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94–482 PDF 2004

S. Hrg. 108–587

PIRATES OF THE 21ST CENTURY: THE CURSE

OF THE BLACK MARKET

HEARING

BEFORE THE

OVERSIGHT OF GOVERNMENT MANAGEMENT, 

THE FEDERAL WORKFORCE AND THE DISTRICT 

OF COLUMBIA SUBCOMMITTEE

OF THE

COMMITTEE ON 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

APRIL 20, 2004

Printed for the use of the Committee on Governmental Affairs

(

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

ARLEN SPECTER, Pennsylvania 

ROBERT F. BENNETT, Utah 

PETER G. FITZGERALD, Illinois 

JOHN E. SUNUNU, New Hampshire 

RICHARD C. SHELBY, Alabama 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

RICHARD J. DURBIN, Illinois 

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 Counsel 

AMY B. NEWHOUSE, Chief Clerk

OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL 

WORKFORCE AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE 

GEORGE V. VOINOVICH, Ohio, Chairman 

TED STEVENS, Alaska 

NORM COLEMAN, Minnesota 

ROBERT F. BENNETT, Utah 

PETER G. FITZGERALD, Illinois 

JOHN E. SUNUNU, New Hampshire 

RICHARD J. DURBIN, Illinois 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

ANDREW RICHARDSON, Staff Director 

MARIANNE CLIFFORD UPTON, Minority Staff Director and Chief Counsel 

KEVIN R. DORAN, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

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

WITNESSES 

TUESDAY, APRIL 20, 2004

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

and Acting Director, U.S. Patent and Trademark Office .................................. 5

Francis Gary White, Unit Chief, Commercial Fraud Division, Immigration 

and Customs Enforcement, Department of Homeland Security ...................... 7

Daniel C.K. Chow, Professor, The Ohio State University College of Law .......... 22

Jeff Gorman, President and CEO, The Gorman-Rupp Company, Mansfield, 

Ohio ....................................................................................................................... 25

Phillip A. Rotman, II, Assistant Patent and Trademark Counsel, Dana Corporation ................................................................................................................. 27

ALPHABETICAL LIST OF WITNESSES

Chow, Daniel C.K.: 

Testimony .......................................................................................................... 22

Prepared statement with attachments ........................................................... 65

Dudas, Jon W.: 

Testimony .......................................................................................................... 5

Prepared statement .......................................................................................... 43

Gorman, Jeff: 

Testimony .......................................................................................................... 25

Prepared statement .......................................................................................... 85

Rotman, Phillip A., II: 

Testimony .......................................................................................................... 27

Prepared statement with attachments ........................................................... 91

White, Francis Gary: 

Testimony .......................................................................................................... 7

Prepared statement .......................................................................................... 54

APPENDIX 

Questions and Responses for the Record from: 

Mr. Dudas ......................................................................................................... 115

Mr. White .......................................................................................................... 119

(1)

PIRATES OF THE 21ST CENTURY: THE CURSE 

OF THE BLACK MARKET 

TUESDAY, APRIL 20, 2004

U.S. SENATE, OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL

WORKFORCE, AND THE DISTRICT OF COLUMBIA SUBCOMMITTEE, OF THE COMMITTEE ON GOVERNMENTAL AFFAIRS, Washington, DC. 

The Subcommittee met, pursuant to notice, at 9:33 a.m., in room 

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

Chairman of the Subcommittee, presiding. 

Present: Senator Voinovich. 

Staff Present: Amanda Nichols, Counsel; Andrew Richardson, 

Staff Director; Kevin Doran, Chief Clerk; Marianne Upton, Minority Staff Director, and Deborah Parkinson, Minority Staff Assistant. 

OPENING STATEMENT OF SENATOR VOINOVICH 

Senator VOINOVICH. The meeting will come to order. Good morning, and thanks very much for being here today. 

The title of this hearing this morning is, ‘‘Pirates of the 21st Century: The Curse of the Black Market.’’ It’s a pretty serious title. It 

could be a movie title, and if somebody would make a movie about 

it, I think the American public might be so engaged that we would 

really start getting something done about the problem that we 

have. 

We’re going to focus on the effectiveness of the Federal Government’s efforts to enforce intellectual property rights. Specifically, 

this hearing is going to examine the activities of the Department 

of Commerce, the Office of the U.S. Trade Representative (USTR), 

and the Department of Homeland Security, to protect U.S. intellectual property interests both at home and abroad. 

I want to begin by noting that the Office of the United States 

Trade Representative was unable to send a witness. This is very 

distressing to me, as the USTR plays a prominent role in intellectual property issues, and I believe their testimony is crucial to uncovering why it seems that we are not getting the job done in enforcing our intellectual property rights. I also find it ironic that 

they did not have anyone to send. 

One topic I wanted to cover with them today is their lack of resources, particularly their staffing levels. This is an office of 225 

people, with a budget of roughly $40 million. In my December hearing, where I focused on the human capital challenges at USTR and 

Commerce, I was shocked to learn that an office as small as USTR 

2

had so many responsibilities. I was also shocked to hear that USTR 

testified that it relied heavily on personnel from other agencies to 

perform their functions. 

If USTR were present today, I would again ask questions concerning their small staffing and funding levels and whether they 

have the right number of people, with the right amount of resources, to protect U.S. intellectual property rights and subsequently U.S. manufacturing jobs. 

This is a very important issue. This agency needs to be examined 

to determine if it has the resources to successfully carry out its 

mission. I intend to ask the General Accounting Office to look into 

the issue and report back to me what they find. I would also like 

to add that although USTR is not here, they have agreed to answer 

questions from Subcommittee Members after the hearing in writing, and I certainly have some questions for them. 

The importance of our hearing today is underscored by the fact 

that the United States has lost over 2.7 million manufacturing jobs 

since July 2000. In July 2000, there were more than one million 

manufacturing jobs in the State of Ohio. Yet, by October 2003, this 

had fallen to 840,000. This is a loss of 17.6 percent of the State’s 

manufacturing employment, a loss of more than one out of every 

six Ohio factory jobs. 

These numbers represent a crisis for Ohio’s economy, especially 

since the manufacturing sector in Ohio accounts for the second 

highest weekly earnings of any economic sector and supports local 

communities and schools with more than $1 billion in corporate 

franchise and personal property taxes. 

Ohio’s manufacturing companies are distressed by our current 

trade priorities, especially with regards to China. I have heard it 

over and over and over again. As I meet with business leaders 

throughout the State, one of their top concerns is their inability to 

compete on a level playing field with their Chinese competitors. 

Many of them are for free trade, but they really don’t believe that 

we have fair trade, as they feel that our government’s policies with 

respect to intellectual property rights are not helping to level the 

playing field and affecting their bottom line. 

This is not surprising, however, when you look at the statistics 

on the subject. The International Chamber of Commerce estimates 

that counterfeiting drains between $300–$350 billion annually from 

the world’s economy. This is roughly 5 to 7 percent of total world 

trade, and each dollar lost to American citizens and companies 

ends up lining the pockets of people I refer to as criminals. They 

are criminals. Actually, they are stealing ideas from other people 

and selling them on the marketplace. That’s theft. 

For U.S. manufacturers, protection of intellectual property is not 

an abstract concept. America’s competitive edge is derived from innovation and rising productivity, and the protection of intellectual 

property remains one of the best means for ensuring that American 

manufacturers enjoy the benefits of their investments. 

The very foundation of our economy is the American entrepreneur, but who will want to continue on this path if your work 

product can be stolen out from under your nose at every turn? In 

fact, the International Anti-Counterfeiting Coalition puts revenue 

3

loss—this is a stunning number—to U.S. trademark holders at 

$200 billion a year. 

While USTR’s Special 301 report contains a lengthy list of countries with deficient intellectual property protection, this hearing 

will place a specific emphasis on counterfeit goods from China, 

which remains the leader in counterfeit goods production for the 

majority of U.S. companies. It is estimated that 15 to 20 percent 

of all products made in China are counterfeit, and this accounts for 

roughly 8 percent of the Chinese gross domestic product. In fact, 

the Bureau of U.S. Customs and Border Protection seizure statistics show that about one-half of all intellectual property related seizures for anywhere in the world involving goods entering a U.S. 

port are from China. 

I am not surprised by these numbers. This has been an ongoing 

problem with China for some time now. USTR cited China’s failure 

to provide adequate protection of patents, copyrights and trademarks back in 1991, when it threatened to impose a billion-and-ahalf dollars in trade sanctions. 

When I was in China on a trade mission as governor of the State 

of Ohio in 1995, this was an issue that I talked about constantly 

with Chinese Government officials. 

At that time, the International Intellectual Property Alliance, an 

association of major U.S. copyright-based industries, had estimated 

that intellectual property rights piracy by Chinese firms cost U.S. 

firms $2.3 billion in lost trade. The terms of China’s WTO accession 

required that China immediately bring its intellectual property 

laws into compliance with the WTO agreement on Trade Related 

Aspects of Intellectual Property Rights. But I haven’t seen any evidence that China’s behavior has changed a bit since then. We need 

to stop standing by and watching as, year after year, China continues to counterfeit U.S. products, costing many Americans their 

jobs. 

While a wide variety of manufacturing industries have experienced job losses related to intellectual property rights, I would like 

to focus specifically on one industry which has a large presence in 

my State: The automobile industry. According to a 2003 report 

from the U.S. Federal Trade Commission, the counterfeit auto 

parts industry accounts for $3 billion in business to the United 

States alone, and $12 billion per year globally. The Commission 

has also estimated a related loss of about 250,000 domestic jobs in 

the auto industry as a result. Automotive suppliers across the 

country have identified this rising illegal practice as a risk to their 

global sales and operations. Many U.S. automobile parts manufacturers have sustained damage to their international branding and 

reputations as a result of active efforts to copy their packaging and 

trademark protected materials. Senator Levin and I are co-chairs 

of the Senate Auto Caucus and we are very concerned about this 

issue. 

The purpose of this hearing is to learn what the Executive 

Branch is doing about this and whether their efforts are succeeding. I was encouraged to see some progress on the issue in the 

January 2004 Commerce Department manufacturing report, which 

stated that: ‘‘to the extent that U.S. investment in research and development provides a competitive edge in the marketplace, the proVerDate 0ct 09 2002 14:55 Sep 02, 2004 Jkt 094482 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\DOCS\94482.TXT SAFFAIRS PsN: PHOGAN
4

tection of the intellectual property developed by U.S. manufacturers which embodies the product of that research becomes critical to 

the future of the manufacturing sector.’’ I just wonder, though, how 

many other Commerce Departments have said this over the years. 

I will be interested to hear how the Commerce Department today 

plans to follow through on that statement. 

I was also encouraged to read in the same report that Commerce 

will be reinforcing the efforts of the National Intellectual Property 

Law Enforcement Coordination Council, which has been around 

since 1999, whose mission is ‘‘to coordinate domestic and international intellectual property law enforcement among Federal and 

foreign entities.’’ With so many agencies, namely Commerce, Homeland Security, USTR, Justice and the FBI all involved in efforts to 

fight counterfeiting, I believe this Council will be crucial to maximizing the government’s effectiveness in this area. I am interested 

to learn everyone’s opinion on how successful this Council has been 

and the prospects for its future success. 

I am looking forward to hearing the testimony of all of our witnesses today and learning what more we can do to find solutions 

to this challenge. American manufacturers, including those in Ohio, 

have run out of patience as they see jobs lost to intellectual property piracy and the flourishing black market of the 21st Century. 

We have a nice line up of witnesses today. On our first panel we 

have two witnesses representing the Bush Administration. First is 

John Dudas, Acting Under Secretary for Intellectual Property within the Department of Commerce, and Director of the U.S. Patent 

and Trademark Office. We also have Francis Gary White, Unit 

Chief of Commercial Fraud, Immigration and Customs Enforcement, U.S. Department of Homeland Security. 

I am really glad to have both of you here. Mr. White, I am also 

very happy that you’re here because you are actually ‘‘hands on’’ 

in terms of the operation. So often we get people that are higher 

up and when you start asking questions about what happens, they 

really don’t know because they have so many other responsibilities 

on their plate. 

James Mendenhall, the Assistant U.S. Trade Representative for 

Intellectual Property, was scheduled to testify but cancelled at the 

last minute. As I said, I am very disappointed that the USTR isn’t 

here today because they are very much a part of this whole issue. 

Our second panel consists of three Ohio witnesses. First we’re 

going to hear from Professor Daniel C.K. Chow of the Michael E. 

Moritz College of Law at Ohio State University, my alma mater. 

Michael Moritz, who the college was recently named after, was one 

of my classmates, in my graduating class. In fact, it’s interesting, 

that we both ran for president of the law school Young Republican 

Club. I won and he lost. We had a class reunion 2 years ago here 

in Washington. They said, well, Moritz might be the Senator and 

Voinovich might be in Moritz’ position. I said there is no way in 

the world that if I was a practicing lawyer I would have been able 

to contribute $30 million into the Ohio State University College of 

Law. 

Joining Professor Chow is Phillip A. Rotman II, Assistant Patent 

and Trademark Counsel for Dana Corporation. Dana is based in 

Toledo and is celebrating its 100th anniversary this year. Finally, 

5

1The prepared statement of Mr. Dudas appears in the Appendix on page 43. 

we’re going to hear from Jeff Gorman, President and CEO of the 

Gorman-Rupp Company, headquartered in Mansfield, OH. 

I want to thank all of you for making the trip to Washington 

today. Again, thank you for coming. 

If all the witnesses would please stand, I will administer the 

oath. Our testimony is sworn to before this Subcommittee. So if you 

would stand and raise your right hand. 

