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57–922—PDF 2008

S. HRG. 110–1073

INTERNATIONAL ENFORCEMENT OF

INTELLECTUAL PROPERTY RIGHTS

AND AMERICAN COMPETITIVENESS

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

JULY 15, 2008

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

DEBBIE STABENOW, Michigan

MARIA CANTWELL, Washington

KEN SALAZAR, Colorado

CHUCK GRASSLEY, Iowa

ORRIN G. HATCH, Utah

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

PAT ROBERTS, Kansas

JOHN ENSIGN, Nevada

JOHN E. SUNUNU, New Hampshire

RUSSELL SULLIVAN, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

(II)

C O N T E N T S

OPENING STATEMENTS

Page

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee

on Finance ............................................................................................................ 1

Roberts, Hon. Pat, a U.S. Senator from Kansas ................................................... 16

WITNESSES

Lack, Andrew, chairman, SONY BMG Music Entertainment, New York, NY .. 3

Kindler, Jeffrey, chairman and chief executive officer, Pfizer, Inc., New York,

NY ......................................................................................................................... 4

Barton, John, George E. Osborne professor of law, emeritus, Stanford Law

School, Stanford, CA ............................................................................................ 6

Cahill, J. Walter, international vice president, International Alliance of Theatrical Stage Employees, Moving Picture Technicians, Artists, and Allied

Crafts, Washington, DC; on behalf of Thomas C. Short, international president, International Alliance of Theatrical Stage Employees, Moving Picture

Technicians, Artists, and Allied Crafts, Washington, DC ................................ 8

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Barton, John:

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

Prepared statement .......................................................................................... 23

Baucus, Hon. Max:

Opening statement ........................................................................................... 1

Cahill, J. Walter:

Testimony .......................................................................................................... 8

Prepared statement of Thomas C. Short ........................................................ 31

Kindler, Jeffrey:

Testimony .......................................................................................................... 4

Prepared statement .......................................................................................... 42

Lack, Andrew:

Testimony .......................................................................................................... 3

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

Roberts, Hon. Pat:

Opening statement ........................................................................................... 16

COMMUNICATION

Eli Lilly and Company ............................................................................................ 59

(III)

(1)

INTERNATIONAL ENFORCEMENT OF

INTELLECTUAL PROPERTY RIGHTS

AND AMERICAN COMPETITIVENESS

TUESDAY, JULY 15, 2008

U.S. SENATE,

COMMITTEE ON FINANCE,

Washington, DC.

The hearing was convened, pursuant to notice, at 10 a.m., in

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus

(chairman of the committee) presiding.

Present: Senators Grassley, Kyl, and Roberts.

Also present: Democratic Staff: Bill Dauster, Deputy Staff Director and General Counsel; Amber Cottle, International Trade Counsel; and David Schwartz, Health Counsel. Republican Staff: Stephen Schaefer, Chief International Trade Counsel; and David Ross,

International Trade Counsel.

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The hearing will come to order.

Thomas Edison said, ‘‘Genius is 1 percent inspiration, 99 percent

perspiration.’’ Edison often slept just 4 hours a day. He made his

assistants work around the clock. They tested theories, conducted

experiments, and filed patents on new inventions. Edison’s genius

gave us the light bulb, the phonograph, and the electrical power

plant. At the peak of his work, Edison filed a new patent every 11

days. Edison’s genius thrived because of more than just his inspiration and perspiration. His ideas thrived because he worked in an

America that fostered innovation and competitiveness.

Edison’s inventions built on the triumphs of the transcontinental

railroad and the telegraph. His inventions were fed by unprecedented natural resource discoveries, including the Montana copper

that electrified America. He succeeded because he collaborated with

other visionaries like Lewis Tiffany and Henry Ford. And Edison

succeeded because he locked in each innovation with a patent. By

1910, he had accumulated more than 1,000 patents, almost 1,100.

In today’s America, the genius of modern-day Edisons continues

to thrive. It thrives in the workshops of our engineers and scientists, in our advances in software, pharmaceuticals, and the technology industries. It flourishes among our creative artists in music,

television, and film.

But today, as in Edison’s time, America’s creative ideas can succeed only in an environment of innovation and competitiveness.

2

They can succeed only in an environment that protects ideas with

values, principles, and laws. They can succeed only in an environment that extends globally, applies rules fairly, and fosters the

ideas of the future.

We are here today because our innovative environment is evolving as never before. America’s cutting-edge ideas face competition,

both fair and unfair, from creative sources around the world. Demand for American ideas is now global in markets new and old.

There is no limit to the jobs, the exports, and economic growth that

this environment can create.

Yet too often, today’s innovative environment appears inadequate. Laws protecting patents and copyrights in the world are

uneven, at best. Even in countries with good laws, they all too frequently go unenforced. Pirates and counterfeiters act with impunity. As much as 10 percent of medicines sold around the world are

counterfeit. Roughly 90 percent of American copyrighted goods sold

in China are pirated. American industries lost more than $1.4 billion to counterfeiting in Russia last year.

To achieve an innovative and competitive environment, we must

identify, deter, and combat the theft of intellectual property in

every country. But our laws and agreements must also reflect

America’s compassion and good sense. We must help ensure that

the world’s poorest countries have access to lifesaving medicines to

treat their sick, agricultural and biological technology to feed the

hungry, and green technology to clean their environment.

Finding a new way forward is not merely an academic exercise.

American jobs depend on it. Industries that rely on intellectual

property protection already account for most American exports.

These industries employ 18 million Americans in high-paying jobs,

and these workers drive 40 percent of our economic growth.

We owe it to these Americans, and every innovator, to strengthen

intellectual property enforcement at home and abroad. We owe it

to them to improve the competitiveness of American industries in

the jobs that depend on them, and we owe it to ourselves and our

values to pursue these goals with compassion and with good sense.

Edison once said, ‘‘I have not failed. I have just found 10,000

ways that won’t work.’’ Today’s hearing is about finding ways that

do work. We hope to uncover a little genius, and we hope that we

can do so in fewer than 10,000 attempts.

Senator Grassley?

Senator GRASSLEY. Mr. Chairman, I have no opening statement.

Thank you very much.

The CHAIRMAN. Thank you, Senator.

Today’s panel begins with Andrew Lack, the chairman of SONY

BMG Music Entertainment, a global record music company

headquartered in New York. Following Mr. Lack is Jeffrey Kindler,

chairman and CEO of Pfizer, the world’s largest research-based

bio-pharmaceutical company. The third witness, John Barton, is

professor emeritus at Stanford University Law School. Professor

Barton chaired the U.K. Commission on Intellectual Property

Rights. And finally, we welcome J. Walter Cahill, the international

vice president of the International Alliance of Theatrical Stage Employees, Moving Picture Technicians, Artists, and Allied Crafts.

