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ISSUES BEFORE THE U.S.-CHINA JOINT

COMMISSION ON COMMERCE AND TRADE

HEARING

BEFORE THE

SUBCOMMITTEE ON 

COMMERCE, TRADE, AND CONSUMER PROTECTION

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

JUNE, 9 2005

Serial No. 109–73

Printed for the use of the Committee on Energy and Commerce

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house

COMMITTEE ON ENERGY AND COMMERCE

JOE BARTON, Texas, Chairman 

RALPH M. HALL, Texas 

MICHAEL BILIRAKIS, Florida 

Vice Chairman 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

PAUL E. GILLMOR, Ohio 

NATHAN DEAL, Georgia 

ED WHITFIELD, Kentucky 

CHARLIE NORWOOD, Georgia 

BARBARA CUBIN, Wyoming 

JOHN SHIMKUS, Illinois 

HEATHER WILSON, New Mexico 

JOHN B. SHADEGG, Arizona 

CHARLES W. ‘‘CHIP’’ PICKERING, 

Mississippi, Vice Chairman 

VITO FOSSELLA, New York 

ROY BLUNT, Missouri 

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

CHARLES F. BASS, New Hampshire 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

C.L. ‘‘BUTCH’’ OTTER, Idaho 

SUE MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

JOHN D. DINGELL, Michigan 

Ranking Member 

HENRY A. WAXMAN, California 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, Jr., New Jersey 

SHERROD BROWN, Ohio 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

ALBERT R. WYNN, Maryland 

GENE GREEN, Texas 

TED STRICKLAND, Ohio 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MIKE DOYLE, Pennsylvania 

TOM ALLEN, Maine 

JIM DAVIS, Florida 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

BUD ALBRIGHT, Staff Director 

DAVID CAVICKE, Deputy Staff Director and General Counsel 

REID P.F. STUNTZ, Minority Staff Director and Chief Counsel 

SUBCOMMITTEE ON COMMERCE, TRADE, AND CONSUMER PROTECTION

CLIFF STEARNS, Florida, Chairman 

FRED UPTON, Michigan 

NATHAN DEAL, Georgia 

BARBARA CUBIN, Wyoming 

GEORGE RADANOVICH, California 

CHARLES F. BASS, New Hampshire 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO, California 

LEE TERRY, Nebraska 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

C.L. ‘‘BUTCH’’ OTTER, Idaho 

SUE MYRICK, North Carolina 

TIM MURPHY, Pennsylvania 

MARSHA BLACKBURN, Tennessee 

JOE BARTON, Texas, 

(Ex Officio) 

JAN SCHAKOWSKY, Illinois 

Ranking Member 

MIKE ROSS, Arkansas 

EDWARD J. MARKEY, Massachusetts 

EDOLPHUS TOWNS, New York 

SHERROD BROWN, Ohio 

BOBBY L. RUSH, Illinois 

GENE GREEN, Texas 

TED STRICKLAND, Ohio 

DIANA DEGETTE, Colorado 

JIM DAVIS, Florida 

CHARLES A. GONZALEZ, Texas 

TAMMY BALDWIN, Wisconsin 

JOHN D. DINGELL, Michigan, 

(Ex Officio) 

(II) 

C O N T E N T S 

Page

Testimony of: 

Dudas, Jon W., Undersecretary of Commerce for Intellectual Property, 

Director, United States Patent and Trademark Office .............................. 7

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

United States Patent and Trademark Office, response to questions from 

Hon. Barbara Cubin and Hon. Jan Schakowsky ........................................ 34

(III) 

(1)

ISSUES BEFORE THE U.S.-CHINA JOINT 

COMMISSION ON COMMERCE AND TRADE 

THURSDAY, JUNE 9, 2005

HOUSE OF REPRESENTATIVES, COMMITTEE ON ENERGY AND COMMERCE, SUBCOMMITTEE ON COMMERCE, TRADE, AND CONSUMER PROTECTION, Washington, DC. 

The subcommittee met, pursuant to notice, at 1:22 p.m., in room 

2123 of the Rayburn House Office Building, Hon. Cliff Stearns 

(chairman) presiding. 

Members present: Representatives Stearns, Blackburn, 

Schakowsky, and Green. 

Staff present: Andy Black, deputy staff director, policy; Chris 

Leahy, policy coordinator; David Cavicke, general counsel; Brian 

McCullough, professional staff; Will Carty, professional staff; Billy 

Harvard, clerk; Terry Lane, deputy communications director; Larry 

Neal, deputy staff director, communications; Jonathan Cordone, minority counsel; Turney Hall, staff assistant; and David Vogel, staff 

assistant. 

Mr. STEARNS. Good afternoon. The subcommittee will come to 

order. I want, first of all, to start by thanking the Department of 

Commerce for appearing here today to talk about the U.S.-China 

Joint Commission on Commerce and Trade, the JCCT. Now, there 

are many important issues to discuss with regard to China. Given 

the importance of intellectual property rights—IPR—to the American economy and its engine of innovation, we are particularly glad 

that Mr. Dudas has come to discuss intellectual property rights—

IPR. Now, frankly, Mr. Dudas, your testimony, I think, is very critical to the committee’s understanding the complexity of these problems and, of course, how we go about solving them. 

My colleagues, U.S.-China trade began to grow shortly after diplomatic relations were established in 1979, paving the way for a bilateral trade agreement and most-favored nation status in 1980. 

Since 1980, U.S.-China trade has risen from $5 billion a year to 

$231 billion a year in 2004. China joined the World Trade Organization, the WTO, in 2001. China is now the third-largest U.S. trading partner, it is the second largest source of imports, and it is fifth 

largest export market. All of that economic activity suggests a 

thriving economic relationship between the United States and 

China. But for some this rapid growth also represents a cause of 

some concern, especially when we consider the $162 billion trade 

deficit with China last year. And while China continues to make 

significant progress in addressing a number of trade issues, the 

2

USTR in 2005 placed China on a Special 301 Priority Watch List 

simply because of its failure to significantly improve protection of 

intellectual property rights. This is a critical issue for this committee, and the health of the United States economy, and for our 

U.S. global leadership in developing intellectual capital, whether it 

is the latest ‘‘Star Wars’’ movie, the most advanced and safest automobiles, or the next generation of medicines that will save millions 

of lives around the world every year. 

Established in 1983, the JCCT serves as a forum for high-level 

discussions on bilateral trade and for promoting commercial relations between the United States and China. The Intellectual Property Working Group was established in 2004 to address the everincreasing problem of theft of U.S. intellectual property through 

counterfeiting and piracy. And while the JCCT has been a very valuable mechanism for identifying issues ripe for discussion and setting priorities, there is much work to be done and result yet to be 

seen. According to a recent estimate from the International Intellectual Property Alliance, U.S. copyright firms lost between $2.5 to 

$3.5 billion in 2004 from lost sales in China. It also is estimated 

that between 15 and 20 percent of all products made in China are 

fakes, either counterfeited or pirated. These figures become even 

more significant when one considers that in the year 2002, the U.S. 

core copyright industries’ activities accounted for more than 6 percent of the United States GDP and achieved foreign sales and exports of over $89 billion. These are very large numbers that represent very real economic harm to the United States business, innovation, and, of course, its jobs. 

The rampant theft of U.S. intellectual property in China through 

illegal counterfeiting and copyright piracy continues to challenge 

the belief that trade and the economic inertia it creates will eventually lead to a net benefit for all who are involved. In those industries that are fueled by intellectual capital—movies, recordings, 

software, engineering, and so on—there is increasing concern that 

the legal IPR fortifications protecting this critical and valuable 

knowledge are being breached by lack of enforcement, understanding, and just plain respect for a rules-based trading system 

like the WTO and agreements like the Trade-Related Aspects of Intellectual Property, the TRIP. The engine of U.S. innovation relies 

on the rule of law to work and create value for both the producer 

and, of course, the consumer. Robust intellectual property rights 

protection and enforcement is equally important for the many innovative Chinese companies who are now just embracing IPR as a 

means to protect and grow their own investment in knowledge. We, 

therefore, are very interested to get a status report from the under 

secretary as to the current situation regarding IPR in China and 

the progress—and, of course, by progress I mean the results—of 

the JCCT and the Intellectual Property Working Groups to address 

these concerns. 

It is my hope that our hearing today will identify what the JCCT 

is doing to stem the U.S. losses from fakes and other the ways that 

thieves are stealing U.S. intellectual property and indirectly, of 

course, United States jobs and prosperity. I am heartened by the 

important work the JCCT is doing in the IPR area, including the 

establishment of a working group to consult on rule-of-law issues 

3

related to a market economy, as well as careful review of Chinese 

progress at instituting structural market reforms. Today, the committee would like to review in particular the progress being made 

by the Chinese government to combat intellectual property theft, 

specifically counterfeiting and piracy, including Chinese efforts to 

reduce intellectual property rights, infringement levels, increase 

penalties for intellectual property infringement, crack down on 

these violators, and educate the Chinese public about the importance of IPR protection. We would also like to know how effective 

the United States has been in simply influencing China to accomplish these goals and how the success of these efforts is being 

measured. Today, the committee wants to hear about progress—

and, of course, by that I think we all want to hear some results 

this afternoon. 

So I would like to welcome you here, Mr. Dudas, and look forward to your testimony. With that, the ranking member, Ms. 

Schakowsky. 

[The prepared statement of Hon. Clifford Stearns follows:]

PREPARED STATEMENT OF HON. CLIFFORD STEARNS, CHAIRMAN, SUBCOMMITTEE ON

COMMERCE, TRADE, AND CONSUMER PROTECTION

Good Afternoon. I want to start by thanking the Department of Commerce for appearing here today to talk about the U.S.-China Joint Commission on Commerce 

and Trade, the JCCT. There are many important issues to discuss with regard to 

trade with China, and given the importance of intellectual property rights (IPR) to 

the American economy and its engine of innovation; we are particularly glad Mr. 

Dudas is here to discuss intellectual property rights (IPR). Your testimony is critical 

to the Committee’s understanding the complexity of these problems and how we are 

solving them. 

U.S.-China trade began to grow shortly after diplomatic relations were established 

in 1979, paving the way for a bilateral trade agreement and most-favored nation 

(MFN) treatment in 1980. Since 1980, U.S.-China trade has risen from $5 billion 

a year to $231 billion a year in 2004. China joined the World Trade Organization 

(WTO) in 2001. China is now the third-largest U.S. trading partner, its second largest source of imports, and its fifth largest export market. All of that economic activity suggests a thriving economic relationship between the United States and China. 

But for some, this rapid growth also represents a cause for concern, especially when 

we consider the $162 billion trade deficit with China in 2004. And while China continues to make significant progress in addressing a number of trade issues, the 

USTR in 2005 placed China on a Special 301 Priority Watch List because of its failure to significantly improve protection of intellectual property rights. This is a critical issue for this Committee, the health of the U.S. economy, and for our U.S. global leadership in developing intellectual capital, whether it’s the latest Star Wars 

movie, the most advanced and safest automobiles, or the next generation of medicines that will save millions of lives around the world every year. 

Established in 1983, the JCCT serves as a forum for high-level discussions on bilateral trade and for promoting commercial relations between the U.S and China. 

The Intellectual Property Working Group was established in 2004 to address the increasing problem of theft of U.S. intellectual property through counterfeiting and piracy. And while the JCCT has been a very valuable mechanism for identifying 

issues ripe for discussion and setting priorities, there is much work to be done and 

results yet to be seen. According to a recent estimate from the International Intellectual Property Alliance, U.S. copyright firms lost between $2.5 and $3.5 billion in 

2004 from lost sales in China. It also is estimated that between 15 and 20% of all 

products made in China are fakes, either counterfeited or pirated. These figures become even more significant when one considers that in 2002, the U.S. core copyright 

industries’ activities accounted for more that 6% of U.S. GDP and achieved foreign 

sales and exports of over $89 billion. These are very big numbers that represent 

very real economic harm to U.S. business, innovation, and jobs. 

The rampant theft of U.S. intellectual property in China through illegal counterfeiting and copyright piracy continues to challenge the belief that trade and the economic inertia it creates will eventually lead to a net benefit for all involved. In those 

industries that are fueled by intellectual capital—movies, recordings, software, engiVerDate 0ct 09 2002 14:55 May 22, 2006 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6621 F:\DOCS\21645.TXT HCOM1 PsN: JOEP
4

neering, and so on—there is increasing concern that the legal IPR fortifications protecting this critical and valuable knowledge are being breached by lack of enforcement, understanding, and just plain respect for a rules-based trading system like 

the WTO and agreements like Trade Related Aspects of Intellectual Property 

(TRIPs). The engine of U.S. innovation relies on the rule of law to work and create 

value for both the producer and consumer. Robust intellectual property rights protection AND enforcement is equally important for the many innovative Chinese 

companies who are just now embracing IPR as a means to protect and grow their 

own investment in knowledge. We therefore, are very interested to get a status report from Undersecretary Dudas as to the current situation regarding IPR in China 

and the progress—and by progress I mean results—of the JCCT and the Intellectual 

Property Working Group to address these concerns. 

