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73–542 PDF 2012

SAFE DOSES ACT, THE COUNTERFEIT DRUG PENALTY ENHANCEMENT ACT OF 2011, AND THE 

FOREIGN COUNTERFEIT PREVENTION ACT 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CRIME, TERRORISM, 

AND HOMELAND SECURITY 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

ON

H.R. 4223, H.R. 3668 and H.R. 4216 

MARCH 28, 2012 

Serial No. 112–132 

Printed for the use of the Committee on the Judiciary 

( 

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

(II) 

COMMITTEE ON THE JUDICIARY 

LAMAR SMITH, Texas, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

DENNIS ROSS, Florida 

SANDY ADAMS, Florida 

BEN QUAYLE, Arizona 

MARK AMODEI, Nevada 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

JUDY CHU, California 

TED DEUTCH, Florida 

LINDA T. SA ́ NCHEZ, California 

JARED POLIS, Colorado 

RICHARD HERTLING, Staff Director and Chief Counsel 

PERRY APELBAUM, Minority Staff Director and Chief Counsel 

SUBCOMMITTEE ON CRIME, TERRORISM, AND HOMELAND SECURITY

F. JAMES SENSENBRENNER, JR., Wisconsin, Chairman 

LOUIE GOHMERT, Texas, Vice-Chairman 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

J. RANDY FORBES, Virginia 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

SANDY ADAMS, Florida 

MARK AMODEI, Nevada 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

JUDY CHU, California 

TED DEUTCH, Florida 

SHEILA JACKSON LEE, Texas 

MIKE QUIGLEY, Illinois 

JARED POLIS, Colorado 

CAROLINE LYNCH, Chief Counsel 

BOBBY VASSAR, Minority Counsel 

(III) 

C O N T E N T S 

MARCH 28, 2012 

Page 

THE BILLS 

H.R. 4223, the ‘‘Safe Doses Act’’ ............................................................................. 4 

H.R. 3668, the ‘‘Counterfeit Drug Penalty Enhancement Act of 2011’’ ............... 14 

H.R. 4216, the ‘‘Foreign Counterfeit Prevention Act’’ ........................................... 17 

OPENING STATEMENTS 

The Honorable F. James Sensenbrenner, Jr., a Representative in Congress 

from the State of Wisconsin, and Chairman, Subcommittee on Crime, Terrorism, and Homeland Security .......................................................................... 1 

The Honorable Robert C. ‘‘Bobby’’ Scott, a Representative in Congress from 

the State of Virginia, and Ranking Member, Subcommittee on Crime, Terrorism, and Homeland Security .......................................................................... 21 

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

State of Michigan, and Ranking Member, Committee on the Judiciary ......... 22 

WITNESSES 

Dara A. Corrigan, Associate Commissioner for Regulatory Affairs, U.S. Food 

and Drug Administration 

Oral Testimony ..................................................................................................... 28 

Prepared Statement ............................................................................................. 30 

Thomas T. Kubic, President and CEO, Pharmaceutical Security Institute 

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

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

Travis D. Johnson, Vice President–Director of Legislative Affairs & Policy, 

The International Anticounterfeiting Coalition 

Oral Testimony ..................................................................................................... 45 

Prepared Statement ............................................................................................. 47 

Gilbert Lee Sandler, Member, Sandler, Travis, & Rosenberg, P.A. 

Oral Testimony ..................................................................................................... 57 

Prepared Statement ............................................................................................. 59 

Lucian E. Dervan, Professor, Southern Illinois University School of Law 

Oral Testimony ..................................................................................................... 73 

Prepared Statement ............................................................................................. 76 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable F. James Sensenbrenner, Jr., a Representative in Congress from the State of Wisconsin, and Chairman, Subcommittee on Crime, Terrorism, and Homeland Security ................................ 23 

Prepared Statement of the Honorable Robert C. ‘‘Bobby’’ Scott, a Representative in Congress from the State of Virginia, and Ranking Member, Subcommittee on Crime, Terrorism, and Homeland Security ................................ 24 

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

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

on the Judiciary ................................................................................................... 26 

Material submitted by the Honorable Jason Chaffetz, a Representative in 

Congress from the State of Utah, and Member, Subcommittee on Crime, 

Terrorism, and Homeland Security .................................................................... 190 

Page

IV 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable Sheila Jackson Lee, a Representative 

in Congress from the State of Texas, and Member, Subcommittee on Crime, 

Terrorism, and Homeland Security .................................................................... 199 

Prepared Statement of the Honorable Steve Chabot, a Representative in 

Congress from the State of Ohio, and Member, Subcommittee on the Constitution ................................................................................................................. 202 

Prepared Statement of the Honorable Linda T. Sa ́nchez, a Representative 

in Congress from the State of California, and Member, Committee on the 

Judiciary ............................................................................................................... 205 

Letter from the Chamber of Commerce of the United States of America ........... 206 

Letter from the International Trademark Association (INTA) ............................ 207 

(1) 

SAFE DOSES ACT, THE COUNTERFEIT DRUG 

PENALTY ENHANCEMENT ACT OF 2011, AND 

THE FOREIGN COUNTERFEIT PREVENTION 

ACT 

WEDNESDAY, MARCH 28, 2012 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON CRIME, TERRORISM,

AND HOMELAND SECURITY, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

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

2141, Rayburn Office Building, the Honorable F. James Sensenbrenner, Jr., (Chairman of the Subcommittee) presiding. 

Present: Representatives Sensenbrenner, Goodlatte, Poe, 

Chaffetz, Conyers, and Scott. 

Staff Present: (Majority) Sam Ramer, Counsel; Arthur Radford 

Baker, Counsel; Tony Angeli, Counsel; Lindsay Hamilton, Clerk; 

(Minority) Bobby Vassar, Subcommittee Chief Counsel; Ron 

LeGrand, Counsel; and Veronica Eligan, Professional Staff Member. 

Mr. SENSENBRENNER. The Subcommittee will come to order. 

Today’s hearing will examine legislation to address the transportation, sale, and theft of various types of counterfeit goods. Counterfeit and stolen merchandise constitute a danger to the public 

that is not readily evident. More than the costly theft of intellectual property, counterfeit goods have the capacity to injure and kill 

innocent and unsuspecting Americans. 

This hearing studies three legislative proposals: H.R. 4223, the 

‘‘Safe Doses Act;’’ H.R. 3668, the ‘‘Counterfeit Drug Penalty Enhancement Act of 2011;’’ and H.R. 4216, the ‘‘Foreign Counterfeit 

Prevention Act.’’ The common purpose of all three of these bills is 

to reduce and punish the trafficking of counterfeit goods and stolen 

merchandise. 

Last week, I introduced H.R. 4223, the ‘‘Safe Doses Act,’’ a bipartisan bill to combat medical cargo theft. This bill increases penalties for stealing, embezzling, and fraudulently obtaining medical 

products in the interstate of foreign commerce. 

Counterfeit or stolen medical products enter the legitimate 

stream of commerce, and the ultimate user relies on the belief that 

the products are authentic. Unfortunately, these products are often 

adulterated or mishandled, thereby making the product ineffective 

or even hazardous to the user. 

2 

The Safe Doses Act enhances penalties for those who traffic in 

counterfeit, adulterated, or stolen medical products. It also gives 

law enforcement enhanced tools to curb medical cargo theft. 

The Senate companion to this bill, S. 1002, was reported unanimously by the Senate Judiciary Committee earlier this month. 

H.R. 3668, sponsored by Mr. Meehan of Pennsylvania and Ms. 

Sa ́nchez of California, increases penalties for trafficking in or attempting to traffic counterfeit drugs. This bipartisan bill also doubles the penalties for repeat offenders. 

Counterfeit drugs can be deadly. Last month, the FDA notified 

19 doctors and clinics in the U.S. that they may have purchased 

counterfeit vials of a life-saving cancer drugs. Avastin is an integral part of cancer treatment for millions of Americans each year. 

The fake drug is believed to have originated in China or India, 

and was sent to the United States from a company in Barbados. 

The owner of the Barbados company admitted there was nothing 

in the vials that would fight cancer, but equally asserted he did 

nothing wrong. 

The FDA is still investigating how many cancer patients missed 

their critical treatments or were administered a solution of salt, 

starch, and acetone, rather than the genuine chemotherapy drug. 

Counterfeit drugs are prosecuted under the general counterfeit 

goods statute, which contains a maximum penalty of 10 years for 

a first offense. Even with a 10-year penalty, the actual sentences 

imposed under the existing counterfeit goods statute are dramatically lower. 

According to the Sentencing Commission, between FY06 and 

FY10, there were 385 Federal prosecutions for counterfeit goods. 

The median sentence was 17 months. The mean sentence was only 

10 months. 

This legislation provides needed enhancements to both deter and 

punishing the trafficking of counterfeit drugs. 

The Senate passed its companion bill, S. 1886, by voice vote last 

month. 

H.R. 4216 was introduced last week by Mr. Poe and Mr. Chabot 

to reduce unnecessary hurdles faced by law enforcement when investigating suspected counterfeit or pirated products detained at 

our ports of entry. The Trade Secrets Act currently prohibits officials from the U.S. Customs and Border Protection from communicating with or providing information to copyright and trademark 

owners during the course of an investigation of suspected counterfeit or pirated goods. This bill would permit the flow of information 

between the CBP and mark-owners, and allow better enforcement 

of the law, while preventing counterfeit or pirated goods from entering our country. 

Counterfeit goods seriously mislead the public. Goods and merchandise bearing a well-known brand name or trademark are inherently trusted by the purchasing public. This trust extends beyond the products’ authenticity. In the case of medicine, it extends 

to a drug’s purity in ingredients. In the case of consumer electronics—for instance, a DVD player—it extends to its performance. 

Brand names are a mechanism by which great companies endure 

or fail. 

3 

Counterfeit goods can cause great harm. Last month, the GAO 

issued a report to the Senate Armed Services Committee, following 

a lengthy undercover investigation of suspected counterfeit electronic parts in the supply chain of the Department of Defense. The 

GAO made undercover purchases of military-grade electronic parts. 

These parts were sent to an independent testing laboratory for 

analysis, ranging from electron microscope inspection to x-ray analysis. Testing revealed that all of the parts purchased were determined to be what is called suspect counterfeit, the strongest term 

signifying the potential violation of copyright or trademark laws, or 

misrepresentation through fraud or deceit. 

These bills propose common-sense, necessary improvements to 

the Federal law to combat counterfeit drugs, stolen medical cargo, 

and misbranded merchandise. 

I look forward to hearing from the witnesses, and I thank them 

for participating in today’s hearing. 

[The bills, H.R. 4223, H.R. 3668, and H.R. 4216 follow:] 

4 


HR4223-1.eps
5 


HR4223-2.eps
6 


HR4223-3.eps
7 


HR4223-4.eps
8 


HR4223-5.eps
9 


HR4223-6.eps
10 


HR4223-7.eps
11 


HR4223-8.eps
12 


HR4223-9.eps
13 


HR4223-10.eps
14 


HR3668-1.eps
15 


HR3668-2.eps
16 


HR3668-3.eps
17 


HR4216-1.eps
18 


HR4216-2.eps
19 


HR4216-3.eps
20 


HR4216-4.eps
21 

Mr. SENSENBRENNER. It is now my pleasure to recognize, for his 

opening statement, the Ranking Member of the Subcommittee, the 

gentleman from Virginia, Mr. Scott. 

Mr. SCOTT. Thank you, Mr. Chairman. 

I am pleased to join you today for the hearing on important matters of concern the bills before us seek to address. 