3

As is our usual practice, all of your statements will be included

in the record. We ask each of you to speak about 5 minutes, and

then we will take it from there.

Mr. Lack?

STATEMENT OF ANDREW LACK, CHAIRMAN,

SONY BMG MUSIC ENTERTAINMENT, NEW YORK, NY

Mr. LACK. Thank you, sir. Chairman Baucus, Ranking Member

Grassley, and members of the committee, Senator Kyl, my name is

Andy Lack, and I am chairman of SONY BMG Music Entertainment. Thank you for inviting me today to testify on this issue of

intellectual property protection and American competitiveness in

global markets.

I commend you for recognizing that this issue is of great importance, not just to the U.S. creative community, but to the U.S.

economy and to U.S. society as a whole. This committee has been

a tremendous champion for strong and effective copyright protection around the world, and I thank you for your leadership, sir.

I began my career in the world of television journalism, ultimately overseeing all the news programming for a major television

network. Eventually, my responsibilities expanded to include entertainment media as well, in motion pictures, TV, and now, of course,

music.

But I have always maintained somewhat of a journalist’s view of

the media world as a whole, and, if I were writing a lead for this

story for you today, it would be that America needs to commit more

resources to protecting one of its most vibrant and vital sectors and

to use our trading power to improve the legal climate for intellectual property abroad.

Now, why? It has been reported that roughly 40 percent of the

U.S. economy is dependent upon IP protection in one way or another. A report by the International Intellectual Property Alliance,

the IIPA, shows that the core copyright industries are alone responsible for 6 percent of the U.S. GDP, employ more than 5 million workers, and are responsible for an estimated 13 percent of annual U.S. economic growth.

These statistics show how high the stakes are for protecting

American intellectual property. The record industry unfortunately

tends to be the canary in the coal mine on these issues. This is a

crisis that we currently face—the piracy phenomenon—and we face

it on two fronts. One involves the traditional physical marketplace

in which we confront increasingly organized criminal enterprises

which involve massive production and trafficking of pirated CDs.

The second front of the piracy war exists in the online marketplace

where, with the push of a button, people the world over can obtain

perfect digital copies of our creative works for free.

There is now an urgent need to confront this piracy crisis, and

any global IP protection regime must address this problem on both

the physical and the digital fronts. The U.S. Government has to

keep intellectual property protection at the top of its enforcement

agenda and ensure that law enforcement agencies have the necessary resources and the underlying legal framework to fight the

theft of America’s creative products.

4

Now, with respect to trade, we salute the work that the USTR

has done, working with other U.S. Government agencies. They

have done this in monitoring the implementation of trade agreements to ensure that our trading partners comply with their IP

protection obligations.

We also applaud the U.S. Government for the actions that it has

taken to make China accountable for its piracy problem, specifically through the filing of actions with the WTO. We commend the

work that this committee has done for the area of trade and IP,

and we hope that Congress will continue to play a major role in

using trade programs to leverage effective copyright protection

abroad.

We are particularly concerned about the rampant piracy problem

in Russia and continue to endorse the position taken by the chairman and the ranking member of this committee, that Russia must

not be admitted into the WTO until it has complied with its obligations under the IP agreement reached with the United States.

Here at home, we recognize that adequate enforcement requires

adequate resources, and I urge the Congress to appropriate sufficient funds in that regard. Law enforcement must have dedicated

personnel who are focused on seeking out and stopping illegal trafficking and pirated goods.

We need a better IT enforcement infrastructure, one that elevates the treatment of copyright within the Federal Government so

that the best minds and best resources can be devoted to solving

this problem. Industry must continue to do its part as well.

In my own organization, we have formed dozens of partnerships

with technology and telecommunications companies in an effort to

push every opportunity to meet consumer demand. Given the corporate parentage of my company, I always find it odd when people

try to frame intellectual property discussions as a debate between

technology and content.

In this day and age, the opposite is true. Technology and content

are inseparable partners, and they are tied together in this quest

to bring entertainment to the consumer in new and exciting ways.

With your help, we can get it right. So much is at stake. For our

artists and our consumers, for our culture and our economy, this

is what we ask you to consider today. Once again, I thank you for

inviting me here, and I look forward to your questions. Thank you.

The CHAIRMAN. Thank you, Mr. Lack, very much.

[The prepared statement of Mr. Lack appears in the appendix.]

The CHAIRMAN. Mr. Kindler?

STATEMENT OF JEFFREY KINDLER, CHAIRMAN AND CHIEF

EXECUTIVE OFFICER, PFIZER, INC., NEW YORK, NY

Mr. KINDLER. Thank you, Chairman Baucus, Senator Grassley,

Senator Kyl, and the entire committee, for inviting me today. I am

grateful that this committee understands the urgency of meeting

the challenges of global competition and has taken a leadership

role in that, and I fully support the opening comments of the chairman.

Pfizer is a research-based bio-pharmaceutical company whose

85,000 employees invent, produce, and provide medicines that save

and improve lives. American’s bio-pharmaceutical research compaVerDate 11-MAY-2000 14:21 Sep 09, 2010 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 57922.000 TIMD PsN: TIMD
5

nies invest almost $60 billion each and every year in search of

treatments and cures. It is a very risky and expensive enterprise,

so our ability to make those investments depends on the protection

of intellectual property rights in our discoveries and inventions.

IP equals innovation, innovation equals competitiveness, and

competitiveness equals jobs. Of all the industries in the United

States, the bio-pharmaceutical industry spends the most on R&D,

about $70,000 for each of our 500,000 employees, including 80,000

of the world’s best scientists.

So it is troubling to see intellectual property rights eroding

around the world, even, I am sorry to say, in the United States,

where it has been a part of our country’s economic foundation since

before the Constitution was written.

Let me briefly highlight some of these threats, and the chairman

has referenced them. Counterfeiting. This crime has exploded with

the rise of the Internet. Six out of every 10 pills sold online are

fake. Patients think they are importing into the U.S. drugs made

by Pfizer or other American companies, but too often those pills

were concocted in some dirty basement in a place that lacks our

strong safety systems. We saw, last year, adulterated heparin supplies sickening hundreds of Americans. The World Health Organization estimates that thousands of patients around the world have

become ill or died as a result of fake medicines.

Counterfeiting is, of course, illegal, but equally troubling are

legal assaults on IP. Last year, there were two especially disturbing developments. First, the May 10 agreement on trade in

which Congress and the administration revised previously negotiated free trade agreements. Again, I appreciate this committee’s

leadership on this issue. Even though our trade partners had

agreed to strengthen IP rights, the agreement weakened those protections for medical innovations in the areas of data exclusivity,

patent linkage, and patent term extension, thereby leaving in place

in these countries weak patent protections that allow generic copies

to be marketed even during the lives of our patents. This sets a

very bad precedent, making it much harder for Americans to compete in these growing countries, which means the loss of American

job opportunities.

