U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

21–827 PDF 2006

S. Hrg. 109–352

FINDING AND FIGHTING FAKES: REVIEWING THE

STRATEGY TARGETING ORGANIZED PIRACY

HEARING

BEFORE THE

OVERSIGHT OF GOVERNMENT MANAGEMENT, 

THE FEDERAL WORKFORCE AND THE DISTRICT 

OF COLUMBIA SUBCOMMITTEE

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

JUNE 14, 2005

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Chief Counsel 

TRINA D. TYRER, Chief Clerk 

OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL 

WORKFORCE AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE 

NORM COLEMAN, Minnesota, Chairman 

TED STEVENS, Alaska 

TOM COBURN, Oklahoma 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

ANDREW RICHARDSON, Staff Director 

RICHARD J. KESSLER, Minority Staff Director 

NANCI E. LANGLEY, Minority Deputy Staff Director 

TARA E. BAIRD, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

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

Senator Akaka .................................................................................................. 4

Senator Pryor .................................................................................................... 11

Senator Carper ................................................................................................. 31

Senator Levin .................................................................................................... 34

WITNESSES 

TUESDAY JUNE 14, 2005

Jeffrey O. Evans, President and Chief Executive Officer, The Will-Burt Company, Orrville, Ohio ............................................................................................. 6

Jon W. Dudas, Under Secretary of Commerce for Intellectual Property, and 

Director, U.S. Patent and Trademark Office ..................................................... 15

Victoria Espinel, Acting Assistant U.S. Trade Representative for Intellectual 

Property ................................................................................................................ 17

Daniel Baldwin, Acting Assistant Commissioner of the Office of Strategic 

Trade, U.S. Customs and Border Protection, U.S. Department of Homeland 

Security ................................................................................................................. 19

Laura H. Parsky, Deputy Assistant Attorney General, Criminal Division, 

U.S. Department of Justice ................................................................................. 21

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

Accountability Office ............................................................................................ 23

Brad Huther, Director, Counterfeiting and Piracy Initiative, U.S. Chamber 

of Commerce ......................................................................................................... 38

Franklin J. Vargo, Vice President, International Economic Affairs, National 

Association of Manufacturers .............................................................................. 40

ALPHABETICAL LIST OF WITNESSES

Baldwin, Daniel: 

Testimony .......................................................................................................... 19

Prepared statement .......................................................................................... 70

Dudas, Jon W.: 

Testimony .......................................................................................................... 15

Prepared statement .......................................................................................... 56

Espinel, Victoria: 

Testimony .......................................................................................................... 17

Prepared statement .......................................................................................... 65

Evans, Jeffrey O.: 

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

Prepared statement with attachments ........................................................... 49

Huther, Brad: 

Testimony .......................................................................................................... 38

Prepared statement .......................................................................................... 109

Parsky, Laura H.: 

Testimony .......................................................................................................... 21

Prepared statement with an attachment ....................................................... 76

Vargo, Franklin J.: 

Testimony .......................................................................................................... 40

Prepared statement .......................................................................................... 118

Yager, Loren: 

Testimony .......................................................................................................... 23

Prepared statement .......................................................................................... 88

Page

IV

APPENDIX 

Grocery Manufacturers Association, prepared statement .................................... 126

‘‘What are Counterfeiting and Piracy Costing the American Economy,’’ submitted by the National Chamber Foundation ................................................... 128

Questions and answers submitted for the record from: 

Mr. Dudas ......................................................................................................... 150

Ms. Espinel ....................................................................................................... 156

Mr. Baldwin ...................................................................................................... 163

Ms. Parsky with an attachment ...................................................................... 169

Mr. Huther ........................................................................................................ 183

Mr. Vargo .......................................................................................................... 187

(1)

FINDING AND FIGHTING FAKES: REVIEWING 

THE STRATEGY TARGETING ORGANIZED 

PIRACY 

TUESDAY, JUNE 14, 2005

U.S. SENATE,

OVERSIGHT OF GOVERNMENT MANAGEMENT,

THE FEDERAL WORKFORCE, AND THE

DISTRICT OF COLUMBIA SUBCOMMITTEE,

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS,

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:20 a.m., in 

room SD–562, Dirksen Senate Office Building, Hon. George V. 

Voinovich, Chairman of the Subcommittee, presiding. 

Present: Senators Voinovich, Akaka, Levin, Carper, and Pryor. 

OPENING STATEMENT OF SENATOR VOINOVICH 

Senator VOINOVICH. The hearing will please come to order I want 

to apologize to the witnesses and to Mr. Evans for the delay. We 

were scheduled with a vote this morning at 10 o’clock. One thing 

that someone asked me a long time ago, what is the difference between Governor and being a Senator, and I said, when you are 

Governor, you control your schedule. When you are a Senator, 

somebody else does, so I again apologize for the lateness of beginning this hearing. 

Thank you all for coming. Today, the Subcommittee on the Oversight of Government Management, the Federal Workforce, and the 

District of Columbia will examine the Administration’s Strategy 

Targeting Organized Piracy, also known as STOP!, which was announced last October to combat the growing international trade in 

counterfeit and pirated goods. 

This is the fourth hearing in a series of trade-related hearings 

by this Subcommittee going back to the 107th Congress. The prior 

hearings were held on April 22, 2002, December 9, 2003, and April 

20, 2004. So we have been on this now for a while. 

International trade in counterfeit and pirated goods now account 

for an estimated 7 percent of all global trade. The impact of this 

trade on the American economy is substantial, with the trade in 

counterfeit goods alone costing U.S. industries between $200 and 

$250 billion, according to the U.S. Trade Representative’s (USTR) 

most recent Special 301 Report. 

2

Moreover, the problem is getting substantially worse. Since 2000, 

the number and value of intellectual property seizures by the U.S. 

Bureau of Customs and Border Protection have more than doubled. 

As these statistics show, thanks to modern communications and 

travel, intellectual property thieves can sell fakes around the globe, 

operating from nearly any country in the world. And thanks to the 

efficiency of modern means of production, they can produce as 

many fakes as they can find buyers. Some thieves are so skilled 

that their fakes are, in some cases, indistinguishable from the authentic products. Even the producers of authentic goods cannot tell 

them apart. 

Such pervasive and sophisticated intellectual property theft 

poses a direct threat to the health of the United States economy. 

Intellectual property is the last bastion of our competitiveness. It 

is the one area where the United States has an absolute advantage 

in global trade. China, along with some of the other countries that 

are competing with us, has cheaper wages, cheaper health care 

costs, cheaper energy costs, but our economy is still vastly more 

productive than China’s and other countries because of our intellectual property. 

What is very troubling to me is that the growth in intellectual 

property theft abroad, especially in China, is occurring despite the 

fact that many of the countries where such theft is rampant, including China, have agreed to enact intellectual property rights 

legislation as part of their trade agreements with the United States 

and the World Trade Organization (WTO). For example, as a condition to its entry in the WTO, China agreed to comply with the 

Agreement on Trade-Related Aspects of Intellectual Property 

Rights, TRIPS, which set minimum standards for intellectual property protection for WTO members. 

Yet, while China did enact the requisite intellectual property legislation, enforcement of the law has been severely lacking, allowing 

intellectual property theft to flourish within its borders. And frankly, some parts of the Chinese economy are just built on trademark 

violations and infringements on intellectual property rights. 

Recognizing the need to combat the burgeoning of intellectual 

property theft abroad, in October 2004, the U.S. Trade Representative and the Departments of Commerce, Homeland Security, and 

Justice initiated the Strategy Targeting Organized Piracy, or 

STOP!—I love it. STOP! is a coordinated government-wide initiative designed to empower American businesses to secure and enforce their intellectual property rights in overseas markets, to stop 

fakes at U.S. borders, and to reach out to our trading partners to 

build an international coalition to stop piracy and counterfeiting 

worldwide. 

I was very pleased with the announcement of STOP!. As someone 

who has worked with several Ohio companies that have had their 

product counterfeited, I can testify to the pressing need for more 

action to help American companies, especially small- and mediumsized companies, fight intellectual property theft abroad. In one of 

the hearings we had a year or so ago, the big companies said, they 

can take care of it themselves. They have lawyers over there. They 

can spend thousands, in some cases millions, of dollars taking care 

of the problem. But the little guy can’t afford it. 

3

I am presently working with three Ohio manufacturing companies that have had their products counterfeited by firms operating 

in China: Gorman Rupp, which produces pumps, Step 2, which produces toys, and the Will-Burt Company, which produces telescoping 

masks, and whose CEO and President, Jeff Evans, will be testifying today. Mr. Evans, thank you for being here today. 

This past April, I traveled to China and had the opportunity to 

meet with Premier Wen. During our meeting, I brought these three 

cases to the attention of Premier Wen and told him that China was 

being short-sighted in not helping these companies, because eventually, such rampant intellectual property theft would deter innovation in China and hurt its economy. I want Mr. Evans to know 

that I will continue fighting for the Ohio manufacturing companies 

and I am not going to stop, sir, until we get something done. 

It is my hope that STOP! can provide American companies with 

the help they need to protect their intellectual property rights 

abroad as well as improve the Federal Government’s overall efforts 

to fight intellectual property theft. I look forward to learning today 

about STOP!’s accomplishments and what the Administration’s 

long-term plans are for this initiative. 

I believe the ultimate success of STOP! depends on its implementation of two important and interrelated issues. First, how STOP! 

improves the coordination of the numerous departments and agencies responsible for protecting intellectual property rights; second, 

whether the Federal Government is able to recruit, train, and retain the workforce necessary to implement STOP!. There is a 

human capital part of this. How many people do you have? How 

good are they? That has a lot to do with whether or not this is 

going to be as successful as we want it to be. 

Any effective campaign against intellectual property theft requires proper coordination of numerous departments and agencies. 

Especially when the perpetrators are overseas, Federal employees 

must work as a cohesive team to maximize their effectiveness. 

However, I am concerned that coordination of intellectual property 

enforcement has not received the attention it demands, and I have 

talked about this with Rob Portman, who is the new head of the 

USTR. 

In addition, in prior hearings by this Subcommittee, it was revealed that several human capital issues were significantly hindering the ability of the Federal Government to enforce our trade 

laws. In particular, high turnover and a lack of formal training of 

personnel were identified as significant problems. Because the success of any initiative depends on the people charged with its implementation, I hope to learn today whether these problems have been 

addressed so that STOP! can fulfill the ambitious goals, the Bush 

Administration, has set forth. 

I also hope to learn today what we in Congress can do to assist 

the Administration in implementing STOP!. Is there additional legislation that we need to pass to facilitate and move on this? 

I am interested in knowing if more personnel are needed, if our 

trade and IP laws are strong enough to deter intellectual property 

theft, and if steps can be taken to reduce the cost to private parties 

to protect their intellectual property rights. 

4

I look forward to hearing the testimony of today’s witnesses and 

I thank Senator Akaka for being here. It seems you and I are the 

ones that just keep working on this, don’t we? I am so glad that 

you are here this morning and I would like to call on you for your 

opening statement. 

OPENING STATEMENT OF SENATOR AKAKA 

Senator AKAKA. Thank you very much, Mr. Chairman. It is a 

pleasure to work with you. Thank you for calling this morning’s 

hearing. Mr. Chairman, you have been an important advocate for 

the U.S. manufacturing sector, and I know Ohio’s businesses and 

workers appreciate your efforts in seeking a more level playing 

field with some of our trading partners. 

Today’s hearing, which will review the government’s efforts to 

target organized piracy, builds on two other hearings I have attended over the past few weeks. The first hearing discussed the 

possible links between counterfeit goods and organized criminal 

and terrorist organizations. The second hearing, while focusing on 

cargo security and weapons of mass destruction, touched on problems with the counterfeit goods. 

As our witness from Ohio, Mr. Evans, will testify, the sale of 

counterfeit goods is not a victimless crime. And as Mr. Huther of 

the U.S. Chamber of Commerce knows, counterfeit goods or intellectual property crime is a national problem that affects all segments of our economy. 

Our hearing will help us pull together the pieces of this problem 

by examining the government’s coordinated strategy for combatting 

the piracy of intellectual property known as STOP!, or the Strategy 

Targeting Organized Piracy. This program began in October 2004 

and brings together government, private industry, and U.S. trading 

partners. It is run by the Commerce Department and the Office of 

the U.S. Trade Representative, which in addition to developing and 

coordinating U.S. international trade policy is also responsible for 

conducting an annual review of global intellectual property challenges. That report, known as the Special 301 Review, identifies 

countries with the most significant problems, and I am sure Ms. 

Espinel of USTR will discuss some of the findings of the 2005 report. 

IP counterfeiting and piracy is a global problem. According to 

Interpol, ‘‘counterfeiting is so widespread that few legitimately 

manufactured goods are not copied in one form or another.’’ 

The USTR estimates that the sale in counterfeit goods is $512 

billion annually, or 7 percent of global trade. Given the increased 

scope and magnitude of counterfeiting, especially in the areas of 

CDs, DVDs, and digital information on the Internet, the member 

countries of the Organization for Economic Cooperative and Development have requested a study of this issue which is due next 

year. As the U.S. economy evolves from manufacturing focused to 

knowledge-based. This issue is more important than ever to America’s economic well-being. 

Our national IP strategy must ensure that U.S. businesses can 

compete fairly in the global market. Simply stated, American brand 

names, ideas, and innovations must be protected. In certain countries, IPR issues compete with other U.S. policy objectives or with 

5

the country’s own economic interests. China, for example, is reported to be the leading exporter of counterfeit and pirated goods, 

manufacturing two-thirds of all counterfeit goods that come into 

the United States. I am pleased that through programs such as Operation Spring, which involved ICE, China’s Ministry of Public Security and the Motion Picture Association of America, some 

progress has been made. 

Much more needs to be done to protect American businesses, especially small businesses and consumers. I look forward to learning 

how the various agencies involved in IPR issues are coordinating 

their efforts. At this point, however, there does not appear to be a 

clear, systematic means for law enforcement agencies to share information, nor does there appear to be a systematic means for the 

law enforcement community to share information with the policy 

makers. This was one of the lessons from September 11, and I hope 

that we are applying this lesson to the growing problem of IPR 

crime. 

Again, I thank you, Mr. Chairman, for holding today’s hearing 

and I complement you on bringing together a broad range of witnesses who will present their views, concerns, and, I hope, recommendations to us this morning. Thank you very much, Mr. 

Chairman. 

Senator VOINOVICH. Thank you, Senator Akaka. 

We have three excellent panels of witnesses this morning and I 

look forward to good discussion. All witnesses’ statements will be 

entered into the record in their entirety and I would appreciate if 

you could please summarize your statements in the allotted 5 minutes that we have given you. 

It is the custom of this Subcommittee to swear in all of the witnesses, and if all of them are here, I would appreciate if you all 

would stand up and I will administer the oath of office. 

Do you swear that the testimony you are about to give this Committee is the truth, the whole truth, and nothing but the truth, so 

help you, God? 

[Chorus of ‘‘I do.’’] 

Senator VOINOVICH. Let the record show they all answered in the 

affirmative. 

Testifying on our first panel is Jeff Evans, President and CEO 

of the Will-Burt Company, which was recently recognized as Ohio’s 

Exporter of the Year for 2004. Congratulations. 

As I mentioned in my statement, Will-Burt has had horrible 

problems with intellectual property thieves in China. I have a 

strong personal connection to Will-Burt’s case. When I was Governor of Ohio, the Will-Burt Company traveled to China with me 

on a trade mission. We set out with the best of intentions, to help 

an Ohio manufacturing company expand its market base. Suffice it 

to say, Will-Burt’s experience has forever changed that company. 

In fact, when I spoke with Premier Wen in April, I told him how 

embarrassed I was that the Will-Burt Company that I had brought 

to China in 1995 had been a victim of intellectual property theft 

in China, and I pointed out to him that I was a great supporter 

of normal trade relations with China. I was outspoken for it, and 

just how disappointed I was that they weren’t doing what they 

promised to do in terms of their WTO commitments. 

6

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

40. 

Since Mr. Evans has a very compelling story to share with us 

this morning, I felt it was important for him to testify first. Mr. 