Two of the bills we will address today concern problems with prescriptive drugs. One concerns problems presented by counterfeit 

drugs; the other large-scale theft of prescriptive drugs from warehouses, distribution facilities, and while in transit. 

The first bill, H.R. 3668, the ‘‘Counterfeit Drug Penalty Enhancement Act of 2011,’’ doubles imprisonment maximums from 10 to 20 

years for an offense involving counterfeit drugs, the same maximum level for knowingly or recklessly causing serious bodily injury with a counterfeit product, including drugs. It also increases 

the maximum fines for both individuals and companies, doubling 

the maximum for a base offense. 

The second bill, the Safe Doses Act, establishes offenses related 

to pre-retail medical products, including aggravated offense where 

a defendant is an employee or recidivist, or where the offense involves violence or a deadly weapon, or causes serious bodily injury 

or death. 

For violation without an aggravation, the penalty is up to 3 

years. If aggravated, the maximum penalty is up to 15 years, unless it involves more than $5,000, which drives it up to 20 years; 

if it involves death or serious bodily injury, up to 30 years. And 

then, for good measure, we make a predicate offense for all manner 

of additional penalty provisions, such as RICO or other racketeering, money laundering, or other provisions, and increase the 

maximum for these penalties beyond the maximum for their original purposes, to go after major organized crime syndicates. 

So what we are doing to solve the crime? We are increasing penalties. We keep doing the same thing, but increasing penalties 

doesn’t really increase the ability to reduce the crime. 

The next Congress and beyond we will see the same complaints 

about the problem. We are likely to do the same thing again, just 

increase penalties. Yet there is no evidence that the serious problems we are seeking to address result from lack of laws or lack of 

penalties. We have plenty of laws on the books. Everything we are 

covering in these bills is already against the law. And the penalties 

are plenty high enough. 

We have more or higher penalties for crime than any other Nation on Earth. We lock up a higher portion of our population than 

any country on Earth. We have 5 percent of the world’s population; 

25 percent of the world’s incarcerations. 

So I would be curious to see what evidence our witnesses will put 

forth to establish that criminals are currently choosing to engage 

in the conduct addressed by these bills simply because the current 

penalties are not high enough to dissuade them. And if there is no 

such evidence, then we are just making the proposals on notions 

of what might work. 

What we need to do is to increase the resources to prosecutors, 

so that they can solve more crimes rather than just increase penalties for those unlucky enough to get caught. 

22 

Moreover, we want to encourage the industry to exhaust all reasonable means of preventing these thefts from properties and other 

facilities in the transit scheme. In April 2001, a Fortune magazine 

article, entitled ‘‘Drug Theft Goes Big,’’ reports that when thieves 

committed the largest prescriptive drug theft in history, by breaking into Eli Lilly’s warehouse in Connecticut, they did so by cutting 

through the tar roof of a warehouse and sliding down ropes. Security was so lax that the thieves were able to pull their own tractortrailer up to the loading dock, spend a couple hours loading the stolen goods. In a similar event several months earlier, thieves broke 

into a GlaxoSmithKline warehouse, by coming through the roof. 

While none of this in any way shields or excuses the perpetrators, it clearly gives a suggestion that more security is needed. And 

I believe the Government and industry working together at all 

points in the factory-to-retail chain need to work together to prevent and detect such thefts. 

That would yield greater reductions than continually just adding 

crimes and penalties to the code when there are questions about 

whether the laws on the books are not being adequately enforced. 

I am aware that industry and Government regulatory authorities 

are working toward these ends, and I would hope that they will let 

us know what ways we can help that effort based on evidence of 

what works. 

Finally, H.R. 4216, the ‘‘Foreign Counterfeit Prevention Act,’’ 

aims to thwart the flow of stolen and counterfeit goods from entering the country. While I support the bill’s goals, I cannot support 

the measure in its current form. The samples and images that the 

bill would allow U.S. Customs and Border Protection to release to 

rights-holders will include tracking and distribution codes that 

identify proprietary and confidential supply-chain information, 

even though these codes serve little if any purpose for the process 

of determining the authenticity of a product. Lawful importers will 

not have any protection or recourse from the release of this information. 

I sympathize with the needs of rights-holders and manufacturers 

to protect the integrity of their brands and the safety of their products, and for this reason I fully support anti-circumvention device 

provisions in the legislation. I hope the bill moves forward, that the 

compromises will include guarantees that importers and exporters 

will have many a meaningful role in verifying products’ authenticity, and also provide for penalties against rights-holders that 

knowingly provide false information to Customs and Border Patrol 

to damage a competing legitimate importer. 

Mr. Chairman, thank you, and I look forward to the testimony 

of the witnesses. 

Mr. SENSENBRENNER. The gentleman from Michigan, Mr. Conyers, the Ranking Member of the full Committee. 

Mr. CONYERS. Thank you, Chairman Sensenbrenner. I begin my 

comment by expressing my gratitude to you for allowing the professor of the law school, named Lucian Dervan, to join here in the 

discussions this morning, because he is prepared to discuss the 

first two measures. 

And of course our old friend, Gilbert Lee Sandler, is here to talk 

about the third provision, the Foreign Counterfeit Prevention Act. 

23 

And I think this balances out our investigation of these three 

measures in a very fine way. 

Let me first point out that the first two measures need to be examined in terms of how we might be able to improve the law enforcement and prosecutorial aspect of the problem that we are taking on in the first two bills before us. 

Let’s ensure that our law enforcement and prosecutors’ offices 

are adequately resourced, that they have what is needed to effectively investigate and prosecute offenders. 

I often wonder how many law violators are examining the criminal code to find out what the maximum sentencing is, or whether 

it has been increased or even doubled, or whether they think first 

of that area of concern. Or do they maybe more likely remember 

that these cases are being aggressively handled by the law enforcement apparatus in their particular community? And it is something 

that I hope we will have a full discussion of here this morning. 

And then with regard to the third bill, the whole question of how 

we deal with foreign counterfeit issues, H.R. 4216, I am impressed 

with the Sandler view that we may be able to make some progress 

on this area. By the way that he has described what their experience is in the firm that—mostly from Florida, but it is actually a 

global operation—has experienced in terms of import-export regulatory issues. 

I join with the Chair and Ranking Member in welcoming each 

and every witness. And I will submit my statement for the record. 

Mr. SENSENBRENNER. Without objection, all Members’ opening 

statements will be placed in the record at this point. 

[The prepared statement of Mr. Sensenbrenner follows:] 

Prepared Statement of the Honorable F. James Sensenbrenner, Jr., a Representative in Congress from the State of Wisconsin, and Chairman, Subcommittee on Crime, Terrorism, and Homeland Security 

Today’s hearing will examine several issues related to the transportation, sale, 

and theft of various types of counterfeit goods. Counterfeit and stolen merchandise 

constitute a danger to the public that is not readily evident. More than the costly 

theft of intellectual property, counterfeit goods have the capacity to injure and kill 

innocent and unsuspecting Americans. My hope is that this hearing will reveal 

those issues and identify areas which may require legislative action. 

This hearing studies three legislative proposals. H.R. 4223, the ‘‘Safe Doses Act,’’ 

H.R. 3668, the ‘‘Counterfeit Drug Penalty Enhancement Act of 2011,’’ and H.R. 

4216, the ‘‘Foreign Counterfeit Prevention Act.’’ A common purpose for all three of 

these bills is to reduce and punish the trafficking of counterfeit goods and merchandise. 

Last week, I introduced H.R. 4223, the bi-partisan House companion bill to S. 

1002, the Safe Doses Act. These bills set and increase the penalties for stealing, embezzling and fraudulently obtaining medical products in interstate or foreign commerce. An important point to this legislation is that counterfeited medical products 

enter the legitimate stream of commerce and the ultimate user relies on the belief 

that the products are authentic. This legislation enhances the penalties for those 

who traffic in counterfeit, adulterated or stolen medical products. It also gives law 

enforcement enhanced tools to curb medical cargo theft. S. 1002 was reported out 

of the Senate Judiciary Committee earlier this month. 

H.R. 3668, sponsored by Mr. Meehan and Ms. Sa ́nchez, enhances the penalties for 

trafficking in, or attempting to traffic, counterfeit drugs. The bi-partisan bill also 

doubles the penalties for repeat offenders. Even with the current 10-year maximum 

penalty, the actual sentences imposed under the existing counterfeit goods statute 

are dramatically lower. According to the U.S. Sentencing Commission, between FY 

2006 and FY 2010, there were 385 federal prosecutions for counterfeit goods. The 

median sentence was 17 months; the mean sentence was only 10 months. This legislation provides needed enhancements to both deter and punish the trafficking of 

24 

counterfeit drugs. The Senate companion bill, S. 1886, passed by voice vote in the 

Senate. 

H.R. 4216 was introduced last week by Mr. Poe and Mr. Chabot to reduce unnecessary hurdles faced by law enforcement when investigating suspected counterfeit 

or pirated products detained at the border. The Trade Secrets Act currently prohibits officials from U.S. Customs and Border Protection from communicating with 

and providing information to copyright and trademark owners during the course of 

an investigation of suspected counterfeit or pirated products. This bill would permit 

the flow of information between CBP and mark owners and allow better enforcement of the law while preventing counterfeit or pirated products from entering the 

United States. 

Counterfeit goods seriously mislead the public. Goods and merchandise bearing a 

well-known brand name or trademark are inherently trusted by the purchasing public. This trust extends beyond the product’s authenticity. In the case of medicine, 

it extends to a drug’s purity and ingredients. In the case of consumer electronics, 

for instance a DVD player, it extends to its performance—every time, and for a long 

period of time. For decades, brand names are a mechanism by which great companies endure or fail. 

Counterfeiters, also known as brand pirates, exploit the brand name of a quality 

product. No one is going to counterfeit a Ford Edsel or a Sony Betamax. Yet brand 

pirates will go to great lengths to counterfeit a Sony Playstation or an iPod. Like 

many criminals, their singular objective is financial gain. 

Counterfeit goods can cause great harm. Last month, the GAO issued a report to 

the Senate Armed Service Committee following a lengthy undercover investigation 

of suspected counterfeit electronic parts in the supply chain of the Department of 

Defense. The GAO made undercover purchases of military-grade electronic parts. 

The parts were sent to an independent testing laboratory for analysis ranging from 

electron microscope inspection to x-ray analysis. Testing revealed that all of the 

parts purchased were determined to be what is called ‘‘suspect counterfeit,’’ the 

strongest term signifying a potential violation of copyright or trademark laws, or 

misrepresentation to defraud or deceive. 

Counterfeit drugs could be deadly. Last month, the FDA had to notify 19 doctors 

and clinics in the United States that they may have purchased counterfeit vials of 

a life-saving cancer drug. Avastin is an integral part of cancer treatment for millions of Americans each year. The fake drug is believed to have originated in China 

or India and was sent to the United States from a company in Barbados. The owner 

of the Barbados company admitted there was nothing in the vials that would fight 

cancer but equally asserted that he did nothing wrong. The FDA is still investigating how many cancer patients missed their critical treatments and were administered a solution of salt, starch and acetone rather than a genuine chemotherapy 

drug. 

This hearing will explore the harm caused by counterfeit goods and misbranded 

merchandise. We will look at the need for legislation and whether law enforcement 

requires more tools to combat counterfeit products. 

I look forward to hearing from the witnesses, and I thank them for participating 

in today’s hearing. 

