our businesses.
    There is a firsthand case for a lot of Oregon businesses in 
various industries, from parts for autos and railcars to high-
tech semiconductors.
    Take Leatherman Tools as an example. They are a proud 
Oregon employer that makes high-quality outdoor gear that gets 
a lot of use in our State's recreation economy. But if you 
place an order for a Leatherman's tool pocketknife from an 
unknown seller, there is a chance that you will be receiving a 
cheap knockoff. The result is a disappointed consumer and an 
Oregon manufacturer who has lost a sale.
    That is why buyer reviews of sellers on platforms like 
Amazon and eBay and liability laws that enable those reviews 
are so valuable to those seeking authentic merchandise.
    So our policies have to take both of these issues into 
account, helping our workers and businesses to take advantage 
of digital shipping lanes and staying ahead of the online rip-
off artists who want to sneak their counterfeit goods into our 
market and rip off American jobs.
    On a bipartisan basis, this committee took a major step 
forward earlier this year in the fight against counterfeiters 
by passing the toughest package of trade enforcement policies 
in decades.
    Thanks to that legislation, Customs and Border Protection 
now has additional tools to sniff out illegal goods before they 
make it into the home of the American consumer, including by 
encouraging Customs and Border Patrol to work with U.S. rights-
holders on identifying potential counterfeits at the border.
    As the digital economy continues to transform our lives and 
reshape the way business is done, this committee will have more 
work to do. It is our job to understand how technology and 
policies empower America's innovators, producers, and sellers. 
It is also our job to understand how the trade cheats are 
ripping off Americans and to respond accordingly.
    So we want to thank our witnesses for joining us today. In 
effect, this digital hearing fits exactly into what I have said 
throughout this debate. We have dealt with the rules for trade 
agreements--that is called TPA--and we have dealt with 
enforcement.
    Obviously, there is a great deal of debate about trade 
agreements. But at the end of the day, it comes down, in my 
view, to trade done right. That is my vision of what America's 
trade policy ought to be all about: trade done right.
    That is why today's hearing is so important. As you heard, 
the chairman is off talking to the President and should join us 
shortly.
    We are going to make his prepared remarks a part of the 
record in their entirety, and he will rejoin us when he can.
    [The prepared statement of Senator Wyden appears in the 
appendix.]
    Senator Wyden. Let me briefly introduce our witnesses.
    We are going to hear from Mr. Bruce Foucart, the Director 
for the U.S. National Intellectual Property Rights Coordination 
Center within Customs. The Center heads a task force of over 20 
agencies focused on preventing global intellectual property 
theft.
    He is also responsible for U.S. Immigration and Customs 
Enforcement's trade fraud investigation program. Prior to his 
current position, Mr. Foucart had served for 8 years as the 
special agent in charge of ICE's homeland security 
investigations in Boston, overseeing their investigations 
across New England.
    He has also had an extensive career in law enforcement.
    We would like to thank you for your service and, Mr. 
Foucart, I can tell you that Senator Brown and I very much 
appreciate the meeting you had with us in following up the 
effort to stop child and forced labor. Senator Brown has done 
very good work on this. I have been happy to join him, and we 
thank you for the good work you and Mr. Kerlikowske are 
pursuing on this.
    Next, we are going to hear from Mr. Norman Schenk, the vice 
president of global Customs policy and public affairs at UPS. 
Mr. Schenk has more than 30 years of experience working in 
Customs. He is also currently serving on several advisory 
committees and chairs the International Chamber of Commerce 
Commission on Customs and Trade Facilitation.
    There is nothing that I enjoy more, and I am sure it is 
true for my colleagues, than going to a UPS center and standing 
on the little foot stool that is given when you get a chance to 
visit with your constituents.
    So we thank you, Mr. Schenk, for joining us.
    Then we are going to hear from Tom Triggs, general counsel 
and chief legal officer of Belkin International. Before joining 
Belkin, Mr. Triggs practiced law, focusing his expertise on 
global and technology law.
    We thank all of you for making time to join us. We will 
hear from the witnesses in the order they were introduced. We 
will make your prepared statements part of the record in their 
entirety.
    Mr. Foucart, why don't you begin?

   STATEMENT OF BRUCE FOUCART, ASSISTANT DIRECTOR, NATIONAL 
 INTELLECTUAL PROPERTY RIGHTS COORDINATION CENTER, IMMIGRATION 
   AND CUSTOMS ENFORCEMENT, DEPARTMENT OF HOMELAND SECURITY, 
                         ARLINGTON, VA

    Mr. Foucart. Good afternoon, everyone. Thank you, Ranking 
Member Wyden and distinguished members, and I appreciate that 
meeting that we had yesterday as well. I also appreciate the 
opportunity to testify before you today concerning ICE's 
efforts to combat the illegal importation and sales of 
counterfeit products and the threats to consumers, public 
safety, national security, and the economy that counterfeit 
products pose.
    ICE is the lead agency in the investigation of intellectual 
property violations involving the illegal importation of 
counterfeit merchandise and pirated works, as well as 
associated money laundering investigations and violations. In 
combination with U.S. Customs and Border Protection, we target 
and investigate counterfeit merchandise associated with these 
investigations and seize illicit goods that infringe on 
trademarks, trade names, and copyrights.
    I recognize that no single U.S. law enforcement agency 
alone can succeed in the fight against IP crime. Rather, it is 
essential that all relevant agencies work together and with 
industry partners to confront this challenge. Law enforcement, 
public education, demand reduction, and global collaboration 
are all critical to successfully address these crimes.
    To focus on government efforts and to enhance efficiencies, 
back in 1999, the former U.S. Customs Service's Office of 
Investigation, now known as ICE's Homeland Security 
Investigations, and the FBI formed the National Intellectual 
Property Rights Coordination Center. The Trade Facilitation and 
Trade Enforcement Act of 2015, which was recently signed into 
law by President Obama, officially authorized the IPR center.
    The IPR Center's mission is to address the theft of 
innovation that threatens U.S. economic stability and national 
security, undermines the competitiveness of U.S. industry and 
world markets, and places the public's health and safety at 
risk. The IPR Center supports field personnel, operates via a 
task force model, and is comprised of 23 Federal and 
international partners.
    As you know, the illegal importation, distribution, and 
sale of counterfeit products pose a significant and growing 
threat to health and safety. Counterfeiters do not care if 
their products contain the correct materials. Counterfeiters do 
not care if their products are made in sanitary conditions or 
unsanitary conditions. They do not care if their products 
physically harm consumers. They do not care if their products 
result in economic damage to legitimate companies.
    Rather, they care about their products looking good enough 
to be purchased. They care about their bottom line.
    Through the course of its investigations, ICE has uncovered 
counterfeit lithium batteries not properly vented; counterfeit 
airbags that have too much propellant; counterfeit jewelry that 
contains lead; counterfeit pharmaceuticals that contain 
potentially toxic substances; counterfeit health and beauty 
products that are made in unsanitary conditions; and goods 
entering the Department of Defense and U.S. Government supply 
chains.
    Today, I would like to outline some of our efforts to 
protect the public's health and safety from counterfeit 
consumer products.
    Operation Chain Reaction, for example, is an initiative 
that combines the efforts of 16 IPR Center agencies to target 
counterfeit items entering the Department of Defense and other 
U.S. Government supply chains. Operation Chain Reaction partner 
agencies coordinate their efforts to more productively protect 
the U.S. Government supply chain from substandard counterfeit 
parts that could impact the reliability of weapons systems, 
delay DOD missions, imperil the safety of servicemen and women, 
and waste taxpayer money.
    Operation Engine Newity is another example that addresses 
safety threats posed by counterfeit automotive, aerospace, 
rail, and heavy industry components. These counterfeit parts 
are not only an evident health and safety risk to Americans, 
but they also impact the economy of the automotive industry.
    Investigations and interdictions have uncovered counterfeit 
airbags, steering, braking, and seatbelt components, bearings, 
and diagnostic equipment. Operation Engine Newity resulted in 
31 arrests, 32 indictments, 16 convictions, and the seizure of 
goods worth approximately $18.4 million in fiscal years 2014 
and 2015 combined.
    Operations Apothecary and Plastic Beauty target 
counterfeit, unapproved, or adulterated pharmaceuticals and 
personal health care and beauty products.
    In addition to the investigations carried out under these 
operations, the IPR Center supports the efforts of the new 
Verified Top-Level Domains Consortium, working to secure domain 
names, including dot-pharmacy, dot-med, dot-bank, and dot-
insurance.
    As you know, seals and logos can be faked online, but the 
dot-pharmacy domain is secure. Only safe, legal pharmacies are 
eligible for the dot-pharmacy domain. It is like baking the 
seal of legitimacy into the domain name itself.
    We in law enforcement know we cannot arrest or seize our 
way out of this problem, so we welcome efforts by industry like 
this to help us protect their customers and the economy.
    To further complement our enforcement actions and to help 
educate consumers on emerging dangers of counterfeit products 
and facilitate productive partnerships with the public and 
private sectors, the IPR Center launched Operation Joint 
Venture. This effort is designed to increase consumer 
awareness, communication, training, and international 
cooperation for our ongoing IPR enforcement initiatives and our 
critical public health and safety efforts.
    IP cases demand attention from criminal investigators and 
regulatory agencies. We take this responsibility to protect 
American consumers and industry very seriously, and ICE's 
priorities in IP crime enforcement remain to protect the 
public's health and safety, the military supply chain, and the 
American economy.
    Thank you again for the opportunity to appear before you 
today, and I look forward to working closely with the members 
of this committee on this issue, as it directly threatens 
consumers' health and safety, as well as the economy worldwide.
    [The prepared statement of Mr. Foucart appears in the 
appendix.]
    Senator Wyden. Mr. Foucart, thank you.
    Mr. Schenk, welcome.

 STATEMENT OF NORMAN T. SCHENK, VICE PRESIDENT, GLOBAL CUSTOMS 
         POLICY AND PUBLIC AFFAIRS, UPS, WASHINGTON, DC

    Mr. Schenk. Thank you, Senator Wyden.
    At UPS, our processes are complex and our technology is 
advanced, but our objective is simple--to ensure world-class 
service for our customers while providing the necessary data to 
law enforcement and other government agencies. This allows them 
to target contraband and identify bad actors who seek to import 
dangerous goods and counterfeit items into the U.S. in small 
packages.
    UPS works closely with U.S. Customs and Border Protection 
at our own expense to comply with and even exceed existing 
legal requirements to provide data to target high-risk inbound 
shipments and screen them out. In addition to enabling better 
screening for counterfeit contraband, this data can also be 
used to screen for shipments from potential terrorists, for 
illicit drugs, and for other potentially dangerous products.
    To achieve these goals, UPS provides advance data to CBP on 
our packages before they enter the United States, and, in 
addition, we share shipment data through the Air Cargo Advance 
Screening system.
    The most important aspect of package screening is the use 
of advance data. In May of 2000, I testified before the House 
Government Oversight Committee on how UPS provides advance data 
to help Federal agencies combat illegal drug trafficking. At 
that time, there were about 21 million package shipments 
entering the U.S. annually: about 10 million through the 
private sector--which were accompanied by advance electronic 
data--and 11 million through the international mail system, 
which did not have any electronic data.
    Even back then, it was clear that Customs and other Federal 
agencies could not manually screen packages that were not 
accompanied by advance data purely because of volume and that 
the most effective way of interdicting bad shipments was 
through the use of advance electronic data.
    By 2016, the volume of packages entering the U.S. has 
increased many times over. The Department of Homeland Security 
reports that in 2014, CBP processed approximately 340 million 
mail parcels arriving from foreign post operators, most without 
electronic data. It also estimated that 35 million packages 
entered the U.S. through private carriers like UPS, all with 
electronic data.
    If Customs could not effectively manually screen 11 million 
packages without advance electronic data in 2000, imagine what 
they are tasked with when screening 30 times that amount.
    UPS and other private express carriers use advance 
electronic data to manifest their shipments on a package-level 
basis, present them to Customs, and provide critical screening 
data to law enforcement to counteract illicit trade.
    We have been using electronic data for years, even before 
it was required by the Trade Act of 2002, to provide CBP with 
item-level detail about each and every shipment entering the 
country.
    The data consists of seven data ports: who and where it is 
coming from, who and where it is going to, a description of the 
goods, piece count, and item weight. This not only helps us 
reduce the potential of dangerous goods entering through our 
system but also aids in manifest compliance, payment of duties 
and fees, and clearance through Customs.
    Perhaps more importantly, UPS is also working with CBP, the 
Transportation Security Administration, and other Federal 
agencies by sharing data through the ACAS system. ACAS, 
currently a pilot program, builds on datasets from electronic 
manifests required in the past and provides the necessary 
information before shipments depart for the United States. It 
allows authorities and watch groups to target potentially high-
risk shipments.
    As the advance electronic submission allows for risk 
assessment or data-level screening prior to the arrival in the 
U.S., it reduces the need for physical inspections, which are 
cumbersome and ineffective.
    UPS is committed to help Federal authorities identify bad 
packages in our system and believes that the best way to do so 
is through the smart policy requiring electronic manifesting on 
all shipments, public and private, so that Customs is well-
equipped to combat illegal trade.
    With cross-border e-commerce growing at an unprecedented 
rate and showing little signs of abating, the only way to 
protect our borders, national security, American business and 
consumers, and even our own supply chain, is to employ data-
driven solutions and share the intelligence with law 
enforcement and other Federal agencies.
    Thank you.
    [The prepared statement of Mr. Schenk appears in the 
appendix.]
    Senator Wyden. Thank you very much.
    Mr. Triggs?

