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73–965 PDF 2012

INTERNATIONAL PATENT ISSUES: PROMOTING A 

LEVEL PLAYING FIELD FOR AMERICAN INDUSTRY ABROAD 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

INTELLECTUAL PROPERTY, 

COMPETITION, AND THE INTERNET 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

APRIL 26, 2012 

Serial No. 112–115 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

LAMAR SMITH, Texas, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

DENNIS ROSS, Florida 

SANDY ADAMS, Florida 

BEN QUAYLE, Arizona 

MARK AMODEI, Nevada 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

JUDY CHU, California 

TED DEUTCH, Florida 

LINDA T. SA ́ NCHEZ, California 

JARED POLIS, Colorado 

RICHARD HERTLING, Staff Director and Chief Counsel 

PERRY APELBAUM, Minority Staff Director and Chief Counsel 

SUBCOMMITTEE ON INTELLECTUAL PROPERTY, COMPETITION, AND THE INTERNET

BOB GOODLATTE, Virginia, Chairman 

BEN QUAYLE, Arizona, Vice-Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

MIKE PENCE, Indiana 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

SANDY ADAMS, Florida 

MARK AMODEI, Nevada 

MELVIN L. WATT, North Carolina 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

JUDY CHU, California 

TED DEUTCH, Florida 

LINDA T. SA ́ NCHEZ, California 

JERROLD NADLER, New York 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

BLAINE MERRITT, Chief Counsel 

STEPHANIE MOORE, Minority Counsel 

(III) 

C O N T E N T S 

APRIL 26, 2012 

Page 

OPENING STATEMENTS 

The Honorable Bob Goodlatte, a Representative in Congress from the State 

of Virginia, and Chairman, Subcommittee on Intellectual Property, Competition, and the Internet .................................................................................... 1 

The Honorable Melvin L. Watt, a Representative in Congress from the State 

of North Carolina, and Ranking Member, Subcommittee on Intellectual 

Property, Competition, and the Internet ............................................................ 3 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, Ranking Member, Committee on the Judiciary, and 

Member, Subcommittee on Intellectual Property, Competition, and the 

Internet ................................................................................................................. 4 

WITNESSES 

Roy F. Waldron, Senior Vice President, Associate General Counsel and Chief 

Intellectual Property Counsel, Pfizer, Inc., on behalf of Pharmaceutical 

Research and Manufacturers of America 

Oral Testimony ..................................................................................................... 7 

Prepared Statement ............................................................................................. 9 

Chris Israel, Partner, American Continental Group (former U.S. Coordinator 

for International Intellectual Property Enforcement) 

Oral Testimony ..................................................................................................... 22 

Prepared Statement ............................................................................................. 24 

Sean P. Murphy, Vice President and Counsel, International Government Affairs, Qualcomm Incorporated 

Oral Testimony ..................................................................................................... 38 

Prepared Statement ............................................................................................. 41 

A. Christal Sheppard, Ph.D. J.D., Assistant Professor, University of Nebraska 

College of Law 

Oral Testimony ..................................................................................................... 62 

Prepared Statement ............................................................................................. 65 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Material submitted by the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, Ranking Member, Committee 

on the Judiciary, and Member, Subcommittee on Intellectual Property, 

Competition, and the Internet ............................................................................ 6 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, Ranking Member, Committee 

on the Judiciary, and Member, Subcommittee on Intellectual Property, 

Competition, and the Internet ............................................................................ 95 

Response to Post-Hearing Questions from Chris Israel, Partner, American 

Continental Group (former U.S. Coordinator for International Intellectual 

Property Enforcement) ......................................................................................... 97 

Page

IV 

Prepared Statement of Horacio E. Gutie ́rrez, Corporate Vice President & 

Deputy General Counsel, Microsoft Corp. .......................................................... 100 

Prepared Statement of Biotechnology Industry Organization ............................. 105 

(1) 

INTERNATIONAL PATENT ISSUES: 

PROMOTING A LEVEL PLAYING FIELD 

FOR AMERICAN INDUSTRY ABROAD 

THURSDAY, APRIL 26, 2012 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON INTELLECTUAL PROPERTY,

COMPETITION, AND THE INTERNET, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 10:12 a.m., in room 

2141, Rayburn House Office Building, the Honorable Bob Goodlatte 

(Chairman of the Subcommittee) presiding. 

Present: Representatives Goodlatte, Quayle, Chabot, Watt, Conyers, Chu, Deutch, Lofgren, Jackson Lee, Waters, and Johnson. 

Staff Present: (Majority) Vishal Amin, Counsel; Olivia Lee, Clerk; 

and (Minority) Stephanie Moore, Subcommittee Chief Counsel. 

Mr. GOODLATTE. Good morning. This hearing of the Subcommittee on Intellectual Property, Competition, and the Internet 

will come to order. And I recognize myself for an opening statement. 

I will start by wishing you all a Happy World IP Day. Today we 

are holding a hearing on international patent issues, looking specifically at the problems that American companies face when seeking enforcement and using patents overseas. The Leahy-Smith 

America Invents Act was the first patent reform bill in over 60 

years and the most substantial reform of U.S. patent law since the 

1836 Patent Act. In light of the AIA’s recent passage which maintains the U.S. patent system as the global standard, we need to 

now expand our focus and closely examine the adequacy and effectiveness of patent systems in foreign countries and whether they 

meet global trading standards. We need to evaluate whether they 

create a level or an unlevel playing field for American inventors. 

Looking at recent history, today’s hearing topic appears to be the 

first time in either the House or Senate that Congress has looked 

specifically at international patent laws in the context of intellectual property enforcement. As we will learn today, U.S. innovators 

continue to face patent-specific enforcement issues internationally. 

These global problems require real solutions. The ability to obtain 

timely decisions regarding patent applications as well as meaningful enforcement of patent rights go to the very heart of our innovative companies and their ability to compete on the global playing 

field. 

2 

Unfortunately, we have seen many foreign countries ignore real 

legal reforms and effectively create major barriers to trade for U.S. 

companies in the patent space. When asked why he robbed banks, 

Willie Sutton once said, ‘‘Because that is where the money is.’’ And 

it appears that in the context of IP enforcement, foreign countries 

have been focusing their market-distorting actions right where the 

money is. From an economic and jobs perspective, company profits 

are driven directly by the goods or products that they can sell. And 

for patented innovations, many foreign countries are getting a free 

pass when it comes to the patent systems they have in place. 

As more and more American companies expand their international presences and seek patent protection in foreign markets, 

these patent-specific harms have grown exponentially in their importance. Less than a decade ago, there were only a handful of 

companies that filed for patents abroad and faced these kinds of 

market access issues. Today nearly every innovative American company that sells patented products abroad is harmed in some way 

by these market-distorting actions. 

This hearing is meant to shine a spotlight on these issues and 

encourage the Administration to expand the U.S. Government’s efforts to do more and work to find real solutions to these unfair 

trade practices that distort the free market trade and end American jobs. For a range of innovative companies, from the pharmaceutical and biotech space to technology and manufacturing, the 

patents that they own or license form the foundation of their business. In the United States, we have worked to ensure a patent system that not only expeditiously reviews patent applications but 

issues quality patents that can be enforced through the courts and 

administrative proceedings. The U.S. patent system is designed to 

be fair, meeting our international obligations and not discriminating against any field of technology. 

The same cannot be said of the patent systems and patents 

granted in many markets around the world. When American companies seek patent protection in foreign markets, they see their 

patent applications being held up, with patent pendency times approaching a decade in some cases. They see their patents subjected 

to unnecessary administrative hurdles. And even after going 

through these challenges they continue to face issues in foreign 

courts and administrative agencies to even bring their product into 

the local market. 

When Nations go out of their way to devalue the intellectual 

property of America’s innovative companies, they not only violate 

their international commitments but create a significant negative 

economic impact that hits the U.S. economy and domestic jobs. 

This hearing is just a start. And as we work to make progress 

on these issues, we look forward to working with American 

innovators and industry to help identify specific concerns and 

issues so that the U.S. Government works with our trading partners to find solutions. We can ensure that the solutions reached are 

in line with compelling U.S. economic interests and job creation. 

I look forward to both hearing from all of our witnesses on the 

issues that they have seen on the ground and also engaging in a 

discussion on how we can improve and correct the patent issues 

3 

that American industry faces abroad to promote U.S. manufacturing, technology, and innovation. 

It is now my pleasure to recognize the Ranking Member of the 

Subcommittee, the gentleman from North Carolina, Mr. Watt. 

Mr. WATT. Thank you, Mr. Chairman. And thank you for convening this important hearing—maybe among the most important 

hearings we could be having, although unfortunately about things 

we don’t have absolute control over but need to evaluate nevertheless. 

A little over 2 weeks ago on April 10, the Obama administration 

issued a report entitled, ‘‘Intellectual Property and the U.S. Economy: Industries in Focus.’’ The report stands as the first of its kind 

backed by comprehensive investigation by the Federal agencies 

that share responsibility for safeguarding the interests of American 

industries, the Department of Commerce and the U.S. Patent and 

Trademark Office. 

As we celebrate World IP Day today, this report reinforces the 

major contributions that all U.S. intellectual property-intensive industries make to the Nation’s economy; specifically, after examining 313 American industries, the investigation identifies 75 industries as IP-intensive. These industries produce 27.1 million jobs 

for our citizens. 

The report further concludes that a substantial share of IP-intensive employment in the United States was in trademark-intensive 

industries, followed by patent- and copyright-intensive industries 

respectively. 

Intellectual property has played a major role in building American industry, largely because IP enforcement within the United 

States is strong. Unfortunately, American intellectual property 

does not always enjoy the same level of protection throughout the 

world. Other countries profit from an immense world trade of illicit 

goods and anti-competitive practices that violate the IP rights of 

U.S. rights holders. So while today we focus on patent-intensive industries and the challenges those industries face globally, we must 

remain ever vigilant in our effort to enhance America’s standing in 

the competitive international market and to guard against unfair 

foreign encroachments on our intellectual property rights. 

The annual Special 301 Report by the United States Trade Representative is scheduled for release next Monday, April 30. That report will identify those countries that continue to provide inadequate intellectual property protections for U.S. products and also 

highlight any progress that has been made. Inadequate protections 

can consist broadly of a lack of legal structure for protecting IP 

rights and inadequate penalties for IP crimes or poor enforcement 

of laws designed to protect rights holders. 

We are fortunate to have here today witnesses from the pharmaceutical and technological industries to report to us firsthand some 

of the ongoing obstacles they face in foreign markets as well as two 

experts, including our former staff person Dr. Christal Sheppard, 

who have extensive experience evaluating these issues. 

The bottom line, Mr. Chairman, is, we can have the most innovation, best protected intellectual property possible in the United 

States; but unless it is protected around the world in this interVerDate Aug 31 2005 12:55 Aug 15, 2012 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6601 H:\WORK\IP\042612\73965.000 HJUD PsN: 73965
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national global environment in which we are operating, we are 

kind of swimming upstream always. 