Evans, thanks for making the trip from Orrville, Ohio. Orrville, 

Ohio, is the home of Smucker’s, which we hear about every morning on the ‘‘Today’’ program. But there are a few other companies 

in Orrville, aren’t there, Mr. Evans? 

Mr. EVANS. Yes, there are. 

Senator VOINOVICH. Thank you very much, and we look forward 

to your testimony. 

TESTIMONY OF JEFFREY O. EVANS,1 PRESIDENT AND CHIEF 

EXECUTIVE OFFICER, THE WILL-BURT COMPANY, ORRVILLE, 

OHIO 

Mr. EVANS. Thank you. Good morning, Senator Voinovich and 

honorable Members of the Subcommittee. On behalf of the employees at the Will-Burt Company, and in support of other companies 

like ours, I appreciate and am thankful for the opportunity to address you here today. 

Will-Burt, 87 years old, is a 100 percent employee-owned company located in Orrville, Ohio, and employs approximately 270 people. In 2004, Will-Burt was selected as Ohio’s Exporter of the Year, 

and approximately 25 percent of its sales come from abroad. WillBurt manufactures a variety of mast products for military and commercial sales. In particular, Will-Burt developed, manufactures, 

and distributes a mast that sets atop police and rescue vehicles, 

called ‘‘Night-Scan.’’ Will-Burt has secured both patent protection 

and trademark protection in China for its Night-Scan products. 

Will-Burt had been successful in marketing its products for a 

number of years, but its approach was not focused. A Chinese company, Shenzhen Superway, approached Will-Burt promising larger 

sales volumes if Will-Burt granted an exclusive license agreement 

to the company to act as Will-Burt’s sole distributor throughout 

China. Will-Burt did agree to this arrangement, but only after securing a contract whereby Shenzhen Superway agreed not to steal 

Will-Burt’s product or violate its protected interests. At first, sales 

increased dramatically. However, it was not long until the distributor determined that there was more money in the transaction 

by knocking off the product and bypassing Will-Burt completely. 

The agreement reached with the Chinese company, which called 

for certain sales goals, contained language to protect the confidentiality of Will-Burt’s product information and also contained a noncompete clause. Unfortunately, the Chinese company was aware of 

a fact unknown to Will-Burt. The Chinese company knew that it 

could steal, appropriate, knock-off a U.S. company’s product and 

engineering, and steal the intellectual property associated with 

that product, with the knowledge that such action could be done 

with virtual impunity. The Chinese company got what it wanted, 

the product, knowing that its promises would not be enforced. 

Within a year, Will-Burt noticed the distributor was not meeting 

its sales goals. Will-Burt came to learn that sales were off because 

the product had been reverse-engineered and was being sold outVerDate 0ct 09 2002 09:06 Apr 19, 2006 Jkt 021827 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 C:\DOCS\21827.TXT SAFFAIRS PsN: PAT
7

side of the contractual agreement. Will-Burt discovered this fact 

shortly after a visit to China to determine why sales were down. 

During this visit, Will-Burt discovered its mast had been counterfeited and was being marketed in China under the same trade 

name, and then under a different name, by companies affiliated 

with its prior distributor. 

Once the Chinese company learned how to manufacture the product on its own, it entirely disregarded the contract and Will-Burt’s 

patent and trademark rights and proceeded to manufacture and 

sell the product as its own. We have copies of pictures which clearly illustrate the knock-off as a copy of the Will-Burt product, which 

can be seen on the side here. The pictures to the left are the WillBurt product. The pictures on the right are the Chinese counterfeits, and as you can see, they are virtually identical. 

We also have sample pages from the manual for this Chinese 

knock-off, which remarkably contained pictures from Will-Burt’s 

manual and Will-Burt’s web address. Of particular interest might 

be the picture of the Ohio Highway Patrol vehicle in the Chinese 

knock-off manual. 

Like many U.S. companies, the Will-Burt Company had a business relationship with a Chinese entity that pirated Will-Burt’s 

technology and confidential information. Will-Burt was victimized 

by a Chinese business climate and legal system that fosters and 

condones the illegal appropriation of another’s product, but makes 

any attempt to remedy this wrong a practical impossibility. In fact, 

Will-Burt’s end customer, the Chinese Police Security Bureau, in 

effect, the National Police Department, is purchasing illegal counterfeit products from Chinese companies, which directly violates 

several of the laws there in existence to enforce. 

Prior to the pirating, Will-Burt had sold about $1 million of product through a Chinese distributor in China in 2001, and then saw 

a decline to a little over a half-million in 2002 when the pirating 

was initiated. Sales declined further, to about a quarter-of-a-million 

dollars, in 2003, and lower yet last year. We believe that the pirated product now has a market in excess of $2 million per year in 

China. 

There are now at least two more companies that are violating 

Will-Burt’s rights in China with counterfeit products. Worse, these 

illegal Chinese products are now being marketed outside of China, 

threatening Will-Burt’s markets worldwide in countries such as 

Taiwan and Israel. 

After learning of the counterfeiting, Will-Burt, at considerable 

expense, employed a law firm in China to investigate and recommend a course of action, whether political or legal. The conclusion can be summarized quite simply. Even though everything you 

say is true, there is no effective remedy. 

Will-Burt has recently entered into another arrangement with a 

distributor in China in effect to recapture the sales lost to the 

counterfeiting company. Unfortunately, Will-Burt’s product must 

now compete against itself. 

Will-Burt has undertaken great expense in its attempt to be competitive in the Chinese market. As an example, ten separate WillBurt employees have traveled to China over the past 5 years for 

8

a total of more than 35 trips, and at a significant cost to the company. 

I can tell you that the fight is not over. Will-Burt is currently deploying other tactics and strategies focused on regaining Chinese 

market share through its current distributor while working to contain the problem within the borders of China. Given the nature of 

the legal and economic system in China, both tasks will be difficult. 

This is particularly true when the playing field is uneven and the 

political processes employed by our government have not yet been 

successful in addressing this injustice. 

Thank you for this opportunity to testify. 

Senator VOINOVICH. Thank you, Mr. Evans. I appreciate your 

participation today. Your testimony powerfully exemplifies the 

damage that can be done by intellectual property thieves and on 

the pressing need to crack down on counterfeiting and piracy 

abroad. 

I want to commend you for your willingness to talk about this 

issue publicly. Where is Mr. Dudas? I called the STOP! hotline this 

morning. After the last hearing, Senator Akaka, remember when 

they gave us a number for STOP!? I called the number and nobody 

even knew what I was talking about. 

Today, I got hold of a woman by the name of Amy Cotton and 

she just was a cracker jack. She met all of my expectations. She 

didn’t know I was a Senator to begin with. At about the end of 15 

minutes, I told her who I was. 

But one of the things that she mentioned is that there are many 

businesses who have had their trademarks infringed upon and they 

are afraid to have their name mentioned for fear that there might 

be some retaliation. And I asked the question, are you aware of 

that? She said, well, we think there is, and certainly some of the 

bigger companies are concerned about retaliation. 

So the fact that you are here and testifying today is very important and, of course, since I gave Premier Wen the information on 

you, they know firsthand who you are. 

When you discovered that your technology was being—that you 

were being knocked-off, did you seek immediate help from the Federal Government? 

Mr. EVANS. We did, and at the time, the most obvious solution 

was to find an attorney in China, which we did, and pursue our 

rights in China. What we found at the time was that the amount 

of money that we would have had to expend would have probably 

been close to $50,000 to come to any kind of a solution, and we 

were told that the solution would be that the company would just 

shut down and reopen as another company, so we didn’t find any 

effective remedy that direction. 

Senator VOINOVICH. In other words, you did call for Federal assistance, though, is that right? 

Mr. EVANS. Yes. 

Senator VOINOVICH. And they said what? 

Mr. EVANS. At the time, the advice was principally to fight it 

through an attorney in China. 

Senator VOINOVICH. So get yourself a lawyer over there and fight 

it? 

Mr. EVANS. Yes. 

9

Senator VOINOVICH. Were you able to get any—did you seek any 

assistance from the embassy, from the Foreign Commercial Office 

of the embassy in China? 

Mr. EVANS. We did do that and it was pretty much the same answer as to how best to fight it. There are legal proceedings you can 

go through and there are administrative proceedings we were told 

that we could pursue. But again, the cost of doing any of those was 

pretty onerous for a company our size. 

Senator VOINOVICH. OK. It was how long ago that you first discovered this? 

Mr. EVANS. In 2001, 2002, somewhere in that range. 

Senator VOINOVICH. So it has been, what, 3 years, at least? 

Mr. EVANS. Three years, yes. 

Senator VOINOVICH. Do you have any idea of the expense that 

you have incurred as a result of this in terms of people going over 

there——

Mr. EVANS. Oh, I am sure it has been several hundred thousand 

dollars, just in terms of legal fees, in terms of the people we have 

sent over, the trips, the 16-hour flights to Beijing. Yes, it has been 

considerable. 

Senator VOINOVICH. If you can get that information to me, if you 

feel you could share it, I would be appreciative. You say how much, 

a couple hundred thousand? 

Mr. EVANS. I would say, yes. 

Senator VOINOVICH. That is a lot of money for a small company. 

Mr. EVANS. It is a lot of money. 

Senator VOINOVICH. But you felt that it was worth your while to 

pursue it? 

Mr. EVANS. That would include the money that we are spending 

on continuing to market ourselves there and continuing to fight. 

What we eventually concluded in 2002 was that we would not prevail on a legal or political solution. The only way to compete—the 

only way to win was to out-compete them, and that is the direction 

we have chosen to go. 

Senator VOINOVICH. So you are going to make your product different and compete? 

Mr. EVANS. We are currently working with our distributor in 

China whereby he will make the product for us in China, and he 

is then competing in China with the knock-off products. Our product is still more expensive than the knock-offs that we are competing against, but there is a premium that companies are willing 

to pay, albeit somewhat small, for the original, authentic U.S. product. 

Senator VOINOVICH. So the fact of the matter is that prior to that 

time, you were manufacturing in Orrville, Ohio? 

Mr. EVANS. That is right. 

Senator VOINOVICH. So as a result of this, because of the way 

this has worked out, you are now having to manufacture over there 

and compete against your own product? 

Mr. EVANS. We had no choice but to move these products and the 

manufacturing of them to China, that is correct. 

Senator VOINOVICH. Based on your experiences, what lessons 

would you like to pass on to other American businesses? 

10

Mr. EVANS. I guess the first would be to take a long view of what 

is going on, because I started off my career as a CPA and one of 

the accounting principles is that of matching. You match expenses 

and revenues. What we are getting today in the United States is 

the benefit of inexpensive goods coming into the country, and what 

China is getting is the benefit of jobs and foreign exchange. What 

will happen in the future is that our manufacturing base will be 

impaired, and to China, they will eventually see a drying up of proprietary product coming in. Companies will eventually stop shipping to China if they are just going to see it come back as a knockoff. So looking longer view rather than trying to make some additional sales in the short-run would be one of the points of advice 

I would like to give. 

The other is to work very closely with the Federal agencies that 

we have now come to know quite well. Early on, we didn’t really 

work with some of these other offices, USTR, some of the others, 

when we first went into China and they have been providing us a 

good deal of support lately in some of the ways that we are trying 

to fight it now. So I would say that would be a second thing I 

would recommend. 

Senator VOINOVICH. So right now, they are giving you a hand 

with the China crack-down on the outfit that has counterfeited 

your product? 

Mr. EVANS. Exactly, as well as some good hard action items as 

to how to keep the product in China and how to attempt to avoid 

having to compete worldwide against the counterfeits. 

Senator VOINOVICH. Thank you. Senator Akaka. 

Senator AKAKA. Thank you very much, Mr. Chairman. 

Thank you for your response, Mr. Evans, and for sharing some 

of your experiences in China. 

I know it is difficult to gain market entry into a Communist 

country. But China has been evolving and changing so rapidly that 

I am beginning to become concerned about how much the central 

government is able to regulatre businesses. It is obvious that the 

companies that you are dealing with are running their businesses, 

in some instances, without regard to government regulations. 

I was glad to hear that you did seek a Chinese lawyer to help 

you. I just want to share with you that I knew the President of 

Sony way back when he first began to sell in the United States and 

he did the same thing. He hired a U.S. attorney to help him do 

business in the United States, and it worked well. 

Today’s hearing is examining the Federal Government’s initiative 

to help businesses like yours protect their intellectual property. My 

question to you is, if a similar thing were to happen today, who 

would you look to for help in our Federal Government? 

Mr. EVANS. I believe the USTR has been very helpful to us, as 

well as the Department of Commerce, Under Secretary Aldonis’s office. We found some pretty good support from both those offices. 

And a lot of the references that we got to those came from the Senator’s office, Senator Voinovich. He pointed us in the right direction 

and it did help us to find those two agencies in particular that are 

helping us. 

11

Senator AKAKA. The Chairman asked you whether you received 

any help from the embassy. Did you receive any help from the embassy? 

Mr. EVANS. Not a significant amount, other than, as I said, the 

discussions of how to go about the legal proceedings in China. 

Senator AKAKA. Mr. Evans, before you were asked to testify at 

this hearing, did you know about the STOP! program, and if so, 

how did you learn about it? 

Mr. EVANS. I am sorry to say I did not know of the STOP! program or the acronym. I was aware of some of the initiatives, I believe, that are coming from it, but not of the program itself. 

Senator AKAKA. From what you know about that program now, 

is it one that would have made a difference if you knew about it? 

Mr. EVANS. Again, I haven’t learned a great deal about it in the 

meantime. That will be my homework for next week. 

Senator AKAKA. Thank you very much for your responses. The 

Chairman and this Subcommittee is really looking hard at this 

issue. If you can tell us how to make it better, we would certainly 

appreciate it, and that is our effort now. 

Thank you very much, Mr. Chairman. 

Senator VOINOVICH. Thank you, Senator. 

Senator AKAKA. I yield back my time. 

Senator VOINOVICH. Senator Pryor. 

OPENING STATEMENTOF SENATOR PRYOR 

Senator PRYOR. Thank you, Mr. Chairman, and thank you for 

continuing to focus on this important issue. 

Let me ask a question of the witness, if I may. I am trying to 

get a sense of the scope of the problem in China. What is your 

sense of the scope of the problem there? 

Mr. EVANS. My thought is that when you send a product to 

China, the question is not will this be knocked-off or not. The question is, will we have a good 5 years of making the product before 

it gets knocked off? It is pervasive. 

Senator PRYOR. I know you are not a complete expert on this, but 

is it your impression that it covers pretty much every product type 

there? 

Mr. EVANS. I believe it does. For example, looking at the WillBurt Company, you can see our products here. They are not everyday products. They are not well known. The market over there is 

very small. And yet there are two or three companies counterfeiting it right now. If they will do that for a market our size, clearly, larger markets would entice them even more. And it is a technical product. There is circuitry. There is programming. There is a 

lot of mechanics. It was a difficult product to reverse engineer. 

Senator PRYOR. I was going to say, this is all based on reverse 

engineering. They get a hold of one of your products and they just 

figure out how it works and they start making it? 

Mr. EVANS. That is correct. 

Senator PRYOR. Do you know, by comparison, how does it operate 

and function as compared to your product? Is it virtually the same? 

Mr. EVANS. It is virtually identical. The quality isn’t as good, and 

we have won some contracts against them because of that. But the 

12

quality is not poor and the pricing is such a differential that it is 

difficult to sell against. 

Senator PRYOR. That was actually my next question related to 

the purchasers of these knock-off products. Do they clearly understand that they are buying a knock-off or do they think that they 

are buying your product? 

Mr. EVANS. At this point, they no longer think they are buying 

our product because the names have changed. It doesn’t say WillBurt Night-Scan. It has a different name. 

Senator PRYOR. But originally, it actually had your name on 

there? 

Mr. EVANS. Originally, it had our name, yes. 

Senator PRYOR. OK. 

Mr. EVANS. The manual has Xeroxed copies of pages from our 

manual. It was virtually billed as our product. The website for this 

company used the name ‘‘Will-Burt’’ in their address. 

