Testimony 

Before the Committee on Homeland Security and 

Government Affairs, Subcommittee on Oversight of 

Government Management, the Federal Workforce, 

and the District of Columbia, United States Senate 

United States Government Accountability Office

GAO

For Release on Delivery 

Expected at 10:00 a.m. EDT 

Tuesday, June 14, 2005 INTELLECTUAL 

PROPERTY 

U.S. Efforts have 

Contributed to 

Strengthened Laws 

Overseas, but Significant 

Enforcement Challenges 

Remain 

Statement of Loren Yager, Director 

International Affairs and Trade 

GAO-05-788T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-788T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Loren Yager at 

(202) 512-4128 or yagerl@gao.gov. 

Highlights of GAO-05-788T, testimony 

before the Subcommittee on Oversight of 

Government Management, the Federal 

Workforce, and the District of Columbia, 

Committee on Homeland Security and 

Government Affairs, United States Senate 

June 14, 2005

INTELLECTUAL PROPERTY 

U.S. Efforts Have Contributed to 

Strengthened Laws Overseas, but 

Significant Enforcement Challenges 

Remain 

U.S. agencies undertake policy initiatives, training and assistance activities, 

and law enforcement actions in an effort to improve protection of U.S. 

intellectual property abroad. Policy initiatives include identifying countries 

with the most significant problems—an annual interagency process known 

as the “Special 301” review. In addition, many agencies engage in assistance 

activities, such as providing training for foreign officials. Finally, a small 

number of agencies carry out law enforcement actions, such as criminal 

investigations and seizures of counterfeit merchandise. 

Agencies use several mechanisms to coordinate their efforts, although the 

mechanisms’ usefulness varies. The National Intellectual Property Law 

Enforcement Coordination Council, established in 1999 to coordinate 

domestic and international intellectual property law enforcement, has 

struggled to find a clear mission, has undertaken few activities, and is 

generally viewed as having little impact despite recent congressional action 

to strengthen the council. The Congress’s action included establishing the 

role of Coordinator, but the position has not yet been filled (although the 

selection process is underway). The Administration’s October 2004 Strategy 

Targeting Organized Piracy (STOP!) is intended to strengthen U.S. efforts to 

combat piracy and counterfeiting. Thus far, the initiative has resulted in 

some new actions and emphasized other ongoing efforts. 

U.S. efforts have contributed to strengthened intellectual property legislation 

overseas, but enforcement in many countries remains weak, and further U.S. 

efforts face significant challenges. For example, competing U.S. policy 

objectives such as national security interests take precedence over 

protecting intellectual property in certain regions. Further, other countries’ 

domestic policy objectives can affect their “political will” to address U.S. 

concerns. Finally, many economic factors, as well as the involvement of 

organized crime, hinder U.S. and foreign governments’ efforts to protect U.S. 

intellectual property abroad. 

Pirated DVDs from Brazil, China, and Ukraine 

Source: GAO.

Although the U.S. government 

provides broad protection for 

intellectual property domestically, 

intellectual property protection in 

parts of the world is inadequate. 

As a result, U.S. goods are subject 

to piracy and counterfeiting in 

many countries. A number of U.S. 

agencies are engaged in efforts to 

improve protection of U.S. 

intellectual property abroad. This 

testimony, based on a prior GAO 

report as well as recent work, 

describes U.S. agencies’ efforts, the 

mechanisms used to coordinate 

these efforts, and the impact of 

these efforts and the challenges 

they face. 

What GAO Recommends

GAO is not recommending 

executive action. 
Page 1 GAO-05-788T 

Mr. Chairman and Members of the Subcommittee: 

Thank you for the opportunity to discuss our work on U.S. efforts to 

protect U.S. intellectual property rights (IPR) overseas. As you know, the 

United States dominates the creation and export of intellectual property—

creations of the mind. The U.S. government provides broad protection for 

intellectual property through means such as copyrights, patents, and 

trademarks. However, protection of intellectual property in many parts of 

the world is inadequate. As a result, U.S. goods are subject to substantial 

counterfeiting and piracy in many countries. 

The U.S. government, through numerous agencies, is seeking better 

intellectual property protection overseas. To understand more fully how 

U.S. agencies have performed in this regard, we have examined several 

issues. This testimony addresses (1) the specific efforts of U.S. agencies to 

improve intellectual property protection in other nations, (2) the means 

used to coordinate these efforts, and (3) challenges facing enforcement 

efforts abroad. In addition, this testimony, based on our September 2004 

report addressing these topics,1

 provides an update on key IPR-related 

events since that time—an administration initiative referred to as the 

Strategy Targeting Organized Piracy, or STOP!; a report prepared by a 

Department of Justice intellectual property task force,2

 and congressional 

action concerning an interagency intellectual property law enforcement 

council. 

To address these issues, we analyzed key U.S. government reports and 

documents from eight federal agencies and two offices. In addition to 

meeting with federal officials, we met with officials from key intellectual 

property industry groups and reviewed reports they had prepared. We also 

conducted field work in four countries where serious problems regarding 

the protection of intellectual property have been reported (Brazil, China, 

Russia, and Ukraine) and met with U.S. embassy and foreign government 

officials as well as representatives of U.S. companies and industry groups 

operating in those countries. We conducted this work from June 2003 

through July 2004. We subsequently updated our work in May and June of 

2005 by meeting with key government officials and industry groups 

 1

GAO, Intellectual Property: U.S. Efforts Have Contributed to Strengthened Laws 

Overseas, but Challenges Remain, GAO-04-912 (Washington, D.C.: Sept. 8, 2004). 