[The prepared statement of Mr. Scott follows:] 

Prepared Statement of the Honorable Robert C. ‘‘Bobby’’ Scott, a Representative in Congress from the State of Virginia, and Ranking Member, 

Subcommittee on Crime, Terrorism, and Homeland Security 

Thank you, Mr. Chairman. I am pleased to join you today for this hearing on the 

important matters of concern that the bills before us seek to address. Two of the 

bills that we will discuss today concern problems with prescription drugs. One concerns the problems presented by counterfeit drugs; the other concerns the large 

scale theft of prescription drugs from warehouses, distribution facilities, and while 

in transit. Both counterfeit drugs and large-scale medical product theft pose substantial risks to the public. Patients should be able to rely on their medications to 

be safe, effective, and unadulterated, and we certainly need to treat it as a significant crime when criminals counterfeit drugs or steal shipments of drugs. Both counterfeit drugs and large-scale medical product theft are serious problems that merit 

serious solutions. Unfortunately, the bills we are discussing today do not adequately 

address the problems. 

The first bill, H.R. 3668, the ‘‘Counterfeit Drug Penalty Enhancement Act of 

2011,’’ doubles imprisonment maximums from 10 years to 20 years, for an offense 

25 

involving counterfeit drugs, the same maximum level as for knowingly or recklessly 

causing serious bodily injury with any counterfeit product, including drugs. It also 

increases the maximum fines for both individuals and companies, doubling the maximum for a base offense. 

The second bill, H.R. 4223, the ‘‘Safe Doses Act of 2012,’’ establishes offenses related to ‘‘pre-retail medical products,’’ including aggravated offense where the defendant is an employee or a recidivist or where the offense involves violence or a 

deadly weapon, or causes serious bodily injury or death. For a violation without an 

aggravation, the penalty is up to 3 years. If aggravated, the maximum penalty is 

up to 15 years, unless it involves more than $5,000, which drives it up to 20 years, 

and if it involves death or serious bodily injury, up to 30 years. Then, for good measure, we make the crimes under the bill predicate offenses for all manner of additional penalty provisions such as RICO, other racketeering, money laundering and 

other provisions, and we even increase the maximum for these penalties beyond the 

maximums for their original purposes to go after major organized crime syndicates. 

So here we go again doing what we almost always do to solve a crime problem— 

increase penalties. We keep doing the same thing hoping for different results. And 

next Congress, or beyond, when we see the same complaints about the problem we’ll 

likely do the same thing again—increase penalties. Yet, there is no evidence that 

the serious problems we are seeking to address result from a lack of laws or penalties. We have plenty of laws on the books. Everything we are covering in these 

bills is already against the law. And the penalties are plenty high enough. We have 

more and higher penalties for crime than any nation on earth. We have more people 

locked up than any nation on earth, by far, both by total number and per capita. 

We have 5% of the world’s population and 25% of the world’s incarcerations. So I 

will be curious to see what evidence our witnesses put forth to establish that criminals are currently choosing to engage in the conduct addressed by these bills simply 

because the current penalties are not high enough to dissuade them. If there is no 

such evidence and we are simply making these proposals on notions of what might 

work, it is my notion that we are far more likely to see results if we prosecuted 

more of the cases we are concerned about, and there is no evidence to show that 

the proposals in the bills will cause any more prosecutions than are currently being 

brought. 

Moreover, we want to encourage the industry to exhaust all reasonable means of 

preventing these thefts from their properties and other facilities in the transit 

scheme. The April 2011 Fortune Magazine article, titled, ‘‘Drug Theft Goes Big’’ reports that when thieves committed the largest prescription drug theft in history, by 

breaking into Eli Lilly’s warehouse in Connecticut, they did so by cutting through 

the tar roof of the warehouse and sliding down ropes. Security was so lax that the 

thieves were able to pull their own tractor trailer up to the loading dock, and spend 

a couple of hours loading the stolen goods. In a similar event several months earlier, 

thieves broke into a GlaxoSmithKline warehouse by coming through the roof. While 

none of this in any way shields or excuses the perpetrators of these crimes, clearly 

these examples point to the need for more security. I believe that government and 

industry working together, at all points along the factory to retail chain to prevent 

and detect such thefts, would yield greater reductions than continually adding 

crimes and penalties to the code when there are questions as to whether the laws 

already on the books are not being adequately enforced. I am aware that industry 

and government regulatory authorities are working toward these ends, and I would 

hope that they will let us know ways in which we can help that effort based on evidence of what works. 

Finally, H.R. 4216, the ‘‘Foreign Counterfeit Prevention Act’’, aims to thwart the 

flow of stolen and counterfeit goods from entering the country. While I support the 

bill’s goals, I cannot support the measure in its current form. The samples and images that the bill would allow U.S. Customs and Border Protection to release to 

rights holders will include tracking and distribution codes that identify proprietary 

and confidential supply chain information even though these codes serve little, if 

any, purpose in the process of determining the authenticity of a product. Lawful importers will not have any protection or recourse from the release of this information. 

I sympathize with the needs of rights holders and manufacturers to protect the 

integrity of their brands and the safety of their products. For this reason, I fully 

support the anti-circumvention device provisions of the legislation. I hope that if the 

bill moves forward, any compromise will include guarantees that importers and exporters have a meaningful role in verifying products’ authenticity, and also provide 

for penalties against rights holders that knowingly provide false information to Customs and Border Patrol to damage a competing, legitimate importer. 

Thank you, Mr. Chairman. 

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[The prepared statement of Mr. Conyers follows:] 

Prepared Statement of the Honorable Robert C. ‘‘Bobby’’ Scott, a Representative in Congress from the State of Virginia, and Ranking Member, 

Subcommittee on Crime, Terrorism, and Homeland Security 

Thank you, Mr. Chairman. I am pleased to join you today for this hearing on the 

important matters of concern that the bills before us seek to address. Two of the 

bills that we will discuss today concern problems with prescription drugs. One concerns the problems presented by counterfeit drugs; the other concerns the large 

scale theft of prescription drugs from warehouses, distribution facilities, and while 

in transit. Both counterfeit drugs and large-scale medical product theft pose substantial risks to the public. Patients should be able to rely on their medications to 

be safe, effective, and unadulterated, and we certainly need to treat it as a significant crime when criminals counterfeit drugs or steal shipments of drugs. Both counterfeit drugs and large-scale medical product theft are serious problems that merit 

serious solutions. Unfortunately, the bills we are discussing today do not adequately 

address the problems. 

The first bill, H.R. 3668, the ‘‘Counterfeit Drug Penalty Enhancement Act of 

2011,’’ doubles imprisonment maximums from 10 years to 20 years, for an offense 

involving counterfeit drugs, the same maximum level as for knowingly or recklessly 

causing serious bodily injury with any counterfeit product, including drugs. It also 

increases the maximum fines for both individuals and companies, doubling the maximum for a base offense. 

The second bill, H.R. 4223, the ‘‘Safe Doses Act of 2012,’’ establishes offenses related to ‘‘pre-retail medical products,’’ including aggravated offense where the defendant is an employee or a recidivist or where the offense involves violence or a 

deadly weapon, or causes serious bodily injury or death. For a violation without an 

aggravation, the penalty is up to 3 years. If aggravated, the maximum penalty is 

up to 15 years, unless it involves more than $5,000, which drives it up to 20 years, 

and if it involves death or serious bodily injury, up to 30 years. Then, for good measure, we make the crimes under the bill predicate offenses for all manner of additional penalty provisions such as RICO, other racketeering, money laundering and 

other provisions, and we even increase the maximum for these penalties beyond the 

maximums for their original purposes to go after major organized crime syndicates. 

So here we go again doing what we almost always do to solve a crime problem— 

increase penalties. We keep doing the same thing hoping for different results. And 

next Congress, or beyond, when we see the same complaints about the problem we’ll 

likely do the same thing again—increase penalties. Yet, there is no evidence that 

the serious problems we are seeking to address result from a lack of laws or penalties. We have plenty of laws on the books. Everything we are covering in these 

bills is already against the law. And the penalties are plenty high enough. We have 

more and higher penalties for crime than any nation on earth. We have more people 

locked up than any nation on earth, by far, both by total number and per capita. 

We have 5% of the world’s population and 25% of the world’s incarcerations. So I 

will be curious to see what evidence our witnesses put forth to establish that criminals are currently choosing to engage in the conduct addressed by these bills simply 

because the current penalties are not high enough to dissuade them. If there is no 

such evidence and we are simply making these proposals on notions of what might 

work, it is my notion that we are far more likely to see results if we prosecuted 

more of the cases we are concerned about, and there is no evidence to show that 

the proposals in the bills will cause any more prosecutions than are currently being 

brought. 

Moreover, we want to encourage the industry to exhaust all reasonable means of 

preventing these thefts from their properties and other facilities in the transit 

scheme. The April 2011 Fortune Magazine article, titled, ‘‘Drug Theft Goes Big’’ reports that when thieves committed the largest prescription drug theft in history, by 

breaking into Eli Lilly’s warehouse in Connecticut, they did so by cutting through 

the tar roof of the warehouse and sliding down ropes. Security was so lax that the 

thieves were able to pull their own tractor trailer up to the loading dock, and spend 

a couple of hours loading the stolen goods. In a similar event several months earlier, 

thieves broke into a GlaxoSmithKline warehouse by coming through the roof. While 

none of this in any way shields or excuses the perpetrators of these crimes, clearly 

these examples point to the need for more security. I believe that government and 

industry working together, at all points along the factory to retail chain to prevent 

and detect such thefts, would yield greater reductions than continually adding 

crimes and penalties to the code when there are questions as to whether the laws 

already on the books are not being adequately enforced. I am aware that industry 

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and government regulatory authorities are working toward these ends, and I would 

hope that they will let us know ways in which we can help that effort based on evidence of what works. 

Finally, H.R. 4216, the ‘‘Foreign Counterfeit Prevention Act’’, aims to thwart the 

flow of stolen and counterfeit goods from entering the country. While I support the 

bill’s goals, I cannot support the measure in its current form. The samples and images that the bill would allow U.S. Customs and Border Protection to release to 

rights holders will include tracking and distribution codes that identify proprietary 

and confidential supply chain information even though these codes serve little, if 

any, purpose in the process of determining the authenticity of a product. Lawful importers will not have any protection or recourse from the release of this information. 

I sympathize with the needs of rights holders and manufacturers to protect the 

integrity of their brands and the safety of their products. For this reason, I fully 

support the anti-circumvention device provisions of the legislation. I hope that if the 

bill moves forward, any compromise will include guarantees that importers and exporters have a meaningful role in verifying products’ authenticity, and also provide 

for penalties against rights holders that knowingly provide false information to Customs and Border Patrol to damage a competing, legitimate importer. 

Thank you, Mr. Chairman. 

Mr. SENSENBRENNER. It is now my pleasure to introduce today’s 

witnesses. 

Dara Corrigan became associate commissioner for Regulatory Affairs at the FDA in September 2010. Prior to joining FDA, Ms. 

Corrigan worked in the Office of Health Reform at the Department 

of Health and Human Services. In 2003, she served as an acting 

inspector general and principle deputy general inspector general for 

the Department of Health and Human Services. She left public 

service for 3 years between 2004 and 2007 to join the firm of Arnold & Porter in Washington. 

She began her career in the Federal Government in 1990, following a judicial clerkship, spent almost 8 years as a trial attorney 

at the Department of Justice in the Civil Division and as an assistant civil attorney for the District of Columbia. She moved in 1999 

to the Department of Health and Human Services, where she 

served as the deputy chief counsel and the director of program 

identity for the Centers for Medicare and Medicaid Services. She 

received her juris doctorate degree from the University of Virginia 

in 1990. 