So I will conclude, Mr. Chairman, and allow the witnesses to update us on the current state of affairs for patent protection abroad 

and hopefully some suggestions also on how we may be able to 

strengthen those enforcements and patent protections in other 

parts of the world. 

I yield back. 

Mr. GOODLATTE. The Chair is pleased to recognize the Ranking 

Member of the full Committee, the gentleman from Michigan, Mr. 

Conyers. 

Mr. CONYERS. Chairman Goodlatte, I thank you and the Ranking 

Member for putting this together. And its importance has already 

been stated by both of you. I agree completely. 

Earlier this week, I began developing something that is related. 

And it is called the zero percent unemployment goal of this country, another very far-reaching attempt to come about full employment at another way. It has never been put together before. But 

that connects very directly into this hearing on international patent issues. So it gives me a chance to broach both of these topics 

and invite our witnesses to think about the interrelationship. 

The economy, both nationally and globally, the economies of the 

world in the end all turn on how many people are gainfully employed. And we have now reached the point in our political maturation that we now realize that having a job is a right, a serious and 

important right. And the way our patent laws relate to this is of 

critical importance; what the Internet does, how intellectual property is regarded in each of these states. 

So this Committee has a huge ongoing responsibility to begin to 

examine the systems in the rest of the world because we can’t ask 

people to do what we would like them to do when we don’t even 

know what they are doing. And that is going to task our staff and 

our resources going into the next Congress, for sure. And I think 

we are up to it. I think it is an exciting challenge that all ties into 

why we joined here today. 

I did want to say one word about our witness Mr. Israel, who is 

here. I wanted to in particular welcome him to the Committee. I 

may be given the honor of introducing Christal Sheppard. So I will 

turn back my time and thank you very much. 

Mr. GOODLATTE. Thank you, Mr. Conyers. And I have a feeling 

that request is going to be honored. And without objection, other 

Members’ opening statements will be made a part of the record. 

We have a very distinguished panel of witnesses today. Each of 

the witnesses’ written statements will be entered into the record in 

its entirety. And I ask that each of you summarize your testimony 

in 5 minutes or less. To help you stay within that time, there is 

a timing light on your table. When the light switches from green 

to yellow, you have 1 minute to conclude your testimony. When the 

light turns red, it signals the witness’ 5 minutes have expired. And 

before I introduce our witnesses, as is customary with this Committee, I would like to ask them to stand and be sworn. 

[Witnesses sworn.] 

Mr. GOODLATTE. Thank you. Be seated. Our first witness is Dr. 

Roy F. Waldron, Senior Vice President, Associate General Counsel 

5 

and Chief Intellectual Property Counsel at Pfizer. Dr. Waldron 

leads a team of Pfizer attorneys and professionals worldwide who 

procure patents, work closely with R&D business development, and 

the Pfizer business units and ensure enforcement of trademarks. 

He serves as the chair of the IP task force at PhRMA and is on 

the board of the Intellectual Property Owners Association. He 

joined Pfizer in 1999 from White & Case’s IP practice group and 

was also previously an associate at Fish & Neave. Dr. Waldron has 

a JD from New York University School of Law, a Ph.D. in physical 

organic chemistry from Yale University, and a bachelor’s degree 

from Dartmouth College. 

Our second witness is the Honorable Chris Israel. Mr. Israel 

served as our Nation’s first U.S. Coordinator for International Intellectual Property Enforcement during the administration of President George W. Bush. As the President’s IP Coordinator, he was 

responsible for coordinating and leveraging the resources of the 

U.S. Government to protect American intellectual property rights 

at home and abroad. Prior to this, he served as Deputy Chief of 

Staff to Commerce Secretaries Don Evans and Carlos Gutierrez, 

where he assisted in the leadership and management of all major 

Commerce Department priorities, such as trade and economic policy. Mr. Israel also served as Deputy Assistant Secretary of Commerce for Technology Policy where he helped lead the Administration policy designed to maximize U.S. competitiveness and technological growth. Currently Mr. Israel is a partner at the American 

Continental Group. He received his bachelor’s degree from the University of Kansas and an MBA from George Washington University. 

Our third witness is Mr. Sean Murphy, Vice President and Counsel, International Government Affairs, at Qualcomm. Mr. Murphy 

manages Qualcomm’s international public policy agenda, representing the company before branches of the U.S. and foreign governments, industry associations, and multilateral institutions like 

the OECD and APEC. Before joining Qualcomm in 2001, Mr. Murphy practiced law at Mayer Brown and served in the Office of the 

U.S. Trade Representative. He holds a bachelor’s degree in political 

science from the University of California Santa Barbara, a master’s 

degree from the University of Cambridge and a law degree from 

Georgetown University. 

And our fourth and final witness has some close ties to this Committee and most especially to the Ranking Member of the Committee, so I will yield to Mr. Conyers for the purpose of an introduction. 

Mr. CONYERS. Thank you very much, Chairman Goodlatte. I am 

going to put this in the record because it is far too long. And I 

know she didn’t have anything to do with its preparation, but with 

the admiration of all of your former staff members and the Members of the Committee, I will just briefly summarize. 

She is presently teaching law at Nebraska College of Law. But 

ironically, she started off as a scientist, at the University of Michigan and then finally to Cornell Law School and working on the Appeals Federal court, practicing in a large firm and then the United 

States International Trade Commission. So she brings a full circle 

6 

of expertise that is important in forming the views that she will 

present here today. 

Dr. Sheppard, we are all here, on both sides of the aisle, very 

pleased to welcome you back as a distinguished witness. 

[The information referred to follows:] 

Ms. SHEPPARD. Thank you. 

Mr. GOODLATTE. Thank you, Mr. Conyers. And Dr. Sheppard, we 

welcome you as well. We welcome all of you, and we will begin with 

Dr. Waldron. 


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7 

TESTIMONY OF ROY F. WALDRON, SENIOR VICE PRESIDENT, 

ASSOCIATE GENERAL COUNSEL AND CHIEF INTELLECTUAL 

PROPERTY COUNSEL, PFIZER, INC., ON BEHALF OF PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF AMERICA 

Mr. WALDRON. Good morning, Mr. Chairman and Members of the 

Subcommittee. Thank you for this opportunity to appear here 

today. 

Mr. CONYERS. Turn it on. 

Mr. WALDRON. Thank you for this opportunity to appear here 

today. My name is Roy Waldron and I am the Chief Intellectual 

Property Counsel for Pfizer. I am also the Chair of the Intellectual 

Property Task Force within the International Section of PhRMA, 

the Pharmaceutical Research and Manufacturers of America. It is 

in this capacity as chairman of that task force that I appear here 

today. 

With your permission I would like to summarize our prepared 

statement and I request that our full written submission be included in the record in its entirety. 

PhRMA represents the country’s leading pharmaceutical research—— 

Mr. GOODLATTE. Dr. Waldron, you may want to pull that microphone closer to you. People will hear you better in the audience I 

think. 

Mr. WALDRON. PhRMA represents the country’s leading pharmaceutical research and biotechnology companies. U.S. biopharmaceutical research makes important economic contributions to the 

U.S. GDP, contributions likely to grow if the incentives and 

underpinnings for large-scale R&D investment remain intact. The 

U.S. biopharmaceutical sector supported a total of 4 million jobs in 

2009, including more than 650,000 direct jobs. The U.S. biopharmaceutical industry also exported about $46 billion in goods in 2011, 

making it the sixth largest U.S. exporting industry for the year. 

Markets outside of the U.S. are fueling demand for innovative 

medicines due to their increasing economic growth and rising middle class. Both innovative medicines and generics play a critical 

role in the health of patients around the world. However, the innovation of new medicines depends on a respected and enforced intellectual property regime. Intellectual property protections spur the 

discovery of new medicines which later become generics. 

Although strong intellectual property protections are provided in 

the United States, this is not true in many countries where the 

greatest growth potential for U.S.-developed innovative medicines 

is expected to occur in the future. Many of these countries’ local 

biopharmaceutical companies are owned or connected to the government, if not supported by the government’s industrial policies. 

The main competitive edge of the U.S. biopharmaceutical industry 

relative to these local businesses is the innovative nature of our 

products. However, while developing and testing a new medicine 

requires significant and risky investment of over $1 billion on average and over a development period of up to 12 years, local companies can copy medicines with little effort in a very short period of 

time. Without the legal principles and mechanisms in place which 

recognize and enforce patents effectively, local companies can marVerDate Aug 31 2005 12:55 Aug 15, 2012 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6601 H:\WORK\IP\042612\73965.000 HJUD PsN: 73965
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ket copies immediately and obliterate our industry’s innovative 

competitive advantage. Unsurprisingly, foreign governments as 

well as local companies resist the establishment of these IP principles and mechanisms. 

We face three categories of patent-related barriers: lack of efficient, effective, and timely patent enforcement; problems with extreme delay in the grant of patents; and restrictive requirements 

and other locally imposed hurdles to patent grants. Some barriers 

are inconsistent with international law but are maintained to protect local interests. At the same time, these local interests, when 

doing business in the U.S., benefit from the effective and open U.S. 

patent system. 

To move to a more level playing field, we urge the Subcommittee 

to, one, ensure that the Administration pursues strong intellectual 

property standards in free trade agreements, including the ongoing 

negotiations of the TPP, the Trans-Pacific Partnership, by building 

on the agreement with Korea and the principles in U.S. law, particularly the provision of 12 years of regulatory data protection for 

biologics. 

Two, support efforts of the U.S. Government to secure full implementation of all international obligations under multilateral regional and bilateral trade agreements. 

And three, support the IP attache ́’s program of the USPTO and 

other capacity building programs. 

Effective patent enforcement is absolutely critical for growth in 

exports of our medicines. A country such as China, with weak patent enforcement, illustrates the problems encountered by our industry. In China, the enforcement of court orders is not automatic 

and damages are simply inadequate. Many countries permit the 

grant of compulsory licenses that allow others to exploit a patented 

invention without the permission of the patent owner. Compulsory 

licenses may be appropriate in extraordinary situations to meet legitimate needs of the public; however, competitors in many countries want to use them to obtain U.S. technology without having to 

make the costly and risky investment needed to develop it. 

In many countries significant delays in granting patents create 

business uncertainty and, even worse, allow copiers to free ride and 

enter the market with impunity. PhRMA’s members can wait an 

average of 8 years for a final patent rejection in Chile and 10 to 

13 years in Brazil. To make matters worse, these countries do not 

extend the terms of their patents to compensate for these delays, 

nor for regulatory approval delays, as we do in the U.S. 

As our statement for the record sets out, although PhRMA members are now able to get onto a playing field of patent protection, 

that field is far from level. Unfortunately, it is not just a game. The 

level playing field is critical to the future sustainability of U.S. innovation, innovative businesses, jobs, and exports. 

We greatly appreciate, therefore, your interest in obtaining more 

information about the level of IP protection worldwide and we 

would be pleased to provide additional information. Thank you 

again. 

[The prepared statement of Mr. Waldron follows:] 

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Mr. GOODLATTE. Thank you, Dr. Waldron. Mr. Israel, welcome. 