It is my hope that our hearing today will identify what the JCCT is doing to stem 

the U.S. losses from fakes and other the ways thieves are stealing U.S. intellectual 

property, and indirectly, U.S. jobs and prosperity. I am heartened by the important 

work the JCCT is doing in the IPR area, including the establishment of a working 

group to consult on rule of law issues related to a market economy as wells as careful review of Chinese progress at instituting structural market reforms. Today, the 

Committee would like to review, in particular, the progress being made by the Chinese government to combat intellectual property theft, specifically counterfeiting 

and piracy, including Chinese efforts to reduce intellectual property rights infringement levels, increase penalties for intellectual property infringement, crack down on 

violators, and educate the Chinese public about the importance of IPR protection. 

Also, we would like to know how effective the United States has been in influencing 

China to accomplish these goals and how the success of these efforts is measured. 

Today, the Committee wants to hear about progress—and by that, we mean results. 

Again, I would like to welcome Undersecretary Dudas here today. We look forward to your important testimony. Thank you.

Ms. SCHAKOWSKY. Thank you, Mr. Chairman, for holding this 

hearing on the Administration’s progress in addressing the serious 

trade issues that we have with China. I understand that the Commerce Department was reluctant to provide us with a witness 

today, and I welcome Mr. Dudas. I am glad that you are here. I 

can really understand the hesitation. I would demure as well, 

frankly, if I had to defend the record of this Administration. 

Failure by the Administration to address such U.S.-China trade 

issues such as forced labor production practices, massive counterfeiting of American products, and the refusal to allow the Yuan to 

float freely may be good for the Walton family dividend checks from 

Wal-Mart, but it has been a disaster for the American economy as 

a whole and America’s working families in particular. 

Furthermore, this failure to achieve meaningful resolution of the 

unfair trade practices employed by China is having more and more 

serious consequences. As our trade deficit grows and these dollars 

are used to purchase evermore of the debt instruments created by 

this Administration, China becomes less and less vulnerable to retaliatory measures available to the U.S. Government. By the time 

either this Administration wakes up or is replaced by one more intune with economic reality, we may find ourselves with no choice 

but to accept the terms of trade dictated by the Chinese because 

they will have the power to harm our economy with a computer 

stroke. 

Despite promises made as a condition of U.S. acceptance of the 

admission of China to the World Trade Organization, despite international treaties signed by the Beijing government, and in the face 

of public aggravation worldwide, China continues to rely upon 

slave-like labor conditions for its export advantages from its only 

unions, whose sole function is to transmit government messages to 

the workforce, exploits its workers with subsistence wages, treachVerDate 0ct 09 2002 14:55 May 22, 2006 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6602 F:\DOCS\21645.TXT HCOM1 PsN: JOEP
5

erous working conditions and little or no benefits. Women in the 

workforce face the worst exploitation. What has the Administration 

done about the import of goods made under these competitive conditions? 

China has become the pirate capital of the world. Goods that we 

have a notable comparative advantage in—namely movies and recorded music and computer software—generate little income to 

their American owners as pirates dominate sales in China. Current 

estimates are that 15 to 20 percent of China’s manufactured goods 

are counterfeit, encompassing 8 percent of its GNP. The counterfeiting problem has grown even more, threatening our economic 

well-being. Apparently, designs for such large-scale items as GM 

cars and SYSCO operating systems are being knocked off. If all of 

our technology continues to be appropriated at will by Chinese entrepreneurs, then our economic demise is a long-term certainty. 

China is also playing Russian roulette with the world economy 

by refusing its currency to float freely. Our record trade deficit with 

China, $162 billion in 2004 alone, and the related growth in foreign 

currency reserves, reportedly $608 billion, more than triple the reserves of 2000, cannot be sustained. Inflationary pressures are 

bound to eventually reach the boiling point in China, and another 

international financial crisis will result. 

Finally, I acknowledge that China, as a superpower, is a special 

case. It is understandable that this Administration would treat 

their economic imperialism lightly if such kid-glove treatment resulted in political advances that made the region and the world 

more stable. But what has the Administration gotten for its forbearance? The answer is nothing. For all its kid-gloves approaches 

to China’s economic aggression, this Administration has not advanced the cause of peace and democracy in China and in the region as a whole. 

My question to the Administration is simple. When do the gloves 

come off? When are we going to get serious about the threat to our 

economy posed by China’s unfair trade practices? Thank you, Mr. 

Chairman. 

Mr. STEARNS. I thank my colleague. The gentleman from Texas, 

Mr. Green. 

Mr. GREEN. Thank you, Mr. Chairman. I would like to thank you 

and our ranking member for holding this important hearing on 

U.S.-China Joint Commission on Commerce and Trade. I am 

pleased the subcommittee is exerting our trade jurisdiction which 

extends to non-tariff trade barriers. In my opinion, most of this 

country’s trade problems with China fall squarely within that jurisdiction. 

China’s currency manipulation and state subsidies give it an unfair competitive advantage when it comes to trade with the United 

States. But those are government-sponsored activities. It has become all too clear that a growing problem is with China’s counterfeiting and intellectual property violations that are taking place 

underground. 

According to the U.S. trade representatives, Chinese goods account for 66 percent of all goods seized at U.S. ports that infringe 

on intellectual property rights. Figures from the software industry 

suggest that at least 90 percent of all software installed in Chinese 

6

computers is pirated. Whether it is piracy of movies, software, or 

the counterfeiting of auto parts and pharmaceutical, these IPR infringements by the Chinese have cost our country billions of dollars, and without a doubt, this illegal activity has contributed to 

the loss of jobs in our own country. 

As many of us mourn the decline of the U.S. manufacturing sector, we are told to be encouraged because the United States is a 

country of ideas, and these ideas will keep us on track for economic 

growth. But infringing on U.S. intellectual property rights, the Chinese essentially are stealing these ideas. For our economic security 

we must demand that China abide by international laws protecting 

our ideas and our intellectual property. 

Over the last 25 years, the copyright industry’s share of U.S. 

GDP grew twice as fast as the rest of the U.S. economy. It is clear 

that the continued growth in IPR infringement will have an increasingly devastating impact on our economy. And I have no doubt 

that this was one of the most important topics discussed at the 

U.S.-China Joint Commission on Commerce and Trade meeting. 

And I have every confidence that the U.S. will take a hard line 

with the Chinese, but it is imperative that we hold their feet to the 

fire on this issue and demand that the Chinese comply with international law. 

I look forward to hearing from our witness about the best way 

to accomplish that goal. And again I thank you for appearing 

today, and again thank you, Mr. Chairman and ranking member, 

for holding the hearing. 

Mr. STEARNS. I thank my colleague. Now, without further ado, 

there appears to be no more opening statements. 

[Additional statement submitted for the record follows:]

PREPARED STATEMENT OF HON. JOE BARTON, CHAIRMAN, COMMITTEE ON ENERGY

AND COMMERCE

Thank You, Chairman Stearns, for holding this important hearing today. This 

Committee has jurisdiction over non-tariff trade issues and this hearing continues 

the work we did in the last Congress to examine the issues within our jurisdiction. 

And I expect the Committee to continue work on these trade-related issues. 

Trade is a vital component to our economic growth and prosperity. Trade facilitates jobs in the U.S. for both imports and exports. Trade also provides our trading 

partners and us a higher standard of living. But trade can also create growing pains 

as resources—and jobs—are re-allocated to our most competitive sectors. We all 

enjoy cheaper goods that leave more income for other needs, but at the same time 

nobody wants to lose US jobs. We expect that when we open our markets to foreign 

trade that benefits our consumers, likewise our partners will open their markets to 

the goods and services we export and in the same manner. 

No other bi-lateral trade partner has received as much attention in recent years 

as China, and with good reason. With its accession to the WTO in December of 

2001, it has become a force in global trade. China is now our third largest trading 

partner with over $231 billion in trade in 2004. It has moved ahead of Germany 

as our fifth largest export market and is our second largest source of imports. Our 

trade deficit with China could reach $211 billion this year. 

Although there are a number of reasons for the trade imbalance, many concerns 

regarding China’s trade practices involve their commitment to fulfilling their obligations as a member of the WTO. I am generally a ‘‘free trader’’, but I voted against 

giving China permanent status as a ‘‘most favored nation’’. I opposed China becoming a member of the World Trade Organization (WTO). I did not believe we could 

count on the Chinese government to live it up to its promises. This hearing provides 

yet another example of why we should be skeptical about promises made by China. 

A number of recent trade concerns have been addressed successfully through the 

Joint Commission on Commerce and Trade (JCCT). Unfortunately, some concerns 

require additional work. 

7

One specific area that needs continued improvement is the protection of Intellectual property rights. One of our most valuable exports is our intellectual property, 

whether in the form of computer software, entertainment DVDs, or other copyright 

and trademark products. Yet more than 90% of the market for these products in 

China is lost to counterfeits and piracy. 

Last year, the JCCT addressed many of these issues. Through their work, 

progress has been made and China instituted reforms last year. Yet concerns remain that despite this progress, the market for our IP exports has changed very little in China and piracy is still rampant. This is not fair trade. It is important that 

our most valuable assets receive the same protections abroad as the protections we 

provide to foreign producers who send their goods here. Our relationship with China 

depends on a mutual respect that is necessary for bi-lateral trade. 

I am pleased we have the Under Secretary of Commerce for Intellectual Property 

Dudas here to answer questions on this important topic. He is Co-chair of the JCCT 

Intellectual Property Working Group and knows how important it is that we achieve 

further improvement from China on IP protection. 

I thank the Chairman and yield back the balance of my time.

Mr. STEARNS. We welcome Mr. Jon W. Dudas, Under Secretary 

of Commerce for Intellectual Property Rights; Director, United 

States Patent and Trade Office, to our hearing. And I think you 

have worked on the Hill before, so it is probably nice to say welcome back to the Hill and we appreciate your opening statement 

this morning. 

STATEMENT OF JON W. DUDAS, UNDERSECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY, DIRECTOR, UNITED 

STATES PATENT AND TRADEMARK OFFICE 

Mr. DUDAS. Thank you very much, Mr. Chairman, and thank 

you, Ranking Member Schakowsky and——

Mr. STEARNS. You might pull the mike just a little——

Mr. DUDAS. Oh, yes. 

Mr. STEARNS. [continuing] closer to you. That is good. 

Mr. DUDAS. Thank you, yes. You are correct, I did work on the 

Hill. I worked for the Judiciary Committee, and I think it is always 

important that I acknowledge mistakes I made as a staffer. I remember sitting behind the dais and passing notes to the chairman 

or the ranking member to ask mean questions of the witness, and 

I just want to admit openly to the committee I was wrong to do 

that. So I can recognize that. I think it shouldn’t be done. 

I sincerely appreciate the opportunity to discuss the U.S.-China 

Joint Commission on Commerce and Trade and related intellectual 

property issues with China. Mr. Chairman, I am sure you won’t remember, but I had the opportunity 5 years ago to staff you on a 

delegation to the European Union where you helped lead, with 

Congressman Goodlatte, discussions on the importance of intellectual property and the importance of trade and technology. Much 

has changed since then, but as today’s hearing demonstrates your 

strong commitment to resolving critical international economic 

issues relating to intellectual property and trade and technology 

has not changed. 

As the Under Secretary for Intellectual Property and Director of 

the Patent and Trademark Office, I lead the only government agency solely devoted to intellectual property. But that leaves for me 

my only regret today, that my knowledge and expertise are limited 

to intellectual property matters. I am certain we can fill more than 

a day with these critical issues, and any matter that I cannot adVerDate 0ct 09 2002 14:55 May 22, 2006 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6602 F:\DOCS\21645.TXT HCOM1 PsN: JOEP
8

dress I can assure you I will bring back to the appropriate agency 

within the department or at the Administration. 

Secretary of Commerce Carlos Gutierrez is keenly aware of the 

significance of intellectual property protection for American businesses and has made combating piracy and counterfeiting a top priority for the Department of Commerce. As Under Secretary of Commerce for Intellectual Property, I am dedicated to reducing the toll 

that IP theft takes on Americans. As you know, I co-chair the Joint 

Commission on Commerce and Trade Intellectual Property Rights 

Working Group along with Ambassador Josette Shiner, who is the 

Deputy U.S. Trade Representative. 

Through the JCCT and other avenues, we are working closely 

with China to improve the situation for U.S. IP rights holders. 

JCCT functions range from technical consultations to meetings 

with high-level U.S. and Chinese officials literally from the offices 

and agencies up through the Premier of China. 

Today, I will update you on the progress of this group as it relates to intellectual property rights. And I can tell you, China has 

taken some important steps in the right direction to improve intellectual property protection. Unfortunately, however, we have not 

yet seen a significant reduction in IPR infringements throughout 

China, the critical test. The Chinese have reported significant increases in the last several months in criminal prosecutions as a result of some of the measures of JCCT, but we still have not yet 

seen the effect on the sales of legitimate products in China, again, 

the real test, the real results. So we continue to impress on the 

Chinese that action plans and commitments are important, but 

they must translate into actual reductions of IP theft. 

During last year’s session of the JCCT, China committed to, first 

and foremost, significantly reduce IPR infringement levels across 

the county, to subject a greater range of violations to criminal penalties, and to apply criminal sanctions to the import, export, storage, and distribution of pirated and counterfeited goods, as well as 

online piracy. They committed to crack down on IPR violators 

through nationwide enforcement actions and increase customs enforcement actions making it easier for rights holders to secure effective border enforcement. They committed to improve protection 

of electronic works by ratifying and implementing the WIPO Internet Treaties and by extending the ban on the use of pirated software to local governments. They also committed to launch a national IPR education campaign and to establish an Intellectual 

Property Rights Working Group to consult and cooperate with the 

U.S. on the full range of IPR issues. 