2

Report of the Department of Justice’s Task Force on Intellectual Property, Office of the 

Attorney General, U.S. Department of Justice, October 2004. 
Page 2 GAO-05-788T 

involved in recent U.S. government efforts. All work was conducted in 

accordance with generally accepted government auditing standards. 

U.S. agencies’ efforts to improve protection of U.S. intellectual property in 

foreign nations fall into three categories—policy initiatives, training and 

assistance activities, and law enforcement actions. The Office of the U.S. 

Trade Representative (USTR) leads U.S. policy initiatives with an annual 

assessment known as the “Special 301” review, which results in an annual 

report detailing global intellectual property challenges and identifying 

countries with the most significant problems. This report involves input 

from many U.S. agencies and industry. In addition to conducting policy 

initiatives, most agencies involved in intellectual property issues overseas 

also engage in training and assistance activities. Further, although 

counterterrorism is the overriding U.S. law enforcement concern, U.S. 

agencies such as the Departments of Justice and Homeland Security 

conduct law enforcement activities regarding IPR. These activities have 

included Justice’s creation of an intellectual property task force in March 

2004, which in October 2004 published a report containing 

recommendations for, among other things, improving the department’s 

criminal enforcement, fostering international cooperation, and preventing 

intellectual property crime. 

Several mechanisms exist to coordinate U.S. agencies’ efforts to protect 

U.S. intellectual property overseas, although the level of activity and 

usefulness of these mechanisms vary. First, the Special 301 process 

requires formal interagency meetings as part of the U.S. government’s 

annual review to identify countries with inadequate IPR protection; 

government and industry sources view this effort as effective and 

thorough. Second, the National Intellectual Property Law Enforcement 

Coordination Council (NIPLECC)3

 was established in 1999 to coordinate 

domestic and international intellectual property law enforcement among 

U.S. federal and foreign entities. However, NIPLECC has struggled to find 

a clear mission, has undertaken few activities, and is perceived by officials 

from the private sector and some U.S. agencies as having little impact. In 

fiscal year 2005 appropriations legislation, Congress established a 

Coordinator for International Intellectual Property Enforcement to head 

NIPLECC, but the position remains unfilled (although a selection process 

 3

NIPLECC was mandated under Section 653 of the Treasury and General Government 

Appropriations Act, 2000, Public Law 106-58 (15 U.S.C. 1128). 

Summary 
Page 3 GAO-05-788T 

is underway). Third, the most recent interagency coordination effort—the 

Strategy Targeting Organized Piracy, or STOP!, announced in October 

2004—represents the administration’s increased focus on IPR enforcement 

and is intended to strengthen U.S. government and industry efforts to 

combat piracy and counterfeiting. The initiative includes some new 

actions, such as the establishment of a hotline that businesses can use to 

report IPR problems to the U.S. government, and also emphasizes 

numerous preexisting efforts. U.S. government officials told us that the 

STOP! has strengthened interagency coordination in addressing IPR 

issues. 

U.S. efforts have contributed to strengthened foreign IPR laws, but 

enforcement overseas remains weak and U.S. efforts face numerous 

challenges. Competing U.S. policy objectives may take priority over 

protecting intellectual property in certain countries. In addition, the 

impact of U.S. activities overseas is affected by countries’ domestic policy 

objectives, which may complement or conflict with U.S. objectives. 

Further, economic factors, as well as the involvement of organized crime, 

pose additional challenges to U.S. and foreign governments’ enforcement 

efforts, even in countries where the political will for protecting intellectual 

property exists. These economic factors include low barriers to producing 

counterfeit or pirated goods, potential high profits for producers of such 

goods, and large price differentials between legitimate and counterfeit 

products for consumers. 

Intellectual property is an important component of the U.S. economy, and 

the United States is an acknowledged global leader in the creation of 

intellectual property. However, industries estimate that annual losses 

stemming from violations of intellectual property rights overseas are 

substantial. Further, counterfeiting of products such as pharmaceuticals 

and food items fuels public health and safety concerns. USTR’s Special 301 

reports on the adequacy and effectiveness of intellectual property 

protection around the world demonstrate that, from a U.S. perspective, 

intellectual property protection is weak in developed as well as developing 

countries and that the willingness of countries to address intellectual 

property issues varies greatly. 

Eight federal agencies, as well as the Federal Bureau of Investigation (FBI) 

and the U.S. Patent and Trademark Office (USPTO), undertake the 

primary U.S. government activities to protect and enforce U.S. intellectual 

property rights overseas. The agencies are the Departments of Commerce, 

State, Justice, and Homeland Security; USTR; the Copyright Office; the 

Background 
Page 4 GAO-05-788T 

U.S. Agency for International Development (USAID); and the U.S. 

International Trade Commission.4

The efforts of U.S. agencies to protect U.S. intellectual property overseas 

fall into three general categories—policy initiatives, training and technical 

assistance, and U.S. law enforcement actions. 

U.S. policy initiatives to increase intellectual property protection around 

the world are primarily led by USTR, in coordination with the 

Departments of State and Commerce, USPTO, and the Copyright Office, 

among other agencies. A centerpiece of policy activities is the annual 

Special 301 process.5

 “Special 301” refers to certain provisions of the Trade 

Act of 1974, as amended, that require USTR to annually identify foreign 

countries that deny adequate and effective protection of intellectual 

property rights or fair and equitable market access for U.S. persons who 

rely on intellectual property protection. USTR identifies these countries 

with substantial assistance from industry and U.S. agencies and publishes 

the results of its reviews in an annual report. Once a pool of such 

countries has been determined, the USTR, in coordination with other 

agencies, is required to decide which, if any, of these countries should be 

designated as a Priority Foreign Country (PFC).6

 If a trading partner is 

identified as a PFC, USTR must decide within 30 days whether to initiate 

an investigation of those acts, policies, and practices that were the basis 

for identifying the country as a PFC. Such an investigation can lead to 

actions such as negotiating separate intellectual property understandings 

or agreements between the United States and the PFC or implementing 

trade sanctions against the PFC if no satisfactory outcome is reached. 

