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55–193—PDF 2008

S. HRG. 110–1020

CUSTOMS REAUTHORIZATION: STRENGTHENING

U.S. ECONOMIC INTERESTS AND SECURITY

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

MARCH 13, 2008

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

DEBBIE STABENOW, Michigan

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

CHUCK GRASSLEY, Iowa

ORRIN G. HATCH, Utah

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

JOHN ENSIGN, Nevada

JOHN E. SUNUNU, New Hampshire

RUSSELL SULLIVAN, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

(II)

C O N T E N T S

OPENING STATEMENT

Page

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee

on Finance ............................................................................................................ 1

WITNESSES

Banks, Samuel H., executive vice president, Sandler and Travis Trade Advisory Services, Washington, DC ........................................................................... 3

Stocker, Charlene N., chairwoman, American Association of Exporters and

Importers, Procter and Gamble, Cincinnati, OH ............................................... 6

Brown, Greg P., counsel, Ford Global Technologies, Dearborn, MI .................... 8

Tease, Antoinette M., P.L.L.C., registered patent attorney, Intellectual Property snd Technology Law, Billings, MT .............................................................. 9

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Banks, Samuel H.:

Testimony .......................................................................................................... 3

Prepared statement .......................................................................................... 27

Responses to questions from committee members ......................................... 32

Baucus, Hon. Max:

Opening statement ........................................................................................... 1

Brown, Greg P.:

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

Prepared statement .......................................................................................... 34

Responses to questions from committee members ......................................... 39

Stocker, Charlene N.:

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

Prepared statement with attachments ........................................................... 42

Responses to questions from committee members ......................................... 71

Tease, Antoinette M., P.L.L.C.:

Testimony .......................................................................................................... 9

Prepared statement with attachment ............................................................. 77

Responses to questions from committee members ......................................... 93

(III)

(1)

CUSTOMS REAUTHORIZATION:

STRENGTHENING U.S. ECONOMIC

INTERESTS AND SECURITY

THURSDAY, MARCH 13, 2008

U.S. SENATE,

COMMITTEE ON FINANCE,

Washington, DC.

The hearing was convened, pursuant to notice, at 9:19 a.m., in

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus

(chairman of the committee) presiding.

Present: Senators Stabenow and Grassley.

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The hearing will come to order.

In December 1815, President James Madison began his address

to Congress by saying, ‘‘I have the satisfaction of being able to communicate the successful termination of the war which has been

commenced against the United States by the Regency of Algiers.’’

That was the Barbary Pirates.

President Madison also expressed to Congress his hope that

America’s infant manufacturing industry ‘‘will become, at the early

day, not only safe against competitions from abroad, but a source

of domestic wealth and external commerce.’’

In his message, Madison sought to advance two goals: one, to

raise revenues to support our Nation’s security, and two, to protect

America’s infant industry. To achieve both goals, he proposed

changes in tariffs. The Senate referred President Madison’s proposal to a newly-formed committee called the Committee on Finance, and President Madison’s proposal became one of the committee’s first legislative actions: the Tariff Act of 1816.

Since that time, the Finance Committee has overseen the agency

that has had responsibility for collecting revenues from Customs

duties. In 1816, the functions of the U.S. Customs Service were

small. At that time, America’s imports were a mere $116 million

a year, and duties collected on these imports totaled about $35 million.

Today, America’s imports are $2 trillion a year and the annual duties collected on these goods bring in almost $30 billion. Today,

in addition to protecting our economic interests, our Customs agencies also secure our borders. These responsibilities are shared between two agencies, Customs and Border Protection and Immigration and Customs Enforcement.

2

Consider the jobs that Customs agents will do in the next 24

hours. In that short period, our Customs officials will process 1.13

million passengers and pedestrians into or out of our country; they

will handle more than 70,000 truck, rail, and sea containers—that

is just 24 hours—and they will approve for entry nearly 83,000

shipments of goods.

During that 24 hours they will arrest 70 people at our ports of

entry; they will seize 2,250 pounds of narcotics and more than

$650,000 worth of counterfeit goods; they will confiscate more than

4,000 meat or plant materials; and they will identify and destroy

164 agricultural pests.

But as much as the scope of the job has changed, one thing has

remained the same since 1815. The job of Customs affects both security and commerce. The Customs Service is an invaluable part of

our Nation’s defense, and it is also fundamentally rooted in international commerce. Since 9/11, it has become increasingly difficult

for our Customs agencies to maintain the critical balance between

those two goals.

The Senate Finance Committee has nearly 200 years of accumulated expertise in working with Customs to balance these vital missions.

And so we are here today to carry on our long tradition of overseeing Customs. We are here today to continue our work to ensure

the free and secure flow of goods into and out of our country.

Today’s hearing is the first step toward reauthorizing our Customs agencies and determining how we can better protect America’s consumers by safeguarding our borders.

In the months that come, this committee will craft new legislation to put more resources at our Nation’s borders. We will seek to

ensure that imports of food and consumer goods are safe and

healthy. We will buttress our ability to identify pirated and counterfeit goods and keep them off our store shelves, and we will make

sure that our Customs apparatus fully collects revenues due to the

United States.

Today’s witnesses have traveled from across the country, including Billings, MT, to provide the perspective of the trade community. This committee plans to hold another hearing next month to

hear from the government agencies tasked with securing our borders.

And so I look forward to continuing this committee’s nearly 200

years of work to balance our Nation’s security and economy. I look

forward to our maintaining our success in the war against America’s enemies. And I look forward to working to keep American

businesses, in Madison’s words, ‘‘a source of domestic wealth and

external commerce.’’

I would like to begin at the outset by welcoming our witnesses.

Thank you all very, very much. I am pleased to begin our hearing

today with Samuel Banks, executive vice president at Sandler and

Travis Trade Advisory Services, and former Deputy Commissioner

of the U.S. Customs Service. Following Mr. Banks is Charlene

Stocker, who is chairwoman of the American Association of Exporters and Importers and senior international service manager for

Procter and Gamble. Our third witness is Greg Brown, counsel at

Ford Global Technologies. Finally, it is my personal honor to welVerDate 11-MAY-2000 14:32 Mar 24, 2010 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 55193.000 SFIN1 PsN: SFIN1
3

come from Billings, MT Ms. Toni Tease, a registered patent attorney from Billings, MT.

We all look forward to your testimony. Your prepared remarks

will automatically be submitted in the record, and you have 5 minutes to give your oral testimony.

I want to apologize at the outset, though. There is going to be

a memorial service in the Senate shortly, and we will have to do

some back and forth. I will recess the committee hearing for a

while and Senator Stabenow will also chair the hearing. It will be

a little bit of an inconvenience here, but it is during the service and

so forth. Thank you all very much.

We will begin with you, Mr. Banks.

STATEMENT OF SAMUEL H. BANKS, EXECUTIVE VICE PRESIDENT, SANDLER AND TRAVIS TRADE ADVISORY SERVICES,

WASHINGTON, DC

Mr. BANKS. Good morning, Mr. Chairman, Senator. I appreciate

the opportunity to appear before you today. As you said, I spent a

career in U.S. Customs, and that is half of my perspective. The

other part is, since 2000, I have been working with the international business community that move goods across our borders.

I would like to address three issues today that I believe this committee could, and should, address in directing the activities of CBP,

of Customs, and the funding of Customs and Border Protection.

The first issue. CBP is highly reliant on the cooperation of the

international trade community to participate in border security and

compliance programs. To encourage industry’s participation, CBP

has promised to provide the trade community with tangible benefits in return for industry’s support for these efforts. Quite frankly,

the industry does not believe that these benefits have been realized.

