United States Government Accountability Office

GAO Testimony 

Before the Committee on Homeland Security and 

Government Affairs, Subcommittee on Oversight of 

Government Management, the Federal Workforce, 

and the District of Columbia, United States Senate

INTELLECTUAL 

PROPERTY 

Initial Observations on the 

STOP Initiative and U.S. 

Border Efforts to Reduce 

Piracy 

Statement of Loren Yager, Director 

International Affairs and Trade 

For Release on Delivery

Expected at 3:30 p.m. EDT

Wednesday, July 26, 2006

 

GAO-06-1004T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

July 26, 2006

INTELLECTUAL PROPERTY 

Initial Observations on the STOP Initiative 

Highlights of GAO-06-1004T, testimony and U.S. Border Efforts to Reduce Piracy 

before the Subcommittee on Oversight of 

Government Management, the Federal 

Workforce, and the District of Columbia, 

Committee on Homeland Security and 

Government Affairs, United States Senate 

U.S. goods are subject to

substantial counterfeiting and 

piracy, creating health and safety 

hazards for consumers, damaging 

victimized companies, and 

threatening the U.S. economy. In

2004, the Bush administration 

launched the Strategy for Targeting

Organized Piracy (STOP) – a multiagency effort to better protect 

intellectual property (IP) by 

combating piracy and 

counterfeiting. This testimony, 

based on a prior GAO report as 

well as observations from on-going 

work, describes (1) the range and

effectiveness of multi-agency

efforts on IP protection preceding 

STOP, (2) initial observations on

the organization and efforts of 

STOP, and (3) initial observations 

on the efforts of U.S. agencies to 

prevent counterfeit and pirated

goods from entering the United 

States, which relate to one of 

STOP’s goals. 

What GAO Recommends

GAO is not recommending

executive action. 

STOP is the most recent in a number of efforts to coordinate interagency 

activity targeted at intellectual property (IP) protection. Some of these 

efforts have been effective and others less so. For example, the Special 301

process – the U.S. Trade Representative’s process for identifying foreign 

countries that lack adequate IP protection – has been seen as effective 

because it compiles input from multiple agencies and serves to identify IP 

issues of concern in particular countries. Other interagency efforts, such as 

those by the National Intellectual Property Law Enforcement Coordination 

Council (NIPLECC), are viewed as being less effective because they have 

produced little beyond a summary of agencies’ actions in the IP arena. 

While STOP has energized IP protection and enforcement efforts 

domestically and abroad, our initial work indicates that its long-term role is

uncertain. STOP has been successful in fostering coordination, such as by 

reaching out to foreign governments and private sector groups. Private 

sector views on STOP were generally positive; however, some stated that it 

emphasizes IP protection and enforcement efforts that would have occurred 

regardless of STOP’s existence. STOP’s lack of permanent status and 

accountability mechanisms poses challenges for its long-term impact and 

congressional oversight. 

STOP faces challenges in meeting some of its objectives, such as increasing

efforts to seize counterfeit goods at the border – an effort for which the 

Department of Homeland Security’s Customs and Border Protection (CBP) 

and Immigration and Customs Enforcement are responsible. CBP has certain 

steps underway, but our initial work indicates that resources for IP 

enforcement at certain ports have declined as attention has shifted to 

national security concerns. In addition, prior GAO work found internal 

control weaknesses in an import mechanism through which a significant 

portion of imports flow, and which has been used to smuggle counterfeit 

goods. 

Examples of authentic and counterfeit products.

Source: GAO.

Authentic (left) versus counterfeit batteries, counterfeit Nike shoes, and counterfeit toothpaste (left) versus authentic toothpaste.

www.gao.gov/cgi-bin/getrpt?GAO-06-1004T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Loren Yager at 

(202) 512-4128 or yagerl@gao.gov. 
Mr. Chairman and Members of the Subcommittee: 

Thank you for the opportunity to appear again before the subcommittee to 

discuss our work on U.S. efforts to protect U.S. intellectual property (IP) 

rights. We appreciate the opportunity to contribute to the record that this

Committee has established on IP protection. The United States dominates 

the creation and export of intellectual property—creations of the mind—

and provides broad protection for intellectual property through means 

such as copyrights, patents, and trademarks. However, because protection 

of intellectual property in many parts of the world is inadequate, U.S. 

goods are subject to substantial counterfeiting and piracy. Such goods are 

widely distributed in global markets, including here in the United States.

As you stated in this Subcommittee’s June 2005 hearing on IP protection, 

the production and distribution of counterfeit and pirated goods create 

health and safety hazards for consumers, damage companies that are 

victims of this theft, and pose a threat to the U.S. economy. 

Since my last testimony before this committee, the United States has 

continued to develop and implement its Strategy for Targeting Organized 

Piracy, or STOP, which outlines priority IP enforcement efforts of six 

agencies. To understand more fully how this strategy might contribute to 

better protection of IP, I will address three topics: (1) the range and 

effectiveness of multi-agency efforts on IP protection that preceded STOP; 

(2) initial observations on the organization and efforts of STOP; and (3) 

initial observations on the efforts of U.S. agencies to prevent counterfeit 

and pirated goods from entering the United States, which relate to one of 

STOP’s goals. 