Thomas Kubic is the president and CEO of the Pharmaceutical 

Security Institute. He serves as an officer with the Partnership for 

Safe Medicines and is an adviser to the Permanent Forum on 

International Pharmaceutical Crime and Interpol’s Medical Products Counterfeiting and Pharmaceutical Crime Unit. 

Prior to joining PSI, he served with the FBI for 30 years. As an 

FBI deputy assistant director, his innovative programs in both the 

Laboratory Division and Criminal Investigation Division were recognized throughout the law enforcement community. 

Travis Johnson has been with the International 

AntiCounterfeiting Coalition in Washington since 2005. He currently serves as the vice president and director of legislative affairs 

and policy. Previously, he served as associate counsel. 

Before his work at the IACC, Mr. Johnson was an associate IP 

attorney at the Draughon Attorneys at Law in Ponte Vedra Beach, 

Florida. He received his bachelor of arts in political science from 

the University of Florida and juris doctor and certificate in intellectual property law from the University of Florida in 2002. He reVerDate Aug 31 2005 12:03 Sep 25, 2012 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6601 H:\WORK\CRIME\032812\73542.000 HJUD1 PsN: DOUGA
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ceived a master’s of arts in political management from George 

Washington in 2009 

Gilbert Lee Sandler is a founding member of the law firm of 

Sandler, Travis, & Rosenberg, PA, and as a principle of its affiliated consulting company, Sandler & Travis Trade Advisory Services. He is also a Chair of the Regulated Industry Committee on 

the American Association of Exporters and Importers, and general 

counsel to the American Free Trade Association. 

Previously, he served as a Department of Justice senior trial attorney on customs and trade matters before going into private practice 37 years ago. He is a graduate of Dartmouth and received his 

J.D. from the NYU Law School. 

Lucian Dervan has been a professor at the Southern Illinois University School of Law since 2009. In 2011, he was appointed to the 

advisory committee of the NACDL White-Collar Criminal Defense 

College at Stetson. He serves as a faculty member of the program. 

Prior to joining the SIU School of Law, Professor Dervan served 

as a law clerk for the Honorable Phyllis A. Kravitch of the U.S. 

Court of Appeals for the 11th Circuit, and spent 6 years in private 

practice with King & Spalding LLP and Ford & Harrison LLP. He 

received his B.A. in history and political science from Davidson and 

his J.D. from Emory University School of Law in 2002. 

Without objection, the witnesses’ written statements will be entered in the record in their entirety. 

I ask them to summarize their testimony in 5 minutes or less. 

Please pull the microphone close to you and make sure that is on 

when you testify. And we have the little green, red, and yellow 

lights to remind you when to wrap it up. 

Ms. Corrigan. 

Can you pull it a little closer to you, and is it on? 

Ms. CORRIGAN. Yes. 

Mr. SENSENBRENNER. Okay, reset the clock. [Laughter.] 

TESTIMONY OF DARA A. CORRIGAN, ASSOCIATE COMMISSIONER FOR REGULATORY AFFAIRS, U.S. FOOD AND DRUG 

ADMINISTRATION 

Ms. CORRIGAN. Thank you. I appreciate that. And thank you 

again, Chairman Sensenbrenner, Ranking Member Scott, and 

Members of the Subcommittee. My name is Dara Corrigan, and I 

am the associate commissioner for Regulatory Affairs at the FDA. 

FDA’s simple, yet increasingly difficult mission, is to protect the 

public health by ensuring the safety and efficacy of medical products, and the safety of food, in an era of globalization. The FDA 

very much appreciates this opportunity to testify and this Subcommittee’s focus on the public health dangers that occur when patients receive stolen or counterfeit prescription drugs. 

The Office of Regulatory Affairs, which I lead, represents FDA’s 

boots on the ground. We are an office of 4,400 people, about onethird of all employees at the FDA. We are the employees who inspect food, drugs, devices, and other medical products at the sites 

where they are manufactured and at the border where they are imported. We test medical products and other regulated products in 

our laboratories across the country. 

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But of greatest interest to this subcommittee is our staff of 262 

special agents and support staff who are charged with conducting 

criminal investigations under the Federal Food, Drug, and Cosmetic Act. 

Since it began in 1993, the Office of Criminal Investigations, or 

OCI, has investigated thousands of criminal schemes involving 

FDA-regulated products. These schemes have included the distribution of counterfeit and unapproved drugs; large-scale organized illicit diversion of prescription drugs; and fraudulent schemes involving ineffective treatments for AIDS, cancer, and other diseases, just 

to name a few. 

Since it began, OCI’s cases have resulted in close to 6,000 crimi- nal convictions and the levying of nearly $13 billion in fines and 

restitution. 

FDA has a forensic chemistry lab that has patented a device that 

allows us to differentiate between many counterfeit and legitimate 

prescription drugs. It is a portable handheld device that can be 

used by health and regulatory officials, law enforcement, and even 

pharmaceutical companies. This is one of the many tools that FDA 

is using to improve safety along the entire drug supply chain. 

As you know, as you have already mentioned, the potential danger to the public from trafficking in counterfeit drugs is very high. 

Counterfeit drugs may not contain life-saving or life-sustaining ingredients. They may be contaminated with toxic materials. In instances of cargo theft of drugs, FDA is particularly concerned, because patients are in danger of receiving substandard treatment if 

criminals do not keep these products in an appropriate way. They 

may be expired, and they may not have been stored properly. 

These are not hypothetical risks. As the Chairman just mentioned, FDA notified 19 medical practices in three States that they 

had purchased unapproved drugs from a foreign supplier that were 

distributed through a licensed wholesaler in the U.S. The drug’s labels said Avastin, as you know, but they contained none of the active ingredient of the very necessary cancer drug Avastin. 

You talked about already the fact that in March 2010 thieves 

broke into an Eli Lilly warehouse and stole pharmaceuticals valued 

at $75 million. In 2009, criminals stole 129,000 vials of insulin and 

reintroduced at least some of those vials into the legitimate drug 

supply. Those vials of insulin required refrigeration, and the criminals did not keep the insulin in the appropriate way. Because they 

reintroduced these vials, at least some of these vials, into the legitimate supply chain, they had lost their potency, and people were 

not able to maintain the necessary glucose control. 

This Subcommittee has introduced legislation that would increase penalties for cargo theft of medical products and for trafficking counterfeit drugs. 

From the FDA’s perspective, the risk of public harm is significant, and we see enhanced penalties that are focused specifically 

on prescription drugs as beneficial to our overall effort to protect 

the supply chain. Our legitimate drug supply chain is one of the 

safest in the world, but there are real risks. 

To address these risks, FDA has a comprehensive strategy to further enhance the safety along the entire supply chain, from raw 

source materials to finished products for consumers. The strategy 

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includes doing more inspections, placing people overseas, using sophisticated technology for imports. And we think our ability to 

track and trace over the entire supply chain will help us. 

We very much appreciate the opportunity to discuss these issues 

and to deter criminal activity that endangers the public. 

Thank you. 

[The prepared statement of Ms. Corrigan follows:] 


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Mr. SENSENBRENNER. Thank you. 

Mr. Kubic. 

TESTIMONY OF THOMAS T. KUBIC, PRESIDENT AND CEO, 

PHARMACEUTICAL SECURITY INSTITUTE 

Mr. KUBIC. Good morning, Chairman Sensenbrenner, Ranking 

Member Scott, Members of the Subcommittee. 


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It is indeed an honor to be asked to testify today about two criminal law problems that have serious implications for consumer safety. They are the large-scale medical product theft and pharmaceutical counterfeiting. 

I want to commend Chairman Sensenbrenner and the other 

sponsors of the Safe Doses Act, and Congressman Meehan, the 

sponsor of the Counterfeit Drug Penalties Enhancement Act, for 

your leadership in protecting patients. 

My name is Tom Kubic, and I am the president and CEO of the 

Pharmaceutical Security Institute. This is a nonprofit association 

composed of the security directors from 26 pharmaceutical manufacturers, who are dedicated to protecting the public health by ensuring the safe distribution of pharmaceuticals that are indeed effective. 

PSI has developed an anti-counterfeiting strategy and a unique 

and globally recognized counterfeit medicines reporting system 

known as the Counterfeits Incidents System. 

As mentioned, prior to joining the PSI, I served a 30-year career 

in the FBI, including a term as deputy assistant director in the 

Criminal Division. 

I am here today on behalf of the Coalition for Patient Safety and 

Medicine Integrity, whose purpose is to protect patients from the 

risks posed by stolen and inappropriately handled medical products, and their ultimate reentry into the legitimate supply chain. 

The coalition’s members include Abbott, Eli Lilly, 

GlaxoSmithKline, J&J, Novartis, Novo Nordisk, Sanofi, and 

PhRMA. 

Large-scale medical product theft is a significant problem, and by 

large-scale, I mean inched entire tractor-trailer loads and warehouses full of medicines and medical products. Thefts of this magnitude are conducted by sophisticated criminal organizations that 

are hijacking tractor-trailers at rest stops, breaking into warehouses, and evading alarm systems, forging shipping documents, 

producing high-quality counterfeit labels with alternate expiration 

dates and lot numbers, and otherwise thwarting the intense security measures used by the industry. 

These criminal organizations face little risk of being caught, but 

patients face a significant risk from unsafe products. 

As mentioned earlier, the risk to patient safety was well illustrated by the 2009 incident in which a truckload containing 

129,000 vials of insulin was stolen in North Carolina. And a few 

months later, the FDA received a report that some of these vials 

had been reintroduced into the supply chain, when a diabetic patient reported to the medical center in Houston. 

The compromised product was ultimately found in pharmacies in 

17 States. And today, there are over 125,000 units which are still 

unaccounted for. 

The Safe Doses Act is bipartisan legislation that would modernize the Federal Criminal Code. The passage of this statute will 

allow law enforcement to utilize well-established investigative tools 

against an increasingly sophisticated criminal element that traffics 

in stolen medical products without regard for public safety. 

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The companion bill in the Senate has 34 bipartisan cosponsors 

and was recently unanimously approved by the Senate Judiciary 

Committee. 

In contrast to stolen medical products, counterfeit medicines are 

deliberately and fraudulently produced and/or mislabeled in order 

to appear to be genuine. The counterfeiting occurs to both branded 

and generic products, and it represents a wide range of danger. 

In 2010, globally, there were 2,054 incidents of this nature, and 

often millions of dosage units were involved. 

The current penalties for counterfeiting do not reflect the serious 

danger posed to ordinary consumers. Federal counterfeiting laws do 

not distinguish between trafficking counterfeit medicines and counterfeit wallets, even though counterfeit medicines pose a significantly graver danger to the public health. 

The Counterfeit Drug Penalty Enhancement Act would increase 

penalties for trafficking of counterfeit drugs to a level similar to offenses such as those of narcotics trafficking. 

Thank you again for the opportunity to testify here today and for 

your attention to this very serious problem. And I look forward to 

some discussion and questions 

[The prepared statement of Mr. Kubic follows:] 

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Mr. SENSENBRENNER. Thank you very much. 

Mr. Johnson. 

TESTIMONY OF TRAVIS D. JOHNSON, VICE PRESIDENT–DIRECTOR OF LEGISLATIVE AFFAIRS & POLICY, THE INTERNATIONAL ANTICOUNTERFEITING COALITION 

Mr. JOHNSON. Chairman Sensenbrenner, Ranking Member Scott, 

Members of the Committee, thank you for the opportunity to appear before you today. 

The issues that H.R. 4216, the ‘‘Foreign Counterfeit Prevention 

Act,’’ seek to address have been priority concerns for the IACC’s 

members for a number of years. I would like to thank Judge Poe 

and Representative Chabot for their recognition of these concerns 

and their sponsorship of this bill. 