 4

Although the FBI is part of the Department of Justice and the USPTO is part of the 

Department of Commerce, their roles will be discussed separately because of their distinct 

responsibilities. 

5

Other policy actions include: use of trade preference programs for developing countries 

that require IPR protection, such as the Generalized System of Preferences; negotiation of 

agreements that address intellectual property; participation in international organizations 

that address IPR issues; and, diplomatic efforts with foreign governments. 

6

PFCs are those countries that (1) have the most onerous and egregious acts, policies, and 

practices with the greatest adverse impact (actual or potential) on the relevant U.S. 

products and (2) are not engaged in good-faith negotiations or making significant progress 

in negotiations to address these problems. 

U.S. Agencies 

Undertake Three 

Types of IPR Efforts 

Policy Initiatives 
Page 5 GAO-05-788T 

Between 1994 and 2005, the U.S. government designated three countries as 

PFCs—China, Paraguay, and Ukraine—as a result of intellectual property 

reviews. The U.S. government negotiated separate bilateral intellectual 

property agreements with China and Paraguay to address IPR problems. 

These agreements are subject to annual monitoring, with progress cited in 

each year’s Special 301 report. Ukraine, where optical media piracy was 

prevalent, was designated a PFC in 2001. The United States and Ukraine 

found no mutual solution to the IPR problems, and in January 2002, the 

U.S. government imposed trade sanctions in the form of prohibitive tariffs 

(100 percent) aimed at stopping $75 million worth of certain imports from 

Ukraine over time. 

In conjunction with the release of its 2005 Special 301 report, USTR 

announced the results of a detailed review examining China’s intellectual 

property regime. This review concluded that infringement levels remain 

unacceptably high throughout China, despite the country’s efforts to 

reduce them. The U.S. government identified several actions it intends to 

take, including working with U.S. industry with an eye toward utilizing 

World Trade Organization (WTO) procedures to bring China into 

compliance with its WTO intellectual property obligations (particularly 

those relating to transparency and criminal enforcement) and securing 

new, specific commitments concerning actions China will take to improve 

IPR protection and enforcement. 

By virtue of membership in the WTO, the United States and other 

countries commit themselves not to take WTO-inconsistent unilateral 

action against possible trade violations involving IPR protections covered 

by the WTO but to instead seek recourse under the WTO’s dispute 

settlement system and its rules and procedures. This may impact any U.S. 

government decision regarding whether to retaliate against WTO members 

unilaterally with sanctions under the Special 301 process when those 

countries’ IPR problems are viewed as serious. The United States has 

brought a total of 12 IPR cases to the WTO for resolution, but has not 

brought any since 2000 (although the United States initiated a WTO 
Page 6 GAO-05-788T 

dispute panel for one of these cases in 2003).7 A senior USTR official 

emphasized that this is due to the effectiveness of tools such as the Special 

301 process in encouraging WTO members to bring their laws into 

compliance with WTO intellectual property rules. 

In addition, most of the agencies involved in efforts to promote or protect 

IPR overseas engage in some training or technical assistance activities. 

Key activities to develop and promote enhanced IPR protection in foreign 

countries are undertaken by the Departments of Commerce, Homeland 

Security, Justice, and State; the FBI; USPTO; the Copyright Office; and 

USAID. Training events sponsored by U.S. agencies to promote the 

enforcement of intellectual property rights have included enforcement 

programs for foreign police and customs officials, workshops on legal 

reform, and joint government-industry events. According to a State 

Department official, U.S. government agencies have conducted intellectual 

property training for a number of countries concerning bilateral and 

multilateral intellectual property commitments, including enforcement, 

during the past few years. For example, intellectual property training has 

been conducted by numerous agencies in Poland, China, Morocco, Italy, 

Jordan, Turkey, and Mexico. 

A small number of agencies are involved in enforcing U.S. intellectual 

property laws, and the nature of these activities differs from other U.S. 

government actions related to intellectual property protection. Working in 

an environment where counterterrorism is the central priority, the FBI and 

the Departments of Justice and Homeland Security take a variety of 

actions that include engaging in multicountry investigations involving 

intellectual property violations and seizing goods that violate intellectual 

property rights at U.S. ports of entry. 

 7

Of these 12 cases, 8 were fully resolved, and one was substantially resolved before going 

through the entire dispute settlement process by mutually agreed solutions between the 

parties—the preferred outcome, according to a USTR official. Another 3 cases resulted in 

the issuance of a final WTO decision, or panel report, and all of these cases concluded with 

favorable rulings for the United States, according to USTR. (One of these 3 cases--involving 

a dispute with the European Community regarding geographical indications--began with a 

request for consultations in 1999, for which a new expanded request was filed in 2003 and 

the case was brought before a WTO panel the same year.) In the substantially resolved 

dispute, involving Argentina, consultations continue with respect to certain issues. 

Training and Technical 

Assistance 

U.S. Law Enforcement 

Efforts 
Page 7 GAO-05-788T 

• The Department of Justice has an office that directly addresses 

international IPR problems.8

 Further, Justice has been involved with 

international investigation and prosecution efforts and, according to a 

Justice official, has become more aggressive in recent years. For instance, 

Justice and the FBI coordinated an undercover IPR investigation, with the 

involvement of several foreign law enforcement agencies. The 

investigation focused on individuals and organizations, known as “warez” 

release groups, which specialize in the Internet distribution of pirated 

materials. In April 2004, these investigations resulted in 120 simultaneous 

searches worldwide (80 in the United States) by law enforcement entities 

from 10 foreign countries9

 and the United States in an effort known as 

“Operation Fastlink.” 