In December the Chinese Supreme People Court issued a new judicial interpretation intended to increase criminal prosecution of 

IPR infringements in China. We have seen some results; we have 

also seen some disappointments. The most recent IPR Working 

Group meeting was just 2 weeks ago right here in Washington 

where I met with my Chinese counterpart, Madame Ma. We discussed our expectations about intellectual property rights related 

commitments made by the Chinese in the 2004 JCCT. We advanced cooperation between the U.S. and Chinese agency in combating large-scale IPR counterfeiting and piracy syndicates, and in 

9

this process, many issues were clarified, understanding was advanced, and progress was made. 

China agreed to anti-counterfeiting campaigns begun in Beijing 

and Shanghai to other large cities. The Beijing and Shanghai campaigns allow rights holders to register their trademarks with the 

authorities, and those authorities then sweep illegal street stalls 

and kiosks and seize all infringing goods. 

And as part of our continuing staff-level consultations with the 

Chinese, we have developed a mechanism to refer appropriate 

cases to China’s Ministry of Commerce with a formal request for 

review and appropriate response, specific cases seeking specific responses. Under this mechanism, U.S. companies may report infringing activity to the Department of Commerce and provide all 

relevant information about the infringement and efforts to resolve 

it. 

Secretary Gutierrez returned just this week from his first official 

trip to China where he was promoting the Administration’s Fair 

Trade Agenda and discussing issues of ongoing concern. His central 

message on intellectual property was that China must deter widespread infringements of IPR through strict enforcement. He made 

his message clear and he made his message simple. And I will 

quote what he said the first day in China. ‘‘Intellectual property 

rights violations are a crime, and we don’t believe we should be negotiating crimes with our trading partners.’’ Next, Secretary 

Gutierrez will chair the 2005 JCCT meeting scheduled in July in 

Beijing along with the U.S. Trade Representative Portman and 

Vice Premier Wu Yi from China. 

As we work toward China taking drastic improvements in its 

IPR system, we absolutely must not underestimate the steps that 

our businesses can take to reduce the tolls in IP thefts. We are encouraging our industries to work with us and other U.S. agencies 

to improve China’s IP protection and enforcement environment, 

and we are asking entities to do specific things: one, they themselves urge the fair and transparent implementation of China’s IPR 

system; that they fully exploit the system within China; that they 

provide us with detailed information on each deficiency they see; 

and that they support our bilateral and multilateral efforts. 

So in closing, Mr. Chairman, members of the subcommittee, the 

JCCT process continues to be a high-level government-to-government forum to examine and address important trade and commerce 

issues with China. By continuing to work with you, other Members 

of Congress, other agencies and private industries in likeminded 

countries importantly, we will continue to do more to help American businesses protect their intellectual property. Thank you all 

for your leadership on this issue, and I look forward to continuing 

to work with you in this hearing and beyond. 

[The prepared statement of Jon W. Dudas follows:]

PREPARED STATEMENT OF HON. JON W. DUDAS, UNDER SECRETARY OF COMMERCE

FOR INTELLECTUAL PROPERTY AND DIRECTOR OF THE UNITED STATES PATENT AND

TRADEMARK OFFICE

INTRODUCTION

Chairman Stearns, Ranking Member Schakowsky, and Members of the Subcommittee: Thank you for this opportunity to appear before you to discuss the U.S.-

China Joint Commission on Commerce and Trade (JCCT), as well as the broader 

10

set of international intellectual property (IP) issues relating to China. As you are 

surely aware, the U.S. Department of Commerce has a prominent role in protecting 

IP abroad. Secretary of Commerce Carlos Gutierrez is keenly aware of the increasing significance of IP protection for American businesses and innovators and has 

made combating piracy and counterfeiting a top priority for the entire Department. 

As Under Secretary of Commerce for Intellectual Property and Director of the 

United States Patent and Trademark Office (USPTO), I am dedicated to marshalling U.S. government efforts to reduce the toll that IP theft takes on American IP 

owners. I also co-chair the JCCT IPR Working Group along with Ambassador 

Josette Shiner, Deputy U.S. Trade Representative. We are very appreciative of the 

Subcommittee’s interest in IP protection and the JCCT process and thus commend 

you for holding today’s hearing. 

Through the JCCT and other avenues, the U.S. hopes to continue to work closely 

with China to improve the situation for U.S. right holders. The process aims to 

produce concrete, discrete results. During the last year’s session of the JCCT, China 

presented an action plan designed to address the piracy and counterfeiting problems 

faced by U.S. companies. Under the plan, China committed to: (1) significantly reduce IPR infringement levels; (2) issue a judicial interpretation by the end of 2004 

and apply it to increase criminal enforcement of IPR violations; (3) conduct nationwide education and enforcement campaigns and increase customs enforcement; (4) 

ratify and implement the WIPO Internet Treaties as soon as possible and extend 

to the local level the ban on the use of pirated software in central and provincial 

government offices, and (5) establish an IPR working group under the JCCT. In line 

with the JCCT mandate, the working group seeks to ensure that China significantly 

reduces IPR infringement levels. 

While we recognize that China has expended significant effort to improve the protection of intellectual property, much work remains to be done. We have not seen 

any significant reduction in IPR infringements throughout China. We continue to 

impress upon the Chinese that action plans and commitments must translate into 

actual reductions in infringing activity. As former Secretary Evans said earlier this 

year: ‘‘Process isn’t progress. Results are progress.’’

HISTORY AND BACKGROUND OF THE JCCT PROCESS

It may be useful to provide a brief background and some history of the JCCT, before I detail the broader set of issues and initiatives being implemented by the Administration to address the problems of the piracy and counterfeiting of IP. There 

are several functions of the JCCT that range from technical consultations to meetings by high level U.S. and Chinese officials that have resulted in measurable concrete results that have benefited U.S. intellectual property owners. 

The JCCT was established in 1983 to serve as a government-to-government consultative mechanism that provides a forum to resolve trade concerns and promote 

bilateral commercial opportunities. Issues addressed by the JCCT over the years 

have included industrial policies, services and agriculture. In recognition of the critical role intellectual property plays in our economy and the serious effects of piracy 

and counterfeiting, an intellectual property rights (IPR) Working Group was established at the 15th annual meeting of the JCCT in April 2004. That meeting of the 

JCCT was chaired by former Commerce Secretary Donald Evans, former USTR Robert Zoellick and Chinese Vice Premier Wu Yi. 

The most recent meeting of the IPR Working Group was just a few weeks ago 

here in Washington when I, along with Ambassador Shiner, met with our Chinese 

counterpart, Vice Minister Ma Xiuhong. We discussed the past progress made and 

expectations regarding various IPR-related commitments made by the Chinese at 

the 2004 JCCT to address piracy and counterfeiting of American ideas and innovations. 

The process is working and we are beginning to see results. For example, one recent positive development has been the issuance of a new judicial interpretation by 

the Chinese Supreme People’s Court intended to increase the incidence of criminal 

prosecution of IPR infringements in China. The issuance of the interpretation last 

December is consistent with the commitments made by Chinese officials at the 2004 

JCCT. The interpretation serves as a guideline to lower courts on case acceptance 

and minimum thresholds necessary for conviction of a criminal IP offense. According 

to statistics provided by the Chinese at our latest meeting, criminal IPR case filings 

are up almost 19% (18.9%) since the issuance of the new judicial interpretation. 

While the interpretation appears to significantly reduce the criminal thresholds for 

trademark and patent counterfeiting and copyright piracy, we have identified a 

number of potential concerns with the judicial interpretation, including the methodology for determining the value of infringing goods, the criminalization of exports 

11

1 ‘‘Copyright Industries in the U.S. Economy: The 2004 Report,’’ Stephen E. Siwek, Economists 

Inc., prepared for the International Intellectual Property Alliance. ‘‘Core’’ industries include: 

newspapers, publishing, recording, music, motion pictures, radio, television broadcasting and 

computer software. 2 Id. 

and certain copyright offenses, and the treatment of repeat offenders. We continue 

to study the interpretation and will monitor its implementation by the Chinese 

courts. 

During JCCT IPR Working Group meetings on May 26 and May 27, 2005, a full 

complement of technical experts from both sides discussed ways to work better together to combat IP theft in China. In particular, U.S. and Chinese law enforcement 

agencies exchanged views on increasing information and expertise sharing, and cooperation in individual cases, including with respect to investigation techniques. 

The USPTO and the U.S. Copyright Office conferred with their counterparts on a 

number of topics, including ways to enhance IPR monitoring of trade fairs in China 

and the expansion of crackdown campaigns that closed down the infamous ‘‘Silk 

Alley’’ Market in Beijing and a number of illegal street stalls and kiosks in Shanghai that sell counterfeit and pirated name brand and luxury goods. I hope and expect that this meeting of the JCCT IPR Working Group is only the beginning of continuing and substantive technical dialogue. 

Secretary Evans’ successor, Secretary of Commerce Carlos Gutierrez, earlier this 

month completed his first trip to China to promote the Administration’s fair trade 

agenda and discuss issues of ongoing concern. His central message on IP was that 

China must deter widespread infringements of intellectual property rights through 

strict enforcement. Secretary Gutierrez will co-chair the 2005 JCCT scheduled in 

July in Beijing, along with U.S. Trade Representative Portman and Vice-Premier 

Wu Yi. 

As part of our continuing staff-level consultations with the Chinese, we—have developed—a mechanism to refer appropriate cases to China’s Ministry of Commerce 

with a formal request for review and appropriate response. Under this mechanism, 

U.S. companies—may report infringing activity to the Department of Commerce and 

provide all relevant information regarding the nature of the infringement and all 

efforts taken to resolve the matter. If a company has attempted to obtain or enforce 

intellectual property rights via the foreign country’s legal system and its efforts 

have been unsuccessful, due to either systemic flaw or unfair application of the 

laws,—the Commerce Department may be able to engage the foreign government on 

the issues raised by the company. 

SCOPE OF GLOBAL IP PIRACY AND COUNTERFEITING PROBLEM

The background for the need for these efforts is well-known, as you increasingly 

hear about IP piracy and counterfeiting issues from your constituents and on the 

nightly news. Increasingly, both the United States and our trading partners are relying on IP to drive economic growth. This is because competitive success in a market economy depends more and more on the IP assets held by an institution—from 

the skills of its employees to the results of its latest research. IP-based businesses, 

such as the software and entertainment industries, now represent the largest single 

sector of the U.S. economy. 

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

gross domestic product (GDP), and foreign sales/exports. Between 1977 and 2001, 

the U.S. copyright industries’ share of the GDP grew at an annual rate more than 

twice as fast as the rest of the U.S. economy. In 2002, the U.S. ‘‘core’’ copyright industries’ activities accounted for approximately 6 percent of the U.S. GDP ($626.6 

billion).1 In 2002, the U.S. copyright industries achieved estimated foreign sales and 

exports of $89 billion, leading all major industry sectors, including motor vehicles 

(equipment and parts), aircraft and aircraft parts, and the agricultural sector.2

Unfortunately, the economic benefits of capitalizing on intellectual property rights 

(IPR) have captured the attention of pirates, organized crime, and terrorists. The 

global criminal nature of IP piracy has effects in other areas as well. As former U.S. 

Attorney General John Ashcroft reported: ‘‘In addition to threatening our economic 

and personal well being, intellectual property crime is a lucrative venture for organized criminal enterprises. And as law enforcement has moved to cut off the traditional means of fund-raising by terrorists, the immense profit margins from intellectual property crimes risk becoming a potential source for terrorist financing.’’ 

12

USPTO AND DOC EFFORTS TO COMBAT PROBLEM

Given these threats to U.S. economic interests and our national security, the 

USPTO and our colleagues in the Department of Commerce are working hard to 

curb IP crime and strengthen IP enforcement in every corner of the globe. Indeed, 

former Secretary Evans heavily emphasized this issue, and Secretary Gutierrez has 

indicated it is a top priority for the entire Department. Because American IP owners 

compete in a global marketplace, we must expand our efforts to promote IP protection internationally. We must make sure that American IP owners have sufficient 

knowledge and legal tools to fight piracy and counterfeiting. We also must provide 

foreign countries technical assistance on drafting and implementing effective IP 

laws and promoting the effective enforcement of IP rights. 

The Role of the USPTO in IP Policy 

The passage of the American Inventors Protection Act of 1999 (AIPA) (P.L. 106-

113) set the stage for the USPTO to advise the President, through the Secretary 

of Commerce, and all Federal agencies, on national and international IP policy 

issues, including IP protection in other countries. USPTO is also authorized by the 

AIPA to provide guidance, conduct programs and studies, and otherwise interact 

with foreign IP offices and international intergovernmental organizations on matters involving the protection of intellectual property. 