Recent events, such as the discovery of counterfeit Avastin in the 

drug supply chain, and this week’s report published by GAO regarding counterfeit military components, serve as a reminder of the 

threats posed by counterfeit goods, not only to businesses but to 

the general public and to the Nation’s security. 

Counterfeiting is a serious crime, and U.S. Customs and Border 

Protection remains our first line of defense against these crimes. 

For that reason, I would ask you for a second to step into a CBP 

officer’s shoes. 

Last year, over $2 trillion worth of goods were imported into the 

United States, passing through over 300 ports. Your job, in the 

simplest of terms, is to get legitimate goods to the consumer market as quickly as possible, while also assuring that illicit goods, including counterfeit products, are identified and interdicted before 

they make it to consumer shelves. From the time the shipment is 

presented for inspection, you have 5 days to make a decision: 

Should you let them into the country, exclude them, or do you need 

more time to investigate? 

Aside from all the other contraband that you have to deal with, 

you are also tasked with determining whether the goods in front 

of you violate one of the nearly 30,000 individual IP rights that are 

recorded with Customs. 

It is beyond unreasonable to expect CBP officers to gain and 

maintain the expertise necessary to quickly and accurately make 

those sorts of determinations. 

We know that is the case, because there is not a day that goes 

by without my member companies receiving calls from ports 

around the country requesting their assistance in determining 

whether certain goods are real or fake. Traditionally, when these 

goods came into a port, if the officer had any doubts about their 

legitimacy, his first call was to the rights-holder. 

Customs regulations authorize sharing of samples of suspect 

goods from the time that the goods are presented, well before an 

officer is required to make a decision as to whether or not the 

goods should be obtained for further investigation. 

Our members report an average turnaround time of 48 hours or 

less from the time that a sample or even a digital photograph of 

the goods is received, to respond to those CBP inquiries. 

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ing a reluctance on the part of CBP officers to provide those images 

and samples, or if they did provide them, to do so in such a highly 

redacted form that any relevant information, which might have 

been useful in making a determination of the authenticity, was obscured. 

CBP cites an April 2000 directive and the Trade Secrets Act as 

its justification for this policy shift. But unable to leverage the expertise of rights-holders, we can expect significantly greater delays 

and significantly lower accuracy in CBP’s authentication of goods. 

Yet every day that a decision is delayed and every decision that is 

made incorrectly results in additional harm to legitimate manufacturers, retailers, and consumers. In either circumstance, American 

businesses and consumers will continue to suffer until CBP’s policy 

is rectified. 

Customs’ approach to sharing information and collaborating with 

rights-holders is likewise frustrated in both the pre- and post-seizure context. Rights-holders who are injured by the importation of 

illegal circumvention devices due to what we believe was a simple 

legislative oversight. CBP has refused to this day to make disclosures to rights-holders, citing a lack of authority under Section 

1201 that was enacted by the DMCA. 

In 2004, this Judiciary Committee acknowledged this as a concern, noting in its report language for the Piracy Deterrence and 

Education Act, ‘‘The Committee believes this gap in disclosure 

serves only to protect those who import illegal devices. The Committee recommends CBP close this loophole and provide information about illegal circumvention of devices to copyright owners.’’ 

Closing this gap was likewise the subject of legislation proposed 

later that year by DHS, which was never adopted. And nearly 8 

years later, the owners of intellectual property who were harmed 

by the importation of circumvention devices have no means of obtaining information about the seizure of those goods. 

While CBP is actively seeking to leverage new technologies and 

tools to aid their efforts in detecting and deterring counterfeits, the 

expertise of rights-holders is a powerful tool that can and should 

be leveraged without delay. H.R. 4216 provides a simple and direct 

means of doing so by providing clear guidance to CBP regarding its 

authority to work with IP owners to achieve some of its most fundamental goals. 

I thank you again, and I look forward to your questions. 

[The prepared statement of Mr. Johnson follows:] 

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Mr. SENSENBRENNER. Thank you. 

Mr. Sandler. 

I don’t think your mike is on. 

Mr. SANDLER. I apologize. 

Mr. SENSENBRENNER. Much better. 


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TESTIMONY OF GILBERT LEE SANDLER, MEMBER, 

SANDLER, TRAVIS, & ROSENBERG, P.A. 

Mr. SANDLER. Mr. Chairman, thank you, and Ranking Member, 

thank you very much for allowing us to testify here today. 

I am here on behalf of the American Free Trade Association. We 

are very committed to facilitation of trade, to competitive pricing 

and distribution of brand-name products. And we are very much 

opposed to the introduction of counterfeit goods into the United 

States, and are prepared to assist in every way to try and make 

the Customs and Border Protection more effective at the borders. 

The legislation, however, H.R. 4216, as drafted, is legislation 

which we would oppose, because it lacks any of the safeguards we 

think are important to preserve legitimate parallel market trade. 

And we think that that can be accomplished through amendment 

of this bill in ways that would allow law enforcement to proceed 

very, very effectively. 

Before going into that, the first thing to do, though, is to put into 

perspective what this bill actually does. It does not attack the real 

problem, which was described very eloquently by Mr. Johnson. The 

explosion of imports into the United States, the numbers that have 

come up because of the small express shipments and mail shipments that come in, have meant that in the last years, CBP is seizing more shipments than ever but of lower value, because they 

have so many shipments to police. 

They have a huge haystack to go through, and they are working 

hard with the trade. And we are participating with them to try to 

find ways that they can better target the suspect shipments to determine whether or not they have counterfeit goods in them. 

This legislation doesn’t deal with that issue at all. This legislation deals with the needles and the straws that have already been 

identified as suspect by CBP. It talks about how to deal with those 

small numbers as opposed to the large volume that they have to 

deal with at the ports. 

It does not address that real problem. And it does it in the context in which they already have authority to provide redacted samples to rights-holders prior to seizure, and they do so regularly. 

The last report by CBP said that in the current environment, 

working cooperatively with intellectual property owners, their seizures of fragrance products and colognes last year increased 470 

percent, that they are able to be very effective and much more effective by working in partnership in ways that do not jeopardize 

confidential information that appears on these samples. 

Make no mistake about it that the samples that would be provided in an unredacted or coded condition would reveal highly commercially sensitive information. And we don’t rest our arguments 

upon some arcane interpretation of the Trade Secrets Act. What we 

are concerned about is that we have had four companies—Macy’s, 

Costco, Kmart, and Quality King—have all had to go to the Supreme Court to affirm the legitimacy of the parallel market. 

Since 1983, I have regularly been in court, fighting to keep confidential information about sources of supply of the parallel market, and we have been very successful in that for over 27 years. 

There are codes placed on these products, which are tracking 

codes, which are used by those who would like to eliminate parallel 

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market competition in their brand-name genuine products, and 

that could be used under this legislation to impede that trade. 

We would encourage the Committee to take a hard look at opportunities to mold this into something which is an effective 

anticounterfeiting tool, while at the same time balancing the interests of legitimate trade. And we have proposed many examples of 

things that might be done: limit disclosures to where there is a 

demonstrated need; determine whether or not redacted or 

unredacted samples would be sufficient; educate CBP to be more 

effective; use third parties to test and to prove whether or not 

goods are genuine; allow importers a short time in that 30-day window, which Customs has, in which to assure that the goods are 

genuine; limit this to recorded marks and copyrights, and to piratical and not infringing; and have a real undertaking by the rightsholders that would commit them to not use this for anti-competitive purposes when the products turn out to be genuine. 

We look forward to working with the Committee and its Members to try and bring this to a better solution to a very real problem. 

[The prepared statement of Mr. Sandler follows:] 

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ATTACHMENT 


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Mr. SENSENBRENNER. Thank you very much. 

Mr. Dervan. 

TESTIMONY OF LUCIAN E. DERVAN, PROFESSOR, 

SOUTHERN ILLINOIS UNIVERSITY SCHOOL OF LAW 

Mr. DERVAN. Thank you, Mr. Chairman, Ranking Member Scott, 

Members of the Subcommittee. 

My name is Lucian Dervan, and I am an assistant professor of 

law at Southern Illinois University School of Law. I currently write 

and teach in the area of criminal law, including sentencing, and I 

greatly appreciate the invitation to speak today, regarding the important work of this Subcommittee in seeking to eradicate the significant issue of counterfeit drugs and large-scale medical product 

theft. 

In my limited time today, I would like to focus my statement on 

several specific issues in hopes that my insights might further assist the Subcommittee in achieving its goals. 

First, I encourage the Subcommittee to further examine the 

mens rea elements of the newly proposed theft of medical products 

statute. A cornerstone of the American criminal justice system is 

mens rea, or the idea that to be convicted of a crime, one must 

have acted with a guilty mind. In many instances, however, new 


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legislation fails to require adequate mens rea for conviction. The 

result is that innocent conduct may become criminalized. 

Second, I encourage the Subcommittee to consider the true impact of the proposed increase to seven statutory maximums in an 

effort to deter crime and enhance punishments. Studies regarding 

the impact of increasing the severity of sentences for criminal offenses, particularly where the offense already carries a significant 

sentence, indicate that such policies, though well-intentioned and 

meant to create a strong deterrent result, unfortunately, do not 

have the desired effect. 

Further, research I have conducted regarding the impact of increases in statutory maximums indicate such amendments fail to 

significantly increase individual defendants’ sentences. As discussed more fully in my written statement, this is due, at least in 

part, to the utilization of such enhanced sentencing provisions by 

prosecutors during plea-bargaining. 

Often, instead of using these new tools to secure increased sentences as intended by the legislature, prosecutors use such revisions to create significant and powerful incentives for defendants to 

accept plea offers. 

Given the evidence that increasing sentencing severity is often 

ineffective at deterring criminality generally, and the evidence that 

increasing statutory maximum sentences does not translate into 

significantly increased sentences for convicted individuals, perhaps 

consideration should be given to other mechanisms by which to 

achieve the goals of eradicating counterfeit drugs and large-scale 

medical product theft. 

One proposition that is supported by research in the field of 

criminal justice is to increase enforcement actions against those engaging in these offenses. In fact, studies indicate that increasing 

the likelihood of apprehension and conviction can have a significant 

deterrent effect. 

Further, additional mechanisms by which to advance the mission 

of the Subcommittee might include requiring manufacturers and 

distributors of pre-retail medical products to increase security at 

storage facilities and during the transportation of these materials. 

It might also be advisable to consider ways in which pre-retail 

medical products might be better tracked during manufacture and 

transportation. Such a tracking system might better enable law enforcement and the industry to identify compromised materials and 

allow for more accurate and swifter notification to the public when 

a breach has occurred, thus empowering consumers with information to better protect themselves. 

In closing, I would like to address one additional issue. While 

creating additional overlapping Federal criminal statutes and significantly increasing the statutory maximum penalties for offenses 

related to prescription drug offenses may not result in greater deterrence of potential offenders or significantly increase sentences 

for those convicted, such legislation will perpetuate the phenomenon of overcriminalization and with it the continued deterioration of our constitutionally protected right to trial by jury. 

Today, almost 97 percent of criminal cases in the Federal system 

are resolved through a plea of guilty. As the number, breadth, and 

sentencing severity of Federal criminal statutes continue to inVerDate Aug 31 2005 12:03 Sep 25, 2012 Jkt 000000 PO 00000 Frm 00078 Fmt 6633 Sfmt 6601 H:\WORK\CRIME\032812\73542.000 HJUD1 PsN: DOUGA
75 

crease through overcriminalization, prosecutors gain increased ability to create overwhelming incentives for defendants to waive their 

constitutional right to a trial. 