• In addition, in March 2004, the Department of Justice created an 

intellectual property task force to examine all of Justice’s intellectual 

property enforcement efforts and explore methods for the department to 

strengthen its protection of IPR. A report issued by the task force in 

October 2004 provided recommendations for improvements in criminal 

enforcement, international cooperation, civil and antitrust enforcement, 

legislation, and prevention of intellectual property crime. Some of these 

recommendations have been implemented, while others have not. For 

example, Justice has implemented a recommendation to create five 

additional Computer Hacking and Intellectual Property (CHIP) units to 

prosecute IPR crimes.10 Additionally, Justice has designated a CHIP 

coordinator in every U.S. Attorney’s office in the country, thereby 

implementing a report recommendation that such action be taken. 

However, an FBI official told us the FBI has not been able to implement 

recommendations such as posting additional personnel to the U.S. 

consulate in Hong Kong and the U.S. embassy in Budapest, Hungary for 

budgetary reasons; Justice has not yet implemented a similar 

recommendation to deploy federal prosecutors to these same regions and 

designate them as Intellectual Property Law Enforcement Coordinators. 

 8

The Computer Crime and Intellectual Property Section (CCIPS) addresses intellectual 

property issues (copyright, trademark, and trade secrets) within the Department of 

Justice’s Criminal Division. In April 2004, CCIPS appointed an International Coordinator for 

Intellectual Property. 

9

These foreign countries were Belgium, Denmark, France, Germany, Hungary, Israel, the 

Netherlands, Singapore, Sweden, and Great Britain and Northern Ireland. According to a 

Justice official, law enforcement officials in Spain subsequently took action against related 

targets in that country. 

10These CHIP units have been added in the District of Columbia; Sacramento, CA; 

Pittsburgh, PA; Nashville, TN; and Orlando, FL. 
Page 8 GAO-05-788T 

Fully implementing some of the report’s recommendations will require a 

sustained, long-term effort by Justice. For example, to address a 

recommendation to develop a national education program to prevent 

intellectual property crime, Justice held two day-long events in 

Washington, D.C. and Los Angeles with high school students listening to 

creative artists, victim representatives, the Attorney General, and a 

convicted intellectual property offender, among others, about the harm 

caused by intellectual property piracy. The events were filmed by Court 

TV and produced into a 30 minute show aired on cable television. Further, 

to enhance intellectual property training programs for foreign prosecutors 

and law enforcement officials, as recommended in the report, Justice 

worked with the Mexican government to provide a three-day seminar for 

intellectual property prosecutors and customs officials in December 2004. 

Such actions are initial efforts to address recommendations that can be 

further implemented over time. 

• The Department of Homeland Security (DHS) tracks seizures of goods that 

violate IPR and reports seizures that totaled almost $140 million resulting 

from over 7,200 seizures in fiscal year 2004. In fiscal year 2004, goods from 

China (including Hong Kong) accounted for almost 70 percent of the value 

of all IPR seizures, many of which were shipments of cigarettes and 

apparel.11 Other seized goods were shipped from, among other places, 

Russia and South Africa.12 A DHS official pointed out that providing 

protection against IPR-infringing imported goods for some U.S. 

companies—particularly entertainment companies—can be difficult, 

because companies often fail to record their trademarks and copyrights 

with DHS. DHS and Commerce officials told us that they believe this 

situation could be ameliorated if, contrary to current practice, companies 

could simultaneously have their trademarks and copyrights recorded with 

DHS when they are provided their intellectual property right by USPTO or 

the Copyright Office. 

 11For information on cigarette smuggling, see GAO, Cigarette Smuggling: Federal Law 

Enforcement Efforts and Seizures Increasing, GAO-04-641 (Washington, D.C.: May 28, 

2004). 

12One additional area of note regarding counterfeit seizures involves pharmaceutical 

products. DHS, in cooperation with the Department of Health and Human Services’ Food 

and Drug Administration, conducts “blitz” exams in an effort to target, identify, and stop 

counterfeit and potentially unsafe prescription drugs from entering the United States from 

foreign countries via mail and common carriers. Such efforts have been undertaken in the 

past in locations such as Florida, New York, and California and have identified, in some 

instances, drugs that appeared to be counterfeit. For more information on federal efforts 

regarding prescription drugs imports, see GAO, Prescription Drugs: Preliminary 

Observations on Efforts to Enforce the Prohibitions on Personal Importation, 

GAO-04-839T (Washington, D.C.: July 22, 2004). 
Page 9 GAO-05-788T 

• To identify shipments of IPR-infringing merchandise and prevent their 

entry into the United States, DHS is developing an IPR risk-assessment 

computer model. The model uses weighted criteria to assign risk scores to 

individual imports. The methodology is based on both historical risk-based 

trade data and qualitative rankings. The historical data are comprised of 

seizure information and cargo examination results, while qualitative 

rankings are based on information such as whether a shipment is arriving 

from a high-risk country identified by USTR’s annual Special 301 report. 

According to DHS officials, the model has been piloted, and several issues 

have been identified which must be addressed before it is fully 

implemented. 

• DHS officials also told us that problems in identifying and seizing IPRinfringing goods frequently arise where the department’s in-bond system is 

involved. The in-bond system allows cargo to be transported from the 

original U.S. port of arrival (such as Los Angeles) to another U.S. port 

(such as Cleveland) for formal entry into U.S. commerce or for export to a 

foreign country. We previously reported that weak internal controls in this 

system enable cargo to be illegally diverted from the supposed 

destination.13 The tracking of in-bond cargo is hindered by a lack of 

automation for tracking in-bond cargo, inconsistencies in targeting and 

examining cargo, in-bond practices that allow shipments’ destinations to 

be changed without notifying DHS and extensive time intervals to reach 

their final destination, and inadequate verification of exports to Mexico. 