The second point that I would like to make is that the administration and the Department of Homeland Security, quite frankly,

have not adequately supported or funded CBP in the development

of two very important automation programs. First is the Automated Commercial Environment, ACE, and second, the International Trade Data System, ITDS. I will talk more about these,

but these are critical to the Nation’s security, economic well-being,

and public safety.

The third issue, if I have time, is it really would help if CBP

were encouraged to be more creative and aggressive in adopting

modern business practices. These are ideas that could save money,

enhance productivity, and improve performance for CBP and the

business community, so I would like to briefly elaborate on each of

these.

On the first topic, the trade feels that CBP needs to engage in

a focused, candid, and open dialogue with industry on concrete,

measurable benefits for the companies that are investing huge

sums of money in CBP’s security and compliance programs. Industry, quite frankly, does not feel CBP has dedicated the necessary

time or energy to this issue.

In their defense, CBP is incredibly overwhelmed. They have a

staggering number of highly complex, multi-million-dollar initiatives under way in both security and trade. Actually, despite all

4

this, to CBP’s credit, they usually work fairly well in partnership

with industry to develop these programs. However, as challenging

as these projects are for CBP, each of these initiatives also has significant ramifications for industry.

The cumulative effect of simultaneously developing this myriad

of initiatives is placing a serious strain on the resources and the

goodwill of the business community. If CBP is spending millions of

dollars on these things, the industry is spending multi-million dollars either to join the programs or to comply with them.

Now, generally industry has been supportive of CBP goals, as the

companies want to contribute to the security of the U.S. too. However, increasingly you hear of industry leaders pushing back on

CBP and asking for these benefits so that they can take these benefits to their board room and convince their leadership to continue

this cooperative effort with CBP.

Just a few examples that CBP could offer in terms of benefits

without compromising their mission. One, CBP releases low-risk

ocean cargo 5 days before arrival. Why can they not release it immediately upon vessel departure from foreign ports and give importers more visibility into their supply chain? Why does CBP require reams of paper documents from highly compliant companies

when they could receive the information electronically? If IRS can

allow for tax filings electronically, you would think CBP could as

well.

Companies that join security programs like Customs-Trade Partnership Against Terrorism (C-TPAT) are supposed to receive expedited processing, so why are their shipments not put at the head

of the line when CBP does require an exam? And if CBP decides

they want to do a random exam or a compliance exam, why can

these trusted importers not actually have the flexibility to request

that those exams take place at an interior port? So to push this

along, perhaps this committee could require a report from CBP on

what progress is being made in terms of working with industry to

explore, define, and agree on those benefits.

The second issue I would like to mention has to do with the two

automation systems that I talked about. The first is the Automated

Commercial Environment, called ACE. ACE is an automated initiative which is basically replacing 30-year-old CBP computer systems

that in their day radically changed the way import business was

done. ACE holds the potential—a greater potential—to revolutionize and streamline trade and to achieve significant savings for

CBP and industry. But equally important and less recognized is

the fact that ACE also plays a critical role in border security, import safety, and trade enforcement.

What ACE really is, is this huge pipeline that captures and collects massive amounts of information on international shipments

and then distributes that information to CBP and other government agencies. This ACE data pipeline is monstrous. I mean, it has

information on the 32,000 ocean containers that arrive in the U.S.

daily. It contains all of the information on that $2 trillion worth of

imports that enters the country. It is this data that feeds CBP’s

targeting systems to identify high-risk shipments for terrorism, for

contraband, unsafe products, intellectual property rights, and the

list goes on.

5

CBP knows that ACE is important for security and import safety,

but quite frankly it does not appear that officials at the Department of Homeland Security share this understanding. They have

referred to ACE as merely a trade system, and therefore of secondary priority. We even understand that DHS attempted to divert

ACE funding to other programs.

While industry sincerely appreciates the work of this committee

to ensure that ACE continues to receive the funding and that it is

properly managed, you also need to know that ACE continues to

grow in scope and complexity. Part of this growth is trying to support security programs as opposed to trade programs. Trade has no

objection to having ACE help out the security programs, but it is

essential that they stay on schedule and deliver as promised.

So we recommend that the committee seriously consider increasing the authorized funding for ACE and advocate that these monies

are appropriated. The committee also needs to examine the

progress of the International Trade Data System, ITDS. It is just

a companion program base. It supports the sharing of import/

export data within government agencies.

If ACE is this huge pipeline on data about international shipments, ITDS represents this network of feeder pipes that distribute

that data to some 43 other Federal agencies. These are agencies

that oversee and enforce programs on border security, import safety, public health, IPR, et cetera.

The importance of ITDS to the Nation’s safety was actually highlighted in the recent President’s Interagency Working Group Report on Import Safety. Based on that report, OMB even instructed

all the department and agency heads to develop action plans to join

ITDS. All this rhetoric is heartening, but the reality is, the administration has not added one more penny to either ITDS or ACE to

actually do this. So, again, I guess it is our hope that you support

continued funding of ITDS and, in fact, consider increasing it. A

mere $16 million for import safety is probably a small price to pay.

Lastly, I would like to talk about this committee encouraging

CBP to be more creative and innovative in the trade area as much

as they are in the security area. They can really improve their productivity and effectiveness by adopting some modern business practices.

One quick example. The idea of customer accounts exists

throughout the business world. You see it with frequent flyer programs, gold accounts, and the like. Well, a decade ago CBP embraced an account approach for major U.S. importers. Start looking

at the company-wide efforts to manage compliance as opposed to

CBP trying to go out and check on a shipment-by-shipment basis.

But, quite frankly, implementation of this has been slow.

To date, CBP has, in the last decade, only appointed 32 national

account managers, and that cannot even begin to cover the top

1,000 importers. Adopting account management would not only

benefit industry, but it would benefit CBP to maintain compliance

and oversight over all these imports. In fact, CBP probably should

go out and encourage some of the other agencies, like FDA and Agriculture, to join in this shared account effort to address some of

the import safety issues.

6

So those are the three areas, I guess, that I would seek for this

committee to take focus on and kind of push CBP in the right direction.

Thank you very much.

[The prepared statement of Mr. Banks appears in the appendix.]

Senator STABENOW. Well, thank you, Mr. Banks. Let me just indicate, as I am sure you were told, multiple things are happening

this morning. We appreciate you being able to be flexible in terms

of changing the time of the hearing. This is a very, very important

subject. I represent the border State of Michigan, the great State

of Michigan. Mr. Brown, welcome. We are glad to have you.

And certainly all the members are extremely interested in this

and the information that you are giving us will, certainly through

our staff, be made available to everyone. We are, in fact, voting

today on the budget resolution which looks at the entire budget for

next year. I can assure you that we are very focused on increasing

resources in the kinds of areas that you are talking about, so we

appreciate your comments.

Ms. Stocker?

STATEMENT OF CHARLENE N. STOCKER, CHAIRWOMAN,

AMERICAN ASSOCIATION OF EXPORTERS AND IMPORTERS,

PROCTER AND GAMBLE, CINCINNATI, OH

Ms. STOCKER. Thank you, Senator Stabenow and members of the

committee and staff. I am Charlene Stocker, senior international

services manager with Procter and Gamble, but I represent, today,

the American Association of Exporters and Importers as chair of its

board of governors. Thank you for the invitation.

Our written testimony which was submitted for the record discusses the importance of the committee to reassess CBP’s progress

towards balancing trade security and trade facilitation, the need

for a holistic approach, and dedicated resources to achieve the balance of these goals.

I would like to share with you our thoughts on five specific topics: AAEI’s two American Trader’s Guides—the ‘‘Post 9/11 and

Homeland Security Programs’’ and the ‘‘Advanced Data Programs,’’

which I see have been passed out at all the chairs; the importer’s

security filing known as 10+2; the first sale rule; trade data; and

resources. I will be pretty quick.