Senator PRYOR. Just out of curiosity, how much do these products sell for in China? 

Mr. EVANS. Somewhere between $1,500 and $4,000. 

Senator PRYOR. Is it your impression that the product that has 

been knocked-off in China is being sold only in China, or is it being 

exported out of China? Are you seeing it around the world? 

Mr. EVANS. We haven’t seen the product elsewhere yet, but it is 

being marketed. We have notification from several other countries 

that they are attempting to market it outside of China now. 

Senator PRYOR. I want to ask you, if I may, about China’s legal 

system. You have had some experience with that, it sounds like, 

being advised to hire a Chinese lawyer and fight. What is your impression of China’s legal system? 

Mr. EVANS. Well, my impression is that they have a conundrum 

going on where they are attempting to enforce their laws, but at 

the same time they are attempting to enforce public policy of creating jobs and creating foreign currency exchange, and the two are 

colliding in such a way that the reparations you can get through 

the legal system aren’t too spectacular. Our understanding is that 

at the end of a long, drawn-out process, one might expect to receive 

a very small dollar award and potentially just the fact that the 

knock-off company would go out of business and then would come 

back in business as another name. 

Senator PRYOR. In the United States under a situation like this, 

you might be entitled to monetary reward for loss of market share, 

etc., and loss of profits, etc., but you also might get injunctive relief 

where the court would actually prevent the company from knocking 

off your product in the future. Is that remedy available to you in 

China, the injunctive relief? 

Mr. EVANS. My understanding is no, because even if it did occur, 

a new company could open up with the same people, perhaps the 

same address, manufacture the same product. So you could 

injunctively close down the first company, but then its predecessor 

would come into being. 

Senator PRYOR. And again, I know I am asking for your perception based on your experience there, you don’t hold yourself out to 

be an expert. But, is it your perception that the problem with China’s legal system, as it related to your product and knock-offs genVerDate 0ct 09 2002 09:06 Apr 19, 2006 Jkt 021827 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 C:\DOCS\21827.TXT SAFFAIRS PsN: PAT
13

erally, is the problem that China does not have sufficient law to 

cover this area, or is the problem more one of enforcement? 

Mr. EVANS. Again, I am not an expert, but my impression is it 

is the enforcement rather than the lack of law. 

Senator PRYOR. And the last question I had was about the STOP! 

program that Senator Akaka asked you about a few moments ago. 

As I understand it, you went through this entire process without 

really being aware that the STOP! program existed? 

Mr. EVANS. That is true. 

Senator PRYOR. How can the government do a better job of letting companies like this one know about the resources and the programs available in China and, I guess, around the world? What can 

the government do to do a better job of informing you of your options under Federal law? 

Mr. EVANS. That is a very good question. I would expect that 

most larger companies are well tied in and would know about it. 

So it would seem to me that it is the smaller companies that don’t 

have the resources that you need to get to. And whether you do 

that through an enhanced communication program, working with 

State agencies—as Senator Voinovich mentioned, we got our start 

in China through working with the Governor’s office at the time. 

He was the Governor of Ohio. There are a lot of companies going 

that route because you can find your State Government helping 

you to make contacts and find distributors. Perhaps some communication there with, say, the State Department of Development 

would be of some benefit. 

Senator PRYOR. Thank you, Mr. Chairman. 

Senator VOINOVICH. Thank you, Senator Pryor. 

As you know, this STOP! program kicked off in October of last 

year. You might be interested that I voted against the last two 

trade agreements and basically did so on the grounds that they 

weren’t enforcing our trade laws and WTO rules. Secretary Zoellick 

at the time, the U.S. Trade Representative, came in with this sort 

of a one-stop-shop program. What we are hoping to do today is to 

find out how much coordination is going on and whether it is 

staffed or not. 

One thing I did find out, they do have some good people because 

I called the number this morning. 

Mr. EVANS. I heard you say that. I think that is good. 

Senator VOINOVICH. I have to say, I was genuinely impressed 

with the person on the other end of the line, but I will say, and 

will bring this up with Mr. Dudas when he comes in, she said, we 

have this China specialist and the China specialist is in Detroit 

talking to some folks there about the program. So we are going to 

want to find out how many people do you have working there in 

that shop. 

I think your suggestion, Mr. Evans, is a good one in response to 

Senator Pryor’s question, and that is that the State Governments 

should be very familiar with this program. When we went over 

with you folks, we should have had everything worked out, and 

hopefully it will be a lot better. 

Thank you very much for being here today. We are going to keep 

working with you. 

14

One last thing is do you think we will ever be able to close down 

the operation that is counterfeiting you? 

Mr. EVANS. I am not sure, and at this point, I am less concerned 

about remedying our own situation and more concerned with just 

raising this issue so that we can stop others in the future. I would 

be happy if we could close it down. I will be even happier if we just 

contain it to China. That is my bigger concern at this point. 

Senator VOINOVICH. Where is it located, the company? What 

town? 

Mr. EVANS. Shenzhen, a couple-hours drive from Shanghai. 

Senator VOINOVICH. Well, thank you very much for being here 

today. 

Mr. EVANS. Thank you. 

Senator VOINOVICH. Our next panel is the Under Secretary of 

Commerce for Intellectual Property and Director of the U.S. Patent 

and Trademark Office, Mr. Dudas. I want to welcome you back to 

the Subcommittee. 

Victoria Espinel is the Acting Assistant U.S. Trade Representative for Intellectual Property. I understand that Ms. Espinel traveled to Europe last week with several Federal officials to discuss 

ways of strengthening the STOP! initiative. Hopefully, Ms. Espinel, 

we are going to get some of the other countries that are WTO signatories to help us put pressure on particularly the Chinese and 

I would be interested to hear your assessment of the trip. 

Dan Baldwin is the Acting Assistant Commissioner of the Office 

of Strategic Trade in the Department of Homeland Security. I 

think when we first had our hearing, I don’t think we had a Homeland Security Department. 

Laura Parsky is the Deputy Assistant Attorney General for the 

Criminal Division at the Department of Justice. 

Loren Yager is the Director of International Affairs and Trade at 

the Government Accountability Office. Dr. Yager, welcome back to 

the Subcommittee. You have always provided insightful comments 

and I look forward to your testimony. 

I think we are down far enough on the chain in terms of operation of the Departments that we have got some real practitioners 

here that are testifying before us. 

Mr. Dudas, before you begin, one of the things when I talked 

with Ms. Cotton was that she said that people have to hire a trademark specialist in China in order to register their trademarks. One 

of the thoughts I had was that is it possible that we could have 

somebody do that, or would you have to have a law changed to do 

it? And also, perhaps in terms of the Chinese Government, if they 

are sincere about this, one of the ways you could expedite some of 

these cases would be to get their permission to go ahead and handle it in that way. I don’t know how feasible that is. 

I really am interested in looking at the whole procedure that you 

are going through and have you analyze it to let us know if there 

is something we can do to be of help, either through legislation or 

whatever to expedite this thing as quickly as possible. So thank 

you for your testimony and thanks for being here. 

15

1The prepared statement of Mr. Dudas appears in the Appendix on page 56. 

TESTIMONY OF JON W. DUDAS,1 UNDER SECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY, AND DIRECTOR, 

U.S. PATENT AND TRADEMARK OFFICE 

Mr. DUDAS. Thank you, and I will respond early to that question 

you had. Would you like me to respond now or in the hearing? 

Senator VOINOVICH. Whenever you would like. 

Mr. DUDAS. That is fine. I think there are things that can be 

done. In fact, we have certain limitations. I am glad you had such 

a good experience with the line. Our goal is to get an intellectual 

property expert with regional expertise on the line who can either 

help you or get you the person that can help. We have had over 

400 calls and they have been largely successful when we have 

worked with folks. 

We cannot give legal advice or act as a person’s attorney because 

we are securing intellectual property rights in our office. I am glad 

you raised what you raised. We are working with other agencies 

within the Department of Commerce to find out if there is a way 

to give legal assistance to small businesses, or ways we can partner 

with the private sector in order to give this kind of legal assistance, 

so that we are not at odds with people trying to get intellectual 

property rights in the United States but at the same time giving 

them legal advice elsewhere. I would like to explore that further 

and come back to you with some ideas we might have within the 

Department of Commerce on how we might be able to get that 

done. 

I will also tell you the United States is pushing very hard. Our 

office led negotiations on a treaty called the Madrid Protocol that 

the United States has joined that makes it very easy for small 

businesses, for any business, to get a trademark in one country and 

then hopefully get it in 50 countries. We need to work with China 

and other nations to make it that simple. You apply in the United 

States and then you just choose a certain number of countries. We 

are not completely there yet, but we do have a great number of 

countries that are already organized and are able to do that. 

I will be happy to go further and answer more questions you 

have along those lines. Thank you for having this hearing and it 

is a pleasure to be here. This is an opportunity to discuss the 

progress made by the Bush Administration in combatting intellectual property theft. Since my testimony before you last year, the 

Administration generally and the Department of Commerce specifically have developed a multi-faceted approach within our agencies 

to protect IP both here at home and in other countries. 

Piracy and counterfeiting affect all Americans, as you noted, on 

many levels. As I testified last year, IP theft is not solely an economic issue. It is an incredibly important economic issue, but it can 

also harm consumers’ health and safety. Everyone is affected, from 

the hard-working parent buying medicines or baby formula, as you 

have heard today from the private sector to the small business trying to make a payroll, a tight payroll at times in light of unfair 

competition from overseas and fakes in the streets. Most seriously, 

intellectual property theft can involve organized crime as well as 

16

possible terrorist funding, who use the ill-gotten proceeds to fund 

horrific acts against humanity. 

STOP! is the most comprehensive U.S. Government-wide effort 

ever taken to put an end to pirated and counterfeited goods. The 

explicit goal of STOP! is helping American businesses secure and 

enforce their IP rights at home and abroad. Issues surrounding 

counterfeiting and piracy are being raised at the highest levels 

within the Executive Branch in the United States. Putting an end 

to IP theft is a priority of this Administration, with the NSC coordinating the Departments before you today in the STOP! effort. 

Already, the Administration’s direction has resulted in vigorous cooperation among us and tangible results. 

Secretary of Commerce Carlos Gutierrez is keenly aware of the 

significance of IP protection for U.S. businesses. Secretary Gutierrez has emphasized that combatting IP theft is a top Commerce 

priority across the Department. The Secretary could not have been 

more direct or clearer when he stated during his recent trip to 

China that ‘‘intellectual property rights violations are a crime, and 

we don’t believe we should be negotiating crimes with our trading 

partners.’’

As Under Secretary of Commerce for Intellectual Property and 

Director of the Patent and Trademark Office, I share the Secretary’s sentiments and am dedicated to reducing the toll that IP 

theft takes on all Americans, particularly with a focus on small 

businesses and independent inventors. 

The USPTO has a unique role in the Federal Government, being 

the only executive agency that exclusively focuses on IP, including 

the examination of patent and trademark applications in the 

United States and advising fellow Administration departments and 

agencies on U.S. IP policy and IP protection in other countries. Because I am most familiar with the USPTO’s own activities for 

STOP!, I will take just a moment to share some of them. I know 

you will want to explore further activities of other agencies, as 

well. 

Under the auspices of STOP!, the USPTO maintains the STOP! 

hotline, that you called today. One of the things we can do best is 

to advertise that, so I will take a moment to note that the hotline 

number is 1–866–999–HALT. We couldn’t get STOP!. We would 

have had to steal the name. HALT is close enough, since someone 

already had the number STOP!. 

Hotline callers receive information from USPTO’s IPR attorneys 

with regional expertise, and IPR attorneys who have regional expertise on securing patents, trademarks, and copyrights on enforcing those rights. If they don’t have the answer because it involves 

another agency, they will give you the name of a person in another 

agency and the caller can follow up. Since October 2004, we have 

received more than 400 phone calls and we are working to try to 

increase the number of phone calls we receive by making businesses more aware. 

The USPTO has also launched an intensive communications 

campaign to educate small businesses on protecting their IPR, both 

in the United States and abroad. Earlier this year, the USPTO inaugurated a conference series targeting small businesses by providing grassroots-level education on securing rights for copyright, 

17

1The prepared statement of Ms. Espinel appears in the Appendix on page 65. 

patent, or trademark, with an emphasis on protecting IP overseas. 

The first program was held in Salt Lake City last month. There 

was an intense interest from small businesses. We have also 

planned at least three more seminars through September. 

In addition, some of our other programs focus exclusively on 

doing business in China. Our next event, as you mentioned, is tomorrow in Detroit. We had great registration from Midwestern 

small businesses wishing to secure their rights. 

The Department of Commerce is also working broadly to expand 

awareness of IP risk and protection. Another initiative of STOP! is 

a gateway website, www.stopfakes.gov. This website features 

specialized information, including IP tool kits designed to help 

small businesses protect their IPR in other countries such as 

China, Korea, Mexico, and others. This is another cooperative effort 

among agencies within the Administration. 

A tremendous benefit of STOP! is heightened cooperation among 

the agencies in our mutual goal of fighting piracy and counterfeiting. For example, our colleagues at the Department of Homeland Security and Customs and Border Protection are working with 

the USPTO to inform trademark owners of the Customs recordation process in order to prevent the import of fakes. 

We are working with our colleagues at the Department of Justice 

and the Office of the Trade Representative to enhance the domestic 

and international IP environment for American businesses. 

Mr. Chairman, you have been very clear about the unfortunate 

truth. Counterfeiting and piracy remain growth industries in some 

countries. But the thieves’ days are being numbered. Combatting 

IP theft is a top priority for this Administration, and the Administration’s focus has already resulted in unprecedented levels of 

interagency coordination. Commerce, working closely together with 

other Federal agencies through STOP! is making progress in attacking IP theft internationally and domestically. 

Thank you very much for your time. I look forward to continued 

questions. 

Senator VOINOVICH. Thank you, Mr. Dudas. Ms. Espinel. 

TESTIMONY OF VICTORIA ESPINEL,1 ACTING ASSISTANT U.S. 

TRADE REPRESENTATIVE FOR INTELLECTUAL PROPERTY 

Ms. ESPINEL. Chairman Voinovich, Ranking Member Akaka, 

other Members of the Subcommittee, thank you for inviting me 

here today. I am pleased to have this opportunity to speak with 

you about the enforcement of intellectual property and the Administration’s STOP! initiative. 

The protection of IP is at the top of USTR’s enforcement agenda. 

We have taken a comprehensive approach towards protecting IP by 

employing all the tools and resources at our disposal to improve intellectual property enforcement worldwide. For example, we have 

used our Special 301 Report to spotlight areas in need of reform 

abroad and we have used our FTAs to raise protection and enforcement of intellectual property with those specific countries or blocks 

of countries to a level comparable to our own. We will continue to 

18

use these tools in coordination with other agencies on behalf of our 

right holders. 

Protecting IP is one of the most complex issues of our trade agenda. Since the advent of TRIPS nearly 10 years ago, globalization 

and new technologies have made it easier for thieves to steal, copy, 

and sell auto parts, medicines, and sports equipment to unsuspecting consumers. This illicit trade is growing. International 

criminal networks have found it more profitable and less risky to 

raise cash by entering into the trade of counterfeit and pirated 

goods. Unfortunately, existing international forums and agreements have proven insufficient to adequately address this new 

global challenge. 

The international trade in fakes is hurting our companies and 

our citizens, as demonstrated clearly by the testimony of Mr. Evans 

today. U.S. businesses are having a difficult time tackling the problem, particularly small and medium-sized firms with limited staff, 

resources, and operations to protect themselves. Making matters 

worse, these firms are finding themselves having to address consumer complaints of inferior products passed on as their own. 

More needs to be done. The STOP! initiative is an important 

start to addressing the challenges arising from the trade in fakes. 

Announced late last year, STOP! is designed to bring together all 

the major players, the Federal Government agencies that are 

charged to protect the intellectual property, the private sector, and 

our trading partners, to take action together in cracking down on 

piracy and counterfeiting. 

Through STOP!, we are tackling theft of IP along with seven 

other participating agencies through a series of collaborative domestic and international initiatives that will make the trade environment friendlier for our consumers. 