DHS inspectors we spoke with during the course of our previous work 

cited in-bond cargo as a high-risk category of shipment because it is the 

least inspected and in-bond shipments have been increasing. We made 

recommendations to DHS regarding ways to improve monitoring of inbond cargo. USTR’s 2005 Special 301 report identifies customs operations 

as a growing problem in combating IPR problems in foreign countries such 

as Ukraine, Canada, Belize, and Thailand. 

Several interagency mechanisms exist to coordinate overseas law 

enforcement efforts, intellectual property policy initiatives, and 

development and assistance activities, although these mechanisms’ level 

of activity and usefulness vary. 

 13 GAO, International Trade: U.S. Customs and Border Protection Faces Challenges in 

Addressing Illegal Textile Transshipment, GAO-04-345 (Washington, D.C.: Jan. 23, 2004). 

Several Mechanisms 

Coordinate IPR 

Efforts, but Their 

Usefulness Varies 
Page 10 GAO-05-788T 

According to government and industry officials, an interagency trade 

policy mechanism established by the Congress in 1962 to assist USTR has 

operated effectively in reviewing IPR issues. The mechanism, which 

consists of tiers of committees as well as numerous subcommittees, 

constitutes the principle means for developing and coordinating U.S. 

government positions on international trade, including IPR. A specialized 

subcommittee is central to conducting the Special 301 review and 

determining the results of the review. 

This interagency process is rigorous and effective, according to U.S. 

government and industry officials. A Commerce official told us that the 

Special 301 review is one of the best tools for interagency coordination in 

the government, while a Copyright Office official noted that coordination 

during the review is frequent and effective. A representative for copyright 

industries also told us that the process works well and is a solid 

interagency effort. 

NIPLECC, created by the Congress in 1999 to coordinate domestic and 

international intellectual property law enforcement among U.S. federal 

and foreign entities, seems to have had little impact. NIPLECC consists of 

(1) the Under Secretary of Commerce for Intellectual Property and 

Director of the United States Patent and Trademark Office; (2) the 

Assistant Attorney General, Criminal Division; (3) the Under Secretary of 

State for Economic and Agricultural Affairs; (4) the Deputy United States 

Trade Representative; (5) the Commissioner of Customs; and (6) the 

Under Secretary of Commerce for International Trade.14 NIPLECC’s 

authorizing legislation did not include the FBI as a member of NIPLECC, 

despite its pivotal role in law enforcement. However, according to 

representatives of the FBI, USPTO, and Justice, the FBI should be a 

member. USPTO and Justice cochair NIPLECC, which has no staff of its 

own. In the council’s several years of existence, its primary output has 

been three annual reports to the Congress, which are required by statute. 

(NIPLECC’s 2004 report has been drafted but is not yet available.) 

According to interviews with industry officials and officials from its 

member agencies, and as evidenced by its own reports, NIPLECC has 

struggled to define its purpose and has had little discernable impact. 

 14NIPLECC is also required to consult with the Register of Copyrights on law enforcement 

matters relating to copyright and related rights and matters. 

Formal Interagency 

Coordination on Trade 

Policy 

National Intellectual 

Property Law Enforcement 

Coordination Council 

(NIPLECC) 
Page 11 GAO-05-788T 

Indeed, officials from more than half of the member agencies offered 

criticisms of NIPLECC, remarking that it is unfocused, ineffective, and 

“unwieldy.” In official comments to the council’s 2003 annual report, major 

IPR industry associations expressed a sense that NIPLECC is not 

undertaking any independent activities or effecting any impact. One 

industry association representative stated that law enforcement needs to 

be made more central to U.S. IPR efforts and said that although he 

believes the council was created to deal with this issue, it has “totally 

failed.” The lack of communication regarding enforcement results in part 

from complications such as concerns regarding the sharing of sensitive 

law enforcement information and from the different missions of the 

various agencies involved in intellectual property actions overseas. 

According to a USTR official, NIPLECC needs to define a clear role in 

coordinating government policy. A Justice official stressed that, when 

considering coordination, it is important to avoid creating an additional 

layer of bureaucracy that may detract from efforts devoted to each 

agency’s primary mission. 

According to an official from USPTO, NIPLECC has been hampered 

primarily by its lack of its own staff and funding. In our September 2004 

report, we noted that “If the Congress wishes to maintain NIPLECC and 

take action to increase its effectiveness, the Congress may wish to 

consider reviewing the council’s authority, operating structure, 

membership, and mission.” In the Consolidated Appropriations Act, 2005, 

the Congress provided $2 million for NIPLECC expenses, to remain 

available through fiscal year 2006.15 The act addressed international 

elements of the council and created the position of the Coordinator for 

International Intellectual Property Enforcement, appointed by the 

President, to head NIPLECC. This official may not serve in any other 

position in the federal government, and the NIPLECC co-chairs, 

representatives from USPTO and Justice, are to report to the Coordinator. 