You can see these charts that we have here. In order for us to

discuss what a holistic approach would entail, we needed the trade

to put all of the security and data programs on one particular

sheet. First, let us take a look at the post 9/11 and the Homeland

Security programs. We focused on the proliferation of independent

and uncoordinated security programs governing trade security.

Down the left side of the first page of the chart, we have all the

security programs developed by the various Federal agencies: international, multilateral, private sector programs, emerging and potential programs, like 10+2, and finally, the compliance programs

with a security impact, like Focused Assessment and AES.

Moving to the right, that section describes the provisions of these

programs so that they can be compared apples to apples. The next

section on page 2 of the chart is a consensus overview of the impact

of compliance. The last section on the right of the chart is our work

7

to gather the trade community’s assessment of the resource expenditures resulting from the trade security programs.

Then we come to ‘‘The American Trader’s Guide to the Supply

Chain’’ (a 2-page chart). Going from left to right, you can see the

guide to the supply chain. It shows the intertwining of three essential tracks for the goods in the international supply chain. First,

you can see the transportation flow, which represents the physical

movement of the cargo; second, the data flow; and third, the regulation and security part, which shows the checkpoints along the

supply chain.

Now, if we look at the chart entitled ‘‘International Advanced

Data Programs,’’ the first page of the matrix shows how the primary U.S. trade data programs, like the 24-hour rule and 10+2,

compare with the European Union and the WCO, as well as other

national programs.

The second page of the matrix provides an overview of the status

of the United States International Trade Data System. The chart

shows many of the participating government agencies and their access to this ITDS data. Pairing both the multilateral and the national data sets with ITDS shows the committee a bird’s-eye view

of the complex overlapping of the data systems: we are the experts

and we can hardly figure it out.

During our 10+2 discussion I would like to mainly be concerned

that the 10+2 proposal will have a very negative impact on the

trade. We are not sure that CBP has adequately analyzed the cost

of the proposed rule on the vast majority of the 800,000 U.S. importers, and we sincerely question whether the proposed rule on

10+2 fulfills Congress’s intent set forth in the authorizing statutes.

Most recently, our concern has been focused on the first sale

rule, which is simple: one, why the change, and two, why now?

First sale is a well-settled law and change would disrupt international transaction. This, at a time when the U.S. economy is

slowing, revokes first sale and would require companies to pay additional duties and costs to redesign their entire business models.

With regard to trade data, we are concerned that the confidentiality of U.S. business data remains a critical issue for the trade

community. CBP sharing the data should be on a flexible and variable schedule, and only on a need-to-know basis.

Finally, on resources, AAEI remains concerned about resources

dedicated to CBP’s trade facilitation mission. Our concern is more

fundamental than the number of employees assigned to Customs

and compliance as opposed to security functions. Rather, our concern extends to the brain drain at CBP and the training of new employees with fundamental understanding of Customs compliance,

facilitation, and security based on reasonable care, internal controls, and risk management.

We thank you for the opportunity to testify before the committee

today, and we will offer answers to any questions you may give us.

Senator STABENOW. Thank you very much, Ms. Stocker. If the intent was to show complexity, you have certainly achieved the goal.

It would take me a while to figure this out. We will have folks

working on this now for some time. [Laughter.]

Ms. STOCKER. I am sure we will.

8

Senator STABENOW. But thank you. Thank you very much. This

is very helpful.

[The prepared statement of Ms. Stocker appears in the appendix.]

Senator STABENOW. Mr. Brown, welcome. It is good to see you.

STATEMENT OF GREG P. BROWN, COUNSEL,

FORD GLOBAL TECHNOLOGIES, DEARBORN, MI

Mr. BROWN. Thank you. Senator Stabenow and members of the

Finance Committee, on behalf of Ford Motor Company I want to

thank you for the opportunity to testify today regarding the crucial

role U.S. Customs and Border Protection has in protecting America’s citizens and its economy.

Because Ford itself is a global technology company, we are keenly aware of the important role trade and worldwide movement of

products, technology, and ideas can play if administered properly.

Customs is a vital partner in our protection efforts. However, the

threat that faces our industry, our country, and our economy goes

well beyond just the process of protection, it goes to what we are

inadequately protecting today: America’s intellectual property and,

thereby, its citizens, its jobs, and its economic future.

U.S. industry invests hundreds of billions of dollars in research,

design, testing, production, and marketing of products. This money

is wasted if overseas operators are allowed to turn intellectual

property into intellectual piracy.

The Motor Equipment Manufacturers Association estimates that counterfeit goods account for $12 billion annually in the global

automotive sector, and this illicit trade eliminates as many as

200,000 legitimate automotive jobs.

Ford takes this issue seriously. We have established a global network of investigators, and we work with industry groups such as

the U.S. Chamber of Commerce, with government, and law enforcement agencies around the world, beginning here at home with the

U.S. PTO and U.S. Customs and Border Protection, to pinpoint

counterfeiters and put them out of business.

Design piracy is one area of current focus for Ford. Today’s technology makes it easy for design pirates anywhere in the world to

rapidly photocopy an existing part. In response, Ford seeks, and obtains, design patents from the U.S. PTO for ornamental and distinctive exterior parts of our vehicles.

Recently, after lengthy and expensive proceedings in the International Trade Commission, we obtained an exclusion order prohibiting importation of seven copied parts of our popular F–150 pickup truck. While welcome, this victory demonstrates the difficulties

in effectively combatting design piracy. First, successful enforcement in design patent cases is difficult. Their less than 35 percent

enforcement rate encourages copycatters and discourages original

manufacturers from rightfully seeking to protect themselves.

Second, a major loophole exists in stopping design piracy with

design patents. Using the fastest process available to us, there is

at least a 30-month window between product introduction and effective enforcement. Prior to the issuance of an exclusion order,

Customs cannot seize duplicate parts despite our patents, and once

on shore, an ITC ruling provides no remedy against parts already

9

imported. Exploiting this loophole, design pirates fill their U.S.

warehouses with imported copy parts sufficient to meet demand for

years to come.

Ideally, a simpler and more efficient mechanism for stopping design piracy would exist. A simple registration scheme for designs

would prevent exact copying of ornamental and distinctive exterior

parts. One way or another, we should greatly reduce the 21⁄2-year

loophole in the current system.

Finally, Ford also believes that Customs should be encouraged to

be more effective and efficient with its existing programs and initiatives, like the Customs-Trade Partnership Against Terrorism.

We believe that Customs should better leverage programs like

C-TPAT to segregate and secure low-risk importers, freeing Customs to focus resources on higher-risk importers and counterfeiters.

Ford is also concerned at the recently announced import security

filing rule commonly known as 10+2 that threatens to dilute Customs’ focus and effectiveness on its priority missions, while not enhancing security.

Ford is grateful for this opportunity to share our views on how

to eliminate this unfair competition. There is a real and present

threat to the U.S. consumer, industry, and economy. Customs is

the first line of defense against this unfair competition, the importing of intellectual piracy, and the exporting of U.S. jobs. We must

work collectively and cooperatively to harness every applicable resource to stop this threat to consumers and to level the playing

field for American workers and industry. Thank you.

[The prepared statement of Mr. Brown appears in the appendix.]

Senator STABENOW. Thank you very much.

At this point I am going to have to recess for just a few moments.

I will recess the committee. I apologize, Ms. Tease. Either myself

or Senator Grassley will be coming back to chair. I will be returning as well. But we have multiple things. Until we have figured out

how to say ‘‘beam me up, Scotty’’ to be able to be in more than one

place at once, I apologize. We will recess the committee for a few

moments. Thank you.

[Whereupon, at 9:47 a.m., the hearing was recessed, reconvening

at 9:56 a.m.]

Senator GRASSLEY. Would you continue with your testimony, Ms.