   STATEMENT OF TOM TRIGGS, CHIEF LEGAL OFFICER AND GENERAL 
      COUNSEL, BELKIN INTERNATIONAL, INC., PLAYA VISTA, CA

    Mr. Triggs. Chairman Hatch, Ranking Member Wyden, and 
members of the committee, thank you for the opportunity to 
testify on the important subject of challenges and 
opportunities facing U.S. businesses in the digital age.
    My name is Tom Triggs. I am the chief legal officer and 
general counsel with Belkin International, and it is truly an 
honor and a pleasure to be here.
    As the committee is aware, e-commerce presents tremendous 
opportunities for businesses both here in the United States and 
abroad. At Belkin, we celebrate the digital age. We also 
advocate for the consumer in every aspect of our business.
    Our grand purpose is this: that technology exists to make 
people's lives better, easier, and more fulfilling.
    Belkin is about peace of mind, and product quality is 
essential to this. We have invested billions of dollars in 
development of products, and that has been our mission since 
1983 when our founder and still current CEO, Chet Pipkin, 
created the company in his parents' garage.
    Today, we have over 1,200 employees in 22 countries around 
the world, more than 700 employed in the United States.
    Now the Internet provides a virtual storefront to the rest 
of the world. Today, anybody online, including criminals, can 
sell anything anywhere. Third parties who have not invested the 
resources that we have invested to develop and design products 
are now able to manufacture inexpensively inferior counterfeit 
copies and then sell them to unsuspecting customers around the 
globe.
    We have invested many millions of dollars in time and 
energy to protect our company and our customers from 
counterfeit goods. We have systematically focused for years on 
this effort, and it requires around-the-clock vigilance on a 
global basis and the application of consistent pressure to the 
relevant law enforcement authorities around the world.
    We have taken legal action in more than 30 countries 
against those who violate our intellectual property rights, 
and, unfortunately, we know that there are many more we will 
not discover and that we will not be able to get out of the 
market.
    And I have a good story about this. In December of 2014, 
after months of investigation and undercover surveillance, 
Belkin worked with the local law enforcement agencies all 
across southern China. We conducted raids of 11 manufacturers 
and sellers, and we seized more than 1 million counterfeit 
Belkin goods. Six people went to jail.
    That is a good result. Those raids also revealed the 
presence of Melkin branded products, which are identical in 
packaging and identical in products, and I have them here. Here 
is the Belkin, this is our product, and this is a Melkin 
product.
    It is almost funny. I mean, it is a little bit crazy. Under 
Chinese law--I will put these up here. Under Chinese law, if 
you change the first letter of a trademark, then it is not 
trademark infringement against the rightful owner of that 
trademark.
    So we have struggled to obtain relief in China to stop this 
company from infringing our company IP.
    I think all of us would agree that under U.S. trademark 
laws, this Melkin clearly infringes Belkin. It is a classic law 
school example of infringement.
    So what we have been forced to do is, we have chased Melkin 
in more than 20 countries. In China, we have worked with 
various agencies: the Administration for Industry and Commerce, 
the Quality Technical Supervision Bureau, the trademark office 
there, the courts there. And in Hong Kong, we filed an action, 
a lawsuit, and we obtained an injunction against Melkin from 
doing business in Hong Kong.
    We filed an action at the ITC here in the United States, 
and we filed in the ITC because we could not otherwise get 
jurisdiction over Melkin in the Federal courts.
    But our efforts are not as effective in China. Simply put, 
IPR and IPR enforcement are less developed, less predictable in 
China than they are at home.
    So let us be clear. The business of counterfeiting is big 
business in these other countries, and because of that economic 
benefit there, those countries make it hard to shut down those 
businesses.
    But I do want to be very clear on this one point. We at 
Belkin, we celebrate the global marketplace, the online 
platforms. We believe in the value of global e-commerce and its 
importance to Belkin and American job growth.
    Like our peer companies, we simply want to advocate for the 
level playing field and believe that with fair competition, we 
and other American companies will succeed in that competition 
by working harder and being more innovative than our foreign 
competitors.
    So Belkin will continue to enjoy the opportunities that 
every U.S. business will enjoy in the digital age and we will 
continue to work and enjoy working with this committee in that 
effort.
    Thank you.
    [The prepared statement of Mr. Triggs appears in the 
appendix.]
    The Chairman. Thank you. I apologize for having to leave, 
but that was a conversation with the President, and he seemed 
to think it was important. [Laughter.]
    I did too.
    Let me start with you, Mr. Foucart. Shutting down 
counterfeit websites is almost like playing a game of whack-a-
mole. Are there any better ways to stop counterfeiters? Are 
there ways to cut off their payment stream?
    Mr. Foucart. Yes, there are, Senator. Yes, you are right. 
It is like playing whack-a-mole, and we have pushed a lot of 
that responsibility civilly onto industry for them to protect 
their goods, and we have created almost a procedure for the 
different marketplaces that they can go to--such as eBay, for 
example, Amazon--the procedures that would be required for 
industry to shut these websites down, either civilly or with 
cease-and-desist orders. So we have assisted in that way.
    Secondly, we have joined up with specific coalitions and 
consortiums within--actually, within the Washington, DC area. 
One I mentioned in my remarks is called the Verified Top-Level 
Domains Consortium. And how it works is, it is a verification 
process for someone who wants to sell their goods. And when I 
say sell their goods, I mean to sell them legitimately.
    They go through this background or vetting process in which 
the people who are vetting them ensure that what they are going 
to be selling is licensed and it is proper and they have a 
secure supply chain.
    Then, working with the registries, they will provide a 
specific dot-pharmacy or dot-bank in the banking industry 
domain. And so that is the first part of this action, working 
with industry doing that.
    The second part of that action will be getting that word 
out to the consumer, educating the consumer that when they go 
online, if they want to buy product from XYZ Corporation that 
sells pharmaceuticals, look for it to be www.xyz.pharmacy. That 
way we know that they have been vetted and they are wearing 
this badge of approval, so to speak.
    Secondly, along those lines, we have worked with a 
coalition called the Trustworthy Accountability Group that 
deals with advertisement fraud as well as malware, and they 
have a verification program as well very similar to wearing the 
Good Housekeeping seal.
    To be part of this, to be an advertiser, you undergo a 
background check for legitimacy, and then you will get this 
seal that you will be able to wear or put on your website. It 
shows that you have been vetted, you have no criminal activity, 
and, again, you have a secure supply chain as well.
    So with that, this TAG payment ID system, there are records 
kept in which all ad impressions that advertisers are paid for, 
they will keep a record of this. So a legitimate seller of a 
product would be able to go to this Trustworthy Accountability 
Group and ask to see if they are part of this.
    So those are just three ways in which we have worked with 
online companies to further these efforts.
    The Chairman. Thank you.
    Mr. Schenk, UPS has a long tradition of working with CBP to 
stop fakes from entering into the stream of commerce in the 
United States.
    As you know, the Customs bill recently passed by Congress 
contains a number of provisions both to facilitate trade and 
ensure effective protection of U.S. intellectual property 
rights.
    What additional steps do you think Congress can or should 
take to help stop fakes from reaching the U.S. consumer?
    Mr. Schenk. Thank you, Mr. Chairman.
    I think, clearly, the one thing that Congress could do to 
help that is to mandate through legislation that advance 
electronic data be required for all packages coming into the 
U.S.
    A package is a package, and in order for CBP to do risk 
assessment, and the other government agencies, they need the 
advance data to do that.
    The Chairman. Thank you.
    Mr. Triggs, you testified that your company has significant 
experience working with China to stop counterfeiting at its 
source.
    Can you please describe your experience working with U.S. 
Government officials overseas, including our IP attaches, and 
tell us what more Congress can do to support these efforts?
    Mr. Triggs. Thank you, Mr. Chairman.
    Well, we have been working with the U.S. Embassy in China 
for a few years now. I have made at least two trips to Beijing. 
In fact, about 1 month ago, 2 months ago, I enjoyed a lovely 
dinner with the former chairman of this committee, Ambassador 
Max Baucus, and I can tell you directly here that he and his US 
PTO team and the State Department teams are working hard to 
open those markets for us and all U.S. businesses.
    They are working with the platforms that are out there. I 
have made two trips to Alibaba's headquarters in Hangzhou, 
China and met with their IPR teams. And we have worked together 
with the U.S. Embassy and the attache group there. And I really 
appreciate personally, as well as our company and on behalf of 
the U.S. interest, we really do appreciate the work that the 
U.S. Embassy is doing in China.
    The Chairman. My time is up.
    Did you want to add something?
    Mr. Triggs. What you could do to help--if I could add 
something really quickly, I will just jump into it.
    Senator Wyden yesterday, in yesterday's hearing, asked a 
great question about the cost of uncertainty in the tax code.
    At today's hearing, we are looking at that same problem: 
the cost of uncertainty. And the cost of uncertainty is not, as 
yesterday, an investment decision; today we are talking about 
purchase decisions by every consumer, every business, when they 
ask, ``Am I getting what I paid for; is it worth the risk to 
upgrade my technology because of all these counterfeits?''
    It is not only consumer confusion that is at stake here. It 
is also the hidden effect of the consumer who chooses not to 
buy something, not to buy technology, not to buy a product, and 
the demand that that would create for jobs and the economy, not 
only for us, but for all consumers.
    So there is a microeconomic effect here to this. There is 
also a macroeconomic effect as a result of that, the cost of 
uncertainty.
    So we would ask this committee and the U.S. Government to 
reduce that cost of uncertainty to give us predictability, 
enhanced IPR standards, and enforcement across the globe, 
especially in the Asia-Pacific region.
    Thank you.
    The Chairman. Thank you.
    Senator Wyden?
    Senator Wyden. Thank you, Mr. Chairman. I am very glad you 
are here. This is a particularly important hearing, because it 
really reflects what this committee is all about and how the 
challenge has changed over the years.
    The Finance Committee--if you look at the history of what 
has been done, the chairman and I have tried to emphasize that 
there is a very long bipartisan history, and we have been the 
committee that has financed so many modes of transportation and 
opportunities for American industry and American commerce.
    We finance roads, we finance ports, we finance the way 
farmers get their cattle to market. A number of colleagues on 
this committee are from the Midwest, and so we have, in effect, 
financed the ways in which American cars get into global 
markets, creating jobs for Americans and transportation 
opportunities for global consumers.
    What I have said is, we are now in the midst of looking at 
avenues for these kinds of economic opportunities, and I really 
describe it, the Internet, as the shipping lane of the 21st 
century, and every business one way or another is digital.
    Mr. Triggs, your company has grown out of the digital 
revolution, including innovations and products that support the 
architecture of the Internet and the innovative services that 
are going to mean that before too long, more Americans are 
going to be able to access smart cars and perhaps live in smart 
houses.
    So you demonstrate how our country leads in critical 
sectors for future growth. Your testimony mentions the value of 
global e-
commerce, and I think it would be very important if you could 
lay out--since this is really something of a groundbreaking 
hearing, I think it would be very helpful if you could lay out 
the benefits of e-commerce platforms from your company, since 
you are one of the ones that has been on the cusp of this 
revolution.
    Mr. Triggs. Thank you, Senator. Certainly, I would be happy 
to. Like I mentioned, at Belkin, we celebrate this digital 
marketplace, and you said it best, that it really is the 
shipping lane of the 21st century, and trade done right across 
that shipping lane is the way we want to be thinking about it.
    We view the online platforms as an opportunity to 
dramatically expand our business, as well as our partners' 
businesses. In doing that, we open new markets to us and to 
others who might not have had access to those. So it not only 
helps Belkin, but it helps all U.S. businesses and countless 
numbers of small businesses that have access now to potentially 
billions of customers globally.
    The second point I would make is that distribution is a 
really hard thing for a hardware company to do. So for us in 
consumer electronics, it is tough to get a peg on a shelf 
locally, no less globally.
    The online platform levels that playing field for the small 
business, for the large business. We like that.
    The third thing--and it is interesting. I spoke about the 
risks that come with the online platform and counterfeits. At 
Belkin, we view the online platform also, almost paradoxically, 
as a tool to combat counterfeit activities as well.
    Technology provides transparency, and technology allows us 
to deeply educate potential customers. We have web pages that 
educate on how to spot infringing or counterfeit products. We 
talk about safety and security on the web page as well.
    So we believe it is an effective tool to help the problem.
    I would just say one last thing, that the online platforms 
globally, they are here to stay. We want trade done right, I 
think is what you said, and we appreciate your work in that 
effort.
    Senator Wyden. Thank you very much.
    Assistant Director Foucart, all types of products are now 
being targeted by counterfeits. We are looking at clothing, 
jewelry, shoes, pharmaceuticals, smart phones, the list just 
goes on and on.
    Not only do these counterfeits pose a threat to our 
businesses, but many also threaten the health and safety of the 
American consumer. Fake drugs impede the treatment of patients. 
Fake electronics catch fire. Fake auto parts can make an 
automobile malfunction.
    How do you all prioritize your enforcement agenda against 
counterfeit goods based on the potential harm to the health and 
safety of the U.S. consumer?
    I assume, for purposes of this question, you all are 
working all the time with the FDA, the Food and Drug 
Administration, and the Product Safety Commission and the like. 
But I think it would be helpful to get a sense of how you 
prioritize your enforcement agenda given the fact that I think 
we know that there is really an avalanche of counterfeit 
materials coming into our country.
    Mr. Foucart. Certainly, health and safety are probably, if 
not the most important, in the top three as far as our 
priorities go, and many of the operations I mentioned earlier 
involve health and safety issues, like Operation Engine Newity. 
And yes, the FDA is part of the IPR Center, and we work hand-
in-hand with them with counterfeit pharmaceuticals and 
adulterated medicines.
    If there is an imminent or an immediate health and safety 
issue, obviously, that rises to the top.
    Probably the end of last summer, early fall of this last 
year and, to an extent, during the Christmas season, we saw the 
lithium batteries that were counterfeit in the hover boards, 
and we took immediate action. We took immediate action, with 
CBP making seizures. We worked with the Department of 
Transportation and the Consumer Product Safety Commission to 
get those hover boards off the streets and off of airplanes and 
transportation modes, et cetera.
    That is a great example of how an imminent health and 
safety risk rose immediately to the top.
    Additionally, we are, obviously, guided, as far as our 
prosecutions go, by the Department of Justice, and I know for a 
fact, working with the Department of Justice, both in DC as 
well as in the field, that health and safety issues are 
absolutely their number one priority as well.
    Senator Wyden. Thank you, Mr. Chairman.
    The Chairman. Senator Menendez, we will turn to you.
    Senator Menendez. Thank you, Mr. Chairman.
    Mr. Chairman, I appreciate you having this hearing with the 
ranking member.
    I have repeatedly raised how counterfeit imports are 
increasingly threatening the viability of U.S. businesses, and 
I sought to draw Customs and Border Protection's attention to 
this growing issue, adding report language to the recent 
Customs enforcement bill, calling on the agency to better 
screen, for example, small packages sent from international 
businesses to U.S. consumers, often illegally marked as gifts 
to evade Customs duties.
    But I also recognize that we need to be looking at what can 
be done to prevent the proliferation of counterfeit goods in 
the first place.
    Companies from around the country have been contacting me, 
explaining how their copyrighted imaging is increasingly being 
pirated and used by counterfeiters in advertisements on online 
search engines like Google, social media networks, and other 
websites.
    This deceptive practice tricks consumers into thinking that 
they are purchasing an authentic branded product at a discount, 
and what they are really getting is a cheap imitation.
    On the easel here, on the left, I have an example of an 
image that was stolen from a U.S. company and used in an online 
advertisement by a Chinese counterfeiter. Images like these are 
often displayed to unsuspecting U.S. consumers in online ads 
and counterfeiter websites.
    On the right is a picture posted by the woman who bought 
the dress. As you can see, the final product is a cheap 
imitation of what was promised.
    I have seen this in the wedding dress industry, which is an 
incredibly important industry, one of the few domestic 
industries we have left in this regard. It is killing them, 
and, at the same time, shattering one of the most important 
days in a person's life.
    I believe that these online search engines, like Google and 
other websites, that aid and abet these counterfeiters by 
failing to police the use of copyrighted product imaging in 
online ads, bear some responsibility.
    Clearly, companies that sell online advertising have some 
capacity to pre-screen advertisements. In fact, it has been 
brought to my attention that some search engines will remove 
counterfeit websites from their organic search results but 
continue to display those same companies' advertisements.
    In other words, some sellers of online ads may be 
continuing to receive advertising fees from companies that they 
know to be breaking the law, because they, in essence, took 
their counterfeited websites off their organic search results 
but still are taking their other sites and taking their fees.
    If search engines, social networks, and other sellers of 
online ads are unwilling to filter these types of illegal 
advertisements, I hope the committee will work with me to 
explore policy options to address a growing threat to American 
business.
    So let me, having that as the premise of what I am focused 
on here, turn to Mr. Foucart and ask you this.
    Director, I have written to the IPR Center raising this and 
other issues related to counterfeit imports. I have always 
believed that this problem requires more than one isolated 
agency, and I am looking into ways to encourage both business 
and other parts of the Federal Government to tackle the problem 
head-on.
    But as I said earlier, I am interested to hear what CBP can 
do to stop counterfeits from entering the country, but also, I 
want to address how we prevent the proliferation of counterfeit 
goods in the first place.
    How is your office addressing the misappropriation of 
copyrighted imaging for online advertisements, which is the 
initial theft of the U.S. intellectual property to deceive 
American consumers into buying what they think is a legitimate 
product? And how is your office implementing the report 
language that I offered with Chairman Hatch to raise the 
enforcement priority for counterfeit products, specifically 
those marked as gifts to evade Customs duties and detection?
    Mr. Foucart. Let me start off by saying we did have the 
wedding dress and wedding gown industry at a meeting at the IPR 
Center, probably within the last month. Prior to that, we had 
them in, as far as creating dialogue with them, 2 years prior 
to that. So we have engaged them with communication, and we are 
aware of their problems.
    One of our responsibilities at the IPR Center is to educate 
the consumer. It is education, education, education. And I 
mentioned that we cannot arrest, indict, and seize our way out 
of this problem. It is just too much.
    A $500-billion-a-year problem annually internationally is 
just too big. There have been estimates that over 6 percent of 
all goods out there are counterfeit. That is staggering.
    So we try, in addition to enforcement, to include 
education, and what we look at are really consumers--a consumer 
who is going to go out on the Internet and look for that cheap 
wedding dress at a very cut-rate cost, and we try to educate 
them that there are links to criminality behind this. There are 
criminal organizations that are selling this. This is a gateway 
crime to other crimes, such as drug trafficking, identity 
theft, human trafficking.
    So we try to effectively educate those folks by that link 
to criminality.
    Then it is the consumer who goes out there and just gets 
duped, and that is an additional group of people whom we have 
to reach on a regular basis.
    So that is going to take effort. It is going to take a very 
challenging effort with industry to continually get that word 
out.
    Until those policies are changed through legislation or 
otherwise, we will have to continue to work the way we have 
been working and then effectively, if that legislation is 
changed, create a different route to affect that.
    Senator Menendez. If I may, Mr. Chairman, with the chair's 
indulgence. I appreciate the education part, and that is very 
important. But if we had a $500-billion problem in any other 
context, we would not just accept education as the only vehicle 
for dealing with it.
    For example, I have the Port of Elizabeth in Newark, the 
mega-port of the east coast, in my State, and I have dealt with 
those issues for years.
    CBP uses algorithms, for example, since we do not screen 
every piece of cargo that comes into the United States. Very 
different context. They do those algorithms for the purposes of 
trying to spot a cargo that might have some potential explosive 
or some other security threat or, for that matter, drugs and 
narcotics.
    Is there not a way to have a similar algorithm system when 
we know, for example, that the Chinese consistently send 
products back to the United States through the mail, maybe 
through private handlers, and it is a small package and it is a 
gift all the time, and we know the companies and we have a 
universe of companies that consistently do this, and we know 
their geographical location?
    It just seems to me that there is more that we could do, 
because while education, I think, is critically important--and 
I certainly applaud that effort--at the same time, when you go 
after a few people and the message is sent that there is a real 
consequence to this, then behavior at least begins to change.
    There are those who are always willing to break the law. We 
will have to deal with those people. But I just get a sense 
that right now, they feel they can do so with impunity. And in 
that respect, what are the consequences?
    Mr. Foucart. It is extremely difficult for what we like to 
call the onesies, twosies, directly to the consumer. We are not 
seeing those 40-foot containers come in as much anymore. Like 
you indicated, it is through the mail.
    CBP has started an abandonment pilot program, a process 
that UPS has been part of, in which if it is under a certain 
value, that item--a letter will be sent out to the consumer who 
imported it, who had it mailed to them, asking them to explain 
if these are counterfeit or, if they are not, what their 
position is as far as the product goes.
    Many times during the course of this pilot program, the 
consumer is not going to reply, and in those instances, the 
items get destroyed.
    But as far as enforcement action goes, it is extremely 
difficult to prosecute that single consumer. So we have to look 
at it at more of a macro level, such as drop-shipment points 
maybe within the United States. We have seen them with 
counterfeit pharmaceuticals, where they may be going to one 
mail drop and then are disseminated out to a group of people in 
a certain area.
    But in those instances, we are looking at organized crime 
more than that one individual, where we will get a little bit 
more bang for our buck with either a local prosecution or, as 
well, a Federal prosecution.
    Senator Menendez. I will close, because the chairman has 
been gracious with the time. But I will just say I am not 
looking necessarily to prosecute the consumer, because in many 
cases, I believe the consumer was duped.
    What I am looking to is to prosecute the entities that are 
violating intellectual property rights and counterfeiting. If 
we prosecuted some of those entities--if they are foreign in 
nature, there are ways to do that. There are also ways to deny 
them access to the U.S. banking system; there are ways to deny 
them visas. There are real consequential efforts in which a 
$500-billion challenge can begin to have a more aggressive 
tool--so I would love to meet with you at some point to talk 
about this.
    Mr. Foucart. Absolutely. One of our initiatives at the IPR 
Center is to work with the credit card companies and the 
payment providers to obtain that information for overseas 
banking. Certainly, hitting them there would hurt them.
    And we do have our enforcement tools, and we work with 
overseas law enforcement partners to obtain that information.
    Sometimes we get cooperation in certain countries, 
sometimes we do not. My agency, specifically, we have 67 
offices in 48 countries, which span the globe.
    So we are out there, we are diligent, we are working with 
foreign law enforcement for the same effort, and that is to 
effectuate prosecutions here in the United States.
    Senator Menendez. We look forward to following up with you.
    Thank you, Mr. Chairman, for your courtesy.
    The Chairman. Thank you.
    Let me just ask you a question, Mr. Foucart. One of the 
purposes of this hearing is to help us think proactively about 
the steps that we might be able to take today to meet the 
challenges of tomorrow.
    In that vein, what trends do you see in counterfeiting 
practice that Congress needs to take into account when devising 
solutions to this, what really is a growing problem?
    Mr. Foucart. I think I mentioned them before, some of the 
ways that we are effectively working with online industry. But 
it would have to be changes in policy, similar to Senator 
Menendez's comments about changes with search engines, et 
cetera, and holding their feet to the fire.
    Additionally, the registrars and registries that knowingly 
are allowing domains for rogue websites or rogue companies or 
criminal organizations, holding their feet to the fire as well. 
And if you can provide us with those enforcement tools, that 
would be something that we would appreciate.
    The Chairman. Thank you.
    Mr. Schenk, you spoke about how UPS and other private 
carriers work with CBP to provide advance electronic data to 
CBP to help fight counterfeits and terrorism, but the United 
States Postal Service does not.
    I know that you do not work for the USPS, but as someone in 
the industry, are you able to discuss how difficult it would be 
for USPS to provide advance electronic data to CBP?
    Mr. Schenk. Thank you, Mr. Chairman. I will give you an 
example of what we did, and I cannot speak for USPS. But back 
when the Yemen incident took place, where there was the printer 
cartridge that was caught over in the UK, it was identified 
that it had a potential threat to the U.S. on that one.
    We received a call from CBP and subsequently TSA that said, 
``We need you to do more to get advance data to us so we can do 
this type of thing.'' Within 45 days, working together with CBP 
and TSA, we developed a system, and we are up and running and 
transmitting all that data.
    So, from a private-sector perspective, we were able to do 
it within 45 days. Is that practical for the Post Office? I 
cannot speak for them. But certainly, I think, going back to 
your point that you made, Customs now has more tools to use to 
help with enforcement, but unless they have the advance data to 
the risk assessment, it is like finding a needle in a haystack.
    So everything--and I know we are talking about counterfeits 
here, but this also has to do with potential shipments from 
terrorists. It could be fake airbags, it could be drugs. 
Unfortunately, since back in 2000 when I testified on a similar 
subject, there has not been much change in terms of getting 
everybody playing by the same rules with the advance data.
    Two things have changed. The volumes are much higher, and 
the risk is much higher. I participated in another Senate 
hearing, a roundtable a little while back, that fentanyl--it 
used to be amphetamines, and now it is fentanyl. So the 
situation is much more serious than it was, and the only way 
for CBP to use those tools that you referred to is by having 
the risk assessment from advance data.
    The Chairman. Senator Wyden?
    Senator Wyden. Thank you.
    A question for you, Mr. Foucart. With the volume of 
shipments coming in, it is important that ICE and CBP make sure 
targeting methodologies keep up with technology and the 
resulting changing patterns in trade.
    Now, we are in a high-tech age, and we have high-tech 
digital criminals. How are you all in enforcement leveraging 
the technologies that we need to target and detect counterfeit 
imports and bring charges against criminals?
    Mr. Foucart. We are leveraging our cooperation and our 
partnerships with private industry. We are targeting 
information. CBP and--to a certain extent ICE--sits at the 
National Targeting Center, which is out in McLean, VA.
    It is a real state-of-the-art facility. But we rely on 
industry to provide us with that targeting data so we can put 
it through our system, through our automated systems, computer 
systems worldwide, as well as CBP-specific systems.
    So we are aware that potential shipments can be or may be 
coming into the United States. So a lot of that intelligence, 
again, has to be guarded by industry itself, and I am happy to 
say we do have those relationships with private industry, 
because we are protecting their brands.
    Senator Wyden. I do not have any other questions, Mr. 
Chairman. I want to make one comment though, because we have 
had a little bit of discussion with respect to websites and 
search engines. I think as we all know, U.S. websites take down 
copyrighted photos when you have an owner of the photo 
notifying the website that the use of the photo is not 
authorized.
    The big challenge, the area we have to zero in on--and we 
learned about this during the whole debate about PIPA and SOPA 
and a variety of issues--is the foreign websites.
    Our trade agreements get at this issue by requiring that we 
make a special priority to have foreign countries adopt the 
kind of take-down process used by the United States.
    So we are going to be spending time on these kinds of 
issues, but I just want it understood that there is a 
difference between American websites, U.S. websites, and the 
foreign websites as we go forward with this kind of discussion.
    I appreciated the effort that you and I were able to work 
together on, Mr. Chairman, to deal with these foreign websites, 
because I think that is a serious problem.
    I thank all of you. I think it has been a terrific hearing. 
I am sure the chairman has additional remarks, but I want to 
thank him for scheduling this, and I look forward to working 
with him.
    The Chairman. Thank you, Senator Wyden.
    I am going to keep the record open so that members can 
submit questions to you, because this is extremely interesting 
to me, and there are so many other questions we could ask. But 
I think you have been an excellent panel, and I am just very 
appreciative of you taking time to come and be with us here 
today.
    With that, we will thank you all for coming today and for 
your thoughtful comments and participation. These are really 
important issues, and I hope that we can continue working 
together to find bipartisan solutions.
    I would ask that any questions for the record be submitted 
by Friday, June 24th of this year.
    With that, we will adjourn this meeting. Thanks so much.
    [Whereupon, at 3:10 p.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              

   Prepared Statement of Bruce Foucart, Assistant Director, National 
   Intellectual Property Rights Coordination Center, Immigration and 
          Customs Enforcement, Department of Homeland Security
                              introduction
    Chairman Hatch, Ranking Member Wyden, and distinguished members of 
the Committee:

    On behalf of the Department of Homeland Security (DHS), thank you 
for the opportunity to testify before you today to discuss the efforts 
of U.S. Immigration and Customs Enforcement (ICE) to combat the illegal 
importation and sale of counterfeit products, and the threats to public 
safety and national security that counterfeit products may pose.

    As you know, ICE is the largest investigative component within DHS, 
with an extensive portfolio of enforcement authorities. ICE Homeland 
Security Investigations (HSI) is responsible for a wide range of 
domestic and international criminal investigations arising from the 
illegal movement of people and goods into, within, and out of the 
United States, often in coordination with other federal agencies.

    ICE has a legacy of enforcement against intellectual property (IP) 
crime that spans from our past as U.S. Customs Service investigators to 
our present role as Homeland Security investigators. ICE is the lead 
agency in the investigation of IP violations involving the illegal 
importation and exportation of counterfeit merchandise and pirated 
works, as well as associated money laundering violations. In 
coordination with U.S. Customs and Border Protection (CBP), we target 
and investigate counterfeit merchandise and pirated works, and we seize 
such illicit goods associated with these investigations, including 
those that infringe on trademarks, trade names, and copyrights. 
Investigating counterfeit products falls within ICE's broad IP mandate.

    ICE recognizes that no single U.S. law enforcement agency alone can 
succeed in the fight against IP crime. Rather, it is essential that all 
relevant Federal agencies work together and with IP industry partners 
to confront this challenge. Law enforcement, public education, demand 
reduction, and global collaboration are all critical to successfully 
combat these crimes. To focus government efforts and enhance 
efficiency, the former U.S. Customs Service's Office of Investigations 
(now known as ICE HSI) and the Federal Bureau of Investigation (FBI) 
established in 1999 the multi-agency National Intellectual Property 
Rights Coordination Center (IPR Center), which combats violations of 
intellectual property rights with a focus on trademark and copyright 
infringement. Recently, the IPR Center was expressly codified in 
statute by section 305 of the Trade Facilitation and Trade Enforcement 
Act of 2015 (TFTEA) (Pub. L. No. 114-125), which was signed into law by 
President Obama on February 24, 2016. In section 305, Congress also 
cemented the IPR Center's role as the lead office within the U.S. 
Government for coordinating with other Federal agencies on IP 
infringement investigations, law enforcement training, and private 
sector and public outreach.

    Pursuant to the Prioritizing Resources and Organization for 
Intellectual Property Act of 2008 (PRO-IP Act) (Pub. L. No. 110-403), 
ICE and CBP are members of the interagency intellectual property 
enforcement advisory committee established by section 301 of the PRO-IP 
Act (15 U.S.C. Sec. 8111). Chaired by the White House Office of the 
U.S. Intellectual Property Enforcement Coordinator (IPEC), the 
committee is responsible for developing the PRO-IP Act's 3-year ``Joint 
Strategic Plan against counterfeiting and infringement'' (section 303; 
15 U.S.C. Sec. 8113). In addition to its role in developing and 
implementing the Joint Strategic Plan, the IPR Center collaborates 
regularly with the IPEC and other Federal agencies on IP policy issues. 
The IPR Center also shares the investigative outcomes and trend 
information that we obtain with interagency partners and the IPEC to 
further inform the administration's IP policy development process, the 
U.S. Trade Representative's Special 301 Report, and the 
administration's legislative recommendations.

    The IPR Center's mission is to address the theft of innovation that 
threatens U.S. economic stability and national security, undermines the 
competitiveness of U.S. industry in world markets, and places the 
public's health and safety at risk. The IPR Center brings together many 
of the key domestic and foreign investigative agencies to efficiently 
and effectively leverage resources, and promotes the skills and 
authorities to provide a comprehensive response to IP crime.

    The IPR Center operates on a task force model and is comprised of 
23 relevant Federal and international partners. While ICE HSI holds the 
director position, the IPR Center includes U.S. Government team members 
from: ICE HSI, CBP, the Food and Drug Administration (FDA) Office of 
Criminal Investigations (OCI), the FBI, the U.S. Postal Inspection 
Service (USPIS), the U.S. Department of Commerce's International Trade 
Administration and U.S. Patent and Trademark Office, the Defense 
Criminal Investigative Service (DCIS), the U.S. Consumer Product Safety 
Commission (CPSC), the National Aeronautics and Space Administration 
(NASA), the Naval Criminal Investigative Service (NCIS), the Army 
Criminal Investigative Command Major Procurement Fraud Unit, the U.S. 
Air Force Office of Special Investigations, the Nuclear Regulatory 
Commission, the U.S. Department of State's Office of International 
Intellectual Property Enforcement, the Defense Logistics Agency (DLA), 
the U.S. Postal Service Office of the Inspector General and the 
Inspector General's Office from the General Services Administration, 
and the Federal Maritime Commission. In addition, Department of Justice 
(DOJ) trial attorneys from the Computer Crime and Intellectual Property 
Section (CCIPS) regularly provide input for ongoing enforcement 
operations and policy.

    In 2010, the Government of Mexico and INTERPOL joined the IPR 
Center as our first international partners. Since then, the Royal 
Canadian Mounted Police and Europol have joined as well.
            protecting national security, health, and safety
    The illegal importation, distribution, and sale of counterfeit 
products pose a significant and growing threat to public health and 
safety. Counterfeiters do not care if their products contain the 
correct materials. They do not care if their products are made in 
sanitary conditions. They do not care if their products physically harm 
consumers. They do not care if their products result in economic damage 
to legitimate companies. Rather, they care about their product looking 
good enough to be purchased. They care about their bottom line.

    The IPR Center has a wealth of experience and subject matter 
expertise to combat these counterfeiters and we support our field 
agents in their significant efforts to enforce IP rights. Working 
collaboratively with our law enforcement partners, the IPR Center has 
developed numerous initiatives and interdiction efforts to combat the 
infiltration of counterfeits that pose a risk to the health and safety 
of the American public, or could potentially harm the economy of this 
country. Specifically, the IPR Center focuses efforts on health and 
beauty products, automotive, aerospace, and heavy industry products, as 
well as goods entering the U.S. Department of Defense (DOD) and U.S. 
Government supply chains. Today, I would like to discuss our efforts to 
protect the public's health and safety from counterfeit consumer 
products.

    Using interdiction, enforcement, and outreach, the IPR Center 
promotes a comprehensive layered approach that focuses on the 
production, import, and distribution of counterfeit goods. Partnerships 
are essential; the IPR Center works closely across agency boundaries 
with law enforcement colleagues at the local, State, and Federal levels 
and across international boundaries to form a united front against 
criminal enterprises and international organizations that threaten 
public safety and security.
Operation Chain Reaction
    Operation Chain Reaction is an IPR Center initiative that combines 
the efforts of 16 Federal law enforcement partner agencies to target 
counterfeit items entering the DOD and other U.S. Government agencies 
supply chains. Operation Chain Reaction (OCR) partner agencies 
coordinate their efforts to more productively protect the U.S. 
Government supply chain from substandard counterfeit parts that could 
impact the reliability of weapons systems, delay DOD missions, imperil 
the safety of servicemen and women, and waste taxpayer money.