A second troubling development last year was when the government of Thailand issued compulsory licenses that allowed copying

of a wide variety of patent-protected medicines. Now, Pfizer fully

supports the flexibilities established by the TRIPS agreement, and

I endorse the chairman’s comments about bringing common sense

and compassion to bear as we address the issues of global access

to medicines. But in Thailand, we saw for the first time a country

issue multiple compulsory licenses for the purpose of redirecting resources to other budget priorities of the government. Before using

compulsory licenses, countries should show an urgent medical

need, an IP-related impediment to access, and that good-faith negotiations with the rights holders have failed.

Thailand’s approach, if common, would deprive us, and countries

like Thailand, of the new and better drugs that they need. Indeed,

around the world, innovation should be rewarded, not discouraged,

but this important principle seems to be eroding. As we develop

6

policies going forward, it is instructive to compare the different experiences of Europe and the United States.

In Europe a generation ago, pharmaceutical industries flourished. At that time, 8 out of the world’s 10 leading drugs were discovered in Europe. But European governments seeking to respond

to budget pressures offered insufficient rewards for innovation, and

as a result the industry in these countries withered. In the United

States, by contrast, we have preserved incentives for intellectual

property, and as a result the industry has prospered, which has

benefitted patients, created jobs, improved American competitiveness, and helped the American economy. Today, 8 of the 10 leading

drugs were discovered in the United States. We need to bear these

different experiences in mind as we develop policy going forward.

Let me conclude by offering a few ideas for your consideration.

First, let us strengthen enforcement. Give our government the resources to hold the worst offenders accountable. Second, let us

build strong, enforceable IP provisions into our trade agreements.

And, finally, we need to expand that exclusivity here in the U.S.

We have to stay competitive with countries that now have stronger

IP protections than our own. The global threat to intellectual property rights is real. We need to fight that threat and continue to

strengthen IP protections here at home. In waging this fight, history is on our side. Protection of intellectual property is in our Constitution. It has served us well for more than 200 years. Let us sustain that legacy as we move into the future.

Thank you.

The CHAIRMAN. Thank you, Mr. Kindler.

[The prepared statement of Mr. Kindler appears in the appendix.]

The CHAIRMAN. Professor Barton?

STATEMENT OF JOHN BARTON, GEORGE E. OSBORNE PROFESSOR OF LAW, EMERITUS, STANFORD LAW SCHOOL, STANFORD, CA

Mr. BARTON. Thank you. I have been asked to testify on the concerns the developing nations have presented in response to the

global extension of intellectual property to trade negotiations.

We often do not realize how significant it is to introduce IP policy

into world trade negotiations. Traditional trade negotiations were

about ways to reduce trade barriers. Because freight trade always

economically benefits both the new importers and the new exporters, the negotiators could be confident that they were facilitating

the achievement of mutual benefit.

This is not necessarily the case for IP diplomacy. International

IP policy is not about free trade, rather, it is about the global allocation of the cost of research. The political nub of dispute in United

States patent policy has, of course, been pharmaceutical access and

the history of sub-Saharan Africa.

AIDS activists argue there that patents were keeping these nations from obtaining access to anti-retrovirals because the drugs

were priced too high. The industry argued in response that the lack

of medical infrastructure was the real problem, and that many of

the relevant drugs were not patented.

7

As a formal matter, the dispute was settled by the Doha Declaration of 2001, which stated that public health concerns were to be

taken into account in interpreting TRIPS and affirmed the use of

a number of TRIPS flexibilities.

Nevertheless, the U.S. Trade Representative has sought to

strengthen developing world intellectual property protection and

narrow some of those flexibilities, primarily through a series of bilateral trade agreements such as those with Chile and Jordan.

Typically, the relevant provisions deal with compulsory licensing,

patent term extensions, and data protection.

These agreements have made a difference. Oxfam, for example,

has concluded that the consumer costs of certain diabetes and

heart disease products were 2 to 6 times more expensive in Jordan

than in Egypt, and, although there is no free trade agreement, the

World Bank has studied the Thai HIV program and concluded that

failing to use compulsory licenses could more than double the cost

per life saved of its national program to distribute anti-retrovirals.

The area of current political attention is, of course, the middleincome nations. These nations are the growth pharmaceutical markets of the future. Patent protection is of great importance to the

future of the pharmaceutical industry’s business model. At the

same time, these nations still have many very poor people and,

thus, view themselves as reasonably benefitting from the Doha

Declaration. I believe that we must attempt new approaches in

dealing with these nations. It is in our national interest to facilitate their growth and health. That may call for low—i.e., generic—

prices for at least some drugs for some people.

GSK, for example, is developing mechanisms for differential pricing within poorer countries based on charging a generic price to

certain public or nonprofit distribution channels, while charging a

higher research reimbursement price to others. Might the approach

be extended? Compromise seems reasonable.

Imposing such a compromise, it is worth noting that it will necessarily be more complex than a pure IP arrangement. For example, price controls are almost certainly going to be the key topic for

future international negotiations, especially with Europe, in the

pharmaceutical area. They will probably be an issue in our country

as we move towards health care reform. We will need to define effective decision-making standards and procedures that protect public budgets while maintaining optimal incentives for research and

medical technology.

All nations want greater access to health care, all want to contain the cost of that health care, all want more advanced technologies. These calls have to be balanced, and the details of that

balance may reasonably be different for nations at different income

levels. Might we define a global vision that could be the basis of

a new central trade agreement governing a number of pharmaceutical issues?

I do not have time to detail either the climate change or the agricultural biotechnology sector but do want to note that I do not

favor a Doha Declaration approach for the climate change sector,

precisely because royalties are so much smaller a portion of the actual products.

8

I do, however, believe that it is in the world’s interests and in

our national interest to transfer technologies to the developing

world in all of these sectors, medicine, agriculture, and clean energy. This reflects a humanitarian concern, yet builds markets. It

contributes to building a world that is safe for all of us to live in

on a long-term basis.

In all three of these sectors, the industries and markets are global, the cost of research is shared by public and private institutions,

and expenditure and investment patterns are shaped by a variety

of regulatory and pricing regimes, including going way beyond intellectual property.

Each of the areas, I think, is best approached in a sector-specific

manner that recognizes the role of IP without overweighting that

role, and it seeks to structure the entire world research incentive

system in a way that balances the need for innovation with the

need for access to that innovation.

The CHAIRMAN. Thank you, Professor, very much.

[The prepared statement of Mr. Barton appears in the appendix.]