To address these issues, we have drawn on a number of completed and

ongoing GAO studies, including a report on this subject that we published 

in 2004 and updated in testimony before this committee last year.1

 In 

addition, we are presenting some initial and preliminary observations 

based on three ongoing reviews related to IP protection. These include (1) 

a study that we have initiated for this committee focusing on IP

enforcement at the U.S. border, (2) a study for the House Government 

Reform Committee on interagency efforts to protect IP rights, and (3) 

additional work on a Customs and Border Protection (CBP) program 

 1

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

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

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

Significant Enforcement Challenges Remain, GAO-05-788T (June 14, 2005). 

Page 1 GAO-06-1004T 
called the “in-bond system” that allows goods to enter U.S. commerce at a 

port other than the port of arrival. In conducting the GAO studies, we have 

performed work at multiple U.S. agency headquarters in Washington, at 

U.S. ports of entry, and in other nations. In addition, we have met with 

representatives from multiple industry associations to obtain their views 

on STOP. We obtained technical comments on this testimony from CBP 

and Immigration and Customs Enforcement (ICE) officials and 

incorporated their changes where appropriate. All work was conducted in 

accordance with generally accepted government auditing standards. 

Prior to STOP’s creation in 2004, the U.S. government established a 

number of mechanisms and structures to coordinate interagency IP 

protection activity, and they achieved varying levels of success. For 

example, as we reported in 2004, the Special 301 process2

 that is annually 

led by the Office of the U.S. Trade Representative (USTR) was generally

cited as being quite effective in collecting input from multiple agencies, 

identifying IP issues of concern in particular countries, and achieving

policy changes in many of those nations. On the other hand, U.S. 

government efforts to improve IP enforcement under the National 

Intellectual Property Law Enforcement Coordination Council (NIPLECC), 

a multi-agency coordinating body, were generally believed to be 

ineffective, having resulted in little more than the publication of an annual 

report compiling individual agency submissions. STOP, a presidential 

initiative, was, in part, a response to the need for further attention to IP 

enforcement. The initiative is led by the White House under the auspices 

of the National Security Council and involves collaboration on IP 

protection and enforcement efforts among six federal agencies. 

Summary 

STOP has energized U.S. efforts to protect and enforce IP and has initiated 

some new efforts, but its long-term role is uncertain. One area where 

STOP has increased efforts is outreach to foreign governments. In 

addition, STOP has focused attention on helping small- and medium-sized 

enterprises to better protect their IP rights. Private sector views on STOP 

were generally positive, although some said that STOP was a compilation 

of new and on-going U.S. agency activities that would have occurred 

anyway. As a presidential initiative, STOP was not created by statute; has 

 2

The Special 301 process identifies foreign countries that deny adequate and effective 

protection of IP rights or fair and equitable market access for U.S. persons who rely on IP

protection. 

Page 2 GAO-06-1004T 
no formal structure, funding, or staff; and appears to have no permanence

beyond the current administration. STOP’s lack of permanence and of 

accountability mechanisms poses challenges for its long-term impact and 

congressional oversight.

Certain weaknesses in agencies’ IP enforcement efforts at the border 

illustrate the challenges STOP faces in carrying out some of its objectives.

One of STOP’s goals is to increase efforts to seize counterfeit goods at the 

border, an undertaking that rests primarily with CBP and ICE within the 

Department of Homeland Security. Though STOP doesn’t direct these 

agencies’ efforts or resource allocations, and national security remains a 

top priority, CBP continues to have a trade enforcement role and is taking 

steps to improve its IP enforcement. However, our initial work for this 

Committee indicates that significant challenges remain. The overall task of 

assessing whether particular imports are authentic has become more 

difficult as trade volume and counterfeit quality increase. While the 

number of IP seizures has grown, there is generally no similar trend in the 

estimated value of goods seized. New tools that CBP has developed to 

better target suspect shipments and deal with problem importers are 

largely works in progress whose future impact is uncertain. CBP and ICE 

have undergone dramatic restructuring to manage their new priorities, and 

our initial evidence indicates that resources dedicated to IP enforcement 

are shrinking. Finally, a range of internal control weaknesses continue to 

plague a critical CBP system, called the in-bond system, that allows goods 

to enter U.S. commerce at a port other than the port of arrival. These 

weaknesses have been exploited by importers to smuggle counterfeit 

goods. In our recent work, CBP staff continue to observe that the limited 

information required from importers on in-bond shipments makes it 

difficult for CBP to assure that these shipments have reached their proper 

destinations. 

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

the United States is an acknowledged global leader in its creation. 

However, the legal protection of intellectual property varies greatly 

around the world, and several countries are havens for the production of 

counterfeit and pirated goods. The State Department has cited estimates 

that counterfeit goods represent about 7 percent of annual global trade, 

but we would note that it is difficult to reliably measure what is 

Background 

Page 3 GAO-06-1004T 
fundamentally a criminal activity.3

 Industry groups suggest, however, that 

counterfeiting and piracy are on the rise and that a broader range of 

products, from auto parts to razor blades, and from vital medicines to 

infant formula, are subject to counterfeit production. Counterfeit products

raise serious public health and safety concerns, and the annual losses that 

companies face from IP violations are substantial.

Eight federal entities, the Federal Bureau of Investigation (FBI), and the 

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

government activities to protect and enforce U.S. IP rights overseas. These 

eight entities are: Departments of Commerce, State, Justice, and 

Homeland Security; USTR; the Copyright Office; the U.S. Agency for 

International Development; and the U.S. International Trade Commission. 

They undertake a wide range of activities that fall under three categories: 

policy initiatives, training and technical assistance, and law enforcement. 