Domestically, as you will hear today, the agencies are working 

with the private sector and taking comprehensive actions to realizing our October goals, including through our law enforcement and 

home security actions, working with our businesses to help them 

secure and enforce their IP rights, and working to eradicate the domestic market by educating the public about the importance of intellectual property and the risk of counterfeiting. 

Internationally, we began earlier this year reaching out to likeminded IP-friendly governments to build international support to 

attack the trade in fakes. It is critical that we have other governments working with us in order to address this global challenge. 

We are proposing a series of initiatives intended to enhance border enforcement, law enforcement interactions, and the exchange of 

information to better use our resources and personnel to address 

this shared problem. These initiatives are drawn from actions we 

have been taking in the past year domestically to improve our own 

enforcement of intellectual property. At the same time, we are also 

learning from the practical solution and problems other countries 

are encountering in their efforts fighting IP theft to consider how 

we may further advance our cooperation and how we may be able 

to improve our own domestic programs. 

Multilaterally, we have been advocating support for a series of 

initiatives in forums such as the G–8, APEC, and the OECD and 

other regional summits to further anti-piracy and counterfeiting. 

19

1The prepared statement of Mr. Baldwin appears in the Appendix on page 70. 

By working within these organizations, we hope, among others, to 

encourage countries that would otherwise not work directly with us 

to accept stronger IP enforcement measures that will protect our 

right holders. 

Our efforts are yielding results. In assisting STOP! coordination 

pursuant to the Administration’s overall policy, we facilitated outreach and significantly improved coordination. As a result of the 

STOP! team’s collective efforts, APEC recently endorsed an initiative on anti-piracy and counterfeiting that we proposed in Japan 

and Korea, while the OECD has agreed to undertake a study that 

will aid governments in making the case for stronger action against 

IP theft. 

Through our FTAs, we have substantially improved IP protection 

abroad. In close coordination with our industry, we have been 

working intensely with, for example, Australia and Singapore to 

ensure that the FTAs are fully implemented. We have also been 

working with our current trading partners to develop action plans 

to undertake similar efforts while we are engaged in the negotiations. 

Through our annual Special 301 Report, we have also witnessed 

examples of how the report can affect change. For example, in 

Pakistan, Pakistan has long been turning out millions of pirated 

optical disks. It is a fact that we have highlighted to the government there regularly and noted in our Special 301 Report by elevating the country as a more egregious offender of intellectual 

property. We were pleased to see Pakistan shut down six of the 

plants cited in the report not long after the report’s public release 

this year. 

Mr. Chairman and Members of the Subcommittee, thank you for 

providing me with the opportunity to testify. I know I speak for my 

colleagues on the STOP! team when I say we appreciate your interest, guidance, and vigilance on the important issue of protecting intellectual property. We look forward to working with you to finetune our efforts with the goal of improving the situation for American rights holders worldwide. This task is a top priority for each 

of us. I look forward to your questions. 

Senator VOINOVICH. Thank you. Mr. Baldwin. 

TESTIMONY OF DANIEL BALDWIN,1 ACTING ASSISTANT COMMISSIONER, OFFICE OF STRATEGIC TRADE, U.S. CUSTOMS 

AND BORDER PROTECTION, U.S. DEPARTMENT OF HOMELAND SECURITY 

Mr. BALDWIN. Good morning, Chairman Voinovich and Members 

of the Subcommittee. Thank you for this opportunity to testify and 

update you on the steps that the Department of Homeland Security 

is taking to improve the enforcement of intellectual property rights 

as part of the Administration’s STOP! initiative. 

Both U.S. Customs and Border Protection, CBP, and Immigration and Customs Enforcement, ICE, are full participants in the 

STOP! initiative. But my testimony this morning will focus on the 

contributions of CBP, the primary agency responsible for border enforcement in the STOP! initiative. 

20

CBP, as the guardian of the Nation’s borders, safeguards the 

homeland foremost by protecting the American public against terrorists and instruments of terror while at the same time enforcing 

the laws of the United States and fostering the Nation’s economic 

growth through lawful trade and travel, including the laws and 

regulations related to the protection of IPR. 

Between 2000 and 2004, the number of importations into the 

United States grew by approximately 20 percent and the value of 

those imports grew by 24 percent. Interestingly, during that same 

5-year period, the number of Homeland Security seizures for counterfeit and pirated goods at our borders increased by 124 percent 

and the value of those goods increased by 306 percent. I identify 

these numbers to show you the magnitude and the scope that faces 

CBP at the border in enforcing these IP infringing goods. 

Although China accounts for much of this increase, seizures of 

counterfeit and pirated goods from other countries have also increased. There have been estimates already cited this morning that 

7 percent of all global trade involves counterfeit and pirated goods. 

Although CBP’s efforts to date have been successful, the flood of 

IPR-infringing imports requires us to explore new ideas for IPR enforcement. Today, I will discuss new approaches CBP is taking as 

part of STOP! to enhance and complement traditional methods of 

DHS’s IPR enforcement. 

With the STOP! initiative, CBP is diversifying its IPR enforcement portfolio in moving beyond our traditional methods. These approaches improve our ability to identify high-risk companies and 

shipments while maintaining the flow of legitimate trade. 

In addition, our STOP! initiatives include greater cooperation 

with the business community and other government agencies to 

provide improved protection. Our initiatives include creating and 

testing an innovative statistical risk model for assessing IPR risks 

at the border; establishing a post-entry verification or IPR audits 

program designed to identify business practices that leave us vulnerable to IPR violations and determine the scope of a company’s 

IPR violation. We are collaborating, as has been mentioned, with 

the Patent and Trademark Office to make it easier for businesses 

to obtain trademark protection through the recordation process. 

And finally, we have been engaged in issuing proposed regulations 

to enable CBP to better protect U.S. copyrights for sound recordings and motion pictures and some audio-visual works. 

I would mention IPR risk modeling as a method to enhance our 

current efforts by applying a statistical model to our import data 

and to data provided by other government agencies and from the 

business community to identify that risky neighborhood or what we 

would call a model that identifies the characteristics of IPR infringement. We are then able to apply that model to both the transactions and to an account-based form, meaning we will better target for transactions coming across the border, but more importantly, be able to better target companies that participate in risky 

businesses for IPR infringement. 

That IPR risk model leads us to the innovative program that we 

have established for creating IPR audits. For the first time, CBP 

is conducting approximately two dozen IPR audits for companies 

that exhibit strong characteristics for IPR infringement. We conVerDate 0ct 09 2002 09:06 Apr 19, 2006 Jkt 021827 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 C:\DOCS\21827.TXT SAFFAIRS PsN: PAT
21

1The prepared statement of Ms. Parsky with an attachment appears in the Appendix on page 

76. 

duct an audit to look at their internal control systems to evaluate 

whether they are sufficiently prepared to ensure that they are not 

importing IP infringing goods and work with those companies to 

ensure that they are able to maximize their internal control systems to guarantee against IP infringement. 

We are also working, as I mentioned, with the PTO to streamline 

our recordation process. We have been working with PTO to develop a hyperlink system so that when a company is able to register their trademark with PTO, they will automatically be linked 

to Customs to record their mark to help us protect their mark, as 

well. What is key here is that this is our main initiative to help 

small businesses identify and help us protect their mark by simultaneously recording with Customs. We hope to have that system up 

and running later this summer. 

With our STOP! initiatives, CBP has broken new ground in the 

fight against counterfeiting and piracy. We will continue to work 

with DHS headquarters, our colleagues at ICE, and other partner 

agencies as well as other industry, and continue to improve our 

targeting and enforcement efforts to deprive IPR violators of their 

illicit financial gains. 

Thank you again, Chairman Voinovich, Members of the Subcommittee. Thank you for the opportunity to testify. I look forward 

to your questions. 

Senator VOINOVICH. Thank you, Mr. Baldwin. Ms. Parsky. 

TESTIMONY OF LAURA H. PARSKY,1 DEPUTY ASSISTANT ATTORNEY GENERAL, CRIMINAL DIVISION, DEPARTMENT OF 

JUSTICE 

Ms. PARSKY. Chairman Voinovich, Members of the Subcommittee, intellectual property enforcement is an extremely important topic to the Department of Justice, and I commend you for 

holding this hearing to explore how the U.S. Government is responding to the growing threat of intellectual property theft. 

Today, I am pleased to share with you the Department of Justice’s 

efforts to protect intellectual property rights through its enforcement efforts and participation in the STOP! Initiative. 

Mr. Chairman, we are at a pivotal time in the history of intellectual property rights enforcement. A number of factors have converged to create unprecedented challenges to intellectual property 

rights holders and to law enforcement. The Internet and technology 

have made piracy and counterfeiting easier and less expensive than 

ever before. At the same time, the quality of the illicit goods is 

often near perfect. Detecting these illegal operations is more difficult than in the past and is compounded by sporadic and inconsistent enforcement throughout the world. Piracy and counterfeiting are low-risk, high-reward endeavors which are beginning, 

not surprisingly, to attract international organized crime syndicates. 

The Department of Justice occupies a unique role in our government as the sole agency with criminal prosecutorial authority. One 

of the most important contributions the Department makes to the 

22

protection of intellectual property rights, as well as to the STOP! 

Initiative, is the prosecution of organized criminal networks that 

steal the creative works of U.S. businesses, both large and small. 

As my written testimony highlights, in the past few years, the 

Department has undertaken several of the most significant and 

successful multi-district and international law enforcement operations, dismantling some of the most prolific Internet piracy groups 

that steal digital copyrighted works, such as software, movies, 

games, and music, and distribute them worldwide on the Internet, 

often before they are released for commercial sale to the public. It 

is these digital copies that are so often used to create the counterfeit hard copies that are sold at international borders. 

One example of this effort is Operation FastLink, in which the 

Department led the single largest international enforcement effort 

ever undertaken against online piracy. In one 24-hour period beginning on April 21, 2004, law enforcement executed over 120 searches 

in the United States and ten countries across multiple time zones. 

Through this unprecedented effort, we have identified over 100 individuals believed to have engaged in online piracy, many of whom 

are high-level members or leaders of online piracy release groups. 

Since last December, eight of these offenders have been convicted 

and many more individual prosecutions are ongoing. 

Although these large-scale enforcement operations are resourceand time-intensive, they are an extremely effective way to enhance 

international intellectual property enforcement. By attacking the 

top level of the counterfeit distribution chain in this way, before 

the stolen works reach peer-to-peer and other distribution networks 

both online and off, the Department ensures the greatest protection 

for rights holders and consumers against the illegal reproduction 

and distribution of copyrighted and counterfeit materials. 

In addition, through working on joint operations with our foreign 

counterparts, we are enhancing their understanding of and ability 

to pursue future intellectual property prosecutions. 

Although investigation and prosecution is our primary focus, 

combatting intellectual property crime requires a multi-faceted approach, one that is global in scope and maximizes interagency coordination within the U.S. Government. 

In this regard, the Department of Justice participates regularly 

in the interagency collaboration and international outreach that 

are fundamental to the STOP! initiative. Department officials have 

participated in the recent STOP! tours to Asia and Europe, and we 

are working with other agencies to increase public awareness of the 

harms of intellectual property theft. Through training and international outreach, we seek to help U.S. businesses work with foreign law enforcement to protect their intellectual property rights. 

During these international trips, the Department has met directly with its foreign law enforcement counterparts, generating 

increased foreign interest in strong international enforcement of intellectual property rights. By developing this law enforcement network and points of contact through the STOP! international outreach, it will be easier and faster to enlist the cooperation of foreign law enforcement when future U.S. investigations identify foreign targets. It will also assist foreign investigations and prosecuVerDate 0ct 09 2002 09:06 Apr 19, 2006 Jkt 021827 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 C:\DOCS\21827.TXT SAFFAIRS PsN: PAT
23

1The prepared statement of Mr. Yager appears in the Appendix on page 88. 

tions directly affecting American intellectual property business interests in foreign countries. 

In addition to our prosecutorial and international efforts, the Department’s principal contribution to STOP! has been the work of 

the Department of Justice’s Intellectual Property Task Force, or 

‘‘IP Task Force.’’ Last fall, the IP Task Force completed a wideranging and exhausting—exhaustive review—it was also exhausting—of the Department’s intellectual property enforcement efforts. 

Its collective recommendations were issued in a 70-page report last 

October. The Department is now engaged in the considerable and 

important work of implementing those recommendations. 

For instance, in January of this year, the Department expanded 

its Computer Hacking and Intellectual Property (CHIP) program 

and the designation of CHIP coordinators in every U.S. Attorney’s 

Office nationwide, bringing the total CHIP network to more than 

200 prosecutors trained in prosecuting high-tech and intellectual 

property crimes. 

Piracy is a global problem that requires a global response. 

Through its contributions to the STOP! initiative, the Department 

of Justice has made international prosecutions a priority within our 

overall intellectual property strategy. Our goal is to lead by example and to build international law enforcement relationships that 

allow us to work with our foreign counterparts in attacking this 

global problem. 

While our primary focus and responsibility lies in the enforcement of this Nation’s criminal intellectual property laws, we are 

committed to working effectively with other U.S. agencies to ensure 

that the overall intellectual property rights approach of the United 

States is second to none. 

Thank you again for this opportunity to address the Department 

of Justice’s efforts to protect intellectual property rights. I will be 

happy to answer any questions you may have. 

Senator VOINOVICH. Thank you, Ms. Parsky. Dr. Yager. 

TESTIMONY OF LOREN YAGER,1 DIRECTOR, INTERNATIONAL 

AFFAIRS AND TRADE, U.S. GOVERNMENT ACCOUNTABILITY 

OFFICE 

Mr. YAGER. Chairman Voinovich, good morning, other Members 

of the Subcommittee. Thank you for the opportunity to appear 

again before the Subcommittee, this time to discuss our work on 

U.S. efforts such as the STOP! initiative to protect U.S. intellectual 

property rights. 

The statement is drawn from the report that we did on intellectual property protection last year, and we have held a number of 

interviews in recent weeks to update the material. I ask that my 

written statement be made part of the record. 

Senator VOINOVICH. Without objection. 

Mr. YAGER. Mr. Chairman, we know that the effects of IP theft 

on the U.S. economy are enormous, but the testimony of Mr. Evans 

of Will-Burt also shows the profound effect that these can have on 

individual businesses. From our trips to China, Brazil, the 

Ukraine, and Russia, we also assembled some illustrations of the 

24

kinds of material that are easily available in those other locations 

and we have also shown some of the prices of the real versions as 

well as the copied versions so that people can get an understanding 

of just what is involved there. So we have a few items for display 

up on the table. 

Senator VOINOVICH. Why don’t you talk about those for just a 

minute. 

Mr. YAGER. OK. One of the things that we can demonstrate, as 

some of the other witnesses also referred to, there is a wide range 

of quality when it comes to the types of goods that are available. 

In some cases, it is quite hard to determine whether it is legitimate 

or not. In other cases, it is very clearly a knock-off. But it is one 

of the reasons why the participation of the government agencies 

and the private sector is so important, because in many cases, only 

the private sector can determine whether the goods that is being 

sold is, in fact, a fake or a real item. So close cooperation between 

the agency officials and the private sector is obviously important. 

For example, we were in Hong Kong looking at goods coming 

across the border from China and the Customs official had broken 

open a couple of boxes of apparel, could not tell whether these were 

legitimate or not, and made the interesting point that even the 

company representative in Hong Kong couldn’t look at those to determine whether they were real or not. He had to consult his order 

book to see whether, in fact, that was a real product. So it shows 

just the kind of range of quality that you have. Some are very 

clearly knock-offs. Some are quite difficult to distinguish from the 

real thing. 

So, Mr. Chairman, you heard from the Administration witnesses 

about the STOP! initiative. The purpose of my oral statement is to 

put STOP! in the context of the other coordination efforts that the 

U.S. Government has to enforce IP and to note some areas where 

U.S. efforts could be improved. 