Our established Offices of International Relations and Enforcement carry out the 

functions authorized by the AIPA. These include (1) working with Congress to implement international IP treaties; (2) providing technical assistance to foreign governments that are looking to develop or improve their IP laws and systems; (3) 

training foreign IP officials on IP enforcement; (4) advising the Department of State 

and the Office of the U.S. Trade Representative (USTR) on drafting/reviewing of IP 

sections in bilateral investment treaties and trade agreements; (5) advising USTR 

on intellectual property issues in the World Trade Organization (WTO); and (6) 

working with USTR and industry on the annual review of IP protection and enforcement under the Special 301 provisions of the Trade Act of 1974. The USPTO also 

represents the United States in United Nations bodies, such as the World Intellectual Property Organization (WIPO), to help set the international standards for IP 

protection and enforcement. 

National Intellectual Property Law Enforcement Coordination Council (NIPLECC) 

The USPTO serves as the co-chair of the National Intellectual Property Law Enforcement Coordination Council (NIPLECC), which is tasked with coordinating domestic and international intellectual property law enforcement. NIPLECC was 

launched in 1999 to ensure the effective and efficient enforcement of intellectual 

property in the United States and worldwide. NIPLECC’s coordination activities ensure that government enforcement efforts are consensus-based and non-duplicative. 

NIPLECC has developed a comprehensive database that includes all recent IP law 

enforcement training provided by the U.S. government and many associations to developing and least developed nations. It is also developing legislative suggestions to 

improve domestic IP laws related to enforcement. We look forward to continuing our 

efforts in NIPLECC. 

Enforcement Training and Technical Assistance 

The USPTO provides a variety of IP enforcement training and technical assistance activities. These programs are designed to foster respect for IP, encourage governmental and right holders’ efforts to combat infringement, and promote best practices in the enforcement of IPR. Our technical assistance and capacity building initiatives grew out of a desire to promote IP protection and assist developing countries 

in meeting their obligations under the WTO’s Trade-Related Aspects of Intellectual 

Property Rights (TRIPs) Agreement. In addition, we have responded to an increasing number of requests by foreign governments for such training and technical assistance activities. Our efforts have had positive results in some countries, measured 

by decreasing levels of IP piracy and counterfeiting, and the implementation of 

stronger legal protections in many of the countries in which we have provided such 

training. Still, much work remains, including in China, where IP theft has not decreased. 

Today, our efforts are aimed at: (1) assisting developing and least developed countries to meet international standards in the protection and enforcement of IP; and 

(2) assisting administrative, judicial, and law enforcement officials in addressing 

their enforcement issues. 

13

Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPs) 

At the conclusion of the Uruguay Round in 1994, the resulting TRIPs Agreement 

presented WTO members with new obligations and challenges. The TRIPs Agreement sets minimum standards of protection for the various forms of IP and requires 

WTO members to provide for ‘‘enforcement procedures...that permit effective action 

against any act of infringement of intellectual property rights.’’ The TRIPs Agreement includes detailed provisions on civil, criminal and border enforcement measures designed to provide the owners of IP with the tools to protect and enforce their 

rights. Today, Developing Countries obligations’ under the TRIPs Agreement have 

fully entered into force. Least Developed Countries have until 2006 to comply with 

the bulk of the provisions, including the enforcement obligations. 

Over the last several years, the USPTO has assisted countries around the world 

in establishing adequate enforcement mechanisms to meet their obligations under 

the TRIPs Agreement. In bilateral negotiations, we work closely with USTR to seek 

assurances from our trading partners of even higher levels of IP enforcement. We 

provide technical advice through the annual Special 301 process, the GSP review, 

the TRIPs Council review of implementing enforcement legislation, and in the negotiation of free trade agreements (FTAs). 

Our approach to the on-going FTA negotiations has been to build upon the TRIPs 

Agreement. In other words, our negotiating position is that these trade agreements 

should follow a ‘‘TRIPs Plus’’ format by, among other things, expanding the minimum standards set out in the TRIPs Agreement. For example, by incorporating 

provisions of the WIPO Copyright Treaty and WIPO Performances and Phonograms 

Treaty, the FTA updates copyright protections and enforcement for the digital environment. In our advisory capacity, we will continue to work with the Department 

of State and USTR to conclude FTAs that provide strong enforcement and reflect 

a standard of protection similar to that found in United States law. 

INTELLECTUAL PROPERTY ISSUES AND USPTO APPROACH IN CHINA

Due to the rapid increases in piracy and counterfeiting in China, we recognize 

that U.S. companies face enormous IPR protection and enforcement challenges and 

that their losses there are mounting daily. At the same time, the pressures of the 

competitive global marketplace, criminal elements, and protectionist and non-tariff 

barriers, make these challenges increasingly more sophisticated. That is why the 

USPTO’s team of experts has developed comprehensive work-plans to address the 

rising IP problems facing these countries. While the USPTO does not have the lead 

on trade policy issues, which is the mandate of USTR, we have devoted significant 

resources to making progress in improving China’s IPR regimes for our industries, 

right holders and this Administration. 

The Bush Administration understands that IP is a vital component of our nation’s 

economy and that this Administration’s focus on combating global piracy and counterfeiting has produced a solid track record of real results. The STOP Initiative, 

which I will discuss in more detail later, is a continuation of these efforts by providing additional tools to protect American workers from counterfeiters and pirates 

who are robbing billions of dollars from the U.S. economy. 

CHINA

Unfortunately, problems persist and our concerns about IP enforcement in China 

continue to grow. Despite China’s membership in the WTO and its obligation to 

comply with the TRIPs Agreement, as well as a series of bilateral commitments 

made over the past 10 or more years, the lack of effective IP enforcement in China 

is a major problem for U.S. business interests, costing billions of dollars in lost revenue and perhaps tens of thousands of U.S. jobs. While China has done a generally 

good job of creating laws to comply with its WTO commitments, IP enforcement 

problems remain pervasive. These problems run the gamut from rampant piracy of 

movies and business software to counterfeiting of consumer goods, electrical equipment, automotive parts, and pharmaceuticals. 

I am very pleased Secretary Gutierrez has cited IP protection as a key issue in 

U.S. trade ties with China. During his first trip to China as Secretary of Commerce, 

Secretary Gutierrez urged China to deter widespread infringements of intellectual 

property rights through strict enforcement. Secretary Gutierrez told business officials on the first day of his visit to China ‘‘Intellectual property rights violations are 

a crime and we don’t believe we should be negotiating crimes with our trading partners.’’ 

14

3 Ibid. Key Findings: BSA and IDC Global Software Piracy Study. 

4Motor and Equipment Manufacturers Association, September 2003. 

5See Statement of Rudolph W. Giuliani before the Senate Government Affairs Committee, 

Permanent Investigations Subcommittee, Oversight Hearing on Safety of Internet Drugs (July 

16, 2003). 

IP Problem in China 

Estimates from the computer software and automotive parts industries are illustrative of the scope of the problem. The software industry estimates that more than 

90 percent of all software installed on computers in China in 2003 was pirated.3 The 

automotive parts industries estimate that counterfeit automotive parts production 

costs the industry billions of dollars in lost sales. One industry group estimates that 

legitimate automotive companies could hire 210,000 more employees if the counterfeit auto parts trade is eradicated.4 China is a leader in counterfeit goods in this 

industry. 

In the automotive arena, most counterfeiting involves parts that need to be replaced frequently, such as oil filters, headlamps, batteries, brake pads, fan belts, 

windshields, and spark plugs. For example, DaimlerChrysler, BMW, Audi, Volvo, 

Mitsubishi, and Toyota report that even though a factory in Guangdong Province 

has been raided three times in a two-and-a-half-year period, it has been allowed to 

continue making windshields stamped with their brand names for sale in the world 

market. 

According to the World Health Organization (WHO), 10 percent of the medicines 

in the world are counterfeit, with China being one of the main centers of counterfeit 

production. Rudolph Giuliani offered the following testimony before a Senate Committee in June of last year: 

‘‘An August 30, 2002, Washington Post story cites the Shenzhen Evening 

News in reporting that an estimated 192,000 people died in China in 2001 because of counterfeit drugs. Another news story reported that as much as 50 percent of China’s drug supply is counterfeit (Investor’s Business Daily dated October 20, 2003).’’ 5

While no definitive statistics exist on total U.S. job losses attributable to IP piracy 

and counterfeiting in China, there is no doubt piracy and counterfeiting deprive the 

government of billions of dollars of much needed tax revenue, cost thousands of jobs, 

and injure the domestic software industries. 

China’s Enforcement Issues 

The Chinese IPR enforcement environment today is complicated by a variety of 

different Chinese and foreign interests, including Chinese industrial policies, trade 

policies, the interests of foreign investors, and the interests of Chinese domestic enterprises. In this environment, our right holders increasingly look to adequate enforcement of criminal IPR laws in implementation of China’s WTO commitments as 

a key to reducing counterfeiting and piracy rates in China. China, it should be 

noted, does not lack for quantitative enforcement. Each year, tens of thousands of 

enforcement actions are undertaken. However, these actions are typically pursued 

by administrative agencies, which impose non-deterrent penalties. 

This Administration has been pressing China to impose prison sentences and/or 

stiffer fines on violators of IPR since fines and other penalties imposed are too modest and provide little or no deterrence. In December 2004, two branches of China’s 

government—the Supreme People’s Court and Supreme People’s Procuratorate 

(prosecutor) issued a new ‘‘Judicial Interpretation’’ for criminal IPR infringements. 

The new Interpretation expanded the scope of violations punishable by prison sentences by lowering the value threshold necessary to initiate a prosecution, but on 

the enforcement side took a significant step backwards with respect to violations 

committed by repeat offenders. The new Interpretation was also deficient in many 

other areas of concern to industry and foreign governments, including, for example, 

coordination among China’s civil and administrative systems as well as the relationship with other IP laws. Furthermore, the new Interpretation complicated matters 

by allowing infringing goods to be valued based on their street value, not their legitimate value, thus sanctioning declarations by the infringer as a measure for determining whether or not Chinese valuation thresholds were met dictating prosecution. Equally disconcerting was that unfinished or offsite products were exempt in 

assessing that value. 

Many of the challenges that China encounters are at least partially due to deficiencies in its own system, including extensive corruption, local protectionism, and 

lack of interagency coordination. Some of the issues we have raised with Chinese 

colleagues include: the use of mandatory sentencing guidelines for IPR crimes; support for specialized IPR courts which have greater independence from local financVerDate 0ct 09 2002 14:55 May 22, 2006 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6621 F:\DOCS\21645.TXT HCOM1 PsN: JOEP
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6http://www.ustr.gov/assets/DocumentlLibrary/ReportslPublications/2005/

2005lSpeciall301/assetluploadlfile195l7636.pdf 

ing and control; establishing appropriate procedures for investigation, prosecution, 

and conviction of IPR criminals; and effectively addressing trans-border IPR crime, 

as well as IP crime committed over the Internet. 

It is important to recognize that there is a Chinese domestic constituency also 

seeking enhanced IPR protection and enforcement. As the economy grows, domestic 

interest in IP, particularly in the more developed cities on China’s seaboard, is increasing dramatically. China’s deficient IP protection and enforcement hinders Chinese software engineers, inventors, and movie producers who have to struggle with 

a severely deficient domestic market as their principal source of income. Chinese IP 

owners have become increasingly vocal proponents of stronger IP protection. One indication that IPR is attaining increased domestic importance is the number of trademark applications received by the Chinese Trademark Office (CTO). For the past 

two years, the CTO received more trademark applications than any country in the 

world. The State Intellectual Property Office is also growing rapidly and receives 

some of the highest number of filings for patent applications worldwide. 

Growing domestic interest in IP protection and enforcement may be of small comfort to U.S. industry when the impact of piracy and counterfeiting on U.S. industry 

appears to be growing. U.S. Government statistics show a worsening situation. For 

example, USTR’s 2005 Special 301 Report states that during 2004, 67 percent of all 

of the IPR-infringing goods seized at the U.S. border came from China.6 Many industries also increasingly suspect that the Chinese government, by restricting market access, is providing free rein for counterfeiters, pirates, and criminals to exploit 

the void created by the lack of legitimate products. Many U.S. companies also complain of industrial policies that help create conditions for production of infringing 

products. Counterfeit Viagra, for example, dominates the Chinese market, while the 

legitimate product has been hampered by market access restrictions. Pirated movies 

appear in the Chinese market long before censors have approved the legitimate 

product. Other high-tech companies complain of standards setting, such as in wireless networking technology, which limits introduction of legitimate products or mandates technology transfer. 

USPTO’s Efforts in China 

Under the direction of this Administration, the USPTO has been working extensively to reduce piracy and counterfeiting activity in China. First, we provide technical support to all agencies of the U.S. Government that are addressing these 

issues, including USTR, the Department of Commerce/International Trade Administration (ITA), the U.S. Department of Justice, the Department of Homeland Security, and the State Department. 

The USPTO has an established team of experts on Chinese IP matters, which includes IP attorneys with detailed knowledge and background on patents, trademarks, copyrights, enforcement issues, and WTO/WIPO issues. Our cooperation with 

other U.S. government agencies extends beyond the trade agenda to providing support on strategies and to addressing transnational crime and transnational trade in 

counterfeit goods, as well as other issues. 

TRIPS review. For example, we take an active role in the annual review of China’s TRIPs commitments at the WTO, including primary responsibility for drafting 

many of the TRIPs-related questions. Three USPTO officials attended China’s WTO 

review last year. We also actively participate in the APEC Intellectual Property Experts Group, which plays a constructive role in developing regional standards for IP, 

including cooperation on enforcement matters. Further IP initiatives in China supported by the USPTO are described below. 