TESTIMONY OF CHRIS ISRAEL, PARTNER, AMERICAN CONTINENTAL GROUP (FORMER U.S. COORDINATOR FOR INTERNATIONAL INTELLECTUAL PROPERTY ENFORCEMENT) 

Mr. ISRAEL. Thank you. Chairman Goodlatte, Ranking Member 

Watt, and Members of the Committee, I truly appreciate the opportunity to appear before you to discuss the promotion and protection 

of American intellectual property and specifically to examine challenges and barriers presented to American companies when they 

seek patent protection in key global markets. 

From May 2005 to March 2008, I had the privilege of serving as 

the U.S. Coordinator for International Intellectual Property Enforcement. We were tasked by Congress and the President to coordinate and leverage the resources of the U.S. Federal Government to protect American IP at home and abroad. Mr. Chairman, 

during my experience in this position, it became clear to me that 

it was and remains critical for the U.S. Government to actively 

seek every opportunity to support IP-intensive U.S. companies competing globally in their compelling economic interests. It is clear 

that adequate and effective global patent protection is essential to 

U.S. competitiveness, and I would argue that there are several key 

reasons for this. 

First, as you noted in your opening statements, Mr. Chairman, 

and directly related to the work of this Committee is the passage 

of the Leahy-Smith America Invents Act. The AIA represents a 

major achievement in strengthening and modernizing U.S. patent 

law and making it the global standard for quality and efficiency. 

While the USPTO continues to implement the AIA in a methodical 

and thoughtful way, many of our biggest competitors are going either advertently or inadvertently in the opposite direction. This 

disconnect, as was noted by Ranking Member Watt, with the U.S. 

setting the global standard while other countries seek competitive 

advantage by racing to the bottom, is certainly not a new competitive dynamic for the United States but seeing it play out in terms 

of global patent policy is something policymakers need to be aware 

of and prepared to address. 

Second, exacerbating this problem is the fact that we are seeing 

a dramatic increase in international patent filing in the countries 

that often expose U.S. companies to poor patent protection. The 

growth in patent applications in China, India, and Brazil from 

2006 to 2010 average 7 percent a year, while the growth in patent 

applications in the United States, the EU, and Japan over the 

same period average 0.7 percent. 

Third, and perhaps most importantly, the challenges and threats 

to global patent protection affect our most competitive and innovative companies and industries. As was reported in the Obama administration report that Ranking Member Watt noted in his opening comments, the 26 patent intensive industries in the United 

States support 3.9 million very well-paying jobs. Not surprisingly, 

our U.S. patent-intensive industries also drive U.S. exports. Our innovative products lead the world and span multiple categories, including health care, advanced manufacturing, chemicals, energy, 

transportation, software, information technology, and others. These 

23 

are areas where the U.S. must seek to increase its competitive advantage through innovation and global commercialization. This can 

only be accomplished when coupled with a policy approach that 

promotes strong patent protection. 

Mr. Chairman, while my written testimony provides detailed examples of the many ways our trading partners have undercut 

American innovation through overt and less obvious practices, I 

would like to quickly bring a few of these examples to the attention 

of the Committee. 

Some countries explicitly restrict the patentability of inventions 

for a number of unrelated factors purely for competitive reasons. 

For example, India excludes software patents as a whole, except 

when combined with novel hardware. In the context of breakthrough U.S. innovations in clean technologies, countries such as 

China, India, Bolivia, Venezuela, and others have pushed for a 

range of, quote, flexibilities in global patent rules under the false 

claim that patent protections hinder the flow of important energyrelated technologies. Additionally, countries such as Chile, Brazil, 

India, Russia, Argentina and others have continuously avoided requirements in the TRIPS Agreement to provide exclusivity for proprietary data that is required in order to grant marketing approval 

to pharmaceutical agrichemical and biotechnology products. 

Also a major concern of many U.S. innovators is the threat of 

countries issuing compulsory licenses for their products, essentially 

breaking the patent and allowing their competitors to manufacture 

and market a product in that country. India recently issued a compulsory license for a patent that was held by a U.S. subsidiary of 

Bayer. 

The Chinese Government even subsidizes the development of domestic technologies by providing direct financial support for Chinese companies to file foreign patent applications. China also discriminates against foreign competitors by limiting the ability of 

non-Chinese IP owners to access the Chinese market. 

Mr. Chairman, this Committee has raised an important issue 

that impacts countless U.S. businesses of all sizes and is at the 

core of our overall global competitiveness. I truly appreciate the opportunity to participate in this hearing and look forward for any 

chance to support the work of the Subcommittee and the Committee in the future. 

[The prepared statement of Mr. Israel follows:] 

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Mr. GOODLATTE. Thank you, Mr. Israel. Mr. Murphy, welcome. 

TESTIMONY OF SEAN P. MURPHY, VICE PRESIDENT AND 

COUNSEL, INTERNATIONAL GOVERNMENT AFFAIRS, 

QUALCOMM INCORPORATED 

Mr. MURPHY. Good morning, Chairman Goodlatte, Ranking 

Member Watt, and other Members of the Subcommittee. It is an 

honor to testify this morning. I am grateful for the opportunity. 


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My name is Sean Murphy and I manage international policy 

issues at Qualcomm, including intellectual property and international trade. Let me begin by thanking Members of the Subcommittee for your important efforts to support American innovation through strong intellectual property laws. Thank you also for 

your recognition of the challenges that U.S. patent holders confront 

in other countries which threaten America’s competitive edge, technology leadership, and jobs. 

The patent system has been critical to Qualcomm’s success. 

Founded in 1985, Qualcomm started with seven engineers in a living room with ideas to improve mobile communications. At the 

time, mobile technologies were expensive, unreliable, and limited 

only to voice calls. Our founders were determined to do better and 

pioneered a new digital communications technology called code division multiple access, or CDMA. Today we are a successful global 

company of more than 23,000 employees, 65 percent of whom are 

engineers, with 73 locations in the U.S. and 172 locations worldwide. More than 90 percent of our global revenues are earned outside the United States but nearly 70 percent of our employees work 

here. 

The adoption of CDMA has exceeded our expectations and helped 

to drive a global revolution in mobile technologies and services. 

Today there are 6 billion mobile connections in a world of 7 billion 

people. 

Qualcomm’s business model concentrates on two key areas. First, 

we design state-of-the-art semiconductors and software which are 

the brains of today’s advanced mobile phones, tablets, e-readers, 

and other mobile devices. 

Second, we broadly license our portfolio of U.S. and foreign patents to virtually every manufacturer in the mobile industry. We reinvest approximately 20 percent of annual global revenues in R&D, 

which equated to about $3 billion last year and over $19 billion 

since our founding. 

These investments produce new inventions that drive what we 

call a virtuous cycle of innovation. Our business model enables a 

$1.3 trillion global ecosystem, promotes competition and choice, and 

benefits consumers. Qualcomm is one of countless innovative technology companies that rely on strong patent protections to drive 

U.S. jobs, economic growth, and exports. 

According to the Department of Commerce report that Congressman Watt mentioned, IP-intensive industries account for over onethird of U.S. GDP and 40 million American jobs. IP licensing generated a trade surplus of $84 billion last year. To sustain this impressive growth, American innovators need fair market opportunities and adequate patent protections globally. However, foreign 

governments and industries try to achieve unfair competitive advantage through a variety of protectionist policies. These measures 

aim to promote indigenous innovation or exclude, minimize, or devalue American technologies. 

A few examples: pressure to reduce licensing fees or royalty rates 

and make other concessions; local working requirements, such as 

local manufacturing in order to preserve patent rights; exclusion of 

certain technologies from patent protection; the use of homegrown 

technical standards to benefit domestic technology or industry; and 

40 

the threat of antitrust enforcement to force the transfer of patented 

technologies on unfair terms. 

Beyond these specific practices, which are not adequately addressed by existing treaties or trade agreements, we see a growing 

trend worldwide to weaken patent protection. It is imperative that 

the United States lead by example and send consistent messages 

to our trading partners about strong patent laws and fair market 

access for American innovators. Governments, including our own, 

should not favor or discriminate against any particular business 

model, technology, or means of commercializing intellectual property. In sum, policymakers should refrain from picking winners and 

losers, and laws and policies should be ‘‘business model-neutral’’ in 

their design and their effect. Yet the opposite is the norm in many 

countries critical to U.S. companies. 

We should vigorously expand and enforce international agreements and trade policy dialogues in order to promote a level playing field for American innovators and job creation. This approach 

will serve us well today, while also encouraging the next generation 

of U.S. inventors and U.S. employment. 

Thank you again for the opportunity to appear today to share 

Qualcomm’s perspectives. I welcome your questions. Thank you. 

[The prepared statement of Mr. Murphy follows:] 

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Mr. GOODLATTE. Thank you, Mr. Murphy. Dr. Sheppard, welcome. 

TESTIMONY OF A. CHRISTAL SHEPPARD, Ph.D. J.D., ASSISTANT 

PROFESSOR, UNIVERSITY OF NEBRASKA COLLEGE OF LAW 

Ms. SHEPPARD. Good morning, Mr. Chairman, Ranking Member 

Watt, and distinguished Members of the Subcommittee. I thank 

you for the opportunity to appear today before you to discuss international patent issues. I am sincerely honored and humbled to testify before this Committee on an issue of utmost importance to our 

national economy. I have a strong academic interest in this area; 


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but also as a citizen of the United States, I, along with every other 

person in this country, have a personal interest in ensuring a level 

playing field for American industry worldwide. 

As alluded to in that wonderful introduction—thank you very 

much—I come at this issue from a unique perspective. As was discussed, I have had the pleasure of working as a bench scientist in 

the field of molecular biology. I am a registered patent attorney. So 

I have prosecuted patents both nationally and internationally. I 

have worked within the Federal Circuit and at the International 

Trade Commission. And I have worked in science policy and most 

recently in intellectual property policy right here with this very 

Committee. 

So having that background, I can personally attest to the amount 

of hard work, labor, cost, and time that goes into creating new inventions, including new drugs and how important it is that the intellectual property laws provide a framework so that such research 

can continue to take place. I know the challenges and intricacies 

and frankly the headaches involved in obtaining patent protection 

nationally and internationally and then later enforcing those same 

patents. 

I understand the challenges the courts face in interpreting IP 

laws. They try very hard but sometimes it is challenging. And I 

also know—and I do not take lightly—how hard it is to enact the 

reforms that I have and will continue to propose. 

Finally, as I currently teach law students patent law international IP and other issues, students bring me insights that I previously did not have. I hope all of those things will be useful in this 

conversation. 

In my written remarks, I discuss in detail the importance of IP 

with reference to the American innovators Steve Jobs and Steve 

Wozniak, the Steves who cofounded Apple Computer. I discuss 

these two to drive home the fact that the economy of the United 

States in the 21st century is and will remain based on the ingenuity of we, the people. And that ingenuity of ‘‘we, the people’’ 

must be protected. The Steves and others built their American empires not upon manufacturing but upon the intellectual property 

laws that help to protect the fruits of their labor from outright 

theft and surreptitious free riding. 