U.S. policy initiatives to increase IP protection around the world are 

primarily led by USTR, in coordination with the Departments of State, 

Commerce, USPTO, and the Copyright Office, among other agencies. 

These policy initiatives are wide ranging and include reviewing IP 

protection abroad, using trade preference programs for developing 

countries,4

 and negotiating agreements that address intellectual property.

Key activities to develop and promote enhanced IP protection in foreign 

countries through training or technical assistance are undertaken by the 

Departments of Commerce, Homeland Security, Justice, and State; the

FBI; USPTO; the Copyright Office; and the U.S. Agency for International 

Development. A smaller number of agencies are involved in enforcing U.S.

IP laws. Working in an environment where counterterrorism is the central

priority, the FBI and the Departments of Justice and Homeland Security 

take actions that include engaging in multi-country investigations 

involving intellectual property violations and seizing goods that violate IP 

rights at U.S. ports of entry. Finally, the U.S. International Trade 

Commission has an adjudicative role in enforcement activities involving 

patents and trademarks. 

 3

The Organisation for Economic Co-operation and Development (OECD) is conducting a

study on IP, examining the extent to which counterfeit goods are entering global trade and 

associated data reliability issues. 

4

U.S. IP rights policy efforts include use of the Generalized System of Preferences (GSP) 

originally authorized under the Trade Act of 1974. When GSP was re-authorized under the

Trade and Tariff Act of 1984, new “country practice” eligibility criteria were added, 

including a requirement that beneficiary countries provide adequate IP rights protection. 

Page 4 GAO-06-1004T 
STOP is the most recent of several interagency IP coordination

mechanisms that address IP policy initiatives, training and technical 

assistance, and law enforcement. Some of these have been effective,

particularly the Special 301 process that identifies inadequate IP 

protection in other countries and the Intellectual Property Rights (IPR) 

Training Coordination Group. However, U.S. law enforcement 

coordination efforts through NIPLECC have had difficulties. STOP was, in 

part, a response to the need for further attention to IP enforcement. 

STOP Is One of 

Several Interagency 

IP Coordination 

Mechanisms 

Coordination Efforts 

Involving Policy Initiatives 

and Technical Assistance 

Have Been Generally 

Effective 

Our September 2004 report found that coordination efforts through the 

Special 301 process and the IPR Training Coordination Group have 

generally been considered to be effective by U.S. government and industry 

officials.5

 “Special 301,” which refers to certain provisions of the Trade Act 

of 1974, as amended,6

 requires USTR to annually identify foreign countries

that deny adequate and effective protection of IP rights or fair and 

equitable market access for U.S. persons who rely on IP protection. USTR

identifies these countries with substantial assistance from industry and 

U.S. agencies and then publishes the results of its reviews in an annual 

report. Once a list of such countries has been determined, the USTR, in 

coordination with other agencies, decides which, if any, of these countries 

should be designated as Priority Foreign Countries, which may result in an 

investigation and subsequent actions. As our report notes, according to 

government and industry officials, the Special 301 process has operated 

effectively in reviewing IP rights issues overseas. These agency officials 

told us that the process is one of the best tools for interagency

coordination in the government, and coordination during the review is 

frequent and effective. 

The IPR Training Coordination Group is a voluntary, working-level group 

comprised of representatives of U.S. agencies and industry associations 

involved in training and technical assistance efforts overseas for foreign 

officials. Meetings are held approximately every 4 to 6 weeks and are well

attended by government and private sector representatives. The State 

Department leads the group, and meetings have included discussions on 

training “best practices,” responding to country requests for assistance, 

and improving IPR awareness among embassy staff. According to several

agency and private sector participants, the group is a useful mechanism 

 5

GAO-04-912. 

6

19 U.S.C. 2242. 

Page 5 GAO-06-1004T 
that keeps participants informed of the IP activities of other agencies or 

associations and provides a forum for coordination. 

IP Law Enforcement 

Coordination Efforts Have 

Faced Challenges 

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

international intellectual property law enforcement among U.S. federal

and foreign entities.7

 NIPLECC members are from five agencies and 

consist of: (1) Commerce’s Undersecretary for Intellectual Property and 

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

Commerce’s Undersecretary of International Trade; (3) the Department of 

Justice’s Assistant Attorney General, Criminal Division; (4) the 

Department of State’s Undersecretary for Economic and Agricultural 

Affairs; (5) the Deputy United States Trade Representative; and (6) the 

Department of Homeland Security’s Commissioner of U.S. Customs and 

Border Protection. Representatives from the Department of Justice and 

USPTO are co-chairs of NIPLECC.8

Coordination efforts involving IP law enforcement through NIPLECC have 

not been as successful as other efforts. In our September 2004 report, we 

stated that NIPLECC had struggled to define its purpose and had little 

discernible impact, according to interviews with industry officials and 

officials from its member agencies, and as evidenced by NIPLECC’s own

annual reports.9

 Indeed, officials from more than half of the member 

agencies offered criticisms of NIPLECC, remarking that it was unfocused,

ineffective, and “unwieldy.” We also noted that if the Congress wishes to 

maintain NIPLECC and take action to increase its effectiveness, it should 

to consider reviewing the council’s authority, operating structure, 

membership, and mission. 

In the fiscal year 2005 Consolidated Appropriations Act, the Congress 

provided $2 million for NIPLECC expenses, to remain available through 

fiscal year 2006.10 The act also created the position of the Coordinator for 

International Intellectual Property Enforcement, appointed by the 

 7

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

Appropriations Act, 2000 (P.L. 106-58), 15 U.S.C. 1128. 