Do you swear that the testimony you are about to give before the 

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

truth, so help you, God? 

[Affirmative responses.] 

Let the record show that the witnesses have answered in the affirmative. 

Mr. Dudas, will you begin, please. 

TESTIMONY OF JON W. DUDAS,1 ACTING UNDER SECRETARY 

OF COMMERCE FOR INTELLECTUAL PROPERTY, AND ACTING DIRECTOR OF THE U.S. PATENT AND TRADEMARK OFFICE 

Mr. DUDAS. Thank you, Mr. Chairman. Thank you for the opportunity to appear before you and discuss the problem of counterfeiting and intellectual property theft and piracy and the Department of Commerce’s role in protecting intellectual property abroad. 

Secretary of Commerce Don Evans is keenly aware of the increasing significance of intellectual property protection for American businesses and innovators and has made combating counterfeiting and piracy a top priority for the entire Department. 

As you know, intellectual property is a net export of the United 

States and is responsible for creating and sustaining tens of millions of jobs in the United States. As Acting Under Secretary of 

Commerce for Intellectual Property and Acting Director of the Patent and Trademark Office, I am dedicated to coordinating U.S. 

Government efforts to reduce the toll that IP theft takes on American IP owners and users. I commend you for holding today’s hearing and am grateful to the Subcommittee for its interest in finding 

additional ways to protect U.S. intellectual property owners’ assets 

overseas and, as you mentioned, informing people of the importance of this issue and these problems that we face. 

Increasingly, both the United States and our trading partners 

are relying on intellectual property to drive economic growth. This 

is because competitive success in a market economy depends heavily on intellectual property assets held by an institution. 

Piracy and counterfeiting threaten to undermine some of the 

strongest areas of growth in the U.S. economy. According to the 

International Intellectual Property Alliance, U.S. copyright industries continue to lead the U.S. economy in their contributions to job 

growth, gross domestic product, and foreign sales/exports. Between 

1977 and 2001, the U.S. copyright industries’ share of the GDP 

grew more than twice as fast as the rest of the U.S. economy. 

The costs of counterfeiting and piracy are not merely economic. 

Consumer health and safety is at stake as well. U.S. Food and 

Drug Administration counterfeiting investigations have jumped 

6

from about 5 in the late 1990’s to 22 in 2002. Counterfeit drugs 

very often contain no active ingredient, or a mixture of improper 

active ingredients. Counterfeit batteries can explode in electronic 

equipment or children’s toys. Even product approval marks certifying a product’s safety are now being counterfeited widely. 

To make matters worse, the global criminal nature of IP piracy 

is all too real. During a House International Relations Committee 

hearing in 2003, the Secretary General of Interpol identified a disturbing potential trend when he testified that IP crime is becoming 

the preferred method for funding a number of terrorist groups. A 

customs expert with the European Commission recently stated that 

al-Qaeda and Hezbollah are among organizations believed to be 

using counterfeit goods to launder money and fund their activities. 

The USPTO is directed by statute to advise the President, 

through the Secretary of Commerce, and advise all Federal agencies on national and international intellectual property policy 

issues, including intellectual property protection in other countries. 

The USPTO also serves as the co-chair, as you mentioned, with the 

Criminal Division of the Department of Justice of the National Intellectual Property Law Enforcement Coordination Council, or 

NIPLECC, which is tasked with coordinating domestic and international intellectual property law enforcement. 

The USPTO provides intellectual property enforcement training 

and technical assistance on a truly global basis. Over the last several years, the USPTO has assisted countries around the world in 

establishing adequate enforcement mechanisms to meet their obligations under TRIPs. We provide technical and legal advice to the 

USTR through the annual Special 301 process, the TRIPs council 

review of implementing enforcement legislation, and in the negotiation of free trade agreements. 

Our approach to the ongoing FTA negotiations has been to follow 

a TRIPs-plus format by expanding the minimum standards set out 

in TRIPs. One way of achieving the TRIPs-plus goal is be enhancing the enforcement provisions contained in the TRIPs agreement 

and combining them with the enforcement provisions contained in 

the World Intellectual Property Organization Internet treaties. 

As I am sure the Subcommittee is aware, and as you noted, one 

of the areas of greatest concern with respect to intellectual property piracy is Asia, and particularly mainland China. Despite China’s membership in the WTO, and its requirement to comply with 

the TRIPs agreement, the lack of effective IP enforcement in China 

is a major problem for U.S. business interests, costing potentially 

billions and billions of dollars in lost revenue. 

Last fall, Secretary Evans led a mission to China and highlighted 

China’s lack of intellectual property rights enforcement. The Secretary met with high-ranking Chinese officials and reiterated a 

continuing concern, that effective IPR protection requires that 

criminal penalties for stolen intellectual property theft and fines 

are large enough to be a deterrent rather than a mere business expense. Secretary Evans has carried a strong message of the need 

for results, results that can be measured so that progress can be 

identified. That is perhaps the most important issue in China, to 

see a trend where results are identified and we can see progress. 

7

1The prepared statement of Mr. White appears in the Appendix on page 54. 

As a follow up to the Secretary’s October 2003 trip, I recently led 

a delegation to China with other members of the USPTO China 

team for consultations with senior officials at China’s patent and 

trademark office and other intellectual property agencies, as well 

as customs and enforcement. While our visits were well-received 

and we were pleased to note a continuing and increasing awareness among Chinese officials of the importance of IP protection and 

enforcement, we have not yet seen significant progress on most of 

the key issues we have been urging China to act on for some time. 

These issues include enhanced criminal enforcement, protecting 

copyrights over the Internet, and stopping the export of counterfeited goods. 

Mr. Chairman, the demands on Commerce and USPTO’s expertise in the international arena have grown dramatically in the last 

few years. These demands will certainly increase in the next few 

years, as well as our obligations to meeting our core missions. 

I am hopeful that with the continued support and partnership of 

this Subcommittee, we will be able to provide American intellectual 

property owners with the protection they deserve and need. 

In terms of the economy and national security, much is at stake. 

That is why our experts will continue to work tirelessly to protect 

American products in every corner of the globe. 

Thank you very much for this opportunity to answer your questions. 

Senator VOINOVICH. Thank you very much. When was it that you 

visited China? 

Mr. DUDAS. The first week of March. 

Senator VOINOVICH. Mr. White. 

TESTIMONY OF FRANCIS GARY WHITE,1 UNIT CHIEF, COMMERCIAL FRAUD DIVISION, IMMIGRATION AND CUSTOMS 

ENFORCEMENT, DEPARTMENT OF HOMELAND SECURITY 

Mr. WHITE. Good morning, Mr. Chairman, and thank you for the 

opportunity to testify about the Department and ICE’s, the Immigration and Customs Enforcement’s efforts undertaken to investigate intellectual property right violations. I would also like to 

note the strong interest of the Department’s leadership in this area 

and the support they have provided ICE as we move forward in our 

mission to detect IP violations. 

With the creation of the Department of Homeland Security in 

2003, the investigative and intelligence functions of the former U.S. 

Customs Service and the Immigration and Naturalization Service 

were merged into ICE, now the second largest Federal law enforcement agency. ICE’s mission is to protect the United States and its 

citizens by detecting, interdicting and investigating threats arising 

from the movement of people and goods into and out of the country, 

and to detect and shut down vulnerabilities in our Nation’s border, 

aviation system, and economic systems. 

Today’s increasing demand for products protected by intellectual 

property rights has escalated. The losses to the U.S. economy in 

revenue and jobs due to IPR violations are staggering. In 1982, the 

International Trade Commission estimated the loss in counterVerDate 0ct 09 2002 14:55 Sep 02, 2004 Jkt 094482 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 C:\DOCS\94482.TXT SAFFAIRS PsN: PHOGAN
8

feiting and piracy at $5 billion. By 1998, the International Chamber of Commerce estimated that 5 to 7 percent of the world trade 

was comprised of counterfeit goods, a market worth $350 billion. 

In many cases, the profit of counterfeit merchandise is used to 

fuel additional criminal activities. Some of these profits are 

laundered and invested in legitimate business enterprises. Both 

ICE and the Customs and Border Protection (CBP), have modified 

enforcement strategies that were originally aimed at simply seizing 

counterfeit goods before they entered the U.S. market. Now ICE coordinates targeted seizures with follow-up criminal investigations 

and forfeiture of assets. Our ultimate goal is to dismantle the 

smuggling organizations and to halt the flow of counterfeit merchandise into the commerce of the United States. 

To help us with this mission, in July 2003, ICE created the financial investigative initiative identified as Operation Cornerstone. 

This program is dedicated to the U.S. economic security and highlights the DHS mission to protect the United States by securing its 

borders, transportation sector, ports, and critical infrastructure. 

Cornerstone protects the integrity and security of the U.S. economy by identifying, targeting and eliminating systematic vulnerabilities in the financial, commercial, trade, manufacturing, and 

transportation sectors that could be exploited by criminal or terrorist organizations. 

To attack the counterfeiting problem, a multi-agency, the National Intellectual Property Rights Coordination Center, was developed in 2000, comprised of both investigative and intelligence research personnel from ICE, CBP, and the FBI. 

The IPR Center works with copyright owners and trade associations on an ongoing basis, and has conducted outreach presentations to both trade associations and foreign governments. This 

year, in April 2004—April 28 to be exact—the IPR Center will host 

its inaugural industry anti-counterfeiting coalition working group 

in conjunction with IACC. They will meet with trade associations 

and business to better identify and address the growing IP issues 

and to identify criminal trends. In addition, the IPR Center personnel have provided training in IP enforcement, as well as legal 

requirements necessary to successfully prosecute IPR violations. 

The IPR Center also plays a key role in international IPR enforcement by participating in worldwide IPR working groups and 

committees. Since the majority of counterfeit goods are produced in 

foreign countries, ICE attache offices around the world work closely 

with their host country law enforcement counterparts. Their efforts 

in developing information regarding the manufacture and shipment 

of counterfeit goods have resulted in numerous seizures of containers of these illegal goods in the United States. Computer parts, 

toys, video games, wearing apparel, and watches are a few examples of counterfeit merchandise routinely seized by ICE and CBP. 

But IPR violations can take many forms and may also involve 

health and safety concerns. Counterfeit pharmaceuticals, tools, 

electrical cords, as well as aircraft and automobile parts, all have 

a significant impact on the public safety. For example, laboratory 

testing of imported counterfeit batteries have revealed inferior 

manufacturing practices that create improper ventilation, causing 

increased risk of explosions. 

9

In conclusion, as much as we have done to protect intellectual 

property rights, we must do more in staying ahead of the perpetrators. Greater interaction among ICE, industry, intellectual property 

right owners, and the public, as well as domestic and international 

law enforcement organizations, is critical to our effort in combating 

the increasing threat posed by IPR violations. 

I would like to thank you, Mr. Chairman, and the distinguished 

Members of the Subcommittee, for their support and the opportunity to testify before you today. 

I request my full written statement be included in the record, 

and will be glad to address any questions you might have. 

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

It’s interesting to me that both of you have mentioned organizations, terrorist organizations that are taking advantage of this to 

generate money for their organizations. That’s an aspect of this 

that I was unaware of. 

Is that pretty rampant? I mean, ordinarily we just think of a 

country doing a lax job of enforcing their trademark, to kind of 

wink and pay lip service to doing something about it, and people 

continue to do it. They know they’re doing it, but they are benefiting from it because of the money they’re generating. 

But you’re saying we have organizations that are actually in various countries that are counterfeiting goods and then selling them 

on the open market, generating the cash, and then using it to fund 

their illegal activity? 

Mr. DUDAS. There certainly are links that have been identified 

outside the USPTO with law enforcement nationally and internationally with ties to organized crime, primarily, from what I understand, because it is more profitable than even selling drugs in 

many ways, which is another way of funding organized crime. 

Also the criminal thresholds are much lower in many nations 

and the enforcement is less enthusiastic in many nations. Some 

have testified, including Interpol, that they believe that some of the 

terrorist organizations are also finding this to be a preferred method for funding because of how attractive it is, with the lower cost 

of prosecution and higher profitability. 

Mr. WHITE. We, at ICE, are aware of the allegations of potential 

terrorist funding. We have no sustainable evidence to link IPR violations to terrorist activity and terrorist funding. However, because 

of the allegations that are being provided to us, we take this issue 

very seriously. We constantly are looking at this as a possibility. 

This is part of our investigative process and it is a concern to ICE 

as well as to the Department. It is not one we’re taking very lightly. 

We are very aggressively trying—as we receive allegations now 

of IP violations, we look at the bigger picture. We look at the people. We look at the goods. We look at the funding, trying to again 

focus on the economic security. 

Senator VOINOVICH. It’s interesting, because I had a hearing last 

year in my capacity on the Foreign Relations Committee, a hearing 

on corruption and organized crime in the southeastern Europe 

area. In fact, my feeling is that that’s even a greater threat over 

there with corruption and organized crime than terrorism. 

10

It was interesting that during the testimony it never came up 

that counterfeiting was a way they are operating to raise money. 

They talked about drugs, they talked about arms, they talked 

about prostitution rings and so forth, but never got into the issue 

of counterfeiting. 

With regard to the National Intellectual Property Law Enforcement Coordination Council, which has been around since 1999, do 

you feel that this Coordination Council is achieving its mission of 

coordinating domestic and international intellectual property law 

enforcement among Federal and foreign entities? 

Mr. DUDAS. That’s a very good question. I think the answer depends on what is expected from NIPLECC. NIPLECC arose out of 

an expectation that there is a need for more coordination among 

government agencies, certainly within the United States, what 

agencies are doing, how effective are they. 