    For example, in a case investigated by ICE, DCIS, and NCIS, a 
Massachusetts man pleaded guilty in 2014 to importing thousands of 
counterfeit integrated circuits (ICs) from China to Hong Kong and then 
reselling them to U.S. customers, including contractors supplying them 
to the U.S. Navy for use in nuclear submarines. The subject told his 
customers, many of whom specified in their orders that they would only 
accept new ICs that were not from China that the ICs were brand new and 
manufactured elsewhere, including in Europe. However, the subject 
instead wired nearly $2 million to his suppliers' bank accounts in 
China and Hong Kong to order ICs. Testing by the Navy and one of their 
contractors revealed that many of the ICs had been resurfaced to change 
the date code and to affix counterfeit marks to hide the fact that they 
were actually older, used parts. On October 6, 2015, the defendant was 
sentenced to 37 months imprisonment. This was the second conviction 
ever under the new enhanced penalties for trafficking in counterfeit 
military goods enacted in 2011.

    In another case, the former Chief Executive Officer (CEO) of 
Powerline, Inc., a battery distributor, was found guilty of five counts 
of wire fraud and one count of conspiracy to defraud the United States 
by selling more than $2.6 million in cheap, counterfeit batteries to 
the DOD. In a joint case by ICE and DCIS, with assistance from DLA and 
the Defense Contract Audit Agency, investigators discovered that 
Powerline sold the DOD more than 80,000 batteries and battery 
assemblies that the U.S. Navy used for emergency back-up power on 
aircraft carriers, minesweepers, and ballistic submarines. Powerline, 
Inc. affixed counterfeit labels falsely identifying the batteries as 
originating from approved manufacturers and used chemicals to remove 
``Made in China'' markings from the batteries. The CEO fled the United 
States, but was arrested on December 6, 2013, after he spent more than 
2 years near St. Martin. On October 15, 2014, he was sentenced to 87 
months incarceration and ordered to pay $2,787,193 in restitution. In 
fiscal years (FY) 2014 and 2015, OCR cases have resulted in 15 criminal 
arrests, 28 indictments, 23 convictions, and seizures with a 
Manufacturer's Suggested Retail Price (MSRP) of $13,768,355 in 
counterfeit parts, currency, and vehicles.
Operation Plastic Beauty
    Operation Plastic Beauty was initiated in FY 2014 by the IPR Center 
to combat the illegal importation, sale, and distribution of 
counterfeit healthcare and beauty products, such as shampoo, 
toothpaste, makeup, and lip balm. Through Plastic Beauty, the IPR 
Center combines the expertise of ICE, FDA-OCI, and CBP, and coordinates 
with industry.

    As a result of operations conducted by CBP, multiple shipments of 
counterfeit name-brand cosmetics were discovered. ICE opened an 
investigation and linked the cosmetics to a woman in Florida. A review 
of seizure records uncovered that she had been trafficking in 
counterfeit cosmetics for several years, and bank records related to 
her business indicated that over $1 million had been deposited as 
proceeds. ICE, with assistance from the Postal Inspection Service, 
conducted an enforcement operation and seized approximately $16,905 and 
over 1,500 counterfeit brand name cosmetic products that had an 
estimated resale value of $31,715. The defendant pled guilty to 
trafficking in counterfeit goods and, on July 20, 2015, was sentenced 
to 18 months imprisonment and ordered to pay $961,744.75 in 
restitution.

    In FY 2015, Plastic Beauty resulted in 18 arrests, 19 indictments, 
19 convictions, and the seizure of goods valued at over $7 million.
Operation Engine Newity
    Operation Engine Newity addresses safety threats posed by 
counterfeit automotive, aerospace, rail, and heavy industry components. 
These counterfeit parts are not only an evident health and safety risk 
to Americans, but they also impact the economic health of these 
industries. Investigations and interdictions have uncovered counterfeit 
airbags, steering, braking, and seatbelt components, bearings, and 
diagnostic equipment.

    To combat counterfeit automotive parts, Operation Engine Newity 
member agencies work closely with the private sector, including the 
Automotive Anti-Counterfeiting Council. This is a collaborative 
voluntary industry group comprised of BMW, Fiat Chrysler Automobiles, 
Ford, General Motors, Honda, Hyundai, Kia Motors, Mercedes-Benz, 
Nissan, Subaru, Toyota, and Volkswagen. Automakers have shared lead 
information with the IPR Center that is now being worked in the field, 
and are actively cooperating with the agents investigating this 
information. Additionally, they have shared knowledge regarding 
upcoming trends in counterfeit automotive parts, which is being used to 
target potential shipments and redirect government resources to top 
priorities focusing on health and safety concerns.

    In September 2014, an ICE Public Service Announcement (PSA) was 
released to alert the public of the dangers of counterfeit automotive 
parts. The PSA, which was coordinated through CBP, the FBI, and the 
National Highway Traffic Safety Administration, is displayed by 
automotive industry partners in dealership service departments. In one 
ICE-led case, two brothers sold counterfeit airbags in an online 
marketplace. The brothers, both Canadian citizens, were importing the 
airbags from China into Canada. They would drive the counterfeit 
airbags into the United States to mail them to customers from a U.S. 
address. As part of its investigation, ICE identified the entities in 
China providing the counterfeit airbags. Working through the United 
States-China Joint Liaison Group (JLG) on Law Enforcement Cooperation, 
ICE HSI Beijing provided information on the Chinese sources to the 
Chinese Ministry of Public Security (MPS), which led to the arrests of 
the individuals who made the airbags in China. In September and October 
2014, the brothers were sentenced to 6 and 4 months incarceration, 
respectively.

    In FY 2014 and 2015, Operation Engine Newity resulted in 31 
arrests, 32 indictments, 16 convictions, and the seizure of goods worth 
approximately $18.4 million.
Operation Joint Venture
    To help educate consumers on emerging dangers of counterfeit 
products and facilitate productive partnerships with the public and 
private sectors, the IPR Center launched Operation Joint Venture. This 
effort is designed to increase support, communication, and cooperation 
for our ongoing IPR enforcement initiatives and our critical public 
health and safety efforts. Operation Joint Venture is the IPR Center's 
method to provide industry with valuable information about our efforts 
to combat the importation of hazardous and counterfeit products, and it 
gives industry a point of contact they can use to provide us with leads 
and tips regarding efforts to compromise intellectual property rights. 
Also, we have developed a website (https://www.iprcenter.gov/) where 
the public can obtain information on the efforts of all IPR Center 
partner agencies to combat IP crime and we have placed a button on the 
website where consumers and industry can report allegations of 
counterfeit or pirated products.
Other Interagency Efforts
    ICE shares its border security and trade mission responsibilities 
with its sister agency, CBP. ICE and CBP work closely to target 
counterfeit and other illicit goods crossing the borders, including 
through the co-location of personnel at Trade Enforcement Coordination 
Centers (TECC) in Los Angeles, New York/Newark, Detroit, New Orleans, 
Houston, and Chicago Ports of Entry (POE). The TECCs enhance 
communication and combine resources to identify and combat trade fraud 
and IP crime. The TECCs proactively identify, interdict, and 
investigate inbound cargo that may enter U.S. commerce in violation of 
U.S. customs and trade laws. TECCs ensure joint CBP and ICE oversight 
and prioritization of the enforcement and interdiction process in the 
local area, and involve ICE early in the enforcement process. ICE and 
CBP are establishing additional TECCs in El Paso, Texas; Buffalo, New 
York; and San Juan, Puerto Rico.

    The IPR Center also has agents who sit full-time at the National 
Cyber-Forensics and Training Alliance (NCFTA) in Pittsburgh, 
Pennsylvania. The NCFTA is a non-profit organization, which brings 
together experienced personnel from academia, law enforcement, and 
industry. By merging a wide range of expertise in one location, the 
NCFTA provides a neutral forum for information sharing regarding 
emerging and ongoing threats. In FY 2015, our NCFTA agents, working 
with IPR Center analysts, processed 17,990 viable new leads.
          trade facilitation and trade enforcement act of 2015
    The TFTEA is the most comprehensive customs legislation in over two 
decades. Many of its provisions directly impact ICE's trade fraud, 
intellectual property, and the forced labor enforcement missions. 
Specifically, the TFTEA enhances the ability of the Government to 
combat IP violations. The IPR Center and ICE HSI are currently 
implementing the Act's requirements, working closely with its partners 
in the Federal Government, including CBP, DHS, and the IPEC. The IPR 
Center welcomes this new focus and is rapidly ramping up its efforts to 
enforce IP laws.
Key Provisions Impacting ICE's IP Enforcement Efforts
    Sections 305 and 306 codify the establishment of the IPR Center 
within ICE. TFTEA outlines the IPR Center's duties to include: 
coordinating investigations of IP violations; conducting and 
coordinating domestic and international law enforcement training on IP 
investigations; coordinating with CBP activities to prevent the 
importation or exportation of IP infringing merchandise; supporting 
international interdiction of prohibitive IP merchandise destined for 
the United States; collecting and integrating domestic and 
international information on IP infringement; disseminating information 
on IP infringement to other Federal agencies; developing and 
implementing, in coordination with CBP, a risk-based alert system to 
improve targeting; coordinating with U.S. Attorneys to develop 
expertise in IP investigation and prosecution; and conducting private 
sector outreach and information sharing.
Implementation
    ICE and the IPR Center are proactively working to implement the 
provisions of this law and have formed a team that will oversee the 
implementation. Implementation will require close cooperation with CBP 
and DHS Office of Policy, and initial steps have been made to 
coordinate efforts among our offices. The IPR Center will continue to 
co-host the 2-week advanced training, Intellectual Property and Trade 
Enforcement Investigations Course, with CBP, which has been recently 
revised and updated. This training is provided to ICE HSI and CBP 
personnel to gain a better understanding of trade fraud and IP 
investigations and current priorities. The training also includes 
presentations from the DOJ and the private sector.
                            challenges ahead
    Our biggest challenge is that criminals are willing to counterfeit 
and market any product that will sell, regardless of whether it could 
result in serious and significant injury to consumers or the public. 
Through the course of its investigations, ICE has uncovered counterfeit 
lithium batteries that are not properly vented, counterfeit airbags 
that have too much propellant, counterfeit jewelry that contains lead, 
counterfeit pharmaceuticals that contain potentially toxic substances, 
and counterfeit health and beauty products that are made under 
unsanitary conditions.

    ICE anticipates that cyber-commerce and for-profit streaming will 
continue to be challenges, along with the following upcoming 
technologies: 3D printing; additive manufacturing; and the dark web and 
virtual currency. ICE feels that IP criminals will continue to use 
these technologies, and others we have not seen, in furtherance of 
their criminal activity. One other challenge that lies ahead is the use 
of e-commerce platforms with a business direct to consumer business 
model that utilizes the express mail environment. There are numerous 
weaknesses in this model that counterfeiters can exploit.

    IP cases demand attention from criminal investigators and 
regulatory agencies. We take our responsibility to protect American 
consumers and industry very seriously, and ICE's priorities in IP crime 
enforcement remain to protect the public's health and safety, the 
military supply chain, and the American economy. The IPR Center 
successfully brings together members of industry, State and local 
partners, Federal Government and international counterparts to train, 
exchange best practices and ultimately remove counterfeit and pirated 
products from the marketplace and put the criminals behind them in 
jail.
                               conclusion
    Thank you again for the opportunity to appear before you today to 
discuss the work of ICE and the IPR Center in protecting U.S. consumers 
from the international illicit trade of dangerous counterfeit, 
unapproved, and/or adulterated products. I look forward to working 
closely with Congress on this issue of critical importance as it 
directly threatens worldwide health and safety.

    I would be pleased to answer any questions.

                                 ______
                                 
          Questions Submitted for the Record to Bruce Foucart
               Questions Submitted by Hon. Orrin G. Hatch
                          educating consumers
    Question. I am concerned that far too many Americans don't fully 
understand the dangers of purchasing potentially counterfeit goods. 
They purchase a product at a significant discount, without fully 
appreciating that it may be fake and the consequences that may follow. 
Fake toys can contain lead and other toxic chemicals, fake 
pharmaceuticals can contain life-threatening substances, and fake 
electronic goods can create fire hazards as well as endangering the 
user directly.

    That is one reason why I insisted on including language in our 
recently passed customs bill that directs Homeland Security to develop 
and carry out an educational campaign to inform travelers about the 
legal, economic, and public health dangers inherent in purchasing 
potentially fake products overseas.

    What do you think are the best ways for consumers to identify fake 
products?

    And, do you have any recommendations on educating consumers on the 
harm of counterfeit products and training them to better identify fake 
goods?

    Answer. The National Intellectual Property Rights Coordination 
Center (IPR Center) recommends that consumers minimize the risk of 
purchasing counterfeit products by buying only from a reputable vendor 
or retailer. They should beware of vendors or retailers selling items 
significantly cheaper than most other retailers. The ``Golden Rule'' 
for identifying counterfeit products is: If the price is too good to be 
true . . . it probably is.

    Consumers should follow the 10 steps on the https://
www.stopfakes.gov/welcome page to protect themselves against 
counterfeit goods. These steps include scrutinizing labels, packaging 
and contents, seeking authorized retailers, insisting on secure 
transactions, and trusting your instincts. Specifically, consumers of 
pharmaceuticals who want to verify that their online prescription 
purchases are legitimate may want to consult with their health care 
provider to request a list of legitimate Internet pharmacies, if 
available. Consumers should purchase pharmaceuticals from a state-
licensed pharmacy in the United States where the consumer can be 
confident in the quality, safety, and efficacy of drugs. Consumers 
should refer to the National Association of Boards of Pharmacy's (NABP) 
Verified Internet Pharmacy Practice Sites (VIPPS) program, which 
accredits online pharmacies that dispense prescription drugs. Consumers 
have to be vigilant when doing business with Internet pharmacy sites 
because the pharmacy may not be legitimately licensed, their location 
can be almost anywhere in the world, and the product received may not 
be an FDA-approved drug. The BeSafeRx program, of the Food and Drug 
Administration (FDA) is a national campaign to raise awareness of the 
dangers of buying prescription medicines from fake online pharmacies by 
providing resources to help consumers know the risks and signs of fake 
online pharmacies, and find safe online pharmacies.

    The IPR Center recognizes the value of strong relationships with 
industry, Federal, State and local officials, and nonprofit 
organizations to educate the public about the effects of counterfeit 
goods. The IPR Center conducts aggressive stakeholder outreach to 
inform and educate companies and the consumers they serve about 
intellectual property theft, trade fraud, and how to report 
allegations. This campaign focuses attention on how counterfeit goods 
pose health and safety hazards (for example counterfeit prescription 
pain medicines made of fentanyl can cause deadly overdoses), threaten 
the U.S. economy, and fund criminal organizations. Outreach efforts 
have been especially effective in the automotive industry, where the 
black-market sale of counterfeit airbags prompted major auto makers to 
warn consumers about counterfeit airbags and provided online links to 
the IPR Center for reporting allegations. The Motion Picture 
Association of America, Motor and Equipment Manufacturer's Association, 
National Crime Prevention Council, and the Pharmaceutical Security 
Institute are other examples of enterprises featuring the IPR Center's 
``To Report IP Theft'' link.
                           legal limitations
    Question. Mr. Foucart, thank you for your testimony this afternoon. 
You spoke about many of the positive things that the IPR Center is 
doing today.

    Do you know of any legal limitations that hinder your ability to do 
your job?

    Answer. As noted within the administration's White Paper on 
Intellectual Property Enforcement Legislative Recommendations,\1\ there 
are legal limitations that hinder the ability of U.S. Immigration and 
Customs Enforcement to effectively combat intellectual property theft. 
In particular, the list of offenses in 18 U.S.C. Sec. 2516(1) for which 
the U.S. Government is authorized to seek wiretap authority from a 
court to obtain interceptions of wire or oral communications as 
evidence of those offenses does not currently include criminal 
copyright (17 U.S.C. Sec. 506, 18 U.S.C. Sec. 2319) and criminal 
trademark offenses (18 U.S.C. Sec. 2320). The enhancement of wiretap 
authority would assist U.S. law enforcement agencies with the effective 
investigation of copyright and trademark violations, including in 
instances where counterfeit goods directly impact the health and safety 
of consumers, particularly in organized crime.
---------------------------------------------------------------------------
    \1\ https://www.whitehouse.gov/sites/default/files/
ip_white_paper.pdf

    Additionally, because infringement by streaming remains a 
misdemeanor, it is often difficult to justify the use of investigative 
and prosecutorial resources for such violations. The availability of 
more significant penalties, in appropriate circumstances, for 
infringement by streaming or by means of other similar evolving 
technology would assist U.S. law enforcement in effectively combating 
infringement involving new technology.
                           capacity building
    Question. Congress has made protection of intellectual property 
rights a key component of our international trade strategy for many 
years. Ensuring that our international trading partners agree to strong 
enforcement provisions in our trade agreements is a vital element of 
this strategy.

    During our hearing, I touched on the importance of making sure that 
our trading partners effectively implement their obligations before we 
allow an agreement to enter into force, but I think that even more can 
be done. Not only must we put strong rules into place, but we must work 
with our trading partners to make sure that adequate capacity building 
is available so that they can develop the technical expertise to stop 
fakes before they even cross U.S. borders.

    Can you comment on whether you believe capacity building is an 
effective tool to stop fakes from entering our country and, if so, what 
type of capacity building is most effective?

    Answer. U.S. Immigration and Customs Enforcement (ICE) and the 
National Intellectual Property Rights Coordination Center (IPR Center) 
believe that capacity building is an effective tool to stop counterfeit 
goods and pirated content from entering our country. Traditional 
classroom training, coupled with real world practical enforcement 
scenario exercises, have proven effective in providing police and 
customs officials with intellectual property (IP) enforcement 
detection, interdiction, and investigation fundamentals. For the past 
few years, the IPR Center has provided this training, as part of the 
International Law Enforcement Academy training program funded by the 
U.S. Department of State's (DOS) Bureau of International Narcotics and 
Law Enforcement Affairs (INL). The IPR Center also participates in 
international capacity building programs sponsored by DOS, the U.S. 
Patent and Trademark Office, U.S. Department of Justice, INTERPOL, and 
the World Customs Organization as IP enforcement subject matter 
experts.

    In June 2015, the IPR Center led, in conjunction with ICE Attache 
Hong Kong and utilizing funding from INL, an Advanced IPR Enforcement 
Workshop that involved 35 U.S. law enforcement and 64 foreign law 
enforcement, customs, and judicial officials. The workshop had 
participation from the Governments of India, Bangladesh, China, Macau, 
Hong Kong, Vietnam, Malaysia, Thailand, Cambodia, Korea, Philippines, 
Indonesia, and Singapore. The training focused on public health and 
safety violations, and U.S. and foreign law enforcement officials 
exchanged techniques, best practices, and experiences for combating IP 
theft.

    IPR Center workshops such as these promote stronger relationships 
and information sharing between the United States and the participating 
governments. In addition, IPR Center IP enforcement workshops increase 
subject matter knowledge and investigative capacity for the 
participants and inform participants about recent or anticipated trends 
in IP-related crimes and enforcement.

    One of the best examples of developing effective capacity building 
for IP enforcement abroad can be seen when ICE or IPR Center partner 
agency Special Agents work in close collaboration with foreign law 
enforcement and customs administrations to enhance cooperation on IP 
enforcement. In November 2014 and July 2015, ICE sent two Special 
Agents to Thailand as technical advisors to provide subject matter 
expertise and assist in overseeing the startup of the Thailand National 
Intellectual Property Rights Centre for Enforcement. While on temporary 
assignment, these Special Agents also assisted the Thai Department of 
Special Investigations in the planning and implementation of IP 
enforcement actions. During the two temporary assignments in 2014 and 
2015, ICE Special Agents advised on 20 IP enforcement operations, which 
resulted in 82 seizures and 16 criminal arrests by the Thai government. 
The seizures totaled over $18 million (manufacturer suggested retail 
price, had the goods been genuine). Much more important than the 
resultant seizures and arrests was the repeated operational experience 
and subject matter expertise gained by the Thai police officers taking 
part in 20 enforcement operations.
                                 taobao
    Question. Mr. Foucart, Chinese government agencies have estimated 
that two-thirds of what is sold on Taobao is counterfeit.

    How does the IPR Center coordinate with CBP to use the information 
that you have to better target these shipments so that CBP interdicts 
counterfeits sold on Taobao?

    Answer. The Intellectual Property Rights (IPR) Center notes that 
there are many factors considered by U.S. Immigration and Customs 
Enforcement (ICE) and other IPR Center partners when determining 
whether to pursue a criminal investigation into the production, 
transportation, sale, and/or distribution of counterfeit merchandise. 
These factors may include, but are not limited to, the number and value 
of counterfeit goods at issue, whether the sale of counterfeit 
merchandise is part of a larger criminal enterprise, and the extent of 
available actionable information.

    The IPR Center deconflicts all actionable leads with the 23 IPR 
Center partners, including U.S. Customs and Border Protection (CBP), 
and the rights holder whose rights are being infringed. IPR Center 
analysts conduct searches of open source and law enforcement databases 
to compile a lead package, which is sent to the appropriate agency and 
field office including ICE field offices. In cases where there is not 
enough actionable intelligence for a criminal case, the IPR Center may 
refer those leads back to industry for civil actions. Additionally, the 
information gathered in these lead packages can be used by CBP to 
improve targeting of future shipments.

    The IPR Center recognizes the challenges that rapidly expanding e-
commerce places on legitimate commercial marketplaces. To facilitate 
legitimate commerce while protecting consumers against the sale of 
counterfeit goods, the IPR Center is creating a guide for industry on 
the different processes third-party marketplaces have in place to 
report counterfeit and pirated merchandise and content on their sites. 
The guide will provide industry with reference information on how to 
report counterfeit and pirated merchandise and content.

    The IPR Center has initiated a process of ongoing dialogue with 
online marketplaces. Where possible, the IPR Center will work with them 
to recommend detection methods and law enforcement lead referral 
mechanisms. Liaising with the marketplaces can be effective as long as 
the dialogue is conducted on a regular basis, preferably in person, to 
account for changes in personnel and/or policy within the marketplace. 
As part of these outreach efforts, the IPR Center has met with 
representatives from Alibaba twice to suggest ways to better combat 
counterfeits on their various sites.

                                 ______
                                 
                 Questions Submitted by Hon. Ron Wyden
                       counterfeits at the source
    Question. Because international trade involves a larger volume of 
small packages shipped to individuals, we need new strategies to have a 
meaningful impact on preventing counterfeit imports. It seems that one 
strategy is to go after the source, to work with countries where the 
counterfeits are coming from and prevent shipments and shutdown 
manufacturing operations before individual counterfeit products are 
sent off in hundreds or thousands of separate packages.

    Can you discuss what ICE is doing to address counterfeits at the 
source? Most counterfeits come to the United States from China and Hong 
Kong--what in particular are you doing in those countries to prevent 
exports of counterfeits to the United States?

    Answer. U.S. Immigration and Customs Enforcement (ICE) Homeland 
Security Investigations (HSI), through its attache offices and the 
National Intellectual Property Rights Coordination Center (IPR Center), 
has taken a proactive approach to increasing international cooperation 
on law enforcement efforts to combat intellectual property (IP) 
violations and trade fraud. Only by working together with our 
international counterparts are we able to address counterfeits at their 
source.

    As you indicated, most counterfeits come to the United States from 
China and Hong Kong. ICE attache office personnel engage regularly with 
Chinese law enforcement and customs officials to increase law 
enforcement cooperation on IP investigations. ICE HSI participates in 
the U.S.-China Joint Liaison Group on the Law Enforcement Cooperation 
Intellectual Property Criminal Enforcement Working Group (IPCEWG). The 
IPCEWG meets yearly and has resulted in an open dialogue on IP 
enforcement, the sharing of information on selected investigations, and 
several successful joint IP operations.

    The Assistant Director of the IPR Center, Bruce Foucart, and the 
U.S. Customs and Border Protection (CBP) Director of IPR Policy and 
Programs, Michael Walsh, traveled to Beijing and Guangzhou, China, for 
a series of meetings with Embassy, industry, and Government of China 
officials. Meetings were held with the American Chamber of Commerce, 
U.S. industry representatives in China, the Ministry of Public 
Security, and the General Administration of Customs to discuss ICE and 
CBP's mission in combatting IP violations.