The law also provides additional direction regarding NIPLECC’s 

international mission, providing that NIPLECC shall (1) establish policies, 

objectives, and priorities concerning international intellectual property 

protection and intellectual property law enforcement; (2) promulgate a 

strategy for protecting American intellectual property overseas; and (3) 

coordinate and oversee implementation of items (1) and (2) by agencies 

with responsibilities for intellectual property protection and intellectual 

 15The Consolidated Appropriations Act, 2005, Public Law 108-447, Division B (118 Stat. 2809 

at 2872-2873). 
Page 12 GAO-05-788T 

property law enforcement. The Coordinator, with the advice of NIPLECC 

members, is to develop a budget proposal for each fiscal year to 

implement the strategy for protecting American intellectual property 

overseas and for NIPLECC operations and may select, appoint, employ, 

and fix compensation of such officers and employees as may be necessary 

to carry out NIPLECC functions. Personnel from other departments or 

agencies may be temporarily reassigned to work for NIPLECC. Agency 

officials told us that, as of June 2005, no Coordinator had been named 

(although a selection process was underway), the $2 million in NIPLECC 

funding has not been spent, and NIPLECC continued to accomplish little. 

In October 2004, USTR and the Departments of Commerce, Justice, and 

Homeland Security announced STOP! to fight trade in pirated and 

counterfeit goods. Other STOP! participants are the Department of State 

and the Department of Health and Human Service’s Food and Drug 

Administration. STOP!, which is targeted at cross-border trade in tangible 

goods and was initiated to strengthen U.S. government and industry 

enforcement actions. STOP! has five general objectives: 

1. Stop pirated and counterfeit goods at the U.S. border. Such 

efforts are to be achieved through, for example, the implementation of 

the DHS IPR risk model, mentioned above, to better identify and seize 

infringing goods at U.S. borders. 

2. Dismantle criminal enterprises that steal intellectual property. 

Justice and DHS are taking measures to maximize their ability to 

pursue perpetrators of intellectual property crimes through, for 

example, the addition of the 5 new Justice CHIP units mentioned 

above. Justice and DHS are also committed under STOP! to work with 

the Congress to update IPR legislation. 

3. Keep counterfeit and pirated goods out of global supply chains. 

Commerce is working with industry to develop voluntary guidelines 

companies can use to ensure that supply and distribution chains are 

free of counterfeits. 

4. Empower U.S. businesses to secure and enforce their rights at 

home and abroad. For example, Commerce is meeting with small and 

medium enterprises to inform companies on how to secure and protect 

their rights in the global marketplace. 

5. Reach out to U.S. trading partners to build an international 

coalition to block trade in pirated and counterfeit goods. USTR 

Strategy Targeting 

Organized Piracy (STOP!) 
Page 13 GAO-05-788T 

and State are engaging in multilateral forums, such as the Organization 

for Economic Cooperation and Development (OECD) and the AsiaPacific Economic Cooperation (APEC), through the introduction of 

new initiatives to improve the global intellectual property 

environment. 

Agency officials told us that STOP! has both furthered ongoing agency 

activities and facilitated new initiatives. For example, Commerce officials 

told us that while they had been working on having the OECD conduct a 

study of the extent and impact of counterfeiting and piracy, STOP! 

provided additional momentum to succeed in their efforts. They said that 

the OECD has now agreed to conduct a comprehensive study on the 

extent and effect of international counterfeiting and piracy in tangible 

goods, with a study addressing the digital arena to follow. In addition, in 

March 2005, Justice announced the continuation of work by its intellectual 

property task force, which had been rolled into STOP!. Regarding new 

initiatives, USPTO has established a hotline16 for companies to obtain 

information on intellectual property rights enforcement and report 

problems in other countries. According to USPTO, this hotline has 

received 387 calls since it was activated in October 2004. Commerce has 

also developed a website17 to provide information and guidance to IPR 

holders for registering and protecting their intellectual property rights in 

other countries. The most visible new effort undertaken as a part of STOP! 

is a coordinated U.S. government outreach to foreign governments. In 

April 2005 officials from seven federal agencies traveled to Hong Kong, 

Japan, Korea, and Singapore and in June, they traveled to Belgium, France, 

Germany, and the United Kingdom. According to USTR officials, the goals 

of these trips are to describe U.S. initiatives related to IPR enforcement 

and to learn from the activities of “like-minded” trading partners with IPR 

concerns and enforcement capacities similar to the United States. DHS 

officials reported that their Asian counterparts were interested in the U.S. 

development of the IPR risk model to target high-risk imports for 

inspection, while a USTR official emphasized that U.S. participants were 

impressed by a public awareness campaign implemented in Hong Kong. 

Officials involved in STOP! told us that one key goal of the initiative is to 

improve interagency coordination. Agency officials told us that to achieve 

 161-866-999-HALT. 

17www.stopfakes.gov. According to Commerce, between November 2004 and May 2005, 

there were almost 70,000 visits to this website. 
Page 14 GAO-05-788T 

this goal, staff-level meetings have been held monthly and senior officials 

have met about every 6 weeks. Agency officials also told us that as an 

Administration initiative with high-level political support, STOP! has 

energized agencies’ enforcement efforts and strengthened interagency 

efforts. A USPTO official explained that STOP! has laid the groundwork 

for future progress and continued interagency collaboration. Agency 

officials noted that STOP! goals and membership overlap with those of 

NIPLECC, and remarked that STOP! could possibly be integrated into 

NIPLECC at some future date. In May 2005, a NIPLECC meeting was held 

to address coordination between STOP! and NIPLECC. According to a 

Justice official, once an International Intellectual Property Enforcement 

Coordinator is appointed, there may be an opportunity to continue the 

momentum that STOP! has provided in the context of NIPLECC activities. 

One private sector representative we met with said that although U.S. 

industry has worked closely with agencies to achieve the goals of STOP!, 

he is frustrated with the lack of clear progress in many areas. For instance, 

he said that the administration has neither supported any pending 

legislation to improve intellectual property rights protection, nor proposed 

such legislation. He added that agencies need to do more to integrate their 

systems, noting the situation where companies must currently receive a 

trademark or copyright from USPTO or the Copyright Office, and then 

separately record that right with DHS. Another industry representative 

noted that STOP! has been announced with great fanfare, but that progress 

has been sparse. However, he noted that industry supports this 

administration effort and is working collaboratively with the federal 

agencies to improve IPR protection. Another industry official cited issues 

of concern such as insufficient enforcement resources “on the ground” 

(particularly at DHS). 