IP attorney at U.S. embassy. For two summers, with the active support of U.S. 

Ambassador Clark T. Randt, we stationed one of our IP enforcement attorneys, who 

is fluent in Mandarin, in our embassy in Beijing to help with IP enforcement issues 

in the region. Last fall, the USPTO was proud to continue this support by detailing 

this individual as attache ́ to the U.S. Embassy in Beijing for a three-year appointment to continue our Government’s efforts to combat piracy and counterfeiting. This 

is the first time the USPTO has sent an official abroad for an extended period of 

time to assist in improving IP protection in a specific country, which highlights the 

seriousness of IP violations in China. Having an attache ́ stationed in China has enhanced the USPTO’s ability to work with Chinese government officials to improve 

IP laws and enforcement procedures in addition to assisting U.S. businesses to better understand the challenges of protecting and enforcing their IPR in China. 

Meetings with Enforcement Officials and Other Influences. One of the greatest 

challenges in China is ensuring that localities fully enforce national laws. To that 

16

end, the USPTO has held meetings with numerous local copyright, trademark, judicial, police, and prosecutorial enforcement officials throughout China to ensure that 

local officials fully understand their international obligations. We have hosted numerous delegations at the USPTO, with the objective of addressing this challenge. 

We have also worked with U.S. non-governmental organizations in support of rule 

of law efforts and training programs, including a Temple University program and 

Franklin Pierce Law School’s annual summer program on intellectual property law 

in Beijing for American and Chinese law students. 

Training. Recent efforts in China that we have supported include: training on 

criminal IPR with the support of the British Government and China’s Ministry of 

Public Security; training on patent data protection and patent linkage with the 

State Intellectual Property Office and State Food and Drug Administration; training 

on ‘‘business methods patents’’ with the State Banking Regulatory Commission, 

State Council Legislative Affairs Office and the Development Bank of China; training with the World Customs Organization on border measures and criminal IPR; 

participation in Chinese sponsored programs on IP protection in Shanghai and on 

IPR strategies for multinational companies in Beijing; and a joint U.S. Semiconductor Industry Association and Chinese Semiconductor Industry Association training program on IPR in high tech industries, to name but a few. 

Bilateral meetings with trade groups. We have also participated in a range of bilateral meetings and consultations with visiting U.S. trade associations such as the 

Intellectual Property Owners, U.S. Information Technology Office, Research and Development Pharmaceutical Association of China, Quality Brands Protection Committee, American Bar Association, International Federation of Phonographic Industries, Motion Pictures Association, Entertainment Software Association, Business 

Software Association, Association of American Publishers, U.S. Chamber of Commerce, to name just a few. We have also worked with some of these organizations 

to host enforcement conferences in such major cities as Beijing, Shanghai, 

Guangzhou, Wuhan, Nanjing, and Chengdu. 

Both domestically and in Beijing, we have provided briefings for visiting congressional and judicial delegations, and we have provided training for State Department 

and Commerce Department officials at our various consulates, including participation at a regional training program in Hong Kong sponsored by the Economic Bureau of the State Department. Working with the Department of Commerce’s Technology Administration and the International Intellectual Property Institute, we have 

provided technical assistance on copyright protection in Dalian and Shenzhen. 

Public relations efforts. The USPTO continues to work through our own office of 

public affairs and the public diplomacy offices of the Embassy and consulates on 

providing an informed perspective on IP matters to the Chinese public and Chinese 

decision makers. Additionally, we are supporting State Department efforts to provide informational materials on U.S. IP practices to the Chinese public. We have 

also had several meetings at Chinese Universities. For example, I delivered a talk 

at Qinghua University, one of China’s leading law and engineering institutions, on 

IP protection. In addition, my staff has delivered presentations at Sichuan Normal 

University Law Faculty, Qinghua Law Faculty, People’s University and other institutions, as well as appearing on several television shows and being featured in 

newspaper articles. 

Supporting Businesses and Working with Law Enforcement in China 

Apart from these advocacy and training efforts, we are involved in developing 

practical strategies to support our businesses in handling problems in China. We 

have worked extensively with the Commerce Department on improving methods for 

handling business complaints involving unfair IP practices in China and have become involved with the STOP Initiative whereby we handle complaints involving IP, 

many of which involve China. We have worked on two leading programs associated 

with the U.S. Embassy involving IP: a ‘‘toolkit’’ on IP matters for U.S. businesses 

on the Embassy’s website, and the ‘‘IPR Roundtable’’ that the Ambassador hosts 

each year. 

Meetings in China. We have held meetings at the Canton Trade Fair to discuss 

IPR enforcement and complaints filed. We continue working with ITA, the American 

Bar Association, and many other organizations to provide better assistance to U.S. 

small and medium businesses. USPTO attorneys have been meeting with other foreign missions and trade associations to exchange ideas on innovative ways to promote better protection of IPR in China. 

Training programs for American businesses. We have participated in training programs for our business people in the United States, to better enable them to forcefully address the IPR challenges they experience in China and, when necessary, 

bring well-founded complaints to our attention. Typically in conjunction with the 

17

Department of Commerce, members of our China team have participated in programs in such cities as: Cincinnati, Ohio; Grand Rapids and Pontiac, Michigan; 

Charlotte, North Carolina; Miami, Florida; Minneapolis, Minnesota; Wichita, Kansas; St. Louis, Missouri; New York City and Long Island, New York; Waterbury, 

Connecticut; Boston, Massachusetts; Providence, Rhode Island; Portsmouth, New 

Hampshire; Fresno, San Jose and San Francisco, California; Salt Lake City, Utah; 

and Washington, D.C. A major focus of these efforts has been to address problems 

of small and medium enterprises, although larger enterprises have also benefited 

from participation in many of these programs as well. 

Workshops about China. In addition to our work with the Department of Commerce, our China team is planning to roll out a series of intensive China workshops 

and seminars in several cities throughout the United States in 2005-2006. The first 

of these seminars is planned for Detroit, Michigan, in June. The program will provide companies with information about several useful topics, ranging from an overview of the IP protection and enforcement environment in China, specific information on how to file patent and trademark applications in China, how to use China’s 

administrative and judicial systems to enforce IPR, and useful tips about how to locate and hire a local company to investigate IP infringement in China. 

Another activity, as part of our ongoing efforts to assist U.S. businesses and IP 

owners in protecting their rights overseas, includes a seminar on the Chinese criminal justice system for IP offenses that we held in February of this year. The seminar 

introduced the Chinese criminal justice system to U.S. industry, government agencies, IP owners, and legal practitioners and included information on the recently 

amended Judicial Interpretation so they may better understand the system and use 

this information to their full advantage to combat counterfeiting and piracy. We 

sponsored a follow up program in April of this year. 

Our China team has supported a number of programs to advise our companies 

on how to file a criminal IPR case in China. These programs have already been held 

in Guangzhou, Beijing, and Hong Kong with an additional program planned for 

Shanghai. In addition, we provide support to our own law enforcement authorities 

where possible on IP criminal matters. For example, we have supported the Joint 

Liaison Group on criminal justice cooperation in its efforts to facilitate better criminal IPR cooperation, and joined in training programs run by a number of different 

government agencies on criminal IPR matters. Our China team works closely with 

the Customs Attache ́ and Legal Attache ́ at the U.S. embassy as well as the Bureau 

of International Narcotics and Law Enforcement at the State Department on these 

matters. 

More United States Government Efforts in China. Like Secretary Gutierrez, 

former Secretary of Commerce Evans believed in the strong enforcement of our 

trade laws and took innovative and proactive measures to strengthen the enforcement and compliance of our trade agreements. During his tenure, he tasked Commerce agencies, such as USPTO and the new Investigations and Compliance Unit 

within ITA’s Market Access and Compliance Group, to coordinate their efforts to 

vigorously pursue allegations of IPR violations wherever they occur, especially in 

China. 

Delegations to China. In 2003, then-Commerce Secretary Evans led a mission to 

China and highlighted China’s lack of IPR enforcement. The Secretary met with 

high-ranking Chinese officials and reiterated a continuing concern—that effective 

IPR protection requires that criminal penalties for IP theft and fines are large 

enough to be a deterrent, rather than a business expense. 

As a follow-up to the October 2003 trip, I led two delegations in 2004 for consultations with senior officials at China’s patent, trademark, copyright, and other IP 

agencies. Our delegation also met with U.S. companies facing IP issues in China. 

The primary focus of these trips was to further the Administration’s goals of improving the IP environment for U.S. companies doing business in China, and specifically 

of addressing widespread counterfeiting and piracy. We discussed several issues, including the need for improved criminal, civil, and administrative enforcement, the 

need for protecting copyrights over the Internet and China’s accession to the WIPO 

Internet Treaties. 

In January 2005, I traveled to Beijing as part of a second Evans-led delegation. 

We were fortunate to be able to meet with Chinese Premier Wen Jiabao and Vice 

Premier Wu Yi to discuss concerns over China’s enforcement of IPR of American 

businesses. Ambassador Randt also hosted the third roundtable on Intellectual 

Property Rights, which was attended more than 250 government officials and business and industry representatives from the USPTO, the European Union, Japan, 

and China’s IP agencies. In addition to providing the luncheon keynote address during the January roundtable, I announced the USPTO’s new plans for IP technical 

assistance for Chinese IP-related agencies. Ambassador Randt was pleased that the 

18

USPTO’s offers of cooperative assistance were well received, and we are in the process of implementing these as well. 

Challenges and Recommendations concerning China 

While our trips to China have been well received, and we are pleased to note a 

continuing and increasing awareness among Chinese officials of the importance of 

IP protection and enforcement, we have not yet seen significant progress on most 

of the key issues. These issues include enhanced criminal enforcement, a deterrent 

administrative enforcement system, protecting copyrights over the Internet, and 

stopping the export of counterfeit goods. We are also interested in other developments, such as China’s efforts to develop an IPR Strategic Plan for development of 

its IP assets, other industrial policy goals, legislative efforts to draft a Civil Code 

that may include IPR, and general rule of law efforts that could significantly affect 

the protection of IPR over the long run. 

While we fully recognize that China needs to make drastic improvements in its 

IPR system to ensure that our right holders are fairly protected, we should not underestimate the steps that our businesses and government can take to reduce the 

risks of piracy and counterfeiting. The USPTO will continue working with small and 

medium-sized companies on how best to protect their valuable IP rights in China. 

One particular example is for companies to register all their trademarks promptly 

in China and especially, their Chinese language trademarks. Given the fast pace of 

China’s economic development and the huge volume of trademark applications in 

China, companies should file for their marks early in their marketing cycle. 

Globalization means that competitors can retrieve information about products not 

yet introduced in their country from a U.S. company’s web site. Counterfeiting and 

piracy also originates from employees, agents, or distributors who have taken confidential information to engage in a competing operation. China’s practice regarding 

protection of trade secrets by former employees who have signed non-compete agreements is different from the United States. We will continue to educate companies 

on how best to protect their intellectual property rights. 

It is especially important we encourage our industries to work with us and the 

other U.S. agencies involved in improving China’s IP protection and enforcement environment by: urging the fair and transparent implementation of China’s IPR system; fully exploiting this system; providing us with detailed information on its deficiencies in order to reduce future risks of such activities; and supporting our bilateral and multilateral efforts to reduce the impact of these problems. 

THE GLOBAL STRATEGIC TARGETING ORGANIZED PIRACY (STOP) INITIATIVE

We are pleased to discuss with you the STOP! Initiative, the most comprehensive 

intergovernmental agency initiative ever advanced to smash the criminal networks 

that traffic in fakes, stop trade in pirated and counterfeit goods at America’s borders, block bogus goods around the world, and help small businesses secure and enforce their rights in overseas markets. There are several important features of the 

STOP! Initiative that I’ll mention: 

Hotline and Website 

First, the USPTO participates heavily in this initiative by managing a hotline, 1-

866-999-HALT, established by the Department of Commerce to help businesses protect their IPR at home and overseas. The goal of the hotline is to empower U.S. 

business to secure and enforce their IPR by providing them the information they 

need to secure their patents, copyright and trademarks, and to enforce these rights 

here in the U.S. and abroad. 

Callers receive information from IP attorneys with regional expertise on how to 

secure patents, trademarks, and copyrights, and on the enforcement of these rights. 

Businesses and innovators now have access to a place to learn more about the risks 

of global piracy and counterfeiting and how to protect their IP rights in both individual countries and in multiple countries through international treaties. In addition, we have established a link from our USPTO website to www.stopfakes.gov on 

the Department of Commerce’s website, which provides in depth detail of the STOP! 

Initiative. 

No Trade in Fakes Program 

The Department of Commerce is in charge of another important component of the 

STOP! Initiative, the no-trade-in-fakes program that is being developed in cooperation with the private sector. This is a voluntary, industry-driven set of guidelines 

and a corporate compliance program that participating companies will use to ensure 

their supply chains and retail networks are free of counterfeit or pirated goods. 

19

Increasing and Communicating Enforcement 

The STOP! Initiative will raise the stakes for international IP thieves by more aggressively pursuing perpetrators of IP crimes and dismantling criminal enterprises. 

STOP! also seeks to increase global awareness of the risks and consequences of IP 

crimes through public awareness campaigns, and creating and operating a website 

publicizing information about international criminal IP enforcement actions. 