    In an effort to combat counterfeits from China that are being 
transshipped through Singapore, CBP and ICE HSI held a joint IP 
enforcement operation focused on counterfeit pharmaceuticals with 
Singapore Customs at Changi Airport, as well as at the Miami 
International Mail Facility and the Cincinnati DHL Hub. The operation 
was notable as this is the first time Singapore Customs has 
participated in joint enforcement efforts on goods re-packaged and 
transiting their Free Trade Zone bound for the United States. In an 
effort to disguise the counterfeits, they were re-packaged as if they 
originated in Singapore, using Singapore's reputation for clean 
operations and health controls. Singapore Customs located packages of 
possible interest at the Changi Airport mail and DHL hub through 
cooperation with ICE HSI and marked them for CBP officers to find when 
they arrived in the United States.

    Training and outreach is also a key component to our international 
efforts. In fiscal year 2015, ICE HSI conducted 125 international 
outreach and training events on IP and customs fraud investigations for 
more than 3,400 people. For example, ICE HSI Hong Kong partners with 
Hong Kong Customs on capacity building, and recently co-hosted a 
Department of State-funded regional IP workshop for representatives of 
13 Asian governments.

    These examples demonstrate the close cooperation that occurs 
between ICE HSI and our international law enforcement counterparts to 
combat counterfeit goods before they enter the United States.
                               new tools
    Question. With the high volume of shipments coming in, it is 
important that ICE and CBP make sure their strategies keep up with 
technology and the resulting changing patterns in trade. We are in a 
high-tech digital age, with high-tech digital criminals. What new tools 
are U.S. enforcement agencies using to fight counterfeit imports and 
bring charges against criminals?

    Answer. U.S. Immigration and Customs Enforcement (ICE) is 
constantly exploring and testing new tools and technologies that can 
advance our investigative efforts across the spectrum of our 
authorities. Many of these tools are cross-cutting, with applicability 
across multiple investigative areas, including trade fraud and 
intellectual property (IP) enforcement.

    Partnering with the private sector and academia is also one way 
that ICE stays ahead of the technological curve. The National 
Intellectual Property Rights Coordination Center (IPR Center) serves a 
crucial role in bringing together law enforcement and the private 
sector to discuss new trends, strategies, and best practices in IP 
enforcement. In fiscal year 2015, IPR Center staff met with 4,893 
private industry representatives not only to collaborate on enforcement 
initiatives and share information, but also to ensure that IPR Center 
Special Agents, analysts, and program managers are up to date on 
various cutting edge technologies and detection tools available in the 
private sector.

    ICE has assigned two full-time personnel to the National Cyber 
Forensics Training Alliance (NCFTA) in Pittsburgh, Pennsylvania. The 
NCFTA is a non-profit organization that brings together experienced 
agents and analysts, government experts, and leaders in the business 
world to form an integral partnership. By merging a wide range of 
expertise in one location, the NCFTA provides a neutral forum for 
information sharing regarding emerging and ongoing threats. Having 
personnel at the NCFTA enables ICE to benefit from the cyber expertise 
located there by vetting, adding value to, and de-conflicting lead and 
case information.

    Additionally, ICE runs the Cyber Crimes Center (C3), which 
maintains expertise in the latest computer forensics and cybercrimes 
trends. Special Agents who are investigating IP crimes can leverage 
their local computer forensic agents or contact C3 for support on 
cyber-related issues that may arise during the course of a criminal 
investigation.

    As part of a more comprehensive approach to combatting digital 
crimes, ICE has altered its strategy to focus on developing long-term 
investigations that identify targets, assets, and financial schemes 
used in operating infringing websites. Through this revised strategy, 
ICE seeks to arrest, prosecute, seize assets, and criminally seize 
domain names. In support of this strategy, ICE Special Agents 
participate in the Intellectual Property and Trade Enforcement 
Investigations Course at the Federal Law Enforcement Training Center, 
where they learn about IP enforcement intelligence tools, online trends 
and structures, and digital media case studies.
                     counterfeit importation report
    Question. This committee has placed enormous emphasis on trade 
enforcement. When people ask me what I think about a new trade 
agreement, the first question I ask is how past trade agreements are 
being enforced. How the trade remedy laws on the books are being 
enforced. Trade policy starts with trade law and trade agreement 
enforcement. In section 310 of the Trade Facilitation and Trade 
Enforcement Act (the ``Trade Enforcement Act'') that was signed into 
law a few months ago, we directed the Director of ICE and the CBP 
commissioner to deliver a report to us by the end of September that 
describes the efforts that ICE is undertaking to address counterfeit 
imports, particularly those facilitated by online commerce. As you 
know, in the Trade Enforcement Act Congress also gave ICE and CBP new 
tools to help identify counterfeit imports, by specifically authorizing 
more cooperation and information sharing with rights holders. This 
committee intends to be a partner in implementation of the Trade 
Enforcement Act, so we need to know how its implementation is helping 
address the problems to which the bill intends to respond. We don't 
just send bills to the President and move on. Implementation of 
legislation is as important as getting legislation to the President's 
desk.

    Will the report described in section 310 be delivered to Congress 
on time, and does ICE intend to include in the report an assessment of 
how the new tools Congress has provided are successfully being 
utilized?

    Answer. U.S. Immigration and Customs Enforcement is working closely 
with U.S. Customs and Border Protection and the Department of Homeland 
Security to complete all reports mandated by the Trade Facilitation and 
Trade Enforcement Act by the timelines defined in the legislation, 
including the report required by section 310. Because the report is due 
on September 30, 2016, before the fiscal year statistics have been 
finalized, the report will address enforcement efforts from fiscal year 
2015. Therefore, this year's report will serve as a baseline that can 
be used to better identify enforcement successes resulting from 
implementation of the legislation. Included in the September 30, 2017 
report on section 310 will be an assessment of how the new tools 
provided by Congress were successfully utilized.
            enforcement priority for counterfeit products i
    Question. All types of products are being targeted by 
counterfeiters, from clothing, jewelry, and shoes, to pharmaceuticals, 
smart phones, and high-tech components for airplanes. Not only do the 
counterfeits pose a threat to U.S. businesses, but many threaten the 
health and safety of the U.S. consumer. Fake drugs impede the treatment 
of patients, fake electronics can catch fire, and fake auto parts can 
make a car malfunction.

    Does ICE prioritize enforcement against counterfeit goods based on 
the potential harm to the health and safety of the U.S. consumer? How 
do you work with FDA, the Consumer Product Safety Commission and other 
agencies to protect U.S. consumers?

    Answer. The National Intellectual Property Rights Coordination 
Center (IPR Center) brings together 23 partners, consisting of 19 key 
Federal agencies, INTERPOL, Europol, and the Governments of Canada and 
Mexico in a task force setting. This structure enables the IPR Center 
to effectively leverage the resources, skills, and authorities of each 
of the partners and provide a comprehensive response. The Food and Drug 
Administration (FDA) Office of Criminal Investigation (OCI) is one of 
the 23 partners, and ICE regularly partners with FDA OCI on criminal 
investigations that involve counterfeit, unapproved, or adulterated 
pharmaceuticals. The Consumer Product Safety Commission (CPSC) is also 
a partner of the IPR Center. ICE collaborates with the CPSC on issues 
that would fall under their area of expertise.

    Through its leadership of the IPR Center, U.S. Immigration and 
Customs Enforcement (ICE) prioritizes enforcement against counterfeit 
goods that pose a health and safety risk to the U.S. consumer. The IPR 
Center's mission is to address the theft of innovation that threatens 
U.S. economic stability and national security, undermines the 
competitiveness of U.S. industry in world markets, and places the 
public's health and safety at risk. In furtherance of this mission to 
protect the health and safety of the public, the IPR Center has 
developed the following initiatives:

      (1)  Operation Chain Reaction targets counterfeit goods entering 
the supply chains of the U.S. Department of Defense (DOD) and other 
U.S. Government agencies. These counterfeits pose a health and safety 
risk because they can potentially delay DOD missions, affect the 
reliability of weapon systems, imperil the safety of service members, 
and endanger the integrity of sensitive data and secure networks.

      (2)  Operation Apothecary targets the smuggling, illegal 
importation, and sale of unapproved, counterfeit, or adulterated 
pharmaceuticals in the United States. People with substance use 
disorders seeking pharmaceutical grade medicines they believe to be 
relatively safe such as Oxycontin are now encountering lab-made 
fentanyl that is pressed into counterfeit pills that are branded to 
look like prescription medicines. When consumers take these, they often 
rapidly overdose because the counterfeit contains extremely potent 
illegally made product.

      (3)  Operation Plastic Beauty addresses the illegal production, 
importation, and sale of counterfeit personal healthcare and beauty 
products, such as cosmetics or perfumes.

      (4)  Operation Engine Newity counters the threat of counterfeit 
automotive, aerospace, rail, and heavy industry related components, 
such as airbags and bearings.

      (5)  Operation Guardian is an umbrella investigation that covers 
all counterfeit products that pose a health and safety risk to 
consumers, whether or not the products specifically fall under one of 
the other initiatives. Examples of products that are covered by 
Operation Guardian include toys, electronics, and batteries.

                                 ______
                                 
               Question Submitted by Hon. Robert Menendez
            enforcement priority for counterfeit products ii
    Question. Assistant Director Foucart, in follow up to the question 
I asked you at the hearing, how is your office implementing the report 
language to the Trade Facilitation and Trade Enforcement Act of 2015 
that I authored with Senator Hatch to raise the enforcement priority 
for counterfeit products, specifically those marked as ``gifts'' to 
evade customs duties and detection? What new resources have been 
brought to bear? What share of our agents' time is focused on this? I 
would appreciate a written answer on the IPR Center's compliance plan 
and actions.

    Answer. The Department of Homeland Security's (DHS) role to 
facilitate legitimate trade and travel, while identifying and 
preventing counterfeit products from entering into commerce, presents a 
significant challenge for law enforcement officials. Intellectual 
property rights (IPR) related seizures by DHS have risen 444 percent, 
from 6,500 in fiscal year (FY) 2003 to 28,865 in FY 2015. In FY 2015, 
express consignment and international mail shipments were the top areas 
for IPR seizures, combined making up 90 percent of all IPR seizures. 
This is a 3 percent increase over FY 2014, and the volume of small 
packages entering through express consignment and international mail 
shipments are expected to increase as direct-to-consumer sales and e-
commerce industries surge.

    High-volume, low-value shipments create a tremendous resource 
challenge for U.S. Immigration and Customs Enforcement (ICE) and U.S. 
Customs and Border Protection (CBP). Although express consignment and 
international mail shipments generally contain a smaller piece count 
and can be minimal in declared value, they nonetheless are subject to 
the same seizure and forfeiture procedures as larger cargo shipments.

    To combat this challenging issue, CBP and ICE work closely 
together. CBP analyzes all seizures, including those described as 
gifts. The analyzed seizure data is used to identify recidivists, 
target their shipments, and refer violators as leads to ICE for 
investigation.

    The official establishment of the National Intellectual Property 
Rights Coordination Center (IPR Center) by the Trade Facilitation and 
Trade Enforcement Act of 2015 (TFTEA) is a welcome recognition of this 
great resource and the work it continues to do to advance U.S. 
Government efforts and resources to attack counterfeit products, 
including those marked as gifts to evade customs duties and detection. 
The IPR Center's priorities include coordinating investigations of IPR 
violations, conducting and coordinating domestic and international law 
enforcement training on intellectual property (IP) investigations, 
coordinating with CBP on U.S. activities to prevent the importation or 
exportation of IP infringing merchandise, supporting international 
interdiction of IPR merchandise destined for the United States, 
collecting and integrating domestic and international information on 
IPR infringement, disseminating information on IPR infringement to 
other Federal agencies, and conducting private sector outreach and 
information sharing.

    The IPR Center has begun to implement many of the new TFTEA 
requirements already, and is working on identifying the resources and 
funding necessary to fulfill all facets of this new law, including 
developing a risk-based alert system to improve the targeting of 
persons that repeatedly infringe on intellectual property rights. In 
furtherance of its TFTEA implementation responsibilities, the IPR 
Center has asked each ICE Special Agent in Charge office to develop a 
strategic plan to enhance their commercial fraud and intellectual 
property enforcement efforts. These plans address training for the 
agents; enforcement best practices and challenges; interagency 
cooperation, including enhancing relationships with CBP and the 
Department of Justice; and private sector outreach. Based on this 
assessment, the IPR Center is working with ICE to identify where 
additional resources can be best placed as they become available.

                                 ______
                                 
            Questions Submitted by Hon. Robert P. Casey, Jr.
                        operation chain reaction
    Question. Mr. Foucart, counterfeits and theft of Intellectual 
Property not only threaten U.S. economic competitiveness, they can be a 
threat to consumer health and safety and to national security.

    The Pennsylvania defense industrial base helps ensure that our 
warfighters have the most innovative, most effective equipment and 
technology to ensure that they are never in a fair fight, as General 
Odierno used to say. I am concerned about the impact that 
counterfeiting has on the defense supply chain.

    In your testimony, you referenced Operation Chain Reaction, which 
addressed counterfeit circuits made in China. What are the main 
countries behind this counterfeit activity, and how does ICE work with 
the Department of Defense to identify vulnerabilities in our supply 
chain?

    Answer. Operation Chain Reaction (OCR) is a comprehensive 
initiative that targets counterfeit goods entering the supply chains of 
the U.S. Department of Defense (DOD) and other U.S. Government 
agencies. These counterfeit parts come primarily from China.

    OCR combines the expertise of the following agencies: U.S. 
Immigration and Customs Enforcement (ICE); Air Force Office of Special 
Investigations (AFOSI); Naval Criminal Investigative Service (NCIS); 
Defense Criminal Investigative Service (DCIS); U.S. Army Criminal 
Investigation Command; Defense Logistics Agency, Office of the 
Inspector General (OIG); Department of Justice (DOJ), Computer Crimes 
and Intellectual Property Section (CCIPS); U.S. Customs and Border 
Protection; Federal Bureau of Investigation; General Services 
Administration, OIG; INTERPOL; National Aeronautics and Space 
Administration (NASA), OIG; Department of Energy; National 
Reconnaissance Office, OIG; Nuclear Regulatory Commission; and Coast 
Guard Investigative Service.

    Under the auspices of OCR, ICE works closely with its DOD 
counterparts to identify and investigate incidents of counterfeit goods 
in the supply chain. This cooperation involves a combination of 
training, outreach, supply chain assessments, and enforcement 
activities. In addition:

        ICE conducts presentations at the Defense Counter-
Proliferation Training Program (DCTP), which is a joint effort by 
AFOSI, NCIS, and DCIS at the Federal Law Enforcement Training Center in 
Glynco, Georgia. DCTP is an introductory course that promotes awareness 
of the threats facing DOD technologies and endorses partnerships within 
the DOD to counter foreign intelligence entity initiatives, protect 
critical U.S. information, and ensure a continued technical and 
military advantage for the U.S. military. This course discusses the 
processes required to successfully investigate and prosecute the 
illegal transfer of technology, the roles and responsibilities of the 
intelligence community, and how investigators can effectively work 
together to combat threats to technology.

        ICE works with the Defense Logistics Agency (DLA) to test the 
reliability of their procurement process. The project aides DLA with 
obtaining product authentication from the original equipment 
manufacturers.

        ICE works with the Naval Sea Systems Command (NAVSEA) and 
AFOSI for commodity expertise, testing of suspected counterfeit 
integrated circuits, and real-time identification of suspect parts 
during ICE enforcement operations. NAVSEA provided ICE with a list of 
typically obsolete military grade integrated circuits that would likely 
be counterfeited by suspect companies, leading to successful 
investigations. AFOSI supply chain risk management continues to support 
the analysis of companies suspected of counterfeiting military grade 
integrated circuits. Both NAVSEA and AFOSI request seized counterfeit 
circuits for testing in order to increase their knowledge base.

        ICE co-hosts the biannual Microelectronics Working Groups, led 
by DOJ CCIPS. The focus of the meetings is enhancing communication 
between law enforcement and industry. Attendees include defense 
industry representatives, law enforcement (both civilian and DOD), and 
Assistant United States Attorneys.

        OCR also conducted 7 webinars that reached 114 special agents 
and intelligence analysts. The webinars consisted of an OCR 101, case 
overviews from agents who are subject matter experts on OCR 
investigations, and presentation by DOJ CCIPS. In addition to the 
webinars, OCR traveled to Los Angeles, California, and Tampa, Florida, 
to provide on-site training for ICE, DCIS, NCIS, and NASA OIG. The goal 
of the training was to increase the investigative capacity of the 
agents with regard to investigating counterfeits entering the DOD 
supply chain.
                      international partner trends
    Question. Mr. Foucart, I note that China accounts for the lion's 
share of counterfeits seizures--with 52 percent by value coming from 
the Chinese mainland and 35 percent by value from Hong Kong.

    On average, do our international partners see the same trends in 
counterfeit imports as we do in the United States, particularly with 
respect to the share of counterfeits coming from China, and trends in 
counterfeit pharmaceuticals?

    Answer. U.S. Immigration and Customs Enforcement (ICE) does not 
officially monitor the influx of Chinese goods into other countries; 
however, based on information shared with the ICE Attache in China and 
discussions with American corporations operating in the region, China 
continues to be a major source of counterfeit goods coming into the 
United States, as well as into Brazil, Spain, Russia, and the United 
Kingdom. Even though Hong Kong accounts for 35 percent of the value, 
the counterfeit goods are likely sourced from mainland China and 
transported to Hong Kong for shipment.

    With regard to the movement in counterfeit pharmaceuticals, the 
current trend leans toward India as a significant source. Much like 
China, India has a robust legal chemical industry that provides 
criminal organizations with a ready source of chemicals that are used 
in the production of counterfeit pharmaceuticals. ICE Homeland Security 
Investigations has seen an increase in the number of seizures of 
counterfeit pharmaceuticals originating from India.
                   coordination with treasury and irs
    Question. Mr. Foucart, in addition to IPR violations, I presume 
many of the cases you discuss in your testimony may also have a revenue 
component. Can you describe your coordination with Treasury and IRS, 
and to the extent you are able in this setting, discuss instances where 
your investigations have led to cases involving trade based money 
laundering?

    Answer. Trade-based money laundering (TBML) is one of the most 
complex and dynamic forms of illicit money movement to investigate. 
TBML undermines legitimate business and commerce. Transnational 
criminal organizations will often dump imported goods at a discount to 
expedite the process of receiving ``clean'' proceeds. TBML can also 
destabilize sovereign governments through the loss of tax revenue on 
discounted goods and duty collection on undervalued imports and 
fraudulently manifested goods.

    U.S. Immigration and Customs Enforcement (ICE) special agents have 
jurisdiction and authority to investigate money laundering violations 
of titles 18 and 19 of the U.S. Code. Criminal enterprises often engage 
in a variety of criminal schemes designed to make illicit profits. 
Examples of these activities result in unlawful activities include, 
trade-based fraud, intellectual property rights violations, and customs 
violations such as false statements or smuggling. Applying money 
laundering and asset forfeiture laws is a powerful means of attacking 
the threat of trade fraud and intellectual property theft. Enhanced 
penalties for violating money laundering statutes are significant and 
include fines up to $500,000 and/or imprisonment up to 20 years.

    ICE is very active in the financial investigation arena and employs 
its existing relationships with other Federal agencies to detect, 
investigate, and prosecute those involved in money laundering or 
illicit proceeds of crime schemes. ICE has created various units and 
initiatives that serve the sole purpose of targeting organizations that 
seek to exploit trade and the U.S. financial system for their illegal 
gain.

    These units include the Trade Transparency Units (TTU) to develop 
partnerships with domestic and international trade, customs, and 
financial representatives to detect trade discrepancies and investigate 
criminal violations focusing on TBML. TTUs allow for the exchange of 
trade data with foreign partners. The values reported on U.S. import/
export declarations are compared against the corresponding values 
reported on foreign counterpart import/export declarations. This 
exchange of information adds a level of transparency to the 
international trade system. The TTU works with its international 
partners to identify abnormal trade transactions that may indicate 
TBML, customs duty evasion, and other related financial crimes.

    The success of ICE collaboration was recently illustrated when ICE 
Homeland Security Investigations (HSI) Buffalo conducted an illicit 
trade/TBML investigation into imported Chinese magnesium powder 
disguised, mislabeled, and undervalued to circumvent a 305.56 percent 
antidumping duty, resulting in a loss to the U.S. Government of $14.6 
million in customs duties. The investigation proved that a conspiracy 
was orchestrated to defraud the Department of Defense (DOD) by using 
substandard Chinese magnesium powder to manufacture countermeasure 
flares used in the defense of U.S. military aircraft. The defendants 
were able to sell the DOD 1.8 million fraudulent, untested substandard 
countermeasure flares at a cost of $42 million. On January 13, 2015, 
ICE HSI Buffalo reported this investigation resulted in three guilty 
pleas to charges of Smuggling; Money Laundering; and Aiding and 
Abetting Illegal Importation by Presenting/Transmitting Forged, 
Altered, or False Documents to U.S. Customs and Border Protection. This 
case ultimately resulted in 10 indictments, 7 arrests, 5 convictions, 
27 search and seizure warrants, $950,000 seized, $330,467 forfeited, 
and a DOD penalty of $30 million.

    ICE has partnered with the Treasury Executive Office for Asset 
Forfeiture (TEOAF) to identify and target Third Party Money Launders 
who often launder illicit proceeds through a broad range of schemes. 
These schemes may include creating shell corporations, opening offshore 
bank accounts in the shell corporation's name, and creating or using 
front businesses for their illegal activity and money laundering, to 
name a few. Complicit businesses, accountants, lawyers, brokers, and 
financial institutions may be enlisted to launder money. Human 
smugglers, human traffickers, arms traffickers, drug traffickers, 
terrorists, and other criminals depend on money laundering networks and 
financial systems to move, store, and conceal illicit proceeds. They 
also depend on fraudulently created or fraudulently obtained documents, 
such as passports and visas, to move themselves or their clients into 
the United States to reside or conduct business within our borders.

    In September 2014, ICE conducted large-scale enforcement actions in 
the Los Angeles Fashion district targeting trade-based money launders 
and third party money launders. The results of those actions were the 
seizure of more than $90 million in cash and initiated forfeiture 
proceedings on several real properties. ICE worked collaboratively with 
CBP, Internal Revenue Service, and State and local agencies during this 
operation.

    ICE will continue to leverage all its tools to coordinate and unite 
domestic and international law enforcement efforts to combat illicit 
trade crimes.

                                 ______
                                 
              Prepared Statement of Hon. Orrin G. Hatch, 
                        a U.S. Senator from Utah
WASHINGTON--Senate Finance Committee Chairman Orrin Hatch (R-Utah) 
today delivered the following opening statement at a hearing to examine 
trade opportunities and challenges for American businesses in the 
digital age:

    Welcome, everyone, to this afternoon's hearing, which we've titled 
``Challenges and Opportunities for U.S. Business in the Digital Age.''

    Over the last decade, the digital economy has dramatically changed 
our way of life--from the way we hail a cab, search for a new home, or 
order take-out, it has a profound effect on our lives.

    This is also true for the ways in which companies conduct their 
business.

    The digital economy provides U.S. businesses of all sizes with 
great opportunities and challenges. In today's marketplace, businesses 
no longer have to rely on the hope that a passerby will notice 
something in their storefront window and come in. Today, a business can 
set up shop wherever it wants and sell all kinds of products over the 
Internet to customers all over the world.

    This represents a huge portion of worldwide commerce. According to 
the Internet Association, about $8 trillion changes hands in the 
digital marketplace each year.

    In addition to having a digital storefront that can be seen in 
every corner of the world, the Internet also provides new tools for 
businesses to find and retain customers. For example, it is now 
possible to tailor advertisements to specific market segments and 
interact in meaningful ways with customers using social media.

    However, as with all great technological and societal developments, 
there are challenges that come part and parcel with the opportunities. 
Although the United States has largely embraced and supported the 
changes brought about by expanded Internet commerce, there are many 
countries around the world that do not fully embrace this potential.