NIPLECC has been extremely effective in terms of becoming a 

reporting mechanism from agency to agency, so that agencies know 

what other agencies are doing. It has not been something that 

has—it has no staff of its own, no dedicated staff, nor particular 

resources. It has not, in and of itself, become a leading force in intellectual property enforcement, in my opinion, nor has it become 

something that has been the primary coordination throughout the 

U.S. Government. 

What it does right now, it’s primarily again agencies coming together, reporting what they’re doing, coordinating activities, understanding where resources are being spent to make sure it’s not 

duplicative nor redundant, to make sure that we understand the 

full force of what the U.S. Government is doing. 

It has increased in importance. There has been an agreement 

among agencies to come together to talk about public awareness 

campaigns within the United States and internationally. But I believe to take the next step, to make it an even more effective coordination council, it may require looking at funding from within, 

and certainly that’s one of the responsibilities PTO has, as well as 

the co-chair of the council. 

Senator VOINOVICH. Mr. White. 

Mr. WHITE. I believe, as an organization and a coordination council, it is effective, but is it as effective as it could be? I think there 

is room for improvement. 

We participate. It’s meetings are scheduled. It’s an excellent coordination tool, but I believe that it can improve. 

Senator VOINOVICH. What’s troubling is that the charter says its 

mission is to coordinate domestic, international, and intellectual 

property law enforcement among Federal and foreign entities. Obviously, this responsibility is split up with Commerce, Customs, 

USTR, the FBI, and so forth. 

It seems to me that if this problem is as significant as it is, as 

you have now added a new dimension of terrorism, that one person/

agency should be in charge of knowing what’s going on in all the 

agencies in order to better coordinate the government’s efforts. This 

is necessary because from what I’m hearing today, each agency 

comes and listens to what the other is doing, so they’re aware of 

what they’re doing, but there is nobody looking at the big picture, 

to coordinate everyone’s efforts. 

11

When I was governor, I had coordinators of a cabinet council 

comprised of four or five departments. Because these departments 

had some synergism going on, they, in effect, had a symbiotic relationship. They tried to make sure they knew what was going on, 

to direct things, and keep everyone working together as a team. 

It is just reminiscent of the 9/11 hearings, that the left hand 

didn’t know what the right hand was doing, there wasn’t coordination. There wasn’t the sharing of information—somebody was not 

paying attention to the big picture. 

Would you agree that we ought to perhaps look at staffing 

NIPLECC and having somebody there that is looking at the big 

picture to assess what everybody is doing? 

Mr. DUDAS. I think that any time you would have dedicated 

staffing or resources that would help coordinate that better, that is 

something that should be considered. It is something that, as Acting Under Secretary, I have been out speaking to folks. The cochair is also the Department of Justice and we have begun discussions about how we would go about doing that, either from within 

our agencies or how we may want to go about doing that. 

So I would agree that dedicated staff and dedicated resources to 

NIPLECC is something that would make it more effective. 

Senator VOINOVICH. If you were sitting down and designing an 

organizational structure from scratch, and looked at the respective 

responsibilities of the various agencies involved, do you feel that we 

are organized in the best way that we can be organized? 

In other words, what happens in organizations is that things 

change sometimes and you’re a lot busier, and then less busy, and 

you try to organize things to deal with the problem. But as the 

problem moves and changes, ordinarily what you do is you look at 

your structure to see whether or not it is responding to the challenge that’s there, and also the issue of shaping your workforce to 

make sure you’ve got the right people with the right skills and 

knowledge at the right place in time. 

At this stage of the game, with your plate seeming to be growing 

with items, if you were to look at this today and step back for a 

moment, is it organized the way it ought to be organized? Or do 

you think it should be looked at differently? 

Mr. DUDAS. I can say that, from a philosophical perspective, the 

idea that you have different organizations with a particular expertise coming together and providing that expertise to each other, 

and maintaining separate entities, I think probably is the right approach. 

Do I think it’s perfect, or do I think it can’t be improved in individual areas? I absolutely think it can, and I can identify areas at 

USPTO where it can be improved from a resource perspective, etc. 

But I think one of the issues that comes up in intellectual property rights enforcement is there are so many different agencies that 

are involved, and is that the right way to do it, or should it be one 

central agency that deals completely with intellectual property 

rights? To some degree, that is the USTPO, but certainly we are 

not an enforcement agency of the likes of the Department of Justice 

or Customs or anything along those lines. 

I can share with you just an experience from the USPTO why I 

think being able to tap into the expertise of the USPTO without 

12

having separate expertise—and I certainly think this probably 

plays out in other areas, like the Department of Justice and Customs. Much of what we do at the PTO is try to lead by example 

in the United States. Our office continues to be the envy of the 

world as far as how to set up an intellectual property system in an 

office. So much of what we do is work with other nations to develop 

their intellectual property offices. That’s literally hundreds of people within our office. 

What we do in treaty negotiations, what we do in terms of working with other offices to help them set up a patent system, really 

plays a significant role even in what we do for FTA agreements 

and what we do elsewhere. I would say there’s room for improvement, but the idea of having an area that has enforcement and an 

area that offers technical expertise, being able to tap into other 

areas of the government, is probably the most efficient way to do 

it, in my opinion. 

Senator VOINOVICH. Mr. White. 

Mr. WHITE. I believe our organizational structure right now for 

the enforcement of IP violations is effective and well organized. 

With the creation of the Department of Homeland Security and the 

Immigration and Customs Enforcement as an investigative tool 

within the Department, by providing the expertise that has been 

brought together by legacy Customs and legacy Immigration 

agents, I have personally seen a change in the dynamics, the quality of the work, and the quality of the investigations. I am pleased 

and very comfortable in the direction we’re moving down the road. 

Also, from an enforcement perspective, we have looked very seriously at intellectual property rights for some time. With the creation of the Intellectual Property Rights Center, it was our intention of bringing together our separate functions, even within the 

legacy customs role. I believe that organization, although I can see 

an expanding role for it, right now is effective and can continue to 

be effective. My concern is the public perception of the role, the 

public knowledge of the IPR Center. 

We, in the law enforcement community, are familiar with it, but 

do we need to do something more to bring it to the public’s attention? 

Senator VOINOVICH. What do you mean by that? 

Mr. WHITE. Well, recently I began to research with our Office of 

Public Affairs the possibility of public service announcements that 

would be geared to communities. I have heard that there is a concern that outside of the law enforcement community, the public, 

and the trade, is not aware of the IPR Center. So we are looking 

at what can we do to publicly advertise ourselves, to make ourselves known. 

That is one of the reasons why our April 28 conference, 

partnershipping with the international anti-counterfeiting coalition, 

is going to Atlanta. That maybe is what we need to do: Move ourselves, and rather than hosting all our meetings in Washington, go 

where the industries are, making it more convenient for them to 

participate. 

These are just some of the thoughts. Organizationally, I think 

we’re organized correctly. But I also think that there is more we 

13

can do to take the message out, that maybe we have not done as 

well as I would like us to have done. 

Senator VOINOVICH. One of the questions I was going to ask is 

nobody seems to know what you’re doing. You have the Small Business Administration and other Federal agencies that have outreach 

organizations that are helping inform people about what’s going on. 

I will never forget when I was governor, I was concerned that not 

enough of our businesses were involved in international trade. 

With regard to the Export-Import Bank, I found out that we were 

at the bottom of the list in taking advantage of Export-Import 

funds. I looked into it and found out the reason why is because nobody was really paying attention to it. 

Now, I would have thought maybe the Export-Import Bank 

might have been hustling and making their services available. I, 

subsequently, hired two people in my administration to advertise 

the availability of funds and process applications. We went from 

being at the bottom to the top because there was an aggressive effort to go out and market it. 

If you did that, do we have the people in place that could respond 

to these complaints that are coming in? 

For example, I read an article in the Cleveland Plain Dealer this 

Sunday about an Oregon business where somebody is absolutely 

copying their product and so forth. It’s Videx, Inc. The Chinese 

changed the name to Vdiar. Instead of dealing with this thing as 

an individual company, they basically said to them we can’t deal 

with you individually but we can deal with the whole industry. You 

know, we don’t have the staff to just deal with your particular 

problem. 

If you go out and do what you’re saying, do you have the people 

available to follow through? 

Mr. WHITE. From an investigative perspective, I do believe we 

do. Obviously, we would look to prioritize our investigations, and 

we would assess the actual complaint allegation. But I believe, yes, 

we do. 

In our partnership with other law enforcement agencies, with the 

criminal statutes that are provided within the State law enforcement, is where I think we can improve on. I’m working towards 

that, because that is a concern of mine. 

I think what we have done is a very good job of developing our 

international work relationships. I think we’ve done a very good job 

here, with the trade associations, but not necessarily have we hit 

the State and local law enforcement officers that I would like to go 

to. That is a partnership that I think we need to really work on 

and hopefully we can do in the near future. 

Senator VOINOVICH. This stuff over here that you brought with 

you, what is that? It looks like the Dollar Store. [Laughter.] 

Mr. WHITE. It’s counterfeit merchandise, merchandise seized by 

ICE agents and CBP inspectors, just as examples of some of the 

material that we have been able to seize over the last year. 

Senator VOINOVICH. That tennis shoe is supposed to be what? 

Mr. WHITE. It should be Nikes, but they’re not. 

Senator VOINOVICH. Then I see a little bottle. Is that some kind 

of medicine that is counterfeited? 

Mr. WHITE. Yes, Chairman. It is counterfeit Viagra. 

14

Senator VOINOVICH. They’ll find out quickly whether it works or 

not. [Laughter.] 

Mr. WHITE. Yes, Chairman. 

Senator VOINOVICH. And then it looks like there’s some cigarettes, also counterfeited cigarettes? 

Mr. WHITE. Yes, sir. These are the concerns of ours on public 

health and safety. Even the Oakleys, the counterfeits, do not provide eye protection. There are so many issues that come forward. 

These are not just simple t-shirt counterfeits. They are public 

health and safety concerns. When you begin to look at the aircraft 

industry, the auto parts industry, these are extremely sensitive to 

us. 

Senator VOINOVICH. With our terrorism responsibilities as they 

are—I talked to a former head of Customs, a good friend of mine, 

Frank Keating, former governor of Oklahoma who now heads up a 

large group here in Washington. He said that when they were Customs, they really did the job of stopping this stuff at the border. 

With the new responsibilities that Customs has under the reorganization, how many additional people do you have in your agency 

to get the job done? Have you increased the number of people that 

are involved? 

Mr. WHITE. Yes, sir, although I don’t have the exact statistics 

with me. In previous allocations we were able to bring additional 

agents on board to do the work of intellectual property rights, and 

I believe that number showed an increase last year and the year 

before. They are focused on intellectual property rights. 

We have seen an enforcement area of intellectual property rights 

alone. In preparation, I was looking at our statistics, and just on 

the criminal enforcement perspective in 2003, as I recall, we had 

132 arrests on intellectual property rights violations. In year-todate, by mid-year of 2004, we had 125. So I believe we’ve got a 

focused effort on criminal enforcement, and by that criminal enforcement and the results, it helps us develop trends in the import 

process that allows us to have a better focused enforcement at the 

border for seizures, by understanding when we get into the actual 

analysis of the case, how they found the system to be vulnerable. 

We share that with CBP. 

Senator VOINOVICH. What I would like you to do, is to give me 

a written breakdown of the agents assigned to intellectual property 

issues within Customs, both before and after the reorganization. I 

would also like to see a breakdown of the budget. 

Mr. WHITE. Yes, sir. 

Senator VOINOVICH. This is maybe a little bit redundant, but if 

I was a small- to medium-sized manufacturer of widgets, and I just 

found out that a Chinese company was stealing my widget design 

and shipping it to the United States, with the exact same packaging as my widgets, what would be my recourse today? 

Mr. WHITE. I would always encourage someone who finds their 

process, their identity, has been counterfeited, that they notify the 

local law enforcement for immediate attention. Because again, 

States do have appropriate criminal statutes, as well as we and 

ICE have 25 SAC offices, and 171 resident agent offices. As I recall, 

there are three in the Ohio area—Cleveland, Columbus and Cincinnati——

15

Senator VOINOVICH. Wait a second. You’re talking about contacting your officers in Customs, not some other law enforcement 

agency? 

Mr. WHITE. Correct. So that we could begin to immediately analyze the allegation. 

The local offices know to contact us in the IPR Center, the Commercial Fraud and Investigations Unit. Our role is to help coordinate their national and international, to help facilitate their investigative case at the lowest level, at the ground level, at the actual 

site of the allegation. That would be one way that I would recommend it. 

The other way I would recommend for some of the smaller and 

mid-sized businesses are the trade associations. I suspect most who 

have IP issues are members of trade associations, to help them facilitate and getting the information to us. Those would just be a 

couple of recommendations that I might make. 

Senator VOINOVICH. Isn’t the latter you just mentioned kind of 

going around the barn? Let’s say I have a friend of mine that 

makes the best mixer in the world. This is an actual case. And several years ago, a company in China copied this. Moving on that 

was like going through the Maginot Line to get anything done 

about it. 

It would seem to me that there should be some mechanism that, 

if I can demonstrate that somebody has actually done what you 

have here, that you ought to be able to stop that from coming into 

the country. The issue is how soon after this has been found to be 

true—I mean, how long does it take for somebody to say yes, you’re 

right, they did counterfeit your patent, they are manufacturing 

your product. How much time does it take for something like that 

to stop? 

Mr. WHITE. I would hope it would be quickly, but I cannot guarantee it. I don’t know—in actuality, I have never looked at the date 

and time period. I have to apologize. 