Building Coalitions 

The ultimate success of the STOP! Initiative involves building coalitions with 

many of our like-minded trading partners, such as Japan, the United Kingdom, and 

France, who have all recently launched similar initiatives. We are seeking to continue working with our partners in the G-8, Organization for Economic Cooperation 

and Development (OECD) and the Asia-Pacific Economic Cooperation (APEC) 

forum. Cooperation on new initiatives to improve the global intellectual property environment is essential to disrupting the operations of pirates and counterfeiters. 

International Outreach 

A delegation of U.S. officials from seven federal agencies, including Deputy Secretary of Commerce for Intellectual Property Steve Pinkos, recently kicked-off our 

international outreach effort to promote STOP! internationally. In April, our officials 

visited various capitals in Asia generating much interest and fruitful discussions. 

Just this week, our USPTO representative and officials from the other STOP! agencies are meeting with their counterparts and representatives from the private sector 

in five capitals throughout Europe. This week’s second global outreach tour is an 

important opportunity to continue developing enforcement mechanisms to raise the 

stakes for pirates and counterfeiters and share proposals on how to make it easier 

for businesses to protect their innovation at home and abroad. 

During these international visits, U.S. officials share information on our efforts 

to combat the theft of inventions, brands and ideas. Our efforts abroad are advancing our commitment by enlisting our trading partners in an aggressive, unified fight 

against intellectual property theft. Finally, we have tentatively planned that countries receptive to cooperation on STOP! will be invited to attend a meeting in Washington, D.C. (likely in the fall of 2005) designed to—formalize their participation 

and finalize—a work plan. 

Future STOP! Activities 

The USPTO has several future planned activities supporting our initiatives under 

STOP! The first involves our public outreach efforts. In addition to our China-related workshops and seminars for 2005-2006, my staff will also be embarking on an 

educational road show to various cities in the United States to educate small- and 

medium-sized businesses on what IPR are, why they are important, and how to protect and enforce these rights domestically and internationally. The first of these 

workshops took place in Salt Lake City on May 23 and 24, and already, we have 

found an enormous amount of interest in the program. We will replicate this program in other cities throughout several regions of the U.S. in the coming months. 

We continue to work in WIPO to seek to simplify, streamline, and improve the 

cost efficiency of the trademark application process across borders to provide more 

efficient and less burdensome systems for right holders. We will continue to work 

closely with the IP community, STOP! team, and you to promote a legislative agenda that is designed to meet the huge challenge of combating piracy and counterfeiting. Tougher enforcement of our international trade laws is necessary for the 

growth of our economy and the creation of new jobs. In order to fully implement 

the STOP! Initiative, it may be necessary to reassess current legislation. 

CONCLUSION

Mr. Chairman, the JCCT process continues to provide a high-level governmentto-government forum to examine and address the trade and commerce issues with 

China that are important to us all. While there is a lot of discussion about the problems regarding piracy and counterfeiting in China, it is my hope that the Subcommittee now has an increased understanding of how the process is working toward concrete, discrete solutions that benefit U.S. small businesses and owners of 

intellectual property. 

As we look to the future, let me conclude on a positive note. The Administration 

is working on several fronts to combat the theft of U.S. IP through efforts, such as 

the STOP! Initiative. Although by all accounts counterfeiting and piracy appear to 

be growth ‘‘industries,’’ there have been some recent successes in attacking the problem. Between 2001 and 2002, the software industry estimates that software piracy 

in Indonesia decreased from 89 percent to 68 percent. In South Africa, it fell from 

20

63 percent to 36 percent. The motion picture industry has reported a decrease in 

piracy levels in Qatar from 30 percent in 2001 to 15 percent in 2002. In Bahrain, 

there have been dramatic and systemic improvements in IP protection and enforcement over the past few years. These include the signing of numerous international 

IP conventions and the virtual elimination of copyright piracy and counterfeiting in 

retail establishments. 

There is some reason for optimism. I remain hopeful that with the continued support and partnership of the Subcommittee, we will be able to do even more to provide American businesses and entrepreneurs with the IP knowledge and protection 

they need. Clearly, in terms of the economy and national security, much is at stake. 

That is why our dedicated team of experts will continue to work tirelessly to protect 

American intellectual property all around the globe. 

Thank you very much.

Mr. STEARNS. I thank you, Mr. Under Secretary. I will start with 

the first questions. This is going to be fun to ask you because I just 

want a yes or a no. And since you have been behind me here advising Henry Hyde to see if you can get a yes or no, I am going to 

ask you this question. So just a yes or no now. 

You are a business and a businessman comes to you and says, 

you know, I had this property, this business that deals totally, exclusively, core assets are intellectual property, and I have got an 

opportunity to set up a shop in China and to work with the Chinese to develop this business and to do business with China in 

China with intellectual property rights associated with some of the 

Motion Picture Association back here. Do you think I should do it? 

Just yes or no. 

Mr. DUDAS. No. 

Mr. STEARNS. No, okay. So now, with that in mind tell me why 

‘‘no’’ because that is the question that I was hoping you would answer because if you said yes, based upon your statistics in your 

opening statement and everything, I wouldn’t, as a businessman, 

go into China to develop something dealing with intellectual property rights. I would be very wary because not even going into business they are going to get my product if they come over here; there 

are many ways to get it. So answer the question ‘‘no’’, why ‘‘no’’? 

Mr. DUDAS. And, again, you asked me to answer the question as 

my person opinion as a businessperson who a 100 percent of my 

assets are intellectual property, I think I can compare that to industries that are there right now. And I believe the industries have 

answered that in the affirmative, not as a ‘‘no.’’ But I look at the 

Motion Picture Association, the business software, others who 100 

percent of their business is in intellectual property, the concern is 

that there is rampant theft of intellectual property. That is the 

very problem. It is the challenge that we face right now. 

I think each of you had an opening statement that talked about 

that our country’s future to some degree depends on our ideas and 

the protection of our ideas. So while I answered in the negative 

myself—I am looking at myself—if all I had was one asset and it 

was intellectual property and I had no level of protection, I would 

be wary, certainly, of investing that. 

Again, I will say that there are—the industries that are out there 

find that the market is attractive enough that they have found 

ways to invest; they have found ways to go forward. So I think the 

fact that many in the industry have still found it to be worthwhile 

because it is such a large market, such an important market. 

21

And perhaps I might conclude that part of the theft is a part of 

just doing business; that is their overhead that they are going to 

lose because the market is so big. It is possible that industries 

make that calculation and view it almost as a business decision, 

but I think that is the very threat that businesses are facing is in 

terms of if you have a 99-percent piracy rate or a 92-percent piracy 

rate, the question is how much do you have to gain and how much 

do you have to lose. Again, evidence shows that they are willing to 

invest because—if I take moment, I know I am beyond yes or no—

I believe that most industries see, and I certainly see, that the situation is getting better. The question is is it getting better quickly 

enough? Is it getting better as rapidly as we want to see it? And 

are we seeing it at the level we need to see? I think——

Mr. STEARNS. Yes. 

Mr. DUDAS. [continuing] businesses who actually invest the 

money feel that it is and it will. 

Mr. STEARNS. And as I understand it we have a trade surplus in 

intellectual property, so that is one of the few areas where we have 

a surplus, and so we want to protect it. 

Your testimony shows there is a plant in China that produces 

windshields illegally, and they are stamped with major auto manufacturers name on them, so they are replicating theses windshields. 

This plant was raided three times over a period of 2.5 years, yet 

it continues to operate. So if that is an example of China’s effort 

to stop just the windshields being replicated based upon American 

auto parts, you realize that either, one, the enforcement mechanism is not strong enough; two, they are incorrigible to people because they have realized the penalties are so weak. 

So my question is can you influence—and maybe you can start 

in telling me—are there civil and criminal penalties and are they 

severe enough and can you have any influence to make them enforced? And is China committed to doing this? I mean that is the 

feeling we have that this is sort of a misdemeanor crime that 

China doesn’t even care about. In many countries you can go into 

and you go down a street, you just find vendor after vendor selling—for example, in Singapore. Well, we sat down with Singapore 

and we worked it out. And when I was in Singapore, you could go 

down these streets; you couldn’t find it, which was good. It is good 

for American consumers and it is good for intellectual property 

rights. 

But now I was recently in Barcelona, Spain and there was people 

with all kinds of movies, DVDs, right there on rugs just tens and 

tens of these movies. So my question basically, you know, how do 

you get the Chinese government to put in place the enforcement 

mechanism and the penalties, whether civil or criminal, to make 

this thing real? 

Mr. DUDAS. You get to the very heart of the problem. Is there 

a deterrent, an effective system of enforcement within China? And 

certainly, within the United States I think we lead by example. 

Where there have been problems with intellectual property theft, 

often there is a bill that comes to Congress; it passes, it is implements, and it is publicly displayed, what enforcement has occurred. 

And that is what we are working with the Chinese on as well. Is 

22

the system that they have in place creating a deterrent for piracy 

and counterfeiting, or is it considered a cost of doing business? 

And your question about what kind of system do they have, they 

have an administrative system and a civil system and a criminal 

system. Their administrative system is unlike what we have here 

in the United States. We have pushed very hard in China. 

Mr. STEARNS. It is unlike the one we have? 

Mr. DUDAS. The administrative system is unlike what we have 

in the United States. And it is a different area of the law that they 

have there. What we have pressed for through the JCCT was we 

want to see stronger criminal prosecutions; we want to see lower 

thresholds. And what we have seen in December of last year as a 

result of the JCCT was a new judicial interpretation. They came 

out and gave guidance to court systems, to prosecutors, to the procurator in China that basically directed how criminal IPR violations 

should be handled. 

The Chinese came and reported to us that in the last several 

months they have had about a 19-percent increase in criminal violations. That is a promising statistic. But what is most important—

and I think what you are getting at in your opening statement and 

what we are getting at with the JCCT—is we must see an absolute 

result that we can understand in terms of metrics, and that result 

will be more legitimate goods being sold in China. And that is 

where we are working toward with the Chinese. So we see 

progress. The difference between delegations I led to China about 

2 years ago versus last year, I met with agency heads with the 

Food and Drug Administration, with the intellectual property offices in China after the JCCT in going with the Secretary of Commerce then Evans, we met with the premier, the vice-premier Wu 

Yi; you could see that there were differences. Well-known marks, 

certain marks that had never been protected, U.S. names, trademarks that had no protection in China were now being protected. 

We established many more cooperative efforts where we give technical assistance to the Chinese patent office or we give it to the 

Chinese trademark office. 

At the end of the day, the question comes down to, however, Congressman Green had pointed to the fact that our seizures at our 

borders, two-thirds of those seizures of counterfeited and pirated 

goods came from mainland China. That must come down. We must 

see more legitimate goods being sold there. There is a commitment 

from what I have seen and heard from the premier to the vice-premier, but that commitment needs to be shown in actions and results. 

Mr. STEARNS. My time has expired. The ranking member. 

Ms. SCHAKOWSKY. There is somewhat of a credibility gap, 

though, Mr. Dudas, because Beijing has the ability to find and jail 

a trade union organizer or sympathizer at will. Do you really believe that if a government of China decided to, that it couldn’t stop 

counterfeiting tomorrow if it really put an emphasis on that? 

Mr. DUDAS. I don’t know that I am an expert enough on the Chinese government to know whether or not, but that is certainly one 

of the issues we have, is the political will there to get that done? 

Are we seeing any results? I can tell you again that we have seen 

dramatic differences within the last 2 years. I think your question 

23

goes to the heart again. Are those differences enough? Is the political well-being shown to the level that we think is necessary and 

sufficient? 

Ms. SCHAKOWSKY. I wanted to ask you some questions about 

workers’ rights and labor, the unfair, illegal advantage that China 

gains by suppressing workers’ rights and artificially keeping wages 

low. I am going to ask them all at once basically. A little over a 

year ago the Administration convened four Cabinet secretaries to 

announce the decision to reject the AFL-CIO Section 301 Petition, 

alleging that China’s egregious repression of workers’ rights constituted an unfair trade practice. And at the time, the four Cabinet 

secretaries conceded that there were workers’ rights problems in 

China, but they would address these through dialog and engagement. So you have had over a year now to dialog with the Chinese 

government over those very serious issues. Can you tell me what 

concrete improvements in Chinese workers’ rights have been made 

in the last year? In particular, has there been any progress in reforming China’s labor laws, which prohibit the formation of independent unions and the right to bargain collectively? Have any 

Chinese workers actually formed an independent union, a real 

independent union? And aside from Labor Secretary Chao’s visit to 

China last summer and a couple of non-binding letters of understanding that were signed at the time, what other actions has the 

Administration taken to ensure progress on workers’ rights, human 

rights, and democracy found in China? And finally, I want to just 

ask given the slow progress in the last year, would you consider, 

would the department consider accepting the AFL-CIO 301 Petition 

if it were re-filed? Do you think this issue needs to be addressed 

with more urgency and a higher priority, or are you satisfied with 

the progress that has been made so far? 

Mr. DUDAS. I will open by thanking you for your questions, and 

I have to tell you, in your opening statement you mentioned that 

there might have been some reluctance to testify. I can assure the 

committee there was no reluctance to testify. I had a person concerned that there are areas of expertise I do not have. I am certain 

I will disappoint you with my answer that I have really no knowledge on that front. My expertise is limited to intellectual property. 