    Many countries want to regulate various facets of the Internet, 
including the digital economy, operating under a mindset from the last 
century.

    Put simply, that's not a wise or sustainable approach to dealing 
with the Internet. That is why the Finance Committee worked to make 
digital trade a priority in our international trade negotiations 
through the Trade Promotion Authority, or TPA, statute that was signed 
into law last year.

    The digital trade negotiating objective in the new TPA law directs 
the administration to do a number of things in order to protect the 
Internet as we know it, including ensuring that our digital goods and 
services can be exported to other nations without duties, that our 
electronic goods and services are treated no less favorably than their 
physical counterparts, and that the free flow of data across borders is 
not inhibited.

    Another equally important challenge facing businesses and consumers 
in the digital marketplace is the rise of counterfeits. Just as the 
digital economy has made it easier for businesses to find and engage 
with consumers, it has also enabled counterfeiters to do the same.

    Small businesses are the backbone of our economy and, for these 
businesses, the Internet is a powerful tool.

    I don't think I'm the only who remembers a time in which the first 
steps to launching a successful business were finding the right spot to 
physically locate the business and advertising in the local newspaper. 
Clearly, times have changed, and, today, small businesses start by 
launching a website and creating a Facebook page.

    Unfortunately, the relative simplicity and efficiency of this 
process can sometimes be a double-edged sword.

    We hear all the time from businesses that have established a robust 
web presence to grow their business only to find that, as their 
products became more popular, counterfeiters started to sell fake 
versions of their products. Some of these counterfeiters are so brazen 
that they steal photos from legitimate websites and use them to 
advertise their fake products on search and social media platforms. 
Equally as unnerving, the consumer often doesn't know that they are 
purchasing a counterfeit good.

    Sadly, the threat of counterfeit goods is only growing.

    The Organisation for Economic Co-operation and Development (OECD) 
recently released a study that shows that counterfeit products 
accounted for up to 2.5 percent of world trade, or $461 billion, in 
2013. This is a dramatic increase from a 2008 estimate that showed that 
fake products accounted for less than half that amount.

    Counterfeits are a worldwide problem, but the OECD estimates that 
the United States is the hardest hit, followed by Italy and France. Of 
the estimated $461 billion in counterfeit trade in 2013, goods with 
registered intellectual property rights in the U.S. represented 20 
percent, or $92 billion, of the OECD estimate.

    U.S. trade data also shows a growing trend in counterfeits. U.S. 
Customs and Border Protection, along with Immigration and Customs 
Enforcement, tracks, on an annual basis, the number of seizures 
conducted at the border to stop products that violate U.S. intellectual 
property rights from entering the United States. Over the last decade, 
these seizures have nearly doubled from approximately 15,000 in 2006 to 
over 28,000 in 2015. The 2015 seizures represent approximately $1.4 
billion of goods.

    As we all know, this is a multifaceted problem with no simple 
solutions.

    Congress has taken a number of steps to address these challenges. 
In addition to establishing a TPA negotiating objective on digital 
trade, we addressed counterfeits in our Customs bill, which was signed 
into law earlier this year. This new law established a Chief Innovation 
and Intellectual Property Negotiator in the office of the United States 
Trade Representative, strengthened the ``Special 301'' report, required 
CBP to publish information concerning the seizure of unlawful 
circumvention devices, and codified the National Intellectual Property 
Rights Coordination Center.

    These are all important developments. However, as we learned at our 
FTA Implementation hearing earlier this year, we also must ensure that 
our trading partners fully implement their commitments in our trade 
agreements. All too often, we have seen the executive branch allow 
agreements to enter into force without first ensuring that our trading 
partners have fully met their obligations. This is especially true when 
it comes to provisions relating to protecting intellectual property, 
particularly under the current administration.

    Going forward, if the Obama administration wants Congress's support 
for trade agreements like the Trans-Pacific Partnership, they must not 
only address outstanding congressional concerns, but also demonstrate 
that they have achieved a common understanding through detailed plans 
with our trading partners on how they intend to implement these and 
other commitments.

    As the digital economy continues to evolve, Congress must be 
vigilant in finding new and better solutions. That is one reason why we 
are holding this hearing today, to hear firsthand what steps we can 
take to ensure a safe and secure digital environment for the future.

    We have some very accomplished witnesses with us this afternoon. I 
am very much looking forward to their testimonies and to what I hope 
will be a robust discussion of how we can more effectively ensure that 
our workers, consumers, and job creators receive the full benefits of 
the digital marketplace while also preventing the growing threat of 
counterfeits going forward.

                                 ______
                                 
        Prepared Statement of Norman T. Schenk, Vice President, 
             Global Customs Policy and Public Affairs, UPS
    Thank you, Chairman Hatch, Ranking Member Wyden, and distinguished 
members of the committee. I appreciate the opportunity to appear before 
you today.

    At UPS, our processes are complex and our technology is advanced, 
but our objective is simple: to ensure world-class service for our 
customers while providing the necessary data to law enforcement and 
other government agencies so they can target contraband and identify 
bad actors that seek to import dangerous goods and counterfeit items 
into the United States in small packages.

    UPS works closely with U.S. Customs and Border Protection (CBP), at 
our own expense, to comply with, and even exceed, existing legal 
requirements to provide data to target high-risk inbound shipments and 
screen them out. In addition to enabling better screening for 
counterfeit contraband, this data can also be used to screen for 
shipments from potential terrorists, for illicit drugs, and for other 
potentially dangerous products.

    To achieve these goals, UPS provides advance data to CBP on our 
packages before they enter the United States; and, in addition, we 
share shipment data through the Air Cargo Advance Screening (ACAS) 
system.

    The most important aspect of package screening is the use of 
advance data. In May of 2000, I testified before the House Government 
Oversight Committee on how UPS provides advance data to help Federal 
agencies combat illegal drug trafficking. At that time, there were 
about 21 million package shipments entering the United States annually: 
about 10 million through the private sector--which were accompanied by 
advance electronic data--and 11 million through the international mail 
system, which did not have any electronic data. Even back then, it was 
clear that Customs and other Federal agencies could not manually screen 
packages that were not accompanied by advance data--purely because of 
volume--and that the most effective way of interdicting bad shipments 
was through the use of advance electronic data.

    By 2016, the volume of packages entering the United States has 
increased many times over: the Department of Homeland Security reports 
that in 2014, CBP processed approximately 340 million mail parcels 
arriving from foreign postal operators, most without electronic data. 
It is also estimated that 35 million packages enter the United States 
through private carriers like UPS, all with electronic data. If Customs 
couldn't effectively manually screen 11 million packages without 
advance electronic data in 2000, imagine what they are tasked with when 
screening 30 times that amount.

    UPS and other private express carriers use advance electronic data 
to manifest their shipments on a package-level basis, presents them to 
customs, and provides critical screening data to law enforcement to 
counteract illicit trade.

    We have been using electronic data for years, even before it was 
required by the Trade Act of 2002, to provide CBP with item-level 
detail about each and every shipment entering the country. This data 
consists of seven data points: who and where it is coming from; to whom 
and where it is going; what's in the shipment (item description); piece 
count; and item weight. This not only helps us reduce the potential of 
dangerous goods entering through our system, but also aids in 
manifesting compliance, payment of duties and fees, and clearance 
through customs.

    Perhaps more importantly, UPS is also working with CBP, the 
Transportation Security Administration, and other Federal agencies, by 
sharing data through the ACAS (Air Cargo Advance Screening) system.

    ACAS, currently a pilot program, builds on data sets from 
electronic manifests required in the past, and provides the necessary 
information before shipments depart for the United States. It allows 
authorities and watch-groups to target potentially high-risk shipments.

    As the advance electronic submission allows for risk assessment or 
data level screening prior to arrival in the United States, it takes 
away the need for physical inspections, which is cumbersome and 
ineffective.

    UPS is committed to help Federal authorities identify bad packages 
in our system, and believes that the best way to do so is through smart 
policy requiring electronic manifesting on all shipments--public and 
private--so that Customs is well-equipped to combat illegal trade. With 
cross-border e-commerce growing at an unprecedented rate and showing 
little signs of abating, the only way to protect our borders, national 
security, American businesses and consumers, and even our own supply 
chain, is to employ data-driven solutions and share this intelligence 
with law enforcement and other Federal agencies.

                                 ______
                                 
         Questions Submitted for the Record to Norman T. Schenk
               Questions Submitted by Hon. Orrin G. Hatch
    Question. You talked about the power of advance manifest data to 
stop fakes from entering our country and suggested that such data could 
be a useful tool for the U.S. Postal Service as well. There is another 
angle to the postal issue that I would like to raise. Just 6 months 
ago, USTR issued its Notorious Market Report. In that report, USTR 
raised significant concerns with Alibaba platforms, saying that: 
``Brand owners continue to report that Alibaba platforms, particularly 
Taobao, are used to sell large quantities of counterfeit goods. USTR is 
increasingly concerned by rights holders' reports that Alibaba Group's 
enforcement program is too slow, difficult to use, and lacks 
transparency. Stronger and more efficient systems for addressing right 
holders' concerns should be undertaken without delay.''

    Given these concerns, I was surprised to learn that the U.S. Postal 
Service recently entered into a Memorandum of Understanding with 
Alibaba that will help speed delivery of merchandise sold through 
AliExpress to consumers in the United States. Given USTR's concern 
about Alibaba as a platform for fakes, does this new arrangement raise 
any red flags for you?

    Answer. At the outset, I would note that UPS as a matter of policy 
does not comment on arrangements between other companies. This is 
especially true for any agreement between the Postal Service and 
AliExpress, as there is little public information available regarding 
the agreement.

    However, more generally, any arrangement involving volume destined 
for the United States--postal or otherwise--that is not required to 
provide advance electronic manifesting and screening data raises red 
flags. As I testified before the committee, perhaps the most important 
aspect of package screening is the use of advance electronic data to 
enable Customs and Border Protection and other law enforcement to 
identify and interdict dangerous and illegal shipments. The use of 
screening data not only allows for advance detection and diversion of 
items coming from known bad actors, it also greatly reduces the need 
for physical inspections, which are costly and less effective.

    Again, while UPS declines to comment on the Postal Service, 
AliExpress, or either of their respective capabilities for data 
sharing, we maintain the position that any volume that is allowed to 
enter the United States without advance electronic information being 
shared presents significant challenges to combating illegal cross-
border trade, including trafficking in counterfeit goods.

    Question. Congress has made protection of intellectual property 
rights a key component of our international trade strategy for many 
years. Ensuring that our international trading partners agree to strong 
enforcement provisions in our trade agreements is a vital element of 
this strategy.

    During our hearing, I touched on the importance of making sure that 
our trading partners effectively implement their obligations before we 
allow an agreement to enter into force, but I think that even more can 
be done. Not only must we put strong rules into place, but we must work 
with our trading partners to make sure that adequate capacity building 
is available so that they can develop the technical expertise to stop 
fakes before they even cross U.S. borders.

    Can you comment on whether you believe capacity building is an 
effective tool to stop fakes from entering our country and, if so, what 
type of capacity building is most effective?

    Answer. UPS agrees that enhanced capacity coupled with smart, 
strong border rules is integral to combatting illegal trade, including 
preventing the entry of counterfeit and/or dangerous goods into the 
United States. However, exponential growth in cross-border e-commerce 
volume presents unique challenges that affect the way the United States 
and our trading partners need to focus our capacity building efforts.

    Namely, large flows of e-commerce packages into the United States 
necessarily require that we implement data-driven solutions instead of 
attempting to approach illegal trade interdiction through manual 
inspection. For example, the volume of packages from China to the 
United States through the international postal system has grown a 
reported 70 to 90 percent annually, according to China Post, and shows 
little sign of slowing. It is virtually impossible to develop an 
effective interdiction system if U.S. Customs and Border Protection is 
required to manually screen these items without electronic data on a 
package-level basis.

    Of course, the onus for investment in customs and security 
capabilities does not fall on the United States alone. Our trading 
partners, to the extent that they want to be able to participate in 
American markets, must be brought up to speed through requiring 
increased investment in information sharing capabilities. This is, to a 
certain extent, limited by the United States' participation in the 
Universal Postal Union (UPU) Convention, a congressional-executive 
agreement between the United States and 191 other member countries to 
deliver each other's mail, including small packages.

    Regulations promulgated under the UPU Convention do not require the 
sharing of advance electronic data, and instead allow for 
``simplified'' customs procedures for shipments from postal operators 
like China Post or India Post. The United States, led by the State 
Department in its delegation to the UPU, has proposed measures that 
would require non-discriminatory treatment of all packages--through 
private carriers as well as postal carriers--but those proposals face 
strong political headwinds, especially from China, who has actively 
fought any proposal to mandate data sharing for packages.

    Unfortunately, the United States cannot, by itself, alter the UPU 
Convention or the regulations promulgated thereunder. However, this 
should not deter the United States from exploring all options to 
enforce border security laws for all shipments through posts and 
private carriers alike. With cross-border e-commerce growing at an 
unprecedented rate and showing little signs of abating, the only way to 
protect our borders, national security, American businesses and 
consumers is to mandate advance data sharing capabilities for all 
shipments entering the United States.

                                 ______
                                 
                 Questions Submitted by Hon. Ron Wyden
    Question. As you noted in your testimony, the volume of small 
packages has increased substantially in recent years. In large part, 
this is due to the changing landscape of trade resulting from digital 
technologies. For example, we know that small and medium-sized U.S. 
businesses are now participating in the global economy--accounting for 
about 50 percent of U.S. exports--which used to be reserved for only 
large multinational companies.

    Could you speak to changes you have seen in your customer base and 
how trade patterns reflect this dynamic? The United States is pretty 
open for business, and we have low barriers for imports. What are the 
challenges that our smaller exporters face in shipping to foreign 
markets?

    Answer. Over the years, UPS has seen a number of trends emerge that 
are shaping global trade. Of course there is the e-commerce boom, where 
digital trade has served as an equalizer allowing companies who offer 
the best products to thrive regardless of location and size. We have 
also seen the growing need of companies to compete internationally and 
the internationalization of supply chains where nearly 60% of trade is 
in intermediate goods, including the inputs and components that cross 
borders dozens of times in the production of a good.

    These trends have increased the pressure on international trade 
infrastructure both in terms of the volume of goods being traded and 
the time pressures many of our customers face. Burdensome customs 
procedures, which involve excessive paperwork and sometimes extremely 
lengthy hold-ups at borders, have a huge impact on businesses of all 
sizes, but especially for our smaller exporting customers. These border 
barriers can lead to missed shipment deadlines and damaging financial 
losses, and over time can make or break a business' relationship with a 
client. For time- and temperature-sensitive shipments such as 
pharmaceuticals and healthcare products, the time window may be even 
more critical.

    Big companies have the resources and expertise to tackle these 
challenges, but much of the increase in small parcel package volume 
crossing borders comes from small to medium size companies who lack the 
expertise to understand the laws and regulations of international 
trade. While service providers like UPS have developed software tools 
to support our customers, it doesn't negate the challenges the 
challenges facing companies that don't understand the complex 
processes. Simplifying clearance processes to reduce administration 
burdens would help to improve the flow of goods across borders and 
enhance both security and compliance.

    UPS is a strong advocate of trade agreements like TPP given the 
role they play in breaking down customs and regulatory and other 
barriers our customers face. As you note, U.S. barriers are already 
quite low so these agreements disproportionately tear down other 
countries' trade barriers. As one piece of evidence of this positive 
effect on U.S. exporters, UPS on average has seen our export volume 
grow about 20% to countries with which the U.S. has recently 
implemented a trade agreement. While eliminating market barriers is of 
benefit to our customers of all sizes, our smaller customers 
particularly benefit as they don't have the experience and resources to 
navigate barriers as effectively.

    Question. Many companies in Oregon, from large multinationals to 
small businesses, sell an increasing share of their products through 
the Internet, rather than brick and mortar retail stores. For customers 
around the globe, they take orders, process payments, search inventory, 
and arrange for the delivery of products, including via UPS. These 
transactions are highly data intensive, requiring safe and secure 
transfers of data across borders for processing in major regional 
technology hubs.

    In recent years, several countries have considered or even imposed 
measures that would restrict cross-border data flows and require 
companies to store and process data on servers located in the 
jurisdiction where the data is collected. I am particularly concerned 
that U.S. companies face uncertainty regarding their ability to 
transfer data between the United States and the European Union.

    Mr. Schenk, can you comment on how restrictions on cross-border 
data flows would affect UPS and the business customers it serves?

    Answer. UPS shares the concern you raise about measures that would 
restrict cross-border data flows and/or require companies to store and 
process data on local servers. In today's economy, global data flows 
are essential for businesses across all sectors--manufacturers, service 
providers, and agricultural firms. E-commerce, in particular, has 
allowed small and medium-sized businesses to go global from day 1, 
creating a new engine of innovation and jobs.

    UPS relies on the continuous, seamless movement of data, often 
across borders. Data transfer restrictions that limit how companies 
process information on a global basis impede UPS's operations and harm 
both our individual and business customers. At UPS, data flows ahead of 
our packages and behind our packages. We send customs and security data 
ahead to government authorities and our customers track and trace to 
follow their packages on the back end. Last year we averaged 58.2 
million daily tracking requests.

    We are pleased that TPP's e-Commerce chapter includes a number of 
important provisions to prohibit government restrictions on cross-
border data flows and data localization, which should help fuel the 
digital economy.

                                 ______
                                 
       Prepared Statement of Tom Triggs, Chief Legal Officer and 
              General Counsel, Belkin International, Inc.
                            i. introduction
    Chairman Hatch, Ranking Member Wyden, and distinguished members of 
the Senate Finance Committee, thank you for the opportunity to testify 
on the important subject of challenges and opportunities facing U.S. 
businesses in the digital age.

    My name is Tom Triggs, and I am the Chief Legal Officer and General 
Counsel of Belkin International, Inc. I lead an international team of 
attorneys that assists the company in growing, developing, and 
protecting all aspects of Belkin's business.

    As the esteemed members are well aware, ecommerce presents 
tremendous opportunities for businesses both here in the United States 
and abroad. That much is obvious. We at Belkin celebrate the digital 
age. This is reflected by the praise we have received from a variety of 
publications for our innovative spirit, including recognition from Fast 
Company as one of the top 10 most innovative ``Internet of Things'' 
(IoT) companies in the world.

    The digital economy has contributed to Belkin's growth from its 
humble beginnings in a southern California garage in 1983, while also 
creating significant challenges for the operation of our businesses. I 
would like to speak to you today about certain of those challenges, in 
particular, the increasing complexity of international brand 
management, the proliferation abroad of counterfeit products, and the 
ease with which such products are purchased and sold online.
                            ii. about belkin
i. Belkin's Businesses
    At Belkin, we create products that help people realize the power of 
technology and make their lives better, easier, and more fulfilling. 
This has been Belkin's mission since 1983 when our Founder and CEO, 
Chet Pipkin, created the company in his parents' garage in Hawthorne, 
California. Even back then, Chet's passion was driven by a desire to 
satisfy customers' needs. He manufactured computer cable assemblies in 
the evenings and on weekends, and sold them to local computer 
manufacturers and dealers in response to the burgeoning personal 
computer market in the 1980s.

    We remain true to our southern California origins, and today we are 
based in Playa Vista, in the heart of Silicon Beach, the Los Angeles 
tech center. We have grown significantly since our roots in Chet's 
parents' garage. We currently employ over 1,200 employees in 22 
countries throughout the world, over 700 of whom are based here in the 
United States. While we are at our core an American company, we are 
global in reach and outlook.

    Belkin owns three core brands: Belkin, Linksys and WeMo, each a 
premium consumer electronics brand. Belkin delivers mobile and computer 
accessories, known for their quality, reliability, simplicity and ease 
of use. Linksys delivers consumer networking products, and helped make 
wireless connectivity mainstream around the globe, delivering top-
ranked consumer Wi-Fi routers and connectivity devices. Our newest 
brand, WeMo, is taking on the Internet of Things, delivering market-
leading customizable smart home experiences that empower people to 
monitor, measure and manage their electronics, appliances and lighting 
at home and on-the-go.

    Belkin has recently embarked on an ambitious joint venture called 
``Phyn'' with our new Finnish partner Uponor, a leading supplier 
worldwide of plumbing for residential and commercial spaces. Phyn's 
mission is to utilize Belkin's technology-
leading intellectual property to provide an intelligent water solution 
that protects families and their homes from leak damage, enables 
mindful conservation of water within the home, and enhances household 
water usage with automated and anticipatory controls.
ii. Belkin's Product and Brand Development
    At Belkin, we believe we enjoy success because we are an advocate 
for the consumer in every facet of our business. Our brand purpose is 
built on the belief that the sole reason technology exists in the world 
is to make people's lives better, easier and more fulfilling. We 
realize this purpose by making it our mission to understand what people 
wish technology would do, what drives them crazy about technology, and 
what they never even dreamed technology could do. We simplify, 
streamline, enhance, and beautify to make technology work effectively, 
effortlessly, harmoniously, and efficiently.

    Belkin is about peace of mind. Product quality is essential to 
this. Our products are thoughtfully designed to be highly desirable, 
delightful to use, and a pleasure to live with. We seek to lead the 
standard for design quality in the consumer electronics industry.

    For over 30 years, Belkin has invested billions of dollars in 
developing and manufacturing products that provide the highest quality 
experience for our consumers. Our cross-functional teams work together 
to ensure that our products work seamlessly, are safe and reliable, and 
look good. This commitment to quality is the reason our products are 
found at major retail stores that U.S. customers know and trust, such 
as Best Buy, Walmart, Target, and Apple stores.

    Our products are recognized both by industry experts and consumers 
for their excellence, and the substantial investment we make in 
delivering the best experience possible to our consumers is reflected 
in the numerous awards we have won, particularly for our innovative 
product designs.

    In addition to the resources that we devote to product development, 
Belkin also spends tens of millions of dollars each year developing our 
brands. These brands communicate who we are, and our values, to 
consumers. When consumers see a Belkin product, or a Linksys product, 
or a WeMo product, they know that it is a product they can trust, and 
one that carries a rich heritage of commitment to quality and 
excellence.
        iii. brand management in an international digital market
i. The Digital Revolution
    When Belkin was formed in 1983, the Internet and the transformative 
role that it would play in global commerce was unknown and unknowable. 
Our products were originally sold, like all other consumer products at 
the time, in brick and mortar retail stores, and developing brand 
awareness was dependent upon gaining shelf space in those retail 
stores.

    Today, according to a UPS report released last week, online orders 
now surpass in-store purchases, with 51% of shoppers' purchases, 
excluding groceries, made online within the 3-month period prior to the 
report's publication. Also, those consumers who are not buying online 
are likely to be researching products online before making a purchase, 
whether to locate product specifications, read product reviews or 
simply find the best prices.

    As the ecommerce market emerged and grew, so did our business, and 
the way we interacted with our consumers evolved in sync with these 
developments. We launched an online store in the United States, http://
www.belkin.com/us/, in 2000, and we currently operate online stores in 
the Americas, Europe, Asia, and Australia. Today virtually all of our 
retail store customers operate their own websites in addition to their 
physical stores. In fact, some of our largest customers are now 
exclusively online sellers, such as Amazon and Newegg. Our websites are 
an important tool for not only selling products to customers, but also 
for educating them about who we are, what products we offer and how to 
communicate with us.
ii. New Challenges Presented by the Digital Age
    While the Internet has opened new markets and provided Belkin with 
global growth momentum, it has also brought challenges, one of the most 
significant being the unprecedented access to markets that online 
commerce has afforded counterfeiters.

    The Internet has provided us all with a virtual storefront to the 
rest of the world. While Belkin built the foundations of its business 
by developing strong retail relationships, today anybody online, 
including criminals, can sell anything, anywhere. There are very low 
barriers to entry. Third parties who have not invested the money, time, 
and resources that Belkin has in developing, designing, testing, and 
manufacturing products and building strong, dependable brands, are now 
able to inexpensively manufacture inferior counterfeit copies of our 
products and sell them to unsuspecting consumers on the global market.