Tease?

STATEMENT OF ANTOINETTE M. TEASE, P.L.L.C., REGISTERED

PATENT ATTORNEY, INTELLECTUAL PROPERTY AND TECHNOLOGY LAW, BILLINGS, MT

Ms. TEASE. Good morning, Senator Grassley. I would like to

thank you for the invitation to appear before you today to talk

about intellectual property rights enforcement from the perspective

of a solo patent and trademark attorney from Billings, MT.

I would like to begin with a few words about Montana. Montana

is a highly entrepreneurial State. We are ranked number one for

entrepreneurial activity, and we experienced the third-largest increase in exports among all 50 States in 2006. Montana’s State university system is recognized nationally for its entrepreneurship

program. What this means is that both global trade and the protection of intellectual property rights are very important to Montana’s

10

economy. With that said, I believe that my comments will be representative of small businesses throughout the United States.

I have been asked specifically to address how Customs might do

better in enabling small businesses like my clients’ to record their

intellectual property rights with Customs and enforce those rights.

With respect to recordation, I have made some specific recommendations in my written testimony.

The first recommendation is that the Customs recordation process be integrated with the trademark and copyright registration

processes. The Trademark Office has an electronic registration system that is transparent and easy to use. Customs has implemented

an electronic recordation system, but many more of my clients

would record their marks with Customs if they could do so simultaneously with applying for registration of the mark at the U.S. PTO.

Second, I have proposed that the trademark renewal processes at

the U.S. PTO and Customs be integrated so that a trademark

owner can renew its trademark registration and Customs recordation at the same time.

Third—and this is the most significant issue relative to recordation from my perspective—I have proposed that parties seeking to

record a trademark or copyright with Customs be allowed to opt

out of providing information that they believe is confidential or constitutes a trade secret.

Let me give you a real-world example. I was on the phone yesterday with a client from Bozeman that would like to record one of

its trademarks with Customs, but the Customs application form requires us to disclose the names of all persons and business entities

authorized to use or apply the mark. This would require my client

to disclose its entire customer list. Regardless of whether Customs

treats this information as confidential, clients are reluctant to provide this information to any third party, including the government.

For those of my clients that have chosen not to record their

trademarks or copyrights with Customs, the main reason is not because the amount of information required is burdensome, nor is it

due to the cost of recordation, but it is because they are reluctant

to provide confidential and trade secret information.

I have proposed that rights holders be allowed to opt out of providing this information to Customs in exchange for their agreement

to bring to the attention of Customs any shipments containing violative imports of which they are aware.

Fourth, I believe there should be an automated process for reporting suspected violations to Customs. For example, if we know

that a particular company may be importing counterfeit goods, we

ought to be able to submit that information to Customs electronically and receive an immediate acknowledgement that that information has been received.

Ideally, information would be provided to the trademark or copyright holder periodically by e-mail about the status of the investigation. Generally speaking, Customs is perceived as a closed agency,

one that is difficult to communicate with. The more we can do to

provide transparency on the IPR side, the more companies will participate in the recordation process and choose to enforce their

rights through Customs. This concludes my comments about the

Customs recordation process.

11

I would like to briefly address three other topics that relate directly to the issue of IPR enforcement. The first issue is that of

achieving better coordination of U.S. IPR enforcement efforts. As

you know, the National Intellectual Property Law Enforcement Coordinating Council has been widely viewed as ineffective. Both the

Senate and the House have proposed legislation that would eliminate NIPLECC and establish an IP enforcement network or an IP

enforcement representative in its place.

Regardless of which avenue is taken, I believe that greater emphasis needs to be placed on coordinating the IPR enforcement efforts of various governmental agencies. Intellectual property rights

have taken on such a degree of importance in our present economy,

that enhanced governmental action to preserve and enforce these

rights is essential.

I do not believe that any discussion of intellectual property rights

enforcement would be complete without mentioning patent law reform. The reason I say this is because we can place all our emphasis on enforcement, but, if the laws we are enforcing do not make

sense or are no longer reflective of our current economic and political environment, then our enforcement efforts are misplaced.

If we wish our foreign trade partners to recognize the value of

a stable patent system and the benefits that can be realized from

fostering a climate of innovation, then we need to lead by example,

and that entails maintaining a constant vigilance over our patent,

trademark, and copyright systems to ensure that they are achieving the fundamental goals of fostering innovation without stifling

competition.

Lastly, it is one thing to enforce intellectual property rights at

our borders. It is another to work with foreign governments to effectuate the cultural and economic changes that are required to

stop piracy at its source. To be truly effective in this endeavor, our

vision must include working with foreign legislative bodies and IP

offices, on both the public and a private level, to share knowledge

and instill a recognition that the protection of intellectual property

rights is mutually beneficial. In this regard, the United States

should take a vigorous and engaged role in encouraging other nations to develop reciprocal methods of intellectual property rights

enforcement. Thank you.

[The prepared statement of Ms. Tease appears in the appendix.]

Senator GRASSLEY. Thank you all very much. I am sorry I missed

the testimony of the previous three. For the benefit of my constituents, I had a meeting with an Inspector General who was not doing

their job right, and I had to complete that so my staff could continue their work. So that is why I am late.

I am going to ask Ms. Stocker three questions that are generally

related to the general issue of staffing at Customs. Do you have

any concerns that current staffing levels at Customs and Border

Protection and ICE are not sufficient to meet the growing needs of

the trade community? Two, have members of your association experienced any difficulty due to inadequate staffing? Three, how would

you recommend the committee address the issues?

Ms. STOCKER. All right. Number one, on sufficiency, I think there

may be a need to increase the amount of personnel at the border

because of the idea of one face at the border. It can work, with

12

training. We need each of the individuals at the border to be able

to do multiple projects and be trained to do multiple projects. In

addition to that, we need to make sure that they can know compliance, reasonable care, and risk management.

To address, secondly, the differences in what is needed with regard to the pendulum swinging, they are doing too much of security. We need them to swing back and look more at compliance, because, as they take a look at compliance and arrange for our good

customers who are C-TPAT compliant, et cetera, they can then

have more time to do other risk-management pieces.

Three, how would we like you to address it? Obviously with additional funding from the committee. If I have any other comments,

we will give those to you later.

Senator GRASSLEY. All right.

Also for you, we know that you criticized the recent proposal by

Customs and Border Protection to eliminate the so-called first sale

rule. If implemented, what impact would this proposal have on

your members? Are you aware of any problems your members have

encountered with corroborating first sale transactions? And, lastly,

could implementation of this proposal provoke any backlash from

the business community in terms of participating in public/private

initiatives that are administered by Customs?

Ms. STOCKER. Well, the question is really, why would we want

to change it, and why do we want to change it now? It is wellestablished law at this time. We have had really no change in the

way we operate. To include that in a new regulation would really

slow business down and cause us to have additional expenditures.

We would have to redesign our business models to make sure

that we could account for the significant change in the sale and the

difference between taking a look at a WCO non-binding opinion,

and having CBP change the law would, at this point, slow down

the American economy and make us change some things that

would cost us a lot more money.

Senator GRASSLEY. Would it keep the business community from

participating in those public/private initiatives?

Ms. STOCKER. It probably would not, because we need to be in

the ‘‘green lane’’ to keep moving. However, it would cost us some

more money, and we are looking for some additional benefits, because we thought that C-TPAT and working with CBP should be

a partnership, and looking at the change of the first sale rule sort

of violates the partnership agreement.

Senator GRASSLEY. Mr. Banks, in your testimony you mentioned

that the ‘‘green lane’’ concept is not working as an incentive for

companies to participate in Customs’ programs. You also cite numerous costs that companies incur to implement and participate in

these programs. How can Customs and Border Protection deliver

on the ‘‘green lane’’ concept? What types of benefits do you think

would be attractive to the trade community that serve as incentives?