First, it is important to note that STOP! includes a range of 

agency activities that were already underway as well as some that 

have begun as part of the initiative. For example, the Justice Department Task Force on IP was already underway, but those efforts have now been rolled into STOP!. In addition, the OECD 

study that was mentioned earlier on the extent of IP piracy that 

has recently been agreed to has been under discussion for some 

time and STOP! may have provided additional momentum to get 

this study off the ground. The most visible new efforts undertaken 

as part of STOP! are the outreach efforts, the visits of the Administration to foreign countries, including a trip to Asia as well as a 

trip last week to Europe. 

The second point I want to make is that STOP! is only one of a 

number of other IPR coordination mechanisms underway within 

the U.S. Government. I think it is useful to contrast the performance of three of these mechanisms, the Special 301 process, the 

NIPLECC, and the IPR Center. 

Based on the evidence we collected in our visits to four countries 

and in our discussions with industry and agency officials, we found 

that the Special 301 process was having a positive effect on agency 

coordination and it also had some positive effects on legislation in 

certain countries. On the other hand, we found that the 

25

NIPLECC—that is the National Intellectual Property Law Enforcement Coordination Council—has had little effect on coordination, 

and the private sector has little confidence in that group. As you 

know, the NIPLECC was provided with $2 million during the most 

recent appropriations cycle but does not appear to have decided 

how to use that funding. 

The third coordination mechanism, the IPR Center, is a joint effort between DHS and the FBI, but this group has lost a number 

of its on-board staff since we completed our work last year. At the 

current time, only about half of the positions in the center are filled 

and the lack of secure access to FBI computer systems at the center means that the slots are not always effectively utilized. 

Based on these three examples, Mr. Chairman, there is a mixed 

picture when you look at the various coordination mechanisms 

within the government on this important matter. As a result, looking beyond the increase in attention that STOP! might provide in 

the short term, it is unclear whether there is a permanent mechanism that will enable U.S. agencies to successfully coordinate on 

the enforcement side issues. 

Based on our prior work, we believe that there are specific steps 

that the agencies can take to improve the effectiveness of their efforts. One step is for DHS to complete the targeting effort that was 

described earlier as targeting is the only way to make the most of 

the scarce resources at the border for inspecting cargo. 

A second step is for agencies to tighten some of the high-risk systems that still exist. We pointed out a number of weaknesses in the 

CBP inbound system that allows enormous volumes of cargo to be 

shipped throughout the United States with limited inspection and 

control. 

Third, we think that the agencies can better communicate how 

small and medium-sized firms can utilize the law enforcement options of agencies such as CBP, and the agencies can also provide 

better information to firms regarding the prospects for protection 

of their intellectual property abroad. 

Mr. Chairman, let me make one final observation. Despite the 

scale of the IP problems abroad and the extensive interagency efforts and Special 301, sanctions have been used only once, and that 

was against the Ukraine, and the last WTO case on IP protection 

was brought in the year 2000. 

Mr. Chairman, this concludes my statement. I would be happy 

to answer any questions that you have. 

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

Customs and Border Patrol, you have talked about these audits, 

Mr. Baldwin. 

Mr. BALDWIN. Yes. 

Senator VOINOVICH. You have done the audits and the question 

is, once the audits are done, what do you do with them? For example, if you determine that a company, a trading company or whatever it is, doesn’t have things in place in terms of checking to make 

sure that the stuff coming in here is not violating intellectual property rights, what do you do? 

Mr. BALDWIN. Well, we have several steps and we are actually 

pursuing now what is the proper remedial or punitive action to be 

taken. First, I would like to highlight the fact that this is rather 

26

unique for how we would traditionally enforce IPR. I think we have 

a traditional approach that you would need to examine the goods 

at the border, open the container, find the infringing mark, and 

take action against the transaction and the transaction alone. 

What this approach is really trying to do is hold the businesses 

accountable for their IP infringing goods. This is a unique approach. 

So now to more directly answer your question, Mr. Chairman, 

what we would hope to do is evaluate their internal control system 

to identify the various weaknesses that they have if we find infringing goods, and we have in the warehouses. We have made seizures. We have made destructions. We have worked with the companies to try to improve their system and give them an idea of the 

best practices to ensure that this does not continue. But we also 

have the recourse of applying greater levels of examinations now 

that they have established a pattern——

Senator VOINOVICH. This is stuff that is coming to this country—

you are examining it when it gets here, right? 

Mr. BALDWIN. Yes. 

Senator VOINOVICH. What if you find out you have a company 

that 90 percent of the stuff they are bringing in is counterfeit? Why 

don’t you, when you find that 90 percent of a company’s shipments 

are counterfeits, just say you can’t ship to the United States any 

more. Goodbye, we are not going to allow you to import any more 

into the United States of America, period. Can you do that? 

Mr. BALDWIN. I think we could certainly explore that option if we 

were to find 90 percent. Unfortunately, I don’t think we ever find 

a margin of error that high. Even though we might make 7,000 seizures last year for IP-infringing goods, I would suggest that there 

wasn’t any one company that dominated the vast majority of those 

seizures. 

You will find consistently where we show two-thirds of the infringing goods are coming from China and we might find other 

countries that are sourcing those IP-infringing goods, but we are 

not finding a prevalent number of companies that account for those 

seizures or discrepancies on an annual basis. 

However, what I think our program for IPR audits is trying to 

identify is that there are companies that are vulnerable for IPR infringement and we are trying to attack it in that fashion, as a complement to our traditional——

Senator VOINOVICH. Do you have the authority to do it? Right 

now, if two-thirds of the stuff coming in from a company is counterfeit, are you saying, look, you have demonstrated that you are a 

bad company, you are a counterfeiting operation. Can you stop 

them and say, we are not going to accept any more goods in the 

United States? 

Mr. BALDWIN. I would be happy to get you a list, as a question 

for the record, as to what our remedial actions are under our current authority and how we could proceed if we found such an egregious violation. 

Senator VOINOVICH. I would like to find out whether or not you 

need additional laws for you to make that happen. 

We have the STOP! operation, OK. Mr. Evans patently has a situation where his trademark has been infringed upon. Why can’t 

27

you determine that they have been infringed upon and basically 

say that if this company that has infringed on them is importing 

into the United States, that they can’t bring their goods here? In 

other words, you give an order to say—my thought was that you 

have got a place where somebody can go and it is obvious based 

on everything that you can see, all the information that he brought, 

he has available, that there has been a knock-off. It is overwhelming. Why can’t you then say to Customs, this product should 

not be brought into the United States? 

Mr. DUDAS. You can say to Customs—there are certain products 

that can’t be brought into the United States, there is this particular product that is being imported, and we think it is counterfeit. I don’t mean to speak for Customs but I think Customs works 

very closely with the private sector on that topic and they can identify counterfeits. 

One of the things that was just testified to earlier was that we 

are working with Customs, particularly with small businesses, in 

making sure that small businesses know very early on that when 

they get their trademark, they should record that with Customs 

immediately. In fact, we are putting that information on the notice 

of trademark registration so that the very first set of instructions 

they get with their trademarks include going to Customs. 

Senator VOINOVICH. In terms of STOP!, and you said you got 400 

calls, how many of the 400 people that have called have gotten any 

kind of remedy? 

Mr. DUDAS. I would like to say that every single person who has 

called has gotten some form of remedy. The wide variety of calls 

we have gotten have included one woman calling who wanted to 

start a company called ‘‘Copycats’’ and sell counterfeit purses in the 

State of Washington. We convinced her why that was not a good 

idea through pangs of conscience. 

We have had hundreds of calls from people calling to find out 

what they need to do to register for trademarks in the United 

States. You would think that this is something that might be problematic. It is not problematic in that it is the precursor for getting 

intellectual property anywhere else in the world if they are operating in the United States. In many cases, you need your IP in the 

United States before you will be able to get it, or at least to secure 

your rights. 

We have had people calling in particularly with questions about 

what are the risks philosophically and specifically about whether 

or not to invest in China, whether or not to start a business in another country, or how might I get my trademark. 

I think to a degree everyone has had the opportunity to discuss 

the issue. We have not been getting the kinds of calls where they 

are asking for an investigation to begun. 

Senator VOINOVICH. Mr. Evans, he has got his property, these 

masts. If they are being brought in the country now, could you stop 

them from being brought in? 

Mr. DUDAS. I think Mr. Evans could—if they were being imported into the United States. The first step would be that Mr. 

Evans would be able to enforce his rights. Our laws are very clear 

that you cannot import an infringing product into the United 

States. 

28

Senator VOINOVICH. What would Mr. Evans do? 

Mr. DUDAS. If they are importing it from within China——

Senator VOINOVICH. If I know a company is shipping counterfeits 

into a U.S. port. 

Mr. DUDAS. With that kind of information, I would defer to Customs about specifically where he would go. If he calls our line, we 

will make certain that we help as much as we can or get him to 

a person within Customs. Customs could also work on that. If you 

know there is certain manifest information and you know where it 

is coming in. Folks from the private sector do that all the time, and 

as you noted——

Senator VOINOVICH. OK, but the question is somebody has got to 

make up their mind that he has been infringed upon, somebody 

here says, you have been infringed on. And the question is, can 

somebody say he has been infringed on and then call Mr. Baldwin 

and say, Mr. Baldwin——

Mr. DUDAS. Actually, we can’t make a determination about 

whether or not a product that we haven’t seen is infringing. Certainly, any private business can say, ‘‘I know it is not my product 

coming in.’’ That puts it under suspicion. Again, I think this is 

something more for Customs. Customs looks at that and then Customs has the ability to identify it as a counterfeit or not and seize 

it. 

Senator VOINOVICH. Just one more minute. Go ahead, Mr. Baldwin. 

Mr. BALDWIN. I was just going to add that, ironically enough, Mr. 

Evans and I were having this same discussion just before the hearing began where we were discussing that he was interested in recording his mark now with Customs in the event that there should 

be some imports of this product. 

We have many avenues where, much like the STOP!——

Senator VOINOVICH. Could he do that now? 

Mr. BALDWIN. He could do it now. If he has registered his trademark——

Senator VOINOVICH. And could you do anything about it? 

Mr. BALDWIN. If there were imports of his product. He would notify us. We would record it, have it in our systems, and be prepared 

should imports that infringe on his mark occur. 

We also have other avenues. I will discuss very quickly about——

Senator VOINOVICH. The question I have is—and I have gone on 

too long, but the question is, who determines that he has been infringed upon? What determination has been made that he has been 

infringed upon? 

Mr. BALDWIN. Customs and Border Patrol does have the legal authority to make an infringement determination should an import of 

the infringing merchandise occur. So Customs can do that within 

our own authority. What we request ahead of time, though, is that 

Mr. Evans record his mark with Customs. That helps give us more 

information as to what his mark entails, what are the technical 

specifications, what would be required, and helps us help him protect his mark. 

Senator VOINOVICH. OK. Senator Akaka. 

Senator AKAKA. Thank you very much, Mr. Chairman. 

29

Ms. Espinel, in February 2005, the International Anti-Counterfeiting Coalition submitted recommendations to the U.S. Trade 

Representative regarding countries that do not adequately protect 

and enforce intellectual property rights. The coalition reported that 

some IPR holders believe the Mexican enforcement environment is 

worse than China and the coalition recommended that Mexico be 

placed on the priority watch list. My question is, how is the USTR 

working with the Mexican Government on this issue? 

Ms. ESPINEL. Let me mention a couple of things. One is Mexico 

does have a significant enforcement problem, and that is a concern 

to us not only because our rights holders are investing there, but 

because we share a border with them, and USTR has directly been 

raising those concerns with the Mexican Government and has 

made it clear to them that this is one of our top priorities for them 

that they have to address. So we have been using the Special 301 

Report, but our ongoing bilateral discussions with Mexico to make 

quite clear that this is a serious concern for us. 

I also want to note, though, that as has been mentioned here, we 

have been under the STOP! initiative reaching out to other trading 

partners to try to increase our coordination and cooperation with 

them, and although we have not yet, as has been mentioned, we 

have visited several countries in Asia. We have visited several 

countries in Europe. We are also planning to be talking to Canada 

and Mexico, key trading partners with whom we share a border, 

to try to increase our cooperation with them under the STOP! initiative. 

If I could just make one other point, one of IACC’s other concerns 

that they raise had to do with transshipment and the problem that 

we have of counterfeit and pirated goods going through Free Trade 

Zones. That is one of the things that we are trying to address 

under the STOP! initiative, and in our Special 301 Report this 

year, we included a new section highlighting the problem of transshipment through Free Trade Zones and our concern with them at 

the—in direct response to the concerns raised by IACC. 

Senator AKAKA. Dr. Yager, in your testimony, you discuss the 

risks associated with the in-bond system run by the Department of 

Homeland Security. 

Mr. YAGER. Right. 

Senator AKAKA. This program allows cargo to be transported 

from one U.S. port to another U.S. port before it is formally entered 

into U.S. commerce or exported to a foreign country. In your written testimony, you stated that in-bond shipments are the least inspected and a fast-growing sector and are, therefore, considered 

high risk. 

Can you discuss what specific recommendations GAO has made 

to DHS on the in-bond system, and can you elaborate on how this 

system can be exploited to allow pirated and counterfeited goods to 

enter the United States? 

Mr. YAGER. Thank you, Senator Akaka. We actually did a report 

that looked in depth at the in-bond system that came out in January 2004, and we had a number of recommendations which I will 

go over. But for people that aren’t familiar with the in-bond system, it is a situation where the goods physically enter the United 

States in a port like Los Angeles or Long Beach or New York; then 

30

they are shipped internally into another city in the United States. 

For example, if it is apparel, it might be going to Cleveland or Cincinnati, where many of the headquarters of certain firms are. And 

then it is brought into the commerce of the United States at that 

port, for example, in Cincinnati or another place. 

Now, the problems that we found with this particular in-bond 

system was it had a number of internal control weaknesses which 

meant that many of the goods that were being brought into this 

country were then put in this in-bond system, and let me just say, 

this is not a small percentage of U.S. imports. Estimates are that 

as high as 50 percent of U.S. imports coming into the ports are 

shipped in-bond and then entered into the commerce in an interior 

city. 

But between that time when it comes into the U.S. port and 

when it is actually entered into the commerce in that interior city, 

there is very weak internal control on that system. For example, 

there are long time periods to allow the trucks to get from the 

entry port to its port of entry into the United States. And then 

there are also situations where it is a very poorly automated system such that there is no specific control on how to close out shipments. So the shipments could be diverted into the commerce of the 

United States without actually having gone through the formal 

entry process. 

So we had a whole range of recommendations on how to fix the 

in-bond system and we are working right now and we have been 

trying to get responses from DHS to determine how they have 

changed and what progress they are making in trying to fix the 

system. But we did find it to have serious weaknesses in terms of 

its controls over the merchandise, which means that some of that 

merchandise could get into the U.S. commerce without having been 

officially entered through a port of entry and going through DHS. 

Senator AKAKA. Thank you. Ms. Parsky, as you know, one of the 

fastest-growing areas of IPR crime is pirated music and movies and 

illegal file sharing on the Internet. There will always be individuals 

who want something for nothing. Recently, however, industry and 

the government have worked together to educate consumers on 

how such actions impact our community. 

Have there been any noticeable changes in public attitudes in the 

U.S. regarding the risk of illegal file sharing, for example, and 

what more can the Justice Department do regarding IPR crime 

prevention? 

Ms. PARSKY. Senator, you raise a very important point, which is 

the public attitude within the United States about piracy, and 

particularly for children, and the widespread piracy of music and 

movies and video games, and this is something that the Justice Department is very aware of. We have, as part of the IP Task Force 

Report’s recommendations, launched a public awareness campaign. 

Former Attorney General Ashcroft held the first session of a program called ‘‘Activate Your Mind, Protect Your Ideas’’ soon after 

the release of the IP Task Force’s Report. This was a program for 

high school students where there were convicted perpetrators, IP 

thieves, who came and spoke to the students as well as those who 

create the products to give them a sense of what kind of damage 

is done by this type of piracy. 

31

On April 28 of this year, current Attorney General Alberto 

Gonzales was in Los Angeles for a second part to this program that 

was focused on the movie industry. He spoke to a number of high 

school students about what it really means to be stealing these 

things, and how even if it is over the Internet, it causes the same 

harm and is the same type of crime as if it were a physical CD. 