The CHAIRMAN. Mr. Cahill?

STATEMENT OF J. WALTER CAHILL, INTERNATIONAL VICE

PRESIDENT, INTERNATIONAL ALLIANCE OF THEATRICAL

STAGE EMPLOYEES, MOVING PICTURE TECHNICIANS, ARTISTS, AND ALLIED CRAFTS, WASHINGTON, DC; ON BEHALF

OF THOMAS C. SHORT, INTERNATIONAL PRESIDENT, INTERNATIONAL ALLIANCE OF THEATRICAL STAGE EMPLOYEES,

MOVING PICTURE TECHNICIANS, ARTISTS, AND ALLIED

CRAFTS, WASHINGTON, DC

Mr. CAHILL. Good morning. My name is Walter Cahill. I am a

vice president of the International Alliance of Theatrical Stage Employees, here on behalf of Thomas C. Short, IATSE international

president, who is unable to be here due to scheduling conflicts.

I would like to thank you for the opportunity to address the committee on the issue of intellectual property protection. I commend

Chairman Baucus, Ranking Member Grassley, and the other members of the committee for holding this hearing.

The IATSE was founded in 1893 by a group of stagehands in

New York City and has expanded throughout our 115-year history

with local unions chartered throughout the United States and Canada. Today, the IATSE is the largest entertainment union in the

world, with nearly 120,000 members who are employed in legitimate theater, motion picture exhibition, convention and trade

shows, motion picture and television production, radio and television broadcasting, and various other crafts of the entertainment

industry.

The mission of the IATSE is to provide the finest reputation for

our members and protect their best interests. In doing so, it is incumbent on the leadership of our union to negotiate with employers

in a fair and equitable manner, thereby obtaining the best possible

wages and benefits for our members. The benefits we negotiate are

critical to the times in which we now find ourselves, including the

extreme challenges we face with the health care crisis in this country.

9

As it applies to benefits for our members, the issue of combatting

the theft of intellectual property is of paramount concern to us. Our

members are employed in the entertainment industry and are

hardworking people who do not earn millions of dollars to make

one movie, such as some of the high-profile actors with whom most

may be familiar.

The number of individuals employed on the production of any

given movie may be anywhere from 200 to 1,000. These members

have to make their paychecks last much longer than other workers

because these are not permanent jobs. They are jobs that will end

when production is complete, and the next job they get may not be

for months.

Because of the nature of our business, we have attempted to ensure that our members and their families are taken care of by securing additional revenue to be provided for them in the form of

residual payments. In the IATSE, these payments are contributed

into the health and retirement benefits that our members so desperately need. When studios release DVDs to the market, our

members share in the profits of those sales through these residuals.

In our industry, intellectual property theft, or piracy, occurs with

the illegal copying, reproduction, and distribution of motion pictures. When these pirated copies are sold on the street or downloaded from the Internet, our members, and many other workers,

see nothing. In fact, every year the members of our union experience a loss of roughly $100 million to the health and pension funds

due to intellectual property theft.

Piracy is stealing, pure and simple. Downloading a movie without paying for it is the same as stealing a DVD off the shelf of a

store. The victimless crime mentality portrayed in old-fashioned

Hollywood movies is, unfortunately, how much of the public still

perceives this theft. Piracy is not a petty, victimless crime. It is not

perpetuated solely by kids with camcorders and bargain hunters

prowling the Internet. It is a devastating economic attack that, in

2007 alone, cost our industry $6 billion. As large as that sum is,

it is only a fraction of the $250 billion that copyright piracy and

counterfeiting costs the overall U.S. economy every year.

A recent study revealed, in 2005, that piracy deprived State and

local governments of $837 million in tax revenue. As residents of

those communities, that is money out of our pockets, money that

could have gone toward schools, roads, and other infrastructure in

our communities.

To eradicate this plague, first we need to educate ourselves, our

families, and our friends. We need to stop the theft we know about.

We need to recognize piracy and who it actually hurts, and inform

those around us about the facts. Just as this society punishes bank

robbers, this society should, with just as much force, punish those

pirates who rob our industry of its product.

Second, from our elected leaders we seek support and sponsorship of stronger legislation protecting intellectual property. We

have an obligation to work with you to strengthen existing laws

and enact new laws that protect us. After all, the movie industry

is a significant portion of our economy. Each year it accounts for

about 1.3 million jobs, pays $30.24 billion in wages, and $10 billion

10

in Federal and State taxes. We all benefit from a thriving movie

industry. The loss through piracy of $6 billion in 1 year is unacceptable.

The entertainment industry is no corner candy store, and motion

picture pirates are not a scruffy gang of teenagers looking for kicks.

Piracy has become a highly-evolved criminal enterprise that is robbing billions from our industry. It is the theft of someone else’s

property and robs from those whom we believe work the hardest

in the industry: IATSE craftspeople.

Protecting the motion picture industry benefits everyone. The

IATSE has been working with members of a broad-based coalition,

the Coalition Against Counterfeiting and Piracy. I would urge the

committee to give positive consideration to the proposals this labor/

business coalition has put forward with respect to Customs and

Border Protection. I also think it worth noting that the AFL–CIO,

as well as many of its affiliates, are supportive of legislation that

will help eradicate this problem.

On behalf of the IATSC, I am particularly appreciative of this opportunity to present testimony to you. I thank this committee for

inviting us to participate in your hearing and in allowing us to provide information we feel is important for you to know and consider

when legislation is to be formulated, proposed, and acted upon.

Thank you.

The CHAIRMAN. Thank you, Mr. Cahill, very much.

[The prepared statement of Mr. Cahill appears in the appendix.]

The CHAIRMAN. I would like to focus a bit on the tension between

protecting intellectual property on the one hand and the need to

help some of the developing countries on the other. We have the

Doha Declaration, the May 10th agreement. I would like, frankly,

Professor Barton and Mr. Kindler, if you could kind of help us find

a compromise here, help us find a way to get to the bottom line

here, what this is really all about, and how can we resolve this in

a way that is fair to both sides, because I think there are two

great, important values here to protect and to address. If you could

just help us a bit, that would be helpful.

Mr. KINDLER. Well, maybe I could start, with Professor Barton’s

indulgence, by identifying common ground, which is, I certainly

agree with Professor Barton, that we need holistic solutions. Professor Barton said those solutions should not overweight intellectual property as an issue, and I would like to suggest they should

not under-weight it, either. My concern has been that IP has been

seen as the single way to address these issues, and clearly the

issues are much broader than that. The head of the UN AIDS Department has said that if the cure for AIDS were a single glass of

clean water a day, we would not be able to provide that to half the

AIDS patients in the world.