Mr. BANKS. Senator, quite frankly, I think CBP could use a push

to actually sit down with industry and have an open, candid dialogue on what benefits would really help industry in terms of managing their supply chains as a result of these companies participating in CBP’s security programs and the partnership programs.

13

I think CBP has really dropped the term of ‘‘green lane,’’ but I

think there is a whole series of tangible benefits that would really

encourage the participation of industry in these security programs.

I just went through a few simple ones, such as, CBP today releases low-risk ocean shipments 5 days before arrival. Why could

they not release it immediately upon arrival to help importers get

greater visibility into their supply chain? There is a whole series

of even just small things that they could do that would incentivize

industry to continue their support on all of these programs.

Senator GRASSLEY. I have to follow up based on what you said

in the first sentence, that they ought to sit down and talk. Now,

I would not know whether they sit down and talk to you regularly

or not at all, but obviously they do not, at least that you know

about. Is there an institutional bias against their doing that? Do

you have any reason to think they do not? Does the law not permit

them to do that?

Mr. BANKS. Actually, CBP has done a great job in terms of making sure they engage with industry and talk about the design and

development of some of these programs.

Senator GRASSLEY. I thought you said they did not.

Mr. BANKS. But the problem is, they talk about the design and

the development of the programs. What they do not sit down and

do is, they just have not spent the energy or the effort to talk about

what benefits could industry receive as a result of it. It is kind of

like, let us talk about the technicalities of how the security programs all work, but, as soon as industry raises the issue of, well,

what benefits could we possibly get in order to provide incentives

to our companies, then CBP kind of is not quite as engaging on

that benefit side.

Senator GRASSLEY. Also for you, Customs and Border Protection

recently issued a request for quotation for a program known as the

Global Trade Exchange. Do you have any concerns with respect to

the proposed program? Can you identify any benefits with respect

to the proposed program? What types of challenges would importers face if such a program were made mandatory?

Mr. BANKS. I think most of industry objects to this Global Trade

Exchange. They are concerned about, nobody knows exactly what

it is. Second, industry is very concerned about their proprietary

trade data being shared with a privately owned and operated company.

My personal view is, if this program were to be developed as

kind of a prototype, a test bed, on a voluntary basis for participants, I do not know that it would not be a good thing, to find out,

can you get more data, can you help with security, and can you actually provide these benefits to industry as a result of it? But if you

ask most of industry, they are going to do thumbs down on that

concept.

Senator GRASSLEY. I have one more question, then I think I will

submit questions for answer in writing.

[The questions appear in the appendix.]

Senator GRASSLEY. Mr. Brown, you mentioned in your testimony

that Ford was one of the original seven charter members of the

Customs-Trade Partnership Against Terrorism program. What benefits does Ford derive from its participation? What recommendaVerDate 11-MAY-2000 14:32 Mar 24, 2010 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 55193.000 SFIN1 PsN: SFIN1
14

tions would you suggest for improving the program? Do you have

any reaction to what Mr. Banks had to say about the green lanetype incentives?

Mr. BROWN. Yes. The C-TPAT program has been a benefit for

Ford and members of our industry by enabling the identification of

secure and known importers. Ideally, that system could be leveraged to help free resources within CBP to actually push for unknown and counterfeit importers, hopefully improving the level of

scrutiny to those kinds of importers. So that is kind of where I

would focus. No, I do not have anything to add to Mr. Banks’s comment regarding green lane.

Senator GRASSLEY. Senator Stabenow?

Senator STABENOW. Yes. Thank you.

Senator GRASSLEY. In the middle of your questioning, Senator

Baucus asked if we would follow the Senate procedure and have a

2-minute moment of silence.

Senator STABENOW. Yes, please. Is that at 10:15?

Senator GRASSLEY. Yes. I think we should do it at 10:15.

Senator STABENOW. All right. Thank you.

Thank you again for all of your testimony. I would like to direct

this to Mr. Brown, from Ford. Obviously what happens in manufacturing is very important to us in Michigan. Certainly we have the

largest northern border crossing in Detroit to Windsor, so we come

face to face every day with the dual responsibility of Customs and

Border Protection between focusing on security and safety, at the

same time having over a billion dollars worth of commerce that is

crossing our bridge and tunnel every day. So, it is a terrific challenge for us in doing that.

I wonder if you might speak, though—you talked about a number I have used a lot, a $12-billion automotive sector counterfeit industry, costing us over 200,000 jobs. I have heard 250,000 jobs. I wonder if you might speak more to how this design piracy or this counterfeiting that is not being stopped at the border has affected

Ford’s bottom line.

Mr. BROWN. Well, design piracy, specifically on just those limited

parts related to the exterior ornamental designs of the vehicle, as

I mentioned in my testimony, the impact to Ford alone is estimated

to be $400 million in lost sales.

Senator STABENOW. Four hundred million?

Mr. BROWN. Four hundred million dollars of imported parts. Obviously Ford’s position in the market, if you extrapolate that out

to the overall market, that number is just a representation of approximately 5 percent of the parts of a car. So when you start talking about counterfeiting, you are really talking about many, many

more parts than just those related to the exterior design. So it is

a very significant problem with a very significant impact on the

bottom line for Ford.

Senator STABENOW. Have Customs officers at ports ever contacted Ford about suspicious products?

Mr. BROWN. Yes. We get contacted regarding a number of products that bear Ford’s brands, predominantly, and we are now working with Customs to help them effectively identify any parts that

are in violation of our exclusion order that we have made regarding

our exterior designs on the F–150.

15

Senator STABENOW. As an international company, you see other

countries operate. I am wondering how U.S. Customs performs

compared to other industrialized countries such as those in the EU.

How would you compare those?

Mr. BROWN. We work closely with customs agencies around the

world. Where we have been able to work and give clear instruction,

we have had some success. I think everywhere around the world

we could actually work better together to try to increase the enforcement of our IP with respect to the parts of vehicles. We tend

to find very good enforcement with respect to Ford branded parts

that do not necessarily relate to the vehicle itself—hats, tee shirts,

and toy cars. But we really need to continue to press forward on

trying to reach better performance on actual counterfeit parts, and

that would be a great opportunity for us to discuss with Customs

and Border Protection to see how we can improve that.

Senator STABENOW. Thank you.

Senator GRASSLEY. Could I interrupt right now?

Senator STABENOW. Yes, please.

Senator GRASSLEY. Then you can continue your questioning.

Senator STABENOW. Thank you.

Senator GRASSLEY. For the benefit of everybody, what we are

doing now, because it is 10:15, on the Senate floor there will be a

moment of silence to honor the service and sacrifice of our troops

and their families for their service in Iraq, Afghanistan, and

around the world in the war on terror, at this point we would halt

the proceedings for a moment of silence.

[Whereupon, a moment of silence was observed.]

Senator GRASSLEY. Continue, Senator Stabenow.

Senator STABENOW. Thank you.

Senator GRASSLEY. I have been informed that Senator Baucus

will be back to ask questions, because he participated in the larger

ceremony, and that is the reason for his absence. He will be here,

and he would like to ask questions, I am informed. Proceed.

Senator STABENOW. Thank you.

Mr. Banks, I am wondering if you believe, with your experience

with Customs and dealing with countries like China—we have

heard so many things, multiple issues that relate to trade enforcement with China, and certainly recently we have passed a strong

Consumer Product Safety Commission bill just last week in the

Senate to try to address a piece of it, and we are trying to address

issues around enforcement.

But I am wondering if you believe that countries like China right

now take us seriously when we talk about intellectual property

rights and product safety, and yet at the same time we do not have

the staff, we do not have the enforcement, we are not stopping the

counterfeit products, the fake products as they enter the country.