    The sale of counterfeit products has now become a big business 
worldwide; as estimated by the International Chamber of Commerce 
(``ICC'') in a 2012 report, the annual value of counterfeit goods sold 
globally would exceed U.S.$1.7 trillion by 2015, representing over 2% 
of the world's total economic output in 2012.\1\
---------------------------------------------------------------------------
    \1\ See: http://www.iccwbo.org/Advocacy-Codes-and-Rules/BASCAP/
BASCAP-Research/Economic-impact/Global-Impacts-Study/.

    The United States is the country that is hardest hit by the trade 
in fake goods. According to an April 2016 report by the Organisation 
for Economic Co-operation and Development (``OECD'') and the European 
Union's Intellectual Property Office, almost 20% (by total value) of 
the fake goods seized globally infringe intellectual property rights 
registered in the United States.\2\ In 2015, U.S. Customs and Border 
Protection and Immigration and Customs Enforcement seized over 28,000 
shipments of counterfeit goods valued at U.S.$1.35 billion, of which 
18% (by value) were consumer electronics products.\3\ We ourselves have 
been notified of more than 100 seizures since 2013 of counterfeit 
Belkin products that third parties attempted to import into the United 
States; these are just the shipments that were identified to us, and we 
know that many more such shipments made it through despite the 
diligence of our customs enforcement agents.
---------------------------------------------------------------------------
    \2\ See: http://www.oecd.org/governance/risk/trade-in-counterfeit-
and-pirated-goods-978926425
2653-en.htm.
    \3\ See: https://www.cbp.gov/sites/default/files/assets/documents/
2016-Apr/FY%202015%20
IPR%20Stats%20Presentation.pdf.

    There is a real and substantial cost associated with the sale of 
these fake products; the ICC has estimated the annual cost of lost tax 
revenue and additional welfare spending due to counterfeit goods at 
U.S.$125 billion in the G20 countries alone.\4\
---------------------------------------------------------------------------
    \4\ See: http://www.iccwbo.org/Advocacy-Codes-and-Rules/BASCAP/
BASCAP-Research/Economic-impact/Global-Impacts-Study/.
---------------------------------------------------------------------------
iii. Belkin's Anti-Counterfeiting and Brand Management Program
    At Belkin, we are committed to protecting our consumers from these 
counterfeiters, thieves who profit from the creativity, good will, and 
investment of others.

    We have already invested many millions of dollars in legal and 
other fees, as well as valuable time and resources, in our unstinting 
efforts to protect our company and our consumers from counterfeit 
goods.

    We have been systematically focused for years on the goal of 
eliminating counterfeits of our products, in order to maintain both the 
strong Belkin brand recognition and the trust of consumers, as well as 
to provide a safe and quality product experience to the end user. 
Counterfeiting is a problem that does not go away if ignored. It is not 
curbed with a single legal notice. Rather, it requires around the clock 
monitoring on a global basis and the application of consistent pressure 
to the relevant law enforcement authorities around the world. It is 
because we have this focus that we are a leader in the worldwide effort 
to rid the consumer electronics space of counterfeit products. Our 
extensive anti-counterfeiting and brand management program leverages 
the strong relationships that we have established with customs 
officials in the U.S. and around the world by proactively informing 
them of instances of counterfeiting and other illegal brand-dilutive 
activities that we track through our private resources.

    Counterfeiting and other illegal brand-dilutive activities present 
in a myriad of different forms, and, as a result, require experts drawn 
from a variety of disciplines to combat effectively. To ensure that we 
protect our brand, we have established an internal business unit 
network to detect potential violations of our intellectual property 
rights (``IPR''), and to investigate, identify, report, and enforce our 
rights with respect to actual violations. This business unit network is 
comprised of subject matter experts in a broad range of fields, 
including legal, NetNames, testing (to determine whether a product is 
counterfeit), reporting (of the suspected items to the appropriate 
authorities), and customs. Our coverage is global in nature and 
collected (using SharePoint software) in a single in-house repository 
of information.

    We constantly monitor the Internet, no small task indeed, for 
potential instances of counterfeiting or other illegal brand-dilution 
activities. We compile a monthly report listing instances of detected 
infringement, ranging from brazen counterfeiting to brand abuse. 
Oftentimes, in the case of U.S.-based online marketplaces operating 
both in the U.S. and abroad, when we identify a counterfeit product 
online, we are able to have that product removed relatively quickly 
from the subject marketplace. Counterfeit sellers, unfortunately, know 
how to manipulate the safety measures that many of the marketplaces 
have established. They do this in a variety of different ways. They may 
occasionally feature neither quantity nor pricing information, instead 
advising the buyer to contact the seller directly to discuss options. 
In some instances, where listings have been successfully closed, the 
seller may simply re-list the auction and attempt to sell the 
infringing item again, necessitating multiple actions to close the case 
successfully.

    You might be wondering how we are able to identify a potentially 
infringing product. The answer is through a multifactor process. During 
the initial stage, we look for the following indicia of counterfeit 
packaging, among others:

      (1)  Shipments of Belkin-branded products sent directly from Asia 
are almost always counterfeit, as Belkin does not ship from resellers 
in Asia to any other market;

      (2)  The existence of spelling mistakes on the rear of a package;

      (3)  The security sticker being clear;

      (4)  Location of advertising, e.g., in the case of an iPhone 
model, on the front of the product;

      (5)  The language and scope of warranties; and/or

      (6)  The product being sold purportedly under the Belkin brand is 
simply one that we do not make (internally, we refer to these as 
``ghost'' products).

    In an effort to educate the public and minimize consumer confusion, 
we have included a page on our website with information to help 
consumers identify fake products and report potential incidents.

    Overall, we are an efficient and effective team. This year alone, 
we have already taken down 5,738 online listings of counterfeit Belkin 
products in Europe and the United States.

    When we have evidence of extensive counterfeiting activity by a 
seller abroad, we go in country, engage in private investigations, and 
then reach out to the relevant law enforcement authorities.

    As a result of our constant vigilance, Belkin has filed complaints 
and injunctions in more than 22 countries against entities that violate 
its intellectual property rights, all in an effort to thwart the sale 
of unlawful and potentially dangerous products. Counterfeit electronics 
affect much more than our bottom line. These cheap, knock-off products 
also harm the business of legitimate retailers and can even pose a 
safety risk to end consumers. Our ultimate goal is to rid the market 
entirely of these counterfeit items so that only authentic Belkin-
branded products that provide a quality and safe experience for our 
consumers are available under our name.

    Working with U.S. Customs and Border Protection and foreign 
agencies, we have seen some success in removing counterfeit products 
from the market. Below are a couple of salient examples of our work to 
detect and remove these products. Unfortunately, we know that there are 
many more we won't discover or won't be able to get off the market.

    In December 2014, after months of investigation, undercover 
surveillance, planning, and coordinated effort, Belkin's Supply Chain 
Team in Hong Kong and Shenzhen, SinoFaith (an IPR group that 
specializes in this type of operation) and the law enforcement agencies 
in Shenzhen, Dongguan, and Guangzhou conducted concurrent raids on 11 
counterfeit manufacturing or selling sites in southern China. Belkin 
and the China State Administration for Industry and Commerce seized 
more than 1 million counterfeit Belkin goods in this effort, leading to 
jail time for six individuals. The company would not have been able to 
see this operation through without the cooperation of both the U.S. and 
Chinese governments.

    Our most recent success story occurred earlier this year when, in 
coordination with the Department of Economic Development (DED) of 
Dubai, we oversaw a series of raids across Dubai. In this sting, 
authorities raided 22 separate stores located in four main Dubai 
marketplaces and confiscated more than 1,400 counterfeit Belkin-branded 
products. The counterfeit Belkin products confiscated during the raids 
included smartphone accessories such as cases, cables, and chargers for 
both car and home. In Dubai, these resellers, including Dragon Mart and 
E-City Shop, caught with counterfeit goods are subject to confiscation 
of merchandise and a fine of 15,000 AED.

    While we are able to point to a few success stories today, the 
reality is that we meet with far more obstacles than success stories 
when it comes to fighting those who seek to profit from the strength of 
our brand and its association with consumer safety. Our global fight 
against the counterfeit brand ``Melkin'' is one such example of the 
continued frustrations that we face. We currently have suits pending in 
China, Hong Kong, and the United States, as well as over 20 trademark 
oppositions around the world, relating to these infringing products 
manufactured by a China-based company.

    These products are branded with the express purpose of confusing 
consumers into thinking that in purchasing these products they are 
purchasing Belkin products. This company, and the individuals and 
entities behind it, are benefiting unfairly from the Belkin name and 
reputation while causing significant harm to our business. The 
infringing products are sold to the same customers through the same 
channels of trade at a price slightly lower than that of the genuine 
Belkin products.

    In June 2015, we were granted an injunction from the courts in Hong 
Kong to block Melkin-branded products from entering Hong Kong, which 
included an order to remove such products from the Global Sources trade 
fair in Hong Kong.

    On November 13, 2015, Belkin filed a complaint under section 337 of 
the Tariff Act of 1930 with the U.S. International Trade Commission 
(``USITC'') against Dongguan Pinte Electronic Co., Ltd. and Dongguan 
Shiije Fresh Electronic Products Factory (the entities behind Melkin). 
The complaint details the infringement of Belkin's federally registered 
trademarks resulting from these companies' unlawful importation into 
the United States, sale for importation into the United States and/or 
sale within the United States after importation, of certain computer 
cables, chargers, adapters, peripheral devices, and packaging under the 
brand name ``Melkin.'' We are seeking in this action an Exclusion Order 
that would bar from entry into the United States such infringing 
products, and also a cease and desist order to bar sales of such 
infringing products that have already been imported into the United 
States. In December 2015, the USITC agreed to open the complaint for an 
official review, which is now underway. We expect to prevail in this 
action, but at a cost of several hundreds of thousands of dollars.
  iv. belkin's experience as a microcosm of the problems facing u.s. 
          businesses in the international digital marketplace
    Of course, Belkin's experiences with the explosion in counterfeit 
goods in the international digital marketplace are not unique. As 
government and industry witnesses have previously observed before both 
this and other congressional committees, the availability of cheap 
manufacturing around the globe makes it easy for counterfeiters to 
produce packaging that is almost identical to that of the brand owners. 
However, in our case, and that of many other quality American 
manufacturers and distributors, the product inside is nothing close to 
the quality product that we deliver to our consumers. It has not passed 
through the rigorous safety certifications, testing, or protocols that 
we are required to satisfy to market our products. Consumers simply 
cannot know this from looking at the package or the product, for 
counterfeiters even have the audacity to include counterfeit safety 
certification marks on the packaging. The result is consumer 
frustration, Belkin brand damage, and, occasionally, harm to consumers. 
This story is the same regardless of whether you are talking about 
consumer electronics, clothing, medicine or a wide range of other 
industries impacted by this worldwide problem.

    Ecommerce presents tremendous opportunities and risks for consumer 
electronics firms like Belkin. On the one hand, a powerful platform for 
reaching vast numbers (billions, in fact) of new customers, both at 
home and abroad, has been created. But this same platform also presents 
a new, almost universally accessible, channel for counterfeiters to 
sell fake products through, hurting brand owners like us and in some 
cases endangering consumer safety.

    No place illustrates both the relevant opportunities and risks on 
the same scale as China. China reportedly has over 700 million Internet 
users, and last year recorded U.S.$672 billion in ecommerce sales from 
approximately 380 million Chinese consumers shopping online.\5\ And by 
2020, China's ecommerce market is expected to reach U.S.$1.1 trillion. 
But that market is also plagued by rampant sales of online fakes. The 
above-referenced OECD study from April 2016 also found that nearly all 
of the counterfeit goods captured by customs offices around the world 
came from China.
---------------------------------------------------------------------------
    \5\ See: http://beijing.usembassy-china.org.cn/2016ir2/ambassador-
baucuss-remarks-on-iacc-conference.html/redirect.state.sbu/
?url=http://beijing.usembassy-china.org.cn/2016ir2/ambassador-baucuss-
remarks-on-iacc-conference.html>.

    China has in place a recently revised Trademark Law that provides 
some new enforcement tools, and we have recently seen improvement in 
effective enforcement from Chinese agencies like AIC that we work with. 
We also spend significant time with large Chinese ecommerce companies, 
and I personally have traveled twice to Alibaba's campus in Hangzhou, 
China, to identify and take down criminals using Alibaba's platforms to 
sell counterfeit Belkin products in huge volumes. Alibaba has told me 
repeatedly that they want their ecommerce sites and brands to meet the 
---------------------------------------------------------------------------
highest standards of integrity and support for U.S. businesses.

    But our efforts are not as effective in China as they are, say, 
here at home. China's comparatively weak rule of law in general, and an 
IPR protection regime that still has a long way to go, both on paper 
and in practice, before it even approaches international best 
practices, pose big barriers for U.S. companies seeking effective 
solutions to these problems. Simply put, IPR enforcement is less 
developed, and less predictable, in China than it is in the West.

    On that front, I want to point out that the former chairman of this 
Committee, Ambassador Max Baucus, is doing a great job to help U.S. 
companies in this fight. I have met with him, and his team of State and 
USPTO officers, numerous times, and I can tell you directly that our 
Mission in China is working vigorously with the Chinese government to 
strengthen its IPR regime, and is also calling on Chinese ecommerce 
platforms to live up to their ``no tolerance'' rhetoric.

    There is no cut and dried answer to what Congress or any other 
legislative or regulatory body across the globe can do to eliminate or 
substantially reduce the online sale of counterfeit goods. Hearings 
like these are an important step, and certainly helpful in highlighting 
the nature and scope of the problem so that our legislators have the 
``facts on the ground'' needed to craft the appropriate remedial 
legislation. However, beyond that, it becomes much more murky, as one 
approaches the intergovernmental/diplomatic side of the equation. 
Belkin appreciates the efforts of the U.S. Government to work within 
the current system. We also appreciate its efforts to raise the IPR bar 
internationally and especially in the Asia-Pacific region. The high IPR 
standards embodied in the Trans-Pacific-Partnership (TPP) would be 
particularly conducive to our efforts in the Asia-Pacific region, 
clearly with TPP members, but also, we would hope, with non-members 
like China.

                             v. conclusion
    Chairman Hatch, Ranking Member Wyden, and distinguished members of 
the committee, I want to thank you again for the opportunity to testify 
before you today. If I were to leave you with one last thought, it 
would be that the business of counterfeiting is big business in other 
countries, and one which many such countries make (both on paper and in 
practice) hard to shut down, if not actively encourage. The branded 
intellectual properties of American businesses are not only critical to 
the success of those businesses but to the success of our American 
economy as a whole, and, I would posit here, of the still expanding 
global digital economy in which we all participate. We must ensure that 
our representatives abroad actively monitor any activity in foreign 
jurisdictions that may unfairly dilute the value of our American 
brands. We love the digital marketplace, as we support all channels of 
commerce, and appreciate that we, like other businesses, must evolve 
with the evolution of such marketplaces. We believe in the value of 
global ecommerce and its importance to Belkin and American job growth. 
Like all of our peer-group companies, we are simply advocating for 
level playing fields across all of those marketplaces, and believe 
that, with fair competition, we and other American companies will 
succeed in that competition by working harder and with more innovation 
than our competitors abroad. We therefore need enhanced and predictable 
IPR standards and laws, and corresponding enforcement mentality, across 
the globe, especially in the Asia-Pacific region.

    Belkin will continue to enjoy the opportunities and challenges that 
U.S. businesses face in the digital age. And we will continue to work 
with appropriate authorities around the globe to enforce our 
intellectual property rights to shut down the sellers of counterfeit 
Belkin products. We as a company are firmly committed to fighting those 
who seek to damage our brand, undermine our valued customer 
relationships and flood the market with inferior and potentially 
dangerous products. We hope this information will be contributory to, 
and helpful in, the decision-making ahead of you that will impact all 
of us.

                                 ______
                                 
            Questions Submitted for the Record to Tom Triggs
               Questions Submitted by Hon. Orrin G. Hatch
    Question. Do you believe that section 337 of the Tariff Act of 1930 
is an important and necessary tool to help stop fakes from entering the 
United States?

    Answer. Section 337 of the Tariff Act of 1930 is an important and 
necessary tool to help stop fakes from entering the United States. The 
in rem jurisdiction of the ITC is an invaluable tool for domestic 
businesses who cannot easily obtain jurisdiction over foreign 
counterfeit manufacturers. The exclusion orders that the ITC can grant 
in respect of counterfeit goods are a powerful remedy, particularly 
where general exclusion orders can be granted.

    Belkin has in fact filed a section 337 action with the ITC; in 
2015, we filed a complaint against counterfeit manufacturers exporting 
''Melkin''-branded copycat products to the United States, and we expect 
an exclusion order to be granted shortly. Accordingly, while there may 
have been some recent abuses of exclusion orders by patent trolls, we 
(as an operator) appreciate the utility of this enforcement action as a 
compliment to recourse to the courts.

    Question. Congress has made protection of intellectual property 
rights a key component of our international trade strategy for many 
years. Ensuring that our international trading partners agree to strong 
enforcement provisions in our trade agreements is a vital element of 
this strategy.

    During our hearing, I touched on the importance of making sure that 
our trading partners effectively implement their obligations before we 
allow an agreement to enter into force, but I think that even more can 
be done. Not only must we put strong rules into place, but we must work 
with our trading partners to make sure that adequate capacity building 
is available so that they can develop the technical expertise to stop 
fakes before they even cross U.S. borders.

    Can you comment on whether you believe capacity building is an 
effective tool to stop fakes from entering our country and, if so, what 
type of capacity building is most effective?

    Answer. Belkin actively works with partners around the globe to 
educate them about our products, our supply chain, and how to identify 
potentially counterfeit products. A combination of our local counsel 
and customs team members provide training to the CBP and their 
international equivalents. We attempt to target those ports where we 
have found, or believe may be, significant sources for the export or 
import of fakes. We also train our retail and distribution partners to 
identify fakes.

    Belkin has recently made the decision to pilot a new packaging 
program which enables customs officials and warehouse staff to scan a 
product with a smartphone app to identify whether it is fake or 
genuine. We hope that this will make it even easier for our customs 
partners, and for customers, to be able to locate fake products.

    Empowering customs officials to identify products also has the 
advantage of providing access to information about exporters and 
importers that will aid our supply chain investigations, and ultimately 
play a role in us finding, and shutting down, counterfeit manufacturers 
and sellers.

                                 ______
                                 
                 Questions Submitted by Hon. Ron Wyden
    Question. Belkin has grown out of the digital revolution, including 
innovations in products that support the Internet architecture, and 
innovative services that will mean we'll all be driving smart cars and 
living in smart houses before long. Belkin demonstrates how the United 
States is leading in these critical sectors for future growth. In 
addition, your testimony mentions the value of global e-commerce and 
its importance to Belkin and American job growth.

    Can you talk about the benefits of e-commerce platforms from 
Belkin's perspective?

    Answer. Online marketplaces have expanded Belkin's and our 
partners' opportunities to dramatically grow our market and open new 
markets for U.S. businesses, and reach billions of potential customers. 
These platforms have enabled countless small businesses to do the same.

    According to a recent UPS report, online orders now surpass in-
store purchases, with 51% of shoppers' purchases, excluding groceries, 
made online within the 3-month period prior to the report's 
publication. Consumers who are not buying online are likely to be 
researching products online before making a purchase, whether to locate 
product specifications, read product reviews or simply find the best 
prices.

    In addition, distribution is really hard for hardware (hard goods) 
businesses; and, to that end, it is really hard to get shelf space for 
products in retail stores. Online platforms take the pain out of 
distribution and level the playing field for U.S. businesses, both 
large and small.

    Virtually all of our retail store customers operate their own 
websites in addition to their physical stores. In fact, some of our 
largest customers are now exclusively online sellers, such as Amazon 
and Newegg. Our own http://www.belkin.com/us/ websites are an important 
tool for not only selling products to customers, but also for educating 
them about who we are, what products we offer and how to communicate 
with us.

    While online platforms allow for the risk of counterfeit 
proliferation by criminals worldwide, these online platforms, 
paradoxically, can provide Belkin with a powerful tool to combat 
counterfeit goods because technology increases transparency to identify 
fakes and facilitate take-downs--and helps us to deeply educate our 
customers about differences between genuine and fake products.

    Question. In your testimony, you outline the many challenges that 
Belkin faces in combating counterfeit products. As you point out, 
counterfeits are not only poor quality, but can also pose a real safety 
hazard. You also mentioned the need to work with CBP and other parts of 
the government to ensure enforcement is as robust as possible. In the 
Trade Facilitation and Trade Enforcement Act that came out of this 
committee last year, and that was signed into law a few months ago, we 
gave CBP new tools to collaborate with the private sector, including 
the ability to share information about potentially infringing products 
with the rights holder.

    Can you speak to the role that tools like this play in the effort 
to combat counterfeit products?

    Answer. It is no secret that information is a valuable resource. We 
state, again and again, that all we desire is a ''level playing field'' 
on which to compete. Participants is the big business of counterfeit 
products prevent a level playing field. The new CBP tools enable us to 
identify relevant participants in the counterfeit supply chain, and use 
our private resources to pursue them. Belkin welcomes any tool that 
provides us with access to more information, and more transparency--
getting Belkin and other U.S. businesses to a place where healthy 
competition creates the best outcomes for consumers.

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon
    In my view, there are two issues at hand today, and in many ways 
they're two sides of the same coin. The first is about how more small 
businesses are tapping foreign markets thanks to the digital economy 
and e-commerce platforms. The bottom line is that the Internet is the 
shipping lane of the 21st century, and every business in this country, 
in one way or another, is digital.

    Take the example of Bike Friday, an Oregon company that makes 
folding bicycles. It might not always be bicycling season in Oregon, 
but it's always summertime somewhere. The Internet is an essential 
resource that enables Bike Friday to reach customers and process orders 
24/7, regardless of time differences. It's the same story if you're in 
steel, in manufactured goods, in clean energy, or in apparel. Digital 
technology is a booster shot in the arm for exports at a time when 95 
percent of the world's customers live outside our borders. American 
businesses and their workers today aren't relying on listings in the 
yellow pages or waiting for new customers to walk through the door. 
Many of their storefronts are online, and they're always open.

    That's one side of the coin. The other is the challenge represented 
by counterfeit goods. For the trade enforcers, it used to be a matter 
of identifying a shipping container filled with fake computer chips or 
tennis shoes. Although those shipping containers are still coming in, 
counterfeit goods are now also delivered in individual packages that go 
straight to the doorsteps of American consumers. So the challenge of 
rooting out counterfeits is a lot more difficult than it once was, and 
it poses a direct threat to American jobs and businesses.

    This is a firsthand issue for a lot of Oregon businesses in various 
industries, from parts for autos and rail cars to high-tech semi-
conductors. Take Leatherman Tools as an example. They are a proud 
Oregon employer that makes high-quality outdoor gear that gets a lot of 
use in my State's recreation economy. But if you place an order for a 
Leatherman Tools pocket knife from an unknown seller, there is a chance 
that you'll receive a cheap knockoff. The result is a disappointed 
consumer, and an Oregon manufacturer that has lost a sale. That's why 
buyer reviews of sellers on platforms like Amazon and eBay--and 
liability laws that enable those reviews--are so valuable to those 
seeking authentic merchandise.

    So our policies have to take both of these issues into account: 
helping our workers and business to take advantage of digital shipping 
lanes and staying ahead of the online schemers who want sneak their 
counterfeit goods into our market and rip off jobs.

    On a bipartisan basis, this committee took a major step forward 
earlier this year in the fight against counterfeiters by passing the 
toughest package of trade enforcement policies in decades. Thanks to 
that legislation, Customs and Border Protection now has more tools to 
sniff out illegal goods before they make it into the homes of American 
consumers, including by encouraging CBP to work with U.S. rights-
holders on identifying potential counterfeits at the border.

    And as the digital economy continues to transform our lives and 
reshape the way business is done, this committee will have more work to 
do. It's our job to understand how technology and policies empower 
America's innovators, producers, and sellers. It's also our job to 
understand how the trade cheats rip off Americans, and to respond 
accordingly. I want to thank our witnesses for joining the committee 
today, and I look forward to discussing how our digital economy fits 
into what I call ``trade done right.''