8

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

matters related to copyright and related rights and matters. 

9

GAO-04-912. 

10The Consolidated Appropriations Act, 2005 (P.L. 108-447), Division B Title II. 

Page 6 GAO-06-1004T 
President, to head NIPLECC.11 The NIPLECC co-chairs are to report to the 

Coordinator. In July 2005, Commerce Secretary Gutierrez announced the 

presidential appointment filling the IP Coordinator position. Since then, 

NIPLECC has added an assistant, a policy analyst, part time legislative and 

press assistants, and detailees from USPTO and CBP. Since the 

Consolidation Appropriations Act, NIPLECC has held two formal meetings 

but has not issued an annual report since 2004. 

In October 2004 the President launched STOP, an initiative to target crossborder trade in tangible goods and strengthen U.S. government and 

industry IP enforcement actions. The initiative is led by the White House 

under the auspices of the National Security Council and involves 

collaboration among six federal agencies: the Departments of Commerce, 

Homeland Security, Justice, and State; USTR; and the Food and Drug 

Administration.12 STOP has five general objectives: (1) empower American 

innovators to better protect their rights at home and abroad, (2) increase 

efforts to seize counterfeit goods at our borders, (3) pursue criminal 

enterprises involved in piracy and counterfeiting, (4) work closely and 

creatively with U.S. industry, and (5) aggressively engage our trading 

partners to join U.S. efforts. 

The IP Coordinator is also serving as the coordinator for STOP. Both 

agency officials and industry representatives with whom we spoke 

consistently praised the IP Coordinator, saying that he was effectively 

addressing their concerns by speaking at seminars, communicating with 

their members, and heading U.S. delegations overseas. 

STOP has energized U.S. efforts to protect and enforce IP and has initiated 

some new efforts, however its long-term role is uncertain. One area where 

STOP has increased efforts is outreach to foreign governments. In 

addition, STOP has focused attention on helping small- and medium-sized 

enterprises to better protect their IP rights. Industry representatives 

generally had positive views on STOP, although some thought that STOP 

was a compilation of new and on-going U.S. agency activities that would 

have occurred anyway. STOP’s lack of permanent status as a presidential 

STOP Was Created to 

Strengthen IP 

Enforcement 

STOP Has Energized 

U.S. Efforts, but Its 

Impact and LongTerm Viability Are 

Uncertain 

 11This official may not serve in any other position in the federal government. 

12STOP and NIPLECC share the same member agencies, with the exception of the Food and 

Drug Administration, which is a member of STOP but not NIPLECC. 

Page 7 GAO-06-1004T 
initiative and lack of accountability mechanisms could limit its long-term 

impact. 13

STOP Has Fostered 

Coordination and 

Undertaken Some New 

Initiatives 

Agency officials participating in STOP cited several advantages to the 

initiative. They said that STOP energized their efforts to protect and 

enforce IP by giving them the opportunity to share ideas and support 

common goals. Officials said that STOP had brought increased attention to

IP issues within their agencies and the private sector as well as abroad, 

and attributed that to the fact that STOP came out of the White House, 

thereby lending it more authority and influence. Another agency official 

pointed out that IP was now on the President’s agenda at major summits 

such as the G-8 and the recent EU-U.S. summits.14

STOP has initiated some new efforts, including a coordinated U.S. 

government outreach to foreign governments that share IP concerns and 

enforcement capacities similar to the United States. For example, the 

United States and the European Union (EU) have formed the U.S.-EU 

Working Group on Intellectual Property Rights, and in June 2006, the 

United States and European Union announced an EU-U.S. Action Strategy 

for Enforcement of IP Rights meant to strengthen cooperation in border 

enforcement and encourage third countries to enforce and combat 

counterfeiting and piracy. 

One particular emphasis of STOP has been to help small- and mediumsized enterprises (SMEs) protect their IP in the United States and abroad 

through various education and outreach efforts. In 2002, we reported that

SMEs faced a broad range of impediments when seeking to patent their 

inventions abroad, including cost considerations and limited knowledge 

about foreign patent laws, standards, and procedures.15 We recommended 

that the Small Business Administration (SBA) and the USPTO work 

together to make a range of foreign patent information available to SMEs. 

Within the last year, an SBA official told us that SBA began working with 

STOP agencies to distribute information through its networks and recently

 13GAO will be issuing a report on STOP and NIPLECC in the fall at the request of the

Chairman of House Committee on Government Reform. 

14The G-8 is an annual summit whose members include Canada, the European Union,

France, Germany, Italy, Japan, Russia, the United Kingdom, and the United States. 

15GAO, International Trade: Federal Action Needed to Help Small Businesses Address

Foreign Patent Challenges, GAO-02-789 (Washington, D.C.: July 17, 2002). 

Page 8 GAO-06-1004T 
linked SBA’s website to the STOP website, making information about U.S., 

foreign, and international laws and procedures accessible to its clients. 

Many industry representatives with whom we spoke viewed STOP 

positively, maintaining that STOP had increased the visibility of IP issues. 

For example, one industry representative noted a coordinated outreach to 

foreign governments that provided a more collaborative alternative to the

Section 301 process, whose punitive aspects countries sometimes 

resented. Another indicated that his association now coordinates training 

with CBP that is specific to his industry as a result of contacts made 

through STOP. In addition, most private sector members with whom we

spoke agreed that STOP was an effective communication mechanism 

between businesses and U.S. federal agencies on IP issues, particularly 

through the Coalition Against Counterfeiting and Piracy (CACP), a crossindustry group created by a joint initiative between the Chamber of 

Commerce and the National Association of Manufacturers. Private sector 

officials have stated that CACP meetings are their primary mechanism of 

interfacing with agency officials representing STOP. 