Other coordination mechanisms include the National International 

Property Rights Coordination Center (IPR Center) and informal 

coordination.18 The IPR Center in Washington, D.C., a joint effort between 

DHS and the FBI, began limited operations in 2000. According to a DHS 

official, the potential for coordination between DHS, the FBI, and industry 

and trade associations makes the IPR Center unique. The IPR Center is 

 18Another coordination mechanism is the IPR Training Coordination Group, led by the State 

Department. This voluntary, working-level group comprises representatives of U.S. 

agencies and industry associations involved in IPR programs and training and technical 

assistance efforts overseas or for foreign officials. 

Other Coordination 

Mechanisms 
Page 15 GAO-05-788T 

intended to serve as a focal point for the collection of intelligence 

involving copyright and trademark infringement, signal theft, and theft of 

trade secrets. However, the center is not widely used by industry. For 

example, an FBI official told us that from January 2004 through May 2005, 

the FBI has received only 10 referrals to its field offices from the IPR 

Center. Further, the number of FBI and DHS staff on board at the center 

has decreased recently and currently stands at 10 employees (down from 

20 in July 2004), with no FBI agents currently working there and fewer 

DHS agents than authorized. However, IPR Center officials emphasized 

one recent, important case that was initiated by the center. DHS, in 

conjunction with the Chinese government and with the assistance of the 

intellectual property industry, conducted the first ever joint U.S.-Chinese 

enforcement action on the Chinese mainland, disrupting a network that 

distributed counterfeit motion pictures worldwide. More than 210,000 

counterfeit motion picture DVDs were seized, and in 2005, four individuals 

(two Chinese and two Americans) were convicted in China. 

Policy agency officials noted the importance of informal but regular 

communication among staff at the various agencies involved in the 

promotion or protection of intellectual property overseas. Several officials 

at various policy-oriented agencies, such as USTR and the Department of 

Commerce, noted that the intellectual property community was small and 

that all involved were very familiar with the relevant policy officials at 

other agencies in Washington, D.C. Further, State Department officials at 

U.S. embassies regularly communicate with agencies in Washington, D.C., 

regarding IPR matters and U.S. government actions. Agency officials noted 

that this type of coordination is central to pursuing U.S. intellectual 

property goals overseas. 

Although communication between policy and law enforcement agencies 

can occur through forums such as the NIPLECC, these agencies do not 

systematically share specific information about law enforcement activities. 

According to an FBI official, once a criminal investigation begins, case 

information stays within the law enforcement agencies and is not shared. 19

A Justice official emphasized that criminal law enforcement is 

fundamentally different from the activities of policy agencies and that 

 19Further, a DHS official noted that the Trade Secrets Act (18 USC 1905) precludes sharing 

information about specific imports, even where there is criminal activity. The Trade 

Secrets Act makes it a criminal offense for an employee of the United States, or one of its 

agencies, to disclose trade secrets and certain other forms of confidential commercial and 

financial information except where such disclosure is “authorized by law.” 
Page 16 GAO-05-788T 

restrictions exist on Justice’s ability to share investigative information, 

even with other U.S. agencies. 

U.S. efforts such as the annual Special 301 review have contributed to 

strengthened foreign IPR laws, but enforcement overseas remains weak. 

The impact of U.S. activities is challenged by numerous factors. Industry 

representatives report that the situation may be worsening overall for 

some intellectual property sectors. 

The efforts of U.S. agencies have contributed to the establishment of 

strengthened intellectual property legislation in many foreign countries, 

however, the enforcement of intellectual property rights remains weak in 

many countries, and U.S. government and industry sources note that 

improving enforcement overseas is now a key priority. A recent USTR 

Special 301 report states that “although several countries have taken 

positive steps to improve their IPR regimes, the lack of IPR protection and 

enforcement continues to be a global problem.” For example, although the 

Chinese government has improved its statutory IPR regime, USTR remains 

concerned about enforcement in that country. According to USTR, 

counterfeiting and piracy remain rampant in China and increasing 

amounts of counterfeit and pirated products are being exported from 

China. In addition, although Ukraine has shut down offending domestic 

optical media production facilities, pirated products continue to pervade 

Ukraine, and, according to USTR’s 2004 Special 301 Report, Ukraine is 

also a major trans-shipment point and storage location for illegal optical 

media produced in Russia and elsewhere as a result of weak border 

enforcement efforts. 

Although U.S. law enforcement does undertake international cooperative 

activities to enforce intellectual property rights overseas, executing these 

efforts can prove difficult. For example, according to DHS and Justice 

officials, U.S. efforts to investigate IPR violations overseas are 

complicated by a lack of jurisdiction as well as by the fact that U.S. 

officials must convince foreign officials to take action. Further, a DHS 

official noted that in some cases, activities defined as criminal in the 

United States are not viewed as an infringement by other countries and 

that U.S. law enforcement agencies can therefore do nothing. 

Enforcement 

Overseas Remains 

Weak and Challenges 

Remain 

Weak Enforcement 

Overseas 
Page 17 GAO-05-788T 

In addition, U.S. efforts confront numerous challenges. Because 

intellectual property protection is one of many U.S. government objectives 

pursued overseas, it is viewed internally in the context of broader U.S. 

foreign policy objectives that may receive higher priority at certain times 

in certain countries. Industry officials with whom we met noted, for 

example, their belief that policy priorities related to national security were 

limiting the extent to which the United States undertook activities or 

applied diplomatic pressure related to IPR issues in some countries. 