As my research has shown, a symbiotic relationship exists between overcriminalization and plea-bargaining. This relationship 

has led us to our current state and created an environment in 

which we have jeopardized the accuracy of our criminal justice system in favor of speed and convenience. 

In my most recent article, written in collaboration with Dr. 

Vanessa Edkins, we discovered that more than half of innocent defendants will falsely admit guilt in return for a perceived benefit. 

As overcriminalization continues to create the incentives that 

make plea-bargaining so prevalent and powerful, we must ask ourselves as a country what constitutional price is being paid when, 

even though we act with good and noble intentions, we create yet 

another law or increase yet another statutory maximum where it 

is not absolutely necessary to achieve our goal. 

I commend the Subcommittee for its focus on the important issue 

of stolen and counterfeit goods, and I thank you for the opportunity 

to testify today. 

I welcome any questions the Subcommittee might have regarding 

my remarks. 

[The prepared statement of Mr. Dervan follows:] 

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Mr. SENSENBRENNER. Thank you very much. 

We will proceed with questions under the 5-minute rule. The 

Chair will defer his questions until the end and recognize the gentleman from Texas, Mr. Poe. 


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Mr. POE. Thank you, Mr. Chairman. Thank you all for being 

here. 

The issue of stealing, thievery, and criminals has always been 

part of my background, in that I spent my time down at the courthouse in Houston as a prosecutor, a criminal court judge, referred 

to the courthouse as the Palace of Perjury. Some of you lawyers 

might relate to hearing that before. 

But anyway, I am concerned specifically about H.R. 4216, and it 

is because small-business owners in America have their goods 

counterfeited throughout the world, and they are smuggled back 

into the United States. Some of them stay in foreign countries, 

which is a different issue. 

It came to my attention by small-business guy, Farouk Shami in 

Houston, who moved his business from China to Houston to hire 

American workers, about 1,000 of them. And he makes CHI hair 

products, all kinds of things that folks that want all of that fancy 

equipment for hair products, they buy from him because he is one 

of the best in the world. 

But about $10 million a year is stolen from him in counterfeit 

goods. The products are so perfect that I can’t tell the difference 

of them. It even has Farouk’s photograph on there, like the real 

thing does. It has his warranty, phone number, and when these 

products that don’t work—I was going to use another word, but I 

will just say products that don’t work, they call him, they are all 

mad, because they have some counterfeit product. They don’t know 

that. And he reimburses them and gives them the real thing. 

And he says it is an increasing problem; it is not it decreasing 

problem. And some of these goods come back across the border into 

the United States. 

And the way that the law, I think, is being misinterpreted, when 

he works with Border Patrol, he doesn’t get enough information to 

confirm whether it is the real thing or not. That is his concern. 

D’Addario makes, I think, some of the best guitar strings in the 

world. Seventy percent of the market in China is counterfeit goods. 

This is the real thing, and this is the counterfeit product. The counterfeit product even has the hologram on it. That is how you know 

it is counterfeit. That is one way. 

But they look exactly alike. And you know what irks me? They 

even have the ‘‘Made in the USA’’ sticker on the back when these 

things are made in China. 

And they are being smuggled back into the U.S. And they need 

the ability from Border and Customs, who I think does a great job, 

to have a photograph of the fake and tell whether it is theirs are 

not. And then tell Border Patrol, no, this is a fake or it is the real 

thing. 

Right now, they can’t give that information because all of the redaction in the photographs, for some reason. Why shouldn’t the 

owner or the rights-holder have the ability to look at the fake and 

tell Border Patrol this is a fake? 

It’s not just on guitar strings. You have these products—the real 

thing, this is a power strip. Another power strip. The problem with 

this one, the counterfeit power strip doesn’t come with the label 

counterfeit on it. 

187 

But these are defective. If you plug these in, you may start a fire. 

So you have a safety issue coming into the United States. 

And one way the rights-holder, the owners of these products, say 

let us cooperate with Border and Customs and fix the law so we 

can look at the fake, the proposed fake, and tell you whether it is 

fake or not. And if it is not, bring it on into the United States. If 

it is, then follow the rules of law after that. 

And there many other products. These are small-business owners, and they operate on a small margin. And the counterfeiting 

products with the organized crime syndicate of China, I think, is 

hurting American manufacturing and sales. 

One other thing about Farouk and the D’Addario family, this is 

their name on these things. It is their family reputation that is 

being counterfeited. And when these counterfeit products are no 

good, it hurts their family name. And long-term, it will hurt their 

business because of the fakes. And they are concerned about a 

name. A name actually means something to small-business owners. 

Their good name means something. 

That is why Farouk reimburses the counterfeit products with the 

real thing and writes a letter of apology and tells them it was a 

counterfeit. 

And I guess my question, Mr. Johnson, my one question, I guess 

I will have to put it in writing, Mr. Chairman. 

Mr. SENSENBRENNER. Oh, go ahead. [Laughter.] 

Mr. POE. I ask unanimous consent for one more—— 

Mr. SENSENBRENNER. Without objection. 

Mr. POE. Thank you, sir. 

Explain to me, in less than 30 seconds, why business owners 

need the Border Patrol to send them a photograph of the document 

or the product coming into the U.S.? 

Mr. JOHNSON. Thank you, Judge Poe. 

In 30 seconds or less, I would say that the need for the photographs unredacted and the information that is available on the 

product, whether it is the specific coding that the brand is using, 

or other indicia of authenticity, or indicia of the counterfeit nature 

of the goods, is because the quality of the counterfeit product that 

we see coming into the country these days is so much better than 

what was seen in the past. It is nearly impossible for somebody 

who has not received significant training and does not have the expertise to be able to identify on their own. 

That is not to say that CBP does not receive significant training. 

The IACC Foundation, which is a separate organization that we 

work with, has trained over 35,000 law enforcement personnel in 

making these sorts of terminations. 

But they are really only able to make the initial call as to whether or not they think there is possibly a problem with it. They are 

generally not able to make a final factual determination, yes or no, 

that this is authentic or this is counterfeit. 

Mr. POE. Thank you, Mr. Chairman. I appreciate the additional 

minute. 

Mr. SENSENBRENNER. The time of the gentleman has expired. 

The gentleman from Virginia, Mr. Scott. 

Mr. SCOTT. Thank you. 

188 

Mr. Sandler, what trade secrets or legitimate practices might be 

compromised if more information is disclosed to rights-holders? 

Mr. SANDLER. The sources of supply are often revealed by the 

tracking codes that are placed on these products. The examples 

that we have demonstrated before in public testimony show that 

the batch codes, the manufacturing codes, the codes used for recall, 

are ones that we had no problem with those being revealed. 

We do have problems with special tracking and other types of 

track-and-trace codes, which are placed on—some are only readable 

by ultraviolet lights. Some are placed inside the boxes. They are 

strictly put there in connection with trying to identify sources of 

parallel market trade in legitimate goods. 

Those are the sorts of codes that we thought would be revealing 

of the nature of the commercial transaction in a way that would 

be very harmful and would essentially stop this type of legitimate 

trade. 

Mr. SCOTT. What is parallel market mean? And how do rightsholders use information gained to undermine the legitimate market? 

Mr. SANDLER. Well, the parallel market itself is really a creature 

of our copyright law and our trademark law. You have the right to 

copy and you have the right to manufacture, absolutely. But the 

right to distribute is limited essentially to the first sale, also under 

our patent law. 

So once goods are sold, the person who purchases those goods is 

free to sell them anywhere they wish. There are some exceptions 

to that, but basically that is the arrangement under our law. And 

it allows for interbrand competition in the U.S. marketplace. 

So goods which are sold at a lower price in one market will find 

their way into a market where there is a higher price. And so it 

is trade in legitimate goods that are sold in commerce legitimately 

and unlawfully. It has been tested before the Supreme Court on at 

least four separate occasions. 

Mr. SCOTT. Well, how does the information that is sought to be 

revealed, how do rights-holders undermine the legitimate transactions? 

Mr. SANDLER. Rights-holders, in looking at who was the person 

who sold for export to the United States or who was also involved 

in the supply chain, can prevent sales to them in the future, can 

take action against them. Lawsuits are often filed. Sometimes they 

are good lawsuits; sometimes they are not good lawsuits. 

For the most part, we have been very successful in litigation, but 

it fosters litigation. It is intimidating to the trade. And rights-holders and manufacturers can cease doing business with those who 

they think shouldn’t be selling their goods into a different marketplace. 

Mr. SCOTT. Thank you. 

Ms. Corrigan, you indicated you have 262 agents. Is that nationally? 

Ms. CORRIGAN. Yes, it is. That includes—— 

Mr. SCOTT. Can you turn your mike on? 

And is there anything in the legislation, in any of these bills, 

that will increase the number of agents? 

Ms. CORRIGAN. There is not. 

189 

Mr. SCOTT. Then how will just increasing the sentencing help 

you investigate and prosecute dangerous drug offenses? 

Ms. CORRIGAN. Our criminal agents do not have the actual authority to bring cases. What we believe the enhanced penalties will 

do is enable a full discussion of our cases with law enforcement and 

give law enforcement more tools to prosecute individuals who endanger the public health by introducing stolen drugs or trafficking 

in counterfeit drugs. 

Mr. SCOTT. Without any more agents, why will increasing a sentence bring that about? 

Ms. CORRIGAN. What often happens is we investigate under the 

Federal Food, Drug, and Cosmetic Act. And we bring those facts to 

the Justice Department. And what they have the ability to do is 

look across the board at all of the laws that would allow prosecution, and giving them more tools that are focused solely on medical 

products or drugs with enhanced penalties—— 

Mr. SCOTT. Are there any enhanced penalties in any of these 

bills for things that are not now crimes but would be crimes if any 

of these bills passed? 

Ms. CORRIGAN. There are already penalties and laws that cover 

counterfeit drugs and cargo theft. There is not cargo theft—cargo 

theft is not authorized under the Federal Food, Drug, and Cosmetic 

Act. 

Mr. SCOTT. Cargo theft is not theft? 

Ms. CORRIGAN. The investigation. I mean, cargo theft is not part 

of the Federal Food, Drug, and Cosmetic Act. Counterfeits are, but 

cargo theft is investigated by the FBI and prosecuted by the Justice 

Department. 

Where we get involved is when those drugs are reintroduced into 

the legitimate supply chain. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Mr. SENSENBRENNER. The gentleman from Utah, Mr. Chaffetz. 

Mr. CHAFFETZ. Thank you, Mr. Chairman. I do appreciate it. 

I know all good Americans subscribe—— 

Mr. SCOTT. Mr. Chairman? 

Is your mike on? 

Mr. CHAFFETZ. Is that better? 

Mr. SENSENBRENNER. Without objection, the gentleman from 

Utah can move closer to the Chair. [Laughter.] 

And the clock will be reset. 

This is without prejudice to senior members. 

Mr. CHAFFETZ. I am just not used to being up here on this upper 

level here, so thank you, Mr. Chairman. 

As I was saying, I know all good Americans subscribe to Electronic Engineering Times, since I am sure you do. 

But specifically, the October 24, 2011, article, I would ask unanimous consent that this be inserted into the record. 

Mr. SENSENBRENNER. Without objection. 

[The information referred to follows:] 

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Mr. CHAFFETZ. Thank you. 

It highlights one of the concerns, dealing specifically in the semiconductor issue. 