So, clearly, infrastructure problems, access, health care systems

all have to be looked at holistically. I would agree with Professor

Barton that we should take a comprehensive view of this issue. I

would hope that in that context we could have IP protections and

recognize we could be much clearer about the circumstances, for example, in which a compulsory be licensed.

So, for example, in the case of Thailand, the compulsory licenses

may extend to a wide variety of medicines, many of which do not

11

require that solution to address health needs and that are being

used fundamentally for budget reasons where the government is

purchasing lower-cost products and actually marking them up

themselves and making a profit to sell them. So that is taking the

flexibilities of TRIPS, in my view, too far.

Having said that, the flexibilities of TRIPS are very important.

So I would encourage, and I think the WHO Intergovernmental

Working Group did a very good job of looking at this as a comprehensive issue that recognizes the importance of intellectual

property, recognizes the need to address access issues which cannot

be done either by industry alone, by governments alone, or by nongovernmental organizations alone. We need to all work together on

that. The pharmaceutical industry—and I will not belabor it this

morning—has, we think, a very proud record of doing what we can

to enhance access. But clearly, much more needs to be done.

The CHAIRMAN. All right. I am going to have to give Professor

Barton equal time here.

Mr. KINDLER. That is fine. Thank you.

The CHAIRMAN. All right. Thank you very much, Mr. Kindler.

Mr. BARTON. Let me start also by noting some points that I think

are in common. I think we are both agreed that sub-Saharan Africa

should get generic prices.

The CHAIRMAN. Mr. Kindler, did you hear that?

Mr. KINDLER. Yes. For life-saving drugs that they need, absolutely. They represent a very small portion of pharmaceutical sales.

The CHAIRMAN. Thank you.

Mr. BARTON. Agreed. Agreed. The big problems at that point are

now the access kinds of issues that Mr. Kindler mentioned. Indeed,

we have now reached something like 30 percent of the world’s HIV

people who need anti-retrovirals in low- and middle-income countries. The reason that it is not 100 percent is not the drug industry;

the reason is almost certainly the infrastructure and the problems

of counterfeit drugs, et cetera, et cetera, et cetera, a variety of problems I suspect we would be in agreement on.

Having said that, I think I begin to see a solution when I say,

again, I am not so sure that the patents are as essential as they

seem to appear in Geneva, all the discussions there. I think the

real issue is, in many respects, the buying policies of the global

fund for AIDS, TB, and malaria, the buying policies of PEPFAR,

the President’s Emergency Plan for AIDS Relief. These are the people who are going to supply the drugs to the poorest.

Now I get to the tricky questions: the middle-income countries,

Thailand, India. There are more poor people in India than there

are in sub-Saharan Africa. What do we do about that? That is why

I think we need some compromises in nations of that type.

I wonder if the compromises are best structured in the way of

some form of global arrangement that begins to deal with counterfeits, begins to deal with the risks of price controls which are going

to, in my judgment, affect the future profitability of the industry,

probably significantly more than intellectual property. So I am

wondering if there is some kind of sectoral deal that goes beyond

the traditional intellectual property bilateral trade agreements.

The CHAIRMAN. Do you have any response to that, Mr. Kindler?

Your thoughts about that.

12

Mr. KINDLER. Well, I am not exactly sure what Professor Barton

might have in mind. I will say, we clearly price differently in different countries, and even within a country there should be differential pricing because, while there are vast numbers of very impoverished people in India, without a doubt there are also some

people that can afford medicines. India is a country itself, and

Brazil is another example of this, where intellectual property protections are good for their growing economy. So I think it is not a

one-size-fits-all solution globally.

The CHAIRMAN. My time has expired. But I am just reminded

that a lot of the solutions in several countries of the world are just

a better health infrastructure and water system, and clean water

and so forth. I read, about a year and a half ago, an article in Financial Times. The dollars that the Western World—Europe, the

United States—spends on bottled water in a year are enough to establish drinking water systems throughout Africa. So to some degree, it is important to think about our values in that sense, too.

Senator Grassley?

Senator GRASSLEY. Thank you, Mr. Chairman.

Mr. Lack, the indication we have received from Chinese officials

is that China is making significant progress in cracking down on

the theft of foreign intellectual property. I want your reaction.

More specifically, have you seen any improvement in China’s protection of your company’s intellectual property? How satisfied are

you?

Mr. LACK. Well, no question, the Chinese see this on the agenda

more seriously than they did several years ago. But candidly, we

do not see enough progress. That is where, as I mentioned in my

remarks, we need leadership, the kind of which we are getting here

in this committee, and we need enforcement. They need to understand there are consequences for the piracy problems that we are

seeing in that country.

So while I think the conversations have become a little bit more

constructive, the dialogue is there, I do not think they still see the

seriousness of purpose and the effect that it has on our economy.

I do not think they fully understand or appreciate the consequences

to our economy, and to our industry in particular, the entertainment industry. But they are beginning to show signs that they appreciate and are trying to understand a little bit better.

Senator GRASSLEY. Have the people in our bureaucracy who have

the responsibility for the enforcement of this been forceful enough,

from your point of view?

Mr. LACK. I do not think so, sir. No.

Senator GRASSLEY. Is it pinpointed enough, the people who have

the responsibility to do this, or is there too much division within

our executive branch?

Mr. LACK. Yes, I think within our executive branch there are a

lot of good efforts, but it is not clear every day who gets up and

is empowered with driving the results that we need in order for

there to be true and meaningful progress.

Senator GRASSLEY. Would we be better off if there were such a

pinpointing?

Mr. LACK. I believe so, without question. I think—for example,

Mr. Kindler would agree with me—as businessmen, we know that

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you do not get results unless you drive them every day, unless

there are individuals who are empowered to get those results. On

every team, if you do not have that kind of leadership pushed down

through the organization at every level, interfacing with the Chinese at the same levels, you do not get the results.

So even though Secretary Paulson, Secretary Gutierrez have

been excellent in commenting on these issues that are of such concern to us at their level, we do not see underneath them the kind

of drive to get the real actions that make the meaningful differences that you are speaking about.

Senator GRASSLEY. Without my repeating the question—it is

similar—for Russia, state the situation your company has with

Russia and explain if they are making any progress, and how it affects your business.

Mr. LACK. Yes. Well, to a lesser degree. Russia, as you know, is

not part of the WTO.

Senator GRASSLEY. Yes. And we have argued the same way you

have, that they should not be until they make this commitment.

Mr. LACK. I think that is exactly right. I think that is the only

way that they appreciate and respect the seriousness of this issue

for us. Piracy, quite candidly, in Russia is rampant. To reference

my colleague at the IATSE, Mr. Cahill, piracy is too romantic a

word: it is stealing. Unless you put it in that context to them, unless they understand what the consequences are of that to us, they

do not recognize it as a problem in the context that we are trying

to discuss it today.