One of the things I hammer into my students—and I am sure 

they would say ‘‘hammer’’—is that patent law does not convey a 

right to use. Patent law does not convey a right to sell. All a patent 

gives a patent holder is the right to stop others from making or 

using or selling or importing or offering to sell. But to be more succinct, all a patent actually conveys is a right to sue. 

Unfortunately, that right can be undermined in many ways that 

are discussed in my written testimony and that were discussed by 

others here today and that we will continue to discuss. These are 

the actual companies at this table who have been in the trenches 

in these issues and with the Administration trying to protect these 

rights. 

Congress has taken many steps in the past, including creating 

the Special 301 list, to level the playing field globally for IP. I discuss in my written remarks several of the steps that the Congress 

has taken, including implementing TRIPS, the creation of Special 

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301, passage of Pro IP, creation of the International Trade Commission which addresses infringing imports, and passage of the 

America Invents Act. 

However, today I think what I am going to talk about—with the 

time left, which is almost none—the additional hurdles that I think 

can bear fruit, if tackled. In my written remarks, I detail several 

places where I think congressional efforts would be the most effective and the Administration to tackle. The summary of my written 

submission is that a lot of these issues are public policy issues that 

the Constitution put upon Congress. The courts look to Congress 

for guidance. However, on the issue of patentability that guidance 

has not been forthcoming. 

Within my written testimony, there is a quote from 1972 with 

the courts looking for guidance from Congress on patentability 

issues. That guidance has not come. And most recently, the Supreme Court has again revisited that issue, and narrowed patentability. The companies here will talk about the fact that other 

countries have been narrowing patentability in various ways or 

doing things that affect U.S. companies’ ability to patent or enforce. 

In order for the United States to have a legitimate voice in the conversations to stop other countries from narrowing patentability and 

enforcement, the United States has to, in some ways, put their own 

house in order. Patentability has to be addressed in the U.S.. Additionally, the U.S. itself is not in full compliance on some IP issues. 

I am over my time. From that side of the dais, it seems like a 

lot more time. From this side, it seems like no time at all. So I will 

stop talking now. 

[The prepared statement of Ms. Sheppard follows:] 

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Mr. GOODLATTE. Dr. Sheppard, you have a unique perspective on 

that, and we appreciate your statement. 

I will begin the questions with Dr. Waldron. Dr. Waldron, in the 

patent world, there are many hurdles that a foreign country can 

raise to prevent a company from selling a product based on a lawfully granted patent. But in recent years, we have seen countries 

like Brazil, Thailand, and India using the threat of a compulsory 

license as a negotiating strategy to force American companies to 

manufacture or license their products to local companies at government mandated prices. Recently, India took the unprecedented step 

of issuing a compulsory license against a Bayer oncology drug, stating among other reasons that the patented drug was not being sufficiently worked in India because it was not locally manufactured. 

What steps can the U.S. Government take or should it have 

taken to ensure that countries think twice about using a compulsory license simply as a negotiating strategy or to facilitate their 

budget planning? 

Mr. WALDRON. The U.S. Government should take a hard line on 

these issues. I think if you liken compulsory licensing to the lifeboats on an ocean liner, you don’t frequently see those being employed except in extraordinary circumstances. In fact if they are 

used regularly, one would begin to question the sanity of running 

ocean liners, if that would be the only recourse. What we really 

need to do is get to the heart of why some of these countries are 

imposing compulsory licensing. Some of them are for fiscal reasons. 

They haven’t put enough money in the budget for their health care 

systems. These are not extraordinary circumstances that would justify essentially the abrogation of an individual patent holder’s 

rights. I mean, this has a direct effect if it were to continue and 

extrapolate to other countries. And other countries may mimic 

what has happened in Brazil and India and Thailand, which would 

be devastating to the U.S. industry. This has a direct effect on our 

ability to sell drugs in those countries and has a direct effect on 

the investment that we put into developing drugs that may be of 

use in those countries. And it has a direct effect on the jobs that 

are created in the United States. We have a competitive advantage 

versus the rest of the world in the biopharmaceutical and biotech 

area. We should not hesitate, as a government, to go forward and 

protect the interests of our companies, particularly our competitive 

advantage versus those in the economic area. 

Mr. GOODLATTE. If the Indian Government’s decision is not reversed on appeal, do you envision an increased risk for other patent protected drugs or even other patented technologies in other 

areas, like energy, communications, and the Internet basically 

being taken away by foreign governments? 

I will ask you and then I will ask Mr. Israel the same question. 

Mr. WALDRON. I believe there is a risk. This is something that 

is being experimented with. And I think it is also a test of our resolve to see whether we are going to stand up for our own industry 

in these contexts. If we don’t send a hard message on these issues, 

I think we will find it increasingly difficult to combat it at a later 

stage when sort of the horse is out of the barn. I believe it is important to make a statement very early about this because we will find 

green technology and other industries under the same pressure. 

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And when we find the whole panoply of our industries under siege 

and unable to do business in these countries, I think we will find 

ourselves in a sorry state. 

Mr. GOODLATTE. Thank you. Mr. Israel? 

Mr. ISRAEL. I think the dynamic that you lay out, Mr. Chairman, 

is exactly correct. And I think we are seeing it play out in realtime. 

I think we have seen in recent years the threat of compulsory licensing being applied or at least discussed in relationship to clean 

technologies. I think we need to be also very aware that this isn’t 

just an individual Nation concern but it is a more global concern 

because a lot of the countries that are using this tactic or threatening this tactic are also working very hard within global organizations, such as WIPO, the World Intellectual Property Organization, 

to promote this type of position, to promote this type of a framework. Brazil, for example, has recommended within the Standing 

Committee on Patents at WIPO that a manual be put together that 

would instruct countries on how to essentially work around intellectual property rights. 

So as Dr. Waldron lays out, this is something that has a slippery 

slope dynamic to it. I think we are seeing it played out in realtime 

and I think on the compulsory licensing question, we need to be 

very focused on the prongs that exist within TRIPS that do allow 

for compulsory license. You need to exhaust the negotiations with 

the rights holders and there needs to be a true emergency at hand. 

And I think in very few—no circumstances really have we seen 

those prongs being met. And it has largely been used as a tool, either as a negotiating tactic or for other competitive purposes. 

Mr. GOODLATTE. Dr. Waldron, the Administration is currently 

negotiating a Trans-Pacific Partnership Aagreement that includes 

provisions dealing directly with the issue of regulatory test data 

protection and how it should be protected. 

Can you explain to the Committee the importance of data protection, the markets that lack adequate protection, and how it should 

be protected as a part of the TPP? And I will ask that question of 

Mr. Israel as well. 

Mr. WALDRON. The 12 years of data protection that you mentioned that is set forth under U.S. law and we believe is key to 

being part of the TPP and other free trade agreement negotiations 

that are ongoing, the reason we say it is key is because the biomedical and biotechnology industries are extremely risky industries. The investment is very risky. There is an extremely high attrition rate. As I noted, it costs over $1 billion on average to develop a new drug. In these times of selective capital movement 

around the world, we want to ensure that companies feel certainty 

in investing in drugs so that when they come to a country or one 

of our trading partners that they are at least guaranteed a period 

of nonusage of their data in the regulatory scenarios. It is absolutely critical to have that certainty and I think that we would absolutely think it is a key part of any trade negotiation going forward. 

Mr. GOODLATTE. Mr. Israel, my time has expired. But I am going 

to ask you one more question and you can address both. We know 

that many of these countries have de facto TRIPS violations. 

Should the United States be more aggressive in bringing cases at 

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the WTO or utilizing our other international trade tools? And also, 

can you give me a sense of what the Bush administration did? 

Mr. ISRAEL. Certainly, Chairman Goodlatte. I think the answer 

is definitely. I think the position of the United States Government—and this transcends any Administration I think—should always be to enforce the interests and the rights of American companies and American intellectual property holders at the WTO 

through well constructed and winnable cases. It is a very difficult 

process, as you know. And you have to win these cases when you 

go forward with them. The Bush administration brought about 24 

cases before the WTO and has expanded a number of fields and 

ranges. There were two cases brought for intellectual property infringements against the Chinese. We settled a patent case against 

the Argentineans in 2002. So there is an active history here, and 

I think the Obama administration is carrying forward with that. 

In terms of TPP, just very quickly, as Dr. Waldron noted, it is 

very important to include provisions regarding data exclusivity 

within all of our trade agreements. I think it is important to understand that the proprietary test data that is required for regulatory 

approval of a pharmaceutical or a biological product is in and of 

itself an intellectual property. It is a piece of intellectual property. 

It is very difficult to construct that data. The Administration has 

stated that it is negotiating TPP as if trade promotion authority 

were in place, which unfortunately it is not. Trade promotion authority—and it dated back to the 2002 Trade Act which extended 

it to 2007—stipulates that the government, that the Administration, any Administration should negotiate a trade agreement that 

attempts to mirror or mimic U.S. law as closely as it possibly can. 

Of course in U.S. law, we do have 12 years of data exclusivity for 

biological products and 5 years for pharmaceutical products. 

So I think that indicates a note of consistency that should be 

noted as we negotiate to TPP. 

Mr. GOODLATTE. Thank you very much. My apology to our other 

two witnesses. I am sure that other Members will have some questions for you. 

And I now yield to the Ranking Member, Mr. Watt. 

Mr. WATT. Thank you, Mr. Chairman. Let me first compliment 

all four of the witnesses on your testimony which dealt very well 

with a description of the problem. But as I started to mention in 

my opening statement, I am more interested in flipping the switch 

and trying to find some solutions to the problem. I think we have 

identified the problem pretty comprehensively, and I know that is 

what this hearing was about. But it seems to me that Representative Waters and I may have a slightly different perspective on this 

because we serve on both the Financial Services Committee and 

the Judiciary Committee. And there seems to me to be three areas 

in which our economy can be pretty—either out of step with the 

rest of the world or in step with the rest of the world. And I think 

we probably have done a better job in the financial services economic currency area than we have in the trade policy area and the 

intellectual property area. Those are the three areas generally 

where I kind of look at this. One side of me says that it is easier, 

I suppose, to have a world regime of money because you are dealing with only one product. In fact, when we stepped outside of dealVerDate Aug 31 2005 12:55 Aug 15, 2012 Jkt 000000 PO 00000 Frm 00082 Fmt 6633 Sfmt 6601 H:\WORK\IP\042612\73965.000 HJUD PsN: 73965
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ing only with money and started dealing with derivatives and 

collateralized debt obligations and other things and we didn’t have 

any worldwide system of dealing with them, our financial services 

system broke down, too, and our economy collapsed as a result of 

it. 

So I am not here bragging about the financial services mechanisms. But at least we have you know Basel I, II, and III and the 

International Monetary Fund and what have you. I don’t know that 

there is a parallel system of entities in place in the intellectual 

property area. And I am not sure we have done an outstanding job 

of writing into our trade policies any requirements that there be 

any harmonization of intellectual property standards. We tend to 

approach these things, it seems to me, in different categories, even 

though they intersect with each other regularly. 

So I guess my general question would be, what are the incentives 

that would make other countries want to be more aggressive in the 

intellectual property area? How can we increase those incentives? 