This is something that is going to take a long-term effort, because I think that there is a problem in terms of youth not understanding the damage that is caused by IP theft. But it is something 

that we are committed to doing, and it is going to take reaching 

into high schools, but really into elementary schools where children 

are starting to develop their ideas of what is right and wrong and 

what is actually against the law, to educate them. 

But I will tell you that this is a long-term effort because I think 

there is an attitude problem across the United States, and it is 

something on which we are trying to partner with private industry 

and with other government agencies. I know that PTO has also 

been engaged in a public education campaign. So we are trying to 

find ways that we can work together to get the message out, to 

educate the public, and then most importantly, through a lot of our 

criminal prosecutions, we are searching for those cases that will 

send out a very strong deterrent message and to publicize those, 

so people know that this is something that is illegal and that there 

are consequences for the behavior. 

We have brought recently some cases involving the most recent 

developments, the most high-technology means of piracy, such as 

peer-to-peer networks using the BitTorrent technology, and so we 

have brought these cases to send a very clear message that no matter what type of technology you use, that it is illegal and that we 

will find a means to enforce the U.S. laws. 

Senator AKAKA. Thank you very much for your responses. My 

time has expired, Mr. Chairman. 

Senator VOINOVICH. Senator Carper. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. Thanks, Mr. Chairman. To our panel, welcome. 

Thanks for joining us this morning and for your presentations. 

A long time ago, I was a Naval flight officer. I served a fair 

amount of my time in my squadron in Southeast Asia and occasionally I would fly in and out of Taiwan. I recall our air crews buying 

books and reading them and they were just knock-offs of classics 

and other texts and so forth. We probably still have a few in our 

library at home. But at the time, Taiwan was regarded as a Nation 

that didn’t pay a lot of heed to intellectual property rights. They 

had an opportunity to make a dollar, knock-off something of ours, 

they would just go ahead and do it. 

Now, it looks like the nation, from your testimony, from what I 

have heard, the nation that is the greatest perpetrator of dealing 

in counterfeit goods is China, which sort of leads me to wonder, 

what has happened to other countries who sort of led the way in 

this effort, among them Taiwan? Do they continue to persist in 

counterfeiting goods as they once did? Have they changed their 

ways? Have they mended their ways? And are there any lessons 

that we might learn with respect to countries like Taiwan and their 

32

previous practices that might apply to courses we would take with 

China? 

Mr. DUDAS. Yes, there are many lessons learned. In fact, what 

your experience was and what you are speaking about now, is 

something that goes back scores of years, if not hundreds of years. 

There is a question of development of countries and whether or not 

countries begin by copying to jump-start their economies and then 

eventually get their own products and have their own interests in 

turning out their own products and their own innovation. These 

statements have been made about a number of Asian nations. That 

has been said about the United States 100 years ago that the 

United States had a model along those lines. 

I think there are places that disagree with that, but there are 

certainly signs that this may be the case here, as well. If you can 

jump-start an economy along those lines, it is our responsibility to 

make certain that China, the largest country in the world, realizes 

today, and all developing nations realize today that intellectual 

property enhances their development. It does not hurt their development. 

By educating those countries, by working with them both 

through the carrot and the stick, we are letting them know that 

this is unacceptable from a trade perspective and to their trading 

partners. We spend a great deal of time working with those countries to develop their systems. 

One piece of good news continuing along this path in China is 

they had more patents issued last year to Chinese nationals than 

they did to foreigners for the first time in their history. They have 

the largest trademark office in the world. They are learning more 

and more every day that they need to innovate if they are going 

to produce. It is our responsibility to make certain they understand 

that it is unacceptable to us and that they have to play within the 

rules. 

Senator CARPER. Does anybody else want to add to that? Please, 

Dr. Yager. 

Mr. YAGER. I would like to add just a couple points. One thing 

that you brought up here is China is a particularly important problem for two reasons. One, it is such a large internal market. Losing 

access to that market is quite a big problem in itself. But then, obviously, China is also a world-class exporter of these kinds of pirated goods. 

We visited a number of countries in our work, but China was the 

one that had that particular combination of being both a large exporter as well as a large consumer of many of these goods. That 

is what makes it obviously so important. 

But I think your point is one that, when the United States can 

ally itself with interest groups within those nations that have similar goals, the likelihood that they will be successful in getting laws 

changed and getting enforcement and protection of intellectual 

property goes way up. Some countries obviously don’t have a lot of 

intellectual property to protect and, therefore, linking with interest 

groups inside those countries, frankly, is quite difficult, while others, there may be pockets of groups that do have interest in protecting their intellectual property. It behooves the United States to 

work closely with those groups because they can provide some of 

33

that domestic support for what is a fairly intensive and expensive 

effort to enforce these rules. 

Senator CARPER. All right. Thank you. 

Ms. ESPINEL. If I could just add to that, I think the USTR is generally better known for being the stick rather than the carrot and 

we have worked intensely with Taiwan. We have been very concerned about their intellectual property enforcement and we have 

made that a priority issue with Taiwan for a number of years. So 

I think one of the lessons learned, generally, is that we need to 

keep the pressure on with countries with whom we have concerns. 

Taiwan has started to respond to that. They have begun improving 

their enforcement. In recognition of that, USTR moved them down 

the 301 Watch List earlier this year. 

But I think one thing that has changed, a relatively new development, are exports of counterfeit and pirated goods and the export 

market that is being created, and I think in order for us to be able 

to address that effectively, we really do need to cooperate with our 

trading partners. That is not something the United States can do 

alone, and that is one of the primary objectives, as you know, of 

the STOP! initiative, is to try to bring our trading partners together so that we can deal with this international trade and export 

of counterfeit and pirated goods in cooperation with them. 

Senator CARPER. Let me ask a somewhat different question. 

There is a table up here, as we can see, and on the table are a variety of goods. I am not sure what all of them are. I recognize the 

sneakers. It looks like some of it might be toothpaste. I don’t see 

any what looks like it might be prescription medicines, knock-offs 

on——

Mr. YAGER. There actually are some pharmaceuticals, I think 

just in front of the household goods. There are a couple of copies 

of prescription medicines. 

Senator CARPER. One of the issues that has been kicking around 

here in the Senate for a while, and in the House, too, for a couple 

of years is the issue of reimportation of prescription medicines or 

pharmaceuticals, and I would ask you to—I don’t care who takes 

this on, but for whoever feels comfortable, in talking with us about 

the counterfeiting of prescription medicines or pharmaceuticals and 

what we need to be mindful of. What do we face in terms of the 

flow of counterfeit drugs into this country? How are we trying to 

deal with that, and how should we be dealing with that threat? 

Mr. DUDAS. Regarding counterfeits, I can tell you that the World 

Health Organization has done a study stating that 10 percent of 

the world’s market in pharmaceuticals is counterfeit. It was a 

small study, but of those that they found, 67 percent didn’t contain 

the right amount of the active ingredient or contained a different 

kind of active ingredient. As you can imagine, someone who bases 

their business on stealing doesn’t have the greatest integrity in the 

quality of their product. 

In the United States we don’t have that problem because of how 

strong Customs is and because of what our rules and laws are. I 

can only speak from an IP perspective that we need to be incredibly careful, knowing what level of counterfeits there are out there 

in the world versus knowing that we have safe drugs in the United 

States. 

34

Mr. YAGER. I can add just a short matter——

Senator CARPER. Please. 

Mr. YAGER. One of the things that is actually different about 

pharmaceuticals is, in many cases, they are actually imported by 

the end user. So it doesn’t come in through the kinds of containers 

and shipments that we have mostly talked about here this morning, that many of the goods that are being imported are individuals 

who are using it through a website or they have other contacts outside of this country and it is being imported in very small quantities. And therefore, it is actually a very different kind of an inspection and targeting mechanism than what we have talked about 

today. 

GAO did a report on that earlier this year, I believe, where we 

talked about the importation of pharmaceuticals, and it really just 

has to do with trying to look at the small package deliveries and 

get some sense of how many of those might be containing illegal 

goods, because obviously, there are some real dangers associated 

with the kinds of goods. When it becomes pharmaceuticals, there 

are some real dangers to the consumers, that they are importing 

something which is fake and doesn’t have the active ingredient, or 

maybe worse, that it has some other ingredients that could be 

harmful. 

Senator CARPER. All right. My time has expired, Mr. Chairman. 

Thank you. 

Senator VOINOVICH. Senator Levin. 

OPENING STATEMENT OF SENATOR LEVIN 

Senator LEVIN. Thank you, Mr. Chairman. Thank you for holding 

this hearing and thanks to the panel. 

One of the biggest problems in counterfeiting is the problem 

which exists for automotive suppliers. The Federal Trade Commission estimates that the loss in sales to the automotive supplier industry is about $12 billion a year worldwide in counterfeit material. I want to ask you a number of questions about the automotive 

sector. 

The theft of intellectual property now in China is so widespread 

and bold that an entire car is being knocked off. The Chevrolet 

Spark, which is copied, manufactured, and sold under the name of 

Cherry QQ by the Chinese Cherry Automotive Company, Limited. 

They even allegedly are going to try to export this knock-off to the 

United States. This vehicle is based on the Daewoo Matese, which 

is a mini-car originally developed and manufactured in Korea. GM 

Daewoo launched the Chevrolet Spark for the Chinese market, 

where it is assembled in a joint venture. And then all of a sudden 

GM noticed there appeared to be such a strong resemblance between the Chevrolet Spark and the Cherry QQ in April 2003. 

I am wondering whether or not any of you are familiar with this 

issue, this counterfeit. Are you all familiar with it? OK. Are we 

going to allow the import of a car which violates the intellectual 

property rights of GM Daewoo? 

Mr. DUDAS. If it violates the intellectual property rights that 

they have in the United States, it cannot be imported. 

Senator LEVIN. Have you studied this knock-off? 

35

Mr. DUDAS. We have seen from GM Daewoo the pictures of the 

car and learned they actually interconnect almost perfectly. The 

only difference is the back handle of the car is nine millimeters 

back, or something along those lines. 

Senator LEVIN. Have we talked to the Chinese about this? 

Mr. DUDAS. We have talked to the Chinese. 

Senator LEVIN. And what is their response? 

Mr. DUDAS. We are continuing those dialogues and discussions 

along those lines of what has happened. There are questions that 

they have about what forms of intellectual property did Daewoo 

and GM engage in in China, and under what procedure they will 

follow. I believe GM and Daewoo are actually taking a case in 

China. We are attempting to work with them. I believe they are enforcing their rights in China through one legal theory. We are 

watching that case very closely. 

Zippo lighters was a case where the Chinese Government declined to go forward and send for criminal investigation after a seizure and the U.S. Department of Commerce officials, USTR officials, and others pressed to say they are trying to enforce their 

rights in your country. They need to be allowed to enforce their 

rights. And now those have been referred as criminal cases in the 

Zippo case, I believe just this week. 

Senator LEVIN. They have been referred by the Chinese? 

Mr. DUDAS. I am sorry, I didn’t hear your——

Senator LEVIN. Referred by who to whom? 

Mr. DUDAS. They were administrative seizures in China. It is our 

opinion they needed to be referred to a criminal case in China. We 

told the Chinese Government that they have rejected sending those 

administrative cases as criminal cases we believe you need to do 

that, which they have agreed to do. They understand that. So when 

a company is——

Senator LEVIN. They have agreed to do that this week? 

Mr. DUDAS. This week. 

Senator LEVIN. And they are well known for agreeing to things 

and then not following through. So when did they say they would 

do this? 

Mr. DUDAS. They said that this week. 

Senator LEVIN. That they would do this immediately? That they 

would do it this decade? When? 

Mr. DUDAS. It is very fresh news. In each of these cases, what 

I am trying to distinguish between are companies that are enforcing their intellectual property rights in China. That is an area 

where the U.S. Government can step in and say, you have laws in 

place, and you must enforce those laws and be fair with U.S. companies——

Senator LEVIN. If the Chinese Government is serious about intellectual property, and I don’t believe for one minute that they are, 

by the way. I have seen so little evidence of enforcement of the 

trade agreements; I don’t believe them, and I don’t believe their 

commitments; I don’t believe their promises. I will only believe it 

when their actions live up to what the law and requirements are. 

Until then, conversations are meaningless as far as I am concerned. Are you as frustrated as I am? 

36

Mr. DUDAS. Your point is exactly right. It is actions that speak 

louder than words. It is enforcement of laws, not laws, that is what 

is most important. We feel an amount of frustration when we hear 

statistics that show the amounts of illegal goods we are seizing in 

the United States. 

We do see progress with the commitment level of working towards both passing laws and enforcing laws. You have made the 

exact point that the U.S. Government is making results that will 

make a difference. 

Senator LEVIN. In the auto equipment area, virtually every automotive part has turned up in the counterfeit trade—windshield 

glass, brakes, safety lighting, headlights, tail lights, emissions components, structural parts, sheet metal parts, suspension parts, 

tires, belts, hoses, alternators, windshield wipers, and many other 

parts and components. We are going to need our government to 

take a lot stronger action with the Chinese on counterfeiting. 

I mean, when I read what is going on and when the Chinese 

Government refers, for instance, automotive counterfeit issues to 

their courts instead of taking a position themselves, when they deal 

with the trade agreement as they have by not enforcing the policies 

which are in that agreement, it is infuriating. I will give you one 

quick example. I will just quote from the USTR 2004 Report to 

Congress on China’s WTO compliance. 

It says that since acceding to the WTO, ‘‘China has increasingly’’—increasingly—‘‘resorted to policies that limit market access 

by non-Chinese origin goods and that aim to extract technology and 

intellectual property from foreign rights holders. The objective of 

these policies seems to be to support the development of Chinese 

industries that are higher up the economic value chain than the industries that make up China’s current labor-intense base or to protect less competitive industries.’’ That is our report. 

Since China’s WTO accession, it says here, China has increasingly resorted to policies that limit market access. What are we 

doing with China besides just jawboning? That is my last question. 

What specific actions are we going to take to China saying, you 

enter into an agreement. You have got access now. You have acceded to the WTO. Our own report says your policies are getting 

worse in terms of limiting market access. 

Ms. ESPINEL. Senator Levin, you probably know that USTR announced last year that we were conducting an extraordinary outof-cycle review of China because of the very significant concerns I 

think we all share with respect to what is happening in China. We 

issued our report just a few weeks ago, on April 29, with the determinations of that out-of-cycle review, and in that report, we announced a few new actions that we would be taking with respect 

to China that go beyond mere discussions. 

First, we elevated China to the Priority Watch List. As you probably know, China had not been on the watch list for a number of 

years, for almost a decade. So we have moved them up and onto 

as a Priority Watch List country to indicate the extreme level of 

concern that we have with how China is enforcing intellectual 

property. 

We also announced in the Special 301 Report that we would be 

invoking the transparency procedures of the TRIPS agreement in 

37

order to require China to provide to us detailed information about 

their enforcement of intellectual property. As you probably know, 

one of the problems that we have and that our industry has is the 

lack of transparency inside China and its intellectual property enforcement. So we are going to use the TRIPS procedures in order 

to require them to give us more information. 

We have also announced that we——

Senator LEVIN. When is that information due? 

Ms. ESPINEL. We have not yet filed the request, although we are 

in the process of drafting it in consultation with our interagency 

colleagues and our industry and we plan to follow it very soon. 

We also announced in the report that we have been working with 

our industry intensely on developing our WTO options, which 

would, of course, include litigation. 

Senator LEVIN. I will tell you, we are ‘‘watching,’’ we are ‘‘seeking 

information,’’ and we are ‘‘coming up with options.’’ Not one of 

those, to me, constitutes this is the action we are taking against 

you because you have violated your commitments, you have violated the WTO rules, and until we do that, as far as I am concerned, it is all hot air. 

I am so frustrated. I am sure that frustration comes out. I am 

sure I am not alone in this. But we are basically watching China. 