Senator VOINOVICH. I would like to find out. That’s really what 

this is about. These are little guys, a lot of them. They haven’t got 

a lot of wherewithal. They don’t have a big corporate staff of individuals that can go ahead and do this. They feel like they’re all by 

themselves and lonely. They’re the people who need to be able to 

turn to the government and say, I need your help. 

To say go see a trade organization or something like that, I don’t 

think that’s a very good answer for them, Mr. White. 

Mr. WHITE. I would not want them to see the trade organization 

for a resolution; only for possibly assistance to get their allegation—some of the smaller companies do not know, as you say, and 

the organization might be able to give them information about how 

to get a hold of us. It was only a possible recommended solution 

about how to get their complaint to us, not how to fix their problem. 

Please, if I left it like I was suggesting that would be a fix to 

their problem, I apologize. It was only——

Senator VOINOVICH. So the first thing is go and see the local person, if I’m in Cleveland, Ohio—I think we have Customs people 

there. I go to see them, talk to them about it, and say this is what’s 

16

happening. You think they would be able to help them move along 

with the process? 

Mr. WHITE. I do, yes, sir. 

Senator VOINOVICH. OK. What I would like to do is get some statistics on the last couple of years of cases that have individually 

come in and how long has it taken for something to happen in 

terms of dealing with that situation. 

What Keating told me is that if somebody brought that to his attention, they could move on it very quickly, and when it came into 

the country, they were able to stop it right there. I think if somebody knew that it could happen that quickly, they might be reluctant to go ahead and steal somebody’s product, because they figure 

why steal it, because if you get it back to the United States, they’re 

not going to——

I talked to another friend of mine who’s an investor in a golf 

club. They manufacture golf clubs. He said that within 2 or 3 days 

after they put a new golf club on the market, it’s being duplicated 

and manufactured in China and sent back to the United States. It 

seems to me that if they have that information and it’s verifiable, 

the government ought to be able to step in immediately and stop 

that from coming into the United States. 

Then the next issue is following through, taking the action, legal, 

criminal, or otherwise, in the particular country where they’re operating. But if it takes forever and a day—you were talking in your 

testimony about the fact that these fines and criminal penalties 

have got to be significant, and the fines have to be made very high, 

because if you get fined $60,000 and you make $6 million, you’ll do 

it every time. 

That’s what I’m getting at, that there doesn’t seem to be enough 

of this dotting the I’s and crossing the T’s and really letting people 

know that we’re serious about this. 

I know in the Department of Commerce I talked to Don Evans 

about this. He said, yes, we’re really serious about it, but it seems 

to me that at this stage of the game we should be aggressively 

going out and trying to let people know that we’re there and how 

can we help you. 

Mr. DUDAS. Mr. Chairman, if I might just add, one of the points 

you made at the very beginning was having people aware. You 

talked about the title and having people aware of what’s going on. 

One of the things we’re trying to do at the Patent and Trademark Office, and we need to do more of, is informing small and 

medium enterprises about what kind of environment they are operating in if they operate in China. 

It has come as some surprise to some of us, that both small and 

medium enterprises, and in some cases multinational companies, 

have not availed themselves of the intellectual property rights that 

may be available in China or are unaware of this. I think they believe the trade relationship is such that you just go from the Untied States to China and don’t recognize the risks. So that’s another 

area where we have had discussions, we’ve had seminars, etc., with 

small and medium enterprises. 

Again, I think that’s where one of the areas I have seen more in 

the last year, areas like the U.S. Chamber of Commerce, certainly 

the International Anticounterfeiting Coalition and ITA, the InterVerDate 0ct 09 2002 14:55 Sep 02, 2004 Jkt 094482 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 C:\DOCS\94482.TXT SAFFAIRS PsN: PHOGAN
17

national Trademark Association who are doing more and has done 

a great deal in the past to inform their businesses and their member companies of what they need to do, both in terms of operating 

in China or operating in the United States, and the problems they 

face. And some of it is a public-private partnership on that level 

as well. 

Senator VOINOVICH. It seems to me that there ought to be—well, 

first of all, in the United States, when something like that happens, to be able to move on it quickly. But also, Mr. Dudas, following up on your suggestion, I know when I visited foreign countries, we sat down with the folks from the AmCham, their business. I sit down with them and confidentially tell them what the 

scoop is. 

I know in one case—and I won’t mention the country—that the 

courts are corrupt, forget them. I’ll never forget it, because the 

newspaper people were in the meeting at that time and they were 

going to report it. I said please don’t do that. Then we went to the 

embassy and they did it again, and the newspaper people said they 

would report it. I thought we were going to have an international 

incident. But they were pretty blunt about the country and their 

court system and so forth. 

But I think this is some stuff that you really need to get out to 

people before they venture over there. As I say, some of them are 

smaller. We’re encouraging them to get involved in exports, but we 

need to make sure that they know what they’re doing when they 

get involved. 

Personnel again. I hate to do this to USTR, but they’re not here 

to defend themselves and that’s their fault. I don’t know whether 

you’ll be candid with me or not. But when we had the hearing on 

the capacity of the Department of Commerce and the USTR, in 

terms of enforcing our trade laws, I was told by USTR that they’ve 

got about the same number of people they’ve had forever. 

From your experience with USTR, do you feel they need some 

more people over there to get the job done? Mr. Dudas, I think you 

mentioned that when they’re negotiating their trade agreements, 

they call upon your folks to help them with getting the right language to protect intellectual property rights and copyright trademarks. 

At this stage of the game, having the same number of people 

they’ve had forever, what’s your reaction? 

Mr. DUDAS. I certainly don’t feel qualified to speak to their budget and resources as an expert, but I can say that, as an agency 

that’s working on intellectual property rights, we have seen an increase in activity certainly with just free trade agreements with the 

Special 301 process, etc. I’m guessing that USTR could use additional resources. I’m certain they would know what to do with 

those resources. 

Again, I think the model that we have is one that I believe 

works, because it’s an opportunity for the USTR, at least with our 

agency, to work with us to get the technical and legal expertise 

that is necessary. We can provide more people when necessary, and 

I know we certainly are taxed but are able to provide what we need 

to provide now. 

18

Senator VOINOVICH. Well, let’s start off with your own agency. 

USTR goes to you folks for advice, right? 

Mr. DUDAS. Yes. 

Senator VOINOVICH. Would you say that within the last year that 

the requests for your help have increased measurably? 

Mr. DUDAS. Yes. 

Senator VOINOVICH. How about your department? Are you able 

to handle those increased requests coming in? 

Mr. DUDAS. We are able to handle them, but it is certainly taxing 

on our agency as well. The free trade agreements in particular, we 

have structured in a way that we are prioritizing, quite honestly, 

to make certain that the free trade agreements and the Special 301 

process are important. 

I think there has been more activity of late, in the last few years, 

because of the free trade agreements, and because of nations 

throughout the world having to come to terms with their WTO obligations and TRIPs obligations. 

But I can certainly speak with some expertise, that in our own 

office we are continuing to staff slightly more. I think we will add 

maybe 2 percent more—I’m sorry, about 10 percent more—to our 

area, to make certain we’re giving the appropriate support. 

Senator VOINOVICH. Do you think they might be better off having 

one or two people stationed full time at USTR, so that they 

wouldn’t have to constantly keep coming back to you? 

Mr. DUDAS. I actually think the model works better to have them 

come to our office, because of the expertise that is there for each 

of the areas. I mean, when it comes to free trade agreements or a 

Special 301 process, sometimes we are asked to help negotiate and 

participate. 

I think, from the USTR perspective, there are so many issues on 

which they have to work, my belief is that at least in the IPR perspective it would be redundant to have USTR staff up at that level 

if they did it throughout. I believe that so long as the model works 

and we’re being efficient in how we employ it—and I think to a 

large degree that has occurred—it is the right model. 

We sometimes will draw from areas of people that were examiners in the Japanese Patent Office, if we’re dealing with the Japanese office. There is certainly a great amount of experience to draw 

from. We have relationships upon which we can leverage. 

For instance, in China, we are able to go to China with a good 

degree of ‘‘carrots’’ as well. They are the fastest growing patent office and the largest trademark office in the world. 

Senator VOINOVICH. What is the office? 

Mr. DUDAS. Their trademark office is the largest trademark office in the world. Their patent office is the fastest growing patent 

office in the world. I believe it’s the fourth or fifth largest. And 

they’re growing at an incredible rate. 

I think they need the expertise that the U.S. Patent and Trademark Office can offer, to talk about the type of growth we’ve had, 

and also talk about the appropriate ways to deal with biotechnology issues or to deal with other patent issues. Those are relationships that we can leverage again. 

We also find that these are agencies within any government, and 

China in particular, that are pro-intellectual property rights, that 

19

understand it. Again, these are the benefits, I think, of going to 

areas of expertise. 

Senator VOINOVICH. Well, if I’m prioritizing in an agency, it 

means that some of the things that some people were doing are not 

being done, and the issue is what are the things they were doing 

that have fallen down to a lower priority and where does that stack 

up. I’m really interested in the capacity that you have to respond 

to the challenges that you have, just as I am in the case of Mr. 

White. How many people do you have, and how many did you have 

before, and what’s the new responsibility and demands that are 

being made. You have to have the people to get the job done. 

I think one thing is that, on this side of the aisle, we don’t pay 

enough attention to that. My problem is I’m an old mayor and governor, and administrator. I know that agencies, in order to get the 

job done, if you give them a lot more work to do and you don’t give 

them the budget, the people, or the resources to get the job done, 

it doesn’t get done. That’s really the real issue here today. This 

subject is very serious to our economy. 

Mr. Dudas, you said that in the Department of Commerce manufacturing report it stated that Commerce would like to reinforce the 

efforts of the National Intellectual Property Law Enforcement Coordination Council. We just talked about that. They would like to 

reinforce the efforts. 

Does that mean getting some staff people over there? 

Mr. DUDAS. It certainly means we’re considering how we can 

move beyond being more than just a reporting mechanism, what 

does it take, in particular, what proposals do we want to have in 

order to consider, from a staffing perspective or a resource perspective, what would make NIPLECC a more effective coordinating 

agency. 

It also means really redoubling our efforts, particularly with the 

Department of Justice, the Criminal Division, who was co-chair, to 

determine what areas do we really need to focus on in particular 

and how do we make certain that we have the level of involvement 

that we want to get from each of the agencies that’s involved. 

I really think it’s a matter of taking a look at what NIPLECC 

is doing, saying yes, we’ve been successful for what’s been expected 

of NIPLECC, but it’s an ideal arena in which to take it to a much 

higher level, to make it more of, I think, the kind of coordination 

that you’re talking about, the kind of coordination that we think 

we could see, to use it to develop particular projects that will be 

beneficial to intellectual property owners. It involves all of that, 

and discussions have begun with the Department of Justice. Certainly the co-chairs have to be on board to consider taking it to a 

higher level, and to some degree, we’ll either need additional resources, but we’ll need commitment from each and every agency 

within NIPLECC on a particular project or on a mission of the 

Council. 

Senator VOINOVICH. Don Evans, the Secretary of Commerce, was 

in Beijing on October 28, 2003. He stated that the U.S. patience 

on China’s WTO compliance was ‘‘wearing thin’’ and warned of 

growing protectionist sentiments in the United States against 

China. 

20

I have to say to you, as a Member of the U.S. Senate, that my 

patience has worn thin. I have no more patience. All I have heard 

is talk, talk, talk, talk, and I haven’t seen action. It seems that we 

go over there and we talk to these folks, and they don’t seem to 

get it. 

I’ll never forget, when I was in South Korea in 1997, and I was 

there with a group of business people to promote joint ventures, as 

well as to convince the South Korean Government that they should 

allow in non-South Korean made vehicles, I spent 3 days with government officials. I can’t remember the exact statistics, but you’ll 

understand. I said you’ve got to do better at allowing in more nonSouth Korean vehicles. And they said we’re doing better—they had 

increased it 100 percent from one-tenth of one percent to twotenths of one percent. 

Today we import more vehicles from South Korea into the United 

States than all of the non-South Korean vehicles that go into South 

Korea in a year. Think about that. If you buy a non-South Korean 

vehicle, you can pretty well be assured, if you’re a South Korean, 

that you’re going to have your tax return audited, and you may get 

a few more parking tickets or traffic tickets. 

The point I’m making is that it doesn’t seem they get it. You just 

said you came back from China in March and you were over there 

again, but it’s still not happening. What does it take for us to get 

the Chinese to understand that they’ve got to do something about 

this problem? 

Mr. DUDAS. I understand completely your concern, and I can tell 

you Secretary Evans is tremendously results-oriented. This week 

the Joint Commission on Commerce and Trade meets. I think what 

is important that the Chinese understand—the Chinese Government believes they have done a great deal, and they can show 

quantitative enforcement and they can show certainly millions of 

CD’s or other products that have been destroyed. 

But we have our own measures in the United States, and we’ve 

seen the seizures of counterfeit goods that we seize at our borders 

grow from 16 percent to 66 percent from mainland China over the 

last 5 years. So in an area like that, where things are clearly getting worse from our own measures, what we need to see is 

progress. In China, we’re not seeing progress. What we’re seeing is 

the opposite. 

I think what we have always pushed for in the U.S. Patent and 

Trademark Office is we need to see how you will measure results. 

That’s what we’re trying to do in the JCCT, is to make certain the 

Chinese Government understands how important this situation is, 

how dire it truly is. 

Senator VOINOVICH. But it’s not in your power to do anything 

about enforcement. You can talk to them about the situation and 

point it out to them——

Mr. DUDAS. That’s correct. 