Piracy romanticizes, almost, the notion of what in fact we are

dealing with. They are seriously damaging us, through the infrastructure that they have, not being able to enforce the agreements

that we have with them. They are seriously damaging us. So we

have some constructive dialogue there. We are actively working to

get those relationships in a better place than they are today. We

want to do business in Russia. We want to get value out of our

good work in Russia. But candidly, I would have to say at this

point, we are a long way from getting the kind of progress we need

to satisfy our issues.

Senator GRASSLEY. Mr. Kindler, you testified that we should add

more teeth to the Special 301 process. Some specific changes you

would like to see? And before you answer that, I would like to

make a comment and thank you about your efforts to develop miracle drugs. But I think left out of the debate that you had with the

chairman here, and also Mr. Barton, is an appreciation around the

world that, if you are going to have miracle drugs, they are going

to be paid for by this generation for the next generation of miracle

drugs. There is no free lunch here. That is a point.

Would you answer my question about 301? Then I will stop.

Mr. KINDLER. Yes, sir. I am not a trade expert and would not

want to offer overly specific suggestions, but I would say that 301

now does a very good job of identifying countries that have issues.

We would like to follow up on that with regard to more governmental and intergovernmental pressure on those countries that are

not acting in accordance with trade relations and trade provisions.

I also believe, and it is not inconsistent, Senator, with the dialogue you just had with Mr. Lack, that I think even greater focus

14

and resources within USTR, addressed to this very specific issue,

would be very helpful. There are a lot of terrific people in USTR

working on this issue, but frankly the problem is quite overwhelming. Again, identifying, as Mr. Lack said, some clear accountability, empowerment, and resources to address the issue would be

very helpful there as well.

Senator GRASSLEY. Thank you.

Mr. LACK. If I could just add one other comment that references

something that the chairman said earlier that relates to Russia as

well, Senator Grassley. Just to give you an example, in Russia,

which Senator Baucus mentioned earlier, what kind of environment are we creating for intellectual property protection, when the

head of the Collection Society in Russia was assassinated? The reality is, on the ground, it is a very tough atmosphere to get the respect and the understanding of what we need to get done in order

to protect intellectual property here.

The CHAIRMAN. Thank you, Senator Grassley, very much.

Senator Kyl?

Senator KYL. Thank you, Mr. Chairman.

Let me just first note, Mr. Chairman, since there was some discussion about how we could just spend a little bit more on water

and help folks, we will have an opportunity to do that with regard

to the bill that is pending in the Senate right now, the so-called

PEPFAR bill, which provides aid primarily to Africa to deal with

malaria, AIDS, and tuberculosis.

What I have done—and I want the chairman to hear this—is

that I have offered an amendment to take just $1 billion of the $50

billion that would otherwise go to develop water projects, as well

as deal with AIDS and other developmental issues, in Africa and

apply that to America’s Indian reservations.

According to the Indian Health Service, 11 percent of American

Indians and Alaskan Native homes do not have adequate drinking

water. In fact, on the Navajo Nation, 30 percent of the households

on the reservation do not have access to a water system. They have

to haul their water. It clearly results in greater incidences of disease and the like.

So, we will have an opportunity to focus even on our country

with the trust responsibility we have to our own Native American

citizens to deal with that problem here in the U.S.

Let me just say that I very much agree with the comments of

those of you on the panel who have urged greater efforts at enforcing our laws, more resources to be devoted to the problem, and a

greater use of our trading power. I think those are important

points.

In that regard, I was very disappointed when the May 10th

agreement was negotiated, for the reasons that were pointed out

here. After the countries that we were negotiating with had already agreed to the provisions that we asked for, we went back and

weakened those provisions. That sets not only a very bad precedent, but I think might have other deleterious ramifications. I

wanted to ask Mr. Kindler a couple of questions in that regard.

How do you see the impact of that May 10th agreement on R&D

expenditures and jobs here in the United States? Does it have an

impact?

15

Mr. KINDLER. Certainly, Senator Kyl. Let me just add one thing

to what you said, first, which is that the irony of this is that, if

you take Colombia, for example, they had actually adopted a law

providing for data exclusivity, and the trade agreement simply reinforced that they were going to do so. They agreed to that. Then

we took that provision out and they went back to their legislature

and said, well, maybe we do not need that.

I agree with you, Senator, this is a terrible precedent because the

message we are sending to these nations is—even those that are

willing and interested for the benefit of their own economy and improved trade relations to improve their intellectual property environment—we are telling them they do not have to do that. I, quite

frankly, do not understand why we would take that position.

Now, in the long run, I gave the example of Europe. There is no

question that our industry—and I am sure Mr. Lack would say the

same, and the same point was made with regard to the unions—

is completely dependent on intellectual property, and there is a direct relationship between jobs and our ability to invest in research

on the one hand, and intellectual property. I will just give you one

small example. This is in the U.S., but it is certainly true all over.

We had a patent lawsuit that we lost in the District Court, which

we expect to win in the Court of Appeals, but, in the interim,

generics came in and we had to close a plant and shut down 600

jobs. There is a direct relationship between those. There is a relationship between our ability to provide drugs to the developing

world, to invest in research, and ultimately in jobs. There is no

doubt about that.

Senator KYL. Of course, far more important than jobs to me is

the innovation that results in the great products that make life better and longer for all of us everywhere in the world.

The other concern I had was the impact on both the current FTA

partners that we have and future FTA partners on their willingness to include stronger IP protection, given what we have negotiated, again, in the context of the May 10th agreement.

Mr. KINDLER. Yes. Again, I think that you are absolutely right,

Senator. Why would the next partner agree to provisions of this nature, or even independent of the trade agreements, adopt intellectual property protections when we have basically signaled that

they do not have to? I also find it very disturbing that the pharmaceutical industry in particular was singled out for these dilutions

in intellectual property rights in this context.

Senator KYL. Well, thank you. I thank all of the witnesses here

on the panel, and Mr. Chairman, for holding the hearing. It is

clear, as you pointed out in your opening statement, that protection

of property rights is one of the foundations of our economy, of any

market economy, and the beauty of it is, it is the opportunity to

create better things for everyone which then results from that protection. We need to do everything to not only legislate those protections, but ensure that they are enforced in the ways that at least

three of you on the panel have indicated we need to do. So, I appreciate that very much and appreciate your testimony.

Mr. KINDLER. Thank you, Senator.

The CHAIRMAN. Thank you, Senator.

Senator Roberts, if you are ready, you are next.