It is one thing to have to deal with cheap labor and to have to compete with government owned enterprises, which we do instead of 

competing with private companies. It is something else when that 

government, and companies that it controls, ignores the rules, and 

that is what is happening. I think that frustration level is shared 

by a lot of folks here in Congress. So you can watch China, but we 

are watching what the Administration does and doesn’t do and 

hopefully, this hearing will help. Again, I am very grateful to the 

Chairman for calling this hearing. It is all part of an effort to get 

China to deal honestly with the world. 

Senator VOINOVICH. Senator, your brother and I were in China 

for a week and I share your same frustration. I will say this, that 

I think that we are cranking things up and I will be interested in 

our next two witnesses, who will comment on it from the point of 

view of the private sector in terms of whether or not we are getting 

the coordination, and whether or not we are getting the enforcement. 

Senator LEVIN. Thank you, Mr. Chairman. 

Senator VOINOVICH. I thank the witnesses for being here this 

morning. Again, there are many questions that I would like to ask. 

In deference to the next two witnesses, I think bring them on. 

Thank you very much for being here, and I will say this, that the 

best news I had is when I called the STOP! number and got the 

kind of action that I got, because the last time I called the number 

I was supposed to call, the person on the end of the line didn’t 

know what I was talking about. So we are making progress. Thank 

you. 

Our next two witnesses are Brad Huther, who is the Director of 

Counterfeiting and Piracy Initiative at the U.S. Chamber of Commerce, and Frank Vargo who is Vice President for International 

Economic Affairs at the National Association of Manufacturers 

38

1The prepared statement of Mr. Huther appears in the Appendix on page 109. 

(NAM). Mr. Vargo has testified before this Subcommittee before 

and I welcome him back. 

I will tell you, Mr. Vargo, that I have been a little disappointed 

in the National Association of Manufacturers, particularly in your 

reluctance to put pressure on the Secretary of the U.S. Treasury 

in terms of China’s fixing their currency. I thought for a while you 

were going to move forward and you backed off and I want to say 

I am very disappointed, because it is only going to be because of 

efforts from outfits like yours and the Chamber of Commerce and 

others that we are going to get this government to move forward. 

Now, I think the Treasury Secretary has assured me that they 

are going to do something, but just as Senator Levin and I are frustrated with IPR problems—I am very frustrated in terms of the 

fact that we just keep allowing them to fix their currency and hurt 

our competitiveness. We have just got to get serious, and it won’t 

happen without the support from people like the Manufacturers 

and the Chamber and the NFIB and a lot of other business groups. 

For some reason, it just seems that when we finally get to the edge, 

no one is willing to push. 

I look forward to your testimony and we will start with Mr. 

Huther. Thank you, both of you, for being here. 

Mr. VARGO. Senator, Mr. Chairman, if I could—I will respond to 

your statement in my remarks, but I just want to say that I am 

surprised at what you have to say because we have been pushing 

very hard and I would like to discuss that. 

Senator VOINOVICH. OK. Well, that is what we want to hear 

today. 

Mr. Huther. 

TESTIMONY OF BRAD HUTHER,1 DIRECTOR, COUNTERFEITING 

AND PIRACY INITIATIVE, U.S. CHAMBER OF COMMERCE 

Mr. HUTHER. Thank you very much, Mr. Chairman and Members 

of the Subcommittee. I will be brief. 

I have watched this issue for a long time. I have watched questions of interagency collaboration for a long time, and I just simply 

want to get to the bottom line, which is, I think, one of the best 

examples of interagency collaboration that I have seen. Although it 

has got a long way to go, I think it thus far has taken some very 

important steps, such as those you have heard today. 

I don’t think, however, the STOP! initiative by itself is the ultimate answer. It is the Administration’s answer, but the business 

community has a very strong obligation to contribute to this. That 

is why the Chamber itself has developed a very aggressive action 

plan focusing on three main areas of trying to alert or educate, if 

you will, members of the public, Members of Congress, anybody 

who doesn’t understand the scope of this problem, including small 

businesses who are not very well informed on the issue, I am sad 

to say. 

Second, we want to offer whatever help we can to encourage 

stronger enforcement of their rights wherever those rights convey, 

such as those that you have adequately demonstrated here this 

morning with Mr. Evans’ example. 

39

1The pamphlet entitled ‘‘What are Counterfeiting and Piracy Costing the American Economy,’’ 

submitted by Mr. Huther, appears in the Appendix on page 126. 

And then finally, the Chamber will be targeting a number of 

countries, not only China, but Brazil, Korea, Russia, and the list 

will go on. We have people on the ground in those countries who 

are looking very hard at what is happening to enforce the intellectual property rights, or for that matter, just out and out thievery 

of American-owned manufactured goods or innovative technology. 

So the Chamber pledges the fact that it is willing to do its part. 

It can’t do it alone or together with the STOP! agencies and succeed either. That is why my colleague, Mr. Vargo, and I represent 

a coalition which now numbers 74 members, major national associations—you know all of them. Senator Levin just left, but the 

Motor Equipment Manufacturers Association and the Automobile 

Manufacturers Alliance are two members of that coalition who are 

hard at work in a number of the areas he cited. 

We are taking a look at the issues, some of which have been 

raised today, including the Organization for Economic Cooperation 

and Development (OECD) study. We are supporting the OECD 

study in a number of respects to get rid of one fundamental problem that everyone hears everywhere you go, which is ‘‘show me the 

data.’’ While the data that we have all been pointing out in our 

public documents—and by the way, I have with me a copy of a brochure which we think summarizes all the statistics, from the World 

Customs Organization to the U.S. Trade Representative to you 

name it. Whoever has quoted something about counterfeiting and 

piracy, we have attempted to record it in this document. I offer it 

to the Subcommittee to take a look at it to see if you think it is 

helpful, because we intend to take that kind of information to all 

of the three million members who comprise the Chamber of Commerce. 

Senator VOINOVICH. With the permission of the Subcommittee, I 

will enter it in the record. 

Mr. HUTHER. Thank you very much.1

But this coalition is not just one that sits around the table and 

talks. We have five task forces. They are working on things like the 

OECD study. They are working on things like drafting model text 

for future Free Trade Agreement negotiations. They are working on 

the No Trade in Fakes, or supply chain questions, that you have 

heard described today. 

From an industry point of view, we think we can contribute to 

the best practices that are out there to protect America’s supply 

chain. We hope those best practices could be useful to the Department of Homeland Security and the Department of Commerce in 

ways that develop guidelines for others to follow. And so the list 

goes on. 

Finally, I will indicate, as you asked, what can the Congress do, 

and I think there are three very specific things that I would like 

to suggest. One is H.R. 32, which was passed by the House last 

month and is a very effective solution, in our opinion, to strengthen 

the protection of trademarked items, especially those things that 

deal with labels and the like which are attached to some of the illegally counterfeited and imported goods. So enactment of that statVerDate 0ct 09 2002 09:06 Apr 19, 2006 Jkt 021827 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 C:\DOCS\21827.TXT SAFFAIRS PsN: PAT
40

ute soon will strengthen America’s ability to protect itself against 

counterfeiters, for sure. 

Second, you mentioned earlier, Mr. Chairman, your views on 

Free Trade Agreements. I am a little reluctant to specify this one, 

but the Chamber does support ratification of the Dominican Republic-CAFTA Free Trade Agreement. Putting aside some of the political issues, there is a chapter in DR–CAFTA which is very strong 

on strengthening intellectual property rights protection in that 

very important region. If you want to worry about where goods are 

flowing illegally into the United States, that is one region, just like 

all the others that we have heard. So doing anything that we can 

do to provide stronger protection through Free Trade Agreement 

negotiations, we think is an important element of a comprehensive 

strategy. 

And then finally, it is a little bureaucratic sounding, but there 

are two issues that haven’t been addressed today. Who is going to 

coordinate all the work of the STOP! agencies? The CommerceState-Justice appropriations bill last year indicated that there 

should be such a person appointed. We keep hearing very positive 

indications that the appointment of such an individual, as well as 

possibly some restructuring of NIPLECC, are in the works and we 

advocate that those decisions be taken soon because you do need 

a single focal point for this program, in my opinion, if it is going 

to have a greater chance of success than it has already demonstrated. 

And then finally, the Congress can take a very active role 

through the use of the Government Performance and Results Act. 

It was passed 10 years ago to get agencies to get their act together, 

to develop strategic plans, to look at the global issues that are important to the American people. Certainly, we at the Chamber 

think that this is a national priority that has already arrived and 

we would advocate that if these STOP! agencies can develop an integrated action plan with a single point of contact to coordinate it 

at a very high level of government, and then can be tasked with 

providing reports to you, and frankly, the Chamber stands willing 

to provide reports to you, as well, on whether we are succeeding 

in achieving our performance metrics for the things that we are 

trying to contribute to this effort. 

So the bottom line is I have listened to presentations by Jon 

Dudas. I have listened to other presentations by similar members 

of the agency panel that you have established this morning. I have 

listened to the comments of Secretary Gutierrez. I can tell you that 

we at the Chamber are quite impressed with what we hear. We are 

quite impressed with the level of detail and the care of planning. 

But we realize that if this is going to work well, all of us have to 

do our part to contribute to the ultimate solution. 

Thank you, Mr. Chairman. 

Senator VOINOVICH. Thank you. Mr. Vargo. 

41

1The prepared statement of Mr. Vargo appears in the Appendix on page 118. 

TESTIMONY OF FRANKLIN J. VARGO,1 VICE PRESIDENT, 

INTERNATIONAL ECONOMIC AFFAIRS, NATIONAL ASSOCIATION OF MANUFACTURERS 

Mr. VARGO. Thank you, Mr. Chairman. It is a great pleasure to 

testify before you again. 

Clearly, I have been derelict in not visiting with you or your staff 

to discuss the NAM’s actions on the Chinese currency issue because 

the NAM has been the leading advocate for pressing to get China’s 

currency revalued. We started about 2 years ago. When we did, nobody had heard of the yuan. Nobody could spell renminbi. And we 

have elevated this up to where it has become one of the government’s highest international economic priorities. 

We, along the way, began developing a case under what is known 

as Section 301 of the Trade Act, and I think probably you are referring to the fact we did not want to file that. But the utility of a 

Section 301 case is if the government is going to accept it. The 

worst thing to do is have a case that you file and have the Administration reject it and have the Chinese see that there is discord. 

That is why we did not file, and we were very disappointed that 

a spin-off group of associations did that and it was rejected. So that 

was a negative thing. 

We have worked with the Administration, with Secretary Snow 

very closely, and are at the point now where under the Trade Act 

of 1988, the Secretary of Treasury has stated that if the Chinese 

do not take a significant action before October, that they will almost certainly be cited under that Trade Act and a process begun. 

In my view, Mr. Chairman, there is no doubt that we would not 

be there had it not been for the continued and very determined efforts of the NAM, which I would be very pleased to document 

should you be interested. There is nothing of a higher priority for 

the NAM than getting that currency revalued. It is by far the biggest factor in our trade deficit with China. We will not get that deficit down until China’s currency moves up, and also begins moving 

towards a market-determined currency. 

But this hearing, Mr. Chairman, is on counterfeiting, so let me 

turn to that and the STOP! program. 

The NAM has been a very strong supporter of the STOP! initiative. We had a lot of discussions with Administration officials before the program was put together. We are very pleased that many 

of the ideas that we had put forth are incorporated within the initiative. The initiative is 8 months old and we are quite satisfied 

with the way it has been evolving. 

There are a couple of areas that need more work and we need 

to sit down and think through what we can do. The most important, I believe, is what to do with smaller companies and the problems that they are facing. You heard the testimony of the Will-Burt 

Company. This is not an unusual situation. Many small companies 

find they are being ripped off in China or they are having to face 

knock-offs around the world that are produced in China. It is a 

very expensive thing for them to do. Basically, they now are told 

they have to do the investigatory work, they have to bring about 

42

the legal action. It is a very expensive thing for them to do and 

there ought to be a better way to do it. 

This is a crime. Governments ought to be doing more on their 

own to stop these crimes. If you have a case of murder, you don’t 

ask the relatives of the victim to go out and begin doing their own 

investigation and bring a case. You have the prosecutorial authorities. You have the full force of the government behind you. And we 

need to look at what more we can do here. 

This won’t be an overnight process, but it is certainly something 

that we need to do in terms of there might be some possibilities 

for having a public defender. There might be some possibilities of 

having the U.S. Government pick up some more of the investigatory cost. There might be more we can do through diplomatic initiatives. 

Frankly, I don’t know. We don’t have a program that we can lay 

out. But we want to sit down with the Administration, and they 

have indicated a willingness and interest in doing so, with your 

staff and with others, Mr. Chairman, because we need to push this 

through. 

Mr. Huther mentioned H.R. 32, the bill that Mr. Knollenberg introduced in the House. It is not the jurisdiction of this Subcommittee or Committee but we hope you will take a very close 

look at it, become a strong advocate for getting that passed very 

quickly. It fills some rather major loopholes in U.S. law. 

Finally, let me note that while our focus is on China—China is 

the epicenter of counterfeiting in the world—China is not the only 

problem. We have Russia going through the WTO accession process 

now. We want to ensure that we learn lessons from China’s accession and we see that we are tighter in insisting that Russia has 

what we need before it comes into the WTO. 

Thank you, Mr. Chairman. 

Senator VOINOVICH. Thank you. Again, thank you both for being 

here today. 

One of the questions that I didn’t get to ask, and we are going 

to send it off to them, but I think you made some reference to it, 

and that is the issue of coordination. Two issues that I am concerned about is who is the orchestra leader here? Second, are the 

folks going overseas? 

I discussed this with USTR Representative Rob Portman. When 

he goes over there, when Mr. Gutierrez goes over there, when Mr. 

Snow goes over there, are they speaking with the same voice? So, 

do we have an orchestra leader there? In your opinion, who ought 

to be the orchestra leader? 

Second of all, very concerned, is do they have the staffing, and 

maybe you were here for the call to STOP!. Well, the expert on 

China is in Detroit. Tell the folks what they should be doing and 

what are your observations in terms of the human capital that is 

needed over there to get the job done. Is it adequate or should we 

do more in that area? 

Mr. HUTHER. I will try first, if I could, Mr. Chairman. There is, 

as I alluded to in my earlier remarks, no single designated spokesperson for the Administration as yet. We are not concerned that 

such an individual hasn’t been appointed, but we will be if it takes 

too much longer for that decision to be made, because the longer 

43

it takes, the more likely it will be difficult to keep this interagency 

coordination effort that I have talked about in positive terms continuing. 

Senator VOINOVICH. Who should be that person, in your opinion? 

Mr. HUTHER. Well, we think the person should be someone who 

has cabinet-level rank, who can speak to these issues authoritatively, whether that be a member such as the Secretary of Commerce, whether that could be someone in the White House, in the 

National Economic Council, we are not necessarily here to say who 

the right person is or which of the organizations. What we do want 

is someone who can speak to the issues and who understands them 

horizontally, across the board, and who can represent the interests 

not only of the STOP! agencies in a fully authoritative way, but 

frankly, has sufficient interest in working with the business community, because I think without that, there is not much chance 

that they will be able to leverage the business community’s resources. 

We understand that the whole structure of NIPLECC is under 

review. We understand that there are a number of proposals that 

are being evaluated, and we have been told that the decision is imminent, and if that is so, then we are patient enough to wait. 

So point one, we think the level of coordination for the time 

being is adequate. It would be enhanced if there were to be a single 

point of contact at a very high level to speak for the Administration 

and to represent the interest of the business community, small 

businesses especially, since they comprise the vast majority of the 

Chamber’s members, if I could put in such a plug. 

On the question of are there enough people on the ground? I 

think the PTO has a good example. The individual that they sent 

to China last year is doing effective work with the business community and with the Chinese Government. So positioning U.S. 

Government representatives who really know intellectual property 

issues or counterfeit or piracy subsidiary issues is a very significant 

thing to have. 

We found that this is helpful to groups like the Am-Cham in Beijing. We found that, frankly, the more they can come here, as the 

Senator is addressing, to address the business community in the 

United States with firsthand knowledge of what is really going on 

in places like China—and I wish to reiterate, it is by no means only 

China. This problem is everywhere. The more people that are out 

there doing that, the better that we are going to feel. 