Senator VOINOVICH. But the enforcement of it has to come from 

them, or when they try to bring the goods into the United States, 

it has to come from the Department of Commerce——

Mr. DUDAS. Ultimately, there are trade sanctions that can be 

placed. Right now I think the Chinese Government understands—

I certainly believe they understand the message from Secretary 

21

Evans, that they need to show concrete results. We need to see 

progress. Right now we’re not seeing progress. 

I think, beyond that, if progress isn’t shown, then the United 

States considers all of the options it has on——

Senator VOINOVICH. I just want to say this to you. 

I have been asking now for about a year for a Special 301 investigation into the fact that the Chinese, in my opinion, are pegging 

their currency to the U.S. dollar. It’s having an enormous impact 

on the competitiveness of their products. 

I feel the information is solid as a rock; I understand the National Association of Manufacturers considers it solid as a rock; 

that the AFL–CIO considers it solid as a rock. And yet, our government has done nothing about going forward with a Special 301 investigation. 

A lot of these things that need to be done are very expensive for 

businesses to try and do it on their own. Even trade organizations. 

If I’m sitting back and I’m the Chinese, and I know that the facts 

are there and nobody seems to be doing anything about it, I’m just 

going to keep doing what I’ve been doing, because I’m going to 

think that these people aren’t serious. 

When are we going to do a Special 301 investigation? 

Mr. DUDAS. I’m sorry, I can’t answer that question on that area. 

It’s outside my area of expertise. It is an incredibly important 

issue—and it’s important to manufacturers and you have been involved in that. 

I can carry the message back of your concern that’s been reiterated, and I do understand that area of concern. It’s outside my area 

of expertise, but I understand what your point is and I can certainly relay it. 

Senator VOINOVICH. Well, I have a lot more questions here for 

you, and I could keep you here for another hour-and-a-half, but it 

wouldn’t be fair to the other witnesses that we have and the clock 

is running. 

I want to thank you very much for you both being here today. 

I consider what you’re doing to be very serious, and there will be 

some other questions that I will be submitting to you for the 

record. 

As a Member of this Subcommittee, I am genuinely interested in 

a candid response to these questions. If you need more help from 

this side, if it’s an issue of more money, of staffing, flexibility or 

whatever the case may be, let me know. I don’t know if you’re familiar with this or not, but I’m very much involved with the whole 

area of human capital, trying to give you guys the flexibility so you 

can keep the folks you have and pay them the bonuses when 

they’re supposed to get them, to allow you to go out and get the 

best and brightest people to come work for you in your respective 

agencies. 

But I would like to do more to help you get the job done. If you 

need more money or more staff, I want to know that. Somebody has 

got to be candid with us about it. I know sometimes you go to OMB 

and they say, well, your budget has got to be here and there. But 

we spent a lot of money on a lot of things, and one thing I think 

we’re not spending enough money on is people. We want the best 

22

1The prepared statement of Mr. Chow with an attachment appears in the Appendix on page 

65. 

and brightest people in government today. So I would really appreciate your candid response to these questions. 

Thanks very much. 

Mr. DUDAS. Thank you. 

Senator VOINOVICH. We are now going to proceed to the second 

panel. We would like Professor Chow to begin the testimony, if you 

will. And if you could, please try to limit your presentation to 

around 5 minutes. If you go over a little bit, that’s OK, too. Then 

we can open it up for questions. 

I am glad that all three of you have had a chance to hear the 

testimony of the people from the U.S. Patent Office and also from 

Customs, and would welcome, in the question and answer period, 

your observations and comments about some of the answers to the 

questions that I raised with them, and your opinion about some of 

the things they talked about. 

Professor Chow. 

TESTIMONY OF DANIEL C.K. CHOW,1 THE OHIO STATE 

UNIVERSITY COLLEGE OF LAW 

Mr. CHOW. Thank you, Mr. Chairman. 

I’m going to talk about counterfeiting in China, which has come 

up several times already. Counterfeiting in China is the most serious counterfeiting problem in world history. The government estimates in China put counterfeiting at $19–$20 billion per year, and 

about 8 percent of its gross national product. U.S. industry estimates that they lose billions to tens of billions of dollars per year. 

Now, no problem like this could exist without the direct or indirect involvement of the State. In fact, I will discuss the involvement of government in this problem. 

Exports from China make this into a global problem. I want to 

flag this point because, Mr. Chairman, we’re about to see a significant increase in exports of counterfeit goods from China beginning 

in the year 2004, and I’ll explain why. 

The reason for this problem—how did this problem come about—

first it’s the growth of China’s economy, which is the most spectacular growth of an economy of this size in history. But it is also the 

role of foreign direct investment and technology transfer. China 

now is the world’s largest recipient of foreign direct investment. 

Foreign direct investment is also the best way to get technology 

transfer. Thus, China now gets unprecedented access to patents, 

trademarks and copyrights. In fact, in many cases today, the intellectual property component is the most important part of the foreign direct investment. Proctor & Gamble, where I used to work, 

their trademarks in China are worth many more times than their 

capital investment in all of their joint ventures in wholly owned enterprises. In fact, the value of their trademarks is worth 10 times 

the value of their capital, 100 times, maybe 1,000 times—and 

maybe you can’t even count it. 

So thus, what really has caused this problem is two things: It is 

this increase in foreign direct investment—China now is the 

world’s largest recipient—and the unprecedented access to advance 

23

1The chart referred to appears in the Appendix on page 70. 

technology. You combine that with a weak legal system and now 

you’ve got the world’s most serious commercial piracy problem. 

It is no accident, it is no coincidence, that China is the world’s 

largest recipient of foreign direct investment, and it also has the 

world’s most serious commercial piracy problem. 

Now, I’m going to focus on just what I think is the most crucial 

aspect of the problem, because I know my time is limited, and I 

want to talk a little bit in this chart about the trade in counterfeit 

goods. The chart itself really divides the trade into two aspects. 

One is the manufacture, and then the second is the distribution.1

The manufacture that you see here on the chart is in the shaded 

areas. These are in Guangdong Province and Fujian Province, 

which these are the first areas that were open to foreign direct investment in China, and this is where the counterfeiting problem 

started. A lot of this activity is financed by criminal organizations 

from Hong Kong and Taiwan. Guangdong Province is the ancestral 

home of many people in Hong Kong. Fujian Province is the ancestral home of many of the people in Taiwan. 

Now, the chart also points out—and I want to focus in on this 

issue—in addition to manufacture, there is also distribution. You 

see the chart points to five major wholesale markets which distribute goods all over China. 

I want to make this point, that these wholesale markets are set 

up by the Administration of Industry and Commerce, which is the 

government entity, the local government entity which is in charge 

of developing trade and commerce. So the government actually invests in the markets which sell these counterfeit goods. 

Also, the Administration of Industry and Commerce is also 

charged with enforcement against counterfeiting, so you can see 

the direct conflict of interest in that the government is supposed 

to suppress an activity in which it has a direct financial interest. 

Let me just talk a little bit about a town here called Yiwu, which 

you see on the chart. It is well known as the counterfeit capital of 

China. 

Senator VOINOVICH. Where is that on the chart? 

Mr. CHOW. It’s this town right here [indicating]. 

Senator VOINOVICH. OK. I have a copy of this in front of me here, 

too. Go ahead. 

Mr. CHOW. I want to focus in on this just to really point out what 

the problem is. 

In this town, the entire economy is built on the trade in counterfeit goods. This used to be a small farming community in the middle of nowhere, and now it’s got a bustling business center, it’s got 

a four-star hotel, and it really depends entirely on the trade in 

counterfeit goods for its economic development. 

Every day, 200,000 customers from all over China visit Yiwu, 

and they visit the 33,000 wholesale stores and outlets which sell 

100,000 varieties of products. Ninety percent of them are counterfeit and infringing. I know that because when I worked in China 

I spent many weeks in Yiwu investigating this and compiled these 

facts. Two-thousand tons of products are ordered, and the roads are 

congested day and night as the traffic goes in and out. 

24

Now, the entire economy of this town is based on counterfeit 

product, the trade in counterfeit goods, and it’s been integrated into 

the legitimate economy of this town. So not only do you have this 

trade, but you have restaurants, you have hotels, you have night 

clubs, you have warehouses. All of this is supported by the trade 

in counterfeit goods. 

Now, what would happen if there was a serious crackdown on 

the trade in counterfeit goods in this town? It would shut down the 

local economy. It would cause the dislocation through the loss of 

jobs, the closing down of business. Indeed, it may result in social 

turmoil and chaos, which is something that the Chinese Government really fears. So, for that reason, because the town itself has 

a financial interest in this trade, counterfeiting is heavily defended 

at local levels. 

This is really where the problem is. The problem is one of local 

protectionism because the government has a direct stake, the local 

governments have a direct stake in this illegal trade. And it is very 

difficult, it has become very difficult for the national government—

and I believe the national government is sincere, that the authorities in Beijing are sincere. But it is very difficult for them to control what goes on at the local level, because the people in Beijing 

are policymakers, they’re lawmakers. But enforcement occurs on 

the ground, at the local level. This is where I think the crux of the 

problem is. 

I’m going to skip some of this because I know my time is limited. 

I want to focus on the export issue because I mentioned this earlier. I want to make sure that enough attention is paid to this. 

Counterfeits from China probably account for about 80 percent of 

all exports to the United States. I know that the Customs statistics 

talk about 66 percent, but a lot of goods are transshipped——

Senator VOINOVICH. Wait. You’re saying counterfeits from China 

may account for 80 percent——

Mr. CHOW. Of all the counterfeit exports to the United States. 

Senator VOINOVICH [continuing]. Of all the counterfeits in the 

world? 

Mr. CHOW. Well, I’m talking specifically about exports now, Mr. 

Chairman. U.S. Customs seized, in the year 2003, counterfeit product from China consisting of 66 percent of the total of the counterfeit product that was seized. We believe that the actual total is 

probably higher, and that is because many of these goods are 

transshipped through other countries, such as countries in South 

America, through Canada, that come into the United States. So we 

believe that probably a more realistic figure is about 80 percent. 

The value of the counterfeits seized by U.S. Customs in 2003 was 

valued at $62.4 million. Of course, what is seized can only represent a tiny percentage of what actually gets into the market. If 

it is 1 percent of what actually gets into the market, then the value 

of the counterfeit product from China is between $6–$8 billion. 

I believe we’re going to see a significant increase in the export 

of counterfeits from China starting in 2004. And why is that? Well, 

it’s ironic, but as part of China’s WTO obligations, China in December 2003 had to eliminate the state monopoly on export privileges 

in accordance with its WTO obligations. 

25

1The prepared statement of Mr. Gorman appears in the Appendix on page 85. 

Now, under prior law, only certain state trading companies could 

export because only they had the state license to export product. 

So if you were a counterfeiter, you had to find a compliant state 

trading company to work with you. Of course, to be honest, there 

was no lack of state trading companies willing to work with the 

counterfeiters, but still there was an added expense and added obstacle. 

But in 2004, because of the elimination of this requirement, it 

means that anybody can export, and I believe what we’re going to 

see is we’re going to see many counterfeiters now turn to export as 

an opportunity to increase their profits. 

There are no criminal laws against export of counterfeit products 

in China. There are criminal laws against counterfeiting within the 

country, but none for exports. So if you’re a counterfeiter and 

you’re faced with the possibility of civil and criminal penalties for 

counterfeiting within China, and you’re faced with no civil or criminal penalties for export, I think the choice is pretty obvious of 

where they’re going to increasingly turn for their profits. 

I just want to make two points now with respect to the future. 

I believe the real issue here, as I hope I’ve pointed out, is an issue 

of political will. The issue is really the will of the national government to deal with the problem of protection at local levels. I believe 

the national government is sincere, but it is a very difficult problem to force these local governments to crack down on counterfeiting because the social costs of cracking down are very serious. 

The national government fully understands that, and I believe they 

don’t want to incur those costs until they absolutely have to. 

Finally, with respect to the WTO and TRIPs—and I guess you’ll 

have other folks speaking about this—I think that most people, including myself, believe that China really is in substantial compliance—excuse me, that it’s laws are in substantial compliance with 

TRIPs. It’s really the enforcement of those laws which I think falls 

short, and that is something I think we have to take a very close 

look at. 

Thank you, Mr. Chairman. 

Senator VOINOVICH. Thank you very much. 

Mr. Gorman, thank you for coming this morning. I have to say, 

I’m impressed with these witnesses from Ohio. 

TESTIMONY OF JEFF GORMAN,1 PRESIDENT AND CEO, THE 

GORMAN-RUPP COMPANY, MANSFIELD, OHIO 

Mr. GORMAN. Thank you, Chairman Voinovich. I appreciate the 

opportunity to testify and leave you with an important message regarding the issues facing many American manufacturers. 

Senator VOINOVICH. Mr. Gorman, would you tell us where your 

company is located? 

Mr. GORMAN. Mansfield, Ohio. 

When you hear of pirated and knock-off products, you may think 

initially of computer software, movies, music and CDs. I’ll assure 

you the problems go much deeper than that and are affecting job 

retention and growth at the core of American manufacturing. 

26

1The charts referred to appear in the appendix on page 86 and 87. 

Our company has steadily seen a growth of pirated items produced in foreign countries aimed directly at stealing our products, 

our after-market parts, and frankly, our identity in the marketplace. 

A real quick overview of our company. Gorman-Rupp is a Mansfield, Ohio based manufacturer of pumps and pumping systems for 

applications including water, wastewater, petroleum, government, 

agricultural, and many other markets. The company was founded 

in Mansfield in 1933 by two gentlemen, one of whom was my 

grandfather, who during the Great Depression had some new ideas 

about how to design, manufacture and sell pumps. They borrowed 

$1,500 and started the company. Today we have about 1,000 employees and sell on a global basis. 