Mr. Johnson, I would appreciate if you could get into this a little 

bit. My concern is that back, evidently, in 2000, there was a directive that went out that suggested that, ‘‘Prior to the release of the 

sample, Customs officers should remove or obliterate any informaVerDate Aug 31 2005 12:03 Sep 25, 2012 Jkt 000000 PO 00000 Frm 00198 Fmt 6633 Sfmt 6601 H:\WORK\CRIME\032812\73542.000 HJUD1 PsN: DOUGA

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tion indicating the name and/or address of the manufacturer, exporter, and/or importer, including are all barcodes and identifying 

marks.’’ 

So you have a situation where somebody is looking at, say, some 

discs or some chips, and the only thing that they are allowed to 

share, we have an example here, in this little presentation, a redacted chip picture, where they redact the very information that a 

manufacture would actually need in order to properly identify 

whether this is a legitimate chip or not. This was a directive that 

was issued in 2000, and really not enforced until the year 2008. 

Let me just, to the size and scope, Mr. Chairman, between 2007 

and 2010, ICE collaborated with U.S. Customs and Border Patrol 

on more than 1,300 seizures that collectively involved 5.6 million 

counterfeit semiconductor devices. 

If you move forward and look at the SanDisk, portable memory chips, in June, there were some $852,000 worth of counterfeit 

SanDisks that were seized when they found 1,932 karaoke machines being shipped from China that had these chips in it. 

This is just a portion of that iceberg. 

Mr. Johnson, I want to talk about the size and scope, specifically 

as it relates to chips in the semiconductor issue and how you view 

this. 

Mr. JOHNSON. Well, the issue with regard to semiconductors is 

really representative of the issue that is being faced by manufacturers across all sectors. And the Customs Directive that you reference, 2310-008A, has been viewed as problematic by all of the 

IACCs’ members, regardless of their product sector, in part because 

really the directive seems to place a mandate on Customs to take 

action that was never actually authorized by Customs regulation. 

If you look at 19 CFR 133.25, that Customs drew the authority 

for that directive from, there is absolutely no reference to requiring 

Customs officers to remove the sort of information that the directive directed them to do, directed them to do so. 

With regard to the scope of the problem—— 

Mr. CHAFFETZ. Well, let’s stay specific on that point. My understanding is that the National Defense Authorization Act allowed, 

actually has language saying that they may share this information 

but they have chose not to thus far. 

Shouldn’t we be compelling them to do that, if they don’t understand that they do have permission? 

Mr. JOHNSON. That is correct. That NDAA included provisions 

that explicitly authorized CBP to share that information with 

rights-holders for the limited purposes of making authentication of 

the goods. 

Unfortunately, based on feedback we have been hearing from our 

members, CBP has indicated that they feel that the and NDAA 

provisions are in conflict with existing Customs regulations, and 

that they need to resolve that issue before they can move forward 

with information-sharing. 

Mr. CHAFFETZ. So, in essence, we have passed a law, it has been 

signed into law, and they believe that is in conflict with their own 

regulations, so they are electing to go with the regulation as opposed to the law. 

Mr. JOHNSON. That is exactly correct. 

196 

Mr. CHAFFETZ. And this, Mr. Chairman, is the heart of the challenge I think that we face. There is a way to swiftly determine 

whether or not these goods are legitimate or not. They are taking 

an extra step to redact the very information that these companies 

need in order to identify, and we have passed this into law. It is 

inexcusable that Customs and Border Patrol is taking this extra 

step. In abundance of caution, they should be providing the information to these manufacturers, so that they can clearly validate 

this. 

And with that, I will yield back the balance of my time. Thank 

you, Mr. Chairman. 

Mr. SENSENBRENNER. I thank the gentleman. 

The Chair will bat cleanup now. 

Mr. Sandler, I need a little bit more information to try to figure 

out why there is this objection to giving tracking codes to Customs. 

The parallel market is legal; peddling counterfeit goods is not. So 

what is wrong with giving tracking codes to the rights-holder, basically so that the rights-holder can find out, number one, if the 

goods are counterfeit or not? 

Mr. SANDLER. Well, there is nothing wrong with giving information to rights-holders to determine whether or not goods are counterfeit. However, much of that information, the tracking codes in 

particular, are generally not necessary for that determination. 

The electronic chips that we just talked about, that very well 

could be the exception to the rule. That may be an industry where 

it is important to give that information. But in the fragrance area, 

it is not necessary. 

There are many other tests and many other ways to verify the 

authenticity of the goods. 

So if that is understood and recognized as a truth, if that is accepted for the moment, then the issue becomes, what about those 

rights-holders who would prefer not to have to deal with parallel 

market competition? The many court cases that are recorded make 

it very clear that there is a battle that is ongoing, and that the 

rights-holders, when they are able to, those that would oppose that 

type of legitimate trade will take action to stop it. They will file 

lawsuits. They will make sure that merchandise is no longer sold 

to suppliers, to cut them off. They will take those sorts of actions. 

The CBP should not be in the middle of giving information that 

fuels the flames of the fire. 

Mr. SENSENBRENNER. Well, on the other hand, we heard all 

kinds of information, both in this hearing and from other sources 

beforehand, of the dangers of counterfeit goods. Now maybe in the 

fragrance area, the dangers are not as great as in the counterfeit 

drug area, or in the case of the counterfeit surge protectors that 

the gentleman from Utah presented to the Committee. 

But are you saying that a little bit of knowledge can be a dangerous thing, if CBP ends up giving this information? It is still up 

to the rights-holder to have the burden of proof that somebody in 

the parallel market is violating the law. 

Mr. SANDLER. I am not asking that CBP turn its back on those 

issues. I am saying that CBP needs better targeting to identify 

more suspect shipments. And I am saying that in the context of 

this legislation, CBP not only has identified this importation as a 

197 

problem, but they have it under detention. It is in their custody. 

It is in their control. It is not going anywhere. 

So why would CBP, knowing that it often seizes and detains 

goods which are genuine goods, why would it give commercially 

sensitive information to the rights-holder without first going to the 

importer and giving that importer an opportunity to establish that 

the goods are genuine without first determining whether or not 

this could be validated as genuine or not through an independent 

third laboratory, through some training of CBP itself? Why not 

take those alternatives? 

CBP operates today, and will under this legislation if it is adopted, with a 30-day window to do something. The legislation recommended by the Administration would use the first 12 of those 

30 days to allow the importer an opportunity to validate the goods. 

Why not have a safeguard like that built into this process? 

Mr. SENSENBRENNER. I think we all agree that the CBP needs to 

do better targeting to be able to spot the contraband that is trying 

to be imported into the United States. But it still goes back to the 

business of what is the danger of giving the tracking code to the 

rights-holder? 

Mr. SANDLER. The danger is that there will be a cut off of the 

supply of legitimate goods coming into United States to trade in a 

wider distribution arrangement and at lower prices to the benefit 

of the U.S. consumers. 

That has been the battleground that I have been involved in 

since 1983, where not all rights-holders but certain rights-holders, 

either through commercial activity, through litigation or otherwise, 

are trying to eliminate this form of lawful competition. 

Mr. SENSENBRENNER. Well, my time has expired. 

I would like to thank all of the witnesses for their testimony 

today. This is a problem. We are going to have to address it. We 

want to address it in the most effective manner possible. And that 

is what the legislative process is all about. 

Without objection, the hearing is adjourned. 

[Whereupon, at 11:11 a.m., the Subcommittee was adjourned.] 

(199) 

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable Sheila Jackson Lee, a Representative 

in Congress from the State of Texas, and Member, Subcommittee on 

Crime, Terrorism, and Homeland Security 

First, I would like to thank the Subcommittee Chairman and Ranking Member 

for holding today’s hearing on H.R. 3668, the ‘‘Counterfeit Drug Penalty Enhancement Act of 2011,’’ H.R.4223, the ‘‘Safe Doses Act of 2012,’’ and H.R.4216, the ‘‘Foreign Counterfeit Prevention Act of 2012’’ and I would also like to thank today’s witnesses: 

(1) Dara Corrigan, Associate Commissioner for Regulatory Affairs, U.S. Food 

and Drug Administration. 

(2) Thomas T. Kubic, President and CEO, Pharmaceutical Security Institute, 

and 

(3) Travis D. Johnson, Vice President and Director of Legislative Affairs & Policy, The International Anti Counterfeiting Coalition. 

(4) Gilbert Lee Sandler, Member, Sandler, Travis & Rosen P.A., and 

(5) Lucian E. Dervan, Professor, Southern Illinois University School of Law. 

As we all know counterfeit drugs pose a grave threat to consumer safety. H.R. 

3668, the ‘‘Counterfeit Drug Penalties Enhancement Act of 2011’’ increases 

the penalties for using a counterfeit mark on illegally trafficked drugs. This legislation serves to plug a gap in the law which accounts for counterfeit goods only. 

Because of the increased activity in fake drugs it is important for Congress to lay 

down a marker so that potential criminals are faced with more deterrents should 

they consider stealing drugs. 

Because I represent Houston, Texas, it is of heightened importance for consumers 

and law enforcement officials in our state because of the proximity to the Mexican 

border. It is not inconceivable that crime syndicates operating on both sides could 

cause significant problems by stealing drugs and selling them in Mexico. 

That is why I am pleased that the bill amends the federal criminal code to increase the maximum penalty from 10 years to 20 years and increase the maximum 

fines for individuals from $2 million to $4 million and for companies from $5 million 

to $10 million. 

Where there are multiple offenses, the bill leaves the 20 year maximum penalty 

the same but increases the fine for individuals from $5 million to $8 million and 

for companies from $15 million to $20 million. 

This bill, introduced by my colleagues, Rep. Patrick Meehan and Rep. Linda 

Sanchez on December 14, 2011will hopefully send a strong message to criminal enterprises. 

Counterfeit drugs are becoming increasingly more prevalent in America. News 

outlets recently reported that a counterfeit version of a widely-prescribed cancer 

drug, Avastin, appears to have entered the U.S. market. John Clark, Chief Security 

Officer at Pfizer, testified to the problem before the full committee in November at 

SOPA hearing: 

‘‘Counterfeit medicines pose a threat because of the conditions under which they 

are manufactured—in unlicensed and unregulated sites, frequently under unsanitary conditions—and the lack of regulation of their contents.’’ 

In many instances, they contain none of the active pharmaceutical ingredient 

(API) found in the authentic medicine, or an incorrect dosage, depriving patients of 

200 

the therapeutic benefit of the medicines prescribed by their physicians. In others, 

they may contain toxic ingredients such as heavy metals, arsenic, pesticides, rat poison, brick dust, floor wax, leaded highway paint and even sheetrock or wallboard. 

Counterfeit medicines are a global problem, one from which no region, country, 

therapeutic area is immune.’’ 

It is important to note that current law prohibits trafficking in counterfeit goods. 

The current penalty for an individual who violates the law is not more than 10 

years in prison or a $2,000,000 fine or both. For a person other than an individual, 

the current maximum penalty is $5,000,000. Penalties are increased for second or 

subsequent offenses or causing serious bodily injury or death. 

This bill increases the penalties for trafficking in counterfeit drugs, specifically. 

Some supporters of H.R. 3668 contend that this bill is necessary because counterfeit 

drugs are a particularly serious threat to the public. 

H.R. 4223, THE ‘‘SAFE DOSES ACT OF 2012’’ 

Rep. Sensenbrenner, Chairman of the Crime, Terrorism and Homeland Security 

Subcommittee, introduced H.R. 4223 on March 20, 2012. In the Senate, a bipartisan 

measure was introduced by Senators Schumer and Kyl, the Strengthening and Focusing Enforcement to Deter Organized Stealing and Enhance Safety Act of 2011, 

known as the Safe Doses Act. 

The bill has been reported unanimously by the Senate Judiciary Committee. As 

of today, the Senate bill has 30 co-sponsors. 