                                 ______
                                 

                             Communications

                              ----------                              

                      The Center for Fiscal Equity

                          14448 Parkvale Road

                          Rockville, MD 20853

               Comments for the Record by Michael Bindner

Chairman Hatch and Ranking Member Wyden, thank you for the opportunity 
to submit our comments on this topic. As usual, our comments are based 
on our four-part tax reform plan, which is as follows:

      A Value Added Tax (VAT) to fund domestic military spending and 
domestic discretionary spending with a rate between 10% and 13%, which 
makes sure every American pays something.
      Personal income surtaxes on joint and widowed filers with net 
annual incomes of $100,000 and single filers earning $50,000 per year 
to fund net interest payments, debt retirement and overseas and 
strategic military spending and other international spending, with 
graduated rates between 5% and 25% in either 5% or 10% increments. 
Heirs would also pay taxes on distributions from estates, but not the 
assets themselves, with distributions from sales to a qualified 
ESOPcontinuing to be exempt.
      Employee contributions to Old-Age and Survivors Insurance (OASI) 
with a lower income cap, which allows for lower payment levels to 
wealthier retirees without making bend points more progressive.
      A VAT-like Net Business Receipts Tax (NBRT), essentially a 
subtraction VAT with additional tax expenditures for family support, 
health care and the private delivery of governmental services, to fund 
entitlement spending and replace income tax filing for most people 
(including people who file without paying), the corporate income tax, 
business tax filing through individual income taxes and the employer 
contribution to OASI, all payroll taxes for hospital insurance, 
disability insurance, unemployment insurance and survivors under age 
60.

U.S. firms of all ownership types face many challenges doe to the 
digital age. The most immediate of them is how sales taxes are 
collected across state lines. Technology is also the answer to that. 
Whatever the law is, it can be included in a simple digital application 
based on state of sale and/or state of origin. Of course, if a Value 
Added Tax is adopted federally with state participation, taxation will 
occur where the work occurs rather than at the sales destination, 
mooting the entire question. This would be true for our first bullet, a 
Value Added Tax and our fourth, the Net Business Receipts/Subtraction 
VAT.

There is a far more difficult question that business faces, one which 
tax policy can help. In the current information economy, there is 
pressure to hire the latest graduates who have the most recent 
programming training--even when older, more expensive, staff might be 
more productive overall, with better soft skills.

Older workers expect to be paid for their longevity and need to be paid 
for their larger families. The latter is harder to do, because firms 
that hire younger, childless workers can pay less money but offer a 
higher standard of living--at least in the short term. The free market 
in this instance is a failed market, because although larger families 
benefit society--both in terms of demand and for retirement savings, 
the incentives don't match up. In such cases, it is appropriate for the 
government to offer a Child Tax Credit that is even larger than the 
current credit. In our model, this would be paid as a wage as a credit 
against the NERT/Subtraction VAT. This shows that such a credit is not 
only for the poor, but could be a major part of middle class 
compensation.

The NERT/Subtraction VAT would fund the employer contribution to Social 
Security Old-Age and Survivors Insurance. We propose that the 
progressivity now found in the benefits calculation portion of the 
program be moved to the accumulation phase, with each worker receiving 
the same credit from the federal government, regardless of wage level. 
Further, a portion of that credit could be used to buy employer voting 
stock, or for cooperative firms, one share of voting stock and the 
remainder of preferred stock, preserving warm body voting. In either 
case, longevity compensation would be shifted to continued stock 
accumulation and dividend reinvestment or distribution, or a mix of the 
two. Suddenly, it makes no sense to fire workers who are still valuable 
because their direct expense is lower. Indeed, in a corporate model, 
the more experienced workers would be an asset and would vote their 
stock based on their experience level.

The employer contribution to Social Security OASI would remain a 
function of income, mostly because society would not tolerate rolling 
the entire program into the employer contribution, although that is 
also an option.

On the income tax front, one of the remaining deductions to the income 
and inheritance surtax would be sales of stock to a qualified ESOP. 
This could accelerate the movement to employee-ownership, with the 
longevity compensation scheme described above.

These solutions work in any firm, but they do the most good where the 
need for a new approach is most needed: the digital sector.

What is not needed are attempts to cut taxes on business or income to 
make capital more available. There is plenty of capital available now. 
It is not being used because demand is anemic. The last time we tried 
cutting capital gains tax rates to spur growth we got the tech bubble. 
People got capital for all sorts of projects for which there was no 
demand. Let us not repeat that mistake.

In the tech industry there exists the Computer-Aided Manufacturing--
International Multi-Attribute Decision (MAD) Model. The first element 
of the model is the market. Not the stock market, but the product 
market. Questions of the cost of capital are buried in Return on 
Investment figures and are of little importance.

If a committee staffer joined a tech firm and tried to push investments 
because of low tax rates, he would be fired as an ideologue and sent 
packing back to the committee. If, however, he could promise more 
spending in the tech industry by the government--or even more money for 
social programs, then he would go far in industry. Of course, if he 
could get a $15 minimum wage enacted (along with the measures suggested 
above), which would spur pent up demand by the working class, they 
might make him CEO.

Let's not make the same mistakes as the late 90s. Instead, give 
families what they need and business will succeed beyond our wildest 
dreams.

Thank you for this opportunity to share these ideas with the committee. 
As always, we are available to meet with members and staff or to 
provide direct testimony on any topic you wish.

                                 ______
                                 
                               eBay Inc.

                    1250 Eye Street, NW, Suite 1200

                          Washington, DC 20005

                STATEMENT FOR THE RECORD OF BRIAN BIERON

              Executive Director, Global Public Policy Lab

Chairman Hatch, Ranking Member Wyden, and members of the committee, I 
would like to thank you for giving eBay Inc. the opportunity to submit 
a statement for the record on this important topic.

eBay Inc. is a global commerce leader including the Marketplace, 
StubHub and Classifieds platforms. Collectively, we connect buyers and 
sellers around the world, empowering people and creating opportunity 
through Connected Commerce. Founded in 1995 in San Jose, CA, eBay is 
one of the world's largest and most vibrant marketplaces for 
discovering great value and unique selection.

In 2015, eBay enabled $82 billion of gross merchandise volume and 
today, 57% of our Marketplaces business is international. Our platforms 
enable hundreds of thousands of U.S. entrepreneurs, small businesses, 
as well as mid-size and large businesses, to reach customers around the 
world. We empower over 162 million buyers globally on our marketplaces 
with users in 190 countries. Our platform facilitates a new kind of a 
global trade that is truly beneficial for Main Street businesses across 
America.

eBay Inc. is an Internet and mobile technology-based business, but in 
the 21st century global economy, every business that operates 
internationally in any significant scale depends on access to, and 
transmission of, digital goods and services, including logistics, 
online services, distribution networks, finance and professional 
services. The Internet accounts for 21% of GDP growth in advanced 
economies and facilitates $8 trillion each year in e-commerce. The 
United States is the unquestioned world leader in Internet-enabled 
business, innovation and entrepreneurship. But data moving across 
borders is not just an Internet industry phenomenon; it impacts every 
business, including manufacturers, agricultural businesses, and 
financial services providers. McKinsey reports that 75% of the impact 
of the Internet is being realized by traditional industry.\1\ The U.S. 
International Trade Commission estimates that digital trade has already 
boosted U.S. gross domestic product by 3.4% to 4.8% through enhanced 
productivity and reduced international trade costs, and the effect on 
U.S. total employment ranged from no change to an increase of 2.4 
million full-time equivalents.\2\
---------------------------------------------------------------------------
    \1\ McKinsey Global Institute, ``Internet Matters: The Net's 
Sweeping Impact on Growth, Jobs, and Prosperity'' (May 2011), available 
at: http://www.mckinsey.com/insights/high_tech_
telecoms_internet/internet_matters.
    \2\ U.S. International Trade Commission, ``Digital Trade in the 
U.S. and Global Economies, Part 2,'' available at: http://
www.usitc.gov/publications/332/pub4485.pdf.

My team at eBay Inc. has spent the last 4 years conducting research on 
the growth of global trade by technology-enabled small businesses.\3\ 
In April 2016, we released the United States Small Online Business 
Growth Report \4\ which provides an in-depth look at trade and growth 
figures for eBay-enabled small businesses and entrepreneurs (annual 
sales of $10K or more) in all 50 states as well as the District of 
Columbia. The report also provides a state-by-state snapshot of the 
counties with the most eBay-enabled small business activity per capita.
---------------------------------------------------------------------------
    \3\ The full range of research can be found here: http://
www.ebaymainstreet.com/lab.
    \4\ Available at: http://www.ebaymainstreet.com/policy-papers/us-
small-online-business-growth-report.

The report findings reveal that nearly every eBay-enabled small 
business in each state is an exporter, and that eBay-enabled small 
businesses as a whole have been experiencing sales growth rates that 
exceed their state economy averages. The research also shows that 
active eBay-enabled small businesses emerge from communities 
nationwide, rural and urban alike. These findings further bolster the 
argument that the technology-enabled platform commerce model, which 
significantly reduces the cost of doing business over distances, is a 
highly inclusive model of trade. For example, our research revealed 
that 97% of eBay-enabled small businesses in the United States export. 
This figure dwarfs the export activity of traditional U.S. businesses, 
which stands at approximately 1% nationwide. Additionally, nationwide, 
eBay-enabled small businesses that export reach an average of 18 
---------------------------------------------------------------------------
foreign markets.

Alongside these impressive statistics, there are many excellent 
examples of small business success stories including:

      Mac Griffiths from South Jordan, UT, specializes in the sale of 
computer/
networking equipment and software. Mac left his full-time job in 2002 
to open an eBay store and today has an office and warehouse to run the 
business sand store inventory. His company employs five people and 
exports 25% of its sales.

      Kyle Resnick lives in Portland, OR, and sells lamination 
equipment and supplies. His father, Russ, started Oregon Laminations 
Company in 1984 and Kyle helped expand the business online following 
the 2008 recession. His eBay store has allowed the business to grow and 
reach international markets and Kyle now exports 10% of his products.

This trade activity represents a new model of SME exporting that has 
emerged in parallel to the SME ``Global Value Chain'' model where small 
enterprises engage in trade as a component of a giant commercial 
enterprise. We have coined the term ``Global Empowerment Network'' to 
describe this new model by which small businesses are able to create a 
storefront presence online and compete directly in global markets 
through e-commerce platforms with vibrant customer bases. The Global 
Empowerment Network combines a set of services and conditions enabling 
SMEs to transcend borders, reach customers on a global scale, and 
facilitate business transactions.

There are four key building blocks that fuel the Global Empowerment 
Network: (1) Connectivity to the global Internet at lost cost and 
without gatekeepers; (2) Global platform-based marketing, marketplace, 
and payment services; (3) Efficient, modern, and ``connected'' package-
level logistics and delivery services; and (4) Legal, regulatory, and 
public policy framework supporting direct SME-to-consumer global 
commerce.

The report also provides key recommendations for policy makers to drive 
even greater economic growth among small American businesses that use 
the Internet to export. These include:

      Increase low-value customs de minimis thresholds across the 
globe;
      Support the Trans-Pacific Partnership Agreement (TPP) and other 
efforts to modernize trade policy;
      Modernize postal systems to support small business digital 
trade;
      Promote the U.S. standard of intellectual property law in trade 
agreements;
      Ensure a free and open Internet;
      Explore flexible international regulatory cooperation solutions; 
and
      Provide coordinated export promotion assistance to Internet-
enabled SMEs.

The kind of cross-border trade being done by these, and hundreds of 
thousands of other ``micro-multinationals'' spread across America, is 
growing rapidly. Research from Progressive Economy finds that low-value 
or ``micro'' U.S. exports increased by 103% between 2005 and 2010, more 
than twice the increase for all exports.\5\ Moreover, the 2013 World 
Economic Forum (WEF) Enabling Trade report found that the use of 
technology platforms can reduce the burdens small businesses face when 
selling overseas, increasing cross-border small business sales by 60-
80%.\6\
---------------------------------------------------------------------------
    \5\ Gresser, Edward, ``Lines of Light: Data Flows as a Trade Policy 
Concept'' (2012).
    \6\ World Economic Forum, ``Enabling Trade'' (2013).

Of course, these unprecedented new Internet-enabled small business 
trade trends have created challenges for existing trade policy and 
enforcement mechanisms. As aptly identified by the committee, one 
---------------------------------------------------------------------------
challenge is the issue of counterfeit goods.

To be clear, counterfeits are not welcome on eBay. eBay's success as a 
business depends on a climate of confidence and trust. Counterfeit 
products can have a negative impact on brand owners, retailers and 
eBay's community of legitimate sellers who trade authentic goods on 
eBay every day. They also negatively impact the confidence and trust of 
many buyers. That is why we have spent close to 20 years building 
teams, policies and processes to protect buyers, sellers and third-
party brand owners. Those efforts include:

      The Verified Rights Owner Program (VeRO) is used by more than 
40,000 rights owners to quickly and easily report alleged intellectual 
property infringement, including counterfeits or copyright 
infringements.
      eBay's Money Back Guarantee applies in the rare case the buyer 
believes that they have purchased a counterfeit item.
      eBay has dedicated teams focused on ensuring we have the right 
technology and policies in place to tackle problematic goods, which 
includes tools and solutions that help detect patterns of fraudulent 
activity.
      eBay's Global Asset Protection team trains law enforcement and 
retail loss prevention officials about our services and how to partner 
with us to carry out investigations.

We are fully committed to identifying and eliminating counterfeit 
listings and continue to devote substantial human and technological 
resources, keeping sellers of counterfeit goods off our platform.

Finally, it is key to realize that when examining the challenges and 
opportunities for U.S. business in the digital age, our discussion is 
not merely about business or policy; it is about people. Globalization 
and trade are fundamental realities of the world in which we live. 
Unfortunately, a significant number of people have not yet been able to 
directly take part in the global marketplace because they own or work 
in businesses that have, traditionally, been too small or too remote. 
But now the Internet, and the global data-based businesses and 
platforms that underpin 21st-century commerce, are enabling small 
business and consumers, for the first time, to truly enjoy the benefits 
of direct participation in the global market.

We sit at the dawn of a new era of globalization that is far more 
inclusive than the one that preceded it--a future where millions of 
small businesses from across the United States can participate in their 
local economy and also increase revenue through access to customers 
around the world. This is good economics because it means more growth 
and wealth, and it is good for society because it means a more 
inclusive future. We need to make the right policy choices to achieve 
this future.

Chairman Hatch, Ranking Member Wyden, and members of the committee, we 
respectfully submit this statement for the record and pledge to work 
with you to ensure that U.S. small businesses and consumers can realize 
the true benefits from the Internet.

                                 ______
                                 
           International AntiCounterfeiting Coalition (IACC)

                      1730 M Street NW, Suite 1020

                          Washington, DC 20036

                             (202) 223-6667

                             [email protected]

                          http://www.iacc.org/

Chairman Hatch, Ranking Member Wyden, and members of the committee:

The International AntiCounterfeiting Coalition (``IACC'') is pleased to 
offer this written statement for the record on the issue of, 
``Challenges and Opportunities for U.S. Business in the Digital Age,'' 
and we thank you for examining this important topic during your recent 
hearing. We are available at your convenience to discuss any questions 
you might have regarding these comments, or to otherwise provide 
clarification of our submission.

With a membership composed of approximately 250 corporations, trade 
associations, and professional firms, and founded over 35 years ago, 
the International AntiCounterfeiting Coalition is one of the world's 
oldest and largest organizations representing exclusively the interests 
of companies concerned with trademark counterfeiting and the related 
theft of intellectual property. The members of the IACC represent a 
broad cross-section of industries, and include many of the world's 
best-known companies in the apparel and luxury goods, automotive, 
software, tobacco, electronics, consumer goods, entertainment, 
pharmaceutical, and other product sectors. The IACC is committed to 
working with government and industry partners in the United States and 
abroad to strengthen IP protection and enforcement, and to raise 
awareness regarding the range of harms caused by counterfeiting and 
piracy.

The comments provided herein focus on challenges faced by intellectual 
property owners with regard to three main areas of concern, each 
relevant to the committee's jurisdiction. The first of these is the 
evolution of sales and distribution models of counterfeit goods in the 
digital age, including the transition from a traditional multi-level 
distribution model associated with overseas production and ``brick-and-
mortar'' retail sales to the increasingly prevalent direct-to-consumer 
e-commerce model. Next, we examine continuing challenges facing rights-
holders in their efforts to work in a collaborative fashion with their 
public sector partners in enforcement, specifically with regard to the 
exchange of information regarding shipments of suspected counterfeits 
presented for entry at U.S. borders. Finally, we would like to draw 
attention to an ongoing program operated by CBP which, although well-
intentioned, is viewed by the IACC as detrimental to rights-holders' 
overall investigative and enforcement efforts.

Evolving Distribution Models

Historically, the distribution chains for counterfeit goods have 
largely mirrored those seen for legitimate commerce. Illicit imports 
have, until relatively recently, arrived to the U.S. market in large-
scale shipments via container vessels. It should not be surprising 
then, that a pronounced shift away from this traditional distribution 
model has been seen in recent years, correlating with the explosive 
growth of online commerce. The proliferation of websites and online 
marketplaces offering counterfeit goods directly to consumers has 
drastically altered the landscape, presenting significant challenges, 
not only to rights-holders, but to law enforcement and Customs 
officials, legitimate service providers whose services are exploited to 
facilitate the illegal activity, and to consumers. With this 
submission, we wish to highlight some of these challenges, and the 
efforts to address them being brought to bear by both the private and 
public sectors.

As rights-holders and others have begun to analyze the online 
trafficking of counterfeit goods, a great deal of attention has been 
placed on the so-called ``choke points'' in the online ecosystem. How 
do consumers find counterfeit goods online, and how do counterfeiters 
offer their illicit wares to consumers? How are the goods purchased and 
sold? What sort of infrastructure is essential to get the goods from 
the seller to the buyer? Each step in the distribution chain presents 
an opportunity for rights-holders and enforcement personnel to disrupt 
the counterfeiters' illegal businesses.

There are two primary ways in which consumers discover counterfeit 
goods online: search and advertising. Whether the consumers are 
actively seeking out counterfeit products, or as is often the case, 
simply seeking a deal on authentic goods, finding a site offering 
counterfeit products online is often as simple as going to one's 
preferred search engine and typing in the words, ``cheap [insert brand 
name].'' Counterfeiters often employ sophisticated search engine 
optimization strategies to ensure that their sites appear at, or near, 
the top of organic search results, and frequently invest in paid 
advertising that appears alongside organic results. Search providers, 
meanwhile, have typically been reluctant to engage in the wholesale 
removal or de-indexing of websites for a variety of reasons. And 
although direct links to infringing items or specific pages on a site 
may be removed, neutral search providers enjoy broad immunity from 
liability based on their inclusion in search results of sites dealing 
in illicit products. These reasons, coupled with the staggering number 
of sites online that offer counterfeit goods for sale, have greatly 
diminished the effectiveness (and rights-holders' reliance upon) notice 
and takedown procedures that have been a mainstay of online enforcement 
regimes for years.

Online sellers of counterfeits, just like legitimate online businesses, 
also rely on a variety of infrastructure providers, from domain 
registrars, Internet service providers, web hosting services, 
marketplace platforms, and others to maintain their presence online. 
Add into that mix the payment service providers, including credit card 
companies, and delivery services--whether express consignment or 
traditional mail providers--and there are a wide array of potential 
options available to rights-holders and enforcement agencies to bring 
pressure to bear on the counterfeiters. For several years now, the IACC 
has sought to actively engage with partners in these various sectors to 
develop effective and efficient ways to deter illicit online sales. Our 
RogueBlock \1\ and IACC MarketSafe \2\ programs offer examples of the 
positive impact that such collaboration can have.
---------------------------------------------------------------------------
    \1\ http://www.iacc.org/online-initiatives/rogueblock.
    \2\ http://www.iacc.org/online-initiatives/marketsafe.

The IACC launched its RogueBlock program in January 2012, as a means 
to providing a streamlined, simplified procedure by which rights-
holders could report online sellers of counterfeit or pirated goods 
directly to participating credit card and payment processing network 
partners. This effectively facilitated action against the merchant 
accounts associated with those sites, and diminished the ability of 
individuals to profit from their illicit sales. The program has seen 
great success, and significant expansion over the past 3 years, and has 
been viewed as a ``win-win'' for all of the parties involved. Rights-
holders are able to provide timely, relevant intelligence, and in the 
process aid financial service providers in policing bad actors who seek 
---------------------------------------------------------------------------
to misuse legitimate commercial tools for illegitimate purposes.

Our goals upon commencing the RogueBlock program were: (1) to increase 
the cost of doing business for, and decrease profits to, the 
counterfeiters; (2) to shrink the universe of third-party acquiring 
banks willing to do business with rogue merchants; (3) to facilitate an 
efficient use of resources by both IP owners and our partners by 
sharing relevant data and avoiding the duplication of efforts; and (4) 
to disrupt and dismantle counterfeit networks. By any measure, we are 
achieving those goals. Equally important, the strong partnerships we've 
developed in the financial sector are enabling us to continue 
enhancing, expanding, and evolving to face new challenges in the online 
space. To date, our collaborative efforts with the payment sector have 
resulted in the termination of over 5,000 merchant accounts in 
connection with the illegal sale of counterfeit goods online. By 
conservative estimates, upwards of 200,000 websites have been deprived 
of the means to accept payment for their illegal products.

In a similar vein, the IACC has worked closely with the Alibaba Group 
to address the trafficking of counterfeit goods on two of the world's 
largest online marketplaces--Taobao and Tmall. Since that program began 
operating in 2014, we have succeeded in removing over 200,000 listings 
for counterfeit goods from those marketplaces, and more than 5,500 
sellers of illicit goods have been permanently banned from the 
platforms. We recently announced the forthcoming expansion of the 
program, through which our system will be made available to rights-
holders at no cost.

These existing programs target two of the previously mentioned choke 
points in the modern distribution chain--the online ``storefront'' 
where items are displayed to potential buyers, and the point of sale. 
We will continue to work with those partners, and with other industry 
sectors, to further impact this illicit trade. During the past year, we 
have had some positive discussions with the express shipping industry, 
which we believe can play a vital role in addressing these problems, 
and we're hopeful that we will find similar success to that seen in our 
other partnerships.

Information Disclosure and Exchange

Historically, the owners of intellectual property rights have provided 
invaluable assistance to those CBP personnel tasked with the 
enforcement of IPR at our nation's borders. This assistance has been 
necessitated by a number of factors, including the overall volume of 
imports passing through U.S. ports, the variety of goods presented to 
CBP for inspection, and more recently, the increasing ability of 
counterfeiters to manufacture near-perfect copies of products and 
packaging. These, and other factors, have contributed to the difficulty 
faced by CBP in determining whether those goods before them were 
genuine or counterfeit. Customs officials cannot, and should not, be 
expected to maintain, across countless brands and products, the 
expertise required to make such determinations with the level of 
efficiency and accuracy necessary to achieve the agency's twin goals of 
trade facilitation and IPR enforcement. The recognition of that fact is 
what drove CBP's and rights-holders' traditional collaboration.

On April 7, 2000, U.S. Customs published Customs Directive 2310-008A 
\3\ (hereafter, ``the Directive''), advising personnel that the 
disclosure to rights-holders of certain information regarding 
shipments, prior to seizure of those goods, was impermissible, even 
when a disclosure was made for the limited purpose of obtaining 
assistance to determine whether the goods were genuine or counterfeit. 
Specifically, the Directive required CBP officers to ``remove or 
obliterate any information indicating the name and/or address of the 
manufacturer, exporter, and/or importer, including all bar codes or 
other identifying marks,'' prior to the release of any sample to a 
trademark holder. Though issued in 2000, by most reports, the 
Directive, and the procedures prescribed thereby, were not fully 
implemented until 2007-2008. The IACC, in fact, heard relatively few 
reports from rights-holders of any change in practice until 2006-2007. 
Once implemented however, the Directive posed a severe impediment to 
the public private cooperation that, previously, had been the norm.
---------------------------------------------------------------------------
    \3\ U.S. Customs and Border Protection--Customs Directive 2310-
008A, http://www.cbp.gov/sites/default/files/documents/2310-008a.pdf.