Is the only way that we have to increase those incentives to increase the disincentives for them not to do it? In other words, a 

more punitive deterrence—what is the word I am looking for—reactive kind of system where we retaliate against people and other 

countries who don’t do it. Is there some positive way we can 

incentivize this other than increasing the negative way we do it? 

Those are the two questions generally that I—and I am sorry it 

took me so long to kind of outline my vision of how this works. But 

maybe my vision of how it works is inaccurate also. And if you 

want to take a shot at dealing with that vision, I am happy to have 

you do that, too. But I am more interested in finding out whether 

you think there are ways that we can incentivize other countries 

to have a more robust intellectual property protection regime rather than just retaliating against them for not doing it. 

Mr. WALDRON. Thank you for that question. I do think that there 

are things that we can do. The U.S. economy is the prize of a lot 

of our trading partners. They want to do business here. We allow 

a number of countries and their businesses to do business in the 

United States. I think that there is a lot of levers that we can push 

on sort of ensuring that countries respect intellectual property, particularly our intellectual property, and come to a harmonized regime on intellectual property. It is like, right now we have several 

FTAs which sort of remain unenforced with respect to IP provisions, Chile being one of them where it has been pending for 7 or 

8 years and still that country has not implemented measures to 

comply with its free trade agreement. I say that we should at least 

take a serious look at allowing other countries to have the benefits 

of trading with the United States, yet at the same time not enforcing their obligations reciprocally I think is problematic, and I think 

we have to take a serious look at that. I also think diplomatically— 

I mentioned the USPTO attache ́’s program is a positive step. I 

think we need to empower our Diplomatic Corps on IP issues, and 

I think that they can achieve good results locally if we are able to 

empower them to work essentially in the Diplomatic Corps to 

achieve those goals. Other countries around the world—I mean and 

there are many of them—have topnotch people pushing IP issues 

in a number of fora, and I think that we should actually look to 

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that as a mechanism for showing that we are serious about this 

and we are empowering people to do it and that we really mean 

it. 

Mr. WATT. Let me go to the other end of the spectrum here because my time has run out with my question rather than your answer. We will get an academic perspective, and then at some point 

in the process later, maybe you can address, Mr. Israel, I am particularly interested in your perspective on it since you were in the 

prior Administration and had something to do with it. The Administration, I think, is consistently trying to find an answer to the 

mechanism here. 

But let me get an academic perspective on it from Dr. Sheppard. 

Ms. SHEPPARD. You mentioned the three areas, and that is a very 

important point. One of the reasons that TRIPS, Trade-Related Aspects of Intellectual Property, that agreement was seen to be such 

a success—and, frankly, countries thought it was very heavily favored toward industrial Nations, was because for the first time, it 

melded two of the areas that you talked about. It linked intellectual property with trade. And by doing that, they were able to have 

an active redress for countries that were in violation of IP. 

Prior agreements, such as Paris and Berne, did not tie trade to 

intellectual property. By tying tade to IP, they were able to look 

at the interdependency between the countries because as was mentioned a moment ago, not only do we want to sell our products 

abroad and have them protected, they want to sell their products 

here. And by linking those two things together, trade and IP, if IP 

isn’t respect on one end, then perhaps something that they want 

to sell here is not able to be sold. So that is how we link those two 

things. 

TRIPS was successful on that basis. However, perhaps now we 

need TRIPS Plus, and that is what the TPP, some people believe 

and also ACTA are attempting to do. I am going to stop on that 

point. 

Mr. MURPHY. Mr. Chairman, may I briefly add three observations. 

The first thing I would offer up is the United States, as I said 

in my statement, can lead by example. One thing that we can do 

is ensure that we as a government are sending consistent messages 

to our trading partners. In some areas involving intellectual property, there are mixed signals. On the one hand, you have some of 

the trade agencies that are pushing very hard to ensure strong enforcement and strong protections. 

There are other agencies whose missions are tangential or touches on intellectual property which may be saying things that are 

sending some of our trading partners the idea that maybe U.S. policy is shifting. Such as, for example, comments on certain high-profile patent litigation in the United States, which suggest an evolution in our law. Also, for example, the nexus between antitrust 

and intellectual property right now is in a state of change. Governments around the world are watching what emanates from Washington at the nexus of these two fields. Again, foreign governments 

are drawing conclusions, perhaps selectively, that what we are 

doing and talking about domestically is consistent with their own 

domestic interests. 

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Secondly, I agree with Dr. Sheppard that more can be done for 

TRIPS Plus obligations. As I said in my statement, I gave a list of 

different practices that are problematic to U.S. Patent holders 

which are not currently addressed by existing rules. There are 

loopholes, and there are certain exclusions or flexibilities which are 

being exploited, and I think we can do more to leverage what our 

foreign trading partners’ economic interests are in order to shore 

up our own by getting better obligations. 

Thirdly, I also note that a lot of developing economy companies 

are slowly moving up the value chain. Mr. Israel’s testimony talks 

about the fact that Chinese patent holders are applying for patents 

in much larger volumes than ever before. It may take a generation 

or more, but I think we can be optimistic that some of our trading 

partners, who are causing us some difficulty, will slowly come to 

the conclusion that strong patent protection is in their own national interest. 

Mr. QUAYLE. [Presiding.] Thank you, Mr. Watt. 

The Chair now recognizes the gentleman from Ohio, Mr. Chabot, 

for 5 minutes. 

Mr. CHABOT. Thank you. I would like to personally thank you for 

being generous with your time and for allowing me to go next. I 

had planned on attending a classified cybersecurity briefing at 11, 

so I am going to catch the tail end of it. I wouldn’t have made it 

at all except for your willingness to allow me to go next. Thank 

you. 

Mr. Israel, I have a couple of questions for you. In your testimony, you mentioned the current negotiations to establish the TPP, 

which could provide global patent protection for U.S. businesses. 

Again, in regard to the data exclusivity, and I know that Dr. 

Waldron has already commented on this somewhat, but if you can 

expound upon a little bit about why it is so important, so critical 

that we continue to negotiate for 12 years of data exclusivity? 

Mr. ISRAEL. Thank you, Mr. Chabot. 

I think the principle is so important, and Dr. Waldron did begin 

to explain why it is so critical for U.S. pharmaceutical and biotech 

and agricultural companies as they invest so much money in the 

regulatory approval process. I think the step of getting a patent 

granted in many of these countries is a very difficult and lengthy 

and expensive one in and of itself. You are then asked, obviously, 

to go to the regulatory agency and get that product approved and 

demonstrate its safety and efficacy. That is what this package of 

information that we are talking about really represents in providing an exclusivity so it cannot be relied upon by other competitors which have not put that similar set of resources and time and 

energy into constructing that information and providing it is absolutely critical. 

As we have noted, the standard here in the United States is 12 

years for biological products, 5 years for small molecule pharmaceutical products. So I think that the notion that we would be absolutely consistent and very strong on that consistency as we negotiate with our foreign trade partners, whether it is within the context of the TPP or other trade agreements, it is a principle in almost all of our free trade agreements. And certainly it is something 

that we need to be very vigilant to continue to stress going forward. 

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Mr. CHABOT. Thank you. 

Can you tell us how the Obama administration has approached 

the data exclusivity issue as well as the intellectual property rights 

generally in their negotiations thus far? 

Mr. ISRAEL. I can do my best to answer that question, Congressman. I am obviously not involved in a lot of the very important and 

well-structured arguments and negotiations that the Administration is leading. It is a very, very talented and effective team that 

exists at USTR. Victoria Espinel is obviously doing a great job leading the enforcement effort within the Administration. It is a difficult issue. 

I think it is important to recognize, as we were engaged in this 

issue in 2005 and through the remainder of that decade, a lot of 

these issues were really just starting to kind of bubble up. India 

only put its patent law in place in 2005. China only joined the 

WTO in 2000. So they were really starting to heat up at that point. 

I think they are really starting to almost boil over at this point. 

It is a difficult challenge, I think, maintaining the posture that 

the United States be as aggressive as possible to protect the economic interests of U.S. rights holders overseas, particularly in light 

of the fact that the United States has implemented the AIA and 

it has really set the global standard is an important principle for 

the entire U.S. Government. I think this is an issue that involves 

Congress and the Administration and industry, and everyone really 

needs to be focused in working together. So I think we need to all 

accept that responsibility and shoulder it. 

Mr. CHABOT. Thank you. You mentioned that during your time 

with the Bush administration, the USPTO engaged with foreign 

trade partners to increase capacity and quality of patent prosecutions overseas. Under the Obama administration, have you seen a 

continuation of those efforts? How would you describe them? 

Mr. ISRAEL. Yes, I think there has been a consistency and continuation. The PTO attache ́ program continues to be a very strong 

point. It is something which provides the U.S. Government a lot of 

information and relationship building with critical foreign governments, and provides U.S. companies access to expertise in countries 

and relationships. I know that Director Kappos has been very active in engaging other patent offices and trying to provide training 

in capacity building. That is one key area. 

It reflects back a bit to the question that Ranking Member Watt 

asked earlier, where are the carrots, and where are the sticks? This 

is a carrot. I think the extent to which the United States, through 

the PTO and through other resources, can provide training and capacity, building to foreign patent offices that are struggling, obviously. 

And I think we see examples in our judiciary as well. Judge 

Rader, the Chief Judge of the Federal Circuit, is taking the entire 

Federal Circuit, all of his colleagues, to China in May to interact 

with their colleagues in China and really try to build some capacity 

there. 

So I think there are some carrots, and there are some sticks, and 

I think we need to deploy all of them sensibly. 

Mr. CHABOT. Thank you. 

I see my time has expired. I yield back, Mr. Chairman. 

83 

Mr. WALDRON. If I may briefly supplement the comment Mr. 

Israel made, regarding the TPP, the Administration has not yet tabled the 12 years of biological data exclusivity. I think, given the 

breadth and the scope of this agreement and the effect on jobs and 

our economy going forward in the future, I think it is imperative 

that we look toward tabling that as soon as possible. 

Mr. GOODLATTE. [Presiding.] The gentlewoman from California, 

Ms. Chu, is recognized for 5 minutes. 

Ms. CHU. Thank you, Mr. Chair. 

Dr. Waldron, the U.S.-Korea trade agreement did provide stateof-the-art commitments in intellectual property rights. Can you discuss whether you think trade agreements that incorporate these 

strong IP protections, like the U.S.-Korea free trade agreement, are 

ones that the U.S. should be seeking, and do they help or hinder 

your industry in foreign markets? 

Mr. WALDRON. We believe that the Korea-U.S. Trade Agreement 

is sort of the gold standard and, along with adding in a provision 

for 12 years of biological data exclusivity, would be the gold standard going forward for free trade agreements. I think that is the underpinning of showing how serious we are about IP protection with 

our trading partners. I think they are critical in their implementation, and I think they have been very effective in some countries 

but not all countries, and I think we have to be willing to enforce 

those agreements and make sure our trading partners abide by 

them going forward. And I think they are very beneficial in the 

long term if they have these provisions in them for IP protection. 