Large-scale medical product theft has become a significant problem. Sophisticated 

criminal organizations are believed to be the primary perpetrators in the theft of 

large quantities of medical products and the re-introduction of these products into 

the legitimate supply chain, including into pharmacies and hospitals. The result of 

their criminal conduct can be serious public health and safety implications because 

improperly cared for medical products—which can be ineffective or harmful—are 

being used by unsuspecting patients and health care professionals. 

The story back in 2009, widely reported, 129,000 vials of insulin (valued at approximately $11 million) were stolen in North Carolina. A few months later, the 

FDA received a report that some of the vials had been reintroduced into the supply 

chain when a diabetic patient reported to a medical center in Houston with an adverse reaction after using insulin from the stolen lot. The FDA issued a warning 

that the insulin had likely not been stored correctly and could still be in the market—at that time only 2% of the stolen product had been recovered. 

The spoiled product was ultimately found in pharmacies in 17 states, with at least 

2 additional patients experiencing adverse reactions. An investigation linked the 

theft to an organized crime ring, and while some arrests have been made, over 

125,000 vials of insulin still remain at large. 

Criminal organizations are hijacking tractor-trailers at rest stops, breaking into 

warehouses and evading alarm systems, forging shipping documents, producing 

high-quality counterfeit labels with altered expiration dates and lot numbers, and 

otherwise thwarting the intense security measures used by the industry. Some of 

these organizations employ sophisticated surveillance equipment and techniques in 

order to learn exactly when and where they can steal the particular shipments they 

want. The stolen medical products are then sold back into legitimate channels. 

All kinds of pharmaceuticals, medical devices and specialty nutrition products including infant formula are being stolen. High-value pharmaceuticals, including 

treatments for serious diseases, are frequent targets. 

These high-value items are the very type of sensitive products that need the most 

careful handling and temperature control since many of them can become ineffective 

and even toxic if stored at the wrong temperature, even for a brief time. 

Title 18 United States Code, Section 659 prohibits the theft of ‘‘any goods or chattels moving as or which are a part of or which constitute an interstate or foreign 

shipment of freight, express or other property’’ from a variety of sources including 

storage facilities, trailers, warehouses. 

This provision sets forth penalties of a fine and/or imprisonment of not more than 

10 years. The industry representatives believe that the current federal criminal laws 

are inadequate in that they make no distinction between the theft of a load of insulin and stealing a truck full tires or electronic products. 

They argue that a specific provision should address the theft of medical products 

because the potential harm is vastly greater when medical products are involved. 

They believe that higher possible sentences may not only make people think twice 

before acting, but also will provide law enforcement agencies with the tools they 

need to obtain cooperation in bringing down criminal organizations. 

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The industry is calling for tougher federal laws that go after the multi-dimensional enterprises carrying out these crimes and recognize the health risks created 

by the improper care and handling of sensitive medical products. 

In meetings with Committee staff, pharmaceutical, medical device and medical 

products industry representatives advise that they have adopted sophisticated security systems and practices. 

Many companies have instituted strict protocols for their truck drivers, including 

instructions on where they can stop for breaks. Some companies even provide armed 

escorts for their most sensitive shipments. 

Although these efforts are making it more difficult for the criminals to get what 

they want, the industry believes that only the genuine threat of significant criminal 

penalties can provide effective deterrence. 

No evidence is offered to support such beliefs and no comparisons are offered as 

to the effectiveness of this approach compared to others, such as putting more resources into directed investigations and prosecutions. 

Nor is there any evidence to support the contention that offenders are so specifically aware of the federal laws affecting these issues that they are calculating the 

risks such that they are willing to risk up to 10 years in prison, but wouldn’t risk 

a sentence of up to 20 years in prison and the increased fines under the bill. 

Moreover, it is not clear that any more cases will be brought as a result of the 

provisions of this bill and there is no evidence that recidivism is a problem which 

higher penalties would effectively address. 

H.R. 4216, THE ‘‘FOREIGN COUNTERFEIT PREVENTION ACT’’ 

H.R. 4216, the ‘‘Foreign Counterfeit Prevent Act,’’ amends the Trade Secrets Act 

to authorize U.S. Customs and Border Protection (CBP) to provide intellectual property rightsholders with samples and images of goods offered for import or export, 

including retail packaging and other packing material. 

In order to authenticate suspected counterfeit or pirated products seized at U.S. 

ports, CBP has routinely released samples and images of products to rightsholders. 

In 2008, the agency directed its agents to redact identifying markings and codes 

prior to transmitting images to the rightsholders. 

Proponents of this bill are concerned that when the rightsholder receives an 

image from the CBP officer with key numbers, codes, or markings blacked out, the 

remaining information that is provided is virtually useless and does not allow the 

rightsholder to identify the product as legitimate or counterfeit. 

Last fall, an amendment was included to the Defense Authorization Act (Pub. L. 

No. 112–81) that partially and temporarily addresses this issue. The Defense Authorization Act provision authorizes information sharing with the trademark 

rightsholder when CBP suspects a product violates intellectual property laws. 

Proponents of H.R. 4216 feel that the provision in the Defense Authorization Act 

did not go far enough because it only covers trademark law violations and it also 

contains a sunset date. 

H.R. 4216 amends the Trade Secrets Act to provide that it is not a violation of 

that Act for CBP officers to provide information and samples, including bar codes 

and identifying marks, with the rightsholder. Proponents of the bill say it will help 

ensure that CBP can continue to seek input from rightsholders to interdict dangerous counterfeit products before they enter the U.S. market. 

This legislation also addresses a corollary issue involving ‘‘circumvention devices,’’ 

which are devices that bypass technological means of protection that copyright owners use to prevent illegal access to or copying of their works. 

Trafficking in such devices is illegal under the Digital Millennium Copyright Act 

(DMCA) and CBP is authorized to seize such devices. However, there is no specific 

authority for CBP to share information on circumvention devices after seizure with 

copyright owners to help with identification or for law enforcement purposes. 

Mr. Chairman, I look forward to hearing from our witnesses this morning. 

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Prepared Statement of the Honorable Steve Chabot, a Representative in 

Congress from the State of Ohio, and Member, Committee on the Judiciary 

I would first like to thank the Chairman of the Crime, Terrorism and Homeland 

Security subcommittee, Mr. Jim Sensenbrenner, for holding this hearing to address 

concerns with counterfeit goods in our marketplace. Trade of counterfeit goods has 

a negative impact on our national economy. The International Chamber of Commerce estimates that 7% of the world trade is in counterfeit goods—totaling $350 

billion. This results in American industries losing out on billions of dollars, and opportunities for growth in addition to the lost tax revenues. 

Intellectual Property in the United States is responsible for spurring new industry, developing useful technology, and creating jobs. But this very property is ripe 

for foreign criminals hoping to profit from American innovation. These bad actors 

replicate trademarked American goods and then ship them back to the United 

States to be sold for a profit. Customs and Border Patrol (CBP) agents here in the 

state, make the first contact with these shipments. Unfortunately due to the evolving sophistication of counterfeiters and pirates, it is nearly impossible for CBP officers to determine whether a shipment is the real thing. 

It’s critical that CBP officers be able to communicate valuable information with 

rightsholders the individuals most able to authenticate their products. For many 

years, this important partnership between and copyright owners made it possible 

to test and verify items seized at the border. Unfortunately, based off a new legal 

interpretation of the Trade Secrets Act in 2008, CBP officers were instructed to remove bar codes and product markings, which are often the most valuable information in weeding out counterfeit products. The new rules have resulted in a major 

threat to valuable intellectual property and in turn, job creation. Procter and Gamble, a major employer in my district, has faced many challenges with the change 

in procedure, explained through a specific case study. 

Congressman Ted Poe and I have introduced H.R. 4216 to provide a permanent 

remedy to this deficiency by clarifying that it is not in fact a violation of the Trade 

Secrets Act for CBP officers to share information and samples, including barcodes 

and other identifying marks, with the rightsholders. This will result in renewed 

partnerships to better protect intellectual property against imported counterfeits. It 

is time we start untangling regulation that is strangling U.S. companies and preventing job growth in these hard economic times. 

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Prepared Statement of the Honorable Linda T. Sa ́nchez, a Representative 

in Congress from the State of California, and Member, Committee on the 

Judiciary 

Mr. Chairman, 

Thank you for including H.R. 3668, the ‘‘Counterfeit Drug Penalty Enhancement 

Act of 2011’’ in this important hearing about the security of the pharmaceuticals 

upon which our constituents, seniors and children all rely. 

I am proud to have introduced H.R. 3668 with my colleague, Representative Patrick Meehan of Pennsylvania. I am also pleased to note that the Senate counterpart, 

S. 1886, which was introduced by Chairman Patrick Leahy and Ranking Member 

Charles Grassley of the Senate Judiciary Committee, passed the Senate by voice 

vote earlier this month. This demonstrates that this legislation is needed, bipartisan, and non-controversial. I strongly encourage this Committee to swiftly move 

this legislation to a mark-up, and from there, to the House floor. 

Why is it so important to move this legislation? 

Because our constituents deserve to know the medicine they put into their bodies 

is safe and effective. While all of our districts are impacted by counterfeit pharmaceuticals, I would like to describe an incident that occurred near my home in Southern California. 

In Los Angeles, a mother and son went looking for some relief from their nagging 

colds at what they thought was a health clinic. Unfortunately, what they were told 

was medication didn’t just make them sick, it sent them to the hospital. 

The mother reported that as soon as the ‘‘vitamin injection’’ hit her bloodstream, 

her heart started racing. Then, her lips went numb and she started getting excruciating headaches. After that, she started passing out. She lost 30 pounds in a week 

and her pancreas stopped working. 

This frightening story shows the dangers of fraudulent medicines are very real, 

and the consequences can be fatal. 

The Swiss drugmaker Roche, which produces the popular cancer drug Avastin, recently became well acquainted with this rampant problem. 

Roche is still investigating how phony vials of Avastin made it to nineteen oncology practices in the U.S. The FDA began notifying clinics about the questionable 

drugs in mid-February, but counterfeit Avastin might have made it to doctor’s offices as early as last July. 

Roche analyzed the vials of phony Avastin in February, and didn’t find the active 

ingredient found in the cancer drug. However, they say they found traces of the 

chemical acetone—a solvent used in paint thinner. To date, there is no medical use 

for acetone. 

Experts say that it’s tough to gauge what harm a counterfeit cancer treatment 

can inflict on a patient because drug infusions are typically spaced out over weeks 

and months. So, in the span of six months, a cancer patient might have received 

up to twenty fake Avastin infusions. 

That’s twenty treatments that did nothing to improve the health of a patient suffering from cancer. 

The list of drugs that authorities have found to be counterfeited is a long one. 

They include medications that treat cancer, Alzheimer’s disease, ulcers, high-blood 

pressure and high cholesterol. Certain vaccines have even been counterfeited. 

Counterfeit drugs account for an estimated $75 billion in annual revenue. Why 

are these criminals so bold? It’s because, currently, the penalty for selling a counterfeit drug is the same as selling a bootleg DVD. 

A DVD will not cause you bodily harm, but each year counterfeit drugs result in 

100,000 fatalities worldwide. It stands to reason that we should have penalties in 

place that reflect the serious health dangers posed by these phony medications. 

H.R. 3668 would be a strong step by this Committee in addressing this problem. 

This bipartisan, non-controversial legislation would increase the penalties for those 

who engage in trafficking of counterfeit drugs acting as an important deterrent to 

criminals and providing greater consumer confidence in their medication. 

Thank you Mr. Chairman for holding this hearing, and I again urge this Committee to quickly move H.R. 3668. 

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