There were some industry representatives who questioned whether STOP 

had added value beyond highlighting U.S. IP enforcement activities. Some 

considered STOP to be mainly a compilation of ongoing U.S. IP activities 

that pre-dated STOP. For example, Operation Fast Link16 and a case 

involving counterfeit Viagra tablets manufactured in China, both listed as 

STOP accomplishments, began before STOP was created. In addition, 

some industry representatives believed that new activities initiated under 

STOP would have likely occurred without STOP. 

STOP Has Features That 

May Limit Its Long-Term 

Impact 

As a presidential initiative, STOP was not created by statute; has no formal 

structure, funding, or staff; and appears to have no permanence beyond 

the current administration. NIPLECC, on the other hand, is a statutory 

initiative, receives funds, and is subject to congressional oversight. 

Recently, the lines between NIPLECC and STOP have blurred, possibly 

lending STOP some structure and more accountability. For example, as 

mentioned before, NIPLECC’s IP Coordinator is also the focal point for 

STOP. In addition, NIPLECC recently adopted STOP as the strategy it is 

required to promulgate under the Consolidated Appropriations Act of 

 16Under the Department of Justice’s Operation Fast Link, in April 2004, law enforcement

authorities executed over 120 total searches over 24 hours in 27 states and in 10 foreign 

countries. Four separate undercover investigations were simultaneously conducted, 

striking all facets of the illegal software, game, movie, and music trade online. 

Page 9 GAO-06-1004T 
2005. This legislation calls for NIPLECC to establish policies, objectives, 

and priorities concerning international intellectual property protection and 

intellectual property law enforcement; promulgate a strategy for 

protecting American intellectual property overseas; and coordinate and

oversee implementation of these requirements. 

However, the nature of the relationship between STOP and NIPLECC is 

not clear. Although the IP Coordinator has recently reported in 

congressional hearings that NIPLECC adopted STOP as its strategy, there 

have been no formal announcements to the press, industry associations, or

agency officials responsible for carrying out STOP activities. In addition, 

STOP documents do not refer to NIPLECC. Our meetings with agency and 

industry officials indicated that they are unclear about the relationship 

between STOP and NIPLECC. The absence of a clearly established 

relationship makes it difficult to hold NIPLECC accountable for 

monitoring and assessing the progress of IP enforcement under STOP. We 

believe that accountability mechanisms are important to oversight of 

federal agency efforts and can contribute to better performance on issues 

such as IP protection. 

One of STOP’s five goals is to increase federal efforts to seize counterfeit

goods at the border, but work we are conducting for this Subcommittee 

illustrates the kind of challenges that STOP faces in achieving its goals. 

CBP and ICE are responsible for border enforcement efforts, but their top 

priority is national security. CBP has taken several steps since fiscal year 

2003, when it made IP matters a priority trade issue, to update and 

improve its border enforcement efforts. While CBP seizures of IPinfringing goods have grown steadily since fiscal year 2002, the total 

estimated value of seizures during that time generally did not exhibit 

similar growth. Additionally, some steps that CBP is taking to improve IP 

enforcement are works in progress whose impact on this STOP objective 

is uncertain. CBP’s ability to effectively enforce IP rights at the border is 

also challenged by limited resources for such enforcement and by longstanding weaknesses in its ability to track the physical movement of goods

entering the United States using the in-bond system.17

IP Enforcement 

Efforts at the Border 

Illustrate Challenges 

Facing STOP 

 17Early next year, GAO will provide a detailed report to this Subcommittee on our findings 

related to IP border enforcement and a separate report to the Congress on our findings 

related to the in-bond system. 

Page 10 GAO-06-1004T 
STOP documents cite increases in IP-related seizures as a positive 

indicator of its efforts to stop counterfeit goods at the border. The overall

task of assessing whether particular imports are authentic has become 

more difficult as trade volume and counterfeit quality increase. The 

number of IP-related seizures has grown steadily, with CBP and ICE 

together making about 5,800 seizures in fiscal year 2002 and just over 8,000 

seizures in fiscal year 2005.18 However, there is no corresponding trend in 

the estimated value of such seizures.19 The estimated value of goods seized 

in fiscal years 2002 and 2003 was $99 million and $94 million, respectively.

This figure jumped to a peak of about $139 million in fiscal year 2004, but 

dropped back to the former level, about $93 million, in fiscal year 2005. 

CBP IP Seizures Have 

Increased in Number but 

the Estimated Value Has 

Fluctuated 

According to CBP officials, the agency’s goal is to focus its resources in 

part on high-value seizures, but a large percentage of annual seizure 

activity does not result in a significant seizure value. For example, nearly 

75 percent of fiscal year 2005 seizures were small-scale shipments made at

mail and express consignment facilities (facilities operated by companies 

that offer express commercial services to move mail and cargo, such as 

the United Parcel Service) or from individuals traveling by air, vehicle, or 

on foot. These seizures represented about 14 percent of total estimated 

seizure value in that year. Conversely, about 14 percent of fiscal year 2005 

seizures involved large-scale shipments (i.e., containers) and accounted 

for about 55 percent of that year’s estimated seizure value. The number of 

seizures made on goods emanating from China has risen from about 49 

percent of the estimated domestic value of all IP seizures in fiscal year 

2002 to about 69 percent in fiscal year 2005. 