Ms. CHU. Okay. Dr. Sheppard, as you know, the Special 301 Report is an annual review of the global state of intellectual property 

rights protection and enforcement, which is conducted by the Office 

of the United States Trade Representative. It identifies a wide 

range of serious concerns and lists the countries which are deemed 

to have inadequate intellectual property right protections. What is 

the significance of this report and how can it be used to incentivize 

countries to harmonize their laws to conform to these international 

agreements to which they are a party? 

Ms. SHEPPARD. I thank you for that question. 

As I noted in my testimony, there are some countries who have 

been on the list and then have put through the necessary changes 

to get off the list. But there are many, many more countries that 

have been on the list, the watch list, the priority watch list since 

the inception and are still there today. 

Does that mean that the list is not important? No, that is not 

what that means. The list is very important because it requires the 

Administration to look every year at the agreements and at individual countries to figure out who is in compliance and who is not, 

either de facto or in its result, and then have a country-level conversation on specific issues. In some places, changes have been 

made. In the Special 301, they also make a determination on 

whether or not they are going to go before the dispute settlement 

board at the WTO, and that is an important determination. Unfortunately, or maybe fortunately for some, that particular avenue has 

not been taken up as often as it could be. That is one of the sticks 

that is available. 

84 

But I believe your question is, is 301 important? Yes, because it 

shines a spotlight on the issue, and action plans are developed. 

Last year, the Administration started to have the actions plans, 

invite countries to work with the Administration to develop an action plan that the other countries believed they could implement. 

I don’t know how that process is working. It is still the first year; 

but this is the first year where the Special 301 and the Administration have reached out to the other countries to make sure that the 

action plan is something that is doable in the eyes of the other 

country. 

Ms. CHU. Some countries that were on the 301 listing were eventually removed from the list. In fact, I think South Korea and the 

Bahamas have succeeded in removing themselves from this list. 

How did they go about doing this? 

Ms. SHEPPARD. I don’t know the exact details. Perhaps Mr. Israel 

knows the exact details. But there is an action plan. There are 

things that listed that say in order to be in compliance, you need 

to do A, B and C. And without knowing the details, they must have 

complied with at least the majority of those issues. 

Mr. CHU. Mr. Israel? 

Mr. ISRAEL. I would have to check some of the detail. I would 

suspect that their implementation of the Free Trade Agreement 

that the United States agreed to with South Korea probably has a 

very significant impact on their being removed from the list, and 

they implemented some things such as the TRIPS Plus provisions 

that we negotiated with them as part of that free trade agreement. 

And so I suspect that put them on the path to making some pretty 

significant improvements. 

Ms. CHU. Although I don’t think the Bahamas has a free trade 

agreement, so how did they end up getting removed from the list? 

The Bahamas? 

Mr. ISRAEL. That I am not sure of, Congresswoman. I would have 

to check and probably get back. 

Ms. CHU. Dr. Sheppard, how is it that a country could be part 

of the TRIP agreement but still be seriously having deficiencies in 

protecting intellectual property rights? 

Ms. SHEPPARD. The TRIPS agreement, like most international 

agreements, it is just an agreement. I believe it was Ranking Member Watt who alluded to before—we can give our input, but we 

can’t make anyone do anything. And conversely, they can have 

their input, but they can’t make us do anything. These agreements 

are gentlemen’s agreements that you are going to comply with 

what your word is. If you don’t comply with what your word is, 

then we will put higher tariffs on some other product. 

As I mentioned earlier, the United States has not taken advantage of that as often as possibly it could. But there are countries, 

including the United States, which are in violation of the TRIPS 

agreement. 

So, in my opinion, it is hard. It is hard when we are still in violation on some issues and go to other countries and talk about them 

being in violation of their issues. 

Ms. CHU. Thank you. 

Mr. MURPHY. Mr. Chairman, may I briefly offer an observation 

based upon my time at USTR? 

85 

Mr. GOODLATTE. Sure. 

Mr. MURPHY. Thank you very much. 

Congresswoman Chu, I agree with your question or statement 

that Special 301 and the annual reporting and watch list is still 

very valuable. It continues to create an opportunity for peer pressure and observation, for lack of a better term. 

But I can also offer this: Special 301 predates the creation of the 

WTO and the TRIPS agreement. The United States as a member 

of the WTO is constrained in its ability to bring pressure to bear 

against trading partners that are not in compliance with their 

TRIPS obligations or otherwise maintaining policies that burden 

U.S. IP holders. I think we need to have a very honest conversation 

about how in the post-WTO, post-TRIP world, can we ensure that 

our trade enforcement agencies have some leverage to bring to bear 

that does not itself cause the United States to violate its own trade 

commitments, in order to focus the attention of our foreign trading 

partners on doing what they need to do to better protect U.S. IP. 

Ms. CHU. Thank you. 

I yield back. 

Mr. GOODLATTE. Thank you. 

The Chair recognizes the gentleman from Arizona, the ViceChairman of the Subcommittee, Mr. Quayle, for 5 minutes. 

Mr. QUAYLE. Thank you, Mr. Chairman. 

And thank you for holding this important hearing today to examine the challenges to U.S. intellectual property protections in foreign countries. 

As others have noted, the U.S. Commerce Department reported 

earlier this month that intellectual property supports 40 million 

U.S. jobs, or 28 percent of our workforce, and contributes over $5 

trillion to our GDP. According to the report, intellectual property 

protections have a direct and significant impact on the U.S. economy, and the jobs it creates are high-paying and important for 

working families. This really shows how important this hearing is, 

and I thank all of the witnesses for their testimony. 

Dr. Waldron, you mentioned Chile as not enforcing IP protections 

as a part of the FTA. I was wondering if you could provide a few 

additional examples of lack of enforcement of basic patent rights 

abroad and explain how that lack of enforcement really hampers 

the innovative industry’s ability to maintain and grow jobs here in 

the United States? 

Mr. WALDRON. There are a number of provisions, as I look at the 

countries for which we have free trade agreements, but Chile is an 

important one because I think it is one where it is imperative that 

we have sort of a linkage system which would be set up to protect 

our IP rights before the market essentially is destroyed by the 

entry of competitors that essentially can go on, and the enforcement mechanisms are very poor. If you are not able to export to 

a market—I mean, there are markets in Latin America where we 

have introduced a product, and within 1 year, we have lost 85 percent of our market to 23 competitors. That was Lipitor. 

With Viagra, there was a case where we lost 98 percent of our 

market within a year to 35 competitors. So there is no shortage of 

competitors willing to come in, particularly in an instance where 

you are not getting the patent protection that you have applied for. 

86 

There is no data exclusivity protection. So, within a very short period of time, within a year, competitors enter the market. And 

there is no linkage mechanism, no means to resolve a patent dispute, if you have a patent, within that period of time, as we do in 

the United States. 

These markets represent huge growth opportunities for U.S. 

businesses. They are big. If we are regularly losing 90 percent of 

our market to local competitors that is a problem because we can’t 

expand locally at home, we can’t invest and make the investments 

and create the jobs at home that support those innovative industries, and it is just sort of a chain reaction of things that sort of 

piecemeal around the world add up to a collective problem for the 

United States where we have that competitive advantage. 

Mr. QUAYLE. Do you think that the Administration is doing everything that it can to support U.S. industry and enforcing their 

rights? 

Mr. WALDRON. I think we really need to ensure that if we have 

free trade agreements with partners—and Chile has been noted— 

I mean, there are others—that we make sure and follow-up on 

that. There is the 301 mechanism, but it seems to be a paper tiger 

sometimes. It seems it is not followed up on, or it is a chastisement, but it really doesn’t have any strong economic teeth. I think 

there really has to be something here that sort of makes it perfectly clear that these kinds of violations are backsliding on obligations, and that is unacceptable. 

Mr. QUAYLE. Thank you. 

Mr. Israel, what additional steps can the U.S. take to improve judicial education in foreign countries so that enforcement measures 

can be counted on? 

Mr. ISRAEL. I think that is a key question, Congressman. 

And It does, again, kind of touch on this theme of, what can we 

do to provide incentives, and where does the United States have leverage that doesn’t necessarily implicate direct trade rules or 

bringing cases? There have been I think some great examples in 

the past where the Justice Department, for example, has sent delegations to places like India to help train judges, to work with their 

judicial system, and to try to give them a little more capacity on 

what are obviously very complicated cases in any country. We work 

directly with China. We had a system in place called the case referral mechanism with China for several years, whereby American 

companies could work directly with the Commerce Department and 

PTO and our attache ́ program in China, and have really kind of a 

pipeline directly into the Chinese enforcement officials to refer specific cases of infringement that they saw on the ground. 

I noted the efforts of some individual jurists, such as Judge 

Rader, who has been very active in this area. But I think we need 

to look at this as one of those kind of compliant/noncompliant 

areas, where we see some obvious and overt areas where countries 

violate TRIPS, as Dr. Sheppard has noted. But there are a lot of 

areas that when you get on the ground, if you are an American 

company and it takes you 10 years to even get a patent, and then 

when you get it, there is a judicial system that simply disallows 

you, through inconsistency or inability, to really enforce that patent, you are dealt a hand that you really can’t compete with. 

87 

Mr. QUAYLE. Do you think even with the education aspect, where 

the DOJ is going in and educating judges, do you think you are 

witnessing, even if you do educate and get them up to speed on 

patent protections and patent law, that if you have a process or a 

thought process from the governing body, that they are just not 

going to actually administer or protect patent rights from out-ofstate companies, then it is really not going to do that much? 

Mr. ISRAEL. Good point. A very fair point. I think you see some 

things that cut against those best efforts very dramatically. It is 

not uncommon in China, for example, in high profile intellectual 

property cases for officials of the Chinese government to physically 

be present at those hearings where there is a state-owned enterprise potentially implicated in the hearing. It is very hard to 

counter that from the United States. I suppose we could have our 

diplomats attend a range of cases in big countries like China, but 

you are up against not just some systemic flaws but, as you know, 

you are clearly up against some attempts to tilt the competitive 

framework, again the foreign rights holder, typically the United 

States. 

Mr. QUAYLE. Thank you, I yield back. 

Mr. GOODLATTE. I thank the gentleman. 

The gentlewoman from California, Ms. Waters, is recognized for 

5 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. 

I had to step out for awhile and I can imagine that some of my 

questions may have already been answered. I will try to frame 

them in a way that could glean some additional information. 

The first thing I want to know is what is our Trade Representative doing on these issues? That is where we place responsibility 

for ensuring that we have fair trade, and I am sure this must be 

an issue with the Trade Representative. 

Dr. Waldron, what is our Trade Representative doing? 

Mr. WALDRON. I don’t have the exact details of the procedures 

going on at USTR right now, but I do know that they have not tabled 12 years of biological data exclusivity yet in the Trans-Pacific 

Partnership negotiations that are ongoing. I think it is very important for us to ensure that there is a strong IP package in this. I 

think that is an essential part of it, and it has not yet been tabled. 

And I think we really have to ensure that we do this because of 

the breadth and the scope of this agreement. I mean, it involves 

a vast chunk of the Pacific Rim countries. These are huge markets 

for all of American businesses, and I think we have to get this 

right because it is going to have huge knock-on effects later. 