I am happy to bring those questions to the appropriate folks within 

the Administration. 

Ms. SCHAKOWSKY. You know, I just want to tell you, I think that 

in some ways that this is indicative of the various levels that intellectual property rights, as opposed to workers’ rights, environmental rights are placed. This is not a criticism of you, but rather 

it would have been a good thing, I think, since it is not unknown 

that many of us are concerned about these issues of labor rights. 

You know, when you have got a situation that it has been reported 

that many child workers aged 12 to 15 migrate to the southern 

coast of China and end up working in these special economic zones 

using false identify papers, according to Hong Kong news reports, 

instead of acknowledging the lack of adequate information, officials 

at the Labor Ministry ‘‘claim that no government figures are available because child labor is not a problem in China.’’ Now, you probably know enough—well, let me ask you is child labor a problem 

in China? 

24

Mr. DUDAS. I don’t have the expertise to answer that question. 

Ms. SCHAKOWSKY. In 2000 worker rights advocates affiliated 

with the Hong Kong Christian Industrial Committee reported that 

McDonald’s Happy Meals toys were being produced by a supplier 

that employed child labor from mainland China. Children as young 

as 14 were earning $3 for 16 hours of work each day. So what has 

your agency done to investigate this allegation and to prevent similar incidents from occurring in the future? 

Mr. DUDAS. I don’t know what our agency has done and only, 

again, because I am solely committed to intellectual property. But 

I would welcome the opportunity to supply you with answers to 

these questions. 

Ms. SCHAKOWSKY. Well, I have a number of questions that, you 

know——

Mr. STEARNS. We are going to go to a second. 

Ms. SCHAKOWSKY. Well, he is not going to know in a second 

round the answers to my questions either. And, you know, I just 

think that in our zest here for low-cost goods for developing and 

increasing this relationship with China that we should not only be 

concerned with what I do agree is the future comparative edge for 

the United States of America, and that is our brain power, our 

technological advantage, our intellectual property, but that we 

have to put as much emphasis, I believe, on looking—because otherwise, we then become supportive of a real race to the bottom, 

which ends up affecting our workers at home. And the interests of 

business and multinational corporations and protecting the rights 

of intellectual property or any kinds of property, while they are important, human capital is very important too. So I can submit these 

to the department for answers. 

Mr. STEARNS. I thank the gentlelady. The gentlelady from Tennessee, Ms. Blackburn. 

Ms. BLACKBURN. Thank you, Mr. Chairman, and I thank you for 

working on this issue. And, Mr. Dudas, I thank you for being with 

us today. I certainly appreciate it. I represent a little bit of Nashville, a little bit of Memphis, so I am a little bit country and a little 

bit rock and roll and real concerned about intellectual property. 

And so I thank you for being here with us today. As a matter of 

fact, I am doing a hearing or a listening session, if you will, over 

on Music Row in Nashville on Sunday with some of our folks over 

there. We are looking at the impact on the small business entertainment community, the impact that intellectual property has on 

our economy and the impact that is coming from China and how 

we fill that. And, you know, our State of Tennessee, when you look 

at State revenues, $26 billion budget, about $14 billion of it comes 

from the State. About $1 billion is a direct result of entertainment 

products. So when they steal, we squeal. And it hurts. 

So let us talk about this for a second in terms of percentages. I 

understand that 85 percent of the music that is sold in China is 

pirated. I understand that 95 percent of films is pirated. And these 

are troubling, troubling numbers. And, you know, we accept and we 

understand it is a cultural difference. You know, when something 

is printed here it is copyrighted and you own it. When something 

is printed there it is public. And there is a different level of respect 

for that creative energy, but I really am protective of this creative 

25

community that we have here. I think that it is worth protecting. 

And they are great people, and by and large they are small business people. 

So does the Administration—do you all have plans to raise these 

percentages and raise this issue with them and bring it to pursue 

it before the WTO? Because it is such an egregious violation. What 

is the plan there? 

Mr. DUDAS. Commenting generally on what you said, you are absolutely right that the United States has—it is in our Constitution—how fundamental the protection of intellectual property 

rights is. It went without a vote; it went with out debate. It was 

clearly understood from the Framers of the Constitution through 

today what patents and copyrights and trademarks and IP does for 

our country. 

The answer to the statistics that you have spoken of, yes, those 

are industry-reported statistics. Some you even hear higher from 

industries. Some industries have said in the business software that 

they see 92 up to 99 percent. That is something that must be addressed, and I can assure you it is being addressed within the 

JCCT where we are very specific talking just specific points that 

we are making with specific actions that we expect the Chinese to 

take in order to reduce these levels. We have also gotten overall 

promises they will reduce these levels. As I mentioned earlier, 

what is important at the end of the day will not be more promises 

or more discussions of crackdowns or anything else other than having more legitimate product sold in China, the absolute result. 

On your question about a WTO action, the United States has 

kept all options open vis-&-vis China. That is a decision that it has 

ultimately made out of the office of the President’s United States 

Trade Representative. But I can tell you that China last year was 

put on this special priority watch list. There is a plan to invoke the 

transparency provisions of the TRIP agreement, which basically 

says we want to see from you, China, what kinds of piracy levels 

you see. We will have requests for information to find specifically 

what is in there. There is working going on right now with the industries you have mentioned to find out, to gather evidence and 

gather information in case a WTO procedure is taken. So those options all remain open. 

On another front, the Joint Commission on Commerce and Trade 

has a very cooperative relationship at the highest levels of the U.S. 

Government and Chinese government. But we have laid out very 

specific line-item actions that we believe they should take to reduce 

the level of piracy and counterfeiting. And our point is we believe 

this will make a difference; this has worked in the United States 

and in other countries. But at the end of the day what is important 

is that you reduce your levels of IPR infringement——

Ms. BLACKBURN. But we——

Mr. DUDAS. [continuing] that would be the test. 

Ms. BLACKBURN. Yes, we would just like to see you all a little 

quicker on the uptake on following up with some of this. Let us go 

back. You said that China has a—I think my time is about to expire and I do have another group of questions I think I will start 

while they are—okay. You said 19-percent increase in their criminal prosecutions, and I am familiar with their saying they have 

26

done 40,000 raids in the past few months, and I think we are all 

familiar with ‘‘Silk Alley,’’ that closing that took place in January. 

So what are we seeing as far as prosecutions, convictions, and penalties? Is there an increase that you all can substantiate, not just 

what they say? But can you all substantiate this and point to some 

things other than the Golden Sciences Technology’s decision that 

we got out of Hong Kong last year, which was a 5-year process to 

get something done? So where are you on that? Give something 

more specific if you will, please. 

Mr. DUDAS. Well, on that front on the specifics on criminal prosecutions we are relying—just 2 weeks ago—I am relying on the 

documents they gave us to show that there was a 19-percent increase in criminal prosecution——

Ms. BLACKBURN. Are they listing them——

Mr. DUDAS. [continuing] due to——

Ms. BLACKBURN. [continuing] and——

Mr. DUDAS. [continuing] they are not listed, and that is part of 

what is important to do if you consider a WTO procedure to be 

looking at the transparency provisions where you say to the government we need to see all of the information that we need. Again, 

that is a process that does not come out of my office. It comes out 

of the United States Trade Representative. But in the out-of-cycle 

review, it was noted that that is something that the United States 

will be looking at is getting that information. 

Ms. BLACKBURN. Okay, and the issue is raised——

Mr. DUDAS. An issue has been——

Ms. BLACKBURN. [continuing] is what you are saying. You have 

raised that. I think that is part of the frustration. When we look 

at an industry that is so important to our community and your 

friends and your neighbors and the people you see and you work 

with and you cross paths with every single day. And they are getting ripped off. They make an independent film, and then when 

they go to sell those video rights, they can’t sell them in Southeast 

Asia, and the reason is the pirated copy has made it to the streets. 

So then their rights are worth nothing. You have authors—we have 

a big publishing industry in Middle, Tennessee, a lot folks writing 

a lot of books, different genres, and they can’t sell the rights on 

those books. 

So, you know, understanding that it is a different culture and accepting that, I hope that you will take to heart our frustration on 

behalf of our constituents who comprise a wonderful creative community. We don’t want to lose them. And it is encouraging to us 

to see your aggressiveness. We need to see more aggressiveness, 

and not just in writing, but in some actions, something that is 

quantifiable so when I step before this music industry on Sunday 

afternoon to do a listening session—and I have got several small 

business/entertainment industry folks in front of me, I can say let 

me tell you what the U.S. Government and this Administration is 

specifically doing to protect your right to exercise your giftedness 

and your talents in order to earn a living. And that is what I don’t 

have chapter and verse, and that is what I want to see, chapter 

and verse. And I appreciate so much that you would take your time 

and come here and visit with us on this issue today because it is 

an economic issue. It is a jobs issue. It is preservation of an indusVerDate 0ct 09 2002 14:55 May 22, 2006 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6602 F:\DOCS\21645.TXT HCOM1 PsN: JOEP
27

try issue for me and for my constituents. Thank you, Mr. Chairman. I yield back. 

Mr. STEARNS. I thank the gentlelady. The ranking member is recognized in unanimous consent. 

Ms. SCHAKOWSKY. I could have unanimous consent to insert into 

the record a report called ‘‘The Struggle for Workers’ Rights in 

China.’’ 

Mr. STEARNS. By unanimous consent, so ordered. 

[The report is available at http://www.solidaritycenter.org/publications/jfalchina.cfm] 

Mr. STEARNS. I told my colleagues we are going to go around for 

a second round. With Mr. Dudas here, we might as well just camp 

out here for a while if we have got him here. And he has been kind 

enough to stay, so I will start with another round. 

Mr. Dudas, we just had a vote on the WTO whether we should 

leave the WTO. And, as you know, every 5 years we have this vote, 

and the vote overwhelmingly lost. But there were, I think, about 

33——

Ms. SCHAKOWSKY. 85. 

Mr. STEARNS. 85 people who voted ‘‘yes.’’ And I have been on 

both sides of this issue. Dealing with intellectual property rights, 

is there any response to the WTO to handle this? Can a WTO do 

anything to China? I mean, I know your boss is going for another 

round of negotiations out to China in July, I guess it is? Is that 

correct? Secretary Gutierrez will co-chair the 2005 JCCT schedule 

in July in Beijing along with U.S. Trade Representative Portman 

and the Chinese Vice-Premier. And you are talking to the Chinese, 

but why isn’t there a two-prong approach going through the WTO? 

Mr. DUDAS. Well, WTO procedures are one potential avenue. As 

I mentioned, the Administration is keeping all avenues open. 

The——

Mr. STEARNS. That is just so weak that you don’t think it works? 

Mr. DUDAS. I will go to another instance of whether WTO actions 

have worked. There is something called geographical indications——

Mr. STEARNS. Yes, that is good. If you can give me an example 

of what WTO works, I would like to hear that, dealing with China. 

Mr. DUDAS. That is outside my expertise, I apologize, but in the 

semiconductor industry I believe a WTO action was taken——

Mr. STEARNS. But does it work with intellectual property rights? 

Mr. DUDAS. Well, I can give you an example where it has worked 

with the European Union——

Mr. STEARNS. Okay. 

Mr. DUDAS. [continuing] on an issue of geographical indications. 

The United States took a case against the European Union on 

something called geographical indications. Essentially, you want to 

be able to protect Idaho potatoes and say that Idaho potatoes come 

from Idaho. Certainly, a number of European nations want to protect certain kinds of cheeses, and the United States has a system 

that does protect certain kinds of cheeses. Parmigiano-Reggiano 

comes from a certain region in Italy. That is a geographical indication that is protected in the United States. However, Idaho potatoes and Florida oranges were not protected in the European 

Union. The USPTO working together with the United States trade 

28

representative, USTR took a case on that through the WTO and 

that came out very favorably for the U.S. interests saying they 

were insufficient——

Mr. STEARNS. Why don’t we have a case going to WTO or do we 

have a case going to WTO on intellectual property rights asking for 

them to assess China or to put tariffs on them for this theft of our 

property rights? 

Mr. DUDAS. I think that is under consideration when I say all options are open, whether or not to take a case to China. There are 

a number of issues—before you would ever take a case you want 

to make sure you have your evidence lined up perfectly in a 

row——

Mr. STEARNS. You don’t think there is enough evidence? 

Mr. DUDAS. Well, I think the United States trade representative 

is gathering evidence right now, working with——

Mr. STEARNS. Would you personally—your office think there is 

enough evidence now to make the case that we could go to the 

WTO? 

Mr. DUDAS. I don’t know that I have—I would have to look at 

the very specific evidence——

Mr. STEARNS. Well, let me just remind you now, your title as the 

expert here is Under Secretary of Commerce for Intellectual Property. So if I have to go to anybody, I assume I would go to you to 

find out if there is enough evidence—and you have just advised me 

if you had a company on intellectual property rights you would not 

go to China to do business. So obviously, there is enough evidence 

in your mind, so I just can’t understand why we don’t have a twoprong approach: negotiate but at the same time move forward with 

a case against China in the WTO. That is what the WTO is for. 