While CBP seizes goods across a range of product sectors, in recent years, 

seizures tend to be concentrated in particular goods, such as apparel, 

handbags, cigarettes, and consumer electronics. CBP also seeks to 

increase seizures of goods involving public health and safety risks, and its 

data shows that the estimated domestic value of seized goods involving 

certain health and safety risks, specifically pharmaceuticals, electrical 

articles, and batteries, increased during fiscal years 2002-2005. However, 

 18Each seizure action is counted as one seizure, regardless of the amount of goods seized. 

19It is important to note that total estimated seizure value in any given year is a function of 

the type of goods seized, which varies from year to year. CBP estimates the value of IPrelated seizures using “domestic value.” CBP defines domestic value of goods as landed 

cost plus profit (the cost of the merchandise when last purchased, plus all duties, fees, 

broker’s charges, profit, unlading charges, and U.S. freight charges to bring the goods to the

importer’s premises). 

Page 11 GAO-06-1004T 
seizures in these and certain other health and safety categories

represented less than 10 percent of the total estimated domestic value of

seizures in fiscal year 2005, and seizures of other potentially dangerous 

goods, such as counterfeit auto parts, remain relatively limited. For 

example, CBP estimated in a letter to an automotive industry trade 

association that it made 14 seizures in fiscal years 2003-2005 of certain 

automotive parts.20 A representative from another automotive industry 

trade association noted that CBP’s ability to make seizures in this area 

depends on its receiving quality information about counterfeiters from 

companies. 

CBP Has Taken Steps to 

Improve IP Enforcement, 

but Several Are Still Works 

in Progress 

In various STOP documents, CBP cites steps it has taken to improve IP 

enforcement, but many of these are works in progress whose impact and 

effectiveness are undetermined. CBP identified IP matters as a priority 

trade issue in fiscal year 2003 and developed an agency-wide strategy for 

IP enforcement. The strategy addresses several components of IP 

enforcement, such as targeting (identifying high risk shipments), 

international coordination, communication to employees, and industry 

outreach. A CBP official who oversees the IP strategy told us that CBP 

seeks to perform IP enforcement more efficiently, and the strategy notes 

the importance of conducting IP enforcement while minimizing the burden 

on front line resources whose priority is national security. Several 

elements of the strategy were specifically designated as activities to 

support STOP. 

CBP’s key STOP-related activity is the creation of a statistical computer 

model that is designed to identify container shipments that are at higher 

risk of involving IP rights violations. To develop the model, CBP examined 

elements of past seizures and container examinations and identified 

certain factors that were significant characteristics of IP-infringing imports 

and that could be used to identify future IP rights violations. CBP piloted 

this model on a nation-wide basis for about one month in February 2005,

but the pilot revealed several issues that need to be addressed before the 

 20In this estimate, CBP counted seizures that were based in whole or in part on 

infringement of IP rights owned by motor vehicle manufacturers; manufacturers of motor 

vehicle parts, equipment, tools, and supplies; and manufacturers of automotive chemicals 

and other products used in the production, repair, and maintenance of all motor vehicles. 

CBP did not include seizures of IP-infringing products that are not used in production, 

repair, and maintenance of motor vehicles, such as key chains, toys, and apparel, or 

counterfeit goods used in the interior of a motor vehicle, such as car organizers, can 

holders, sunshades, steering wheel covers, and floor mats. 

Page 12 GAO-06-1004T 
model can be implemented. CBP plans to pilot the model again for up to 3 

months this summer at two land border ports and one seaport. CBP will 

use the results of the second pilot to further evaluate the viability of the 

model. 

Another STOP-related activity for CBP is the use of post-entry audits to 

assist with IP enforcement.21 CBP officials said using such audits for this 

purpose is a new approach that is designed to assess whether companies 

have adequate internal controls to prevent them from importing goods that 

infringe IP rights. Initiated in fiscal year 2005, these audits are a novel

approach that is likely to work best with established importers, but they 

may be less effective for dealing with importers that are engaged in 

criminal activity and deliberately take steps to evade federal scrutiny. CBP 

selected 40 known and potential IP-infringing companies to audit in fiscal

years 2005-2006, and by July 2006 had completed 17 of these audits.22 In 

three audits, CBP found that the companies possessed or had already sold

infringing goods that were not seized at the border. In two of these cases, 

CBP imposed penalties on the companies totaling about $4.6 million.23 In 

the third case, the audit closed in September 2005, but the decision on 

whether to impose penalties is still pending in CBP. A CBP official said 

that some less significant IP-infringing activity was found in several other 

audits, but CBP chose not to impose penalties in these cases. CBP also 

found that internal controls to prevent IP rights violations were lacking or 

inadequate for most of the 17 companies, and has worked with them to 

improve these controls. 

A third STOP activity for CBP is the development of a system that allows 

companies to electronically record their IP rights through CBP’s website. 

While trademark and copyright protection is obtained from USPTO and 

the Copyright Office, respectively, these rights must be separately 

 21CBP’s Regulatory Audit Division in the Office of Strategic Trade performs various types of 

audits on importing companies. “Quick Response Audits” are designed to address singleissue trade compliance or enforcement concerns. The IP enforcement audits are a type of 

Quick Response Audit that examines importer controls to prevent IP infringement. They

are referred to as post-entry audits because they examine controls over goods that have

already entered the country. 