I don’t know why there has been delay in introducing this; but 

certainly, it is something that represents U.S. law, and I think we 

should definitely push the Trade Representative. 

Ms. WATERS. Dr. Sheppard, has this risen as an issue with the 

WTO? Have we taken any initiative from the United States to look 

as if, if not actually, make this an issue with the WTO? 

Ms. SHEPPARD. Yes. The United States and the USTR has taken 

up several issues with the dispute settlement body. The issue went 

directly against China, and the United States received a lot of negative reaction from China for taking them to the dispute resolution 

settlement board. But the conversations between USTR and the 

88 

United States had no fruitful outcomes. And when that happens, 

that is the process you are able to go through. 

Someone mentioned earlier, I think it was Mr. Israel, talked 

about the other times when the United States has tried to negotiate, negotiate, and then gotten nowhere. That is why I think the 

Trans-Pacific Partnership, as Dr. Waldron was talking about, and 

other avenues of TRIPS Plus agreements are so important. And 

that is one of the things that the USTR is doing right now, actively 

negotiating new treaties that will put into place some of the lessons 

learned from what was lacking in TRIPS. 

TRIPS was a huge step forward, but it has been 18 years since 

then. And in that time, other industries have grown up that 

weren’t envisioned then. So new protections and new laws need to 

be in written. Mr. Murphy can talk about this, having been at the 

USTR, more than I can—I haven’t been there—that they are actively every day pushing forward our policies in every country. We 

just don’t hear about them. 

Ms. WATERS. Well, you know, what you are describing has been 

going on for an awful long time. And it seems to me it is time for 

a resolution. 

Mr. Watt alluded to the work that we have done in financial reform. Tremendous work with Dodd-Frank and all that goes along 

with that. So having taken a look at what you are describing and 

the negotiations that have gone on and the continued and longterm bias against us in many ways, what do you recommend can 

be done legislatively outside of the USTR Trade Representative 

working for us? 

What do you recommend, Mr. Israel? 

Mr. ISRAEL. That is a great and obvious question, Congresswoman Waters. 

Trade promotion authority, giving that to the Administration, 

from the standpoint of empowering their negotiating status, would 

be a good thing. I think there are things that we can do. There are 

obviously resource issues which are difficult to discuss and it is a 

very difficult environment for that. But I think things like potentially giving the Patent and Trademark Office greater ability to leverage and manage the IP attache ́ program overseas. Right now, 

it is a bit complicated as they work internationally. It is not their 

natural, kind of organic statute to place individuals and diplomats 

in embassies. And so I think there are some things we could do 

that might strengthen that program and empower it even more. 

Ms. WATERS. Excuse me a moment. You just said something. I 

have never heard that the role that our ambassadors and their 

staffs could play is to take an issue like this in country and help 

to promote the idea of fairness and a level playing field. That may 

be something, Mr. Watt, that we may be able to encourage in some 

ways. 

My husband was an ambassador, and they talked about a lot of 

things. Of course, he told me that there were a lot of things that 

he couldn’t talk about. But I never heard that this was a role that 

they played, even though they have one of their designated staff 

persons dealing with economic development or something like that 

in these countries. I have never heard them talk about this. 

Please continue. Thank you. 

89 

Mr. ISRAEL. Clearly, the global footprint that the U.S. has 

through its embassies and diplomats overseas is huge. I personally 

think this problem, this issue, is equal parts law and diplomacy; 

getting the legal framework correct, enforcing TRIPS, all of the 

very detailed things that Dr. Sheppard noted is huge. But there is 

a diplomatic element to this as well. We need to be working very 

aggressively with our trading partners that we are aligned with on 

this issue—the Europeans, the Japanese, and other developed 

countries. 

I think one of the things it is, again going back to this carrot and 

stick formulation that the Congressman Watt spoke about, a lot of 

countries, particularly the growing BRIC countries, China in particular, I think are very sensitive to being as framed outside the 

norm. They may be more sensitive to that than a handful of individual WTO cases. If their legal system is portrayed consistently 

and effectively as being outside the global norm by their trading 

partners, by the United States, the Europeans, their partners that 

matter, that has an impact. 

I think, to your point, if you have an ambassador and a team in 

country that are focused on this—Ambassador Rant from 2001 to 

2008 had a series of annual IP conferences in Beijing. The vice premier of China frequently attended, and Cabinet members from the 

United States frequently attended it. It really became a focal point 

for driving these issues. 

Action-forcing events are key. They force our government to put 

things on the table. They force the other government to react to 

those. So there is a lot of diplomacy that can be done around this 

issue in a very strategic way. 

Ms. WATERS. Thank you very much. 

Our Chair has been very generous with the time, but in wrapping up, do you see this as something that can be framed as a serious trade imbalance issue, and how do we do that? 

Mr. ISRAEL. I think it is absolutely a serious trade imbalance 

issue. I think we need to look at this issue when we view overall 

American competitiveness in the same way we talk about making 

our tax system competitive, making our regulatory system competitive, our R&D portfolio, all of these things that, at a very high 

level, feed into issues that are of the level of congressional committees and Cabinet officials and CEOs. I think this is an issue that 

deserves a place and attention on that list as well. 

Mr. WATT. Mr. Chairman, may I make a one-sentence intervention? 

Mr. GOODLATTE. The gentleman is recognized. 

Mr. WATT. I just remind my colleague from Financial Services 

that it took a worldwide economic meltdown to create the environment for international harmonization in the financial services area. 

I am not sure that those kinds of incentives are there yet in the 

intellectual property protection environment. So I kind of stacked 

the question a little bit, but I didn’t want anybody—we got a lot 

more cooperation internationally after the meltdown than we were 

getting before the meltdown. 

Mr. MURPHY. May I respond briefly to Mr. Watt? 

Mr. GOODLATTE. Briefly. 

90 

Mr. MURPHY. Innovation and patents are key to our 21st century 

economy. We need a corresponding trade policy that recognizes 

that. We need to find better tools and levers for our trade negotiators and our diplomats worldwide. We need to have strategies 

that focus on foreign capitals as well as the foreign delegations at 

international institutions. We often have disconnects between governments, our foreign trade partners in different locations. 

Mr. GOODLATTE. Thank you, Mr. Murphy. 

The gentleman from Georgia, Mr. Johnson, is recognized for 5 

minutes. 

Mr. JOHNSON. Thank you, Mr. Chairman. 

This is a very important hearing today. It comes at a great time. 

Today is World IP Day, where we celebrate. Everyone goes home 

for half a day, and we celebrate innovation throughout the world 

and put up lights and everything and give gifts. It is a wonderful 

day. We are all working today. 

The process and results of research, innovation and development, 

and the protection of these results through our patent, trademark 

and copyright laws are very important, particularly in a global 

community. There are major patent barriers that American patent 

holders face in protecting their intellectual property while doing 

business in many places, including China. 

Dr. Waldron, I know that you were asked a question earlier 

about the performance of the Obama administration and you mentioned that there was something that needed to be done before it 

expires. What was that? 

Mr. WALDRON. It was getting the 12 years of biological data exclusivity into the TPP negotiations, the Trans-Pacific Partnership. 

Mr. JOHNSON. Well, I tell you, we have had so much gridlock 

around here. Partisan politics have been the practice. It has resulted in us not being able to do many of the things that the country needs to do. But I am hopeful we will be able to get through 

this period, and with folks like PhRMA, I hope you will support 

good government and not gridlock government, and we can get 

these things—we can do the things that America needs to do in 

order to maintain its position in the global economy. 

Now, I know that WTO members are required to make patents 

available for inventions in all fields of technology, but many countries discriminate based on the place of invention, the field of technology or whether products are imported or locally produced. Does 

China utilize regulatory and administrative hurdles to devalue patent rights of American companies, in your opinion, Dr. Waldron? 

Mr. WALDRON. There are a number of levers that effect us in 

China. And I think when you talk about the patent grant process, 

we have a system of fairly arbitrary standards that are imposed 

that we have experienced as pharmaceutical companies on how 

much data is required to get a grant of a patent or a grant of a 

claim. It seems to vary considerably across the board. We think 

that they need to harmonize their standards better so it doesn’t appear as arbitrary. It seems that we have a great deal of difficulty 

getting scope of claims in our patents that are broad enough to protect our products, and this is an important issue going forward. 

The other issues in China range from enforcement of intellectual 

property, particular patents. The evidentiary hurdles are great. OfVerDate Aug 31 2005 12:55 Aug 15, 2012 Jkt 000000 PO 00000 Frm 00094 Fmt 6633 Sfmt 6601 H:\WORK\IP\042612\73965.000 HJUD PsN: 73965
91 

tentimes, foreign evidence is not allowed. Evidence has to be generated within China. Sometimes this is very difficult if you are trying to present a test result and there is nobody in China that can 

perform it; sometimes you are just out of luck. This is an unfortunate situation we face on a daily basis. 

Mr. JOHNSON. If I might stop you right there, I wish I could let 

you go forward, but I have got one more question. I have more 

questions actually that I want to ask, but thank you. 

Professor Sheppard, in China, do American innovators have sufficient recourse in the Chinese judicial system to protect their locally 

manufactured or their locally granted patents? And if not, tell us 

the extent of the problem and perhaps some solution for being able 

to solve? 

Ms. SHEPPARD. The biggest part of the problem, and it is hard 

for us as Americans to really internalize this, is that there is no 

judicial independence in China. The courts are very much influenced by politics and the needs of the people. If putting a company 

out of business that employs 500 people because they are infringing 

is the right thing to do legally, a lot of judges won’t do it because 

of political reasons. I don’t know how we change that. 

As we discussed earlier, Judge Rader goes to China on a regular 

basis and he is taking the entire Federal Circuit to talk about 

these issues. Maybe one of the things that we should be pushing 

for that kind of comes in from a different angle in protecting American interests is looking for not only democracy across the world 

but also judicial independence across the world. 

Mr. JOHNSON. Anyone have any other comments about that? 

Mr. ISRAEL. I think Dr. Sheppard hit it right on the head. I think 

it is a rule of law question as much as anything in China. China, 

except laws and rules they want to enforce, by and large doesn’t 

enforce a lot of its laws particularly well. So I think you are dealing 

with a question of—there is a question of judicial independence. 

There is a question of the laws being relatively new in China. 

China only became a WTO member in 2000. So as a body of law, 

it is relatively new in China. I think it is, as Dr. Sheppard noted, 

it is almost first and foremost tied to economic rationales or social 

rationales largely in China, and that has to be a very difficult dynamic for any American company to walk into a courtroom and not 

just be confronted with needing to win the legal argument, but also 

needing to win the social and potentially the economic argument 

against what they are faced in China in that courtroom. 

Mr. GOODLATTE. Without objection, the gentleman is recognized 

for 1 additional minute. 

Mr. JOHNSON. Thank you, Mr. Chairman. 

Do you think that the way that—well, the Chinese economy in 

2015 it is projected, 2016 maybe, is projected to become the world’s 

largest economy. So that is something you have to deal with, America as well as all of the other countries and their economies in this 

global economy, and if the big, 800-pound gorilla is cheating, how 

do you stop the cheating? Is it through a trade war? What do you 

do in order to encourage compliance with international standards 

in a situation like this? 