16

OPENING STATEMENT OF HON. PAT ROBERTS,

A U.S. SENATOR FROM KANSAS

Senator ROBERTS. Well, thank you very much for having this

hearing. I apologize I am late, but we are having a hearing on the

ADA and the responsibilities we have to the disabled just one floor

down. Thank you very much for your leadership in having this. I

have already started to study, through staff and myself, the statements of the witnesses. Thank you all for coming, taking the time

out of your schedule to do that.

We have seen a lot of technology increase—I do not know if anybody has brought this up or not—not only on the level of production, but expanding a variety of crops that can be produced over a

wide range of cropland. There is a lot of news about the food price

situation today. We have a lot of research and development that

have expanded the options available for agriculture producers

worldwide.

Not too many people know that when Stephen Foster wrote the

song, ‘‘Those Old Cotton Fields Back Home,’’ that he was referring

to Kansas. It is not uncommon now to see cotton fields in the

southwest part of Kansas, a crop that was previously only found in

the southern States. So with the new variety that allows for shorter growing seasons, why, Kansas is a cotton producer. Then we also

boast high-technology companies, one in particular that produces a

product that impacts us in our daily lives.

I am talking about Garmin International, something you may

have on your car in regards to navigational software and for mobile

phones. Who, at some time, has not wished, with your wife telling

you that you should stop and ask for directions, and you keep on

driving, that you could have something that could tell you exactly

where you are and where you should go? Garmin has been producing the solution for some time.

Now, they are keenly aware of how strong protection of intellectual property helps them to ensure their competitiveness in the

world market, and they have faced challenges with copyright infringement of their technology and the enforcement of the copyright

law. It is not relegated to developing countries only, but is a problem, in particular, with members of the EU. So, digital copyright

infringement is a serious challenge, and Garmin tries to combat

this in the Internet age, where the navigational maps they provide

are available illegally to download from servers outside the U.S.

So, thank you for the hearing, Mr. Chairman. We must work to

craft the correct policies that both protect and continue to foster

American innovators and competitiveness while balancing the

moral and ethical obligations that come with ingenuity. So basically, I hope that we can work with the WTO on these issues, although the WTO right now is sort of moribund in regards to the

trade situation that we have here in the Congress.

I thank everybody for being here, and thank the chairman for

holding the hearing.

The CHAIRMAN. Thank you, Senator, very much.

I would like to go back to Mr. Cahill a little bit here. I think it

is an important point that not many people really understand or

realize, namely that, not only do companies lose when CDs are piVerDate 11-MAY-2000 14:21 Sep 09, 2010 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 57922.000 TIMD PsN: TIMD
17

rated, but you lose because your compensation is dependent upon

sales of CDs. Is that correct?

Mr. CAHILL. Yes, sir, it is. As I said, our union loses $100 million

annually into our pension and health funds, and it hurts our employers. Our employers are losing the market share that they

would get if they were receiving the royalties that they are supposed to get. It is no different than stealing a DVD off the shelf

of a store.

The CHAIRMAN. So it is theft of a product from the company, it

is a theft from you, a theft from your membership.

Mr. CAHILL. We all lose, sir.

The CHAIRMAN. They are stealing from you.

Mr. CAHILL. They are stealing from us. Yes, sir.

The CHAIRMAN. Again, I do not think that is well understood,

and I appreciate your making that point.

I do not want to drive this point too far, but I am trying to find

a way to get you, Mr. Kindler and Professor Barton, a little closer

together still.

Mr. KINDLER. We agreed a moment ago.

The CHAIRMAN. You had a little private side agreement here?

Mr. KINDLER. We are going to go off together and see if we can

solve this for everyone. We actually, I think, have a fair amount

of comity.

The CHAIRMAN. I was going to suggest something like that.

Mr. KINDLER. Yes.

The CHAIRMAN. Is there a way for the two of you and your people

to sit down and work more closely toward common ground and help

us out a little bit?

Mr. BARTON. I would look forward to that, and appreciate your

leadership in bringing us together. I would be honored.

The CHAIRMAN. That would be great. We will figure out some

way.

Mr. KINDLER. We will have it all worked out by next week.

[Laughter.]

The CHAIRMAN. For a while, I was encouraged. [Laughter.]

Mr. KINDLER. No. I think, in all seriousness, Chairman Baucus,

there is common ground here. I was grateful to see in Professor

Barton’s testimony that he does, of course, recognize the importance of intellectual property, and his point is, that is not the only

issue here, there are many others. We completely concur with that.

The CHAIRMAN. All right. What about, say, a month from now?

How does that sound?

Mr. KINDLER. We can try to come up with something, certainly.

The CHAIRMAN. I deeply appreciate that.

Mr. KINDLER. We will make every effort.

The CHAIRMAN. I know I can speak for the committee and say

how much we deeply appreciate it.

Mr. KINDLER. We will make every effort.

The CHAIRMAN. Because you know so much about this issue. You

are on the ground, you know it. It would help us if you could do

so.

Mr. Kindler, your thoughts on Special 301. Currently the administration has put China and Russia on the 301 watch list. The

18

question is, how do you force, encourage, cajole, prod, require an

administration to put other blatant abusers on the watch list?

Mr. KINDLER. Well, I think, as I was saying earlier to Senator

Grassley, and very much consistent with Mr. Lack’s comments,

that the USTR, I think, does a really excellent job of identifying

the issues, and they have a superb staff. But they could use more

resources, clearer empowerment, clearer accountability and have

an even stronger opportunity to really focus on these issues. I believe they would welcome that if Congress would provide them with

those resources and that focus.

The CHAIRMAN. It would be helpful if you, Mr. Lack, could pinpoint a little more specifically where those resources should be

dedicated and what functions should be enhanced with more resources. If you could just give a little more focus here, because resources in the abstract is one thing, but resources a little bit in the

concrete is something else.

Mr. KINDLER. Can I provide the committee with that after having

given it a little bit more thought?

The CHAIRMAN. Absolutely. You bet.

Maybe off the top of your head, Mr. Lack, do you have some

thoughts, too?

Mr. LACK. Well, people is really where it starts. We need more

people engaged in this process in various departments and agencies. I will give you just one example offline. The State Department

has a fund to deal with helping foreign governments protect intellectual property. That fund has $3 million in it. That is not going

to go very far around the world toward solving the problems that

we are talking about here this morning, so they need a lot more

people to administer a larger fund.

Those funds need to be placed in different agencies, whether it

is USTR, State Department, or all the various organizations and

agencies in the government that have an opportunity to apply some

pressure in these issues. If you have people in all of those departments, as I was saying earlier—and I think Mr. Kindler would

agree—if you have a team of people who are talking to people

across agencies but have a common issue of tackling international

piracy and international theft as it affects international copy protection and copyright, that team knows who they are, talks to each

other every day, and goes and tackles these issues country to country.