Do you think they take us seriously?

Mr. BANKS. I guess I am not convinced that a number of countries really take us seriously when it comes to intellectual property

rights. They allow free reign to basically benefit their own companies or their own manufacturers. I think it is different for the import safety issue. I think they really are paying attention to this

because they know there is the real threat we are going to stop

those products from coming in.

16

Now, can they actually exercise those controls within their countries where there are vast numbers of manufacturers? I am not

convinced of that. I think if the U.S. Government, cooperating with

other countries that are concerned about import safety, if we do not

kind of hold people’s feet to the fire on that, we are going to continue to have problems.

Senator STABENOW. So really, it makes sense. If they cannot sell

products to us because the toothpaste poisons people, the pet food

poisons animals, the toys, and so on, that is one thing. But stealing

our ideas and counterfeit products at this point does nothing but

add to their bottom line.

Mr. BANKS. It is economic incentive. Yes.

Senator STABENOW. Yes. So we really have to show them that we

are serious about that. I think it was interesting at another hearing we had not long ago, former Commerce Secretary Mickey

Kantor spoke about the fact that, with 230 trade agreements currently on the books, we have the smallest trade enforcement agency of any of the industrialized world, which was pretty significant

when you think of it that way.

Recently, over the President’s Day recess, I had a round table

with manufacturers, and Under Secretary Padilla was gracious

enough to come in and meet with a number of business people. One

of the things that we heard is frustration that the companies have

to identify the problem, identify the source, bring the problem to

Customs’ attention, and only then could they—maybe—get some

kind of action.

And so I wonder if you might speak more about Customs being

proactive rather than reactive and all the cost that involves for

businesses right now in the way this is set up.

Mr. BANKS. Well, quite frankly, Senator, I think Customs is

proactive in this area. They really do try to focus in on some of

this. But for the most part, I do not think industry knows about

a lot of those efforts because CBP is a law enforcement agency.

They do not share this information. I mean, they will share information on individual seizures, but I really do think they are trying

to work this. Could they work it harder? You betcha. No question

about that.

Now, about industry supplying intelligence information or lookout information, I think industry tries to do that. I guess—and we

have heard it from some of the representatives today—CBP takes

that information in but they really do not inform industry as to

what happens with that information. They really are not overly

communicative. Again, they are a law enforcement agency. Some of

that is understandable. But it would help if there were a closer

partnership, if there were better systems in place to be able to ensure that there were coordinated intellectual property rights enforcement capabilities.

Senator STABENOW. So you are feeling at this point that this is

a communications issue as much as it a——

Mr. BANKS. I think it is a communications issue. I also think Mr.

Brown and Ms. Tease talked about some improvements, some process improvements. How can you get this information to the agency?

How can you simplify the process for industry to be able to supply

17

that information? I think there were some great suggestions in that

testimony in order to be able to accomplish that.

Senator STABENOW. All right. A question from manufacturers to

all of you. Many major U.S. companies are already participants in

the U.S. C-TPAT program. These companies receive almost no benefits under the 10+2 rule, despite their officially recognized status

as a trusted trade partner. Failure to treat these participants differently wastes limited targeting and inspection resources that

could be more effectively devoted to unknown or suspect parties. Do

any of you know why the program does not link the C-TPAT risk

management program together? Anyone want to respond to that?

Mr. Brown?

Mr. BROWN. I do not know.

Senator STABENOW. You do not know. All right.

Mr. BROWN. I mean, you said it well, Senator. We do not know

why they are not leveraging C-TPAT.

Senator STABENOW. Yes, Ms. Stocker?

Ms. STOCKER. One of the things that we could try to do is, in

many instances if a C-TPAT company talks to their account manager, because of the number of inspections or whatever that are

happening, on a discussed process, they will then see that a CTPAT company can get less inspections or less stoppage or less review when it is noted.

So as things happen and the ports are instructed, then you can

probably, if you want to say after the fact, get a better handle on

having them focus on other non-C-TPAT businesses. But until you

really have an issue that can be discussed with the account manager and work with the ports, sometimes who is and who is not CTPAT does not happen in their risk models and you do get a number of inspections before that can happen.

Senator STABENOW. Well, right now, initially this is for sea-going

cargo, but it is my understanding it will shift to land borders at

a later date. If that happens, there is great concern in Michigan

about devastating our economy, which of course is linked to our Canadian neighbors, literally, on a daily basis of people and cargo,

and so on. I am wondering, do you know if Customs made any consideration of the impact of applying 10+2 to land border crossings

as it relates to U.S. manufacturers?

Ms. STOCKER. I am sure they are looking at it, but we need them

to look at it much more quickly and have discussions, and open discussions with the trade on what we can do proactively to continue

to try to come up with some plans to better move our cargo on the

land borders. But, no, they have not come up with anything specific

at this time.

Senator STABENOW. Let me just ask another question, Ms. Stocker, as it relates back to product safety. In light of Customs’ failure

to secure the borders against counterfeit parts and dangerous goods

at this point, I mean, we have serious challenges. How have importers increased their own monitoring of foreign products that

they bring into the country?

Ms. STOCKER. Many companies have a quality control program.

They are probably doing a lot more testing with contract manufacturers and other providers that are outside of the Nation. SpecifiVerDate 11-MAY-2000 14:32 Mar 24, 2010 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 55193.000 SFIN1 PsN: SFIN1
18

cally by program, I cannot answer that question. We can get back

to you and do some research for you on that.

Senator STABENOW. It would be very helpful to know what companies are doing. I do not know, Mr. Brown, from Ford’s perspective, if you could elaborate more on what Ford is doing, or other

auto companies.

Mr. BROWN. Sure. Absolutely. We deploy resources on a global

basis. Finding counterfeit parts in North America, for instance, in

the U.S., is very important to us. But what we found, through our

years of trying to combat counterfeiting and piracy, is that it is a

lot more effective to go to the source and try to find where those

products are coming from and to try to get the message out there

that we are the wrong company to tread on.

So that is why we have a global enforcement team that is dedicated to policing our marks and our intellectual property. Frankly,

that is where greater collaboration with Customs would be really

very helpful, because as of now this is largely a privately funded

effort. We would like to think that, with greater resources and assistance from Customs, we could be a lot more effective.

Senator STABENOW. Great. Thank you.

Well, Mr. Chairman, you are here right on time. I was done with

my questions. I will turn it back over to our distinguished chairman.

The CHAIRMAN. Thank you, Senator, very much for taking the

time. I very much appreciate you chairing the hearing.

And I apologize to the witnesses for this inconvenience. You are

unfortunately here also during vote-a-rama day on the budget resolution, which is just nuts, is what it is.

I would like to ask a question of the witnesses about small ports

and resources for personnel at smaller ports. I am getting concerned statements from some of our personnel, especially in our

State of Montana, who really want to do a good job, but do not

know that they have all the resources that they really need to do

the job. These are smaller ports.

What can we put in the Customs reauthorization bill to address

that concern? I will let anybody who wants to, answer that question, just so indicate. Mr. Banks?

Mr. BANKS. I think there are two issues there, Mr. Chairman.

One is, you have tremendous turnover of personnel within Customs. They need to have kind of an incentive to be able to recruit

some of the best and the brightest who are out there. One of the

things that was on the administration proposal was to provide

something called law enforcement status, or CICSI retirement status. It is an incentive to basically draw quality people into the organization. But I hear the President’s budget omitted it. It would

be great if that could be put into one of your bills to make sure

that we can find the best people to come into Customs to support

it.

The CHAIRMAN. Now, does that help small ports, or all Customs?

Mr. BANKS. It is going to help all ports. But the thing is, you

need some of your very best people in the small ports because they

have to do everything. That is the hardest part about it. You can

have specialists in the bigger ports, but in the smaller ports, you

19

really need to get some of the very best because the breadth of the

mission is astounding.