Now, the agencies have not proposed resources at the full level. 

That is part of what this planning process is all about that is going 

on and that is why I suggest that if the Senate were to take an 

active role in looking at what these cross-cutting interagency plans 

are, including staffing level resources and performance metrics, 

what are we going to judge success by at the end of the day, then 

I think we, too——

Senator VOINOVICH. The question I have is are you familiar 

enough with these agencies to comment and tell me today whether 

you think that they are adequately staffed? 

Mr. HUTHER. I am familiar enough with some of them. For example, in terms of the Patent and Trademark Office, I can tell you 

that they have a well-oiled capacity to hire high-tech people in 

44

great quantities and with high quality. They have been doing it for 

a couple of decades now. In fact, this year, they are targeting some 

900 people alone to recruit from America’s best engineering and 

scientific schools. Likewise, the International Trade Administration 

has a very strong record of being able to attract people to the Foreign Commercial Service with various backgrounds. 

The question that is a longer-term one, I think, is not just recruiting them, but what does it take to provide continuity on the 

ground in remote locations where it is very difficult to find individuals of that orientation? But if they are creative with their familyfriendly policies on how they structure the assignments and how 

they compensate the individuals, I don’t think there is a problem 

in being able to recruit and retain whatever America can offer as 

its best and brightest. 

Mr. VARGO. Mr. Chairman, if I could offer my view on that, the 

STOP! initiative, as I said, is about 8 months old and came together with some very good ideas from a variety of agencies who 

I think have worked together in an exemplary way. 

Having spent many years in the government myself, though, I 

can tell you that the half-life of interagency cooperation is not that 

long. So it will need to grow into a coordinating mechanism pretty 

soon, not just to keep the existing program going, which is a good 

one, but to expand it into new areas. I believe that will require, in 

one way or another, coordination out of the White House, probably 

the National Economic Council. 

The question on resources, the biggest lack I see right now is resources on the ground in China. The problem is larger than the solutions that we have put forward so far. I think another resourceshort area is one that we need to have aimed at educating American companies as to what they need to do to be able to defend 

their rights. Unfortunately, it is not just a matter of having a 

website. It is not just a matter of sending out E-mails. We all get 

thousands of E-mails and unfortunately ignore all too many of 

them. There has to be a more personal outreach and that takes 

staff. 

Senator VOINOVICH. You have got your Am-Cham groups. What 

is the Am-Cham group doing in Beijing, especially that one in 

Shanghai and a couple of other places? What are they doing in 

terms of putting pressure on the government to do some of the 

things that need to be done in IPR and others? 

Mr. HUTHER. They are doing a fair amount of traditional kinds 

of things, collaborating within the business community and trying 

to keep communication lines open with the government. But more 

recently, as part of the Chamber’s stepping up of its own responsibilities in this area, we have a number of initiatives that we have 

announced recently that we are going to be undertaking in China, 

building, for example, for lack of a better term, some of the leading 

IP violator indexes going on in China, not naming companies by 

name but rather aggregating the data to say to the Chinese, here 

is where it is today and we are going to start measuring whether 

the IP violations being reported by American companies are going 

up, down, or remaining the same, and we would use those data as 

part, then, of our active campaign. 

45

We also are looking into two provinces of China. China is a very 

big place. Trying to attack the whole thing is beyond the pale. But 

we have identified two of them, Guangdong Province being the 

most significant of the two. That is where most of the counterfeiting activity occurs in China. 

But in these two provinces, what we are going to be doing is 

working with the local provincial officials, identifying: where are 

the problems? Where are these counterfeiters? What does it take 

to identify them, close them down, prosecute them, or in the absence of our ability to get that kind of provincial cooperation from 

the local government officials, to raise that to Beijing, to say, look, 

we can’t get it done even in these two provinces for lack of cooperation, lack of resources, whatever the truth is. 

But one thing you will hear over and over again from the Chinese is, well, show me the data; we are tired of listening to that. 

So any way that we know how to show the Chinese or the Brazilians or the Russians or the Koreans or anybody, we are going to 

gather the data as best we can. We are running economic studies 

in Brazil as part of the collaboration with Am-Cham. 

Senator VOINOVICH. One of the problems that I think that you 

have is, and I want to talk with Premier Wen and I know I talked 

with Don Evans before I left, is they seem to be getting it up here, 

but it falls down out in the provinces. And part of the problem is 

that they have got to create another 250,000 jobs. They are very 

concerned about getting people working. And so that desire to create the jobs is inconsistent with enforcing intellectual property 

rights and so you get this clash going on. 

My feeling is that unless we really get tough, it is not going to 

happen. One of my concerns is that, and I would be interested in 

your observations, is that we have our economic interest and then 

we have our foreign policy interest, and I have this sick feeling 

that part of the reason why we are not kicking as hard as we 

should be is because we need the Chinese to help us deal with the 

situation in North Korea. It seems to me that we have got to separate that. 

I would like to know, what are the new provisions in CAFTA? 

Are these new provisions that have been added that are different 

than other trade agreements that we have signed that you believe 

are going to help the situation, Mr. Vargo? 

Mr. VARGO. Certainly, one of the new provisions in CAFTA that 

we have not seen before is particularly important to us, and that 

is the ability for companies to be able to drop distributors and pick 

up new distributors, which in some of the Central American countries they have not been able to do. You have to go through a very 

lengthy process. 

So with the emergence with provisions under CAFTA, if a company is not satisfied with its distributor, then it can go ahead and 

switch and that will make quite a bit of difference, too. So that is 

one of the improvements in CAFTA. 

Mr. Chairman, I don’t want to be a one-note samba here, but on 

China, what we have to do is press for the Chinese to treat counterfeiting as a criminal offense. I am not a lawyer and I don’t know 

where the bounds are of what an individual has to do in order to 

make a case or present what evidence, but I think that the burden 

46

is right now too high, particularly on our smaller companies. And 

what we need to do, the U.S. Government needs to do, is to press 

China to set up its own investigatory force, its own resources to 

take reasonable claims of counterfeiting, to investigate them, and 

if they find that the Chinese producer does not have a license to 

the intellectual property, that they then prosecute and that they 

throw them in jail, that they publicize this. We can’t wait for years 

to get our arms around the problem. 

Senator VOINOVICH. They have increased their penalties, haven’t 

they? 

Mr. VARGO. They have increased their penalties. You mentioned 

a regional question. China is a very big country. Certainly, I think 

that people at the top increasingly get it. Certainly Vice Premier 

Madam Wu Yi does. But you have so many provinces, you have so 

many cities, it is very difficult to do, and the Chinese Government, 

I don’t think, has put the priority on that which it needs. We met 

with a delegation of the Chinese Government IPR team just a couple of weeks ago at the NAM and it was clear they are doing more. 

It is clear that a lot more needs to be done. The WTO doesn’t say, 

every year, you will get better and better. It says you will provide, 

‘‘adequate and effective protection’’ for intellectual property, and we 

are running out of time for that. 

We have suggested that a WTO case be prepared. We have found 

some resonance to that. But preparing a WTO case is not something one does overnight. We have to get our companies to step up 

to the plate and many of them right now are not prepared to do 

so. Some fear retribution of some form or another from China. Others don’t like the idea of having to say, yes, my brand is being 

counterfeited out of fear that that may lead consumers to go to 

some other brand. So there is a number of reasons. 

But we certainly need to begin looking at what it is we have to 

do to develop an effective WTO case to protect our rights or seek 

compensation here, Mr. Chairman. 

Senator VOINOVICH. I would really appreciate both of your organizations to look at this STOP! procedure and talk about some 

other ways that possibly we could be of help. For example, giving 

some of these small businesses some kind of assistance, for they 

are just unable to do it. And, of course, within your respective organizations, you have got some problems. You have your large organizations that say, we are going to take care of this, and some of 

them, for instance, General Motors, when Cherry knocked them off, 

I mean, you would have thought it would have gone through the 

roof and they have kind of been handling it in a very calm way. 

Hopefully, they are going to get some kind of results. 

But it just seems that we need to do our job here. In other words, 

we have to streamline this process. We need to provide more staffing. Would you agree to that, in terms of these agencies? I would 

be interested to look at that and your comments on it. Say, hey, 

look, we have looked at this and this is a great thing, but you don’t 

have the bodies over there to get the job done. 

And one of the things that came up at one of our last hearings 

was USTR, it is 200 people over there. They have had 200 for a 

long time. Do they need to improve their situation? Constantly, if 

they need experts, they have to reach into some of these other 

47

areas to get them, and I have talked to the new Trade Representative Rob Portman about it. 

Have the two of you gotten together, or your organizations have 

sent any letters off to Mr. Portman and said, hey, look, you are the 

new guy on the block. Here are our observations. Here are things, 

Mr. Portman, that I think that you ought to be doing in order to 

shape up. Have you done that yet? 

Mr. VARGO. We have begun working with USTR staff on exactly 

that. Ambassador Portman has stated he is going to do a top-tobottom review, and he has started that on China. We would like 

to see a top-to-bottom review on enforcement, as well. Enforcement 

is a very important subject for us. 

Senator VOINOVICH. Are you satisfied that we are speaking with 

one voice? The thing about it, when you are dealing with China, 

you have one voice. Mr. Portman will be going over there, Mr. 

Gutierrez will be going over there, John Snow will be going over 

there, and some other people. Are you satisfied that the message 

is coordinated enough so that the Chinese get how serious we are 

about this issue? 

Mr. VARGO. We definitely are. We see a very high degree of coordination, most particularly between USTR and Commerce on 

China. Secretary Gutierrez, Ambassador Portman are saying exactly the same thing. 

Senator VOINOVICH. I think Mr. Portman went along with them, 

when they went over on the last trip. 

Mr. VARGO. Yes. And having been on the government staffs, they 

are very important. And Hank Levine, the Deputy Assistant Secretary for Asia at the Commerce Department, a posting I once had, 

and Charles Freeman, the Assistant USTR for China, are joined at 

the hip. We work very closely with them on a weekly basis. There 

is no question of the coordination. 

What in our view we need to do, though, is to find a way to go 

further and get the Chinese really to take more initiative to take 

their new criminal statutes and apply them and do so in a way 

that does not put an unreasonable burden on innocent U.S. companies. 

Senator VOINOVICH. I know, because my pitch to Premier Wen 

was that it is in his long-term best interest to enforce intellectual 

property rights. It is in his best interest, quite frankly, to float his 

currency, and many international organizations have suggested 

that they go forward with it. So it will be interesting to see just 

how well he understands what we are trying to communicate to 

him. 

I have these little three companies and I have found the nature 

of them and I am going to—Mr. Evans is one of them—I am going 

to get an answer on it. I am going to get something done. And I 

think someone mentioned that you almost have to get at an individual company and you can get maybe some help. We will see. 

But the big picture is some coordinated strategy, again, maybe 

with the government. Maybe you ought to sit down with Portman 

and others to talk about how we have a public-private partnership 

where we can really make this thing into a big deal, because the 

government can talk all they want to, but I believe that when they 

start hearing from companies that are doing business there, that 

48

that may have a much larger impact upon them than the government saying to them, you have got to do these things. 

Mr. VARGO. Mr. Chairman, could I note that for that exact reason, the Chamber and the NAM and other associations have joined 

together to form a single voice for the private sector, that is, the 

Coalition Against Counterfeiting and Piracy, and that we have both 

trademark holders and copyright holders all working together. So 

we now have a really single mechanism to deal and interface with 

the U.S. Government and Mr. Huther is the Executive Director of 

that and very savvy, so we are looking forward——

Senator VOINOVICH. I am going to have my staff pay a lot of attention to it. If there is anything I can do—I noticed that H.R. 32 

is, I guess it is over in Judiciary. 

Mr. VARGO. Yes, sir. 

Senator VOINOVICH. I understand that Senator Specter is looking 

at it, but we haven’t got a sponsor yet and I told our people to let 

them know that I would be glad to be two or three. It is a Judiciary 

issue. Of course, Senator Specter has got a few things on his plate 

right now. 

Mr. VARGO. Right. [Laughter.] 

But we appreciate that, Mr. Chairman. It is very——

Senator VOINOVICH. You really have to just keep working on elevating this thing, and I think through your respective organizations and various States, I think that you ought to be encouraging 

them also to start to beat the drum on these issues so that the 

folks back home understand how significant it is and how important it is. 

I have to tell you, I have got manufacturers coming in that actually have been in business for 75, 100 years. They actually cry in 

my office about the fact that they are just heartsick about what is 

happening to their businesses. We are seeing a little bit of an improvement today because of our currency, the value of the dollar 

is helping a little bit, but the same underlying problems still exist. 

We just really need to be as conscientious and hard-hitting as we 

possibly can to make this happen. 

I am absolutely convinced that unless you get up early in the 

morning and go to bed late in the night and they know that it is 

a coordinated, strategic effort that everybody is involved in, we will 

not make the progress that we need to make. It is just not going 

to happen. I talked to Mr. Snow. He was in and he said they did 

their thing last year. You notice they are starting too—in terms of 

the currency situation. I think that by the end of this year, something is going to happen on currency. When they had that news 

conference last year, when they all got together and said there 

wasn’t a problem. I couldn’t believe it because everything I saw 

said that they are doing this thing. 

I am hopeful that—well, I see good things happening and our job 

now is to make sure it does, and as I mentioned, you guys are partners. Let us keep it up, and thank you very much for coming here 

today. We are going to probably come back 6 months from now. I 

am going to stay on this thing until we get it done. Thanks. 

[Whereupon, at 12:54 p.m., the Subcommittee was adjourned.] 

(49)

A P P E N D I X 


21827.001
50


21827.002
51


21827.003
52


21827.004
53


21827.005
54


21827.006
55


21827.007
56


21827.008
57


21827.009
58


21827.010
59


21827.011
60


21827.012
61


21827.013
62


21827.014
63


21827.015
64


21827.016
65


21827.017
66


21827.018
67


21827.019
68


21827.020
69


21827.021
70


21827.022
71


21827.023
72


21827.024
73


21827.025
74


21827.026
75


21827.027
76


21827.028
77


21827.029
78


21827.030
79


21827.031
80


21827.032
81


21827.033
82


21827.034
83


21827.035
84


21827.036
85


21827.037
86


21827.038
87


21827.039
88


21827.040
89


21827.041
90


21827.042
91


21827.043
92


21827.044
93


21827.045
94


21827.046
95


21827.047
96


21827.048
97


21827.049
98


21827.050
99


21827.051
100


21827.052
101


21827.053
102


21827.054
103


21827.055
104


21827.056
105


21827.057
106


21827.058
107


21827.059
108


21827.060
109


21827.061
110


21827.062
111


21827.063
112


21827.064
113


21827.065
114


21827.066
115


21827.067
116


21827.068
117


21827.069
118


21827.070
119


21827.071
120


21827.072
121


21827.073
122


21827.074
123


21827.075
124


21827.076
125


21827.077
126


21827.078
127


21827.079
128


21827.080
129


21827.081
130


21827.082
131


21827.083
132


21827.084
133


21827.085
134


21827.086
135


21827.087
136


21827.088
137


21827.089
138


21827.090
139


21827.091
140


21827.092
141


21827.093
142


21827.094
143


21827.095
144


21827.096
145


21827.097
146


21827.098
147


21827.099
148


21827.100
149


21827.101
150


21827.102
151


21827.103
152


21827.104
153


21827.105
154


21827.106
155


21827.107
156


21827.108
157


21827.109
158


21827.110
159


21827.111
160


21827.112
161


21827.113
162


21827.114
163


21827.115
164


21827.116
165


21827.117
166


21827.118
167


21827.119
168


21827.120
169


21827.121
170


21827.122
171


21827.123
172


21827.124
173


21827.125
174


21827.126
175


21827.127
176


21827.128
177


21827.129
178


21827.130
179


21827.131
180


21827.132
181


21827.133
182


21827.134
183


21827.135
184


21827.136
185


21827.137
186


21827.138
187


21827.139
188


21827.140
189


21827.141
190

Æ


21827.142