But they need more people to be able to do that. They need to

have teams underneath them. So, as we look at it as a business,

as business organizations, what is the structure in each of our departments to get the results that we require to have some impact

on this issue? That is where I would start.

The CHAIRMAN. What about other countries’ efforts? We are not

the only country in the world. Sometimes we like to think we are,

regrettably, but we are not. I remember reading somewhere that,

when was it, there were more patents from Japan, Japanese scientists and engineers, at one point than in the United States. I

may be dead wrong on that, but the point is, there are lots of other

countries in this world.

19

So that raises a couple of questions. One, how aggressively are

those countries seeking IP protection for their people compared to

the U.S.?

Mr. LACK. Well, just quickly, it is fair to say, not nearly as aggressively as we need. There again, it is people having relationships, constructive relationships with their counterparts in those

countries on the ground that can drive the results. Right now, we

just don’t have that kind of depth, I think, to get at these kinds—

the endemic nature of this problem.

The CHAIRMAN. Mr. Kindler?

Mr. KINDLER. I would only add that I agree with Mr. Lack, in

general. I think that in western Europe there is increasing concern

and awareness of this issue. The United Kingdom had a number

of issues regarding counterfeit drugs entering its borders, and that

has created greater attention and focus on it. The EU trade commissioner is focused on the issue. But I do not think I can identify

anybody that I would say is pursuing this to the extent and with

the resources that it requires.

The CHAIRMAN. Professor Barton, you are kind of an expert in

the U.K.

Mr. BARTON. I think the U.K. is certainly doing much the same

things as the United States, probably a little bit more balanced.

But sort of bearing down on the copyright issue or different patent

issue, the European Parliament just passed a decision in November

that called for a Doha Declaration type of arrangement for climate

change technologies.

As I mention in my testimony, I do not think that is needed. I

think the entire dynamics of the industry structure is completely

different in those technologies, but nevertheless this suggests that

there is certainly the same kind of concern with enforcing intellectual property, but I think it is significantly weaker than it is in the

United States.

The CHAIRMAN. And what do we do to help strengthen their efforts, the European efforts? We have to do this together, it seems

to me.

Mr. BARTON. Well, I think there is a good relationship between

USTR and the EU trade ministries. I think there are efforts for cooperation in that regard, and the anti-counterfeiting efforts, to

some extent, are having a global reach through Interpol and the

like.

The CHAIRMAN. Some suggest a new TRIPS-plus, ACTA, the

Anti-Counterfeiting Trade Agreement, where countries get together

with common interests outside of WTO. The thought is, because

WTO is consensual, you would probably get an agreement. Maybe

the U.S., European, other countries bind together. The thought is,

too, that, once there is momentum there, that that would pull other

countries in, too. Is that an approach that makes sense?

Mr. BARTON. I think the question is, what is included in the

TRIPS-plus? I think many of us would feel that many sectors of intellectual property, not so much the ones we have been talking

about today, can get too strong and can hurt innovation if you go

too far. I think there are some concerns that this has happened in

some areas of biotechnology.

20

I think there are concerns that it has happened, say, in copyright

and some patent protection of business software and business

methods, and so forth. I think we need, very quickly, if we are

going to go down a route of that type, to ask, which are the ways

we want to strengthen intellectual property, and are we choosing

wise ways to strengthen it or are we sometimes choosing unwise

ways?

Mr. KINDLER. I would just add that I agree with your comment,

Chairman Baucus, that the WTO is a very difficult organization to

get clarity on. That is because of the very different interests involved, although I do think their Intergovernmental Working

Group made some significant progress. But having said that, if

your suggestion is that there are countries that have common interests in this area that could work together and try to adopt solutions that make sense for them because of their different positions,

I think that does make a lot of sense, because, the way the WTO

is structured right now, it is very difficult to get to a resolution in

that sense.

The CHAIRMAN. Professor Barton, you are not wild about the act

the British Parliament took.

Mr. BARTON. About the which?

The CHAIRMAN. British Parliament. To include, what, climate

change?

Mr. BARTON. Right. European Parliament.

The CHAIRMAN. The European Parliament. That is right. How do

we address the global management of climate change? What forum,

if any?

Mr. BARTON. I think it is going to be very difficult. I think there

are going to be significant technology transfer components and,

therefore, inevitably some intellectual property questions. Clearly,

the balance has to be in some way. We provide some technology to

countries like India and China in return for their committing to

ceilings, formally or informally depending on what approach ends

up getting taken.

I think that is going to be very easy in some contexts, like, let

us say, windmill technology, where there are U.S. industry leaders,

there are European industry leaders, there are some Indian companies. I do not know that we have to pay some royalties, but the royalties are not going to be more than a percent or two of the overall

price.

The problem is going to be finding the investment capital. I think

it is going to be a very difficult question when we deal with things

like clean steel-making technology, because we are going to see

competition between the resulting Chinese industry and the resulting U.S. and European industries. I think when we come to questions of that type it is going to be a very difficult problem as to how

we can find a deal that will work and will actually achieve some

climate technology distributions, some control on carbon dioxide

emissions.

The CHAIRMAN. Do you have the beginnings of an idea on how

to approach that?

Mr. BARTON. I do. I do not yet for steel, but I have some ideas

on how to approach it for the electricity production: biofuel, automobiles, housing. But in cases where we are dealing with traded

21

commodities like steel, there is going to be a big tension between

the developed and the developing countries. I do not know how we

are going to handle that one yet.

The CHAIRMAN. Autos are somewhat traded. How do we deal

with autos?

Mr. BARTON. Yes. But on the other hand, the auto issue is a relatively straightforward one in which the issue is, in essence, encouraging China to make hybrids, providing the technology for hybrids, providing the technology for use of flexible fuels, ethanol

versus gasoline, and so forth. Those technologies are quite readily

shared within the industry today. My guess is, they will be shared

in the future.

I suspect that we will all be relatively comfortable letting the

Chinese consumer pay the increased cost of a Chinese vehicle that

includes emissions controls, higher fuel efficiency, whatever we are

seeking to achieve. That is going to be a quite different world, retrofitting the thousands—or at least hundreds—of coal-based electricity production systems that China is installing. That is going to

be hard, and a very expensive problem for someone.

The CHAIRMAN. Clearly, these problems are more complex as the

world becomes more globalized—IP, climate, and so forth.

This has been very helpful. Thank you very much. I look forward

to, 1 month from now, getting the final deal.

Mr. KINDLER. Yes, sir. Thank you for your leadership.

The CHAIRMAN. Thank you very much.

The hearing is adjourned.

[Whereupon, at 11:11 a.m., the hearing was concluded.]

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40

41

42

43

44

45

46

47

48

49

50

51

52

53

54

55

56

57

58

(59)

COMMUNICATION

60

61

Æ