Further, the impact of U.S. activities is affected by a country’s own 

domestic policy objectives and economic interests, which may 

complement or conflict with U.S. objectives. U.S. efforts are more likely to 

be effective in encouraging government action or achieving impact in a 

foreign country where support for intellectual property protection exists. 

It is difficult for the U.S. government to achieve impact in locations where 

foreign governments lack the “political will” to enact IPR protections. 

Many economic factors complicate and challenge U.S. and foreign 

governments’ efforts, even in countries with the political will to protect 

intellectual property. These factors include low barriers to entering the 

counterfeiting and piracy business and potentially high profits for 

producers. In addition, the low prices of counterfeit products are 

attractive to consumers. The economic incentives can be especially acute 

in countries where people have limited income. Technological advances 

allowing for high-quality inexpensive and accessible reproduction and 

distribution in some industries have exacerbated the problem. Moreover, 

many government and industry officials believe that the chances of getting 

caught for counterfeiting and piracy, as well as the penalties when caught, 

are too low. The increasing involvement of organized crime in the 

production and distribution of pirated products further complicates 

enforcement efforts. Federal and foreign law enforcement officials have 

linked intellectual property crime to national and transnational organized 

criminal operations. Further, like other criminals, terrorists can trade any 

commodity in an illegal fashion, as evidenced by their reported 

involvement in trading a variety of counterfeit and other goods.20

Many of these challenges are evident in the optical media industry, which 

includes music, movies, software, and games. Even in countries where 

interests exist to protect domestic industries, such as the domestic music 

 20See GAO, Terrorist Financing: U.S. Agencies Should Systematically Assess Terrorists’ 

Use of Alternative Financing Mechanisms, GAO-04-163 (Washington, D.C.: Nov. 14, 2003). 

Challenges to U.S. Efforts 
Page 18 GAO-05-788T 

industry in Brazil or the domestic movie industry in China, economic and 

law enforcement challenges can be difficult to overcome. For example, the 

cost of reproduction technology and copying digital media is low, making 

piracy an attractive employment opportunity, especially in a country 

where formal employment is hard to obtain. The huge price differentials 

between pirated CDs and legitimate copies also create incentives on the 

consumer side. For example, when we visited a market in Brazil, we 

observed that the price for a legitimate DVD was approximately ten times 

the price for a pirated DVD. Even if consumers are willing to pay extra to 

purchase the legitimate product, they may not do so if the price 

differences are too great for similar products. Further, the potentially high 

profit makes optical media piracy an attractive venture for organized 

criminal groups. Industry and government officials have noted criminal 

involvement in optical media piracy and the resulting law enforcement 

challenges. Recent technological advances have also exacerbated optical 

media piracy. The mobility of the equipment makes it easy to transport it 

to another location, further complicating enforcement efforts. Likewise, 

the Internet provides a means to transmit and sell illegal software or music 

on a global scale. According to an industry representative, the ability of 

Internet pirates to hide their identities or operate from remote 

jurisdictions often makes it difficult for IPR holders to find them and hold 

them accountable. 

Despite improvements such as strengthened foreign IPR legislation, 

international IPR protection may be worsening overall for some 

intellectual property sectors. For example, according to copyright industry 

estimates, losses due to piracy grew markedly in recent years. The 

entertainment and business software sectors, for example, which are very 

supportive of USTR and other agencies, face an environment in which 

their optical media products are increasingly easy to reproduce, and 

digitized products can be distributed around the world quickly and easily 

via the Internet. According to an intellectual property association 

representative, counterfeiting trademarks has also become more pervasive 

in recent years. Counterfeiting affects more than just luxury goods; it also 

affects various industrial goods. An industry representative noted that 

U.S. manufacturers of all sizes are now being adversely affected by 

counterfeit imports. 

An industry representative also added that there is a need for additional 

enforcement activity by the U.S. government at the border. However, he 

recognized that limited resources and other significant priorities for DHS 

Industry Concerns 
Page 19 GAO-05-788T 

heighten the need to use existing resources more effectively to interdict 

more counterfeit and pirated goods. 

The U.S. government has demonstrated a commitment to addressing IPR 

issues in foreign countries using multiple agencies. However, law 

enforcement actions are more restricted than other U.S. activities, owing 

to factors such as a lack of jurisdiction overseas to enforce U.S. law. 

Several IPR coordination mechanisms exist, with the interagency 

coordination that occurs during the Special 301 process standing out as 

the most significant and active. Efforts under STOP! appear to have 

strengthened the U.S. government’s focus on addressing IPR enforcement 

problems in a more coordinated manner. Conversely, NIPLECC, the 

mechanism for coordinating intellectual property law enforcement, has 

accomplished little that is concrete and its ineffectiveness continues 

despite recent congressional action to provide funding, staffing, and 

clearer guidance regarding its international objectives. In addition, 

NIPLECC does not include the FBI, a primary law enforcement agency. 

Members, including NIPLECC leadership, have repeatedly acknowledged 

that the group continues to struggle to find an appropriate mission. 

Mr. Chairman, this concludes my prepared statement. I would be pleased 

to respond to any questions that you or other members of the 

subcommittee may have at this time. 

Should you have any questions about this testimony, please contact me by 

e-mail at yagerl@gao.gov. I can also be reached at (202) 512-4128. Other 

major contributors to this testimony were Emil Friberg, Leslie Holen, 

Jason Bair, Ming Chen, Sharla Draemel, and Reid Lowe. 

Conclusions 

Contacts and 

Acknowledgments 

(320358) 
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