That brings, actually, the second suggestion. Much more needs to

be done in terms of training. With all this personnel turnover, with

all these new missions being added as part of DHS coming together, like immigration and the agricultural issues, training needs

to be intensive.

The CHAIRMAN. Any thoughts though on what we can put in a

bill that would help enhance that probability?

Mr. BANKS. I think this law enforcement status, CICSI coverage,

is something that could be absolutely put into the bill. On training,

do you specifically demand a report on what they are doing in

terms of enhancing that training, especially for the small ports? Do

you authorize them to have some kind of a remote video training

program in order to be able to achieve that? Those are possible

ideas.

The CHAIRMAN. Ms. Stocker, do you have a thought?

Ms. STOCKER. My only thought is to authorize them to have

enough money to complete their systems and their training mission, because in today’s environment, if you have a good computer

system and a good way to train people to use it, you can do more

with less. So, making sure that their funding is appropriated.

The CHAIRMAN. All right.

Mr. Brown, the same? All right.

Ms. Tease, you were raising your hand.

Ms. TEASE. Yes. I am sorry. I would add that I think substantive

training in intellectual property law would be helpful. I get calls

from potential clients every day who do not know the difference between a patent, a trademark, and a copyright. They want to trademark their inventions and copyright their logos. I think for our

Customs officials to appreciate the differences between patents,

trademarks, and copyrights, would be important.

In the trademark arena, according to the Customs regulations,

they need to be able to distinguish between counterfeit goods and

confusingly similar goods, so they are going to need a basic appreciation of trademark law in order to do that, and the same on the

copyright side where the legal standard for infringement is substantial similarity. So I would add that the bill might address substantive training in intellectual property law.

The CHAIRMAN. Could you all again give us a flavor of or indicate

the importance of the correct balance in official duties between basically commercial, say, and enforcement? That is, the problem we

are going to have in our country if we do not get that balance right,

that is, we do not spend enough time on the commercial side, which

gets to resources, training, and so forth? Again, what are the implications? What are the consequences of not getting that balance

right? Mr. Banks?

Mr. BANKS. Mr. Chairman, I think the consequences are huge.

Take a look at import safety. Take a look at all these unsafe products that have made it into the country. Who is focused on that?

Well, that is a trade issue to a great extent. It is equally important

for the Nation’s security of its public health. This trying to achieve

balance between kind of the border security side and the trade side

has been historic. It used to be drug enforcement versus trade. It

20

is a real tough balancing act. If they let one terrorist in, this is a

huge, huge issue.

But today, take a look at how many times—it seems like on a

daily basis you see this counterfeiter-contaminated heparin drug

coming in from China. That is part of the reason CBP needs to

spend more focus, more time, more attention on the trade side as

they do on the enforcement or security side.

The CHAIRMAN. Who else wants to just address the consequences

of not getting this right? Maybe quantify it.

Ms. STOCKER. Well, I do not think I can actually quantify it, but

making sure we have good training in risk management is important. If good customers are moving goods that are very low risk,

then repetitive low-risk shipments should be viewed as that and

that will free up the time to take a look at the non-regular type

shipments where you are probably going to have an issue. I think,

as the pendulum swings, it is the risk management piece that I

think sometimes is left out of the training.

The CHAIRMAN. Why is that left out? Why is risk management

left out?

Ms. STOCKER. Probably because it is the hardest of them all. As

we talked about the brain drain, it is over time. As you have experienced, you can figure out, what is the best way to look at this

particular scenario. But I would think statisticians and other people involved in the programs should be able to figure out a way to

help train young folks on risk, because, yes we have compliance,

and yes we have reasonable care, and yes we have security, but it

is the true balance, and where is your risk so you can target that

risk in the right place.

The CHAIRMAN. Ms. Tease?

Ms. TEASE. I am happy to give you a real-world example and a

quantification, Senator. I believe that, if the balance tips too far in

favor of security versus IPR enforcement, there will be clients in

Montana that will lose market share and dollars. My example may

not sound significant like companies like Ford and Procter and

Gamble, but I just completed a patent enforcement effort on behalf

of a Bozeman manufacturing company.

Over the past year and a half, we have gone after six companies

that were infringing our patent. We have settled with all six, and

I would say the dollars in the door to this manufacturing company

were about $150,000. That is a significant number to that Bozeman

manufacturing company, and will pay my bills for the next 5 to 10

years. They have literally put it in the legal fund for enforcing

their other patents. So, that is an example for you.

The CHAIRMAN. Now, what happened in that case? You say there

was an infringement?

Ms. TEASE. Yes.

The CHAIRMAN. Could you maybe just give us a sense of the infringement?

Ms. TEASE. I will try. I have to be careful not to get into attorney/client privilege here.

The CHAIRMAN. Sure.

Ms. TEASE. But the infringers were all manufacturing these

goods overseas and they were imported into the United States. Mr.

Brown talked earlier about the importance of maintaining private

21

enforcement efforts and not relying solely on Customs to prevent

these goods from getting into the U.S. So we contacted these companies, starting with cease and desist letters, and then drafted

complaints and negotiated settlements.

I will add that what I am hearing from my clients is there is virtually no intellectual property screening occurring in the Seattle

port, and that is where most of my clients’ goods are coming

through, so the onus falls on us to enforce our patent rights, again,

as Mr. Brown said, once they have crossed our borders.

The CHAIRMAN. Help me a little bit. I have never worked in the

Seattle port. So what happens mechanically, administratively?

That is, what should a Customs official do to do the proper screening?

Ms. TEASE. I think how it is supposed to work, Senator, assuming that resources were infinite, is that containers would be physically inspected and checked against the information that Customs

has on recorded marks, and not only the recorded marks, but the

parties that are authorized to use or apply those marks.

That is why they ask those questions on the application form, so

if they open up a container and it has one of my client’s marks on

it and we have recorded that mark, they can check the list of authorized parties and determine whether or not that is a counterfeit

good. That, in theory, is how it is supposed to work.

I think as a practical matter, very little or no intellectual property screening is occurring, at least at the Seattle port, I suspect

because of a lack of resources. I can tell you also that the same client I mentioned uses Expediters International, a Customs brokerage house that handles the 10+2 type issues, the Customs documentation, and they do not have anyone physically present at the

ports either. So, it is just Customs that is there. They are the only

ones receiving these containers and responsible for inspecting

them.

The CHAIRMAN. I actually was at that port about a year ago and

various people showed me what they do. A couple of things struck

me. One is, properly, the focus on security. A lot of these containers

were X-rayed, and lots of different technology applied. But it struck

me that it is still pretty rudimentary. It just seemed to me there

should be a better way of doing this.

For the United States of America not to have even better technology, more sophisticated, seemingly fail-safe ways to address

products coming in—I am talking, only the security side struck me.

But, second, on the commercial side, I did not sense that much was

going on at all, frankly. That was quite concerning to me. I did not

ask how would one properly screen for infringement, but I did not

see them doing anything that seemed to me to be performing that

duty.

What about going further out? Not only just trying to screen at

the border, but other ways to protect intellectual property infringement from even getting across the ocean to the United States?

What are your thoughts on that, Ms. Tease?

Ms. TEASE. Yes, Senator. I appreciate your asking that question

because I think there are a lot of good things in the PRO IP Act,

the bill H.R. 4297. The reason I like that Act is, it calls not only

for an IP enforcement representative who would report directly to

22

the President and to Congress—I think intellectual property enforcement needs to be taken seriously at that level—but it would

call for 10 IP attache ́s, diplomatic attache ́s to participate in diplomatic missions and/or be stationed at our embassies abroad, and 5

IP law enforcement coordinators responsible for various regions

around the globe. This all gets to your issue of effectuating the cultural and economic changes required in other countries to stop piracy at its source. It would also call for a Department of Justice

IP Enforcement Division. Right now, the IP work is really just occurring in the Criminal Division.