Competition has always been keen in the pump industry. Until 

recently, most competition from pump manufacturers came from 

those manufacturers vying for their own market share with their 

own ideas, designs, engineering, and manufacturing. 

Today, some foreign pump manufacturers have taken a less ethical approach. Call it copying, counterfeiting, reverse engineering, 

knocking off, pirating or whatever, it basically comes down to stealing your identity, your engineering, for monetary gain in pump and 

after-market parts sales. 

Pumps may not be a great item of beauty to some, but they are 

essential to everyone’s everyday lives. Shown on the screen is one 

of our main product lines, a 4-inch pump, primarily used by municipalities for sewage handling.1 Shown on this screen is a knockoff version of the same pump. This pump is manufactured in Brazil 

and is not only nearly identical in looks, but functionally interchangeable in dimension. 

Closer examination of the knock-off pump shows not only the pirate’s imitation of the Gorman-Rupp design, but notice the name 

and logo. I submit that it was neither a mistake nor a mere coincidence. 

Technology has simplified the reverse engineering of products. It 

has become much easier to copy or steal the engineering and trade 

dress of a product than in the past. All that is really needed is to 

have one of the original products and the proper measuring equipment, and you can be in business without the need for expensive 

research and development. Add to this inexpensive labor, much 

lower overhead than many U.S. manufacturers face, such as health 

care, litigation costs, excess litigation and regulations, etc., and it’s 

quite easy for the pirate companies to sell pumps and parts at a 

considerably lower price, all at the expense of the original American manufacturer and developer. 

Pirates many times use the sales tactic that it’s just the same 

as the original product or part, and in some cases, outright confuse 

the customer that it is the original OEM product or part. Pirates 

have deceived Gorman-Rupp’s U.S. customers who learned to their 

expensive dismay, after purchasing the pirated parts, that they 

were not interchangeable in quality or performance. 

Patents are helpful, but they do not eliminate pirating. In some 

cases, they even explain information and technology and trade seVerDate 0ct 09 2002 14:55 Sep 02, 2004 Jkt 094482 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 C:\DOCS\94482.TXT SAFFAIRS PsN: PHOGAN
27

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

91. 

crets to the pirating company. It is also very prohibitive to patent 

your product in every country around the world. 

Pirating does not just stop with the physical products, either. We 

recently learned of a Chinese company that not only copied the 

looks, design and manufacture of our pumps, they even stole our 

advertising literature. How do we know? The Gorman-Rupp logo is 

still displayed on the products in their literature. The next step is 

that these Chinese knock-off pumps will probably find their way to 

the American market if we do not have some legislation to protect 

our engineering investment and identity. The Brazilian pirates 

have also copied and exploited Gorman-Rupp product manuals and 

product performance specifications. 

Legal recourse against knock-off products in foreign courts is 

very time consuming, very expensive, and in some cases, almost 

impossible. We find little or no help from the government in dealing with these issues. 

I would ask for the following to be considered: A single point of 

contact within the Department of Commerce that is specifically directed and funded to assist U.S. manufacturers that have had their 

products reverse engineered. Second, the responsibility and authority of the Commerce Department to instruct the Customs agencies 

to levy stiff fines or duties on proven importers of pirated parts. 

Gorman-Rupp does not want to stand in the way of honest competition. In fact, we welcome it. But we need a level playing field 

against pirating of our own products and our identity. 

Mr. Chairman, we have a common goal: That is, retention and 

creation of jobs. With legislation and procedures that will seriously 

impede the importation of these pirated products and parts, we will 

and we can expand in the USA. 

Thank you. 

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

Rotman. 

TESTIMONY OF PHILLIP A. ROTMAN, II,1 ASSISTANT PATENT 

AND TRADEMARK COUNSEL, DANA CORPORATION 

Mr. ROTMAN. Good morning, Mr. Chairman. My name is Phillip 

Rotman, and I am the Assistant Patent and Trademark Counsel at 

Dana Corporation. One of my job responsibilities is to enforce our 

intellectual property rights around the world. 

I am here today to testify on behalf of the company, and will be 

sharing some of our views and experiences with dealing with counterfeit products around the world. In some of my written submissions, I not only focus on China, but also focus on our experiences 

in other parts of the world, including the United States. 

Dana Corporation is a global leader in the design, development, 

and engineering of products and systems for the automotive, commercial and off-highway vehicle. As you noted, we are 100 years old 

this month. Counterfeiting of automotive products appears to be on 

the rise for us. In fact, in the last 5 years, we have noticed a steady 

increase. 

28

Since 2000, we have instituted over 40 actions around the world, 

including China, Taiwan, the United States, and other countries in 

Africa. We also have currently a number of ongoing investigations. 

It is hard to quantify this problem because we only know what we 

know. But during this time, we seized about a quarter-of-a-million 

sets of parts—and our parts tend to be packaged as a kit. We value 

that the parts that we have prevented from coming into commerce 

is about $5 million. Unfortunately, fines have been rather minimal. 

They have totaled about $25,000, and our civil recoveries against 

the counterfeiters have only totaled around $200,000. We spend 

significant resources to fight this issue. It’s hard to quantify management time and resources, but one way we can quantify it is 

what do we pay outside counsel and it averages about a quarter of 

a million dollars a year just on counterfeiting. This doesn’t include 

other forms of intellectual property disputes. 

About two-thirds of our anticounterfeiting activities have been in 

China. We have been successful in China in fighting the problem. 

We are well organized in China. We have trusted people working 

for us, and we do find that we have good relations with some of 

the government agencies we work with, partly because we are back 

before them time and time again in various locations seeking to enforce our rights. 

Unfortunately, however, most of our actions have been against 

small shops. As Professor Chow noted in his written materials, he 

describes the way in which parts are distributed in China and it’s 

very different than anything I have ever encountered in the United 

States. To visit a marketplace like this is truly unbelievable. But 

we have not been successful at finding factories which are the 

source. 

Part of that problem is the counterfeiters are smart. They know 

that if they create the product at one place, and they create the 

packaging at another place, and then they bring the two components together typically at the shop itself, they can avoid detection 

and liability. 

Our concern in China has not been with the government’s unwillingness to act. They do take prompt action. In fact, when we bring 

a matter to the Chinese Government’s attention and we can prove 

our case, we generally get results the same day. They will go seize 

the product that very day, which I suspect is a surprise to a lot of 

people. 

Once the product seized has been confirmed as counterfeit, the 

product is destroyed. In fact, I was in China last month dealing 

with a number of these issues and attended a destruction ceremony. They are publicized by the local government on occasions. 

But as everyone else has noted, the fines are low. I think as you 

noted, Mr. Chairman, when the fine is just the cost of doing business versus a deterrent, it’s a cost of doing business and it’s something they will continue to do. 

Another concern in China is the ability to obtain information. Because it is a state run society, we don’t get access to a lot of the 

books and records when we conduct a raid. We are interested in 

the source of the counterfeit product and its distribution channel. 

We want to follow the product. A lot of times it’s very difficult to 

29

get access to that information. We can act on it if we have the information. 

I also want to turn our attention to the United States. We have 

had some experiences in the United States. As I mentioned in my 

written material, we identified counterfeit product in this country 

last year. We took it upon ourselves to do something about it. Interestingly enough, when we filed our law suit, the first question 

from the court was, have you given the other side notice, which we 

thought was a peculiar question, given that the reason we moved 

ex parte for the seizure order is we were concerned that the products and records would be destroyed once they learned of the law 

suit. It turned out that that didn’t occur, that the individual in this 

country had been misled as well and was terribly cooperative. However, it could have been a lot worse. 

Unfortunately, we don’t see that the criminal laws are being enforced by the U.S. Government. They are on the books in Title 18, 

but if these government agencies have done things, it’s not being 

well publicized. We view ourselves a leader in this industry and, 

frankly, we were surprised to learn of some of the activities in the 

last month when we were requested to come testify. We suspect 

that outreach is an area that the government could do a better job 

on promoting its services, especially to small companies. We suspect that many companies and attorneys, frankly, just wouldn’t 

know who to call if they had a problem. 

Also, U.S. law could be improved. As you may be aware, there 

is a U.S. Court of Appeals circuit case that overturned the conviction of a man who was shipping counterfeit fake labels for designer 

purses, but because the labels weren’t on or in connection with the 

goods, his conviction was overturned. While part of the criminal 

statute deals with the trafficking of counterfeit labels and packaging, it’s limited to albums, computer programs, motion pictures, 

and other audio-visual works. It frankly doesn’t help the manufacturing community to protect its parts. This deficiency could be addressed by Congress in revising several sections of Title 18. 

Finally, we believe that counterfeit crimes need to be brought to 

the same level as drugs and other high-profile crimes. Governments need the right to seize the assets used in counterfeiting, 

such as equipment, tooling, and computers. Furthermore, it would 

be beneficial and a deterrent to the counterfeiters if their assets 

could be forfeited such as houses, cars, boats, jewelry, and cash. 

In summary, while the United States has good laws on its books, 

it needs to become a leader in this area, frankly, before it can ask 

other countries to enforce the IP laws on their books. 

Dana would like to thank the Subcommittee for the invitation to 

testify. Your support and attention to this matter strengthens our 

resolve to fight, and we would be willing to answer any questions 

you have. Thank you. 

Senator VOINOVICH. Thanks very much. 

Mr. Rotman, you fundamentally are saying that your company is 

large enough that you are handling this problem overseas and here 

in the United States. A quarter of a million dollars for outside 

counsel is a bit of money. Professor Chow, that’s more work for 

your graduates at Ohio State University. 

30

The fact is, how many employees does Dana have? Just so we get 

a sense of this, how large is it? 

Mr. ROTMAN. Sure. Dana has——

Senator VOINOVICH. Let’s say your sales. 

Mr. ROTMAN. About $10 billion a year. 

Senator VOINOVICH. OK. Ten billion dollars is a big company. 

Mr. ROTMAN. Yes. We have about 60,000 employees worldwide. 

Senator VOINOVICH. Sixty thousand employees. So you’re large. 

Mr. ROTMAN. Yes. 

Senator VOINOVICH. How long have you been in China? 

Mr. ROTMAN. Dana has had a presence in China since the early 

1990’s. 

Senator VOINOVICH. Your feeling is that you’re handling the 

problem in China because you’ve got the connections and you can 

get action pretty rapidly? 

Mr. ROTMAN. There are several reasons we believe we’re successful in China. We think we’ve found good people to work for us in 

China, people we trust. We also have employees in China who can 

help us, who are on the lookout for counterfeit products. 

They are incentivized, frankly, to help because if a counterfeit 

product is sold, we don’t sell a genuine product. So they are there 

on the ground and they are in touch with distributors and retailers 

who will pass information on to us. 

Senator VOINOVICH. So the bottom line is they have an incentive 

to work with you because the counterfeiting is hurting their distributors for you and that’s hurting their business, so they want to 

work with you to make sure you do something about counterfeiting. 

Mr. ROTMAN. That’s correct. 

Senator VOINOVICH. And they have the connections with the government to get the job done? 

Mr. ROTMAN. I wouldn’t say we have connections, but——

Senator VOINOVICH. Well, they have and you have. 

Mr. ROTMAN. I think we’ve had enough experience that, when it’s 

time—when we do our homework and we have done our own internal investigation, and we have determined it is a counterfeit product or packaging, we believe, we use local lawyers. We know what 

government agency to go to. 

China has a number of state agencies that have overlapping responsibilities, and I’ve heard in the industry of our counterparts 

going to the wrong government agency and not getting results and 

being frustrated. 

Senator VOINOVICH. So if you were really going to get the job 

done in China, would you try to replicate what Dana has done in 

China? In other words, we’ve got a lot of people in this country that 

are very small individuals, that have problems with counterfeiting. 

They don’t have the legal folks to help them and the connections 

and so forth. 

But if you could take a company like Dana or some other company of the United States doing fairly well over there, in terms of 

dealing with this problem, and tried to replicate that for the small 

people, do you think we might make more progress? I mean, we 

heard Mr. Dudas basically say he’s been over there, they’ve been 

talking to these folks, and nothing is happening. 

31

Mr. ROTMAN. It’s hard to say whether our model would work. 

Our model is, I think, unique to us because we do have employees 

in China helping us. They are Dana employees. They’re looking out 

for Dana. 

I guess the other issue is that Dana laid the groundwork many 

years ago to protect IPR in China by registering IPR in China, so 

we have the rights in China to go out and enforce it. 

I do think it is possible for a small company to be successful in 

China, possibly with some assistance, with us sharing some information with them about, frankly, how we investigate and who we 

work with. 

Senator VOINOVICH. Well, it seems to me it might be very smart 

for the Federal Government to look at it, how you’re organized over 

there and how you get the job done, and maybe look at some other 

businesses to institutionalize this so they can do some work on behalf of companies like Mr. Gorman’s, who don’t have the resources 

and the connections and the rest of it to get the job done for them. 

Mr. ROTMAN. One thing, Mr. Chairman, if I might add, we have, 

I think, as an industry, what the automotive industry has attempted to do perhaps in the last year or so, is look out for one 

another. While a lot of us are competitors, we are legitimate competitors, but we do believe that counterfeiters hurt us all. So what 

we have instructed our people to do is that, if they find products 

that they believe to be counterfeit of another company, they should 

pass the information back to us so that we can share that information with others. 

We suspect that the counterfeiters are much better organized 

than we are, and we’re trying as an industry to be more organized 

and to share information amongst ourselves to help each other out. 