Mr. DUDAS. Well, and I think those are—there are certainly negotiations going on and the discussions and decisionmaking process 

about whether or not to invoke WTO procedures. Again, I can tell 

you it is—the United States trade representative has said we are 

looking at evidence. We are also looking at the transparency provisions. These are——

Mr. STEARNS. I think you make a weak case when you say we 

are looking at the evidence. I mean, I think the evidence is clear. 

The question is do you want to act? 

Mr. DUDAS. Well, let me be clear——

Mr. STEARNS. Unless you are saying that the evidence now is dubious that they are stealing our intellectual property rights. 

Mr. DUDAS. Well, I think what I am saying is there is discussions 

that need to occur, pulling together, working with industry to get 

very specific information. There are certain areas that you would 

go into, invoking the transparency provisions where you are telling 

the government there are certain areas of evidence that we would 

like to have, evidence that we would like to look at. Those are underway right now. The decision on whether or not to actually take 

a case, I am not the expert. I am not the person who ultimately 

gets to make that decision and——

Mr. STEARNS. Oh, I appreciate that you are not the lawyer that 

would take it to the WTO, but I think you should be the person 

to say yes, there is enough evidence and yes, it is powerful enough 

29

that the United States should take it to the WTO, because you 

could make that decision. 

Mr. DUDAS. Actually, I am not the person that gets to make the 

decision on whether or not to take a case to the WTO——

Mr. STEARNS. No, I know——

Mr. DUDAS. [continuing] but——

Mr. STEARNS. [continuing] but you could recommend it to Secretary Gutierrez and say——

Mr. DUDAS. Well, certainly, we have discussions within trying to 

make these determinations, but I ultimately, certainly, defer to the 

United States trade representative. 

Mr. STEARNS. So let me ask you pointblank yes or no. Do you 

think there is enough evidence to go to the WTO to complain about 

China stealing our intellectual property rights? Yes or no? 

Mr. DUDAS. I can’t give you a yes or no answer to that question 

because I am not the person that makes that decision. 

Mr. STEARNS. You don’t think there is enough evidence of them 

stealing our intellectual property rights? 

Mr. DUDAS. I don’t feel that there is a lack of evidence. What I 

am telling you is that is a decision that is being reviewed through 

a variety of agencies throughout the U.S. Government and one 

that—I know that if the U.S. ever takes a case, I know that that 

day that yes, there is enough evidence to take that case. 

Mr. STEARNS. In the judicial interpretation that was issued in 

December your testimony states, ‘‘it took a step backwards regarding the enforcement against repeat offenders.’’ Could you explain 

what that means and what should the penalties be? 

Mr. DUDAS. Yes, sir, in those judicial interpretations there were 

a number of steps that we thought were forward steps. There were 

a few steps that we thought were backward steps, including eradicating the provision that allows for repeat offenders to have certain 

penalties. We are now working very closely with the Chinese on 

making certain that we understand fully what is in their judicial 

interpretation, and we are seeking clarifications. 

Another area where there was express disappointment on behalf 

of my office in the U.S. Government, it looked as though sound recordings had been excluded from the judicial interpretation for 

criminal penalties. In discussions with the Chinese just 2 weeks 

ago it was made clear to us that that was not intention, that actually there is a way that they have been included. We are working 

very closely with them to make certain that if that is the case, we 

get a clarification. 

The successes of the JCCT are along those lines where we are 

finding out we can have very express conversation where we discuss where we think there are deficiencies, where we think things 

need to be improved, and we are working closely with the agencies 

to make sure we get that clarification with them and in through 

the highest level of the government. 

Mr. STEARNS. My last question is I think you stated that the Chinese government is giving free rein to counterfeiters by restricting 

market access to foreign companies. What restrictions do they impose and how are we working to open those markets if, indeed, that 

is occurring and it is giving free rein to these counterfeiters? Does 

that make sense? Do you know what I mean? 

30

Mr. DUDAS. Yes. I think the philosophical argument, and it 

makes perfect sense and it is correct, that if a company does not 

have access to the markets, if an industry does not have access to 

markets in any country there is——

Mr. STEARNS. Underground market. 

Mr. DUDAS. Right, they don’t have—well, I mean, just the fact 

that if a legitimate company cannot get into the market because of 

other restrictions——

Mr. STEARNS. By the Chinese government. 

Mr. DUDAS. [continuing] by the Chinese government in this case, 

then how will you ever be able to compete with counterfeiters? So 

an example, case in point—and I think Congresswoman Blackburn 

referred to it—in the motion picture situation, there are certain 

limits on how many motion pictures can be shown, foreign films 

can be shown in China. That was an agreed-to discussion under 

WTO negotiations. That number is 20. We believe that that number 20 is absolutely a floor not a ceiling. The Chinese have treated 

it as a ceiling. It is very difficult for a company to be able to—if 

they can’t sell their product—if it takes 2 months to get their product out on the street, an illegitimate, a copy, a pirated version will 

be sold. The market is gone within a month. So if you can compete—I guess many industries are saying we will even try to compete with counterfeiters, but you have to give us the opportunity 

to compete with counterfeiters. 

The business software folks that have issues in China are very 

concerned that there might be government procurement regulations 

that would favor the Chinese government that would somehow not 

allow foreign companies to come into those markets. If you put in 

barriers to markets in areas where 90 percent of the production is 

occurring in the United States, we are obviously most at risk. 

Mr. STEARNS. I am just curious; you say that the Chinese government only allows 20 showings of a film? Is that what you said? 

Mr. DUDAS. No, the rule is that there are only 20 foreign films 

that are allowed in——

Mr. STEARNS. Oh. 

Mr. DUDAS. [continuing] to be shown in their movie theaters. 

Mr. STEARNS. Okay, so 1.3 billion people, only 20 specific foreign 

films are allowed in——

Mr. DUDAS. For the movie——

Mr. STEARNS. [continuing] for the movie industry? 

Mr. DUDAS. Yes. 

Mr. STEARNS. And is there a floor on American films? That includes the American films I guess——

Mr. DUDAS. Oh, no——

Mr. STEARNS. [continuing] because we are foreign. 

Mr. DUDAS. [continuing] it includes American films, yes. 

Mr. STEARNS. So out of that that means you have got France and 

you have got India, you have got Italy, so you have got the entire 

European Union and not to mention the——

Mr. DUDAS. Right. 

Mr. STEARNS. —Pacific Rim, so all these countries, only 20 films 

are allowed a year? 

Mr. DUDAS. Get approximately 15 from the United States. 

31

Mr. STEARNS. So 15. And I am just curious, how do they make 

that selection of those 15? Is it based upon politics? 

Mr. DUDAS. There are certain censorship decisions, other decisions that they are making in China that go into that decision, yes. 

Mr. STEARNS. Because you can see that there is a dearth of these 

movies, and so the people say by golly, I am going to find another 

way to counteract that. And, you know, that goes to the heart of 

what we are trying to do if we are trying to get China to be a free 

society and an open society and then you wouldn’t have this huge 

restriction and the counterfeiters are actually making a lot better 

money because the Chinese government is restricting films. So my 

time has expired. The gentlelady from Tennessee. 

Ms. BLACKBURN. Thank you, Mr. Chairman. You might wish you 

had never come over this afternoon when we finish with all of our 

questions, but, you know, it is a pretty important issue. And so let 

us go back to this prosecutions question. You know, we talked percentages; we talked about the 40,000 raids they say that they have 

conducted. Do you have a number? Can you say this is the total 

number? If you can’t recite chapter and verse and where and what 

the offense was, are they giving you a total number rather than 

just saying we have had an increase? 

Mr. DUDAS. An increase in prosecutions or in——

Ms. BLACKBURN. Correct——

Mr. DUDAS. [continuing] raids or——

Ms. BLACKBURN. [continuing] prosecutions. 

Mr. DUDAS. The answer is yes, they will give us—they gave us 

a total number. I don’t know what that total number was——

Ms. BLACKBURN. Would you get that to me——

Mr. DUDAS. I will——

Ms. BLACKBURN. [continuing] please? 

Mr. DUDAS. [continuing] get you what they——

Ms. BLACKBURN. Okay. 

Mr. DUDAS. [continuing] give us. If you wouldn’t mind, I would 

say that it is not important in many ways what the total number 

is because it almost can’t be enough—it can’t be enough if we are 

not seeing legitimate products being sold in China. In other words, 

it can be anecdotal if you say I did 10,000 prosecutions or I did 

20,000 prosecutions or 30,000 prosecutions, it won’t be enough if 

there has still been a rise in——

Ms. BLACKBURN. I realize that and I agree with you on that. 

Mr. DUDAS. Yes. 

Ms. BLACKBURN. However, when you have had zero and you have 

got something, at least there is some tangible action——

Mr. DUDAS. Yes. 

Ms. BLACKBURN. [continuing] that you can point to. Now, part of 

the problem with this entire situation is they have to come to the 

point that they value the product created from intellectual property, that they see that as something that is a revenue stream in 

their county. When you go into China, many times government is 

your partner on something. So they have to have a value for that. 

And you have talked about process, you have talked progress, you 

have talked about gathering evidence and being able to move forward, so let us talk about what you are tangibly doing. Are you all 

working with NGO’s or other groups in addition to the WTO? Or 

32

who are you working with on education? Are there NGO’s that are 

out there helping us with not only China, but other of the Asian 

nations, other of the Central American nations to get laws on the 

books so that we have something that we can negotiate to, so that 

we have something that we can demand enforcement of? 

Mr. DUDAS. Absolutely. Thank you for that question. First, let 

me say on the value of intellectual property within China, I can 

give you some good news. They have the largest trademark office 

in the entire world. The United States used to have the largest 

trademark office in the world——

Ms. BLACKBURN. Size means nothing——

Mr. DUDAS. But they——

Ms. BLACKBURN. [continuing] I mean we want to see——

Mr. DUDAS. Right. 

Ms. BLACKBURN. [continuing] action. 

Mr. DUDAS. But what you see is in the patent office, they have 

one of the largest patent offices in the world. Last year was the 

first year where there was more intellectual property produced in 

China than by foreign nations, which is very important for them 

to understand and need. 

In answer to your question of what are we doing, the Administration has raised to the highest levels. President Bush asked last 

year to get Secretaries together of Commerce, the United States 

Trade Representative, Department of Homeland Security, and Department of Justice and go forward on this STOP Initiative, which 

is the strategy for targeting organized piracy. As part of that, there 

have been what are called world tours. There is one going on right 

now in the EU. There was one a few months ago where our deputy 

under secretary, Steve Pinkos, attended on behalf of the PTO going 

into different Asian nations, working with them, explaining to 

them what we are doing to crack down, what we are doing in customs, et cetera. My office has an enforcement division where literally hundreds of training programs go on a year. We will travel 

to China; we will travel to Russia; we have an institute where we 

are working with people here. We have trained Supreme Court 

Justices in India and other Asian nations. We have trained the 

prosecutors; we have trained judges; we have trained IP officials. 

We work very closely with IP officials—wherever we can get people 

who are likeminded within any nation on the value of intellectual 

property and getting that education throughout their country, we 

will work with them. 

Ms. BLACKBURN. Let me ask you one more thing. You know, not 

only does this affect our entertainment folks in Tennessee, but we 

have a lot of pharmaceutical distributors, some manufacturing and 

biotech. Tool and die is a big industry, and tool and die has been 

hit tremendously. I have one constituent who lost $500,000 worth 

of business this year because of China. And that always brings up 

the problems with liability. So, you know, I know that there are 

some products, you know, when you are talking about products 

with safety elements and the liability issue enters into that, whether it is a grommet or some small piece used in a car. And then you 

get that pirated in China, sold, counterfeit labeled, sold back into 

the American market. Should consumers be concerned? Have you 

33

all raised this as a safety issue? And what action are you taking 

there? 

Mr. DUDAS. Certainly, it is something that we are very concerned 

about as well. The issue of counterfeiting and piracy is not just an 

issue of money and economics; it is an issue of safety. If you have 

drugs that are being counterfeited, if you have products that are 

otherwise for safety, the UL listing has been counterfeited so that 

what you think you are getting is a safe—electrical cord that explodes. We definitely have been raising that. We do have a very 

strong customs department in the United States. So we are very 

good at our borders and protecting our borders in what comes in, 

but worldwide, the World Health Organization has estimated that 

up to 10 percent of pharmaceuticals are counterfeited. Of those, 67 

percent of the wrong amounts in them, wrong amounts of——

Ms. BLACKBURN. Now, with all due respect, you know, if we have 

got two-thirds of the counterfeit product in this country—the counterfeit product that is being sold in this county coming from China, 

we have got a leak somewhere. Something is not exactly working. 

So I would just respectfully request that there be a review and a 

reconsideration of that process. Mr. Chairman, I yield back. 

Mr. STEARNS. I thank the gentlelady. And I think we have completed our questions for you, Mr. Dudas. And I want to thank you 

very much for coming. I would conclude by advising you that you 

should tell your boss, Mr. Gutierrez, that when he goes to Beijing, 

if he wants to see the theft of intellectual property rights, all he 

has to do is go behind the American Embassy and there is a shopping venue where he doesn’t get just 15 American films; he can get 

any American film he wants. So before he sits down to meet with 

the Chinese, just walk behind the American Embassy to the shopping venue. You can give him that tip, and that will give him a 

good idea of how to start his negotiations. With that, the subcommittee is adjourned. 

[Whereupon, at 2:26 p.m., the subcommittee was adjourned.] 

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