22The same computer model being developed to detect high-risk shipments was used to

help select some companies for the post-entry audits in fiscal year 2005. 

23CBP imposed penalties under 19 U.S.C. 1595a(b), which allows it to assess penalties equal 

to the domestic value of any articles introduced or attempted to be introduced into the

United States contrary to law. 

Page 13 GAO-06-1004T 
recorded with CBP, for a fee.24 Recording with CBP provides CBP officials 

with information about the scope, ownership, and representation of 

protected IP rights being recorded. Although CBP officials have said 

recordation is important because it helps CBP effect legally defensible 

border enforcement, some companies fail to record their rights with CBP, 

either because they are unaware of the recordation requirement or 

because they choose not to. The electronic recordation system, 

implemented in December 2005, is designed to streamline the process; 

reduce processing times; and, ideally, increase the number of 

recordations.25 A link to the recordation system has been established on 

USPTO’s website, and a link from the Copyright Office is planned. CBP 

expects that most paper-based applications will eventually be eliminated.26

While these are important steps, we have not yet evaluated the impact of

the new recordation system. Several industry representatives have cited 

other concerns about recordation generally, such as long recordation 

processing times and the effective lack of border protection caused by the 

inability to record copyrights with CBP before such rights are issued by 

the Copyright Office. For example, one private sector representative said 

that during the 6 to 9 months it takes to process a copyright, pirated 

master CDs may be allowed to enter the United States because the rights 

holder has not yet been able to record the title with CBP.27

Initial Evidence Indicates 

That Resources for IP 

Enforcement Are 

Shrinking 

CBP and ICE priorities and resource allocations changed dramatically 

after September 2001, and our initial work indicates that some 

headquarters and field resources for IP enforcement have declined since 

then. As you indicated in your statement at the June 2005 IP hearing, the 

ultimate success of STOP, and of IP enforcement generally, depends on 

whether agencies are able to recruit, train, and retain the necessary 

workforce to meet their objectives. You also noted that prior hearings 

 24The recordation fee is $190 per trademark or copyright application, or, if a trademark 

application covers more than one class of protected goods, the fee is $190 per class of 

goods to be recorded. 

25Pendency times for paper-based recordation applications could be months long,

according to a CBP official. 

26CBP would still offer paper-based recordation to accommodate companies that lack 

Internet access.

27A CBP official said that an exemption to allow companies to record certain copyrights

with CBP based on the copyright application, rather than the issued copyright, awaits 

approval in CBP.

Page 14 GAO-06-1004T 
before this Subcommittee revealed that human capital issues were 

hindering federal enforcement of trade laws. At several border locations 

we visited, we found that resources for trade and IP enforcement are 

thinly spread, certain IP enforcement positions had been reduced or 

eliminated, and one location faced challenges in filling vacant CBP Officer 

positions. 

At CBP port operations, employees in two job categories are responsible 

for IP enforcement — CBP Officers and Import Specialists. CBP Officers 

are responsible for targeting incoming shipments for security and trade 

purposes and conducting physical examinations of suspect goods. Import 

Specialists are responsible for assessing the actual value and composition 

of goods for duty and quota purposes and for making initial 

determinations of whether goods are believed to be in violation of U.S. IP

rights laws. While CBP Officers are typically assigned to a single port of 

entry, Import Specialists assigned to a large port may be responsible for 

covering other smaller ports that report to the larger port. ICE field office 

agents investigate IP infringement cases. 

We have not yet gathered comprehensive data on the number of CBP 

Officers, Import Specialists, and ICE agents devoted to IP enforcement, 

but we found reduced resources, thinly spread, at several border locations

that we have visited. 

• At the Port of Los Angeles/Long Beach, the largest U.S. seaport by volume, 

two trade enforcement teams have been disbanded and their CBP Officers 

shifted to national security details. Port officials said that since the late 

1990s, the number of CBP Officers performing trade-related examinations

has dropped by about 43 percent, and the number of Import Specialists on 

an IP-devoted enforcement team has dropped by half. 

• The Port of San Francisco services multiple port facilities, including two 

major seaports, two major airports, and seven smaller port locations. CBP 

Officers at the San Francisco air cargo facility said that 4 out of 13 CBP 

Officers are assigned to inspect cargo for trade violations. These 4 officers 

share coverage of a 7-day work week, such that about 2 CBP Officers 

perform trade inspections on any day. In 2001, there were about 12 CPB 

Officers assigned to trade inspections. San Francisco’s Director of Field 

Operations told us that filling 33 vacancies within his approximately 450 

CBP Officer positions is a high priority. Currently, there are 3 Import 

Specialists, down from 6 in 2003, that focus primarily on IP enforcement 

and service the seaports, airports, and smaller ports within the Port of San 

Francisco’s area. 

Page 15 GAO-06-1004T 
• ICE also performs IP enforcement and houses the National IPR 

Coordination Center (called the IPR Center) – a joint effort between ICE 

and the FBI intended to serve as a focal point for the collection of 

intelligence involving, among other things, copyright and trademark 

infringement. Currently, 9 of the 16 authorized ICE positions are filled and 

a 10th is slated to be filled. Neither of the 2 CBP authorized positions are 

filled. Additionally, in January 2006, 7 of 8 FBI positions were empty and 

the 8th position was filled by rotating FBI staff. In July 2006, an FBI official 

told us that no FBI staff were working at the IPR center because of limited 

physical space and pressing FBI casework, but that some staff would 

return in September 2006. 