I would like to say something about these CHIP positions, Computer Hacking and Intellectual Property, the USA positions. Currently, in theory, there is one in every DOJ district within the

United States. However, these positions need to be funded, as opposed to heaping additional duties on existing AUSAs, which I can

tell you is what has occurred in Montana.

The CHAIRMAN. I would like to ask you also about CBP’s proposal

to revise the first sale rule. Without consulting the Congress, or not

consulting this committee, frankly, I have serious concerns about

the proposal to change the first sale rule. CBP did not consult with

this committee or the industry, it is my understanding.

But what are your thoughts on the CBP’s proposed first sale

rule, and what kind of effect will it have on your business operations? Ms. Stocker?

Ms. STOCKER. Well, the effect on the business is that it is going

to cause us to redesign our models on international trade. But we

were wondering why they are trying to do this, and why they are

trying to do it now when it has been well-settled, and it has been

discussed in a number of cases. So it does not really make a lot of

sense to do it now when our economy is not growing at this time

and we really need to continue what we are doing and do it a little

bit better. So we are asking the same question: why? Why now?

The CHAIRMAN. Why do you think they are? Why are they proposing this change? Why, do you suppose?

Ms. STOCKER. Well, the only thing it is really going to do, probably, is increase duties. If they are looking for money—because everybody is—that might be one of the reasons why they are doing

it. But we can ask and get back to you on some additional questions. We can ask a number of our companies to find out, what

their opinions would be.

The CHAIRMAN. I do not mean to overstate this next point or be

kind of corny about it, but the fact of the matter is, all of us in

public service work for people. I am just a hired hand for the State

of Montana. Customs officials are basically hired hands. They are

the employees for the people of our country. Clearly, the right attitude would be, when you are an employee, you want to do a good

job for your employers, which means you want to service your employers.

So companies importing products into the United States, I presume, would like to have their employees do a really good, bangup job and so forth, and the employees themselves want to do a

really good, bang-up job and do its best for United States importers, for example.

23

My question, though, really is, do you find that attitude when

you work with Customs? That is, boy, as a Customs official I want

to do what is right here and really help. If it is not quite what you

would like it to be, to what degree is it lack of resources, to what

degree is it lack of training, to what degree is it just attitude, and

so forth? Ms. Stocker?

Ms. STOCKER. I truly believe that everyone in the chain is trying

to do the best job possible, and I think the issues really are, what

are the current trends and where has the pendulum swung. So

right now CBP is very, very adamant and working a lot more toward trade security versus trade facilitation. Yes, in many instances we do have a lot of very good dialogue. They take our input

and we see some of the changes.

But I think as the pendulum swings back and forth at different

times, at this point we are really a lot more into the security end

versus in the trade facilitation end, and we would like to see that

pendulum swing back. There has always been a relatively good

open dialogue with regard to discussion, but sometimes the outcome is not necessarily good middle-of-the-road outcome where everyone can benefit.

The CHAIRMAN. I appreciate that. But again, and I know I am

repeating myself, but how do we swing the pendulum back? What

can this committee do to help get that pendulum swung back?

Without sacrificing security, what do we do to get that pendulum

back so we are doing a bang-up job on the commercial side?

Ms. STOCKER. Well, one of the things that I think we can do with

regard to the systems is making sure that systems are better so we

have more people who can work within the process and on the

process to get it to be better in total, and second, taking a look at

all of the different things that everybody is doing, all of the different trade programs that are out there. We need to simplify.

‘‘Not invented here’’ is not a good process. Taking what is already

there to make it better would work as opposed to new, new, new

all the time. Let us take some well-established procedures and

processes, get them working, and get them streamlined so we can

all be on the same set of rules and procedures and not constantly

adding new, new, and more and more.

The CHAIRMAN. But what can this committee do with respect to

our oversight functions? On one extreme, we could have hearings

every day and have it all lined up, different components, different

parts of this problem. But we cannot do that, clearly. So what can

this committee do as efficiently as possible to get the pendulum

back on the commercial side?

You mentioned, Mr. Banks—I forget what the classification is so

people can get paid better and that kind of a thing. But what else

can we force? We could ask for reports. My view is, often you have

to ask. It is good to have plans, benchmarks, quantify progress, see

how you are doing—dates, deadlines, and that kind of thing. So, if

we were to ask the agency to come back and give us a report, what

would be some of the components in that report, assuming we have

established benchmarks and deadlines to quantify progress and so

forth? Mr. Banks?

Mr. BANKS. Mr. Chairman, one of the things I would suggest, I

mentioned there are two computer systems. Charlene talked about

24

computer systems. There is something called the Automated Commercial Environment. It is basically a pipeline for trade data that

comes in. There is something called ITDS, the International Trade

Data System, which allows the sharing of that information across

all sorts of government agencies to do a better enforcement job.

Quite frankly, both of them are under-funded. Both of them are

not happening fast enough. If you really want to impact trade by

developing—if you can accelerate the process of those two systems,

you almost force CBP into spending more time on trade issues and

trade facilitation. Authorization is key for those systems.

The other one is, you are absolutely correct, demand reports or

require reports on what actual progress is being made in order to

be able to share this information with both industry and with other

agencies. Establish milestones that need to be met and hold their

feet to the fire. I think that, just in that sense alone, would be a

huge step forward.

The CHAIRMAN. Well, I appreciate that. You can help us in drafting the report language, too.

Ms. Stocker, any thoughts on what we should have the agency

do when we ask them to report back to us?

Ms. STOCKER. I think Sam’s point on ITDS is key. If you look at

our second chart where we talk about the number of agencies that

have not yet implemented, green means fully implemented on

ITDS, that those agencies get all of the data. The rest of them are

either in progress or very slow behind that. Once we submit data,

having all of the agencies pull from that same pot of data will help

everybody. So pushing the different agencies and maybe requiring

them to get on ITDS, will really truly help us.

The CHAIRMAN. All right.

Ms. STOCKER. It will use the money properly.

The CHAIRMAN. Good.

Mr. Brown, your thoughts. What do we ask them to tell us in the

report?

Mr. BROWN. Well, actually, I really have nothing to add to what

they have said. I think they have hit the big issues right on the

head.

The CHAIRMAN. All right.

Ms. Tease?

Ms. TEASE. Yes, Senator. I think Sam touched on this earlier. I

think the problem really is a cultural one within Customs, from

what I am hearing. They think of themselves as a law enforcement

agency and not so much as a public service agency, like the U.S.

Patent and Trademark Office, which has done some good things in

that respect, and there is still room for improvement in others.

I think what we can do in the bill is make some very specific recommendations as to how Customs communicates with the public,

with practitioners like myself and interested parties, and that

would include making recordation easier—and we have elaborated

on some of these recommendations in our written testimony—providing a mechanism for electronic reporting of violations, fixing the

website. The Informed Compliance Publication on IPR enforcement

needs to be re-posted. It has been taken down for 2 years now. Get

a Help Desk like the Patent and Trademark Office has.

25

The CHAIRMAN. Well, I am going to have to wrap up. This has

been very helpful to me, and obviously this is just a first step. I

am very interested in getting this direction to Customs to have

them come back and report to us. I am very interested in having

you all help design the request. This is kind of exciting. We will

make things happen here. We will address the culture issue, modest resources, as you have suggested. I am just very interested in

kind of getting that pendulum back to where it should be, and

thank you very, very much for taking the time.

The hearing is adjourned.

[Whereupon, at 10:49 a.m., the hearing was concluded.]

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