Mr. ISRAEL. I think it has to be a mix of tactics. I think it has 

to be a mix of very high level focus by the U.S. Government and 

92 

other governments that are similarly impacted. It needs to be a 

head of state issue. I think it consistently has been for the United 

States for several years. I think we need to make—look at ways to 

make improvements to the Chinese judicial system. 

Mr. JOHNSON. Do the Chinese want to do that? 

Mr. GOODLATTE. The time of the gentleman has expired. 

The gentlewoman from Texas, Ms. Jackson Lee, is recognized for 

5 minutes. 

Ms. JACKSON LEE. Let me thank the Chairman and the Ranking 

Member for this hearing, and the Ranking Member of the full Committee who studiously attends these hearings to build his excellent 

portfolio of knowledge, Mr. Conyers. I am delighted that he is here 

and an active Member of this Committee, among others. 

Let me acknowledge, standing behind me but not in the room, 

Mr. Chairman, Amanda Woodson, who is my daughter for the day, 

a beautiful, young 13-year-old, who is learning about protecting our 

assets. As a 12-year Member formerly of the Science Committee 

and now a Member of the Homeland Security Committee, I have 

always believed that science, technology, the work that many of 

you are doing, is the work of the 21st century, 22nd century, and 

it is a job creator. Which makes me even more proud to welcome 

back Dr. Christal Sheppard, who quietly served us and did not acknowledge the genius of having a masters and a Ph.D. in cellular 

and molecular biology. I needed to put that on the record. So I 

know the University of Nebraska School of Law is excited that we 

added a smidgeon to her vast talent. We are delighted to see her 

as a witness. 

I would like to take a different approach, and again, let me say 

that I couldn’t be more chauvinistic, and I don’t usually use that 

word, on the inventiveness and the level of technological sophistication that America has. And we need to protect it. 

So, first of all, I want to acknowledge that President Obama has 

elevated to Cabinet status the Intellectual Property Enforcement 

Coordinator, and I want to have our representative, Dr. Waldron, 

comment on that elevation and how that can be utilized? 

I would like Dr. Sheppard to answer a question that I will read 

in just a moment, but let me raise a question generally to ask 

about intellectual property jobs and trade agreements and the importance in putting in strong provisions. If you can take that question down. 

But what I really want to talk about, because I met with members of the Chinese embassy yesterday, and I truly believe that we 

have an opportunity to be a friend and that we are doing business 

with China. They want to do business with us, and they are looking to be able to frame their structure going forward in a way that 

comports with the respect of the intellectual property of those who 

they engage with. So I am very interested in doing it this way, and 

that is the moving and looking at the Leahy-Smith bill, and I am 

looking at that, that deals with reestablishing a patent system for 

the global market. What I would like to see us do is for America 

to be the standard for all countries, and if you are not in keeping 

with America’s standard, you are outside of the marketplace in 

both world ideas and world opportunities. 

Dr. Waldron, would you proceed with that. 

93 

And Dr. Sheppard, I think you heard my question. Why don’t we 

push getting our standards to be the world standards and match 

it with enforcement, and anybody that is outside of that circle simply can’t do business? Because everybody recognizes what is precious, and that is your genius and the idea of Bayer aspirin being 

manipulated would not hold because that country would be isolated 

because no one would dare go there if their procedures undermine 

the process. Would you go forward on that answer? 

Mr. Israel, you might answer, too, since you are formerly head 

of that agency. 

Yes, Dr. Waldron. 

Mr. WALDRON. I agree with you wholeheartedly, Representative 

Jackson Lee. The genius of America is its innovativeness. And our 

competitive advantage vis-a`-vis other countries is our prize asset, 

and we should have as a matter of policy a means of protecting 

these things, the things that we develop and the things that we 

market and sell abroad. 

We acknowledge the elevation of the IP coordinator status within 

the Obama administration. This is a welcomed development. It 

brings IP to a high status within the Administration, and we think 

that is a good thing to have on people’s minds. It also deals with 

the issue of counterfeits, which is something that is a pernicious 

danger that we also have to be constantly vigilant about. 

But we do need a set of policies in this government that sort of 

protects American innovation and American business abroad. As 

mentioned earlier in some of the discussions, the diplomatic emphasis here is essential to having that go forward. So I agree with 

everything that has been said. 

Ms. JACKSON LEE. Chairman, can we allow them to answer the 

question? 

Mr. Israel, would you add to your answer what strong provision 

we would need to protect, what kind of strong provisions? 

And then I would like Dr. Sheppard to finish. 

Mr. GOODLATTE. Briefly, if you would. 

Ms. JACKSON LEE. Thank you, Mr. Chairman. 

Mr. ISRAEL. Very briefly, I think the answer to your question 

partially answers the question that Congressman Johnson answered, which is regarding the Chinese and the economy. 

Ms. JACKSON LEE. The answer to Jackson Lee’s question partly 

is the answer to Congressman Johnson’s question? I am not sure 

who you are answering. 

Mr. ISRAEL. I am sorry, Congresswoman. Mr. Johnson asked a 

question. 

Ms. JACKSON LEE. And I am asking a global question. I am not 

pointing to the Chinese. Thank you. 

Mr. ISRAEL. Thank you. As China, in particular, becomes the 

world’s largest economy, I think it is impossible for them to also 

have a judicial system simultaneously that is not taken seriously 

by the rest of the world. So I do think to your question, there is 

pressure that will mount. And I agree, they will gradually need to 

face that pressure and do something about it. And I do think that 

will have a very positive impact going forward. 

Ms. JACKSON LEE. Thank you. 

Dr. Sheppard, welcome. 

94 

Ms. SHEPPARD. Thank you. 

The importance of taking strong positions in IP, very briefly, it 

is very essentially important. It is the only way that dollars come 

back into the United States. To use Apple as an example, iPads are 

made by a Taiwanese company with Chinese workers in China. 

The way that the money comes back to the United States is 

through intellectual property. And unless we continue and maintain strong IP, the inventiveness of our inventors and the R&D 

that we do here will never see returns from those countries. 

As you mentioned, we do have leverage. They want access to our 

market; we want access to their markets. America is a really good 

market still. So we have leverage, and we shouldn’t be afraid to use 

that leverage. It is part law, and it is part diplomacy, but we cannot afford to be a paper tiger, as someone mentioned earlier. 

Ms. JACKSON LEE. Mr. Chairman, I would like to submit additional questions for the record. 

And may I just indicate that I am very proud that one of my 

questions to be submitted into the record was written by Ashley 

Hawks who is my Texas Tech intern. This is her last week, and 

I wanted to congratulate her for the work she has done on behalf 

of the people of this country and the 18th Congressional District. 

I thank you, Mr. Chairman. And I ask unanimous consent that 

my questions may be submitted in writing for a response. 

Mr. GOODLATTE. We will cover that right now. I am proud of 

Ashley and her good work for you. 

I would like to thank all of our witnesses for their testimony 

today. 

Without objection, all Members will have 5 legislative days to 

submit to the Chair additional written questions to the witnesses 

which we will forward and ask the witnesses to respond as promptly as they can so that their answers may be made a part of the 

record. 

Without objection, all Members will have 5 legislative days to 

submit any additional materials for inclusion in the record. 

With that, I again thank our witnesses and the Members who 

participated, and this hearing is adjourned. 

[Whereupon, at 12:02 p.m., the Subcommittee was adjourned.] 

(95) 

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, Ranking Member, Committee on 

the Judiciary, and Member, Subcommittee on Intellectual Property, Competition, and the Internet 

Today’s hearing provides an opportunity for us to scrutinize whether the patent 

systems in foreign countries provide adequate and effective patent protection for 

American innovators and whether they provide a level playing field for American 

creators. 

In particular, we should focus on the problems that American companies encounter when they request, enforce, and implement patents overseas. 

And, I intend to explore in detail ways that Congress can foster U.S. global competitiveness with respect to patent laws and government policies in light of the recent enactment of the Leahy-Smith, America Invents Act. 

There are several factors we should keep in mind as we consider this and other 

issues today. 

First, a robust patent system is integral to the health of our Nation’s economy. 

Coincidently, today is World Intellectual Property Day, which recognizes the significance of preserving intellectual property protection for American businesses and 

inventors when they use international patent laws. 

Last month, the U.S. Department of Commerce released a report finding that 

America’s most IP-intensive industries in 2010 generated direct employment of 27.1 

million jobs and an additional 12.9 million jobs. In 2010, these IP-intensive industries accounted for an estimated 34.8 percent of U.S. gross domestic product. 

At its heart, intellectual property defends the economic value of the fruits of the 

mind’s labor, whether it be the spark of invention or the inspiration of the artist. 

It gives an inventor or artist the opportunity to profit from their work, in order to 

both reward and support additional creativity. 

It is imperative that American industry abroad is protected by sufficient international patent laws and government policies. 

Second, it is critical for us to address barriers to effective international patent 

protection. 

American innovators, industries, and other interested parties have identified 

many of these barriers as part of their proposals to the U.S. Trade Representative 

(USTR), as part of the annual ‘‘Special 301’’ review process. 

Congress enacted Special 301 pursuant to the 1988 Trade and Competitiveness 

Act. The USTR produces an annual survey of the intellectual property laws of foreign countries and issues the ‘‘Special 301’’ report. Last year, 12 countries were included on the Priority Watch List and 28 were on the Watch list. 

These submissions list challenges for international patent issues including lack of 

effective patent enforcement and administrative hurdles in the patent granting procedures. 

Historically, the annual USTR Special 301 has mentioned the deficiencies in patent laws in countries listed on their priority watch list. Accordingly, I am looking 

96 

forward to reviewing the next Special 301 Report for 2012, which is due later this 

month. 

Third, we must assure businesses that their patents will be granted within a reasonable period of time and not be discriminated against. 

The patent application process, which includes patent filings, can often have long 

pendency times and prevent patentability for certain fields of technology. 

While businesses need certainty that a patent will be granted in a timely manner, 

the total pendency for patent applications can be as long as 34 months. 

In fact, applicants for pharmaceutical patents may take more than 5 years in 

many countries. For example, applicants for pharmaceutical patents in Chile have 

to wait an average of 8 years for final action on their patent applications. 

Additionally, many foreign countries have barriers to effective enforcement. For 

example, China is often cited for their inadequate damages and ineffective injunctions. 

Our trading partners need to live up to their international obligations and they 

should not discriminate against U.S. companies or fields of technology when it 

comes to patentability and market access. 

Moreover, foreign governments should be able to condition approval of a U.S. 

innovator’s license to patent technologies to domestic companies unless it reduces 

the price associated with the products. 

This pressure from foreign governments is a demand for a reduction in the price 

of the patented technology, often below the global marketplace value. 

It is clear that many foreign countries simply lack consistent stands for 

patentablity. 

This hearing will allow us to explore these topics and determine what role Congress can play to promote a level playing field for international patent issues. 

f 

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Response to Post-Hearing Questions from Chris Israel, Partner, American 

Continental Group (former U.S. Coordinator for International Intellectual Property Enforcement) 


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