• The ICE field office in Los Angeles, one of the largest field offices in the 

country, had two commercial fraud enforcement teams before the 

formation of the Department of Homeland Security, but now has one. The 

number of agents working on commercial fraud enforcement cases, which 

include IP enforcement, dropped from about 14 to 9 since 2003. However, 

an official from this office said resource changes have not affected how 

the team addresses IP enforcement nor caused it to turn away any IP 

enforcement cases. 

The in-bond system has been identified by CBP and ICE officials as a 

mechanism that has been used to circumvent import and IP laws and 

regulations, presenting an enforcement challenge. A significant portion of 

goods received at U.S. ports do not immediately enter U.S. commerce but 

are instead shipped “in-bond” for official entry at other U.S. ports or are 

transported through the United States for export.28 When goods are 

shipped in-bond, they are subject to national security inspections at the 

port of arrival, but are exempt from U.S. duties or quotas and formal trade 

inspections until they reach the final port where they will officially enter 

In-Bond System Faces 

Persistent Control 

Weaknesses and Has Been 

Used to Circumvent IP 

Laws 

 28CBP regulations provide for three different types of “in-bond” shipments: (1) immediate 

transportation (IT) in-bond, which allows goods arriving at one U.S. port to move to 

another U.S. port where they enter U.S. trade; (2) transportation and exportation (T&E) inbond, which allows goods arriving at a U.S. port to be transported through the United 

States for export to another country; and (3) immediate exportation (IE) in-bond, which 

allows goods arriving at a U.S. port to be shipped to a foreign port without transport

through the United States. In our 2004 report, GAO found that in-bond entries comprised 

about 58 percent of total entries in Miami, 60 percent in New York, and 46 percent in Los

Angeles. Recent work confirmed that in-bond shipments continue to account for a 

considerable share of all cargo arriving through these ports.

Page 16 GAO-06-1004T 
U.S. commerce.29 For many years, GAO and others have noted weaknesses 

in the in-bond system used to monitor shipments between ports.30

CBP and ICE officials recognize that the in-bond system has been used by

certain importers to bring counterfeit and pirated goods into the United 

States by avoiding official entry at the port of arrival and then diverting the 

goods afterwards. Some CBP officials said the in-bond system may 

contribute to imports of counterfeits by allowing some importers to “port 

shop” for ports that are less likely to identify IP violations. Indeed, CBP 

has made sizable IP-related seizures from the in-bond system, including 

220 seizures valued at about $41 million in fiscal year 2004, representing 

nearly 30 percent of the total estimated domestic value of IP seizures in 

that year. In fiscal year 2005, there were 126 seizures valued at about $14 

million, representing about 15 percent of estimated domestic value of IP 

seizures that year. 

We have found weaknesses in the past with the in-bond system and are 

currently conducting follow-up work to determine whether these 

weaknesses have been corrected. Our audit is still underway, but work to 

date indicates that some previously identified weaknesses in tracking and

monitoring in-bonds remain. For example, in January 2004 GAO reported 

that CBP collects significantly less information on in-bond shipment than 

for regular entries and that this lack of information makes tracking inbond shipments more difficult.31 In our recent work, CBP staff continue to 

observe that the limited information required from importers on in-bond 

shipments makes it difficult for CBP to ensure that the shipments have 

reached their proper destinations. 

Intellectual property protection is an issue that requires the involvement of

many U.S. agencies, and the U.S. government has employed a number of 

mechanisms to combat different aspects of IP crimes, with varying levels 

of success. The STOP initiative, the most recent coordinating mechanism, 

Conclusions 

 29The in-bond system allows arriving cargo that is intended for export to other countries to

move through the United States without being subject to formal U.S. entry, duties, and 

quotas. 

30GAO, International Trade: U.S. Customs and Border Protection Faces Challenges in

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

2004). 

31GAO-04-345. 

Page 17 GAO-06-1004T 
has brought attention and energy to IP efforts within the U.S. government,

and participants and industry observers have generally supported the new

effort. At the same time, the challenges of IP piracy are enormous, and will 

require the sustained and coordinated efforts of U.S. agencies, their 

foreign counterparts, and industry representatives to be successful. Our 

initial observations on the structure of STOP suggest that it is not well 

suited to address the problem over the long term, as the presidential 

initiative does not have permanence or the accountability mechanisms 

that would facilitate oversight by the Congress. Our ongoing work on IP 

protection efforts at the U.S. border, one of the five areas identified by 

STOP, also illustrates the types of challenges that need sustained attention 

to make progress on the issue. We believe that our more detailed reports 

to be released in the near future will contribute to continuing 

Congressional oversight of these issues. 

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

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

subcommittee may have at this time. 

Page 18 GAO-06-1004T (320452) 
This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 
GAO’s Mission The Government Accountability Office, the audit, evaluation and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost

is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts 

newly released reports, testimony, and correspondence on its Web site. To

have GAO e-mail you a list of newly posted products every afternoon, go 

to www.gao.gov and select “Subscribe to Updates.” 

The first copy of each printed report is free. Additional copies are $2 each. 

A check or money order should be made out to the Superintendent of 

Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. Orders 

should be sent to: 

U.S. Government Accountability Office 

441 G Street NW, Room LM 

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

Obtaining Copies of 

GAO Reports and 

Testimony

Order by Mail or Phone 

To Report Fraud,

Waste, and Abuse in 

Federal Programs 

Congressional 

Relations 

Public Affairs 

PRINTED ON RECYCLED PAPER