The basis for CBP's change in policy appears to be tied to an overly-
formalistic reading of the relevant regulatory code sections related to 
the sharing of information regarding, and samples of, suspect 
shipments, and a similar, overly literal interpretation of the Trade 
Secrets Act (18 U.S.C. 1905 (``the Trade Secrets Act'')). The apparent 
conflict, as seen by CBP, was between CBP officers' authority to seek 
assistance by providing a physical sample, or a digital image of those 
goods, to a trademark owner from the date the goods were presented for 
inspection, and the timing authorized for the disclosure of other 
information related to the shipment.\4\ While rights-holders typically 
incorporate a variety of technologies to assist in the authentication 
of their legitimate goods, CBP believed that, if those technologies or 
other information evident on the goods or their packaging revealed to 
the trademark owner any information that would otherwise only be made 
available post-seizure, then any such markings must be removed or 
redacted before providing the samples to the rights-holder. Likewise, 
if the provision of a sample, or photographic images of the goods in 
question, might reveal confidential or proprietary information 
purportedly belonging to the importer, then such a disclosure would 
violate the Trade Secrets Acts,\5\ and in turn expose CBP officers to 
criminal prosecution.\6\
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    \4\ At that time, the relevant code section, 19 CFR 133.25(b), 
permitted the disclosure of: the date of importation, the port of 
entry, a description of the merchandise, the quantity involved, and the 
country of origin of the merchandise, from the time the goods were 
presented to Customs for inspection. However, 19 CFR 133.21(c), 
authorized the disclosure of the identity of the manufacturer, 
exporter, and importer, only after a seizure had been made.
    \5\ 18 U.S.C. 1905.
    \6\ The Trade Secrets Act prohibits any disclosure, not authorized 
by law, of a broad range of information a government employee obtains 
or has access to in his or her official capacity.

The IACC expects that the committee is intimately familiar with these 
issues, as they've been addressed by Congress twice during the past 5 
years. It was first addressed by language included in Section 818(g)(1) 
of the National Defense Authorization Act of Fiscal Year 2012 
(``NDAA'').\7\ Despite that explicit authorization, CBP published an 
Interim Rule in April of 2012, creating what rights-holders viewed as 
an arduous and inefficient process requiring CBP personnel who were 
seeking assistance in determining whether or not goods were 
counterfeit, to first seek that assistance from the importer. As 
drafted, the Interim Rule included a procedure ``intended to achieve 
the policy goals of the NDAA in a manner consistent with maintaining 
the flow of information to the government, fostering competition, 
keeping prices low, and maintaining consumer choice.'' The rule 
required CBP to provide the importer of goods suspected of being 
counterfeit with an opportunity to demonstrate, within 7 days 
(exclusive of weekends and holidays) of the issuance of a notice of 
detention, that the goods in question did not bear a counterfeit mark. 
``Only absent such a demonstration by the importer will information, 
images, or samples be shared with the right-holder.'' The IACC outlined 
its numerous concerns with the adoption of the Interim Rule in its 
submission to CBP and the Treasury Department, dated June 25, 2012.\8\
---------------------------------------------------------------------------
    \7\ National Defense Authorization Act for Fiscal Year 2012, 
Section 818(g)(1), stating, ``IN GENERAL.--If United States Customs and 
Border Protection suspects a product of being imported in violation of 
section 42 of the Lanham Act, and subject to any applicable bonding 
requirements, the Secretary of the Treasury may share information 
appearing on, and unredacted samples of, products and their packaging 
and labels, or photographs of such products, packaging, and labels, 
with the right holders of the trademarks suspected of being copied or 
simulated for purposes of determining whether the products are 
prohibited from importation pursuant to such section.''
    \8\ http://www.iacc.org/downloads/key-issues/
Submitted_Comments_re_Disclosure_of_Informat
ion_for_Certain_IPR_at_the_Border.pdf.

In September of 2015, over 3 years after the publication of the Interim 
Rule, CBP published a Federal Register Notice,\9\ amending and 
finalizing the Interim Rule regarding the ``Disclosure of Information 
for Certain Intellectual Property Rights Enforced at the Border.'' 
Among the most relevant changes embodied in the Final Rule, as adopted, 
were:
---------------------------------------------------------------------------
    \9\ Disclosure of Information for Certain Intellectual Property 
Rights Enforced at the Border, 80 Fed. Reg. 56370 (September 18, 2015).

      The elimination of the optional 30-day extension period for 
detention of goods (19 CFR 133.21(b)(1));
      Acknowledgement of CBP's authority to seek assistance from the 
owner of a mark at any time after the presentation of goods for 
examination (19 CFR 133.21(b)(2)(i)(A);
      Concurrent provision of limited importation information (19 CFR 
133.21(b)(2)(i)(B)); and
      Disclosure/Provision of Redacted and Unredacted Photos or 
Samples (19 CFR 133.21(b)(3) and (b)(5)).

The Final Rule, as amended, though a significant improvement over the 
Interim Rule, remained substantially unchanged with regard to CBP's 
position on the disclosure of unredacted images or samples to rights-
holders. Under the adopted rule, such disclosure would only take place 
in the event that the importer either failed to respond in a timely 
manner, or provided CBP with insufficient proof that the goods in 
question are authentic. CBP maintained its authority to provide 
redacted samples or images of the merchandise and its packaging, at any 
time after it has been presented for examination.

CBP further maintained that its disclosure of unredacted photos or 
samples and the information provided to a mark owner under the 
regulation may be subject to the Trade Secrets Act, and that the 
information was provided only for the purpose of assisting CBP in 
determining whether the merchandise had a counterfeit mark. The IACC 
strenuously objected to CBP's and Treasury's interpretation of the 
Trade Secrets Act, and its purported prohibition on the agency's 
sharing of information with rights-holders. While such disclosure might 
reasonably be said to be prohibited in the absence of statutory 
authorization, the NDAA expressly provided that authority.

The issue was revisited by Congress with the recent enactment of the 
Trade Facilitation and Trade Enforcement Act. Section 302 of that 
legislation superseded the provisions of the NDAA (which were subject 
to a sunset clause triggered by the Trade Facilitation bill's 
enactment), and further clarified CBP's authority to share information 
with affected trademark and copyright owners, again providing explicit 
statutory authority overriding the Trade Secrets Act's general 
prohibition. It is also worth noting that the Trade Facilitation and 
Trade Enforcement Act provides no similar grant of authority or 
direction to share information with any other party, including the 
importer of the goods. We are currently awaiting further rulemaking 
actions by the Department of Homeland Security and the Department of 
Treasury to implement these provisions, and would encourage close 
oversight by the committee to ensure that the will of Congress is 
properly expressed in that implementation.

CBP Pilot Program--Abandonment of Infringing Goods

In the summer of 2015, the IACC became aware of a pilot program being 
operated by U.S. Customs and Border Protection in collaboration with 
the express shipping industry (the ``Abandonment Program'' or ``Pilot 
Program''). The genesis of the Abandonment Program was a recommendation 
of CBP's Commercial Operations Advisory Committee (COAC) Trade 
Enforcement and Revenue Collection Subcommittee.\10\ Specifically, the 
COAC recommended that CBP collaborate ``with its express consignment 
stakeholders to develop a simplified and mutually beneficial IPR 
enforcement process in the express consignment environment through 
which CBP would offer the importer and the U.S. consignee an 
abandonment option on detention notices for shipments detained by CBP 
on suspicion of trademark or copyright violations.'' At the May 22, 
2014 public meeting of the COAC, a status report was presented by the 
Office of Trade Relations Trade Enforcement and Revenue Collection 
Subcommittee, referencing the ``Simplified Seizure Process'' on May 15, 
2014. That report highlighted provisions of the express carriers' terms 
of agreement which permit the abandonment of suspect goods, and 
suggesting the voluntary process as a means of increasing CBP's 
efficiency in handling small consignments, while ``providing all 
parties of interest with their legal due process.'' \11\ Regrettably, 
as discussed herein, the development of this initiative took place with 
minimal input from rights-holders, and the program, as implemented, 
fails to take into account the interests and legal rights of 
intellectual property owners specifically provided for in the relevant 
statutory and regulatory provisions.
---------------------------------------------------------------------------
    \10\ FY 2013-FY 2015 COAC RECOMMENDATIONS, Term 13, Recommendation 
Number 13047, May 22, 2014. Available at: http://www.cbp.gov/sites/
default/files/documents/COAC%20Recommendations%2013th%20Term.pdf.
    \11\ Office of Trade Relations Trade Enforcement and Revenue 
Collection Subcommittee Status Report, May 22, 2014. Available at: 
http://www.cbp.gov/sites/default/files/documents/Trade%
20Enforcement%2oand%20Revenue%20Collection%20Subcommittee%20Status%20Rep
ort.pdf.

Under the Abandonment Program, CBP personnel working in express 
shipping facilities around the United States target shipments for 
suspected IP violations. If, upon inspection, the goods are believed to 
violate an IP right,\12\ CBP provides notice of the suspected violation 
to the express shipping company (as the importer of record). The 
shipping company then forwards that notice to the ultimate consignee 
(i.e., the individual to whom the package was to be delivered), and the 
ultimate consignee is given the option of abandoning the goods, or 
contesting that the importation of the goods violates an IP right. If 
CBP's determination is contested, then Customs' personnel follow the 
standard detention, seizure, and forfeiture process. If the consignee 
abandons the goods, or fails to respond to the notice, the goods are 
destroyed under Customs' supervision, at the expense of the 
participating express shipping company. CBP has lauded the results of 
the Pilot Program, citing the cost and time savings involved in 
comparison with the formal detention and seizure process set forth in 
Customs' regulations. And while rights-holders support the underlying 
goal of increasing CBP's capacity to remove these harmful products from 
the supply chain, the IACC has expressed serious concerns with the way 
in which CBP is achieving this increased efficiency. Namely, the 
Abandonment Program foregoes the reporting requirements mandated under 
existing regulations, depriving affected rights-holders of valuable 
information that would traditionally be supplied via detention and 
seizure notices. Such information is vital to rights-holders (and in 
turn, to law enforcement) in developing the intelligence necessary to 
build criminal and civil cases. However, CBP has indicated that, 
pursuant to the Pilot Program, they've included no process whatsoever 
to retain the relevant information about the abandoned shipments--date 
of importation, port of entry, the registered marks involved, the 
quantity or value of the goods involved, etc.--or to report such data 
to the affected rights-holders. CBP's determination that it is not 
required to provide notice to rights holders under the Pilot Program, 
as it is mandated to under the traditional model, is also greatly 
troubling--particularly in light of the above-discussed issues related 
to pre- and post-seizure disclosure of information. While the 
Abandonment Program creates efficiencies by easing CBP's administrative 
burden, it does so by cutting off a key enforcement tool.
---------------------------------------------------------------------------
    \12\ CBP has also established threshold requirements which a 
shipment must meet to qualify for the Abandonment Program. Among these 
are that the declared value of the goods must not exceed $2500, the 
trademarks at issue must be recorded with CBP, and the goods must not 
fall into a restricted category (e.g., the goods in question should not 
present a health and safety risk or a national security concern).

A final concern of the IACC is the way in which this program was 
initiated, and continues to operate. Outside of the COAC forum, we are 
aware of no public announcement of the program prior to its initiation, 
and no Federal Register notice or opportunity for public comment. 
Though it has consistently been characterized as a ``pilot program,'' 
the Abandonment Program has continued uninterrupted for more than a 
year, and to our knowledge, CBP has no plans for concluding the 
program, or even suspending it, in order to conduct a formal analysis 
of its effectiveness. Accordingly, we would again ask the committee to 
---------------------------------------------------------------------------
monitor this issue, and provide oversight as appropriate.

On behalf of the IACC, I thank you for your consideration of these 
comments, and I would welcome the opportunity to discuss these matters 
further with the committee.

Respectfully submitted,

Travis D. Johnson
Vice President--Legislative Affairs, Senior Counsel

                                 ______
                                 
                        The Internet Association

                  1333 H Street, NW, 12th Floor, West

                          Washington, DC 20005

                    https://internetassociation.org/

    Statement for the Record of Michael Beckerman, President and CEO

Chairman Hatch, Ranking Member Wyden, and members of the Senate Finance 
Committee, thank you for the opportunity to provide a statement for the 
record on the ``Challenges and Opportunities for U.S. Business in the 
Digital Age.''

The Internet Association represents nearly 40 of the world's leading 
Internet companies.\1\ Our mission is to foster innovation, promote 
economic growth, and empower people through the free and open Internet. 
As the voice of the world's leading Internet companies, our job is to 
ensure that all stakeholders understand the benefits the Internet 
brings to our economy. Internet platforms are a global driver of the 
innovation economy, with the Internet sector representing an estimated 
6 percent of U.S. GDP in 2014, accounting for nearly 3 million American 
jobs. In addition to the economic contribution of the Internet 
industry, the Internet Association's member companies are transforming 
the way we do business at home and abroad by providing unprecedented 
growth opportunities for U.S. businesses and entrepreneurs.
---------------------------------------------------------------------------
    \1\ The Internet Association's members include Airbnb, Amazon, 
Coinbase, DoorDash, Dropbox, eBay, Etsy, Expedia, Facebook, FanDuel, 
Google, Groupon, Handy, IAC, Intuit, LinkedIn, Lyft, Monster Worldwide, 
Netflix, Pandora, PayPal, Pinterest, Practice Fusion, Rackspace, 
reddit, Salesforce.com, Snapchat, Spotify, SurveyMonkey, Ten-X, 
TransferWise, TripAdvisor, Turo, Twitter, Uber Technologies, Inc., 
Yahoo!, Yelp, Zenefits, and Zynga.

Cross-border trade is no longer defined by shipping containers and 
freight lines. Buyers and sellers from around the globe are now 
connected instantaneously. Small businesses and entrepreneurs are 
harnessing the power of the Internet to reach new markets, connect with 
new customers, and increase their productivity. The Internet is also 
having a dramatic impact outside the Internet industry. A recent study 
found that more than 75 percent of the economic value created by the 
Internet is captured by companies in traditional industries, many of 
them small businesses.\2\ Internet platforms are introducing 
international audiences to American musicians, writers, and directors 
through services like Spotify and Netflix, promoting small hospitality 
providers through TripAdvisor and Yelp, and are revolutionizing how 
entrepreneurs source materials and supply their customers through 
Amazon. Frictions in international marketing are also alleviated by 
platforms like eBay that make sellers' products fully searchable, and 
mediums like Facebook Live that give entrepreneurs the ability to 
showcase their products to a global audience in real time.
---------------------------------------------------------------------------
    \2\ McKinsey Global Institute, ``Internet matters: The Net's 
sweeping impact on growth, jobs, and prosperity,'' May 2011 (http://
www.mckinsey.com/industries/high-tech/our-insights/internet-matters).

Internet platforms are vectors for growth for the rest of our economy. 
Businesses of all sizes are embracing Internet platforms to effectively 
and efficiently sell their goods and services. As Internet Association 
member companies continue to drive innovation, our industry is 
creating, promoting, and disseminating platforms that encourage lawful 
access to information and content. While cooperation, enforcement, and 
education are helping minimize illegal activities, our members are 
taking the lead in proactively addressing intellectual property theft 
---------------------------------------------------------------------------
and the sale of counterfeit items through their platforms.

For example, more than 40,000 rights owners are able to quickly and 
easily report instances of alleged intellectual property infringement 
through eBay's Verified Rights Owner (VeRO) program. Reports of alleged 
intellectual property theft are promptly investigated and any unlawful 
activity can be reported to the eBay customer support team via links. 
Etsy is also making intellectual property infringement a priority. 
User-friendly tools allow rights holders to submit notices of 
intellectual property infringement and, upon receipt of the notice, 
Etsy's legal team personally reviews each case and directs sellers to 
educational resources available on their platform. Under Amazon's Anti-
Counterfeiting Policy, sellers' accounts are suspended or terminated 
immediately for engaging in the sale of counterfeit goods. Amazon has 
the ability to destroy counterfeit inventory in fulfillment centers 
without reimbursement and can withhold any remittances or payments owed 
to the seller. Additionally, search engines like Google and Yahoo! 
continuously remove content from their services when rights holders or 
reporting organizations submit requests that infringing activities are 
occurring.

We welcome comments made by Bruce Foucart, Assistant Director, United 
States National Intellectual Property Rights Coordination Center, in 
his testimony that highlighted some of the ``ways [they] are 
effectively working with online industry'' to help minimize infringing 
activities and educate consumers on the risks of purchasing 
counterfeits. Our industry looks forward to continuing this meaningful 
partnership, but respectfully disagrees with Mr. Foucart's assessment 
that policy changes are needed to ``hold [the Internet industry's] feet 
to the fire'' in combating intellectual property theft. In the United 
States, rights holders and consumers already rely on a balanced and 
well-functioning system of intellectual property protections. The 
Internet Association believes efforts to combat theft are best directed 
toward ensuring U.S. trading partners are adopting policies that 
reflect our domestic approach.

As the Committee on Finance continues to evaluate opportunities and 
challenges for U.S. businesses, the Internet Association urges Congress 
and the executive branch to continue promoting innovation-friendly, 
balanced intellectual property protections through trade agreements. 
The United States Trade Representative has incorporated elements of the 
Digital Millennium Copyright Act into trade agreements since 2004 and, 
for the first time, the Trans-Pacific Partnership acknowledged the full 
balance of U.S. copyright law--requiring countries to adopt innovation-
critical limitations and exceptions, as well as safe harbors, in order 
to protect the basic functionality of the Internet, social media, and 
online platforms. Encouraging U.S. trading partners to adopt and 
implement these critical protections in trade agreements will help 
provide important safeguards for rights holders, Internet platforms, 
and consumers alike.

Thank you again for the opportunity to provide comments on behalf of 
our member companies. The Internet Association looks forward to 
continuing to engage with you on these matters in the future.

                                 ______
                                 
                          Venus Fashion, Inc.

                        11711 Marco Beach Drive

                      Jacksonville, FL 32224-7615

        Submitted Testimony for the Record of Jim Brewster, CEO

Chairman Hatch, Ranking Member Wyden, and members of the committee, 
thank you for allowing me to share my experience with some of the 
challenges facing companies like Venus in the global marketplace during 
this ever increasing digital age.

My name is Jim Brewster, and I am the Chief Executive Officer of Venus 
Fashion, Inc. Venus is a true American success story that was started 
in the college dorm room of company founder, Daryle Scott. What began 
as a company manufacturing competition suits for body builders has 
grown into a highly successful company based in Jacksonville, FL that 
designs and manufactures swimwear and fashion clothing for women. Every 
order for the business flows into Jacksonville and every customer's 
order is shipped out of our Jacksonville warehouse and distribution 
center. In addition, Venus's marketing, swim design, call center and 
administrative offices are located in Florida and we handle swim 
manufacturing via an affiliated company at the same location.

Venus is a catalog and Internet based company. The digital age has 
created outstanding opportunities for companies like ours as we are 
able to reach a much larger number of customers online. As proof of the 
opportunities created, over the past 7 years, the number of employees 
at Venus has grown from less than 200 to over 700 today to support the 
elevenfold increase in sales. As customers' purchasing habits continue 
to evolve to more reliance on shopping online, companies like ours are 
well-positioned to take advantage of this evolution.

However, our ability to fully realize these opportunities is threatened 
by a number of serious challenges facing Venus in the new digital age. 
In fact, these challenges are so severe they don't just threaten our 
ability to grow, they actually threaten the competitiveness and 
sustainability of Venus and likely all American clothing companies. If 
we do not address these issues, it will become increasingly difficult 
for companies like ours to have any presence in the United States.

Starting in 2014, Venus began to find our copyrighted photographs and 
copies of our products on Chinese websites and other digital 
advertising outlets. These Chinese companies steal the copyrighted 
photographs of some of our best selling products and advertise the 
``same'' item at a deep discount to unsuspecting American consumers. In 
some cases the photographs are identical to those on the Venus website 
and in other cases these Chinese companies might take the extra step to 
crop-off the head of the model, photo-shop the product to a different 
color or simply mirror the photo. Online shoppers see the identical 
photograph for the similar product sold on the Venus website advertised 
for a fraction of the cost on Chinese websites like Twinkledeals and 
Rosegal, as well as in their social media feeds and search engines.

Since the pictures are the same, customers often believe they are 
purchasing the same product sold by Venus at a discount directly from a 
Chinese retailer. We regularly see posts on the Venus social media 
websites where customers comment about how you can buy the same swim 
suit or dress on one of these Chinese websites for significantly less 
than the price of the item on our Venus site. Along the same lines, a 
number of customers also express frustration after placing an order 
about seeing the ``exact same product'' being sold for a fraction of 
the cost on a different website.

The reality of the situation is that the only thing that is the same 
about the product is the picture the customer sees online. When the 
customer receives the item from the Chinese retailer, they are nothing 
like the pictures they saw in the online advertisement. The clothing 
items are usually made of inferior materials, cheaply stitched and 
often arrive in sizes so small they would barely fit a child. Customer 
service is non-existent and the American buyer has no option for 
returning the product or getting a refund. These false and misleading 
advertisements using our stolen images result in consumers receiving 
merchandise far below the quality they are expecting, pulling sales 
away from Venus and greatly damaging Venus's brand. Although these 
disappointed customers are unlikely to order from these Chinese 
companies again, many customers also vow never to buy from Venus again 
because they were misled to believe that Venus sells the same poor 
quality products. As a result of the stolen photos and deceptive 
advertising, our company misses out on both the initial transaction and 
any future transaction from an individual who was clearly interested in 
purchasing our products.

Venus has engaged in the long and drawn out process of protecting our 
intellectual property, but with very limited success. In February of 
2014, Venus filed a complaint against the website dressvenus.com, who 
was infringing on both our trademarked name and our copyrighted photos. 
Twenty months after filing the complaint, a liable company was finally 
tracked down in China and Venus prevailed. The liable company, Tidebuy, 
was prohibited from using Venus marks in any avenue of commerce or 
social media. The dressvenus.com domain name and social media listings 
were transferred to Venus. It was a long, frustrating process, but we 
were pleased with the outcome. That is, until 6 months later when the 
website changed to dressve.com and Venus photos appeared all over the 
new site. Once again, Venus has to retain counsel and send a cease and 
desist letter. The site is presently down, but we continue to see 
``Dress Venus'' on FaceBook and Pinterest feeds.

The experience has been similar when Venus has been successful in 
getting a stolen image removed from a website. Although the copyrighted 
image may be removed from a specific website, online shoppers continue 
to see a constant stream of the photo in deceptive advertisements on 
their social media feeds and search engines. For every image we are 
successful in getting taken down, countless new stolen images of our 
products appear in its place. It feels as though we are engaged in an 
endless game of ``whack-a-mole'' that we cannot win. In just the last 
few months, Venus has identified at least 25 different websites that 
used our copyrighted photography to sell poorly manufactured copies of 
Venus products.

Recent changes that increased the value of merchandise that can be 
shipped to the United States tax and duty free from $200 to $800 gives 
another advantage to Chinese sellers over companies like Venus. While 
the Trade Facilitation and Trade Enforcement Act approved by Congress 
and signed into law earlier this year provides tools to U.S. Customs 
and Border Protection to strengthen trade enforcement at the border, 
the new limits make it easier for online companies in China to ship 
their cheap clothing rip-offs directly to American homes. The same 
companies who steal our intellectual property are able to avoid paying 
taxes or duties on larger quantities of the goods they ship directly to 
American consumers.

To give you an idea of the type of advantage this creates, Venus 
imports many finished clothing items in bulk. At least 10 percent of 
the price of these clothing products can be directly attributed to the 
amount of duties and taxes we pay associated with these shipments. Our 
shipments are subject to taxes and duties and undergo rigorous 
screening at the border while our Chinese online competitors ship 
single packages to customers and avoid scrutiny and duties entirely. My 
Board of Directors regularly asks me why we choose to remain in Florida 
rather than relocate our distribution center to Mexico and ship 
directly to Venus customers from there. I remind them that Venus is a 
proud Florida company with immense loyalty to our company's roots in 
the local Jacksonville community. However, as the playing field 
continues to slant against us, our competitiveness and sustainability 
is at stake and one day we could be forced to reevaluate our large 
presence in the United States.

I would like to thank the Committee for holding a hearing on this 
important subject and for giving me the opportunity to bring attention 
to the challenges facing companies like Venus in the digital age. I 
welcome the chance to work with you and other policy leaders to find 
solutions that will protect American consumers and allow American 
companies to compete on a level playing field.

                               [all]
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