Senator VOINOVICH. So the fact of the matter is that you’re recognizing that you have to work more together to get the job done. In 

my opening statement I talked about the fact that we’ve got $3 billion of auto parts that are coming into the United States, which we 

estimate is costing us about 250,000 jobs. So what you’re saying is 

that companies like yours would be interested in those parts coming in and try to help those folks? 

Mr. ROTMAN. You mean help others in our industry police for 

counterfeiters? 

Senator VOINOVICH. Yes. 

Mr. ROTMAN. Yes. We believe that the counterfeit products coming in, even from a competitor, hurt us all. 

Senator VOINOVICH. What kind of help do you get at all from our 

government? 

Mr. ROTMAN. Not much. We tend to go it alone. In the past, 

we’ve had experience where we were contacted by the government 

when they suspected some product was being imported, but the 

communication was sporadic, and trying to, frankly, get some information in order to assess the situation and provide feedback was 

difficult. 

Senator VOINOVICH. So, in effect, you took your destiny in your 

own hands and said we’ll take care of it? 

Mr. ROTMAN. Yes. 

Senator VOINOVICH. Professor Chow, before agreeing to testify 

before this Subcommittee, had you heard of the National IntellecVerDate 0ct 09 2002 14:55 Sep 02, 2004 Jkt 094482 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 C:\DOCS\94482.TXT SAFFAIRS PsN: PHOGAN
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tual Property Law Enforcement Coordination Council? If so, what 

had you heard about it, and if you knew about it, have you seen 

any changes since the inception of the Council in 1998? 

Mr. CHOW. Well, to be quite honest, I really didn’t know very 

much about it. I have actually done work for private clients as well, 

and we really didn’t find that to be a very helpful resource. 

Senator VOINOVICH. You heard the testimony from the other witnesses and the questions I asked about their coordinating their activities. There seems to be several agencies that are involved. 

Do you think it would be valuable if that agency were provided 

the staff and the resources to do a better job of coordinating? 

Mr. CHOW. It seems to me, based upon my own experience working in the field here in the United States, that there really is a lack 

of coordination and that would be helpful. 

Senator VOINOVICH. So it’s your opinion that, from your observation, these various agencies, in spite of the fact it was said today 

they are coordinating and working together, your impression is 

that, in fact, there is not very good coordination and cooperation? 

Mr. CHOW. Not in particular cases, based on my own experience. 

I have worked on several cases in which we found very little cooperation from some of these agencies, such as the FBI and Customs, for example, in a couple of cases. 

Senator VOINOVICH. If you were in my shoes and the Members 

of this Subcommittee, what would you be doing in order to handle 

this? 

One of the things you mentioned in your testimony was the fact 

that you’ve got a whole province, Yiwu, that the whole deal is 

based on counterfeiting. They’ve got a problem there with that community because, if they start doing things, they’re going to have 

civil unrest and so on and so forth. They’re reluctant to do that because of a lot of people being unhappy. 

Mr. CHOW. Yes. Well, I think it’s really an issue of priority for 

the Chinese Government. Currently, as far as I can see, the Chinese Government does not have the political will to force the local 

jurisdictions, such as Yiwu, to crack down. It doesn’t have the political will because I don’t believe the Chinese Government really 

feels enough pressure, especially from brand owners in China, to 

take that kind of step. It’s a very drastic step to impose a crack 

down against the will of a local town or jurisdiction. The national 

government can do it, if it wishes to do so, but to do that, it has 

to expend a lot of political capital and it has to absorb some very 

serious costs. 

Now, the government is not going to do that unless it feels it absolutely has to. I don’t believe, currently, that the government in 

China is feeling enough pressure or is getting enough heat from 

brand owners, or the U.S. Government, to make it take that drastic 

step. 

Senator VOINOVICH. One of the other issues we’ve got in this 

country is some of our businesses now are being told that, in order 

to stay in business, they have to meet the global market price. This 

is very difficult for a U.S. company to do because the global market 

price includes Chinese manufacturers, who don’t have to worry 

about excessive regulations or health care costs. 

33

The question I’ve got is, how do we get the Chinese attention 

that this is a serious problem and we want something done about 

it? What would really be a way of bringing it right to their attention so that they snap back and say, these folks are serious about 

this issue. 

For example, one of the things I would like to see happen is a 

Special 301 investigation. That takes a long time. But it just seems 

that all we do is talk, talk, talk, talk. And my little bit of relationship with the people over there is that doesn’t get it done. They 

need to see something more than that. 

What is that something more that we need to do to get them to 

understand that we’re serious about this problem? 

Mr. CHOW. Mr. Chairman, to be honest, I think there is some 

conflict and ambiguity within the industry itself. I think that the 

brand owners in China do not want to offend the Chinese Government. This is one of the things that you see very clearly, that they 

are tiptoeing around this issue. They don’t want to do anything to 

offend the Chinese Government, so they form an industry group 

called the Quality Brands Protection Committee, to work cooperatively with the Chinese Government. They don’t want to do anything confrontational. 

Senator VOINOVICH. Who are they? 

Mr. CHOW. It’s call the Quality Brands Protection Committee, the 

QBPC for short. It consists of about 80 multi-national companies. 

Their stance—and I was involved in this when I was working in 

China—their stance is to work cooperatively with the Chinese Government. They don’t want to offend the Chinese Government. 

The Chinese Government, of course, is very smart and they can 

see that they don’t want to do anything to the industries in China, 

they don’t want to take drastic steps. So, thus, I really think that 

the industry itself has to determine how far they’re willing to go. 

You mentioned a Special 301 action against China. That would 

get China’s attention. That would bring it right to the top of its 

agenda. 

Another thing that would bring it right to the top of the agenda 

is a WTO dispute resolution petition, challenging China’s compliance with TRIPs. That would bring it immediately to the top of 

China’s agenda. But that can’t occur, Mr. Chairman, unless industry fully supports it. 

Senator VOINOVICH. What’s the latter thing you said, the 

WTO——

Mr. CHOW. It’s a WTO dispute settlement petition, whereby a 

complaining country can challenge China’s compliance with the 

WTO, and TRIPs specifically, that counterfeiting exports from 

China of counterfeit products violate China’s obligations under the 

WTO. That type of petition, brought by the United States, with the 

WTO, would put this right at the top of the Chinese agenda. It will 

draw their attention, as would a Special 301 action. 

Senator VOINOVICH. I want to go back, because I’m thinking 

about the figure you gave us was what? You think it’s 66 percent 

of the counterfeit goods that come into the United States are from 

China, is that right? 

Mr. CHOW. The U.S. Customs, by their own statistics, seized in 

2003, counterfeit product from China worth $62.4 million. That 

34

consisted of 66 percent of the total of the counterfeit product that 

was seized from all countries around the world. 

I believe that figure is probably a little bit higher because a lot 

of the counterfeit product from China is transshipped through 

South America and other countries and comes into the United 

States. It’s probably about 80 percent of the product that enters 

into the United States, the counterfeit product that enters into the 

United States is from China. 

Senator VOINOVICH. In other words, you believe that there is 

enough information available today that a dispute settlement petition, complaining that they aren’t complying with the intellectual 

property parts of WTO, would be well taken? 

Mr. CHOW. Well, it’s a process where we have to do information 

gathering, but I think it’s a viable—and others may disagree—but 

I think it’s a viable claim. I don’t think it would be easy to prove. 

There are many issues with that, but that is a strategy that the 

United States can take. 

If you want to draw this to their attention, I assure you this will 

draw this to their attention, as would a Special 301 action brought 

against China for the failure to protect U.S. intellectual property 

rights. 

But I believe there is no industry support for either one of those 

two actions, at least as far as I can see, and I believe that the U.S. 

Government is not about to go and do that without full industry 

support. And there is no industry support, I believe, because most 

industries do not want to offend the Chinese Government. So we’re 

in a position where I think the industry has to, really for themselves, clarify exactly how far they’re willing to go. 

Senator VOINOVICH. Based on your reading and study, do you 

feel there is a basis for us to file a Special 301 action? 

Mr. CHOW. Well, this is also a complicated issue, but although 

China is a member of the WTO, it also has other intellectual property obligations that it entered into under bilateral agreements 

with the United States, specifically in 1995 and previously. So on 

the basis of separate agreements in which China made separate obligations, specifically with respect to export in these agreements, 

which are outside the WTO, I believe there may be a basis for a 

Special 301 action. 

I mean, just to clarify, the WTO, once you’re a member of the 

WTO, like the Untied States and China, the WTO framework prohibits its members from taking unilateral action, such as a Special 

301 action. But because the United States and China have agreements outside the framework of the WTO, which predates the 

WTO, that may provide a basis for the United States to bring a 

Special 301 action. But that’s a very drastic step, Mr. Chairman, 

and it would severely elevate the seriousness and tension of this 

problem, and as I mentioned, I don’t believe there is industry support for that. 

Senator VOINOVICH. Well, there is support for it in the Congress 

and we’re going to have to really get on that. I have introduced legislation, and it’s been introduced in the House and it’s just kind of 

laying there, but we’re going to have to bring this up and move 

maybe in our direction if the government is not willing to go forward with it. Although I understand the AFL–CIO and the NaVerDate 0ct 09 2002 14:55 Sep 02, 2004 Jkt 094482 PO 00000 Frm 00038 Fmt 6633 Sfmt 6633 C:\DOCS\94482.TXT SAFFAIRS PsN: PHOGAN
35

tional Association of Manufacturers is thinking about filing a Special 301 action. That would deal with one of the problems, and that 

is the industry, at least with regard to that issue, understands how 

serious it is to manufacturing in this country. 

Mr. CHOW. But I believe those petitions would not be based 

upon—I’m not sure, but from what you’re telling me, I don’t think 

those petitions are based upon the counterfeiting problem, right? 

Senator VOINOVICH. No, they’re based on currency, not counterfeiting. 

Mr. CHOW. Right. So that’s, I think—just specifically on intellectual property, bringing a Special 301 action, I don’t think there’s 

any industry support for that. 

Senator VOINOVICH. But you think there’s adequate support for 

the Special 301 investigation in terms of currency fixing? 

Mr. CHOW. I think there’s a legal—I guess I don’t feel I’m in position to really comment on that, but it appears from what you say, 

yes. 

Senator VOINOVICH. Mr. Gorman, prior to your agreeing to testify, had you heard of the National Intellectual Property Law Enforcement Coordination Council? 

Mr. GORMAN. No, sir. 

Senator VOINOVICH. Mr. Gorman, tell me about how much help 

you have gotten from your government in terms of the problems 

you’ve been confronted with over the last number of years and how 

much has this cost your business, roughly, and how many jobs do 

you think we’ve lost as a result of the fact that we haven’t taken 

action? 

Mr. GORMAN. Regarding the government question, I have to say 

that I probably haven’t pursued it at all. In going to trade organizations and asking them, are you familiar with anything that we 

can do or contact within the government to address these issues, 

mostly the answers that come back are ‘‘good luck, you’re on your 

own.’’ That’s pretty much the unilateral response that you get from 

the manufacturing organizations. So I have to say, in all honesty, 

no, I have not really addressed any direct involvement from the 

government. We have taken it on by ourselves. 

Senator VOINOVICH. Have you ever asked any government agency, have you asked the Department of Commerce or the U.S. Trade 

Representative, or have you asked the Patent Office, for any help? 

Mr. GORMAN. Only indirectly through manufacturing organizations, who really couldn’t come up with any agency that really addressed the situation of the problems that we were having. 

Senator VOINOVICH. Do you think there’s a lot of other people in 

this country that are in the same boat as you are? 

Mr. GORMAN. I would. 

Senator VOINOVICH. So from your perspective—we had two people testify, and you heard them testify, that in terms of what they 

were testifying to, you didn’t relate to what they were talking 

about here today? 

Mr. GORMAN. Well, I have not had any personal experience with 

it, but we’re going to try it and see what happens. 

Senator VOINOVICH. Do you believe that we need to get more aggressive in this area, to make information available to people like 

you about what help is available to you from the government? 

36

Mr. GORMAN. It would certainly be an advantage. If the trade organizations aren’t familiar with the help that the government can 

give, then I don’t see how you can expect especially smaller manufacturers to be aware, either. 

Senator VOINOVICH. It seems to me you’ve had a problem with 

pumps from Brazil for how long? 

Mr. GORMAN. It’s been going on now from 3 to 5 years. 

Senator VOINOVICH. Based on what I saw here today, there ought 

to be somebody that could look at that information and say these 

people are copying your pump and we are not going to allow those 

pumps into the United States. 

Mr. GORMAN. That would be our suggestion. Give us somebody 

that we can go to that has the authority to level out the playing 

field. If you can stop it, fine. 

Senator VOINOVICH. And then after a determination has been 

made, then whoever in the government is responsible ought to be 

able to go after the people in Brazil and the people in China in 

terms of their violating their commitments in terms of intellectual 

property. 

Mr. GORMAN. Whether the answer is—we’re trying to go after the 

company in Brazil now. I’ll tell you, it’s a very uphill battle. 

Months and months of work and expense even to get the paper——

Senator VOINOVICH. Are those pumps still coming into the 

United States? 

Mr. GORMAN. Oh, absolutely. 

Senator VOINOVICH. They’re still coming in here? 

Mr. GORMAN. Oh, yes, daily. But trying to stop it on our own accord, I’ll tell you, it’s no small task to try and bring an IP case 

against a company in Brazil. It’s very expensive, very time-consuming, and we’ll see what happens. 

Senator VOINOVICH. Let’s start off with the big picture. Have you 

calculated what counterfeiting has meant to your business in terms 

of lost income? 

Mr. GORMAN. It’s difficult to put a specific number on it because 

you’re dealing with small companies that don’t have that specific 

information available, but it’s clearly in the millions of dollars of 

imported product, and especially the after-market parts. 

Senator VOINOVICH. So we’re just talking about the pump you 

showed me here? 

Mr. GORMAN. Right. 

Senator VOINOVICH. So with the pump, you would say it’s costing 

you $3–$4 million? 

Mr. GORMAN. I would say in that area. 

Senator VOINOVICH. In lost sales? 

Mr. GORMAN. Clearly, yes, probably much more than that over 

the last 3 to 5 years. 

Senator VOINOVICH. Could you calculate the impact that it has 

on your employment? 

Mr. GORMAN. I wish I could. We’re the type of company that 

takes a lot of pride in not laying people off, even in tough times. 

We have not hired as many people as we could have if we wouldn’t 

have been faced with these situations. But I’m sure it’s 20 to 25 

people for our small company, just directly related to the importation of product. This is not just one company in Brazil. We have 

37

a couple in Brazil that are doing it. So it’s very difficult to put a 

specific number on it, to say we have lost ‘‘x’’ jobs because of it. But 

clearly, we have not been able to grow. It’s been a situation of not 

letting us grow as much as we could have, or hire new people to 

replace those people that have retired. 

Senator VOINOVICH. In your association with other manufacturers, do you come in contact with other people that are experiencing 

the same kind of problem that you have experienced? 

Mr. GORMAN. I know it’s pretty rampant in the pump industry 

itself. You hear other examples pretty much daily in trade journals 

and whatever, that it’s a very pronounced problem. 

But I go back to my suggestion. I think we’ve got to take the results into our own hands and stop them from coming into the country. We can work with the Governments of China or Brazil and 

hopefully make some headway there, but I think, until we have 

some legislation and some means that clearly stops it, or at least 

levels out the playing field, with increased stiff tariffs at the border, that’s going to be the most immediate thing that you can do. 

Senator VOINOVICH. The best thing would be to just stop the 

products from coming in, period. That would be the simplest thing. 

Professor Chow, again, how do you rate the U.S. Government 

and all the agencies involved in this whole issue of intellectual 

property rights on a scale of 1 to 10, in terms of what they’re 

doing? 

Mr. CHOW. Well, I mean——

Senator VOINOVICH. With No. 1 being the worst and No. 10 being 

the best. 

Mr. CHOW. Well, I don’t want to seem unfair to them because I 

have worked with the U.S. Government and specifically I have 

worked with the U.S. Government agencies in attempting to exclude product from coming to the United States. But quite honestly, Mr. Chairman, it is very difficult to attempt to exclude the 

entry of counterfeit product because a lot of it comes in under false 

documentation. The container says it’s full of plastic toys and it’s 

full of counterfeit cigarettes. It’s placing, I think, frankly, an unreasonable burden on the part of the U.S. Customs Service to expect 

them to be able to catch and seize all of the illegal containers at 

the border. 

There are really two choke points. One choke point is to prevent 

it from being exported from China or any other country, and the 

second choke point is to prevent it from being imported. You have 

got to do both of those. You can’t place the entire burden on the 

U.S. Customs Service because they really don’t have the resources 

to go and U.S. Customs would grind to a halt if they had to go and 

inspect the number of containers they would have to in order to 

make a real dent in this problem. 

The other issue, frankly, is that when I met with U.S. Customs 

about a year ago, they made it very clear that this was not their 

priority, that seizing infringing product at the border was not their 

priority. Their priority was terrorism. So it was clear that, as we 

were there, brand owners—and I was representing a brand 

owner—it was clear, and Customs made it very clear, that this was 

not a top priority for them and they would give it whatever priority 

they felt it deserved. 

38

Senator VOINOVICH. The things I want to find out—as I said, I 

talked with a former Customs official, who said they were doing a 

very good job, and this is why I’m interested in knowing how many 

people they have, what are their priorities, and what’s their budget? I am also concerned that in the process of dealing with the 

issue of terrorism, that we may be neglecting dealing with this 

counterfeit product challenge. 

The fact of the matter is that if what both those other witnesses 

talked about, in terms of terrorist organizations using counterfeiting to help pay for their terrorism activities, it seems to me that 

gives it even more of a heightened interest on their part to stop the 

counterfeiting that is going on. 

Mr. CHOW. Well, just to make a comment on that, it was clear 

to us, when we met with Customs—and I was representing a brand 

owner at that point—it was clear that we were not going to be 

their top priority, and we were going to be maybe their second, 

third or fourth priority. They said we’re very sorry. And that was 

clear. They also made it clear that their top priority was terrorism. 

Now, with respect to terrorism, I just want to make a comment, 

that at least with respect to China, just to be clear on this issue, 

we have seen no evidence that links counterfeiting from China to 

terrorism. 

Senator VOINOVICH. Right. 

Mr. CHOW. OK. I just want to make that clear, that we don’t 

make that connection. It may be there, but we have not seen any 

evidence of it. 

Senator VOINOVICH. From what they said, that counterfeiting is 

a way for some of these terrorist groups to fund their respective organizations. It seems to me, if you’re talking about containers, and 

you’re saying you don’t know what’s in them—that’s something we 

have been talking about for quite some time around here, that we 

don’t know what’s coming in in these containers. If we can get 

counterfeit goods through Customs and into the hands of people 

who will distribute them in the United States, who says that we 

can’t bring in all kinds of devices and get them in the hands of terrorists in this country. That’s a question that a lot of us are asking. 

It seems to me you’ve got a ‘‘two-fer’’ here. If you increase the 

number of people in Customs, you would enhance your ability to 

preclude things that could get in the hands of terrorists while also 

dealing with the counterfeiting problem that is impacting negatively on the economy of our country. 

We’ve got two problems right now. We have the problem of terrorism and we’ve got the problem of an economy, that if we’re not 

careful, we may lose. 

Mr. CHOW. Mr. Chairman, I just want to make a comment on 

that. I think it’s a natural inclination to link, if you can, terrorism 

to counterfeiting. But I do believe that more work needs to be done 

there before we can say that connection has been established. I understand that some groups of brand owners are trying to make that 

connection, and that connection may be there. But I don’t think 

enough work has been done to show that it’s a real established connection. 

Senator VOINOVICH. You said that the choke point is at Customs 

and also in the countries where these goods are coming in. Would 

39

you like to repeat what you think—I’m interested in hearing from 

you, Mr. Rotman. You’re doing all of this on your own. 

Mr. ROTMAN. Yes. 

Senator VOINOVICH. And you are not getting a lot of help from 

Uncle Sam, even though we’re apparently spending a lot of money 

dealing with the problem. 

What would you do if you were running the government in terms 

of dealing with this problem? 

Mr. ROTMAN. I do agree with the Professor, that expecting Customs to look at the product, compare original to counterfeit and 

make a determination is asking a lot of somebody. As was detailed 

in some of our written material—there was a side-by-side picture 

of an engine bearing. We ourselves had trouble telling the difference between a counterfeit product and an original. In fact, in 

some instances, we have to do metallurgical studies on the product 

to tell because the counterfeit is so good. So asking a government 

agency to do something that, while we can do it, it takes time, effort, and a lot of just knowing your product, as almost knowing 

your child. That’s a lot to ask of a government agency. 

I do think that their heart’s in the right place, but their resources just aren’t there. As the Professor indicated, in our experience their priorities are elsewhere. 

Senator VOINOVICH. What was the industry group you were talking about, Professor? 

Mr. CHOW. It’s the Quality Brands Protection Committee, the 

QBPC. 

Senator VOINOVICH. Are you familiar with that? 

Mr. ROTMAN. I am familiar, but we are not a member. 

Senator VOINOVICH. Why not? 

Mr. ROTMAN. Cost. It’s expensive to belong. 

Senator VOINOVICH. And the alleged purpose of that is what? Is 

it to try and work something out with the government in a diplomatic fashion so that something will get done? 

Mr. CHOW. Well, the QBPC is working with the government specifically on legal reform. In other words, to revise or amend some 

of China’s laws to give them more bite, because that’s the real 

issue. The issue of deterrence. So the QBPC is making that one of 

its major objectives. They have a number of other objectives as 

well, including increasing training for the local officials and education for the consumer. 

Senator VOINOVICH. OK. So what you’re saying is that they are 

conscientiously trying to build the infrastructure for intellectual 

property rights, the respect for intellectual property rights, the 

body of law, the enforcement and so on. 

Mr. CHOW. Well, the impetus for the QBPC—and I was actually 

working in China when it was formed with a group of companies, 

and Proctor & Gamble took the lead in forming this—the idea was 

that individual companies felt that they were completely helpless 

in attempting to resolve this problem. So by forming an industry 

group and getting everyone together, you have now 80 of the most 

powerful multinational companies, the biggest names, in China 

now that belong to the QBPC. To have that type of presence, to 

raise the level of—to raise attention to this problem, that was the 

idea, and then to work for long-term reform, to over a longer period 

40

of time to improve the environment for the enforcement of intellectual property rights in China, that was the basic idea. 

Senator VOINOVICH. How about influencing our government to 

take action? 

Mr. CHOW. Well, the QBPC is basically a China group, and it’s 

not—frankly speaking, I think some of these companies have conflicts between their China management on the ground in China 

and their U.S. management. The China management is always taking the position that we can’t do anything to offend the Chinese 

Government. The U.S. management says but you’re losing all this 

money over there, why don’t we go do something and go to the U.S. 

Government? So there’s actually some conflict there, I think. 

Senator VOINOVICH. I think there is obviously some conflict. The 

fact is that our government should be doing a whole lot more than 

what they’re doing. They seem to be reluctant to take the action 

that should be taken. Can you explain that? 

Mr. CHOW. I honestly believe that, at least with respect to China, 

that the U.S. Government will take its direction from industry. I 

think that if industry wants drastic action, and it made it clear to 

the U.S. Government, that would occur. 

I think U.S. industry is giving some conflicting signals, quite 

honestly, and the government isn’t quite sure what to do. 

Senator VOINOVICH. Well, we do have laws on the books, and 

they shouldn’t have to take their cues from industry groups to do 

what the law requires them to do. 

Mr. CHOW. Well, if we’re talking about specific enforcement of 

U.S. laws, for example, I think more can be done there. But if we’re 

talking about a broader diplomatic, political, international strategic 

move, that’s where I think the U.S. Government needs clear direction from industry. 

If we’re talking about specific border enforcement of Customs 

regulations, or if we’re talking about enforcement of the Trademark 

Counterfeiting Act of 1984, for example—and there are some real 

issues with the interpretation of that, which Mr. Rotman talked 

about, and there were some other issues with that—I think those 

are specific legal issues for which the U.S. Government could be 

doing more. 

Senator VOINOVICH. So to put it in a nutshell, one of the biggest 

companies in this country, the Dana Corporation, 100 years today, 

is it? 

Mr. ROTMAN. April 1st. 

Senator VOINOVICH. Of what they’re getting in terms of their 

Federal Government and the departments that are dealing with 

this whole issue of intellectual property rights is very little. 

Mr. ROTMAN. That would be correct. 

Senator VOINOVICH. And we have Mr. Gorman, who represents 

a smaller company, that’s been around since 1933, a family business, very competitive, and the answer to the question about how 

much help you’re getting is zippo? 

Mr. GORMAN. Correct. 

Senator VOINOVICH. There seems to be a big conflict between 

what these two gentlemen who first testified had to say about what 

they were doing and what the perception is of the people who are 

supposed to be their customers. It might be good if they went out 

41

and spent some time with their customers, to find out how they 

feel about things, and maybe they could do a better job of servicing 

those customers. 

I am very disappointed, because I believe in quality management. Quality means that you go out and you talk to your customers and you find out what they think, and you try to take care 

of them. Then you also try and take care of your internal customers 

and make sure the people that you have are ready and able to get 

the job done. 

Apparently we have a failure in both areas. They’re not talking 

to their customers, and it appears they don’t have the people inside 

to get the job done that they’re supposed to be doing. So we have 

a real genuine problem on our hands here, and unless we get on 

it, we’re going to continue to see the loss of jobs and a negative impact on the economy of the United States. 

That’s just one of the things. I am very interested in manufacturing, because Ohio is a manufacturing State. But if we don’t deal 

with this and we don’t deal with the issue of currency, if we don’t 

deal with the other problems—Mr. Gorman and I have talked 

about health care and energy costs and so on—we’re in for some 

rough times here in our country, particularly in economies like 

Ohio and other manufacturing States. 

I want to thank you very much for coming today. It has been 

very enlightening for me. I’m going to do what I can to convey this 

to my colleagues and see if there isn’t something that we can do 

to get going. 

I once talked to a very important person in this country, who is 

a big man, and said that unless we do something about the Chinese problem, it’s going to be an issue in this presidential campaign. If something doesn’t happen fast, it will become a major 

issue, one that all of us should be concerned about. Because if we 

don’t do enough about enforcing our trade laws, then we don’t have 

fair trade. If we don’t have fair trade, the protectionism in this 

country is going to grow and grow and grow—and international 

trade is very important to the economy of the United States. So it’s 

in the best interest of all of us that we enforce the trade laws. I 

hope that somebody can get the message, because I doubt any new 

trade agreements are going to get through the U.S. Congress this 

year, and maybe next year, unless the American people and their 

representatives see that there is something happening and that the 

response to what’s being done by our agencies to deal with international property rights isn’t that, in terms of the customers, doing 

zippo, nothing. 

Thank you very much for being here. 

Mr. CHOW. Thank you. 

Mr. GORMAN. Thank you. 

[Whereupon, at 12 Noon, the Subcommittee adjourned.] 

(43)

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